Equity Sharing Loan Modification Program Launched

April 19, 2010 No Comments »

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ISGN Corp. and EquityRock have teamed up to offer the “industry’s first equity sharing, loan modification service.”

The program, coined RESET (Real Estate Shared Equity Transaction), allows borrowers eligible for a loan modification to receive a principal reduction in exchange for a share of their home equity.

The bank or mortgage lender will write down the borrower’s principal balance so the homeowner is no longer underwater, while gaining a stake in the future appreciation of the property should it be sold or refinanced.

“RESET provides lenders and borrowers with a much needed win-win solution to negative equity,” said Niraj Patel, group president of ISGN, in a press release.

“Borrowers get to stay in their homes and have pride of ownership. And lenders have an alternative to the losses associated with short sales and foreclosures—they finally have a way to recoup at least some of the deficit that results from addressing the seriously delinquent or underwater loans in their portfolios.”

The program also supports public policy, as it’s focused on home retention, while other alternatives may result in home abandonment and degeneration of neighborhoods.

It’s unclear what the debt-to-equity trade would be, and how such an event might impact a credit score. There’s still plenty of uncertainty regarding loan modifications and credit scores.

Last month, Bank of America introduced a novel concept known as earned principal forgiveness, where underwater borrowers earn equity by simply continuing to make on-time mortgage  payments.

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