Equity Sharing Finally Recognized in Principal Reduction

Editor’s Note: Interesting that this got zero attention from the press. This is the first official recognition of two things we have been saying here for 3 years:

  1. For the Borrowers, there can be no effective modification nor any inducement to go into a modification unless there is a very substantial principal reduction such that the homeowner has at least a fair possibility of achieving some equity in the property whose value was misrepresented at closing.

  2. For the Investors, there can be no effective modification nor any inducement to go into a modification unless they have at least a fair possibility of achieving some equity in the property whose value was misrepresented at closing.

  3. The only way to achieve both is by reducing principal but  retaining an equity appreciation clause — something that has been used many times but is not widely known.

by Kevin Hardin

So is Principal Reduction is going to finally get some notice?

On Friday October 15th, Treasury announced changes to HAMP. In that announcement, see link to announcement here , Treasury specifies the use of Equity Sharing Agreements by lenders participating in the Principal Reduction Alternatives for loans that are non GSE.

Non GSE means loans that are not Fannie or Freddie loans. Though Fannie and Freddie constitute the bulk of today’s loan originations the bulk of the distressed loans are not Fannie and Freddie loans. Since Fannie Mae must approve loans modified under HAMP a common misconception is that they are Fannie owned loans. This is not true. When Treasury rolled out HAMP, Fannie won the bid to administer that program even for loans they do not own.

Equity Sharing is the concept whereby a lender shares with the homeowner some of the equity and future appreciation of the home. Using these kinds of agreements can be instrumental in putting responsible principal reduction into the process for loan modifications. Most loan modifications done to date fail to help most homeowners with the real problem, Negative Equity. If the principal is not truly reduced the homeowner ends up with a tax deductible rent payment as they will never own the home in most homeowners economic lifespans.

If you want to see this in action go to this short power point presentation here . The Thomson Law, PLC firm was instrumental in drafting the HEFI (Home Equity Fractional Interest) Equity Sharing Agreement in 2008 and is please to see Treasury acknowledging its power to help homeowners stop foreclosure and keep families in there homes.

If you have questions call Kevin Hardin at 602-774-3757.

10 Responses

  1. I for one will take NO MODIFACATION , what myself and my family have been put thur at the hands of out right liars and thiefs, no way. I OWN all my property outright. NO DEAL

  2. Right on Linda, very well said. I couldn’t agree more. To even consider trying to reassemble and legitimize the carnage produced by these ***holes is totally unacceptable in my world. Bring it on bankers, let’s see the notes, let’s watch as MERS goes down in smoke, exposing the truth that Neil has been discussing here for years.

    Once the clawbacks from investors hit the banks hard, to the tune of billions upon billions of non-hard earned monies, they’ll be a little preoccupied with saving their skins….that’s the best time for us to strike in force. Take back what is rightfully ours. Send these snake oil salesmen packing.

    Then the ivory towers on Wall street will be foreclosed upon, due to their inability to pay the lease. Thousands upon thousand of Armani suited idiots who no nothing of real value, nothing at all save for how to steal, lie, and cheat a deal, will be unemployed and applying for food stamps. Welcome to tent city, you thieving bastards. Let’s hear your stomach growl for a change.

  3. Equity Sharing is another form of forced compromise…whereby the Feds “pretend” to offer medicine to the homeowner in the guise of lowered principals and smaller payments while they cover their own fragile backsides from the biggest economic disaster on the planet.
    That may have worked a year ago. But the cat’s out of the bag now. They made their beds, they can lie in them.

    Who wants the Feds to own half your home or any future home? Half your equity and future equity…just so we can get an “affordable” monthly house payment? Here they are again dangling the affordable monthly payment crap in front of our noses the same way they teased us into their bogus loans in the first place. What guarantee is there that they are not going to do the same thing with our signatures all over again? Yippee…I save $500. per month on a home I already rightfully own.

    Give them an inch and they will take a mile. The sale of every future home will be half owned by the government in the name of curing clouded titles…that may never be cured at all! What now? Gov’t puts all the mortgage mess under “Homeland Security” so they can enforce their securitization schemes and make us into terrorists if we default? Okay, that’s overreaching, but you get the point.

    Are we going to bail out these creeps one more time so they can reinstate their faulty positions and become investors in our homes all over again? If you want to give them permission, go for it.
    Maybe the people are stupid enough to swallow that fraud twice. Maybe that’s what they are “banking” on.

    GET IT PEOPLE. They owe US money, not the other way around. Cough up the change and pay the people in the form of titles to OUR homes…whether tainted or not…we’ll figure it out. Bring on the Releases. We’ll absolve them of any injustices once they turn over titles. Give us our homes or pay the treble damages.
    Save court time or save jail time.
    Whomever you “lenders” are: Do YOUR part to stimulate the economy. The people have already done theirs.

  4. Principal reductions: A fine option for the masses who don’t mind a compromise and are willing to re-contract to such a scheme. It’s too late for that nonsense. The Federal banks had their chance and failed.

    Principal reductions are not for the educated who know they have already spent thousands of their hard-earned dollars over the years to feed a scam perpetrated on them by the alleged lenders without their permission…who can’t prove ownership of the alleged debt… and never will.

    Give us our homes for cryin’ out loud! That is the LEAST they can do to redeem themselves. They can cut their “losses,” which never existed in the first place. What about the PEOPLE?? Where’s the bailout for the PEOPLE who need to be washed of all this fraud. I refuse to be a party to it.

    Give me a break! Lenders have already collected numerous times on our alleged loans and made their profits. PAYBACK time is a small percentage of what they stole from the public on an international scale!!

  5. Every proposal I have seen so far indicates the bank or servicer has some interest in the property in question. Why is this assumed? I can understand why some people would like to “solve” this issue in a way that makes it okay for them.
    But really, if this is systemic, industry wide fraud, known to our government, known to all, Why don’t we try to find out just how bad it is before we assume any bank owns anything they sold for full repayment at least once.
    This is like the Warren Commission or the 911 commission. We have the answer, let’s make up the facts now to fit.

  6. I agree with ANONYMOUS and the person is always right and to the point.

  7. Their will be no more banks within the year. They are all under capitalized. They allegedly sold the same loans many times. The Commercial loan crisis has not been public. But it is much worse than the housing crisis.

    The genie is out of the bottle.

  8. You are 100% correct, Annoymous.
    “Fool me once, shame on you. Fool me twice, shame on me.”

  9. Although I have been pushing principal reductions – do not like equity sharing. This could hold borrowers accountable by a demand to stay in home for certain amount of years without flexibility of relocation for possible job changes. And, it keeps borrowers in same position of not knowing who really holds the loan on it’s balance sheet.

    Banks should make principal reduction first – then banks can share THEIR receivables with investors. The contract should not be between borrowers and unidentified investors.

  10. Negative Equity is an issue, but so is homeowners losing their down payment rather than having a portion of it go towards future home mortgage payments when they are in foreclosure.

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