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U.S. government to backstop mortgages above $1M
- metadat 4y agohttps://archive.today/VvkKv https://archive.today/VvkKv
- deleted 4y ago[deleted]
- tekla 4y ago> Those limits are expected to jump to a baseline level of about $650,000 in most jurisdictions and to just under $1 million in high-cost markets. > adding that some of his clients are unable to qualify for loans for modest-sized homes under the current limits. Being unable to qualify for a loan on a $650,000-$970,800 limit makes me think you can't afford to live in that area, whatever "modest" size means.
- kevingadd 4y agoNot sure whether you've looked at average prices in most tech areas lately, they're getting pretty steep. You can always move an extra 30 minutes away from work to cut your costs but then you're spending time and money on a longer commute, even if you can "afford" that lower mortgage.
- lumost 4y agoWe’ve ignored the increase in nominal home values as part of inflation. Eventually you trip over limits like this one. Most major metros in the US see at least the 75th percentile of homes at above 1 million.
- chimerasaurus 4y agoJust going to point out that there are very real cases where one may want a mortgage larger than they want at least temporarily. For example, buying a home and selling another. If you want to minimize risk, easier to sell the old one, take a mortgage on the new one, and then clean things up once the dust settles. At least for cities like Seattle, that’s been basically the only way to sell a home and buy a new one without assuming a ton of risk.
- jeffbee 4y agoI think what that statement is trying to say is the price in unrelated to the size and quality of the house in high-cost areas.
- JumpCrisscross 4y ago> Being unable to qualify for a loan on a $650,000-$970,800 limit makes me think you can't afford to live in that area, whatever "modest" size means Someone with half a million dollars in cash can't afford a $1.2mm home?
- engineer_22 4y ago-> The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 next year in high-cost markets, such as parts of California and New York, from $970,800 this year, the Federal Housing Finance Agency said Tuesday. -> For most parts of the country, loan limits will rise to $726,200 from a 2022 maximum of $647,200, said FHFA, which oversees mortgage-finance giants Fannie Mae and Freddie Mac. By law, loan limits are calculated annually using a formula that factors in average housing prices. So, this isn't a large increase from year previous
- nathanaldensr 4y agoIt should be a decrease... to $0.
- bmitc 4y agoIt's just over 12%. That isn't a large increase?
- colechristensen 4y agoNot when year over year inflation is above 8%.
- sieabahlpark 4y ago
- bottlepalm 4y agoJust like health care and tuition costs, government backed insurance and loans are the root cause for prices spiraling out of control. "The mortgage finance market has leaned heavily on government support over the past few years. More than 90 percent of mortgages originated in 2011 were securitized by government entities using taxpayer funds to guarantee investors against default risk. This support cannot continue forever. The status quo perpetuates many of the policies that contributed to the housing bubble and consequently promotes an unstable mortgage market. In order to avoid another crisis, the government must exit mortgage finance and private capital must shoulder mortgage default risk. " https://reason.org/wp-content/uploads/files/study_restoring_trust_in_mbs_final.pdf https://reason.org/wp-content/uploads/files/study_restoring_...
- cyanydeez 4y agoEspecially places like Florida, Louisiana and Texas that continue to lose to hurricanes and continue to get bailed out despite being rebuilt in high risk neighborhoods. Climate change denialism is expensive.
- sitkack 4y agoFor blue states. I wonder if you could calculate how much federal relief a patch of land has received over the last 50 years?
- TMWNN 4y ago>For blue states You mean "NY, NJ, CT, and MA". They are the states that provide the vast majority of the surplus in federal taxes paid by its people versus expenditures to them and their states.[1] Four other states also have substantial surpluses, of which two voted for Clinton and Biden, and two voted for Trump both times. Every other state either breaks even (CA among them) or receives more than their people pay in taxes. Of the ten states that get back the most, five and a half (of Maine) voted for Clinton/Biden and four and a half voted for Trump/Trump. Source: Rockefeller Institute's annual studies on the subject. [1] Yes, they are all Democratic states today, but this was exactly the same a century ago, when MA and CT were solidly Republican and NJ and NY were swing states.
- nostromo 4y agoAbsurd. They need to freeze their max mortgage and keep it there for the foreseeable future to stop endless price inflation. And maybe the Fed could start selling some of their almost 3T in mortgages while they’re at it. https://fred.stlouisfed.org/series/WSHOMCB https://fred.stlouisfed.org/series/WSHOMCB
- hackernewds 4y agoIt's a travesty that the federal reserve and the government choose to make winners and losers with fickle unpredictability as they see fit, often for political gain.
- neilv 4y ago> Mortgage bankers and real-estate agents say the new limits are needed to reflect higher home prices. Before we do this, how about we outlaw non-resident ownership of 1-3-family homes? Won't that mean prices will go/slow down, and more people will be able to afford to be homeowners? Without the government stuffing more taxpayer money into the pockets of bankers and Realtors.
- bigyikes 4y agoHow would this work in practice? Could renters afford to buy the homes they live in when their landlords are no longer legally allowed to own them?
- thebradbain 4y agoI mean, if corporate landlords legally were not allowed to own them, then supply would absolutely skyrocket as homes flood the market. Potentially to the point where they worth pennies on the dollar, as otherwise wealthy individuals would also be reaching the 2-3 home cap (with home prices so low, why not!) Of course, this would also decimate the entire sector as a store of wealth, which, while some may consider that good (and I am partial to the view that a home is first a place to live than an investment), in the short term it would definitely have the effect of wiping out most middle class wealth, which is tied up in the primary/only home. Then there’s also the problem you would likely see absolutely no units built in high demand areas, since the math wouldn’t pencil out until some sort of equilibrium was found.
- neilv 4y agoIt could be phased in over time. Start by halting new acquisitions, then gradually undo the very recent boost due to institutional and foreign investors. But don't drag it out so long that billion-dollar conspirators have more chances to buy a reversal of legislation.
- replygirl 4y agoa clause for immediate reclamation of non-resident-owned properties through eminent domain would all but guarantee a ruling that the legislation is unconstitutional. current landlords would certainly be grandfathered in and, if we're lucky, maybe new leases would be banned and existing tenants would be guaranteed right to purchase units at appraisal. it'd be a similar story for non-resident investors without tenants, except in their case they'd be entitled to hold indefinitely.
- fshbbdssbbgdd 4y agoThis statement from the article matches my experience: >However, for much of the postcrisis period, jumbo loans have been priced better than conforming loans partly because banks see them as valuable for attracting wealthy customers who they can do other business with, industry officials say. My mortgage is in the ballpark where I could choose whether to get a conforming or jumbo loan. Whenever I’ve shopped for a mortgage, I never was offered a lower rate for a conforming loan. In other words, private funders are willing to finance mortgages more cheaply than the government-backed agencies. For that reason, some of the language in the article criticizing the change doesn’t make a lot of sense to me, eg: >Critics of Fannie and Freddie’s large role say borrowers who can afford million-dollar mortgages should be able to finance a home without government-backed financing. This rule change is presumably meaningful to bond traders because it will change the characteristics of bonds that come on the market and who can buy them. Maybe that has some downstream effect on the interest rates offered to consumers?
- obblekk 4y agoThe current limit is 10 houses per owner... there's absolutely no reason the gov should be subsidizing real estate investors like that. This should really just be limited to 1 (or maybe 2) houses per owner at one time. That would create a subsidy for people to own their house (middle class rent control), allow people to move from one to another, and stop wasting tax money on subsidizing investors.
- mrep 4y agoWhat are the interest rates for primary vs 2+ homes cause I bought a second home back in March and as I recall, a Fannie Mae/Freddie Mac change made in February had second properties be a 1.25% higher interest rate than a primary for 30 year fixed.
- pc86 4y agoFM/FM charge additional fees (up-front) for additional properties, but there is no "higher interest rate" for subsequent mortgages. You qualify for whatever you qualify for. Now if you're buying it as an investment property, depending on your down payment, that may increase your interest rate.
- mrep 4y agoI think the effect is the same: https://www.nahb.org/blog/2022/01/fhfa-to-impose-hefty-upfront-fees-on-second-home-purchases/#:~:text=Also%20effective%20on%20April%201,loan%2Dto%2Dvalue%20ratio https://www.nahb.org/blog/2022/01/fhfa-to-impose-hefty-upfro....
- themitigating 4y agoWhy even 2?
- xwdv 4y agoIt’s not uncommon to have a winter and summer home.
- sitkack 4y agoTo the moon baby! Because house prices weren't high enough already.
- kart23 4y agoya know how practically unlimited student loans made it so colleges could charge much higher prices? the same thing is happening with home prices. government, through the treasuries massive holdings of mortgage-backed securities, is subsidizing the real estate market, keeping homes unaffordable for recent generations. the fed purchased more MBS during covid for ‘price support’. literally keeping home prices high instead of letting them naturally fall. our housing market is going to be fucked until the fed decides to actually start selling off the MBS. and senators try to tell you that your rent is actually high because of ‘greedy landlords’. https://www.bloomberg.com/news/articles/2022-09-22/mortgage-investors-jump-in-after-fed-says-mbs-sales-aren-t-near https://www.bloomberg.com/news/articles/2022-09-22/mortgage-... https://fred.stlouisfed.org/series/WSHOMCB https://fred.stlouisfed.org/series/WSHOMCB https://www.richmondfed.org/publications/research/economic_brief/2020/eb_20-08 https://www.richmondfed.org/publications/research/economic_b... > Over a longer term, increased mortgage credit supply may push up house price inflation and make housing less affordable.
- pr337h4m 4y agoWhile zoning laws ensure that no high-density housing can ever be built ¯\_(ツ)_/¯
- JumpCrisscross 4y ago> our housing market is going to be fucked until the fed decides to actually start selling off the MBS Agency MBS are being run off at about $20bn per month [1], with the Fed signaling it's due to increase that rate. While that's 11 years against their $2.7tn of holdings, they're currently in a neutral position. They aren't influencing the housing market. (Selling would influence it by jacking up rates.) [1] https://www.americanbanker.com/news/powell-fed-will-sell-mortgage-backed-securities-just-not-yet https://www.americanbanker.com/news/powell-fed-will-sell-mor...
- kart23 4y agosure, and we see the effect of that because house prices are slowly going down now, yet just like mbs holdings, not nearly fast enough to put a meaningful dent in the covid gains. and yes, rates will go up, but a return to the free market is what we need long-term, instead of prices being artificially propped up by the government. https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA
- warbler73 4y agoIt is good to bail out the ultra rich! Because when has the US done differently!
- anarticle 4y agoBit strange to put "affordability" and "$1M" in the same breath from a real estate agent, but here we are.
- xhrpost 4y agoI'm struggling to find a definition of what "backing mortgages by the government" means in practice? Does it mean private entities who buy the mortgage always get paid? If someone stops paying their mortgage, they get to keep their house?
- konaraddi 4y agoIt means that if the would-be home owner is unable to make payments on their mortgage then the government will pay the lender. The intent is the lender is more likely to lend and lower their rates.
- xhrpost 4y agoThanks for the reply. Wouldn't that cause the rates to be really close to the federal funds rate then? Why are mortgages hitting 7%? If the funds rate top is 4%, wouldn't even 5% - if guaranteed - still be better?
- staticman2 4y agoThe above explanation is not correct. The article is about Fannae Mae and Freddie Mac which buys loans from lenders and turns them into mortgage backed securities. The lender is not in the business of issuing a loan and then collecting the cash for 30 years. The lender is in the business of issuing the loan and selling it to Fannae Mae. I don't know what determines the interest rate in this scenario, but Fannae Mae needs to account for mortgage default risk when they operate the program. It is not run as a charity and the possibility of mortgage default means it is not risk free to Fannae Mae. There are government guaranteed loans not covered by this article like FHA and VA loans which have mortgage insurance, but I don't think they are cost free to the lender if the loan defaults. I believe the lender needs to comply with regulatory requirements and has costs related to making an insurance claim and proving eligibility for an insurance claim when they get compensated.
- xhrpost 4y agoThanks, so circling back, what does it mean for the US government to back/backstop these mortgages? Especially given your statements above that there is still risk of default for the lender.
- Fatnino 4y agoThere's a 1000sqft home on my street asking for $2.5m How does $1m help?
- additall 4y agoMo' free lunch paid by "somebody else"! Let's fight inflation together! ;)
- shostack 4y agoWhat is the expected end impact to home owners in markets where jumbo mortgages are the norm, like the Bay Area?