Social Bank boss says it’s not ‘that difficult’ to buy a home — and sparks a backlash

[mkess101]

No he's not paid for that. He's paid to make money for the bank.

Banks don't mind high interest rates and lower house sales until those numbers dip low enough to affect total revenue. But you're mistaken if you think banks ever really cared about lending to the lower income brackets. They don't. They don't like it. The risk of default is too high so they're just fine with higher barriers to lending. Again, so long as total revenue doesn't take too big a hit.

Knowing the economy in general is part of keeping the bank profitable though. The risk of default for lower income brackets is mostly mitigated by the fact that PMI is a requirement for anyone with less than 20% to put down. That distinguishes mortgages from other types of loans. (To be fair, that's in the US and maybe England is different in which case your point may be more apt for this guy).

Either way though, revenue can and does take a hit when home sales dip enough. That's exactly why banks have to care about the housing market holistically. He can look at it realistically and still come to the conclusion that he doesn't see the bank's short or long term profitability taking a significant hit due to it. But that's different than not understanding the market in its totality.

Lacking proper perspective leads to poor decision making. We saw that happen in the leadup to the GFC. Banks made it TOO easy for almost anyone to borrow. There was clearly an overall lack of understanding the market in that industry and a massive blind spot that resulted in trillions lost.

 

[Siver!]

Awesome!

I'll tell the missus' nephew who works hard in an entry level job and isn't a great educational achiever that his troubles are over!

It's not that hard!

Just get on with it!

Thanks Mr Banker!

 

[panamaican]

Knowing the economy in general is part of keeping the bank profitable though. The risk of default for lower income brackets is mostly mitigated by the fact that PMI is a requirement for anyone with less than 20% to put down. That distinguishes mortgages from other types of loans. (To be fair, that's in the US and maybe England is different in which case your point may be more apt for this guy).

Either way though, revenue can and does take a hit when home sales dip enough. That's exactly why banks have to care about the housing market holistically. He can look at it realistically and still come to the conclusion that he doesn't see the bank's short or long term profitability taking a significant hit due to it. But that's different than not understanding the market in its totality.

Lacking proper perspective leads to poor decision making. We saw that happen in the leadup to the GFC. Banks made it TOO easy for almost anyone to borrow. There was clearly an overall lack of understanding the market in that industry and a massive blind spot that resulted in trillions lost.

You're only looking at half of the bank's risk. Revenue might dip when home sales dip. But so does the risk of foreclosure. A bank lending money on a property only to have to foreclose on it is an actual loss, not just a paper loss. They've lent the money but before they can recoup, they have to outlay legal fees, property taxes, utilities, etc. until they can finalize the foreclosure and then sell the house, often for less than the value of the loan. It's a straight up loss. And since they're in the lending business, losses affect their ability to lend and their long term revenue.

But's all tangential.

I think I explained why, from his perspective - a banker's perspective, he's not wrong. It's not difficult to buy a home. Your point is that the a lot of people cannot afford a home. That is not the same as it being difficult from the perspective of the lenders and the housing industry.

To use a more obvious example: It's hard to buy a Ferrari.

Is it though? Or is it just that Ferraris are expensive. But if I can afford the expense, buying one is pretty straightforward.

 

[mkess101]

You're only looking at half of the bank's risk. Revenue might dip when home sales dip. But so does the risk of foreclosure. A bank lending money on a property only to have to foreclose on it is an actual loss, not just a paper loss. They've lent the money but before they can recoup, they have to outlay legal fees, property taxes, utilities, etc. until they can finalize the foreclosure and then sell the house, often for less than the value of the loan. It's a straight up loss. And since they're in the lending business, losses affect their ability to lend and their long term revenue.

But's all tangential.

I think I explained why, from his perspective - a banker's perspective, he's not wrong. It's not difficult to buy a home. Your point is that the a lot of people cannot afford a home. That is not the same as it being difficult from the perspective of the lenders and the housing industry.

To use a more obvious example: It's hard to buy a Ferrari.

Is it though? Or is it just that Ferraris are expensive. But if I can afford the expense, buying one is pretty straightforward.

So in looking, the UK has a similar thing to our PMI. They call it MIG (mortgage indemnity insurance). So the risk you're talking about is largely mitigated. I'm not saying banks love the foreclosure process, but we aren't talking about default on an unsecured loan here. And the PMI (MIG in the UK, whatever it's called in other nations) makes up the difference in what a bank would potentially lose. If the borrower had 20% down but defaults, (ie the loan didn't require PMI), odds are the bank won't lose anything in selling the property.

Quite frankly, I don't think this guy actually is giving the general perspective of lenders. Unless there are fundamental differences between here and England that I'm not thinking of. Because I know a lot of people in the mortgage lending industry. They have a much different view than he does. They tend to state things as normal human beings do. In other words, if you say "Yeah it's difficult to buy ________" they realize that part of the rationale of that statement would potentially be due to pricing.

A normal person, lender or not wouldn't hear the phrase "It's difficult to buy an NFL franchise" and think "Well duh no it isn't if you have a few billion dollars in your bank account." They would fully realize that the main reason WHY it's difficult is that it costs more than almost anyone can afford.

 

[panamaican]

So in looking, the UK has a similar thing to our PMI. They call it MIG (mortgage indemnity insurance). So the risk you're talking about is largely mitigated. I'm not saying banks love the foreclosure process, but we aren't talking about default on an unsecured loan here. And the PMI (MIG in the UK, whatever it's called in other nations) makes up the difference in what a bank would potentially lose. If the borrower had 20% down but defaults, (ie the loan didn't require PMI), odds are the bank won't lose anything in selling the property.

Quite frankly, I don't think this guy actually is giving the general perspective of lenders. Unless there are fundamental differences between here and England that I'm not thinking of. Because I know a lot of people in the mortgage lending industry. They have a much different view than he does. They tend to state things as normal human beings do. In other words, if you say "Yeah it's difficult to buy ________" they realize that part of the rationale of that statement would potentially be due to pricing.

A normal person, lender or not wouldn't hear the phrase "It's difficult to buy an NFL franchise" and think "Well duh no it isn't if you have a few billion dollars in your bank account." They would fully realize that the main reason WHY it's difficult is that it costs more than almost anyone can afford.

No it's not an unsecured loan but it's still tens of thousands of dollars in losses. You can disagree but I negotiate these things all of the time. Banks are desperate to avoid foreclosures because it costs them money. They sell the asset and still take a loss.

As for people in the mortgage lending industry, let's not confuse them with people in banking. Bankers are bankers. Mortgage lenders are not. They have similar risks in this specific area of the market but they don't do anything else the same or even under the same federal restrictions.

I don't really know what you're arguing. That houses are more expensive. Sure. That this banker's perspective doesn't match the perspective of people at the lower end of the economic ladder? Sure.

But you're not disproving that it's not difficult, you're just arguing variations of "It's more expensive." Nor are you arguing that his perspective is wrong, only that people with less money than his industry wouldn't share his perspective.

More expensive =/= more difficult.

I'll drop a story here about private school. I once mentioned to a crazy, rich person that even if private school is affordable without affecting your lifestyle, the person paying it is still sacrificing something because the money could have been spent on something else. They looked at me like I was crazy and calmly explained that's the difference between my idea of rich and theirs. See, to me, even if you're rich $40k for private school is an expense you notice. To them, $40k for multiple kids at private school is something they think about as much as ordering bagels for breakfast.

So to that person, it's not that difficult to buy a home just because homes are more expensive.

 

[mkess101]

No it's not an unsecured loan but it's still tens of thousands of dollars in losses. You can disagree but I negotiate these things all of the time. Banks are desperate to avoid foreclosures because it costs them money. They sell the asset and still take a loss.

As for people in the mortgage lending industry, let's not confuse them with people in banking. Bankers are bankers. Mortgage lenders are not. They have similar risks in this specific area of the market but they don't do anything else the same or even under the same federal restrictions.

I don't really know what you're arguing. That houses are more expensive. Sure. That this banker's perspective doesn't match the perspective of people at the lower end of the economic ladder? Sure.

But you're not disproving that it's not difficult, you're just arguing variations of "It's more expensive." Nor are you arguing that his perspective is wrong, only that people with less money than his industry wouldn't share his perspective.

More expensive =/= more difficult.

I'll drop a story here about private school. I once mentioned to a crazy, rich person that even if private school is affordable without affecting your lifestyle, the person paying it is still sacrificing something because the money could have been spent on something else. They looked at me like I was crazy and calmly explained that's the difference between my idea of rich and theirs. See, to me, even if you're rich $40k for private school is an expense you notice. To them, $40k for multiple kids at private school is something they think about as much as ordering bagels for breakfast.

So to that person, it's not that difficult to buy a home just because homes are more expensive.

We just disagree on what statements mean is where we're at. I think that when speaking about society as a whole, if something becomes significantly more expensive to enough of the populace to where less are able to afford it, that does in fact make it "more difficult" to purchase. Because again we're talking about society as a whole, not a specific person or one subset.

If the argument is that he wasn't speaking in that broad of terms and only about people at his economic level...okay? That would be a weird thing for him to proclaim because it kind of makes it seem like he wouldn't even know lower income people exist at all.