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Posted on 7/27/19 at 8:32 am to hubreb
quote:
as your loan principal decreases the returns diminish till it is a drag on returns...there are some servicers who specialize in small balance current payers (less risk) time spent
True. You're paying mostly interest at the beginning and mostly principal at the end.
If you borrow $100k at 6%, your note is $600 a month. Low amount and high interest rate but it makes the arithmetic simple. Over 30 years that's $216k and 10 years in you've knocked out 20% of the balance.
For the original bank, it might be a good idea to sell right away and lock in your profit (plus get the liquidity to make the next loan).
The new bank is typically going to want to collect interest payments for a while, then re-sell. Let's say they paid $110k for the mortgage. (Pulled that number out of thin air - actual amount depends on the current market.) After 10 years they collected $72k and have an $80k balance they can cash in (with $144k in payments remaining, assuming the homeowner stays on schedule). They could sell for $65k and get a chunk of money now, and come out ahead overall. Again, the figure was made up and the actual amount depends on interest rated, the housing market, long term uncertainty, the return on alternative investments, etc.
Posted on 7/27/19 at 9:04 am to SOLA
quote:
We bought a new house recently, and before the first payment was due, the mortgage was sold
This was told to us by our back as we financed.
Posted on 7/27/19 at 9:13 am to TheDeathValley
This is how it works...95% of loans are sold to Fannie Mae or Freddie Mac...pretty much only non conventional (jumbo:big loans, or bad credit loans) are not...when sold, the agencies (FNMA, FHLMC) create MBS pools...govt backed securities...if your mtge rate is 4.15..the servicer get .4 the agency gets .25 for guarantee fee and the rest will go into a pool with a 3.5 coupon rate...most originators do not service their loans
Posted on 7/27/19 at 9:16 am to The Nino
quote:
I watched The Big Short too
That should be mandatory viewing and discussion for all high school seniors. I know the movie took some creative liberties for dramatic effect, but it got a just of it right, and hammered home the point really well.
This post was edited on 7/27/19 at 9:27 am
Posted on 7/27/19 at 9:31 am to BamaCoaster
quote:
and she was like, “we can’t afford the home”.
I wanted to say, “if you can’t afford another $100/month, you shouldn’t be purchasing the home in the first place”. I didn’t, obviously, but I see this shite all the time.
A cousin of mine works for Met Life as a finical planner and he’s got stories like this for days. Had one young couple come in, baby on the way, had zero life ins, zero retirement plans, and we’re having trouble making ends meet. He found out they were spending half their income on their home loan, still in the adjustable first few years of their mortgage, and were also eating out every meal and both getting Starbucks every morning.
When pressed on these issues he said that almost all young people, even though they may not directly admit to it, have a similar answer - “mom and dad have all that, why can’t I?”
Posted on 7/27/19 at 9:44 am to soccerfüt
quote:
You have a mortgage.
So deducting the total interest you pay for your mortgage from your taxable income, holds no purpose, on a fixed asset, as a long-term investment?
Posted on 7/27/19 at 10:48 am to Pechon
quote:
Yes, mortgages are grouped together and categorized in traunches
Tranches.
Traunches are used by venture capitalists.
My loan was with Iberia and sold to Wells Fargo within 6 months. They just wanted the origination fee and let someone else load up their balance sheet for the interest I guess. It's been with Wells Fargo for about a decade.
Others are put in mortgage backed securities for investors, as you described. I'm always looking for some conservative investments and thought about investing in some of those, but I just don't trust that these guys don't load up the ones sold to the general public with the dog mortgages.
This post was edited on 7/27/19 at 10:54 am
Posted on 7/27/19 at 11:03 am to The Nino
quote:
I watched The Big Short too
I worked for a loan servicer after I got out of the Army. The movie wasn't far from the truth. This company in particular specialized in getting loans that were anywhere from 90-120 days past due to perform. At one time they purchased a company to start packaging loans and selling those off without even bothering to service them.
Technically, they did make more of a profit if the borrower made their payments rather than foreclose. Well the one guy they had in charge of finance explained that to us. I have to admit, the company didn't spare any expense and the benefits were pretty amazing at the time.
I left in 2007 when shite was about to hit the fan. The company is still in business but it's a shadow of it's former self. I don't think anyone I worked with there stayed much longer and there were several rounds of layoffs.
Posted on 7/27/19 at 11:12 am to Pechon
quote:
I worked for a loan servicing company as well as banks that offered mortgages.
Most banks don't service their loans. They'll sell them off to another company that will repackage them with other mortgages and sell them. Even then these companies that do service the loans will sell off performing mortgages. Why? Maybe a group of loans they have could be worth more to another investor or servicing the loans they have can be expensive and didn't want to lose money on it as a result. This is normal and happens all the time.
Isn't this part of the reason why the economy collapsed (starting in late 2007)? Well I guess this didn't cause it, it was the banks who were giving loans to anyone they can give loans to because they would just turn around and sell those loans so they were not going to get screwed when people stopped paying the loans..So I should be asking.. Is there anything that prevents banks from doing this again?
Posted on 7/27/19 at 11:25 am to OweO
There were a lot of factors.
One thing The Big Short didn't touch on is the effect real estate owned or REO has on a bank. See, foreclosures weren't that big a deal when the real estate market was doing well. You'd have the property for a few months or so and it'd be sold. When people weren't buying, they were stuck with all these properties having to pay for upkeep, taxes, and listing fees. One bank I worked for was shut down by the FDIC had a ton of condos they did loans for in Florida. Many of which weren't even completed. Nobody would buy them but they owned the property and all so they still had to pay taxes on it.
One thing The Big Short didn't touch on is the effect real estate owned or REO has on a bank. See, foreclosures weren't that big a deal when the real estate market was doing well. You'd have the property for a few months or so and it'd be sold. When people weren't buying, they were stuck with all these properties having to pay for upkeep, taxes, and listing fees. One bank I worked for was shut down by the FDIC had a ton of condos they did loans for in Florida. Many of which weren't even completed. Nobody would buy them but they owned the property and all so they still had to pay taxes on it.
Posted on 7/27/19 at 11:29 am to shoelessjoe
quote:No I was not.
Were you told in advance this was happening? Don’t have an answer why they are doing it just wondering if you were told in advance.
This post was edited on 7/27/19 at 11:33 am
Posted on 7/27/19 at 11:36 am to OweO
I'm in the securities business and buy and sell MBS / CMOs and other structured product for a living....you guys are commingling the industry between agency (FNMA, FHLMC) and non-agency RMBS...The vast majority of loans are sold to the agencies to create liquidity for home loans. The non-agency RMBS are typically jumbo loans that are also structured. The credit enhancement (subordinate tranches) are a much larger percentage these days than the mid 2000s.
The credit crisis was caused because of a product called CDO which allowed for the repackaging of subordinate tranches...for the most part that market does not exist anymore.
The credit crisis was caused because of a product called CDO which allowed for the repackaging of subordinate tranches...for the most part that market does not exist anymore.
Posted on 7/27/19 at 11:43 am to Bestbank Tiger
I would also assume that it's part of the investors overall investment and risk strategy. Like it has very little to do with the individual mortgage that is bought, but somewhere on the macro side of things it made sense for the buyer to invest in a bundle of mortgages that included a lower risk mortgages that are closer to being paid off. They probably also decided to invest some proportion of their portfolio in riskier mortgages/investments. OP's just happened to by chance fit into this macro puzzle somewhere.
Posted on 7/27/19 at 11:48 am to Peazey
Not really.... servicing is a low margin high volume business...think about it like this...you pay $10 to get back 10 cents a month...that 10 cents is always declining and will be 0 when the loan is paid off...your risk is the loan is paid off early...you diversify that risk by owning thousands of servicing rights
Posted on 7/27/19 at 4:40 pm to OweO
quote:The banks were forced by Fed Gov to make those loans. FDIC audits occur by law periodically. During those audits they take a so-called random sample of the turn downs (turned down loan applications, TD's). They actively search for racial trends in TD's.
it was the banks who were giving loans to anyone they can give loans to because they would just turn around and sell those loans so they were not going to get screwed
So places like the small bank I worked for in Tulsa that was headquartered right next to section 8 housing full of minorities tended to have tons of TD's from those applicants. The FDIC reports were always the same, "continue to surveil for possible violations". It placed our bank in a lose/lose situation because you also get placed into certain cost of funds categories that further cripple the ability to lend to marginal borrowers.
So ya see, the Fed can run you out of business if you don't play their game the way they want it played.
ETA: We just TD's all mortgage applications after a while, or the few pristine folks we'd price out of the loan with higher interest and fees than pretty much everyone else just to avoid doing mortgage lending at all.
This post was edited on 7/27/19 at 4:43 pm
Posted on 7/27/19 at 4:49 pm to hubreb
quote:
I'm in the securities business and buy and sell MBS / CMOs and other structured product for a living....you guys are commingling the industry between agency (FNMA, FHLMC) and non-agency RMBS...The vast majority of loans are sold to the agencies to create liquidity for home loans. The non-agency RMBS are typically jumbo loans that are also structured. The credit enhancement (subordinate tranches) are a much larger percentage these days than the mid 2000s.
Can you say this again but in English
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