Homeowners throughout the country are facing foreclosure actions. In many of these situations, borrowers owe more on a mortgage than their house is worth. As we have mentioned in the past, homeowners throughout Florida have been hit particularly hard. In the first three months of the year, according to real estate analysis firm CoreLogic, the number of homes with mortgages that were underwater in Palm Beach County was close to 43 percent. This is compared to 23 percent nationally.

There are several approaches that may be tried to avoid foreclosure. One of these is a loan modification. Now, a loan servicer based in West Palm Beach is launching a new kind of loan modification plan. The plan is called a shared appreciation modification. It lowers the monthly payment for the borrower by reducing the amount owed. In return, when the house is refinanced or sold, the firm, Ocwen Financial Corp., receives a share of the appreciated value.

The difference between this program and other loan modifications is the reduction of the principal amount owed on the house. The traditional route taken when modifying a loan has been a reduction in the interest rate. Under this program, the principal amount owed on the loan is reduced by subtracting 5 percent from the current market value. If the borrower continues to pay the loan in a timely manner, the difference between the amount owed on the original loan and the reduced principal is forgiven over the next three years. When the home is refinanced or sold, 25 percent of the home's appreciated value goes to the lender.

The new program was piloted last year. Of the homeowners offered the opportunity to try the plan, 79 percent accepted. Within that group, roughly 2.6 percent have defaulted. It is estimated that the program may be an option for close to 53,000 homeowners throughout the country.

Source: Palm Beach Post, "West Palm Beach firm rolls out a new loan modification for underwater borrowers," Kimberly Miller, Aug. 8, 2011