Before amortization, you would have an interest payment, then you would have a reoccurring balloon that went over like a lead balloon sinking finances and putting people out of their homes. Then along came a formula that was level over the term of the loan, completely covered the principal and interest, and terminated at the end of the loan. Today, most Americans do not have a loan for more than three to five years. It is weird to see someone pay off a 30-year loan. Circumstances change, and a homeowner may sell or refinance. Before 1981, the word “securitize” was not a word. It is not synonymous with “security,” though they sound very similar, like how “liquidable” drops a syllable from “liquidate-able.” Securitize is not the same as security. Homeowners bought mortgages from banks, banks bundled the mortgages and sold them to Wall Street, where they got traded as securitized assets. Then, when homeowners defaulted, that word “securitize” turned out to be a bad word in liquidable language. Suddenly a whole bunch of houses showed up in the Financial District and you cannot trade houses the way you can trade stocks. The concept of a home loan amortized over 30 […]
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