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Participant[quote CA renter]That’s because you’re thinking from the perspective of a borrower.
A holder of a note will usually only sell it off if they can earn a profit on it. That means that someone else was willing to make less on that same note. [/quote]I should have worded it that way. I was trying to really explain it.. and probably got too technical.
[quote AN]That’s the problem with your assumption. I can’t borrow directly from the party who’s currently holding my loan (Fannie May).[/quote]
I am quite aware. The loan changed hands twice, not once. If it was once, going to Fannie Mae directly, I would say that there wasn’t much ‘fat’ on that loan, but there are two changes of hand. Each time it is changing hands, the man-in-the-middle takes their cut from the return.I do wonder if there is a hidden game going on where Fannie has a maximum ‘slice’ allowed to the person transferring it to Fannie, and that hot-potato’ing it allowed more people in the middle to take a piece.
[quote jpinpb]And here I thought I was doing good at 4.25 x 30.[/quote]Depends upon when and your risk profile. I know someone who has little savings, high LTV and good credit score who got a 4.5%.
[quote CA renter]And you have no idea how much I despise the government’s role in forcing us to use middle men who’ve paid off someone in congress. If the government is taking the risk, then “We the People” are taking the risk, and should be rewarded by having direct access to OUR govt lenders.[/quote]I second that!!!
[quote SD Realtor]Come on guys, the fact is that the wholesale value of any note changes everyday with interest rates..[/quote]As well as what the projected rates will be. I didn’t want to delve into this one because it gets very complicated, but putting it simply.. if the loan is priced right but is changing hands, one side of the loan transfer is incorrectly pricing the loan because at that point it is a zero sum game.
Participant[quote CA renter]That’s because you’re thinking from the perspective of a borrower.
A holder of a note will usually only sell it off if they can earn a profit on it. That means that someone else was willing to make less on that same note. [/quote]I should have worded it that way. I was trying to really explain it.. and probably got too technical.
[quote AN]That’s the problem with your assumption. I can’t borrow directly from the party who’s currently holding my loan (Fannie May).[/quote]
I am quite aware. The loan changed hands twice, not once. If it was once, going to Fannie Mae directly, I would say that there wasn’t much ‘fat’ on that loan, but there are two changes of hand. Each time it is changing hands, the man-in-the-middle takes their cut from the return.I do wonder if there is a hidden game going on where Fannie has a maximum ‘slice’ allowed to the person transferring it to Fannie, and that hot-potato’ing it allowed more people in the middle to take a piece.
[quote jpinpb]And here I thought I was doing good at 4.25 x 30.[/quote]Depends upon when and your risk profile. I know someone who has little savings, high LTV and good credit score who got a 4.5%.
[quote CA renter]And you have no idea how much I despise the government’s role in forcing us to use middle men who’ve paid off someone in congress. If the government is taking the risk, then “We the People” are taking the risk, and should be rewarded by having direct access to OUR govt lenders.[/quote]I second that!!!
[quote SD Realtor]Come on guys, the fact is that the wholesale value of any note changes everyday with interest rates..[/quote]As well as what the projected rates will be. I didn’t want to delve into this one because it gets very complicated, but putting it simply.. if the loan is priced right but is changing hands, one side of the loan transfer is incorrectly pricing the loan because at that point it is a zero sum game.
Participant[quote=briansd1]I’m not fond of American cars… but after renting a Chevy Aveo at Newark, I think that the bailouts weren’t such a bad deal. It was $150/day for a car (including tax) at Newark, so I didn’t feel like paying more for better car.[/quote]
Oh brian, brian, brian. I just priced a standard full size car (Impala) at $52/day for a 1 week rental.. if that was Newark, NJ. Try hotwire.com to book auto rentals. A “Premium” car was $62/day, “Luxury” car was 103/day. Luxury = Cadillac DTS or Lincoln Town Car…I do agree that American cars have been getting much better. I had to recently rent a car while making repairs on my antique monster. I decided to try different cars. The new Mustang really surprised me. The V6 is a serious sleeper. The Impala, though dated, gets very good gas mileage and was actually nicer to drive than the more ‘updated’ Camry. The Impala seemed a bit sedate until you put the pedal past about 80%.. at which point it accelerated fairly quickly. The position of the window/lock controls on the new Camry seemed a bit awkward. I found the Nissan Altima to seem a bit cheap and plasticy.. though it handled corners pretty nicely. The small engine of the Nissan was fairly quick at acceleration though the CVT took a little getting used to. I found that the Mazda 6 needed a bit of an updating and wasn’t quite as comfortable to drive as the others. On the other hand, the headlights of the Mazda 6 are great. Nice clear projector type lens. I tend to prefer the European Z beam/H4 standard over the US SAE standards for headlights.
Participant[quote=briansd1]I’m not fond of American cars… but after renting a Chevy Aveo at Newark, I think that the bailouts weren’t such a bad deal. It was $150/day for a car (including tax) at Newark, so I didn’t feel like paying more for better car.[/quote]
Oh brian, brian, brian. I just priced a standard full size car (Impala) at $52/day for a 1 week rental.. if that was Newark, NJ. Try hotwire.com to book auto rentals. A “Premium” car was $62/day, “Luxury” car was 103/day. Luxury = Cadillac DTS or Lincoln Town Car…I do agree that American cars have been getting much better. I had to recently rent a car while making repairs on my antique monster. I decided to try different cars. The new Mustang really surprised me. The V6 is a serious sleeper. The Impala, though dated, gets very good gas mileage and was actually nicer to drive than the more ‘updated’ Camry. The Impala seemed a bit sedate until you put the pedal past about 80%.. at which point it accelerated fairly quickly. The position of the window/lock controls on the new Camry seemed a bit awkward. I found the Nissan Altima to seem a bit cheap and plasticy.. though it handled corners pretty nicely. The small engine of the Nissan was fairly quick at acceleration though the CVT took a little getting used to. I found that the Mazda 6 needed a bit of an updating and wasn’t quite as comfortable to drive as the others. On the other hand, the headlights of the Mazda 6 are great. Nice clear projector type lens. I tend to prefer the European Z beam/H4 standard over the US SAE standards for headlights.
Participant[quote=briansd1]I’m not fond of American cars… but after renting a Chevy Aveo at Newark, I think that the bailouts weren’t such a bad deal. It was $150/day for a car (including tax) at Newark, so I didn’t feel like paying more for better car.[/quote]
Oh brian, brian, brian. I just priced a standard full size car (Impala) at $52/day for a 1 week rental.. if that was Newark, NJ. Try hotwire.com to book auto rentals. A “Premium” car was $62/day, “Luxury” car was 103/day. Luxury = Cadillac DTS or Lincoln Town Car…I do agree that American cars have been getting much better. I had to recently rent a car while making repairs on my antique monster. I decided to try different cars. The new Mustang really surprised me. The V6 is a serious sleeper. The Impala, though dated, gets very good gas mileage and was actually nicer to drive than the more ‘updated’ Camry. The Impala seemed a bit sedate until you put the pedal past about 80%.. at which point it accelerated fairly quickly. The position of the window/lock controls on the new Camry seemed a bit awkward. I found the Nissan Altima to seem a bit cheap and plasticy.. though it handled corners pretty nicely. The small engine of the Nissan was fairly quick at acceleration though the CVT took a little getting used to. I found that the Mazda 6 needed a bit of an updating and wasn’t quite as comfortable to drive as the others. On the other hand, the headlights of the Mazda 6 are great. Nice clear projector type lens. I tend to prefer the European Z beam/H4 standard over the US SAE standards for headlights.
Participant[quote=briansd1]I’m not fond of American cars… but after renting a Chevy Aveo at Newark, I think that the bailouts weren’t such a bad deal. It was $150/day for a car (including tax) at Newark, so I didn’t feel like paying more for better car.[/quote]
Oh brian, brian, brian. I just priced a standard full size car (Impala) at $52/day for a 1 week rental.. if that was Newark, NJ. Try hotwire.com to book auto rentals. A “Premium” car was $62/day, “Luxury” car was 103/day. Luxury = Cadillac DTS or Lincoln Town Car…I do agree that American cars have been getting much better. I had to recently rent a car while making repairs on my antique monster. I decided to try different cars. The new Mustang really surprised me. The V6 is a serious sleeper. The Impala, though dated, gets very good gas mileage and was actually nicer to drive than the more ‘updated’ Camry. The Impala seemed a bit sedate until you put the pedal past about 80%.. at which point it accelerated fairly quickly. The position of the window/lock controls on the new Camry seemed a bit awkward. I found the Nissan Altima to seem a bit cheap and plasticy.. though it handled corners pretty nicely. The small engine of the Nissan was fairly quick at acceleration though the CVT took a little getting used to. I found that the Mazda 6 needed a bit of an updating and wasn’t quite as comfortable to drive as the others. On the other hand, the headlights of the Mazda 6 are great. Nice clear projector type lens. I tend to prefer the European Z beam/H4 standard over the US SAE standards for headlights.
Participant[quote=briansd1]I’m not fond of American cars… but after renting a Chevy Aveo at Newark, I think that the bailouts weren’t such a bad deal. It was $150/day for a car (including tax) at Newark, so I didn’t feel like paying more for better car.[/quote]
Oh brian, brian, brian. I just priced a standard full size car (Impala) at $52/day for a 1 week rental.. if that was Newark, NJ. Try hotwire.com to book auto rentals. A “Premium” car was $62/day, “Luxury” car was 103/day. Luxury = Cadillac DTS or Lincoln Town Car…I do agree that American cars have been getting much better. I had to recently rent a car while making repairs on my antique monster. I decided to try different cars. The new Mustang really surprised me. The V6 is a serious sleeper. The Impala, though dated, gets very good gas mileage and was actually nicer to drive than the more ‘updated’ Camry. The Impala seemed a bit sedate until you put the pedal past about 80%.. at which point it accelerated fairly quickly. The position of the window/lock controls on the new Camry seemed a bit awkward. I found the Nissan Altima to seem a bit cheap and plasticy.. though it handled corners pretty nicely. The small engine of the Nissan was fairly quick at acceleration though the CVT took a little getting used to. I found that the Mazda 6 needed a bit of an updating and wasn’t quite as comfortable to drive as the others. On the other hand, the headlights of the Mazda 6 are great. Nice clear projector type lens. I tend to prefer the European Z beam/H4 standard over the US SAE standards for headlights.
Participant[quote=AN][quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
Totally agree. That statement makes no sense at all. My loan changed hands once. Yet, my payment didn’t change one penny. So, I’m not sure how I can be paying more for the note, yet I’m not any extra penny for the note.[/quote]
My point is not that you will be paying more, but that you are not paying what would have been the lowest interest rate possible for your risk category. The difference is what the originating bank pocketed before hot-potato-ing the loan to someone else.Participant[quote=AN][quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
Totally agree. That statement makes no sense at all. My loan changed hands once. Yet, my payment didn’t change one penny. So, I’m not sure how I can be paying more for the note, yet I’m not any extra penny for the note.[/quote]
My point is not that you will be paying more, but that you are not paying what would have been the lowest interest rate possible for your risk category. The difference is what the originating bank pocketed before hot-potato-ing the loan to someone else.Participant[quote=AN][quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
Totally agree. That statement makes no sense at all. My loan changed hands once. Yet, my payment didn’t change one penny. So, I’m not sure how I can be paying more for the note, yet I’m not any extra penny for the note.[/quote]
My point is not that you will be paying more, but that you are not paying what would have been the lowest interest rate possible for your risk category. The difference is what the originating bank pocketed before hot-potato-ing the loan to someone else.Participant[quote=AN][quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
Totally agree. That statement makes no sense at all. My loan changed hands once. Yet, my payment didn’t change one penny. So, I’m not sure how I can be paying more for the note, yet I’m not any extra penny for the note.[/quote]
My point is not that you will be paying more, but that you are not paying what would have been the lowest interest rate possible for your risk category. The difference is what the originating bank pocketed before hot-potato-ing the loan to someone else.Participant[quote=AN][quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
Totally agree. That statement makes no sense at all. My loan changed hands once. Yet, my payment didn’t change one penny. So, I’m not sure how I can be paying more for the note, yet I’m not any extra penny for the note.[/quote]
My point is not that you will be paying more, but that you are not paying what would have been the lowest interest rate possible for your risk category. The difference is what the originating bank pocketed before hot-potato-ing the loan to someone else.Participant[quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
It makes perfect sense if you understand the financing that the bank does.Banks will sell off the loan if they can make more money by selling it off than holding (remember – they are really all about money, and try to make decisions based upon what is profitable for them). There are two ways this can occur.
- If they need to free up capital because they are hitting the Fed’s margin ratio between liquid capital at hand and outstanding loans – remember, we are a fractional reserve system.
- They can find someone to pick up the loan and cover the transaction costs in the transfer plus an additional amount over the loan value.
The transaction also has one additional contingent that they could make more money without the loan. The problem with that contingent is that any purchaser of the loan will be considering the same things.First off, it is very hard to get a loan at exactly cost_of_capital + risk_premium. It is impossible, unless you are a congressman getting something under the table, to get it less than the cost_of_capital + risk_premium. Generally the minimum rate will look something like:
cost_of_capital + risk_premium + fed_treasury_rate + additional_profit. If the bank could sell the loan at an effective rate of cost_of_capital + risk_premium + fed_treasury_rate + lower_additional_profit, then they will and keep the weighted difference between their “additional_profit” and the other lenders “lower_additional_profit”. The price calculation looks much like how you weight the value of long term bonds with respect to treasury rate (Why the face value of the bond is not really what the price it goes for).The rates for cost_of_capital, risk_premium and fed_treasury_rates are pretty consistent between points in time for a bank. The last part: “additional_profit” is the one that changes between banks.
To make it even more simple: It is the mere fact that one bank would purchase the note from the original bank, allowing the original bank to make a quick profit and eliminate their risk, that shows that the interest rate was not as low as possible.
Participant[quote=SD Realtor]That is kind of a bizarre statement. The homeowner is paying the rate specified on the note. Nothing more and nothing less regardless of how many times the note changes hands.[/quote]
It makes perfect sense if you understand the financing that the bank does.Banks will sell off the loan if they can make more money by selling it off than holding (remember – they are really all about money, and try to make decisions based upon what is profitable for them). There are two ways this can occur.
- If they need to free up capital because they are hitting the Fed’s margin ratio between liquid capital at hand and outstanding loans – remember, we are a fractional reserve system.
- They can find someone to pick up the loan and cover the transaction costs in the transfer plus an additional amount over the loan value.
The transaction also has one additional contingent that they could make more money without the loan. The problem with that contingent is that any purchaser of the loan will be considering the same things.First off, it is very hard to get a loan at exactly cost_of_capital + risk_premium. It is impossible, unless you are a congressman getting something under the table, to get it less than the cost_of_capital + risk_premium. Generally the minimum rate will look something like:
cost_of_capital + risk_premium + fed_treasury_rate + additional_profit. If the bank could sell the loan at an effective rate of cost_of_capital + risk_premium + fed_treasury_rate + lower_additional_profit, then they will and keep the weighted difference between their “additional_profit” and the other lenders “lower_additional_profit”. The price calculation looks much like how you weight the value of long term bonds with respect to treasury rate (Why the face value of the bond is not really what the price it goes for).The rates for cost_of_capital, risk_premium and fed_treasury_rates are pretty consistent between points in time for a bank. The last part: “additional_profit” is the one that changes between banks.
To make it even more simple: It is the mere fact that one bank would purchase the note from the original bank, allowing the original bank to make a quick profit and eliminate their risk, that shows that the interest rate was not as low as possible.
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