Michael Lewis Quote
Household was making loans at a faster pace than ever. A big source of its growth had been the second mortgage. The document offered a fifteen-year, fixed-rate loan, but it was bizarrely disguised as a thirty-year loan. It took the stream of payments the homeowner would make to Household over fifteen years, spread it hypothetically over thirty years, and asked: If you were making the same dollar payments over thirty years that you are in fact making over fifteen, what would your effective rate of interest be? It was a weird, dishonest sales pitch. The borrower was told he had an effective interest rate of 7 percent when he was in fact paying something like 12.5 percent. It was blatant fraud, said Eisman. They were tricking their customers.
Household was making loans at a faster pace than ever. A big source of its growth had been the second mortgage. The document offered a fifteen-year, fixed-rate loan, but it was bizarrely disguised as a thirty-year loan. It took the stream of payments the homeowner would make to Household over fifteen years, spread it hypothetically over thirty years, and asked: If you were making the same dollar payments over thirty years that you are in fact making over fifteen, what would your effective rate of interest be? It was a weird, dishonest sales pitch. The borrower was told he had an effective interest rate of 7 percent when he was in fact paying something like 12.5 percent. It was blatant fraud, said Eisman. They were tricking their customers.
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