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

[no_such_reality]

Renting doesn’t have property tax and maintenance either…

I get the sunk costs, it’s all completely logical. If I was the bank, I’d cut that deal. If I was your friend, I’d cut that deal. If I was running the government, I’d cut the deal.

I stand by my original soundbite. The deal for many will be financial serfdom.

Your friend will be fine, a new career, willing and able to change careers to stay where he wants to stay is a total win. Their income will probably rise faster than the 6% payment increases. Don’t know if that is true for the masses.

The big brains in Washington think realising the loses is too damaging. They also have amassed $13 Trillion in debt. I have my doubts.

[sdrealtor]

Property taxes are included in it being cheaper than rent as one requirement of the program is to have insurance and taxes impounded. The 31% includes prinicipal+interest+taxes+insurance. Yes there is maintenance but there are tax benefits, no moving expenses, no rent increases, principal payments each month, potential long term appreciation and of course the joy of homeownership;)

[sdrealtor]

Property taxes are included in it being cheaper than rent as one requirement of the program is to have insurance and taxes impounded. The 31% includes prinicipal+interest+taxes+insurance. Yes there is maintenance but there are tax benefits, no moving expenses, no rent increases, principal payments each month, potential long term appreciation and of course the joy of homeownership;)

[sdrealtor]

Property taxes are included in it being cheaper than rent as one requirement of the program is to have insurance and taxes impounded. The 31% includes prinicipal+interest+taxes+insurance. Yes there is maintenance but there are tax benefits, no moving expenses, no rent increases, principal payments each month, potential long term appreciation and of course the joy of homeownership;)

[sdrealtor]

Property taxes are included in it being cheaper than rent as one requirement of the program is to have insurance and taxes impounded. The 31% includes prinicipal+interest+taxes+insurance. Yes there is maintenance but there are tax benefits, no moving expenses, no rent increases, principal payments each month, potential long term appreciation and of course the joy of homeownership;)

[sdrealtor]

Property taxes are included in it being cheaper than rent as one requirement of the program is to have insurance and taxes impounded. The 31% includes prinicipal+interest+taxes+insurance. Yes there is maintenance but there are tax benefits, no moving expenses, no rent increases, principal payments each month, potential long term appreciation and of course the joy of homeownership;)

[ucodegen]

[quote sdrealtor]
Across the life of the loan the banks borrowing costs are and will be well below the interest rate he is paying. The risk of not getting principal back has been lowered by reducing the borrowers rates, it hasnt gone up.
[/quote]
You are focusing on short term rates. The bank is committed to the loan for more than 1 or 2 years. It has to look at its costs over a longer period. LIBOR is an even shorter period of time than Freddie’s financing. Short term financing presents risks should interest rates go up.
http://www.wsjprimerate.us/libor/libor_rates_history.htm
Look at some of the past rates… take a look at 1990.
Freddie’s bond costs were 6% in 2000.
http://www.freddiemac.com/debt/data/cgi-bin/refbillaucres.cgi?order=AD&year=2000

Freddie’s TARP interest payments are 10%.
Bank of America’s TARP interest payments were 3.5%.. which is higher than the amount I used as my example.

As for risk of default going up or down, I just said that in my example, it was unquantified. That said, there is a very high number of re-defaults in these renegotiated loans. Whisper is that it is close to 60%. The same mentality that used the home-ATM also ran up the credit cards etc.. and financing those through the home-ATM.

There may be people who were beset by problems, that these reduction of principals help.. but it looks like it is the minority.

[quote sdrealtor]
Wow, that 2nd one was a wacky twist on my analogy. I dont know many individuals whose personal income is underwritten by borrowed money. You cant lose money you never had. Making less than you hoped for or were promised does automatically create a loss.
[/quote]
I don’t know if you are responding to me here.. but I think you mis-read something I wrote. I was talking about the banking business. But lets say I was talking about people’s personal income being underwritten by borrowed money — I suggest you look up something called “Carry Trade”.

[ucodegen]

[quote sdrealtor]
Across the life of the loan the banks borrowing costs are and will be well below the interest rate he is paying. The risk of not getting principal back has been lowered by reducing the borrowers rates, it hasnt gone up.
[/quote]
You are focusing on short term rates. The bank is committed to the loan for more than 1 or 2 years. It has to look at its costs over a longer period. LIBOR is an even shorter period of time than Freddie’s financing. Short term financing presents risks should interest rates go up.
http://www.wsjprimerate.us/libor/libor_rates_history.htm
Look at some of the past rates… take a look at 1990.
Freddie’s bond costs were 6% in 2000.
http://www.freddiemac.com/debt/data/cgi-bin/refbillaucres.cgi?order=AD&year=2000

Freddie’s TARP interest payments are 10%.
Bank of America’s TARP interest payments were 3.5%.. which is higher than the amount I used as my example.

As for risk of default going up or down, I just said that in my example, it was unquantified. That said, there is a very high number of re-defaults in these renegotiated loans. Whisper is that it is close to 60%. The same mentality that used the home-ATM also ran up the credit cards etc.. and financing those through the home-ATM.

There may be people who were beset by problems, that these reduction of principals help.. but it looks like it is the minority.

[quote sdrealtor]
Wow, that 2nd one was a wacky twist on my analogy. I dont know many individuals whose personal income is underwritten by borrowed money. You cant lose money you never had. Making less than you hoped for or were promised does automatically create a loss.
[/quote]
I don’t know if you are responding to me here.. but I think you mis-read something I wrote. I was talking about the banking business. But lets say I was talking about people’s personal income being underwritten by borrowed money — I suggest you look up something called “Carry Trade”.

[ucodegen]

[quote sdrealtor]
Across the life of the loan the banks borrowing costs are and will be well below the interest rate he is paying. The risk of not getting principal back has been lowered by reducing the borrowers rates, it hasnt gone up.
[/quote]
You are focusing on short term rates. The bank is committed to the loan for more than 1 or 2 years. It has to look at its costs over a longer period. LIBOR is an even shorter period of time than Freddie’s financing. Short term financing presents risks should interest rates go up.
http://www.wsjprimerate.us/libor/libor_rates_history.htm
Look at some of the past rates… take a look at 1990.
Freddie’s bond costs were 6% in 2000.
http://www.freddiemac.com/debt/data/cgi-bin/refbillaucres.cgi?order=AD&year=2000

Freddie’s TARP interest payments are 10%.
Bank of America’s TARP interest payments were 3.5%.. which is higher than the amount I used as my example.

As for risk of default going up or down, I just said that in my example, it was unquantified. That said, there is a very high number of re-defaults in these renegotiated loans. Whisper is that it is close to 60%. The same mentality that used the home-ATM also ran up the credit cards etc.. and financing those through the home-ATM.

There may be people who were beset by problems, that these reduction of principals help.. but it looks like it is the minority.

[quote sdrealtor]
Wow, that 2nd one was a wacky twist on my analogy. I dont know many individuals whose personal income is underwritten by borrowed money. You cant lose money you never had. Making less than you hoped for or were promised does automatically create a loss.
[/quote]
I don’t know if you are responding to me here.. but I think you mis-read something I wrote. I was talking about the banking business. But lets say I was talking about people’s personal income being underwritten by borrowed money — I suggest you look up something called “Carry Trade”.

[ucodegen]

[quote sdrealtor]
Across the life of the loan the banks borrowing costs are and will be well below the interest rate he is paying. The risk of not getting principal back has been lowered by reducing the borrowers rates, it hasnt gone up.
[/quote]
You are focusing on short term rates. The bank is committed to the loan for more than 1 or 2 years. It has to look at its costs over a longer period. LIBOR is an even shorter period of time than Freddie’s financing. Short term financing presents risks should interest rates go up.
http://www.wsjprimerate.us/libor/libor_rates_history.htm
Look at some of the past rates… take a look at 1990.
Freddie’s bond costs were 6% in 2000.
http://www.freddiemac.com/debt/data/cgi-bin/refbillaucres.cgi?order=AD&year=2000

Freddie’s TARP interest payments are 10%.
Bank of America’s TARP interest payments were 3.5%.. which is higher than the amount I used as my example.

As for risk of default going up or down, I just said that in my example, it was unquantified. That said, there is a very high number of re-defaults in these renegotiated loans. Whisper is that it is close to 60%. The same mentality that used the home-ATM also ran up the credit cards etc.. and financing those through the home-ATM.

There may be people who were beset by problems, that these reduction of principals help.. but it looks like it is the minority.

[quote sdrealtor]
Wow, that 2nd one was a wacky twist on my analogy. I dont know many individuals whose personal income is underwritten by borrowed money. You cant lose money you never had. Making less than you hoped for or were promised does automatically create a loss.
[/quote]
I don’t know if you are responding to me here.. but I think you mis-read something I wrote. I was talking about the banking business. But lets say I was talking about people’s personal income being underwritten by borrowed money — I suggest you look up something called “Carry Trade”.

[ucodegen]

[quote sdrealtor]
Across the life of the loan the banks borrowing costs are and will be well below the interest rate he is paying. The risk of not getting principal back has been lowered by reducing the borrowers rates, it hasnt gone up.
[/quote]
You are focusing on short term rates. The bank is committed to the loan for more than 1 or 2 years. It has to look at its costs over a longer period. LIBOR is an even shorter period of time than Freddie’s financing. Short term financing presents risks should interest rates go up.
http://www.wsjprimerate.us/libor/libor_rates_history.htm
Look at some of the past rates… take a look at 1990.
Freddie’s bond costs were 6% in 2000.
http://www.freddiemac.com/debt/data/cgi-bin/refbillaucres.cgi?order=AD&year=2000

Freddie’s TARP interest payments are 10%.
Bank of America’s TARP interest payments were 3.5%.. which is higher than the amount I used as my example.

As for risk of default going up or down, I just said that in my example, it was unquantified. That said, there is a very high number of re-defaults in these renegotiated loans. Whisper is that it is close to 60%. The same mentality that used the home-ATM also ran up the credit cards etc.. and financing those through the home-ATM.

There may be people who were beset by problems, that these reduction of principals help.. but it looks like it is the minority.

[quote sdrealtor]
Wow, that 2nd one was a wacky twist on my analogy. I dont know many individuals whose personal income is underwritten by borrowed money. You cant lose money you never had. Making less than you hoped for or were promised does automatically create a loss.
[/quote]
I don’t know if you are responding to me here.. but I think you mis-read something I wrote. I was talking about the banking business. But lets say I was talking about people’s personal income being underwritten by borrowed money — I suggest you look up something called “Carry Trade”.

[Author]

Posts