Cash for Keys was created to aid both homeowners and lenders in the mortgage crisis. The mortgage crisis is the result of an insufficiently regulated market (Brock, 2008). Low lending standards were a significant component of the mortgage crisis (Brock, 2008). Lenders made millions of loans to people to buy homes that they could not afford (Brock, 2008). It is estimated that these lending practices have cost lenders tens of billions of dollars (Brock, 2008). The inflationary housing boom meant that people who could not afford their homes were able to refinance or sell (Brock, 2008). Homeownership was a goal that former president George Bush encouraged to citizens by stating “We want everybody in America to own their own home” (Brock, 2008).
An earlier policy to help homeowners was the Making Home Affordable Program. This program was President Obama’s administration’s strategy to help homeowners avoid foreclosure while stabilizing the country’s housing market and improving the nation’s economy (MakingHomeAffordable.gov). This program was implemented on April 1, 2009 and its objective was to lower monthly mortgage payments (MakingHomeAffordable.gov). The program required that the lender who originated the loan must refinance the loan (MakingHomeAffordable.gov). Not all homeowners were eligible for this program.
A Short Sale was another program which aimed to help struggling homeowners with mortgages they could no longer afford. Short sales were a timely process which involved the listing of the property for sale (Elias). Potential buyers could offer a price for the property which was often significantly less than what the homeowner owed to the lender (Elias). A short sale was an attempt to avoid foreclosure or bankruptcy for the homeowner (Elias). Lenders could sue the homeowner for the difference between the loan and the selling price of the property (Elias). There was a tax consequence to short sales – lenders reported the difference to the Internal Revenue Service as taxable income and homeowners were required to pay income tax (Elias). This new problem led to the creation of the Mortgage Forgiveness Debt Relief Act of 2007 which changed how the difference was reported to the Internal Revenue Service (Elias).
Short sales have tripled since 2008 to an estimated annual volume of 400.000 based on a data sample of single family residence short sale transactions (Dymi, 2010). Over half of all short sale transactions have been in four states hardest hit by the mortgage crisis: California, Florida, Texas and Arizona (Dymi, 2010).
The Cash for Keys program offered hope for those who struggled with attempts to modify loans, list properties as short sales or dealt with harassing collections procedures (Harmon, 2011). The Cash for Keys program offered a bail out to the Homeowner instead of the banks (Harmon, 2011). It offered the homeowner the option to walk away from the home (Elias).
The Cash for Keys program offers homeowners cash as an incentive to leave their homes in a timely manner (Brathwaite, 2011). The homeowner agrees to maintain the property and leave it in broom swept condition and also agrees to removing debris from the interior of the home as well as from the exterior (California Department of Real Estate). The homeowner also agrees to leaving all light fixtures, appliances and landscaping intact (California Department of