Quote:
Originally Posted by nimbus
That's not a good analogy.
Backers are speculating that the horse would cash and then profit from a percentage of the winnings.
The banks are not into real estate speculation. It's not like the bank was going to get a share of the gains if you later sold the house for a profit.
Actually that's not quite true. Everyone thinks the wave of foreclosures started in 2008 but it happened well before that. People took notice in the rise in foreclosures years earlier. It was so bad that in around 2001-2002 states like Georgia, New Jersey and New York created laws that would curtail predatory lending practices.
Banks were giving out loans not caring, or maybe even expecting, the home to go into foreclosure. When it did go into foreclosure there were many reports that the bank's attorney would not let the property sell at the foreclosure auction for less than market value. Normally they would let it go for an upset price that would cover the losses and fees. They would quickly be able to turn around and sell it. Making money in origination fees and then reselling the mortgage after securitizing it.
They had a steady stream of buyers because they were the ones that were loaning out money. As long as people had loans they could sell the house. The banks made sure everybody that wanted a loan had a loan. Didn't matter if you had little or no income and I remember reading even people in prison were buying houses.
A more appropriate analogy is that you're a backer who can back as many players as you want because it's not your money and you have someone literally printing money for you when you need it. You don't collect a portion of the winnings but you get something from the rake and you make money when they bust.