Wednesday, July 27, 2011
OCWEN a Win?
Loan servicer Ocwen Financial Corporation has launched a new loan modification program aimed at helping borrowers with underwater mortgages.
The new initiative, known as the “Shared Appreciation Modification” (SAM) program, writes down an underwater borrower’s principal balance to 95 percent loan-to-value, thereby creating home equity.
Then, over three years, the written-down portion is forgiven in one-third increments, so long as the homeowner stays current on mortgage payments.
Later, when the house is either sold or refinanced, the borrower must share 25 percent of the appreciation with the investor of the loan.
Ocwen believes this approach won’t reward borrower delinquency, which is always a concern when offering a loan modification.
“Like all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity,” said Ocwen CEO Ronald Faris.
“That’s a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it’s important too. Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.”
The SAM program was initially launched on a pilot basis back in August 2010, sporting a 79 percent borrower acceptance rate and just a 2.63 percent re-default rate.
Ocwen now has clearance to make it available to qualified customers who are experiencing negative equity in 33 states.
While it seems like a good approach to an ongoing problem, there are probably still scores of borrowers who are beyond the point of no return.
But it does seem to be a bit more strategic than the Making Home Affordable program, which has fallen well short of goal.