RD Training Example of Increased Return
The following is based upon an example in the 1996 RD training handbook regarding the development of an increased Return to Owner prepayment incentive.
Original Loan 1/78 = $750,000
Original Return to Owner = 8% on $39,000 = $3,120
1/94 equity = $515,000
possible equity loan = $463,500
1/94 Return to Owner = $982 monthly / $11,784 annual RTO
1/94 Increase in Return = $8,664
20 year value of $8,664 (discounted at 10%) = $74,817 [pretax]
after 33% tax, value = $50,127
That is, in lieu of an equity loan of $463,000 [tax free], the Borrower is offered a Net Present Value payment of $50,127 after taxes.
I believe that a better offer could be developed, and that an improved offer (including provisions for securitizing it) would be acceptable to many borrowers.