[chubbyFIREthrwy]

This tweet (from the reply thread) has the answer[1]:

>[Mortgages are easy to get in the US] Only if you're employed. Most mortgage lenders here are middlemen who sell your mortgage to Fannie and Freddie, and they have pretty strict guidelines on what they'll buy.

That is, most lenders don't actually use their own judgment about what counts as high risk or what is an appropriate interest rate to charge, but are simply planning to resell to Fannie/Freddie, and thus copy-paste their standards.

This ... was a shock to me. I had always assumed "banks are happy to lend to anyone who doesn't need the money". Then I retired on crypto gains and tried to get a mortgage (mid-late 2020), where I saw the very same disconnect -- even with liquid assets more than twice enough to buy the place outright, it didn't matter. Nor did arbitrarily increasing the down payment. Anything above 50% down didn't affect the rate, and even then I'd pay above 5% interest, when conventionals were getting under 3%.

To show you how absurd it is, the FatFIRE[3] people advocate getting around this by setting up a trust that pays your own assets right back to you.[2] Apparently, if the trust would live for 3 years, and you've already taken two months of this "income", Fannie considers that just as good as a super-reliable W2 income, and will treat it as conventional. Then, you dissolve it after buying and invest the money like you would have before.

I ended up just paying cash for the place, which has its own advantages: you can beat out tenuously-financed offers with a lower bid, and you avoid some of the closing costs and mortgage expenses. It still would have been nice to lock in 30 years of 2.8% interest to apparently-clueless banks.

Final note: This guy should be able to get a loan, since, even with the income fluctuations, it's consistently high, but yeah, it wouldn't be conventional with the absurdly low 30-year-fixed rates.

[1] https://twitter.com/AzazelAyers/status/1513784320225206272

[2] https://www.reddit.com/r/fatFIRE/comments/ojs18l/obtaining_a...

[3] FIRE = financially independent and retired early

(Throwaway because of personal details.)

[refurb]

Not really surprising, since as you put it, most mortgages are cookie cutting products that have a long checklist of qualifications. They are designed for W2 income earners and if you step off that well-worn path, they can't help you.

Others can help you, but you won't be able to access the typical residential mortgage market.

[chubbyFIREthrwy]

>Not really surprising,

Depends on what your model is. If your model is, "banks want easy money, and will lend to low-credit risk people" then it is surprising, because the same risk should get the same rate. Finding out that the market is dominated by an entity with artificial constraints on its lending standards, and which doesn't care about long-term interest rate risk, is then a surprise.

>Others can help you,

Not really. The other alternatives get a loan, but not at the Fannie-subsidized sub-3% rate.

[rsynnott]

> If your model is, "banks want easy money, and will lend to low-credit risk people" then it is surprising, because the same risk should get the same rate.

Well, yes, banks _do_ want easy money. And lending to someone with 10 years consistent employment history is much easier than lending to someone with a complex self-employment situation; the former is likely largely a case of looking up risk tables, whereas the latter likely involves significant work by a human specialist.

Like, maybe the person in the tweet _does_ have the same risk as, say, the average person earning the same average income, but there's no way for the bank, or the tweet reader, to know that without substantial work.

Even in countries which doesn't have a Fannie Mae equivalent, self-employed mortgage lending is generally treated specially.

They should be going to a specialised lender.

[chubbyFIREthrwy]

>And lending to someone with 10 years consistent employment history is much easier than lending to someone with a complex self-employment situation;

But that doesn't explain my situation, where the 30 years of mortgage payments are already there, with no need to validate income history.[1] And before you argue, "but you could go to Vegas and bet it all on black", a) that wouldn't explain why Fannie suddenly becomes okay with it if you set up that artificial trust, and b) the conventional mortgagee has at least the same risks to being able to keep up that income.

>Like, maybe the person in the tweet _does_ have the same risk as, say, the average person earning the same average income, but there's no way for the bank, or the tweet reader, to know that without substantial work.

I addressed that -- even if he increased the down payment to get risk parity, he would still pay a huge interest rate premium over conventional.

>Even in countries which doesn't have a Fannie Mae equivalent, self-employed mortgage lending is generally treated specially.

Other countries don't have a Fannie equivalent, in the sense of "lender that makes artificially-low-interest, 30-year-fixed mortgage loans". In those countries, I (or the tweet author) would establish that my loan has risk parity with the lowest-risk mortgages and would get the lowest rates. But in the US, even if this guy worked with a bank, who validated that he was such a low risk, they wouldn't be able to sell it to Fannie, and he'd have that huge (or variable) risk premium.

>They should be going to a specialised lender.

On that point, agreed, but it wouldn't change the core insight about Fannie being a "stupid" lender that can get people artificially good terms for stupid reasons.

[1] And, in case it matters, Fannie only looks at about 2 years of history, from whence they conclude that you'll definitely earn that much more for 30 years.

[refurb]

I think the key is that banks generally dont hold mortgages on their books (there are exceptions for some customers).

As such they need a buyer for those mortgages and the buyer wants mortgages that conform to a standard so they can be packaged into bonds and sold off.

Despite you being a good credit risk, you're just not the "right" customer for them. In your words, you're not "easy money" for them because easy money is originating the loan then selling it off to make it someone else's job.

[bluedino]

> Then I retired on crypto gains and tried to get a mortgage

Just get a job for 6 months and then get the loan. After you close, put your 2 weeks in.

[chubbyFIREthrwy]

That wouldn't work in my scenario since I had already quit and the gap in W2 makes you suddenly high-risk. But yes, the fatFIRE people recommend getting the mortgage before you retire, which is what I should have done.

I agree with claytongulick's point too, I'd feel bad about applying anywhere with this intent.

[pyb]

He's just explained how to achieve the same result without having to get a job.

[claytongulick]

You're ok with knowingly doing this to an employer?

Do you understand the cost to them for something like this?

[TuringNYC]

Well, for these types of situations, there are other lending facilities. You can borrow against assets if you have lots of liquid assets (e.g., stock that you cannot sell due to cap gains).

This is very common for stock-rich-income-poor workers who have long term stock comp. Of course, doing that encumbers the stock/asset rather than the house, which isnt exactly the same, but you still get the money to buy a home.

[chubbyFIREthrwy]

I considered those, but they have variable rates (which are likely to be much higher than 2.x% over the 30 year term) and risk being margin-called during a crash.

[Dylan16807]

And what kind of interest rate do you get?

[jleahy]

1.33% using interactive brokers, that’s variable but you could swap it to a fixed rate by using eurodollar futures.

[refurb]

I've heard of people using their line of credit based on equity holdings and the interest rate can be pretty close to prime, but obviously isn't fixed.