# Is The 30-Year Mortgage Model Obsolete?

#### Salvatore R. Gulino

Additional Dodd / Frank regulatory mandates in 2015 will soon be upon us. Many wonder whether they will do more harm than good? Some of us are asking, can any amount of regulatory oversight help overcome an innate flaw embedded in our financial system outlined below:

The Simple Math:

It takes the 30-year mortgage several years to build 10% equity. The average borrower’s housing expense has risen to approximately 50% of an American’s average net income. The combination of the speed in which the 30 year mortgage pays down the principal balance in relationship to a borrower’s Housing Cost To Income ratio has caused a dislocation within our financial system.

History has documented the difficult task the Fed has endured in keeping inflation rates down to an average of 3% a year over the past 4 decades. 3% X 10 years = 30%. This figure is closer to 50% when compounded over 10 years, yet borrower’s household income has only increased on average, a (total) of 6% over 10 years. Question: How will homeowners be able to afford to make their mortgage payments in several years? What will happen to the economy when borrowers can no longer afford to pay their mortgages and as a consequence their disposable income disappears?

Borrowers who believe they will be able to sell their homes in the middle of the next economic contraction should consider; The median average loss of real-estate values for the past three recessions was over 20%.Thus, there were a significant amount of equity lost between 30-50% recorded nationwide.

Commercial RE price fluctuations follow Residential. Borrowers who can no longer afford to pay their mortgage, sell, or refi their homes are susceptible to foreclosure.

MBS volume has doubled each decade since the 70s. *If 10% of borrowers over extend themselves and the volume of MBS doubles within the next 10 years, how catastrophic will the next recession be?

* 10% percent is statistical average of homeowners who overextend themselves, the same percentage of defaults which started the mortgage crisis. All statistics used were obtained from U.S Census Bureau, the Fed and Fannie Mae, charts available upon request.

“The Simple Math” points toward the 30-year mortgage as being obsolete in our modern day economy.

Given the outcome of the simple math and basic statistics, can anyone offer a possible defense for the 30 year amortization model?

#### Daniel Duffy

##### C++ author, trainer
There's no future in property. It's a liability.

And if you do, do a 20-year annuity.

#### Salvatore R. Gulino

There's no future in property. It's a liability.

And if you do, do a 20-year annuity.

Danial,
Under the current 30- year amortization model I would have to agree. However there are new models currently being used by wealth management firms which deliver greater yields to the lender (as much as 1%), at half the risk with approximately the same payment as the 30-year mortgage available. Best of all, it provides the borrower with 30% more equity in 10 years, which would turn owning a property from a liability into an asset.

Best
Salvi

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#### Daniel Duffy

##### C++ author, trainer
Danial,

Under the current 30- year amortization model I would have to agree. However there are new models currently available which would make it an asset.

A house is not an asset; it is a place to live in. The next generations can better rent.

#### Salvatore R. Gulino

A house is not an asset; it is a place to live in. The next generations can better rent.

I sold all my assets from my real-estate syndication in 2005. Not quite at the peek , but I figured its better to be safe than sorry.

#### Daniel Duffy

##### C++ author, trainer
I sold all my assets from my real-estate syndication in 2005. Not quite at the peek , but I figured its better to be safe than sorry.
Excellent timing; you were 1 year too premature.

#### Salvatore R. Gulino

Excellent timing; you were 1 year too premature.
True a little ahead of the curve, I attach the model I used in case you are interested. Housing Cost to Income Ratio was well over 6-1, but property values as you will notice on the chart was continuing to increase. I knew my model was on point, it was time to bail once the appreciation began to stall.

#### Attachments

• The Economic Genome (dragged).pdf
123.4 KB · Views: 33

#### Daniel Duffy

##### C++ author, trainer
True a little ahead of the curve, I attach the model I used in case you are interested. Housing Cost to Income Ratio was well over 6-1, but property values as you will notice on the chart was continuing to increase. I knew my model was on point, it was time to bail once the appreciation began to stall.

Anyone with half a brain knew the end was nigh. Alas, brains were in short supply around that time.

Ha, Agreed.

#### Salvatore R. Gulino

I hope so Daniel,

I believe my new amortization model will go a long way to negate the innate flaw within our present financial system described in the "Simple Math" I previously attached. It is currently being used by a hand full of wealth managing groups as a perk to lure high net individuals to their firms.

Formally known as SIMP 20-year mortgage, It provides the lender with higher annual yields (as much as 1%), at half the risk while maintaining approximately the same monthly payment as the 30 year mortgage, with the added benefit of generating 30% more equity within the first 10 years. Its proven to be a very effective sales tool. SIMP will soon be available to Main st. I have provided you with a sneak peek herein attached.

Best
Salvi

#### Attachments

• _SSS_software_copy_3.pdf
240.8 KB · Views: 32

#### alain

##### Older and Wiser
...The next generations can better rent...
They will need to rent from somebody.

#### alain

##### Older and Wiser
I hope so Daniel,

I believe my new amortization model will go a long way to negate the innate flaw within our present financial system described in the "Simple Math" I previously attached. It is currently being used by a hand full of wealth managing groups as a perk to lure high net individuals to their firms.

Formally known as SIMP 20-year mortgage, It provides the lender with higher annual yields (as much as 1%), at half the risk while maintaining approximately the same monthly payment as the 30 year mortgage, with the added benefit of generating 30% more equity within the first 10 years. Its proven to be a very effective sales tool. SIMP will soon be available to Main st. I have provided you with a sneak peek herein attached.

Best
Salvi
Would you care to give more details? I didn't see any explanation of what you are proposing.

#### Daniel Duffy

##### C++ author, trainer
They will need to rent from somebody.

True. Also a source or risk.

Plan C, live in with the parents.

#### Salvatore R. Gulino

Alain,

I believe Daniel's comment's are based on solid math similar to the "The Simple Math" I posted earlier. Unless you have the ability to time the market, most of us fall into the trap of paying a 30 year mortgage in hope of building enough equity to offset inflation. Only to find our equity is likely to be wiped out every 10 years. You need only to look back to the millions of borrowers who's mortgages were underwater to see just how devastating the effect of the 30 year mortgage has been over the years, as was the case in the 70's and 80's.

How SIMP solves the 30 year models problem:
SIMP is a fully optimized 20 year amortization model which delivers higher yields at half the risk, with approximately the same payments as the 30 year mortgage. Based on $100,000 borrowers are able to generate an average of$29,000 more equity within 10 years which will virtually eliminate defaults due to borrowers being underwater on their mortgages.

How it works:
In Short, SIMP is a algorithm which is optimized by a software program of our own design. The present 20,30-year mortgage monthly payment within the first 10 year is 90% interest and 10% principal. In contrast SIMP is more principal then interest. Simp reduces the amount compounding interest without effecting the lenders annual yield.

If you were to use the same SIMP principal / interest ratio in the present 30 or 20- year model, your term would fluctuate as much as 2- 7 years depending on the interest rate used "this will not work". The second problem “among many” would be the yield would not be consistent. SIMP solves these problems through the use of an entirely new amortization formula, which is optimized by a software program.

Feel free to contact me offline. I would be happy to go over a live demo with you, if interested. If you enjoy reading very dry material I have included my working paper, which will go a long why to explain the innate problem embedded within our financial system the SIMP model will solve.

#### Attachments

• *30-Year Obsolescence 8.12.pdf
1.6 MB · Views: 29
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#### Daniel Duffy

##### C++ author, trainer
"I believe Daniel's comment's are based on solid math similar to the "The Simple Math""

Maybe.
My comments were more influenced by the property crisis when the "Celtic Tiger" lost its fangs. Money was awash at the time.

You don't need too much maths to understand this.

You are selling a product. So some grains of salt may be consumed at this stage

#### Salvatore R. Gulino

Unless I missed something, who mentioned anything was for sale? For those of you who have a sweet tooth preferring sugar over sodium, you will be happy to know SIMP is self funded, free to all institutions who wish to use it

#### Daniel Duffy

##### C++ author, trainer
Unless I missed something, who mentioned anything was for sale? For those of you who have a sweet tooth preferring sugar over sodium, you will be happy to know SIMP is self funded, free to all institutions who wish to use it
Fair enough. I still may keep my opinion

My apologies if I said you were selling. Maybe this was the trigger

Feel free to contact me offline. I would be happy to go over a live demo with you, if interested

I'm a bit of a doubting Thomas on this one.

#### Salvatore R. Gulino

No worries . Feel free to contact me offline , I will be happy to send and go over a "Live" SIMP demo with you if interested in becoming a believer.

#### Daniel Duffy

##### C++ author, trainer
No worries . Feel free to contact me offline , I will be happy to send and go over a "Live" SIMP demo with you if interested in becoming a believer.

'believer?' What are the articles of faith? Seriously, all models are wrong, some are useful.

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