7 ms·

Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1M as Prices Soar

46 points by ra7 5y ago

Bostonian 5y ago
Can also be titled "Prices Soar as Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1M"
- Stubb 5y ago
  Next you're going to claim that non-dischargeable student loans drive up the price of higher education in the US. Crazy talk!
- JKCalhoun 5y ago
  Or "Prices Were Already Soaring Despite Fannie Mae, Freddie Mac Not Backing Home Loans of Nearly $1M" I don't know how wannabe first time home owners are going to catch a break.
  - kipchak 5y ago
    The only thing I can think of is a reintroduction of something like Shotgun Shacks, somewhere in between trailer parks and suburbs. Something like Boxabls, Tiny homes and container homes.
    - WarOnPrivacy 5y ago
      Builders can rake in more cash building mini-mansions. County commissioners are totally on board with that. Our county has a massive homeless population while new housing developments start at 350k. There's been one new apartment complex in the last 25 years.
      - long_time_gone 5y ago
        Most of the "starter homes" in my region were wiped out in the house flipping craze of the early-2000s. They were renovated, added to, and turned into McMansions. The only things built since then are luxury homes in the $600k+ range.
  - runako 5y ago
    > I don't know how wannabe first time home owners are going to catch a break. They will buy in the other 97% of counties where million-dollar loans do not require subsidy. Most states do not contain even a single county that qualifies for the higher Fannie/Freddie limits. Notably, this includes Texas, Illinois, and Georgia. There are entire major metro areas where one can work in tech and buy a house for well under $500k. For example, Atlanta is home to engineering offices for Google, Microsoft, Spotify, and Mailchimp/Intuit and sports a median home value of $349k. This is comfortably affordable to a person making less than $100k.
yardie 5y ago
$1M is a $4000/m mortgage requiring a $12000/m income or $140k salary. That seems doable for some professions. If you are on the fence of buying a home, right now would be a good time to do it. Because they aren't getting cheaper and with this announcement they will almost certainly rise to meet this new, looser qualification.
- francisofascii 5y ago
  I remember thinking the same thing back in 2006 when I bought a home. The house lost 30% of it's value after two years. Turned out 2009 would have been a better time to buy.
  - jjoonathan 5y ago
    (music) time in the market beats market timing (music) 'cept when it doesn't, of course!
  - yardie 5y ago
    And the result of 2009 was a tightening in lending standards. Which helped create a 5 year glut of housing. More housing was built than there were qualified buyers to take possession. Those govt lending standards haven’t abated. If anything they are too strict as buyers have to bring more cash to closing since appraisals aren’t matching sales prices. We’re headed for a slow down for sure but not a reversal. As much as I’d like that to be the case.
- JKCalhoun 5y ago
  Analysts I've been coming across lately are predicting a single digit softening of the housing market in 2022. FWIW.
  - yardie 5y ago
    Valuations in my neighborhood have gone up 15%-20% yoy. In my parents neighborhood (older homes on larger parcels) it's almost 30% yoy.
- 5y ago
bradleyjg 5y ago
So much for the US being considered right wing. US residential mortgages represent one of the largest examples of socialism in action anywhere with nary a complaint from either US party.
- nickpp 5y ago
  Don't forget the US Health Care and Education too. Three domains people love to point to as failures of capitalism while they actually are examples of how government intervention can mess with the free market to the expected results.
- titzer 5y ago
  Must be me, but I missed the part of socialism that includes an impossible debt burden to private banks and a massive housing market bubble.
  - helen___keller 5y ago
    Socialism with American characteristics
    - long_time_gone 5y ago
      The same system we've been calling "capitalism" for 200 years?
- redisman 5y ago
  Both parties have figured out that printing money is more popular and way politically easier in the short term than any responsible policy
- opportune 5y ago
  Socialism is when people take out loans to purchase private property
jjoonathan 5y ago
> a boon for borrowers No, it's a boon for owners.
- JKCalhoun 5y ago
  Agree. But also, those borrowers are soon-to-be owners.
  - fanniemae 5y ago
    And they'll be screwed when the market corrects and the value of the home they just bought drops significantly
    - bradleyjg 5y ago
      The market will not be allowed to correct. That was the lesson of 2008. The only endgame here comes after the end of dollar dominance.
      - skywal_l 5y ago
        Now in what circumstances the dominance of the dollar would end? The dollar has pretty much replaced gold in the world economy. And the US happens to own the only mine in the world. I don't see any scenario, bear some sort of cataclysmic event, that would, in say, the next 50 years, change any of that. But I would gladly have my mind changed.
        bradleyjg 5y ago
        Hogs get slaughtered. We’ve collectively figured out that we have the world’s only gold mine and are busy exploiting the F out of it. Both parties, round the clock. For example, we prop up our residential housing market by having one part of the government create dollars to buy the mortgages backed securities created by another part of the government in order to keep the yields down and justify low mortgage interest rates. Do you think the rest of the world is going to sit back and be cynically exploited forever?
helen___keller 5y ago
A $1 million loan on a 30 year term at 3% interest ($4200/mo) is totally different from say 5% (5300/mo) or 8% (7300/mo) interest. It’s strange to me that the principal of the loan is the basis for the policy rather than the monthly payments. If interest rates hit a 30 year high to match our 30 year high in inflation, the share of Americans who can afford a million dollar loan will be a tiny tiny fraction of what it is now.
- jjoonathan 5y ago
  If they keep rates low, inflation will explode, and buying a house now will be an excellent investment. If they spike rates to fight inflation, like in the late 70s, buying a house now will be a terrible investment. That's why it's a lever of power: it can go both ways.
  - ece 5y ago
    Offcourse, it'll be something in the middle which makes sense for the US and global economy.
  - throw8932894 5y ago
    You assume low interest rate has no negative effect in long run. In 30 years the house may be worth $100M on paper, but is unsalable and in neighbourhood that look like Detroit .
    - helen___keller 5y ago
      If the house can’t be sold, that’s not the value on paper. Valuations are made based on real sales of comparable properties in the area.
  - toomuchtodo 5y ago
    What's US gov debt servicing look like as rates go up? Not so good. Interest rates should rise substantially (to stop inflating assets and allowing zombie companies to continue to operate suboptimally), but there is no appetite. The US government owes ~$280B/year for each percent increase in interest rates. Dollar-weighed maturity of current US debt is 69.1 months. When rates rise, within one year roughly 1/3 debt would be financed at the higher rates. Within three year, >50% would be issued at higher rates. https://www.cbo.gov/publication/56910 https://www.cbo.gov/publication/56910 https://home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ32021.pdf https://home.treasury.gov/system/files/221/TreasuryPresentat... (this is not investing advice, for educational purposes only)
newaccount2021 5y ago
translation: your family is now on the hook for holding a larger bag
chernevik 5y ago
"Under the terms of their 2008 conservatorships, [Fannie and Freddie] currently have access to more than $250 billion in support from the Treasury Department." These institutions and their Federal guarantees contributed enormously to the 2008 housing bubble and subsequent collapse. But 13 years later, here they are, allocating credit. What could go wrong?
- defaultprimate 5y ago
  It's gonna be glorious
  - Arrath 5y ago
    Get it while you can!
- rich_sasha 5y ago
  IIRC, these two did exactly what they are supposed to. They always had implied backing of the government, meaning basically this. The issue was actually mortgages not backed by either of these, which however were still securitised and traded as if they were. When housing market slowed, evictions and defaults mounted, investors in FDIC et al were fine, the mortgages were backed. It was all the other ones that went to 0 and caused the all-planet financial meltdown. So if anything it’s good to see that the credit expansion is going through these entities.
  - chernevik 5y ago
    Investors in their securities didn't ask whether the supporting collateral was inflated because they didn't have to. And because the GSEs made up the bulk of the market, it was their willingness to lend that drove that market. Their expansion of excess credit (along with the Fed's constant easing) lead to the bubble in housing prices that drove the whole thing.

46 points by ra7 5y ago

Bostonian 5y ago

Can also be titled "Prices Soar as Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1M"

Stubb 5y ago
Next you're going to claim that non-dischargeable student loans drive up the price of higher education in the US. Crazy talk!
JKCalhoun 5y ago
Or "Prices Were Already Soaring Despite Fannie Mae, Freddie Mac Not Backing Home Loans of Nearly $1M" I don't know how wannabe first time home owners are going to catch a break.
- kipchak 5y ago
  The only thing I can think of is a reintroduction of something like Shotgun Shacks, somewhere in between trailer parks and suburbs. Something like Boxabls, Tiny homes and container homes.
  - WarOnPrivacy 5y ago
    Builders can rake in more cash building mini-mansions. County commissioners are totally on board with that. Our county has a massive homeless population while new housing developments start at 350k. There's been one new apartment complex in the last 25 years.
    - long_time_gone 5y ago
      Most of the "starter homes" in my region were wiped out in the house flipping craze of the early-2000s. They were renovated, added to, and turned into McMansions. The only things built since then are luxury homes in the $600k+ range.
- runako 5y ago
  > I don't know how wannabe first time home owners are going to catch a break. They will buy in the other 97% of counties where million-dollar loans do not require subsidy. Most states do not contain even a single county that qualifies for the higher Fannie/Freddie limits. Notably, this includes Texas, Illinois, and Georgia. There are entire major metro areas where one can work in tech and buy a house for well under $500k. For example, Atlanta is home to engineering offices for Google, Microsoft, Spotify, and Mailchimp/Intuit and sports a median home value of $349k. This is comfortably affordable to a person making less than $100k.

yardie 5y ago

$1M is a $4000/m mortgage requiring a $12000/m income or $140k salary. That seems doable for some professions. If you are on the fence of buying a home, right now would be a good time to do it. Because they aren't getting cheaper and with this announcement they will almost certainly rise to meet this new, looser qualification.

francisofascii 5y ago
I remember thinking the same thing back in 2006 when I bought a home. The house lost 30% of it's value after two years. Turned out 2009 would have been a better time to buy.
- jjoonathan 5y ago
  (music) time in the market beats market timing (music) 'cept when it doesn't, of course!
- yardie 5y ago
  And the result of 2009 was a tightening in lending standards. Which helped create a 5 year glut of housing. More housing was built than there were qualified buyers to take possession. Those govt lending standards haven’t abated. If anything they are too strict as buyers have to bring more cash to closing since appraisals aren’t matching sales prices. We’re headed for a slow down for sure but not a reversal. As much as I’d like that to be the case.
JKCalhoun 5y ago
Analysts I've been coming across lately are predicting a single digit softening of the housing market in 2022. FWIW.
- yardie 5y ago
  Valuations in my neighborhood have gone up 15%-20% yoy. In my parents neighborhood (older homes on larger parcels) it's almost 30% yoy.
5y ago

bradleyjg 5y ago

So much for the US being considered right wing. US residential mortgages represent one of the largest examples of socialism in action anywhere with nary a complaint from either US party.

nickpp 5y ago
Don't forget the US Health Care and Education too. Three domains people love to point to as failures of capitalism while they actually are examples of how government intervention can mess with the free market to the expected results.
titzer 5y ago
Must be me, but I missed the part of socialism that includes an impossible debt burden to private banks and a massive housing market bubble.
- helen___keller 5y ago
  Socialism with American characteristics
  - long_time_gone 5y ago
    The same system we've been calling "capitalism" for 200 years?
redisman 5y ago
Both parties have figured out that printing money is more popular and way politically easier in the short term than any responsible policy
opportune 5y ago
Socialism is when people take out loans to purchase private property

jjoonathan 5y ago

> a boon for borrowers No, it's a boon for owners.

JKCalhoun 5y ago
Agree. But also, those borrowers are soon-to-be owners.
- fanniemae 5y ago
  And they'll be screwed when the market corrects and the value of the home they just bought drops significantly
  - bradleyjg 5y ago
    The market will not be allowed to correct. That was the lesson of 2008. The only endgame here comes after the end of dollar dominance.
    - skywal_l 5y ago
      Now in what circumstances the dominance of the dollar would end? The dollar has pretty much replaced gold in the world economy. And the US happens to own the only mine in the world. I don't see any scenario, bear some sort of cataclysmic event, that would, in say, the next 50 years, change any of that. But I would gladly have my mind changed.
      - bradleyjg 5y ago
        Hogs get slaughtered. We’ve collectively figured out that we have the world’s only gold mine and are busy exploiting the F out of it. Both parties, round the clock. For example, we prop up our residential housing market by having one part of the government create dollars to buy the mortgages backed securities created by another part of the government in order to keep the yields down and justify low mortgage interest rates. Do you think the rest of the world is going to sit back and be cynically exploited forever?

helen___keller 5y ago

A $1 million loan on a 30 year term at 3% interest ($4200/mo) is totally different from say 5% (5300/mo) or 8% (7300/mo) interest. It’s strange to me that the principal of the loan is the basis for the policy rather than the monthly payments. If interest rates hit a 30 year high to match our 30 year high in inflation, the share of Americans who can afford a million dollar loan will be a tiny tiny fraction of what it is now.

jjoonathan 5y ago
If they keep rates low, inflation will explode, and buying a house now will be an excellent investment. If they spike rates to fight inflation, like in the late 70s, buying a house now will be a terrible investment. That's why it's a lever of power: it can go both ways.
- ece 5y ago
  Offcourse, it'll be something in the middle which makes sense for the US and global economy.
- throw8932894 5y ago
  You assume low interest rate has no negative effect in long run. In 30 years the house may be worth $100M on paper, but is unsalable and in neighbourhood that look like Detroit .
  - helen___keller 5y ago
    If the house can’t be sold, that’s not the value on paper. Valuations are made based on real sales of comparable properties in the area.
- toomuchtodo 5y ago
  What's US gov debt servicing look like as rates go up? Not so good. Interest rates should rise substantially (to stop inflating assets and allowing zombie companies to continue to operate suboptimally), but there is no appetite. The US government owes ~$280B/year for each percent increase in interest rates. Dollar-weighed maturity of current US debt is 69.1 months. When rates rise, within one year roughly 1/3 debt would be financed at the higher rates. Within three year, >50% would be issued at higher rates. https://www.cbo.gov/publication/56910 https://www.cbo.gov/publication/56910 https://home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ32021.pdf https://home.treasury.gov/system/files/221/TreasuryPresentat... (this is not investing advice, for educational purposes only)

newaccount2021 5y ago

translation: your family is now on the hook for holding a larger bag

chernevik 5y ago

"Under the terms of their 2008 conservatorships, [Fannie and Freddie] currently have access to more than $250 billion in support from the Treasury Department." These institutions and their Federal guarantees contributed enormously to the 2008 housing bubble and subsequent collapse. But 13 years later, here they are, allocating credit. What could go wrong?

defaultprimate 5y ago
It's gonna be glorious
- Arrath 5y ago
  Get it while you can!
rich_sasha 5y ago
IIRC, these two did exactly what they are supposed to. They always had implied backing of the government, meaning basically this. The issue was actually mortgages not backed by either of these, which however were still securitised and traded as if they were. When housing market slowed, evictions and defaults mounted, investors in FDIC et al were fine, the mortgages were backed. It was all the other ones that went to 0 and caused the all-planet financial meltdown. So if anything it’s good to see that the credit expansion is going through these entities.
- chernevik 5y ago
  Investors in their securities didn't ask whether the supporting collateral was inflated because they didn't have to. And because the GSEs made up the bulk of the market, it was their willingness to lend that drove that market. Their expansion of excess credit (along with the Fed's constant easing) lead to the bubble in housing prices that drove the whole thing.