Wealthy mortgage borrowers face cold shoulder from lenders • Hacker News Board

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#131

Post by gnopgnip » Fri, Apr 24, 2020, 4:41 PM UTC

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.

You want to check through different sources, direct to consumer, through a mortgage broker, and through a bank you have an existing relationship with. It is worth shopping around with the direct to consumer lending, there might be a $10k difference in closing costs for the same rate between the best and worst of 5 lenders. With a broker they will compare 10+ sources typically.

For instance Quicken/Rocket will have different rates going direct or going through a broker. If you have a lot of money invested with Chase/BOA they could give you a better rate than you would get elsewhere. The same can be true of a credit union, or you could get a discount even if you do not have a substantial amount of money invested with your bank.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#132

Post by nostrademons » Fri, Apr 24, 2020, 4:42 PM UTC

alexhutcheson wrote: post #94

onlyrealcuzzo wrote: post #77

Earlier quoted context omitted.

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.

Source? It would be surprising to me if lenders were regularly approving loans where the mortgage payment alone (not including insurance or taxes) was >=48% of monthly income. There are certainly lenders that will approve mortgages with high ratios relative to salary (due to the value of bonuses and equity comp), but the $125,000 figure is all-in income, so this isn't relevant. A 40% ratio for the $125,000 household…

You can check out the actual sale prices of recently-sold homes on Zillow:

https://www.zillow.com/homes/recently_sold/house_type/

In the South Bay near Mountain View, there's basically no single-family homes under $1.5M, and the majority of houses go for $2M up. Many are in the $4M+ range. You can get cheaper in San Jose ($800K-ish for a run-down 2BR from the 50s) or Daly City (low millions), but most of the Peninsula and SF has a floor at a million.

Most Bay Area residents just don't own homes. They rent permanently or maybe own a condo. But the context for this sub-thread is "people with a house", and basically all mortgages for single-family homes are jumbo if you're not paying in cash or putting >50% down.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#133

Post by tempsy » Fri, Apr 24, 2020, 4:43 PM UTC

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…

This has nothing to do with actual credit risk. It has to do with the Fed’s decision as part of the stimulus package to buy mortgage backed securities backed by conventional loans but not jumbo loans. So banks have an out to sell bad conventional loans off their balance sheet to the Fed but have to take all the credit risk for jumbo loans even though those borrowers are more credit worthy and wealthier than your typical borrower.

It’s creating a distortion in the mortgage market.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#134

Post by nsfyn55 » Fri, Apr 24, 2020, 4:45 PM UTC

yardie wrote: post #53

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…

Just a nitpick, your mortgage isn't secured by the government. It's actually owned by the government, Fannie Mae. Your bank is just the middle man that services it. If your bank doesn't want to service it or the government don't think they are managing it correctly they will move it to another bank. So I'm not surprised these banks don't want to touch jumbo loans right now. That debt is their risk. They can't wash th…

> It's actually owned by the government, Fannie Mae.

Oh my bad. So riddle me this. Does the government secure mortages it owns?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#135

Post by nsfyn55 » Fri, Apr 24, 2020, 4:47 PM UTC

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.

Right just like there are no capitalist nations in the world. Because no nation is a completely unregulated hellscape governed by pirate kings. Spare me the semantics.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#136

Post by tempsy » Fri, Apr 24, 2020, 4:47 PM UTC

gnopgnip wrote: post #123

supahfly_remix wrote: post #21

I'm not sure what qualifies as wealthy, but most houses in the SF Bay Area bought in the past few years are probably financed with jumbo mortgages. E.g, 20% down on a $1MM house leaves $800k to be financed, which is greater than the $765k criteria stated in the article.

The median home price in the bay area is under $1m. There is also some stickiness right around this price point, and most buyers are not getting jumbo mortgages in the bay area.

Maybe the entire Bay Area but not SF proper or majority of Silicon Valley.

And not SFH. That must include condos.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#137

Post by nostrademons » Fri, Apr 24, 2020, 4:52 PM UTC

subsubzero wrote: post #120

onlyrealcuzzo wrote: post #77

Earlier quoted context omitted.

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 wonder if this means a foreclosure crisis is coming.

I've wondered recently how much of this house price inflation is because of cash buyers from China vs. cash buyers because they sold their stock in a unicorn vs. dual-FAANG-engineers with a mortgage vs. people who leveraged up to the hilt with 3-5% down adjustable mortgages. ChuckMcM posted county property records a couple years ago that suggested the former category isn't actually a big one. The first 3 categories are relatively insensitive to downturns. The last will get hit hard this recession. If most houses are owned by people in the last category, the effect on housing prices will be much more dramatic than if they're folks sitting on houses with no mortgage.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#138

Post by nsfyn55 » Fri, Apr 24, 2020, 4:52 PM UTC

SilasX wrote: post #55

nsfyn55 wrote: post #52

Earlier quoted context omitted.

The borrower is sort of using logic, but because of his extreme level of entitlement he fails to understand his premises are flawed. Low rates are a function of your total risk not your perceived status as a responsible borrower. The lender is using logic(the refi equation was almost certainly devised and reviewed by a qualified actuary)

I know, I was only objecting to his attempt to resolve the confusion by saying "you're using logic". That's not the problem, and the lender should realize it and say something more productive. In case it wasn't clear, the original commenter was referencing this part: >>“I told the guy at the bank, ‘I’m trying to use logic here,’” Adler said in an interview. “And he said, ‘That’s your problem.’”

He's not wrong. He should use actual logic rather than just trying.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#139

Post by nostrademons » Fri, Apr 24, 2020, 4:53 PM UTC

codingdave wrote: post #122

gdubs wrote: post #65

Earlier quoted context omitted.

This is exactly my point though. If you look at averages, a jumbo home owner in the US is considered wealthy — but only if you ignore their local market. Like in the Bay Area where you could earn $100k a year and still be considered “low income”. These people may be huge earners compared to the average American. It doesn’t mean they’re living the lavish lifestyles of the rich and famous. A lot of them are living payc…

If people are choosing to live in the Bay Area and spend all their money on COL expenses, that does not mean they are not wealthy. It just means they are choosing to spend all their wealth to stay there. Believe me, those of us who live a state or two east of there see plenty of people who have left after a few years of paying on those jumbo loans, and the equity from those homes sets them up quite nicely in another…

As long as they have a supply of buyers for those houses. Article is suggesting that new buyers won't be able to get jumbo mortgages. If people can't borrow $2M for a house anymore the sale price of houses is going to take a big hit.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#140

Post by tempsy » Fri, Apr 24, 2020, 4:54 PM UTC

bradleyjg wrote: post #118

neltnerb wrote: post #97

Earlier quoted context omitted.

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.

This is what the Fed has done for both recessions. It’s a bailout.