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But what does it mean to resell (let alone securitize) a mortgage?
To understand this, you have to look at it from the bank’s point of view. This product gives them a monthly stream of payments – about ,000 per month for a 30-year, fixed-rate mortgage on a loan amount of 0,000 (numbers are very approximate), but that stream is not guaranteed; the homebuyer might not be able to pay (in which case they might have to renegotiate or foreclose, both of which are costly), or might pay the whole thing early.
(The numbers are illustrative only.) Then, as any explanation of the subprime crisis says, banks started reselling and securitizing mortgages.
You can also think of this as Bank B loaning you the money for your house, with Bank A acting as an intermediary.
If Bank A resells your mortgage to Bank B, Bank B buys your payment stream from Bank A in exchange for a lump sum of money.
Under stable market conditions, the lump sum that B gives A will be about the same as the lump sum you received from A (in which case A only makes money from various fees).
Note that it does not describe what has happened since August, which is that we have a liquidity crisis/crisis of confidence as well.) Even general news accounts presuppose an understanding of terms like “securitization,” “CDO,” and writedown.” So I thought I would provide my own translation.Historically local banks took deposits from savings account customers and lent money to homebuyers.