Do you like to watch sports on TV?
Isn’t it amazing how much money the “jocks” who play sports generate in terms of revenue and as a result get paid to just be a jock?
What if I told you that the real jocks in the world who generate the real revenue and make the real money weren’t named Kobe, Tiger, Lebron or LaDanian?
The real jocks who are responsible for generating trillions of dollars are the Quant Jocks.
Quant as in Quantitative. As in numbers. As in the smartest-guys-in-the-room-who-wear-glasses-and-part-their-hair-on-the-side who are hired to come up with the financial models that the big banks base their entire business around.
These Quant Jocks are the guys who came up with those wonderful things called CDO’s (mortgage speak for Collateralized Debt Obligation), CDS’s (Credit Default Swaps, more mortgage speak) and a handful of other three lettered acronyms that have given the country a severe case of the financial hiccups these last few years.
Attention Quant Jocks: I have an idea, but we are going to need your help flexing your spreadsheet muscles to let us know if this big idea will work or not.
Let’s see if we can attack the Foreclosure Crisis from a different angle and solve it.
Are loan modifications working?
Not really – in fact, the highest levels of government are pushing for more loan modifications to get done soon.
Are short sales working?
Kind of, but not really. I still hear it takes way, way too long to get a short sale done.
Foreclosures?
Still happening — and from the data that I can gather, more strategic defaults are happening more as more people are simply choosing to “let their home go”. The number one problem cited in the decision in strategic defaults is the amount of negative equity in a property.
In many areas of the “sand states” it isn’t uncommon to see a homeowner be 50% or more upside-down in his home — which means that house he bought 3 years ago for $200,000 is now worth $100,000.
And right or wrong, when property values plummet in the high double-digits in entire zip codes, the end result appears to be mass default.
Here Is A BIG Idea:
If a homeowner has a LTV higher than 125%, write the current loan down to 90% of the appraised value of the home and create an equity-sharing agreement with the homeowner that you will split any equity gained in the home if they refinance or sell the home.
2 Benefits To The BIG Idea:
- The smartest guys in the room will quickly figure out how to turn the resulting “IOU 50% of my equity” into some kind of security that can be traded/sold if an institution doesn’t want to hold it. You might be surprised to learn how many banks have written down the value of these mortgages to 90% (or less) of the current appraised value already.
- Homeowners will have a lower (”more affordable”) mortgage payment – and – have no reason to become another strategic default statistic. Low interest rate + equity in home = the best chance for a homeowner to make their mortgage payment or simply sell the home and try to get the most money possible rather than short sell it for the least amount the bank is willing to take.
Will it work?
Let’s put it this way: I’ll bet you a can of Diet Pepsi that if implemented, it will work better than the FHA Secure and the FHA Hope for Homeowners Program – combined.
I wonder what the Quant Jocks will have to say about it.
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