August 16, 2006 at 2:55 PM #7215PerryChaseParticipant
I just read an article on the SD Union about 50-years mortgages. I wonder if that will allow homeowners to have lower payments and help housing values.
“As once-blazing real estate markets like San Diego County continue to lose heat, lenders are searching for mortgage products that will keep borrowers coming to the marketplace.
Anthony Hsieh, president of Lendingtree.com, says the recent introduction of 50-year mortgages illustrates the lengths some lenders will go to in order to keep borrowers interested. ”August 16, 2006 at 3:05 PM #32055anxvarietyParticipant
LOL.. this reminds me of something like.. ”Life expentancy increases 10 years of Generation X”. Then the next article is like ”New! 60 year loans!”August 16, 2006 at 3:17 PM #32058DanielParticipant
I/O payments are already lower than those for 50-year mortgages (I/O is an “infinite duration” mortgage). And neg-am is as far as affordability products can go. I think we reached the end of creative financing. I can’t imagine what can possibly go further than negative amortization.August 16, 2006 at 4:23 PM #32068anxvarietyParticipant
Maybe we can do ARM and LEG I/O? I know the joke has been around..August 16, 2006 at 4:51 PM #32071waiting hawkParticipant
Naw the next scam will be no payments or interest rates till 2008!August 16, 2006 at 4:55 PM #32072DanielParticipant
“Naw the next scam will be no payments or interest rates till 2008!”
That’s a good one. Actually, you may be on to something there. That’s how they sell sofas, so houses can’t be far behind…August 16, 2006 at 5:15 PM #32076HereWeGoParticipant
So, who will buy these Country-Fried mortgages? Will the bond ratings folks be forced to create ratings below ‘D’?August 16, 2006 at 6:20 PM #32086powaysellerParticipant
Read housingbubblecasualty.com; 50 year mortgages are not much lower than the other products.
Even if the Fed lowers rates by 1%, how can it help housing? The Fed knows that it must make debt available to make up for the loss in purchasing power. Real wages are flat or falling, so they have to make cheap debt. The economy is dependent on people willing and able to take on more debt. From the data I see, the American public has taken on about as much debt as they can handle.
Even a 100 year mortgage doesn’t help much. I’ll tell you why: extending the mortgage terms only reduces the principal. You still have to pay the interest, which is the biggest portion!
An I/O loan is cheaper than a 50-year or 100-year or 1000-year mortgage, because you are paying interest only. Even with that loan, people are tapped out!
The only way to make it cheaper is to offer option I/O loans: you pay only part of the principal. We already have that I think. But investors expect to be paid, so these loans come with large prepayment penalties, and they attract subprime borrowers.
Just wait another year. The high foreclosures will bring an end to investors wanting to touch these exotic loans with a 10′ pole.
Another interesting tidbit: the rate of first-time missed payments is up. This means the first mortgage payment was never made.
Keep in mind that historically, the homeownership rate was 65%, for many decades. Now it is 69%. That extra 4 point increase brought in people who are NOT qualified for a mortgage, who needed subprime and liar’s loans to qualify. That is a huge problem for the lenders. It also shows that we are maxed out on the number of eligible borrowers. To bring it to 72%, you would need to give loans to the mentally ill and other extreme groups.
No, the 50 year won’t save housing. The only remedy for housing is the ability AND willingess of CURRENT homeowners to take on more debt, to trade up. But even then, you still have the problem of overbuilding.
There was a KETV.com video (Omaha, NE) yesterday, profiling how long it is to sell homes. Overbuilding, and the highest inventory that a realtor with 26 years in the biz, could ever remember.August 17, 2006 at 6:42 AM #32122privatebankerParticipant
What a nightmare product! This reminds me of Japan’s “Generation mortgage”. Let’s say that prices drop a total 40% – 50% over the next 5-7 years, people will be stuck in these homes for a long, long time or they could choose to default. Without any calculations, I would guess that the monthly payment on these are only around $200 cheaper than a 30 year fixed per month. For a lender, this has to be right up there with neg am’s from a risk stand point. This clearly shows how desperate things are becoming.August 17, 2006 at 9:19 AM #32146sdrealtorParticipant
“Naw the next scam will be no payments or interest rates till 2008!”
It’s not coming, it’s already here!!! About 3 months ago, I saw a lender touting a program that allows the buyer to build their first 12 months of payments into the purchase price.August 17, 2006 at 9:29 AM #32150HereWeGoParticipant
So basically the lending institution buys the house, lets the sub-600 FICO live in the house rent-free for 1 year, and then retakes possession of the house in a potentially crashing market when the tenant leaves the keys on the table. Is there at least a security deposit the institution can claim if the tenant wrecks the place?
In an appreciating market, these suicide loans make sense on the MBS market, as the banks/investors can sell and claim the appreciation once the previous debtor is bled dry (and another sap is found.) In a depreciating market, though, they make no sense at all.August 17, 2006 at 11:16 AM #32174speedingpulletParticipant
One of my friends in the UK just bought a condo in the lovely OXO building in London’s South Bank using a 50-year mortgage.
As he’s in his mid-40’s we all just had a good laugh about it, him included. He has absoutley no intention of living there for 50 years, but the rate was good, and they seem to be gaining popularity in the hyperinflated London housing market.
He’s not an FB either – he just sold his SE London flat for a fortune, and it was cheaper to do a 50-yr than get an I/O loan, so I have no doubt he’ll be fine when London prices tank (which they will, eventually).August 17, 2006 at 3:39 PM #32214bob007Participant
when borrower default who is going to be holding the bag ?August 18, 2006 at 12:21 AM #32294powaysellerParticipant
foreign central banks.
Interesting piece written by Richard Duncan today, at John Mauldin’s website. He says the bond conundrum was caused by regulatory tightening of Fannie’s portfolio, causing them to cut back on issuing MBS. Private ABS issuers like Countrywide picked up the slack, issuing 3x as much ABS in that one year period, as usual. He’s got all the charts there to show it. Foreign central banks who wanted AAA+ paper, bought ABS AAA+ paper instead of GSE debt, but if they wanted government debt they were forced to buy existing Treasuries. This pushed up the price, and down the yield, for the period Q1 04 – Q4 05. Interesting stuff.
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