Mortgage Rate Forecast: Shared-appreciation mortgage new kid on the block

Home loan modifications have the potential to remedy the housing market swoon currently severely affecting most of the nation. They have to be done right for them to work, though. Thus far the government has been the driving force behind loan mods, urgently pushing the private mortgage sector to follow its lead. But the response has been disturbingly lukewarm, so far.

Innovation in the home loan business has been robust in the past but somehow now that new ideas are desperately needed there isn't much to write home about. Option ARMs, Alt-As, NINA products and many others flooded the real estate market not so long ago and smoothly fueled a tremendous bubble. To be truthful, the subsequent Armageddon wasn't entirely their fault. These exotic programs were practical in certain niche situations, but were roundly abused and flat out over-hyped.

Now it appears that the mortgage industry is slowly getting into gear to find creative solutions to this meltdown. One idea to go along with loan mods is a shared-appreciation mortgage, or more affectionately SAM. In its present simple form it lowers the borrower's payments in exchange for a share of any future appreciation going to the lender, conditional on the home's value climbing over the existing balance. That's basically it. For the homeowner it would avert a foreclosure that has many undesirable side effects. The mortgage bank would sidestep high carrying costs and possibly pick up a slice of equity down the ways. And reap some goodwill, too. They sure haven't got much of that lately.

In Las Vegas valley - hosting communities like Spanish Trail, Mountains Edge, Rhodes Ranch, Summerlin, Henderson and Southern Highlands - it would probably find many takers as long as the mortgage lender would agree to a long-term contract that would allow the housing market to sufficiently recover to lift prices over loan balances. Homes built here in the last seven or so years ago were way overpriced and are now, today, desperately underwater, so to do a SAM on them would require a lot of patience. The home loan providers, for that reason, might for the most part shun Las Vegas. And some of the other harshly-clobbered areas as well, like Florida and California.

As a fresh idea from the private side to deal with this perilous mortgage market situation SAM is good news. This mess is not going get resolved solely by the government with its deep pockets, deep but not bottomless. Wall Street has to show that it can be a responsible partner in this, and act accordingly. SAM just needs other similar initiatives to complement what it aims to do.