Posts Tagged ‘Debt Relief’

Banks Selling Real Estate – A Real Bad Idea

November 23rd, 2022

Is it my imagination, or did I hear somebody out there complaining about real estate commissions?

Anyone who complains about real estate commissions now, is not going to be thrilled if banks have their way and are allowed to sell real estate, something that the American Bankers Association (ABA) has been tried to do by lobbying, pressuring Congress – and paying millions of dollars in the process by way of special contributions – for the past seven years. And it does not matter if banks are not allowed to share commissions. All banks simply need to do, once they are permitted to step into real estate, is to buy brokerage firms and they can share all the commissions in the world without ever once breaking the law. They do not even need real estate licences.

In fact, since we are on the subject of commissions sharing, let’s do a little numbers crunching to find out the ‘commissions’ banks are charging consumers today. They do not call them ‘commissions’ – they call them ‘interest charges’, but fact of the matter is that a fee computed on a percentage basis in payment for a service is a commission. So therefore, the user’s fee charged by a bank to a borrower on a percent basis for the use of a certain sum of capital is nothing other than … a commission.

Banks base mortgage rates on a variety of indexes. Among the most common indexes are the rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations. A few lenders use their own cost of funds as an index, which gives them more control than using other indexes. To determine the interest rate on a mortgage, bankers add to the index rate a few percentage points, cumulatively referred to as the ‘margin’. The amount of margin may differ from one lender to another, but it is usually constant over the life of the loan. The formula therefore, is: Index Rate + Margin = Mortgage Interest Rate. Most banks use a 2 percent margin minimum. When they offer ‘special packages’ to consumers, they typically apply a 3 percent margin, and then offer a 1 percent ‘special’ discount or rebate.