Calling it luck makes it sound like there are uncontrollable forces at work. However, these consequences are entirely downstream of artificial, man-made policies.
Insanely good if you have a home and a low rate (or refi into one)
Insanely bad if you don't have a home.
It's not a natural construct, it's an artificial loan that only exists because the fed is the counter party.
In an natural economy, mortgages would all be variable rate, or fixed rate but much higher than what is available today.
This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all.
The Fed doesn't originate mortgages. (And it's increasingly getting out of even holding them.)
This isn't how the mortgage market works. Qualifying mortgages are guaranteed by Fannie and Freddie. The Fed's participation in the mortgage market has been for liquidity, not credit, purposes.
Kill Fannie & Freddie and the 30-year mortgage goes away. Ban the Fed from buying mortgage securities and rates go up a bit.
If this had been true, 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.
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.
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/10.1080/15214842.2020.1...
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?
I understood that. But showing that something is a result of something else needs some kind of logic, stating both things exist does not establish a casual relationship. You can try it for yourself by applying your own argument in the reverse direction: if your logic had been sound then it would also be true that F&F exist because of 30 years fixed jumbo loans.
>F&F can do that at the scale they do because they have an implicit guarantee. That creates securitisation
What? Securitization is turning something into securities, it's a process that is not caused by any guarantees, you can do it yourself.
Probably not; without them, the norm wouldn't have been created, but while rates for them may change those going away won't remove the expectation and, given the expectation, the market will find a rate af which it can fill it.
Mortgages in general will be less attractive, though.
Fixed-rate 30-year mortgages don’t exist, except for the very rich, in most of the world. The unsubsidised price of the instrument likely collides with popular conceptions of usury.
> This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all.
Interestingly, you described almost exactly how mortgages work in Canada: you pay more for a fixed rate, and even then, you can only get a fixed rate for a term of up to 10 years. And the average term is more like 5 years. People's mortgages have been going up now that interest rates are up. This was not impossible to predict.
And that certainly didn't stop the housing rush of the last 15 years.
Yes, they are super expensive, but they were even more super expensive 15 years ago. Canada didn't get the 2008 crash that the US did.
[0] https://www.gvrealtors.ca/market-watch/MLS-HPI-home-price-co...
https://globalnews.ca/news/2531266/one-chart-shows-how-unpre...
Those numbers look a lot closer to my experience than yours.
All three lines show a ~50% price increase.
It's the ultimate victim blaming religion - you're poor because you were a bad person in a previous life.
Very awkward to jokingly say "I wish I were a puppy" when I play with my dog and to see the look of abject horror on my Buddhist partners face. I'm told even wishing for something like that significantly increases my chances of becoming a dog in the next life - which is permanently an undesirable fate.
You don't think Calvinism is worse? There, you're poor as an indicator that you're destined to go to Hell.
As a free person, I can choose my religion and blame God for a change. The difference is that if you place locus of control further to yourself, that gives you (and not an external entity) enormous power. Yes, you might not be able to change what happened, but you can influence what is going to happen, even if it's not immediately obvious and if some links of the casual chain are hidden.
A slight misunderstanding, or an inconsiderate person may use it for victim blaming, but that's not what lays down. It gives guidelines that our actions have consequences, good or bad even if they are not immediately visible to us. On HN, people talk about the role luck plays in the success of startups. Two different people working hard, with brilliant ideas: one of them gets to build a billion $ company, while the other may go bankrupt. What we call luck, or randomness here is explained as karma (good, or bad deeds accumulated from earlier lives). Used with right understanding, and compassion, this provides good guidance for those who seek it.
If you have positive karma in this life you will be rewarded in the next but the manner of the reward is more or less beyond your control
And that's assuming you believe in that sort of thing to begin with