Ask anyone that knows anything about our housing market and they will most likely agree that we need to keep more people in their homes to begin a housing recovery.  The problem is that loan modification as we know it is non-existent and short sale or foreclosure obviously don’t do anything but make the situation worse. You would think that loan modification would be the best route.  You would of thought that until the FDIC  announced that over half of the borrowers who received a loan modification that did not include a principal reduction re-defaulted after multiple payments. What if the Servicer could reduce the principal on a mortgage in exchange for an option to share in the equity and potential appreciation of the property? Wouldn’t it be great to have a program that addresses the real problem….keeping people in their homes?

• What if there was a way to reduce or eliminate the Lenders loss mitigation costs normally associated with a Short-sale or Foreclosure?

• What if the Lender had a financial incentive to reduce the principal balance on a mortgage in a loan modification

• What if there was a real incentive to the Homeowner to stay in their home and not go to Foreclosure or Short sale?

• What if the Homeowner was able to stay in their home without the damage to their credit associated with a Short sale or Foreclosure?

• What if the Lender could participate directly in a borrower’s successful retention of their home vs. a second lien position?

All the above is possible with HEFI Home Equity Fractional Interest. HUD first proposed a program called “Hope For Homeowners” (H4H) last August that was based upon some of the themes above and it has failed miserably. Hope For Homeowners penalized the lender who was taking the biggest loss by passing the benefit of the Shared Equity to HUD and Ginnie Mae when the home appreciated with no return of the forgiven debt back to the original Lender that would reduce the principal balance.

• Why not a Win / Win?
• Why not have the Lender that is reducing the principal balance retain the equity?
• Why should the existing Lender be forced to sell off the now performing senior mortgage?
• Why not retain the newly performing loan and sell that loan at a future date at Fair Market Value instead of at a discount?

HEFI provides the Homeowner with a partner in their successful retention of their home instead of having their equity shared for life, as it is in Hope For Homeowners. In a Home Equity Fractional Interest (HEFI) the homeowner retains the right to redeem the HEFI and regain 100% of the home’s equity and allows the Lender that exchanged the reduced principal balance for a HEFI to maximize his recovery.

Some Benefits of HEFI

• Homeowners get to stay in their homes by granting a fraction of equity
• Homeowners retain their ownership rights
• Foreclosure costs to the surrounding community are avoided
• Homeowners preserve their equity and maintain their properties
• Likelihood of a re-default is mitigated
• In the event of default, the HEFI converts into a Tenants-In-Common allowing the HEFI owner to sell the home as a resale

There are several servicers testing HEFI throughout the country, several of the experts I have spoken to believe HEFI is a reality that will soon be a viable option for banks and struggling homeowners.

For more information about HEFI, contact  EquiDebt Solutions

Thanks to Don Doerr and Doug Farnham or Thomson Conant’s  Mortgage Mediation Group

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