My idea is some non profit gets setup to manage a system where someone announces their mortgage and then they can have friends, family and second and third degree friends and families finance your loan.
Let’s say someone buys a $250k house. Each person puts in $100 and then they get a receipt showing they are owed $200 against their 1/2500th share of the mortgage. Repayments are paid the $200 in return in a random time frame of between the first month to the last month 30 years later. Repayment is completely randomized, meaning you could get your money back really soon… Or a really long time from then.
There are a lot of other ways you could build on this idea.
A form of this exists but only compatible with smaller money amounts or whatever your entourage can bring in a bout a year maximum. I don’t know how you call it in English but a dumb translation from Moroccan practice would be “turn around” or “random drawing”.
Basically you just gather a bunch of people, as many as you can manage and decide on a single share amount, periodicity and number of participants. Each month, every body contributes with the share and somebody takes it home.
For example, you gather 10 people, and decide periodicity is 1 month. And decide the share is $200. You randomly draw the order of distribution. Some people do ask and negotiate the order of turns. Each month one person gets $2000 ($200 times 10) acorrding to the turns planing.
Some people can contribute in 2 or more shares. They simply pay a multiple amount of the share and get to get paid in multiple turns. For example you can have only 8 people but 10 turns.
You could call it turn based contribution.
Once the whole period is elapsed, every body should have had all of their money back.
People that have late turns feel like they simply saved money. People that have early turns feel like they got interest free, halal, loans from their friends.
Fascinating. Is there a term I can search to learn more?
Non-profit community financial institutions are credit unions. They’re generally disappearing though, in many segments, especially as regulators force organisations to merge for ‘scale’ to pretend like they need to compete on scale with big banks.
Loans can have cosigners. There’s generally a limit on that based on logistics. Theoretically you could incorporate a business, and take out business loans, with convoluted payment schemes like you’ve indicated for users of that business, but such things are generally not approved by FIs due to the high risk of default on such things. Crowdsourced projects already have a very “I sent the money, maybe one day they’ll deliver star citizen” type feel to them. Imagine trying to balance that risk, against the interest amounts you need to pay on deposits… it’s practically a non starter.
Another issue is that interest gets paid to the bank, and the bank pays interest on deposits, on a routine/regular basis. Trying to shif the payouts overtly into a scheme where its a lump sum after a long duration, introduces even more risk to it all. Like mortgages typically have something like an 80% LTV minimum (loan to value of security), so that if the borrower defaults in the first year, the bank can still foreclose and maintain the interest payment commitments to depositors. If you didn’t have to pay that depositor their interest for 25 years based on the agreement, you’d pretty much guarantee that the organisation fails to make its financial commitments to the depositors.
Put slightly differently, Credit Unions are already “crowd sourced” mortgage options with established repayment functions for the depositors, which follows a more stable and lower risk approach – but their “crowd” is just their memberbase (which has generally been declining for decades, as people don’t care about this sort of thing in general). When you “buy”/lock in a deposit, something like a $5000 term deposit for 5 years at 3% per year interest, that money basically gets combined with a bunch of other peoples term deposits, and used to provide a loan to someone in the community wanting to get a home. That person then commits to a 4-5% interest mortgage, where their interest payments cover the operating costs of the organisation, plus the deposit payout to the depositor with the term deposit. If the borrower can’t make payments, the CU can foreclose on the property and continue to make the 3% annual interest payment on the term deposit – so your deposit is pretty much assured, and is very low risk compared to other savings options. Stocks yield higher returns, but involve much more risk – s’why people aim to diversify portfolios once they get to a point where they can save a bit.
And as a side note: most times you hear complaints about savings / deposit interest from a bank/CU, it’s because the person just has their money sitting in a demand account like a chequing account, or a chequable savings account. You gotta lock it in to a term/gic or something for it to get an interest rate that matters – and CUs/Banks pay out on those more, because they can do exactly what I described above with those funds… while if the funds remain available to you ‘on demand’, it’s arguably useless.
Former mortgage broker here. This is basically a credit union, or a private lender.
Now I’ll explain why those exist, but your idea doesn’t exist.
Repayments are paid the $200 in return in a random time frame of between the first month to the last month 30 years later.
Every year that $200 loses 2.2% of it’s value. So you have to charge interest or else people would be signing up to lose money (buying power).
But that creates a new problem, who gets paid when?
Assuming 5.5% interest (low end of rates right now) and a 25 year amortization, the people who got paid out at year 1 would receive $207 while the people paid out at year 25 would get $788(~$450 of buying power though).
Than there’s the aspect of insurance. Your mandatory mortgage insurance covers the bank, not you. So now you need to find an insurer that can work with up to 2500 beneficiaries.
Or how bout when the bank forecloses for non payment?
It gets messy really fast and I’m just scratching the surface.
Yeah, credit unions are awesome and anyone not in one in good standing should join one. This idea however is nuts
So the idea is its a cross between charity and gambling, who gets paid when is the gambling. It’s a feature.
Also, I don’t think your math is taking into account the $200. You borrow $100 and pay back $200, the interest is baked into the repayment amount. It’s a gamble, the people paid in year 1 get hella interest. The people paid back in year 26 basically break even on inflation and people paid back in year 30 lose money.
But I am fascinated to know what procedural hurdles one would face trying to set something like this up.
Oh I missed the part about $100 buy in. That makes a bit more sense. But where are you getting the cash to pay out the investors? You buy the house and then every 4.4 days you’re on the hook to pay out $200 for 30 years. Where is that cash coming from?
From their job or the same place they get money to pay a traditional mortgage?
Let’s say the borrowed amount is $250,000, so you owe $500,000. That’s a 1,400 monthly payment. So 7 people get paid each month, or 84 a year. By the end of the period you have paid out all 2,500 lenders.
(I am using $100 and $200 repayment and $250k to make the math easier and more round. Oddly it is close to current interest rates)
Assuming 5.5% interest (low end of rates right now) and a 25 year amortization
Where is that ? That seems crazy high to me. I bought last year in Germany, at a “bad time” and my interest rate is 3.4% fixed for 10 years.
Well, I bought when the interests where highest a couple of years ago at 5 % interest rate in Denmark, fixed for 30 years.
I think you may have jumped the shark with the “loses 2.2% of its value” comment. I feel like most of the world doesn’t understand inflation / the difference of real vs nominal dollars.
I tried explaining it to someone once and they kept just saying, “but the money in my bank account is real”.
If you take this idea a little further, you’ll eventually get a credit union.
No quicker way to negatively influence a friendship than loaning money.
In this case, there’s no interest, but there is a big legal fight when they take out equity lines of credit and spend the money on hookers and blow.
I think you mitigate that by the related party knowing that repayment could be 30 years later. Its more like buying a low pot raffle ticket then a regular loan.
Like a credit union?
LendingClub used to do crowd sources loans with shares of 25$/pc
That mortgage officer’s answer is better than anything I can contribute, just saying something closer than credit unions to what you described was around a few years ago (depending on your perspective)
That’s good, but for it to scale everyone should participate. Maybe we could manage it centrally to maximise the outcome, I guess maybe the state could do that? Kinda like taxes? And then the government could buy or build the house and give it to whoever asked for it… Wait a second!
When people describe what they hate about communism and socialism, they often describe capitalism.
A lot of people would be in favour of communism or socialism, they just don’t know it, due to propaganda against it.
A great example for this are insurances. If you’re not from the US, you pay a small amount of money or portion of your income and never have to worry about medical expenses again.
This concept can be applied to virtually anything! Food, water, shelter, you name it!
Yes - Building Societies
Not the same, but we had a crowd source house insurance setup. Basically, all the costs of the year were added up and then split between members. It was about half the cost of regular insurance.
Interesting! Did everyone have their mortgage paid off or do lenders accept that kind of insurance? Who manages the funds?
I don’t know the answer to the first question. It was a Mennonite thing. All members had to be Mennonite or in a Mennonite church (there are lots of non-Mennonites going to Mennonite churches), or connected to a Mennonite organization.That probably helped to keep costs down as we tend to be honest and experienced at community cooperation. I believe the management was hired by one of the Mennontie conferences.
This!
Isn’t this what jeff Bezos is doing with fractional real estate investment, except evil?
Not pooping on the idea, I would totally toss money towards a fractional mortgage to help someone else get a home, just noting how the upside down universe version of this idea is already out there.
sauc: https://arrived.com/
I had a similar idea. If you’re saving money for a down payment in a traditional bank account, the money is growing slower than real estate, so you’re falling behind. Investing in real estate backed security solves that. And the beauty of it is that if the market turns down, so do house prices so you’re not getting farther from your goal of home ownership. Whereas if you invest in stocks you could have the stock market drop while housing stays high.
There are a lot of corporations doing this with investments too.
I did a quick skim of that website and it seems to be marketed towards the opposite side of the equation, the investors.
My idea is more about the mortgage and using crowd sourcing in social circles. The way I have structured the “investment” in my scheme is purposefully done to reduce lender animosity by making the payout more of a gamble, than a traditional investment.
I have been toying with ideas to even further tweak the model to increase investment. For example giving slightly better odds on repayment to investors that have used the platform/process to procure their own mortgage.
Your better off getting 10 people and starting a commune
Isn’t this effectively what getting a mortgage from a co-op bank is?
If you asked everyone in the US to give you one dollar you could buy a pretty nice house
I asked this baby in this stupid rolling cart thing for a dollar and all it did was cry, and the adult lady pushing the stupid cart thing punched me in the face, so I didn’t get a chance to ask her. Then everyone in the area chased me out of town. This is proving to be a difficult task already. Will update further. Stay tuned.
Tysm keep me posted
Especially if you’re operating out of India or Myanmar.
I see no benefits to me owning even 1/2500th of somebody else’s house. I’d rather give my friend $100 so they have a place to live and be done with it.
Well one of the other 2,500 people might, so it’s there to give the legal protections they need to recoup their investment. But I agree, a majority of people wouldn’t see it as an investment. I would have no problem giving dozens of acquaintances $100 if I knew for sure it would lead to them getting a house.
