With the news release of Governor Andrew Cuomo having introduced the notion of Shared Appreciation Mortgage Modifications, Americans have concluded to have mixed emotions about the new regulation.  Shared appreciation modifications allow banks to lower the amount of principle outstanding on a home, in exchange for a percentage of the home’s future value increase.  Sounds dreamy, no?  Seemingly a “happily ever after” for homeowners nearing foreclosure, this proposal allows for a way out.

The proposed regulation limits the mortgage investor’s share to either the amount of the reduction plus interest, or half of the appreciation amount in market value—whichever is less.  This important limitation—while solving the problem at hand—has investors skeptical.  Under the current federal rules, the majority of home loans in New York would not qualify for the program because Fannie Mae and Freddie Mac, which own roughly two-thirds of home loans in the state, do not forgive outstanding mortgage balances.

An economist who has studied shared appreciation mortgages said the proposal has holes.  It is highly unlikely that banks will subscribe to the new proposal unless it is adopted nationwide.  The proposal is also unclear as to whether or not the loan modifications would result in higher taxes for homeowners.  Some believe that middle class taxpayers will also feel the burden of this new proposal, worrying many.

This new proposal leaves many wondering when the homeowners can actually sell, how homeowners will pay the income tax, whether or not the rules and regulations will impact future mortgages, and how credit ratings will be affected.

While uncertainty is at the forefront, keep alert because Guy Watt, the president’s designee for Secretary of United States Department of Housing and Urban Development, approves of the idea and is thinking about using it for the rest of the United States.  However, some believe that this proposal could domino into another 2008 housing crisis.

Given the information, it seems like a lot needs to be ironed out with this proposal before it can be fully implemented.  While it may be a beautiful notion, is it really a wise option for homeowners?  Will forgiveness greatly impact America’s middle class and investors?  There are many question marks, but one can only hope that this proposal is shaped into something to help people keep their homes, all the while helping the market and overall economy of the United States.

Posted by Anthony Licciardello on


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