Underwater homeowners in New York state are now eligible for an additional form of mortgage modification intended to help more of them keep their homes, in a development quietly passed in the state.
On July 9, the New York Department of Financial Services adopted regulations that allow for shared appreciation mortgage modifications under certain circumstances. The new regulations were announced in the state’s register and went into effect that day.
The regulations, Section 6-f of New York banking law, state that if a borrower is at the risk of foreclosure due to owing more on their home than it is currently worth, a a lender or mortgage holder may reduce the principal amount of a loan to help the borrower stay in their home.
According to a letter from the DFS sent to New York lenders, the lender or mortgage holder would then be entitled to share in any appreciation of the market value of the property between the effective date of the reduction in the principal amount of the mortgage loan and the date when the property is sold or transferred.
But there are stipulations on the amount of return that the lender can receive under the agreement. The lender is limited to a return whichever of the following amounts is lower:
The amount of the reduction in principal, plus interest on such amount calculated from the date of the shared appreciation agreement to the date of payment based on a rate that is applicable to the modified mortgage loan
50% of the amount of appreciation in value
“Currently, a number of New York homeowners owe more on their mortgage loans than their homes are worth. Meanwhile, foreclosures have soared in recent years. While mortgage modifications have helped many homeowners keep their homes, many other struggling homeowners do not qualify,” Daniel Burstein, executive deputy superintendent of the DFS’s real estate finance division, said in the letter to bankers.