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Mortgages rates are low and banks are making larger mortgage profits

Mortgage interest rates have fallen to historic lows. This is certainly a positive for a current homebuyer, but it has also become a positive cash flow for banks, according to an August 8, 2012 New York Times article. A bank could charge an interest rate of about 3.05% if it wanted, but the current 3.55% rate they offer is still a deal for consumers. The half of one percent differences though, means that a consumer with a $300,000 mortgage will pay $30,000 more over time.

After the financial crisis, only a small handful of banks originated mortgages. That means less competition, although one bank does deny competition in the mortgage market.

One of the major banks earned over 150% more originating mortgages during the first six months of this year in comparison to the first six months of 2011.

Banks also have higher costs due to complying with regulations and training their staff better. Fannie Mae and Freddie Mac will only allow perfectly written mortgages to be packaged into a government-backed mortgage package.

The way banks have earned increasing profits is through the “spread.” That is, the difference between the mortgage interest rate for consumers that that the banks charge (and thus earn money on) and the interest rate banks pay to firms that buy bundles of mortgages as an investment. If there is a larger spread, then the bank earns more. A large spread occurs when there is a greater difference between these two interest rates. The bank charges more to consumers than it pays to mortgage investors.

If you are facing legal trouble wading through the mortgage market or you are considering bankruptcy, call the law office of Jayson Lutzky, P.C. at (800) 660-5299. Mr. Lutzky has over 29 years of experience practicing law and has worked with thousands of satisfied clients. For more information, visit www.BankruptcyNYC.com.

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