Godlike Productions - Reply to Thread

Users Online Now: 979 (Who's On?)	Visitors Today: 155,759
Pageviews Today: 264,462	Threads Today: 87	Posts Today: 1,725
03:30 AM

REPLY TO THREAD

Subject Why the Housing Market Is Falling And How They Robbed All Of Us Without Putting Hands In Our Pockets

User Name

Font color: Font:

In accordance with industry accepted best practices we ask that users limit their copy / paste of copyrighted material to the relevant portions of the article you wish to discuss and no more than 50% of the source material, provide a link back to the original article and provide your original comments / criticism in your post with the article.

Original Message mortgage derivative -- any of several types of securities that pay their investors with cash flows generated by the payments of principal and interest to an underlying pool of mortgages. Mortgage derivative products include collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs), stripped mortgage-backed securities such as interest-only securities (IOs) and principal-only securities (POs), and pass-through mortgage-backed securities with senior/subordinated structures.

[link to www.teachmefinance.com]
SNIP

Did you ever wonder how a bank could offer a loan at sub-prime rates to people who don't have the credit rating for any home? The excuse fed to the people is that the banks hope when the rates adjust upwards in the future they'll make back what they lose up front. But the Bad bank will not hold on to the loan. Thats not what they're looking forward to, and thats not how they can offer the loan at such low rates.

Divide Value and Risk.

The loans from the Bad Banks will be packaged into mortgage derivatives which are sort of like trust funds with loans as assets. The Bad Banks will create IO's and PO's mostly which divide the loan into an Interest Only security which pays a lot at first but less over time, and a Principal Only Security which pays little at first but more over time and, more importantly, holds the Value.

If the homeowner defaults on the mortgage the IO's pay zero and the PO's own the property. The Bad Banks sell all the PO's and maybe they sell some IO's to Bad Hedge Funds.

But why?

Because of the banking laws and [apparent]greed. With certain types of secured loans the 'money' comes out of thin air. Through the Federal Reserve System credit is issued against the property. This credit becomes money when exercised. But the power to make money from nothing and earn interest on it is limited. How much a bank can loan out is directly related to its capitalization and deposits. They reach a ...

Pictures (click to insert)





\| Next Page >>