5 ms·

My understanding is mortgage lenders mostly originate loans. The use their line of credit to offer (mostly) conforming mortgages, doing the paperwork, underwri

by refurb 4y ago

My understanding is mortgage lenders mostly originate loans. The use their line of credit to offer (mostly) conforming mortgages, doing the paperwork, underwriting, and closing. Then the mortgage is quickly sold off, the money recouped, so they can go and originate another mortgage. At any given time, they hold a very small fraction of all the mortgages they might originate in a years (in this example $10B at year).

iancmceachern 4y ago
Yes, every loan I've received, even re-fis was sold within months to the final lender.
- indigodaddy 4y ago
  Often not even the final lender. One of mine changed hands 2-3 times (can’t remember) within a year or two.
  - avrionov 4y ago
    Do you have to send money to a different company when the mortgage is sold?
    - lbotos 4y ago
      Yep! I've had two mortgage servicers in the first year of owning a home. The first offered bi-weekly payments, the second didn't. So you aren't even guaranteed the same "features".
    - indigodaddy 4y ago
      Yes for us and is a small hassle each time to re-set that up..
    - lotsofpulp 4y ago
      Sometimes.
  - twic 4y ago
    This feature of the US mortgage system seems wild to me, as a Brit. When i take out a mortgage with a lender, i continue to owe money to that lender, and only that lender, until i repay it. If the lender wants that risk off their books, they can (and do!) sell mortgage-backed securities, which carry away the financial risk of the mortgage, whilst leaving their contract with me intact. It seems very strange, and terrible for borrowers, that you can form a contract with one entity, and then have it transferred to another without your agreement. From what i've heard, those transfers aren't purely formalities either, people get hit with weird charges sometimes.
    - wonderwonder 4y ago
      Even nicer is often if the borrower defaults that loan is sold to aggressive debt collectors for pennies on the dollar. Those debt collectors now hound you and litigate against you to get as much from you as they can. This is rampant with cc debt.
    - linuxftw 4y ago
      > mortgage-backed securities This describes the US system as well. The 'servicing' (who you pay each month) of the loan might change hands, but the underlying debt was bundled and sold off already. In the US, many banks don't service loans. I assume, that "Fund X" buys the securities using funds from 401ks, etc, and they kick the servicing to a preferred partner. The partner gets paid some cut. The fund gets the yield, the fees are paid out to to the servicing entity. This is why the 2008 event was so disruptive. Mortgage brokers were labeling everything as AAA, and the funds were buying them up. Banks weren't risking their own capital, they want the 401k holders to own the debt, and they just take their cut. It's a nice racket, can't figure out how to break in, though.
    - dymk 4y ago
      I don't see how it's weird. You do agree that the debt can be sold to somebody else. And it's not like anything actually changes, other than the payment portal you use. It's an incredibly tightly regulated system, and the buyer of the debt is still subject to the exact same contractual obligations that the originator had.
  - lsaferite 4y ago
    Mine has just been resold back to the original lender as far as I can tell. Very weird.
milesdyson_phd 4y ago
Depends on the lender, that is how a lot operate. Some provide servicing as well, and will cherry pick their safest loans to service while tranching and selling the rest.
indigodaddy 4y ago
Everyone is constantly selling/flipping these loans but I guess someone has to be holding a pretty big bag at any given time… is the point that you don’t want to be holding that bag for too long? The whole thing seems crazy to me.
- toomuchtodo 4y ago
  The bag are bonds, invested into by funds that need bond exposure.
  - qeternity 4y ago
    I don't think most people realize how big the MBS market is. Most of the damage in 2008 wasn't from reckless Wall St traders and financial engineering, it was simply from a decline in housing prices on the back of a bubble that was created by the US Govt.
    - linuxftw 4y ago
      A large portion of it was outright fraud by the mortgage brokers and the rating agencies. The agencies slapped everything as 'investment grade' so the worthless securities could get bankrolled by everyone's retirement plans.
- whycombinetor 4y ago
  No, the point is that from the seller's point of view, the return on a sold loan/pool is higher than if you kept the loans, because the buyers pay a premium for the privilege of buying, and that premium goes straight into the seller's pocket. Then they will use that pocket cash to go buy some (% of) other loans from originators in different industries / different geographic locations / other different characteristics that they can't originate enough of themselves to have a sufficiently diversified portfolio to satisfy investors and board members who are risk averse. It is not about passing off the risk entirely (credit unions have to retain at least 10% ownership for themselves, for example), since you are still going to buy % participation in other loans that have risk, but about trading out a large investment at a lower return for a smaller investment at a higher return.
deleted 4y ago
[deleted]
bdcravens 4y ago
Had an issue with my 2020 tax return (the IRS is months behind) so my lender decided to actually keep and service my loan. We spent months going around and around with the IRS before they even offered that option, which says a lot about how uncommon this is.

by refurb 4y ago

iancmceachern 4y ago

Yes, every loan I've received, even re-fis was sold within months to the final lender.

indigodaddy 4y ago
Often not even the final lender. One of mine changed hands 2-3 times (can’t remember) within a year or two.
- avrionov 4y ago
  Do you have to send money to a different company when the mortgage is sold?
  - lbotos 4y ago
    Yep! I've had two mortgage servicers in the first year of owning a home. The first offered bi-weekly payments, the second didn't. So you aren't even guaranteed the same "features".
  - indigodaddy 4y ago
    Yes for us and is a small hassle each time to re-set that up..
  - lotsofpulp 4y ago
    Sometimes.
- twic 4y ago
  This feature of the US mortgage system seems wild to me, as a Brit. When i take out a mortgage with a lender, i continue to owe money to that lender, and only that lender, until i repay it. If the lender wants that risk off their books, they can (and do!) sell mortgage-backed securities, which carry away the financial risk of the mortgage, whilst leaving their contract with me intact. It seems very strange, and terrible for borrowers, that you can form a contract with one entity, and then have it transferred to another without your agreement. From what i've heard, those transfers aren't purely formalities either, people get hit with weird charges sometimes.
  - wonderwonder 4y ago
    Even nicer is often if the borrower defaults that loan is sold to aggressive debt collectors for pennies on the dollar. Those debt collectors now hound you and litigate against you to get as much from you as they can. This is rampant with cc debt.
  - linuxftw 4y ago
    > mortgage-backed securities This describes the US system as well. The 'servicing' (who you pay each month) of the loan might change hands, but the underlying debt was bundled and sold off already. In the US, many banks don't service loans. I assume, that "Fund X" buys the securities using funds from 401ks, etc, and they kick the servicing to a preferred partner. The partner gets paid some cut. The fund gets the yield, the fees are paid out to to the servicing entity. This is why the 2008 event was so disruptive. Mortgage brokers were labeling everything as AAA, and the funds were buying them up. Banks weren't risking their own capital, they want the 401k holders to own the debt, and they just take their cut. It's a nice racket, can't figure out how to break in, though.
  - dymk 4y ago
    I don't see how it's weird. You do agree that the debt can be sold to somebody else. And it's not like anything actually changes, other than the payment portal you use. It's an incredibly tightly regulated system, and the buyer of the debt is still subject to the exact same contractual obligations that the originator had.
- lsaferite 4y ago
  Mine has just been resold back to the original lender as far as I can tell. Very weird.

milesdyson_phd 4y ago

Depends on the lender, that is how a lot operate. Some provide servicing as well, and will cherry pick their safest loans to service while tranching and selling the rest.

indigodaddy 4y ago

Everyone is constantly selling/flipping these loans but I guess someone has to be holding a pretty big bag at any given time… is the point that you don’t want to be holding that bag for too long? The whole thing seems crazy to me.

toomuchtodo 4y ago
The bag are bonds, invested into by funds that need bond exposure.
- qeternity 4y ago
  I don't think most people realize how big the MBS market is. Most of the damage in 2008 wasn't from reckless Wall St traders and financial engineering, it was simply from a decline in housing prices on the back of a bubble that was created by the US Govt.
  - linuxftw 4y ago
    A large portion of it was outright fraud by the mortgage brokers and the rating agencies. The agencies slapped everything as 'investment grade' so the worthless securities could get bankrolled by everyone's retirement plans.
whycombinetor 4y ago
No, the point is that from the seller's point of view, the return on a sold loan/pool is higher than if you kept the loans, because the buyers pay a premium for the privilege of buying, and that premium goes straight into the seller's pocket. Then they will use that pocket cash to go buy some (% of) other loans from originators in different industries / different geographic locations / other different characteristics that they can't originate enough of themselves to have a sufficiently diversified portfolio to satisfy investors and board members who are risk averse. It is not about passing off the risk entirely (credit unions have to retain at least 10% ownership for themselves, for example), since you are still going to buy % participation in other loans that have risk, but about trading out a large investment at a lower return for a smaller investment at a higher return.

deleted 4y ago

[deleted]

bdcravens 4y ago

Had an issue with my 2020 tax return (the IRS is months behind) so my lender decided to actually keep and service my loan. We spent months going around and around with the IRS before they even offered that option, which says a lot about how uncommon this is.