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Wealthy mortgage borrowers face cold shoulder from lenders

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Re: Wealthy mortgage borrowers face cold shoulder from lenders

#101

Post by hpoe »

nabnob wrote: post #63
nsfyn55 wrote: post #40

Wealthy Borrower: "Why can't I refi lower?" Lender: "No, because your loan isn't secured by the government" Wealthy Borrower: "I am just using logic here, you're telling me a riskier borrower with lower credit than me can refi?" Lender: "If their loan is secured by the government, yes" Wealthy Borrower: "I don't understand" Lender: "Well at least we agree on something" Are you really using logic? Seems like a dubious…

Denmark is also a capitalist country. Social democracy (having a free market while also having nationalized healthcare and a strong social safety net) isn't the same thing as socialism (where the state is run by the proletariat and exists to eradicate the bourgeoisie). Right now, there isn't a single socialist government in the world.

Well under that definition Socialism has never existed because there has never been a state run by the proletariat, although sometimes people masquerade under the banner of the proletariat to increase their own personal power, i.e. Stalin, Hitler, Mao, etc.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#102

Post by throwlaplace »

gdubs wrote: post #54
alexhutcheson wrote: post #47

Earlier quoted context omitted.

The median sales price for a house in the US is $327,000[1]. People buying houses for $1 million are wealthy by any standard. [1] https://fred.stlouisfed.org/series/MSPUS

They’re not wealthy by the standard of the Bay Area, which is the point of the comment you’re replying to. Wealth is relative. Otherwise you could say that just about any American middle class family is wealthy — just look at the entire world’s population, where anyone making over something like $40k a year would be in the top 1%. Just to underscore the point, Palo Alto declares not too long ago that anyone making un…

> They’re not wealthy by the standard of the Bay Area, which is the point of the comment you’re replying to. Wealth is relative.

they end up in possession of an asset worth $1MM. ill-liquid sure but still a durable asset. you can borrow against that asset, it appreciates proportionally, you can eventually sell it, etc. what's the difference between it and $1MM and equities holding? i don't understand how you think being in possession of something like doesn't cross the threshold for wealth simply because other people in the neighborhood are also wealthy?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#103

Post by _curious_ »

jfim wrote: post #90
_curious_ wrote: post #86

Earlier quoted context omitted.

"I'm assuming the job market for non engineers in the Bay area right now is pretty tight, so for them, and assuming they have a mortgage, they might be caught between a rock and a hard place." I'm not from/in the bay and not paying attention to it, so will go with your assumptions here. Zooming out a bit on the general topic of high COL markets though, it's interesting talking with people around my high COL community…

Well, high cost of living markets are basically propped up by the surrounding economy. It's true that the high cost of living areas would rebalance, but that can leave the current homeowners underwater. As for the handouts part of your comment, what do you consider a handout? The stimulus checks? Is QE considered a handout?

"high cost of living markets are basically propped up by the surrounding economy."

Yes - to the extent that surrounding economy can support the general COL. So if/when the surrounding economy can no longer support a relatively high COL (in this example of mortage/rent = housing), why not just let the COL adjust proportionately to the surrounding economy?

So in the event the surrounding economy is strong & growing, the COL is also high and rising (as we've experiences over the past ~10 years). But when the surrounding economy is bad and declining, the COL should lower to match, no?

"As for the handouts part of your comment, what do you consider a handout? The stimulus checks? Is QE considered a handout? "

Yes, among others, these programs and others like it are only artificially propping up high COL areas (housing, for example) that otherwise would experience a correction (down) tied to their respective surrounding economies.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#104

Post by gdubs »

throwlaplace wrote: post #102
gdubs wrote: post #54

Earlier quoted context omitted.

They’re not wealthy by the standard of the Bay Area, which is the point of the comment you’re replying to. Wealth is relative. Otherwise you could say that just about any American middle class family is wealthy — just look at the entire world’s population, where anyone making over something like $40k a year would be in the top 1%. Just to underscore the point, Palo Alto declares not too long ago that anyone making un…

> They’re not wealthy by the standard of the Bay Area, which is the point of the comment you’re replying to. Wealth is relative. they end up in possession of an asset worth $1MM. ill-liquid sure but still a durable asset. you can borrow against that asset, it appreciates proportionally, you can eventually sell it, etc. what's the difference between it and $1MM and equities holding? i don't understand how you think be…

With mortgages people are generally paying a ton of interest up front, and it takes a long time to build up equity. People are limited by the equity in how much they can borrow against the loan, and for a very long time the bank has a million dollar asset, not the borrower.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#105

Post by wegs »

solatic wrote: post #46
wegs wrote: post #16

Earlier quoted context omitted.

The central friction is there are two conflicting views of banking: 1) Lending, insurance, and investment as a social service. People need homes. Businesses sometimes need to weather crises without bankruptcy. Startups need funding. People need educations. 2) Lending as a private investment. You want interest rate to reflect risk. Evolving monetary theory means federal interest rates are set to reflect #1. The underl…

Nationalizing banking doesn't work either. If you lend money without penalty upon default, then you encourage defaults. If you encourage defaults, then people no longer pay attention to the price of things they buy, since they can borrow however much they need without consequence. The result is rapid inflation, which wipes out the wealth of the working classes. If you keep strict controls on the amount of fiat curren…

The key question is what the penalty is. The penalty is different if the goal is profit-maximization than it is to promote pro-social behavior, for a few reasons:

* Very few people want to lose their homes or to go bankrupt.

* Investors try to act optimally from a game-theoretic point of view. This usually means maximizing their own income (which isn't always the same as maximizing returns on the many they manage).

* People aren't always rational.

Let's look at the two systems for how we handle bankruptcies and defaults:

1) Money is bits / a game: We attempt to structure penalties to minimize structural damage to the system, while slapping you hard enough on the wrist to make defaults an undesirable outcome.

2) Money is real: We attempt to extract enough money out of you to balance interest. If we have harder penalties, with rational investors, interest rates go down, so keeping high penalties promotes a strong economy.

And for how we decide to loan:

1) Money is bits / a game: I loan you if the loan is perceived to benefit society. E.g. if you are engaged in an activity with a lot of positive externalities (e.g. going to school, buying a home for your family, or making a new startup), I will give loans with lower interest. I discourage bad debt (e.g. credit card debt, or mortgages I know will fail.

2) Money is real: I expect returns. This might be due to good debt (e.g. business investment) or bad debt (e.g. you're buying a home you can't afford, but interest + sales price when you default results in net income for me when / if you do default, payday loans, etc.).

Both of these systems are rational. Both, in practice, have politics we need to manage. The problem happens when e.g. monetary policy sets interest rates, in conflict with what the market wants. The risk is astronomical right now, and system #2 says don't loan, which is where the private sector wants to go. But without cheap credit, the economy goes down, which is where the fed steps in. And, of course, private investors can try to arbitrage the two forces.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#106

Post by oldsklgdfth »

yardie wrote: post #98
oldsklgdfth wrote: post #70

Earlier quoted context omitted.

This is total news to me. So is the US housing industry owned by the US government? My impression was: - conventional is within risk margins of banks and they own that risk - fha requires pmi, that is insurance you buy to cover the extra bank risk - va, mortgages to veterans that the government own

They don't own all of it, but they own the majority of what most people consider mortgages. The high-priced homes in NYC, LA, SF are more commonly jumbo loans. These are considered non-conforming and Fannie Mae can't touch 'em. The 3 you listed are conforming loans and will be absorbed by FannieMae/FreddieMac. In my case, 30 days after we closed on a conventional loan, the bank sent us a letter stating the loan was t…

> In my case, 30 days after we closed on a conventional loan, the bank sent us a letter stating the loan was transferred to Fannie Mae

I don't think that happened to me, the bank kept taking my money so I assumed the owned the house that I was paying them back for.

> The old days when you would closed the loan the bank would immediately package it and shop it around

This is probably mortgages 101, but why was that the case? Is it, in general, more favorable to sell off mortgage liabilities or where there conditions that made that true?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#107

Post by criddell »

przemub wrote: post #87
1-6 wrote: post #61

To read the article, just put a period (.) at the end of the domain. Eg. domain.com/article --> domain.com./article

Do you know why does it work?

It didn't work for me. Instead it said I'm in private mode and said I should subscribe to keep reading.

I'm using Firefox FWIW.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#108

Post by raziel2p »

> Before the pandemic, lenders were falling over each other to welcome jumbo borrowers, who generated fat profits even though they were the least likely to default.

Even though? Implying loans that default are normally the most profitable? Am I misreading this?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#109

Post by alistairSH »

api wrote: post #92
alistairSH wrote: post #91

Earlier quoted context omitted.

Sure. But San Jose's median household income is almost double that of the US as a whole. Is its COL double than national average? I don't believe it is.

Cost of living anywhere in the Bay Area is much higher than the national average due almost entirely to real estate.

As long as "much higher" is 2x the national average, Bay Area residents still come out ahead, especially on gross cash basis.

Median household in SJ earns ~120k. Median for USA is ~$60k.

Even if the SJ resident spend 40% on housing, they come out WAY ahead of the median household spending 25% on housing.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#110

Post by eli_gottlieb »

raziel2p wrote: post #108

> Before the pandemic, lenders were falling over each other to welcome jumbo borrowers, who generated fat profits even though they were the least likely to default. Even though? Implying loans that default are normally the most profitable? Am I misreading this?

Normally, doesn't the interest rate track the likelihood of default?
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