Citi stock sale ‘confounds’ top analyst

100 years loan!! excelent.. then what is life of home. we pay money for wooden structures and expect life of home to be 100 yesrs.. only one solution scrap doller.. and start new currency.

Hey, I’ve got an idea… Why don’t we take out a 100 year loan on a home. Lets also do it with zero money down while we’re at it. We could then have an INFINITE return on investment! We would be able to leverage ourselves to the hilt. If I have have my ho-hum job with the US median household income of $48,000/year, I could then sink 50% of my gross income into debt payments and wind up with a $400,000 house. That sounds like a GREAT IDEA.

Oh Wait, we did that already using less conservative 30 year mortgages and look where that got us! If idiots and speculators hadn’t used this flawed thinking we wouldn’t be in this mess to begin with.

While I personally don’t agree with Bill D, I can tell you that some banks offer 40 year loans; or at least they did in the past.

In either 1996 or 1997, a coworker of mine and her husband purchased a house in Virginia (Washington DC suburbs) with a 40 year loan. I don’t remember if it was a fixed rate for the life of the loan, but I do remember that it was a new-ish financial product; one of the papers did a write-up on the loan to talk about the pros and cons.

Thanks,
Jim.

ALSO HE DIFFERENCE IN 40 AND 100 YEARS IS NOT RELEVANT TO INTEREST ONLY AND REVERSE MORTGAGE. INTEREST RATES WOULD ALSO BE HIGHER WIPPING OUT WHAT LITTLE SAVING WOULD BE THERE FOR THE AVERAGE PERSON BUYING A 250K HOUSE.

Fatty is right Bill D- Asset pricing need to be commensurate with avergae income levels. In addition, your suggestion to extend the term of a loan to 40 years and above will get us to same kind of crises that we currently face- that’s because a house bult in today’s world will not last more than 15 to 20 years without starting to leak. If more money is required to do a major repair of the same property ( on which we have a 30 or 40 year loan already), we are basically taking more loan to just make sure that we are living in a dry home, without paying the first one off. That would lead to an over-leveraging. No financial gymanistics can overcome this very basic issue.
But again, in this case, we are discussing Citi’s capital structure. And you are right- Meredith seems to be way pessimistic about things at Citi- I don’t have any reasons to believe why citi would need to raise capital to the extent Meredith thinks….

Bill D. We have already seen the same example you are proposing, happen in the auto industry. The only way people can afford a car these days, is because the banks have extended loans well beyond there traditional time frames. 6 or 7 years for an auto loan is rediculous. This is one reason why you cannot turn around 2 years later after purchasing an auto and sell it. This has only confounded the problem of debt in within our society.

Honestly…extend the life of the loan? Dumb, dumb, dumb. Simple solution for this, all the people that bought homes outside their means get a bad credit rating and have to start over. They knew what they couldn’t afford it when they signed up for it. Next, get the federal government out of the real estate business. Let the chips fall were they may and we will pick it up from there. The economy will get more injured trying to catch it and fix it on the way down. Let it hit and then rebound.

As many posters mentioned, a 100 yr mortgage would artificially raise home prices.
The last 2-3 years, realtors and/or home lenders have been asking buyers the same question that’s been asked for decades at car lots, “How much can you afford per month?”.

Then, like the car dealers, the realtors, lenders, appraisers, etc. have sold people the most expensive house they could get them for that monthly payment, which increases the commission/fees for all parties involved.

Unfortunately, Bill’s way of thinking seems to be the new direction in America: credit, credit and more credit.

What the heck do you need a savings account for when you can afford anything on your Walmart salary.

And it is probably safe to say that we have the B-schools to thank for this.

Affordability of assets is all about price and income. It has nothing to do with creating fancy ways to lower a monthly payment. The main problem in this country is that asset prices like houses are inflated, while incomes are stagnant (no increase in 10 years). Any attempt to obscure this dislocation through artificially lower monthly payments, just masks the real problem. Debt financing above assets valued above your means to pay (now) is a recipe for disaster. This is the same recipe being cooked up by homeowners, corporations, local governments, state governments and most of all the federal government. Eventually debt financing has to come to a screeching halt because you end up servicing the interest on that debt as a larger proportion of your income then is sustainable. Its pretty simple. Assets like houses must come down 20-40% or incomes must rise. I don’t see incomes rising (haven’t for 10 years), therefore assets need to come down. Any subsidies, fancy loans or other attempts to stop this fall in prices will only serve to prolong and further dislocate the markets.

Although not enough historical rate information exists,I don’t think you would see much more variability over 100 years than you would 30 years. In fact, the risk would be mitigated overtime.

Customers will borrow what the banks will lend and individuals will almost always project their ability to earn on the high side. Bottom line is there needs to be more oversight of the lending industries to keep the industry honest. Had this happened in the first place the housing market wouldn’t be in this position no matter what length of mortgages were offered.

“Irrational exuberance” is the great nemesis of the modern economy and as money moves like a 10 ton giant of greed from sector to sector, (dot.com to housing to commodities) it keeps leaving the same trail of carnage it it’s wake.

100 year mortgages?! Bill, think about what you saying… You said that this would allow homeowners to purchase homes “at an affordable rate” and that this would optimize long term interest for banks.

I am not aware of any bank that would extend a 100-year fixed rate loan. Think about how much interest rates have fluctuated in the past 20-30 years. Locking into long-term loans could diminish a bank’s profitability when interest rates rise and they are forced to pay higher rates on their deposits. I mean the banks could always bundle these loans and sell them as securities, to help mitigate risk, that’s worked out real well lately hasn’t it?

Ok, so maybe you would say what about a variable rate long,long-term mortgage? Well, that might be a possibility but again given how much interest rates fluctuate in the long-run homeowner’s could see major fluctuations in their payments; not very advantageous to customers now is it?

I don’t really know what your comment had to do with the article above, but I hope I was able to clarify a few things for you.

That is the stupidest thing I have ever heard. Really? 40, 50 60 or 100 year mortgages? This only allows for the “average” American to spend well beyond their means well into other generations. This is also goes against everything that is American because they will never end up owning your property, just working to pay the 100 year mortgage that good ole grandpa took out.

100 year Mortgage? That is the dumbest thing I have ever heard of. The amount of interest you would pay would probably be 10x the amount of the loan at least. Talk about a win for the banks.

Take for instance a 15 year fixed and a 30 year fixed. Choosing a 30 year will double the amount of interest you pay if everything else is held constant to the bank. Sure, the dream home is nice, but not if you can’t afford it.

Meredith Whitney Needs A Life? How About C How Can’t Just Come Clean And Protect It’s Investors Or Potential Investors And Say Hey We Are Bankrupt. Now All Of Our Lives Are Worse Because Of Inflation \And All The Rest Tied To This Because Citi Was To Greedy Wait Even Better How About 300 Year Mortgages Or Better 500 Year Your 100 Year Mortgage “Idea” Alone Shows Your Intelligence And More Importantly The Dire Situation We Are In. To Bad You Bought Citi At 35 A Share On Advice From Your Broker!!!! Ride It Out Bud Hope You Sleep Well At Night. Can’t Wait For 0 Dividend And Another 10 Billion Writedown Next Quarter While They Hide The True Amount They Owe In Level Three Liabilities That Are As We Speak Magically Turning Into Treasuries. I Think Your Government And Financial Institutions Need A Life!!!

We are overextended and we need to invest available slack into solid productuction base to help stablize our economic system. This would be so that we do not evolve so far we forget our economic base and collapse.

It amazes me that the average American believes that extending mortgage terms out further, will make them more affordable. Let’s do a little math together. On a 200k mortgage at 6.5% for 30 years your payment (Principal and Interest) is $1273. A 40 year with the same rate would be $1180, 60 year would be $1114, and finally 100 year $1093. The difference between paying a home off in 30 years, and 100 years is $180/month. (A roughly 15% savings monthly). You can accomplish this same savings by purchasing a home that is roughly $27k less than the above example. Does your call to extend the duration of a mortgage still make the same amount of sense that you thought it did? I didn’t think so.

Why do people write about what Meredith Whitney thinks? She correctly guessed that Citigroup would cut its dividend. What a genius. That means everyone should hang on every word she mutters?

Bill, maybe some would do that, but for me I would never sell my children into slavery like that. The idea is to pay them off, not supplement Meredith Whitney’s already ridiculous monthly income. Wake up people.

Bill,
Extending amortizations out to 40,50 or 60+ years creates the same problem that interest-only mortgages created - the inabilty to build equity in your asset. I would prefer to pass down to my children a healthly stock portfolio than a burdensome mortgage or aged real estate. Today’s homes and neighborhoods have a shelf life of about 30 years, unlike the past when estates and neighborhoods improved over time.

She is dimwit who just cant help but open her mouth on everything Citi does. Perhaps its from the lack of play she’s getting from hey steroid infested husband who is to busy pimping male enhancement products.

The 100 year mortgage? Not for me. This is a Japanese mortgage lending business model that is not suited well for America. Besides this, have you looked at the amount of interest one ends up paying. It is obscene. The goal needs to be to pay off a mortgage in shorter period of time, not a longer period of time. Passing on a free and clear property to ones loved ones is far better than giving them a mortgage payment book at time of ones death.

One hundred year mortgages? See how that worked out for Japan’s real estate market and ask how much equity has been passed on to later generations.

I used to be in the mortgage industry in the early 90’s. A reasonable lender back then would have to meet strict federal guidelines to sell MBS loans in the first place. NONE of the people who are in sub-prime housing would have been able to get into their houses back then - predatory lending wouldn’t have been financially practical for the lender back then. This crisis is far from over and the only thing in the long term that will fix this is responsible lending NOT even more derivatives.

Bill, raising the number of years to mortgage a house to 40-50 and even 100-years is a dangerous proposition. Imagine what that would do to current house prices once this new scheme picks up. It would artificially raise the costs of all homes in the US. The problem in my opinion and it would be tough at this point to reverse is the ability to dedcut interest rates, and have interest only mortgage payments. This has allowed speculators into the market place at an unprecendeted rate, many who couldn’t really afford it but helped drive prices out of the reach of the avg citizen.

Making it easier to get mortgages or to afford housing will have a double edged effect of at first helping, but eventually causing more and deeper financial constraints on future generations.

Bill D. - Although your intent is admirable - this is an awful idea. Extending mortgages for several decades extends the debt cycle, locking in borrowers for much longer time periods in addition to increasing the risk profile of banks on a time scale. Monthly payments will be less - however this is only for a short interim period as you’ll be creating another real estate bubble! If I can buy a $500k home for only $500 per month, I might as well buy a $2 mil home for only $2k! And so on and so forth until prices escalate and ten years from now we are hit once again with a leverage-based recession. As far as Citibank goes - overleveraged issues are not solved by adding more leverage!

Bill D - 100 year mortgage? That would just increase home values even more since most people base their home purchases on monthly payment most times. This would also promot a lifelong debt slavery system to be pass from generation to generation.

Please do not extend terms of mortgages. Liberal lending is the late-cycle manifestation of profit chasing on hyper-inflated asset prices, when volume lending trumps risk-based lending. It is the problem, not the cure. Home prices must be allowed to deflate from their historically outrageous bubble prices.

Injecting the dying heroine addict with another dose of drugs will not repair its failed organs. It’s time for rehab.

Whitney is an inspiration. She’s one of a few analysts capable of zooming out, beyond the boom-time frame of reference.

Sounds more like handing down debit to me.

I agree Whitney needs to get a life. She will earn no kudos from me until she calls an upturn in financial stocks. It is so easy to kick everyone, including Citi, when they are down.

Response to Bill D of California on 40+ year mortgages. This is a good idea? This is just another way for Americans to over-leverage. How about 15 year car loans? Who in their right mind is going to hold the loans? Banks? Investors? Not me, that’s for sure.

I current crash in home prices in California and other places will make homes more affordable for all. This is a good thing and the Feds should not interfere with the process by implementing the bailouts under discusssion.

How about we believe God to payoff our mortgages supernaturally fast!!! And have no mortgage payments at all!!!

Bill D - Your answer is called an interest only payment option on a Home Equity Line of Credit. You can take as long as you want before paying anything on the principal. (Not recommended due to the accumulated interest expense.)

Buying small, paying off, and trading up is the better method of upscaling the home.

But what you asked for exists for those who want it. The bankers will be happy to service the interest only debt.

Good luck

Bill needs to come back to reality. You want to take lower framed homes that are in this appraiser’s experience lucky to last 30 years and you want to loan for 100 years? What lender is going to risk their capital for 100 years on an asset that the majority of people will want to walk away from in 30 years without extensive maintenance / renovation.

You must also be a fan of the 20 year car loans that people keep for 2 years and that are in the salvage yard by year 10.

A 100 year mortgage would be nothing more then indentured servitude to the financial institution, and sure, lets sell that obligation to our children while we are at it….

But then again I do believe in capitalism and I’m sure that there would be people stupid enough to pay 50x the cost of the home in interest over the life of the loan.

To the above poster:

100 year mortgages? Are you feeling OK? If you need a 100-year mortgage to buy a home, you can’t afford it. Selling over-priced real estate to borrowers who can’t afford it is precisely why we are in this mess. And with monetary policy the way it is, there are ZERO banks that would lend on a home, at fixed interest, for that period of time.

Back to the drawing board….

The suggestion for longer mortgages is patently absurd; if you do this, all you will do is raise prices even farther from sanity so that nobody ever pays a house off.

The point of purchasing a house is to *own* it, not to have your kids keep paying the bank for it.

That’s a great idea Bill, but the are forces interested in not allowing the general population to become more wealthy and move into their neighborhoods. People who have a lot of money like the fact that they have the power to buy things most cannot. If you allow 100 year mortgages you take away a good amount of their power and exclusiveness. The saying, “The rich get richer, it takes money to make money” would lose some of it’s truth, and the rich don’t want that to happen.

That has got to be the dumbest suggestion I have read on so many levels.

That is the least financially responsible comment i’ve ever seen. you must be a bank VP.

In fact, why have anyone pay off any loan? just have interest only loans. that what it’s at least not a lie that one will ever pay it off.

totally irresponsible.

Bill D is wrong. I am sure CA real estate market is vastly different from the Midwest. If you can not pay for your home in 30 years, probably you need to seek a smaller home.

Looks like Bill has not heard of the 100-year loans that took Japan down. Do feel free to visit http://www.eclectic-investor.blogspot.com - read about the japanese realty bust. Looks like the US has not learned and neither have you.

Meredith Whitney has been consistently correct in her predictions. Let’s see how much longer this financial Ponzi scheme can continue.

Bill D — That is an absolutely INSANE proposal. What you propose as passing “equity” from one generation to another would quickly turn into passing huge amounts of strangling personal DEBT onto the next generation. In addition to the staggering public debt we have already committed to the future. Your proposal is a win only for the Lords of Capital … it would turn the rest of us into serfs (not that we already aren’t mind you). Americans have no willpower when it comes to accumulating debt. We must change the way money works and stop feeding the tapeworm.

Billy D you need to get a life.
You want the average American family to carry $200k+ worth of debt for 40 years? The interest alone would be triple the amount of the principle. And you would have no equity as you would be paying mostly interest for the first 10 years on a 50 year note.

Why dont you get a mortgage for 50years and tell me that you are better off.

BillD. - a 30 year 6% mortgage for $300,000 has a monthly payment of 1768.11. Make that 60 years and the payment drops to 1505.92. Not such a big deal. After 30 years the debt owed is over $255,000, so after 30 years of payments $45,000 was repaid. Doesn’t sound like such a great deal to me.

Meredith Whitney needs to get a life.

Please consider a change in the number of years associated with a typical mortgage. Raise the number of years from 15, 20, 30 to 40, 50, 60, or 100 year mortgages. The Rational is simply to allow homeowners to purchase quality houses at an affordable rate that can be passed down from one generation to another as well as sold upon the death of a family member.

This would optimize Banks long term interest and give American families the capability to extend their payment options as well as the ability to pass down equity to their children. Win for Banks, Win for Homeowners.