Day: May 15, 2024

Mortgage _ part 2 | Trading Academy

It’s all cyclical. And far, far away in California, the unemployed people thought that home prices would only go up, and banks somehow thought the same – they gave out loans without any collateral. An unemployed person “bought” a house for $150,000 with no down payment, paying $700 a month. After six months, it turned out that the house was now worth $180,000. They sold it, bought a $200,000 house, using the virtual appreciation as the down payment. The bank was happy, the client was happy, and the real estate agent was even happier. It was only when every other borrower stopped making payments after a year, and the banks tried to sell the mortgaged houses, that they found out all the houses on that street were already on the market, and no one wanted to buy them for $180,000, $150,000, or even $100,000. And all because a couple of years earlier, banks had accumulated so much money that they stopped verifying the reliability of borrowers – why bother? Real estate was always appreciating! If they didn’t pay, we’d quickly foreclose at a round price. But mortgage banks weren’t satisfied with just getting clients. They wanted to earn more, and more importantly – faster. So, they started pooling mortgagees and selling them to investment banks. These are the banks that don’t operate on the classic “gather deposits – grant loans” model, but try to make money in more cunning ways. The mortgage bank sells thousands of loans to the investment bank upfront and immediately receives hundreds of oil or some trendy, but little-understood, commitments in return. submitted by /u/FXgram_ [link] [comments]