Investors Are Getting Rich On Mortgage Loans
Real estate investors have now found a new method of making money. Several investors in the U.S. are specializing in trading mortgage bonds that are securitized. According to John Devaney, CEO of United Capital Markets, borrowers opting for adjustable rate mortgage loans are nothing but idiots. Devaney is one of the many investors who had made a fortune during the housing crash through betting on the number of borrowers repaying their loan.
There are around $5.7 trillion worth of securities that are backing mortgage loans that can make a huge impact in the current crisis. According to Irv Acklesberg, who is an attorney and consumer advocate, everybody including the lender, broker and the borrower are responsible for this mess.
The practice of selling off the mortgages has been in vogue since 1970s. Banks used to get themselves released from the problem of troublesome loans by selling them off to potential investors. While the bond investors took care about getting the loan cleared, banks were benefited with some ready cash for the purpose of approving new loans. However, due to this strategy, mortgage lenders have stopped looking into the credit history and repayment capability of the borrower while approving loans. On the other hand, they are more inclined towards offering high risk loans to customers.
According to Allen Fishbein, who is the director of credit and housing policy at the Consumer Federation of America, unlike banks, borrowers cannot shift their burden onto the shoulders of anybody. They must either make their payments or must lose their homes, a situation that is going to irk them for several years.
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