I pledge to you, American taxpayer, that I will pay my mortgage. Yesterday, we received a letter from Fannie Mae indicating that they assumed ownership of our mortgage from JPMorgan Chase. I didn’t like this news. First off, it made me paranoid. Like most Americans in the wake of the financial crisis, that anything associated with Fannie Mae is toxic, so therefore, I immediately assume that there must be something wrong with my mortgage. Weren’t we model credit risks? Weren’t they going to make alot of money from us over the course of our fixed-rate mortgage? Then after thinking about it for five minutes, I just became really annoyed. Let me explain.
Has anyone out there tried to buy a house lately? Let me tell you, in no uncertain terms, it is horrible. Lenders are ridiculous in the amount of paperwork and documentation that they now require. If you have more than one account, have money for a down payment that is coming from the sale of securities, or basically have income that comes into you account from anything other than your employment, be prepared to provide paperwork detailing all of the above at multiple steps in the process. Don’t think that a decent credit score is going to be enough to keep you from this avalanche of paperwork, either. That wasn’t our experience at all. Then, of course, you have all of the closing cost fees that you have to pay to your lender when they finally deem you worthy of the credit risk. Presently, you pay them money to lend you money that they get freely from the government at 0% interest. How good is it to be a big bank these days? They are rolling in the profits. Then,after all of that hassle and out-of-pocket money that you pay a bank that just made 100% profit off of a transaction that cost them nothing, they go ahead and sell the mortgage to government-backed Fannie Mae. (I read somewhere that big banks actually don’t like managing fixed-rate mortgages in the long run. They don’t like them because they are fixed income assets, that don’t change in value over their lifetimes, and thus, when interest rates do inevitably go up one day, they are worth less than what they are worth now. Thus, banks also benefit from making the up front money associated with originating a loan, and then selling them off and originating more loans. Also, here is an article from last year describing British mortgage bank practices and how profitable banks there were able to become.). The fact is, Fannie Mae probably couldn’t care less about all of that financial paperwork and evidence of creditworthiness that you just provided to whatever big bank acted all put out to loan you money they got for free. We all know that, since the US government owns most of that institution, with a wink and a nod they will just buy up pretty much anything. Then, said bank will take its profit and zero risk and go out and make more money by charging fees to lend the free money and then transfer that risk right back onto the government (and the funders of the U.S. government, the taxpayer). This is what you get, America, for the financial crisis; an even more entrenched way for banks to make a lot of money from you! Pretty much everything is in their favor right now, 0% interest rates and a U.S. government too weak to take a stand on pretty much anything and bending over backwards (or maybe forwards) to get banks to dictate their terms for lending money however they want to lend it.
(An alternate view would be for the U.S. taxpayer to thank the private banks for making it more difficult for unqualified buyers to obtain a mortgage, before passing that risk off to Fannie Mae and hence, the taxpayer. I just don’t have that view right now, having been so recently through the process. And I still don’t understand why Fannie felt like they had to buy our loan – we had a healthy down-payment and good credit. Having them purchase it just makes me feel like there is something wrong with me.)
This is why in America, it still pays to be a banker! I can’t help but recall the episode of Seinfeld where Newman and Kramer launch the plan to scam the justice system so Newman doesn’t have to pay his speeding ticket. Kramer agrees to testify on Newman’s behalf and claim Newman was rushing to his aid to prevent him from committing suicide because he had failed in his lifelong dream of becoming a banker. Kramer described how as a little boy his dad would take him to the bank and hold him up to see the bank tellers and tell him that is what he could become, but sadly Kramer never became a banker. Newman, by thinking up and proposing this scam, is of course the one who showed the real aptitude for banking.
Look, I am no financial wizard. This OPINION blog does not come from a very well-informed place (If you know more than me about this, I would welcome to hear your thoughts). I don’t regularly read the Wall Street Journal (or the business section of any major newspaper), and in law school, I avoided every class that had anything to do with corporate law. I am not an expert. However, as I have aged, I also am someone who has found myself more sympathetic to the business community, probably due in part to the time that I lived in New York. But this situation that we have going on right now, is beyond ridiculous. I don’t see how we can justify a system where the banks make all of the profit and the taxpayers take all of the risk. The sad thing is, I don’t trust any of the crazy and/or stupid people that we have running our government to make anything better. I haven’t read much of that whole Dodd-Frank banking reform bill that became law this summer because it generally is way too long and too boring, but now I feel like I should. So thanks for sucking my time away in advance, Congress, by forcing me to read your ridiculously wordy legislative monstrosities just so I can understand what the point of all of this is supposed to be.