[nsfyn55]

Wealthy Borrower: "Why can't I refi lower?"

Lender: "No, because your loan isn't secured by the government"

Wealthy Borrower: "I am just using logic here, you're telling me a riskier borrower with lower credit than me can refi?"

Lender: "If their loan is secured by the government, yes"

Wealthy Borrower: "I don't understand"

Lender: "Well at least we agree on something"

Are you really using logic? Seems like a dubious claim to me. Capitalism is a harsh mistress Mr.1%. Don't like it move to Denmark.

[yardie]

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.

[fatnoah]

>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.

[oldsklgdfth]

> your mortgage isn't secured by the government. It's actually owned by the government, Fannie Mae.

I'm confused what type of mortgages does this apply to? Is a conventional 20% down mortgages owned by the government somehow?

[yardie]

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.

[oldsklgdfth]

This is total news to me. So is the US housing industry owned by the US government?

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

[yardie]

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.

[oldsklgdfth]

> 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?

[nsfyn55]

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.

[oldsklgdfth]

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.

[naveen99]

Fannie Mae repackages some of the mortgages and sells them back On the market also as credit risk transfers. https://www.fanniemae.com/portal/funding-the-market/credit-r...

[nsfyn55]

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

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

[yardie]

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.

[jericho_jones]

But government backing is risk mitigation...

[SilasX]

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).

[nsfyn55]

The borrower is sort of using logic, but because of his extreme level of entitlement he fails to understand his premises are flawed.

Low rates are a function of your total risk not your perceived status as a responsible borrower.

The lender is using logic(the refi equation was almost certainly devised and reviewed by a qualified actuary)

[SilasX]

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.’”

[nsfyn55]

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

[nabnob]

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.

[nsfyn55]

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.

[nabnob]

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.

[nsfyn55]

>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.

[hpoe]

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.