Kenneth R. Harvey, Syndicated Columnist, for The Seattle Times wrote an article August 5, 2011, about a newly introduced "Lifeline for the Underwater" borrowers serviced by Ocwen Financial.
In the article he summarizes the plan as follows:
"Say your loan is higher than your home's value, so you're underwater. You can't handle the current payments and you're heading down the conveyor belt to near-inevitable default and foreclosure.
Now the company servicing your mortgage makes you this offer: First we will reduce your loan balance to a level where you will now have 5 percent positive equity in the house. That is, rather than the original value of the property that has you drowning, we will set your debt at 5 percent below the home's current appraisal value.
Next we'll modify the mortgage so your monthly payments reflect the reduced underlying principal balance. Then, in annual increments over the next three years, we will write off the amounts of the original debt balance that we reduced.
In exchange, we will expect you do two things: Stay current on your loan payments, and agree to let us share 25 percent of any future gain you make on the house at resale."
This pilot program was introduced by Ocwen to 3,000 underwater homeowners. 79% of those signed up for the program, and the default rate has been reduced to 2.6% versus 40-50% for federal loan modification alternatives.
This program will now be provided to all of Ocwen's borrowers. Now they have 400,000 plus loans they are servicing and will soon acquire 200,000 plus additional loans from Goldman Sachs.
Can this plan be the answer to the housing crisis?
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