A recent piece of legislation has been proposed that would allow a greater number of homeowners reduce their monthly mortgage payments by using a federal shared-mortgage-appreciation program.
The bill, which is spearheaded by Senator Bob Menendez, would give lenders stake of the equity in a property. At a later date, the lender would receive a fixed share of the home's value if it is sold or the mortgage refinanced.
"When you owe more than your house is worth through no fault of your own, relief can be hard to come by," Menendez said. "My bill aims to break this cycle by giving homeowners the relief they are looking for by working with banks to find acceptable solutions for everyone."
If the legislation were to pass, it would go through two pilot programs during a two year period with the Federal Housing Administration and the Federal Housing Finance Agency and would only be applicable to home loans backed by the FHA, Fannie Mae or Freddie Mac.
It's believed the programs would allow participants to reduce their mortgage percent of a home's current value - no matter how much negative equity their property has recently accumulated. The value would be determined by a third-party appraiser with no stake in either end of the transactions to ensure no wrongdoing.
If passed, the bill would also be applicable to homeowners in foreclosure or delinquent on payments to ensure financial safety and soundness for the household. However, they would be required to make all future payments on time and for the allotted amount or they will not be grated a principal reduction. Participants will only be able to use the program on primary residences, as secondary and investment properties will not qualify
The proposal has gained the support of a number of industry experts.
"We applaud Senator Menendez for introducing The Preserving American Homeownership Act," said Realogy president and CEO Richard A. Smith. "This debt-for-equity arrangement offers a solution for qualified underwater homeowners to work together with their lenders to achieve a mutually beneficial outcome - avoiding the lengthy and costly process of foreclosure, offering the likelihood of appreciation to both parties and contributing to a stabilizing housing market."
According to Menendez, the program is a win-win for both borrowers and investors, noting that in similar programs there was an 80 percent success rate.