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The Fed now owns nearly 1/3 of all U.S. mortgages

thestreet.com

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Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#131

Post by sokoloff »

peterwwillis wrote: post #109
remote_phone wrote: post #5

I just refinanced my 30-year fixed mortgage for 2.5%. The rate is utterly ridiculous now. If we get even a modicum of inflation over the next few years, I will be paying negative real interest rates.

So.... Is it a stupid time to get a mortgage and buy a house, or a fantastic time?

It’s a great time to refinance mortgage debt you already have. Whether it’s a great time to buy a house depends on the future demand for housing in the local area.

If you pay today’s price for a house in Palo Alto or condo in NYC and those areas fall in popularity, it could easily be a bad call.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#132

Post by code4tee »

wonder_er wrote: post #86
JMTQp8lwXL wrote: post #18

I would be curious to see analysis for what home prices would be with 0 Fed intervention. Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection, that the housing market is some form of a pyramid scheme, where you had to get in early to have a chance.

> Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection Millenial here. 100% agreed with this. Feels like a big blind spot in the boomer crowd. They don't seem to see the seething, roiling, overpowering resentment their entire generation is receiving from many, many people that currently don't have much power in society . A politician wants to win office…

If student loan debt was treated like any other debt then few if any students would get loans, unless their parents had assets to put up as collateral. So long as the financial burden of education falls on the student first then this is unlikely to change.

From a financial perspective it’s a terrible product to sell... tons of money to someone with little to no financial assets, iffy prospects of sufficient future income and no underlying assets that the bank can put a lien against in case of default. The problem is not the loans, it’s the whole higher education system that needs a total overhaul including the utility and price of higher education. The current system is based on the idea that many people’s parents encountered where a good summer job and maybe a bit of savings was more than enough to pay for a decent college degree!

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#133

Post by bluedino »

MattGaiser wrote: post #50
epicureanideal wrote: post #45

Earlier quoted context omitted.

The problem is that at the same time, the good jobs are being concentrated in a small number of cities. Even if someone is willing to move to a cheaper place, they find that relative to the employment available, it isn't much better. In the end, they realize that no matter what they choose, they need to struggle incredibly hard just to get a similar quality of life to what a baby boomer was able to achieve with a hig…

The good jobs are concentrated in a small number of cities. But the number of cities is far larger than SFO and NYC.

The bad part of this is the wage variation. In Smalltown, USA, a programmer or network administrator might make $55k per year.

However, 90 minutes away in the largest city in the state, you have people making $75k to reset passwords or change backup tapes.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#134

Post by jawns »

PopeDotNinja wrote: post #104
the-dude wrote: post #40

Earlier quoted context omitted.

I was paying 0.6% for the last years ( Euribor mortage ). Some people in North West Europe actually had negative rates already.

How do negative mortgage rates even work? My brain doesn’t understand that. Does the bank make money on fees or something? -1% mortgage rate and 3% in processing fees?

They work because although they lose money, they don't lose as much money as the alternative.

In other words, if you sit on your money, it might evaporate at a rate of -3%, but if you loan your money, it evaporates at a rate of -1%.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#135

Post by sokoloff »

postingawayonhn wrote: post #58
refurb wrote: post #54

Earlier quoted context omitted.

I would be curious to see analysis for what home prices would be with 0 Fed intervention. It is an interesting thought experiment. From what I've gathered, any intervention by the government to make housing more accessible, just gets priced in pretty quickly, removing the benefit. For example, FHA offering 5% down payments instead of a standard 20%, just means every first time buyer can now pay 15% more (approximatel…

> For example, FHA offering 5% down payments instead of a standard 20%, just means every first time buyer can now pay 15% more (approximately) for a house. Assuming they had the same deposit available they would theoretically be able to pay 300% more. Of course they probably wouldn't be able to demonstrate their ability to service a loan that large.

Or, if they had the income to service a 4x loan, they could quickly save additional down payment towards an 80%LTV loan.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#136

Post by the-dude »

PopeDotNinja wrote: post #104
the-dude wrote: post #40

Earlier quoted context omitted.

I was paying 0.6% for the last years ( Euribor mortage ). Some people in North West Europe actually had negative rates already.

How do negative mortgage rates even work? My brain doesn’t understand that. Does the bank make money on fees or something? -1% mortgage rate and 3% in processing fees?

Not at all. The bank is just an intermediary between the central bank and you. There are people in NL/BE/DK who actually get/got money on their mortage, monthly, just like a mortage payment but in reverse.

edit: for example, my mortage was the monthly Euribor-rate + 0.9% margin. Euribor-rate = -0.5, I pay 0.4%. But there are people who managed to get just a 0.5% margin. They pay nothing or get money back.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#137

Post by b34r »

Out of curiosity, why wouldn’t we want the government managing mortgages for the whole country? (Assuming the acquisition process isn’t slow AF because government.)

Real estate seems like a pretty important part of the economy and, more importantly, the government artificially making housing more accessible for potential first time buyers creates a virtuous cycle where people can finally save money and the eventually spend that money to stimulate their micro economies.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#138

Post by jonahbenton »

onion2k wrote: post #77
darrenf wrote: post #62

Earlier quoted context omitted.

The amount expressed in dollar terms needn’t match the quantity of mortgages, so both can be true - no?

The article states "The Fed now owns almost a third of bonds backed by home loans in the U.S." which is where the headline comes from. I think the reason why it's important is that owning 'mortgage backed debt' means you own an instrument sold by the mortgage underwriter rather than the mortgage itself. If the mortgage payer defaults and the underwriter fails you have no way of recovering the debt. A mortgage backed…

It is wrong, no offense. Mortgage backed debt is just a debt instrument payments from which depend on mortgage payments. It isn't debt issued by a business that has a bunch of mortgage loans on its books- those sorts of things don't exist anymore.

The mortgage industry is bewilderingly complex but short version is- most loans are almost immediately sold to Fannie or Freddie, not kept on the books of those who made them. Fannie and Freddie then securitize- make bonds out of combinations of those loans- a large portion, tho not all of loans they buy. The Fed is buying a lot of those bonds, probably generally the ones backed by the most risky payers, but the analysis is extremely nuanced.

That is why the Fed owns 1/3 of bonds, which (only) equate to 11% of total loan value. This prop on the market is much more powerful than 11% suggests.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#139

Post by mrep »

pieno wrote: post #84
adventured wrote: post #36

Earlier quoted context omitted.

The ECB has 2x the portfolio size as a share of GDP as what the Fed does. The Bank of Japan's portfolio is about 4x the Fed on that metric. Why isn't the Eurozone collapsing, with interest rates skyrocketing and the Euro imploding? Somehow Japan is still managing - despite a public debt & budget situation several times worse than the US - with a GDP per capita still on par with Britain, France, and just below Germany…

Not really. ECB balance of assets purchased: €2.9tn(August 2020) Eurozone GDP: €11.9tn (2019) So 24% Fed balance of assets purchased: $6.3tn (September 2020) US GDP: $21.4tn (2019) So 29% Even if you look at total assets on the balance sheet (Including assets purchased outright and collateralised loans), the difference is not that huge: ECB: €4.7tn (39%) Fed: $7.0tn (32%)

Source for ECB? FRED says they've got about 6.458 trillion euros [0] and the english version of the ECB website says they had 4.6 trillion at the end of 2019 which also matches the FRED and they haven't updated it since then [1].

[0]: https://fred.stlouisfed.org/series/ECBASSETSW

[1]: https://www.ecb.europa.eu/pub/annual/balance/html/index.en.h...

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#140

Post by roel_v »

markvdb wrote: post #92
epicureanideal wrote: post #45

Earlier quoted context omitted.

The problem is that at the same time, the good jobs are being concentrated in a small number of cities. Even if someone is willing to move to a cheaper place, they find that relative to the employment available, it isn't much better. In the end, they realize that no matter what they choose, they need to struggle incredibly hard just to get a similar quality of life to what a baby boomer was able to achieve with a hig…

More difficult than the baby boomer generation most certainly, but not impossible. You could take the arbitrage further by increasing upfront and post move earnings and decreasing future expenses: - Save up "no thanks" money at the high cost of living place. Not "f * y " money, but a significant sum. - Ideally, find a remote job at the hight cost of living place. - Relocate to a low cost of living place with decent s…

"At least in the EU, there are nice and safe places with very low real estate prices, quite decent socialised medicine, very low taxes and easy cheap transportation links around the continent. "

Oh? Like where?

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