Example 2: How The AllStreets Bailout Plan Could Pay Off Almost 15% of a Typical Mortgage and Lower the Payments
Under the AllStreets Bailout Plan every residential property owner gets a Housing and Economic Recovery Certificate ("HERC") from the federal government. The HERC shows your name, the address of the property you own, and a value equaling 60% of the drop in the value of your home from the peak in late 2006 (about a 20% drop on average in America). So the value equals 12% of the drop in your property value.
Suppose your peak property value was $300,000, so the 20% drop in value was $60,000. Then the value of the HERC is 60% of $60,000 or $36,000. Suppose you had a mortgage totaling about 90% of the $300,000 in value, as so many Americans did, so your mortgage balance is about $270,000, or $10,000 more than the current value of your home (consequently you don't qualify the entire balance of your mortgage, and you can't sell without a loss). Suppose your mortgage has a 5.75% interest rate. a payment of $1,574.49 and 26 years remaining on the loan. You give your HERC to your lender to pay off $36,000 of your principal, which is 13.3% of your mortgage principal. Your new principal is $234,000, or 93.3% of your current home value. You are now free to refinance your mortgage principal without paying down the balance further, or to sell the property without a loss. The lender also lowers your mortgage payment based on the new principal to $1,445.92, $128.57 less than your old payment.
The $36,000 of federal funds used to pay down your mortgage is split into two loans, one of $18,000 to your lender and one to you. The loans have a fixed interest rate of 3% for 30-years. The loans aren't secured by your property so you are no longer upside down with your mortgage. Your payment on the federal loan is $74.72. The total of your new mortgage payment plus the payment on the federal loan is $1,520.64, or $53.85 less than your previous mortgage payment only. Your lender is very happy. Your loan is no longer upside down, and he has $36,000 of fresh liquid funds to lend, of which $18,000 is a loan from the federal government at a 3% fixed rate for 30-years, which is very inexpensive capital.
Suppose your peak property value was $300,000, so the 20% drop in value was $60,000. Then the value of the HERC is 60% of $60,000 or $36,000. Suppose you had a mortgage totaling about 90% of the $300,000 in value, as so many Americans did, so your mortgage balance is about $270,000, or $10,000 more than the current value of your home (consequently you don't qualify the entire balance of your mortgage, and you can't sell without a loss). Suppose your mortgage has a 5.75% interest rate. a payment of $1,574.49 and 26 years remaining on the loan. You give your HERC to your lender to pay off $36,000 of your principal, which is 13.3% of your mortgage principal. Your new principal is $234,000, or 93.3% of your current home value. You are now free to refinance your mortgage principal without paying down the balance further, or to sell the property without a loss. The lender also lowers your mortgage payment based on the new principal to $1,445.92, $128.57 less than your old payment.
The $36,000 of federal funds used to pay down your mortgage is split into two loans, one of $18,000 to your lender and one to you. The loans have a fixed interest rate of 3% for 30-years. The loans aren't secured by your property so you are no longer upside down with your mortgage. Your payment on the federal loan is $74.72. The total of your new mortgage payment plus the payment on the federal loan is $1,520.64, or $53.85 less than your previous mortgage payment only. Your lender is very happy. Your loan is no longer upside down, and he has $36,000 of fresh liquid funds to lend, of which $18,000 is a loan from the federal government at a 3% fixed rate for 30-years, which is very inexpensive capital.
Posted by The Mortgage News at 2/16/2009 1:44 PM 
Categories: upside down mortgage, upside-down properties, AllStreets Bailout Plan
Categories: upside down mortgage, upside-down properties, AllStreets Bailout Plan
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