The Los Angeles City Council has approved a motion to create a $1 million pilot program of "silent second" mortgages to defaulted homeowners in the city's Pacoima district.
Under the plan approved Wednesday, the city would loan up to $75,000 to reduce the principal balance on borrowers' already existing mortgages to an amount more in line with market values. Borrowers would not have to repay the new loan until the home is sold. Both the mortgage lender and the city would share in any profit on the sale after the loan is repaid.
Housing prices in Pacoima, which has 58,000 residents in northeast Los Angeles, have fallen 42% in the past year, according to RealtyTrac Inc.
The plan, which is expected to be available to homeowners in June, requires approval from the Los Angeles Community Redevelopment Agency's board.