patrick.net

DinOR :

Well, I just wanted to say that if someone loans me the money for an indefinite period of time, and I can generate a risk-free return more than the loan rate ... I would go for it. (Who wouldn't ?)

I think I read about 100 year mortgages in the blogsphere. Not abut US of course. Forgot which country they were talking about. Hence I used it in jest. But I would say the same thing using 40 year or 30 year mortgages.

Claire -

My friend is looking for a house to rent. She's finding decent rentals available in Palo Alto and Cupertino, not a lot of competition for those at this point (according to her).

StuckinBA,

I thought as much, but it's interesting b/c it's in alignment w/The Center For Responsible Lending's position of "sustainable home ownership". Yeah, sure a neg. am. will "get" you in (but for how long?) Now the subprime implosion has reached CH (already? it's not even Valentine's Day) mortgage banksters are positioning themselves as "defenders of the American Dream (TM) and I don't think anyone seems to be buying it. :)

I mean, what variation of exotic loans is left? :(

mortgage banksters are positioning themselves as “defenders of the American Dream ™

"mortgage banksters" :-)

Yes, I remember reading about it. The guy was quoted as saying "Buyers didn't have an exit strategy" ! Yeah, you should thank us for helping them get on this supersonic train that's going to crash before they get a chance to scream. It's not our fault that they didn't plan to jump back out in time.

I hear-by proclaim that "mortgage banksters" be rechristened "mortgage gangsters"

What do you SF folks think about this latest entry:

http://www.sfhomeblog.com/2007/02/haven-forgotten-about-you.html

Yeah he's a Realtor, but his posts aren't very shilly.

eburbed :

He maybe a slightly more frank than other realtors, but just like them he ignores to talk about tomorrow.

lunapark :

“Scary Sign for Home Buyers”
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/07/BUGV8NVQNO1.DTL

That article has so many choice quotes !

More than 21 percent of buyers last year took out mortgages with no down payment, soaring from just 4.5 percent in 2000
...
It was the first annual drop in median down payments since 1995.
...
The report found that 43 percent of people who purchased a house last year relied on a second mortgage.
...
About 40 percent of first-time buyers opted for loans without down payments. But even as many first-time buyers showed a willingness to take on higher debt, the overall percentage of first-time buyers fell, reaching its second-lowest level on record.

But the mortgage bankster says
They're trying to leverage their money the best way that they can

They supply of able and willing GF is shrinking fast. Now if only the mortgage rates inch back to 7, the supply will VANISH. Arghhh. That 10 year note ... down to 4.74 today.

Interesting thoughts on the interest rate arbitrage. I have been debating this internally for a bit. My scenario is short term debt on a depreciaiting asset (car not a house). In my case I can pay for the car in cash or try and out perform the market rate of the car loan.

See if my math holds up:

Purchase Price: $50,000
Interest Rate: 6%
Total Cost after 60 months: $65,000

Liquid assets: $50,000
Investment returns at 5.25% CD (annual): $2,625
Taxes on Investment returns (30% bracket): $787
Net from Investing funds: $1,838
Net funds after 60 months investing: $9,190

Asset Cost minus Investment gain: $55,810

So in my case the qeustion becomes: is it better to spend the extra $5800 over five years to stay liquid and hope the FED raises rates to the point that my CD's will outperform the loan I have taken out on the car. How high does that rate need to go in order for me to break even with the 30% in taxes I am forced to pay on the gains? What would you do here?

It seems this scenario would do better with a mortgage since the interest write off should counter any investment gain. Thus leaving me with a theoretical o% financing opportunity. That is assuming I could pay cash of course. Interesting stuff! Thoughts?

Low interest is only good if you're able to either park it into something that'll grow faster than the accrual of the interest or if you'll use the money to get more utility now than it'll cost you in utility when you pay it back. It can totally break down in a stagflation environment.

It can totally break down in a stagflation environment.

How so? Whtat if you can generate enough return to outrun your fixed interest debt?

The Patrick brown shirt bear army can now stand down,

The housing sector slump remained a source of uncertainty for the economic outlook, but there were signs of stabilization, he said.

Any spillover effect from the housing slump — either from a downturn in the sector or a decline in the so-called “wealth effect” — has not materialized and was unlikely to do so, Plosser said.

Now that's a relief.

The Patrick brown shirt bear army

Huh?

Patrick being a fascist that has "brown shirts" in his employ, ie the "bear army" those who steadfastly ignore all new paradigms and refuse to participate in the great cash giveaway.

"How so? Whtat if you can generate enough return to outrun your fixed interest debt? "

Me earlier - "only good if you’re able to either park it into something that’ll grow faster than the accrual of the interest." I'm not a particularly good guesser.

I’m not a particularly good guesser.

Guess what I had for lunch.

So in my case the qeustion becomes: is it better to spend the extra $5800 over five years to stay liquid and hope the FED raises rates to the point that my CD’s will outperform the loan I have taken out on the car.

Your math is correct. But there is an additional risk - 1 year from now, the interest rate on CD might be a whole point lower than that is today. Of course if the rates drop, you can just pay off the balance. It's a gamble on interest rates.

The crucial difference is (and a benefit in your case) NEEDING the loan vs CHOOSING the loan. Betting on the direction (and spread) of interest rates is one of the riskiest forms of investing. Since you are able to pay off the loan, by postponing the decision by a fixed duration you can take a measured risk.

Personally, I don't do this. But that's my investment style.

Sushi???

Patrick being a fascist that has “brown shirts” in his employ, ie the “bear army” those who steadfastly ignore all new paradigms and refuse to participate in the great cash giveaway.

You are right, only a fascist will openly decline the American Dream. :-P

Debt is your friend. Debt = Wealth.

Not debt advice

Stretch002,

Firstly you're a W-2 (not a 1099) guy right? I could be wrong here. We'd need to know that before we can move forward.

Some time back a very smart poster brought to our attention that in truth MID doesn't really come of any great benefit until after you've broken your 10K standard deduction (married filing joint) AND a MAX 401K contribution! So if the SD is $10,300 this year and say $15,000 for the old retirement plan you'd need to break $25,300 on your schedule A.

OR!!! You could have a $2,108.33 per mo. MID w/no 401K contribution? :)

Sushi???

I wish!

Ok, you are not a good guesser. :)

Peter P,

What did you have for lunch?

What did you have for lunch?

Pasta.

Now I feel like sushi for dinner. :(

Now you remind me to crank out some pasta for dinner. That piece of dough has been sitting for long enough!

Now you remind me to crank out some pasta for dinner. That piece of dough has been sitting for long enough!

Oh FRESH pasta!!!

I am also conceptualizing some white-wine cream sauce for ink pasta.

StuckinBA,

Good analysis! And you're right, I've bet on rates on gotten burned (who hasn't, right?)

More importantly though the difference between "needing" the loan and "choosing" is an important distinction. A nice problem to have. If Stretch is a 1099 guy (or...... could potentially become one) that changes things considerably.

If you have a classic like X's T-Bird (not a daily driver) than obviously cash is the way to go! But for something that's sharing the road with half-wits that think "it'd be a kick to be on Cops" I'd let the bank and the ins. company take the risk. That's just me.

But remember the golden rule of shortcuts - anything that makes it easier on the way IN will make it proportionately more painful on the way OUT.

No exit strategy then.

SP,

Proportionately or exponentially?

Btw, what IS "ink pasta"? Anybody? :(

Btw, what IS “ink pasta”? Anybody?

A type of pasta made with squid ink. It is usually black in color.

So..... mortgage+gang+bangers+bankers?

I think we have one for WordSpy!

It sounds like I need to give you alittle more background so you can help me analyze this decision. Thanks in advance for indulging me. I am indeed a W-2 wage earner who is married. My wife and max our 401k's each year at the $15,000 limit. We are in the 30% tax bracket and have a household income between $200k - $300k. We are renters and have somewhere between $350k - 400k in liquid assets which are not retirement related. Our only debt is the 50k car. What do you think?

I believe Peter P is thinking of pasta made with squid ink, for inky black goodness!

HAHA

Mortgage Bangsters is hilarious! Nearly spit out my soda on that one!

"So….. mortgage+gang+bangers+bankers?"

Can I have that in German?

Peter P,

Is that right? Is this a dish that has a precedent?

Is this a dish that has a precedent?

Sure.

http://tinyurl.com/3xmrum

Peter P,

Hmm, that doesn't look too appetitizing...

Making risotto with squid ink is a traditional Venetian dish, or so my cookbook claims.

Hmm, that doesn’t look too appetitizing…

This is why I propose a wine-cream sauce. It needs something white. And perhaps some cherry tomatoes.

Also, I think restricting seafood to scallops, prawns, and clams would be better.

Hmm, for some reason I thought it was a Spanish dish