Facing Foreclosure?
Does anyone believe that the banks create mortgage loans by using the promissory notes of consumers as a negotiable instrument to create the 'money' for the loan? If so what gives the banks the right to create money out of thin air and then charge interest for 30 years. I mean isn't interest compensation for opportunity cost. If they are creating the money through book keeping entries and our good credit where is the opportunity cost? Or is it usury? 
You write: Does anyone believe that the banks create mortgage loans by using the promissory notes of consumers as a negotiable instrument to create the 'money' for the loan?
Answer 1:
No. You have to understand that banks, etc. operate at a for profit status. They take risks, like any busines. They base their risk to loan you (or any individual money) based on your past performance of money lent. If you have a good or great credit rating, they will be more liberal in what they lend and by how much they lend. Then they take this loan, and can keep it, and double their money in 30 years, or they can sell it in a secondary market. If they sell it they still make money, but do so at less of a profit. Remember banks aren't here for your well being, they are here for the security of business. They make money. And they charge you to make money.
You Write: If so what gives the banks the right to create money out of thin air and then charge interest for 30 years.
Answer2:
-That would be impossible. You see the Federal Government, backs banks, but in doing so, the banks must abide by extreme rules set by The Gov't. These rules are in place to protect the consumer (you) They don't make money out of thin air. You need to take an economics class.
Or go check out some books by the library and read about how the Fed Works, and how banks work.
You write: I mean isn't interest compensation for opportunity cost. If they are creating the money through book keeping entries and our good credit where is the opportunity cost? Or is it usury?
Answer3:
Opportunity costs is the loss of the abilty to use your time or money on something else www.e.g. My opportunity costs is my coffee getting cold while I answer this question. It is not just book keeping entries, it is lending you money
with collateral www.e.g. Your house at 100K for your monthly payments of $600 per month for 30 years. They have risk. They don't know if you are going to take care of the house. They don't know if you are even mentally stable. They don't know if you are going to be laid off. They don't know if you can make payments. THey don't know if you are going to get a divorce three years from now, or next week. They take inherent risks as the opportunity to make a profit. Usury is defined as: the lending of money with an interest charge for its use; especially : the lending of money at exorbitant interest rates. The only time USURY comes in to play would be for extremetly risky places, http://www.e.g. Check Cashing places, or if you have extremelty poor credit. Then that is just an extreme risk for the lender.
Hope that answers your questions.
[ Edited by cmiller2 on Date 07/21/2003 ]
"Your answers are well taken." Blah, Blah, Blah, the rest has been deleted the one in quotes makes the most sense.
[ Edited by JohnLocke on Date 07/21/2003 ]
Not sure whats going on here.. Is this a "Sandbag" question? I thought the answer was pretty good. You guys playing games?
Have to agree with cmiller, sorry.
schraderric,
You really need to take your story somewhere else this site is for creative real estate investing not a soap box for your opinions on the state of the economy.
Cmiller, gave an excellent example of how it works for the laymen.
John $Cash$ Locke
Your right this isn't the best place for open mindedness. But that was my whole point, as you have noticed. Believe me, I would have been extremely suprised if I would have gotten any answers contrary to the latter.
I have started this debate to let those who are facing foreclosure know that they have been wronged and do have options. For those preying on desperation take advantage now, because people are learning and won't be deceived forever.
"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford
To the monitor. Thank you for deleting my post, it just proves my point. Also, I would appreciate if you are going to delete my post if you would delete the whole thing and not just the parts you are afraid of.[ Edited by schraderric on Date 07/21/2003 ]
[ Edited by milliken on Date 07/26/2003 ]
We get all types on this board.
Now let's be fair. He has given viable options to people who are unwilling/unable to pay for the bills they created and cannot/will not find a legal and ethical means to solve their problem.
Now with his help, they can pay a crooked attorney thousands of dollars (which could be put to correct the problem) to 'try' to swindle the lender institutions out of money.
With their help, they can find you a new home. One that serves 3 meals a day and supplies you with nice orange jumpsuits to wear everyday.
Roger
It is too bad that schraderric started his discussion in such a frenetic way and that got defensive, and then offensive. Because his original point IS AN INTERESTING QUESTION WORTH DISCUSSING.
He just never asked a question. He immediately started yanging out at the world.
But let me clarify his point.
There are many who believe that banks actually dont take any risk in lending and the Federal Reserve has built a system that allows the banks to get rich and lend like crazy during the booms. And then take back all of the real assets during the busts (Sound like what's going on in the country now?)
Banks use your signature to borrow as an ASSET on their books. Then they borrow against that asset, the very money that they lent to you. Essentially "creating money" taking NO RISK and charging you interest (and for credit cards up to 18% and more Risk Free)
By the laws of this country, that process is Usury.
NOW. If anyone would like to comment on the bank Creation of money, it doesn't sound so much like ranting.
Hey, schraderric, this is the most open website where you can learn from very knowldgeable people for free.
Be Humble, ask questions, open interesting debates and then reap the rewards.
Peace,
Neill
If you happen to be one of the 'many who believe' then you either sleep thru your 9th grade economics class or you've really got a lop-sided view of how things really work.
This 'theory' about lending is based on inaccurate assumptions and plain and simple untruths.
Banks don't 'create money.' You explained it yourself. Banks lend you the money, then they BORROW money based on their asset of your loan. This is the same thing anyone can do if they have a performing note, it isn't a special option for lenders only.
The key word there, BTW was borrow. The bank borrows money. You think there is no risk there? If you don't pay the bank, then the bank still has to pay their loan. Sounds like risk to me. There was also no where in that process some phantom ''creation'' of money.
You mentioned that credit cards are ''no risk'' to banks. How do you figure that? Who do you think cuts the check to the department stores everytime you swipe your card? The bank, and that money is gone from their accounts at that time while the bank still has to wait for you to pay them, if you even do. Sounds like risk to me.
Also, banks/lenders get their ''created money'' pretty easily. Most comes from their investors and those little savings accounts that many of us have with them. How do you think you earn interest on it? It's the interest from the ''loan'' the bank is paying to you.
Roger
Greetings! This is an interesting topic that requires good knowledge of our countrys' banking system. I am not an expert but I do have a take on this subject. Let me try to share what I know.
One thing I think you all have overlooked is the roll of the "Secondary Market".
As a Small to medium sized Mortgage Lender, you start off with assets, say, 5 Million Dollars. Then, you would obtain credit from a larger lending institution on ther order usually of ten times the amount of your assets - in this case $50M. Now you have up to that amount to lend out. But that money is going to run out some time, right? Especially in this type of market. So what happens is the Mortgage lender packages up "Blocks" of Notes to sell to the Secondary Market at cut rates. This liquidation of assets allows the lender to lend to more individuals without having to obtain more credit.
That is why you will see that often the bank you open your loan with is not always the one who ends up servicing your loan for the 30 year term. If your bank Sells or Assigns your loan, they are no longer your bank. They just unloaded you to free up capital to lend to someone else.
The Secondary Market is anyone who buys Mortgages in Blocks. This is primarily the roll of Freddie-Mac and Fannie-Mae, for the most part, as it pertains to conventional type residential loans.
I hope I was able to provide you with some insight.
<IMG SRC="images/forum/smilies/icon_razz.gif">
I would just like to thank everyone who has participated in this discussion. I know I started this discussion with tension, and admit being defensive, I appologize.
I felt this was a topic that needed to be addressed and maybe I felt that if I raised some eyebrows I would get more comments and input.
If I have offended anyone I am sorry, but I feel the input thus far has been great!
thank you all.
By the way Raj,
I said "there are many who believe"......then I clarified what I feel they and Shraderric had said.
Never said I shared the opinion.
It happens to be one of the arguments people are using to try to get out of credit card debt and mortgage debt they incurred.
Companies are approaching people in debt and revving them up with this story. They quote an interesting book
"The Creature from Jekyll Island" that discusses the secretive creation of the Fed by some devious bankers....all names you would recognize.
I have heard the writer speak, his one hour presentation can be heard over the web. Interesting Story.
NOW. Whether these debtors are being scammed or they actually have a legal leg to stand on, I have not researched.
Neill
I can tell you from a Mortgage banking, simplistic point of view, what happens. The Mtg Co will finance your house for you. You make the payments to the Mtg Co. We take your loan, and thousands of others similar to it, we bundle them into whats called a Mortgage Backed Security that we sell to different agencies like Bank of New York, Standard and Poors, Ginnie Mae, Fannie Mae, etc.... The money that we get from these securities, we use to finance the next persons house. We also keep what is called "servicing rights" to the loan, which means that we get fees etc... to collect the payment. Makes a little more money.
I have come across one of these companies over the internet. What they want in return for their services is you to sign over your Deed and 20% of your total mortgage. So once again if you have a mortgage for 100K and they eliminate it you owe them 20K. Huh? These people can't make a monthy mortgage. If they had 20K they wouldn't be in foreclosure! So then what do you think happens after these people can't pay the piper? Now it's just my opinion but I really feel that these people are taking advantage of people. I don't believe that these groups really want help out these homeowners in default. They aren't offering solutions that solve problems. They are just offering a stay of execution until they can step in and be the executioner. I sincerely hope that anyone who's considering doing business with these people think long and hard about who it is they are really doing business with.
I know of a specific organization that has attempted and succeeded in 19 cancellations since March 2002. Of the 19 I have not heard or seen any proof of anyone loosing their homes to these servicing companies. If anyone has proof of this would they please send it to me.
I know for a fact that they charge 4500 up front and 10% of the ,remaining balance of the mortgage for their services.
They require a limited power of attorney in their contract for services and give a refund of the 4500 if once they have all the persons info they feel they cannot cancel the mortgage.