Proposed bill would allow borrowers to sell equity for lower mortgage payments
Representative Gary Miller introduced a new bill today that he believes could keep housing affordable for low-income families. The Strengthening FHA Through Shared Equity Homeownership Act of 2010, also known as H.R. 6256, looks to establish a way for borrowers to sell their home's equity in order to lower their mortgage payment. The bill would create a pilot program through the Federal Housing Administration that would allow borrowers to sell a portion of their home equity to an investor in exchange for partial ownership of the house -- similar to owning shares of stock in a company. The investor would benefit from any price appreciation that may occur relative to the proportion of the investment. The investor is also affected by price depreciation with regard to their portion. Under the proposed bill, all investments go toward the principal loan amount and may not be used for downpayment or closing costs. The mortgagor must retain at least 60% equity share. Additionally, borrowers must comply with all FHA requirements for homeownership including mandatory downpayment requirements. Investors must be arm's length in order to qualify. “Decreasing the Loan-to-Value rates will result in lower monthly mortgage payments, thereby reducing the risk of homeownership," said Miller. "By mitigating the risk for homeowners, this will also decrease FHA’s exposure to volatility in the housing market. As countless families have been forced to foreclose on their homes, it’s time that we come up with a new, creative approach to address this ongoing problem, and I believe my bill does just that.” Write to Christine Ricciardi.