Do any of you want to Cut Debt? Well, Work Less.

In most cases one could argue, homebuyers around the world take out and receive mortgages, which cover a part of the value of the houses they are buying. In other words, the house is worth more than the mortgage owed, common sense, one could argue. In an event when a borrower defaults, the lender can, in most cases, be repaid in full by foreclosing on the house and selling it to someone else, this is often what banks do.
However, housing prices is the paradox here. The prices have fallen dramatically since 2006. By 2008, about 12 million mortgages are ‘under water’ with the meaning: the market value of the house had fallen below the amount owed on the mortgage. In this sense the low resale values, foreclosing on any of the homes will not yield lenders their entire principal and therefore; lenders in those situation and cases must rely on the good behavior of the borrowers.
The Federal Reserve, the Treasury, F.Mae and Freddie Mac encouraged lenders ito “modify” mortgages that in this context means basically to accept payments from borrowers which is different from the amounts promised by the banks and signed by the lender according to the contract. These modification programs particularly encourage lenders to reduce mortgage payments so that each individual borrower’s housing payments are 38 percent of the borrowers gross income. This will eventually lead to a five years reduce of payments, or when the mortgage is paid off.
Of course, a borrower can not be harmed by the opportunity to have a mortgage payment reduced. But, what is economically satisfying and worth looking into is the amount of payment reduction that is highly dependent on the borrowers income. So, following the argument listed above, “the less he earns, the more the payment is reduced”. For example, a borrower who has an annual family income of $100,000 and live happily could have the possibility to get housing payments reduced to $38,000 a year, but on the other hand, positively, a borrower whose annual income is $50,000 can have the payments cut to $19,000 a year.
Furthermore, in this case, one could argue that the, implication of the mortgage modification rules is that a family that earns $50,000 less in the year before the modification would stand to save $19,000/year for five years on housing payments and for a total of $95,000, and that is great news for a majority of people!
Once the mortgage has already been modified, the family is absolutely free to earn as much as it wants without affecting its payment rates. That makes 95,000 reasons to hesitate when looking for a new job!