Charlie Munger - “even crazier” than the dotcom boom

[prudentelo]

Many other countries did follow the US example of 30 year mortgages but rates fixed to the whole term and "no recourse" (only in some states) is rarer.

[Kriegsspiel]

If anyone wants to get their nerd on, American Bonds covers mortgage bonds (and other bond stuff) very academically. Here's an blurb about the pre-Napoleonic German market:

Because the Pfandbriefe could be redeemed or sold at any point, it was more liquid than a mortgage- "the perfect type of secure investment," according to a Landschaft director from Berlin. During the Napeolonic wars, when the Prussian government defaulted on its interest payments, the Pfandbriefs traded at a value higher than that of government bonds
Built for stability, the Landschaften never promised windfall gains for investors. The Pfandbriefe bore a decidedly unsexy return of 3 to 4 percent interest. "The Germans prefer to sleep well rather than to eat well," explained one lecturer. Another speaker claimed that the system was "free from every tendency to profit making." With the community organizations overseen by the king and government employees at the helm, the Landschaften subordinated individual profits to community well-being. link.

[steveo73]

In the early 1900s, homebuyers typically had to pay a 50% down payment with interest-only payments for a 5-year term. At the end of the 5 years, they would face a balloon payment with the entire principal of the loan. Then the Great Depression happened. Lots of people became homeless due to these lending practices and banks lost tons of money. So yes, the government stepped in to create a more stable system. It was not the only reform aimed at preventing the next depression and it is a more stable system.

They went too far though. The idea that you can fix interest rates for 30 years is nuts. The issue here is the balloon payment which was clearly ridiculous. The loan term should be 30 years (or whatever makes sense long term) and you should be able to fix for whatever term makes sense to the bank.

I don't think it's just the issue that you can fix it for 30 years as well. It's the idea that you can fix it and if it goes against you just re-fix it without a cost. There should be a cost.

Like I said I don't believe any country in the world has that system.

Still I never hear Americans talking about this. Maybe it's because it suits the consumer.

[ducknald_don]

Politicians love to interfere in the housing market in one way or another. In the UK we have had a stream of buying schemes which do little for buyers as they inflate prices and line the pockets of land owners. Strangely the party that claims to be in favour of a free market is just as bad as their opposition.

[chenda]

Strangely the party that claims to be in favour of a free market is just as bad as their opposition.

Right, not to mention spinning the 2008 crisis as a result of 'fiscal irresponsibility' rather than the regulatory failure of the mortgage industry. It still amazes me Cameron and Osborne got away with that lie, although I suspect many voters wanted to believe it. It was more palatable than accepting they weren't quite as credit worthy as the likes of Northern Rock told them they were.

[steveo73]

Many other countries did follow the US example of 30 year mortgages but rates fixed to the whole term and "no recourse" (only in some states) is rarer.

What countries did the 30 year fixed rates with "no recourse". I've never heard of it. The 30 year mortgage is fine. It makes sense.