Mortgages are a manufactured product (2022)(bitsaboutmoney.com)
bitsaboutmoney.com
Mortgages are a manufactured product (2022)
https://www.bitsaboutmoney.com/archive/mortgages-are-a-manufactured-product/
126 comments
Very tangential, but as a worker in Japan I find it depressing how Keyence's recruiting material proudly shows a software engineer's typical day that starts at 8:30AM and ends around 8:00PM. No wonder it's so hard to raise kids.
https://www.keyence.co.jp/jobs/software-engineer/
https://www.keyence.co.jp/jobs/software-engineer/
> Because we emphasize a clear distinction between work and private life, we strictly prohibit employees from taking their work home with them.
Wow thank you so much Keyence! I won't have to think about work in the 15 minutes of free time I get!
Wow thank you so much Keyence! I won't have to think about work in the 15 minutes of free time I get!
Keyence is known for one of the most very hard-work culture company.
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Wow, what a great website. I wish I had found that back when I was a chemical engineer.
Uhhh this highly depends on the industry… for industry grade flow meters Endress+Hauser or Emerson are actually the first that come into my mind
They also make great digital microscopes.
> If you replaced your current mental model for mortgages with “it’s like a paper electronic flow meter for money, possibly with less paper these days”, it would improve your ability to understand the mortgage industry.
I feel even more confused
I feel even more confused
The thesis is that mortgages are not primarily a service a bank provides to a homeowner. They are a financial product that banks sell to institutional investors (as an example) that want a guaranteed cashflow decades into the future.
Of course, a multibillion dollar pension fund does not want to directly write John Doe a mortgage and deal with him. Their business is giving money to pensioners, not selling mortgages. They would rather buy a bundle of thousands of mortgages at once and outsource the hassle of taking the payments to someone else.
The bundling and administration of mortgages is akin to a manufacturing process for electronic flow meters. The customer just cares about seeing a number go up, and pension funds just want to see money hit their accounts.
Since a great way of turning a bunch of cash upfront into a larger amount of cash over decades is through mortgages, banks unfortunately have to find actual people and help them buy a house.
Of course, a multibillion dollar pension fund does not want to directly write John Doe a mortgage and deal with him. Their business is giving money to pensioners, not selling mortgages. They would rather buy a bundle of thousands of mortgages at once and outsource the hassle of taking the payments to someone else.
The bundling and administration of mortgages is akin to a manufacturing process for electronic flow meters. The customer just cares about seeing a number go up, and pension funds just want to see money hit their accounts.
Since a great way of turning a bunch of cash upfront into a larger amount of cash over decades is through mortgages, banks unfortunately have to find actual people and help them buy a house.
> The thesis is that mortgages are not primarily a service a bank provides to a homeowner.
An insightful point. And here's a related one. The worst thing the financial industry could endure is for government to run a balanced budget year after year.
In the same way that a homeowner is not the primary customer of a mortgage, the government is not the primary customer of its deficit. That debt is absolutely necessary not only to finance the services provisioned by the government, but for the successful operation of the entire financial industry.
An insightful point. And here's a related one. The worst thing the financial industry could endure is for government to run a balanced budget year after year.
In the same way that a homeowner is not the primary customer of a mortgage, the government is not the primary customer of its deficit. That debt is absolutely necessary not only to finance the services provisioned by the government, but for the successful operation of the entire financial industry.
The US generally had (has) smaller banks than Europe in relation to the economy (from regulation), so keeping mortgages on balance sheet wasn't an great option. Securitization was one way to make a financial markets product out of mortgages.
They are a financial product that banks sell to institutional investors
*Originators.
*Originators.
> The thesis is that mortgages are not primarily a service a bank provides to a homeowner.
This is completely true, when viewed from that angle.
But if we look at it from that angle, this is just a restatement of capitalism.
Every for-profit business has the goal to obtain a profit stream. Whatever service or product they provide is just the "trick" to make that happen. I put trick in quotes because if it is a useful service or product then it is useful to the purchaser, even if the ultimate motivation for the company was to make money.
But that's not a bad thing, it's a win-win. The issuer makes money, someone gets something of value to them (being able to buy a property in this case).
This is completely true, when viewed from that angle.
But if we look at it from that angle, this is just a restatement of capitalism.
Every for-profit business has the goal to obtain a profit stream. Whatever service or product they provide is just the "trick" to make that happen. I put trick in quotes because if it is a useful service or product then it is useful to the purchaser, even if the ultimate motivation for the company was to make money.
But that's not a bad thing, it's a win-win. The issuer makes money, someone gets something of value to them (being able to buy a property in this case).
A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen?
As the author says, it is because the mortgage is hardly for my benefit.
Its purpose is to grant some privileges to those who remain on the treadmill of work for a long time without falling off, and to act as something like a tax, levied on behalf of the absurdly wealthy + institutional investors.
As the author says, it is because the mortgage is hardly for my benefit.
Its purpose is to grant some privileges to those who remain on the treadmill of work for a long time without falling off, and to act as something like a tax, levied on behalf of the absurdly wealthy + institutional investors.
> ought to be provided at cost (base rate of interest) through central banks
In all financial instruments risk & return are intertwined and inversely correlated. If the mortgages could be provided at the base rate of interest that would imply they have zero risk. But mortgages do have some risk, although a very low one compared to e.g. buying stocks, so the rate is necessarily above the zero-risk rate.
In all financial instruments risk & return are intertwined and inversely correlated. If the mortgages could be provided at the base rate of interest that would imply they have zero risk. But mortgages do have some risk, although a very low one compared to e.g. buying stocks, so the rate is necessarily above the zero-risk rate.
Banks are not a middleman between you and the central bank. A central bank isn't a bank in any way, shape or form, but a regulator and supervisor of the banking system.
> A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen?
In the US at least, govt has problems running "retail." (It also has problems running wholesale, as evidenced by the give-aways to BlackRock, but ...)
In the US at least, govt has problems running "retail." (It also has problems running wholesale, as evidenced by the give-aways to BlackRock, but ...)
The US certainly has issues with even accepting the government being able to do good things. A small but highly vocal part of the populace has all but ensured the well is poisoned. I think we could, if we wanted, create an institution like the USPS for financial services. That would be able to issue a mortgage. It's not going to happen for the simple fact they're doing their best to privatize the USPS and beloved programs like Social Security.
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The US has a good deal more public services than other countries; privatized mail, utilities and mass transit are all pretty common.
Mortgages themselves are unusually public in the US and probably staying that way. Other people don't get 30 year fixed loans, that's a huge benefit and inflation defense.
Mortgages themselves are unusually public in the US and probably staying that way. Other people don't get 30 year fixed loans, that's a huge benefit and inflation defense.
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The government is almost never the right provider of a commodity service. What possible benefit is derived from having the government manage the making of loans, already a competitive market?
Mind that the US is somewhat unique in its subsidy of early-prepay 30y fixed mortgages - they exist nowhere else, because no sensible private lender would offer such a product otherwise (or a huge markup).
Mind that the US is somewhat unique in its subsidy of early-prepay 30y fixed mortgages - they exist nowhere else, because no sensible private lender would offer such a product otherwise (or a huge markup).
Maybe that’s because Americans move around more and can’t be nailed to a house for 15-30 years like every european homeowner is (where you can neither refinance nor pay back early without paying essentially all future interest payments at once - US mortgage conditions are insanely good).
In AU the standard is a floating rate mortgage, with most fixed alternatives capping out at 5 years (which obviously has much more limited up and downside than a longer duration 30y equivalent). Those fixed loans can be more or less expensive than the variable rate, depending on market conditions.
In general, in Europe, either:
- It is the norm to use either a variable rate or series of short fixed rates
OR
- Redemption fee is capped (for instance in France it’s capped at one quarter worth of interest).
I’m not sure it’s normal anywhere to have a 30 year fix which you can’t get out of? Which country are you thinking of?
- It is the norm to use either a variable rate or series of short fixed rates
OR
- Redemption fee is capped (for instance in France it’s capped at one quarter worth of interest).
I’m not sure it’s normal anywhere to have a 30 year fix which you can’t get out of? Which country are you thinking of?
I got a 20 year fixed at 1.125% and I am really happy the bank can’t get out of it. I really did wonder why they even gave me that money but who am I to complain.
Eh, I think that’s a slight exaggeration. In Ireland you can get a 3.8% 30 year fix which allowed overpayment of up to 10% of balance/year, and redemption penalties capped at 2% of balance. This is, in practice, cheaper than virtually any US mortgage today, unless you’re only planning to keep the mortgage a few months.
Granted, that’s kind a _weird_ product; I think only one lender provides it, and the market norm is definitely for fixes in the 5 year range (often with redemption penalties waived if you’re moving); after 5 years, you either transition to a variable, move lender, or re-fix. This seems to be more of a market norm/preference thing, though; Avant, the lender who does the 30 year one, appears to be able to make it work economically.
One oddity in the Irish market that maybe makes this easier is that mortgage lenders are only allowed charge, essentially, at most the cost to _them_ of breaking a fix as an early redemption fee. In practice, this is usually not all that high and may be zero. I’m not sure how many other countries have this rule.
Granted, that’s kind a _weird_ product; I think only one lender provides it, and the market norm is definitely for fixes in the 5 year range (often with redemption penalties waived if you’re moving); after 5 years, you either transition to a variable, move lender, or re-fix. This seems to be more of a market norm/preference thing, though; Avant, the lender who does the 30 year one, appears to be able to make it work economically.
One oddity in the Irish market that maybe makes this easier is that mortgage lenders are only allowed charge, essentially, at most the cost to _them_ of breaking a fix as an early redemption fee. In practice, this is usually not all that high and may be zero. I’m not sure how many other countries have this rule.
Its hard to believe a 30y fixed bond wouldn't cost a ton of money to break, depending on the point you sell it.
Imagine a 30y yielding 3% with new loans yielding 6%. That bond would be priced at half its face value in order to make up for the yield difference - and in theory the debtor would have to pay that difference to buy it back.
The only way loans like that can be cheaper is an option/insurance (which costs money) in the loan to cover that risk.
Imagine a 30y yielding 3% with new loans yielding 6%. That bond would be priced at half its face value in order to make up for the yield difference - and in theory the debtor would have to pay that difference to buy it back.
The only way loans like that can be cheaper is an option/insurance (which costs money) in the loan to cover that risk.
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It's a terrible analogy, and does nothing to simplify or abstract in plain terms. And it pervades the rest of the article in a confounding way.
Yep that was the last thing I read. Absolute gibberish
The second half of the following sentence clears it up:
> The analogy is less about providing visibility into the contents of pipes (though mortgages must do that) and more “highly specialized manufactured widget that the entire world sits downstream of.”
> The analogy is less about providing visibility into the contents of pipes (though mortgages must do that) and more “highly specialized manufactured widget that the entire world sits downstream of.”
No. Why use "widgets" and "electronic flow meters" as analogies? The average person knows even less about those than mortgages.
Here's my attempt:
Mortgages are not primarily a service that a bank provides to homeowners. They are akin to a farmer growing crops to sell to a food processing company. The food processing company (like institutional investors) doesn't want to deal with the complexities of farming (like dealing with individual homeowners). Instead, they prefer to buy large quantities of raw produce (bundles of mortgages) and process it into packaged food products (guaranteed cashflows). Just as the food processing company focuses on producing and selling packaged food rather than farming, pension funds focus on managing payouts to retirees rather than issuing individual mortgages. Banks, like farmers, have to grow (originate) the raw product (mortgages) to sell it in bulk to these large institutions, thus transforming the upfront cash into a steady stream of future revenue.
Here's my attempt:
Mortgages are not primarily a service that a bank provides to homeowners. They are akin to a farmer growing crops to sell to a food processing company. The food processing company (like institutional investors) doesn't want to deal with the complexities of farming (like dealing with individual homeowners). Instead, they prefer to buy large quantities of raw produce (bundles of mortgages) and process it into packaged food products (guaranteed cashflows). Just as the food processing company focuses on producing and selling packaged food rather than farming, pension funds focus on managing payouts to retirees rather than issuing individual mortgages. Banks, like farmers, have to grow (originate) the raw product (mortgages) to sell it in bulk to these large institutions, thus transforming the upfront cash into a steady stream of future revenue.
Does it? I feel even more confused.
I think many people would benefit from getting something out of the Economist's style guide:
https://cdn.static-economist.com/sites/default/files/store/S...
I think many people would benefit from getting something out of the Economist's style guide:
https://cdn.static-economist.com/sites/default/files/store/S...
argument clearer if it just said "it's a flow meter for money" then you can analyze that and see if it makes any sense. Can't say it makes sense for me. Maybe it makes sense for the banks, but not the person with the mortgage.
But even then, a flow meter exists and works by physical laws. The device and the contract are separate. A mortgage is an abstract agreement that works because we simulate its dynamics (well the bank does). The device and the contract are one and the same.
all analogies, metaphors, and similes will fall apart at some point as the two things being analogized are not exactly alike (otherwise there would not be any need to analogize)
Of course, but a useful analogy must bring some new perspective to a thing. Here it just made me wonder what point the author is trying to make.
Previously on HN (199 points, 2 years ago, 222 comments)
[0]: https://news.ycombinator.com/item?id=29937545
[0]: https://news.ycombinator.com/item?id=29937545
Recently, financial regulators have become concerned that nonbank mortgage originators and servicers would do poorly in a financial crisis. [1] They aren’t on the hook for the risk of nonpayment, but they are for other risks, it seems? Apparently they are worried about supply chain disruption resulting in fewer mortgages.
The risks section of Rocket Mortgage’s annual report has some possibly useful descriptions, but I don’t have the background to put them into context.
[1] https://www.cnn.com/2024/05/13/economy/mortgage-company-risk...
The risks section of Rocket Mortgage’s annual report has some possibly useful descriptions, but I don’t have the background to put them into context.
[1] https://www.cnn.com/2024/05/13/economy/mortgage-company-risk...
Can someone here help me unpack social impact financing or what is also called a social loan in the context of this article.
Social impact financing is a range of approaches that help fund social causes by bringing new financial products beyond just giving donations and hoping for the best.
A social loan essentially provides a low interest loan to say a social enterprise that explicitly seeks to produce a measurable social outcome in addition to meeting basic financial obligations.
An example is a social housing trust that exists to provide more disability housing.
My question is what’s the dynamic with the various players? I can see on one end is a “social investor” who is willing to provide/invest capital for a below market earning rate (in exchange for knowing the social outcomes are occurring).
And at the other is the social enterprise obtaining the funds. But what’s the dynamic in the middle?
I’m trying to access these sorts of funds so trying to understand better the impact / neutrality or otherwise of various parties involved in manufacturing a fairly niche social loan product.
Social impact financing is a range of approaches that help fund social causes by bringing new financial products beyond just giving donations and hoping for the best.
A social loan essentially provides a low interest loan to say a social enterprise that explicitly seeks to produce a measurable social outcome in addition to meeting basic financial obligations.
An example is a social housing trust that exists to provide more disability housing.
My question is what’s the dynamic with the various players? I can see on one end is a “social investor” who is willing to provide/invest capital for a below market earning rate (in exchange for knowing the social outcomes are occurring).
And at the other is the social enterprise obtaining the funds. But what’s the dynamic in the middle?
I’m trying to access these sorts of funds so trying to understand better the impact / neutrality or otherwise of various parties involved in manufacturing a fairly niche social loan product.
I thought the weird thing about mortgages is it is new money that expands the money supply.
Not necessarily, that's only if it's financed by bank accounts that continue being money themselves. If they're financed by large investors, it's not new money.
(it's money if its extremely liquid - the bank account holders can still do things with their invested money)
(it's money if its extremely liquid - the bank account holders can still do things with their invested money)
That's not correct: cash that is not in circulation is not part of "broad money" in the same way, so it is still right to say that money is created when a mortgage is issued if that mortgage is backed by large investors. At least as I understand it, investments in financial instruments are not usefully regarded as money.
> it is still right to say that money is created when a mortgage is issued if that mortgage is backed by large investors.
Is it? Since the house seller wants to have cold, hard cash (or, these days, an incoming wire transfer, which still counts as M1), the large investors need to cough up that much money to make the transaction happen.
Is it? Since the house seller wants to have cold, hard cash (or, these days, an incoming wire transfer, which still counts as M1), the large investors need to cough up that much money to make the transaction happen.
Houses are bought in a chain, though. In a chain there might be only 1/10 people taking the cash out.
First, ~10-20% of residential home sales are new (the proportion swings widely year-to-year), with a non-trivial fraction of their costs going to materials and labor.
Second, 5-6% of the typical sale go toward the agents and closing costs. Again, this is money that leave the system.
Third, if some of the sale proceeds are applied to repaying an existing mortgage or to finance a home purchase, this is neutral as far as the "investor-backed mortgages create money" argument goes.
Second, 5-6% of the typical sale go toward the agents and closing costs. Again, this is money that leave the system.
Third, if some of the sale proceeds are applied to repaying an existing mortgage or to finance a home purchase, this is neutral as far as the "investor-backed mortgages create money" argument goes.
I think actually your assumption that someone needs to cough up the cash for a mortgage to happen is wrong? Why do you think that? The banks control the ledger. They just create money. If they go under, they get bailed out by the tax payers. A large part of the money in the economy is the difference between mortgages issued and mortgages paid back. So that cash "leaving the system" is the money being created. As long as people still haven't paid back their mortgages, the money remains in the economy. I've heard it described like a bathtub. The tap is new mortgages being issued, the drain is people paying them back. The tap has been running faster than it drains for a long time now.
Every interest loan does this.
I understand how mortgages work and didn’t learn anything new from the articule. I am not criticizing the article for that.
But if I didn’t know how this all works, the article would have made me more confused.
But if I didn’t know how this all works, the article would have made me more confused.
In Europe (or at least Italy and Poland which I know a bit) mortgages are mostly instruments to get new clients.
Banks barely make any money at all from mortgages, but they can then upsell you other things.
Mortgages rates depend on lending rates published by the European Central Bank, and on top of that banks apply a small spread (generally below 1%).
But they don't love the instrument at all, it doesn't make much money if any.
Banks barely make any money at all from mortgages, but they can then upsell you other things.
Mortgages rates depend on lending rates published by the European Central Bank, and on top of that banks apply a small spread (generally below 1%).
But they don't love the instrument at all, it doesn't make much money if any.
My .it bank is making bundle off me.
In the US, mortgage banking is about 20% or so of a regional bank on up in terms of revenue generation.
Modern banking is an incredibly complex business so you could basically say no single division makes much money vs the other parts as a whole.
I think that would be a wrong way to view the business though. As if banks would not be in mortgage lending if they could. It is quite the opposite, any one bank would love for the other banks to get out of mortgage lending.
Modern banking is an incredibly complex business so you could basically say no single division makes much money vs the other parts as a whole.
I think that would be a wrong way to view the business though. As if banks would not be in mortgage lending if they could. It is quite the opposite, any one bank would love for the other banks to get out of mortgage lending.
Banks in the us usually just originate them then promptly sell them to Fannie May. Otherwise they just handle payments, etc.
This is a fascinating article, though I'm not sure I grok the analogy about flow meters.
Given they're so securitized, I wish I could buy back my own mortgage at a discount given how much interest rates have risen. It feels that given the notes about conforming mortgages being fungible, that product/service should exist.
Given they're so securitized, I wish I could buy back my own mortgage at a discount given how much interest rates have risen. It feels that given the notes about conforming mortgages being fungible, that product/service should exist.
> I wish I could buy back my own mortgage at a discount given how much interest rates have risen
But why would you want to do that? If you take out a fixed-rate loan and interest rates rise, you are already making a profit. Financially, there would be no further benefit from the buy-back of the loan.
But why would you want to do that? If you take out a fixed-rate loan and interest rates rise, you are already making a profit. Financially, there would be no further benefit from the buy-back of the loan.
Presumably I'd be able to buy it back at $0.60 on the dollar since that's what the market value of a low interest mortgage would be on today's market of 7% mortgage rates.
I'd want to do it so I could sell my place and move. No doubt if I sell my place now, the bank is just taking that money and lending it out again, making a profit on the difference in rates.
I'd want to do it so I could sell my place and move. No doubt if I sell my place now, the bank is just taking that money and lending it out again, making a profit on the difference in rates.
Yes, but that boils down to changing the terms of your loan in your favor.
You probably should ask yourself: How much of a premium on your mortgage would you have paid to have the option to pay it off at market rates if rates happen to go up.
A similar example: in the US, typically loans have no prepayment penalty, but in practice you are paying for that option. I'm theory you could get a lower rate if you agreed to a high fee if you prepay.
I think it ends up not being worth it for lenders to give you so many options when picking your loan terms, simply because lots of people won't understand the subtitles/there's not much demand for those products.
You probably should ask yourself: How much of a premium on your mortgage would you have paid to have the option to pay it off at market rates if rates happen to go up.
A similar example: in the US, typically loans have no prepayment penalty, but in practice you are paying for that option. I'm theory you could get a lower rate if you agreed to a high fee if you prepay.
I think it ends up not being worth it for lenders to give you so many options when picking your loan terms, simply because lots of people won't understand the subtitles/there's not much demand for those products.
> I wish I could buy back my own mortgage at a discount given how much interest rates have risen
You can! Even if not directly. Take the lump sum cash you'd have to use to buy off your mortgage today. Put it into an interest-bearing instrument of your choice that is paying these higher rates today (higher than your mortgage). Us that to pay the monthly mortgage and the different is profit.
You can! Even if not directly. Take the lump sum cash you'd have to use to buy off your mortgage today. Put it into an interest-bearing instrument of your choice that is paying these higher rates today (higher than your mortgage). Us that to pay the monthly mortgage and the different is profit.
This article would make a great YouTube video -- reading it is painful, watching it will be delightful.
The securitization of mortgages, health care, and education.
All were simply fund-managers monetizing other peoples misery, and now many are realizing every party line is the same BS. People are angry, but often for the wrong reasons since wall-street washes accountability by design.
Unfortunately, ridiculous wealth and miserable populations seem a desirable trade in some cultures.
Thank god it is not my task to try and fix it =)
All were simply fund-managers monetizing other peoples misery, and now many are realizing every party line is the same BS. People are angry, but often for the wrong reasons since wall-street washes accountability by design.
Unfortunately, ridiculous wealth and miserable populations seem a desirable trade in some cultures.
Thank god it is not my task to try and fix it =)
> People are angry, but often for the wrong reasons since wall-street washes accountability by design.
Counterpoint: just as we treat everyone involved in money-laundering as criminal, it is morally obligatory to treat everyone involved in responsibility-laundering as blameworthy.
"Remember the human" is a critical feature of every good social construct, but fundamentally impossible for some of the laundering business constructs that are considered ideologically mandatory today.
Counterpoint: just as we treat everyone involved in money-laundering as criminal, it is morally obligatory to treat everyone involved in responsibility-laundering as blameworthy.
"Remember the human" is a critical feature of every good social construct, but fundamentally impossible for some of the laundering business constructs that are considered ideologically mandatory today.
Counterpoint: unless the value siphon effectively steals opportunity cost options from you 25 years before you are born.
It takes real ignorant psychopathy to blame victims of the greatest crime in history.
It takes real ignorant psychopathy to blame victims of the greatest crime in history.
What's the crime? Mortgages? I'm not following you. Some generational wealth theft somehow?
Generational wealth theft does seem like a fair thing to complain about. Mortgages became a lever: most countries have regulations saying what lending ratios people can have, who is and is not eligible, etc. Want to control inflation over the long run? Raise interest rates and destroy the buying power of a generation. In the UK this is even more flexible, as we tend to only fix our mortgage interest rates for a few years. I gather in the US rates are fixed for the life of the mortgage, or close to it.
The odd generation of young males still living with their parents after college is enough of a reality check for many.
I just find it fascinating people think this is somehow a controversial observation. Of course, I also welcome facts that say everything is fine, because it makes me feel more hopeful about their futures. =3
I just find it fascinating people think this is somehow a controversial observation. Of course, I also welcome facts that say everything is fine, because it makes me feel more hopeful about their futures. =3
None of the actual empirical economic data in the US resembles your statement - average household sizes have gone down over time, real incomes have gone up, and Gen Z wealth is doing fine.
It is true in the UK but that's simply because 1. the UK economy is doing pretty badly in general 2. you really, really don't build enough new housing.
If housing construction was unrestricted it wouldn't matter much what interest rates were at.
It is true in the UK but that's simply because 1. the UK economy is doing pretty badly in general 2. you really, really don't build enough new housing.
If housing construction was unrestricted it wouldn't matter much what interest rates were at.
"None of the actual empirical economic data in the US resembles your statement"
Who told you that? My opinions are actually not that relevant here.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3529638/
https://www150.statcan.gc.ca/n1/pub/11-008-x/2007004/10311-e...
https://fortune.com/2023/01/12/millennials-broken-economy-de...
https://www.nytimes.com/2023/02/15/opinion/fertility-decline...
https://www.theatlantic.com/family/archive/2021/04/real-reas...
Who told you that? My opinions are actually not that relevant here.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3529638/
https://www150.statcan.gc.ca/n1/pub/11-008-x/2007004/10311-e...
https://fortune.com/2023/01/12/millennials-broken-economy-de...
https://www.nytimes.com/2023/02/15/opinion/fertility-decline...
https://www.theatlantic.com/family/archive/2021/04/real-reas...
All of those articles are about economic performance before 2019, which was bad, but now we live in 2024, which is a different year where the economy is good. In fact it's as good as it's been in decades in the US. (Not so good in other countries partly because we caused inflation in their currencies.)
https://www.redfin.com/news/gen-z-millennial-homeownership-r...
https://www.theatlantic.com/magazine/archive/2023/05/millenn...
Fertility rate went up some too:
https://www.nber.org/system/files/working_papers/w30569/w305...
Note the media sector of the US economy is doing kind of badly and is mostly staffed by neurotic people who live in NYC, which means they tend to write negative articles no matter what.
https://www.redfin.com/news/gen-z-millennial-homeownership-r...
https://www.theatlantic.com/magazine/archive/2023/05/millenn...
Fertility rate went up some too:
https://www.nber.org/system/files/working_papers/w30569/w305...
Note the media sector of the US economy is doing kind of badly and is mostly staffed by neurotic people who live in NYC, which means they tend to write negative articles no matter what.
In 25 years, maybe current trends will change things... maybe...
But don't cite people playing games with market valuations, and having vested interest in naive buyers... It makes you sound less credible and silly.
https://www.youtube.com/watch?v=aNSHZG9blQQ
But don't cite people playing games with market valuations, and having vested interest in naive buyers... It makes you sound less credible and silly.
https://www.youtube.com/watch?v=aNSHZG9blQQ
The homeownership and employment rates aren't "playing games with market valuations", and they're both good right now. Better than ever in fact.
Is your mortgage, insurance, and taxes taking over 32% of your income? You will always be poor and never understand why.
Everyone forgets that exact same rhetoric was popularized in most of 2007...
Indeed, wall-street index fund success is often disconnected from the general populations well-being =3
https://www.youtube.com/watch?v=qqUMbxHLPvk
Everyone forgets that exact same rhetoric was popularized in most of 2007...
Indeed, wall-street index fund success is often disconnected from the general populations well-being =3
https://www.youtube.com/watch?v=qqUMbxHLPvk
Read about Michael Milken and his friends... then reevaluate the context of the flippant hostile responses.
There is a valid argument that one can't steal something if it no longer has value son. ;-)
There is a valid argument that one can't steal something if it no longer has value son. ;-)
Michael Milken dealt in junk bonds, a.k.a. very high risk bonds knowingly acquired by accredited investors.
How does his case relate to mortgages?
How does his case relate to mortgages?
"Like everything else, it started off with great intentions"
https://financialpost.com/financial-times/how-bonds-ate-the-...
https://financialpost.com/financial-times/how-bonds-ate-the-...
I'm guessing this is in reference to the first shitheads to decide manufacturing synthetic investment instruments backed by home mortgages was a good idea?
The article explains why, yes, it was a good idea in the context of the US banking system.
Definitely a fantastic idea that ended well for all parties. GTFO. It beggars belief that folks would, even for a moment, consider participating in such a naked attempt to whitewash this.
FTA:
> A widespread misconception about mortgage securitization is that it was created to make Wall Street rich. …
> Mortgage securitization, and secondary sales of loans, and other mechanisms cause mortgages to migrate from the banking sector to pools of capital which are more structurally insulated against the interest rate cycle.
> A widespread misconception about mortgage securitization is that it was created to make Wall Street rich. …
> Mortgage securitization, and secondary sales of loans, and other mechanisms cause mortgages to migrate from the banking sector to pools of capital which are more structurally insulated against the interest rate cycle.
Which has the effect of....?
At the end of the day, the reasons these choices exist is to make someone rich. The mechanism (shielding from interest rate cycles) is just an implementation detail.
At the end of the day, the reasons these choices exist is to make someone rich. The mechanism (shielding from interest rate cycles) is just an implementation detail.
It's not just an implementation detail. In the 80s there was a big event known as the S&L crisis (https://en.wikipedia.org/wiki/Savings_and_loan_crisis), where an interest rate spike which was not adequately shielded led a substantial fraction of all US mortgage lenders to fail.
It has the effect of being able to provide homeowners with cheap 30-year fixed mortgages.
I'm surprised you're against it.
I'm surprised you're against it.
Adding leverage to the housing market probably isn't a net good thing.
Especially when you have a mismatch between demand for desirable housing and the available supply.
It is interesting that when you look at the US, some of our most expensive markets (housing, healthcare, education) have tight regulations on supply and federal policy response focused on subsidizing buyers (rather than addressing the structural supply problems).
Especially when you have a mismatch between demand for desirable housing and the available supply.
It is interesting that when you look at the US, some of our most expensive markets (housing, healthcare, education) have tight regulations on supply and federal policy response focused on subsidizing buyers (rather than addressing the structural supply problems).
> Adding leverage to the housing market probably isn't a net good thing.
The leverage part isn't necessarily a good thing as it increases house prices to some extent (how much, I don't know).
But what would be an alternative? Even if buying a house all-cash was the only choice, a house would still be very expensive because it does take a lot of real materials and labor.
If we complain today that raising a 20% down payment towards a million dollar house is very difficult, would it be any easier if that house cost (let's say) 600K but you have to raise the whole 600k up front?
I'm generally against having debt, but mortgages are a wonderful thing.
The leverage part isn't necessarily a good thing as it increases house prices to some extent (how much, I don't know).
But what would be an alternative? Even if buying a house all-cash was the only choice, a house would still be very expensive because it does take a lot of real materials and labor.
If we complain today that raising a 20% down payment towards a million dollar house is very difficult, would it be any easier if that house cost (let's say) 600K but you have to raise the whole 600k up front?
I'm generally against having debt, but mortgages are a wonderful thing.
What answers do we get if "market" isn't part of the platform?
If we start with the question "how do we affordably house the most people possible", I'd think we end up with something like "the state owns the housing stock and leases it out on a long-term basis with very tight (and obviously political-third-rail) restrictions on pricing and allocation".
If we start with the question "how do we affordably house the most people possible", I'd think we end up with something like "the state owns the housing stock and leases it out on a long-term basis with very tight (and obviously political-third-rail) restrictions on pricing and allocation".
"mortgages are a wonderful thing"
If you are still seeing negative amortization for 15% of buyers (will rise with interest rates).
Indeed, repurchasing your defaulted mortgage for equity liquidation is a very profitable posture to take for some folks. Have a nice day =)
If you are still seeing negative amortization for 15% of buyers (will rise with interest rates).
Indeed, repurchasing your defaulted mortgage for equity liquidation is a very profitable posture to take for some folks. Have a nice day =)
The comments I replied to are pretty specifically talking about government supported 30 year fixed mortgages, rather than mortgages in general. I guess I could have spelled out the context I thought was implied?
I'm against the idea of hosting as a commodity generally.
Commodities are good. They're cheap and don't need ceremony to buy.
The opposite is when distribution is controlled by someone subjectively judging if you're worth having it. This is very bad for minorities (the judger will be racist) and women (the judger will make you pay for it with your body).
Example in the US is the mass manufactured Sears homes, which whites in the South hated because they'd sell to blacks.
The opposite is when distribution is controlled by someone subjectively judging if you're worth having it. This is very bad for minorities (the judger will be racist) and women (the judger will make you pay for it with your body).
Example in the US is the mass manufactured Sears homes, which whites in the South hated because they'd sell to blacks.
Conversely I remain surprised to this day that several hundred execs didn't end up with multi-decade long prison sentences for bricking the global economy with this bullshit.
I’ll tell you why - because the government promoted it. Fannie and Freddie were complicit.
This is another widespread misconception. The mortgages that got the economy in trouble were the no-doc, no income verification type mortgages - ie “non conforming”.
By definition, a non conforming loan isn’t backed by Fannie and Freddie. I had multiple non conforming loans I got before the crash. Yes they ended up just like you suspect.
By definition, a non conforming loan isn’t backed by Fannie and Freddie. I had multiple non conforming loans I got before the crash. Yes they ended up just like you suspect.
Then why did they need a quarter trillion dollar bail out?
https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae...
This is a delicious ironic quote from a from 2007 article.
After Sept. 1, Freddie will no longer invest in subprime mortgages that have a "high likelihood" of payment shock and foreclosure, the company announced on Tuesday.
https://www.reuters.com/article/idUSN27376399/
https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae...
This is a delicious ironic quote from a from 2007 article.
After Sept. 1, Freddie will no longer invest in subprime mortgages that have a "high likelihood" of payment shock and foreclosure, the company announced on Tuesday.
https://www.reuters.com/article/idUSN27376399/
I have news for you... Source: worked briefly in mortgage underwriting before the crash.
Are you denying the fact that a “non conforming loan” by definition means it isn’t eligible for Freddie and Fannie backing?
I’ve had 5 first mortgages in my lifetime and only one was “conforming”.
My latest one was a unit in a condotel where I live the majority of the year. No government institution would ever back and no income verification loan on a mixed use commercial/personal secondary home.
I’ve had 5 first mortgages in my lifetime and only one was “conforming”.
My latest one was a unit in a condotel where I live the majority of the year. No government institution would ever back and no income verification loan on a mixed use commercial/personal secondary home.
I'm reporting observed reality homeboy. I watched thousands of loans a week get pumped through the system with everything from income verification fields left blank to literally fraudulent (as in the loan officer got tech support on the phone to help them generate random numbers) information get pushed through with zero pushback. A point for you to consider: "non conforming loan" is only a meaningful phrase when the criteria for non conforming loans is actually being verified.
Yes. But how many of those were “conforming loans” that were officially backed by Fannie Mae
After Sept. 1, Freddie will no longer invest in subprime mortgages that have a "high likelihood" of payment shock and foreclosure, the company announced on Tuesday.
https://www.reuters.com/article/idUSN27376399/
https://www.reuters.com/article/idUSN27376399/
What bothers me is that in various european countries - the UK, in my case - right wingers who created the mortgage market in the 1980s successfully pinned the global financial crisis on politicians.
I haven't really thought about the effectiveness of blame given the scope of the issues.
https://en.wikipedia.org/wiki/The_Scorpion_and_the_Frog
It is an interesting backdrop of power that politics play out upon though. =3
https://en.wikipedia.org/wiki/The_Scorpion_and_the_Frog
It is an interesting backdrop of power that politics play out upon though. =3
There's a case to be made there if you assume one of government's responsibilities is to keep the financial industry from blowing up the planet.
Michael Milken is the man that popularized mortgage securitization on wall-street.
Eventually convicted, then pardoned by #45..
Exactly how is this not dodging accountability son?
Eventually convicted, then pardoned by #45..
Exactly how is this not dodging accountability son?
> Michael Milken is the man that popularized mortgage securitization on wall-street
No, he didn’t. He did high-yield corporate debt. Mortgages are neither high yield nor corporate.
No, he didn’t. He did high-yield corporate debt. Mortgages are neither high yield nor corporate.
It’s usually people with the least financial knowledge that rant the most and lie a lot too.
Suddenly, mortgages have become a bad thing..
Suddenly, mortgages have become a bad thing..
"Like everything else, it started off with great intentions"
https://financialpost.com/financial-times/how-bonds-ate-the-...
..and people like you... easily swayed by sycophantic idealism, and irrational greed.
Have a wonderful day, and please refrain from resorting to straw-man arguments and slander if you are feeling upset by facts. =3
https://financialpost.com/financial-times/how-bonds-ate-the-...
..and people like you... easily swayed by sycophantic idealism, and irrational greed.
Have a wonderful day, and please refrain from resorting to straw-man arguments and slander if you are feeling upset by facts. =3
You’re both wrong. I’ve worked with some of the people who invented these products and still had to double check your reference to make sure I was correct. I was—Milken didn’t popularise mortgage securitisation. Ranieri did.
If you actually read the posted article it describes Lewis Ranieri's role in detail.
There is no right or wrong here in my opinion... just history and documented facts validated through a vetted jury conviction.
I wish it was an ill informed opinion kid... I really do... I'd feel much less guilty seeing families growing up in Condos the size of a garden shed.
There is no right or wrong here in my opinion... just history and documented facts validated through a vetted jury conviction.
I wish it was an ill informed opinion kid... I really do... I'd feel much less guilty seeing families growing up in Condos the size of a garden shed.
> There is no right or wrong here in my opinion
You said “Michael Milken is the man that popularized mortgage securitization on wall-street.” That is wrong.
You said “Michael Milken is the man that popularized mortgage securitization on wall-street.” That is wrong.
He founded the risk market investment mechanism, and went to jail for what he tried next.
Perhaps you personally need a finer granularity of assigned responsibility, but the product relationship is very clear for most observers.
Best of luck =)
Perhaps you personally need a finer granularity of assigned responsibility, but the product relationship is very clear for most observers.
Best of luck =)
> He founded the risk market investment mechanism
“Risk market investment mechanism” is gibberish.
Milken did not ”[popularize] mortgage securitization”. Ranieri was at best his contemporary; he was not inspired by Milken. Your own article is a good source on this.
> read the article
I recommend Fabozzi’s Fixed Income as an introductory text if you’re drawing the (incorrect) conclusions that you are from that FT article.
“Risk market investment mechanism” is gibberish.
Milken did not ”[popularize] mortgage securitization”. Ranieri was at best his contemporary; he was not inspired by Milken. Your own article is a good source on this.
> read the article
I recommend Fabozzi’s Fixed Income as an introductory text if you’re drawing the (incorrect) conclusions that you are from that FT article.
Whoops, my mistake... been a few years since reviewing the story... its hard to keep all their sins in order... given the volume.
I feel terrible... really I do... Have a wonderful Monday. =3
https://www.usdebtclock.org/
I feel terrible... really I do... Have a wonderful Monday. =3
https://www.usdebtclock.org/
> All were simply fund-managers monetizing other peoples misery
No, mortgage securitization simply provides a simple, consistent product that you can sell to investors. Securitization was created by the government, not by a banker.
It allows homeowners to access capital that they otherwise couldn't - it's a pretty limited pool of investors willing to buy individual, non-conforming mortgages.
If mortgages weren't securitized, then the government would need to provide the funds for all the mortgages - which means a lot less mortgages.
And I have no idea what "securitization" of healthcare and education means. It sounds like you learned a new word and just use it to replace "bad things I don't like".
No, mortgage securitization simply provides a simple, consistent product that you can sell to investors. Securitization was created by the government, not by a banker.
It allows homeowners to access capital that they otherwise couldn't - it's a pretty limited pool of investors willing to buy individual, non-conforming mortgages.
If mortgages weren't securitized, then the government would need to provide the funds for all the mortgages - which means a lot less mortgages.
And I have no idea what "securitization" of healthcare and education means. It sounds like you learned a new word and just use it to replace "bad things I don't like".
Prior to Michael Milken, there were legal standards in place mitigating adopting risks others would bear unnecessary liability to cover.
Profit at any price as they say... =3
Profit at any price as they say... =3
The electronic flow meter analogy is killing me
I'm not sure they intended flow meters to be an analogy for mortgages. But rather flow meter factories to be an anology for banks that create mortgages.
Flow meters or any other widget are needed by many different industries but probably not by flow meter manufactories. Mortgages are useful products for pensions etc. but not so much for banks.
Otherwise I don't really understand the analogy either.
Flow meters or any other widget are needed by many different industries but probably not by flow meter manufactories. Mortgages are useful products for pensions etc. but not so much for banks.
Otherwise I don't really understand the analogy either.
(2022)
> A mortgage has a quirky little subcomponent called a Mortgage Servicing Right (MSR). Every month, it needs to collect money from the borrower and send that money… somewhere. This implies, minimally, a mailbox where you can send checks, someone to open the mail, and a phone number with a CS representative who can answer questions like “What is my current balance?” and “Did you get the last check I sent you?”
Like, seriously? Sending bits of paper through the post to make payment? Having to call someone up instead of logging in to your mortgage account online?
Like, seriously? Sending bits of paper through the post to make payment? Having to call someone up instead of logging in to your mortgage account online?
There's the other part of the servicing bit they are leaving out.
- Giving a Payoff amount for whatever reason
- Reporting to agencies
- Trying to work with the client when payments are missed, ideally ethically.
- (Before COVID this was true, I know it was at least temporarily suspended, dont think still suspended but might be) If above fails, remitting payment to the owner of the loan during that period between 'first missed payment' and 'able to apply for and receive relief from Fannie/Freddie'
Those things cost, and depending on your originator, may or may not be baked into the price as to how well it works.
- Giving a Payoff amount for whatever reason
- Reporting to agencies
- Trying to work with the client when payments are missed, ideally ethically.
- (Before COVID this was true, I know it was at least temporarily suspended, dont think still suspended but might be) If above fails, remitting payment to the owner of the loan during that period between 'first missed payment' and 'able to apply for and receive relief from Fannie/Freddie'
Those things cost, and depending on your originator, may or may not be baked into the price as to how well it works.
The majority of people pay online. Obviously the mail and phone options need to be available too though.
Yes, some people in this world still prefer to operate with paper checks and use the telephone.
Talking about US mortgages without referring to the FDIC guarantees shows that the writer is not actually knowledgeable.
[deleted]
What does the FDIC have to do with mortgages?
Isn’t almost all mortgage debt immediately sold to the government (Fannie Mae/freddie Mac/ginnie Mae)?
Isn’t almost all mortgage debt immediately sold to the government (Fannie Mae/freddie Mac/ginnie Mae)?
Keyence is the 3rd largest Japanese company by market capitalization, next to Toyota and Japan's largest bank (Mitsubishi). Larger than Sony, larger than Nintendo, larger than Honda, etc. Keyence does sensors and nothing but sensors.
If you want to learn about the science of flow meters, you can visit a site maintained by Keyence, Flow Knowledge. Where you read that electromagnetic flow meters (this is proper name for "electronic" flow meters, which may be used for lay audience) detect flow by using Faraday's Law of induction.
https://www.keyence.com/ss/products/process/flowknowledge/