New Mortgage System to Tackle Subprime Crisis in 30 Days
John Giuffre (aka Raghu), a real estate broker with Mark David of NYC, is pleased to announce his new book, Compound Mortgage: Subprime Mortgage Crisis Made Quantifiable, Containable & Affordable in 30 Days. The book introduces a new real estate buying/selling/owning system called COmpound Mortgage PrepaymentS or COMPS. COMPS provides a more comprehensive approach over today's proposals by layering an auto-lease-to-own system with a public/private bailout of today's subprime home owner.
COMPS Quantifies the estimated $400 billion in outstanding subprime mortgage holdings as being only 20% more than what these 2 million home owners can afford to pay on their $200,000 (on average) mortgage. According to Raghu, the answer is quite simple: Pay down this 20%. The Cost? $80 billion or $40,000 per home. "Problem Quantified."
"A market need not sell 100% of its inventory to be a 'hot' housing market. It only needs to sell as little as 20% of its inventory to make it a 'booming' market once again," said Raghu. "Pay-down this 20% and you make these homes affordable and sellable again. In short, we don't have a $400 billion problem; we have an $80 billion problem."
The book warns that the impending real estate crisis could get much worse as home owners begin to lose their homes leading property values for entire neighborhoods to decline. The wave of real estate foreclosures is further magnified on Wall Street where investors tend to avoid subprime mortgage holdings.
"These subprime mortgages have been sliced and diced and then parceled out into other investment packages. The net result is that the entire package will fail to attract investors though it may only hold a small portion in these subprime mortgages," Raghu said.
A $1 billion dollar investment package, for example, may only hold $100 million (10%) in subprime holdings, yet, this small 10% cannot be priced due to the uncertainty of the sub-primes' true value, Raghu said. The result: No buyers for the entire $1 billion package. COMPS recommends we pay down the $20 million of this $100 million in subprime holdings via the home owners themselves. This $20 million may only be 2% of the entire 1 billion dollar package, but this 2% contribution reinstates the entire package back to its original value. In this way, COMPS can reset the value for all the mortgage holdings piling up on Wall Street. Investment firms can once again find buyers for their (subprime) real estate holdings. Even better, banks who have already written down tens of billions from their mortgage related holdings can re-coup the full value of those losses.
"The subprime crisis has the upshot of having a dedicated buyer for most every one of these properties. Save the home owner with this 20% bailout and you save the entire system from the home and neighborhood, to local and state governments, all the way up to Wall Street and the global economy itself," Raghu said. "Lose the home owner and everyone loses all the way down the line."
According to Raghu, this is not a bailout of the home owner or Wall Street. "We are simply oiling this economic engine for what is proving to impact a large swath of the global economy beginning with the Americas."
The COMPS system splits the bailout between eight industry players: The Fed ($20 billion), the state ($10 billion), the county ($10 billion), the bank (5% of mortgage- also $20 billion), the mortgage holder (3%), the servicer (2%), the buyer (5%), and the seller (2%). Each of these players is asked to pitch in two to five percent of a property's value. These small contributions make it quite affordable for each of the players involved. Once combined, however, it equals a whopping 20% of a property's total (inflated) value and makes the property affordable to owners/buyers once again. The government and Wall Street recoup the full value of their contributions in new fees, values and taxes while home owners have affordable payments.
(John Giuffre (aka Raghu) has been a practicing real estate broker for five years and presently works with Mark David of NYC. Raghu has looked into a number of 'creative financing' options for clients over the years and discovered lease to own possibilities which could help the country's mounting real estate crisis.)