> The negative amortization loan scheme works only if you intend
> to sell the house after it appreciates to the point that your
> gain will be higher than all incurred transaction costs (i.e.
> interest added to principal, plus selling cost, plus fees and
> taxes).
No, there are plenty of other scenarios where this "works" -- even if it is ultimately more costly! You neglect the fact that sometimes (I'd wager: often in this case!) this kind of product is the only product that one would have access to. How do you compare "more expensive" when the alternative is "no transaction" ...? How "expensive" is it to not make the move you want to make?
[ My personal example was just a data point -- that it was ultimately cheaper -- and was only meant to make the point that sometimes you're the bug and sometimes you're the windshield ]
Other scenarios where this "works" --
- Your income is increasing, you believe that N years from now you will be in a better position to qualify for better terms, but you'd like to move now and that's a higher priority than whether it's costly (for instance, you'd like to be living in a particular school district)
- You are expecting an inheritance from a relative that will allow you to add directly to a refinance down-payment and you're willing to tread water until it comes through
- You live in a high-rent market and buying is cheaper than renting, even if it gets more expensive
- The total equation including tax posture makes it advantageous to own, even if it's more expensive on a cash-flow basis
I can go on.
People have to make decisions about life that don't involve saving every single dollar -- there are, as they say, some things more important than money :-)
> your parenthetical remark about buying one's own house implies
> that people do it to have a home rather than to acquire a real
> estate speculation instrument [ ... ]
Doug started this by asking about the (presumably clueless, sheep-to-the-slaughter, victims) people who take advantage of this product in a tone that said to me that he thinks that this is a good example of David losing to Golliath. I think we can safely allow that "real estate speculators" need no protection from themselves.
Tut-tut'ing people who are trying to make a positive difference in their lives is unattractive.
> Another, even more serious, problem is that these seemingly
> miraculous get-something-for-nothing housing schemes divert
> attention from alternative housing policies ...
I think you're ascribing too much to this. Making these kinds of mortgages available probably has a negligible effect on the group of people who are interested in forming housing collectives.
/jordan