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A mortgage with a fixed interest rate and no prepayment penalty is no subsidized since the borrower pays for the option to prepay the mortgage with a higher int
by kpommerenke 4y ago
A mortgage with a fixed interest rate and no prepayment penalty is no subsidized since the borrower pays for the option to prepay the mortgage with a higher interest rates than they would be able to get if they were not able to prepay the loan. The market prices in the value of the call option.
- seibelj 4y agoYes I'm sure all of these mortgages would be identically offered with such generous terms without the government being involved every step of the way
- nostrademons 4y agoThe point being made here is that we actually do have the counterfactual available to us. Jumbo mortgages are not underwritten by the government, and they're exclusively private transactions between lender and borrower where the lender keeps the mortgage on the books and assumes all risk of default, interest rate changes, inflation, etc. And we know the market premium for this risk, because we can compare the difference in rates between a jumbo and conforming loan. It's about a half a percent.