Our financial system is crumbling this week.

[pioneer98]

We tried to fix the economy by making mortgages cheaper. This blew up spectacularly.

No.

We made them easier to get. Then leveraged these easy to get mortgages into derivatives, which then melted down when people stopped paying the mortgages.

[pioneer98]

Something always bugged me about Uber...Yeah, it's added technology to taxi service to make it more efficient, and this is something traditional taxi services should have done a long time ago. But at it's base, Uber is still just a taxi service, something we've had in this country for a century. How is this a huge innovation? This guy points out that on-demand personal services like this have been around forever, at least since the invention of the phone. If you are wealthy enough, you've always been able to get groceries, booze, dry-cleaning, cigarettes, books, newspapers, etc, delivered to your house. He says the requirement for the rise of these services is not new technology such as smartphones, but instead you need a bunch of poor people willing to do these jobs, and a big enough market of rich people. In other words, you need a big inequality gap.

The secret to the Uber economy is wealth inequality

It did not take technology to spur the on-demand economy. It took masses of poor people.

[Arthur Dent]

Continuing my gripe, it's just stupid that they didn't give us the money to pay off the student loan and charge us the 3.25% interest. Here's why, imo:
1. By helping us lower payments on the student loans, they increase our financial health which in turns increases the likelihood we are able to pay back the mortgage.
2. By loaning more money, they make more money.
3. We're paying back money at 3.25% instead of 6.8%. This is obviously better.
4. This just more of a [expletive]....but they know how much we owe in student loans. They're obviously comfortable with us paying it back or else they wouldn't loan us money for a house. Why not just buy the debt at that point instead of playing 2nd fiddle to the student loan company and hurting the clients in the process? Seems stupid.

Still not quite understanding what you wanted to do.

One reason why mortgages have a lower interest rate than student loans is that mortgage debt is secured by an asset, the house. In order to get the lowest rate, though, you need a certain minimum equity stake in the house, generally >= 20%. If you wanted to keep spare cash to pay off student debt, you could borrow the low rate maximum for the mortgage (80%), and then use any remaining cash to pay off the student loans. You could borrow also >80% for the mortgage, to leave behind more cash to pay down student debt, but that it going to result in a higher interest cost for the mortgage.

[Arthur Dent]

We made them easier to get. Then leveraged these easy to get mortgages into derivatives, which then melted down when people stopped paying the mortgages.

Yes, but this was not a policy designed to "fix the economy". Banks did this because they were making a lot of money at it, at least for a while.

[AWvsCBsteeeerike3]

Continuing my gripe, it's just stupid that they didn't give us the money to pay off the student loan and charge us the 3.25% interest. Here's why, imo:
1. By helping us lower payments on the student loans, they increase our financial health which in turns increases the likelihood we are able to pay back the mortgage.
2. By loaning more money, they make more money.
3. We're paying back money at 3.25% instead of 6.8%. This is obviously better.
4. This just more of a [expletive]....but they know how much we owe in student loans. They're obviously comfortable with us paying it back or else they wouldn't loan us money for a house. Why not just buy the debt at that point instead of playing 2nd fiddle to the student loan company and hurting the clients in the process? Seems stupid.

Still not quite understanding what you wanted to do.

One reason why mortgages have a lower interest rate than student loans is that mortgage debt is secured by an asset, the house. In order to get the lowest rate, though, you need a certain minimum equity stake in the house, generally >= 20%. If you wanted to keep spare cash to pay off student debt, you could borrow the low rate maximum for the mortgage (80%), and then use any remaining cash to pay off the student loans. You could borrow also >80% for the mortgage, to leave behind more cash to pay down student debt, but that it going to result in a higher interest cost for the mortgage.

I'll just outline how I wanted the money to go.

The price of the house is X. The student loans are 0.35X (35% the price of the house). Add that up and you have 1.35X. With that 1.35X, I wanted them to pay off the student loans and pay the owners the price of the house. Then, I'd pay them 1.35X*0.2 = 0.27X. Deduct 20% down payment and you're left with a loan for 1.08X or 108% the price of the house. They now own all the debt and in the case of a foreclosure or bankruptcy, they aren't 2nd in line behind the student loan. Further, while I guess the argument against this would be that a certain % of the loan is unprotected by an asset (the house), I had assets (investment accounts and retirement accounts) that could have been used to secure or back or whatever you want to call it...that could be seized to pay for the loan (or to get it down to well under 0.8X) in the event of a default.

I guess that is my point. The bank didn't deny the plan I outlined above because it was too risky or whatever for them. They simply didn't entertain the thought of it as it was clearly against something. Rather it was their policy or federal regulations, I don't know. But it sure doesn't seem logical for the reasons I outlined previously, namely, that it is beneficial to both the lending bank and the loan recipient. Just because the lending bank doesn't own the student loan doesn't mean it isn't a liability for them.

[Arthur Dent]

I'll just outline how I wanted the money to go.

The price of the house is X. The student loans are 0.35X (35% the price of the house). Add that up and you have 1.35X. With that 1.35X, I wanted them to pay off the student loans and pay the owners the price of the house. Then, I'd pay them 1.35X*0.2 = 0.27X. Deduct 20% down payment and you're left with a loan for 1.08X or 108% the price of the house. They now own all the debt and in the case of a foreclosure or bankruptcy, they aren't 2nd in line behind the student loan. Further, while I guess the argument against this would be that a certain % of the loan is unprotected by an asset (the house), I had assets (investment accounts and retirement accounts) that could have been used to secure or back or whatever you want to call it...that could be seized to pay for the loan (or to get it down to well under 0.8X) in the event of a default.

I guess that is my point. The bank didn't deny the plan I outlined above because it was too risky or whatever for them. They simply didn't entertain the thought of it as it was clearly against something. Rather it was their policy or federal regulations, I don't know. But it sure doesn't seem logical for the reasons I outlined previously, namely, that it is beneficial to both the lending bank and the loan recipient. Just because the lending bank doesn't own the student loan doesn't mean it isn't a liability for them.

Yeah, you definitely can't do that. A down payment of 20% of a loan amount greater than the value of the house is meaningless. The point of the 20% is to require minimum equity in the home, and what you propose would be negative equity; it certainly would not qualify for the low rates of a standard mortgage. I guess you could argue that your other assets could be offered up as collateral, but I don't think there is any standardized mechanism to do that. If you really want to pay off the student loan with the power of those assets, why not just liquidate the investment account and use the money to pay it off? A promise that you would do this in the future in the event of a default is not particularly useful, especially if there is nothing to stop you from spending down your investment account in the intervening period.

Edit:

Just because the lending bank doesn't own the student loan doesn't mean it isn't a liability for them.

That's true, but the point is that if you default on your mortgage payment, your lender can take your house from you and sell it to recoup the loan amount. If you borrow 108% of your house and then default, the lender will take a loss. That's a much bigger risk for them than if you borrow 80% and then default, because they still get repaid, and the other lender is the one that has to go after you.

[pioneer98]

We made them easier to get. Then leveraged these easy to get mortgages into derivatives, which then melted down when people stopped paying the mortgages.

Yes, but this was not a policy designed to "fix the economy". Banks did this because they were making a lot of money at it, at least for a while.

The mortgage boom was TOTALLY propped up the economy. It started out with lots of people refinancing their mortgages to take equity out of their houses and use it for stuff. They were giving those kind of loans away real easily. "Second mortgages" or "reverse mortgages" and other gimmicks. Then when the market for those ran out, they turned to giving away traditional mortgages easier than before. It drove a HUGE construction boom. We built hi-rises and vast subdivisions that were never more than 50% occupied. All that construction created jobs which propped up the economy for a time. Just to be clear: yes, I am arguing that the powers that be let all this stuff go on because they saw it was propping up the economy. Maybe there wasn't a single architect who "designed" the economy to grow that way. I just think they let this stuff happen because it was working for a time.

[Freed Roger]

Seems like storefronts for small to medium commercial real estate -which used to be mostly brick/mortar small retailers have been replaced by:
Nail & tanning salons
Vapor stores
Cross fit martial arts etc
pet-related [expletive] (no-leash, etc)

If we're lucky, we'll see a payday/title loan co every now and then.

There are a few exceptions around town -high-end boutique-ish type areas like Clayton or Kirkwood. But in my area it has a burgeoning post-apocalyptic feel. At least the bad dream Pottersville had Dancing Girls.

[Arthur Dent]

Seems like storefronts for small to medium commercial real estate -which used to be mostly brick/mortar small retailers have been replaced by:
Nail & tanning salons
Vapor stores
Cross fit martial arts etc
pet-related [expletive] (no-leash, etc)

If we're lucky, we'll see a payday/title loan co every now and then.

On a recent trip, we came back through a small town where 90% of the downtown storefronts had become payday/title lenders. Not a healthy sign.

[lukethedrifter]

South Kingshighway, just north of Chippewa.

Traffic lawyer
tax place
tax place
vapor shop/tax place
tax place

I'm sure there is a gold buyer right in there. Are these tax places any different than payday lenders?