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The author actually address this a bit in the 2nd and 3rd paragraph. The US has added a layer of complexity on top of the plain vanilla mortgage. For the rest
by DwnVoteHoneyPot 5y ago
The author actually address this a bit in the 2nd and 3rd paragraph. The US has added a layer of complexity on top of the plain vanilla mortgage. For the rest of world, mortgages are a way to pay for the house over time. However, in the US, they are into derivatives of the house price (pool them together, sell off the risk (rate of change of house price)), hence the title of the article: Mortgages are a manufactured product.
Edit: now that I think about it. The first level is just buying house with cash immediately. The mortgage is the next level of complexity, adding time dimension. The article is about the 3rd level complexity above that (securitization of the 2nd level)! Turtles all the way down.
- cortesoft 5y agoSure, but as a home buyer, what happened to your mortgage after you purchase your home only really matters to you as far as who the servicer is... you don't care or even know who owns the other parts. US home owners use mortgages for the same purpose as people in other countries... to be able to pay off their home over time. How is it any different as a home owner in the US verse the rest of the world?
- DwnVoteHoneyPot 5y agoFrom the home owner perspective, the derivatives are nice because the borrower are able to get a lower mortgage interest rate, or a longer mortgage, or qualify for a mortgage when they could not before. The risk of non-payment is spread out, allowing less compensation for the risk.
- rufus_foreman 5y agoNext two turtles are CDO-squared and CDO-cubed.