posted on May, 14 2010 @ 07:36 PM
Wow, lots of totally ridiculous and juvenile hatred towards banks in this thread. Pretty immature and unwarranted if you ask me.
First, the numero uno reason why our economy is in the shape that it is in is due to mortgage fraud, committed by fraudulent mortgage brokers and
speculative real estate investors.
Remember Ameriquest Mortgage? A sub-prime predatory mortgage broker? How about Rock Financial with their "Interest-Only" mortgage advertisements
plastered all over the radio and TV? What about Countrywide, or my favorite, Taylor, Bean & Whitaker?
All of these mortgage firms were brokers, not banks. Big difference. And they are the root cause of this collapse in our real estate markets.
Who got defrauded? Your average retail Main Street bank. Banks got royally screwed over by fraudulent mortgage brokers and criminal borrowers that
lied on their loan applications and left the bank holding the bag at foreclosure.
Now banks hold thousands of foreclosed properties worth literally 50-60% of what they originally funded at the time of closing. Banks got totally
screwed over. Hence, the FDIC is closing banks every Friday in an unprecedented fashion.
(The FDIC is not funded by taxpayer money, by the way, just to clear up that misconception. The FDIC is funded by yearly bank assessments - meaning
banks fund the FDIC, not taxpayers.)
Albeit, some foreclosure are legitimate where a borrower is in true distress due to a loss of income or employment or a medical condition - Most of
the foreclosures, however, are from rampant real estate speculation where greedy investors and greedy borrowers were trying to make a quick buck
riding the wave of cheap money and a rising real estate market.
These are the real criminals - Not the banks. Banks got totally screwed over by these criminal sub-prime mortgage brokers, and fraudulent
Banks should have known better? Yes and no. Some of the mortgage fraud was pretty sophisticated. Banks contractually rely on mortgage brokers to
submit legitimate loan applications. Unfortunately, many of these mortgage brokers falsified loan applications, inflating income and submitting
totally bogus credit reports.
Sub-prime mortgage brokers, House flippers, real estate speculators, home builders - all were responsible for this real estate frenzy. They borrowed
like crazy during the boom years, then screwed over the banks by defaulting on their loan obligations.
Bailout? Most of the TARP funds have been repaid. So the argument about taking "taxpayer money" is a moot issue. Banks repaid the taxpayer the
TARP funds with interest to the tune of billions of dollars. The taxpayer was handsomely repaid for the TARP program.
Complaining about interest rates, eh? Hmmm. Interest rates are the lowest they have been in decades. They are at historical lows.
Perhaps you want to rewind back to the Carter years when home mortgages were at 17% interest rates?
I can also assure you that banks have significant assets - stocks, real estate, land, equipment, reserve cash, etc. They operate as a business, just
like any other company. This whole notion that they "create money out of thin air" is total nonsense floating around the Internet in these goofy
Just look at the balance sheet of any publicly traded bank. Banks carry significant deposits to lend against without having to borrow from the
Federal Reserve system. Banks have assets - significant assets.
Here's my analogy:
If it costs Ford Motor Company $15,000 to manufacture a car, and it sells that same car for $20,000 to a consumer, did Ford Motor "create $5,000 out
of thin air"? No, I didn't think so.
It's called profit. Banks are no different. If they lend you $200,000, they expect to earn interest on that money. Interest earned is profit to a
bank for the risk that they are taken in the event you skip town and default, which is all too common nowadays.
And, if you don't like the interest rate, go ahead and pay the loan off before its maturity date. Instead of taking 30 years to repay your mortgage,
pay it off in 5 or even 10 years and save yourself all that interest. Your choice.
And, what happens if you default? The bank has the oh so pleasant task of foreclosing on your house (a very costly and time-consuming process, and oh
so terrific for public relations - NOT). In today's market, a house worth $200,000 5 years ago is not even worth $125,000 nowadays.
The bank gets to take a $75,000 loss plus all of the ancillary expenses associated with foreclosure. The bank is left holding the bag. Can they sue
the borrower for the difference? No, because the borrower lied on his loan application, lying about his income and net worth. He doesn't have any
money or assets to repay, either. And, because mortgage fraud is an epidemic, the police don't have the resources to pursue the fraudulent borrower
that lied on his loan application.
But, go ahead. Blame the banks. You're right.