[quote=1ntCobra;956831]
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My current mortgage is with a small local bank that told me that they had never sold a mortgage and did not plan to.
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Portfolio lending is typical of small conservative banks
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I guess blaming the banks for having weird new mortgages, like the interest only one is wrong.
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Interest Only loans are actually not a new product. Private Banking/Wealth Management has offered this for years. Your home is a terrible place to park your money. The asset will gain or lose value regardless of how much equity you have in it. Its far more prudent to employ your cash in other investments that will, hopefully, gain in value and compound your ability to increase your net worth than having a sustantial (over 20%) amount of equity tied up.
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The banks were just dumb for buying commercial paper, that was not rated correctly by the rating agencies. And when the rating agencies realized they were mistaken and dropped the ratings on the commercial paper to a realistic level, well then it was too late.
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Absolutly correct.
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In addition to government lowering lending standards, I'm sure that the people in the financial industry (which are not necessarily banks) who came up with some of these teaser rate mortgages and interest only mortgages compounded the problem.
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The "teaser rate" and "interest only" has really only been an issue when coupled with increased risk borrowers (subprime). The default rate for A paper mortgages has not substantially increased. This debacle is due to lending to uncredit worthy, financially irresponsible borrowers. I will agree that 0 down is not a good banking practice. Cross collateralization of some other stable assets should be necessary.