I’ve got the papers in my hands. Let me begin by saying I used the term principal reduction because that is the lay term bandied about. In the paperwork it cleary states it is a deferral of principal where by they defer the collection of and not accrue interest on the $40,000.
The rental value of his property is currently more than his PITI in year 7. The 31% is based upon his incme in a new career and he should have no problem increasing his annual income by the $6,000 per year his payments will rise. If he wants to take in a tenant (which he has done in the past) he could generate close to $10,000.
The whole point of the HAMP program is to give people like him time to recover (short term fix) and more importantly give them the opportunity to take advantage of todays historically low interest rates (long term fix). In order to achieve this they can reduce the interest down as low as 2% for 5 years and then up 1% per year until it caps at today’s current long term rates. The giveaway to the borrower is the 7 years of subsidized interest rates. That is the true cost of the program. Beyond that they are getting the same interest rates today’s borrowers can get.
For the lender, foreclosure costs and selling transaction costs would easily equal $50,000 in todays dollars. The total subsidy is only $40,000 over 7 years.
My friend understands exactly what the program is. He has lived in the home for 11 years and there is no reason why he wouldnt live there for the rest of his life. Its a one story home exactly in the middle of the place he chose to live. He has and would change jobs/careers before relocating. Bear in mind that this is a HAMP modification (the Obama Plan) and all their mods shoudl work this way. That isnt to say there arent true principal reductions elsewhere but I know those are pretty rare.
Its a great development for everyone (except maybe you) and he is anything but trapped. He (and others) can walk away from the home anytime just like he could have in the last few years but that is not what he wants to do. It has helped stabilize his life and the life of others in the communities across the country. I can see you really want to hate this because it is counter to your agenda but I dont see it being a losing proposition for anyone else.
