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>Kill Fannie & Freddie and the 30-year mortgage goes away. If this had been true, then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortg

>Kill Fannie & Freddie and the 30-year mortgage goes away. If this had been true, then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages).

JumpCrisscross 3y ago
> then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages) Fair enough, the 30-year mortgage wouldn't exist for the average American. I don't believe the Fed buys mortgage securities containing them either.
- pandaman 3y ago
  I don't follow. Jumbo loans exist now even without support from F&F, why can't smaller loans exist without F&F? F&F are not some charities, they make profit on their mortgage business. If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? I mean, there are plenty non-conforming loans, which are not jumbo, written right now. It's just hard to compete with the F&F on the conforming loan market so nobody does that otherwise there is nothing magical about conforming loans.
  - JumpCrisscross 3y ago
    > If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? It doesn’t work without the implicit guarantee. If you run a neutral pricing model, you’d get a rate roughly double where they’re priced now. The only solution is to let the rate periodically reset.
    - pandaman 3y ago
      Whatever model you run is most probably wrong because jumbo loans are not priced double and actually are priced pretty close to the conforming loans.
      - JumpCrisscross 3y ago
        > Whatever model you run is most probably wrong because jumbo loans are not priced double and actually are priced pretty close to the conforming loans Modelling non-jumbo loans provided without support. I have a jumbo mortgage. I also had substantial assets when I took it out, substantial income and opted to put 25% down. Remove those factors and your credit component starts interacting with duration in complex ways. Remove that part of the market--the massive number of guaranteed, conforming mortgages--and the securitisation and hedging infrastructure that supports jumbo fixed 30-year loans falls apart [1]. [1] https://www.tandfonline.com/doi/full/10.1080/15214842.2020.1757357 https://www.tandfonline.com/doi/full/10.1080/15214842.2020.1...
        pandaman 3y ago
        It's great that you have substantial assets but neither that, nor the article "model" anything. Also you are now changing your argument from "remove F&F" to "remove securitization and hedging infrastructure". As I already pointed out, if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now.
        JumpCrisscross 3y ago
        > neither that, nor the article "model" anything I was showing why 30y-fixed jumbos exist as a result of F&F. You argued an incorrect connection between jumbos within the current system as a proxy for unsubsidised mortgages in a non-F&F system. > if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now Show me a single one that does for fixed-rate 30-year mortgages to average Americans at scale. Or a single other country that does this. F&F can do that at the scale they do because they have an implicit guarantee. That creates securitisation and hedging infrastructure for that product that niche firms, like those doing jumbos, can piggyback on. Take out F&F and there isn’t the mass market which means you lose the product. (And no, another firm can’t trivially mint an implicit guarantee from the U.S. government.) Going back to the original point of this thread: they’re far more critical to this process than the Fed. Genuine question: have you or someone you know traded mortgages?

>Kill Fannie & Freddie and the 30-year mortgage goes away. If this had been true, then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages).

JumpCrisscross 3y ago

> then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages) Fair enough, the 30-year mortgage wouldn't exist for the average American. I don't believe the Fed buys mortgage securities containing them either.

pandaman 3y ago
I don't follow. Jumbo loans exist now even without support from F&F, why can't smaller loans exist without F&F? F&F are not some charities, they make profit on their mortgage business. If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? I mean, there are plenty non-conforming loans, which are not jumbo, written right now. It's just hard to compete with the F&F on the conforming loan market so nobody does that otherwise there is nothing magical about conforming loans.
- JumpCrisscross 3y ago
  > If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? It doesn’t work without the implicit guarantee. If you run a neutral pricing model, you’d get a rate roughly double where they’re priced now. The only solution is to let the rate periodically reset.
  - pandaman 3y ago
    Whatever model you run is most probably wrong because jumbo loans are not priced double and actually are priced pretty close to the conforming loans.
    - JumpCrisscross 3y ago
      > Whatever model you run is most probably wrong because jumbo loans are not priced double and actually are priced pretty close to the conforming loans Modelling non-jumbo loans provided without support. I have a jumbo mortgage. I also had substantial assets when I took it out, substantial income and opted to put 25% down. Remove those factors and your credit component starts interacting with duration in complex ways. Remove that part of the market--the massive number of guaranteed, conforming mortgages--and the securitisation and hedging infrastructure that supports jumbo fixed 30-year loans falls apart [1]. [1] https://www.tandfonline.com/doi/full/10.1080/15214842.2020.1757357 https://www.tandfonline.com/doi/full/10.1080/15214842.2020.1...
      - pandaman 3y ago
        It's great that you have substantial assets but neither that, nor the article "model" anything. Also you are now changing your argument from "remove F&F" to "remove securitization and hedging infrastructure". As I already pointed out, if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now.
        JumpCrisscross 3y ago
        > neither that, nor the article "model" anything I was showing why 30y-fixed jumbos exist as a result of F&F. You argued an incorrect connection between jumbos within the current system as a proxy for unsubsidised mortgages in a non-F&F system. > if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now Show me a single one that does for fixed-rate 30-year mortgages to average Americans at scale. Or a single other country that does this. F&F can do that at the scale they do because they have an implicit guarantee. That creates securitisation and hedging infrastructure for that product that niche firms, like those doing jumbos, can piggyback on. Take out F&F and there isn’t the mass market which means you lose the product. (And no, another firm can’t trivially mint an implicit guarantee from the U.S. government.) Going back to the original point of this thread: they’re far more critical to this process than the Fed. Genuine question: have you or someone you know traded mortgages?