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That's not the worst of it. Currently interest rates do not cover the risk of non-payment. If you calculate out, at the standard default rate, plus risk-free in
by iofj 11y ago
That's not the worst of it. Currently interest rates do not cover the risk of non-payment. If you calculate out, at the standard default rate, plus risk-free interest rates, plus a certain amount to do all the admin work on a mortgage.
It just doesn't make sense for the banks to do mortgages at the moment. They're losing money on it. A little bit at the moment, but if the default rate were to go up by even 1%, God help us. Banks would be dropping like flies.
That's of course what bubbles do : they make the system more unstable. But that's what everybody's denying as well, despite the fact that a trivial excel sheet will tell you the obvious. A tiny problem will crash the system at the moment. Especially in Europe.
- tostitos1979 11y agoIn Canada, we have something called "CHMC". Basically, the govt will insure mortgages. The banks have little risk IMHO ... majority of the risk is assumed by the taxpayer and the borrower.
- ZoeZoeBee 11y agoThe US basically did the same when it took over Fannie and Freddie in 2008, it's not something which is spoke of often in the US but for all intents and purposes the US govt and Federal Reserve own most of the mortgages in the US. The US nationalized Fannie and Freddie, under the false premise they would be re-privatized after paying back the government. Instead they paid back the government in full years ago and now the interest from mortgage payments goes right to the treasury. They also for all intents and purposes Nationalized Student Loans with Obamacare and the "Health Care and Education Reconciliation Act of 2010" https://en.wikipedia.org/wiki/Health_Care_and_Education_Reconciliation_Act_of_2010 https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco..., where by all of the Interest Rates made off of student loans helps pay for Obamacare. As it stands the US Treasury is profiting to the tune of over $100 Billion a year, though its hardly mentioned, I'd venture to bet 90% of the general population is completely unaware. http://www.wsj.com/articles/fannie-and-freddie-forever-1451520683 http://www.wsj.com/articles/fannie-and-freddie-forever-14515...
- iofj 11y agoBut all that is even worse. It doesn't help for the fundamental problem : mortgages are losing money slowly and (I just checked) corporate loans and bonds are losing money a bit faster. If the government owns those loans, once their losses accelerate ... well ... we know how they "fixed" that problem for student loans. http://www.forbes.com/sites/stephendash/2015/10/25/why-student-loans-are-so-difficult-to-discharge-in-bankruptcy/#779b10f11430 http://www.forbes.com/sites/stephendash/2015/10/25/why-stude... http://www.bankrate.com/finance/student-loans/student-loan-horror-stories-1.aspx http://www.bankrate.com/finance/student-loans/student-loan-h...
- ZoeZoeBee 11y agoOh we're on a collision course with reality, and it is not going to be pretty. Buckle Up and Enjoy the Ride.