Uncle Sam Endorses Cash-For-Keys

Uncle Sam has embraced cash-for-keys as part of its initiative to streamline the short sale process. Can we expect to see many more successful short sales soon?

Irvine Home Address … 58 WOODLEAF Irvine, CA 92614

Resale Home Price …… $359,000


Stop your stalling,

And just give me more than you should,

Before we're all in

The same mess I knew we would;

I will not call you,

'Cos I know he'll answer the phone;

There's something stunning

About the way we lie till it's gone.

Snow Patrol — Steal

Now that the US taxpayer is absorbing the losses from the US housing and mortgage markets, someone in Washington has decided it is more cost effective to pay everyone off at short sale rather than forcing foreclosure. More transactions may be coming if short sales are expedited, and that is probably a good thing.

Program Will Pay Homeowners to Sell at a Loss


Published: March 7, 2010

In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

Reach for your wallet; the government is streamlining….

Cash for Keys from Uncle Sam

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

There it is; Uncle Sam is paying people to pack their stuff and get out of the taxpayer's property — and it is the taxpayer's property given that the taxpayer is the only party putting money into the deal to pay everyone off. Didn't we all know it would come to this? How much longer before Uncle Sam gives up on this loan modification crap and cranks up the foreclosure meat grinder?

The owners of second mortgages must be thrilled with this program. The second mortgage is worth practically nothing when the property is underwater. Investors who expect little or nothing are getting a significant payout from Uncle Sam. I assume Goldman Sachs bought every underwater second mortgage in the country leading up to this policy change.

Cutting out flippers

This program will succeed by cutting out the cash market at foreclosure. Short sales are resales and subject to financing, so prices are higher and loss recoveries greater — at least in theory.

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

I think the statement about being better for a borrower's credit rating is dubious. How much better is it to stiff a lender for $50,000 if you do it on good terms? Short sales often come with some kind of long-term repayment agreement or acknowledgment of debt. Rarely is it a clean break.

The last statement about benefiting the community is true. Empty houses serve no one. A short sale keeps the property occupied and maintained and keeps continuity in neighborhoods and communities.

With the large amount of distressed inventory, expediting short sales will become a necessity. If every distressed property goes through foreclosure and remains empty for a significant time, everyone involved loses, except perhaps the trustee sale flippers who will be asked to clean up the mess.

Irvine Home Address … 58 WOODLEAF Irvine, CA 92614

Resale Home Price … $359,000

Home Purchase Price … $490,000

Home Purchase Date …. 1/24/2006

Net Gain (Loss) ………. $(152,540)

Percent Change ………. -26.7%

Annual Appreciation … -7.3%

Cost of Ownership


$359,000 ………. Asking Price

$12,565 ………. 3.5% Down FHA Financing

5.01% …………… Mortgage Interest Rate

$346,435 ………. 30-Year Mortgage

$74,419 ………. Income Requirement

$1,862 ………. Monthly Mortgage Payment

$311 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$30 ………. Homeowners Insurance

$362 ………. Homeowners Association Fees


$2,565 ………. Monthly Cash Outlays

-$308 ………. Tax Savings (% of Interest and Property Tax)

-$415 ………. Equity Hidden in Payment

$25 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves


$1,911 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$3,590 ………. Furnishing and Move In @1%

$3,590 ………. Closing Costs @1%

$3,464 ………… Interest Points @1% of Loan

$12,565 ………. Down Payment


$23,209 ………. Total Cash Costs

$29,200 ………… Emergency Cash Reserves


$52,409 ………. Total Savings Needed

Property Details for 58 WOODLEAF Irvine, CA 92614


3 Beds:

2 Baths:

1,267 Sq. Ft.:

$283/ Sq. Ft.

– Lot Size:

Property Type: Residential, Condominium

One Level, Other Style:

Community: Woodbridge

Orange County:

S607874 MLS#:

$0,000 0


Property has newer flooring, newer paint and all neutral colors. Master bathroom has been completely remodeled. Great location. One level with great floor plan. Quick cleaning and ready to move in! Very nice – Buyer's will be happy for years to come.

What does the photo above tell you about the occupant?

50 thoughts on “Uncle Sam Endorses Cash-For-Keys

    1. AZDavidPhx

      WTF is the box labeled “JAPAN”? It looks like somebody hugging something. Kind of random weirdness for the day.

      You can also imagine someone sitting on the air mattress with the guitar singing NooooBawwdy Knowss Tha Trouble Ahhh Seee!

    2. Planet Reality

      The kid living that life has the last laugh, you’ll never be able to grasp just how smart he is…

      1. Swiller

        Totally 100% agree Planet. The hamster wheel runners here think that picture is the essence of a loser, but in reality, the picture represents being able to enjoy freedom and creativity. How many people here were worried about the CRAP we are today when they were 19. Most of us didn’t have very many material goods, yet for many, those were probably the best days of your life.
        Fear and fear mongering go hand in hand with gaining possessions because you have to worry about someone stealing them, losing them, etc.
        The only bad thing is, if you are going to live that life, you need to be satisfied with NOT owning much.

        1. IrvineRenter

          Based on what the young man does have, I would imagine he is entertained and quite happy. I don’t see him as a loser.

        2. Planet Reality

          As we post here I bet he is out surfing, he doesn’t care about pottery-barn-best-buy-crate-and-barrel-BULLSH!T

        3. Planet Reality

          Swiller, I think the hardest part to live a complete life would be finding a like minded woman. That would be damn near impossible in the OC. You would probably need to move up the coast and settle somewhere between the trust find phonies in SF and Seattle.

        4. Geoffrey Chaucer

          If you sleep with your head at the foot of the bed, is it still called the foot of the bed? Or does putting your head there automatically make it the head of the bed – sort of like how any plane the President boards is called Air Force One?

        5. AZDavidPhx

          Who said anything about being a loser? My place looked like this back in the day minus the surfboard and JAPAN box.

          We’ve all been there.

        6. A.W. Chuck

          I think most of us have been there. I remember a mattress on the floor, a few jeans, few t’s, a few shorts and some textbooks.

          I remember buying Top Ramen in bulk at Pic N’ Save using my 10% team member discount, my first job in CA when I was 19.

          But life was great…everything was an adventure, just hanging out with friends in lawn chairs under an open garage door trying to flirt with the girls in the same apartment complex was worth a whole afternoon of fun.

          It’s that damn hedonic treadmill, getcha every time.

      1. HydroCabron

        Not sure how I managed that double image.

        By way of penance, here’s the master bath in the same unit:


    3. Sue in Irvine

      Add a few skateboards and a drum set and it would be my 17 year old son’s room :-S

    1. IrvineRenter

      Yes, I agree. Purchasing this unit at this price would be the same price as renting. Of course, that is a good deal to the degree that someone wants to live here and call it home. Condos and other transitory housing should have a discount to rental parity.

      Pricing at rental parity is a major step forward.

      1. Planet Reality

        Keep us informed on what it goes for, what the flipper pays and what the ultimate buyer pays a few months later.

      2. witin4ever

        How could this be rental parity. Doesn’t one need to rent the place for the total cash outlay (and not cost to own) to be rental parity. Do places like this really rent for 2500 ???? either rents have to drop significantly or the low interest rates are making it really worthwhile to buy as long as one plans to live there longtime.

        In this case does 2565 constitute rental parity or 1911 or is it something in between because you can still deduct the mortage interest??

        1. IrvineRenter

          The total cost of ownership on this property is only $1,911. The actual monthly cash outlays are $2,565, but much of that comes back as equity in the payment and with tax savings. It is difficult to find a 3 bedroom for under $2,000 a month in Irvine, so this is at least at rental parity.

    2. CA

      66 Greenfield (identical condo) went to foreclosure and sold for $380k a few weeks ago, starting bid was $369k. I think this will similarly be bid up. Thoughts?

  1. lowrydr310

    Property has newer flooring, newer paint

    Not “NEW” but newer!

    Buyer’s will be happy for years to come.

    Maybe the buyer will be one of these flipper’s we keep hearing about.

    I don’t claim to have the best writing skills, but seriously does anyone proofread these listings? If being a Realtor is such a professional career that demands high commissions for their ‘service,’ there should be some oversight to improve the quality of the listings that appear on their beloved MLS.

    Why the F#@* did I waste my time going to school?

        1. JL

          Well, it depends on the condition. In the last house I rented, I just replaced the seat, since the toilet bowl itself was in good condition. However, if it looked like the bar toilet in the movie “Desperado”, then yeah, I would change it. LOL.

          Then again, if it did look like that, I would rip out the whole bathroom and replace everything.

  2. tonyE

    So Obamalosi are going to give people money to move out.

    (1) OK, so in essence this will freeze “real sales” for a while, both of “previously owned” and new homes as I would expect a glut of homes on the market.

    (2) This will be a windfall for California as these folks will have to pay significant taxes. I just hope those idiots in Sacramento realize that the state is broke and we can not afford to waive such a gold mine. If they do I could foresee a tide as great as the one that created Prop 13. After all, distressed “homeowners” are still a minority in the state.

    (3) Also, are these non paying “homeowners” supporting the IUSD? Are they sending their kids to Irvine Schools? With the schools in a world of hurt I would think that non payers would not be allowed unless they paid their fair due.

    1. Swiller

      I hope the majority of people who money to the state declare bankruptcy so the state goes down in flames. California already taxes way too much in certain areas. Prop 13 is nothing but corporate and older homeowner WELFARE. These “owners” do not contribute their fair share and Prop 13 should be scrapped.
      Now all those greedy pricks living in million dollar homes (that should be selling for $500,000) can pay their “fair” share. LOL!! That would be awesome and would put yet ANOTHER stake into the real estate bubble, but you will here the majoirty of boomers rise up when you threaten them with carrying their own weight in taxes….that’s for us, the generations that come after them.
      In 20 years when the boomers are sh1tting themselves somewhere in a hospice home, my generation will be paying for all the greed. Bitter? Yes, but not as much as the people flying planes into homes or shooting random people in Washington, however, I fully expect that activity to increase as our government turns to fascism to protect it’s “special interests”.
      I’m wondering how much money it would be to retire in another country.

      1. norcal

        Swiller, maybe you can get behind the movement to have a California Constitutional Convention – after all, what happens after CA goes bankrupt? Unless we completely overhaul our state gov’t we are still stuck with our peculiar tax and legislative systems.

        1. IrvineRenter

          I was at a Building Industry Association meeting where the Republican leader of the California Senate spoke. When asked about what would happen if California defaulted or went bankrupt, he said the attorneys had looked at the issue, and it is their conclusion that a State bankruptcy would invalidate our state charter, and California would revert to territory status. The US government would be liable for all of California’s debts, and California would have to re-establish a legislature and State government at re-petition for statehood.

    1. HydroCabron

      It looks like a young Japanese, of indeterminate gender, kneeling over a toilet in preparation for vomiting.

  3. mattman

    I live in the same building as this condo. The people who live in are renters and not the owners. So the belongings we see in the pictures are not those of the owner. It will be interesting to see what price this ultimately sells for.

  4. freedomCM

    Mattman—Rental parity????

    $2500/month for a 30 year old POS with one carport space? Is that what you are paying?

    IR-what happened to 100x GRM for investments? wouldn’t that put an investor at $250k, even if you could get that high rent?

    Also, are you really going to realize any tax savings for the interest if you make $75k/yr? Aren’t you more likely to take the std. deduction?

    Also, I thought that to get the FHA, you had additional closing costs of 1.75% on top of the normal 1% loan CCs?

    1. IrvineRenter

      The $2,500 / month is the total out-of-pocket cost not the total cost of ownership which is $1,900. This should fall to a lower value because it is not a desirable long-term owner-occupant hold.

      The GRM is sensitive to interest rates, and at 5%, GRMs are higher than they should be. Ordinarily, a property like this should be 100-120 times monthly rent which represents a cashflow positive condition. With our low interest rates, it is still attractively cashflow positive up to 150-180. Breakeven GRMs are over 200.

      Closing costs for FHA loans are capped by the FHA, so there should not be a significant additional closing cost.

  5. Alan

    I don’t understand this part of the outrage: “The second mortgage is worth practically nothing when the property is underwater. Investors who expect little or nothing are getting a significant payout from Uncle Sam.”

    I can’t believe that there are many $2000 or $5000 2nd mortgages or HELOCs for underwater homeowners. Wouldn’t the ones in trouble owe $50,000 and much more? So while $1000 is significantly more than $0, compared to the amount that is written off it is not much at all. I don’t see how such a small amount would get the 2nd loan holder to agree to get out of the way of the short sale and give up any future recourse. But it is also hardly a significant payout to them.

    1. norcal

      It’s a carrot for the bank – they won’t see that HELOC money anyway, but at least they can realize $1K in fees. And fee generation is what got so many people into this mess – it’s what the banks LIKE so much more than properly secured loans. So it could be a working incentive.

    2. IrvineRenter

      The $1,000 payment is for nothing. The 2nd mortgage has almost no value. It would be like the government offering every holder of Pets.com stock $1 per share. This is a giveaway to holders of worthless paper.

  6. FHA loan insurance

    IR, does FHA still require loan insurance? When I had my FHA loan about 18 years ago, I paid 0.35% annual rate loan insurance ((paid monthly; they don’t call it PMI but it serves the same purpose). If FHA still requires loan insurance, then there’s another $90 to $100 a month cost to the FHA buyer of the profiled property.

  7. Gemina13

    Another sucker’s unit. Wonder how many flippers are lining up to buy this, with dreams of milking a cash cow for the next decade?

  8. FHA loan insurance

    Does FHA still require loan insurance? When I had my FHA loan about 18 years ago, I paid 0.35% annual rate loan insurance ((paid monthly; they don’t call it PMI but it serves the same purpose). If FHA still requires loan insurance, then there’s another $90 to $100 a month cost to the FHA buyer of the profiled property.

  9. Soylent Green Is People

    Remember: Buy now, before you get priced out forever!

    HAMP mods – which were never on whole going to be agreed to in the first place – will be fast tracked into HAFA. You’ve already told the bank and Uncle Sam you can’t afford your home. The logical next step is to SS.

    HAMP was simply purgatory for homedebtors.

    Expect more homes in SS quickly once HAMP winds down.

    My .02c

    Soylent Green Is People.

  10. cyntha curran

    Well, a lot of boomers didn’t receive prop 13, you had to be born prior to 1952 to have receive it mainly unless you got the house from your your decease . I’m 52 years old and didn’t receive it I was too young in 1976 when it was passed. The age group mainly on prop 13 had to be born between 1919 to 1945 which was prior to the bommers. And many people born in those years in California moved out of state or are decease. Probably less than 20 percent of the population is on prop 13. Also, most major corporations opposed prop 13 because they wanted the taxpayers to fund instructure before it was passed. Also, Calif even with prop 13 is in the top five for highest business property taxes since most business incorpated and purchase property after 1976. If you want to blame anyone for the passage of prop 13 it was the world war two generation which were middle age or older in the 1970’s not most of their children which were in their teens or twenties.

    1. wheresthebeef

      What are you talking about. Everybody who owns a house in CA today benefits from Prop 13.

      If I am going to blame anybody for anything it will be the baby boomers for their complete utter destruction of this country, leaving future generations royally screwed.

      1. Swiller

        Prop 13:

        1. This is not a homestead exemption, so it does nothing to favor homeowners over landlords (who already have strong incentives through. This is landlord welfare.

        2. Commercial properties are not exempted (they have a fixed base as well). This is fundamentally flawed, since it favors property-owning companies who lease as their primary business. This is corporate welfare.

        3. There is no means test. Millionaires have the same exemptions as indigent elderly. This is welfare for the rich.

        Unfortunately, taxpayers were sold that little old ladies were getting kicked out of their homes. While this is true, we could avoid the landlord, corporate, and rich welfare by instituting some changes to the original proposition.

        Instead, we have serious imbalances because cities favor not building homes unless they have significant Mello-Roos attached to them, allow corporate transfer of assets to perpetually avoid reassesment, and allows non-citizens and non-tax payers of California to receive the benefits of everyone else’s pain. How do you feel about prop 13?

  11. Woodbury Renter

    I am mad as hell about the dolphin slaughter. The picture used here is abhorrent. What are we going to do about it besides hand out Oscars?

    As much as I love my Honda I will not buy another Japanese product until this addressed.

    I don’t want to hear about ‘cultural differences’ in this context, it is plain as day that Dolphins are not on this planet to be human food.

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