Thursday, February 26, 2009
CHANGING MORTAGE RATES: Special Post
SPECIAL POST
Imagine that you are a lender, such as a bank, mortgage company, etc. You make money by lending out money in return for repayment of the principal plus interest. You get the money you will lend out by borrowing it from the Fed or taking in savings accounts and you pay interest on both of those. So, when you set the rate of interest you will charge borrowers, you have to make enough money to pay the interest on the money you will borrow, plus your operating costs and plus a reasonable expectation of profit for you and your stockholders.
Along comes the government and says that they are cutting the rate of interest on money you have already loaned out. But, there is no provision to cut the rate you pay for borrowing the money you are lending out, so you are now losing money on your loans.
What is your natural reaction?
You stop making loans.
Here the Prez and Congress are, advocating and practically ordering that Judges reset interest rates on existing housing loans. At the same time, they ask why banks and mortgage companies are not making housing loans.
And you really think that these idiots in Washington have enough brain matter to lead us out of this economic mess we're in?
That's MY AMERICAN OPINION, respectfully submitted.
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