Okay, it's out there.  We all are hearing/reading about it daily.  The sub-prime fallout, neg-am disaster, 100% financing is toast and loan officers laid off.  It's not what most people expected.  Most of us have been in denial.  The majority of victims, the highly leveraged newer homeowners, are feeling like their world is caving in around them.  It's stressful for families that know there's no way they can keep up those payments.  They can't simply refi -- no equity and a hefty pre-payment penalty.  If they are lucky, they decide to list their home on a short sale, rather than foreclose.  Problem is, there are more homes now and only a few buyers -- and fewer still now with tighter lending standards.  So, the short sales expire and the sellers move out, and the banks relist the homes and they sit there as neighborhood eyesores -- The American Dream taken away.

If allowed to continue on it's present course, we will soon flood the rental market with former homeowners (now with lousy credit), and real estate signs posted on neighborhood homes going into foreclosure/REO status.  The REOs will drag down neighborhood values even further.

We need the lenders to find a solution -- as they are the ultimate victims at the end of the food chain (albeit they were offering loans to anyone with a pulse).  I have a suggestion.  It's staring us all right in the face.  It's what the homeowners want.  It's what the lenders want.  It's what the neighborhood wants.  It's a win-win-win solution.  What we need now is a fully-amortized fixed-rate 80 year mortgage at 6%.  It will enable hard-working responsible homeowners to stay in their homes.  It will prevent lenders from having non-performing real estate assets on their books.  It will increase the profits for lenders due to the length of the loan.  It will maintain a much needed equilibrium in the housing market -- stabilizing future home prices and avoiding the free-fall predicted by many forecasters.

Just a thought.  Maybe a solution.  The system is broken and we need to fix it.  The sooner the better.

 

 
This post has been included in California Real Estate News

9 Comments on Housing Bust ~ A Solution?

AUG
22
2007
 Wow, 80 years.  What would the monthly payment be on 80 year 6% interest of 300,000 be?  Seems YOU are thinking out of the box.  Why not.
4:42am • #1
451,081 Points 64 Featured Posts Localism Sponsor Outside Blog Called Shot Master
I am curious- why 80 years?  Not 60 years cutting a 30 year payment in half while doubling the interest payoff. It is an interesting concept.
4:48am • #2
304,884 Points 19 Featured Posts Outside Blog

Barry,

It doesn't hurt my feelings a bit seeing these stupid lenders now having to pay the Piper for their silly underwriting and crazy products.

But on the other side, it makes me crazy that the borrowers who fell for their shenanigans are now crashing and burning all around us with absolutely no viable solution.  I hear almost daily from people I don't even know, asking me, "What am I going to do?"

And you are astute and correct that the present course is going to destroy values for many homeowners who made their loans in the conventional manner.

I hate the short sale with all of my heart.  Phantom gains going to people via 1099s for money they never saw and taxes already broke people are going to have to pay the IRS.

Like you, I don't understand why there isn't a required mechanism for an orderly mortgage market, similar to the stock exchange market maker, similar to the SEC closing down trading of a particular stock when there is over reaction to bad news.

These lenders today should be required to leave the loans in place at the initial rate and payment for at least five years, and the maturities of those fixed rates should be staggered by lottery over another five year period.
5:26am • #3
209,647 Points 1 Featured Post Outside Blog
Great idea, I just hope they listen and take action.
5:43am • #4
274,066 Points 41 Featured Posts Outside Blog
Barry - Interesting concept.  They already have 50 year mortgages available, so why not stretch it further.  The truth of the matter is people aren't much more likely to ever pay down a 30 year mortgage than a 50 year or 80 year mortagage, since the average person either moves or refinances every 5-7 years.  I'm sure anyone that was in danger of losing their home would sign on for an 80 year note without even thinking about it.  The only danger would be if the market falls further in coming years (which I don't think will happen) that these people would likely never pay down much principle, but it's better than losing your home today.
6:13am • #5
299,746 Points 21 Featured Posts Localism Sponsor

Wonderful Idea,

40 60 or 80 years any thing would help. 

Also, instead of giving up, people should be renegotiating with their current lender for a lower rate or different terms.  Banks will get their money - not have to take back a house they don't want and People will be able to keep their homes.
7:22am • #6
Localism Sponsor

Hi it's Barry again ~

In response to your curiosity, it's quite easy to calculate the Principal and INTEREST payment on an 80-year mortgage.  As you may already know the P&I payment on a fully amortized 30 year mortgage at 6% would simply be "6" times each hundred thousand dollars borrowed.  In other words, you can use a factor of "6" on every $100K borrowed.  Example: 6% P&I on $100K (30 yr.) loan is apx. $600.00 per month. So, a loan of $300,000. would be $300x6 or $1,800.00/mo.  A Jumbo Mortgage of $500,000 would have payments of $500x6 or $3,000.00 per month (fully amortized).

Okay, now we come to the 80 year loan.  Instead of a factor of "6" we'll need to use a factor of "5" to approximate the P&I payments.  The payment works out to be approx $100.00 less per month on every $100,000 borrowed.  Example: 6% P&I on a $100K (80 yr.) loan is approx. $500.00 per month.  So, a loan of $300,000 would be $300x5 or $1,500.00/mo.  A Jumbo Mortgage of $500,000 would have payments of $500x5 or $2,500 per month (fully amortized).

If I was a lender, I'd be all over this loan.  Imagine how much interest the borrower would be paying over time.  The borrower gets to keep the house, and over time, the payment "shrinks" due to inflation.  Remember when $1,000 per month was a huge house payment??  All the interest is tax-deductible and, eventually, the homeowner gains equity on the backend, by paying down principal.  Show me an interest-only loan that can do that!

Most importantly, affordable payments will plug the holes in our housing "Titanic" and allow homeowners to stay on the upper deck without jumping overboard. Even if the lender absorbs all the refi costs, it's truly a winning plan for them as well.

 Thank you Edson, Allison, Bill, Linda, Adam and Debbie for your interest.  I appreciate your input.
9:34am • #7
Localism Sponsor

Oh, by the way... here's a handy payment calculator for PITI - Principal, Interest, Taxes & Insurance:

http://www.realestateabc.com/calculators/PITI.htm

Have a great day!
9:38am • #8
AUG
28
2007
117,992 Points
You are definitely on the right track.  We need some "out of the box" thinking to keep people in their homes.  The homeowner wins, and so does the bank.  Let's hope we see some action soon!
9:12am • #9


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Barry Shapiro

Camarillo, CA

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Team VC Online, Keller Williams Realty

Address: Local Office:, 450 Rosewood Ave., Suite '202', Camarillo, CA, 93010

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Barry Shapiro specializes in assisting Camarillo homeowners find an alternative to foreclosure - through a loan workout, loan modification or Short Sale. Barry also guides potential new homeowners through the process of buying a home in today's uncertain marketplace.


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