The Negative Equity Carryover Model

July 26, 2010 - PRLog -- Negative home equity for America’s Homeowners has become an epidemic problem. Nationwide, homeowners are chained to their homes unable to sell due to the shackles of negative equity. This lack of mobility comes at a cost to society and at a time when the public’s need for mobility is at its greatest. Industry needs this mobility to balance labor requirements, labor needs this mobility to find and create job opportunities, families need mobility to consolidate households and care for aging relatives and others to simply downsize into homes that they can manage and afford financially.

Banks are resistant to negotiate short sale settlements for the fear that the losses on these mortgages will spiral out of control and bring the banks to their knees. Many borrowers are choosing to strategically default in an effort to break the chains of negative equity in order to get on with their lives.

Negative equity, short sales and foreclosures have become a lose-lose situation for both homeowners and lenders.

The Federal Government needs to create legislation making it practical and feasible for banks to offer a safe and equitable alternative.

The “Negative Equity Carryover Model” proposes that negative equity be carried forward to the purchase of a subsequent home purchase or as a personal loan to the homeowner after the property sale.

Homeowners and banks won’t need to negotiate the loss of equity as is currently being done through short sales and foreclosures. Negative equity can be “carried” by a homeowner as a second lien into the purchase of another home or onto a credit report as a personal line of credit.
The Model suggests that rather than write the loss off at time of sale through a short sale or foreclosure, the negative equity can be carried into the future as an independent debt/lien and slowly forgiven over an amortized timeframe. The homeowner’s credit would be saved and we as a nation could avoid the wholesale destruction and lockout of a future homeownership class due to damaged credit.

Lenders could amortize the negative equity over years while still maintaining some lien position just in case homeownership equity returned.