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Originally Posted by somdrenter  Say you and your neighbor bought a house around the same time and each paid I dunno, say $400K each. Your neighbor gets into a bind, stops making payments, gets a bail out from any of the alphabet soup organizations and gets his principal lowered to $300K. You’re settled down, gonna be around for a while and not going to purchase another big ticket item anytime soon. What financial incentive do you have to not take a bail out like your neighbor? |
I haven't heard of bank dropping the principle due and letting people keep the home, but your concept is accurate. People are finally being forced to stop treating their home like a piggy bank, and it's frustrating to homeowners who played it safe in the boom. Think about it this way: You paid the extra cost to get a fixed rate 2 years ago, while dummy next door went interest only. now dummy is getting a fixed rate through a loan modification, and he's STILL paying a lower rate than you. How does dummy get to make such bad choices and still end up better than you financially? Does he really deserve subsidy?
On the other hand, how much further will your home value fall if another foreclosure hits your street? Is it worth the market falling further and devaluating YOUR investment so that you can feel better knowing they were bailed out of their own stupid financing? Perhaps, but that's an individual concern, and must be weighed on the same basis. It's hard to quantify how much (if any) money an owner stands to lose for each foreclosure they see happen in their area.