That's part of the problem with residential and commercial real estate. Guys like Umpqua used to keep the paper on their books. Now most of what they do is underwrite (ie make sure it passes their/FNMA standards) and then sell it to FNMA while they keep up servicing.

To you it doesn't make a diff, but we are concentrating the loan liabilities all in FNMA, which I guess makes it easier to write one large govt check to instead of a bunch of diff banks if they need a bailout.

Now FNMA is too big to fail.

A bank has to hurry up and transfer the risky debt with some solid credit.

I think the missus and I have decided to pay the damn thing off, even at the cost of penalties from tapping IRAs, rather than refinance. We were looking at a refi and realized that the costs of the refi were about 40% of the 10% penalty hit for tapping the IRA; so I plotted the interest remaining (whether in refi or original) and realized that the tax penalty is about 1/5 of what we would pay in interest if we paid on the loan until the end.

There's something about human loss-aversion that makes it psychically hard to accept paying a 10% penalty, but with the bond and stock markets being what they are (and the risk of where they're going), we're highly likely to reduce our exposure to those risks by buying some peace of mind at the cost of the penalty hit. (We owe the taxes sooner or later anyway -- and it seems likely that taxes will go up, not down, from here.)

I've come to look at it like this -- for the cost of the penalty hit for tapping the IRA prematurely, I can save five times as much in interest costs and essentially buy the right to live in my house for nothing but taxes and utilities each month -- I'm already on the hook for the principal and the taxes on the IRAs when tapped, so the only difference is that we'll pay a tax penalty. On the other hand, once my house is paid off, Hank Paulson his fellow crooks can't touch that part of my portfolio.

It will probably never matter... as long as you and the bank don't need to work together on something complicated like insurance claims after a disaster. My parents bought a home to retire to in Mississippi about 6 years ago which was promptly flattened by Katrina, and they got to know Chase entirely too well. Fortunately, they were well-insured, but collecting had many long, needless delays thanks to their banking pals. But this stuff is pretty much out of our control these days; the banks don't have to answer to the little people.

Many "conservative" commentators condemn the government "takeover" of things like student loans and home loans...

But if the banks do not fund these loans but only act as "middlemen" - all the while collecting huge fees - what do we need the banks for?

Sure looks like it's nothing more than corporate welfare where profits are privatized risk is socialized. That doesn't sound very free-market or "conservative" to me.

It makes not a bit of difference to you personally but it makes a bundle of difference to the American taxpayer, since they now hold an asset that is almost certain to depreciate in value (rates will rise) and another step has been taken in increasing taxpayer backed debt and sloughing off as much as possible of that debt internationally.

But don't worry it will be all good, so long as Freddie and Fannie are around, there won't be any mortgage fraud or a housing meltdown, or international debt crisis. We can be sure of it.

I remember when my folks celebrated paying off the house with a burning of the mortgage party, but when I paid off my 15 year loan last year, I strangely felt a need to keep it on the down-low. Strange days indeed!

You're not kidding. Less than a month... That is super quick!

Britt,

Monopolistic entities eventually fail to meet the needs of their captive consumers or they distort the pricing mechanism which eventually necessitates bailouts or public subsidies (Tri-Met, Amtrak, USPS, U.S. sugar industry)... Fannie and Freddie were a duopoly, and they failed to adequately price risk, relying instead on their implied government backing. It works until it doesn't.

Mister Tee:

Are you saying that free markets don't work?

"Are you saying that free markets don't work?"

Free markets always work - Just not the way people want them to sometimes.

Hmmm... can someone point me to one truly free market any more... that is not in the realm of small businesses... I am being totally serious....

As for mortgages... first I downsized out of Deforested Heights (after becoming single) and that is a whole other part of the city running amok... that neighborhood is a disaster waiting to happen (Oakland Hills fire (all those nearly mandatory cedar shake roofs) or slides off the hill when it gets super wet up there... (icky clay soil and lots of small springs) - then I paid off the new house (15 year note) in under 5 years because I had a big down (from previous homes) and an ethic to pay extra each month as well as putting parts of any bonuses against it.... And it's nice because I can survive being laid-off, etc. etc. a lot easier... Not that I have ever been laid-off but I fear it being in IT. And I am happy not to provide profits for financial institutions....

LucsAdvo there is no free market in the U.S. regardless of what the airheads in the media think.

You go into the bank thinking you're the customer . . . . as it turns out, you're the product, and Fannie Mae is the customer. That explains quite a lot.

It's like the bank was more of a mortgage broker than anything else. But hey, they were quick, and they treated us right.

The difference these days is that Umpqua is on the hook if the loan goes bad. I think the time frame is three years.

They didn't give us any details about the terms of the assignment, or how the assignor and assignee share the downside risk.

They don't have to disclose that information. But I assure you that you wouldn't have gotten the loan through them if there was even a hint that you weren't the gold standard of borrowers.

The pendulum has swung all the way over from the liar loan days.

Speaking of bank loans and markets, perhaps you missed this 20Jul WSJ piece while you were closer to the source but farther away than currently:

A City Feels the Squeeze in the Age of Mega Banks
BY DAN FITZPATRICK AND ROBIN SIDEL

ORLANDO, Fla.—At the end of May, Florida Business Bank shut down the loan office it opened here just a year ago. It wasn't doomed by the economy. It was surrounded by giant banks that keep getting bigger and bigger.

Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co., which hold about $3.50 of every $10 in local deposits, are "squeezing" and "hoarding" customers "any way they can," says Jeff Wagner, chief financial officer at Florida Business Bank. Corporate customers are being told by the biggest lenders not to move their deposits to other banks or else they might not get a new loan, he says.

The financial-overhaul bill that will be signed into law by President Barack Obama on Wednesday won't address one of the most far-reaching consequences of the recent crisis: Market power is concentrating in the hands of the nation's largest banks.

Fortified by infusions of taxpayer capital and takeovers of other large institutions killed or wounded in the crisis, a handful of hulking banks is emerging from the mess to dominate everything from mortgages to checking accounts to small-business loans. The financial-regulation law will bring new shackles and oversight, likely to cost the big banks billions in revenue. But their growing supremacy will help them absorb the blow.

Bank of America, J.P. Morgan and Wells Fargo now have 33% of all U.S. deposits, up from 21% in mid-2007—the fastest shift of such a large chunk of deposits in U.S. history. Much of the gain came from their acquisitions of Countrywide Financial Corp., Washington Mutual Inc. and Wachovia Corp., respectively.

The three huge banks made 57% of all home mortgages in the first quarter, up from 28% in 2008, according to Inside Mortgage Finance, an industry newsletter. In 2008 and 2009, they got $95 billion in capital from the U.S. government, all of which they have repaid.

Measured in loans and other assets, Citigroup Inc. and the three other giants had $7.7 trillion as of March 31, up 56% since the end of 2007. Their combined assets are nearly twice as big as the assets of the next 46 biggest banks, according to SNL Financial, a research firm in Charlottesville, Va.

By providing more branches, ATMs and features like free online bill payment, the newly consolidated banks have made many basic services more convenient and cheaper for customers. The banking giants often offer lower mortgage rates and other types of loans than smaller players.

"At the end of the day, consumers and small businesses will benefit" from consolidation, says Bank of America executive Mark Hogan, who runs retail branches on the East Coast.

To keep their costs down, however, the big banks generally pay lower rates on certificates of deposit and other types of savings products than the small players, meaning less interest income for millions of depositors.

The mega-banks are preserving capital as they brace for lost revenue from parts of the financial-services overhaul that don't impact smaller banks, such as new restrictions on proprietary trading and derivatives. As a result, they have cut their lending more than small banks, leading to a smaller supply of loans.

"Concentration on the national level is something that ought to be of concern to policy makers" because it means "fewer choices and less-competitive pricing" for small businesses and consumers, says William Isaac, the chairman of the Federal Deposit Insurance Corp. from 1981 to 1985.

Possibly even worse, the consolidation puts more risk "in fewer and fewer hands, so when mistakes are made, they are doozies."

Bank consolidation has become an issue outside the U.S. as well. In Britain, the six largest banks increased their share of the mortgage market to 78% in 2008 from 66% in 2007, according to the National Audit Office. Lawmakers there recently asked for an inquiry into the power of the banking industry.

U.S. banks that hold 10% of all U.S. deposits already are banned from buying rivals in many circumstances. The financial-regulation bill toughens that threshold to prohibit banks from making acquisitions that would put them over 10% of all liabilities—not just deposits—in the banking system. The curbs will hardly make a difference. The bulk added during the crisis already is pressuring small banks.

Bank of America, J.P. Morgan and Wells Fargo "can make money beyond belief" because of their low costs and volumes of scale, and "there is no chance of anyone challenging them," says Arnold Danielson, a bank analyst in Bethesda, Md.

J.P. Morgan's takeover of Washington Mutual's failed banking operations in September 2008 increased the asset size of the New York company by more than $300 billion, or 20%. Bank of America bought Merrill Lynch & Co. and Countrywide as those two companies, with nearly $1 trillion in combined assets, were sinking. Wells Fargo acquired Wachovia, the biggest bank on the East Coast, when Wachovia was on the verge of collapse in late 2008.

The three bulked-up giants now hold more than a third of all deposits in 25 metropolitan areas that are home to 70 million people, or nearly one-fourth of the U.S. population, according to consulting firm Oliver Wyman.

In Madera, Calif., Bank of America, J.P. Morgan and Wells Fargo have a combined market share of about 60%.

"Between their pricing and their number of locations, they are a very strong competitor for the consumer," says Daniel Doyle, chief executive of Central Valley Community Bancorp, in Fresno, Calif. Central Valley has one of its 16 branches in Madera. Rather than fight the giants head-on where they are strongest, it focuses on business customers.

In Orlando, the landscape's tilt toward the big is obvious up and down Orange Avenue, a 17-mile thoroughfare that runs through much of this city of 267,000 residents. Built as a one-lane dirt road in the late 1800s to carry oranges by horse-drawn cart, Orange Avenue now carries a stream of cars past office buildings, hospitals, trailer parks, churches and auto-repair shops.

Orange Avenue also has been Orlando's banking hub for decades. Since the start of 2008, though, about a quarter of the branches on the street have changed hands. Other buyers of shaky or failed banks include regional banks BB&T Corp. and Centennial Bank.

Bank of America, J.P. Morgan and Wells Fargo are making life harder for local bankers. Right after J.P. Morgan barreled into town, the bank hired a top commercial banker from SunTrust Banks Inc., a regional bank based in Atlanta, to woo corporate customers.

Billboards, print and television ads and junk mail have surged. SunTrust, the biggest bank in town, responded with more than 20 of its own "SunTrust is still SunTrust" billboards. It also hired away two top Wells Fargo executives shortly after the Wachovia acquisition, according to Tom Kuntz, who runs SunTrust's Florida operations.

"You can definitely see the powers blasting the market," says Jeffrey Cowherd, senior vice president for First Commercial Bank of Florida, a nine-branch bank that promotes "hometown" service.

Alan Rowe, the bank's chief executive, says competition for mortgages is much fiercer now that the three giants have so many branches through which to lure potential borrowers. First Commercial already was suffering from a surge in troubled real-estate loans, according to regulatory filings. The extra mortgage fees "would be a little bit of help" while the bank searches for new capital, Mr. Rowe says.

At Florida Business Bank, in-your-face billboards drowned out the ads the bank was running in a weekly business newspaper for its downtown loan office at 121 South Orange. It shut down the loan office after attracting less than half of the total loan balances it needed.

"You cannot compete on that level," says Mr. Wagner, the Melbourne, Fla., bank's finance chief.

After opening the office in 2009, Mr. Wagner says, Florida Business Bank was about to snatch several corporate customers away from the big banks when the borrowers suddenly were told to keep their accounts right where they were, or else the companies shouldn't bother trying to get credit from the big banks. "They are going to use their leverage to retain all the business they can," says Mr. Wagner, who declined to provide specific details.

Bank of America and J.P. Morgan declined to comment on Florida Business Bank. A Wells Fargo spokeswoman said the bank doesn't require accounts for customers to qualify for loans, but "deeper customer relationships better equip us to offer the best solutions."

Some Orlando residents are embracing the big-bank blitzkrieg. "I don't even know what the local banks are," says Laurie Lee, 52 years old, standing in front of a new Chase branch on Orange Avenue about 1.5 miles from her home. She decided to open a checking account there after receiving a coupon in the mail for a $100 "bonus."

Ms. Lee is interested in applying for a mortgage from Chase, since she figures the owner of a house she is trying to buy will be impressed with the giant bank's brand name. If the owner "sees I have a relationship with Chase, it will be a good thing," she says.

After its acquisition of Wachovia, Wells Fargo wasted no time before slashing interest rates paid on certificates of deposit and other savings products. In Orlando, a one-year CD from Wells Fargo carried an average yield of 0.4% in mid-June, down from 1.26% at Wachovia in June 2008, according to Market Rates Insight. Bank of America's average yield on the same CD fell to 0.4% from 3% in the same period. The U.S. average is 0.79%.

Across the U.S., Bank of America and Wells Fargo cut their CD rates in every market tracked by Bankrate.com during the year ended in March. Chase's rates held steady but were well below the national average.

"We need to be more price competitive than we were before," says Bank of America's Mr. Hogan.

The giant banks are gambling that their vast array of products and convenient locations are enough to keep a grip on most customers no matter how low deposit rates sink.

Frustrated depositors often can't find better rates elsewhere, though, because smaller financial institutions tend to quickly follow the lead of bigger banks when they come to town.

Barbara Pope, 88, says she couldn't find any bank in Orlando offering a certificate of deposit with an interest rate higher than 1.5%. "Forget this," she recalls thinking, while knitting with friends at a senior center on Orange Avenue. She put the money, proceeds from the sale of bonds owned by her husband, into a savings account.

On loans, lower funding costs allow the big banks to be more aggressive, freeing them to undercut rivals. At the end of 2009, Bank of America, J.P. Morgan and Wells Fargo paid an average interest rate of 1.03% for their deposits, borrowings and other funding sources, compared with 1.56% for a group of 500 other banks, according to SNL and Sandler O'Neill + Partners LP.

The result is bargain interest rates on mortgages. In the first quarter, Bank of America offered an average rate of 5% on 30-year fixed-rate mortgages, and Wells Fargo offered 5.13%, according to Bankrate. The U.S. average was 5.23%. The big banks tend to charge more on auto loans.

The banks also are the stingiest with loans, according to the FDIC. In the first quarter, total loans outstanding at U.S. banks with assets of more than $100 billion declined 1.5%, including an adjustment for recent accounting changes. That was more than three times as steep as the decline among banks with less than $100 million in assets.

Lending has slowed considerably in Orlando, according to figures from Equifax Inc. The dollar value of new bank-card and home-equity loans dropped 73% in Orlando's metropolitan area between April 2008 and April 2010, compared to a national decline of about 4% in the same period. That, of course, is accounted for in part by the sharp drop in property prices in Florida.

"The flow of credit is still significantly impaired" in Orlando, says Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. "Businesses that might be faring well and looking to expand aren't able to get that financing."

David Smith, president of Trim-Pak, a family-owned distributor of doors and kitchen cabinets on S. Orange Ave., says Wachovia demanded that he put up the company's headquarters as collateral for an existing $1.5 million credit line "in the middle of the recession."

A Wachovia spokeswoman declined to comment on the case, but said that in general, "Sometimes banks take additional collateral in order to continue providing financing while protecting the bank's interest."

The move made Mr. Smith even angrier because he was laying off nearly 100 of Trim-Pak's 130 employees. The big banks "are tightening," he says, turning his fist like a screwdriver. "If sales are off and profits are down," dealing with a tough bank "makes it worse."

Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com and Robin Sidel at robin.sidel@wsj.com

Gardiner - It was a number of Stank of Amerika's policies and their treatment of the average Jo/e that drove me to credit unions. I wrote a check on a B of A account to pay-off a B of A credit card. They coded $7,xxx not $1,xxx and then I was put through the wringer to fix their mistake while one part of B of A blamed the other.... And they dropped interest rates, raised fees, and generally screwed me and other customers over. So I walked (and with a lot more $$ than an average household). And I encouraged my co-workers who have incentives to bank there to walk too and a lot did. Anyone with half a brain would avoid SCREW U BANK (US), and Stank of Amerika, and Worst Fargo.

Mister Tee: Don't you see what happened here? The taxpayers bought Jack Bog's "paper" as they call it in the business.

I'd like to know just what the taxpayers paid for that "paper" and would bet that it was sold for a lot more than any private investor would pay for it.

Now the taxpayers are on the hook if Jack defaults and the bank has made a huge amount of money at no risk to them. What a deal! (For the bank, that is)

That happens all of the time. What if the government decided to buy tacos from Jose's taco stand. The tacos sell for $2.00 each but the government pays $10.00 each. However what the government pays for them is "private" information.

It's the same rip-off no matter how it's structured.

Hi All,
It’s Ron Stroble writing from Umpqua Bank. I’m executive vice president of Umpqua’s mortgage division and wanted to provide a few details about why Umpqua, like other community banks, sells mortgage loans. Mortgage loans are long term, typically 15 or 30 years. If a bank held all of those loans, it would quickly eat up the funds available to lend. That’s why banks, big and small, sell their loans on the secondary market to ensure there is money available to help additional customers obtain a mortgage loan that meets their needs.

The majority of Umpqua loans are eligible for sale to either Freddie Mac or Fannie Mae. If sold, our customers will be notified their loan has been moved to Freddie or Fannie. But what’s important to note is that, in most cases, Umpqua Bank retains the rights to service the loans. We do this so that we can continue to provide local service to each of our loan customers and they can continue to make their loan payments to Umpqua. This way, the process is as seamless as possible. We value all of our customer relationships and it is important to us that nothing changes when we sell a mortgage and that the mortgage holder receives the best possible customer service.

For additional mortgage questions, please stop by one of our 22 Portland area stores. We’re happy to help.