Debt Forgiveness:
Banks are in the business of making money everyone would agree and they are pretty good at it, and you would again I'm sure. But to forgive a debt is the last thing a lender wants to do. A month ago executives from four of the biggest Loan providers were adamant to the core that they would exhaust all options before offering any debt consideration or "Principal Reduction" in front of the Home Financial Services Committee.
Bank of America said they would only consider forgiveness to those already in the foreclosure process. A representative from Wells Fargo said "We have found that the same affordability can be reached through a 2% - 3% interest rate reduction and term extension, as can be reached through a 25% - 30% Principal Reduction."
For example: they would alter the interest rate for a 5yr and extend a 30yr to a 40yr before they would think about forgiveness.
How Debt FORGIVENESS will work:
If a lender does partake in the Hope For Homeowners this is how it will work. The Lenders will forgive all the debt over 90% of the homes appraised value which will allow the Homeowner to refinance with an FHA - insured Mortgage.
Example: A homeowner owes $125,000 on the Loan and the home is only worth $100,000 and their mortgage has adjusted Adjustable Rate Mortgage (ARM), now they cannot afford the home any longer. The lender would then forgive $35,000 forgiveness in turn allowing them to refinance with another lender for the $90,000 which would be a Federal Housing Administration (FHA) insured loan. This loan would also have an insurance premium up front of approx $2600 and would have to be paid by the old lender including the $35,000 forgiveness totaling $37,600.
Sharing your Home with the Government:
Home owners that can be helped through the Hope for Homeowners will have to share their appreciation, not your "O My God thank you for all your Help" but your Homes appreciation when you refinance your loan or even sell your home. It could be up to half depending on how long they have the loan.
Example:
You have refinanced your home in 2008, you sell it for $140,000 in 2015, you will have to cough up or throw up which ever comes first $20,000 - half of the appreciation.
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