DFS Regulations Would Permit ‘Shared Appreciation’ Mortgage Modifications – Which Can Benefit Both Homeowners and Investors

Provides New Option for Homeowners who May Have Been Previously Turned down for Relief

Governor Andrew M. Cuomo today announced that his Administration is proposing to expand the mortgage relief options available to struggling ‘underwater’ homeowners, who owe more than the current market value of their homes. The Department of Financial Services (DFS) is issuing proposed regulations that would authorize and encourage “Shared Appreciation” mortgage modifications in New York. Under a shared appreciation modification, banks and mortgage servicers reduce the amount of principal outstanding on a borrower’s mortgage in exchange for a share of the future increase in the value of the home.

“For many homeowners and investors, this innovative approach to mortgage relief could prove to be a win-win,” said Governor Cuomo. “First and foremost it will help keep more families in their homes and out of foreclosure, while at the same time reducing potential losses for investors. That’s good for homeowners, good for local neighborhoods, and good for the long-term strength of the housing market.”

Benjamin M. Lawsky, Superintendent of Financial Services, said: “Principal reduction can provide a life raft for many struggling homeowners who are underwater on their mortgages. In New York, we will continue to explore new options to reach as many homeowners as possible and deliver relief to struggling families facing foreclosure.”

The dramatic drop in home prices that accompanied the financial crisis left millions of homeowners owing more on their mortgages than the value of their homes. Families trapped in these underwater mortgages are generally at much greater risk of losing their homes.

Foreclosures are deeply costly to both the families who lose their homes, as well as the investors who are often forced to take sharp losses and sell the property into a distressed market. Additionally, foreclosures can do great damage to surrounding neighborhoods through the negative impact of blight and vacant properties on communities and home prices. Preventing avoidable foreclosures can be beneficial to homeowners, investors, and local housing markets.

The Cuomo Administration is proposing new regulations authorizing and encouraging banks and mortgage servicers to provide shared appreciation mortgage modification to underwater homeowners facing foreclosure. The homeowners who would be eligible under this regulation include those who are not eligible for existing federal and private foreclosure prevention programs. As such, these regulations could provide new options for homeowners who have previously been turned down for mortgage assistance.

The proposed regulation includes a number of important consumer protection requirements. Under the proposed regulation, banks and mortgage servicers must provide clear and prominent disclosures to borrowers about the terms and nature of the shared appreciation mortgage modification. Additionally, the mortgage investor’s share of the appreciation will be limited to the lesser of: (1) The amount of the reduction in principal, plus interest; or (2) Fifty percent of the amount of appreciation in market value.

To view a copy of the proposed DFS regulations, please visit, link.

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