Banks have already been paid for mortgages

31/08/2014 22:49

Since our economic commentators won’t ask this, I will.

If banks sell mortgages to investors, via the securitisation industry, how were they ever bust?

Pension funds, insurance companies, hedge funds, etc, buy mortgages and pay banks the principal, plus a premium up front as a lump-sum payment.

Therefore, the bank is paid in full, once, for the mortgage. The monthly payments of the homeowners are passed by the banks to the investors. Over the life of the mortgage, the investor earns more than they paid up-front to the banks, due to interest payments.

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