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>Fannie Mae guaranteeing mortgages FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order

>Fannie Mae guaranteeing mortgages FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them). FM buys up a lot of mortgages and sells them to investors, then turns around and puts the money back into productive use. >taxing home owners on the imputed value of rent What does this mean? You want to tax homeowners as if they paid themselves rent? (Which even then is net zero, so no tax...) If you want people to pay income tax on the imputed rental value (which is likely not even legal - they are not getting an income from ownership - and courts have held income tax must be on sources of income), then you will increase the cost of home ownership, putting even further out of reach for most people. >In those cases subsidies don't result in expanded supply, only increased prices. Yet many places subsidies do result in new housing.....

ambernightcrush 4y ago
Both Fannie and Freddie buy mortgages, but your description is much more stringent than in truth. Fannie buys from big banks, Freddie buys from thrift banks; both buy conforming loans(conforming to their standards) which is a large part of the home buying audience. In addition to that, the non-conforming loans that you listed e.g. FHA and VA. Those government-backed loans are for special populations. These mortgages are assembled into MBS and then sold to investors; the banks that originated the loans get their liquidity back.
- ChrisLomont 4y ago
  >Both Fannie and Freddie buy mortgages Yes, I said as much. The OP claimed they guaranteed mortgages, which they do not. I'm decently aware of the MBS market - I developed MBS pricing algorithms in the late 90s/early 00s for putting houses in tranches after a friend at a mortgage company asked for help with algorithms. Turns out the problem was NP-hard (a lattice based linear programming problem if I recall), but good heuristics from the literature and some special sauce outperformed their current (at that time) pricing. Around the time the whole market blew up I was considering going to hedge funds, and was working out details of how all the math, science, and computer algos work to prepare for interviewing. After the market crash, I moved on more into scientific and R&D computing. But I still read papers in the area out of curiosity. But the fact is the market is not "guaranteed" in any sense - which is likely good as 2008 showed.
  - kareemsabri 4y ago
    I don't think this is true. > At Fannie Mae, we provide liquidity to the single-family market by purchasing and guaranteeing mortgage loans made by lenders and issuing debt securities and mortgage-backed securities that attract global investors to finance U.S. housing. https://www.fanniemae.com/about-us/what-we-do#:~:text=At%20Fannie%20Mae%2C%20we%20provide,investors%20to%20finance%20U.S.%20housing https://www.fanniemae.com/about-us/what-we-do#:~:text=At%20F....
    - ChrisLomont 4y ago
      >I don't think this is true. They do guarantee some loans, as I wrote above. The marketing blurb you copies cleverly does not state they will guarantee any mortgage loan. If they did, the housing crisis would not have been such a crisis - the crisis happened when so many investors realized the loans they bought could crash and cause them massive losses - precisely because FM does NOT guarantee all loans. They guarantee certain loans (conforming loans), and charge a fee to investors for this when they purchase MBS from Fannie Mae. Conforming loans make up under 40% of all mortgage loans. Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those. It may be that they stopped buying loans they deem too risky, but that didn't use to be the case.
      - kareemsabri 4y ago
        Well, what you said is this. > FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them). And this. > The OP claimed they guaranteed mortgages, which they do not. So it read to me like they don't guarantee mortgages save for the "special" mortgages for underserved groups (FHA/VA). In fact, they do. They guarantee all the loans they buy, as far as I know. They only buy conforming loans. Conforming loans are another way of saying, loans that they will buy (and guarantee). Of course they don't guarantee loans they don't buy. I used to work at a mortgage originator, and we sold the majority of our loans to Fannie and Freddie. > Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those. This is true, because private investors pay more than Freddie and Fannie for conforming loans.
dcolkitt 4y ago
> FM does not guarantee most mortgages, What? Of course Fannie and Freddie guarantee the MBS they issue. Which is an implicitly a guarantee from the US government. Otherwise they'd trade at much wider credit spreads, which would in turn lead to higher rates for home buyers. You don't have to take my word for it, here's the New York Fed's own words: For agency MBS, the GSEs and Ginnie Mae promise full and timely payment of principal and interest, a guarantee that is either explicitly or implicitly backed by the federal government[1] > You want to tax homeowners as if they paid themselves rent? Alice, who has a 20% income tax rate, owns a house and rents it to Bob for $25k/year. Bob also has a 20% income tax rate, owns an identical house and rents it to Alice for $25k/year. In total the government collects $10k/year in tax revenue from Alice and Bob from their rental income. Now let's say Alice and Bob swap houses and move back into their owner-occupied properties. This is an economically identical situation (remember the houses are identical). Both still own one home. Both are still consuming housing that's worth $25k/yr to them. Yet the government collects no tax revenue. Exempting the implicit value of rent is a subsidy favoring owner occupied housing. > imputed rental value (which is likely not even legal) The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand. For example, if your employer provides you life insurance, you have to pay income tax on the actuarial value of the policy even if you don't die during the coverage period.[2] > then you will increase the cost of home ownership, Not if the supply of housing is completely inelastic. Any increase in housing taxes will result in a commensurate fall in the sticker price that matches the tax increase. Economists have known this since Henry George. [1]https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1001.pdf https://www.newyorkfed.org/medialibrary/media/research/staff... [2]https://www.duq.edu/assets/Documents/benefits/_pdf/Imputed%20Income.pdf https://www.duq.edu/assets/Documents/benefits/_pdf/Imputed%2...
- ChrisLomont 4y ago
  >> FM does not guarantee most mortgages, >What? Of course Fannie and Freddie guarantee the MBS they issue Yes, they guarantee the MBS they issue, which is on a minority of all loans. The fact remains they do NOT guarantee most mortgages. They guarantee conforming loans, which are around 40% of all mortgage loans. And of all conforming loans, they only end up buying ~60% of them. So they at most guarantee around 24% of all mortgages, which is certainly not most mortgages. >Alice, who .... Ignoring the other side where landlords write stuff off and renters get tax breaks. On the ownership side, you're also missing lots of tax changes. So not identical. Also, the govt has an interest in property ownership as they have solid evidence that people owning property in a region make them less more stable. So there's very good reason to provide tax incentives for policy reasons. It's been shown that tax incentives, dollar for dollar, are pretty good incentives compared to most other forms of government spending to affect policy. >The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand. And they have tons the other way too - all because they desire to affect outcomes. So that they can do it is not really strong evidence to if they should do it, unless you address all the reasons they desire to do it. >Not if the supply of housing is completely inelastic. Which it is not [1]. "most areas that are widely regarded as supply-inelastic are, in fact, severely land-constrained by their topography" which is not most of the country. [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1193422 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1193422

ambernightcrush 4y ago

Both Fannie and Freddie buy mortgages, but your description is much more stringent than in truth. Fannie buys from big banks, Freddie buys from thrift banks; both buy conforming loans(conforming to their standards) which is a large part of the home buying audience. In addition to that, the non-conforming loans that you listed e.g. FHA and VA. Those government-backed loans are for special populations. These mortgages are assembled into MBS and then sold to investors; the banks that originated the loans get their liquidity back.

ChrisLomont 4y ago
>Both Fannie and Freddie buy mortgages Yes, I said as much. The OP claimed they guaranteed mortgages, which they do not. I'm decently aware of the MBS market - I developed MBS pricing algorithms in the late 90s/early 00s for putting houses in tranches after a friend at a mortgage company asked for help with algorithms. Turns out the problem was NP-hard (a lattice based linear programming problem if I recall), but good heuristics from the literature and some special sauce outperformed their current (at that time) pricing. Around the time the whole market blew up I was considering going to hedge funds, and was working out details of how all the math, science, and computer algos work to prepare for interviewing. After the market crash, I moved on more into scientific and R&D computing. But I still read papers in the area out of curiosity. But the fact is the market is not "guaranteed" in any sense - which is likely good as 2008 showed.
- kareemsabri 4y ago
  I don't think this is true. > At Fannie Mae, we provide liquidity to the single-family market by purchasing and guaranteeing mortgage loans made by lenders and issuing debt securities and mortgage-backed securities that attract global investors to finance U.S. housing. https://www.fanniemae.com/about-us/what-we-do#:~:text=At%20Fannie%20Mae%2C%20we%20provide,investors%20to%20finance%20U.S.%20housing https://www.fanniemae.com/about-us/what-we-do#:~:text=At%20F....
  - ChrisLomont 4y ago
    >I don't think this is true. They do guarantee some loans, as I wrote above. The marketing blurb you copies cleverly does not state they will guarantee any mortgage loan. If they did, the housing crisis would not have been such a crisis - the crisis happened when so many investors realized the loans they bought could crash and cause them massive losses - precisely because FM does NOT guarantee all loans. They guarantee certain loans (conforming loans), and charge a fee to investors for this when they purchase MBS from Fannie Mae. Conforming loans make up under 40% of all mortgage loans. Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those. It may be that they stopped buying loans they deem too risky, but that didn't use to be the case.
    - kareemsabri 4y ago
      Well, what you said is this. > FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them). And this. > The OP claimed they guaranteed mortgages, which they do not. So it read to me like they don't guarantee mortgages save for the "special" mortgages for underserved groups (FHA/VA). In fact, they do. They guarantee all the loans they buy, as far as I know. They only buy conforming loans. Conforming loans are another way of saying, loans that they will buy (and guarantee). Of course they don't guarantee loans they don't buy. I used to work at a mortgage originator, and we sold the majority of our loans to Fannie and Freddie. > Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those. This is true, because private investors pay more than Freddie and Fannie for conforming loans.

dcolkitt 4y ago

> FM does not guarantee most mortgages, What? Of course Fannie and Freddie guarantee the MBS they issue. Which is an implicitly a guarantee from the US government. Otherwise they'd trade at much wider credit spreads, which would in turn lead to higher rates for home buyers. You don't have to take my word for it, here's the New York Fed's own words: For agency MBS, the GSEs and Ginnie Mae promise full and timely payment of principal and interest, a guarantee that is either explicitly or implicitly backed by the federal government[1] > You want to tax homeowners as if they paid themselves rent? Alice, who has a 20% income tax rate, owns a house and rents it to Bob for $25k/year. Bob also has a 20% income tax rate, owns an identical house and rents it to Alice for $25k/year. In total the government collects $10k/year in tax revenue from Alice and Bob from their rental income. Now let's say Alice and Bob swap houses and move back into their owner-occupied properties. This is an economically identical situation (remember the houses are identical). Both still own one home. Both are still consuming housing that's worth $25k/yr to them. Yet the government collects no tax revenue. Exempting the implicit value of rent is a subsidy favoring owner occupied housing. > imputed rental value (which is likely not even legal) The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand. For example, if your employer provides you life insurance, you have to pay income tax on the actuarial value of the policy even if you don't die during the coverage period.[2] > then you will increase the cost of home ownership, Not if the supply of housing is completely inelastic. Any increase in housing taxes will result in a commensurate fall in the sticker price that matches the tax increase. Economists have known this since Henry George. [1]https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1001.pdf https://www.newyorkfed.org/medialibrary/media/research/staff... [2]https://www.duq.edu/assets/Documents/benefits/_pdf/Imputed%20Income.pdf https://www.duq.edu/assets/Documents/benefits/_pdf/Imputed%2...

ChrisLomont 4y ago
>> FM does not guarantee most mortgages, >What? Of course Fannie and Freddie guarantee the MBS they issue Yes, they guarantee the MBS they issue, which is on a minority of all loans. The fact remains they do NOT guarantee most mortgages. They guarantee conforming loans, which are around 40% of all mortgage loans. And of all conforming loans, they only end up buying ~60% of them. So they at most guarantee around 24% of all mortgages, which is certainly not most mortgages. >Alice, who .... Ignoring the other side where landlords write stuff off and renters get tax breaks. On the ownership side, you're also missing lots of tax changes. So not identical. Also, the govt has an interest in property ownership as they have solid evidence that people owning property in a region make them less more stable. So there's very good reason to provide tax incentives for policy reasons. It's been shown that tax incentives, dollar for dollar, are pretty good incentives compared to most other forms of government spending to affect policy. >The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand. And they have tons the other way too - all because they desire to affect outcomes. So that they can do it is not really strong evidence to if they should do it, unless you address all the reasons they desire to do it. >Not if the supply of housing is completely inelastic. Which it is not [1]. "most areas that are widely regarded as supply-inelastic are, in fact, severely land-constrained by their topography" which is not most of the country. [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1193422 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1193422