What has happened to the media….?
I watch the national & local TV news and I find myself asking, what is the media thinking. I continue to hear on main stream media that the mortgage melt down is do to mortgage brokers. I am not hearing anything in regards to banks or the stock market.
Why is this….?
Mortgage brokers are not in the business of selling mortgage loans to put into their own portfolios. Mortgage brokers are middle men that keep themselves up to date on the latest loan programs. Mortgage brokers only make money if they can find a mortgage program that works for a borrower. It is not possible for the average person to keep up with guideline changes and loan program revisions.
Below is a cash flow chart to show the flow and exchange of monies for a home mortgage. The investor can be anyone but usually it is pension fund money. The Mortgage Bond Agent is the stock/ bond market broker. The lender is the banks.
With all of the checks and balances above the mortgage broker how is it possible for the brokers to shoulder the entire load for the mortgage melt down. It is clear that the stock / bond market brokers and the banks play just as big a role in the mortgage meltdown as the brokers. Brokers could not sell sub-prime mortgage products if the banks or the stock / bond market did no make the product possible.
The banks had record profits in 2005 of roughly 300 Billion. To date the sub-prime meltdown has only cost a little more than 115 billion. Yes that is a considerable loss but overall it is still a considerable profit. Where have all of the proceeds gone?
In today’s market the consumer is better represented by a mortgage broker than a bank for a simple reason. A broker is not limited to a single set of guidelines. More than one set of guidelines mean that you have more than one option for loan approval.
So with the understanding of how the system works why is main stream media not taking about the banks or the stock / bond markets role? Every loan package is submitted to a bank, lender or stock / bond market underwriter for approval. Keep in mind that Brokers can only offer loan programs that Banks, Lenders or the Stock / Bond Markets make available to them to sell. Banks get paid a fee up front on every loan and the stock / bond broker gets their fee too.
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