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I think the root problem is how we define "fraud". What is fraud in this context? If you borrow from 1 person/entity using some asset and then borrow from ano

I think the root problem is how we define "fraud". What is fraud in this context? If you borrow from 1 person/entity using some asset and then borrow from another reusing the same already leveraged asset and are not extremely clear that the asset is already fully committed to the first debt, then it is fraud? I think so. We seem to be dancing around to issues: first is fraud and second is usury. Usury works both ways. If you gain 50% in less than a year from some investment, then someone is paying 50%. (for simplicity lets ignore the win-win of an expending system, even factoring this, you end up with rates over 10%). Until the last few decades, usury above 10 or 15 percent was illegal in most U.S. states. So if a bank is booking earnings on home mortgages of 50% (due to people flipping property in 5 years), then is this usury? Is it healthy? Is there any model where these levels of usury are sustainable or healthy for a society as a whole?

anamax 18y ago
> So if a bank is booking earnings on home mortgages of 50% (due to people flipping property in 5 years), Flipping properties doesn't give the bank higher earnings. As long as it is current, the return on an mortgage is the interest on the remaining balance minus the service expenses. When a mortgage ends while current, the return ends, whether that "end" is due to a prepayment (which is how refis and sales work out) or the end of term.
- jhancock 18y ago
  Thanks for replying. Perhaps you can help set me straight in this issue a little more. I've always assumed that if you made payment according to a mortgage such as show here http://michaelbluejay.com/house/interest.html http://michaelbluejay.com/house/interest.html you get the effect as stated under the first graph: "Notice that in year 15 when you're halfway through the term, 75% of each payment is just going to make the bank richer, and only one-fourth is actually paying down your balance and building equity. Ouch! You have to get all the way to year 22 before more of your payment goes towards principal than towards interest." So I assumed that if you made payments for the first 5 years and then sold the home, that the bank got to keep the amount it booked as interest (from the graph it looks like between 99 and 95% of your payments). The win for the home owner was the appreciation in the value of the home. The win for the bank was tons of interest. It seems from your reply that if you sell after 5 years against a 30 year mortgage the bank somehow recalculates the interest and applies the exorbitant amount back to principal. Is that what you are saying? If so, is there some layman's doc that explains how this works?

anamax 18y ago

> So if a bank is booking earnings on home mortgages of 50% (due to people flipping property in 5 years), Flipping properties doesn't give the bank higher earnings. As long as it is current, the return on an mortgage is the interest on the remaining balance minus the service expenses. When a mortgage ends while current, the return ends, whether that "end" is due to a prepayment (which is how refis and sales work out) or the end of term.

jhancock 18y ago
Thanks for replying. Perhaps you can help set me straight in this issue a little more. I've always assumed that if you made payment according to a mortgage such as show here http://michaelbluejay.com/house/interest.html http://michaelbluejay.com/house/interest.html you get the effect as stated under the first graph: "Notice that in year 15 when you're halfway through the term, 75% of each payment is just going to make the bank richer, and only one-fourth is actually paying down your balance and building equity. Ouch! You have to get all the way to year 22 before more of your payment goes towards principal than towards interest." So I assumed that if you made payments for the first 5 years and then sold the home, that the bank got to keep the amount it booked as interest (from the graph it looks like between 99 and 95% of your payments). The win for the home owner was the appreciation in the value of the home. The win for the bank was tons of interest. It seems from your reply that if you sell after 5 years against a 30 year mortgage the bank somehow recalculates the interest and applies the exorbitant amount back to principal. Is that what you are saying? If so, is there some layman's doc that explains how this works?