OTS Looking to Develop New Refinance Plan

February 21, 2008 No Comments »

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The Office of Thrift Oversight, a division of the U.S. Treasury, is planning a new refinance plan that would work alongside other aid efforts currently in place to further motivate servicers, CNN reported.

The plan would create “negative equity certificates” which would essentially help loan servicers recoup losses when refinancing borrowers who are currently underwater on the mortgage.

According to the article, the certificates would be publicly traded and change in price as home prices fluctuate, thus not guaranteeing a full return.

The program would likely apply to subprime borrowers and other exotic loan program holders, those most likely to have negative equity, but could be extended to anyone in a situation where they find themselves underwater.

The hope is that the proposal would give servicers more incentive to help at-risk homeowners, while stemming a rise in foreclosures as more homeowners look set to simply walk away.

Last week, Zillow reported that reported that 39 percent of those who purchased a home in 2006 and 30 percent who bought in 2007 have negative equity.

And earlier this week, a leading economist predicted that millions of homeowners would likely walk from failed investments as home prices sag and home equity slips away.

(photo: dryicons)

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