Treasury Official: “Man is paying these debt instruments off painful.”
New Analyst: “Well, you know I used to work with new homeowners to get their payments down to levels they could afford.”
TO: “Oh?”
NA: “Yes, you know lots of first-time buyers would be surprised at the homes they could afford. Homes which originally seemed far outside of their budget.”
TO: “Well, that sounds sort of familiar.”
NA: “Exactly, and I also helped people with debt problems or deteriorating credit secure homes when they thought it was impossible.”
TO: “Well, I think we could really use your help.”
NA: “Sure. Start off by extending the length of the mortgage.”
TO: “Uh, the instruments, you mean.”
NA: “Right. We had people move their 30 year terms out to 40 and 50 years.”
TO: “Ok, hmmm. I suppose we could try 40 years.”
NA: “Well, why not push it even more. I mean, you are the treasury, right?”
TO: “Right, yeah. We are the Treasury. Ok, 50 years. No, 100 years. How about that?”
NA: “I like your enthusiasm. Good start. You know, sometimes planned life events and expensive vacations, marriages and that new car can make it hard to start off a new home with that big mortgage payment…”
TO: “Debt instrument, you mean.”
NA: “Right. So you might want to structure the payments to start off low and accelerate later in the term. What about keeping the payments to interest only until later in the term.”
TO: “That’s cool. That would get us over this big hump of baby boomers with their decaying bodies about to literally about to raid and pillage the Treasury. How does that work, exactly?”
NA: “Well, you just pay interest out on your debt until, say, halfway through. Then you “reset” the payments to be fully amortized. Like at the, I guess it would be the 50 year mark.”
TO: “Fully amortized?”
NA: “Right, you start to pay hunks of the principal amount.”
TO: “Now that sounds like a plan. Anything else we can do to get these affordable?”
NA: “Well, we can do adjustable rates. You can start them off with low rates, like Treasuries plus 200 basis points, then raise that later according to a schedule of some kind.”
TO: “Treasuries plus 200? Uh, we better wait on that for now.”
NA: “No sweat. I’m here for you when you’re ready to take that next step.
Treasury Should Consider 100-Year Debt, BlackRock’s Fisher Says [Bloomberg]