Comments on: SIIV – Super Ignorant Investment Vehicle: The Evolution of Progressively Dumber and Dumber Bailouts. 3 Emerging Trends: Bailouts getting costlier and dumber, layoffs accelerating, and embracing frugality. http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/ How I Learned to Love Southern California and Forget the Housing Bubble Sun, 14 Mar 2010 04:22:20 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: compass rose http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/comment-page-1/#comment-28700 compass rose Mon, 08 Dec 2008 21:25:18 +0000 http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/#comment-28700 Re: DHB 12/4. Let's consider some numbers. ~ 100K mortgage. Fixed 30. Two rates: 4.5% and 6.5% ~ ~ 4.5% monthly payment: $506 total interest paid: $82,406 interest as percentage of principal: 82% principal paid by month 72: $10,861 interest paid by month 72: $25,619 ~ break even**: year 14 1/2 interest paid at that point: $56,000 ~ ~ 6.5% monthly payment: $632 total interest paid: $127,544 (127% of loan value) interest as percentage of principal: 127% principal paid by month 72: $7,934 interest paid by month 72: $37,574 ~ break even**: year 19 1/2 interest paid at that point: $105,000 ~ ~ ** "break even" meaning the point in the amortization where each month, the borrower pays more to principal than interest. ~ A quick look shows: ~ a) Per $100K, the difference in monthly payment is $116. b) The real difference is that at the end of six years (72 mo.)--which is around the average for how often Americans move--the borrower with the 4.5% loan has paid $10,861 to principal, while the borrower with the 6.5% loan has paid only $7,934. c) The 4.5% loan is a more rapid equity builder. d) The 4.5% loan also saves the borrower 45% of interest as percentage of principal. ~ Doc, I think this is what that financial uber-minds are looking at as they push for lower rates. ~ I agree that there are a lot of people in houses, or trying to get in, who really shouldn't be considering a house purchase for various fiscal reasons. ~ I also agree that house prices have to come way down, especially in inflated markets, to get more in line with income. Many people are now concentrated in highly bubble-affected areas. Prices. Must. Come. Down. ~ But here's my larger point. ~ Why not take the lower interest thing a step further? ~ We have seen a proliferation of **interest only** products over the past x years. ~ If we're all bailing out the banks as it is, and we know we are, then why not have **principal only** loans for people who need to be saved from their own or others' improvidence, greed, or failure to look at numbers? ~ That is, for a fixed period (12 to 24 months), primary home owners in trouble can refinance to the Compass Rose Emergency National Housing Loan Program (CRENHLP!), where the last one to two years of the amortization curve are shifted to the front of the loan. That is, during this adjustment/equity building period, the borrower pays far more to principal than to interest. (See any mortgage calculator with full amortization tables, and run the numbers yourself.) ~ There are incentives for everyone. The borrower builds equity quickly, making jinglemail far less attractive. After one to two years, the "reset" is to the usual front end of the amortization curve. The bank thus has incentive to choose borrowers who are more likely to go the distance, rather than those who will be profitable on the front end/few years, then who cares, because they'll just have to refi into more lucrative packages, right? Right? RIGHT? And the government would have the respite of having to give tax breaks for the next year or two on these mortgages. ~ Of course the whole point of mortgages is to front-end-load the interest payments in the first years, because Americans are mobile. Lenders want to keep resetting mortgages to the most lucrative part of the amortization curve. The front. Bankers and lenders have built their industries around turning every median ($200K) house sale into a half-million-dollar financial transaction. But it's also the case that with wages frozen and the prices of everything going up, the only way to keep most people even remotely arithmetically connected to the possibility of house bying is with these outrageous loan terms (30+ years) and the vast and lucrative interest loads that go with that. ~ rose Re: DHB 12/4. Let’s consider some numbers.
~
100K mortgage. Fixed 30. Two rates: 4.5% and 6.5%
~
~
4.5%
monthly payment: $506
total interest paid: $82,406
interest as percentage of principal: 82%
principal paid by month 72: $10,861
interest paid by month 72: $25,619
~
break even**: year 14 1/2
interest paid at that point: $56,000
~
~
6.5%
monthly payment: $632
total interest paid: $127,544 (127% of loan value)
interest as percentage of principal: 127%
principal paid by month 72: $7,934
interest paid by month 72: $37,574
~
break even**: year 19 1/2
interest paid at that point: $105,000
~
~
** “break even” meaning the point in the amortization where each month, the borrower pays more to principal than interest.
~
A quick look shows:
~
a) Per $100K, the difference in monthly payment is $116.
b) The real difference is that at the end of six years (72 mo.)–which is around the average for how often Americans move–the borrower with the 4.5% loan has paid $10,861 to principal, while the borrower with the 6.5% loan has paid only $7,934.
c) The 4.5% loan is a more rapid equity builder.
d) The 4.5% loan also saves the borrower 45% of interest as percentage of principal.
~
Doc, I think this is what that financial uber-minds are looking at as they push for lower rates.
~
I agree that there are a lot of people in houses, or trying to get in, who really shouldn’t be considering a house purchase for various fiscal reasons.
~
I also agree that house prices have to come way down, especially in inflated markets, to get more in line with income. Many people are now concentrated in highly bubble-affected areas. Prices. Must. Come. Down.
~
But here’s my larger point.
~
Why not take the lower interest thing a step further?
~
We have seen a proliferation of **interest only** products over the past x years.
~
If we’re all bailing out the banks as it is, and we know we are, then why not have **principal only** loans for people who need to be saved from their own or others’ improvidence, greed, or failure to look at numbers?
~
That is, for a fixed period (12 to 24 months), primary home owners in trouble can refinance to the Compass Rose Emergency National Housing Loan Program (CRENHLP!), where the last one to two years of the amortization curve are shifted to the front of the loan. That is, during this adjustment/equity building period, the borrower pays far more to principal than to interest. (See any mortgage calculator with full amortization tables, and run the numbers yourself.)
~
There are incentives for everyone. The borrower builds equity quickly, making jinglemail far less attractive. After one to two years, the “reset” is to the usual front end of the amortization curve. The bank thus has incentive to choose borrowers who are more likely to go the distance, rather than those who will be profitable on the front end/few years, then who cares, because they’ll just have to refi into more lucrative packages, right? Right? RIGHT? And the government would have the respite of having to give tax breaks for the next year or two on these mortgages.
~
Of course the whole point of mortgages is to front-end-load the interest payments in the first years, because Americans are mobile. Lenders want to keep resetting mortgages to the most lucrative part of the amortization curve. The front. Bankers and lenders have built their industries around turning every median ($200K) house sale into a half-million-dollar financial transaction. But it’s also the case that with wages frozen and the prices of everything going up, the only way to keep most people even remotely arithmetically connected to the possibility of house bying is with these outrageous loan terms (30+ years) and the vast and lucrative interest loads that go with that.
~
rose

]]> By: eternal summer http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/comment-page-1/#comment-28653 eternal summer Mon, 08 Dec 2008 07:47:50 +0000 http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/#comment-28653 Dr. H-first thing i did was file online for his UE benefits...we'll see where that goes RL-don't think I haven't thought of doing that.... I had my own domestic manufacturing business before I decided to lay low and have my 2nd child. I am thinking about cranking that up again as I still have my studio. What worries me is my former sales rep says business is off 25%....and retailers who carried my line are dropping like flies.....but the good news is international market strong-Russia, Middle East, etc....I may have to risk what we have to take a chance on this..... I am upset, for sure, but thanks to this blog & others and my unhealthy obsession with real estate, I was able to be really frugal these past couple years as we saw this storm coming. Dr. H-first thing i did was file online for his UE benefits…we’ll see where that goes

RL-don’t think I haven’t thought of doing that….

I had my own domestic manufacturing business before I decided to lay low and have my 2nd child. I am thinking about cranking that up again as I still have my studio. What worries me is my former sales rep says business is off 25%….and retailers who carried my line are dropping like flies…..but the good news is international market strong-Russia, Middle East, etc….I may have to risk what we have to take a chance on this…..

I am upset, for sure, but thanks to this blog & others and my unhealthy obsession with real estate, I was able to be really frugal these past couple years as we saw this storm coming.

]]> By: stan http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/comment-page-1/#comment-28640 stan Mon, 08 Dec 2008 02:20:49 +0000 http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/#comment-28640 Mike, Let's say you buy a $200K house and somehow get a $200K loan to do it. Maybe over the next 10 years we have massive inflation, and in 10 years, $200K will now buy you a motor scooter instead of a house. If you have a 30 year fixed rate loan, the value of your payments are trivial and the value of the remaining balance of the loan itself is nearly nothing. The "flip side" is that if we have deflation, the house you bought for $200K might only be worth $100K and your paycheck might be cut in half as well, and your payment on a house that is worth less than the loan would be crushing. What's your "crystal ball" say? I just don't see how we can spend all this money we don't have, and not eventually have inflation get us. Mike,
Let’s say you buy a $200K house and somehow get a $200K loan to do it. Maybe over the next 10 years we have massive inflation, and in 10 years, $200K will now buy you a motor scooter instead of a house. If you have a 30 year fixed rate loan, the value of your payments are trivial and the value of the remaining balance of the loan itself is nearly nothing. The “flip side” is that if we have deflation, the house you bought for $200K might only be worth $100K and your paycheck might be cut in half as well, and your payment on a house that is worth less than the loan would be crushing. What’s your “crystal ball” say? I just don’t see how we can spend all this money we don’t have, and not eventually have inflation get us.

]]> By: drhousingbubble http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/comment-page-1/#comment-28632 drhousingbubble Sun, 07 Dec 2008 23:23:38 +0000 http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/#comment-28632 eternal summer, What you are going to want to do if you have not done so is have your husband file for unemployment insurance. This isn't much. Maybe $300 to a max of $450 a week depending on his salary. This may hold you over for a few months until he can land on his feet. You can find that information here: http://www.edd.ca.gov/Unemployment/ It is best to file online since they are having an inordinate amount of phone calls as you can imagine. eternal summer,

What you are going to want to do if you have not done so is have your husband file for unemployment insurance. This isn’t much. Maybe $300 to a max of $450 a week depending on his salary. This may hold you over for a few months until he can land on his feet. You can find that information here:

http://www.edd.ca.gov/Unemployment/

It is best to file online since they are having an inordinate amount of phone calls as you can imagine.

]]> By: mellon, and y http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/comment-page-1/#comment-28626 mellon, and y Sun, 07 Dec 2008 21:17:02 +0000 http://www.doctorhousingbubble.com/siiv-super-ignorant-investment-vehicle-the-evolution-of-progressively-dumber-and-dumber-bailouts-3-emerging-trends-bailouts-getting-costlier-and-dumber-layoffs-accelerating-and-embracing-fru/#comment-28626 Gold, etc? wall st. paid $7b seven billions in bonuses etc. Where do the vip's stash their Loot? in ..05% t bills>? Gold, etc?
wall st. paid $7b seven billions in bonuses etc.
Where do the vip’s stash their Loot? in ..05% t bills>?

]]>