When successful financiers achieve a certain level of success, they up the ante and practice social engineering. Robert Rubin, Jon Corzine, and Hank Paulson advanced to government service after piling up the pesos at Goldman Sachs (in financial circles, we say those two words with hushed reverence). After decades of whipping and driving the markets, the titans answer the call of noblesee oblige and decide to play with EVERYBODY’s money. While I haven’t risen to the austere positions Messrs Corzine, Rubin, and Paulson have, my friend Nick and I
have a little idea about how to save the American real estate market.
Let’s start with the premise that lenders are taking 20-30% hits on short sales. Then, let’s have the US Treasury loan 30% of the balance, of the aggregate debt, to homeowners whom request it, in order to pay down the first mortgage (or second mortgage). If I have $200,000, in aggregate liens against the property, the US Treasury will lend me $60,000, to pay down those aggregate liens, to $140,000. This reduces the lenders exposure.
What type of loan will the Treasury make to homeowners?
The term can be for the lesser of:
1- the remaining term of the first mortgage
2- 65 less the age of the primary borrower.
The interest rate can be the corresponding term treasury rate, plus .5% (for administrative costs). Maybe we can use some of that “yield spread” to coerce a few mortgage brokers to “originate” this government debt (okay, that was completely self-serving). For a 42 year old, with a 27 year term on his first mortgage, the term of this new government loan (in second position) would be 23 years (65-42=23). If a 23 year treasury bond yields 4.1%, than the note rate for the new loan will be 4.6%.
The borrowers never have to make a payment on this debt; it accrues like a negative amortization loan. In the aforementioned example, the balance would grow to about $168,000, after 23 years. With a first mortgage paid down to $140,000, we’re banking on Read more