The Mobile Mortgage, a response

My sister-in-law Erin wrote a very interesting blog post about her idea for a mobile mortgage. Basically people who want to (a) own a home and (b) move a lot end up building equity much more slowly then people who stay put for 30 years. This is because when you first get a mortgage (or any loan) you pay mostly interest and only over time does more of your payment go to principal. So why not bring the loan along with you when you move?

I wrote out a response that was too big to fit in the comments box on blogger so I thought I'd put it here. (Then I accidentally deleted it so this is draft # 2.)

I really like the idea of the mobile mortgage and I think it makes a lot of sense for people who expect to move a lot. So that got me wondering why the mobile mortgage doesn't exist today. I can think of a few reasons though I'm not sure any of them are insurmountable.

The first reason is that since a mortgage is secured by a house there would be some cost and risk involved with appraising the new house to ensure that it supported the loan amount. Smaller, regional banks that hold on to their loans may not be comfortable with taking the risk on a house that is outside their normal service area. For banks that sell loans to investors (which is most of them) the appraisal shouldn't be a problem because it's no more or less likely to be accurate than the initial appraisal was. Of course, the borrower would likely have to pay for the appraisal, but they'd do that anyway in buying the new house. This would also give the bank or the loan servicer a potential veto over the borrower's new house, but if the borrower doesn't like that they can just get a new mortgage as they would have done in the status quo.

Perhaps a bigger problem is that banks in some sense don't want people to stay in a 30 year loan for 30 years. Banks have a problem with "duration matching." A bank has to raise money to lend to people and they do this mostly through deposits which are short term (that is, people frequently move money in and out). But the money the bank lends is much longer term, like a 30 year mortgage. (Actually, most loans only last about 5-7 years because people move or refinance within that time on average.) As short-term and long-term interest rates move around, the bank runs the risk that it could end up paying a higher rate on its deposits than it's earning on its loans. There are two possible solutions for the bank. One is to make the mobile mortgage's interest rate variable and tie it to a shorter term rate. However, this may be unpalatable to borrowers who could see their mortgage payment change rapidly and substantially. Another solution is to seek out investors who are looking for longer-term assets. One would expect that the mobile mortgage would last longer because people keep it even when they move. (Of course, when rates fall people may refinance out of their mobile mortgage to get a better deal so a variable rate may be necessary to ensure the longer duration.) Anyway, with so much financial innovation it shouldn't be insurmountable to structure something that works.

Still, the idea of the mobile mortgage raises even more interesting and deeper points about what it means to own a home. One reason to own a home is to "build equity" and when home prices were appreciating steadily this seemed like a great thing to do. Going forward however, it's not at all clear that the home as an investment is the best deal, compared with renting and investing the money you save in, say, the stock market. (A home mortgage is a good form of "forced savings" in that it's easy to spend the "stock-market-investment money" than it is to skip your mortgage payment. But lots of people did find that they could take out home equity loans and pay off credit cards and buy cars so it's not clear that the forced savings works anymore for mortgages.) Mainly though, I don't think people want to own a home solely as an investment. They don't want to have to negotiate with the landlord about painting the living room green. Or more substantially, they don't want someone raising the rent or just deciding to kick them out when the lease is up. And psychologically people feel more rooted and permanent and stable in a home they own. They also tend to care more about their neighborhood and community. (Although this may be an American phenomenon. In Europe people rent long-term and seem to feel perfectly rooted.)

These psychological reasons would explain the 10-year interest-only mortgage which, to me, is financially akin to renting from a bank. (Not quite because you still get to paint the living room and you can keep any appreciation in the house when you sell it, but if the house price doesn't go up you've built no equity for 10 years.)

A professor at my law school has written an interesting paper called Homeownership 2.0 that discusses ways to come up with something that isn't full ownership, but also isn't a rental or even a long-term lease. It would be interesting to see if this could be put together with a mobile mortgage and give people the best of both world between renting and owning.

Making Future Magic: iPad light painting

Very cool video.

Making Future Magic: iPad light painting from Dentsu London on Vimeo.

Book Review: How Proust Can Change Your Life

Having never read a word written by Marcel Proust, it may have seemed a strange choice to read a book about his book(s). What's more, there seems to be a cottage industry in writing books with the name Proust in the title. There's Proust & the Squid; Proust was a Neuroscientist and probably others. (Plus Steve Carrell as a Proust scholar in the movie Little Miss Sunshine.)

But this book by Alain de Botton seems to have been first out of the gate, and it's not a "Proust And Something" book, it's just about Marcel and his novel. I bought it impulsively after reading the opening in the bookstore because I thought it was so well written. And I stick by that judgment even though the rest of the book slowed down for me. De Botton writes engagingly and humorously about Proust's life and also illustrates life lessons using characters from In Search of Lost Time. But, unsurprisingly, I feel that I would have gotten more out of the book if I'd read the source material. The chapters claim to tell you "How to Love Life Today" or "How to Take Your Time" or "How to be Happy in Love." De Botton takes each of these themes and shows us what Proust had to say about it in his novel and how he succeeded or failed at doing the same in real life. It would all be rather tedious in the hands of a boring author, but de Botton is fun to read and you feel a bit like your sitting in his kitchen having a nice book club with him, except you haven't read the book so you're faking it a bit and nodding politely.

The opening chapter, "How to Love Life Today," is wonderful. It tells the story of a French newspaper that asked a number of famous authors what they would do if a meteor were headed to Earth that would soon end us all. Proust's response is that such a thing would be wonderful because we all delay and put off life with the sense that we have all this time. If we knew our end was imminent wouldn't we rush off to do all those things we mean to but haven't gotten around to. Take that trip, kiss that girl, do that one thing you always wanted. This isn't a surprising response, and de Botton points out that Proust wasn't a particularly adventurous fellow and didn't much take his own advice. But that doesn't mean we shouldn't.  Here's what de Button has to say about it:

Feeling suddenly attached to life when we realize the imminence of death suggests that it was perhaps not life itself which we had lost the taste for so long as there was no end in sight, but our quotidian version of it, that our dissatisfactions were more the result of a certain way of living than anything irrevocably morose about human experience. Having surrendered the customary belief in our own immortality, we would then be reminded of a host of untried possibilities lurking beneath the surface of an apparently undesirable, apparently eternal existence.

However, if due acknowledgment of our mortality encourages us to re-evaluate our priorities, we may ask what these priorities should be. We might only have been living half a life before we faced up to the implications of death, but what exactly does a whole life consist of? Simple recognition of our inevitable demise does not guarantee that we will latch on to any sensible answers when it comes to filling in what remains of the diary. Panicked by the ticking of the clock, we may resort to some spectacular follies.

Of course, de Button's book is an attempt to draw lessons from Proust to help us avoid those follies and it's worth the read.

Book Review: 48 Days to the Work You Love

In our continuing search to make our lives happier and better, Nicole and I have been checking out from the library a number of books about improving your work life. 48 Days to the Work You Love by Dan Miller is one such recently-read endeavor.

Miller is a Christian and the book has a Christian theme and lots of Bible quotes. Non-Christians may find this off-putting but, it's worth getting over that because anyone could profit from reading the book. First, the Christian stuff is easy enough to skip. But more importantly, the Christian perspective to work life is probably one that a great number of non-Christians would appreciate anyway, belief in God not required. What I mean is that Miller's perspective is (a) money doesn't buy happiness, even at work; (b) we all have a calling or vocation, (whether it comes from God or not you can decide); and (c) we will only be truly successful doing work we love in accord with our calling. Consequently, if we are doing what we love (what God made us for if you will) we will find ourselves joyously serving others rather than counting out the days to retirement.

Of course, lots of books say this kind of thing, but Miller also gives practical advice on resumes, interviewing, and job hunting. My favorite piece of advice was about resumes. Miller recommends constantly updating your resume even if you love your job. The resume becomes an exercise in taking stock of where you are in your career and what skills you have developed. This focus on skills is also important. If you're stuck not just in a job, but in a career you don't like, how can a resume that lays out your experience and progress in that particular field help you land any other kind of job? Miller suggests rewriting your resume to focus on skills rather than on chronology. (I like this idea and the book has helpful samples to view, but a skills-based resume is pretty uncommon I think. I wonder if employers feel like you're hiding something with an unconventional resume?)

The worst that could be said about this book is that Miller has synthesized a lot of traditional career information you could get elsewhere and then "Christianized" it to sell to a target audience. But his synthesis is a good one, as is his perspective, so there's no reason not to check this book out.






Book Review: The Ascent of Money

This is another book I started to review and then didn't finish.  I enjoyed this book a lot, I remember that clearly.  But now that I'm a year or more away from it, I can't remember much else about it.  Of course, that's why I write these book reviews in the first place, so it's not really fair to the book.  But at the same time, I do remember being a bit underwhelmed by it.  Ferguson's books are all now done in conjunction with the BBC for televisions specials.  And so each chapter reads a bit like a little episode of a show.  "Today: the Dutch Tulip Bubble!"  Still, it's fun stuff, even if at times he used some fairly technical jargon without explaining it.  Perhaps I'll have to just watch the show and review that instead.  Or, dear reader, you could read the book and post a comment reminding me of why I liked it.

Book Review: Freedom from Fear, Part I

Funny.  I just realized I'd started a draft review of (half) of this book and never finished or posted it.  A little context is in order: I was reading books on finance during the height of the financial crisis, as many people were.  And the granddady of them all, The Great Depression, was written about by a former professor of mine, David M. Kennedy.  (Kennedy was the greatest college-class lecturer I had.  I loved going to class when he was teaching; his lectures were cogent, beautiful, and polished.  They were like performances--at the start of one my friend Dave turned to me and said, "I've heard this one before, it's great!")

Kennedy's Pulitzer Prize winning book, Freedom from Fear is about the Great Depression and World War II.  As I'd written in my draft (at a time when this seemed an open question), "the good news is this: We Are Not In The Second Great Depression. Not because times are good right now, but because the Depression was so bad."  Not just in the sense of economic hardship as we see it today, but in the sense of real, grinding, crushing, poverty.  Nicole's grandmother told us that for a while she ate beans every day during the Depression.  Even for people who've lost jobs and hurting, the occasional McDonald's cheeseburger is probably not out of reach.

So just to appreciate how good we have it, it's worth reading about the Depression. But the book is fascinating in other ways.  The Hoover Administration didn't just ignore the Depression, but everything they tried wasn't nearly enough.  And there was this sense of American optimism that things would be fine that is very reminiscent of how the economists and policy makers in 2007 said everything would just be contained to subprime.  The lesson is that things can get out of control so fast that no one sees it coming.  It's scary and we're lucky to have pulled back from the precipice.

There are probably lots of other great books about the Depression, but this book certainly covered what I wanted to know.  I know from my class with Prof. Kennedy that the second half about WWII will be incredible, but I've put the book away and moved on for now.

Book Review: Union Atlantic

This book has beautiful dust jacket.  It's artistic and beautiful and printed on great paper.  The whole way through this book I kept worrying I was hurting the dust jacket.

Of course, you're supposed to get lost in a book and not be worried about the dust jacket, and I just couldn't do it here.  Everyone who reviewed this book, it seems, loved it.  And the book is so timely!  It's about a big bank that fails and has to get bailed out by the Federal Reserve, yet it was written before the financial crisis!  Therefore, the reviewers said, it tells us something important about our times.  Except it doesn't really.  The author went to Yale Law School and he has a pretty basic liberal understanding of the world.  Money is bad and the people who make and spend money are bad and we're all their slaves.  That's true of course, but we all got that memo, even before the financial crisis.  But the book isn't really about the financial crisis at all.  The Bank doesn't get into real trouble until 2/3 of the way through. Instead it's about a group of characters who I just couldn't get that into.  People who are sad self-medicate with money and we're meant, I suppose, to feel pity and condescension towards them even though they think of themselves as better than us.  OK, I just don't have time for that.  I finished the book only because (a) it was a gift from Nicole who read the same glowing reviews as I, and (b) I kept hoping something would happen.  But by the time it did, I just didn't much care.