In a world where banks that are "too big to fail" and get taxpayer bailouts with no strings attached. A New York banking regulator is proposing that the mortgage assistance that banks provide to homeowners comes along with a rope.
Lenders have avoided principal reductions like the plague, and have exploited loopholes in settlements and agreements brought about by regulatory action.
The $8.5 billion dollar settlement that had banks agree to principal reductions was skirted by lenders who exploited the settlement terms by "forgiving" 2nd mortgages on homes that were in foreclosure on their 1st mortgage where the 2nd mortgage would have been eliminated by the foreclosure anyway.
Now as a reward for their actions, the same lenders who plunged this country into the worst economic disaster since the Great Depression are being offered an opportunity to tie the mortgage assistance offered to struggling homeowners to a forced equity sharing program.
A story in the Wall Street Journal this morning announced Benjamin Lawsky, superintendent of the Department of Financial Services, said he is proposing to expand the options a bank can take when a home has depreciated in value by more than what the homeowner originally paid.
New York's banking regulator on Tuesday said he is proposing new rules that would encourage banks to help underwater homeowners.The new rules would expand relief to homeowners who might not qualify for other federal or private foreclosure prevention programs, according to DFS.
Specifically, the agency is considering approving and encouraging the use of "shared appreciation" mortgage modifications. In those cases, a bank will reduce the amount of the principal balance of the loan in exchange for a share of the home if it goes up in value.
Mr. Lawsky called shared appreciation a potential "life raft" for homeowners and said his office is continuing to look at other ways to provide relief to homeowners.
The new regulations would be part of the department's mortgage modification rules. A 45-day comment period likely will kick off in mid-December, a spokesman said. DFS reviews the comments before publishing the final regulations.