Where is All That Money Made by Mortgage Companies?
Where did all the money go? Throughout the 1990s and early part of the new millennium, mortgage companies, great and small made a ton of money. So why is everyone clamoring for bailouts? Why can’t they just live off of their savings and weather the storm? The answer is boring, but it is also the harsh reality faced by those who make money by loaning money.
Competitive lending practices of the last 15 years have kept interest rates at bay. In the 1980s home owners were faced with interest rates on their mortgages that were double digits as a standard. Nowadays, those sorts of rates would be considered Usury. Mortgage rates in some cases have been 3 pe
Where are all of the profits? There are none.
rcent with a national average that has hovered around 5 percent. Lower interest rates are the double edged sword of mortgage brokering. On one hand, it takes more loan sales to make a profit. On the other hand, when interest rates are low loan sales are more plentiful. With larger loan sales come greater risks, but less surety. In other words, the cap on interest rates imposed by both law and competition keep mortgage companies from charging enough interest to offset those who default on their mortgage loans. The result is that the number of mortgages that can default before sending a mortgage broker into ba
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