We like it when people think outside the box. Radar Logic, a data and analytic firm, has sent a proposal to Washington on a loan-restructuring plan we find intriguing.

Mortgage News Daily offers an example of Radar logic's plan in practice: A loan with an original balance of $190,000 has been paid down to $186,000, then goes into default. A foreclosure occurs and a subsequent sale of the REO property nets $99,000. The loss suffered by the lender would be $87,000. Under Radar Logic's plan, a restructuring occurs based on borrower information and the appraised value of the home to produce a new loan of $125,000. The restructuring would result in a loss of $61,000 for the lender, but a 26-percent larger recovery.

So what's the incentive for the lender? The restructured loan would also include an equity participation certificate (EPC). While the homeowner would be granted a portion of the appreciation rights, the lender would hold an equity position through the EPC in anticipation of appreciation of the underlying collateral.

There are a couple obvious risks: 1) Radar Logic's contention that its plan will reduce the perception of over-supply and prices rise fails to materialize; and 2) the borrower defaults on the restructured loan. That said, at least Risk Logic is thinking, and we like that.

Information courtesy of Jessica Regan.