Underwater Homeowners Finally Getting The Help They Deserve

Could underwater homeowners finally be able to sleep comfortably at night? A company recently launched a plan where underwater borrows’ loans could be modifiedĀ in order to reduce their payments to a controllable amount, as well as reduce their principal debt overall. This plan also makes the deal dependent on the homeowners’ on-time monthly payments of the new agreed amount while sharing a fraction of the profits if they decide to sell their house in the future.

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Basically, the plan works as follows: If you have been underwater on your loan, you are not able to manage your current monthly payments and ultimately have no other choice but foreclosure, the company handling your mortgage offers you a deal with multiple parts. The first the company lowers the balance of your loan to where it is at 5 percent positive equity in the house. In other words, set your debt at 5 percent lower than the actual current appraisal value of the house.

 

The second step is to adjust your mortgage in order for your monthly payments to match the underlying principal balance. Then, over the next three years, they will adjust your annual increments so that they can write off the amounts of the original debt that were decreased. However, as the homeowner, you must continue to make your loan payments and also allow the company to profit on 25 percent of the future resale.

 

Over 3,000 underwater homeowners were offered this pilot deal by Ocwen Financial over the past year. Almost 80% of people who were offered this deal took it, resulting in a 2.6 percent re-default rate. This rate is much lower than 40 to 50 percent rates offered by many federally sponsored loan-adjustment plans.

 

Ocwen is planning to make this program national after witnessing its excellent achievement. It is currently offered in 33 states and is hoping to expand to more. With over 700,000 loans being serviced by the company, the pilot program is definitely a success.

 

Studies show that underwater loans are almost two times more probable to re-default than those with some positive equity. Even severely underwater loans which are at 150 percent are eligible for the program.

 

Unfortunately, only Ocwen-serviced borrowers can partake in the program. Other lenders, such as major banks, have similar deals but none with a shared-appreciation attribute. Hopefully, in the near future, major financial institutions will be implementing a similar version to this program.

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7 years ago by in Home News | You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.
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