[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.