[patio11]

Securitization of mortgage debt is why you can buy a house with a 30 year fixed rate mortgage at 4.5% (and a non-trivial reason why 30 year fixed is available at any price).

> What risk are these institutions really taking?

Default risk, interest risk, etc. I’m a 15 year shareholder of Bank of America; would you like a brief history of how riskless making loans to ordinary Americans is given that the federal government will bail you out of any losses?

[cbayram]

> Securitization of mortgage debt is why you can buy a house with a 30 year fixed rate mortgage at 4.5% (and a non-trivial reason why 30 year fixed is available at any price).

No, this is the reason why I can’t buy a house using my responsible savings after years of hard work. You are eroding the value of my savings. The massive increase of money supply chasing the finite asset is the reason why the ordinary American is forced to use your product in the first place.

You should consider yourself lucky that you have any BoA shares to hold onto after the subprime meltdown.

Let’s not kid ourselves, providing liquidity to these markets isn’t done out of good faith. All lenders are doing is hiding/shifting risk. This does not mean the risk goes away, but rather creating massive systemic risk much more catastrophic to society.

Interest risk is covered with interest rate swaps; floating vs fixed.

Is BoA a bank or investment bank? Should it take deposits in pay a fixed return, add its markup and lend it out what they have as responsible, vetted business loans?

Look, I’m not arguing the efficiencies of the status quo. I’m empathizing and voicing the risk and serfdom the ordinary individual and communities endure. When an individual defaults, lender isn’t the only one who suffers. Between the 4.5% interest plus 1-2% property tax realized every year, you hope that your property value rises by 5.5-6.5% every year before you break even. Should your primary dwelling be viewed as a financial instrument? How about profit sharing rather than usury upon sale of the house if you really want to assume the risk? Or partial settlement refund if the home never went up in value? It’s difficult to realistically consider these options as the foundation of our financial system is based on interest and inflation.

[JamesBarney]

> Between the 4.5% interest plus 1-2% property tax realized every year, you hope that your property value rises by 5.5-6.5% every year before you break even.

A house doesn't need to appreciate 6% to be a good purchasing decision. Not having to pay rent is most commonly the biggest advantage to buying a house.