Data Intelligence, Business Analytics
I believe so. Here are some interesting thoughts on this:
You talk to a mortgage adviser at (say) Wells Fargo bank. You are interested in financing, own > 50%, have 2 salaries (your wife + yourself) that represents more than 50% of the amount you want to refinance, can make a 30% down payment and have an external income source (business) that is more than the two salaries combined. You and your wife have been in the same line of work for 20 years, and you have great credit. Indeed, you think that refinancing might be a bad idea as you could pay the full balance in cash, within three years.
Now before the mortgage agent starts actually looking at your numbers, the conversation goes like this:
[Agent] Can you guarantee that you will still have your job in three years?
[You] Nobody can guarantee that.
And the story is finished: you don't qualify. At least they have the courtesy of not wasting your time and provide a negative answer right away, after a 10-minute chat.
If you think a bit more about this, you are wondering - how can they make money by offering such low interest rates? After all, a bank is a business, and a business exist to make a profit. Could you offer a loan to someone for just 4% and hope to make money? No, it does not make sense.
Finding #1: Nobody gets a 4% loan because it is not profitable for the bank.
Note that they turn people down right away. It's not "bait and switch" where you are offered 4% and ends up getting 12% - this practice could be subject to a class action lawsuit. Instead, it is "bait and turn down". Quite likely, banks have government incentives to advertise these low rates, but no business interest in servicing them.
Finding #2: The 4% rate is fake. The real interest rate must be much higher.
Knowing that, you are happy to learn that your bank is not losing money in ridiculous loans. It also explains why home prices continue to fall: because the real interest rate keeps going up despite advertised rates.
Finding #3: If you have cash, you can lend money to a mortgagee, and offer a 9% interest rate.
Since no matter how great the mortgagee's credit is, he will be turned down everywhere except by private investors who don't have to comply with banking regulations.
Finding #4: Banks could be more profitable by eliminating their mortgage departments.
Why don't they just do it? Probably because of government regulations and bad publicity.
Question: How do banks make money today?
I don't know. They try to sell you platinum bank accounts where all fees are waived, yet it looks to me like fees are now their only source of income. Could someone can better answer my question?