Mortgage crisis: Don’t forgive debt, just postpone repayment
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debt, mortgage crisis, repayment February 21st, 2008A new plan from the Office of Thrift Supervision would have lenders reduce mortgage balances, but let them collect the difference later.
NEW YORK (CNNMoney.com) — A plan that would help troubled mortgage borrowers today - and might make lenders whole later on - was unveiled Wednesday in Washington.
The Office of Thrift Supervision (OTS) is urging the federal savings and loans lenders under its authority to refinance loans by reducing mortgage balances to the current market values of the homes. Thanks to falling home prices, many homeowners are now stuck with mortgages that are actually worth more than the houses themselves.
But instead of having lenders forgive the difference between the old mortgage and a house’s current resale value, called a short sale, the OTS advises that lenders issue a warrant or “negative amortization certificate” for the difference. If a home regains its market value and is then sold, lenders have first claims to the profits.
“If a house has a $100,000 mortgage originally,” said Bill Ruberry, a press spokesman for the agency, “and the fair market value is $80,000, there’s $20,000 in negative equity. The lender could refinance for $80,000 and a warrant [for the $20,000 in lost value].”
Tags: debt, mortgage crisis, repayment
