OT: 2 part question

[paindonthurt]

1. Do you think banks should be allowed to do 40 year mortgages?

2. if yes, do you consider the bank greedy for offering 40 year or do you consider them doing a service to consumers to help lower monthly notes.

 

[Shmuley]

1. Do you think banks should be allowed to do 40 year mortgages?

2. if yes, do you consider the bank greedy for offering 40 year or do you consider them doing a service to consumers to help lower rates.

Since greed is good (we've been told that very clearly), I'm sticking with greed as the primary motivation. This is about churning for bank origination fees. They'll let the secondary market figure out the discount. The originating banks/mortgage lenders don't care.

 

[FrontRangeDawg]

I haven't looked at it closely, but I expect that the 40-year mortgage is an attempt to help younger buyers enter the market since prices are so high relative to income. If that's the case, then I think it's good in the short term. Giving someone/a family the chance to own a home, which is the primary vehicle of personal investment in the US, is good if it allows them to grow equity and continue to level up across their work lives.

I'm sure that there is a bubble that will grow out of this, and that's likely bad in the longer term.

By the way, I don't endorse the fact that one's home is their primary investment strategy. I think that it's a pretty dangerous presumption to balance retirement on with the usual 8 year bust cycle. But, it's the reality in America.

 

[aTotal360]

1. Yes
2. No

 

[paindonthurt]

1. Yes
2. No

The second part of the question was an either/or. Not yes no. Or you are saying they aren’t greedy and they aren’t doing the consumer a service?

 

[Dawgbite]

1. No
2. while this would make home ownership more affordable to the people who live paycheck to paycheck, it would also drastically extend the time borrowers are upside down in their homes. With a 40 year mortgage how long before you would actually start paying principal rather than interest and build equity in your home?

 

[aTotal360]

The second part of the question was an either/or. Not yes no. Or you are saying they aren’t greedy and they aren’t doing the consumer a service?

It's a service. No one is making you accept the terms.

 

[patdog]

1. Good lord no. A 40-year mortgage is crazy. You'll never build any security when you're leveraged on your house your entire working career.

2. Greed.

 

[FrontRangeDawg]

I would add that most home buyers over the last 20 years have not viewed a first home purchase as a 30 year proposition. Most consumers look at entry to the real estate market as a toe-hold into wealth creation with what they view as an appreciating asset to move around. The concept of "starter homes" as a viable product demonstrates this. So, a 40 year mortgage isn't that crazy given that context.

Also, you can get a longer mortgage and pay more principal if you have the discipline.

This is a band-aid to return buyers to an all time housing market high that is resistant to decrease because of very low supply.

 

[GloryDawg]

With out 40 years mortgage and state rebate home ownership in California would be almost impossible for a lot of people.

 

[greenbean.sixpack]

I haven't looked at it closely, but I expect that the 40-year mortgage is an attempt to help younger buyers enter the market since prices are so high relative to income. If that's the case, then I think it's good in the short term. Giving someone/a family the chance to own a home, which is the primary vehicle of personal investment in the US, is good if it allows them to grow equity and continue to level up across their work lives.

I'm sure that there is a bubble that will grow out of this, and that's likely bad in the longer term.

By the way, I don't endorse the fact that one's home is their primary investment strategy. I think that it's a pretty dangerous presumption to balance retirement on with the usual 8 year bust cycle. But, it's the reality in America.

 

[Seinfeld]

It's a service. No one is making you accept the terms.

A few additional thoughts…

- If you’re considering a 40-yr mortgage, you may want to consider that you can’t afford the house and/or location
- For those that want to keep screaming about surging housing costs, there are a hundred houses within 5 miles of me listed for < $200k. Affordable housing is out there once you realize that a 22 year old fresh out of college doesn’t have a god given right to waltz right into a 3500 sq ft home with a pool

And finally… am I reading this new Biden mortgage policy right? Beginning in May, the highest interest rates will go to those with highest credit scores and down payments so that other high risk loans can be subsidized? Wtf?

 

[PooPopsBaldHead]

Everyone keeps thinking of their home as an investment. This is historically inaccurate thinking. It's only an investment in that fact that you are forced to sock money away every month. Outside of a few bubbly times in history, you would almost always be more financially rewarded by renting and taking the money you save plus the money you don't pump into repairs and improvement and buying the S&P. With that said, we also know that nobody does that so homeownership becomes an exercise in saving money over the long term.

The primary benefit of home ownership is having your own stake in the ground. No landlord can kick you to the curb when they want to sell or move their mother in-law in. It's your home. The next benefit is that over time your fixed mortgage stays the same unlike rent which will move up with the market. So while your mortgage may be 30% of your income when you first buy, it could be more like 15- 20% after 10 years of raises and promotions.

Finally, if you compare the 40 year mortgage to the alternative of renting, you could view renting as an eternal interest only adjustable rate mortgage. You will never build a penny of equity and the payment will climb every year. I love a 40 year mortgage option for first time homebuyers. It falls right inline with the FHA first time buyer program helping you by lowering the downpayment.

The hardest part is getting that first house. I bought my first house in 2011. We scraped, clawed, and pinched every penny to get 5% down on that house on a 30 year FHA loan as we were coming out of recession and just hit our early 30's. 2 years later our jobs had stabilized, we had a few raises, and I refinanced the house into a 15 year loan and 5 years later I had 60% equity when I sold that sucker. Couldn't have done any of that without the FHA or a VA loan. If a 40 year mortgage had been available I would have used it to do the exact same thing at a little lower monthly payment for those first 8-12 months when things were real tight.


To answer the questions.

1. Yes
2. Greedy? Is trying to introduce a new product that makes a profit greedy or capitalist is what you are really asking. I think you can be both capitalist and help people out... A 40 year mortgage can do that. If the banks want to underwrite it with no gubment backstop like Freddie or Fannie, they can go for it in my book. If Fannie and Freddie get involved I would like to see some controls like they have on FHA loans so people like me won't abuse it and go buy up a bunch of rental properties.

 

[thatsbaseball]

Is betting on what real estate will be worth that far into the future the next subprime like fiasco ?

 

[Cantdoitsal]

40 year mortgages are gonna come with higher default rates and consumers gonna pay a higher interest rate to cover the risk for those on Wall Street who ultimately end up buying them. Nobody's paying off 30 OR 40 year mortgages as the home will sell or the home owner will refinance. Needing a 40 year mortgage to qualify due to debt to income ratios is a risky loan and if defaults start to rack up in that block of bidness then the 40 year will be dropped but as long as they perform well, then the product will continue to be offered.

 

[mstateglfr]

Yesterday I turned to my wife and said 'how the hell are our kids going to afford to buy a home?' and I was about 88% serious. They will be able to, Im sure. And we will help, Im sure.
But really, it seems completely out of reach right now so itll only look even more difficult in 6-10 years.

When I say this, I mean single family home. And I mean in a non-shltty area. Starter homes are great and they will likely get one, but even then- those things have risen in price well beyond what we could have afforded when we bought our first home a year after college.




I guess a 40 year would reduce the monthly amount and allow more people access to higher cost real estate. But dang- 40 years?!? Thats insane to think of. Its adding on 1/3 of the life of a long mortgage. Thats really a lot of time.

 

[horshack.sixpack]

I haven't looked at it closely, but I expect that the 40-year mortgage is an attempt to help younger buyers enter the market since prices are so high relative to income. If that's the case, then I think it's good in the short term. Giving someone/a family the chance to own a home, which is the primary vehicle of personal investment in the US, is good if it allows them to grow equity and continue to level up across their work lives.

I'm sure that there is a bubble that will grow out of this, and that's likely bad in the longer term.

By the way, I don't endorse the fact that one's home is their primary investment strategy. I think that it's a pretty dangerous presumption to balance retirement on with the usual 8 year bust cycle. But, it's the reality in America.

Right. If they will let my 70+ yo dad refi on a 30, a 40 for 20 somethings shouldn't be a big deal.

 

[ronpolk]

1. Do you think banks should be allowed to do 40 year mortgages?

2. if yes, do you consider the bank greedy for offering 40 year or do you consider them doing a service to consumers to help lower monthly notes.

I would imagine a 40 year product is something that is government backed…. Like FHA. It’s a tricky topic. I don’t think a 40 year mortgage is necessarily a good thing but at the same time you want affordable options for people. I don’t think we want a country full of renters where real estate is corporately owned.

 

[dorndawg]

Build.More.Houses.

 

[PooPopsBaldHead]

A few additional thoughts…

- If you’re considering a 40-yr mortgage, you may want to consider that you can’t afford the house and/or location
- For those that want to keep screaming about surging housing costs, there are a hundred houses within 5 miles of me listed for < $200k. Affordable housing is out there once you realize that a 22 year old fresh out of college doesn’t have a god given right to waltz right into a 3500 sq ft home with a pool

And finally… am I reading this new Biden mortgage policy right? Beginning in May, the highest interest rates will go to those with highest credit scores and down payments so that other high risk loans can be subsidized? Wtf?

That's been misreported in a way. It's not going to be more expensive for a high credit score person than a low, its just going to be less of a gap.

Look at the chart below. It's for the fees when you close on a fannie/freddie backed mortgage. Under the old rules if you are 740 or above with 20% down (80% LTV) you would have paid .5% in fees. If you had a 645 you would pay 3% in upfront fees at closing. Going forward that 740 will pay a .75% fee and the the 645 will pay a 2.5% fee.



So you won't pay more for having a higher credit score, you will just get less of a discount. Which is still stupid, but the way the 17ing media constantly reports śhit wrong or intentionally misleading is infuriating. They are actually on TV saying you will pay more with a 740 than a 640 or whatever and that's not accurate. But the plan is still dumb as 17.

 

[johnson86-1]

1. Do you think banks should be allowed to do 40 year mortgages?

2. if yes, do you consider the bank greedy for offering 40 year or do you consider them doing a service to consumers to help lower monthly notes.

1) Yes.
2) Embrace the power of "and".

As long as the government isn't buying them to carry the interest rate risk, it's fine. it's basically a bet on appreciation by the borrower (and probably also on increasing their income). I do question the usefulness of a 40 year mortgage depending on how they do it. The difference between a 30 year mortgage for $400k at 5% and a 40 year mortgage for $400k at 5.5% is about $1,000 per year. If you don't pay an interest rate penalty, you are looking at a difference of ~$2,600, which I guess is a more meaningful difference. But to the extent it is helping buyers afford more, I'd guess it's generally not going to go to buyers but to existing owners.

If the government is going to do anything to subsidize a 40 year mortgage, I definitely think that's the wrong approach. If they want to make houses more affordable, particularly entry level houses, they should focus on supply and to the extent they are going to stay in the subsidy business for demand, at least gradually move towards only buying when there is a 20% downpayment.

That said, I've got a 30 year at 2.75%. If somebody offered to turn it into a 40 year at 2.75%, I'd certainly take it, even if there was a balloon payment at year 30.

 

[FrontRangeDawg]

I do think that there is a segment of the market that will choose a 40-year if the rate is substantially more favorable and then pay additional principal. I know that many people who have a 30-year do this to treat it like a 15-year. Building more housing has historically been the answer to American economic problems.

 

[mstateglfr]

And finally… am I reading this new Biden mortgage policy right? Beginning in May, the highest interest rates will go to those with highest credit scores and down payments so that other high risk loans can be subsidized? Wtf?

Like so much in politics, I am unsure what to think about this because I am unsure if I am getting the full truth or full information.
I have read articles that claim exactly what you posted- higher credit score borrowers will be charged money to offset lower interest rates for lower credit score borrowers.
But I have also read comments that say this interpretation is incorrect. See below.

Biden raises costs for homebuyers with good credit to help risky borrowers

The administration's new rule will reduce mortgage fees for riskier borrowers but will be subsidized by borrowers with higher credit scores.

www.newsweek.com

Days later, Thompson addressed the changes in an April 25 press release, calling it a "misconception" that higher-credit-score borrowers were being charged more so lower-credit-score borrowers can pay less. She said that the updated fees do not represent "pure" decreases or increases and that the new rule was targeting borrowers with lower incomes, not lower credit scores.


"Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat," Thompson said. "Some mistakenly assume that the prior pricing framework was somehow perfectly calibrated to risk—despite many years passing since that framework was reviewed comprehensively. The fees associated with a borrower's credit score and down payment will now be better aligned with the expected long-term financial performance of those mortgages relative to their risks."

So I am left wondering which predicted result is accurate.

 

[johnson86-1]

Build.More.Houses.

"Yes. Build more houses. But somewhere else. Not near me. Unless there are huge lot and sq ft requirements that drive up price, in which case I guess it's ok. All that assuming I already own a home. If I don't, then build near me and make it affordable and stop building after I buy." Basically 90% of the US population.

 

[Boom Boom]

40 year mortgages are gonna come with higher default rates and consumers gonna pay a higher interest rate to cover the risk for those on Wall Street who ultimately end up buying them. Nobody's paying off 30 OR 40 year mortgages as the home will sell or the home owner will refinance. Needing a 40 year mortgage to qualify due to debt to income ratios is a risky loan and if defaults start to rack up in that block of bidness then the 40 year will be dropped but as long as they perform well, then the product will continue to be offered.

Agree, but I will add there's systemic risk here. This is essentially subprime loans on steroids, as the mortgage holder is very likely to be significantly underwater if there's a housing downturn. BIG difference in risk if there's a substantial down payment requirement. From a policy perspective, any govt backed bank (and let's be honest, that's now all of them) needs strict regulation to accompany this.

 

[GloryDawg]

Yesterday I turned to my wife and said 'how the hell are our kids going to afford to buy a home?' and I was about 88% serious. They will be able to, Im sure. And we will help, Im sure.
But really, it seems completely out of reach right now so itll only look even more difficult in 6-10 years.

When I say this, I mean single family home. And I mean in a non-shltty area. Starter homes are great and they will likely get one, but even then- those things have risen in price well beyond what we could have afforded when we bought our first home a year after college.




I guess a 40 year would reduce the monthly amount and allow more people access to higher cost real estate. But dang- 40 years?!? Thats insane to think of. Its adding on 1/3 of the life of a long mortgage. Thats really a lot of time.

Some people buy, sell and move so much they have 40 years mortgage by default. Hopefully they are selling high and reinvesting into a larger home when they do that.

 

[FrontRangeDawg]

That said, I've got a 30 year at 2.75%. If somebody offered to turn it into a 40 year at 2.75%, I'd certainly take it, even if there was a balloon payment at year 40.

You know you're getting older when you're jealous of someone else's rate. 2.75%? Dayum!

 

[mstateglfr]

Build.More.Houses.

Yes.
...except it seems like all the residential construction in my metro is either single family homes that are priced over $300,000(and often over $500,000), or townhomes that are $180,000 to $400,000.
The concept of a single family home for $180,000 is seemingly gone. Heck, new construction $225,000 homes seem to be relatively rare too.

I get it- profit margin exists at higher pricing. But dang it seems like a disservice to the community to only provide townhomes if you cant afford a $300,000 new home.

 

[dorndawg]

Yes.
...except it seems like all the residential construction in my metro is either single family homes that are priced over $300,000(and often over $500,000), or townhomes that are $180,000 to $400,000.
The concept of a single family home for $180,000 is seemingly gone. Heck, new construction $225,000 homes seem to be relatively rare too.

I get it- profit margin exists at higher pricing. But dang it seems like a disservice to the community to only provide townhomes if you cant afford a $300,000 new home.

You're not wrong, but also the note on a 300k house is what, $2200 a month give or take? The rent on a nice 3 BR apartment is approaching that in most places. Also younger folks care less and less about a yard, so don't really need a lot of land with them.

 

[dorndawg]

"Yes. Build more houses. But somewhere else. Not near me. Unless there are huge lot and sq ft requirements that drive up price, in which case I guess it's ok. All that assuming I already own a home. If I don't, then build near me and make it affordable and stop building after I buy." Basically 90% of the US population.

I didn't take you for a McSweeney's reader.

Housing Should Be Affordable Except When I Sell My House for a Million Dollars

Our 15th most-read article of 2023. - - -Originally published April 13, 2023. - - -My heart breaks for would-be homeowners priced out of housing m...

www.mcsweeneys.net

 

[johnson86-1]

Like so much in politics, I am unsure what to think about this because I am unsure if I am getting the full truth or full information.
I have read articles that claim exactly what you posted- higher credit score borrowers will be charged money to offset lower interest rates for lower credit score borrowers.
But I have also read comments that say this interpretation is incorrect. See below.



So I am left wondering which predicted result is accurate.

It's not an across the board increase, but people are focusing on the bands iwth either a 20% downpayemnt or 5-10% down payment. With an 20% down payment, people with high credit ratings will pay more now and people with lower credit ratings will pay less. With a 5 to 10% downpayment, people with high credit scores won't pay more, but people with middling to bad credit scores will pay less.

It's entirely possible this is all driven by better risk measures, but obviously nobody is going to trust this administration that that's the case, especially when they make announcements indicating that's not what it's about, but about shifting subsidies to more favored political groups.

(Curent matrix) https://singlefamily.fanniemae.com/media/33201/display

(New Matrix) https://singlefamily.fanniemae.com/media/9391/display

ETA: They have helpfully changed the labeling to make it less clear, so I may not be comparing apples to apples there, but I think I am.

 

[PooPopsBaldHead]

Build.More.Houses.

This is the answer and the solution is coming. I have just given up on building a bigger workforce moving forward that can stick frame houses the way we always have. I have been pumping 3D printed houses a solution for many years and it's gaining traction. Lennar is building a 100 home 3D printed community just north of Austin and they are about to go on sale.





I also think SIP construction offers some automation techniques in the future as well. SIP and 3D Printed homes are going to offer a lot of pros and cons vs stick framing, but with scale cost and speed will be much lower with both. I could see a world in 2040 were stick framing is reserved for customer or at least higher end homes.

And if you’re wondering how they turn out, 3D can be pretty damn cool. Not for everybody, but if your a fan of modern/minimalist architecture it can do some cool things that would be virtually impossible to build with other methods.

 

[johnson86-1]

You know you're getting older when you're jealous of someone else's rate. 2.75%? Dayum!

You should see me flex at the bar. Bunch of barely pre-menopausal women start throwing themselves at me.

 

[SteelCurtain74]

I don't find a 40-year mortgage any more or less reprehensible than banks that offer an 84-month car loan. It's a product in the marketplace and if consumers want to go that route and receive all of the information before purchasing than I say let it be.

If we are saying this is geared towards first time and lower income homeowners, then just doing a quick calculation of a $250k house with a 3% down payment it comes to about $120/month difference between a 30- and 40-year mortgage. The biggest difference between the two is that with the 30-year paying only the minimum payment each month, the PMI comes off after 126 months vs 202 months for the 40-year mortgage.

I myself wouldn't go a 40 year route but to each his own.

 

[aTotal360]

And finally… am I reading this new Biden mortgage policy right? Beginning in May, the highest interest rates will go to those with highest credit scores and down payments so that other high risk loans can be subsidized? Wtf?

I work in real estate, but mostly with investors. My usual lenders are telling me this new push will lower rates for people with below-average and those with excellent credit scores (780+). The people getting screwed will be the people with "good" credit. The 730-760 people will get the shaft.

All of this is designed to get first-time buyers into homes. And who's the burden going to fall on? You guessed it...

 

[paindonthurt]

It's a service. No one is making you accept the terms.

Yes I understand.

Do you think that service is due to greed, the best interest of the consumer or neither?

 

[paindonthurt]

With out 40 years mortgage and state rebate home ownership in California would be almost impossible for a lot of people.

Or you could let supply and demand lower the price of housing.

 

[aTotal360]

Yes I understand.

Do you think that service is due to greed, the best interest of the consumer or neither?

I think it's both.

Again, I work with lots of investors. The 40 year loan is perfect for them. Lower the monthly, increase cash flow.

 

[johnson86-1]

This is the answer and the solution is coming. I have just given up on building a bigger workforce moving forward that can stick frame houses the way we always have. I have been pumping 3D printed houses a solution for many years and it's gaining traction. Lennar is building a 100 home 3D printed community just north of Austin and they are about to go on sale.





I also think SIP construction offers some automation techniques in the future as well. SIP and 3D Printed homes are going to offer a lot of pros and cons vs stick framing, but with scale cost and speed will be much lower with both. I could see a world in 2040 were stick framing is reserved for customer or at least higher end homes.

And if you’re wondering how they turn out, 3D can be pretty damn cool. Not for everybody, but if your a fan of modern/minimalist architecture it can do some cool things that would be virtually impossible to build with other methods.

I really thought manufactured panels would have taken off. Especially for tract home builders. Our tract home builders are basically "automating" a lot anyway. They will have the same foundation for 3 or more different house plans. For 3 of those house plans that fit on that foundation, it looks like they have basically the same first floor exterior framing, with minor modifications depending on whether the plan is 1 or 2 stories. They won't have a countertop or cabinet turn a corner in the entire house. Everything cabinet related is basically assembly rather than carpentry to the extent possible. They push the "knock down" finish on walls to limit the need for skilled mud guys. They really try to discourage any shower tile outside of the master. Everything outside of the bathrooms are not pretty much click in place laminate or vinyl. Don't even do tile in the kitchens anymore. They push batt insulation instead of spray foam because it's more "dummy proof" and you don't have to worry about over or under spraying. They're basically turning it into an assembly line process as much as possible and trying to make as much as possible identical from house to house.

 

[GloryDawg]

Or you could let supply and demand lower the price of housing.

Unfortunately, probably not happening in California.