mortgage companies offering payoff at discount

[Paul M.]

I remember hearing stories from my finance professors about how when interest rates were high in 70s the banks would offer mortgage borrowers a chance to payoff their loan at a discount to the principal balance.   Presumably the discount offered was less than the delta between bank's cost of capital and the mortgage interest rate.   With all the consumers that have mortgages in the 2-3% rate, how high would mortgages need to be before mortgage companies want to get rid of them?    Purely theoretical fantasy at this point, though it did happen in my lifetime (I was a toddler at the time).

[Chris Mason]

Other direction. The 7% mortgage rates have LESS servicing value than they would if you just treat the rate like a ROI or bond interest rate, because they are so likely to get paid off soon via refinance. The 3% mortgages have MORE servicing value for the opposite reason, these ones aren't likely to be refinanced any time soon, and the market thinks they are less likely to be paid off via home sale to boot.

This isn't about your or my crystal ball predictions for inflation and interest rates, this is about billions of dollars of real life bets being placed on Wall Street and by big banks.

There's another reason big banks are valuing these low rate mortgage pools: Thanks to some deregulation that happened, they get to use the escrow accounts as "deposits" for the purpose of fractional reserve banking. Meaning that $4000 they have for your taxes and insurance that they are basically paying you 0% to "borrow"? Having that on the books means they get to lend MORE than $4k out as credit card debt at 18%, or mortgage debt at 6.5%! So the low rate mortgages, with escrow accounts in particular, come with free deposits to be re-lent at higher-than-0% rates.

More --> https://www.housingwire.com/ar... 

(If OP took fancy financing classes they don't need to, but dear lurker: if that was Doric Greek to you, just google search "what is fractional reserve banking," but avoid the conspiracy theory websites, the truth is sufficiently crazy that they aren't necessary anyways)