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Wealthy mortgage borrowers face cold shoulder from lenders

bloomberg.com

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Re: Wealthy mortgage borrowers face cold shoulder from lenders

#111

Post by Spooky23 »

imtringued wrote: post #17
gindely wrote: post #4

Earlier quoted context omitted.

Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? I mean banks aren't charities and maybe they're not/shouldn't be obliged to do this, but it's not like everyone is being hypocritical - we're allowed to expect institutions to do things that are in the public interest rather than their own private interest (freedom of opinion a…

There are risk pools for lending because every business has a different cut off point below which a borrower is considered too risky and therefore gets rejected. Imagine you are a bank employee at Bank A with very low default rates and consequently low interest rates (say 2.5%) and a homeless man has an appointment with you because he wants a small loan of $5000 to find an apartment and a job. He has no assets or inc…

Your story makes sense for consumer loans and credit cards. For mortgages, not so much as the underwriting bank holds almost zero risk.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#112

Post by ascagnel_ »

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?

From reading the article, this may be because the banks choose to service the loans directly, or because the loans have priced-in higher risk (as they lack a government guarantee).

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#113

Post by magicsmoke »

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?

Loans that are likely to default have higher interest rates. However, jumbo loans also have high interest rates due to the size of the principal. Although they're supposed to be less likely to default, being held by high-income individuals, if they do default then you lose more principal than a regular loan. For a bank in good times, you get to charge high interest rates normally reserved for risky borrowers on safe borrowers. More profit with less risk, what's not to like? In bad times though, when those previously safe borrowers start defaulting, even if only a few of them default they do so on larger chunks of money. Instead of losing your money with many small cuts now you could end up losing money in chunks.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#116

Post by Spooky23 »

aantix wrote: post #114

Where’s the best place to shop for a mortgage? Bankrate, Rocket Mortgage all claim to have the lowest rates but there’s direct smaller lenders that definitely have them beat.

Usually local credit unions and small banks. Sometimes rates are marginally higher but the underwriting process is better and transaction costs are usually lower.

When I bought my first house, it was a 90% LTV loan that was .1% higher, but didn’t require escrow or PMI.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#117

Post by redis_mlc »

oldsklgdfth wrote: post #106
yardie wrote: post #98

Earlier quoted context omitted.

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 th…

Conceptually, after 2008, the US government basically backstops everything financially.

There never was a return to the markets as pre-2008, meaning there never was a recovery.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#118

Post by bradleyjg »

neltnerb wrote: post #97
SilasX wrote: post #35

Relevant points: >Stanley Middleman, chief executive officer of Freedom Mortgage Corp., one of the nation’s biggest home-lending companies[:] >“Whether the assets are good or not good is irrelevant because there’s no liquidity to buy them,”... >Wealthier buyers are proving to be just as likely to stop paying their mortgages. Approximately 5.5% of jumbo loans -- 131,000 borrowers -- have asked to postpone payments due…

I think the bigger point is that the jumbo loans aren't backed by Fannie and Freddie so if the risk of default is similar then it does make sense to prefer to lend to people who need conforming (under the jumbo limit) loans. Of course, if you consider "wealthier buyers" they may have quite a few properties, and are more likely to have the resources legally to "go bankrupt" without it impacting them personally. See ou…

> I think the bigger point is that the jumbo loans aren't backed by Fannie and Freddie so if the risk of default is similar then it does make sense to prefer to lend to people who need conforming (under the jumbo limit) loans.

In the case of conforming mortgages the banks aren’t lending at all. They are filing out paperwork and skimming off the top.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#119

Post by wonderwonder »

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?

Its somewhat poorly worded. They are implying that they are a rare combo of low risk, high reward.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#120

Post by subsubzero »

onlyrealcuzzo wrote: post #77
alexhutcheson wrote: post #74

Earlier quoted context omitted.

People buying houses for $1 million are wealthy even by the standards of the Bay Area. Median household income in the San Jose-Sunnyvale-Santa Clara metro area is ~$125,000[1]. A traditional $1 million mortgage would require a $200,000 down payment, and ~$5000/month. The monthly payment alone would be 48% of the combined monthly pay for everyone in the household in a household making the median. House purchases at th…

And most people spend >40% of their income on rent & mortgage payments in The Bay. The average person with a house in The Bay probably doesn't make as much money as you think. They mostly have very high debt to income ratios.

Truth.. me and my spouse sold our old house in san jose (2016) to a couple who had < 160k in 401k combined(no other assets) and were in their mid/late 50's, their downpayment was the 90k they got from the sale of their condo, they were in construction/design(unsure of income) and had to get a 2nd loan from the bank to make the downpayment. Their total new mortgage is 5k a month(payment and prop. taxes, guessed this), I was shocked that the bank approved them given they seemed leveraged to the hilt.
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