alb
Member
Cash: $ 4.10
Posts: 19
Joined: 10 Aug 2007
|
Quoted from ny times today "Countrywide and most other mortgage lenders rely heavily on borrowing from banks, brokerage firms and bond investors to make loans that they quickly turn around and and sell to investors trhough mortgage securities."
My question: Why do banks get involved? The lenders could have sell loans (new mortgage bonds) directly to investors and pay them high interest and then turn arounnd and lend to borrowers like homebuyers. Then homebuyers make mortgage payments to the lender.
|
Thu Aug 16, 2007 3:42 pm |
|
|
coaster
Senior Advisor
Cash: $ 1357.20
Posts: 6683
Joined: 11 Oct 2005
Location: Wisconsin
|
|
 |
|
Well, I think you're thinking about the flow of money between banks, mortgage lenders, and borrowers as a physical activity, so that it would most practically flow between the fewest number of parties. But that really doesn't have any bearing since the transfer of money is just an electronic credit in one account and a corresponding electronic debit in another account.
Banks get involved because they're in the business of lending money to make money, and if they have the money and a mortgage company needs it, they lend it to them. Then it's a tug of war between lenders and borrowers as to what the interest rates will be. If there are more borrowers, then lenders can raise the rates because the borrowers are competing for the available money. Fewer borrowers and the lenders need to lower their rates to get somebody to borrow their money.
Business establish lines of credit with banks so they can borrow money when they need it. The deal with Countrwide is that they used up their entire line of credit in order to have enough money on hand to continue operations. Obviously, if they have a need for the money, then it's the lender who's in the cat bird seat and can get a higher interest rate, and Countrywide has to pay it.
~Tim~
Eye Candy : Why Whimsy
|
|
Thu Aug 16, 2007 5:27 pm |
|
|
alb
Member
Cash: $ 4.10
Posts: 19
Joined: 10 Aug 2007
|
You explain very well, but investors are in business, too. It now becomes apparent that banks are in better position than investors in lending $$$. Banks can put up collateral like houses. Collateral is a very powerful word. That is why they do business with banks. Investors( insurance companies, pension funds) may do business with banks indirectly. When investors buy loans from lenders, they may check first to see if lenders put up collateral with banks.
|
|
Thu Aug 16, 2007 5:54 pm |
|
|
coaster
Senior Advisor
Cash: $ 1357.20
Posts: 6683
Joined: 11 Oct 2005
Location: Wisconsin
|
Banks always have the upper hand in EVERYTHING. You can't beat the banks. They've got you by the scruff. 
That's why I invest in banks 
~Tim~
Eye Candy : Why Whimsy
|
|
Thu Aug 16, 2007 8:41 pm |
|
|
alb
Member
Cash: $ 4.10
Posts: 19
Joined: 10 Aug 2007
|
At first it was  After exchange of postings, it became clear  that
BANKS are hard to beat 
It becomes obvious that the investors must have bank accounts to begin with. Then banks have control over their accounts in lending. Investors' hands are tied. In other words, they (investors) cannot lend. They can by making out checks, but awkward.
Alan
|
|
Thu Aug 16, 2007 9:10 pm |
|
|
|
