You mention "borrowers" "defrauding" banks but fail to acknowledge the fact that any agreement is void ab-initio due to the fact that the bank does
not lend you any "money". What they do infact do is lend you your own money !
This is silly. If you had your "own money", then you wouldn't need to go to the bank to mortgage the property in the first place. You would simply
pay cash for the property. Your premise is patently ridiculous.
But the bank still has no money to lend the buyer..
Banks have billions of dollars in assets: Cash, equipment, real estate, investments, loan receivables. Look at the balance sheet of any publicly
traded bank, and you can see quite clearly that the bank has assets to lend against. Some are liquid assets - such as cash (Yes, the banks actually
have their own cash, not just deposits). Others are hard assets -- such as retail bank buildings, ATM machines, equipment, etc. Banks are businesses
just like any other business.
Banks aren't the only institutions that lend money, either. Manufacturers lend money to dealers. Franchisors lend money to franchisees. This is
normal business in America. Standard accounting basics.
How can this be achieved when the seller has not recieved any money from the buyer ? How does a buyer obtain a mortgage on a property that they do not
More erroneous fluff. First, the seller does receive funds at the time of closing. Typically, this is done via wire transfer via the title company.
The bank providing the mortgage to the buyer wires funds to the title company, which then, after closing, the title company wires these funds to the
seller's bank. These funds sent via wire transfer are real, spendable cash money.
The buyer obtains the mortgage by proving to the bank -- through the credit application process -- that the buyer has the financial wherewithal to
repay the loan. The bank has a right to approve or reject the credit application based on the bank's due diligence.
The buyer paid for it using their own promissary note.
Again, you are playing Mickey Mouse games with your logic. At the time of closing, the bank gives certified funds to the seller of the property.
These funds are transferred between the two parties - buyer and seller - via the title company.
The risk to the bank is that the borrower will default. The bank typically doesn't recoup the original funding amount at closing until 10-15+ years
or more into a typical 30 year mortgage loan. During that time, the bank runs the risk that the borrower will default. And, given the state of our
economy, that risk is incredibly high right now because jobs are scarce, unemployment is high, and defaults are rampant.
During the credit application process, mind you, the applicant can forge and doctor his loan application, and provide fraudulent information to the
bank. This is especially easy to do if you know a crooked mortgage broker that understood the funding sources that were too loosey-goosey with their
credit parameters at the time. Thankfully, many of these banks and mortgage brokers have been shut down for their lousy lending practices.
The mortgage contract is attached to the promissary note which makes the buyer liable to pay the bank for the money or the loan which the buyer has
not yet or will never receive for up to twenty five years or more depending on the amortization term of the mortgage contract.
More nonsense. The buyer takes title to the property. The bank places a first lien position on the house in the event that the buyer (i.e.,
borrower) defaults on the loan arrangement.
Assuming there are no pre-payment penalties, the borrower can repay the loan at any time, thus significantly reducing the amount of interest paid over
the life of the mortgage.
No one is putting a gun to the head of the borrower to take out a loan. In fact, the borrower could just as simply rented a house without going
through the whole mortgage process altogether. For some borrowers, this would have made more sense, as they do not have the true financial
wherewithal or credit strength to qualify for a traditional mortgage anyways.
and the bank recieves the value of the mortgage (principle + interest accrued over duration of agreement e.g 25 years,30 years) upfront
Nonsense. The bank has not collected all of the payments from the borrower until the loan is paid in full. The bank runs a huge risk that the
borrower will default.
If a bank writes a check for $500,000 at closing, that is money out the door. It is only after 10-15 years, sometimes 20 years, that the payments
even come close to reaching $500,000. The bank does not receive this money "up front" as you say --- Otherwise, the loan would be paid in full, the
lien released, and the mortgage would be over.
And the banks walk away with upto 300% profit without using or risking any of their own capital !
If banks are so profitable, why is the FDIC shutting down so many banks these days? Your logic defies even common sense.
You can't have it both ways -- Either the bank has no money to lend (your initial theory), or they are extremely profitable and flush with cash
earning 300% profits up front on every loan they write (your later theory). Frankly, you don't have one clue what you are talking about -- But a
simple course in basic accounting would probably help, instead of subscribing to silly conspiracy theories found on obscure web sites touting
knowledge of the financial system.
And you think the banks weren't well aware of what the brokers were doing? Who set up the parameters for the brokers? CookieMonster go back to Sesame
Street and get an education.
The smart banks -- the ones that have survived the crisis -- were aware enough of the fraud to steer clear. Yet, even then, some of our most
conservative banks got jammed in these fraudulent loans.
Who pushed for these loosey-goosey loans? Arrogant politicians, of course. Trying to appeal to the renting public that couldn't afford homes in the
Keep your insults to yourself, please. It only makes you look blatantly foolish.
edit on 4-12-2010 by CookieMonster09 because: (no reason