Short Sale Commander Blog

Starting next month, 18,500 unemployed and underemployed Ohio homeowners will benefit from $172 million in federal foreclosure prevention funding, or up to $15,000 per household.

Ohio’s program will help homeowners statewide who have been unable to qualify for existing loan modification and foreclosure prevention programs.

Residents of Lucas, Ottawa, Fulton, Henry, Defiance, Williams, Huron, and Erie counties are among those who could receive benefits because those counties were deemed areas of concentrated economic distress by the Ohio Housing Finance Agency, which will distribute the federal funding. Plans from Ohio, North Carolina, Oregon, Rhode Island, and South Carolina to collectively allocate $600 million in foreclosure prevention funding to 50,000 residents were approved by federal officials, Herb Allison, assistant secretary for financial stability at the U.S. Department of Treasury, said Wednesday. Ohio received the largest amount among the five latest states getting aid.

“The housing crisis is national, but it’s very much a local crisis as well,” Mr. Allison told reporters during a conference call.

He added: “We believe that the money should be spent according to local needs.”

The Ohio Housing Finance Agency will select housing counseling agencies statewide to provide services, and the program will begin Sept. 27. Funding will go directly to those providing mortgages, not home owners, a state spokesman said.

The Fair Housing Center of Toledo, which has helped hundreds of residents prevent foreclosure through other government programs, has applied to provide services to struggling homeowners in Lucas and Wood counties, said vice president Michael Marsh. “We’ve been hit here really hard,” he said. “They don’t want to lose their homes, and we don’t want them to lose their homes.”

Last year, Ohio had a record high 89,053 residential foreclosures, a 3.8 percent increase from 2008. Lucas County had 4,160 foreclosures, up 1.6 percent.

This is the second of three rounds of federal foreclosure prevention funding expected to total $4.1 billion. Michigan was among five states selected in the first round, and it expects to use $154.5 million in federal funding to help more than 17,000 Michigan homeowners avoid foreclosure with benefits of up to $10,000 each.

So far, Ohio has received the third largest allocation. California has received $700 million, the highest amount, and Florida received $418 million.

Under the Ohio Hardest-Hit Fund plan, services will include:

• Partial mortgage payment assistance to help unemployed homeowners while they search for a job or participate in job training.

• Rescue payment assistance to help bring homeowners current on delinquent mortgages.

• Assistance modifying mortgage principal amounts to reduce them to a 115 percent loan-to-value ratio or less.

• Providing lenders with incentives to complete short sales and deed-in-lieu agreements, which will avoid foreclosure and reduce negative impacts on homeowner credit ratings.

Homeowners getting federal funding who sell or refinance their homes within five years must use net proceeds to repay the assistance, according to the state.

Many factors have contributed to the large numbers of families presently losing their homes, but the current recession would be the biggest issue to blame. Thousands of families are facing the devastating choice of either foreclosing on their homes, or attempting a short sale. It is important for those families to learn the risks and benefits of each before making a decision on which to choose.

Foreclosure is when the homeowner defaults on mortgage payments for multiple months, leading the bank or other lien holder to take repossession of the home. This legal process ends when the home is sold at public auction, however, banks can ask for reimbursement for back mortgage payments due, foreclosure fees, and interest.

A short sale is when the mortgage holder realizes that they can no longer keep up with the payments and works with the bank and a buyer to negotiate a sale that is significantly less than what is owed. This is usually done to avoid foreclosure, but is completely determined by the bank’s willingness to consent to it. Repayment of interest may also be expected, but usually with better terms than with a foreclosure.

Foreclosure and short sales affect credit scores in different ways. Foreclosing on a home may bring a credit score down as much as 200-300 points. As a consequence, it will be difficult to obtain new credit for many years to come. It may also take up to 3 years to be eligible to buy a house again.

A short sale reduces the amount of time that it takes to get the credit score back to a respectable place. The score will typically only drop 80-100 points, and buying a new home may be possible in as little as 18 months. The process for a short sale is usually shorter than with a foreclosure and costs less for both parties involved.

Losing a home is a very traumatic event, and should only be considered as a last resort. The homeowner should ask themselves if all other possibilities have been exhausted, such as asking a family member for money, or getting a second or third job. If there is no other way out of the situation, the choice between a foreclosure and a short sale should be discussed. Neither option is spectacular, but when stuck with the difficult decision, a short sale is obviously the better way to go.