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The Solution to the Housing Bust: The 60-year Mortgage   (November 3, 2006)


In a bid to stem the crumbling value of U.S. housing, the Coalition to Rid America of Surplus Savings (CRASS) has announced the launch of a new loan product: the 60-year mortgage.



The new product's innovation, says Spokesperson I. (Ibogaine) Lyeahlot, is a 20-year fixed rate of 1%. The loan reverts to an interest-only mortgage in the second 20-year period, and the principle and interest are paid off in the final 20-year period.

"We're taking our cue from Japan," Lyeahlot explains. "They dropped their interest rates to 1%, and look how great they're doing now."

"At 1% interest for 20 years, you pay only $416 a month to own a $500K home for half your adult lifetime," he explains. "Sure the mortgage climbs to $1 million by the end of that period, but hey, one of your kids will probably get a job at the Youtube of the day and rake off a million or two in stock options, so why worry? And if your kids don't make the big bucks, maybe their kids will. We have faith that our grandkids will step up to the plate and pay down these mortgages."

The only catch, he reports, is that couples who fail to procreate or adopt children (one is considered a risk factor) will have their mortgages called. "It's good for America," he says. "We need to keep our birthrate up, and this will do the trick."

Critics denounce the new debt instrument as yet another off-loading of debt onto our grandchildren, a charge Lyeahlot accepts and defends. "Look, we're already off-loading the Medicare and Social Security debt bombs onto our grandchildren. Why not load the nation's mortgages onto the pile, too? But in the meantime, these loans will spark a whole new round of rising house prices. When the sky's the limit on debt, the sky's also the limit on housing values."

Other critics wonder how such a mortgage can win investor backing, given the likelihood of default at the 40-year juncture, when the payment jumps up to cover both interest and principle, Lyeahlot says, "There's already huge interest in these loans from bankers and investors. So the house reverts to the lender in 40 years--so what? Everyone's made so much money by then that it doesn't matter. Nobody cares. Even the original buyer doesn't care--they're either in a retirement home or in an RV."

Lyeahlot countered the criticism that homeowners who put nothing down and pay 1% interest, allowing the rest of the interest to add onto the original mortgage, will have no equity. "Sure, the homeowners will have no equity. In fact, they'll be underwater to the tune of a half a million bucks. But so what? They will have the illusion of ownership, which is all they really have now. So what's the difference? They feel like they own something, and that pride of ownership is what these loans are all about."

As for why anyone would buy a 20-year mortgage which only paid 1%, he explained, "The money's not in the interest--it's in the derivatives which will be written against the tranches. The actual interest is, pardon the wordplay, of no interest. With derivatives, an investor can leverage the 1% into a position with 10 times that return."

Given that a significant majority of total U.S. debt is being purchased by foreign entities and central banks, some claim that by the end of the 60-year mortgage, when our grandchildren will finally make the last payment, China, Japan, the oil exporting nations, Canada (in trade for tar sand oil) and Mexico (in trade for low-cost labor) will own the entire U.S.A. In response, Lyeahlot sniffed, "So what? Our savings rate is already negative and what difference does it make? We live better than the people who own all our mortgages and bonds and all that stuff. Let 'em buy up the assets--we still get to live in the mansions. Savings are so 20th century."

Lyeahlot reports that CRASS is also considering launching a 90-year mortgage next year, "We thought about a round 100-year time frame, but that seemed to scare people, so we dropped it back to only 90 years. We think it's going to open new territory in truly long-term debt packages. The derivative opportunities are just huge."


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