A CHAT ABOUT HOME MORTGAGES -- 2/17/2010
By Martin Carbone
HOW ARE MORTGAGE PRICES SET?
(A) Prices on mortgages are set in the same way that virtually all prices on products and services are set
(1) The seller takes his direct cost of the product or service -- and;
(2) Adds in the indirect costs like taxes, rent, overhead and then;
(3) Adds what he thinks is a reasonable profit -- based on his knowledge of the market.
WHAT DOES MORTGAGE MONEY COST BANKS.
(B) The money they lend costs them nothing, zero, nada, bupkis, naught, zilch. a goose-egg -- not even a trifle. They have the right to create whatever they need at no direct cost because of their bank license.
WHAT ABOUT OVERHEAD?
(C) They have some overhead -- because they have to check out the credit of the borrower -- including the quality of their collateral and they have to pay for some legal work and related paperwork -- but those costs are usually wrapped up in fees that are borne by the buyer.
Once the loan is made -- the Bank does have to bear the expense of cashing the checks -- but the check clearing fees -- we are told, is borne by the government in accordance with their deal with The Fed.
WHAT IS THEIR PROFIT?
(D) The bank gets to keep all the interest on the loan. For most mortgages -- the interest is roughly equal to the price of the house on a 30 year loan.
HOW DID THE BANKS GET SUCH A SWEET DEAL?
(E) The bank's right to create new money arises somewhat indirectly through the Constitution that specifically and clearly gave that right and obligation to Congress who then wimped out and transferred that hot potato to the Federal Reserve System (illegally in my opinion) who then gave that right to their member banks. As a result -- common banks can
(1) create any amount of money through loans and
(2) charge whatever the traffic will bear as interest on those loans.
ARE THERE RESTRICTIONS ON HOW MUCH A BANK CAN LEND?
(F) As far as I can tell, there are no restrictions on how much banks can lend -- except of course
(1) the ability of a borrower to pay the loan back, and