The factory behind your home loan

Patrick McKenzie reads from his 2022 Bits About Money essay on mortgages, making the case that a mortgage is best understood as a manufactured product, not a simple loan between a bank and a customer. He walks through the assembly line behind every home loan, the loan officer and back-office staff who build the 700-page document. Then he traces the supply chain it gets sold into, where GSEs insure against non-payment risk, servicers buy the right to collect monthly checks, and pension funds and other private capital end up holding the economic exposure, because they want it more than banks do.
–
Full transcript available here: https://www.complexsystemspodcast.com/mortgages/
–
Presenting Sponsors: Mercury & Granola

Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at mercury.com.

If meetings consistently leave you with hazy action items and lost context, Granola handles the transcription so you can actually participate and gives you searchable notes afterward. Try it free at granola.ai/complexsystems with code COMPLEXSYSTEMS

–

Links:

• Mortgages are a manufactured product: https://www.bitsaboutmoney.com/archive/mortgages-are-a-manufactured-product/
• The 30-Year Mortgage is an Intrinsically Toxic Product: https://byrnehobart.medium.com/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a
• Michael Lewis’ The Big Short: https://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827

–

Timestamps:

(00:00) Intro

(02:26) Mortgages are a manufactured product

(04:19) Who manufactures mortgages?

(07:08) Who buys mortgages?

(07:42) The risk of non-payment

(10:08) Sponsor: Mercury | Granola

(14:35) The risk of failing to service a mortgage correctly

(17:51) Every other risk you could imagine, of which there are many

(24:04) Scratching the tip of the iceberg

(25:10) More about flow meters

(26:24) Wrap