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Originally Posted by docicu3
Not that I am a complete simpleton but exactly what constitutes a bogus or fraudulent mortgage contract and how do they benefit a bank. If you can't pay for the damn thing doesn't it end up as bad debt for the bank. What's the deal here??
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Well they knowingly offered people loans that they couldn't afford. For a short period of time, the loans had moderate interest rates, but then would switch to interest rates that people couldn't afford to make the payments on. They got people to take on these loans by telling them they could quickly refinance the loans with lower interest rates. That worked when the price of the house went up, but not when they went down. Well, they went down. Because people couldn't refinance, they couldn't afford it when their loans switched to high interest rates. So, they would lose the house. The mortgage company originally gave these people they bought the house from like say 500k. Now, the mortgage company owns a house worth 400k, and they paid 500k for it. They want you to bail them out for the 100k they lost. Your asking what was fraudulent, and obviously they were making loans to people who shouldn't of been getting those loans. They often lied about the income of the borrowers etc. Fake cosignors etc. They(knowingly) didn't secure loans properly at all.