[quote=temeculaguy]FDIC writedowns, FHA secure, Fannie and freddie writedowns all follow a general theme and the largest misconception is that nothing is actually forgiven, rather it is suspended. Eating a few hundred grand per house is too expensive to help more than a few people. Eating the interest on a portion of the principal allows them to “help” more people, many more, a few hundred more, with the same dollars.
Wilbur Ross has proposed a three way arrangement with a private company, but the current gov’t stuff is a two way deal.
I’ve posted before that when you look at how the write down works, it is actually far worse for the fb than walking away, but they do get to have a roof over their head and they get to pay about 50% more than rent without ever building equity. When the market recovers or when they sell, whatever was “re-worked” has to be paid back and no refi or helocs can ever be taken until the rework has been paid. When you look at it, it is nothing more than a long term teaser rate, in fact it’s worse, but they think it will buy enough years for the recovery.
scenario: fb buys for 500k, 0 down. Today house is worth 300k. fb cant pay his fully amortized payment with impounds of 4k. rework takes .38 of his/her gross, figures what portion of the fully amortized that would cover, lets say 7k gross per month as $2500 a month and that is the new payment. That equates to paying on 300k, the value of the home. 200k is suspended and does not accrue interest (that interest is the cost to the gov or bank). When the market rebounds in 5 years and it sell or refi’s at 500k, fb gets nothing, bank or gov gets the whole 500. If it goes to 600k, bank gets half the profit to offset the loss of interest and fb gets 50k.
FB gets to deduct the 2500 like any homeowner would, but they are really just a renter and need to gain more than 200k in value before actually making anything and even then they only get half.
Their neighbor buys for 300k this week and when fb sells at 600k in the future and enjoys his 50k, the neighbor gets 300k. This is why only 1 in 8 that are eligible are taking advantage of this “help.”[/quote]
Considering all of the new gov’t. and bank programs/initiatives (since late ’08 when this was posted), is the above still a valid and typical scenario for loan mods in general?
