The Home Ownership Thread

[brokencycle]

WF also specifically sucks (at least in So Cal).
I originated through a non bank lender at 3.675% in 2017, who sold through until in landed at Chase.

Refinanced directly with Chase in 2020 and they gave me 2.625%. They charged me like $800, but that was like....1 months interest savings.

WF wasn't offering anything attractive.

In both my house purchases and my refinancing, I never saw anything competitive from any of the big banks or even the credit unions. The best rate always came from a broker, and it was never even close.

 

[Gibonius]

It looks like the drop off is almost exclusively from refis which makes sense. What I have never understood is how those places make money.
1. Why does Wells Fargo advertise rate x, and yet random mortgage broker sells me a mortgage at rate x - 75bp which Wells Fargo then buys a week after closing
2. Why is Wells Fargo or whoever buying up all these low interest rate mortgages from brokers in the first place? I understand they need mortgages, but collecting 3%/yr is near inflation level (or it was). That just doesn't seem like an attractive business.

My refi got bought and sold three times before my first payment. A 2.625% mortgage.

The first payment actually went to the wrong place because it was sold between when the payment was processed and accepted. That was fun to resolve.

 

[Piobaire]

LOL @ non-self funders

 

[brokencycle]

LOL @ non-self funders

You're just envious. We are locked in paying 2% while inflation is 4x that. At current rates, the money I use to pay the bank back will be worthless.

 

[Piobaire]

IDK, I'm sleeping pretty easy these days. Might need to kick my feet up again this fall and just take it easy again...

 

[UnFacconable]

It looks like the drop off is almost exclusively from refis which makes sense. What I have never understood is how those places make money.
1. Why does Wells Fargo advertise rate x, and yet random mortgage broker sells me a mortgage at rate x - 75bp which Wells Fargo then buys a week after closing
2. Why is Wells Fargo or whoever buying up all these low interest rate mortgages from brokers in the first place? I understand they need mortgages, but collecting 3%/yr is near inflation level (or it was). That just doesn't seem like an attractive business.

Short answer is that the mortgage industry is more complicated than that and there are a few different ways they win.

The GSEs (Fannie Mae and Freddie Mac) buy conventional loans from the originators whether it's Wells or Quicken Loans or some smaller entity. Some banks keep a portion of their loans on their balance sheets, but most conventional loans end up with the GSEs. Those loans are then packaged and sold as MBSs. The mortgage servicing rights are separately packaged and sold. It's a bit different with non-conforming loans (limits are like $650k now generally and up to $970k in HCOLs).

It's a massive industry so safe to assume that these players mostly know what they are doing during fat times, although they take it in the shorts when interest rates rise. They more or less need to hibernate until the trend reverses and then they make a killing again.

You're just envious. We are locked in paying 2% while inflation is 4x that. At current rates, the money I use to pay the bank back will be worthless.

Everyone is different but I'm with you here. I wouldn't sleep any easier owning all the risk on my house and I enjoy having a low interest rate mortgage (interest only always for me) to help with my asset allocation and risk profile. For what it's worth, the wealthiest people I know also keep large mortgages and don't have trouble sleeping at night. A very good financial advisor I know suggests getting as much mortgage as I could qualify for on an interest only basis and not paying it down. Works for me.

 

[brokencycle]

Short answer is that the mortgage industry is more complicated than that and there are a few different ways they win.

The GSEs (Fannie Mae and Freddie Mac) buy conventional loans from the originators whether it's Wells or Quicken Loans or some smaller entity. Some banks keep a portion of their loans on their balance sheets, but most conventional loans end up with the GSEs. Those loans are then packaged and sold as MBSs. The mortgage servicing rights are separately packaged and sold. It's a bit different with non-conforming loans (limits are like $650k now generally and up to $970k in HCOLs).

It's a massive industry so safe to assume that these players mostly know what they are doing during fat times, although they take it in the shorts when interest rates rise. They more or less need to hibernate until the trend reverses and then they make a killing again.

Thanks. I didn't mean to imply they don't know what they're doing, and I knew I had to be missing something.

It seems crazy to me that there's such a demand for MBSs when interest rates are low, but I guess interest rates were low for a long time and they're generally a low risk instrument, and when you are big enough, you can make a lot of money with low risk.

 

[Gibonius]

Everyone is different but I'm with you here. I wouldn't sleep any easier owning all the risk on my house and I enjoy having a low interest rate mortgage (interest only always for me) to help with my asset allocation and risk profile. For what it's worth, the wealthiest people I know also keep large mortgages and don't have trouble sleeping at night. A very good financial advisor I know suggests getting as much mortgage as I could qualify for on an interest only basis and not paying it down. Works for me.

+1 to that. How often do any of us regular folks have to access debt at near inflation levels? I can pay off the biggest asset of my life for pennies? Sign me up.

I know plenty of people (hi wife!) who just hate the concept of debt, but analytically? It's hard to argue against running out your mortgage as long as possible at the rates that were available until very recently.

 

[Piobaire]

Everyone is different but I'm with you here. I wouldn't sleep any easier owning all the risk on my house and I enjoy having a low interest rate mortgage (interest only always for me) to help with my asset allocation and risk profile. For what it's worth, the wealthiest people I know also keep large mortgages and don't have trouble sleeping at night. A very good financial advisor I know suggests getting as much mortgage as I could qualify for on an interest only basis and not paying it down. Works for me.

I too know truly wealthy people that have mortgages not only on their primary but on their vacations home(s) too. Then again some of the most stressed out and tapped out financially people I know are interest only people. I have readily admitted before that I understand my balance sheet would likely look better 20 years from now if I leveraged our house and invested it I'm getting risk adverse to a certain degree in my old age.

Serious question, outside of bankruptcy, how does one not own all the risk on their house whether it be paid off or underwater on their mortgage? Speaking of underwater, wouldn't that be owning the most possible risk? Then again, if leveraging one's house is beneficial, would not the most beneficial scenario actually be to have over 100% of the value in financing?

Just spit balling there and I'm probably off in the weeds.

 

[Omega Male]

 

[jack webb]

I'm writing this at my desk in a small condo I paid cash for several years back. The financially prudent move probably would have been to put at least 20% down, take out a low-interest mortgage, and invest the remainder of the purchase price. But I like the idea of not having debt, or at least having on hand the cash to retire any debt should the need arise. And I like the flexibility work-wise that a small monthly nut affords: switching jobs or getting laid off is not so scary if there's no big monthly mortgage obligation. For me the nightmare scenario would have been taking on a mortgage and watching the money "saved" vanish in a market decline. I gladly paid to take that scenario off the table.

 

[Piobaire]

Here's another question: if valuations tank do banks actively re-assess and apply PMI to some folks? Is that legally possible?

 

[PhilKenSebben]

Here's another question: if valuations tank do banks actively re-assess and apply PMI to some folks? Is that legally possible?

No. you signed a contract and an insurance (or no insurance) policy on the original purchase price. They can't just retroactively change the terms of the contract. You can actually have to no REAL equity your loan and have your PMI removed if you have hit that 20/22% Loan to Original valuation ratio

as a corollary, if rates go up and you signed a fixed rate loan, do they just come back to you and say "Hey, we know you signed this contract, BUT, we really want to charge you more"

 

[UnFacconable]

I too know truly wealthy people that have mortgages not only on their primary but on their vacations home(s) too. Then again some of the most stressed out and tapped out financially people I know are interest only people. I have readily admitted before that I understand my balance sheet would likely look better 20 years from now if I leveraged our house and invested it I'm getting risk adverse to a certain degree in my old age.

Serious question, outside of bankruptcy, how does one not own all the risk on their house whether it be paid off or underwater on their mortgage? Speaking of underwater, wouldn't that be owning the most possible risk? Then again, if leveraging one's house is beneficial, would not the most beneficial scenario actually be to have over 100% of the value in financing?

Just spit balling there and I'm probably off in the weeds.

I live in a non-recourse state so if I walk away from my house all I really lose is my down-payment. This may not matter to me (I'm not going to walk away from my loan) but I do know people who walked away from underwater mortgages in the GFC and it was not uncommon in California. My interest-only payments on my mortgage aren't much more than my property taxes plus insurance so it's not like "owning" my home outright would remove all risk, it would just slightly move the needle on the cost to stay in my home.

I'm not arguing that you aren't doing what's right for you, but I do think figuring out the appropriate use of leverage for an individual's risk appetite and financial position is critical.

Personally? I sleep better at night with liquidity than home equity. I take all available leverage for as long as I can when it's below inflation. I recently refinanced my mortgage because I was bumping up against the end of the 10 year interest only period. Reducing my equity exposure on my house has given me a ton of financial flexibility to start a new business, pursue other attractive investments and generally de-risk my life. I've seen people miss out on amazing opportunities because they have insufficient liquidity (Ronald Wayne famously sold his double digit stake in Apple for $800 to feed his family). For people with very stable careers and different risk appetites and opportunities, it might make more sense for them to remain fully invested and maintain a minimum level of liquidity but I wouldn't feel comfortable living that way given my circumstances.

As to your question about financing more than 100% - I would do it in a heartbeat if I could and all of the interest were tax deductible.

 

[Piobaire]

Damn, non-recourse? Commie-fornia has some pretty sweet laws!