The real question is, How does someone sitting on cash make some money on all this?
I am not sure on this deal, but there will be good money to be made on all the foreclosed homes over the next couple of years. If you can find one in good shape, they generally sell for 15-50% less than market value.
Play credit savior face to face.
Rent a decent place with nice neighbors at a nice rate and invest the excess $. After the pot boils over, buy with cash. I knew a gal in Simi Valley in a 500K house that didn't look worth it at all. Another one in Santa Clarita saw her 150K condo become 400K in 3 years. And another one living with her rich relatives from Brazil in West Hills- 1M to 1.3M. They own businesses and are doing it right. You can't live in that area without means.
Just wait until the price drops and own the mortgage outright.