Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1M as Prices Soar | Hacker News Reader

Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1M as Prices Soar

wsj.com

46 pointsra770 comments

A $1 million loan on a 30 year term at 3% interest ($4200/mo) is totally different from say 5% (5300/mo) or 8% (7300/mo) interest.

It’s strange to me that the principal of the loan is the basis for the policy rather than the monthly payments. If interest rates hit a 30 year high to match our 30 year high in inflation, the share of Americans who can afford a million dollar loan will be a tiny tiny fraction of what it is now.

If they keep rates low, inflation will explode, and buying a house now will be an excellent investment.

If they spike rates to fight inflation, like in the late 70s, buying a house now will be a terrible investment.

That's why it's a lever of power: it can go both ways.

What's US gov debt servicing look like as rates go up? Not so good. Interest rates should rise substantially (to stop inflating assets and allowing zombie companies to continue to operate suboptimally), but there is no appetite. The US government owes ~$280B/year for each percent increase in interest rates. Dollar-weighed maturity of current US debt is 69.1 months. When rates rise, within one year roughly 1/3 debt would be financed at the higher rates. Within three year, >50% would be issued at higher rates.

https://www.cbo.gov/publication/56910

https://home.treasury.gov/system/files/221/TreasuryPresentat...

(this is not investing advice, for educational purposes only)

I think everyone knows about paying higher taxes after gov spending, but maybe the rich can pay their fair share like the 70s.

You assume low interest rate has no negative effect in long run. In 30 years the house may be worth $100M on paper, but is unsalable and in neighbourhood that look like Detroit .

If the house can’t be sold, that’s not the value on paper. Valuations are made based on real sales of comparable properties in the area.

Offcourse, it'll be something in the middle which makes sense for the US and global economy.

Can also be titled "Prices Soar as Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1M"

Next you're going to claim that non-dischargeable student loans drive up the price of higher education in the US. Crazy talk!

Or "Prices Were Already Soaring Despite Fannie Mae, Freddie Mac Not Backing Home Loans of Nearly $1M"

I don't know how wannabe first time home owners are going to catch a break.

> I don't know how wannabe first time home owners are going to catch a break.

They will buy in the other 97% of counties where million-dollar loans do not require subsidy. Most states do not contain even a single county that qualifies for the higher Fannie/Freddie limits. Notably, this includes Texas, Illinois, and Georgia. There are entire major metro areas where one can work in tech and buy a house for well under $500k.

For example, Atlanta is home to engineering offices for Google, Microsoft, Spotify, and Mailchimp/Intuit and sports a median home value of $349k. This is comfortably affordable to a person making less than $100k.

The only thing I can think of is a reintroduction of something like Shotgun Shacks, somewhere in between trailer parks and suburbs. Something like Boxabls, Tiny homes and container homes.

Builders can rake in more cash building mini-mansions. County commissioners are totally on board with that.

Our county has a massive homeless population while new housing developments start at 350k. There's been one new apartment complex in the last 25 years.

Most of the "starter homes" in my region were wiped out in the house flipping craze of the early-2000s. They were renovated, added to, and turned into McMansions. The only things built since then are luxury homes in the $600k+ range.

"Under the terms of their 2008 conservatorships, [Fannie and Freddie] currently have access to more than $250 billion in support from the Treasury Department."

These institutions and their Federal guarantees contributed enormously to the 2008 housing bubble and subsequent collapse. But 13 years later, here they are, allocating credit. What could go wrong?

IIRC, these two did exactly what they are supposed to. They always had implied backing of the government, meaning basically this.

The issue was actually mortgages not backed by either of these, which however were still securitised and traded as if they were. When housing market slowed, evictions and defaults mounted, investors in FDIC et al were fine, the mortgages were backed.

It was all the other ones that went to 0 and caused the all-planet financial meltdown.

So if anything it’s good to see that the credit expansion is going through these entities.

Investors in their securities didn't ask whether the supporting collateral was inflated because they didn't have to. And because the GSEs made up the bulk of the market, it was their willingness to lend that drove that market. Their expansion of excess credit (along with the Fed's constant easing) lead to the bubble in housing prices that drove the whole thing.

It's gonna be glorious

Get it while you can!

> a boon for borrowers

No, it's a boon for owners.

Agree. But also, those borrowers are soon-to-be owners.

Right, new owners who just bet N times their yearly salary that the music won't stop in the next 15-30 years.

The demographic pyramid is inverting, interest rates have been falling but are now hitting 0, and the asset-owning bloc is falling below 50% of the electorate. Any one of these could stop the music, but all three are happening.

Not only that but what are the chances that an implosion of USD or an economic reset destroy said plans for individuals?

"You're lucky to get a home with a loan at a near-zero interest rate! We're such nice people. Uh oh, looks like your bank account just became worthless and your employer won't adjust wages to match inflation. And homes are even more expensive now! That's fuuuun."

The banks will get their wealth from somewhere, and the elites have proven that taxing by-proxy is much easier than traditional taxation and charging interest. If interest rates are low and the official tax rates don't go up too much, more wealth can be extracted and no one will be the wiser.

Besides, having everything on loan isn't really a sign of a successful system, depending on one's political-economic perspective. If everything is on loan, nobody really owns anything. You might be able to keep physical things on loan even if you fail to pay, but you will end up paying somehow. If his is one of the final steps in getting enough people to "buy" homes, that means we are close to a real estate collapse. It's serfdom all over again but with the illusion of ownership. (of course with property taxes for individuals we already have serfdom in that sense)

There is an infinite supply of money to purchase a fixed supply of these assets.

To the moon!

None of this matters if the supply of available homes is less than the population when accounted for growth. Combined that in NIMBYism in every city and renewed interest from international investors, and we have a receipe where home prices can go up far above the yearly income of the average household.

> asset-owning bloc is falling below 50% of the electorate

And they'll be screwed when the market corrects and the value of the home they just bought drops significantly

It's going to be hard for the market to correct while (1) rates stay low, (2) housing demand > housing supply, (3) wages stay high enough to support buying.

It's hard to see any of those collapsing in the near term. Especially (2).

If financial crises could be predicted we wouldn't be in that mess every x years.

I'm rather anticipating (1) collapsing in the next couple of years. It's possible governments will try to put it off, but it's going to have to happen at some point.

People keep saying this, and perhaps they will be proven correct at some point. But it brings to mind the economics maxim that "in the long run, we're all dead."

Japan's interest rate has not exceeded 0.5% for the last 25 years:

https://tradingeconomics.com/japan/interest-rate

Ours hasn't been in a "normal" range for almost 15 years. At what point are low interest rates just the backdrop of our time here rather than something we should expect to change? Would we assign a higher probability of (say) the USSR reconstituting or the Euro becoming the global reserve currency or US interest rates going back to a more normal rate like 6%? If all are improbable, why assert that one must happen at some point?

Another economics maxim:

"Things that obviously can't go on forever; will go on for far longer than you would believe...but when they stop, they also stop faster than you'd think."

Also:

"The market can remain irrational far longer than you can remain solvent".

What do you see leading to the collapse?

At least in the US, mortgage debt only recently hit 2008 levels in absolute terms (i.e. not adjusting for 12 years of population growth), which doesn't seem overly burdensome.

The market will not be allowed to correct. That was the lesson of 2008. The only endgame here comes after the end of dollar dominance.

Now in what circumstances the dominance of the dollar would end? The dollar has pretty much replaced gold in the world economy. And the US happens to own the only mine in the world. I don't see any scenario, bear some sort of cataclysmic event, that would, in say, the next 50 years, change any of that.

But I would gladly have my mind changed.

Hogs get slaughtered. We’ve collectively figured out that we have the world’s only gold mine and are busy exploiting the F out of it. Both parties, round the clock.

For example, we prop up our residential housing market by having one part of the government create dollars to buy the mortgages backed securities created by another part of the government in order to keep the yields down and justify low mortgage interest rates.

Do you think the rest of the world is going to sit back and be cynically exploited forever?

> Do you think the rest of the world is going to sit back and be cynically exploited forever?

Yes absolutely. Because this system does not benefits american citizens (it used to, but it is less and less the case). It benefits world elites which have been co-opted in a global financial system which is based on the dollar. Hell, the CCP leaders all own assets in dollars, they wouldn't want to see any of this change. Remember that the money that fuel the 2008 bubble was, for the most part, chinese investments.

Bottom line is, the world is driven not by ideologies or political interests but by economic interests. At the top: greed and at the bottom: hunger, with a declination in between. Both ends tend toward the status quo and the dollar is very much part of it. For me, only ecological collapse or some other unforeseen global cataclysm would change any of that and probably not for the best.

It absolutely does benefit US citizens. The argument to the contrary about boogeyman elites is just designed to let ordinary Americans off the hook so they will join in your crusade (and so they won’t have to feel guilty.)

Ordinary American homeowners have massively benefited from rising home prices. They’ve spent that money on vacations, cars, drugs, etc.

I could see alternative currencies becoming and increasingly available option. Something like SDRs used by the IMF could emerge for example, made up of multiple international currencies. Not necessarily a replacement, but a decreasing reliance.

Russia, the EU and China are fairly aggressively de-dollarizing, and encouraging trading partners to do the same.[1][2] See CMIM for example in the Asia region, INSTEX in the EU to get around Iran sanctions and the creation of the "Petroyuan". Lyn Alden has a great overview.[4]

[1]https://www.everycrsreport.com/files/2021-07-23_IF11885_09a6...

[2]https://www.csis.org/blogs/new-perspectives-asia/chiang-mai-...

[3]https://infobrics.org/post/32689/

[4]https://www.lynalden.com/fraying-petrodollar-system/#fraying

What did they do to prop up the market in 08? What would that policy intervention look like today?

Banks were insolvent in 2008, in lieu of them facing the natural consequences of the free market (bankruptcy) the banks were given nearly $2T of tax payer money which the banks used to consolidate through acquisitions/mergers (Chase acquired bear sterns and Washington mutual; BOA acquired Merrill lynch and countrywide; Wells Fargo acquired Wachovia) and tax payer funds paid for years and years of bank foreclosure cases (most of which were done using fraudulent bank documents).

Literally the banks couldn’t afford to foreclose on the homes secured by toxic loan and tax payer funds went to foreclosing on tax payers.

If the banks were in trouble again, government would bail them out again with tax payer money to the detriment of tax payers. Just like the government did last time they would sweep people under the rug by removing them from unemployment numbers and pretending they never existed.

There was a government takeover of the residential mortgage sector. Private companies today largely act as agents for GSEs, the Fed, or other parts of the government. They originate mortgages, package them, and service them but the government sets rates, underwriting rules, and holds the risk. Thus it was very easy for it to reinflate the bubble far beyond where it was in 2007 (check out case-schiller https://fred.stlouisfed.org/graph/?g=It55).

If prices look like they are about to stall keep an eye out for the introduction of the low rate 50 year fixed rate mortgage. Whatever it takes to keep incumbent homeowners receiving endless windfalls.

https://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_L...

https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investm...

Broadly we call this entire period quantitative easing.....

They starting printing money (and have largely not stopped) and not letting banks fail that needed to die.

translation: your family is now on the hook for holding a larger bag

So much for the US being considered right wing. US residential mortgages represent one of the largest examples of socialism in action anywhere with nary a complaint from either US party.

Both parties have figured out that printing money is more popular and way politically easier in the short term than any responsible policy

Don't forget the US Health Care and Education too. Three domains people love to point to as failures of capitalism while they actually are examples of how government intervention can mess with the free market to the expected results.

Must be me, but I missed the part of socialism that includes an impossible debt burden to private banks and a massive housing market bubble.

Socialism with American characteristics

The same system we've been calling "capitalism" for 200 years?

Socialism is when people take out loans to purchase private property

$1M is a $4000/m mortgage requiring a $12000/m income or $140k salary. That seems doable for some professions.

If you are on the fence of buying a home, right now would be a good time to do it. Because they aren't getting cheaper and with this announcement they will almost certainly rise to meet this new, looser qualification.

I could not downvote this faster.

Ridiculous and wrong. Shameful advice. I be curious know your age, income, and net worth to see how out of touch you are.

Do not take this advice and debt at this ratio.

- take home is gross income not net like taxes or health insurance. It also doesn’t factor in retirement even

- mortgage estimate is wrong

- does not factor property taxes

- Just open an affordability calculator or mortgage estimator. It would put you probably in high 500s

- doesn’t include debts

- If you only make 140k you probably don’t have 200k for a down payment or comment doesn’t include PMI

This. Also factor in:

- Upkeep. Houses require work (example - re-painting every 10-15 years can be >$15-$20k.)

- Special assessments (city, county, special district) that come up because other people vote for them. (example: Seattle can vary $150->$1k some years)

- Homeowners insurance, flood insurance, earthquake insurance, if relevant. (example: Seattle - $800 + $600 + $1400 / yr)

- Hidden costs that are not obvious (example - in King County, WA new homes have a sewer connection charge ~$18k that is paid off over like 15 years.)

This is not really shameful advise. As a Software Engineer in 30s, with occasional side work. I make more than $140k alone. This is not to mention my wife in marketing, who does well, so we are above $200k combined both working remotely now. Now I wouldn't do $1 million because that would just be too big of a house. But we are currently doing half that on our renovation which is feasible even with the increased construction costs. I agree there is more to the costs like property taxes. But I know people in the city who's rent is above $3k a month in rent just for a studio who are now considering buying because it makes more sense now. They also make a lot more than me doing the same thing. But even when all is said and done, factoring in mortgage, utilities, taxes, etc. My wife and I will be paying around an extra $500 a month for an actual house than renting an apartment?

>Ridiculous and wrong. Shameful advice. I be curious know your age, income, and net worth to see how out of touch you are.

Chill out with the insults.

I made no insinuation that you should buy everyone has to decide for themself. Now, based on current lending standards a $1mm home is not as far off as much as you would like to believe and it doesn't take a CEO salary to "afford" it, either.

But you can continue to wait and see if prices come down, which will happen when supply goes up, which will happen when the supply chain returns to normal, which will happen when manufacturing returns to normal.

The point being is there are a lot externalities driving home prices right now, and whether buyers can comfortably afford it isn't one of them.

I've been planning to buy a house in the near future with my partner, and this comment has a great breakdown of information useful to anybody starting the process. I agree with you that the other poster's numbers are wildly unrealistic. Since you seem pretty informed, do you have any resources on how to get well-informed enough to take the plunge and buy a house?

This is truly just my personal opinion, YMMV, IANAL, talk to your doctor, etc. But personally I find putting a hard requirement on needing 20% down to buy a house to be a bit extreme in these valuations and this market for a first time homebuyer. I was entering the market wanting to do that, my partner ended up finding a house that I just couldn't say no to. My partner and I ended up buying a house even though we only had a bit over 10% down about a year and a half ago. If we had waited another year of saving up for a down payment, we wouldn't be able to afford the neighborhood we live in now. We paid 1 year of PMI (<$1,000). We refinanced at a lower rate and no longer have PMI as the valuation increased so much that we already hit >30% equity in the home. The P&I, insurance, and taxes after refinancing are less than the rent we were paying for an apartment down the street with less than half the square footage, no garage, no private yard, no EV charging, etc. And rent there has gone up, not down.

Don't get me wrong I'm not saying the 3% or less you can technically get away with are a good idea. I'm just saying, in this market having a hard rule of 20% down doesn't make a lot of sense to me. Do the math on your finances and what seems to make sense in your area. I'm certain the market is different where you are from where I am, there's a lot of nuance.

Here’s a good resource https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal..., but a financial advisor who knows your situation and is familiar with local real estate may be better.

That depends on having 20% down, or $200,000 in cash. That would take most people quite a while to save up unless they've been working long enough (say decades), and without it you'd have to take on private mortgage insurance which would shoot the price up even more, at least for a few years.

But even assuming one had 20% down, with a rough tax calculation of 30%, that $140k salary comes out to $98,000 annually post-tax and $8,166 monthly. Which means a person would be paying almost 50% of their income on the mortgage.

That's not a situation I would be comfortable with. If it takes a whole 50% of my post-tax income to fund my home, I'd be terrified of any kind of interruption to my employment (like a personal accident, recession, or pandemic; these things aren't as unlikely as we like to believe). If you mean $140k post-tax I'd be more inclined to see a $1M house as doable

> Which means a person would be paying almost 50% of their income on the mortgage.

> That's not a situation I would be comfortable with. If it takes a whole 50% of my post-tax income to fund my home, I'd be terrified of any kind of interruption to my employment (like a personal accident, recession, or pandemic; these things aren't as unlikely as we like to believe). If you mean $140k post-tax I'd be more inclined to see a $1M house as doable

Here in London a significant proportion of the population are doing just that. Hence why it's called a housing crisis.

> Because they aren't getting cheaper

They aren't, until they are. Then people have problems.

Analysts I've been coming across lately are predicting a single digit softening of the housing market in 2022.

FWIW.

Valuations in my neighborhood have gone up 15%-20% yoy. In my parents neighborhood (older homes on larger parcels) it's almost 30% yoy.

I remember thinking the same thing back in 2006 when I bought a home. The house lost 30% of it's value after two years. Turned out 2009 would have been a better time to buy.

(music) time in the market beats market timing (music)

'cept when it doesn't, of course!

And the result of 2009 was a tightening in lending standards. Which helped create a 5 year glut of housing. More housing was built than there were qualified buyers to take possession. Those govt lending standards haven’t abated. If anything they are too strict as buyers have to bring more cash to closing since appraisals aren’t matching sales prices.

We’re headed for a slow down for sure but not a reversal. As much as I’d like that to be the case.

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