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.
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 and all that).
>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 article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it?
> 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).
No. But then again, being a businessman isn't seen as unqualified virtue in many places in the world. You'll also note that "selling things to the people who need it most for the lowest price" is literally the justification given for why free and competitive markets are good. It's the goal societies want to achieve. In this, competitive pressure is a hack to force the businesses to reduce prices.
>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).
I think a business that sells something for a small markup but makes it up in volume does something like this. So I guess the answer would be - yes - probably most businesses actually do this.
>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.
>but some other model that better ensures the institution will serve the public interest
Your social concerns are completely detached from reality if you're shedding tears over people with jumbo loans that are unable to refinance their million dollar mortgages from 4% to 2%. It's theatre.
I appreciate your white-collar, anti-capitalist rant, though. Unfortunately, when SHTF, the truly down trodden might even consider people like this part of the problem. I don't think they'll buy the idea that "we're all on the same team!".
>It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives.
You're right, we should put our non-elite, galaxy brain politicians, the Trumps and Pelosis and Bidens and Bush's of the world, in charge of controlling the money supply.
> 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).
Yes
> This article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it?
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 income and is only able to pay after getting his job so he will miss his first few payments. Therefore you decide to simply not give him a loan because it is incredibly obvious that he is going to default.
What are his options now? He can go to a Bank B that accepts more risky borrowers with a still acceptable but slightly higher interest rate of 5%. What happens is that all the reliable lenders go to Bank A because they get a great deal there and have no trouble getting a loan. They don't even bother with Bank B. Since Bank B fails to attract reliable lenders the only borrowers at Bank B are those who couldn't get a loan at Bank A. Bank B now has two choices. Either keep the risk profile or tighten it and only allow reliable lenders. If they keep it then they will notice a much higher than usual default rate. Bank B is losing money from all the defaulting loans and that money has to come from the borrowers of Bank B that didn't default.
Now imagine that there is a Bank C. What if it's risk profile is so lenient that it accepts anyone with no questions asked. Literally everyone who comes to you is defaulting. You're throwing money into a black hole with no chance of getting it back. You have to crank up the interest rate to absurd levels to cover the defaults.
You know what the problem is? It's not that Bank C is evil and exploiting the poor. Those people should have never gotten a loan at all. The act of giving them a loan is exploitation itself, not the interest rate or whatever conditions that Bank C needs to stay in business. It's as simple as that. Those individuals do not need a loan, they need support from the government in a way that doesn't require the money to be paid back. e.g. free housing, unemployment benefits or even straight up UBI.
Don't criticize Banks for not lending to those who need it most. For some reason people don't understand that Banks are businesses that have to at least cover their costs. They think a Bank is a charity that should take on responsibilities that really only belong to the government.
But now you have just portrayed situations in which banks provide affordable loans to people who don't need them, and unaffordable loans to people who need them. But this is what was criticised in the first place so we know it happens. So I'm not sure what the point of your first four paragraphs were.
Your final paragraph is exactly what my earlier comment rejects. The general public has every right to criticise banks for acting in the banks' private interest. Banks are not charities, it is true. But they are groups of moral agents acting in a community, and the community has every right to hold the moral agents to whatever standards the community wishes to.
The bank has the legal right to pursue its own private interests, so long as it acts legally, and has the legal right to not act as a charity. But that is not an argument against the view that the bank should act in conformance with community expectations, and if necessary the law should be changed to ensure that they do.
The fact that banks make ridiculous profits - they're not just covering costs - is also relevant. If your business is making billion dollar profits, you're vulnerable to the claim that you should give greater weight to public opinion, and the notion that you're only acting to cover costs is a red herring.
It was in fact punishable by death in Christian countries. In theory it's also still a sin in Islam. That's why most of the first bankers… were not Christians or Muslims if I can put it that way.
> Payday lenders fill this gap. Everyone hates them as well.
That's because they offer a very dangerous financial tool, and at the same time they work hard to put this tool in hands of people who can't handle it safely. In this way, they make money off destroying people.
> Everyone hates student loans and they fill a different gap.
The problem with student loans is on the higher level in the system; their existence causes runaway cost increase of higher education.
> The problem with student loans is on the higher level in the system; their existence causes runaway cost increase of higher education.
If the loan is meant to pay for tuition then perhaps that's true. My loan was something like £1600/yr which covered about 5 months of rent, but the government paid for my tuition.
Yeah, I assumed the GP meant the American-style student loans that you need for your tuition, not the kind that exist in countries with public higher education, where you use them for e.g. rent or textbooks or hardware.
My experience has been this idea has largely been a myth pushed in conjunction with the community reinvestment act and the financial crisis, When. Looking at numbers, most of the subprime mortgages were originated by institutions not subject to the CRA and we had decades of banks complying with the CRA without giving out subprime loans. The financial crisis was largely a system repackaging loans they knew were bad and then claiming falsely they were good using voodoo math. And the CRA didn’t force them to do that.
That's not why banks face criticism. They face criticism because they don't lend as a service, they lend as a scam operation.
In the UK there are credit card companies that specialise in borrowers with poor credit. They offer cards with a rate of up to 100% and a contract which gives them first call on any assets, including the borrower's house.
Is it hard to understand that this is entirely conscious and predatory? They could lend at lower rates and minimise the risk of default, but they make more money by pushing high-risk borrowers into default and selling off their property.
It's a similar story with bank loans for small businesses. Banks will often call in a loan and bankrupt a small company at the first sign of any trouble, including a wider recession that the company may be perfectly able to handle.
There's a huge gap between prudent and sensible lending and aggressively destructive profiteering, and banks are often on the wrong side of that line.
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 underlying view is that financial system is a bunch of bits used for accounting designed to keep businesses productive, people working, and the economy running, much as you might have in a video game. You make and destroy money as needed to support what needs to happen to make that work, much as a game developer might engineering money sources and sinks into an MMORPG. It's just bits on a computer.
Historical practice and the structure of banks is set around #2. This is a really sound theory if your currency is either backed by gold, or even is fiat currency, but running on the same principles.
Defaults aren't a problem with #1, unless they encourage bad behavior. If a bunch of poor people buy homes, and later default on mortgages, it's really not a big deal; bits on a computer appear and disappear. If 50% of those people come out owning homes, you're still ahead if 100% were still renting. But in #2, it's a financial crisis. Conversely, if a bunch of poor people can't buy homes and have to rent, it's a crisis in #1. It's not a problem in #2.
I'm not sure the mixture model works well -- indeed, I think that's the source of our problems. I think if we killed the banking sector, and folded all of this into the fed, it'd work great (that's what China does). I think if we had the gold standard again, that'd work pretty well too. But when you mix the two, things get a bit ugly.
There isn't some fundamental distinction between 1 and 2. For 1, there is obviously some positive social utility in the end or else it wouldn't be good policy. But such lending may require too much capital, too large a risk pool, or too long a time horizon for an individual private bank to take on. Instead a public or policy bank steps in.
It's good to have banks of different sizes serving different niches, as long as they assess risk prudently and price rationally. What you don't want is politicians micromanaging in domains in which they have no expertise, especially when they are driven by short-term, personal political objectives.
The fundamental difference is in incentives. If your incentive is to generate profits, you don't want to lend to the high-risk needy because you'll lose money. If your incentive is to provide another form of social security, you're willing to subsidize.
The problem comes when you force a business that really wants to align to the profit incentive (banks) to provide social subsidy by effectively charging their profit-generating customer base a premium. 1. They're incentivized to do the bare minimum necessary. 2. They're incentivized to stick to the letter and not the spirit of the law. 3. The transfer of wealth from paying to subsidized customers is opaque and nobody can do proper accounting.
This is a major source of corruption and inefficiency. It's the sort of problem that's all over the place whenever the private sector is forced into providing this sort of opaque cross-subsidy.
If I were to re-do this from scratch I'd privatize all the banks and let them do just the profit-making part, and have social programs solely as a function of the government, with a set yearly budget.
That's why the fed was set up -- to make sure monetary policy is decoupled from short-term political objectives. It ain't perfect, but it's ain't bad either.
We could do better than the Fed in 2020. Tech makes transparency easier.
Doesn’t China still have some shadow banking activity also ? You can’t abolish private banking completely, because ultimately loans are just IOU’s. Anyone can speak or write them. Even accounts receivable are very similar to loans. Private banks are just outsourced service arms of the fed anyway. you can’t really stop people from using future income to plan current investments. leverage comes from spending expected future streams of money.
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(er)/more banks = industrial might). And ECB is obviously in a bit of a different spot than the Fed or Chinese central bank since they control the currency for disparate countries.
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?
Nationalizing banking doesn't work either. If you lend money without penalty upon default, then you encourage defaults. If you encourage defaults, then people no longer pay attention to the price of things they buy, since they can borrow however much they need without consequence. The result is rapid inflation, which wipes out the wealth of the working classes.
If you keep strict controls on the amount of fiat currency issued, and lend for reasons other than earning a good interest for financing risk, then you end up with a shortage of capital to lend. Then loans are issued for criteria that aren't publicized - in polite terms, politically motivated lending. Society stagnates as the engine of progress itself turns into a zero-sum game.
There is a better way to ensure the delivery of socially-beneficial goods - to deliver them directly, taking care that public options provide only minimally sufficient goods and services, and only in response to the failure of the private market to provide alternatives.
The key question is what the penalty is. The penalty is different if the goal is profit-maximization than it is to promote pro-social behavior, for a few reasons:
* Very few people want to lose their homes or to go bankrupt.
* Investors try to act optimally from a game-theoretic point of view. This usually means maximizing their own income (which isn't always the same as maximizing returns on the many they manage).
* People aren't always rational.
Let's look at the two systems for how we handle bankruptcies and defaults:
1) Money is bits / a game: We attempt to structure penalties to minimize structural damage to the system, while slapping you hard enough on the wrist to make defaults an undesirable outcome.
2) Money is real: We attempt to extract enough money out of you to balance interest. If we have harder penalties, with rational investors, interest rates go down, so keeping high penalties promotes a strong economy.
And for how we decide to loan:
1) Money is bits / a game: I loan you if the loan is perceived to benefit society. E.g. if you are engaged in an activity with a lot of positive externalities (e.g. going to school, buying a home for your family, or making a new startup), I will give loans with lower interest. I discourage bad debt (e.g. credit card debt, or mortgages I know will fail.
2) Money is real: I expect returns. This might be due to good debt (e.g. business investment) or bad debt (e.g. you're buying a home you can't afford, but interest + sales price when you default results in net income for me when / if you do default, payday loans, etc.).
Both of these systems are rational. Both, in practice, have politics we need to manage. The problem happens when e.g. monetary policy sets interest rates, in conflict with what the market wants. The risk is astronomical right now, and system #2 says don't loan, which is where the private sector wants to go. But without cheap credit, the economy goes down, which is where the fed steps in. And, of course, private investors can try to arbitrage the two forces.
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.
When banks lend to people who will default, it's usually because they issued a secured loan. You can repossess a car quite easily. I couldn't keep up with my car payments in 2009, and my car got repossessed. They got (most of) their money back. Since I had been paying a high interest rate, maybe they even made money.
When I ran a service business & wanted to borrow money for growth, even though I was profitable, there was no risk formula I fit into that would allow the bank to determine the likelihood my business would pay them back, so they wouldn't lend to me (unless I used personal assets as collateral).
I don't care if banks make foolish or intelligent lending decisions... I just don't want my tax dollars bailing them out when they screw it up. If I am bailing them out, then I should be entitled to an opinion on how they run their business... heck I should be a shareholder!
Jumbo loans are just loans over a certain number, nothing to do with how much you can afford to pay for a house. I put 20% down (and could have put down more, but the bank rates were pretty good so the better move was to keep investing the extra money) and still got what was considered a jumbo loan because even with 20% down I had to borrow > 750k.
I two years I imagine the same lenders will be complaining that they drove away all their most profitable, low risk customers because of a short term risk issue.
Why exactly should we care about wealthy borrowers at this point, when millions of people are losing their jobs/health insurance...? So what if they get told no - it is not like they are living in a 500 sq ft apartment anyway
You should have empathy for everyone. You should have empathy for the pain poor people experience and the pain the rich people experience. Someone's income doesn't make them more or less human.
Nobody is arguing that rich people don't bleed or don't feel pain. The point here is that for rich people a rent strike is a nuisance, but for renters the alternative to a rent strike is homelessness, or not being able to afford their medicine, or something equally catastrophic. That's why you don't see rent strikes everywhere, you see them where renters have their backs against the wall.
Not sure what this has got to do with empathy. If rich people don't get favorable mortgage, it is at max an annoyance to them. They are not going to be homeless or going to ask for food stamps. If a normal family with one home and one mortgage is not able to refinance or not able to pay their mortgage for a few months, their bank will go after them and they will end up on the street.
Sure we can talk about it and feel sorry for their inconvenience, but our time is better spent looking into much bigger problems of much bigger percentage of our population.
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/evict and lenders are probably not in a rush to put the liability on their books right now either.
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.
"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'm not from/in the bay and not paying attention to it, so will go with your assumptions here.
Zooming out a bit on the general topic of high COL markets though, it's interesting talking with people around my high COL community who feel like they deserve to live and stay here regardless of the changing economy. Thinking out loud:
Maybe high COL markets are untenable in this economy for a certain percentage of the population?
...if there were no welfare schemes going around wouldn't these high COL areas rebalance faster to some equilibrium in line with broader affordability?
Are the handouts just further propagating an attitude of entitlement while also artificially inflating high COL markets otherwise overdue for a reset?
Well, high cost of living markets are basically propped up by the surrounding economy. It's true that the high cost of living areas would rebalance, but that can leave the current homeowners underwater.
As for the handouts part of your comment, what do you consider a handout? The stimulus checks? Is QE considered a handout?
"high cost of living markets are basically propped up by the surrounding economy."
Yes - to the extent that surrounding economy can support the general COL. So if/when the surrounding economy can no longer support a relatively high COL (in this example of mortage/rent = housing), why not just let the COL adjust proportionately to the surrounding economy?
So in the event the surrounding economy is strong & growing, the COL is also high and rising (as we've experiences over the past ~10 years). But when the surrounding economy is bad and declining, the COL should lower to match, no?
"As for the handouts part of your comment, what do you consider a handout? The stimulus checks? Is QE considered a handout? "
Yes, among others, these programs and others like it are only artificially propping up high COL areas (housing, for example) that otherwise would experience a correction (down) tied to their respective surrounding economies.
The interesting part of the story is that the people with $700k mortgages - I'd hesitate to call this class 'the wealthy', more like the 'above-average middle class' - are getting hit with a double-whammy: their wages are paying for the mortgage subsidies for the poor which are driving their own mortgage needs off the market.
Next stop: universal health care. Then the real gnashing of teeth starts.
In the state of Georgia, I'd definitely call someone with a $700k mortgage wealthy. I'm in an affluent suburb north of Atlanta and I'd probably be showing some bias if I didn't consider myself to be wealthy in a $400k house. If I read it correctly, the example given in the article was for a refinance for a lower rate, and while that would be nice, it's not as likely to be a necessity. I've considered a refi, but as a small business owner I'm not sure I'd qualify in the current climate (even though my software company is still making money).
Agreed on the HN demographic. I have lived in the NYC metro area and felt the pain of expensive housing, and I would only do it again if I met your definition of rich.
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.
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 under $100k a year is considered “low income”.
> 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.
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 paycheck-to-paycheck. Markets are relative.
Similarly, the average American making over $40k a year will not consider themselves the 1%, but to the average citizen of the world they are.
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 place.
People who own homes in the Bay Area do not have massive disposable income. But they do have wealth.
I feel like everyone is talking past each other. Or perhaps the definition of wealth is failing this discussion. Telling a family struggling to make ends meet that they are wealthy seems of little value. Depending on the scenario, they could be one job loss away from having nothing just like one of your families a state or two east.
Now that same family, income and house with a paid off mortgage is in an entirely different situation.
The difference is the wealth they accrued in paying down their mortgage. They claimed value in doing so. But merely having a massive mortgage in the Bay Area does not _inherently_ equate to wealth.
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.
To agree with you, It's even more complex than even you outline, too. Wealth is, imo, a relative profit and cost of living expense calculation, regardless of how much you make. Ultimately it doesn't matter where you live or how much you make, you can be living paycheck to paycheck in almost any scenario.
There are definitely subtleties, like how feasible it would be for you to reduce expenses while keeping your income the same. Life.. gets complicated.
That is true, but there's a flip side problem with this way of thinking: it can lead to a race to the bottom mentality in which improvements are argued against by comparison to those worse off.
"Workers in America don't need better pay or benefits, they're already wealthy by world standards!"
"Workers in China don't need basic safety protections and sane work hours, they're already better off than workers in sub-Saharan Africa!"
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.
Seriously. I sometimes cringe when I think what I could be making if I moved back to California (I'm even _from_ norcal...) but I just can't handle US workaholism (most of it performative) and the idea that even if I manage to pull off 5+ weeks of PTO a year, my spouse certainly won't, and I like living somewhere everyone gets a month off a year and even people under the median wage can afford a decent holiday.
> They see friends and family for meals many times a week, their health care is affordable, and their jobs are more secure.
This is all true - and all of those are possible while still being wealthy. The peculiarities of US culture are different from being wealthy. As another example you don't need to have an obsession with guns to be a wealthy country, but the US does.
"The quality of life provided by middle class America is the life of the 1%"
It's been said many times before about similar statements, but this is not true or mathematically possible. I believe it's off by about an order of magnitude.
Middle class in the US is something like $45,200 to $135,600 in household income, which is roughly half the population.
Half the population is about 2% of the world population. And every American is not wealthier than everyone outside the US.
If you google something like "global income percentile" you will find a considerable amount of BS claims - the first one I found was on Investopedia. For fun or ideology or whatever, the meme that middle class Americans are in the top 1% is something that people will just go on the internet and lie about.
I didn't spend enough time looking to find really satisfactory sources, but in trying to find something relatively unbiased I ended up with something that suggested the US middle class might very roughly be around the top 10% globally.
(Note that in the terms of the linked article, it seems like the global middle class is a tier below the US middle class, so if about 85% of the world is "poor" or "middle class", then the remainder or 10-15% equates to the US "middle")
"Otherwise you could say that just about any American middle class family is wealthy" Comparatively correct in the global sense.
Nothing bad can come from putting things (yourself?) into a global human perspective. Considering how much chance is involved with where we are born, a middle class person/family in the US is quite wealthy by default.
I wonder how many take pause on any regular basis just to acknowledge and appreciate the relative wealth that they were lucky to be born into?
Sure. But San Jose's median household income is almost double that of the US as a whole. Is its COL double than national average? I don't believe it is.
Average cost of a house in America is around $380k, average cost of a house in San Francisco is $1.7M according to Zillow. San Jose is $1.2M. Fremont is $1.1M. The cheapest (and not a great place to live and horrible commute) place in the Bay Area is Vallejo and that's still $450k.
So 3-6x more expensive depending on where you look generally.
It is prb about 3 times cheaper than other areas of the country,
- Gas: is still $3 a gallon here while a majority of the nation enjoys close to $1 a gal.
- State taxes: run close to 10% on professional salaries, most other states have 4-5% or no state taxes.
- Housing: This one is the big one, try finding a 3 bedroom house for less than $1M in the san jose/pennisula area, it just isn't possible (I am excluding parts of east san jose where housing is cheaper). A typical house in the US goes for roughly 350k. rent is no better, a 3 bdrm rental in a half decent area runs you 3.5k on up.
- Property taxes: this one is tied to housing, enjoy paying 1.5% a year forever on your $1M+ house, that is 15k+ a year
All (or most) of those are included in the COL estimates I've seen. Yes, the Bay Area is expensive. But, as best I can tell, the salaries (on average, per household) more than make up for it.
Trust me, I hear the same thing in discussions about DC area salaries and COL. Relative to the rest of the nation, software developers here have a high income and high COL, but the income more than makes up for it here too.
Yes, but that also comes with the notion that a wealthy family can become poor by moving to a higher-cost area, or a poor family can become wealthy by moving to a lower-cost area; ie, someone can sell a small house in the Bay area and buy a manor estate in the countryside.
There's nothing wrong with that notion, but some will find it odd that, before that transaction happens, a family owning an upscale countryside home is wealthier than a family owning a cramped Bay area home, but after that move happens, the family that moved in from the Bay area is now the wealthier one.
It means that merely having the option to sell your home and buy a countryside manor doesn't make you wealthy until you actually follow through with it.
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.
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 would give you a maximum purchase price of $830,000, which would be a conforming loan in the Bay Area, not a jumbo one.
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.
The median Bay Area household cannot afford to buy a house, yes, but that does not mean that those buying houses are significantly wealthier. The Bay is far, far richer than you can imagine.
Buying a house for $1M is firmly middle class status. True lower class people simply cannot afford to live in the Bay at all.
To be in the top 1% in the Bay Area you have to make close $1M per year.
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.
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.
A few years back I found a website where I could look up big expensive houses on the east bay area hills and it would mention who owned them. When I looked up a few of the big ones, 8 of 10 I looked at were owned by doctors.
First of all, a $1M house with $200k down means an $800k mortgage, not a $1M mortgage. With rates as ridiculously low as they are, monthly payments are closer to $3.5k/mo. Add in an amortized $500/mo in property tax and you're at $4k/mo, for about 39% of income, not 48%. For that married couple making median income (filing jointly), after the mortgage interest tax deduction I think it's like 46% of their after-tax takehome pay. They'd have about $4.8k/mo ($57k/year) left over for whatever. That doesn't seem like so much of a strain as to be inaccessible.
(I used some crappy googled income tax calculators, so it'll be off, but hopefully not by a ton. I only factored in mortgage interest deductions, and I don't understand SALT deductions and didn't factor that in, so they might be able to deduct more and have even more left over?)
(We're also both using the 2018 median household income, which is like $8k more than 2017, so 2019 was probably even more. Who knows how that relates to today's chaos)
Your numbers are way off - dangerously so. First, nobody is getting a sub-3% fixed 30 year mortgage right now - so your minimum for principal+interest on your 800k loan is already $3656 (assuming you can get 3% - every half% is going to cost you roughly another $350 per month)
Next, your estimate for property taxes is similarly low. I don’t live in CA but where I live taxes are roughly 1% of the assessed value. Let’s say the county assesses your 1m home for 900k - and not to mention the assessment will probably increase over time - so you’re looking at about $750/mo there.
You totally forgot about homeowners insurance - required for that loan plus it’s included in the front end dti ratio. That will set you back another ~$150 per month.
That adds up to a total of $4556, almost 14% higher than your estimate and representing one trip to Disney world’s worth of extra spending over the year.
Often overlooked is the savings you should make for maintenance, repairs, and improvements. Only after buying and selling a few houses do I finally appreciate exactly how expensive they are and how “only” a $100 per month difference adds up - quickly.
Looking at three different calculators from googling "mortgage calculator," I get an $800k loan at 3.25% (higher than the rate I pay on mine in SF, but I paid the rate way down) coming to $3,482/mo for principal and interest.
For property tax, i found this california property tax calculator [0], which says it's $6,490/year ($541/month) for a home assessed at $1M in SF. That brings us to $4023/mo.
You're right I totally forgot about insurance. Oops. Sure let's use $150/mo, but IIRC that's more than I pay on mine. Maybe because I'm in a big building and the HOA has insurance for parts that I'd need to insure if it were a single family home? But I didn't factor in HOA, so $150's fair, even cheap.
$3482+$541+$150 = $4173/mo.
I still think this median household is going to have something like $4-5k/mo left over after principal, interest, property tax, insurance, and income tax. That's the most important number to get right in terms of how accessible this is. It tells us how much to they have to squeeze on everything else to make it work.
... also "$4556... representing one trip to Disney world’s worth of extra spending over the year." Holy shit really? I never would have guessed disney world is that expensive. Daaaaamn. Guess I'm never going there :(
(on second thought, I think you're right about the property tax estimate being low. I pay more than the online calculator said and my place is assessed below $1M. Maybe it's all the other stuff tacked on in SF? Add maybe ~$200/mo to my above estimate, we're still talking about something like $4k/mo left over)
That site is completely wrong about property taxes in California. The property tax is 1% plus a county and city level supplemental. For example, my property tax in Oakland is 1.3688%.
I have no idea how that SmartAsset got that rate. Literally it makes no sense and is comically wrong.
My apologies on the mortgage calculation- you’re right on that.
I didn’t include HOA - depends on the community, some are as low as $100/mo, others are north of $400 but often those include amenities such as lawn mowing or internet/tv or golf/social club memberships
Disney is expensive - especially if you’re taking kids (kind of the whole point isn’t it?). The costs really do skyrocket once you add little people, which I never understood until I was knee deep in it :)
Doesn't matter - if you can afford to make payments on a 1 million house for several years, you are wealthy, simply because you can sell it, take $400,000, and go buy a huge house in the midwest cash.
Being able to pay for a $1,000,000 house and put 200k down makes you well off.
> 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.
they end up in possession of an asset worth $1MM. ill-liquid sure but still a durable asset. you can borrow against that asset, it appreciates proportionally, you can eventually sell it, etc. what's the difference between it and $1MM and equities holding? i don't understand how you think being in possession of something like doesn't cross the threshold for wealth simply because other people in the neighborhood are also wealthy?
With mortgages people are generally paying a ton of interest up front, and it takes a long time to build up equity. People are limited by the equity in how much they can borrow against the loan, and for a very long time the bank has a million dollar asset, not the borrower.
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.
Not just the last few years. Bay area mortgages have been jumbos for decades. When I bought my first house in San Jose for $325K in 1994, the conforming loan limit was $200K.
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 there were problems, and that this was somewhat normal for them with self-employed folks, but wasn't anything related to c19 (which... I suspect some changes may occur to underwriting and loan processes in the aftermath of c19). They indicated this was just something that happens to 'a moderate portion of self-employed borrowers post-closing'.
I'm not sure what they could actually do to you if they found your income had gone down or away post-closing. I was going to ask in our next call, but ... we're probably putting that whole project on the shelf for now.
In certain commercial mortgages, you have to maintain a certain debt service coverage ratio (DSCR), which is operating income divided by debt service.
If not maintained above a certain ratio, the lender has the right to come and take over your bank accounts and you have to submit to them to get reimbursed for expenses.
Self employed and re-if’d 6 months ago. The 4 brokers I worked with all said they never checked again after closing. So maybe that has changed, but I doubt it)
(Also, unless you have your savings with the mortgage lender, I don’t think the bank can legally check your balances without a some sort of soft credit pull)
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.
>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 to a loss of income, compared with 6% of all loans, according to Black Knight Inc.
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 our POTUS for an obvious example.
So they may be more likely to default by choice because it won't ruin their lives and increase the relative risk of lending to them.
> 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 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.
Distortion is a value judgement based on some probably arbitrary idea of baseline fairness. Is there anything substantive you could say about why this is distortion - i.e. is a bad thing?
No. What’s happening is that poorer, less creditworthy people are getting better rates and more likely to be approved than more creditworthy and wealthier people. That is a distortion.
That's based on arbitrary anchoring. If you disconnect anyone from resources to back up their borrowing, they are less creditworthy. There's no absolute objective arbiter of what sources of credit are legitimate and what aren't.
No, people express values by insisting that definitions include their values implicitly. That's because they think it's a clever trick to force other people to accept their values, but I think it's overrated. You know how in 1984, they controlled thought through language? I always thought that was dumb. But everyone certainly tries.
But the lender dismissed the borrower (in the story) as "you're trying to use logic", which is at least as big a confusion (and inability reflect on the root of the disconnect).
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.’”
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 their hands of it if it goes tits up.
Conventional, FHA, and VA loans are owned by the government.
This came about after 2009 financial crisis, once regulators realized the banks were playing fast and loose with mortgage lending. Unlike TARP, they inherited that debt and have held onto ever since.
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 transferred to Fannie Mae. They would continue to do the servicing of taking payments, collections, and closing for the next 30 years, hopefully. But SOP is close on the loan and send it to FannieMae.
The old days when you would closed the loan the bank would immediately package it and shop it around. Prior to the financial crisis your loan would constantly be moving around as if it was being traded on Wall Street, which it was. People were sending checks to banks that didn't even hold the loan.
> 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 the case? Is it, in general, more favorable to sell off mortgage liabilities or where there conditions that made that true?
Your "servicing" and "note" on a mortgage are two different things. The servicing right is who gets to interact with you and charge you money, but the owner of the note actually gets the money in the end (minus servicing costs). Those can be transferred independently, so you may keep sending checks to one place, but the actual owner may change over time.
One reason to sell a mortgage is to get the money back. Instead of making money slowly over 30 years, you get some fraction of that as a lump sum plus your principal is returned. Some investors want the steady payout for more, others want fast turnover for less.
I'm not familiar with what changes occurred during the financial crisis. Fannie Mae and Freddie Mac always enjoyed an implicit guarantee that their balance sheets were secured by the federal government. It was a big inside joke forever.
TIL, after some deep diving, it appears to me that the government plays a pretty significant role in US housing, not isolated to affordable low-income housing.
>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.
I'm not sure what the relationship is, because all government loans are secured by the federal government. In this case there is a lot more oversight. And the government has put more restrictions on how loans are packaged. Investors and lenders were playing a lot of games in the early 00s, taking advantage of securitization with almost no oversight.
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.
Well under that definition Socialism has never existed because there has never been a state run by the proletariat, although sometimes people masquerade under the banner of the proletariat to increase their own personal power, i.e. Stalin, Hitler, Mao, etc.
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.
It's not semantics. Capitalism doesn't mean an 'unregulated hellscape', capitalism requires a state to exist in order to defend the right to hold private property. In capitalist countries, the legal system functions mainly as a way to defend the rights of corporations, with occasional compromises to prevent an uprising (e.g., $1200 checks during the covid pandemic).
If police didn't exist, corporations would have to hire private security to defend their property - and in fact, this is what they did during the 1800's.
For an example of what an "unregulated hellscape" looks like, take a look at the world of cryptocurrency and how common it is for people to get all of their property stolen.
>Capitalism doesn't mean an 'unregulated hellscape', capitalism requires a state to exist in order to defend the right to hold private property
Oh look everyone its another armchair economist who insists his conveniently specific definition of capitalism(You know the one that must be the case so his beliefs are not a self-inconsistent train wreck) is the absolute definition handed down to us by the word pope and sourced from a magic dictionary stored under his papal throne. The first time in the history of the internet.
According to my alternative word pope if every bit of ownership isn't private and it isn't devoid of regulation it can't be considered capitalism. See how easy it is to make up a definition then argue from it like its gospel.
Alternatively you could accept the much more reasonable circumstance that economies are messy things. Although some stress one economic principle more than another none can be purist in nature.
I normally frown on people who whine about paywalls. Publishers have to make a living, and you are not entitled to access their content for free. But I gotta say, that is a devilishly clever hack.
bloomberg's media business is a giant content marketing play for the terminals themselves (that's why so many of the stories have deep links or whatever to their software)
This https://pastebin.com/UiyghKpq userscript should fix it. I found it few years ago somewhere on reddit. It works on multiple media sites that don't like private mode.
And "Bypass Paywalls" firefox addon removes the need to insert the dot into address.
> 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?
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.
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.
Nope this isn’t a good phenomenon. Once again this is a result of Fed intervention. The Fed is buying mortgage backed securities as part of the stimulus package that exclude jumbo loans, so banks are being effectively saved from bad conventional loans on their books because they can sell it to the government but can’t sell jumbo loans that are usually taken by more credit worthy and wealthier borrowers.
This is creating a distortion in the mortgage market that isn’t rational.
Typical non rigorous find a few examples and write a story article. Not saying not true either just that getting a few people to say something is not a trend or show what is happening in most places (possibly).
That said we just did a refi which closed today. (My own single data point anecdote).
It does make sense that the risk is greater for the mortgage companies now than in typical times in the sense that traditional borrowers who were secure and non risky in a regular economy could potentially be out of work and have a greater chance of default with the security not being worth that much.
But in a well working market, why wouldn't bank X provide a lower rate than bank Y if the loan is less risk and very profitable? And then bank Z sees a potential profit and undercuts bank X. Repeat until you get a rate that reflects the risk?
So the real question is: What is wrong in the high-end US mortgage market? Are banks breaking anti-trust laws and setting price floors?
Because they aren't really low risk. There's two different kinds of risk being referenced here.
Risk 1: High chance of default. This is the risk you take by lending to borrowers with poor credit.
Risk 2: Low chance of default, but when defaults happen you take a big hit. These are jumbo loans.
Banks recognize that Risk 2 has inherent costs that require a higher interest rate. My previous wording of "More profit with less risk" was false. More profit with less Risk 1, but that's because you're taking on Risk 2.
I think the reason they aren’t doing loans is because there has been a >20% decrease in real estate value given the slow down in travel and even commuting to work. it’s clear from reit prices. it’s just that the residential market is very high friction and illiquid that we don’t see the price change on Zillow yet.
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[ 3.9 ms ] story [ 211 ms ] threadAlways 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.
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 article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it?
No. But then again, being a businessman isn't seen as unqualified virtue in many places in the world. You'll also note that "selling things to the people who need it most for the lowest price" is literally the justification given for why free and competitive markets are good. It's the goal societies want to achieve. In this, competitive pressure is a hack to force the businesses to reduce prices.
If you think "price that minimizes default" and "lowest economic price" are equivalent, you need to brush up on your Econ 101.
I think a business that sells something for a small markup but makes it up in volume does something like this. So I guess the answer would be - yes - probably most businesses actually do this.
Define a "small markup".
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.
Your social concerns are completely detached from reality if you're shedding tears over people with jumbo loans that are unable to refinance their million dollar mortgages from 4% to 2%. It's theatre.
I appreciate your white-collar, anti-capitalist rant, though. Unfortunately, when SHTF, the truly down trodden might even consider people like this part of the problem. I don't think they'll buy the idea that "we're all on the same team!".
>It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives.
You're right, we should put our non-elite, galaxy brain politicians, the Trumps and Pelosis and Bidens and Bush's of the world, in charge of controlling the money supply.
Yes
> This article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it?
I wasn't responding to the article.
What are his options now? He can go to a Bank B that accepts more risky borrowers with a still acceptable but slightly higher interest rate of 5%. What happens is that all the reliable lenders go to Bank A because they get a great deal there and have no trouble getting a loan. They don't even bother with Bank B. Since Bank B fails to attract reliable lenders the only borrowers at Bank B are those who couldn't get a loan at Bank A. Bank B now has two choices. Either keep the risk profile or tighten it and only allow reliable lenders. If they keep it then they will notice a much higher than usual default rate. Bank B is losing money from all the defaulting loans and that money has to come from the borrowers of Bank B that didn't default.
Now imagine that there is a Bank C. What if it's risk profile is so lenient that it accepts anyone with no questions asked. Literally everyone who comes to you is defaulting. You're throwing money into a black hole with no chance of getting it back. You have to crank up the interest rate to absurd levels to cover the defaults.
You know what the problem is? It's not that Bank C is evil and exploiting the poor. Those people should have never gotten a loan at all. The act of giving them a loan is exploitation itself, not the interest rate or whatever conditions that Bank C needs to stay in business. It's as simple as that. Those individuals do not need a loan, they need support from the government in a way that doesn't require the money to be paid back. e.g. free housing, unemployment benefits or even straight up UBI.
Don't criticize Banks for not lending to those who need it most. For some reason people don't understand that Banks are businesses that have to at least cover their costs. They think a Bank is a charity that should take on responsibilities that really only belong to the government.
Your final paragraph is exactly what my earlier comment rejects. The general public has every right to criticise banks for acting in the banks' private interest. Banks are not charities, it is true. But they are groups of moral agents acting in a community, and the community has every right to hold the moral agents to whatever standards the community wishes to.
The bank has the legal right to pursue its own private interests, so long as it acts legally, and has the legal right to not act as a charity. But that is not an argument against the view that the bank should act in conformance with community expectations, and if necessary the law should be changed to ensure that they do.
The fact that banks make ridiculous profits - they're not just covering costs - is also relevant. If your business is making billion dollar profits, you're vulnerable to the claim that you should give greater weight to public opinion, and the notion that you're only acting to cover costs is a red herring.
Everyone hates them as well.
Everyone hates student loans and they fill a different gap.
Basically, people hate people who lend money.
That's because they offer a very dangerous financial tool, and at the same time they work hard to put this tool in hands of people who can't handle it safely. In this way, they make money off destroying people.
> Everyone hates student loans and they fill a different gap.
The problem with student loans is on the higher level in the system; their existence causes runaway cost increase of higher education.
If the loan is meant to pay for tuition then perhaps that's true. My loan was something like £1600/yr which covered about 5 months of rent, but the government paid for my tuition.
In the UK there are credit card companies that specialise in borrowers with poor credit. They offer cards with a rate of up to 100% and a contract which gives them first call on any assets, including the borrower's house.
Is it hard to understand that this is entirely conscious and predatory? They could lend at lower rates and minimise the risk of default, but they make more money by pushing high-risk borrowers into default and selling off their property.
It's a similar story with bank loans for small businesses. Banks will often call in a loan and bankrupt a small company at the first sign of any trouble, including a wider recession that the company may be perfectly able to handle.
There's a huge gap between prudent and sensible lending and aggressively destructive profiteering, and banks are often on the wrong side of that line.
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 underlying view is that financial system is a bunch of bits used for accounting designed to keep businesses productive, people working, and the economy running, much as you might have in a video game. You make and destroy money as needed to support what needs to happen to make that work, much as a game developer might engineering money sources and sinks into an MMORPG. It's just bits on a computer.
Historical practice and the structure of banks is set around #2. This is a really sound theory if your currency is either backed by gold, or even is fiat currency, but running on the same principles.
Defaults aren't a problem with #1, unless they encourage bad behavior. If a bunch of poor people buy homes, and later default on mortgages, it's really not a big deal; bits on a computer appear and disappear. If 50% of those people come out owning homes, you're still ahead if 100% were still renting. But in #2, it's a financial crisis. Conversely, if a bunch of poor people can't buy homes and have to rent, it's a crisis in #1. It's not a problem in #2.
I'm not sure the mixture model works well -- indeed, I think that's the source of our problems. I think if we killed the banking sector, and folded all of this into the fed, it'd work great (that's what China does). I think if we had the gold standard again, that'd work pretty well too. But when you mix the two, things get a bit ugly.
It's good to have banks of different sizes serving different niches, as long as they assess risk prudently and price rationally. What you don't want is politicians micromanaging in domains in which they have no expertise, especially when they are driven by short-term, personal political objectives.
The problem comes when you force a business that really wants to align to the profit incentive (banks) to provide social subsidy by effectively charging their profit-generating customer base a premium. 1. They're incentivized to do the bare minimum necessary. 2. They're incentivized to stick to the letter and not the spirit of the law. 3. The transfer of wealth from paying to subsidized customers is opaque and nobody can do proper accounting.
This is a major source of corruption and inefficiency. It's the sort of problem that's all over the place whenever the private sector is forced into providing this sort of opaque cross-subsidy.
If I were to re-do this from scratch I'd privatize all the banks and let them do just the profit-making part, and have social programs solely as a function of the government, with a set yearly budget.
We could do better than the Fed in 2020. Tech makes transparency easier.
If you keep strict controls on the amount of fiat currency issued, and lend for reasons other than earning a good interest for financing risk, then you end up with a shortage of capital to lend. Then loans are issued for criteria that aren't publicized - in polite terms, politically motivated lending. Society stagnates as the engine of progress itself turns into a zero-sum game.
There is a better way to ensure the delivery of socially-beneficial goods - to deliver them directly, taking care that public options provide only minimally sufficient goods and services, and only in response to the failure of the private market to provide alternatives.
* Very few people want to lose their homes or to go bankrupt.
* Investors try to act optimally from a game-theoretic point of view. This usually means maximizing their own income (which isn't always the same as maximizing returns on the many they manage).
* People aren't always rational.
Let's look at the two systems for how we handle bankruptcies and defaults:
1) Money is bits / a game: We attempt to structure penalties to minimize structural damage to the system, while slapping you hard enough on the wrist to make defaults an undesirable outcome.
2) Money is real: We attempt to extract enough money out of you to balance interest. If we have harder penalties, with rational investors, interest rates go down, so keeping high penalties promotes a strong economy.
And for how we decide to loan:
1) Money is bits / a game: I loan you if the loan is perceived to benefit society. E.g. if you are engaged in an activity with a lot of positive externalities (e.g. going to school, buying a home for your family, or making a new startup), I will give loans with lower interest. I discourage bad debt (e.g. credit card debt, or mortgages I know will fail.
2) Money is real: I expect returns. This might be due to good debt (e.g. business investment) or bad debt (e.g. you're buying a home you can't afford, but interest + sales price when you default results in net income for me when / if you do default, payday loans, etc.).
Both of these systems are rational. Both, in practice, have politics we need to manage. The problem happens when e.g. monetary policy sets interest rates, in conflict with what the market wants. The risk is astronomical right now, and system #2 says don't loan, which is where the private sector wants to go. But without cheap credit, the economy goes down, which is where the fed steps in. And, of course, private investors can try to arbitrage the two forces.
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.
When I ran a service business & wanted to borrow money for growth, even though I was profitable, there was no risk formula I fit into that would allow the bank to determine the likelihood my business would pay them back, so they wouldn't lend to me (unless I used personal assets as collateral).
Sure we can talk about it and feel sorry for their inconvenience, but our time is better spent looking into much bigger problems of much bigger percentage of our population.
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'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.
I'm not from/in the bay and not paying attention to it, so will go with your assumptions here.
Zooming out a bit on the general topic of high COL markets though, it's interesting talking with people around my high COL community who feel like they deserve to live and stay here regardless of the changing economy. Thinking out loud:
Maybe high COL markets are untenable in this economy for a certain percentage of the population?
...if there were no welfare schemes going around wouldn't these high COL areas rebalance faster to some equilibrium in line with broader affordability?
Are the handouts just further propagating an attitude of entitlement while also artificially inflating high COL markets otherwise overdue for a reset?
As for the handouts part of your comment, what do you consider a handout? The stimulus checks? Is QE considered a handout?
Yes - to the extent that surrounding economy can support the general COL. So if/when the surrounding economy can no longer support a relatively high COL (in this example of mortage/rent = housing), why not just let the COL adjust proportionately to the surrounding economy?
So in the event the surrounding economy is strong & growing, the COL is also high and rising (as we've experiences over the past ~10 years). But when the surrounding economy is bad and declining, the COL should lower to match, no?
"As for the handouts part of your comment, what do you consider a handout? The stimulus checks? Is QE considered a handout? "
Yes, among others, these programs and others like it are only artificially propping up high COL areas (housing, for example) that otherwise would experience a correction (down) tied to their respective surrounding economies.
Next stop: universal health care. Then the real gnashing of teeth starts.
My definition of 'rich' would mostly include people who don't need $700k mortgages.
People buying houses for $1 million are wealthy by any standard.
[1] https://fred.stlouisfed.org/series/MSPUS
Just to underscore the point, Palo Alto declares not too long ago that anyone making under $100k a year is considered “low income”.
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.
Similarly, the average American making over $40k a year will not consider themselves the 1%, but to the average citizen of the world they are.
People who own homes in the Bay Area do not have massive disposable income. But they do have wealth.
Now that same family, income and house with a paid off mortgage is in an entirely different situation.
The difference is the wealth they accrued in paying down their mortgage. They claimed value in doing so. But merely having a massive mortgage in the Bay Area does not _inherently_ equate to wealth.
There are definitely subtleties, like how feasible it would be for you to reduce expenses while keeping your income the same. Life.. gets complicated.
"Workers in America don't need better pay or benefits, they're already wealthy by world standards!"
"Workers in China don't need basic safety protections and sane work hours, they're already better off than workers in sub-Saharan Africa!"
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.
https://news.ycombinator.com/item?id=22777745
This is all true - and all of those are possible while still being wealthy. The peculiarities of US culture are different from being wealthy. As another example you don't need to have an obsession with guns to be a wealthy country, but the US does.
It's been said many times before about similar statements, but this is not true or mathematically possible. I believe it's off by about an order of magnitude.
Middle class in the US is something like $45,200 to $135,600 in household income, which is roughly half the population.
Half the population is about 2% of the world population. And every American is not wealthier than everyone outside the US.
If you google something like "global income percentile" you will find a considerable amount of BS claims - the first one I found was on Investopedia. For fun or ideology or whatever, the meme that middle class Americans are in the top 1% is something that people will just go on the internet and lie about.
I didn't spend enough time looking to find really satisfactory sources, but in trying to find something relatively unbiased I ended up with something that suggested the US middle class might very roughly be around the top 10% globally.
Source: https://www.pewresearch.org/global/2015/07/08/a-global-middl...
(Note that in the terms of the linked article, it seems like the global middle class is a tier below the US middle class, so if about 85% of the world is "poor" or "middle class", then the remainder or 10-15% equates to the US "middle")
Nothing bad can come from putting things (yourself?) into a global human perspective. Considering how much chance is involved with where we are born, a middle class person/family in the US is quite wealthy by default.
I wonder how many take pause on any regular basis just to acknowledge and appreciate the relative wealth that they were lucky to be born into?
Median household in SJ earns ~120k. Median for USA is ~$60k.
Even if the SJ resident spend 40% on housing, they come out WAY ahead of the median household spending 25% on housing.
Average cost of a house in America is around $380k, average cost of a house in San Francisco is $1.7M according to Zillow. San Jose is $1.2M. Fremont is $1.1M. The cheapest (and not a great place to live and horrible commute) place in the Bay Area is Vallejo and that's still $450k.
So 3-6x more expensive depending on where you look generally.
- Gas: is still $3 a gallon here while a majority of the nation enjoys close to $1 a gal.
- State taxes: run close to 10% on professional salaries, most other states have 4-5% or no state taxes.
- Housing: This one is the big one, try finding a 3 bedroom house for less than $1M in the san jose/pennisula area, it just isn't possible (I am excluding parts of east san jose where housing is cheaper). A typical house in the US goes for roughly 350k. rent is no better, a 3 bdrm rental in a half decent area runs you 3.5k on up.
- Property taxes: this one is tied to housing, enjoy paying 1.5% a year forever on your $1M+ house, that is 15k+ a year
This is highly regional. We are currently at somewhere around $1.75/gallon.
Twenty miles away, though, has $0.99 / gallon.
Doesn't make sense to me.
Trust me, I hear the same thing in discussions about DC area salaries and COL. Relative to the rest of the nation, software developers here have a high income and high COL, but the income more than makes up for it here too.
There's nothing wrong with that notion, but some will find it odd that, before that transaction happens, a family owning an upscale countryside home is wealthier than a family owning a cramped Bay area home, but after that move happens, the family that moved in from the Bay area is now the wealthier one.
It means that merely having the option to sell your home and buy a countryside manor doesn't make you wealthy until you actually follow through with it.
[1] https://data.census.gov/cedsci/table?q=United%20States&tid=A...
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.
A 40% ratio for the $125,000 household would give you a maximum purchase price of $830,000, which would be a conforming loan in the Bay Area, not a jumbo one.
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.
Buying a house for $1M is firmly middle class status. True lower class people simply cannot afford to live in the Bay at all.
To be in the top 1% in the Bay Area you have to make close $1M per year.
https://www.cnbc.com/2017/06/14/how-much-you-have-to-earn-to...
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.
(I used some crappy googled income tax calculators, so it'll be off, but hopefully not by a ton. I only factored in mortgage interest deductions, and I don't understand SALT deductions and didn't factor that in, so they might be able to deduct more and have even more left over?)
(We're also both using the 2018 median household income, which is like $8k more than 2017, so 2019 was probably even more. Who knows how that relates to today's chaos)
Next, your estimate for property taxes is similarly low. I don’t live in CA but where I live taxes are roughly 1% of the assessed value. Let’s say the county assesses your 1m home for 900k - and not to mention the assessment will probably increase over time - so you’re looking at about $750/mo there.
You totally forgot about homeowners insurance - required for that loan plus it’s included in the front end dti ratio. That will set you back another ~$150 per month.
That adds up to a total of $4556, almost 14% higher than your estimate and representing one trip to Disney world’s worth of extra spending over the year.
Often overlooked is the savings you should make for maintenance, repairs, and improvements. Only after buying and selling a few houses do I finally appreciate exactly how expensive they are and how “only” a $100 per month difference adds up - quickly.
For property tax, i found this california property tax calculator [0], which says it's $6,490/year ($541/month) for a home assessed at $1M in SF. That brings us to $4023/mo.
You're right I totally forgot about insurance. Oops. Sure let's use $150/mo, but IIRC that's more than I pay on mine. Maybe because I'm in a big building and the HOA has insurance for parts that I'd need to insure if it were a single family home? But I didn't factor in HOA, so $150's fair, even cheap.
$3482+$541+$150 = $4173/mo.
I still think this median household is going to have something like $4-5k/mo left over after principal, interest, property tax, insurance, and income tax. That's the most important number to get right in terms of how accessible this is. It tells us how much to they have to squeeze on everything else to make it work.
[1] https://smartasset.com/taxes/california-property-tax-calcula...
... also "$4556... representing one trip to Disney world’s worth of extra spending over the year." Holy shit really? I never would have guessed disney world is that expensive. Daaaaamn. Guess I'm never going there :(
(on second thought, I think you're right about the property tax estimate being low. I pay more than the online calculator said and my place is assessed below $1M. Maybe it's all the other stuff tacked on in SF? Add maybe ~$200/mo to my above estimate, we're still talking about something like $4k/mo left over)
I have no idea how that SmartAsset got that rate. Literally it makes no sense and is comically wrong.
San Fransisco is 1.1801%, so 11,801 on a million dollar house.
I didn’t include HOA - depends on the community, some are as low as $100/mo, others are north of $400 but often those include amenities such as lawn mowing or internet/tv or golf/social club memberships
Disney is expensive - especially if you’re taking kids (kind of the whole point isn’t it?). The costs really do skyrocket once you add little people, which I never understood until I was knee deep in it :)
Is that because all of the people working service jobs can no longer afford to live in the Bay Area which makes $1 million 'not wealthy'?
Those people who make minimum wage of course work there so do we include or exclude them from this pov?
Being able to pay for a $1,000,000 house and put 200k down makes you well off.
they end up in possession of an asset worth $1MM. ill-liquid sure but still a durable asset. you can borrow against that asset, it appreciates proportionally, you can eventually sell it, etc. what's the difference between it and $1MM and equities holding? i don't understand how you think being in possession of something like doesn't cross the threshold for wealth simply because other people in the neighborhood are also wealthy?
They..are?
And not SFH. That must include condos.
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 there were problems, and that this was somewhat normal for them with self-employed folks, but wasn't anything related to c19 (which... I suspect some changes may occur to underwriting and loan processes in the aftermath of c19). They indicated this was just something that happens to 'a moderate portion of self-employed borrowers post-closing'.
I'm not sure what they could actually do to you if they found your income had gone down or away post-closing. I was going to ask in our next call, but ... we're probably putting that whole project on the shelf for now.
If not maintained above a certain ratio, the lender has the right to come and take over your bank accounts and you have to submit to them to get reimbursed for expenses.
Never heard of it in a residential loan though.
(Also, unless you have your savings with the mortgage lender, I don’t think the bank can legally check your balances without a some sort of soft credit pull)
>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 to a loss of income, compared with 6% of all loans, according to Black Knight Inc.
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 our POTUS for an obvious example.
So they may be more likely to default by choice because it won't ruin their lives and increase the relative risk of lending to them.
In the case of conforming mortgages the banks aren’t lending at all. They are filing out paperwork and skimming off the top.
It’s creating a distortion in the mortgage market.
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 claim to me. Capitalism is a harsh mistress Mr.1%. Don't like it move to Denmark.
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)
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.’”
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 confused what type of mortgages does this apply to? Is a conventional 20% down mortgages owned by the government somehow?
This came about after 2009 financial crisis, once regulators realized the banks were playing fast and loose with mortgage lending. Unlike TARP, they inherited that debt and have held onto ever since.
My impression was:
- conventional is within risk margins of banks and they own that risk
- fha requires pmi, that is insurance you buy to cover the extra bank risk
- va, mortgages to veterans that the government own
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. They would continue to do the servicing of taking payments, collections, and closing for the next 30 years, hopefully. But SOP is close on the loan and send it to FannieMae.
The old days when you would closed the loan the bank would immediately package it and shop it around. Prior to the financial crisis your loan would constantly be moving around as if it was being traded on Wall Street, which it was. People were sending checks to banks that didn't even hold the loan.
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 the case? Is it, in general, more favorable to sell off mortgage liabilities or where there conditions that made that true?
There never was a return to the markets as pre-2008, meaning there never was a recovery.
One reason to sell a mortgage is to get the money back. Instead of making money slowly over 30 years, you get some fraction of that as a lump sum plus your principal is returned. Some investors want the steady payout for more, others want fast turnover for less.
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.
Oh my bad. So riddle me this. Does the government secure mortages it owns?
For an example of what an "unregulated hellscape" looks like, take a look at the world of cryptocurrency and how common it is for people to get all of their property stolen.
Oh look everyone its another armchair economist who insists his conveniently specific definition of capitalism(You know the one that must be the case so his beliefs are not a self-inconsistent train wreck) is the absolute definition handed down to us by the word pope and sourced from a magic dictionary stored under his papal throne. The first time in the history of the internet.
According to my alternative word pope if every bit of ownership isn't private and it isn't devoid of regulation it can't be considered capitalism. See how easy it is to make up a definition then argue from it like its gospel.
Alternatively you could accept the much more reasonable circumstance that economies are messy things. Although some stress one economic principle more than another none can be purist in nature.
Cross-Origin Request Blocked: The Same Origin Policy disallows reading the remote resource at https://www.bloomberg.com/markets/modules/datastrip.json?ver.... (Reason: CORS header ‘Access-Control-Allow-Origin’ missing).
I'm using Firefox FWIW.
And "Bypass Paywalls" firefox addon removes the need to insert the dot into address.
:)
Even though? Implying loans that default are normally the most profitable? Am I misreading this?
Bankrate, Rocket Mortgage all claim to have the lowest rates but there’s direct smaller lenders that definitely have them beat.
When I bought my first house, it was a 90% LTV loan that was .1% higher, but didn’t require escrow or PMI.
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.
I ended up using Better for my last refinance FWIW.
This is creating a distortion in the mortgage market that isn’t rational.
That said we just did a refi which closed today. (My own single data point anecdote).
It does make sense that the risk is greater for the mortgage companies now than in typical times in the sense that traditional borrowers who were secure and non risky in a regular economy could potentially be out of work and have a greater chance of default with the security not being worth that much.
So the real question is: What is wrong in the high-end US mortgage market? Are banks breaking anti-trust laws and setting price floors?
Risk 1: High chance of default. This is the risk you take by lending to borrowers with poor credit.
Risk 2: Low chance of default, but when defaults happen you take a big hit. These are jumbo loans.
Banks recognize that Risk 2 has inherent costs that require a higher interest rate. My previous wording of "More profit with less risk" was false. More profit with less Risk 1, but that's because you're taking on Risk 2.