What would you like to know about?

jseamless · 07:35 AM

Hello,

I will be writing some articles about financing real estate. Is there any particular mortgage subjects you would like more info on? Anything mortgage aspect your customers have a tough time grasping?

Mortgage & Refinance Questions & Answers

kkraft · #**2 financing questions** 06-24-2004, 12:12 PM

Buyers are always curious about how lenders make money. I find it hard to explain all the ways that lenders are compensated, beyond the origination fees and basic charges.

Could you explain this?

IGotRealEstate · #3 06-27-2004, 08:47 PM

Alot of people don't know that. But for the people that would like to know. They make a large portion of money off the yeild spread on the back of the loan, meaning Loan companies will pay the originator any where from an 1/8% to 2% of what the loan value as a compenstaion on origiantaing a loan through them.

MrJodyHudson · 07-07-2004, 07:57 PM

I would very much like to have some articles and essays about finance, lending, mortgages, credit, credit repair, credit checks, etc.

I will copy and past them, in the entirety, with your title, copyright, email address, web site link, on my site and we get pretty good traffic with a PR5 and hope to get back to PR7 soon.

Write them, perhaps paste a taste here, with link to the rest and send me personal email just in case, I miss this here.

MrJodyHudson · 07-07-2004, 07:59 PM

ALSO, anyone that would like to copy, past and link back to me for any of the articles I've written on real estate, etc. Please feel free to copy and paste a taste and a link for the rest of the article from my site or the entire article with a link back to my site.

The articles are found under articles and essays at www.Kate-Jody.com or www.JodyHudson.com

jseamless · 08-30-2004, 07:55 AM

How Banks Make Money

Banks make money in many ways. If you are talking about a mortgage lender, they make money by lending money. For example if you deposit money into your saving account or cd (certificate of deposit) the bank will pay you a whopping 1 or 2% interest. They then take our money and lend it to someone so they can buy a house. Today’s mortgage rates are around 6%. So the difference between what the bank is paying you and the rate the bank is charging the new homeowner is one profit center for the bank.

Plus atm fees, mortgage junk fees, credit cards, checking account fees and so on.

MrJodyHudson · 08-30-2004, 08:53 AM

If you would like to write a well researched and referenced article OR one from your experience and place some links back to pages on your site(s). I would be pleased!

I like 750 words or more... but as little as 500 is OK

Go for it. We get pretty good traffic - it's averaging about 600 new unique visitors a day now. AND, you will quite likely get others who want to put the article on other sites here too.

Jenny Barclay · 08-30-2004, 09:34 AM

There you go Jody,

Are mortgages a risky business?

A bank or mortgage company is nothing more than a box in which to keep money. The owner of the box has to do a few calculations. Firstly, how much is he going to offer those people who deposit cash in his box, in return for such a deposit? Secondly, how much of that money should he keep as cash in case the owners of that cash want it back? Maybe 5%, maybe 10%, what are the regulations in his jurisdiction? Thirdly, how much is he going to charge those people who wish to borrow the money of others, previously deposited in his box?

The person who owns the box then sets out to find lots of other people to put their spare cash in the box, in return for which he promises to give them their money back plus interest. In the eyes of some economists, these people are lenders and not investors. This terminology is based on the fact that the capital investment of lenders does not change, whereas the capital value of investors, in stocks or property for example, can go up or down.

The owner of the box then has to find other people who do not have spare cash, but in fact wish to borrow it. There is also a common belief among lenders that their capital is safe. In the absence of a government or similar state authority providing such a guarantee, this can be far from the case.

At university one of the cases we studied, was that of a particular savings bank. A rumour went around the city that the bank was in trouble. A great number of people went to the bank to withdraw their savings. Those that represented the first few % of the total deposit had no problem. When the percentage rose to 6%, which in this case was the amount decided by “the owner of the box”, the rumour became fact in that there was no cash to pay out to depositors. As this was in a country in which the owners of all the boxes were members of a club, the aim of which was to protect the undeserved reputation of said members, the members sent round security vans with sufficient cash to pay out all those who people who “had taken notice of an unfounded rumour.” Things quietened down after a while, and the government decided to introduce legislation to create a minimum liquidity level.

Once the bank has reached a substantial size, the liquidity should be sufficiently large to cater for all such panic withdrawals, unless of course the panic is as great as 1929.

Another case we studied was that of one of the world’s largest banks, the board of which was mainly composed of greedy souls. They had decided that the stock market was a good place to keep the liquidity margin, so that in the event of a bear market, they could create more profit for the shareholders. A sudden bear market wiped out the liquidity margin, and the bank came within a hair’s breadth of going belly up.

So is a savings bank or mortgage company risky?

For the borrower it provides a necessary service, and apart from penal conditions imposed on borrowers, is a vital service to our society. From the investor’s point of view, it depends firstly on the mentality of the treasury function within the bank, and secondly the legislation that governs their actions and accountancy practices. From the investor’s point of view, considering investing in the stock of such an organisation, it depends entirely on an analysis of the bank’s net worth and profitability. Both the examples mentioned above have since gone from strength to strength, and have since been bought for more billions that most of us can count.

Jenny Barclay

Thread Tools
Show Printable Version Email this Page
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode

Real Estate Forums

For our members

Main Sections

IDX Coverage Areas

Spiders Welcome