What if we could design a program that establishes the current value of a home by appraisal, then reduces the balance owing to that value, conditioned upon the borrower making all payments on time over a specified trial period of time.
And, concurrently, restructure the mortgage debt at current interest rates to lower the monthly payment.
Then, the principal reduction would be made permanent at the end of that trial period of time.
To make it attractive for the lender/investor, the borrower could share any future profits at time of sale. For example, if there was a 20% principal reduction, the lender would receive 20% of any future price appreciation.
This concept, if implemented, would help keep people in their homes by lowering their payments and giving them an incentive for not defaulting.
But, this is not as simple as it sounds.
This is an extremely complex concept with numerous obstacles to overcome, including 2nd loans, gaining the approval of various parties including Fannie, Freddie, FHA, VA, bondholders, PMI (private mortgage insurance), and myriad other considerations.
That said, it might be better to write down the balances owed instead of enduring an endless onslaught of foreclosures with all concerned incurring even larger losses.
What are your thoughts on this?
February 14th, 2012 Posted in Inside Real Estate | 
Print This Post
| 2 Comments »
