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But in a well working market, why wouldn't bank X provide a lower rate than bank Y if the loan is less risk and very profitable? And then bank Z sees a potentia
by t0mas88 7y ago
But in a well working market, why wouldn't bank X provide a lower rate than bank Y if the loan is less risk and very profitable? And then bank Z sees a potential profit and undercuts bank X. Repeat until you get a rate that reflects the risk?
So the real question is: What is wrong in the high-end US mortgage market? Are banks breaking anti-trust laws and setting price floors?
- magicsmoke 7y agoBecause they aren't really low risk. There's two different kinds of risk being referenced here. Risk 1: High chance of default. This is the risk you take by lending to borrowers with poor credit. Risk 2: Low chance of default, but when defaults happen you take a big hit. These are jumbo loans. Banks recognize that Risk 2 has inherent costs that require a higher interest rate. My previous wording of "More profit with less risk" was false. More profit with less Risk 1, but that's because you're taking on Risk 2.