> A widespread misconception about mortgage securitization is that it was created to make Wall Street rich. …
> Mortgage securitization, and secondary sales of loans, and other mechanisms cause mortgages to migrate from the banking sector to pools of capital which are more structurally insulated against the interest rate cycle.
At the end of the day, the reasons these choices exist is to make someone rich. The mechanism (shielding from interest rate cycles) is just an implementation detail.
It's not just an implementation detail. In the 80s there was a big event known as the S&L crisis (https://en.wikipedia.org/wiki/Savings_and_loan_crisis), where an interest rate spike which was not adequately shielded led a substantial fraction of all US mortgage lenders to fail.
Adding leverage to the housing market probably isn't a net good thing.
Especially when you have a mismatch between demand for desirable housing and the available supply.
It is interesting that when you look at the US, some of our most expensive markets (housing, healthcare, education) have tight regulations on supply and federal policy response focused on subsidizing buyers (rather than addressing the structural supply problems).
> Adding leverage to the housing market probably isn't a net good thing.
The leverage part isn't necessarily a good thing as it increases house prices to some extent (how much, I don't know).
But what would be an alternative? Even if buying a house all-cash was the only choice, a house would still be very expensive because it does take a lot of real materials and labor.
If we complain today that raising a 20% down payment towards a million dollar house is very difficult, would it be any easier if that house cost (let's say) 600K but you have to raise the whole 600k up front?
I'm generally against having debt, but mortgages are a wonderful thing.
What answers do we get if "market" isn't part of the platform?
If we start with the question "how do we affordably house the most people possible", I'd think we end up with something like "the state owns the housing stock and leases it out on a long-term basis with very tight (and obviously political-third-rail) restrictions on pricing and allocation".
The comments I replied to are pretty specifically talking about government supported 30 year fixed mortgages, rather than mortgages in general. I guess I could have spelled out the context I thought was implied?
Commodities are good. They're cheap and don't need ceremony to buy.
The opposite is when distribution is controlled by someone subjectively judging if you're worth having it. This is very bad for minorities (the judger will be racist) and women (the judger will make you pay for it with your body).
Example in the US is the mass manufactured Sears homes, which whites in the South hated because they'd sell to blacks.
Conversely I remain surprised to this day that several hundred execs didn't end up with multi-decade long prison sentences for bricking the global economy with this bullshit.
This is another widespread misconception. The mortgages that got the economy in trouble were the no-doc, no income verification type mortgages - ie “non conforming”.
By definition, a non conforming loan isn’t backed by Fannie and Freddie. I had multiple non conforming loans I got before the crash. Yes they ended up just like you suspect.
This is a delicious ironic quote from a from 2007 article.
After Sept. 1, Freddie will no longer invest in subprime mortgages that have a "high likelihood" of payment shock and foreclosure, the company announced on Tuesday.
Are you denying the fact that a “non conforming loan” by definition means it isn’t eligible for Freddie and Fannie backing?
I’ve had 5 first mortgages in my lifetime and only one was “conforming”.
My latest one was a unit in a condotel where I live the majority of the year. No government institution would ever back and no income verification loan on a mixed use commercial/personal secondary home.
I'm reporting observed reality homeboy. I watched thousands of loans a week get pumped through the system with everything from income verification fields left blank to literally fraudulent (as in the loan officer got tech support on the phone to help them generate random numbers) information get pushed through with zero pushback. A point for you to consider: "non conforming loan" is only a meaningful phrase when the criteria for non conforming loans is actually being verified.
After Sept. 1, Freddie will no longer invest in subprime mortgages that have a "high likelihood" of payment shock and foreclosure, the company announced on Tuesday.
What bothers me is that in various european countries - the UK, in my case - right wingers who created the mortgage market in the 1980s successfully pinned the global financial crisis on politicians.
You’re both wrong. I’ve worked with some of the people who invented these products and still had to double check your reference to make sure I was correct. I was—Milken didn’t popularise mortgage securitisation. Ranieri did.
Milken did not ”[popularize] mortgage securitization”. Ranieri was at best his contemporary; he was not inspired by Milken. Your own article is a good source on this.
> read the article
I recommend Fabozzi’s Fixed Income as an introductory text if you’re drawing the (incorrect) conclusions that you are from that FT article.
> A widespread misconception about mortgage securitization is that it was created to make Wall Street rich. …
> Mortgage securitization, and secondary sales of loans, and other mechanisms cause mortgages to migrate from the banking sector to pools of capital which are more structurally insulated against the interest rate cycle.