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Mortgages are a manufactured product (2022)

bitsaboutmoney.com

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Re: Mortgages are a manufactured product (2022)

#71

Post by [deleted] »

deprecative wrote: post #61
anamax wrote: post #50

Earlier quoted context omitted.

> 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 ...)

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 pro…

[deleted]

Re: Mortgages are a manufactured product (2022)

#72

Post by maxerickson »

refurb wrote: post #21
yareal wrote: post #10

Earlier quoted context omitted.

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.

It has the effect of being able to provide homeowners with cheap 30-year fixed mortgages. 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).

Re: Mortgages are a manufactured product (2022)

#73

Post by scarface_74 »

refurb wrote: post #29
forgetfreeman wrote: post #26

Earlier quoted context omitted.

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.

Re: Mortgages are a manufactured product (2022)

#74

Post by mindvirus »

taffer wrote: post #67
mindvirus wrote: post #65

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.

> 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.

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.

Re: Mortgages are a manufactured product (2022)

#75

Post by jcul »

menzoic wrote: post #60

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.

Re: Mortgages are a manufactured product (2022)

#77

Post by yareal »

refurb wrote: post #21
yareal wrote: post #10

Earlier quoted context omitted.

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.

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 against the idea of hosting as a commodity generally.

Re: Mortgages are a manufactured product (2022)

#78

Post by globular-toast »

ilya_m wrote: post #51
globular-toast wrote: post #47

Earlier quoted context omitted.

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 a…

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.

Re: Mortgages are a manufactured product (2022)

#79

Post by mvc »

jjmarr wrote: post #15
mvkel wrote: post #3

> 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

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.…

> 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.

Re: Mortgages are a manufactured product (2022)

#80

Post by ramchip »

sanxiyn wrote: post #22

I know this post is about money, but I want to talk about electronic flow meters than money so I will. The description of "Japanese company making the best electronic flow meters" strongly suggests it is Keyence. They are the best indeed. 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…

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/

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