WASHINGTON (Reuters) - The U.S. Treasury Department is studying a proposal aimed at prodding servicers to help homeowners facing foreclosure to refinance their mortgages, the department’s undersecretary, Bob Steel, said on Thursday.
The program, being developed by the Office of Thrift Supervision (OTS), would create “negative equity certificates” that would in the long term help servicers recoup losses from refinancing a mortgage when a home’s value has dropped.
The certificate program would operate along with other Bush administration-backed industry programs to modify mortgages provided to borrowers with poor credit histories and who are about to lose their homes.
“We’re just learning about it,” Steel told the Reuters Housing Summit. “I spoke to Mr. (OTS Director John) Reich last night. I think they’re still working out the details too.”
“But it’s more ideas,” Steel said. “Other ideas from other people is a good thing.”
The OTS regulates the thrift industry, which is largely comprised of mortgage lenders ranging from small, locally-owned institutions to big companies such as Countrywide Financial Corp CFC.N and Washington Mutual Inc (WM.N).
The OTS proposal is in its early stages but comes at a time when officials fear an increasing number of people would rather walk away from homes which have fallen in value during the current turmoil in the housing and lending markets.
If implemented, the program, possibly with Federal Home Administration assistance, would apply to all mortgages but it appears it would mainly focus on subprime loans.
It would not necessarily guarantee a full repayment to the servicer because the value of the certificates could be publicly traded and fluctuate with home prices, OTS officials have said.
Sheila Bair, chairman of the Federal Deposit Insurance Corp, has been urging the mortgage industry to do more to modify some subprime loans over the next few years.
“Chairman Bair is interested in learning more about the OTS proposal,” FDIC spokesman Andrew Gray said. “Creative ideas and innovative thinking about solutions to the housing problems are things that she welcomes.”
An OTS spokesman said more discussions are expected with officials at Treasury, the Department of Housing and Urban Development and FHA.
(For summit blog: summitnotebook.reuters.com/)
Editing by Gerald E. McCormick and Tim Dobbyn