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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

#71

Post by borkt »

BoiledCabbage wrote: post #57
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…

> Otherwise you could say that just about any American middle class family is wealthy — just look at the entire world’s population Any middle class American is wealthy by the world's standard. The quality of life provided by middle class America is the life of the 1%. To not see this is to not understand how most of the world lives, and the challenges people face from being less lucky.

I’ve spent time a lot of people that live much better than me in what are considered third world countries, including overall quality of life, who make far less than I do. There are countries where money goes much further and family holds much greater value when compared to work than US culture (and laws) generally produces. They see friends and family for meals many times a week, their health care is affordable, and their jobs are more secure. It would be thought of as a cultural taboo to value work over family, whereas the majority of US employers see placing family over work as a fireable offense. Yes we have more paper wealth, but if we have to work longer hours and are spending it all on utilities, healthcare, and vastly overpriced housing, does it really matter?

Edit: This applies to countries with relatively reasonable populations with respect to their resources. This does not apply to places like China and India where there is a huge population to support.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#72

Post by lotsofpulp »

spicymaki wrote: post #25
ForHackernews wrote: post #6

Earlier quoted context omitted.

There's a reason usury was historically a serious sin.

Yes and usury is why we have an economic crisis every ten years. The magnitude of the crisis seems to be increasing each time.

Is this specific Mar 2020 onward economic crisis being caused by usury?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#73

Post by joezydeco »

mgkimsal wrote: post #48
joezydeco wrote: post #37

Earlier quoted context omitted.

Underwriters like to see six months of reserves on hand, but they don’t monitor that after the closing.

was close to building a house earlier this year (early March) and was talking to two lenders about construction loan. being self-employed was an extra small bump for underwriting, and I asked about loss of income because the covid19 stuff was just starting to become big news. Both indicated that their underwriters would likely check up after closing - 30 or 60 days after - to check on income at that point, to see if…

Construction loans are a completely different animal. You're getting part of the money up-front before a single board is nailed down. It makes sense that they will monitor progress and costs.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#74

Post by alexhutcheson »

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…

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 this price are only possible for households that are making significantly more than the metro-area median.

[1] https://data.census.gov/cedsci/table?q=United%20States&tid=A...

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#75

Post by jfim »

_curious_ wrote: post #69
jfim wrote: post #58

Earlier quoted context omitted.

Keep in mind that in high cost of living areas, such as the Bay area, all housing is essentially jumbo mortgages. If jumbo loans are not available or hard to obtain, this means that people who do lose their jobs face an illiquid market and don't have the option to sell their house to avoid default, and thus end up on the street.

I wonder what % of those with jumbo loans are completely out of a job? And further in such circumstances that they cannot afford to pay even a reduced or deferred mortgage payment? Or move into a lower cost apartment in another market? Going straight to the street tomorrow sounds like a stretch with options along the way especially for someone who was in a jumbo in the first place. Loans take a long time to default/e…

Good points.

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 don't know what percentage of the market that is though.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#76

Post by jlokier »

wegs wrote: post #16
em500 wrote: post #3

Earlier quoted context omitted.

> taking the umbrella now that it's raining Always found this a very strange metaphore. Banks seem to always face criticism for 1) when they don't lend to people who need it most and 2) when they do lend to people who are likely to default. It seems fairly obvious that there is a very large overlap between those groups.

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…

I think you have left out a third, which the GP was alluding to, and which I see written everywhere in UK lending literature:

3) Lending "responsibly", where responsible means protecting borrowers by not allowing borrowers to get into more debt than is good for them. (As opposed to responsible being for the lender's benefit.)

There's a paradox in this, because it exarcerbates some problems that it is supposed to be helping with (the assumption is it's to protect would-be borrowers from problems).

For example, if someone has multiple high interest loans with different providers and would like to convert them to one lower interest loan with a longer payback period (a consolidation loan), that would be good for the borrower. It would be a responsible thing to provide that. But it's all but impossible for borrowers who would be most helped by these to get one.

In the UK it is has been the law for a few years that lenders are not allowed to lend to private borrowers without evidence that the borrower can repay, regardless of what criteria the lender would like to apply. This is separate from credit risk assessment, and is done after the borrower has been approved for the loan. The result is that a number of borrowers would could pay, are no longer able to obtain good quality credit because the necessary evidence is too difficult to provide, and end up in a more vulnerable situation as a result. For example, self-certified mortgages for self-employed small-business owners used to be a thing, now borrowers in that position can only get a foreign self-certified mortgage, with significant loss of protections. Personal loans are subject to income proof now, which mean people with variable income use credit cards instead at much higher rates of interest.

The mortgage thing, combined with high property prices and very low interest rates, has widened the "haves and have nots" gap, where those who managed to get a mortgage at some time have much lower property costs and falling while gaining equity, compared with those who didn't get one and are trapped with high and rising rents. It would seem responsible to offer the latter mortgages when they have shown a long-term pattern of consistently paying higher rents than an equivalent mortgage, but it is not taken into account, bizarrely.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#77

Post by onlyrealcuzzo »

alexhutcheson wrote: post #74
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…

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.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#78

Post by gindely »

zzzzzzzza wrote: post #33
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…

That is not at all what china does. China has a huge banking sector, much bigger than the US. And no ... almost all of those banks are independent of the central bank. US and Chinese systems are very similar. Europe is a bit different. England, spain, italy, don't really have the large number of small and mid sized banks that the US or China does (germany does have many small banks however... noticing a trend? small(…

Are you trying to suggest that diversity in banks leads to a market having more industry, or that more industry leads to more diversity in banks? And what is the cause and effect?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#79

Post by andrepd »

aguyfromnb wrote: post #8
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…

> 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? Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). > we're allowed to expect institutions to do things that are in the public interest This articl…

>Does any business operate this way, including the one you work at?

Maybe it means that some institutions, especially ones with such a critical role as controlling the money supply, perhaps should not be run with a for-profit model, but some other model that better ensures the institution will serve the public interest, rather than the interest of an exceedingly small handful of elites. Typing this out it seems even more obvious.

It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#80

Post by fatnoah »

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…

>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 their hands of it if it goes tits up.

I'm in the middle of a refi w/large national bank and my broker mentioned he's not really writing jumbos except for refis for current customers.

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