Obama encourages banks to lend to people with low credit scores

[crb]

You read this and you almost think it is an April Fools joke, I mean, seriously America? This is who you elected, the guy who cannot even remember what happened in 2008?

http://img.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_story.html

[msconstrew]

Jesus. Just ... please kill me.

[Bobmuhthol]

I think this is a smart move if done properly.

[Drew]

LOL that's basically the exact thing that caused the '08 market crash, except it was "banks should be less racist and loan to people with lower credit scores".

[AnticorRifling]

I think this is a smart move if done properly.

Do you think it will be done properly? Also why do you feel it would be a smart move?

[Bobmuhthol]

Do you think it will be done properly? Also why do you feel it would be a smart move?I can only hope that it will. The average person on the street seems to believe that lending money to risky borrowers is evil and somehow caused a global crisis. This couldn't be further from the truth. Risky debt is everywhere. I think there is potential for abuse by explicitly stating that all defaults are guaranteed by the government, but they're supposed to be qualified mortgages, so the guarantee only holds when the bank plays by the rules. That is supposed to alleviate aggressive lending.

The obvious benefit is that it would help restore the housing market, which has for five years desperately needed restoration. Perhaps the single largest benefit will come from allowing poor credit homeowners to refinance at a lower rate. There's simply no argument against allowing this, and yet it's not happening. The same situation is visible in the student loan market: interest rates have fallen, but student loan rates have not, and there isn't enough access for people with outstanding student loans to refinance them at lower rates.

[crb]

I can only hope that it will. The average person on the street seems to believe that lending money to risky borrowers is evil and somehow caused a global crisis. This couldn't be further from the truth. Risky debt is everywhere. I think there is potential for abuse by explicitly stating that all defaults are guaranteed by the government, but they're supposed to be qualified mortgages, so the guarantee only holds when the bank plays by the rules. That is supposed to alleviate aggressive lending.

The obvious benefit is that it would help restore the housing market, which has for five years desperately needed restoration. Perhaps the single largest benefit will come from allowing poor credit homeowners to refinance at a lower rate. There's simply no argument against allowing this, and yet it's not happening. The same situation is visible in the student loan market: interest rates have fallen, but student loan rates have not, and there isn't enough access for people with outstanding student loans to refinance them at lower rates.

Its easy enough to say it isn't risky when it is other people's money at risk.

By all means, let the liberals of the world unite and make a bank that specializes in lending to the disadvantaged, let them put their money where their mouth is. Better yet, the government could facilitate this. They simply turn Fannie and Freddie into private companies lock stock and barrel and let them each issue an IPO then every idealist can buy shares in these companies and put their money where their mouth is.



The average person on the street seems to believe that lending money to risky borrowers is evil and somehow caused a global crisis.

Also ROFL. The is what actually happened. I realize you were only 12 in 2008, but even a 12 year old should be cognizant enough to pick up on these sorts of things.

[Atlanteax]

LOL that's basically the exact thing that caused the '08 market crash, except it was "banks should be less racist and loan to people with lower credit scores".

Yep, deja vu...

[Atlanteax]

Its easy enough to say it isn't risky when it is other people's money at risk.

By all means, let the liberals of the world unite and make a bank that specializes in lending to the disadvantaged, let them put their money where their mouth is. Better yet, the government could facilitate this. They simply turn Fannie and Freddie into private companies lock stock and barrel and let them each issue an IPO then every idealist can buy shares in these companies and put their money where their mouth is.

Also ROFL. The is what actually happened. I realize you were only 12 in 2008, but even a 12 year old should be cognizant enough to pick up on these sorts of things.

Wait ... sir... you forgot that Bob determined Mensa was beneath him.

[Bobmuhthol]

Also ROFL. The is what actually happened. I realize you were only 12 in 2008, but even a 12 year old should be cognizant enough to pick up on these sorts of things.I realize you "could have gone" to MIT, but I'm actually here, and I understand derivatives markets about seven thousand times better than you ever will.

[Bobmuhthol]

Wait ... sir... you forgot that Bob determined Mensa was beneath him.I have to admit, this post totally negates my two finance degrees. You got me.

[Parkbandit]

I realize you "could have gone" to MIT, but I'm actually here, and I understand derivatives markets about seven thousand times better than you ever will.

lololol

[AnticorRifling]

I realize you "could have gone" to MIT, but I'm actually here, and I understand derivatives markets about seven thousand times better than you ever will.

crb put that post next to your "OH yeah but you're 12" post....one of you got burned (it wasn't Bob).

[crb]

I realize you "could have gone" to MIT, but I'm actually here, and I understand derivatives markets about seven thousand times better than you ever will.

Based on the intelligence you've displayed in the past, I'm going to have to go with "nah." Remember a couple years ago when you said if you could just have a million dollars you'd retire because you were so good at the stock market you could live like a king just off that amount of capital? That was pretty hilarious. The guy who doesn't even know what the average market return is, who doesn't know that almost all individual investors and even most professional money managers fail to beat the market, is an expert on the financial system?

Please, you're like a kid who built a lego house telling an architect how to do his job. Or someone who is really good at the game Operation deciding he should perform an appendectomy. It is funny, in a pathetic sort of way.

For whatever reason, when I picture you, I always picture Kyle's jew cousin from South Park, not that you're jewish, no idea if you are or not, but I'm just picturing you as that kid talking to a room full of actual employed economists saying "Hey, I recently got my bachelor's degree, so what I have to say is important!" Like I said, funny and sad.

Documentaries have been produced Bob, books have been written, reports made, poor lending standards combined with easy money policies created the housing bubble and made it pop. Procyclical regulatory policies (mark to market accounting) created a downward spiral for bank assests (mortgages, and mbs) depleting the capital held on their balance sheets and forcing them into default. These aren't my opinions, you can pull them from Ben Bernanke speeches (he is an actual economist by the way).

But by all means, put your money where your mouth is, a financial genius like you should be able to handle forming a lending institution to lend to the economically disadvantaged, find investors, take it public, save the world! I look forward to progress reports.

[Bobmuhthol]

Plenty of people can and do beat the market. It's just not sustainable for obvious reasons. If I had $1 million four months ago, I would have $1.25 million today. That's four years of income in four months. But yeah I'm an idiot and don't understand investments.

[Atlanteax]

Plenty of people can and do beat the market. It's just not sustainable for obvious reasons. If I had $1 million four months ago, I would have $1.25 million today. That's four years of income in four months. But yeah I'm an idiot and don't understand investments.

You by any chance familiar with the saying "Past performance is *NOT* necessarily indicative of future results" ?

Cannot "would/could/should've" your way into investment-related success.

[Catts]

Warren buffet gave subprime's AAA ratings, and, not to berate anyone here but I'm pretty sure he's a fair bit more finacailly intelligent than your average joe

it's not an issue of making an intelligent decision. hell most "financial advisers" are just salesmen.

democrat/republicans...taxing/spending, it doesn't matter. Our debt is %150 GDP, QE4 is underway, Japan's is 200% + GDP and we're worried about our little housing market in a world whose currency is mostly based off the dollar.

What he should be telling people to do it to stock gold/silver, guns, gas, food, and fence in their properties.

[AnticorRifling]

You by any chance familiar with the saying "Past performance is *NOT* necessarily indicative of future results" ?

Cannot "would/could/should've" your way into investment-related success.

Using that saying are you saying that you're for this credit offer?

[Methais]

I think this is a smart move if done properly.

You mean like if everybody paid those loans back, unlike last time? In that case I agree.

Otherwise, not so much.

[Wrathbringer]

You read this and you almost think it is an April Fools joke, I mean, seriously America? This is who you elected, the guy who cannot even remember what happened in 2008?

http://img.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_story.html

Wow, this guy is full of good ideas.

[crb]

Plenty of people can and do beat the market. It's just not sustainable for obvious reasons. If I had $1 million four months ago, I would have $1.25 million today. That's four years of income in four months. But yeah I'm an idiot and don't understand investments.

So what? You are aware that Q1 of this year was the best quarter for the markets in your lifetime right? That isn't beating the market.

If the yardstick is going to be the better investor wins financial arguments then I'll kick your ass, Starkly knows, but not theoretically. You're like the guy sitting on his couch screaming "Brady what are you doing! I would have made that pass." If only you were athletic enough to be a quarter back in the NFL anyways....

You know CNBC has a million dollar portfolio challenge every year, you should give it a try, it isn't real money, so I'm sure you'll be good at investing it, and then when you win, as I'm sure you will, you'll get a check for real money, which you can then really invest. Though I'm not sure its clear you'd be as good at investing real money as you are at investing theoretical money.

[crb]

You mean like if everybody paid those loans back, unlike last time? In that case I agree.

Otherwise, not so much.

Ya, communism works too so long as no one develops personal self interest. So many ideas seem so good on paper, but just don't seem to function in the real world. I guess things done on paper aren't worth that much, in the end.

[Atlanteax]

Using that saying are you saying that you're for this credit offer?

Nope, if anything, banks need to stick to their own criteria of lending risk.

Politicians should not be pressuring banks to make loan to individuals that they deem a credit risk, as that is what led to the prior financial crisis.

Banks generating profits, not losses in bad debt (from loans going unpaid), is what helps drive economic activity.

This is just Obama grandstanding for better approval ratings, since most voters just want the $$ so they can spend it.

[NinjasLeadTheWay]

This all sounds vaguely familiar...
http://theobamafile.com/obamaacorn.htm

Oh right...

[Back]

Yay mo money! Gonna buy me some sweet ass rims!

[Tgo01]

To help out the auto industries banks should lend money to people with bad credit when financing an American car.

[Merala]

The biggest problem in 2008 was not the fact that banks were giving loans to people with less than stellar credit. Let's be realistic here. The biggest problem was that banks were giving loans to people with bad credit who also lacked the income to make those payments. If we're going to give loans to people with bad credit, then the income requirements should be higher than it is for people with great credit.

People with 75k salaries buying 750k houses wrecked the housing market.

[Latrinsorm]

Ya, communism works too so long as no one develops personal self interest. So many ideas seem so good on paper, but just don't seem to function in the real world. I guess things done on paper aren't worth that much, in the end.Such as the free market?

[Bobmuhthol]

You by any chance familiar with the saying "Past performance is *NOT* necessarily indicative of future results" ?

Cannot "would/could/should've" your way into investment-related success.I made a 25% return between the middle of November and the middle of March in my account. I'm not imagining the return. It happened. I didn't invest $1 million, though. My trades could have easily supported $1 million positions, I just don't have the money.

[Bobmuhthol]

Nope, if anything, banks need to stick to their own criteria of lending risk.

Politicians should not be pressuring banks to make loan to individuals that they deem a credit risk, as that is what led to the prior financial crisis.

Banks generating profits, not losses in bad debt (from loans going unpaid), is what helps drive economic activity.

This is just Obama grandstanding for better approval ratings, since most voters just want the $$ so they can spend it.Banks are not holding many of the mortgages they issue. They're receiving spreads.

[Gompers]

Ya, communism works too so long as no one develops personal self interest. So many ideas seem so good on paper, but just don't seem to function in the real world. I guess things done on paper aren't worth that much, in the end.

Not to mention it's a bitch to charge.

[Warriorbird]

I love how there's absolutely no mention that maybe banks and the mortgage lending industry might have had some of their own reasons and culpability in this thread.

[Dendum]

LOL that's basically the exact thing that caused the '08 market crash, except it was "banks should be less racist and loan to people with lower credit scores".

I just want to say,
In regards to my personal experience with the housing bubble, it was not, in my area, a result of banks lending to low income people that normally would not have qualified for any loan, but banks lending to people of decent to high income who still were stretched way beyond any conceivable means to pay back those loans. During this time I was in a resort town in Florida, I had two family members in real estate in the same area (about 100 miles apart but generally the same type of market) and I was doing subcontracting for a local businessman who ran large scale property development from Texas to Florida, it was a good time but even then we knew, I knew, it was unsustainable. We had people coming down here buying three or four condos and flipping them before the construction was even complete, for as much as a 25% profit in as little as four months.

You buy a condo at preconstruction prices, lets say 200,000 then turn around and sell it four months later for 250,000, still before the building was actually even complete. In the early days this was almost free money, prices went from 100,000 in the mid 90's to over 350,000 for a similar unit in the mid 2000's. The people involved in this were not poor black/white/asian/whatever. They were the same people who have always run rental properties down here, a lot of upper middle class Midwestern to southern people. You do this with one property, and it only makes sense that you try and do it again, and why not do it on a larger scale? So you buy two condos, then three. I knew one person who started with his one rental property (which was taxed at 150,000) and at the time of his collapse was invested in four properties each valued at 300k. Think about it, at one point he had sold two such properties and his net worth had doubled, so of course he does it again looking for the same result.

The problem was, and anyone down here could see it coming, the ability to actually buy these things had gone away for an actual purchaser who would use the property because of the speculative buying and selling by the flippers. This was compounded by the fact that new properties were springing up as fast as developers could get clearance from the local government to build, in fact I know of one company that was saved by being held up by government red tape and couldn't get clearance to build so they didn't buy the property.

Then realization set in, hey we have too many buildings, no one can really afford this shit but other investors without real people to live or rent these things, they are worthless. That one mans four properties, he couldn't give them away for half of what he paid for them, some construction just stopped, some moved to a rental system just to try and recoup some losses. Basically a lot of people who were not that much in debt before were now crippled with debt. That was the housing crisis in this area it wasn't a bunch of poor people buying a first home for 130k and not making rent, it was a bunch of investors reaching too far and getting slapped down for it. Killed the construction market of course, the real estate market became a joke. Those who survived were either into multiple areas of construction, such as commercial projects or government projects, had planned for the coming collapse, or rolled with the punches and started new projects like property management for the banks who had so many empty properties they needed people to maintain them.

I am sure somewhere something called frannie and freddie had something to do with it, but down here it was just greed and yes the banks, the real banks, were giving people loans out left and right because they were getting some of this free money just like everyone else was.

[Methais]

This all sounds vaguely familiar...
http://theobamafile.com/obamaacorn.htm

Oh right...

I love the picture...

http://theobamafile.com/_images/ObamaAndAcorn150.jpg

[Parkbandit]

I love how there's absolutely no mention that maybe banks and the mortgage lending industry might have had some of their own reasons and culpability in this thread.

What would be the motive for a bank to give loans to people they knew had no ability to pay them back?


http://www.pixeljoint.com/files/icons/admiral_akbar.gif

[Back]

What would be the motive for a bank to give loans to people they knew had no ability to pay them back?


http://www.pixeljoint.com/files/icons/admiral_akbar.gif

Interest?

[Methais]

Interest?

I find this to be far too stupid of a statement even for you.

Therefore I can only assume that you're trolling.

[NinjasLeadTheWay]

I find this to be far too stupid of a statement even for you.

Therefore I can only assume that you're trolling.

I hope this was a sincere question.

[Parkbandit]

I find this to be far too stupid of a statement even for you.

Therefore I can only assume that you're trolling.

You are giving him far too much credit.

He is indeed that stupid.

[DoctorUnne]

Dendum's post

Great post.

I also agree with Bob's first post, that if properly done it could be smart. And by properly I mean in measured steps and with clear guidelines. Banks had their reputations dragged through the mud and had their business models changed as a result of the financial crisis. They're still dealing with massive lawsuits. I'm not saying it wasn't deserved, but it's a pretty natural reaction for banks to be so afraid of being regulated and sued into oblivion that they swing too far the other way and become overly conservative. They have a fiduciary duty to their shareholders not to act irresponsibly. I bet there certainly is a segment of the population that is creditworthy but can't take out a new mortgage or refinance an home right now that is underwater, even though ironically their ability to repay that loan would increase at the lower interest rate. Another problem is that bad credit results from the crisis have not yet had time to disappear from people's credit records, and I would argue that in many cases those results were more attributable to the extraordinary circumstances from the overall economy and resulting job losses. Maybe many of these people have jobs today and are perfectly able to service a loan but can't get one because the CRA system decided long ago that five or seven years was the relevant historical period for looking at someone's credit and not two or three years. This could be a beneficial example of the government correcting a market failure, again, if done properly. I have low conviction it would be done properly.

[Latrinsorm]

What would be the motive for a bank to give loans to people they knew had no ability to pay them back?


http://www.pixeljoint.com/files/icons/admiral_akbar.gifYou're a smart guy. I'm sure you ran up a spreadsheet of how much it would cost you to pay off your mortgage at minimum payments rather than paying more per time. Now put yourself in the bank's shoes. Suppose you gave out a 10 year loan with minimum payments of 2000 a month. If it turns out the person can make the payments, all well and good. If they can't, you graciously agree to let them make smaller payments of 1000 a month but due to a higher interest rate they have to do it for 30 years, and you get more money in the long run.

I'm not saying every banker is a nefarious abuser of bears, I'm just suggesting a possible motive.

[prance1520]

Banks had their reputations dragged through the mud and had their business models changed as a result of the financial crisis. They're still dealing with massive lawsuits. I'm not saying it wasn't deserved, but it's a pretty natural reaction for banks to be so afraid of being regulated and sued into oblivion that they swing too far the other way and become overly conservative.

This is the key in my mind. There are lots of smart people out there who can figure out the policies to try to do this correctly, but its not all about making the financials work. A 2012 gallup poll showed only 1 in 5 Americans trusts banks. So now, after being publicly trashed for what they did wrong, and spending millions of dollars to try to rebuild their images, we're trying to put them in the same spot?

The deal for the banks is a no win. If they do lend more and it goes well, Obama will get the praise for urging them to lend, no one is going to be sending thank you notes to BoA or Chase. But if it doesn't go well, it will definitely be the banks that get blamed for screwing up the same way twice.

[Jarvan]

I made a 25% return between the middle of November and the middle of March in my account. I'm not imagining the return. It happened. I didn't invest $1 million, though. My trades could have easily supported $1 million positions, I just don't have the money.

Did you make a 25% return when the stock market was crap? if not, then it means nothing.

[Bobmuhthol]

Did you make a 25% return when the stock market was crap? if not, then it means nothing.You're fucking retarded.

[Jarvan]

You're fucking retarded.

You supposedly made a 25% return during the best the market has been. Not only that, you honestly think that you are so fucking smart that with 1 Mill you would never have to work again, just play the market.

I sometimes forget that you are the smartest person on the planet, and every other economist and financial expert is a retarded 3rd grader compared to you.

So why are you not the world's richest person yet? since you are the premier financial genius of the century? Or is a century to small for you? Epoch?

[Back]

I find this to be far too stupid of a statement even for you.

Therefore I can only assume that you're trolling.

Interest is only one way for a bank to make money.

Late fees and transaction fees are another.

Banks are Federally protected.

So, brainiacs, who is fucking who?

[Bobmuhthol]

Supposedly? I did. It doesn't matter how good the market was, because I'm not levered, so unless the market has returned 25% in four months (it hasn't), I beat the market. I could live off of $1 million because I can live off of a salary of like $50,000, which I can very easily generate with $1 million.

If there were truly no way to beat the market, why do hedge funds exist? Why do mutual funds exist? Why do money managers exist? What the fuck is wrong with you?

[Jarvan]

Well, since we only have your word, yes it's supposedly. Unless you are saying your word is fact as well as you being the most intelligent money man in the known universe.

So have you returned 25% the entire year? No, I forgot, now you only need a return of 5% to satisfy your statement. Ok, Fine, have you ALWAYS made 5% off your investments? Never had a time where you lost money?

You do understand that if you were to lose money once at only a 5% return, you would then not have enough money to continue your plan, right? Unless of course you had a higher then 5% period.

I'll just keep laughing at you while your poor, but still the most brilliant money man in the world.

Btw... since there are a decent number of well off people playing GS, why are you not offering to help them with their portfolios, I am sure you could easily earn your million dollars fairly fast if you help them get a 25% return like you claim you had.

[Back]

Well, since we only have your word, yes it's supposedly. Unless you are saying your word is fact as well as you being the most intelligent money man in the known universe.

So have you returned 25% the entire year? No, I forgot, now you only need a return of 5% to satisfy your statement. Ok, Fine, have you ALWAYS made 5% off your investments? Never had a time where you lost money?

You do understand that if you were to lose money once at only a 5% return, you would then not have enough money to continue your plan, right? Unless of course you had a higher then 5% period.

I'll just keep laughing at you while your poor, but still the most brilliant money man in the world.

Btw... since there are a decent number of well off people playing GS, why are you not offering to help them with their portfolios, I am sure you could easily earn your million dollars fairly fast if you help them get a 25% return like you claim you had.

Presumptuous person is presumptuous.

[Bobmuhthol]

I don't know what you're not understanding here, but I can definitely average a 5% return over any reasonable horizon, and you're a fucking moron if you don't believe that or can't do it yourself.

I haven't conducted performance measurement on my account because it's tedious, but I can promise you that I've done better than 5% annually in the last 3 years. And I'm only saying 5% because that's what you're challenging me on. The 25% I made recently is more than 1.05^3 - 1, so I've already beaten your retarded benchmark.

My credit investments have returned 10.02% annually, and I've been doing that since 2009.

Oh, and how do you explain university endowments routinely earning 15% annual returns over extended periods?

[Thondalar]

I'll admit that I read the first three or four paragraphs of the first link in the OP....and none of the responses afterwards.

With that said, my question is...why does anything other than the economic stability of the loan seeker affect wether or not said loan seeker gets a loan? When did getting a home loan become something that people just get just because, regardless of financial ability to pay for said loan? Why are banks afraid to not give loans to people who don't meet requirements for said loan?

Did I miss something? Where does the Bill of Rights state we have the right to a loan from a bank?

-Thond

[Bobmuhthol]

None of those questions make sense. The government would like banks to please lend more money, and they are prepared to pay for defaults. There's no deep philosophical issue here, or regulation preventing banks from not issuing mortgages.

[Thondalar]

None of those questions make sense. The government would like banks to please lend more money, and they are prepared to pay for defaults. There's no deep philosophical issue here, or regulation preventing banks from not issuing mortgages.

typical for you, you say "hey, someone else will take care of this, why should I be responsible?"

Indeed, why not.

-Thond

[Bobmuhthol]

What?

[Methais]

Interest is only one way for a bank to make money.

Late fees and transaction fees are another.

Banks are Federally protected.

So, brainiacs, who is fucking who?

If people aren't paying back their loans, there's a 100% chance they're not paying any interest either.

Or do you think that them being federally backed is a good thing because the feds will pay off bad loans by printing more money?


The government would like banks to please lend more money, and they are prepared to pay for defaults.

If we can't afford tours of the White House right now which cost very little, what makes you think we can afford to pay banks for bad loans, which cost the opposite of very little?

[Jarvan]

None of those questions make sense. The government would like banks to please lend more money, and they are prepared to pay for defaults. There's no deep philosophical issue here, or regulation preventing banks from not issuing mortgages.

Bob.. I think he was referring to the above.

If the government is willing to pay if people default, then "hey, someone else will take care of this, why should I be responsible?" would be a valid statement.

[Bobmuhthol]

I'm significantly more in favor of allowing basically no-questions-asked refinancing to people who are current on their mortgage but do not have a high enough credit score for a bank to let them refinance, as opposed to lowering credit score requirements (but I don't think it's an inherently bad idea). You really can't complain about something like that, unless you think it's stupid to give someone a lower probability of defaulting, which I don't think you do.

I am not prepared to discuss whether the government can "afford" (like you mentioned, they can just make more money, so there's no real limit on what they can promise) to cover defaults, but let me be clear that Obama's proposal in no way is approaching the environment leading up to the housing crash. People default on mortgages all the time. The problem was that investors were holding onto structured debt that they didn't understand. Basically what happened was that mortgages were pooled and then divided into different levels, where there was a "risky" portion called equity, some intermediate stuff, and then a "really not at all risky" portion called super senior debt. The super senior debt would only lose money if a huge number of mortgages in the pool did, and at that point they lost a fucking ton of money. Effectively the equity portion benefited from situations where loans were correlated (if loans were uncorrelated, then some random number of mortgages would default, and equity takes the first losses), and super senior debt (the AAA rated stuff that everybody was holding all the time and loving it) suffered badly if the mortgages were correlated (one default implies many defaults, so a lot of their value is wiped out). Since super senior was the most expensive and thus had the lowest expected return of all the levels, people levered the shit out of it, and then found themselves going bankrupt when as many as half of the mortgages that they purchased defaulted. Lending to someone with a credit score of 600 is not the same thing as all of that.

[Back]

If people aren't paying back their loans, there's a 100% chance they're not paying any interest either.

Incorrect. All monies paid are interest.

[Back]

It is amazing how the people who make banks work keep defending them.

[Methais]

Incorrect. All monies paid are interest.

Not enough to offset the money they loaned out and have it be considered a profit.

If you borrow $100,000 and you pay me $1,000 in interest and then stop paying, I'm still out $99,000.

[Back]

Not enough to offset the money they loaned out and have it be considered a profit.

If you borrow $100,000 and you pay me $1,000 in interest and then stop paying, I'm still out $99,000.

Yeah you got me my statement was not accurate.

Still. banks make money off of fees and interest.

[Bobmuhthol]

Banks are in the business of lending money and collecting interest, so why is this big news?

[Methais]

Banks are in the business of lending money and collecting interest, so why is this big news?

Because Backlash said so.

[Back]

I think there are a lot of people who do not understand how banks work. And maybe that is good for banks.

[Bobmuhthol]

I'm pretty sure just about everyone does.

[prance1520]

All your explanations of things have been pretty good Bob, but most of your arguments are why its good for the people. While doing nice things for people a good thing, companies don't often do this kind of extreme amounts of kindness unless they benefit in some way (or else I'd have a 0% interest loan).

I'd be interested to hear your pitch to the bank CEOs on why this is a good idea for their company to do this.

[Tgo01]

I think there are a lot of people who do not understand how banks work. And maybe that is good for banks.

Okay I'll bite Back, how do some people think banks work?

[Bobmuhthol]

Banks need to adapt to their environment. They don't get a lot of say about what interest rate to charge, because all it takes for them to lose business is another bank to undercut them. If there is a bank that believes Obama will deliver on his promise (most banks tend to believe such things), then they're effectively getting a guaranteed interest rate, and can put on the appropriate hedges for prepayment/interest rate risk (I'll consider default a prepayment risk, since the government will just cut the bank a check upon default). If I can take your customer away by offering to refinance their mortgage or offering them a mortgage free from default risk that you wouldn't offer, you're going to find yourself not making as much money as you should very quickly, so it's in the best interest of banks to make these loans with the excess cash that they all have.

And there are plenty of 0% financing opportunities. They just aren't for homes. Credit cards, car loans, etc. are all commonly 0% because interest rates will be basically zero for the life of those loans. Mortgages have much higher liquidity, maturity, and default premiums.

[Atlanteax]

Okay I'll bite Back, how do some people think banks work?

Oh geez... this is gonna be 'good'.

[Warriorbird]

What would be the motive for a bank to give loans to people they knew had no ability to pay them back?


http://www.pixeljoint.com/files/icons/admiral_akbar.gif

I'm pretty sure you can think of the reasons it happens over and over again throughout American history. It's one of the reasons why Glass Steagall came about.

[Methais]

Okay I'll bite Back, how do some people think banks work?


http://youtu.be/MG9Ql1Wyxbg

[Parkbandit]

Interest is only one way for a bank to make money.

Late fees and transaction fees are another.

Banks are Federally protected.

So, brainiacs, who is fucking who?

HA! I told you Methais!


You are giving him far too much credit.

He is indeed that stupid.

[Parkbandit]

I'm pretty sure you can think of the reasons it happens over and over again throughout American history. It's one of the reasons why Glass Steagall came about.

But I wanted YOU to think of reasons!

[Suppa Hobbit Mage]

I'm significantly more in favor of allowing basically no-questions-asked refinancing to people who are current on their mortgage but do not have a high enough credit score for a bank to let them refinance, as opposed to lowering credit score requirements (but I don't think it's an inherently bad idea).

I'm with Bob on this. Refinancing for people that don't have a high enough credit score isn't bad if they are current on the existing mortgage. I think the challenge there is the banks really have no incentive to do so, do they? Well I guess competitive markets would create the incentive (i.e. refinance a non-client, and now you get some interest versus no client at all). So anyway, I agree with Bob.

Even lowering credit score requirements I'm ok with, you could have a ton of assets but horrible credit. I don't think it should be wholesale though. Things like a recent proven track record at addressing poor credit scores, demonstration of fiscal responsibility, perhaps an amount of cash reserves... I'm sure greater minds have better ideas.

The thing I absolutely don't believe in is the government guaranteeing any of the above. It should be the business's responsibility to vet prospective clients and be responsible for the risk themselves.

[Parkbandit]

I'm with Bob on this. Refinancing for people that don't have a high enough credit score isn't bad if they are current on the existing mortgage. I think the challenge there is the banks really have no incentive to do so, do they? Well I guess competitive markets would create the incentive (i.e. refinance a non-client, and now you get some interest versus no client at all). So anyway, I agree with Bob.

Even lowering credit score requirements I'm ok with, you could have a ton of assets but horrible credit. I don't think it should be wholesale though. Things like a recent proven track record at addressing poor credit scores, demonstration of fiscal responsibility, perhaps an amount of cash reserves... I'm sure greater minds have better ideas.

The thing I absolutely don't believe in is the government guaranteeing any of the above. It should be the business's responsibility to vet prospective clients and be responsible for the risk themselves.

They have no incentive to do so... so enter the US Government! They will either buy these loans (Freddie, Fannie anyone?) or guarantee them by taking the risk and paying for the ones that default... and banks will gradually lower their loan thresholds and take bigger risks.. and boom.. we're right back where we were prior to 2008.

I mean heck.. sure it didn't turn out well the first time but dammit, we're Amurica! We can make it work THIS TIME!!

[Methais]

HA! I told you Methais!

http://i45.tinypic.com/fx6p8n.gif

[DoctorUnne]

The thing I absolutely don't believe in is the government guaranteeing any of the above. It should be the business's responsibility to vet prospective clients and be responsible for the risk themselves.

Problem the banks have right now is that is not economic to lend to borrowers with lower credit scores. With the risk Fannie and Freddie putting (forcing) delinquent such loans back to the banks and the government forestalling the foreclosure process to keep people in their homes, banks are treating lower FICO mortgages as 30-year fixed rate unsecured loans with no recourse - and therefore not lending with rates at record lows. Government guarantees for certain defined "Qualified Mortgages" will create this economic incentive by lowering the risk. The government just needs to be smart about what constitutes a qualified borrower.

[Latrinsorm]

They have no incentive to do so... so enter the US Government! They will either buy these loans (Freddie, Fannie anyone?) or guarantee them by taking the risk and paying for the ones that default... and banks will gradually lower their loan thresholds and take bigger risks.. and boom.. we're right back where we were prior to 2008.I'm so tired of you blaming the Bush administration for everything.