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Mortgages are a manufactured product (2022)

Mortgages are popularly thought of as loans, but to understand the industry, it's better to model them as complex manufactured products.

The industry operates, as many people who have interacted with it can attest, in a disturbingly artisanal manner for a trillion dollar manufacturing sector which props up a huge portion of the economy. As a policy decision, the United States has effectively socialized most of the market for the risk of non-payment of mortgages, in the interests of making home ownership more predictably available. If the bank is not sufficiently capitalized, to maintain their reserves (and have adequate liquidity to meet responsibilities to customers and regulators) they’ll have to sell some of those now less-valuable mortgages.

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