New York bank regulators have proposed rules that would authorize “shared appreciation” mortgages, a property financing option state officials said would allow some homeowners to escape foreclosure. The Department of Financial Services said the proposed rule, §82-A of the commissioner’s regulations, would make sense to homeowners who owe more than their properties are worth according to their assessed values.
The regulations would allow lenders to offer reduced interest charges—and, consequently, to offer lower monthly payments—on mortgages. In return, consumers sign over to lenders a stake in the value of their mortgaged properties that lenders would “cash in” when the properties are sold and the mortgages terminated. For example, a lender agreeing to reduce monthly payments would receive a percentage of the appreciation increase in the value of the property. If a property purchased for $250,000 is sold for $500,000, the lender would receive a negotiated percentage of the increase.
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