A New Kind of Loan Modification

With results from HAMP coming in not so great, borrowers need more options. As a result, technology provider ISGN Corp. and equity sharing provider EquityRock have partnered to create RESET, a loss mitigation solution that helps lenders reduce losses from properties in imminent danger of foreclosure, while also keeping the borrower in the property. The solution provides an alternative to outright principal forgiveness, and offers borrowers a way to erase negative equity.

RESET (Real Estate Shared Equity Transaction) gives a borrower who is qualified for a loan modification a principal reduction in exchange for a share in equity with their lender. With RESET, in addition to modifying or refinancing the borrower's mortgage, the lender writes down the borrower's principal balance so that the borrower no longer owes more than the property is worth, therefore ensuring they have equity in their property. As part of the transaction, the lender will gain a stake in any future appreciation should the property be sold or refinanced. When the transaction is complete, the borrower gets to stay in the home and keeps a monetary stake in the property.

As is typical in a corporate debt restructuring, the essential feature of the RESET modification is a fair, debt-for-equity exchange that benefits both the lender and the homeowner. RESET is a service that can be used by lenders and investors, as well as by housing finance agencies in support of the Treasury Department's recently announced Help for the Hardest Hit Housing Markets program. An estimated 3.7 million homeowners across the five states targeted by the program have negative equity with loan to value ratios that exceed 125%.

RESET was created by combining ISGN's automated net present value technology, call center capabilities and loan modification processing centers with EquityRock's equity sharing product technologies. The result is a set of solutions that keep homeowners with troubled loans in their homes, while also maximizing value to the lender.

"RESET provides lenders and borrowers with a much needed win-win solution to negative equity," said Niraj Patel, group president of ISGN. "Borrowers get to stay in their homes and have pride of ownership. And lenders have an alternative to the losses associated with short sales and foreclosures-they finally have a way to recoup at least some of the deficit that results from addressing the seriously delinquent or underwater loans in their portfolios."

James Riccitelli, co-CEO of EquityRock adds, "RESET is a natural evolution of a technology we developed, which provided the first introduction of pure real estate equity as an investable asset class to institutional investors in the United States. RESET supports public policy, as it is focused on permanent loan modifications and home retention, whereas REO and short sale result in home abandonment. We believe the majority of underwater mortgages that are fixed with RESET will stay fixed."