SECU "Reinventing The Wheel" With 1930's "New/New" Mortgage Model

  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"!

  What will the "new/new" think of next?

 

 

The Proposed "New/New" Mortgage Lending Proposals At SECU: Running With The Zombies?

    

   Zombie loans? Can't wait for this one!

😎 Don't get ahead of yourself!  See from yesterday's "Comments" [link] that many of you did your homework. Were you surprised that no other country uses the 30-year fixed rate mortgage in their housing finance? Little unusual don't you think...wonder why?

Will let you do your own historical research, but here's a 15 second summary. With the 1930's Great Depression, the banking industry collapsed. Millions lost their savings and faced foreclosure on their home mortgages at their local bank.  

The federal government stepped in to try to avoid further financial disaster with two new programs 1) federal insurance of bank deposits (that $250,000 coverage you now enjoy) and in 1938 created the Federal National Mortgage Association (better known as "Fannie Mae") to "expand the mortgage market", but in reality to let folks keep their homes (and coincidentally help bail out the banks!). 

Government intervention in a crisis (whether financial, pandemic, hurricane, fire or flood) is usually a pretty good thing - regardless of your libertarian leanings. One of the problems with such government programs is often, once the crisis has passed ; the programs don't want to close down... and instead turn into zombies. They refuse to die! 

Fannie Mae went looking for a continuing purpose with a vengeance and found: "The American Dream - Home Ownership"!  To help all of us achieve that dream and to avoid another financial collapse, Fannie Mae and the U.S. government would join forces to guarantee those risky 30-year fixed rate mortgages! Soon others piled in - Ginnie Mae, Freddie Mac, USDA - and the race was on!

😎 Lets stop there and ask a couple of questions:

1) Do you think that "The American Dream - Home Ownership " is an idea which has merit?

2) Do you think that federal government involvement with the mortgage market is good? 

Everyone knows about zombies, how about Luddites?