4 ms·

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 t

by 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.
- iancmceachern 4y ago
  It's not that I think it's weird because I think something shady is going on. I think it's weird because where does this process add value? I argue it doesn't. In my experience, things like this, financial instruments, the people that sell them and make a living in the churn only make their money when there is a transaction. The more transactions, the more fees and etc. they can charge. They make money when money changes hands, not necessarily by making something of value.
  - dymk 4y ago
    I've never, ever been charged a fee for having my mortgage sold to another company, and what they do with the debt after everything has been signed isn't my concern. I just find the company offering the best rate, terms, and ability to close the underwriting, and I go with them. You're basically asking, why do retail stores exist? Why don't people go shop directly from the central distribution warehouse?
    - iancmceachern 4y ago
      They make money somehow. All the people that are employed in that industry, tha companies, they're making money somehow, even if if you can't point to a line item on a specific transaction. Exactly. Retail stores basically don't exist (or are in a clear downward trend) for the same reasons. People realizing they don't add value and they can just buy their stuff directly. It's the same here, how does quicken loans add value? They do something the people they sell the loan to can't? Not really, it's just marketing. Quicken loans has built a marketing funnel, they get the loans, then sell them. The value they add is marketing.
bombcar 4y ago
The servicing and the loan itself are often split; the larger banks continue to service the loans they sold off often; the mortgage brokers don't even do that (most attempt to never service the loan at all). It is possible to find mortgage loans that are not resold, but you may pay for the privilege (or get a 10 year loan, those are short enough that they're often not worth reselling).

by twic 4y ago

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.

iancmceachern 4y ago
It's not that I think it's weird because I think something shady is going on. I think it's weird because where does this process add value? I argue it doesn't. In my experience, things like this, financial instruments, the people that sell them and make a living in the churn only make their money when there is a transaction. The more transactions, the more fees and etc. they can charge. They make money when money changes hands, not necessarily by making something of value.
- dymk 4y ago
  I've never, ever been charged a fee for having my mortgage sold to another company, and what they do with the debt after everything has been signed isn't my concern. I just find the company offering the best rate, terms, and ability to close the underwriting, and I go with them. You're basically asking, why do retail stores exist? Why don't people go shop directly from the central distribution warehouse?
  - iancmceachern 4y ago
    They make money somehow. All the people that are employed in that industry, tha companies, they're making money somehow, even if if you can't point to a line item on a specific transaction. Exactly. Retail stores basically don't exist (or are in a clear downward trend) for the same reasons. People realizing they don't add value and they can just buy their stuff directly. It's the same here, how does quicken loans add value? They do something the people they sell the loan to can't? Not really, it's just marketing. Quicken loans has built a marketing funnel, they get the loans, then sell them. The value they add is marketing.

bombcar 4y ago

The servicing and the loan itself are often split; the larger banks continue to service the loans they sold off often; the mortgage brokers don't even do that (most attempt to never service the loan at all). It is possible to find mortgage loans that are not resold, but you may pay for the privilege (or get a 10 year loan, those are short enough that they're often not worth reselling).