[quote=sdrealtor]He gets the upside when and if there ever is any. [/quote]
That’s a loan mod? There is no principal reduction. It’s an 80s recycled balloon loan.If they sell, they owe the original principal. They get to live there in exchange for 31% of their income until they can pay off the original note. ?They also get to do the maintenance and pay the taxes. At least as you say, it’s less than rent. Hopefully by year seven at $1800/month and taxes it’s still less than rent.
To maintain that 31% DTI, your friend will need a compound 6% annual rise in income by year seven.
As a serious note, does your friend understand that there really isn’t any principal reduction and if he sells the home in a year that he owes the bank $440K? I wonder how many of the other principal reductions out there are really this kind of deal and the drowning borrowers just don’t realise that they still really owe the original amount?
This is a horrible, horrible development, IMHO. I understand why your friend did it. I understand why the bank did it. But frankly, for cities, it’s bad. It’s going to result in large numbers of people trapped in their homes with high front end DTIs. They can’t sell unless the market rebounds, rebounds significantly in many cases.
