The Home Ownership Mob's Bad Math


So how much more expensive will mortgages be for people who cannot borrow under the qualified residential mortgage exemption?

Felix Salmon points out that the answer is probably not very much.

Let’s say that the Home Ownership Mob is right, and that banks will require a premium of say 15bp to hold loans on their own balance sheet rather than selling them off in the market. If the market rate is 4.9%, the bank is going to require 5.05% to keep its own bit of the loan in-house.

Now say you’re buying a typical $250,000 home, with 10% down, and you’re getting a standard 30-year fixed-rate mortgage. If the whole thing was sold off into the market, then the monthly payments on a $225,000 mortgage at 4.9% are $1,194.14. On the other hand, suppose that just 95% of the mortgage was sold off into the market at 4.9%, and the other 5% was retained in-house at 5.05%. In that case, you end up paying a whopping 4.9075% instead, overall. And your monthly mortgage payments soar to $1,195.16 — a whole dollar more! That’s more than twelve dollars a year!

That buck a month, of course, is money well spent: it reduces the amount of fraud and tail risk in the system, and forces banks to be honest about their underwriting.

Unfortunately, it seems like the Home Ownership Mob—an unholy alliance of mortgage bankers and consumer "advocates"—might win this battle.


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