Fixed rates require a lot of claptrack ...
If you're still there, we're taking a look at the latest mortgage "innovations" proposed by our "new/new" lending 'mavins" (have you looked up Luddites yet?) at the CU.
Asked a couple of questions along the way. You've indicated that you didn't know the U.S. was the only country still using the 30-year fixed mortgage, thought the American Dream of home ownership was a good idea and that tax payers guaranteeing mortgages for private companies (Fannie, Freddie, etc) couldn't be true. (It is!)
We talked about how these government "sponsored" enterprises (GSE's) were created out of the financial turmoil of the Great Depression [link], but then refused to die when the crisis had passed. They zombied!
The final "nail in the coffin" of fixed rate mortgages was the 1980 deregulation of savings rates. Prior to that time, believe or not, financial institutions were restricted by the federal government as to the savings rates they could pay.
Rates didn't change much and CD's and MMSAs didn't exist. With the advent of deregulation, market savings rates began fluctuating (and still do!) wildly and rose as high as 21%! 30-year fixed rate mortgages no longer made sense; the Savings and Loan institutions which held mostly fixed rate mortgage loans collapsed.
But as we know, zombies never die, so even more elaborate "work-arounds" (derivatives, hedging, securitization - you really don't want to go down these rabbit holes!) were created to try and preserve the 30-year fixed rate mortgage dinosaur. These innovations in finance - we were assured - made fixed rate mortgage lending a safe and sound investment.
That fairy tale was hyped and sold to the public and taxpayers, because billions of dollars and careers were at stake - still are! The bubble burst in 2008 and reality came home to roost - the mortgage market collapsed, Fannie and Freddie went broke, you and I as taxpayers picked up the trillion dollar tab.
Don't believe all that? Try looking up the 2008 financial panic [link] or just watch the movie "The Big Short" [link]! And the "new/new" now wants to reinvent and repeat this mortgage mistake at SECU?
Tomorrow we'll get off the history lessons and I'll show you why an ARM is better for you as a home buyer, for SECU savings members, and for the North Carolina economy.
😎 Enjoy "The Big Short"!
penny wise and pound foolish rings true...
ReplyDeleteYour issue has always been that you speak in absolutes, when that is not how the world or life works. Having options can certainly increase the financial well being of an individual.
ReplyDeleteHow is the collection department going to monitor branch collection efforts when you have completely failed at the job? It’s okay to come back but do not tell us how to complete the task when you couldn’t yourself.
ReplyDeleteSo SECU originating GSE-backed loans like the rest of industry is reinventing and repeating what caused the Great Recession? Happy to be guilty of being industry standard. We are reinventing nothing
ReplyDelete4:02pm Can't disagree with you on any of that "Reinventing nothing" - Check!. "Industry standard" - Check! "Repeating the mistake" - Check! "Happy to be guilty". - Check! ... guess we've all kinda noticed that too over the last few years!
ReplyDeleteFascinating how you criticize a strategy and product that would have prevented the big mess our mortgage portfolio and some of our members are in right now. Do the right thing. Is that what you call it? Have a heart.
Delete4:28pm If you've got a mess as you now claim ARMs didn't cause it. Weak "by-the-numbers" underwriting policies, centralized collections, and a high dose of LA arrogance are the prime suspects. Said you were "Happy to be guilty"... well be happy!
Delete
ReplyDeleteOn this topic, apparently selling to fannie and retaining servicing is akin to selling our member mortgages to China, and if we do more fixed rate loans we're repeating what caused the great recession. So illogical and flat out wrong it's funny. SMH.
5:05pm Sure wish you did your homework instead of just "shooting from the lip"! Having the ownership of an SECU member mortgage end up in China might be okay with you, but what if there was a better way - keeping it in North Carolina; would you object to that?
ReplyDeleteFinancial Times 7/2008 - "In a neat breakdown of the figures, the NYT reports that about one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies – some $1,500 bn worth – were held by foreign investors at the end of March. In effect, “one out of 10 American mortgages is… in the hands of institutions and governments outside the US”, the paper adds."
"Asian institutions and investors hold some $800bn in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376bn and Japan $228bn."
Here's where you can do your homework... there are many others if you need assistance: https://www.ft.com/content/88606ae0-2058-39cb-806a-4b5c88647ccd
5:30. Of course I don't object to selling loans on a servicing retained basis... was simply pointing our how absurd your suggestion or inference that we would sell mortgages to China was.
DeleteAnother false analogy.. of course other countries buy the MBS securities backed by mortgages. Just like they buy treasuries to fund the US operating expenses and defecit.
If a security backed by a secu mortgage sold to fannie / freddie on a servicing retained basis, the member is not impacted and wouldn't even know the difference. And, by the way, when we sell mortgages, we get gain on sale that goes straight into the SECU income statement and doesn't leave the state.
5:39pm Again thanks for the confirmation that many Fannie, Freddie backed mortgages from SECU will end up in China. At least we agree on that!
DeleteThat you're okay with exporting SECU member mortgages to China is your preference, so be it.
But why not answer the question asked? Would you drop your preference of selling to China, if there was a better way?
The better way being keeping those mortgages in the hands of North Carolinians?
6:17... I am not confirming SECU mortgages would end up in china. as always, you put words in someone else's mouth if it fits your narrative. Exporting loans to china is simply a ridiculous statement and premise.
DeleteDo you understand the basic concept of what selling loans on a servicing-retained basis means?
We’ll tune in tomorrow to hear how you think how giving members high risk ARM loans in a record low rate environment is good for members and the cu. Please remember you need to compare correctly to this model we’re supposedly reinventing - 1) originate and sell 30 year conforming and jumbo mortgages, and have a ration mix of fixed, hybrid and ARM 2) sell on a flow basis the 30 year conforming 3) hold the fixed jumbo and hedge against it
ReplyDelete5:40pm Uh oh, looks like I'm trapped... have to "put up or shut up"!
ReplyDeleteWish that same requirement applied to some anonymice commenters... just sayin'!
But at least you've outlined and fully admitted that your "new/new" strategy ain't nothing new... just "industry standard".. the 1930/2008 models rezombied... the SOS?
Particularly like your admission that 30-year fixed rate mortgages are so risky that you'ii need to "hedge" them. As we noted, hedging, derivatives, securitization are rabbit holes beyond the patience of the readers of this blog.
But glad you've got them down pat! Not convinced members should have faith in you - if you can't fathom how to collect a mortgage, how can we trust you to hedge it? Seems the risk might be you.
Here's an article from Harvard Law you might want to brush up on before you put us more at risk:
"When credit markets froze up in the fall of 2008, many economists pronounced the crisis both inexplicable and unforeseeable. That’s because they were economists, not lawyers.
Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, understood what went wrong." "It was the deregulation of financial derivatives that brought the banking system to its knees."
For full article: https://corpgov.law.harvard.edu/2009/07/21/how-deregulating-derivatives-led-to-disaster/
6:01...
Deleteactually didn't say you need to hedge fixed rate loan because they are so risky.
7:42am You seem to need to clarify, correct or deny your comments a lot...
DeleteCan't hedge incompetence.
ReplyDeleteRe: The current state of affairs at Fannie/Freddie - you'll note that "the real problem" trying to be resolved - ever since 1930 and even after 2008 is... The 30-YEAR FIXED RATE MORTGAGE!!!!
ReplyDelete"The Unresolved Future"
'The conservatorship of Fannie Mae and Freddie Mac, intended as a temporary emergency measure, has now lasted for 17 years. Their future remains the single largest piece of unfinished business from the 2008 financial crisis."
'The core dilemma is how to design a system that preserves their essential function—providing stable liquidity for the U.S. mortgage market, particularly for the 30-year fixed-rate mortgage—while permanently protecting taxpayers from the risks that led to the last collapse.
There is broad consensus that the old model failed, but deep disagreement on what should replace it."
So the "new/new" now wants to partner SECU members with an old failed model.... GET READY TO ZOMBIE!!!
Ridiculous point of view that new/new wants to partner members with a old failed model. So 17 years later, after new regulations (QM, Trid), new controls and capital requirements, the current Fannie / Freddie model working just fine. So much so there is talk of taking them public. See what their stock is doing lately? Think deeper. Be better, and get with times - you’re quoting 18 year old articles FFS.
Delete7:00pm "So 17 years later..." You very casually overlook and seem to like to partner with companies that have been on the government dole and tax payer life support for the last 17 years.
DeleteCouldn't even you and I "recover" if Uncle Sam dropped $100 billion in our lap and guaranteed we couldn't fail?
They are not on tax payer life support. Fannie is profitable and has returned over 300 billion in dividends to the treasury, which means they are making money for tax payers.
Delete10:13am ? Beg to differ. "AI" can't be wrong?!
Delete* Fannie Mae has been under conservatorship since 2008, which affects its financial operations.
* The company has been paying dividends to the U.S. Treasury as part of its bailout agreement.
* The payments are part of a larger financial arrangement to repay taxpayer funds used during the financial crisis.
* As of recent reports, Fannie Mae continues to make these payments regularly.
* The dividends are based on the company's profits, which have been positive in recent years.
...some how it's hard to understand how a forced, catastrophic $300+ billion bail out of a private company by U.S. taxpayers - that has lasted 17 years - can be a viewed as a positive event.
"Heads they when, tails we lose" is not exactly a wonderful deal for the U.S. taxpayer. Or do you think otherwise?
Your whole premise of "lasted 17 years" is ridiculous. No different than saying the bank bailout still exists long after the banks paid back Tarp money
Delete1:12pm I agree that having a financial default so disastrous that the taxpayers hve had to subsidize a private company for 17 years is ridiculous.
ReplyDelete"No different than a bank bailout"... Can't think of any bank badmouth that has lasted 17 years can you? Fact is bank failures are usually closed or taken out very quickly. 3 of the top 25 banks failed in 2024... none exist today.
"The last TARP funds were repaid in 2014." ... isn't that over a decade ago? "No difference"?