In the wild and wacky days of the savings and loan industry (pre Garn–St. Germain days and even after) the idea of “borrowing short and lending long” was considered a recipe for financial trouble. Of course, back then rates were higher and the issue of deregulation was considered a fallacy because the government allowed for deregulation of assets, and then stupidly ignored deregulating liabilities at the same time. (It’s complicated, trust me.) Today, a bank can collect deposits via CDs and checking accounts, pay 1% for that money (if the consumer is lucky) and lend it out at 5%, making a sweet 400 basis point gross profit before expenses. So, why sell that loan to Fannie Mae, Freddie Mac or pass into a GNMA MBS? We all know that 30-year mortgages have a true life of seven to eight years. Why not run the risk of holding such paper against one- to two-year time deposits? Why indeed. We understand more banks are starting to portfolio home mortgages – and not just jumbos. Stay tuned…
In the wild and wacky days of the savings and loan industry (pre Garn-St Germain days and even after) the idea of “borrowing short and lending long” was considered a recipe for financial trouble. Of course, back then rates were higher and the issue of deregulation was considered a fallacy
