The Office of Thrift Supervision (OTS), is urging the federal savings and loan lenders under it's authority to refinance loans by reducing mortgage loan balances to the current market value of the homes.  Because of falling home prices many homeowners owe more on their homes than they are currently worth.  That is one reason that a lot of homeowners are walking away from their homes and letting them get foreclosed on.

But instead of forgiving the difference between what is owed and what the home is now worth, called a "short sale" the OTS plan advises that the lenders issue a warrant or "negative amoritization certificate" for the difference. If a home regains it's market value and is then sold, lenders would have first claim to the profits.

 "If a house has a $100,000 mortgage loan 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]."

If the house later sold for $100,000, the lender would collect the $80,000 mortgage balance plus the $20,000. If the sale realized more than $100,000, the certificate holder might even get interest on top of the $20,000. Any profit beyond that would go to the borrower. The warrants could be publicly traded.

They hope that with this plan they will not only help prevent foreclosures but they will also help out the lender by not forgiving the debt. This program would be available to anyone with a mortgage loan. Sounds promising.

Have a Great Day,

Sandra Sheely