MAILBAG: A Proposed Mortgage Solution For Our Yungerleit

Being in the mortgage business, I am acutely aware of the hardships facing yungerleit affording mortgages in today’s environment. A short few years ago, an identical mortgage that many families are taking now would have had a monthly payment of over $1000 less. Another hardship facing yungerleit is that they have to compete with investors who are offering more aggressive cash offers.

I would like to propose a solution that would bring relief to our yungerleit, and at the same time benefit baalei batim as well.

There are many people who have large amounts of money in CDs, high yield savings accounts, bonds, and other conservative investments making around 4% in today’s market. The idea would be to raise a fund which would originate mortgages to yungerleit at a 4% interest rate, secured a first lien against a primary residence. Although not FDIC insured, most owner occupied mortgages in the Lakewood/Jackson/Howell area are highly safe investments, considering the ever rising values and low mortgage default rate amongst yungerleit.

Of course, guidelines have to be put in place at least on par with bank guidelines, we would require co-signers, and perhaps also put limits on the purchase price, etc. Yes, we would have to go through foreclosures if need be in order for the system to work, but overall, even from an investment perspective, a $500,000 mortgage on a house which will likely be worth $750,000 in 2 years is pretty safe. Limits would have to be put in place to ensure that yungerleit shouldn’t bid higher than the house is worth because they have a cheaper mortgage.

Again, the fund will be targeting investors who want a low risk, long term, hassle free investment, and are happy earning a 4% return for doing absolutely nothing other than purchasing a mortgage note. A third party company will service the mortgage, and simply send monthly payments to the investors. Many people don’t know that they can even set up their IRA to be a self-directed IRA which can invest in mortgage notes.

What if the investors want the money back? Either the fund will constantly be soliciting new investors to sell the existing mortgage notes, some homeowners will eventually refinance or sell especially if rates go down, or maybe we should make the mortgages with a balloon payment for the time being. Another point to mention is that the returns are amortized, which means that every month there is a return of principal and interest.

If we can get investors to move their money from a 4% CD, IRA, savings account etc. to a 4% mortgage backed security, this would bring about a tremendous relief to our yungereleit, and at the same time being a safe investment at equal returns to what many are earning now.

If anyone has any insight, ideas, input, connections, or comments, please respond in the comments below, or this author can be contacted at info@iskamortgage.com

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10 COMMENTS

  1. Your proposal is quite thoughtful and aims to address an important issue. However, this type of arrangement comes with a few considerations:

    1. Regulatory Compliance: Mortgage lending is highly regulated, and a fund like this would have to ensure compliance with all relevant local, state, and federal laws. This would necessitate the involvement of a legal team to ensure compliance, which could increase costs.
    2. Risk Management: The default risk in mortgage lending, although low in the mentioned areas, is still present and should be appropriately managed. In the unfortunate event of a downturn in the housing market, the fund could face significant losses.
    3. Returns: While a 4% return might be attractive compared to some conservative investments, this may not fully account for the risk and illiquidity associated with mortgage lending. This may cause hesitation among potential investors.
    4. Liquidity: As you mentioned, investors may want their money back at some point. The fund would need to have a robust strategy for providing liquidity to investors who wish to exit.
    5. Social Impact: Finally, although this scheme could provide relief to younger individuals struggling to afford a home, it may not be scalable beyond a certain point and could unintentionally contribute to rising housing prices if not managed carefully.

    • 1. We can have a local licensed mortgage lender originate the mortgages and immediately sell them to the fund. As it is, many conventional mortgage notes are sold to private investors.
      2. It is highly unlikely that there will be a downturn in the newer areas yungerleit are currently buying in. The newer areas start lower and keep going up as yidden move there. If the rates go down, prices will go up even more. If the rates stay elevated, the less likely it is for someone to default on their low rate mortgage.
      3. In my opinion, this specific mortgage market is way, way safer than any other mortgage market in the country. True there is illiquidity, but many people are anyway not planning on liquidating for a while (for example IRA money), there is some return of principal every month unlike other investments that only pay interest, and the fund will constantly solicit new investors to purchase the existing mortgage notes in the event the original note holders want out.
      4. Several ideas in this regard: The fund will constantly solicit more investors (this is not a Ponzi scheme, it’s simply selling the mortgage note to a new investor). If Adirei Hatorah can raise $120 million of donations in one month, we can raise a lot more in investments for the benefit of yungerleit. There will always be people who sell or refinance as well. Perhaps another rule should be put in that you can only hold the mortgage as long as you are living in the house, the moment you move out and want to hold it as an investment, you must refinance. Lastly, if rates go down significantly, most people will refinance, and we won’t need the fund at all.
      5. I would think the way to manage this issue is to put a limit on not only the loan amount, but also the purchase price, for example a max loan amount of $550,000 and a max purchase price of $650,000, or some other reasonable number. This will actually encourage yungerleit to not overbid, being that wouldn’t be eligible for our loan program at all!

  2. Approximately 1000 couples are getting married in Lakewood yearly, making the purchase of around 700 hoisss yearly for Yungerleit.
    You expect a solution to the issue would be someone fronting cash payments for hundreds of houses at 4%?!

    The solution would be for someone to develop houses either in Lakewood or ina community within driving distance for a profit of 4% as a Mitzvah. The 200 million dollar solution you are proposing can pay for new schools, infrastructure and even full time kollelim and the yumgerleit will have 300k housing

  3. If your average mortgage would be at 700k, to have enough investors for just 350 houses it would need 245 million dollars raised. At 600k, it would need 210 million. At 550k, it would need 192.5 million. Even if you would be doing just 100 houses, it would be 70 million dollars that need to be raised.
    It would be quite hard to raise even 100 million dollars for such a low ROI. The ‘big money’ will not come at such a low interest rate when you can make so much more in the average investment. Even getting 50k from 20 people will only get you enough for 1-2 mortgages.
    While this idea may be nice (although it has some flaws that need to be worked out), it would be impossible to raise this much capital for it to have an effect on the overall yungerleit housing industry.

    • If Adirei Hatorah can raise $120 million in donated money in 1 month, why can’t they raise more than that for investments for the benefit of yungerleit, it’s not even a donation. Maybe you want to consider it a small donation considering investors can make a little more elsewhere, but there’s a lot of yiddeshe gelt out there.

  4. Also serious ribbis shailos if the yungerman does not have a business enterprise because a heter iska is very shaky in that case.

  5. Everything is perfect .besides if the mortgage lender does not get paid if he foreclose another yids house he will be called a Rusha and nobody wants that

    • This is a difficult issue, but it’s either have a system or there’s no system. You have another option? We’re not talking about someone who bought a house at a sheriff auction at the expense of a poor yid, this is an idea to get affordable mortgages, and the only way to have it is if there’s a system.
      There happens to be a lot of tzedaka organizations out there which I’m sure help people out who are struggling to pay their mortgages, but this system has to be a system or it can’t get started.

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