I disagree with this post because I disagree with the premise that interest rates are set soley on risk, while someone can or may be charged a higher interest rate based on risk(credit history, liabilities, etc) interest rates in general are set based upon liquidity calculations, fed fund rates, prime rate, cost of funds, etc. For instance if a FI advertises a 4.5% fixed rate and you meet the debt to income ratio's, collateral is of necessary value you will be charged 4.5%, and that rate has little to do with risk. Now if a FI decides to make an exception loan which are outside the 80/20 LTV standards then you can see an increased rate based on risk or an exception loan based on poor credit history, collections, poor debt to income ratio, etc then you will see that also. These loans are somewhat rare and are well "exceptions" at least at the smaller bank where I work.

 

This is part of the risk analysis. It just happens to be part of the formula and not a separate underwriting task.

This is part of the risk analysis. It just happens to be part of the formula and not a separate underwriting task.

 

True but you will be simply denied the loan and not charged a higher interest rate based on risk which I think is what LN was suggesting. If I'm wrong about my assumption accept my apologies.

True but you will be simply denied the loan and not charged a higher interest rate based on risk which I think is what LN was suggesting. If I'm wrong about my assumption accept my apologies.

 

Very few loans fit nicely and neatly in the advertised rate formula. I sit on a bank board and I am the credit committee chairman. Risk always drives rates, especially with the new crack down by regulators. The last thing a small bank wants is to have the regulators tell them to move capital into loan loss reserves because of the rating of a loan. This is a big, big problem right now.

Very few loans fit nicely and neatly in the advertised rate formula. I sit on a bank board and I am the credit committee chairman. Risk always drives rates, especially with the new crack down by regulators. The last thing a small bank wants is to have the regulators tell them to move capital into loan loss reserves because of the rating of a loan. This is a big, big problem right now.

 

Are you on AlCO? Risk can move rates but it published rates are "set" banks, at least mine doesn't set rates for each individual customer which was my main point because I thought that was what LN was suggesting. Our rates are set in ALCO based on Liquidity risk, capital risk, interest rate risk, and market risk. So rates are set on risk just not necessarily individual borrower risk. I agree with you on the last sentence, nothing quite like classifying loans that have been on the books for decades without ever so much as a late payment. The message in Washington is start lending but when the boots hit the ground with regulators it is a different story.

I disagree with this post because I disagree with the premise that interest rates are set soley on risk, while someone can or may be charged a higher interest rate based on risk(credit history, liabilities, etc) interest rates in general are set based upon liquidity calculations, fed fund rates, prime rate, cost of funds, etc. For instance if a FI advertises a 4.5% fixed rate and you meet the debt to income ratio's, collateral is of necessary value you will be charged 4.5%, and that rate has little to do with risk. Now if a FI decides to make an exception loan which are outside the 80/20 LTV standards then you can see an increased rate based on risk or an exception loan based on poor credit history, collections, poor debt to income ratio, etc then you will see that also. These loans are somewhat rare and are well "exceptions" at least at the smaller bank where I work.

 

Go talk to your commercial lending folks if you don't think risk affects interest rates offered to a specific commercial borrower.

 

And it affects consumer lending too, just not perhaps on an individualized basis. If banks have to worry about the type of cram down mentioned in the referenced bill, they will have to get a higher margin on their consumer loans (which it of course does by getting a higher interest rate) to address this additional risk.

Believe me I understand your point, but I may be more willing to accept accelerated payment terms if the government had "bailed" me out. I guess my question becomes if the banks are to big to fail and are worth saving by the government then why aren't home owners? If you say the banks weren't worth bailing out then I accept that, fair enough. However for representatives to support the bailout and then turn thier backs on constituants is ultra hypocritical IMO. Which leads back to the original point of this thread, there is a reason FI's are the biggest campaign contributors in this country.[/QUOTE]

 

 

Of course there is a reason financial institutions are large contributors and its the same reason that unions are large contributors and PACs of all sorts are large contributors, etc. etc. While I'm not Polly Anna, there are plenty of reasons for Reps and Sens to oppose this bill other than what I think you are proposing: that they were "bribed" by contributions from banks.