Thursday, September 1, 2011
Ocwen Financial Corp, the West Palm Beach home loan servicer, has adopted and expanded a shared appreciation loan modification program first pioneered by West Coast servicers that helps homeowners avoid foreclosure and stay in their homes. While it essentially seems as though Ocwen is telling mortgagors to go ahead and default on their mortgages in order to get their principal cut, doing so actually allows the company to clean-up outstanding loans that are moving towards foreclosure.
Industry experts have suggested that Ocwen’s motives in allowing for such a loan modification program might not be based in generosity or benevolence to the mortgagors that they service – servicers are reimbursed for advances when a loan is modified or the loan goes into foreclosure. Since Ocwen’s program is directed towards borrowers that have already defaulted Ocwen stands to be reimbursed.
This program differentiated from the majority of shared-appreciation programs that pursue underwater borrowers that still pay their mortgages. Such a reduction in principal creates a strong motivation for borrowers to mitigate their default, especially since homeowners that never expect to regain equity on their homes have little incentive to make payments. Ocwen’s expanded program allows for a loan to be written down to 95% of the home’s current market value, which would thereafter be forgiven in one-third increments over three years so long as the homeowner is diligent in paying the modified loan. Once the house is sold or refinanced, the borrowers would keep 75% of the appreciation and share 25% with loan investors.
Ocwen initiated implementation of the new program with 800 defaulted underwater borrowers in numerous states, and plans to further expand implementation into 33 states, conditional upon clearance from the Treasury Department. The program is anticipated to help borrowers by keeping them in their homes, which is something supported by consumer advocacy groups and borrowers alike.