Jun 16 2009

Using Shared-Equity Agreements to Reduce Foreclosures: Policy and Analysis

Report  
Number  
190

This report expands on shared-equity loan modifications, a proposal first shared in a prior study entitled Keeping People in Their Homes: Policy Recommendations for the Foreclosure Crisis in Michigan.

Robert Manning, PhD
Research Professor and Director of the Center for Consumer Research
Rochester Institute of Technology
Report Number 190

Executive Summary

This report supplements a January 2009 study entitled Keeping People in Their Homes: Policy Recommendations for the Foreclosure Crisis in Michigan, where we examined the causes and impacts of the foreclosure problem in Michigan. The original study proposed 10 recommendations to mitigate the number of home foreclosures. One of these ideas, Shared-Equity Agreements, struck a chord among league executives and they asked Filene and Manning to research this idea further.

What is the research about?

At the request of the Michigan Credit Union Foundation, this report expands upon shared-equity loan modifications. Shared-equity loan modifications reduce the principal balance of a mortgage with the promise of sharing home equity appreciation that may materialize in the future between the lender and the borrower. 

What are the credit union implications?

The goal, as in most loss mitigation programs, is to avoid foreclosure by making a mortgage more affordable for the borrower. A potential added benefit of this approach is that the underlying value of the real estate assets secured by the mortgage is written down to the actual current market value.