Jean Kiehm: White House math
The example from the White House for the Homeowner Stability Initiative shows a saving of $400 a month for a responsible homeowner, and as an extra incentive $1,000 a year for five years off their principal for actually making their payment. Per the White House: Homeowner Stability Initiative: How the Program Works for the Lender, Government and Borrower:
First, Investment Bank (working through a mortgage servicer) reduces the interest rate so that the Family C’s monthly debt-to-income ratio drops from 42 percent to 38 percent. This means that Investment Bank must reduce the interest rate from 7.50 percent to 6.38 percent, bringing down Family C’s monthly payment from $1,538 to $1,387. Second, the government and Investment Bank share the cost of further reducing the interest rate so that the Family C’s monthly debt-to-income level is lowered to 31 percent. Any dollar the bank spends is matched by the government. At this stage, Family C’s interest rate is reduced from 6.41 percent to 4.43 percent. In total, Family C’s monthly payment has fallen from $1,538 to $1,132. If Family C remains current on their payments, they will receive incentive payments up to $1,000 a year, or $5,000 over five years, that would go towards reducing the principal they owe. Additionally, the mortgage servicer can earn an up-front incentive fee of $1,000, plus up to $1,000 per year in “Pay for Success” fees for three years, so long as Family C remains current.
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