Splitting mortgage loans to spread risk
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Scott Jagow: Here’s an alarming statistic about the housing market: 10.3 percent of homeowners owe more on their homes than the houses are worth.
That’s the highest percentage since the Great Depression. The Federal Government is considering yet another plan to help people facing foreclosure. John Dimsdale reports.
John Dimsdale: The Office of Thrift Supervision, a government regulator of mortgage lenders, is putting together a refinancing option to help avoid foreclosures.
A mortgage in trouble would be split in two, with the government guaranteeing an amount up to the current appraised value of the house. The riskier portion of the loan — that not covered by the home’s equity — would be given to the original lender in the form of a certificate.
The OTS’ William Ruberry says the lender’s certificate could be cashed if the home is eventually sold at a profit.
William Ruberry: To lenders, the expense of foreclosure is something that they would want to avoid, and that this would be a good alternative that would be more financially attractive.
The government anticipates lenders would set up a market for trading mortgage certificates to spread the risk.
The OTS is floating this idea. Ruberry says so far, the reaction has been positive.
In Washington, I’m John Dimsdale for Marketplace.
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