More borrowers headed for foreclosure

A growing number of homeowners who sought help from the Obama administration's main mortgage aid program are in danger of losing their homes to foreclosure. About 436,000 borrowers have dropped out of the $75 billion plan as of last month, the Treasury Department said today.

That's about 35 percent of the 1.24 million who enrolled since March 2009 and exceeds the number of homeowners who are getting help through the program. And nearly 155,000 of those who fell out of the program did so in the past month.

The result could be a new wave of foreclosures on homes that have not been included in the count of potential bank-owned properties. that could weaken the housing market and hold back the broader economic recovery. Most of those homeowners were rejected during a trial period lasting at least three months. More than 6,300 dropped out after having their loans modified. Experts say more borrowers are likely to drop out in the coming months. "The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden."

What we have seen is that homeowners who owe more on their loans than their properties are worth are likely to conclude that paying even a reduced mortgage payment simply isn't worth it on an upside-down home. In this scenario, a short sale is quite often the best option for the homeowner.

The new govt. HAFA program was set up to standardize some short sale paperwork and processes as well as give the seller a $3000 "relocation" incentive,  forgive the "short payoff deficiency" and speed up the process for qualifying sellers.