Nailing Down Foreclosure Fixes

 

Nancy Pollard, MBA 84, believes she has found a new, more consumer-friendly fix to the real estate crisis. Pollard is executive vice president of Impac Funding Corp., a mortgagebacked securities issuer, which found itself stuck with a large portfolio of home mortgages when the real estate market blew up.


Rather than taking large losses on foreclosures, Pollard has helped devise a new way to modify loans that she believes is the most advantageous to homeowners today. It’s called a SAM, or shared appreciation mortgage. Impac completed its first SAM in May.


It works like this: Say a homeowner owes $500,000 on his mortgage. But the home‘s value sinks to $200,000 and the homeowner can‘t afford his loan payments. Instead of foreclosing and losing more than $300,000, Impac drops the principal balance to $300,000 -- after determining that‘s the most the homeowner can afford -- and creates a SAM out of the $200,000 balance.


If the homeowner keeps the house a long time and sells it for $1 million, Impac gets back its $200,000 from the SAM plus 5 percent for each year it held the SAM. If the house sells for only $400,000, Impac splits 50-50 the $100,000 above the $300,000 first mortgage.


The 5 percent cap on Impac’s gains is uniquely consumerfriendly, but Impac still enjoys the potential to recover its loss, Pollard says. Equally important, consumers keep their homes.


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