Let’s make a deal: loan mod for 50% of price appreciation

Part 2 of 2: Preparing for an adjustable-rate reset
Published on Oct 29, 2007

(This is Part 2 of a two-part series. Read Part 1, "Too much equity can deny homeowners loan mods.") The first article in this series pointed out that when a mortgage borrower is unable to make the required payments, the servicing agent has an obligation to the owner of the mortgage to resolve the problem in the way that is least costly to the owner. The usual method is foreclosure, but an alternative is to modify the loan contract to make the payment more affordable. In making their decisions, loan servicers usually ignore an asset possessed by the borrower that could shift it from foreclosure to modification. This asset is the right to a share of the future appreciation in the value of the borrower's house. To make the decision process easier, I have designed a new calculator, numbered 7e on my Web site. The calculator compares the cost of a subsidy provided under a contract modification to the estimated value of a share of the appreciation, over any future period up to...