OT-What a loan modification with principal reduction really looks like

[jpinpb]

[quote=sdrealtor]jp
For the time being it does look like he’s renting it but he gets the upside which I doubt your landlord would share with you. he also gets to stay in the home he has lived in for a decade and does not have the cost or burden of re-locating.[/quote]

sdr – he gets the upside after how long? And that’s if there is any profit left over after he pays what he owes the lenders that are giving him a break now.

He gets to stay in the home – or he has to stay in the home. Sometimes moving is not a burden. Renters are not stuck. They move to a better place, smaller or bigger or better location. If they get a better job offer, they don’t have to worry about having to sell or rent out their place.

The landlord doesn’t share his profit w/a renter, if he has one after he pays the PITI (and MR/HOA) and maintenance). That’s true. The renter also has cash that is not tied in real estate that can be used to invest as he or she wishes.

But I don’t want to make this about owning or renting. I have done both and though I rent in San Diego, I own properties. Good and bad to both.

In the case of your friend’s loan mod, he/she must love this house and plans to be there long term.

[sdcellar]

All I know, assuming a “market” rate of 5%, is that your friend will save $93,238.37 if he sells the home at the optimum time (185 months from now). If he has to pay back the $40K at that time, he’ll still be up over $50K. Even in just five years, he’ll be up $27.5K (after paying the 40). This is on top of the money he already took out of the house. Somebody eats this in the long run and that kind of sucks for everybody else, whether your friend is a nice guy or not.

I’m not saying that the bank necessarily has a better choice, because while it’s not all gravy, any alternative cuts into their income (and profit) as well. That is, they will never get what the original loan terms laid out. If they foreclose, at peak, they could earn a few more thousand dollars, but that’s subject to timing and variability as well. Hell, if he goes to term (40 years) on the loan mod, they’ll be up $1,473.47 over the original loan term!

So basically, at this level, it’s something of a flip of the coin, loan mod vs. foreclosure. You’re friend should consider himself a lucky bastard. At least on this front.

[sdcellar]

All I know, assuming a “market” rate of 5%, is that your friend will save $93,238.37 if he sells the home at the optimum time (185 months from now). If he has to pay back the $40K at that time, he’ll still be up over $50K. Even in just five years, he’ll be up $27.5K (after paying the 40). This is on top of the money he already took out of the house. Somebody eats this in the long run and that kind of sucks for everybody else, whether your friend is a nice guy or not.

I’m not saying that the bank necessarily has a better choice, because while it’s not all gravy, any alternative cuts into their income (and profit) as well. That is, they will never get what the original loan terms laid out. If they foreclose, at peak, they could earn a few more thousand dollars, but that’s subject to timing and variability as well. Hell, if he goes to term (40 years) on the loan mod, they’ll be up $1,473.47 over the original loan term!

So basically, at this level, it’s something of a flip of the coin, loan mod vs. foreclosure. You’re friend should consider himself a lucky bastard. At least on this front.

[sdcellar]

All I know, assuming a “market” rate of 5%, is that your friend will save $93,238.37 if he sells the home at the optimum time (185 months from now). If he has to pay back the $40K at that time, he’ll still be up over $50K. Even in just five years, he’ll be up $27.5K (after paying the 40). This is on top of the money he already took out of the house. Somebody eats this in the long run and that kind of sucks for everybody else, whether your friend is a nice guy or not.

I’m not saying that the bank necessarily has a better choice, because while it’s not all gravy, any alternative cuts into their income (and profit) as well. That is, they will never get what the original loan terms laid out. If they foreclose, at peak, they could earn a few more thousand dollars, but that’s subject to timing and variability as well. Hell, if he goes to term (40 years) on the loan mod, they’ll be up $1,473.47 over the original loan term!

So basically, at this level, it’s something of a flip of the coin, loan mod vs. foreclosure. You’re friend should consider himself a lucky bastard. At least on this front.

[sdcellar]

All I know, assuming a “market” rate of 5%, is that your friend will save $93,238.37 if he sells the home at the optimum time (185 months from now). If he has to pay back the $40K at that time, he’ll still be up over $50K. Even in just five years, he’ll be up $27.5K (after paying the 40). This is on top of the money he already took out of the house. Somebody eats this in the long run and that kind of sucks for everybody else, whether your friend is a nice guy or not.

I’m not saying that the bank necessarily has a better choice, because while it’s not all gravy, any alternative cuts into their income (and profit) as well. That is, they will never get what the original loan terms laid out. If they foreclose, at peak, they could earn a few more thousand dollars, but that’s subject to timing and variability as well. Hell, if he goes to term (40 years) on the loan mod, they’ll be up $1,473.47 over the original loan term!

So basically, at this level, it’s something of a flip of the coin, loan mod vs. foreclosure. You’re friend should consider himself a lucky bastard. At least on this front.

[sdcellar]

All I know, assuming a “market” rate of 5%, is that your friend will save $93,238.37 if he sells the home at the optimum time (185 months from now). If he has to pay back the $40K at that time, he’ll still be up over $50K. Even in just five years, he’ll be up $27.5K (after paying the 40). This is on top of the money he already took out of the house. Somebody eats this in the long run and that kind of sucks for everybody else, whether your friend is a nice guy or not.

I’m not saying that the bank necessarily has a better choice, because while it’s not all gravy, any alternative cuts into their income (and profit) as well. That is, they will never get what the original loan terms laid out. If they foreclose, at peak, they could earn a few more thousand dollars, but that’s subject to timing and variability as well. Hell, if he goes to term (40 years) on the loan mod, they’ll be up $1,473.47 over the original loan term!

So basically, at this level, it’s something of a flip of the coin, loan mod vs. foreclosure. You’re friend should consider himself a lucky bastard. At least on this front.

[sdrealtor]

He gets the upside when and if there ever is any. If he could sell for $600K tomorrow he would get the profits after making his lender whole.

He gets to stay in his home and wants to. He has been fighting to stay doing part time unglamorous work and anything he can to survive for a couple years. Sitting on his ass collecting UE was something he never wanted any part of. Its a modest home in a working class neighborhood and I wouldnt say he loves it but its home.

And yes he feels very lucky, fortunate….(insert oyur own adjective).

[sdrealtor]

He gets the upside when and if there ever is any. If he could sell for $600K tomorrow he would get the profits after making his lender whole.

He gets to stay in his home and wants to. He has been fighting to stay doing part time unglamorous work and anything he can to survive for a couple years. Sitting on his ass collecting UE was something he never wanted any part of. Its a modest home in a working class neighborhood and I wouldnt say he loves it but its home.

And yes he feels very lucky, fortunate….(insert oyur own adjective).

[sdrealtor]

He gets the upside when and if there ever is any. If he could sell for $600K tomorrow he would get the profits after making his lender whole.

He gets to stay in his home and wants to. He has been fighting to stay doing part time unglamorous work and anything he can to survive for a couple years. Sitting on his ass collecting UE was something he never wanted any part of. Its a modest home in a working class neighborhood and I wouldnt say he loves it but its home.

And yes he feels very lucky, fortunate….(insert oyur own adjective).

[sdrealtor]

He gets the upside when and if there ever is any. If he could sell for $600K tomorrow he would get the profits after making his lender whole.

He gets to stay in his home and wants to. He has been fighting to stay doing part time unglamorous work and anything he can to survive for a couple years. Sitting on his ass collecting UE was something he never wanted any part of. Its a modest home in a working class neighborhood and I wouldnt say he loves it but its home.

And yes he feels very lucky, fortunate….(insert oyur own adjective).

[sdrealtor]

He gets the upside when and if there ever is any. If he could sell for $600K tomorrow he would get the profits after making his lender whole.

He gets to stay in his home and wants to. He has been fighting to stay doing part time unglamorous work and anything he can to survive for a couple years. Sitting on his ass collecting UE was something he never wanted any part of. Its a modest home in a working class neighborhood and I wouldnt say he loves it but its home.

And yes he feels very lucky, fortunate….(insert oyur own adjective).

[no_such_reality]

Welcome to financial serfdom.

[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.

[no_such_reality]

Welcome to financial serfdom.

[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.

[no_such_reality]

Welcome to financial serfdom.

[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.

[no_such_reality]

Welcome to financial serfdom.

[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.

[Author]

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