'Marketplace' Report: Mortgages The Office of Thrift Supervision has devised a plan to help troubled mortgage borrowers hold onto their homes. Amy Scott of Marketplace talks with Alex Chadwick about the regulatory agency's plan and why it could be risky for lenders.
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'Marketplace' Report: Mortgages

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'Marketplace' Report: Mortgages

'Marketplace' Report: Mortgages

'Marketplace' Report: Mortgages

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The Office of Thrift Supervision has devised a plan to help troubled mortgage borrowers hold onto their homes. Amy Scott of Marketplace talks with Alex Chadwick about the regulatory agency's plan and why it could be risky for lenders.

ALEX CHADWICK, host:

From NPR News, it's DAY TO DAY. Before we get to Providence and Buffalo, we're coming to MARKETPLACE to talk about foreclosures.

The federal government is working on a new plan to help homeowners, especially those who are upside down on their mortgages. And that term means they owe more than their homes are worth. MARKETPLACE's Amy Scott joins us. Amy, how is this going to work?

AMY SCOTT: Well, the plan is coming from the office of thrift supervision, which just announced yesterday that the thrift industry lost more than $5 billion in the last quarter of 2007. That's a record. And what regulators are looking to do is to help this specific subset of homeowners, people whose mortgages now exceed the value of their homes. Borrowers would be able to get a new government insured loan covering the market value of their house. The new loan would then be used to partially pay off that original mortgage. And the original lender would, of course, be taking a loss, but in exchange they'd get a so-called negative equity certificate. If the homeowner sells the house down the road at a higher value, that certificate would entitle the lender to a share of the profit.

CHADWICK: So is that going to be enough to get the lenders to sign on to this?

SCOTT: Well, people I've talk to say the response from lenders has been fairly positive so far. Jared Seeberg(ph) is a financial services policy analyst with the Stanford Group, and he says a frequent criticism of other bail-out plans we've seen is that, you know, let's say the housing market recovers, what's to stop the borrower who got bailed out from turning around and selling the house at a profit?

Mr. JARED SEEBERG (The Stanford Group): And this addresses one of those unknowns by saying that the lender would get to participate in the upside through the holding of this certificate. Is it a panacea to all of the housing problems? Of course not. It's addressing a problem of people who have negative equity in their home that a lot of the other initiatives announced so far haven't addressed.

SCOTT: And this negative equity is poised to get a lot worse when a lot of what are known as Payment Option R mortgages begin to reset within the next year or so. So you've got falling property values on one hand and ballooning mortgages on the other. Seeberg says the industry knows it needs to do something and this is the most attractive plan yet.

CHADWICK: Amy, you know we're going to hear from a couple of cities about tackling the problem of abandoned houses, and I'm just wondering how this new federal proposal is going to fit in with other rescue plans that are in the works.

SCOTT: Well, it's likely to be just a piece of the solution. And I should say if it gets approved. The Treasury Department is working on a voluntary plan to freeze interest rates for some borrowers. And probably the biggest proposal right now is coming from Democrats who want to amend the bankruptcy code to cover mortgages. That's something the industry is fighting vigorously and may be another incentive to get them onboard with this latest plan.

CHADWICK: Amy, thank you. Amy Scott of public radio's daily business show, MARKETPLACE.

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