“Banks” will a lose $ if they don’t up the interest rate.
They are not in the business of giving away money or giving a free service.
If the ARMs don’t adjust up, then the lenders or in the case of the MBS (Mortgage Backed Securities) or (CDOs Collateralized Debt Obligations)….
Here are some numbers clipped from a story:
$800 billion market for securities backed by subprime mortgages and $1 trillion of collateralized debt obligations.
This is where the borrowed money originated. A lot of it was other foreign wealth poured into the US and lent out, diced up into securites and sold to investors, sometimes sold back to the foreigners. Maybe this was clever, a big transfer of wealth and debt…but I think it makes the US look worse, deceptive etc.
Money is lent to make money. If they keep the teaser rate or low interest rate, they don’t make any money and US money is losing value plus inflation makes it worth about 3.5% less (around that) annually. Ie, if your boss gives you a “3.5%” raise and at the same time the cost of living goes up 3.5% then you aren’t getting ahead.
