The bill helps homeowners who are currently upside down on their homes and owe more than their homes are now worth.
Mortgages must have been originated prior to January 1, 2008.
Borrowers must:
- Certify that they did not default intentionally (there is penalty of jail if they are found to lie here).
- Have had a DTI ratio over 31% as of March 2008.
The lien holder will work with the borrower to write down the mortgage to no more than 90% of the appraised value. For example, if a borrower owes $300,000 but the home is worth $250,000, the borrower will receive a new loan for 90% of $250,000, which equals $225,000. The $75,000 difference is forgiven.
The lender shares equity in the property going forward, on a sliding scale:
- If the home is sold within one year, the lender receives 90% of the appreciation and the home owner receives 10%.
- If the home is sold within two years, the lender receives 80% of the appreciation and the home owner receives 20%.
- If the home is sold within three years, the lender receives 70% of the appreciation and the home owner receives 30%.
- If the home is sold within four years, the lender receives 60% of the appreciation and the home owner receives 40%.
- If the home is sold after five years, the lender receives 50% of the appreciation and the home owner receives 50%.
