Restoring Equity a Reality! Underwater Homeowners Have Hope As part of the 10 year retrospective, Roy Oppenheim will be republishing blogs from South Florida Law Blog. (Originally posted TUE AUG 9, 2011 on South Florida Law Blog)

From Urban Legend to Reality: Ocwen Offers Serious Principal Reduction

Meaningful principal reduction used to be an urban legend compounded by scamsters.

And until recently, Florida homeowners were probably more likely to spot Bigfoot than find a lender willing to forgive a significant portion of their residential first mortgage through a loan modification. But earlier this month, Ocwen Financial Corp. became one of the first private companies to initiate principal reduction without the prodding of a government agency.

Through the program called Shared Appreciation Modification (SAM), Ocwen is writing down qualified loans to 95% of the underlying property’s market value. The amount written down is forgiven in one-third increments over three years as long as the homeowner remains current. When the house is later sold or refinanced, the borrower will be required to share 25% of the appreciated value with the investor.

“Like all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity,” said Ocwen CEO Ronald Faris. “That’s a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it’s important too. Our 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.”

Ocwen said 79% of the borrowers have accepted the offer with a re-default rate of 2.6%. Ocwen said it has regulatory clearance to push the program into 33 states. Since the start of the mortgage crisis, Ocwen has saved over 200,000 homes from foreclosure and produced 25 times as many modifications per loan serviced as the servicing industry overall, the company claims.

“The simplicity and rationale of the SAM is striking: the homeowner maintains the equity that would otherwise be lost in the foreclosure process, and servicers and investors maintain a performing asset,” John Taylor, President and CEO of the National Community Reinvestment Coalition, said. “Ocwen has found a way to align the interests of borrowers, servicers and investors, making the program a win-win for all involved.”

Oppenheim Law hopes this is the beginning of a trend that was supposed to start three years ago when the government promised that it would assist in modifying more than 4 million loans.

From the trenches,

Roy Oppenheim

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About Roy:

Roy Oppenheim is a sought-after legal expert on issues relating to real estate. In 2009, he started the South Florida Law Blog to address the real estate market and foreclosure crisis. The Blog has been voted the best business and technology blog by the South Florida Sun-Sentinel. Mr. Oppenheim has been a contributor to Yahoo! Homes, featured on HuffPost Live, FOX News, and Lifetime TV, and quoted in prominent national publications, including USA Today, The New York Times and Huffington Post. Most recently, Mr. Oppenheim hosted an Ask Me Anything on Real Estate on Reddit. Mr. Oppenheim has also co-authored two law review articles: Deconstructing The Black Magic of Securitized Trusts, and The Emperor’s New Clothes.

Mr. Oppenheim founded Oppenheim Law, one of South Florida’s leading boutique law firms in Fort Lauderdale, Florida in 1989 with his wife Ellen Pilelsky, and, in 1994, he co-founded Weston Title & Escrow, a trusted South Florida real estate title company whose multilingual staff provides personal, concierge style service in the areas of real estate closings, title insurance, title searches and escrow services.

Weston Title: