Open Thread 8-23-2008

Simply the Best — Tina Turner

This week in the comments, we joked about new lending programs for the next real estate bubble. MalibuRenter, the gentlemen who helped with the content editing of my upcoming book, makes a living patenting financial products (among other things). The following is an idea for a new patent (tongue in cheek).

Lending during the Great Housing Bubble was too messy. There were too many loan programs. Since real estate always goes up, and since people want immediate access to this appreciation to spend it like income, a new loan product which readily provides this money is in order. The Option ARM was a major innovation. By allowing for negative amortization, people were able to add to their loan balance and effectively “cash out” their equity. The problem with this loan program is that it didn’t go far enough — people still had to make payments, and they had to get HELOCs to extract the remainder.

The new loan program I am proposing is called the “Pay You” loan, or PU for short. The PU loan has no payment of any kind. The total amount of interest each month is added to the loan balance. Further, appreciation in excess of this monthly interest is sent to the borrower each month. Rather than pay for an updated appraisal each month to determine value, an automated reappraisal system which looks at the current pricing of comps can accurately determine the current market value. Since homes now pay cash to owners each month, home ownership would be very desirable, and home prices should rise steadily far in excess of the monthly interest cost. With automated appraisals, little additional servicing costs would be required. Also, lenders would find the monthly service fees an attractive feature, so they would readily peddle the PU loan to any borrower who wanted it, and since borrowers are actually being paid to own their home, everyone would want to enroll in the program.

These loan programs would be very attractive to investors because the interest income would be booked as profits, and since the balance is growing each month, the interest income gets compounded. The main problems investors in mortgage loans have is that borrowers often pay back these loans early, and the balanced decline over time. Therefore, they do not receive the rate of return reflective of the stated interest rate. With the PU loan, investors actually get a greater return due to the compounding effect. The early payback is not a problem because even if a borrower sells a home, they will quickly buy a new one to get back on the home appreciation gravy train. The PU loans may even allow for assumability and portability so the loan doesn’t need to be closed out when a buyer wants to move up or sells. It is a panacea.

Now we just need home prices to always go up…


I call you,when I need you my hearts on fire
You come to me, come to me, wild and wild

You come to me, give me everything I need
Give me a lifetime of promises and a world of dreams
Speak the language of love like you know what it means
And it cant be wrong, take my heart and make it strong, baby

Youre simply the best, better than all the rest, better than anyone, anyone
Ive ever met!
Im stuck on your heart, I hang on every word you say
Tear us apart, baby I would rather be dead

In your heart I see the start of every night and every day
In your eyes, I get lost, I gte washed away
Just as long as Im here in your arms I could be in no better place…

Simply the Best — Tina Turner

22 thoughts on “Open Thread 8-23-2008

  1. scott

    LOL…actually to go one better, why even wait for my house to go up in value, since the house always goes up why cant you also pay me next years appreciation now as well? We can call it the Pay U Tommorow price with no amortiZation (the PUTZ)

    1. firsttimehomebuyer

      New programs would not be necessary if Congress would keep down payment assistance programs already in existence, such as 3% homebuyer assistance programs!

  2. Chris

    I didn’t check out IHB for the past few days and so I’ll leave my comments now.

    22 Claret sales price back in ’06 is a freaking joke. I sold my 2b/2b Oak Creek condo a bit less than that price and that condo was WAY better than this crapo 22 Claret with 1b/2b/1d (2 bed my foot).

    Regarding the current RE state, the so-called knife catchers are mostly real homeowners who are going to stay for a while and so a further drop in RE price are going to be caused by 1) more foreclosure homes coming into market and 2) distress gamblers.

    Anyway, JMHO (observation and not opinion).

    1. Chris

      One more potential risk: California’s pathetic budget. There is absolutely no way this impasse will continue unless 2 things occur: 1) cut spending and 2) raise taxes. Frankly, #1 is close to impossible because of Democraps and the passing of various props that tie up the hands of politicians from making dramatic cuts. Sh*t, talk about biting back at ya with Prop 13….if they can’t raise taxes without 2/3 majority, they can’t cut spending because of Prop 98 and other props. Talk about Karma and the (So Cal) beaches 🙂

      I don’t see any other way unless #2 occurs and that will take Cali RE market down another notch.

      1. east coast wonderman

        “Democraps”: thanks for keeping it classy, dude. Your party’s “free marketeers” are a real inspiration for us all. Lehman, Bears Stearns, Fannie/Freddie, and now the big auto manufacturers want a bailout. What ever happened to your ownership society? It’s always socialism as your main rant, but it’s what? state socialism now?

        I say keep the politics down to a dull roar on this page since there’s no way a kool aid drinker (in other contexts this means a 28% dead ender who thinks that gay marriage is the biggest threat to his marriage) can keep maligning the dems without looking like a hypocrite. You worry about taxes being raised??? HELLO! What do you think gas prices are? My Fed taxes went down a few years ago and my state taxes and local taxes have risen every year since. My bridges are falling down and our infrastructure is rotting away while we piss money in IRaq for nothing at all except some dry drunk’s fears about his corrupt legacy. You elected a fool actor as Gov of your state (after recalling one in what was as corrupt as what happened to Don Seigelman in Alabama) and now you blame the dems…. Come on, dude, you’re like the (divorced and rotating back to Iraq for the fourth time) rightwinger at a bar back in June who told me that Saddam took out our financial institutions back in 9/11. You aren’t courting irrelevance; you’re courting comparisons with Ben Shapiro (google, if you don’t know who he is).

        Let’s just talk real estate and politics and leave the partisan smears at the doorway.

        Peace out and Man Up, little dude,


        1. Chris

          Good point little tweety. I’ll keep the Democraps comment down while you keep your east coast attitude up.

          Repukes are no different I might add. However, I’m making a point wrt the current state of CA as some of those who actually know it. Yeah, like I don’t know gas price tax from your head up your donkey well.

          1. ice weasel

            The preceding posts are yet another argument to keep your political statements to yourself and stay on the topic.

          2. Priced_Out_IT_Guy

            Immature pre-school arguments like this are one reason why people navigate away from the comments section on this blog entirely. Take your politico rants elsewhere.

  3. alan

    From a marketing standpoint, I think PayU sounds better than PU. Like your geting into a university.

    1. IrvineRenter

      PU is perhaps more representative of what people would think this program smells like after it has been around a while.

  4. LC

    Why make comments here? There is a forum, which is where the elite commenters go. The hoi polli unwashed masses are not worth listening to. Here, have some sour grapes.

  5. Sherry

    I’m new in the area – looking for a two bedroom.2 bath townhome or condo and came across this at Windwood Townhomes – 455 Deerfield, l39 priced at $395,000.

    Any input as to area (seems like a great central location) – these were built in l985- but most importantly is this a good price Just listed on 8/19/08 ?


    1. IrvineRenter

      In today’s market, that is a reasonable price. It may find a buyer at $375,000. However, the value will decline further from this listing price. Let’s say this rents for about $1,600 per month, it should bottom out around $250,000 to $275,000, assuming of course an owner occupant wants to live in it.

  6. lawyerliz

    Speaking of PU, the entire area outside (not inside) my house smells like mildew, or something else equally unpleasant.

    Florida–the mildewed state.

      1. lawyerliz

        Just a wee bit. The hub’s coworker has a rain gauge and recorded over 25 inches as of ummm, 2 days ago. In Melbourne, south of where our house is. Some trees fell over not due to wind, but mushy ground.

        1. LC

          I have been to the beach there. I had friends in Melbourne Village.

          Average annual Irvine rainfall: 12.82 inches.

  7. lambcannon

    But at least you’ll be able to flog another repulsive, worthless ‘book’ out of the frothings of other’s worthless fantasies. Come all over yourself, or your repulsive mate, if you have one.

Comments are closed.