There’s the really simple answer and the *really* complicated answer. It’s eli5 so we’ll go with the easy answer.
A combination of extremely high interest rates and extremely *low* construction of new residential units means that the number of new mortgages has dropped *extremely.* Prices of houses have gone way higher, costs of mortgage loans have increased substantially.
As a result, fewer people are buying new houses. Mortgage lenders make money when people pay interest on their mortgages. Fewer mortgages, less money coming in.
But the lenders are still businesses. They still have to make payroll, pay rent, manage their own debts. So they have costs. And because there’s so few mortgages being loaned out right now, the cost of being a mortgage lender has actually become, for many businesses, more expensive than the income they generate on interest payments.
If you make your money selling X and fewer people are buying X, then you can actually lose money.
If there’s an economic downturn then homeowners may lose their jobs and may stop paying their mortgages. Now the mortgage company isn’t recovering the money that they originally loaned out. Potentially hundreds of thousands of dollars. And then the downturn in home prices means that the bank may not be able to recover the loan even after retaking possession of the house to re-sell, which could take many months or years in any case.
Total up all the good mortgages vs the bad mortgages and it’s possible to be, on average, losing money.
If there’s an economic downturn then homeowners may lose their jobs and may stop paying their mortgages. Now the mortgage company isn’t recovering the money that they originally loaned out. Potentially hundreds of thousands of dollars. And then the downturn in home prices means that the bank may not be able to recover the loan even after retaking possession of the house to re-sell, which could take many months or years in any case.
Total up all the good mortgages vs the bad mortgages and it’s possible to be, on average, losing money.
If there’s an economic downturn then homeowners may lose their jobs and may stop paying their mortgages. Now the mortgage company isn’t recovering the money that they originally loaned out. Potentially hundreds of thousands of dollars. And then the downturn in home prices means that the bank may not be able to recover the loan even after retaking possession of the house to re-sell, which could take many months or years in any case.
Total up all the good mortgages vs the bad mortgages and it’s possible to be, on average, losing money.
There’s the really simple answer and the *really* complicated answer. It’s eli5 so we’ll go with the easy answer.
A combination of extremely high interest rates and extremely *low* construction of new residential units means that the number of new mortgages has dropped *extremely.* Prices of houses have gone way higher, costs of mortgage loans have increased substantially.
As a result, fewer people are buying new houses. Mortgage lenders make money when people pay interest on their mortgages. Fewer mortgages, less money coming in.
But the lenders are still businesses. They still have to make payroll, pay rent, manage their own debts. So they have costs. And because there’s so few mortgages being loaned out right now, the cost of being a mortgage lender has actually become, for many businesses, more expensive than the income they generate on interest payments.
If you make your money selling X and fewer people are buying X, then you can actually lose money.
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