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Thread: Where do you think so much money for mortgages came from?

  1. #1
    Olympic Champ
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    Default Where do you think so much money for mortgages came from?

    I suspect your 401Ks played a big role in it. Thoughts?

  2. #2

    Default Re: Where do you think so much money for mortgages came from?

    They money came from bank depositors. The fractional reserve system makes all loans possible.

  3. #3
    Olympic Champ RYou's Avatar
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    Default Re: Where do you think so much money for mortgages came from?

    Quote Originally Posted by Big View Post
    I suspect your 401Ks played a big role in it. Thoughts?
    Not really, stock investment generally doesn't translate into loan financing except for new IPO's for banking. I know of one community bank that went public in 2004 and the stock price is still flying 200% over the issue price. The cash went into expansion of infrastructure for bank expansion. The money for loans was acessed from international sources. The bank borrows at one rate and flips the monry into loans at a 1/2 % higher value. When you're talking 4% bank borrowing and flipping into 5% loans, thats a 25% margin. Add in 5% loan overhead, they're making a 20% return profit. Pretty good for a bank. Now the loans offered are up to 6%+, while paying 5% to borrow. The margin is lower but still quite profitable as long as the bank isn't loaning more than borrower can afford to pay.

    Look around, can you get 5% interest on your bank interest. No way, so anyone receviing a fixed rate is happy with a dumpy stock market right now.

    PS when you invest in a 401K, you can flip funds into a fixed rate of return which is currently around 5% compared to 2.5 or 3% in CD.

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