i know i'm not an economist...
... but does it seem to anyone else that the market correction/crash/problems/whatever have been caused by greedy banks?
the way i see it:
1) banks grant sub-prime mortgages to people who can (just) afford their monthly payments
2) interest rates go up and the bank raises the interest rate on the adjustable-rate mortgage
3) the monthly payments for these homeowners rises, and some can no longer afford the increased monthly costs
4) homeowners have no choice but to default on these loans
5) the sub-prime mortgage industry has lots and lots of foreclosures, which
6) freaks out wall street, which
7) freaks out world markets, causing a correction/crash/problems/whatever.
seems to me that if all mortgages were fixed rate, everyone would do better:
a) the homeowners would have a consistent monthly payment, which they would be more likely to be able to continue to pay long-term. they would really be homeowners one day, having eventually paid off the bank, and not having the trauma of foreclosure and moving.
b) the banks would continue to get monthly payments all those years until the mortgage was paid off. the interest rate would stay the same as when the mortgage was granted, but they'd still make money. new mortgages granted when interest rates go up would have higher interest rates, but would be fixed for the life of the loan, unless interest rates went down low enough to make it worth the hassle and expense of remortgaging at a lower interest rate.
c) investors don't have to freak that there might be a problem, thus causing a problem.
i know i don't have the numbers to back me up right now, like how many fixed rate mortgages default vs. how many adjustable rate mortgages default, or whether the money on that number of defaults is covered by the rise in the payments on those that don't default, but either way the banks make money.
my answer: ban adjustable rate mortgages. the banks still make money, and fewer people default.
why can't i run the world?
the way i see it:
1) banks grant sub-prime mortgages to people who can (just) afford their monthly payments
2) interest rates go up and the bank raises the interest rate on the adjustable-rate mortgage
3) the monthly payments for these homeowners rises, and some can no longer afford the increased monthly costs
4) homeowners have no choice but to default on these loans
5) the sub-prime mortgage industry has lots and lots of foreclosures, which
6) freaks out wall street, which
7) freaks out world markets, causing a correction/crash/problems/whatever.
seems to me that if all mortgages were fixed rate, everyone would do better:
a) the homeowners would have a consistent monthly payment, which they would be more likely to be able to continue to pay long-term. they would really be homeowners one day, having eventually paid off the bank, and not having the trauma of foreclosure and moving.
b) the banks would continue to get monthly payments all those years until the mortgage was paid off. the interest rate would stay the same as when the mortgage was granted, but they'd still make money. new mortgages granted when interest rates go up would have higher interest rates, but would be fixed for the life of the loan, unless interest rates went down low enough to make it worth the hassle and expense of remortgaging at a lower interest rate.
c) investors don't have to freak that there might be a problem, thus causing a problem.
i know i don't have the numbers to back me up right now, like how many fixed rate mortgages default vs. how many adjustable rate mortgages default, or whether the money on that number of defaults is covered by the rise in the payments on those that don't default, but either way the banks make money.
my answer: ban adjustable rate mortgages. the banks still make money, and fewer people default.
why can't i run the world?