Transcripts

A Plan To Get Upside Down Homeowners Right Side Up

PAUL KANGAS: More ideas in Washington tonight to stem the tide of foreclosures. The Office of Thrift Supervision is now considering a plan to help homeowners who owe more on their mortgages than their homes are worth. As Stephanie Dhue reports, the plan offers both the lenders and owners a potential win.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Thirty percent of people who bought homes in the last two years now owe more than their property is worth. With many of those homeowners struggling to make mortgage payments, Office of Thrift Supervision Director John Reich is considering a plan to help them avoid foreclosure.

JOHN REICH, DIRECTOR, OFFICE OF THRIFT SUPERVISION: The growing reality I think is that a number of these people were just handing the keys to their homes over to the servicers or to the mortgage holder and so for them to allow people to remain in their homes, we have developed a notion that we are vetting to see how it would be accepted.

DHUE: The OTS plan would divide a troubled mortgage into two parts. For example, take a home with a $300,000 mortgage that's now worth $270,000. $270,000 would be refinanced into an FHA guaranteed loan. The remaining $30,000 would be issued to the original servicer or lender as what's called a "negative equity certificate" until the borrower sells the home. Once the home is sold, the FHA mortgage would be paid off first. Any remaining cash would pay off the value of the certificate. If there is money left over, it would go the borrower. If there's not enough profit to pay off the certificate, the original lender would take a loss. How would these negative equity certificates work?

REICH: Certificates would represent really sort of a silent second mortgage on the home. It would be presumably a non-interest bearing certificate. I think it would have a market value, quite frankly and could be sold by the holders to other potential investors.

DHUE: A similar idea is being shopped by lender refinance.com. Instead of issuing a certificate, the negative equity would be placed in a shared appreciation mortgage for five years. At that time, the loan would be refinanced and any profit split 70/30 between the lender and the borrower. Refinance.com CEO Nicholas Bratsafolis says his plan gives the borrower a better chance to recover.

NICHOLAS BRATSAFOLIS, CHAIRMAN & CEO, REFINANCE.COM: What this does is it gives the owner of the home the incentive to continue to pay his mortgage, because he is going to share in the appreciation of the house.

DHUE: The Mortgage Bankers Association says the key to success with either plan is whether lenders see it as a less costly alternative to foreclosure. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.