Banks, Mortgages and Fractional Reserve Banking Discussions.

[Turboguy]

I have a feeling it won't be long before we are back down that way.  VWRW seems do be developing a case of HouseBuilditus.   After finishing up a 5 hour shoe shopping marathon last night we spent a lot of time on North Port Home Builders sites looking at house plans.

I think it would fit our plans better to build in a few years but I also have the thought we might save a lot of money building sooner.   When I plugged some numbers into the mortgage calculator she was a little shocked that there was such a thing here as a 30 year mortgage.    Humm, let's see, how old will I be in 30 years?   Never mind. 

Anyway I have a feeling we will be back that way before too long and we would love to look you and Simoni up. 

[andrewfi]

You can get a mortgage that will run after your death?

Here we can get them for any period as long as it ends by our 65th birthday. Handy for younguns wanting to buy big and with low outlays and not so good for oldies like me.

But a mortgage that assumes your death before repayment is complete, a whole other thing.

[Turboguy]

Yes,  to deny a mortgage because of age is considered age discrimination.   They are not allowed to look at that at all.

There is one person I know well who got a 30 year mortgage at the age of 85.   Actually he and his wife just moved to Florida and I am assuming he got another 30 year morgage on the house they bought there and he would be in his early 90's now.    Add to the age factor that his income is very low and he has very little net worth.   He does have a wife about 35 years younger than he is but I don't think her age came into play with the mortgage and she seldom works. 

[fireeater]

Yes,  to deny a mortgage because of age is considered age discrimination.   They are not allowed to look at that at all.

There is one person I know well who got a 30 year mortgage at the age of 85.   Actually he and his wife just moved to Florida and I am assuming he got another 30 year morgage on the house they bought there and he would be in his early 90's now.    Add to the age factor that his income is very low and he has very little net worth.   He does have a wife about 35 years younger than he is but I don't think her age came into play with the mortgage and she seldom works. 

Would not the mortgage in the US have insurance to cover the cost in case of death before completion. If it does not then I would think he would to ensure her future since he cannot be sure of surving.

If I remember mine correctly I am sure it did, but it was paid off in eight years so my memory is a little fuzzy now about it.     

[Turboguy]

I am not much of an expert on mortgages.  I only had one in my life so far which was back in 1970 and was a 15 year mortgage on an investment property.   

I did a one minute interenet search and standard mortgage insurance is often required in the case of someone putting less than 20% down.   It will cover any differences for the bank in the case of a default between what is owed on the property and what they are able to recover in a foreclosure.    Typically this runs about $ 1500 per year per $ 100,000 borrowed.

There are insurances that will pay off the mortgage in the event of death of the home owner.   This is something different.   Now tell me what you think the premium would be for someone like my friend who is now 91 or 92.   I am not really asking since I don't know but I am sure it would take it out of the range of affordabilty.   His income in Florida will be about $ 1700 a month.   I would bet the insurance premium on that amount at that age would be that much.

[fireeater]

With his age I expect his insurance would be not affordable with his income.

Here I expect. considering his income level, he would have probably been denied the mortgage. But not due to his age, that would be discrimination.

But whether he had the ability to meet his living expenses, as well as the actual money to be repaid. Probably one of the differences between the banks there and here.  The banks here do not like to have to foreclose on someone so they ensure the peson can afford that actual amount given.

[Eduard]

How is keeping track of the obvious age discrimination???  

The concept of discrimination is essentially this : considering factors for a decision that have little or no bearing on a task but is based on preconceived prejudice.  

           That's why there are no men waiters at Hooters restraunts : gender does matter in deciding whether or not you have boobs to flash at people to get them to order more food and alcohol and pay tips.  

           But in theory men and women have an equal shop at an office job at xyz corp, since both men and women can theoretically do the job more or less equally well.  (of course, this is hogwash : men would probably do better work if the job were at an oil or heavy equipment firm, and women if it were an advertising agency)

Well, a long term agreement that you are OVERWHELMINGLY LIKELY to renege on because of age doesn't make any sense.  No matter how healthy the 85 year old is relative for his age, the odds are infinitesimal that he will live long enough to make the last payment.

Maybe he has enough assets to buy the house outright, and is just getting a mortgage in order to avoid tying up capital.  A legitimate financial decision, so long as you maintain sufficient assets in protected asset classes.  (meaning, leave some money in the bank)

I have to agree with Johnny on this one. Insurance companies make their decisions based on age, health and lifestyle factors. No one considers that discrimination. They will not write certain types of policies based strictly on age factor. It would only make sense that mortgage companies would follow the same logic.

[Eduard]

Question:
One thing that is a bit of a mystery for me and maybe someone has an explanation.
Russian mortgage industry (Ipoteka) is still very new and the vast majority of Russians by real estate for cash.
I could understand how our financial crisis here in the US would effect Russia if like here the whole real estate industry was based on people's ability to get and repay mortgages. But if people pay cash for houses and apartments in Russia, why is the marked down 30%?

[Turboguy]

I will agree that insurance companies look at age.   I doubt that he has insurance that will pay the mortgage in the case of death.    His income here would have been higher than it will be in Florida and I agree that even though they don't look at age  they do look at income.   If he applied for the mortgage before moving down they would have looked at the last few years income which probably would have qualified him for a mortgage.  

Here he was famous and that got him a radio show and DJ opportunities that added perhaps $ 20,000 to his income.   There he will be an unknown except for a few transplants from Pittsburgh and he will be relying on SS and a small pension unless his wife works which she is capable of doing.   He made a lot of money when he was younger, but has nothing now.  

[fireeater]

Question:
One thing that is a bit of a mystery for me and maybe someone has an explanation.
Russian mortgage industry (Ipoteka) is still very new and the vast majority of Russians by real estate for cash.
I could understand how our financial crisis here in the US would effect Russia if like here the whole real estate industry was based on people's ability to get and repay mortgages. But if people pay cash for houses and apartments in Russia, why is the marked down 30%?

I will leave the Russian question to someone more an expert of that.

But a country may be dragged into a slowdown and the problems with the economy because of those effecting other countries. That is our case here, we have been effected because of others, more then by anything done wrong here. The world is now connected in too many ways for problems in one area not to effect your own.
 
The price of oil may be one now, I know some of the oilsands in  Alberta have been shut down as it is no longer profitable to operate them. Which will now effect the economy in that region

Yet we are still optimistic here, on the economy recovering, instead of getting worse.

[andrewfi]

The Russian RE price boom was based in part upon the availability of mortgages but its collapse is not related to the US market. Pricing if RE in Russia moved into a bubble mode wherein the underlying factors of price ceased to be considered and many people thought they could make profits by taking a long term and illiquid asset, real estate, and treat the asset as a short term and liquid one. In the end, everywhere the same thing happens, the market takes control and prices move toward those compatible with the underlying market factors - primarily the ability of the market participants to afford to participate in the market.

The complicating factor was, in very simple terms, the dual factors of banks buying debt frm the US, that debt included very poor quality lending overstated as being good quality debt. Secondly, banks became unable to trust each other and so interbank lending became expensive and difficult, meaning that even cash had become illiquid. This meant that people could not get credit (mortgages) and could not get extensions to exisiting borrowing to aid cash flow.

[jb]

A good understandable explanation of how wealth is created can be found here:

http://video.google.com/videoplay?docid=-9050474362583451279

[Eduard]

A good understandable explanation of how wealth is created can be found here:

http://video.google.com/videoplay?docid=-9050474362583451279

wow, this is an eye opening video! And it truly is the best kept secret! Amazing!
question: so if Debt is how banks create money, why aren't they loaning money now when they need it most?

[Johnny]

As I understand it, the banks just made a stack of bad loans, so they aren't eager to just make a bunch more.  A bunch of classes of loans turned out to be bad risks.  Also, these "credit default swaps" are obligations that many banks hold that make it unclear how much money a particular bank actually has at the moment. 

As for the creation of money : it is the net result of a system of banks, not a single individual bank, that makes a difference.  Individual banks can't just create money : whenever they make a loan, they do have to have the money on hand to make the loan with.

[jb]

As for the creation of money : it is the net result of a system of banks, not a single individual bank, that makes a difference.  Individual banks can't just create money : whenever they make a loan, they do have to have the money on hand to make the loan with.

Not true,  watch the video.  Banks only need a small percentage of the money they loan in reserve, hence they create new money with each new loan.