Beginning April 5, the government plans to launch a new program that will allow homeowners to sell their homes for less than they owe and pay them to help cushion the loss. 

So far, the government’s Making Home Affordable Program focused on helping homeowners keep their homes and prevent foreclosure through loan modifications or refinancing. However, the program, until now, has been limited in its effectiveness due to the fact that many homeowners failed to qualify for a loan modification or were so much underwater that refinancing was not a viable option.

The new program will instead focus on streamlining and standardizing the short sales process. In a short sale, a homeowner owes more than what their home is currently worth. To avoid foreclosure, the homeowner settles with the mortgage lender to accept less than what they owe on the property. As a result of this agreement, the seller is able to fend off foreclosure, the lender avoids taking on the burden of selling the property and the new buyer gets the property at a reduced price. Additionally, the seller will not be required to pay for the deficiency on the loan.

Even though short sales were beneficial for all parties involved, the lengthy process and lack of financial incentives for mortgage companies made foreclosures a more attractive option. Under the new program, the government will now not only pay the mortgage company but will also pay the distressed homeowner a sum of $1,500 in the form of “relocation assistance.” It remains to be seen how effective these changes will be but, hopefully, they will help prevent more foreclosures.