The markets are abuzz with the news that the banks will ante up to help some borrowers reduce their payments under a $25 billion government-backed foreclosure abuse deal.
But the banks are also quietly working to push some of the weakest borrowers off the books entirely — by paying them cash to move out.
Looking to exit loans that are “underwater,” that is, where the borrower is unable to sell at a price high enough to retire the debt, some banks are offering them up to $35,000 to move now and avoid foreclosure entirely, reports CNNMoney.
The process is called a short sale, in which the home is put on the market and sold and the lender simply forgives all or a portion of the difference. Chase Mortgage has been sending offer letters to borrowers with a cash offer to move soon, according to the report, which was confirmed by a Chase spokesman.
"The first choice is a modification but if that's impossible then a short sale is a faster, more efficient solution," Chase Mortgage spokesman Tom Kelly to CNNMoney.
Meanwhile, Federal Reserve Chairman Ben Bernanke weighed in on the housing slump in a speech Friday to home builders in Orlando, Fla.
The economy will be stuck in neutral until housing recovers, he said. People are simply spending less because they fear foreclosure.
"Recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year. That reduction corresponds to lower living standards for many Americans," Bernanke said.
It’s the opposite of the “wealth effect” economists have long noticed: When the stock market is strong and people feel secure in their housing investment, they tend to spend more freely and even borrow to spend more.
Negative equity and battered stock portfolios are leading to the reverse. Paying down debts and avoiding new credit.
"Low or negative equity creates additional problems for households," Bernanke said. "It reduces financial flexibility: Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children's college educations.”
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