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To: jiggyboy

I don't understand. Can you explain that a little more?


9 posted on 07/17/2006 8:37:13 AM PDT by Calpernia (Breederville.com)
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To: Calpernia
I don't understand. Can you explain that a little more?

Sure. In "It's A Wonderful Life" days, each local bank would have a lot of deposits and loan them back out as house loans &c. Local loans for local people.

Nowadays, the overwhelming majority of banks (and places like DiTech or Ameriquest or "ABC Mortgage Loans") are just middlemen. They are still the people you deal with, but they're not putting up the money any more.

They have a deal with somebody further up the financial food chain to sell your mortgage loan -- think of it as an IOU or bond they have in their hand -- with a bunch of others that add up to, say, $10 million dollars. This magically becomes a kind of bond like a corporate bond or T-bond that is paying interest -- the mortgage interest you and the other fifty mortgage-payers are paying. Whoever takes over these mortgages and turns them into this bond pays the bank some fee. That's where the bank makes some of their money these days, in addition to the (mostly bogus) fees they charge you.

These bonds are sold on Wall Street as an alternative to corporate bonds. The selling point is that they pay higher interest than T-bonds and the number of foreclosures and defaults is pretty low.

So the bank has gotten that risk off their books ASAP. That's why you always get a letter within a month or two of signing your papers inexplicably announcing that now you have to write your mortgage check to somebody else.

22 posted on 07/17/2006 8:56:23 AM PDT by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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