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    #1

    what's the meaning of the underlined?

    Dear all,

    what's the meaning of the underlined?
    Why it is a fraud?

    Thanks in advance.

    The year was now 2002. There were no public subprime lending companies left in America. There was, however, an ancient consumer lending giant called Household Finance Corporation. Created in the 1870s, it had long been a leader in the field. Eisman understood the company well, he thought, until he realized that he didn't. In early 2002 he got his hands on Household's new sales document offering home equity loans. The company's CEO, Bill Aldinger, had grown Household even as his competitors went bankrupt. Americans, digesting the Internet bust, seemed in no position to take on new debts, and yet 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."
    Last edited by Eartha; 19-Sep-2010 at 14:14.

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    #2

    Re: what's the meaning of the underlined?

    If you were making the same dollar payments (during a period of thirty years) that you are actually making (during a period of fifteen years), what would your "effective rate" of interest be?

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    #3

    Re: what's the meaning of the underlined?

    Quote Originally Posted by Koronas View Post
    If you were making the same dollar payments (during a period of thirty years) that you are actually making (during a period of fifteen years), what would your "effective rate" of interest be?
    still confused~

    Isn't it a good suggestion?
    Why it is a fraud??
    Because of the inflation rate?

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    #4

    Re: what's the meaning of the underlined?

    The fraud is explained quite clearly. The payments at 12.5% had to be completed within 15 years. However, the company was asking the customer to imagine that they were made over 30 years, which would make the rate appear to be only 7%.

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