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Old 08-08-2013, 10:11 AM
Location: Maryland
1,534 posts, read 3,672,363 times
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Any info would be appreciated . In the various mortgage restructuring options I see in the news, its unclear who is taking the hit/paying for the reduction in principal and/or interest rate. I'm curious:

- is the Federal government subsidizing this activity?
Don't know if there are any state specific restructuring options, but the same question applies.

- is it the bank who is eating the principal reduction/loss? Is the bank getting a write-off on their taxes for a mortgage write down (being subsidized by the taxpayers) for this action???

I'm just really curious how this activity works and who is picking up the tab.

Really appreciate any factual information anyone can provide.
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Old 08-08-2013, 11:40 AM
4,787 posts, read 8,752,051 times
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This may help

Mortgage modification - Wikipedia, the free encyclopedia

You'll notice that most programs are backed by the federal government. That means the public is picking up some of the tab for the programs.
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Old 08-08-2013, 03:51 PM
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It's so complicated, my brain would hurt explaining it in any detail.

In a nut shell, the us tax payers, everyone, is paying for your $50,000 reduction because the loans were backed by the us gov through fannie/freddie, etc and they are still deep in the hole.
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Old 08-08-2013, 09:27 PM
Location: East of Seattle since 1992, originally from SF Bay Area
28,384 posts, read 50,562,503 times
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It really depends on the individual case. I know of several where the interest rate was reduced but the difference will be added to the payoff when it's sold,
along with the missed tax and insurance payments. The bank ends up losing nothing but the people keep their house with a lower payment.
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Old 08-09-2013, 03:16 PM
Location: New York
2,251 posts, read 4,160,232 times
Reputation: 1607

This is a very large topi
c - when I see someone speaking about the mortgage situation facing our country, its clear many things are not discussed. Most TV/News speakers are one sided talking about the impact for investors, not many discuss it from the point of the home owner. One point that needs to be addressed is investors/lenders are in this for profit.

Most all loans considered for a restructure go through a process call a net present value (NPV) test, which is the test that determines borrower eligibility for a loan modification. The NPV is one sided - determining whether a lender would be better off financially by modifying the loan, or by taking no action and presumably foreclosing assuming the borrower’s default. The lender is going to take the most profitable action for them.

The first item that needs to be looked at is there a provable hardship and is the affordability if the loan could be modified to the lowest possible rate. Most lenders will not acknowledge there is anything wrong unless the borrower is late on the payments. It is the house hold income that determines what a payment could be modified too. Lenders will not explain this to borrowers, instead they want any and all documents sent so they can calculate the most profitable resolution to them.

Next is determining the type of loan it is and who is the investor and servicing bank. Fanny Mae and Freddy Mack (both government institutions) back an estimated 60% of loans across America. A HAMP modification can be structured to as low as 2% (again the income determines the rate), for the first five years starting at a the lowest rate and stepping up over time. I have seen when there was a high initial interest rate, modified into a fixed rate. Noting servers getting a kick back for up to five years from the government.

Private investors - one thing seeing repeatedly on completed modifications is, dropping the rate and restructuring arrears into a balloon payment at the end of the loan. So for the short term is is helping the home owner stays in the home, for the long term the balance.

A home is the biggest investment a person's life. In an unsure economy where many people are living pay check to pay check. Something is wrong when faced with losing their home, it is more important that profit is made before help the home owner. There are people whom I have spoken to that were trying to get out of the responsibility to a loan. I have spoken to many who lack money management skills that have over-spending habits. However there are many more that have high interest rates, high payments that cry for help. Only to get no help because the lender is concerned more about profit.

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