The Office of Thrift Supervision is preparing a plan to help people who currently owe more than their home is worth with an FHA refinancing opportunity and to discourage people from just walking away from their homes.
The plan is still being formulated and was only briefly mentioned in a quarterly news briefing and is not official yet. The main idea of the plan is that lenders would establish a certificate representing the negative equity that from their current mortgage and having an FHA refinancing option that will put the borrower into an FHA loan and that the certificate would then be held by the lender as a certificate for the underwater debt.
From the Washington Post:
The plan would separate a troubled mortgage into two parts. The first would cover the current fair-market value of the home and would be an FHA refinance by the Federal Housing Administration. The remainder would be issued to the original lender as a certificate.
If the borrower eventually sells the home, the FHA mortgage would be paid off first. Remaining cash would be applied to paying off the value of that certificate. Anything left over would go to the borrower.
If there's not enough profit to pay off the certificate, the original lender would take a loss, which makes this proposal a gamble. However, the plan anticipates that there would be a market where these certificates are traded. That means the lenders could sell them immediately to offset some of the loss or hold them with the hope that they will appreciate, said Jaret Seiberg, an analyst at Stanford Policy Research.
The certificates would likely trade for small amounts, maybe $2 for every $100 in home value, and the amounts would increase as the housing market strengthens, Seiberg said.
This proposal is just one of the many FHA refinancing options that are currently being passed around -- stay tuned for which FHA refinancing options actually become policy (such as the FHA Secure program) and which ones don't.
