Consumer Mortgage Mark-to-Market

There is big money in US household's balance sheets.  And it is currently unrecognized.  Matt Levine of Bloomberg Opinion writes about it this week.  He explains it well.  Here's a link but you have to scroll past another one of his hit pieces on Goldman Sachs to see it.

Mortgage mark-to-market

At the Wall Street Journal, James Mackintosh has a fun column about the fact that a lot of US homeowners3 are sitting on big mark-to-market gains on their home mortgages. If you borrowed $500,000 to buy a house at 3% interest for 30 years, and then mortgage rates went up to 8%, that mortgage is now arguably worth just $287,000. Your debt went from $500,000 to $287,000, so your net worth increased by $223,000. Mackintosh writes:

Apply the logic used in the market, and there’s been a transfer of well over $1 trillion in wealth from banks and bondholders to borrowers as rates have soared—a gain in wealth widely ignored by the beneficiaries . . ." read more  (but you have to scroll down to find the mortgage stuff).

As I see it, some Wall Street genius will come up with a way for consumers to buy their mortgages back from the anonymous investor pools that own them.    You read it here first.  

Hat tip to David Zale for bringing this to my attention. 

Disclosures:  My wife and I have a mortgage we took out at 2.25% 10-year interest-only mortgage - the proceeds are nicely invested in a mix of stock funds, preferred stocks and US treasuries.  Let's hope in 8 years when it comes due the investments are worth more than the mortgage.