Some struggling homeowners are getting paid by banks to sell their houses and stave off foreclosure.
Many banks, including JPMorgan Chase, are offering delinquent borrowers as much as $35,000 to sell their houses for less than they owe on them, Bloomberg reports. Some banks are finding the transactions to be more cost-effective and efficient than the complex and multi-stage foreclosure process.
The attempt to clear the deluge of delinquent properties awaiting foreclosure echos others, including so-called "cash for keys" programs in which banks pay homeowners and renters to vacate their homes without an eviction.
Banks have had to get creative in dealing with a massive foreclosure pileup that confronts them. Overall, foreclosure filings fell dramatically last year in large part because banks were hesitant to rush the process, after investigations into robo-signing practices, which sped up foreclosures, indicated abuse. The foreclosure process now takes nearly triple the amount of time that it did in 2007, according to LPS Applied Analytics.
The extended time period for foreclosures means that millions of properties are sitting in the pipeline and weighing on home values. Homes that are in foreclosure drive down property values twice as much as vacant properties, according to an October study by the Cleveland Federal Reserve.
The Justice Department lent support to another means of avoiding foreclosure last month. The agency argued that foreclosure mediation -- or the process whereby struggling homeowners can negotiate with lenders so they don't lose their homes -- is worthy of a government boost in research and possibly funding.
Ben Bernanke also lent his two cents on how best to fix the housing market last month, when he published a paper saying that relying heavily on foreclosures to deal with delinquent borrowers is "costly" and "inefficient" for the housing market.
Foreclosures "can result in 'deadweight losses,' or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods," the paper said.
Bernanke also floated some alternatives including combing a deed-in-lieu -- or a program where homeowners return their house to lenders without going into foreclosure -- with a rent-back agreement.
The Home Affordable Modification Program, an aim touted by the Obama Administration in February 2009 as having the ability to help 3 to 4 million homeowners modify their loans and avoid foreclosure, has only netted nearly 1.8 million trial modifications for homeowners so far, according to a recent government report.