Boater wrote:
Reginald P. Smithers III, Esq. wrote:
Eisboch wrote:
Help me out here.

I hear the economy is frozen. Banks won't lend. No mortgages.
Hoarding their bailout money.

Yet, virtually every commercial break on MSNBC or CNN features at
least one pitch from a major bank or a mortgage company (Ditech comes
to mind, which is a GMAC subsidiary) offering low interests
mortgages, loans and "we have money to lend" announcements.

So, why aren't they lending? Seems to me that this would be an
ideal time for people to re-finance for lower rates, etc.

Economics confuses me.

Eisboch




Loans are available for anyone with good credit. They are being
selective on who they make loans to. The problem we had with Fanny
Mae was making loans for more than the home was worth, to people with
bad credit, and who were not putting any money down. It was a govt.
plan to allow everyone to own a home. The problem is, without a down
payment, the homeowner had no more invested in the home than when he
was renting an apartment.


The "problem" with the home loans is just a teeny bitty bit deeper than
that, and had mostly to do with the packaging of loans into investment
instruments for resale to others.

Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.