smart people explain to me

[mobil1syn]

how money is made on mortgages.

my current mortgage is for $246k, 2.125% for 15yrs. actually interest is $46k. average inflation is around 3%, so one in my simple head the owner of the mortgage is losing ~1% a year for as long as i hold a mortgage. my last refi was in sept and original funding company sold the mortgage last month to another company. do does the originator sell it to company b for 75% of the face value and call it good?

 

[Roc Doc]

My question is when the mortgage holder sells it to another company, who gets to charge all the bullshit fees we pay.

 

[bgaidan]

My question is when the mortgage holder sells it to another company, who gets to charge all the bullshit fees we pay.

The originator makes their money on the fees and closing costs. I'd assume they sell it at a small discount from the interest rate you're paying.

 

[Provience]

how money is made on mortgages.

my current mortgage is for $246k, 2.125% for 15yrs. actually interest is $46k. average inflation is around 3%, so one in my simple head the owner of the mortgage is losing ~1% a year for as long as i hold a mortgage. my last refi was in sept and original funding company sold the mortgage last month to another company. do does the originator sell it to company b for 75% of the face value and call it good?

they are making money on the origination fees and on borrowing against the "value" of the mortgage they've underwritten. banks are getting their money under whatever rate you are being charged, so the inflation doesn't really matter to them. it is all covered up front.

some banks take the origination and then sell off the loans, some carry them for the duration. i generally prefer a lender that keeps the loan, but that is just me, it doesn't actually matter to the end user.

 

[rockota]

Most mortgages are sold to the government....

 

[MattS]

how money is made on mortgages.

my current mortgage is for $246k, 2.125% for 15yrs. actually interest is $46k. average inflation is around 3%, so one in my simple head the owner of the mortgage is losing ~1% a year for as long as i hold a mortgage. my last refi was in sept and original funding company sold the mortgage last month to another company. do does the originator sell it to company b for 75% of the face value and call it good?

Have you looked at what the return on a bond is? Historically bonds were the most stable least risk out there. Yeah for .08% return they should be. A 10 year is .84%. Banks bundle and sell them as MBS's mortgage-backed security. Since they have collateral attached to them and that is usually worth more than the loan it's pretty safe territory and some people want money is super safe zones. I only know because I asked my finance guy what it would take to get a new loan that won't be sold 15 times before it's paid off.

 

[mobil1syn]

banks are getting their money under whatever rate you are being charged, so the inflation doesn't really matter to them. it is all covered up front.

im not smart, can you explain what you mean?

Banks bundle and sell them as MBS's mortgage-backed security. Since they have collateral attached to them and that is usually worth more than the loan it's pretty safe territory and some people want money is super safe zones.

i watched the big short recently (which even if that movie was 50% accurate in how it all went down, wow is all i can say) and it helps bridge a few ideas in my head, so i have an understanding of how the mortgages got turned into MBS on a very basic level. so if they are lending me at 2% and paying out at less than 1% they are making just over a 1%, which seems like a garbage rate of return. i guess im looking at as a singular investment instead of as part of an over portfolio.

 

[Void_of_Light]

i watched the big short recently (which even if that movie was 50% accurate in how it all went down, wow is all i can say) and it helps bridge a few ideas in my head, so i have an understanding of how the mortgages got turned into MBS on a very basic level. so if they are lending me at 2% and paying out at less than 1% they are making just over a 1%, which seems like a garbage rate of return. i guess im looking at as a singular investment instead of as part of an over portfolio.

That is a great movie. The book is very dry but has even better info in it.

You don't buy 1 hoping to get rich on 2%. mutual funds, and investment firms buy billions worth and make a mint on them. Like they said in the movie, done correctly they are AAA rated because who the hell doesn't pay their mortgage?

 

[Provience]

I only know because I asked my finance guy what it would take to get a new loan that won't be sold 15 times before it's paid off.

super easy to find a bank that won't sell off your loan

sure, it won't be the people that send you junk mail through the USPS to offer you the lowest rate you've ever heard of

 

[Provience]

im not smart, can you explain what you mean?



i watched the big short recently (which even if that movie was 50% accurate in how it all went down, wow is all i can say) and it helps bridge a few ideas in my head, so i have an understanding of how the mortgages got turned into MBS on a very basic level. so if they are lending me at 2% and paying out at less than 1% they are making just over a 1%, which seems like a garbage rate of return. i guess im looking at as a singular investment instead of as part of an over portfolio.

like said above, it is a garbage rate of return, because if the bank was charging me 10% and inflation was 2 or 3% then i would just go through somebody like you or 2BB and pay 8 or 9% everybody would be happy and make a killing.

banks take the garbage rate so they can offset it with volume and stability. check out the rates that banks can borrow from the feds with and also the rates they pay to store peoples money via deposits and such.

that's why, as stupid as it may be financially, i moved money that was sitting in a savings account earning just over 0% into a CD earning 2% and then went ahead and borrowed the same amount at 2.99%

that transaction will net me $300 positive went it is all said and done, because i'm a super low volume kind of person and it is basically free money

 

[TatonkaII]

I havent been in the mortgage business OR market, for about 5 years but as stated most are of fees and refis. My last in house was probably +2% over market, which is plenty of a reason not to give a damn if your loan is sold. My situation was circumstantial and only a 5 year note.

 

[JR4X]

Are you sure that’s all the interest you pay in the end? Can you look at a monthly statement and see the breakdown of interest, principal, escrow etc? The mortgage holders get most of the interest up front. Most people never pay a mortgage to term without refinancing or selling and upgrading. The mortgage company made their money if you pay every payment for 3 years, that’s why some have a pre payment penalty.

I’d suggest you find out how much per month of your monthly payment actually goes to principal. I had a 30 year fixed. Had to refinance because of divorce which starts the clock over. After paying on the same home for 11 years, when I sold it the monthly payment was 2/3 interest 1/3 principal. Payment was $900 a month, less than $300 a month went to principal, the rest was interest and taxes. I was in the low 3’s for apr % rate. Even though my house sold for more than I bought it for I lost my ass on it because I paid way more in interest than the home appreciated. I think if most people did the math they’d find out that their in the same boat. The banks are making fuck tons of money on your mortgages.

 

[MattS]

super easy to find a bank that won't sell off your loan

sure, it won't be the people that send you junk mail through the USPS to offer you the lowest rate you've ever heard of

Not at the same rates at least from what I found. Almost a full point off.

 

[Provience]

Not at the same rates at least from what I found. Almost a full point off.

yup, tradeoffs in life. check the upfront fees. lots of those super cheap places are structured to bundle and sell and burn through them as fast as they can.

i don't pay enough or have enough money to care, so i prefer somebody that won't sell.

"rich people never overpay" and i'll never be rich :D

 

[mobil1syn]

Are you sure that’s all the interest you pay in the end?

yep, did the math a while back

https://irate4x4.com/chit-chat/83971-mortgage

I think if most people did the math they’d find out that their in the same boat.

100% this ... the more i learn, the more i realize a house is not the end all be all to build wealth. owning a home brings you some benefits that can help you build wealth, but it is a small piece of the puzzle, not the gold ticket to being wealthy.

"buy a house for the tax write off" "i just refi'd to get a lower rate" the fail to realize those two statements are in direct opposition of each other

 

[jpmassey]

It isn't the bank's money. They are lending other people's money that they get for practically free. Inflation doesn't matter because they are just keeping the interest on massive amounts of deposits, which are losing the inflationary value.

 

[Provience]

yep, did the math a while back

https://irate4x4.com/chit-chat/83971-mortgage



100% this ... the more i learn, the more i realize a house is not the end all be all to build wealth. owning a home brings you some benefits that can help you build wealth, but it is a small piece of the puzzle, not the gold ticket to being wealthy.

"buy a house for the tax write off" "i just refi'd to get a lower rate" the fail to realize those two statements are in direct opposition of each other

when the options are "buy a house" or "pay the same rent" the house is a better store and potential growth of wealth

 

[KarlVP]

What? The interest alone is where the banks make their money.

If you pay $1600/month (assuming ~3% interest) on a 250K house for 30 years that equates to. 576K. So the bank just made a little over $250K from your ass.

 

[Provience]

What? The interest alone is where the banks make their money.

If you pay $1600/month (assuming ~3% interest) on a 250K house for 30 years that equates to. 576K. So the bank just made a little over $250K from your ass.

yeah, now go ahead and present value 576K on 30 years of 3% inflation and think of 30 years ago and look at housing values for about any local area

 

[KarlVP]

yeah, now go ahead and present value 576K on 30 years of 3% inflation and think of 30 years ago and look at housing values for about any local area

No shit. The wife and I were toying with the idea of after I retire from the Navy, and the kids have left the nest, moving to TN/NC/SC area. We could retire comfortably at 50.

 

[mobil1syn]

What? The interest alone is where the banks make their money.

If you pay $1600/month (assuming ~3% interest) on a 250K house for 30 years that equates to. 576K. So the bank just made a little over $250K from your ass.

your math is off. a 250k/30yrs/3% is only $1055/month

 

[JR4X]

how money is made on mortgages.

my current mortgage is for $246k, 2.125% for 15yrs. actual interest is $46k.

Is that number stated? Or did you come to that conclusion on your own?

 

[KarlVP]

your math is off. a 250k/30yrs/3% is only $1055/month

All those bullshit loan calculators don't account for fees, taxes, escrow, insurance, etc.

That's fucking 4th grade math. You have to pay the man too.

 

[mobil1syn]

All those bullshit loan calculators don't account for fees, taxes, escrow, insurance, etc.

correct, im specifically referring to the interest gains. this is what i pay for my mortgage, taxes and insurance will still need to be paid when i pay it off.

the brokers/originators are the ones who make the money on fees and stupid nonsense.

 

[KarlVP]

correct, im specifically referring to the interest gains. this is what i pay for my mortgage, taxes and insurance will still need to be paid when i pay it off.

the brokers/originators are the ones who make the money on fees and stupid nonsense.

I call those fees "fuck you taxes".

Like this year, the USNF office where we get our Christmas tree permit is closed due to the kungflu. So I bought one online and printed it myself.

$10 at the office. $12.50 to get it online for a "handling fee".

 

[mobil1syn]

Is that number stated? Or did you come to that conclusion on your own?

...

 

[Ebs]

when the options are "buy a house" or "pay the same rent" the house is a better store and potential growth of wealth

The stock market outpaces real estate buy a couple percent. But when you consider the spending/savings habit of a lot of people, buying a house is a way to leverage themselves into something of value.

 

[Provience]

The stock market outpaces real estate buy a couple percent. But when you consider the spending/savings habit of a lot of people, buying a house is a way to leverage themselves into something of value.

yeah and you have to live somewhere anyways. so how much rent are you paying vs how much are you going to invest instead plus risk and such, buying a house is still a positive thing

 

[DuckTape]

I tend to think of it larger than just the bank. Apart from the origination fees that are made by the lender, a mortgage generates money for the agents, inspectors, insurers, appraiser, closing company, local governments, a bit for the borrower when sold, and probably others I'm not mentioning. This is likely why the fed is willing to back many home loans. Seems like a huge scam to me, but buying a home outright is not within reach of most.

 

[PAE]

This is the first page of a PDF about purchasing a home etc and speaks of the fraud of the system.

If you want the entire thing email with fraud pdf as subject line.

SIERRANEVADAMARINE GMAIL

Thought it might interest some here.

ETA: this will go out tonight or tomorrow after I have at least a few to send it out to, this saves me from doing it over and over again.

WHERE DOES THE FRAUD BEGIN?

This document is meant to take the reader down a road they have
likely never traveled. This is a layman’s explanation of what has
been happening in this country that most have no idea or inkling
of. It is intended to give the reader an overview of a systemic
Fraud in this country that has reached epic proportions and
provoke action to eradicate this scourge that has descended upon
the people of America. Depending on what your situation is, you
may react with disbelief, fear, anger or outright disgust at what you
are about to learn. The following information is supported with
facts, exhibits, law and is not mere opinion.

Let’s start our journey of discovery with the purchase of a home
and subsequent steps in the financial process through the life of
the “mortgage loan”. It all starts at the “closing” where we gather
with other people that are “involved” in the process to sign the
documents to purchase our new home. Do we really know what
goes on at the closing? Are we ever told who all the participants
are in that entire process? Are we truly given “full disclosure” of all
the various aspects of that entire transaction regarding what, for
most people, is the single largest purchase they will make in their
entire life?