Marketplace - Are you my mortgage servicer?

Episode Date: February 6, 2024

When banks let you take out a mortgage, the money they lend you might come from their reserves. But more often than not, banks turn around and sell your loan to an investor — and make an instant profit. In this episode, all about the secondary market for mortgages. Plus, JPMorgan Chase invests in its brick-and-mortar presence, household debt ticks up, and why China’s stock market is struggling.

Well, let's see. Consumers, consumers, and then, yeah, consumers. That should just about do it. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Risdell. It is Tuesday today, the sixth day of February. Good as always to have you along, everybody. $17.5 trillion is, I grant you, an eye-popping number. It came to us this morning courtesy of the Federal Reserve Bank of New York. its quarterly report on household debt and credit. $17.5 trillion is where total household debt in this economy rests. As always, though,

headlines can be incomplete. So to fill out the rest of it, we've called Catherine Rimpel at The Washington Post on an emergency Tuesday appearance. Catherine, it's good to have you on. Great to join you on a Tuesday. On a Tuesday. Okay, so look, first of all, 17 and a half trillion dollars, a lot of money up modestly, the New York Fed said in Q4 of last year. What caught your eye about this? I think the most interesting thing is that the share of auto loans and credit card loans that are entering delinquency are both now higher than they were pre-pandemic. So particularly auto loans, by the way, have had a noticeable uptick in delinquencies. And for autos, there are a few

things going on. Car prices did go up quite a bit during the pandemic. Interest rates are obviously higher. But I think that there's a broader stress that is revealed by some of these numbers, including the fact that consumers have spent down a lot of their savings, their so-called excess savings from the pandemic, and they're turning to credit and they're often taking on debt that they are now struggling to repay. Also, younger borrowers are more stressed than those who are not young, right? Yes, younger borrowers, lower income households. If you look at the numbers, like I said, there had been this store of so-called excess savings earlier in the pandemic that related to the fact that, A, people were trapped at home, they weren't traveling, they weren't going out and dining out. So they sort of had these forced savings. And then B, they had a lot of transfer payments that were coming from the government, things like unemployment benefits, those stimulus checks, et cetera, et cetera. with those savings. Needless to say, consumers have just been on this amazing spending spree that keeps surprising us month after month. But as prices have gone up, partly in response to

that strong consumer demand, and if consumers haven't pulled back as much, that means that it's eating into those savings. People spending rates, excuse me, their saving rates have gone down quite a bit. And that's especially true for lower income households and younger households. The households that tend to be higher income and older, for that matter, they're more likely to own assets that have continued to rise in value. I'm thinking about homes, for example, or for that matter, equities. Okay. But look, when you get stressed over money, your mood changes and it feels like we just turned the corner on consumer sentiment and consumer confidence. You know where I'm going. And this, you decide, you're the analyst in this

conversation. It does seem to bode ill right for that turn that we've seen. Look, there are a lot of confusing data points in this economy, as you and I have talked about over the last several years. More conflicting numbers than I think usual. Besides the fact that consumers have kept spending and are spending down their savings, they are still getting more jobs. So I think the fact that job growth has remained quite robust, again, like consumer spending has beaten expectations again and again and again, as well as the fact that inflation has cooled, the combination of those two things has buoyed people's spirits. combination of those two things has buoyed people's spirits. Now, again, there are these sort of underlying signs of stress and the overall consumer confidence numbers may mask

some of the problems faced by certain households. 30 seconds on this answer. Will you be keeping a closer eye on consumers now? I have been keeping a very close eye on consumers as I think we all should because again so much consumer behavior has been so perplexing lately how is it that people have been able to continue spending and continue spending when it looks like they should be fizzling out a little bit and maybe they are right Catherine Appel, The Washington Post, on again, a Tuesday. Thank you, Catherine. Thanks, Kai. Talk to you soon.

Wall Street today, not really stressed at all, actually. We'll have the details when we do the numbers. You might not know the answer to this, but I'm going to ask it anyway. What in the heck is going on with China's stock markets? The key indexes in Shenzhen and Shanghai hit five-year lows last week. You throw in the exchange in Hong Kong, which lists primarily Chinese companies. And since 2021, Chinese markets have lost $7 trillion in total value. Chinese regulators have started limiting short selling. That is, betting a stock is going to go down. President Xi Jinping is said to be mulling bigger interventions. He had a meeting today. So

cue today's relief rally. But look, just like here in China, the stock market is not the economy, but it can tell us something about where the global economy might be headed as Marketplace's Matt Levin reports. The biggest reason China's stock markets have taken a nosedive, basically since the country's prolonged zero COVID policy ended. The Chinese economy so far has been sluggish and very much disappointing. Zoe Leo researches China at the Council on Foreign Relations. For starters, the real estate market is an absolute mess. Developer Evergrande was just ordered into bankruptcy. Foreign and domestic demand for Chinese manufacturing just ain't what it used to be. So foreign investors are looking elsewhere.

The mama-papa small retail investors also, they have also been taking money out. So we have also been taking money out. Both big Western hedge funds and Chinese retirees are increasingly wary of Chinese government crackdowns on leading companies like e-commerce giant Alibaba. Nicolas Varon with the Peterson Institute for International Economics says there's a fundamental question at stake. How long term compatible private sector growth and entrepreneurship is with the Chinese political regime. While China's stock markets are struggling, it's important not to overstate just how bad it is. Economist Ishwar Prasad at Cornell says to put it in American economic terms. It's not the sort of collapse that we saw here in 2008 or even during the COVID period, but it is a pretty big hit. So something like the tech bust of the early 2000s

is probably a better analogy. And for American politicians that want to gloat about China's woes in an election year, Prasad has a warning. Ultimately, what happens in China may have a rebound effect on the U.S. And the U.S. certainly is not an island in this global economy. Many big Chinese companies are listed on American stock exchanges, too, and may also be in your 401k.

I'm Matt Levin for Marketplace. You know, mail today, it just ain't what it used to be. You get emails, you get directed to a website, and it's almost not worth schlepping out to the mailbox anymore, right? Unless you're a homeowner, because the U.S. mail is how you're going to find out that your mortgage has been sold or that your loan servicer is changing. And it's more likely than not, actually, if you've had your mortgage long enough, that you've gotten a bunch of those letters over the years. More than 70% of mortgages in this economy get sold over the life of the loan. Marketplace's Samantha Fields reports on why that happens so much and what it means for borrowers and lenders both.

Right after Mark Hill bought his first house north of Chicago, he got one of those letters saying his mortgage had been sold. He didn't think much of it. I read that was kind of normal. And then it happened again. And then again, I was like, well, what's going on here? Now, less than five years later, his mortgage has just changed hands for the fourth time. Welcome to the 21st century housing finance market. David Reese focuses on real estate finance and housing policy at Brooklyn Law School.

A lot of people have a sense that mortgages work like they did maybe in It's a Wonderful Life, where you walk into your bank and if they think you're a good risk, they're going to give you some mortgage. And that's going to come from, you know, money that they have from deposits. And sometimes that is how it works. But he says for the most part, instead of banks lending you money that they have on deposit, once the bank makes the mortgage,

they then sell it to investors. And when they do that, they get all the money they lent you back right away, plus a chunk of the interest you're expected to pay over the life of your mortgage. They also get some of your closing costs. If every mortgage were held on a bank balance sheet, that would not leave banks with a lot of space

to finance other types of loans. Mike Frattantoni at the Mortgage Bankers Association says that's because for every loan a bank holds onto, they're required to keep a certain amount of capital in reserves to cover potential losses. What we've discovered through history is that actually funding a mortgage by using deposits, it's a bit of a mismatch, right? Because deposits tend to be very short-term. And most mortgages in the U.S. are long-term loans that borrowers pay off slowly over 30 years. So Anthony DeFusco at the University of Wisconsin-Madison says if they sell your loan... It frees up resources for them. He says there's another reason banks sell mortgages, too, and it has to do with risk.

Say the bank gives you a loan and holds on to it. Then you stop making mortgage payments and go into default. The bank is on the hook. But if they sell your mortgage, it gets bundled together with other mortgages. It's basically just taking a bunch of loans, putting them in one pool, and sending the payments from all of those loans to an investor. Just think of it as a pot of loans. And that pot of loans is insured by the federal government.

So John Mondragon at the San Francisco Fed says an investor who buys those mortgage-backed securities doesn't have to worry about you defaulting. And when you take out that credit risk, it makes that asset, the loan, much, much more liquid. And that liquidity is key to the whole housing market. The fact that banks know they can write mortgages, sell them easily, and make money is why you can always get a mortgage, as long as you qualify. At the end of the day, right, it does increase the supply of mortgage credit, right? It makes them cheaper and it makes more mortgages possible. And he says it shouldn't affect homeowners that much when their mortgage is sold. The terms of the loan and the interest rate stay the same.

What people are more likely to notice is if their servicer changes. When your mortgage gets sold, you just get a letter saying, you know, Fannie Mae has purchased your loan, you know, they bought it from so-and-so. Your servicer is going to be a whole change in the way you interact with your loan. Sometimes the mortgage and servicing rights are sold together, sometimes separately. Companies that just do the servicing generally make their money by charging a fee to whoever owns the mortgage. In Illinois, Mark Hill's servicer just changed hands this month for the fourth time since he bought his house in 2019. It's annoying more than anything. Every time it happens, he has to set up a new account. And he's always worried something is going to fall through the cracks,

like his homeowner's insurance did the first time his servicer changed. He'll now pay his insurance directly instead of having his servicer do it. John Mondragon at the San Francisco Fed says there's nothing homeowners can do to prevent their loan or servicing rights from being sold. And that is the way it's been structured in order to facilitate this really liquid mortgage market. Frustrating as it can be to have your mortgage change hands over and over, lenders say this really liquid market probably helped you get a mortgage at a lower interest rate in the first place. I'm Samantha Fields for Marketplace.

When you think banking nowadays, to the extent that how and where you bank occupies your waking hours, you almost certainly think mobile apps, you think online deposits, you think it's all about digital, right? Not right, apparently. In a story the Wall Street Journal had this morning before the bank made it official, JPMorgan Chase, the biggest bank in this economy, says it's going to open more than 500 new brick and mortar branches and that it's renovating another 1,700 of them. Bank of America did something similar last summer. So we asked Marketplace's Stephanie Hughes to get a sense of the value of banking in person in this digital age. You don't usually think of a bank as having a living room, but Jason Patton of JPMorgan Chase

says they'll be a staple in a handful of the bank's new branches, which are meant to be places where people chat. We've gone from more transactions in the branches to being more advice centers. Patton says people, customers or not, can come for classes on budgeting and investing. The idea is to introduce the bank to new markets. Some of these branches are opening up in places where we're not as well known. So in many cases, people don't know what we have to offer. And it's important to see and be seen by those people if banks are going to drum up new business, says Jamie Peters of Maryville University in St. Louis. By going and building these new branches and having that placard on the side of the road that people pass every day, that is brand awareness. That is trust building. Also, Peters says small and mid-sized businesses like to have a relationship

with a banker they know for help with things like payroll and taking out loans. If you're a small business and you're like, oh my goodness, I forgot to pay a vendor, you want to be able to call somebody very quick and get it done. Big banks have another incentive to add branches. The ones that hold more than 10 percent of the nation's deposits are generally prohibited from acquiring other banks, says Michael Rose, a managing director in equity research for Raymond James. equity research for Raymond James. So because you've removed the ability for them to actually acquire other banks, they have to grow essentially organically. The overall number of bank branches in the U.S. peaked over a decade ago and has dropped by about 16 percent since then. There are still communities without any banks known as bank deserts. And Jamie Peters says this expansion doesn't necessarily solve that. Just because there does have to be a critical mass of customers to open a physical branch. And she says that's not

the case in some parts of the country. I'm Stephanie Hughes for Marketplace. Coming up. The biggest part of Wyoming's winter tourism economy is snowmobiling. Which is not, we are obliged to point out, without risk. First, though, let's do the numbers. to point out without risk. First, though, let's do the numbers. Dow Industrials up 141 on the day, more than a third of 1% closed at 38,521. The Nasdaq added 11 points, less than a tenth percent, ended things at 15,608. The S&P 500 also picked up 11 points. That's about a quarter percent on that index, finished at 49 and 54. UPS piled on 4.9% today after an upgrade from UBS, which predicted the delivery firm is going to continue to cut expenses after it cut 12,000 management jobs.

Rival FedEx grew one and a quarter percent. German parcel company DHL added about one percent. How many initialisms and acronyms can we fit in 40 seconds? I don't know. Bond prices went up. The yield on the 10-year T-note fell to 4.09%. You're listening to Marketplace. This is Marketplace.

I'm Kai Risdell. If you happen to be in the car right now and it's safe to do so, take a quick look around and see how many electric vehicles you see. And if you're not in a car, well, have a look next time you're out. We're going to call that an unscientific survey as a way to set up this next story about the lithium market used in lots of batteries, especially the ones in all those EVs. And if lithium's your business, it's been a rough couple of months. Prices have fallen about 80% over the past year, and two American lithium miners have cut jobs and capital spending of late,

including Piedmont Lithium, which announced its cuts just this morning. A couple of years ago, though, demand for lithium was soaring as carmakers raced into the EV business and utilities built out battery storage systems. So Marketplace's Henry Epp has more on what the lithium price roller coaster is all about. We've all heard this story. Coming out of the pandemic lockdown era, demand for certain products and materials went way up and suppliers were caught off guard. They were not as prepared for this big pull as fast as it happened. It actually surprised everyone.

Scott Sklar at George Washington University could be talking about lumber or used cars or semiconductors, but he's talking about lithium. A bunch of companies suddenly became hungry for it starting around 2021. They were investing in electric vehicles and energy storage systems for utilities. But when they went looking for lithium suppliers, they found the market to be a bit limited, says Ian Lang at the Colorado School of Mines. It's not like natural gas. It's not like oil, right? It's not like iron ore, where lots of suppliers, pretty easy to figure out where to get it from. So companies quickly locked in contracts for lithium wherever they could to make

sure they had enough supply, and that jacked up the price. But then, Lang says, high prices induced more people to get into the industry to try to find more supply. At the same time, demand for EVs didn't meet the perhaps overly optimistic expectations of some carmakers, says Tony Alderson, an analyst at Benchmark Mineral Intelligence. We really saw throughout the start of 2023 subdued downstream demand, and it's really translated through to prices. More supply, not as much demand, and there you have an 80% price drop. And that could actually be a good thing for consumers looking to buy EVs, since batteries are their priciest component, says Scott Sklar at GW. Those battery prices will go down,

making these cars more affordable. On the flip side, investors are watching these lithium prices, and they might pull out of mining operations. And that could raise the price of lithium again in the long term, says Sklar. It's a chicken and egg situation. It will be for the rest of this decade. Still, he's optimistic that the industry will keep growing and sort itself out along the way. I'm Henry Epp for Marketplace. You got your skiing, both downhill and cross-country. You got your ice skating and your snowboarding. You got ice climbing and snowshoeing. And increasingly, you got snowmobiling.

It's a growing big part of winter economies in the western United States. part of winter economies in the western United States, but it's also a growing part of people riding in potentially deadly terrain, avalanche risk terrain specifically. And oftentimes the remote areas that people are riding in don't have an avalanche forecast. Wyoming's only avalanche center wants to crowdsource a solution and in the process get a picture of what's going on with the less studied snowpacks in the eastern half of that state. Hannah Haberman from Wyoming Public Radio has that one. High up on a snowy ridge in the Teton Mountains, Frank Karras and John Fitzgerald shovel out a flat spot in a steep slope so they can see the snow's layers. It's a beautiful bluebird day and they've got big puffy coats on.

An avalanche naturally occurred here recently. They point to the likely culprit, a crusty layer of crystals where the slide occurred. We've had that sandwich crust, facet crust, down towards the bottom of the pack but not at the ground. Karison Fitzgerald work as forecasters for the Jackson-based Bridger-Teton Avalanche Center, which provides daily avalanche forecasts. It's their job to literally get their hands in the snow to test its stability on

many different slopes, and to see how it's changed over time. A week or ten days ago, both of these crusts were much firmer. Now, Karis and Fitzgerald have one more data point for their next forecast, a crucial tool for recreators as they decide where to safely ski and snowmobile. But Karis says there's only so much they can monitor. There's basically six forecasters trying to cover 7,000 square miles of forecast area,

and each of our mountain ranges have some unique weather and avalanche conditions. That 7,000 square miles covers part of Northwest Wyoming. Dwayne Meadows is the executive director of the Bridger-Teton Avalanche Center Foundation. There are also a lot of blank spaces on the map where people are riding and snowmobiling without an avalanche forecast to say, hey, today the avalanche danger is high or low or considerable or extreme. Eastern Wyoming is one of those blank spaces where snowmobiling is on the rise. The biggest part of Wyoming's winter tourism economy is snowmobiling, bigger than skiing. And it provides a lot for a lot of tiny little towns all over the state. The number of visiting snowmobilers in Wyoming increased by almost 40% from 2012 to 2021, according to a state report. The number of snowmobilers killed in avalanches is also up.

Meadows says advances in snow machine technology means riders might take more risks. The snowmobiles are a lot easier to ride, and they're lighter, and they're faster, and people are getting themselves in trouble. To fill in some of the gaps in avalanche forecasting, the Bridger-Teton Center created a new information exchange webpage for eastern Wyoming. Meadows says it's basically a crowdsourcing tool for community observations about snow stability

in the area's mountain ranges. If you're out snowmobiling, you can like say, hey, I saw an avalanche, post a picture, and that helps other people who are out there like, oh, it is a little dangerous. Heather Tupper is a volunteer with the Snowy Range Snowmobile Club in eastern Wyoming. She's seen firsthand how the sport has exploded. Every year there's always people that have never been here. You know, even the elevation can be something that, you know, people just don't realize. She says the new crowdsourcing tool will be useful, especially as snowmobilers continue to push further into the backcountry to avoid crowds. There are spots that

are avalanche prone. It's rare, but that doesn't mean it doesn't happen. And when it comes to staying safe in avalanche terrain, a little more information might make a big difference. In Jackson, Wyoming, I'm Hannah Haberman for Marketplace. This final note on the way out today in which irony may finally be well and truly dead. The New York Times had this story. You remember Adam Neumann? If you don't recognize the name, you will surely recognize his once and perhaps future company, WeWork. The real estate slash co-workspace company imploded spectacularly in 2019 after at one point having been valued at $47 billion. An initial public

offering failed. Thousands of people lost their jobs. Newman was forced out, albeit with an exit package of a half a billion dollars. Bankruptcy protection was eventually sought. Anyway, the Times reports today that Newman is trying to buy WeWork out of Chapter 11. Second acts, I believe there are. Our digital and on-demand team includes Carrie Barber, Dylan Mietten and Janet Wynn, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of Digital and Undone. And I'm Kai Risdell. We will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading and it's happening because of a podcast Solda's story investigates how teaching kids to read went wrong

new episodes of Solda's story are available now