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Re: Trump reverses FHA ins. Rate cut implemented by Obama

[ Edited ]

cem13 wrote:

Revelate wrote:

It's also a huge stabilizing and arguably regulatory force over the industry just by it's nature; ending the government conservatorship would be a start, but not sure if they could just be sidelined without massive repurcussions, and unintended ones at that.   I'd also argue that everything being private doesn't always lead to an efficient market Smiley Happy

 


Great discussion.  I have to dust off my economic text for this one.  FWIW: This is an economic not political discussion.

 

By definition, anything the government does is inefficient; however, I get your point.  Let me take a different view.  The FHA "pool" could be run by many insurance companies.  The insurance company could get into the details of each borrower's situation and asses the risk.  As we all know, when it comes to mortgages, FICO score is not enough to assess risk.  Insurance companies are experts as assessing risk.  My daughter is an Actuary so I understand risk from her point of view.

 

FICO score, job outlook, location of property, and also age/education of borrower (amongst others); factor in.  So if a large bank does not want to take the risk, they could request PMI from a private insurance company.  Then competition would take over and the market becomes efficient.

 

For example, we all know Chase and Wells Fargo are conservative companies.  So if they stay true and only write mortgages at FICO 720; there will be others (Cap1 maybe) that would write FICO 650-720.  Then those below FICO 650, would require PMI from Allstate or State Farm.

 

Everyone does not "deserve" to buy a home in an efficient market.  Although American politicians seems to think that is written in the US Constitution.  I read the sacred docment over the weekend and I cannot find it anywhere.


Well one likely unintended consequence is it would kick out the small mortgage players overnight and all we'd be stuck with is the larger banks under your model, and there's a good chance the cost of obtaining a mortgage would rise.

 

I do understand your point and to be fair that would be an interesting model to implement, but it's a lot harder to get to efficiency with call it 5 players instead of 2000 when it comes to the market... both FHA and conventional mortgages while there's some artificial costs in them, is pretty close to a commodity market at this point.

 

Those two points (higher prices, less competition) argues less market efficiency.  Then again cutting the bureucratic red tape the GSE's vis a vis the government adds might overweigh that: if getting a mortgage is not much more difficult than getting a car loan, what does that do to the equation?  Some things like title and records searches probably will take some time as that data isn't all online to my understanding, but that'll get fixed over time so maybe mortgage ninja-style is possible within a decade or two.

 

Also even the current market isn't limited by the GSE's for example: Chase sold both my mortgage and now my servicing to Union Bank instead of dumping it on Fannie / Freddie, and the large banks hold a non-trivial amount of mortgage debt anyway so I'd suggest the market isn't that bad, just the GSE's put what amounts to a price floor on the secondary market I suppose in the current model.  Not efficient to be sure but when people are willing to pay above that, I suspect the floor isn't much of a factor.

 

Anyway I'm nowhere close to an economics expert, I'm not certain if privitization is the right step; home ownership is absolutely a sacred cow though here, most of the world doesn't have a 30 year fixed or anything like that for example.  I do think there's more important things to fix first though, touching the mortgage industry likely isn't the best choice to try to address as it's annoying but not necessarily hugely broken.

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Re: Trump reverses FHA ins. Rate cut implemented by Obama

[ Edited ]

FHA's reserve grew by $44 billion dollars in the past four years, so the thinking was to pass on some savings to homeowners in the form of percentage reduction.  I think that cut that was to come into effect last month would have been good.  With fuel prices going up, the cost of living going up, taxes going up, electricity prices going up, and the list just goes on an on.  In itself that is not good for anyone.  Big businesses have been bailed out, but working class not getting bailed out.  It makes it even more difficult for a lot of people to make ends meet.  Do I think PMI should go away? Of course I do not.  But in my opinion it was not the best decision that could have been made.  *Scratching my head*


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Re: Trump reverses FHA ins. Rate cut implemented by Obama


Revelate wrote:

Well one likely unintended consequence is it would kick out the small mortgage players overnight and all we'd be stuck with is the larger banks under your model, and there's a good chance the cost of obtaining a mortgage would rise.

 

I do understand your point and to be fair that would be an interesting model to implement, but it's a lot harder to get to efficiency with call it 5 players instead of 2000 when it comes to the market... both FHA and conventional mortgages while there's some artificial costs in them, is pretty close to a commodity market at this point.

 

Those two points (higher prices, less competition) argues less market efficiency.  Then again cutting the bureucratic red tape the GSE's vis a vis the government adds might overweigh that: if getting a mortgage is not much more difficult than getting a car loan, what does that do to the equation?  Some things like title and records searches probably will take some time as that data isn't all online to my understanding, but that'll get fixed over time so maybe mortgage ninja-style is possible within a decade or two.

 

Also even the current market isn't limited by the GSE's for example: Chase sold both my mortgage and now my servicing to Union Bank instead of dumping it on Fannie / Freddie, and the large banks hold a non-trivial amount of mortgage debt anyway so I'd suggest the market isn't that bad, just the GSE's put what amounts to a price floor on the secondary market I suppose in the current model.  Not efficient to be sure but when people are willing to pay above that, I suspect the floor isn't much of a factor.

 

Anyway I'm nowhere close to an economics expert, I'm not certain if privitization is the right step; home ownership is absolutely a sacred cow though here, most of the world doesn't have a 30 year fixed or anything like that for example.  I do think there's more important things to fix first though, touching the mortgage industry likely isn't the best choice to try to address as it's annoying but not necessarily hugely broken.


Hi Revelate,

 

I appreciate your opinion and I like to hear your thoughts even if I disagree.  In today's environment, people cannot have a economic discussion without being called a hater, racist, fascist, bigot, or some other name.  This board must have a high number of members with higher than average IQs.  It is refreshing and I welcome all dissenting opinions.

 

I disagree that the small mortgage players would be kicked out.  It would be supply and demand at its finest.  Now there could be a few who drop out; however, if there was a need for a mortgage where the big boys did not compete, the small players would jump right in.  An example would be a rural mortgage.  The big boys may not want to take the risk because they are in New York, Chicago, Cincinnati and most of the major cities.  But a small credit union or regional bank who lives, works and attends the same church would be in a great position to understand the local market.

 

Mortgages are money-makers.  It is a secured loan so the banks rarely loose money; especially if a 20% down payment is made.  Here is where the private mortgage insurance comes in.  If someone does not have enough for a 20% down payment, they could purchase a policy from Met Life, Prudential or Warren Buffett's Mutual of Omaha.  The owner would have to pay the insurance premium until the equity reaches 20%.  So this is incentive to double up on your payments for the first year or so to stop the policy.

 

The insurance companies would love to write a policy.  They have all the models (Including FICO) and they can assess the risk and set a premium that is fair.  Again, there would be competition in the insurance business too.  This would keep the cost down, just like Esurance and Progressive have done for the auto insurance industry.

 

Freddie and Fannie can be a private company.  There could be several companies that would be willing to buy mortgages.  It is virtually guaranteed money even if the homeowner defaults.

 

Again, my take is that the Federal Government cannot do anything right.  Look at Social Security.  In the beginning, it sounded like a GREAT idea.  Now we know it is a disaster.  SSI is one more war away from becoming broke.  Individual Retirement Accounts are so much better and if I die, I can leave it to my kids and grand-kids.  With SSI, it will pay your spouse after you die but that is it.  SSI hopes that you and your wife die in a car crash one month before you retire so they get to keep all those thousands of dollars and don't have to pay your kids anything.  I could go on and on.

 

I know the liberals and socialists will argue that there could be corruption in the private sector.  Is that any worse the public sector corruption?  Iran-Contra, Obamacare, Iraq War, NAFTA.  All of these are examples of public corruption but NO ONE went to jail.  At least in the private sector, CEOs can be put in jail.  Maybe that is the answer, make the jail time much more than it is today for white collar crime.  

 

My only point is that I should not have to pay with my taxes, if someone defaults on their mortgage when the private sector can handle this easily.

 

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Re: Trump reverses FHA ins. Rate cut implemented by Obama

[ Edited ]

cem13 wrote:

Revelate wrote:

Well one likely unintended consequence is it would kick out the small mortgage players overnight and all we'd be stuck with is the larger banks under your model, and there's a good chance the cost of obtaining a mortgage would rise.

 

I do understand your point and to be fair that would be an interesting model to implement, but it's a lot harder to get to efficiency with call it 5 players instead of 2000 when it comes to the market... both FHA and conventional mortgages while there's some artificial costs in them, is pretty close to a commodity market at this point.

 

Those two points (higher prices, less competition) argues less market efficiency.  Then again cutting the bureucratic red tape the GSE's vis a vis the government adds might overweigh that: if getting a mortgage is not much more difficult than getting a car loan, what does that do to the equation?  Some things like title and records searches probably will take some time as that data isn't all online to my understanding, but that'll get fixed over time so maybe mortgage ninja-style is possible within a decade or two.

 

Also even the current market isn't limited by the GSE's for example: Chase sold both my mortgage and now my servicing to Union Bank instead of dumping it on Fannie / Freddie, and the large banks hold a non-trivial amount of mortgage debt anyway so I'd suggest the market isn't that bad, just the GSE's put what amounts to a price floor on the secondary market I suppose in the current model.  Not efficient to be sure but when people are willing to pay above that, I suspect the floor isn't much of a factor.

 

Anyway I'm nowhere close to an economics expert, I'm not certain if privitization is the right step; home ownership is absolutely a sacred cow though here, most of the world doesn't have a 30 year fixed or anything like that for example.  I do think there's more important things to fix first though, touching the mortgage industry likely isn't the best choice to try to address as it's annoying but not necessarily hugely broken.


Hi Revelate,

 

I appreciate your opinion and I like to hear your thoughts even if I disagree.  In today's environment, people cannot have a economic discussion without being called a hater, racist, fascist, bigot, or some other name.  This board must have a high number of members with higher than average IQs.  It is refreshing and I welcome all dissenting opinions.

 

I disagree that the small mortgage players would be kicked out.  It would be supply and demand at its finest.  Now there could be a few who drop out; however, if there was a need for a mortgage where the big boys did not compete, the small players would jump right in.  An example would be a rural mortgage.  The big boys may not want to take the risk because they are in New York, Chicago, Cincinnati and most of the major cities.  But a small credit union or regional bank who lives, works and attends the same church would be in a great position to understand the local market.

 

Mortgages are money-makers.  It is a secured loan so the banks rarely loose money; especially if a 20% down payment is made.  Here is where the private mortgage insurance comes in.  If someone does not have enough for a 20% down payment, they could purchase a policy from Met Life, Prudential or Warren Buffett's Mutual of Omaha.  The owner would have to pay the insurance premium until the equity reaches 20%.  So this is incentive to double up on your payments for the first year or so to stop the policy. 

 

 


Most mortgages aren't money makers currently (or at least they're a suboptimal investment pool though that may be changing with interest rates rising), why do all the smaller mortgage players exist?  Mostly because the big banks don't want to deal with the bureucratic tape with the exception of Wells Fargo and don't get me started on their mortgage milling hehe.

 

Going to that point: the overwhelming number of mortgage originators are doing so on warehouse lines or similar from guess who... the big banks.

 

If we suddenly were in a free market, where the price could float and without the regulation that the GSE's impose (read as, better investments for said big banks) why would it not trend the way the jumbo market has where the big players have it effectively locked up and nobody else is competitive?  Why would they issue a warehouse line at a competitive rate?  You may get a few more entrants into the market (Blackrock et al for one example) but the count would be reduced by 2 orders of magnitude probably.

 

I don't have time to respond to the rest of your post unfortunately though I do agree with a non-trivial part of it, but I will stand by that claim the vast majority of mortgage originators would be obliterated or otherwise become uncompetitive.  Sure the rural banks or whatever might survive, but most CU's wouldn't, all the internet lenders would be gone, and the mortgage brokers likely would be too.  The market would fundamentally change, and I'm simply unconvinced it'd be better as a result.

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Re: Trump reverses FHA ins. Rate cut implemented by Obama

[ Edited ]

Interesting discussion and I agree and disagree with some of the points, unfortunately I would have to into the politics of why certain things are done - not the DEM vs GOP, yelling kind of politics, but the policy of groups ... or priority at least, to add insight to this thread.... so sometimes it's best just to sit back and shut up lest I get the mods on high alert.

 

A lot of the housing market, and its advantages are tied into politics and legislation. it's not "evil" per se, but it's not exactly free market either.... Perfect example is the last bubble - crash and burn was due to politrical reasons aka everyone "deserves" to own a home, doesn't matter if they can afford it. BTW, the 1/2 point "cut" in FHA rates was a parting gift by the out going administration as a midnight rule - it was overturned because of that, no other reason. 

 

Edit/Add: as far as SSA, SSI, SSDI and Medicare thats a whole different discussion and one not correctly addressed in this tread, but again I'm not going to publically get into that here. 

 

Add: Here is a good article that explains it (risk and reason, not too much politics): http://blog.credit.com/2017/01/buying-a-new-home-just-got-more-expensive-for-some-folks-165028/

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Re: Trump reverses FHA ins. Rate cut implemented by Obama

[ Edited ]

cem13 wrote:

SouthJamaica wrote:


 


I don't think you'll hear too many people argue 'it is best for the country'.


 

Well let me be the first.   I am not sure if any of the great people on the board understand how the FHA system works.  Basically the purchaser has to pay a "tax" to the FHA pool.  This pool is used to pay back banks in case of default.

 

So by cutting the rate, or the amount of the "tax" the pool gets less money.  So there is a risk of the taxpayers footing the bill if there is a large number of defaults.

 

I am 100% in favor of not reducing the rate.  I have an FHA loan and I pay $350 per year rolled into my monthly payment (~$30).  It is not fair to the taxpayers if I default on my mortgage and the taxpayers pick up the tab.

 

Do I want to pay NOTHING in the PMI?  Sure.  I could spend that $30 every month on a nice, cold Sam Adams.  However, I also understand, first hand, how the FHA process works.

 

While I am on a roll, I might add this little nugget; I hope that we eliminate Fannie Mae, Freddie Mac, and FHA  and turn it over to the private sector.  It is economically efficient.  FWIW:  My Econ Professor would be proud of me for this last statement.  



+1 All hail Privatization

 

btw, Go Blue!

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Re: Trump reverses FHA ins. Rate cut implemented by Obama

How quick we forget lessons of our past. Turning everything over to the private sector with no regulation {no doc loans, stated income loans, ARM's, 110% Ltv loans) would set us up for another disaster. Monopolies have never been good for the average consumer.

Labatt, "liberals" won't argue that there "may" be corruption in the private sector, as we all know there WILL be corruption in the private sector if it is wholly unregulated.
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Re: Trump reverses FHA ins. Rate cut implemented by Obama


bramma_99 wrote:
How quick we forget lessons of our past. Turning everything over to the private sector with no regulation {no doc loans, stated income loans, ARM's, 110% Ltv loans) would set us up for another disaster. Monopolies have never been good for the average consumer.

Labatt, "liberals" won't argue that there "may" be corruption in the private sector, as we all know there WILL be corruption in the private sector if it is wholly unregulated.

+1


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Re: Trump reverses FHA ins. Rate cut implemented by Obama

This thread has already had warnings and posts deleted by a Moderator but yet we continue to have posts that are political in nature.  No matter where you fall on the political spectrum, this is not the venue to advocate positions on one side or the other.  This thread has outlived its usefulness and therefore is now locked.

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