Wednesday, July 27, 2011

Bank: ‘We’ll Reduce Your Loan, You Share Future Appreciation’

Ocwen Financial Corp., a servicer of residential mortgages, launched a new loan modification program to reduce the principal on a mortgage for delinquent borrowers, but the borrowers must agree to let loan investors share in future appreciation of the home’s value when the market recovers. 

Through the Shared Appreciation Modification program, Ocwen will write down the principal of the loan to 95 percent of the home’s current market value. The amount written down will then be forgiven in one-third increments over a three-year timespan, as long as the home owner remains current on the modified mortgage. 

Then, “when the house is later sold or refinanced, the borrower must share 25 percent of the appreciation with the investors that own the loan; borrowers keep 75 percent of the gain,” the company notes.

Loan modifications will be available only to home owners in negative equity. 
"Like all modifications, SAMs help home owners avoid foreclosure. But they also restore equity,” says Ocwen CEO Ronald Faris in a public statement about the program. “That's a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it's important too. Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.” 

The program, which is expected to be rolled out into 33 states, is one of the first principal reduction programs started by a private company. 

Source: “Ocwen Unveils New Principal Reduction Program,” HousingWire (July 26, 2011) and “Ocwen Offering Mortgage Modifications That Restore Equity for Underwater Borrowers,” GlobeNewswire (July 26, 2011)

1 comment:

Manhattan Beach Agent said...

It's only fair that if a lender is willing to discount principal then they should recoup that "investment" somehow. Sharing equity at disposal is a legitimate way to do that.