We did a lot of sub to before the great crash of 08, all of which were in land trusts. My big question has always been, why would the bank call the loan even if the intrest rate went up? Banks make their money on the arbitrage or spread between what they borrow at and what they lend. Lets say the fed runs up to 5% and the bank move in tandem to 9%. Where is the benifit to call the loan? They are still making the spread, depending on market conditions, lending more than likely slowed and growth would have slowed as well. (All assumptions are due to historical info)The only benifit I see to the calling is if it had paid down drasticly. Everyone always sayd it's due to intrest rates but that truely makes no sense especially if you take risk into acount(which banks do). In fact it would seem now would be an even better time todo sub to due to foreclosure/lend ratio. A bank foresloses my $100,000 property and they can't lend $800,000. It takes a LARGE spread in intrest rates to cover that gap.
I understand the theory but the mechanics are not so clear as to the why?
Just to be clear we still have some of our sub to's and BOA knows what we have done. Heck we even have a local branch manager that has helped us with escrow issues.
Brian
I am not wanting an argument on sub to (we are way past that), I would like someone who might understand the backside of lending(no pun intended) and could explain the benifit of ever calling a loan. Anyone ever had a loan call would be even better so I could get details to the why.
