The govt is thinking about freezing rates to prevent loans from increasing for those barely making payments on introductory loans. - But why does the bank give the loans - they know they are either going to sell the loans - or %26quot;write off%26quot; the bad loans on their taxes.
Mark Zandi, chief economist for Moody%26#039;s Economy.com, said while the administration plan is a good first step, eventually the government will have to go further because of the size of the problem and the threat to the economy.
If banks could not %26quot;write off%26quot; bad loans - would they offer sub-prime to marginal customers?education loans
Nobody wants to write off bad loans, they reduce profits and thus dividents and bonuses. The offered them because they trusted they could sell them to investors by rebundeling and repackaging them. So the subprimes represented a nice additional and low risk way to earn money for the banks. Till they could not sell them anymore and were stuck with them themselves.
If banks could not %26quot;write off%26quot; bad loans - would they offer sub-prime to marginal customers? loan
The study also points out that: * “46.1 percent of households are prepaying their mortgage by an average of $3,140 per year” * “only 49 percent of households relied on advice from professionals” * “having access to better financial information (financial advisor or personal education) substantially increases the likelihood of making the right choice” The key reasons Americans make these mistakes are: * “not having resources to make decisions” * “greater emphasis on savings habits they ‘perceive’ as more liquid” * “limited information on the cost-benefit analysis” * “rational response to ‘institutional’ factors” The actual quote from the abstract at the beginning of the report reads as follows: “We show that a significant number of households can perform a tax arbitrage by cutting back on their additional mortgage payments and increasing their contributions to tax-deferred accounts.
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