Let’s look at an example from the perspective of a homeowner who is upside down. Assume they originally purchased a $200,000 home that is now worth $180,000 and the loan is back at $200,000 due to late payments/penalties. When they initially purchased, they put nothing down. Their note has just adjusted up from 8.5% to 10%, so their P&I payment has just risen from $1,537 to $1,755. They can no longer afford the payment and, with the current market, selling the home is not an option. They are a foreclosure waiting to happen with traditional financing tools.

Assuming the home owner and the investor are willing to do a 5 year term, the 5 year term price would be 30% of the $180,000 current fair market value ($54,000) plus the negative equity ($20,000), for a total term loan of $74,000.

With a 6% interest rate (far better than the loss taken on a foreclosure and higher than A Paper credit), the $74,000 payments would be $1,430 - Lower than their Original Payment!   

If the home owner and the investor opt for a 10 year term, the ten year term price would be 55% of the $180,000 fair market value ($99,000) plus the negative equity ($20,000), for a total term loan of $119,000).

With a 6% interest rate (far better than the loss taken on a foreclosure and higher than A Paper credit), the $119,000 payments would be $1,321 - A Substantially Lower Payment than their Original Payment!  And, over a ten year period there is a substantial likelihood that the home will appreciate in value to the benefit of the Term Owner. 

But this affordability does not come without cost.  At the end of the term, if they do not choose to buyout the investor or to re-purchase a term, the Term Owner will lose the property as it passes to the Investor as a matter of law!