Author Topic: Liquidity crises in the mortgage market - study by BPEA  (Read 874 times)

Cwadda

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Liquidity crises in the mortgage market - study by BPEA
« on: June 17, 2018, 05:33:28 PM »
https://www.brookings.edu/wp-content/uploads/2018/03/5_kimetal.pdf

Study provided by Brookings Papers on Economic Activity

slow hand slow plan

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Re: Liquidity crises in the mortgage market - study by BPEA
« Reply #1 on: June 18, 2018, 12:48:47 PM »
It is 70 pages long. What is your opinion on it and do you agree with the authors?

genesismachine

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Re: Liquidity crises in the mortgage market - study by BPEA
« Reply #2 on: June 29, 2018, 05:51:52 PM »
A quick summary is that mortgages insured by the government are increasingly being issued by non-bank entities. The banks are loaning the non-bank entities capital instead of operating it in-house.

The non-bank entities take a loan from the bank, issue the mortgage, bundle it up and sell it, then pay back the bank. So the bank is loaning them a very small amount relative to the amount that the non-bank entity is lending out.

The non-bank entities are doing the riskier mortgages than the banks. The risk is that if there is another wave of defaults, the government will try to collect from the non-bank entities and they will just fold rather than pay the government back - since they have no other business lines to protect.

If there's another wave of defaults, instead of the government being able to sue or collect money from the bank, the non-bank entity has folded, thus leaving the taxpayer with the bill. The foreclosures would be dumped onto the market since no entity really exists to liquidate them in an orderly fashion or hold onto them for years while waiting for property values to recover like many banks did.

If true, this is a very big change, and is pretty ingenious/evil/concerning. The banks get most of the upside with none of the downside, and the non-bank entities are just the patsies.

RangerOne

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Re: Liquidity crises in the mortgage market - study by BPEA
« Reply #3 on: July 10, 2018, 05:53:10 PM »
Hm. I recently took on a mortgage sourced through United Wholesale Mortgage, which I believe is one of the largest lenders of these "shadow banks" now making home loans.

Within 2 weeks of closing I received a letter that the loan had been transferred to fannie mae. Though I still pay through the UWM portal.

Doesn't this effectively mean that UWM is already free from the risk of my default? Isn't Fannie Mae government owned so my default potential is now squarely on the shoulders of tax dollars?

I have been told by others that the majority of home loans are being immediately transferred to Fannie in most cases. I don't really know how true that is. But I assume UWM is probably doing this for all loans and it is the largest non-bank lender behind Quicken Loans.

I guess this is effectively what you just summarized. Where the non-bank lender sells off the mortgage back to Fannie.