WASHINGTON — Federal housing agencies are moving closer to a possible plan to help homeowners caught between rising interest rates on their mortgages and falling home prices that preclude selling or refinancing to pay off those debts, officials said Saturday.
The plan centers on so-called negative equity certificates. For such borrowers — whose debts exceed the resale value of their homes but who also had enough income to afford their payments before their mortgages reset to higher adjustable rates — government housing regulators would offer lenders a chance to refinance a new, smaller, federally insured mortgage. In exchange, a lender would receive a negative equity certificate entitling the holder to a payback if real estate recovers and the home is sold for a price greater than the original mortgage.
The Office of Thrift Supervision proposed such a system, and Federal Reserve Chairman Ben Bernanke endorsed the idea on March 4. On Friday, Treasury Secretary Henry Paulson appeared to allude to such a plan in a speech to the U.S. Chamber of Commerce.
Treasury officials, however, caution that the details and feasibility of the plan remain uncertain, in part because lenders have not shown much appetite for the idea. It is also unclear how many borrowers would qualify.
An estimated 9-million households own a home worth less than its mortgage debt, in part because at the peak of the housing boom lenders often required little or no down payment — in other words, a mortgage for 100 percent of the purchase price, putting the home underwater as soon as prices declined. There was no down payment on 29 percent of the mortgages originated in 2007, Paulson said. Many of those 9-million households can afford payments to avoid foreclosure.