The federal regulator for credit unions has allowed them to make modifications to home loans in which the lender shares in any appreciation of the property in exchange for lowering principal.
"Nothing in our lending rules prohibits" a federal credit union "from offering a shared appreciation loan modification, assuming it is done in a safe and sound manner," wrote Robert Fenner, the general counsel for the National Credit Union Administration, in a May 28 legal opinion letter to David Adams, the president of the Michigan Credit Union League.
The agency "encourages credit unions to consider reasonable loan modifications, whenever safe and sound, to help keep members in their homes," Fenner wrote. "Shared appreciation agreements could be an effective tool in helping members who are struggling financially to avoid foreclosure."
However, he said debt forgiveness could raise tax issues for credit union members.
