Ocwen Financial CorporationÂ has enacted a unique loan modification program designed to help underwater homeowners and investors without rewarding loan delinquency.
The Shared Appreciation Modification (SAM) program reduces a delinquent borrowerâ€™s principal to 95 percent of the homeâ€™s current market value but requires the homeowner to later share 25 percent of the homeâ€™s appreciation with the investor when the home is eventually sold or refinanced.
The portion of the debt that is written down is forgiven over the following three years in three, equal increments, provided the borrower remains current the modified mortgage payments.
â€œLike all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity. Thatâ€™s a significant benefit to the customer and, we believe, the economy and housing market,â€ OcwenÂ CEOÂ Ronald Faris.
â€œPsychologically, itâ€™s important too,â€ Faris adds. â€œOur analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.â€
Ocwen launched a pilotÂ SAMÂ program in August 2010 and is now expanding the program to 33 states.
â€œWe think this program can make a real impact on curing the negative equity problem, and are working hard to obtain approvals for SAMs in all jurisdictions,â€ added Faris.
The pilot program achieved a 79 percent borrower acceptance rate, and only 2.63 percent of loans redefaulteld, according to Faris.
â€œOcwen is to be applauded for this visionary program. They have created a win-win situation for all involved,â€ said Marcia Griffin, President of HomeFree-USA, a community-based organization focused on homeownership development.
â€œThe homeowner benefits from a stable housing situation and the investor is positioned to share in the future appreciation of the homeâ€™s value. In addition, communities nationwide will benefit from fewer foreclosures,â€ she continued.
TheÂ SAMÂ program also received praise from John Taylor, President andÂ CEOÂ of the National Community Reinvestment Coalition.
â€œWe hope this innovative effort inspires other mortgage servicers to follow suit, because fixing the housing market is the best way to bring back jobs and revitalize the American economy,â€ Taylor said.
In total, Ocwen has modified more than 200,000 loans to keep homeowners out of foreclosure since the mortgage crisis began.
Ocwen has completed 25 times as many loan modifications per serviced loan as the overall industry.
The Atlanta, Georgia-based company has a $74 billion residential servicing portfolio and is continuing to expand.
Ocwen Financial Corporation provides both residential and commercial servicing as well as special servicing and asset management.