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This has nothing to do with actual credit risk. It has to do with the Fed’s decision as part of the stimulus package to buy mortgage backed securities backed by
by tempsy 7y ago
This has nothing to do with actual credit risk. It has to do with the Fed’s decision as part of the stimulus package to buy mortgage backed securities backed by conventional loans but not jumbo loans. So banks have an out to sell bad conventional loans off their balance sheet to the Fed but have to take all the credit risk for jumbo loans even though those borrowers are more credit worthy and wealthier than your typical borrower.
It’s creating a distortion in the mortgage market.
- perl4ever 7y agoDistortion is a value judgement based on some probably arbitrary idea of baseline fairness. Is there anything substantive you could say about why this is distortion - i.e. is a bad thing?
- tempsy 7y agoNo. What’s happening is that poorer, less creditworthy people are getting better rates and more likely to be approved than more creditworthy and wealthier people. That is a distortion.
- perl4ever 7y agoThat's based on arbitrary anchoring. If you disconnect anyone from resources to back up their borrowing, they are less creditworthy. There's no absolute objective arbiter of what sources of credit are legitimate and what aren't.
- jjeaff 7y agoA distortion is a distortion. Whether that distortion is a good thing or not, is a value judgement.
- perl4ever 7y agoNo, people express values by insisting that definitions include their values implicitly. That's because they think it's a clever trick to force other people to accept their values, but I think it's overrated. You know how in 1984, they controlled thought through language? I always thought that was dumb. But everyone certainly tries.