2022 Boise Idaho Real Estate Blog

Upside down in your mortgage?

Main Boise Home Loans

Are you, or is someone you know, trying to sell their home...but is upside down on the mortgage? If so, there is a plan in the works that can help you avoid a short sale or foreclosure.

A recent news report and survey has said that, nationwide, 30% of homeowners who bought homes in the last two years now owe more than their home is worth. The Office of Thrift Supervision (OTS) in Washington, D.C. is considering a plan to assist homeowners who now owe more on their home than what it is worth. The plan is set up to offer an alternative that helps both the homeowner and the mortgage lender.

John Rich, director of the OTS, is considering a plan that will help these homeowners avoid foreclosure if they are having trouble making their payments. Rich said that “more and more of these homeowners are handing their keys over to the lenders or servicers.”

This plan would help these borrowers stay in their home long enough to get through the currently troubled housing market that is hitting some areas of the country hard.

In my home market, for example, let’s use a $250,000 mortgage in Boise, Idaho that is now securing a property that is only worth $225,000. The OTS Foreclosure Prevention Plan would work like this:

  • Divide the mortgage into two parts: part one is what the home is worth ($225K) and part two represents the loss of equity ($25K)
  • The first part, $225K, would be refinanced into an FHA Guaranteed Loan
  • The remaining $25K would be issued to the original lender or servicer in the form of 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 go to paying off the value of the Negative Equity certificate. After that, any cash left would go to the borrower. If there isn’t enough cash to pay off the certificate, the original lender would take the loss.

“The Negative Equity Certificate would represent…a silent 2nd mortgage,” says Rich. “The certificate would hold a market value, which presumably, could be bought and sold by other investors.”

Keep in mind; these proposals are merely ideas at this point. The key to success of this kind of plan depends on whether or not lenders see them as a less costly alternative than foreclosure.

Posted by Eric Leigh at 2/22/2008 3:27:00 PM

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