After last time, and our massive bailouts, I am sure that's exactly what they are hoping for.
Nonbank mortgage companies have “vulnerabilities” that could cause them to “amplify and transmit the effect of a shock to the mortgage market and broader financial system,” FSOC said.
For example, if home prices crash in a future crisis, mortgage companies could simultaneously lose money and face cash crunches that would make it hard for them to make required payments to investors on behalf of struggling borrowers, FSOC said. These challenges would be exacerbated by the relatively high amounts of debt these companies have.
This pressure on nonbank mortgage companies would then hurt borrowers seeking mortgages and could force the federal government to assume the obligations, according to regulators.
After last time, and our massive bailouts, I am sure that's exactly what they are hoping for.
Ironically that’s the opposite of the issue that banks had in 2008. But either way, why exactly would that be what they hoped for? 2008 was a disaster for the banking industry. For reason a lot of...
Ironically that’s the opposite of the issue that banks had in 2008. But either way, why exactly would that be what they hoped for? 2008 was a disaster for the banking industry.
For reason a lot of people think the government just gave them money, but to reiterate, it didn’t. The “bailouts” ended up costing the government negative money - that is, the federal government, and by proxy taxpayers, made a tidy profit.
Either way, I’m sure non-bank mortgage companies “hope” that they can continue to operate normally.
Do you have a good explainer for how that all worked? I’m curious, because I’ve only heard the bailout part, not how we (the taxpayers via the federal government) got paid back.
Do you have a good explainer for how that all worked? I’m curious, because I’ve only heard the bailout part, not how we (the taxpayers via the federal government) got paid back.
This was actually one of the first big ProPublica projects. https://projects.propublica.org/bailout/ -$109B is not a bad price for economic stability! tl;dr the gov didn't give banks money, they...
Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $635B has gone out the door.
Money has been coming back in two ways: $390B of principal has been repaid, and the Treasury has collected revenue from its investments of $353B.
In total, the government has realized a $109B profit as of August 18, 2022.
-$109B is not a bad price for economic stability!
tl;dr the gov didn't give banks money, they gave them loans, with interest; also, if you buy mortgage backed securities, some people actually do pay the mortgages in the end, especially if the economy isn't in shambles.
Issues: This only covers the taxpayer funded bailout and returns on it, not any of the knock-on effects of mass layoffs, retirement funds becoming trash, homelessness, etc. that were the ripples...
Issues:
This only covers the taxpayer funded bailout and returns on it, not any of the knock-on effects of mass layoffs, retirement funds becoming trash, homelessness, etc. that were the ripples of the 2008 crash that didn't get a bailout.
The bailouts have a direct link to the massively overpriced housing market we are currently within. Adjusted for inflation, the median house price in the US hovers around $200k. Every time it has creeped too far above that, there's been a correction (that some would call a "crash") back to the norm. 2008's bailouts stopped this correction and has led to the disgustingly overpriced market we have now that is well above pre-2008's idiotically inflated prices.
The bailouts may have provided some semblance of economic stability in a couple of key areas, but it wasn't as far reaching as it could/should be and ultimately resulted in very specific areas being rewarded for their bad actions instead of punished.
I mean you can clearly see in the data that the median CPI adjusted price was bouncing back towards 200k. The problem with home prices here wasn't with the initial bailout, it was with ongoing...
2008's bailouts stopped this correction and has led to the disgustingly overpriced market we have now that is well above pre-2008's idiotically inflated prices.
I mean you can clearly see in the data that the median CPI adjusted price was bouncing back towards 200k. The problem with home prices here wasn't with the initial bailout, it was with ongoing QE/ZIRP from like 2008-2017 or so. I still agree that they should have let banks fail and backstopped depositors, but this bailout specifically isn't the cause of everything.
This btw is why the phrase "soft landing" makes me so mad. what they actually mean by that is "lol get used to housing being comically unaffordable stupid! shoulda bought when you could!"
I was wondering what the business model actually is and what the risks are. One concern seems to be these companies' "reliance on short-term loans for financing." It's what banks do, but since...
I was wondering what the business model actually is and what the risks are. One concern seems to be these companies' "reliance on short-term loans for financing." It's what banks do, but since they're not a bank, these loans aren't from depositors. They're from investors of some sort, who don't have the same guarantees and the government wouldn't have to bail them out? All the more reason why financing could dry up.
Maybe the government would bail them out anyway.
Also, since they originate loans, they aren't directly providing the financing. But looking at "risk factors" in Rocket Mortgage's annual report, they apparently would be affected anyway if loans started going bad:
We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.
During any period in which one of our clients is not making payments on a loan we service we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements, pay property taxes and insurance premiums, legal expenses and other protective advances (“payment advances”). If home values rise, we may be required to advance greater amounts of property taxes and insurance premiums. We also advance funds to maintain, repair and market real estate properties. In certain situations, we may elect to make certain payment advances knowing that we may not be reimbursed. In addition, in the event a loan serviced by us becomes delinquent, or to the extent a mortgagor under such loan is allowed to enter into a forbearance by applicable law, regulation, or investor/insurer guidelines, the repayment to us of any payment advance related to such events may be delayed until the loan is repaid or refinanced or liquidation occurs. A delay in our ability to collect a payment advance may adversely affect our liquidity, and our inability to be reimbursed for a payment advance could be detrimental to our business. Defaults might increase due to a deterioration in the macro economy and as the loans in our servicing portfolio get older, which may increase our costs of servicing and could be detrimental to our business. Further, forbearance legislation or regulation, such as part of a natural disaster response (e.g., the Coronavirus Aid, Relief and Economic Security Act), could increase the number of loans on which we must make such payment advances.
It seems that even though they don't finance the loans, as a servicer, they still do much of the work a bank would do. If the borrower stops paying, investors in mortgages (including Fannie Mae, etc) leave it up to them to deal with it.
After last time, and our massive bailouts, I am sure that's exactly what they are hoping for.
Ironically that’s the opposite of the issue that banks had in 2008. But either way, why exactly would that be what they hoped for? 2008 was a disaster for the banking industry.
For reason a lot of people think the government just gave them money, but to reiterate, it didn’t. The “bailouts” ended up costing the government negative money - that is, the federal government, and by proxy taxpayers, made a tidy profit.
Either way, I’m sure non-bank mortgage companies “hope” that they can continue to operate normally.
Do you have a good explainer for how that all worked? I’m curious, because I’ve only heard the bailout part, not how we (the taxpayers via the federal government) got paid back.
This was actually one of the first big ProPublica projects. https://projects.propublica.org/bailout/
-$109B is not a bad price for economic stability!
tl;dr the gov didn't give banks money, they gave them loans, with interest; also, if you buy mortgage backed securities, some people actually do pay the mortgages in the end, especially if the economy isn't in shambles.
Issues:
I mean you can clearly see in the data that the median CPI adjusted price was bouncing back towards 200k. The problem with home prices here wasn't with the initial bailout, it was with ongoing QE/ZIRP from like 2008-2017 or so. I still agree that they should have let banks fail and backstopped depositors, but this bailout specifically isn't the cause of everything.
This btw is why the phrase "soft landing" makes me so mad. what they actually mean by that is "lol get used to housing being comically unaffordable stupid! shoulda bought when you could!"
I was wondering what the business model actually is and what the risks are. One concern seems to be these companies' "reliance on short-term loans for financing." It's what banks do, but since they're not a bank, these loans aren't from depositors. They're from investors of some sort, who don't have the same guarantees and the government wouldn't have to bail them out? All the more reason why financing could dry up.
Maybe the government would bail them out anyway.
Also, since they originate loans, they aren't directly providing the financing. But looking at "risk factors" in Rocket Mortgage's annual report, they apparently would be affected anyway if loans started going bad:
It seems that even though they don't finance the loans, as a servicer, they still do much of the work a bank would do. If the borrower stops paying, investors in mortgages (including Fannie Mae, etc) leave it up to them to deal with it.