Pay Now, or Pay Less Later?

This is a question many across the nation will be pondering over the next several months and I’ve long believed that any bailout of homeowners would be ripe for abuse. The Chronicle had a great article this past weekend highlighting this “strategy” quite articulately and comprehensively. This should be really interesting to watch unfold as there will be certain individuals that will benefit from getting you into a loan modification program, and the differential savings from participating in the program may very well be significant. Reduced principle and interest rate, reduced taxes, and capped payments based on income! Isn’t there a downside here somewhere?

Here is the deal according to the article: Primary residence with loan greater than 90% of house “value” and backed by Fannie/Freddie or participating bank. The bank may reduce interest rates to 3% (or higher), extend loan  term to 40 years, and reduce principle in an effort to reduce your “payment” to 38% of your income.

The article talks about all of this in more detail and outlines some potentially controversial strategies to best take advantage of this program. I would bet that most in the bay area wouldn’t need to manipulate the system in order to qualify and benefit from this program.  Most people I know that purchased real estate in the past few years are closer to 60% of gross income funneled into housing and these are all folks right here in Prime San Francisco. And I’m talking about $1M+ homes / condos. I’m not sure how I feel about the program, but I know what I’d be doing if I were a home owner. What about you?

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