What is the difference between principal forbearance and forgiveness?
I’ve been a fan of principal forgiveness. I was preaching principal forgiveness to Fannie Mae and Freddie Mac for the last two years. Under the federal government’s loan modification programs, there is the option to forgive principal. More importantly, the Hope for Homeowners program is being restructured and has principal forgiveness in it. As part of the loan modification program, lot of homeowners will be offered that. Forbearance is the idea that 30 years from now, your house has tripled in price and shouldn’t the lender get some piece of that? You can argue back and forth which was is better, but forbearance would involve a balloon payment.
