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Home mortgages have been a scam and a rip-off by the big banks...

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kentuck Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:07 AM
Original message
Home mortgages have been a scam and a rip-off by the big banks...
for a long time. If you buy a house for $200K, you usually end up paying more than a half-million dollars for your home through the mortgage system set up by the big banks. Why not just let the owners pay the principal of the loans plus 50% of the value? Would that not be a good return for the banks? If they used that formula, the present mortgages could be cut almost in half and the banks would still make a lot of money. The mortgage system as presently set up, is a scam.
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mike_c Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:10 AM
Response to Original message
1. yep-- I've tried to tell people that, but most folks don't want to hear it...
...because they've been sold the idea that handing over half their life's earnings to some rich banker is "the American dream."
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Avalux Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:12 AM
Response to Original message
2. The big banks need to be nationalized.
Then the government can do as you suggest or similar; get the banks straightened, set regulations and sell them back to the private sector.
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Warpy Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:13 AM
Response to Original message
3. The banks get closing costs and a fee for servicing the mortgage
but if they weren't able to sell that mortgage to Fannie Mae or Freddie Mac, you can bet there would be a lot fewer mortgages issued and the interest rate would be a lot higher.

The reason you're paying so much in interest is the length of the loan. Crunch the numbers for a 30 year mortgage vs. a 15 year mortgage and you'll see what I mean.

The 30 year mortgage is still the biggest bargain out there when you consider some of the alternatives like the balloon mortgages and the constantly resetting ARMs...or just paying rent and not building equity, at all.

Home ownership is a PIA, but that 30 year mortgage can be a great hedge against rising rents, even with constantly rising property taxes. I bought my place in 1996 and by 2000, rent on an apartment half the size was more expensive than my mortgage.
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kentuck Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:17 AM
Response to Reply #3
4. Most people get 30-yr mortgages because they can't afford the 15-yr..
I think this is a problem that needs to be decentralized and brought down to the state and local levels. They know best the situations in their home towns. The Federal government should be looking to the states for solutions and then offer assistance to them.
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tabatha Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:18 AM
Response to Reply #3
5. It could be a wash - whether to rent or buy.
But at least as a buyer, one can get tax breaks for the interest, and one is not at the mercy of the owner.

There is a lot of freedom one cannot have if not an "owner".
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Warpy Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:24 AM
Response to Reply #5
7. Right, ownership is foolish if you know you're going to relocate
within 5 years or so. Shoot, I'd put it within 10.

However, if you're putting down roots and growing cobwebs, ownership is the more advantageous strategy, depending on what local rents are doing.
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T Wolf Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:28 AM
Response to Reply #3
8. The scam is the amort schedule that has you pay almost entirely interest at the beginning without
Edited on Wed Feb-18-09 11:28 AM by T Wolf
decreasing the principle much at all. They make money refinancing the same property over and over again while the people who actually live in the home get screwed.

How many people stay in their home for the entire 30 years?

I simple solution would be to have the repayment schedule a true balance of principle and interest. That way, people would gain equity much faster and not have to hope for increasing property values to break even.

But, the lenders will never give up their "vig" without being forced to.
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kentuck Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:37 AM
Response to Reply #8
9. Right on.
hammer to the nail
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NNN0LHI Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-18-09 11:24 AM
Response to Original message
6. You just described Islamic Banking
http://www.islamic-banking.com/ibanking/whatib.php

ISLAMIC BANKING - What is Islamic Banking?

Islamic banks appeared on the world scene as active players over two decades ago. But "many of the principles upon which Islamic banking is based have been commonly accepted all over the world, for centuries rather than decades".

The basic principle of Islamic banking is the prohibition of Riba- (Usury - or interest):

"While a basic tenant of Islamic banking - the outlawing of riba, a term that encompasses not only the concept of usury, but also that of interest - has seldom been recognised as applicable beyond the Islamic world, many of its guiding principles have. The majority of these principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

"The universal nature of these principles is immediately apparent even at a cursory glance of non-Muslim literature. Usury was prohibited in both the Old and New Testaments of the Bible, while Shakespeare and many other writers, particularly those writing in the 19th century, have attacked the barbarity of the practice. Much of the morality championed by Victorian writers such as Dickens - ranging from the equitable distribution of wealth through to man's fundamental right to work - is clearly present in modern Islamic society.

"Although the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century." (Islamic Finance: A Euromoney Publication, 1997)

It is evident that Islamic finance was practiced predominantly in the Muslim world throughout the Middle Ages, fostering trade and business activities. In Spain and the Mediterranean and Baltic States, Islamic merchants became indispensable middlemen for trading activities. It is claimed that many concepts, techniques, and instruments of Islamic finance were later adopted by European financiers and businessmen. snip

1. While permitting the individual the right to seek his economic well-being, Islam makes a clear distinction between what is Halal (lawful) and what is haram (forbidden) in pursuit of such economic activity. In broad terms, Islam forbids all forms of economic activity, which are morally or socially injurious.

2. While acknowledging the individual's right to ownership of wealth legitimately acquired, Islam makes it obligatory on the individual to spend his wealth judiciously and not to hoard it, keep it idle or to squander it.

3. While allowing an individual to retain any surplus wealth, Islam seeks to reduce the margin of the surplus for the well-being of the community as a whole, in particular the destitute and deprived sections of society by participation in the process of Zakat.

4. While making allowance for the ways of human nature and yet not yielding to the consequences of its worst propensities, Islam seeks to prevent the accumulation of wealth in a few hands to the detriment of society as a whole, by its laws of inheritance.

5.Viewed as a whole, the economic system envisaged by Islam aims at social justice without inhibiting individual enterprise beyond the point where it becomes not only collectively injurious but also individually self-destructive.
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