Home › Forums › General › EHTrust/EHT Topics and Creative Real Estate Financing › Principal Reduction Explained- Why Banks Would Do It.
July 26, 2010 at 4:01 pm #6357
There is still much confusion for many regarding a mortgage principal reduction and why a lender would be so eager to consider such a thing. Unlike a loan modification, where a homeowner basically begs a lender for mercy in hopes of getting a lower monthly payment, and in some rare cases a principal reduction, a principal reduction program (PRP) is quite different in many ways. Incidentally, national statistics show that loan modifications are successful only 8 to 12% of the time depending on what lender is granting the modification. This average is way below the federal government’s HAMP projection. Short sale success is also hitting the skids, so a principal reduction seems to be the way to go these days and for good reason.
Let’s briefly discuss what constitutes a principal mortgage reduction and what motivations a lender has in allowing the reduction. First of all, think of a federally backed principal reduction program as the recent “Cash for Clunkers” program. Trade in your old, beat up mortgage for a new, government funded reduced mortgage. Who wouldn’t want that? A PRP is a TARP/private sector investor cooperative designed to stimulate the economy and get money moving again. Here are some examples on how a principal reduction can benefit all parties:
1. Existing mortgage bought by a private investor
2. Mortgage over-encumbrance reduced to fair market value
3. Monthly payment almost always comes down because interest rate is about 6 1/2% (based on newer reduced loan amount)
4. Old loan on record as paid in full. (looks good on credit report)
5. No qual. Owner just needs verified income to meet 40% DTI ratio
1. Can get cash flowing investments at huge discounts.
2. Product is plentiful and easy to get
3. No real estate headaches
4. Can buy in bulk without much competition
5. Can select their own inventory without having to take “junkers”
1. Easily and cheaply unload non performing assets
2. TARP (Troubled Asset Relief Program) endorsed
3. New money to lend
4. 80% of their losses are covered by fed after the sale!!!!!!! Banks lose nothing.
5. Company stock values return
The Principal Reduction Program is an alleged win-win-win. The only loser is the tax payer who will foot the bill. In my opinion, this PRP will ultimately bankroll the big private investment firms that are in reality in partnership with the banks, so the economic impact is yet to be revealed, but in the long run, it can’t be good. Short term however, there will be a new kind of “run on the banks”; the likes of which we have never seen.
There should be no shortage of participants, so now is a good time to position yourself for some easy EHT’s. Why? Because with new restructured loans on abandoned homes, owners will need some new solutions for occupancy and long term asset protection. There will also be plenty of resident beneficiaries coming out of the woodwork that can now afford the new monthly payments.
The PRP will last for only another couple of years because TARP (free unlimited government bail out money) is scheduled to end when President Obama’s term in office concludes. It could be extended if he is re-elected. We’ll have to wait and see.July 26, 2010 at 7:01 pm #32550
For those of you who weren’t on the Saturday Tele-Mentoring Call, shame on you. You missed a great discussion between Bill and Myself on the Options Homeowners have via the EHTrust.
We discussed the Pros and Cons of 3ARC vs. UMR. In a future post I will be detailing the results of that call and introducing some scenarios for you all to consider and use when making offers.
We also discussed why each of you should be involved in the NARS Short Sale Program, if for no other reason than to generate leads and business for the other options we now have for you to use when making EHTrust Offers.
Guys, this was a great call and if you missed it or any of them, shame on you.
BTW Dave, thanks for the post. I hope this clears some things up for our members.
My new elevator speech is… “I hate Short Sales and Loan Mods Suck, wouldn’t you agree”?July 26, 2010 at 7:36 pm #32551
Some people understand concepts better with pictures. So, I created a video on how to understand what a mortgage reduction offer really is, why it is so valuable, why banks would agree to do it and why an upside down homeowner would be silly to not consider it; 3ARCK or UMR. You may want to invite anyone that could benefit from a Principal Mortgage Reduction Program to watch the video. Don’t forget to position yourself with an NEO in the transaction as a future co-beneficiary when the homeowner shows interest.July 29, 2010 at 4:02 pm #32552
For those of you who weren’t on the Saturday Tele-Mentoring Call, shame on you.
I look forward to the recording being posted…July 29, 2010 at 4:42 pm #32553
Scott it is a shame when you insist on running the tele-calls when it is prime Saturday morning fun time. Are you suggesting we kill family time to spend with you?July 30, 2010 at 4:32 pm #32554
I was on the call, and it was a good one!
However, I would have to agree. Really, how difficult is it to record these calls and post them for Members to listen to later. Membership should have it’s rewards.July 30, 2010 at 7:52 pm #32555
Oh yeah, I forgot we have recordings posted in the members area. Umm, I just checked an we’re up to 2-10-10. That is an improvement from the last time I checked.
What a minute, I haven’t checked in several months, maybe not. At least the October call I have been wanting to hear is up. Now, I just have to find out which week it was.
There have been several times that I could not make the Tuesday or the Saturday call, having the recording up would be nice to catch up on what I missed. I have asked on this forum for a bulleted version of a call I missed but no one will do that. Is that not allowed and I just not aware of it?
I will not be on the call tomorrow, a rarity for me these days, but it is what it is. Anybody care to give me a synopsis of the call?July 31, 2010 at 5:03 pm #32556
I will not be on the call tomorrow, a rarity for me these days, but it is what it is. Anybody care to give me a synopsis of the call?
SHAME ON YOU!! You need to make an extra 5 calls to home owners as a penance!
- a bit about trusts
- walk away home owners and the 3A solution
- potential profits from a 3A deal on a house that is sold
- IDM’s role in the whole process
- working with non-NARS members
- background on how banks make money from foreclosures
- background on how the secondary mortgage market
- Bills rant(!) about how mean the banks are. Preaching to the converted there.
- It looks like another 3A call is scheduled for Wednesday 11th.
Questions started at 11.35amCT
Q2 was about the $7995 3A fee and Bill explained about the extra $500 for the trust setup.
Q4 was about talking to the home owner about 3A and particularly about the hard money loan. The MAV is set by the HML appraisal and if the house if worth more then the homeowner has equity. All future appreciation above the MAV goes to the homeowner.
At 12noon I had to take another call so I’ll post this summary.
GSJuly 31, 2010 at 10:27 pm #32557
Big high school volleyball tournament today. I didn’t want to get tarred and feather, so, I went (of course, being a big fan, I would of went anyway ) 8 hours, 7 teams, 42 games and a bench sore Butte. Our school took first place, whoohoo. It is going to be a good season.
Of course, I suppose Bill is going to slap me for supporting the local team and not the callAugust 1, 2010 at 3:41 am #32558
stu, bill luvs ya!August 1, 2010 at 1:03 pm #32559
Cork, what are you doing at this time of night, it should be sleepy time! Oh, yes that is a hot drink made by Celestial Seasons out of Boulder CO. Whatever!August 1, 2010 at 7:39 pm #32560
For those of you who weren’t on the Saturday Tele-Mentoring Call, shame on you.
I look forward to the recording being posted…
That would be nice but I haven’t seen a Recorded Saturday Call posted in some time. All of our OCS Group Calls are recorded and available to our members.August 1, 2010 at 7:52 pm #32561
Scott it is a shame when you insist on running the tele-calls when it is prime Saturday morning fun time. Are you suggesting we kill family time to spend with you?
No not at all. But, the shame is that people have paid a lot of money to be mentored on the many uses and application of the EHTrust, then complain they can’t get deals done. EHTrust transactions are not found, created or closed through wishful thinking or osmosis, you must take action. A few 1 hour Saturday Morning Calls are not going to take away or destroy you family life. In fact, it may improve it if you close a few deals to take your family on a little vacation now and then without having to worry about money or taking time off work. RIGHT?
BTW, two Saturdays ago I was with my family at the Water Park while floating on a tube in the Lazy River and with my wife in my arms I had my Blue Tooth in my ear while listening and hosting the call with Bill. Sometimes you need to learn how to multi-task. I’ve been on the call several times while driving with my family to desert or mountains for the day.
I know it would help if we could get the calls recorded and posted too. I’ll make a promise to all of you. I’ll work with Bill on making sure this gets done. I am going to share with him some new technology that is not even on the market yet that will blow your minds as far as training is concerned. Once I share it with Bill and if he wants to implement it, I’ll let you all in on it. But for now I’ll see what I can do about getting them all recorded and posted promptly…
Fair Enough?August 2, 2010 at 2:59 pm #32562
yeah…right on ‘bro’…multi task. Mr Bill could slice&dice that one Gatten Style.
Doncha get ‘electri Cuted floating wit5h Blue Tooth? j/k.
Technology….yah! how to get rid of that mongolith called First Letter ‘A’ followed by two identical letters.
They scrrewed with my dsl one last time. Looking at getting a residential line and dslextreme.
Anybody using dish technology for internet?
Right now, I’m enjoying free wifi @ Starbucks and library.
I am implementing a plan to identy upper end homes in SD County and ’3ARCK’ them and remarket them with i9nvestors…..Comments/ideas from anybody?
c hAugust 4, 2010 at 6:36 pm #32563
Cork, You gotta talk to me about this! See you Next SDCIA meet OK?
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