What bank in their right mind, would loan some one who making 14 grand a year 761000 for a house?this from book big short by michale lewis. a very great book i think reason they did this because their not going to have loan when she defaults on it. their going to sell as sub-prime bond. but this is still insane so do you blame on this the guy with 14 k or bank who was dumb enough to make loan to him | |
A bank that will take his 14k as a down payment, bundle his sub prime loan as a security, sell it to someone else as AAA, and then foreclose once the balloon payments start and then sell the house at a loss after paying out bonuses to the geniuses who thought the whole damn thing up.
BRILLIANT!!!
First of all, realtors were making "points" off of every house they sold, regardless of the buyers' credit worthiness, so there were immediate profits to be shared with the banks at the time of each sale. Second, a bank recovers its investment long before a loan is completely paid off, so it's a calculated risk when they make a loan that they'll recover their initial outlay plus enough to justify the work - then be in a position to foreclose on the mortgage and take ownership of the house as well. Third, they were selling these mortgages as bundles on the global market, so they rarely held them long enough to get stuck with a bad debt. When they did, of course, it's a tax write-off. Banks make money no matter what. Fourth, they claim that Clinton passed a bill that required them to make those loans to people who didn't qualify under the old rules. So the banks have more excuses (and money) than they need.
Both. The thing is "banks" were betting it didn't matter if he defaulted. Houses were appreciating at a very fast pace and they assumed they would always get their money bank (+interest) by foreclosing on the property.
Freddie Mac
Sallie Mae
Both
