Oh BOY!!

[temeculaguy]

Don’t worry too much about the affect of a 50 year loan. On a 200k loan the monthly savings in going from a 15 to a 30 is $431, from a 30 to a 40 is only $94 (If you borrow 600k it is amost 300 a month). From a 40 to a 50 is almost nothing because the interest rate is higher. Yes 25% of new loans in California are 40 yr loans according to Bankrate but the benefits of lengthening a loan diminish as it gets longer. If a buyer was that tight and needed a fifty to qualify, then last weeks interest rate rise just knocked them out. If it hits 7% it will have dissqualified the people that need the 40 yr as well.

The following article goes into depth about the 50 yr mortgage and why it isn’t much cheaper. Also, higher rates tighten the differences. The blog at the bottom of the article is priceless, some guy posted in March of 07 that it is perfect for him because he plans to flip a house, talk about late to the party, pick up one of those new 8-tracks on the way to the bank, too.

[temeculaguy]

Don’t worry too much about the affect of a 50 year loan. On a 200k loan the monthly savings in going from a 15 to a 30 is $431, from a 30 to a 40 is only $94 (If you borrow 600k it is amost 300 a month). From a 40 to a 50 is almost nothing because the interest rate is higher. Yes 25% of new loans in California are 40 yr loans according to Bankrate but the benefits of lengthening a loan diminish as it gets longer. If a buyer was that tight and needed a fifty to qualify, then last weeks interest rate rise just knocked them out. If it hits 7% it will have dissqualified the people that need the 40 yr as well.

The following article goes into depth about the 50 yr mortgage and why it isn’t much cheaper. Also, higher rates tighten the differences. The blog at the bottom of the article is priceless, some guy posted in March of 07 that it is perfect for him because he plans to flip a house, talk about late to the party, pick up one of those new 8-tracks on the way to the bank, too.

[patientrenter]

temeculaguy,

I agree that the level fixed 50-year loan will not revolutionize the market. But any loan that allows less in payments up front in exchange for higher payments later could do the trick. Here’s how the amount of supportable principal varies by loan type, assuming all the loans have the same first year payment and charge interest at a fixed rate of 6.5%:

1. Level payment for 30 years: 100%
2. Level payment for 50 years: 113%
3. Pmt increase 3% for 30 yrs: 139%
4. Pmt increase 2% for 50 yrs: 151%
5. Pmt increase 3% for 50 yrs: 178%

It’s easy to do, and if Congress tells FNMA to sign off, the housing market could see much less downward pressure, maybe even increases.

Patient renter in OC

[patientrenter]

temeculaguy,

I agree that the level fixed 50-year loan will not revolutionize the market. But any loan that allows less in payments up front in exchange for higher payments later could do the trick. Here’s how the amount of supportable principal varies by loan type, assuming all the loans have the same first year payment and charge interest at a fixed rate of 6.5%:

1. Level payment for 30 years: 100%
2. Level payment for 50 years: 113%
3. Pmt increase 3% for 30 yrs: 139%
4. Pmt increase 2% for 50 yrs: 151%
5. Pmt increase 3% for 50 yrs: 178%

It’s easy to do, and if Congress tells FNMA to sign off, the housing market could see much less downward pressure, maybe even increases.

Patient renter in OC

[PerryChase]

I’d love to know if anyone comes up with a new loan product that produces lower monthly payments than Interest Only and Option ARMs. I’m afraid that’s as low as it goes and borrowers can’t even afford those. We’re not only talking San Diego here, but Indiana, and Ohio and Texas were prices are much lower.

[PerryChase]

I’d love to know if anyone comes up with a new loan product that produces lower monthly payments than Interest Only and Option ARMs. I’m afraid that’s as low as it goes and borrowers can’t even afford those. We’re not only talking San Diego here, but Indiana, and Ohio and Texas were prices are much lower.

[drunkle]

just had a thought. those people who have good credit and have a bad loan would be more accepting of alternative financing options, regardless of their own long term detriment. so the comment about banks offering selected cases alternative options seems insincere; milk the people who obey the rules.

[drunkle]

just had a thought. those people who have good credit and have a bad loan would be more accepting of alternative financing options, regardless of their own long term detriment. so the comment about banks offering selected cases alternative options seems insincere; milk the people who obey the rules.

[SD Realtor]

Drunkle I don’t work in the lending industry so I “sincerely” do not know.

As I wrote in my post… “Just my guess”

I don’t think I made any statements as to have insights as to knowing how those particular departments within the lending industry works.

Also why would someone look for alternative higher priced financing options, when the lender comes to them and offers something that could be a lower cost option. Similarly it would seem to me that the primary lender would rather not have other parties holding trust deeds on the home.

Finally Counselor thanks for portraying the terminology more correctly. The loan modifications will be as significant (pain reducing to the owner) as the entity servicing the loan can make them subject to whatever restrictions they may be under if they were sold as an MBS.

Once again…

Just my guess…

SD Realtor

[SD Realtor]

Drunkle I don’t work in the lending industry so I “sincerely” do not know.

As I wrote in my post… “Just my guess”

I don’t think I made any statements as to have insights as to knowing how those particular departments within the lending industry works.

Also why would someone look for alternative higher priced financing options, when the lender comes to them and offers something that could be a lower cost option. Similarly it would seem to me that the primary lender would rather not have other parties holding trust deeds on the home.

Finally Counselor thanks for portraying the terminology more correctly. The loan modifications will be as significant (pain reducing to the owner) as the entity servicing the loan can make them subject to whatever restrictions they may be under if they were sold as an MBS.

Once again…

Just my guess…

SD Realtor

[patientrenter]

PerryChase,

I don’t see it as an on-off switch. The world of buyers can’t possibly divide neatly into one population of buyers who can afford traditional fixed rate 30-year mortgages and another population who can only afford IO/option ARMS/liar loans. I’d guess there are many people somewhere in between.

Does anyone know of any data that would help in understanding the number of buyers who can afford various levels of initial payment intermediate between fixed 30-year and IO/option/liar?

Patient renter in OC

[patientrenter]

PerryChase,

I don’t see it as an on-off switch. The world of buyers can’t possibly divide neatly into one population of buyers who can afford traditional fixed rate 30-year mortgages and another population who can only afford IO/option ARMS/liar loans. I’d guess there are many people somewhere in between.

Does anyone know of any data that would help in understanding the number of buyers who can afford various levels of initial payment intermediate between fixed 30-year and IO/option/liar?

Patient renter in OC

[drunkle]

sd r:

i didn’t mean to imply that you or anyone else here was being insincere. it’s the offer of help itself that is insincere. the comment merely provoked the thought. i could have probably worded it better, but i just typed while i was thinking about it and didn’t bother reviewing.

the alternative for these people isn’t higher priced financing, it’s bad credit. it’s walking from their homes, get dinged on their credit, but being in a better position financially on down the line; 7 years with a mark, but it’s only a mark, it’s enough time to show good credit, save money and even buy back in under more favorable conditions. bad credit is far from the end of the world.

[drunkle]

sd r:

i didn’t mean to imply that you or anyone else here was being insincere. it’s the offer of help itself that is insincere. the comment merely provoked the thought. i could have probably worded it better, but i just typed while i was thinking about it and didn’t bother reviewing.

the alternative for these people isn’t higher priced financing, it’s bad credit. it’s walking from their homes, get dinged on their credit, but being in a better position financially on down the line; 7 years with a mark, but it’s only a mark, it’s enough time to show good credit, save money and even buy back in under more favorable conditions. bad credit is far from the end of the world.

[capeman]

If that is correct then mass adoption of the 50 year could raise the overall price of housing by 13% at current interest rates and become scalable to increased/decreased rates. That is the kind of thing I fear and that is what can make housing prices stay fundamentally higher than what people should believe they are worth. If you think back to the 50’s when car loans were pretty scarce the price of a car was really low compared to todays standards. Now that most everyone finances purchases and interest rates are low it allows manufacturers to charge more for cars and keep sales up. Nice cars (SUVs now) are a sign of status and the industry has been milking that to no end. Housing has been the same and if the 50 becomes a preferred product based on better affordability then that will absorb some of the declines we expect to see in the near term. I don’t want a 50 and I don’t want my kids to be paying off my house when I’m dead. That kind of sucks.

Thoughts?

cheers,

chris

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