3 ms·

This is exactly the change you'd expect if "credit scores" aren't as powerful of an indicator as they were thought to be. Given that "credit scores" are mostly

This is exactly the change you'd expect if "credit scores" aren't as powerful of an indicator as they were thought to be. Given that "credit scores" are mostly based around how someone handles small amounts of short term debt, whereas mortgages are huge amounts of long term debt, this wouldn't be terribly surprising. It's disappointing to see Reason framing this in tired reactionary nonsense, when there's a straightforward explanation.

searealist 4y ago
So every bank in the world is irrational? Sounds like you could make a killing by starting a bank and making low interest home loans to people with bad credit scores.
- mindslight 4y ago
  First, an argument based on the efficient market fallacy isn't particularly interesting. But even so, I don't understand what "rationality" has to do with anything here. In the presence of an overwhelming centralized market maker, the market is going to follow its lead. If this weren't the case, then the headline would be even more fallacious - originating banks would just be selling those loans to someone else besides the government.
  - searealist 4y ago
    I would much rather be correct than to make this interesting for you. You fail to explain how exactly this market maker influences banks to charge higher rates to people with poor credit scores. You also don't address the fact that this is universally how loans work in the modern world, even outside the realm of home loans.
    - mindslight 4y ago
      > I would much rather be correct than to make this interesting for you. Apparently you missed my point - it isn't an either/or. Making an argument with the efficient market fallacy is uninteresting in part because it's most likely wrong. cf the joke about the economist that doesn't pick up a $20 bill laying on the ground, because if it were real money then it would have already been picked up by someone else. > You fail to explain how exactly this market maker influences banks to charge higher rates to people with poor credit scores It's right there in the assumption of the headline. If banks didn't pass on the rates from the governmental market maker(s), then borrowers wouldn't see any changes from this. > You also don't address the fact that this is universally how loans work in the modern world You seem to have been taken in by the highly misleading article, directly demonstrating my original point. It seems that this change is making fees for high credit scores less low, and fees for low credit scores less high. The curve is still a sensible monotonic function, just a slightly different one than before.
      - searealist 4y ago
        Do you believe the previous rates were simultaneously too low for good credit and too high for bad credit with respect to the risk of defaulting? Do you believe the new rates are nothing more than trying to better model the risk? If not then please be precise. Being monotonic means little. Why is it “sensible”?
        mindslight 4y ago
        I mean, that's exactly what my original comment said. Those adjustments are right in line with what you'd expect from a simple reduction of credit scores as a predictor. And given how often faith tends to be overextended to centralizing financial models, I'd say doing so is more likely in the right direction than not. I haven't read any other discussion of the change other than this horrible article, and I'm not going to seek it out because the answer to culture war bullshit isn't to fill your head with both types of poor takes and try to somehow average them.
        searealist 4y ago
        > Those adjustments are right in line with what you'd expect from a simple reduction of credit scores as a predictor. It doesn't follow that pattern at all. Take a look at the heat map here: https://www.mortgagenewsdaily.com/news/01192023-big-llpa-changes https://www.mortgagenewsdaily.com/news/01192023-big-llpa-cha... Previously the rates were based on risk. The new rates are engineered to make it cheaper to get into homes with less money down (of all credit scores) or poor credit. It's subsidized by charging higher rates to people with good credit scores who put more money down. Oh, and straight from the horses mouth: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Equitable-Housing-Finance-Plans--for-Fannie-Mae-and-Freddie-Mac.aspx https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announce... > “The Equitable Housing Finance Plans represent a commitment to sustainable approaches that will meaningfully address the racial and ethnic disparities in homeownership and wealth that have persisted for generations," said FHFA Acting Director Sandra L. Thompson. “We look forward to working with the Enterprises, lenders, and other housing industry participants to further develop the ideas described in these plans."

searealist 4y ago

So every bank in the world is irrational? Sounds like you could make a killing by starting a bank and making low interest home loans to people with bad credit scores.

mindslight 4y ago
First, an argument based on the efficient market fallacy isn't particularly interesting. But even so, I don't understand what "rationality" has to do with anything here. In the presence of an overwhelming centralized market maker, the market is going to follow its lead. If this weren't the case, then the headline would be even more fallacious - originating banks would just be selling those loans to someone else besides the government.
- searealist 4y ago
  I would much rather be correct than to make this interesting for you. You fail to explain how exactly this market maker influences banks to charge higher rates to people with poor credit scores. You also don't address the fact that this is universally how loans work in the modern world, even outside the realm of home loans.
  - mindslight 4y ago
    > I would much rather be correct than to make this interesting for you. Apparently you missed my point - it isn't an either/or. Making an argument with the efficient market fallacy is uninteresting in part because it's most likely wrong. cf the joke about the economist that doesn't pick up a $20 bill laying on the ground, because if it were real money then it would have already been picked up by someone else. > You fail to explain how exactly this market maker influences banks to charge higher rates to people with poor credit scores It's right there in the assumption of the headline. If banks didn't pass on the rates from the governmental market maker(s), then borrowers wouldn't see any changes from this. > You also don't address the fact that this is universally how loans work in the modern world You seem to have been taken in by the highly misleading article, directly demonstrating my original point. It seems that this change is making fees for high credit scores less low, and fees for low credit scores less high. The curve is still a sensible monotonic function, just a slightly different one than before.
    - searealist 4y ago
      Do you believe the previous rates were simultaneously too low for good credit and too high for bad credit with respect to the risk of defaulting? Do you believe the new rates are nothing more than trying to better model the risk? If not then please be precise. Being monotonic means little. Why is it “sensible”?
      - mindslight 4y ago
        I mean, that's exactly what my original comment said. Those adjustments are right in line with what you'd expect from a simple reduction of credit scores as a predictor. And given how often faith tends to be overextended to centralizing financial models, I'd say doing so is more likely in the right direction than not. I haven't read any other discussion of the change other than this horrible article, and I'm not going to seek it out because the answer to culture war bullshit isn't to fill your head with both types of poor takes and try to somehow average them.
        searealist 4y ago
        > Those adjustments are right in line with what you'd expect from a simple reduction of credit scores as a predictor. It doesn't follow that pattern at all. Take a look at the heat map here: https://www.mortgagenewsdaily.com/news/01192023-big-llpa-changes https://www.mortgagenewsdaily.com/news/01192023-big-llpa-cha... Previously the rates were based on risk. The new rates are engineered to make it cheaper to get into homes with less money down (of all credit scores) or poor credit. It's subsidized by charging higher rates to people with good credit scores who put more money down. Oh, and straight from the horses mouth: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Equitable-Housing-Finance-Plans--for-Fannie-Mae-and-Freddie-Mac.aspx https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announce... > “The Equitable Housing Finance Plans represent a commitment to sustainable approaches that will meaningfully address the racial and ethnic disparities in homeownership and wealth that have persisted for generations," said FHFA Acting Director Sandra L. Thompson. “We look forward to working with the Enterprises, lenders, and other housing industry participants to further develop the ideas described in these plans."