[patientrenter]

[quote=davelj]

The problem with your “local bank” model is it will never exist again. Nor should it. (Local UNDERWRITING makes sense – but not using local BALANCE SHEETS to fund the loans.) Please explain to me what local institution – other than perhaps a crazy credit union – is going to underwrite a fixed-rate 30-year loan at 4.5%? I’m a director of a local bank and I’d sooner put a bullet in my head. That is a recipe for losing your ass. (See “S&L Crisis.”) Just as the government’s going to lose its ass on the current crop of mortgages it’s underwriting (UNLESS someone is smart enough to match fund this crap with long-dated treasuries – here’s to hoping). So, if you really think this “local bank mortgage model” is a good idea, then you need to sit back and think about it for another 1/2 a second.

There are groups for whom a 30-year fixed-rate piece of paper is appropriate because they have liabilities of matching duration. Insurance companies, Fannie/Freddie in the past, foreign governments, and a few others. But absent the government buying them (via Fannie/Freddie), there isn’t enough “real” demand for this paper – which is why these rates will eventually go WAY up. But that’s an issue for another day.

Regarding the “big bank” mortgage model and “just a few data elements” is concerned, you obviously haven’t gotten a mortgage lately. I’m refinancing right now and it’s a very thorough process as the poster above has outlined. I sent in two years of tax returns, business documents, various bank account statements as well as brokerage statements, retirement account statements, etc. It was a joke a couple of years ago, no doubt about it. But right now, based on my experience, they’re asking for all the right documents right now. It’s a pain in the ass – as it should be!

Regarding the historical pattern of W-2 wages versus self-employed wages in a downturn, I don’t know what the historical pattern is. Care to share the source of your “evidence”? Inquiring minds and all…[/quote]

I work for a large financial institution, and one of the things I have to do is price products, so I have a real appreciation for your comment that lending at a fixed rate for 30 years at 4.5% doesn’t make a lot of sense. As for the comment about local underwriting being good, but not local lending… let’s leave that to another day. (One of our biggest systemic problems was that separation of underwriting and risk.)

I’ve never had a loan, so you’re right, my knowledge of underwriting is 3rd hand. I sure hope things have changed from what I’ve heard was common practice, but I admit that until I hear Barney Frank say in public that the government needs to get out of the lending business, I will remain skeptical that the changes go beyond appearances. (I will be very happy to be proved wrong.)

Source for variations in income: BEA, National Acccounts, Personal Income, (a) Received Compensation of Employees, and (b) Proprietors’ income with inventory valuation and capital consumption adjustments. Sample standard deviation of % changes in the annual series from 1929-2008 is 7.4% for the wage measure, and 11.9% for the owner measure.

[patientrenter]

[quote=davelj]

The problem with your “local bank” model is it will never exist again. Nor should it. (Local UNDERWRITING makes sense – but not using local BALANCE SHEETS to fund the loans.) Please explain to me what local institution – other than perhaps a crazy credit union – is going to underwrite a fixed-rate 30-year loan at 4.5%? I’m a director of a local bank and I’d sooner put a bullet in my head. That is a recipe for losing your ass. (See “S&L Crisis.”) Just as the government’s going to lose its ass on the current crop of mortgages it’s underwriting (UNLESS someone is smart enough to match fund this crap with long-dated treasuries – here’s to hoping). So, if you really think this “local bank mortgage model” is a good idea, then you need to sit back and think about it for another 1/2 a second.

There are groups for whom a 30-year fixed-rate piece of paper is appropriate because they have liabilities of matching duration. Insurance companies, Fannie/Freddie in the past, foreign governments, and a few others. But absent the government buying them (via Fannie/Freddie), there isn’t enough “real” demand for this paper – which is why these rates will eventually go WAY up. But that’s an issue for another day.

Regarding the “big bank” mortgage model and “just a few data elements” is concerned, you obviously haven’t gotten a mortgage lately. I’m refinancing right now and it’s a very thorough process as the poster above has outlined. I sent in two years of tax returns, business documents, various bank account statements as well as brokerage statements, retirement account statements, etc. It was a joke a couple of years ago, no doubt about it. But right now, based on my experience, they’re asking for all the right documents right now. It’s a pain in the ass – as it should be!

Regarding the historical pattern of W-2 wages versus self-employed wages in a downturn, I don’t know what the historical pattern is. Care to share the source of your “evidence”? Inquiring minds and all…[/quote]

I work for a large financial institution, and one of the things I have to do is price products, so I have a real appreciation for your comment that lending at a fixed rate for 30 years at 4.5% doesn’t make a lot of sense. As for the comment about local underwriting being good, but not local lending… let’s leave that to another day. (One of our biggest systemic problems was that separation of underwriting and risk.)

I’ve never had a loan, so you’re right, my knowledge of underwriting is 3rd hand. I sure hope things have changed from what I’ve heard was common practice, but I admit that until I hear Barney Frank say in public that the government needs to get out of the lending business, I will remain skeptical that the changes go beyond appearances. (I will be very happy to be proved wrong.)

Source for variations in income: BEA, National Acccounts, Personal Income, (a) Received Compensation of Employees, and (b) Proprietors’ income with inventory valuation and capital consumption adjustments. Sample standard deviation of % changes in the annual series from 1929-2008 is 7.4% for the wage measure, and 11.9% for the owner measure.

[patientrenter]

[quote=davelj]

The problem with your “local bank” model is it will never exist again. Nor should it. (Local UNDERWRITING makes sense – but not using local BALANCE SHEETS to fund the loans.) Please explain to me what local institution – other than perhaps a crazy credit union – is going to underwrite a fixed-rate 30-year loan at 4.5%? I’m a director of a local bank and I’d sooner put a bullet in my head. That is a recipe for losing your ass. (See “S&L Crisis.”) Just as the government’s going to lose its ass on the current crop of mortgages it’s underwriting (UNLESS someone is smart enough to match fund this crap with long-dated treasuries – here’s to hoping). So, if you really think this “local bank mortgage model” is a good idea, then you need to sit back and think about it for another 1/2 a second.

There are groups for whom a 30-year fixed-rate piece of paper is appropriate because they have liabilities of matching duration. Insurance companies, Fannie/Freddie in the past, foreign governments, and a few others. But absent the government buying them (via Fannie/Freddie), there isn’t enough “real” demand for this paper – which is why these rates will eventually go WAY up. But that’s an issue for another day.

Regarding the “big bank” mortgage model and “just a few data elements” is concerned, you obviously haven’t gotten a mortgage lately. I’m refinancing right now and it’s a very thorough process as the poster above has outlined. I sent in two years of tax returns, business documents, various bank account statements as well as brokerage statements, retirement account statements, etc. It was a joke a couple of years ago, no doubt about it. But right now, based on my experience, they’re asking for all the right documents right now. It’s a pain in the ass – as it should be!

Regarding the historical pattern of W-2 wages versus self-employed wages in a downturn, I don’t know what the historical pattern is. Care to share the source of your “evidence”? Inquiring minds and all…[/quote]

I work for a large financial institution, and one of the things I have to do is price products, so I have a real appreciation for your comment that lending at a fixed rate for 30 years at 4.5% doesn’t make a lot of sense. As for the comment about local underwriting being good, but not local lending… let’s leave that to another day. (One of our biggest systemic problems was that separation of underwriting and risk.)

I’ve never had a loan, so you’re right, my knowledge of underwriting is 3rd hand. I sure hope things have changed from what I’ve heard was common practice, but I admit that until I hear Barney Frank say in public that the government needs to get out of the lending business, I will remain skeptical that the changes go beyond appearances. (I will be very happy to be proved wrong.)

Source for variations in income: BEA, National Acccounts, Personal Income, (a) Received Compensation of Employees, and (b) Proprietors’ income with inventory valuation and capital consumption adjustments. Sample standard deviation of % changes in the annual series from 1929-2008 is 7.4% for the wage measure, and 11.9% for the owner measure.

[patientrenter]

[quote=davelj]

The problem with your “local bank” model is it will never exist again. Nor should it. (Local UNDERWRITING makes sense – but not using local BALANCE SHEETS to fund the loans.) Please explain to me what local institution – other than perhaps a crazy credit union – is going to underwrite a fixed-rate 30-year loan at 4.5%? I’m a director of a local bank and I’d sooner put a bullet in my head. That is a recipe for losing your ass. (See “S&L Crisis.”) Just as the government’s going to lose its ass on the current crop of mortgages it’s underwriting (UNLESS someone is smart enough to match fund this crap with long-dated treasuries – here’s to hoping). So, if you really think this “local bank mortgage model” is a good idea, then you need to sit back and think about it for another 1/2 a second.

There are groups for whom a 30-year fixed-rate piece of paper is appropriate because they have liabilities of matching duration. Insurance companies, Fannie/Freddie in the past, foreign governments, and a few others. But absent the government buying them (via Fannie/Freddie), there isn’t enough “real” demand for this paper – which is why these rates will eventually go WAY up. But that’s an issue for another day.

Regarding the “big bank” mortgage model and “just a few data elements” is concerned, you obviously haven’t gotten a mortgage lately. I’m refinancing right now and it’s a very thorough process as the poster above has outlined. I sent in two years of tax returns, business documents, various bank account statements as well as brokerage statements, retirement account statements, etc. It was a joke a couple of years ago, no doubt about it. But right now, based on my experience, they’re asking for all the right documents right now. It’s a pain in the ass – as it should be!

Regarding the historical pattern of W-2 wages versus self-employed wages in a downturn, I don’t know what the historical pattern is. Care to share the source of your “evidence”? Inquiring minds and all…[/quote]

I work for a large financial institution, and one of the things I have to do is price products, so I have a real appreciation for your comment that lending at a fixed rate for 30 years at 4.5% doesn’t make a lot of sense. As for the comment about local underwriting being good, but not local lending… let’s leave that to another day. (One of our biggest systemic problems was that separation of underwriting and risk.)

I’ve never had a loan, so you’re right, my knowledge of underwriting is 3rd hand. I sure hope things have changed from what I’ve heard was common practice, but I admit that until I hear Barney Frank say in public that the government needs to get out of the lending business, I will remain skeptical that the changes go beyond appearances. (I will be very happy to be proved wrong.)

Source for variations in income: BEA, National Acccounts, Personal Income, (a) Received Compensation of Employees, and (b) Proprietors’ income with inventory valuation and capital consumption adjustments. Sample standard deviation of % changes in the annual series from 1929-2008 is 7.4% for the wage measure, and 11.9% for the owner measure.

[patientrenter]

[quote=davelj]

Bingo? Why is self-employment (“irregular income”) less stable than having a W-2 job? I see hundreds of thousands of W-2 jobs disappearing in the world of banking and finance and my work (I’m self-employed) – part of which is financial consulting, where I’m now taking a portion of the job of someone who has been laid off – is getting more lucrative every quarter.

I see the point you’re trying to make, but I’m not sure that it’s correct. Particularly in the current environment.

In fact, I could make the opposite argument. That is, that folks who are used to being self-employed are more resourceful on average than W-2 folks. And that when times get tough, they’ll figure out a way to make ends meet while laid-off W-2 folks aren’t used to hustling to do what it takes. I’m not saying that’s the case, mind you; I’m just saying that that argument could be made.[/quote]

Dave (in La Jolla?), I agree that the best way to underwrite loans is for a local bank loan officer who knows the customer well over a long time to size the risk up using all the available information. In such a world, I can imagine many self-employed people getting a bigger, lower-cost loan than w2 people earning the same (real) income.

That’s the ideal world. What about the real world? We’re stuck with a big bank remote lending system that uses just a few data elements. Income variability is a very important factor that should be taken into account, and the average amount of variability amongst the self-employed is greater than the average amount of variability amongst the w2 people. So a dumb remote big-bank system should require more downpayments and/or higher interest rates for the self-employed.

Again, I’d prefer the local, more detailed analysis, but it’s not here now.

As for whether a greater % of the self-employed will suffer a big drop in their income than w2 people in this downturn… I don’t know, but it’s not the historical pattern, so the weight of evidence is against it this time too.

[patientrenter]

[quote=davelj]

Bingo? Why is self-employment (“irregular income”) less stable than having a W-2 job? I see hundreds of thousands of W-2 jobs disappearing in the world of banking and finance and my work (I’m self-employed) – part of which is financial consulting, where I’m now taking a portion of the job of someone who has been laid off – is getting more lucrative every quarter.

I see the point you’re trying to make, but I’m not sure that it’s correct. Particularly in the current environment.

In fact, I could make the opposite argument. That is, that folks who are used to being self-employed are more resourceful on average than W-2 folks. And that when times get tough, they’ll figure out a way to make ends meet while laid-off W-2 folks aren’t used to hustling to do what it takes. I’m not saying that’s the case, mind you; I’m just saying that that argument could be made.[/quote]

Dave (in La Jolla?), I agree that the best way to underwrite loans is for a local bank loan officer who knows the customer well over a long time to size the risk up using all the available information. In such a world, I can imagine many self-employed people getting a bigger, lower-cost loan than w2 people earning the same (real) income.

That’s the ideal world. What about the real world? We’re stuck with a big bank remote lending system that uses just a few data elements. Income variability is a very important factor that should be taken into account, and the average amount of variability amongst the self-employed is greater than the average amount of variability amongst the w2 people. So a dumb remote big-bank system should require more downpayments and/or higher interest rates for the self-employed.

Again, I’d prefer the local, more detailed analysis, but it’s not here now.

As for whether a greater % of the self-employed will suffer a big drop in their income than w2 people in this downturn… I don’t know, but it’s not the historical pattern, so the weight of evidence is against it this time too.

[patientrenter]

[quote=davelj]

Bingo? Why is self-employment (“irregular income”) less stable than having a W-2 job? I see hundreds of thousands of W-2 jobs disappearing in the world of banking and finance and my work (I’m self-employed) – part of which is financial consulting, where I’m now taking a portion of the job of someone who has been laid off – is getting more lucrative every quarter.

I see the point you’re trying to make, but I’m not sure that it’s correct. Particularly in the current environment.

In fact, I could make the opposite argument. That is, that folks who are used to being self-employed are more resourceful on average than W-2 folks. And that when times get tough, they’ll figure out a way to make ends meet while laid-off W-2 folks aren’t used to hustling to do what it takes. I’m not saying that’s the case, mind you; I’m just saying that that argument could be made.[/quote]

Dave (in La Jolla?), I agree that the best way to underwrite loans is for a local bank loan officer who knows the customer well over a long time to size the risk up using all the available information. In such a world, I can imagine many self-employed people getting a bigger, lower-cost loan than w2 people earning the same (real) income.

That’s the ideal world. What about the real world? We’re stuck with a big bank remote lending system that uses just a few data elements. Income variability is a very important factor that should be taken into account, and the average amount of variability amongst the self-employed is greater than the average amount of variability amongst the w2 people. So a dumb remote big-bank system should require more downpayments and/or higher interest rates for the self-employed.

Again, I’d prefer the local, more detailed analysis, but it’s not here now.

As for whether a greater % of the self-employed will suffer a big drop in their income than w2 people in this downturn… I don’t know, but it’s not the historical pattern, so the weight of evidence is against it this time too.

[patientrenter]

[quote=davelj]

Bingo? Why is self-employment (“irregular income”) less stable than having a W-2 job? I see hundreds of thousands of W-2 jobs disappearing in the world of banking and finance and my work (I’m self-employed) – part of which is financial consulting, where I’m now taking a portion of the job of someone who has been laid off – is getting more lucrative every quarter.

I see the point you’re trying to make, but I’m not sure that it’s correct. Particularly in the current environment.

In fact, I could make the opposite argument. That is, that folks who are used to being self-employed are more resourceful on average than W-2 folks. And that when times get tough, they’ll figure out a way to make ends meet while laid-off W-2 folks aren’t used to hustling to do what it takes. I’m not saying that’s the case, mind you; I’m just saying that that argument could be made.[/quote]

Dave (in La Jolla?), I agree that the best way to underwrite loans is for a local bank loan officer who knows the customer well over a long time to size the risk up using all the available information. In such a world, I can imagine many self-employed people getting a bigger, lower-cost loan than w2 people earning the same (real) income.

That’s the ideal world. What about the real world? We’re stuck with a big bank remote lending system that uses just a few data elements. Income variability is a very important factor that should be taken into account, and the average amount of variability amongst the self-employed is greater than the average amount of variability amongst the w2 people. So a dumb remote big-bank system should require more downpayments and/or higher interest rates for the self-employed.

Again, I’d prefer the local, more detailed analysis, but it’s not here now.

As for whether a greater % of the self-employed will suffer a big drop in their income than w2 people in this downturn… I don’t know, but it’s not the historical pattern, so the weight of evidence is against it this time too.

[patientrenter]

[quote=davelj]

Bingo? Why is self-employment (“irregular income”) less stable than having a W-2 job? I see hundreds of thousands of W-2 jobs disappearing in the world of banking and finance and my work (I’m self-employed) – part of which is financial consulting, where I’m now taking a portion of the job of someone who has been laid off – is getting more lucrative every quarter.

I see the point you’re trying to make, but I’m not sure that it’s correct. Particularly in the current environment.

In fact, I could make the opposite argument. That is, that folks who are used to being self-employed are more resourceful on average than W-2 folks. And that when times get tough, they’ll figure out a way to make ends meet while laid-off W-2 folks aren’t used to hustling to do what it takes. I’m not saying that’s the case, mind you; I’m just saying that that argument could be made.[/quote]

Dave (in La Jolla?), I agree that the best way to underwrite loans is for a local bank loan officer who knows the customer well over a long time to size the risk up using all the available information. In such a world, I can imagine many self-employed people getting a bigger, lower-cost loan than w2 people earning the same (real) income.

That’s the ideal world. What about the real world? We’re stuck with a big bank remote lending system that uses just a few data elements. Income variability is a very important factor that should be taken into account, and the average amount of variability amongst the self-employed is greater than the average amount of variability amongst the w2 people. So a dumb remote big-bank system should require more downpayments and/or higher interest rates for the self-employed.

Again, I’d prefer the local, more detailed analysis, but it’s not here now.

As for whether a greater % of the self-employed will suffer a big drop in their income than w2 people in this downturn… I don’t know, but it’s not the historical pattern, so the weight of evidence is against it this time too.

[patientrenter]

[quote=briansd1]It seems to me people with varying income from year to year would not benefit as much from the mortgage interest deduction.

So those people should be more price sensitive when purchasing houses.

Since irregular income is less stable, those borrowers should be required to pay higher interest rates and come up with higher down-payments.
[/quote]

Bingo! Sometimes commonsense is the right answer. Of course, that has nothing to do with what happens in our govt-guided home financing system.

[patientrenter]

[quote=briansd1]It seems to me people with varying income from year to year would not benefit as much from the mortgage interest deduction.

So those people should be more price sensitive when purchasing houses.

Since irregular income is less stable, those borrowers should be required to pay higher interest rates and come up with higher down-payments.
[/quote]

Bingo! Sometimes commonsense is the right answer. Of course, that has nothing to do with what happens in our govt-guided home financing system.

[patientrenter]

[quote=briansd1]It seems to me people with varying income from year to year would not benefit as much from the mortgage interest deduction.

So those people should be more price sensitive when purchasing houses.

Since irregular income is less stable, those borrowers should be required to pay higher interest rates and come up with higher down-payments.
[/quote]

Bingo! Sometimes commonsense is the right answer. Of course, that has nothing to do with what happens in our govt-guided home financing system.

[patientrenter]

[quote=briansd1]It seems to me people with varying income from year to year would not benefit as much from the mortgage interest deduction.

So those people should be more price sensitive when purchasing houses.

Since irregular income is less stable, those borrowers should be required to pay higher interest rates and come up with higher down-payments.
[/quote]

Bingo! Sometimes commonsense is the right answer. Of course, that has nothing to do with what happens in our govt-guided home financing system.

[patientrenter]

[quote=briansd1]It seems to me people with varying income from year to year would not benefit as much from the mortgage interest deduction.

So those people should be more price sensitive when purchasing houses.

Since irregular income is less stable, those borrowers should be required to pay higher interest rates and come up with higher down-payments.
[/quote]

Bingo! Sometimes commonsense is the right answer. Of course, that has nothing to do with what happens in our govt-guided home financing system.

[patientrenter]

What TG said. Sometimes I half-wish the purists on this issue could be dropped off somewhere in the Northwest Frontier province of Pakistan. Then interview the survivors (if any) as they emerge for a TV discussion of human rights. Make sure to get a few Harvard professors of law to grill them on how fair and law-abiding they were to their pursuers.

[Author]

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