The New York Department of Financial Services (DFS) is proposing to expand the mortgage relief options available to “underwater” homeowners, who owe more than the current market value of their homes. The DFS’ proposed regulations would authorize and encourage “Shared Appreciation” mortgage modifications in New York. Under a shared appreciation modification, banks and mortgage servicers reduce the amount of principal outstanding on a borrower’s mortgage in exchange for a share of the future increase in the value of the home.
“For many homeowners and investors, this innovative approach to mortgage relief could prove to be a win-win,” said Governor Andrew M. Cuomo. “First and foremost it will help keep more families in their homes and out of foreclosure, while at the same time reducing potential losses for investors. That’s good for homeowners, good for local neighborhoods, and good for the long-term strength of the housing market.”
Benjamin M. Lawsky, the DFS superintendent, said, “Principal reduction can provide a life raft for many struggling homeowners who are underwater on their mortgages. In New York, we will continue to explore new options to reach as many homeowners as possible and deliver relief to struggling families facing foreclosure.”
The proposed regulations would authorize and encourage banks and mortgage servicers to provide shared appreciation mortgage modification to underwater homeowners facing foreclosure. The homeowners who would be eligible under the regulations include those who are not eligible for existing federal and private foreclosure prevention programs. As such, these regulations could provide new options for homeowners who have previously been turned down for mortgage assistance.
Under the proposed regulations, banks and mortgage servicers must provide clear and prominent disclosures to borrowers about the terms and nature of the shared appreciation mortgage modification. Additionally, the mortgage investor’s share of the appreciation will be limited to the lesser of: (1) The amount of the reduction in principal, plus interest; or (2) 50 percent of the amount of appreciation in market value.
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