banks hate me and they HELOCs in
this video I'm gonna go and break down
exactly why banks don't like lending out
HELOS expose what the banks do after
the fact that they lend you the he lock
as well as well why do bangs exactly
hate me when I real this is Sam Kwak
here one of the quad pillars and by now
you know that we are a huge fan of using
a HELOC to paying down your mortgage
well as well as buying rental properties
and investing in real estate well a lot
of times I get questions like Sam how
come banks don't know about this or I go
ask my banker about getting a HELOC and
he tries to brush me off and he doesn't
want to talk about HELOCs all he wants
to do is talk about 30-year loans I or
you know I go talk to my bankers about
using the strategy of using like he'll
have to pay down the mortgage and they
have no idea what I'm talking about so
I'm gonna go and answer all those
questions and explain why banks don't
like lending out HELOCs not before we
do be sure to subscribe to a channel if
you want more updates more videos about
paying off your mortgage buying rental
properties and ultimately expanding your
financial freedom so why do banks hate
lending out he laughs well for the
purpose of this video I'm specifically
talking about second lien he locks not
first lien he locks now just to set up
the backdrop of the explanation in the
world of banking there are two types of
mortgages one is known as the qualifying
mortgages and the other is known as the
non qualifying mortgages a qualifying
mortgage is your typical thirty-year
fixed-rate mortgage that's given out to
you pretty much everybody then this is
the stuff that everyone gets to buy a
home now what's distinctive about a
qualifying mortgage is that it's
regulated by CFPB the Consumer Financial
Protection Bureau and our guidelines
that are set by the federal government
in order for a mortgage to be a
qualified mortgage the CFPB Consumer
Financial Protection Bureau was
established back in 2012 initiated by
the dodd-frank act and this Bureau
creates the regulation as well as the
guideline asks you what mortgages are
considered a qualifying mortgage the
CFPB creates guidelines as far as what
FICO score is needed what debt to income
ratio is required what disclosures needs
to be given out to the borrower's to be
considered a qualifying mortgage and why
you need to smash the like button on
this video for the YouTube algorithm so
next time you go and shop for a 30-year
rate mortgage or refinance mortgage
you're typically getting a qualifying
mortgage from a broker or from a banker
a non-qualifying mortgage on the other
hand follows a different guideline that
is not necessarily set by Consumer
Financial Protection Bureau a non
qualified mortgage often abbreviated as
non-qm may often follow guidelines that
don't look at credit or may overlook
credit or they may overlook that to
income ratio and oftentimes that's why
these non-qm loans have higher interest
rates because they don't follow the same
guidelines that are set by the federal
government most he lops fall into the
non qualifying mortgage category and
this is why I often say that not all he
locks are created equal because
different banks and institutions may set
their own guidelines and features as to
how the HELOC is underrated and what
features are offered through the HELOC
program as in another example the state
of Texas has a completely different
guideline as to how he lops need to be
borrowed or how he laughingly issued so
there could also be a state specific
guidelines when it comes to he locks and
non qualifying mortgages as well now I
really want you guys to remember the
part of non-qm and QM distinction
because I'm gonna show you why exactly
the banks don't like lending out he
locks and it all has to do with this
whole non-qm and QM conversation after a
bank gives you a 30-year mortgage
they'll likely sell the underlying note
on the mortgage to a Wall street-type
bankers to be sold and packaged into
what's known as mortgage-backed security
and for those don't quite understand the
banking jargon let me go and break the
sound into plain words for example let's
say you've borrowed $100,000 from Bank
ABC as part of your 30-year mortgage now
what the bank ABC will do is they'll
sell the rights to be able to collect
the monthly payments on the loan to
another Bank Bank XY and Z therefore now
you owed $100,000 to Bank XYZ not Bank
ABC because Bank ABC sold the right to
the loan to another Bank so that they
can collect on the mortgage but what
bank XYZ ultimately does is they buy
hundreds of these right hundred
different rights and different loans
from different banks across the country
and package them into a mega alone and
this is often known as the
mortgage-backed securities because there
are thousands of thousands of loans that
are packaged into this one negative own
known as mortgage-backed security it's
deemed safer than just buying a single
note right because if 10 people default
out of the thousand loans inside of this
mortgage-backed security well there's
still 990 other loans that are still
performing and the borrowers are paying
back on
mortgage consequently these
mortgage-backed securities are now then
sold to the market and investors people
at 401k IRAs they can vest into the
mortgage-backed securities and buy them
just like how you would invest in stocks
so just to recap you go and borrow a
hundred thousand dollar mortgage from
Bank ABC Bank ABC then sells that note
to you another Bank the bank collects
these different mortgages that are being
lend it out and turns it into a mega
loan called mortgage-backed security and
then they sell the mortgage-backed
security out to the public market which
send the interest that you pay on the
mortgage ultimately goes to the interest
that gets paid out on the
mortgage-backed securities but as you
can imagine in order to sell more
mortgage-backed securities there has to
be more of what mortgages right we need
to create more mortgages so therefore
the Wall Street bankers put more
incentives to the individual bankers
telling them hey listen we need more
mortgages so that we can create more of
these mortgage-backed securities we want
you Bank ABC to go and make more
mortgages and lend out to more
individuals and consumers and remember
because qualified mortgages follow the
guidelines of the federal government the
federal government does back some of
these loans
therefore it's deemed even more safer
than some of these non-qualifying
mortgages so as you can see packaging
different mortgages into a
mortgage-backed security that's
ultimately backed by the federal
government is deemed safer than
packaging non-qm loans at the end of the
day now when it comes to the second lien
position HELOC they are non-qm so they
don't necessarily follow the same steps
as the qualifying Morley's do as how
they're packaged into a mortgage-backed
security therefore these Wall
street-type bankers aren't as interested
in buying these non-qm second lien he
laughs because well they're not
qualified mortgages and they're not
being backed by the federal government
therefore they have little to no
incentive in packaging these he locks
into a mortgage-backed security type of
product but on the flip side first lien
he lops do follow a similar pattern as
the qualifying mortgages as they also
get so to another banks or they get sold
to a hedge fund company and ultimately
gets turned into a version of a
mortgage-backed security now here's why
banks hate giving out the secondly
position HELOC remember the whole part
about Wall Street packaging different
loans into a mortgage-backed security
and and and the Wall Street needs more
mortgages to feed right the animal so to
speak
well because there's no demand from
these Wall street-type bankers to buy
out some of these secondly position
HELOC the individual banks don't really
much have an incentive for creating
these secondly in position
lost out to the consumers with these
individual banks the money and the
profit Center is in creating these 30 or
qualifying mortgages and selling them to
the Wall street-type bankers and there's
some obviously fees to doing that so
obviously because the Wall Street
bankers aren't buying the second lien
position he locks
therefore the bankers are thinking well
since they're not getting paid much to
do it we're gonna promote less of it
we're gonna promote more of these
thirty-year qualify mortgage stuff as
well there's a demand for it and there's
a bigger Commission for originating 30
year mortgages so at the end of the day
it's about what makes more money for
these individual bankers these banks
know that they can make more money by
selling 30-year mortgages versus issuing
out HELOC so therefore they're promoting
more of the 30-year mortgages they're
putting more marketing dollars they're
putting more promotion and they're
trying to get the average joe's to get a
30-year mortgage because again it makes
them money for example let's say you're
a car salesman and one particular car
model pays more Commission than the
other car model obviously you're gonna
try to sell more of this car model
because it pays more therefore we gonna
kinda ignore right you don't really want
to talk about the other car model that
pays less in Commission it's actually
shocking how normal it is to get a
30-year mortgage to go buy a house when
you can actually easily get a purchase
HELOC to do the same and you can see
ultimately there's not much of an
interest from the banks to educate the
normal average joe's about how these
banking systems work as well then the
average joe's can make a better and an
educated decision about what's
benefitting them financially not the
banks that are out to make Commission's
on issuing out 30-year mortgages so can
you see why banks hate me for educating
you guys on how he locks work and how
you can use a HELOC to pay off your
mortgage but at the end of the day I
care about you guys the non bankers and
the consumers so with all that being
said I hope I shed some truth and some
light as to how the banking system works
why do banks push the 30-year mortgage
so much than a HELOC and why banks hate
issuing out he locks and also hate me
for obviously talking about it and
educating you guys on how this all works
so if you guys enjoyed this video be
sure to subscribe to our channel as well
as leave your thoughts down below what
do you guys think about the banking
system is it fair is it honest tell me
below I want to hear your thoughts and
go and check out some of the other
videos we have about buying rental
properties paying down your mortgage as
well as investing in real estate
