luigi0753

BofA Offers World’s Worst Borrowers Astonishing Concessions

The next problem to arise after a bank "forgives" part of a loan will be how to pay the income tax on the imputed income. As a loan, the funds are not taxable, but if forgiven by the bank the money IS taxable. $50,000 of extra income could cost these "unfortunate" homeowners $7,500 to $12,500 in income tax! The loan modification process should include a balloon payment at the end - reduce the loan amount upon which interest is charged, but add the reduction (or better, double the reduction) as a balloon payment at the end of the term. If the homeowner stays in the home for 30 years the house will likely be worth much more then than now. The balloon payment could be refinanced in 30 years and will likely be a small part of the fair market value of the home at that time. In my view it's better to kick the can down the road (so to speak) than have the bank or taxpayer pick up the tab for poor financial decisions on the part of an individual. Of course, if the loan was deceptive from the beginning, then the bank or mortgage company needs to eat it.