I think there's a fairly simple fix here which is that congress should require the securitizations to transfer the loans to a new purchase for a fee equal to their costs.

It seems to me you're otherwise fucking over the housing market for a very long time. A huge portion of the people with the 3.0% loans are probably never selling - it's in many cases a better financial decision to just keep it as a rental.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074531)

this will never happen in the US. too many people make too much money from it

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074636)

That's not going to solve the housing crisis by itself, but it's a big step in the right direction. I don't support laws where the government decides who gets to own real estate, and I also think the free market, not the government, should decide how people use their property. But I'm fine with making it very expensive to buy real estate that you're not going to actually use.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47075515)

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076853)

the real bottleneck is regulatory at the construction level, not investors who almost exclusively buy existing stock, improve it, and rent it out

a tax on unoccupied homes would make more sense as it would punish speculators and push more housing onto both the rental and sales markets

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47077565)

Ben Casselman

By Ben Casselman

Nov. 19, 2023

Buying a home was hard before the pandemic. Somehow, it keeps getting harder.

Prices, already sky-high, have gotten even higher, up nearly 40 percent over the past three years. Available homes have gotten scarcer: Listings are down nearly 20 percent over the same period. And now interest rates have soared to a 20-year high, eroding buying power without — in defiance of normal economic logic — doing much to dent prices.

None of which, of course, is a problem for people who already own homes. They have been insulated from rising interest rates and, to a degree, from rising consumer prices. Their homes are worth more than ever. Their monthly housing costs are, for the most part, locked in place.

The reason for that divide — a big part of it, anyway — is a unique, ubiquitous feature of the U.S. housing market: the 30-year fixed-rate mortgage.

That mortgage has been so common for so long that it can be easy to forget how strange it is. Because the interest rate is fixed, homeowners get to freeze their monthly loan payments for as much as three decades, even if inflation picks up or interest rates rise. But because most U.S. mortgages can be paid off early with no penalty, homeowners can simply refinance if rates go down. Buyers get all of the benefits of a fixed rate, with none of the risks.

“It’s a one-sided bet,” said John Y. Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.”

This isn’t how things work elsewhere in the world. In Britain and Canada, among other places, interest rates are generally fixed for only a few years. That means the pain of higher rates is spread more evenly between buyers and existing owners.

In other countries, such as Germany, fixed-rate mortgages are common but borrowers can’t easily refinance. That means new buyers are dealing with higher borrowing costs, but so are longtime owners who bought when rates were higher. (Denmark has a system comparable to the United States’, but down payments are generally larger and lending standards stricter.)

Only the United States has such an extreme system of winners and losers, in which new buyers face borrowing costs of 7.5 percent or more while two-thirds of existing mortgage holders pay less than 4 percent. On a $400,000 home, that’s a difference of $1,000 in monthly housing costs.

“It’s a bifurcated market,” said Selma Hepp, chief economist at the real estate site CoreLogic. “It’s a market of haves and have-nots.”

It isn’t just that new buyers face higher interest rates than existing owners. It’s that the U.S. mortgage system is discouraging existing owners from putting their homes on the market — because if they move to another house, they’ll have to give up their low interest rates and get a much costlier mortgage. Many are choosing to stay put, deciding they can live without the extra bedroom or put up with the long commute a little while longer.

The result is a housing market that is frozen in place. With few homes on the market — and fewer still at prices that buyers can afford — sales of existing homes have fallen more than 15 percent in the past year, to their lowest level in over a decade. Many in the millennial generation, who were already struggling to break into the housing market, are finding they have to wait yet longer to buy their first homes.

“Affordability, no matter how you define it, is basically at its worst point since mortgage rates were in the teens” in the 1980s, said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California. “We sort of implicitly give preference to incumbents over new people, and I don’t see any particular reason that should be the case.”

A ‘Historical Accident’

The story of the 30-year mortgage begins in the Great Depression. Many mortgages at the time had terms of 10 years or less and, unlike mortgages today, were not “self-amortizing” — meaning that rather than gradually paying down the loan’s principal along with the interest each month, borrowers owed the principal in full at the end of the term. In practice, that meant that borrowers would have to take out a new mortgage to pay off the old one.

That system worked until it didn’t: When the financial system seized up and home values collapsed, borrowers couldn’t roll over their loans. At one point in the early 1930s, nearly 10 percent of U.S. homes were in foreclosure, according to research by Mr. Green and a co-author, Susan M. Wachter of the University of Pennsylvania.

In response, the federal government created the Home Owners’ Loan Corporation, which used government-backed bonds to buy up defaulted mortgages and reissue them as fixed-rate, long-term loans. (The corporation was also instrumental in creating the system of redlining that prevented many Black Americans from buying homes.) The government then sold off those mortgages to private investors, with the newly created Federal Housing Administration providing mortgage insurance so those investors knew the loans they were buying would be paid off.

The mortgage system evolved over the decades: The Home Owners’ Loan Corporation gave way to Fannie Mae and, later, Freddie Mac — nominally private companies whose implicit backing by the federal government became explicit after the housing bubble burst in the mid-2000s. The G.I. Bill led to a huge expansion and liberalization of the mortgage insurance system. The savings-and-loan crisis of the 1980s contributed to the rise of mortgage-backed securities as the primary funding source for home loans.

By the 1960s, the 30-year mortgage had emerged as the dominant way to buy a house in the United States — and apart from a brief period in the 1980s, it has remained so ever since. Even during the height of the mid-2000s housing bubble, when millions of Americans were lured by adjustable-rate mortgages with low “teaser” rates, a large share of borrowers opted for mortgages with long terms and fixed rates.

After the bubble burst, the adjustable-rate mortgage all but disappeared. Today, nearly 95 percent of existing U.S. mortgages have fixed interest rates; of those, more than three-quarters are for 30-year terms.

No one set out to make the 30-year mortgage the standard. It is “a bit of a historical accident,” said Andra Ghent, an economist at the University of Utah who has studied the U.S. mortgage market. But intentionally or otherwise, the government played a central role: There is no way that most middle-class Americans could get a bank to lend them a multiple of their annual income at a fixed rate without some form of government guarantee.

“In order to do 30-year lending, you need to have a government guarantee,” said Edward J. Pinto, a senior fellow at the American Enterprise Institute and a longtime conservative critic of the 30-year mortgage. “The private sector couldn’t have done that on their own.”

For home buyers, the 30-year mortgage is an incredible deal. They get to borrow at what amounts to a subsidized rate — often while putting down relatively little of their own money.

But Mr. Pinto and other critics on both the right and the left argue that while the 30-year mortgage may have been good for home buyers individually, it has not been nearly so good for American homeownership overall. By making it easier to buy, the government-subsidized mortgage system has stimulated demand, but without nearly as much attention on ensuring more supply. The result is an affordability crisis that long predates the recent spike in interest rates, and a homeownership rate that is unremarkable by international standards.

“Over time, the 30-year fixed rate probably just erodes affordability,” said Skylar Olsen, chief economist for the real estate site Zillow.

Research suggests that the U.S. mortgage system has also heightened racial and economic inequality. Wealthier borrowers tend to be more financially sophisticated and, therefore, likelier to refinance when doing so saves them money — meaning that even if borrowers start out with the same interest rate, gaps emerge over time.

“Black and Hispanic borrowers in particular are less likely to refinance their loans,” said Vanessa Perry, a George Washington University professor who studies consumers in housing markets. “There’s an equity loss over time. They’re overpaying.”

‘Who Feels the Pain?’

Hillary Valdetero and Dan Frese are on opposite sides of the great mortgage divide.

Ms. Valdetero, 37, bought her home in Boise, Idaho, in April 2022, just in time to lock in a 4.25 percent interest rate on her mortgage. By June, rates approached 6 percent.

“If I had waited three weeks, because of the interest rate I would’ve been priced out,” she said. “I couldn’t touch a house with what it’s at now.”

Mr. Frese, 28, moved back to Chicago, his hometown, in July 2022, as rates were continuing their upward march. A year and a half later, Mr. Frese is living with his parents, saving as much as he can in the hopes of buying his first home — and watching rising rates push that dream further away.

“My timeline, I need to stretch at least another year,” Mr. Frese said. “I do think about it: Could I have done anything differently?”

The diverging fortunes of Ms. Valdetero and Mr. Frese have implications beyond the housing market. Interest rates are the Federal Reserve’s primary tool for corralling inflation: When borrowing becomes more expensive, households are supposed to pull back their spending. But fixed-rate mortgages dampen the effect of those policies — meaning the Fed has to get even more aggressive.

“When the Fed raises rates to control inflation, who feels the pain?” asked Mr. Campbell, the Harvard economist. “In a fixed-rate mortgage system, there’s this whole group of existing homeowners who don’t feel the pain and don’t take the hit, so it falls on new home buyers,” as well as renters and construction firms.

Mr. Campbell argues that there are ways the system could be reformed, starting with encouraging more buyers to choose adjustable-rate mortgages. Higher interest rates are doing that, but very slowly: The share of buyers taking the adjustable option has edged up to about 10 percent, from 2.5 percent in late 2021.

Other critics have suggested more extensive changes. Mr. Pinto has proposed a new type of mortgage with shorter durations, variable interest rates and minimal down payments — a structure that he argues would improve both affordability and financial stability.

But in practice, hardly anyone expects the 30-year mortgage to disappear soon. Americans hold $12.5 trillion in mortgage debt, mostly in fixed-rate loans. The existing system has an enormous — and enormously wealthy — built-in constituency whose members are certain to fight any change that threatens the value of their biggest asset.

What is more likely is that the frozen housing market will gradually thaw. Homeowners will decide they can’t put off selling any longer, even if it means a lower price. Buyers, too, will adjust. Many forecasters predict that even a small drop in rates could bring a big increase in activity — a 6 percent mortgage suddenly might not sound that bad.

But that process could take years.

“I feel very fortunate that I slid in at the right time,” Ms. Valdetero said. “I feel really bad for people that didn’t get in and now they can’t.”

Ben Casselman writes about economics with a particular focus on stories involving data. He has covered the economy for nearly 20 years, and his recent work has focused on how trends in labor, politics, technology and demographics have shaped the way we live and work. More about Ben Casselman

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074641)

There's your problem. We should build so much fucking housing that the market craters. If it costs half as much, a higher interest rate doesn't matter nearly as much. This also includes upzoning, let's turn blocks of single family housing into blocks of condos and apartments.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074660)

Fuck you kike

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074752)

Every time.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074679)

It's the natural course of things, people chased yield and bid up the price of mortgages - investors were much more willing to accept the lower rates for loans and so people made a rational decision to refinance or buy homes, with banks typically acting as an enabling intermediary.

The combination of the current MBS market, no ban on foreign investment, and a decade of low rates is what was responsible for much of the rise in housing prices across the country IMO.

Different regions increased in price far above the average for other reasons too.

Now that rates have returned to somewhere close to normal, you wont have as much of an issue going forward - particularly if less loans are securitized and sold.

There's no need to abolish the 30 year mortgage or to make refinancing more difficult in response to something that was essentially a series of significant policy errors (to be generous) not related to the structure of the mortgages themselves, but problems with monetary policy and regulation.

If you change the speed limit on a highway from 60 to 100, people are going to go 100 and not think it's speeding - the rational response is to reduce the speed limit back to 60 if there are problems, not to make people drive tractors.

If banks were required to retain a larger percentage of the loans they originated, you would have far less credit extended into the system to prop up house prices that are already unsustainable and avert the risk of a large bubble, while bolstering the credit quality of banks themselves.

The issue is that this does not benefit large banks - but instead medium and smaller ones.

Now that interest rates are higher and there is tighter lending, prices have declined (at least in my area). For commercial and multifamily, the corresponding decline in prices is because of the fact that you simply can't make money on a property that has a cap rate of 5% if debt costs 7-8% - unless you put a large amount down, like 60%.

If someone bought their house/building and has a 2-4% loan, but the price of the house/building in the market is 20% less because of higher rates, it's sort of a wash.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074758)

I love you

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47074765)

Look, I see you are clearly jewish as you think the whole country is like NYC, but sorry kike, that is not real america.

hth

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47085753)

"There is no way that most middle-class Americans could get a bank to lend them a multiple of their annual income at a fixed rate without some form of government guarantee."

Also LOL @ this dumb fuck for not understanding the concept of "collateral." He is implying that "most middle-class Americans" cannot get conventional loans, which is ridiculous.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47075207)

This is exactly what has happened in Euro countries that do this. So your comment "Everyone would be paying the higher rate" is pretty retarded when you exclude the part that home prices for everyone would be lower too to offset the higher rate.

hth

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076859)

That would solve the problem of people not wanting to move because they would lose their low rate. And it doesn't hurt the banks at all, because they are already losing money on loans that are tied up at low rates for 30 years. This system exists in Denmark (the only other major industrialized country where fixed-rate mortgages are the norm). I really wish the banks would make this happen.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47075573)

But it would be nice if there was a way for the borrower on a mortgage to buy it back at the same price it trades for between institutions. The seller in theory should be indifferent about whether it sells to the borrower or to another institution.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47075800)

If you call them to get a quote for this number, chances are you are going to move.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076059)

Banks don't own the vast majority of the mortgages that they give out. So they can't sell something they don't own.

hth

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47078642)

It doesn't change my main point. I figured the math illiterate lawyers on this bort would already have enough trouble understanding the concept that the value of a mortgage decreases when interest rates rise. So I just assumed that the bank owned my mortgage to keep things simple.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47080345)

xoxo

hth

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47080444)

Large financial institution and investors invest to try to match cash flows, knowing that some things that they invest in will lose value/gain in value as rates change and that change will also impact the likelihood that those assets are prepaid.

You solution is just to add more uncertainly and to effectively prevent debt holders from being able to hold to maturity which will only have the impact of removing investors from the market --> higher rates for no reason.

hth

Btw, I am not a faggot lawyer

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47081245)

The point is that if you have a large hunk of money tied up at a low interest rate and current rates are much higher, you can make money by refinancing at the higher rate even if you give up some principal. That's precisely why bond values drop when interest rates rise.

And no, right now financial institutions already face the worst of both worlds when it comes to refinancing. If rates drop, borrowers can just refinance. But if rates rise, the mortgage holder is stuck with an investment that pays below market rates and can't do anything about it. Either way, the bank loses. If anything, my proposal would lower mortgage rates, because it would reduce the risk that I just outlined. If banks are allowed to let borrowers buy out their mortgage for less than face value when rates rise, that gives banks an incentive to offer lower rates because they are less likely to be stuck with an asset that pays 2% for the next 30 years.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47084048)

Go learn about duration management for pension funds and financial institutions.

"the mortgage holder is stuck with an investment that pays below market rates and can't do anything about it." LJL. If a pension fund or whoever owned your mortgage wanted to unload your mortgage at a loss, guess what?! They can already do that! Why the fuck would they need to deal with you when they can just sell it at a loss to another MBS investor if they wanted too? Guess what, more often than not they choose not to sell it! So weird right?!

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47085756)

You would need to eliminate the MBS market to do what you want.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47089636)

The Fannie/Freddie guarantee has the reverse effect to do with the 30 year fixed rate problem. A person is way more likely to to default on a variable rate loan. In fact, that's what caused the collapse in 2008. Imagine if that hadn't just happened with a small segment of risky dumb borrowers, but instead every single person in the country went from paying a 3% rate to a 7% rate. Half the fucking country would be in default right now.

Also, requiring lenders to retain more loans doesn't make sense either. That's the remedy to stop lenders from making RISKY loans, and again, 30 year fixed loans are the safest investment ever (2008 was caused by treating ARM mortgages like fixed mortgages).

Finally, they act like somehow these loans are duping over the American public. They're not. The loans are securitized and bought up by institutional investors. The idea that American homeowners should have variable rates so that funds should get higher returns is is the most global capitalist bullshit line of thinkign ever.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076197)

paragraph 3. having fewer "risky loans" is either a goal for or against. calling 30 year fixed loans the "safest investment ever" is bullshit. they are very safe in some ways and very risky in others

paragraph 4. variable rates are not for funds to get higher returns. variable rates are a way to share risk between lenders and borrowers. nothing more, nothing less.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076389)

but for your average joe, which is what 95% of mortgages are, there should be no debate that they're less likely to default if their payment is fixed for 30 years, then a variable rate, in which case someone buying an average home would've seen their payment go from $1,400 to $2,200 in just 2 years...

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076453)

oh noes! Except not true at all! Only recent buyers. Most buyers who bought 2015 and earlier have low rates, but also given that their home purchase price was a lot lower, would not be in default.

retard

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47076864)

You seem to not understand that EVERYONE'S payment would be essentially increasing by 50% - regardless of when they bought. So if your payment was $1,400 at your 2015 price then now its $2,200 when you more than double the interest rate.

You're giving them a $1,000 emergency every month - and allegedly 53% of Americans don't have $1,000 for 1 emergency.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47081132)

Banks dont want to own homes. REO for them is a pain in the ass and often forces them to take a 50% loss.

If everyone's payment went up 50%, there would be tons of default --> banks become the nation's largest landlord without tenants --> banks dont want that. Hence, they would set terms that allow the vast majority to stay in their homes.

Also, not everyone would have their mortgage reset at the same time.

Can you name me 1 western nation that mostly uses adjustable rate mortgages that suffered the fate you are describing? I will wait super smart lawyer.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47081248)

(i) even though the people would be fucked, banks would be benevolent and work wtih the borrowers, rather than foreclose on the asset - because there definitely wouldn't be some fund who would pop up to purchase all these SFHs at a discount

(ii) i'm wrong taht everyone would be fucked, because it would be structured in a way to stagger everyone getting fucked

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47084243)

XO is full of miserable bugmen moving from one shitbox in a bughive to another and wondering why they're friendless and alone.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47081804)

If they don't need to move, they don't move.

They don't care about their killer interest rate.

(http://www.autoadmit.com/thread.php?thread_id=5446804&forum_id=2#47081870)