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

[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.

[sdrealtor]

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.

[sdrealtor]

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.

[sdrealtor]

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.

[sdrealtor]

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.

[sdrealtor]

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.

[jpinpb]

Since you said he plans on being there long term, good for him. And yes, technically, no one is trapped (unless recourse loan) they can always walk. But there is some presupposing that prices are going to go up (don’t they always?) What if like Meredith Whitney says, there’s another leg down or just stays flat?

[jpinpb]

Since you said he plans on being there long term, good for him. And yes, technically, no one is trapped (unless recourse loan) they can always walk. But there is some presupposing that prices are going to go up (don’t they always?) What if like Meredith Whitney says, there’s another leg down or just stays flat?

[jpinpb]

Since you said he plans on being there long term, good for him. And yes, technically, no one is trapped (unless recourse loan) they can always walk. But there is some presupposing that prices are going to go up (don’t they always?) What if like Meredith Whitney says, there’s another leg down or just stays flat?

[jpinpb]

Since you said he plans on being there long term, good for him. And yes, technically, no one is trapped (unless recourse loan) they can always walk. But there is some presupposing that prices are going to go up (don’t they always?) What if like Meredith Whitney says, there’s another leg down or just stays flat?

[jpinpb]

Since you said he plans on being there long term, good for him. And yes, technically, no one is trapped (unless recourse loan) they can always walk. But there is some presupposing that prices are going to go up (don’t they always?) What if like Meredith Whitney says, there’s another leg down or just stays flat?

[no_such_reality]

Hmm, so my taxes are subsidizing the loans for him to stay in a house I can’t buy because he’s staying in it subsidized by my taxes. 🙂 Nothing to hate there.

Seriously, for your friend, it’s a good deal. For Joe Schmoe, maybe, maybe not. How many are going to increase their incomes by 6% a year? Honestly, if I could get the deal, I would.

And again, not necessarily your friend, but for Joe Average borrower that didn’t understand their option ARMs, do you think they understand this deal or do they just understand they get to stay as long as they make payments?

By real problem is more simple, it’s the DTI target. 31%. Studies have repeatedly show that in excess of 30% of income going to rent is a driver of poverty. This is very close to renting and for many, I suspect it will be a gateway to poverty.

[no_such_reality]

Hmm, so my taxes are subsidizing the loans for him to stay in a house I can’t buy because he’s staying in it subsidized by my taxes. 🙂 Nothing to hate there.

Seriously, for your friend, it’s a good deal. For Joe Schmoe, maybe, maybe not. How many are going to increase their incomes by 6% a year? Honestly, if I could get the deal, I would.

And again, not necessarily your friend, but for Joe Average borrower that didn’t understand their option ARMs, do you think they understand this deal or do they just understand they get to stay as long as they make payments?

By real problem is more simple, it’s the DTI target. 31%. Studies have repeatedly show that in excess of 30% of income going to rent is a driver of poverty. This is very close to renting and for many, I suspect it will be a gateway to poverty.

[no_such_reality]

Hmm, so my taxes are subsidizing the loans for him to stay in a house I can’t buy because he’s staying in it subsidized by my taxes. 🙂 Nothing to hate there.

Seriously, for your friend, it’s a good deal. For Joe Schmoe, maybe, maybe not. How many are going to increase their incomes by 6% a year? Honestly, if I could get the deal, I would.

And again, not necessarily your friend, but for Joe Average borrower that didn’t understand their option ARMs, do you think they understand this deal or do they just understand they get to stay as long as they make payments?

By real problem is more simple, it’s the DTI target. 31%. Studies have repeatedly show that in excess of 30% of income going to rent is a driver of poverty. This is very close to renting and for many, I suspect it will be a gateway to poverty.

[no_such_reality]

Hmm, so my taxes are subsidizing the loans for him to stay in a house I can’t buy because he’s staying in it subsidized by my taxes. 🙂 Nothing to hate there.

Seriously, for your friend, it’s a good deal. For Joe Schmoe, maybe, maybe not. How many are going to increase their incomes by 6% a year? Honestly, if I could get the deal, I would.

And again, not necessarily your friend, but for Joe Average borrower that didn’t understand their option ARMs, do you think they understand this deal or do they just understand they get to stay as long as they make payments?

By real problem is more simple, it’s the DTI target. 31%. Studies have repeatedly show that in excess of 30% of income going to rent is a driver of poverty. This is very close to renting and for many, I suspect it will be a gateway to poverty.

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