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A New World Of Finance May Cure The Foreclosure World

Dozens of years ago, financial consultants invented the zero coupon bond. “Normal” bonds, like stock, earn the holder payments, often annual.

When government consultants, ages ago, thought how to cut the government’s expenses in their obligation to send dividends -bond payments to bond holders– one of these “paper creators” invented a new type of bond; zero coupon.

Instead of a bond paying monthly, quarterly or even annually, this type of bond is sold without any attached coupons so that holder need send nothing in to the gov to earn one’s annual payment.

Also, with a zero coupon bond, the cost is significantly less than a coupon bond–about 12% of its face. Zeros have different due dates with 25 yrs being fairly common.

NOW, if one had both a financial hardship while paying a mortgage and a relationship with their banker [the banker owned the bank or an intimate financial relationship existed], the debtor should be able to convince the bank to consider a different payment structure on the home or other debt that the borrower[s] have.

With a foreclosure, a bank has a repossessed [dead] debt on its books, has lent ‘x’ dollars and now must re-sell the property to get the debt, again, off its books.

ONE option to the bank, is to compute the 25 [or any arbitrary due date into the future] year principle and interest that would be due to the bank and accept today, a zero coupon bond whose face amount equals the principle and interest due over the remaining life of the debt of the mortgage.

IF a bank would do this [totally legal!], the borrower gets a “paid” on his mortgage debt and the bank has been paid in full for the property–as long as the bank holds the bond for its life.

Some banks also allow zero coupon bond holders to borrow against gained value of a bond [each month a person holds a zero, its value increases TOWARDS its face amount.]

Therefore, a person can use a zero for several very fiscally beneficial ends [objectives];buying real estate or businesses where long term carry-backs are the norm, used in lieu of slow or non-paying debts to retire the debt as long term investments.

Imagine, finally, that a bank has hundreds of millions of REO. THE finance officer learns the total end amount due on all the prop is $1B, with a 25 yr due date. The CEO or potential buyer of the bank need only procure, for 12 cents on the dollar, enough zeros to equal 1B with [perhaps 5% fixed rate of debt interest it is to retire]. For perhaps a $250m net cost, a bank has its REO wiped off its books!

Tags: bond holders, financial consultants, financial hardship, financial relationship, foreclosure world, government consultants, mortgage, payment structure, principle and interest, value increases, zero coupon bond