A billionaire’s mortgage book shouldn’t run on a public balance sheet. The Wall Street Journal’s editorial board describes the arrangement in “UWM Is a Government Mortgage Canary” (Aug. 13): United Wholesale Mortgage founder Mat Ishbia needed a $2 billion private capital infusion after a bad interest-rate hedge, non-bank lenders dodge the bank-style capital rules, and when borrowers default, the public eats the loss. The board’s prescription — make lenders “foot at least some of the costs” — is a fine on the symptom. The disease is letting private lenders gamble on a public guarantee.
The non-bank mortgage business isn’t a bug in the system. It is the system. The board’s own piece hands you the diagnosis it’s pretending to be surprised by. “After the housing meltdown,” it writes, “big banks pulled back from the mortgage market as the government required them to hold more capital.” That sentence is the whole story. Banks got the capital rules because they’d been leveraged to the hilt and cratered the global economy in 2008. Non-bank lenders stepped into the gap because they weren’t subject to the same rules. The Journal’s editorial page spent the next fifteen years arguing against those capital rules as harmful to lending and harmful to the economy. The board is now complaining about the gap its preferred deregulators created, and proposing as the cure more of the rules it spent fifteen years arguing against. Pick a catechism.
I’ll grant the board the most alarming number it cites: a 21.5% one-year serious delinquency rate on UWM’s recent FHA loans is genuinely alarming. The board also notes, and this matters, that twelve non-bank lenders ran worse one-year books: Ages Mortgage at 27.3%, Top Flite Financial at 24.5%, Loan United at 23.7%. The canary isn’t the sickest bird in the coalmine. It’s the easiest target. The actual problem is the entire flock.
Now ask the question the column won’t. Why are borrowers taking on 43%-plus debt-to-income ratios? Because they can’t afford a house otherwise. Median wages have been roughly flat for forty years; the median home has roughly doubled in real terms. The 43% threshold doesn’t describe reckless borrowers — it describes a country where the median household can’t carry a mortgage on a median home without stretching. The FHA’s standards are loose because the alternative is that no working-class family gets a mortgage at all.
The board’s framing also hides the upside-down economics of the current arrangement. When UWM’s hedge pays off, Mat Ishbia’s net worth goes up. When it doesn’t, taxpayers cover the difference. The board imagines two parties: private lenders and taxpayers. Lenders should bear more of the cost of defaults. That’s the entire menu it can see. But “make the lender absorb more of the loss” is not a mortgage market. It’s a fine on a slice of a default. It does nothing to fix who originates the loan, how it’s underwritten, or where the spread goes. There is a third party available, and we have a hundred years of evidence it works: a public mortgage lender. Not a regulator. Not an insurer. The actual lender, making the loan, holding the asset, keeping the spread.
The piece the editorial board misses entirely is the Bank of North Dakota. Founded in 1919, state-owned, it is not a direct mortgage lender; it is a public banker’s bank. Its job is to lend to and partner with the local community banks that actually originate mortgages across North Dakota — patient capital, deposit backing, a counterparty that doesn’t disappear in a panic. It is one state’s working example of the public layer underneath community-based mortgage lending that the rest of the country doesn’t have.
The roughly 145 million Americans who belong to a credit union already make mortgages through a member-owned cooperative lender that doesn’t run a leveraged hedge book on interest rates and didn’t need a $2 billion capital call when its bets went bad. The Farm Credit System makes agricultural mortgages as a government-sponsored enterprise, owned by the farmers who borrow from it. Community Development Financial Institutions — the bank-in-the-trenches of working-class lending — lend patiently to borrowers the FHA formally approves and the secondary market informally blacklists. The infrastructure for a cooperative and public option is already here. It just stops at the front door of the household mortgage market.
So specify it. The FHA already exists; so do the GSEs; so does the Federal Home Loan Bank system. The missing piece is a cooperative-and-public origination layer between the borrower and the guarantee. Here’s how the pieces fit.
Origination. Mortgages are made by member-owned credit unions, CDFIs, and community banks — institutions rooted in place, not leveraged hedge books. Underwriting is set locally under federal floor standards: real capacity-to-repay, full documentation, a hard ceiling on debt-to-income, principal-residence occupancy required. No stated-income, no NINA, no liar loans. The originating lender retains meaningful skin-in-the-game — five to ten percent of each loan stays on its books.
Funding. A national cooperative mortgage facility, chartered out of the existing Federal Home Loan Bank infrastructure, pools loans from originating credit unions and CDFIs, issues mortgage-backed securities, and provides liquidity back to the originators. The facility earns a thin spread that funds its operations. The spread doesn’t go to a leveraged hedge-book founder.
Risk-sharing. Three layers. First loss: the originating lender’s retained share. Second loss: a cooperative reserve pool, built from a small fraction of every loan’s interest payment — the same actuarial logic as private mortgage insurance, but member-owned, not extractive. Catastrophic backstop: the FHA, exactly as now, guarantees the tail. The public guarantee stays. What changes is the institution in front of it.
When the system works, gains return to credit-union members, to the originating community bank, to the cooperative reserve — to the public, on the public side of the balance sheet. When it doesn’t, losses are visible on public books and visible to voters. The whole socialized-losses-and-privatized-gains structure the board is gesturing at without naming collapses if you put the lender on the public side of the balance sheet.
The board wants the lender to bear more of the cost. Fine — and the lender should. But that’s the start of the answer, not the answer. The fix is not to tear up the public purpose and hand the system back to the people who blew it up in 2008. The fix is to keep the public purpose, force lenders to retain real risk, and run the program through institutions that have demonstrated they can do the job without enrichment-by-default.
The 43% debt-to-income number the board cites as evidence of reckless lending is, in fact, the receipt for forty years of failed housing policy. The catechism says the market will sort it. The market sorted it: 21.5% of UWM’s loans are in serious delinquency within a year, and the borrowers the lenders were supposed to serve are the ones bleeding. Stop paying billionaires to gamble with taxpayer-backed mortgages. Build the cooperative-and-public layer underneath community-based origination, keep the FHA guarantee where it belongs, and let the country do this lending for itself.
The canary is fine. The mine is the problem.