Originally Posted by supton
Seems odd, but if I toss on a tinfoil hat I'd wager the incentive is for people to take out long loans and spend their money elsewhere. The bank is in it to make money, after all.
Not really how it works. Seems to be a mistake anyway. It's the bond market anyway. The banks don't really make any money on holding the note. They resell it it on the mortgage markets so they make their money when they first make the loan and when they sell the loan. Then they don't tie up their money and can make as many loans as they can sell. There's a few big lenders out there like Bank of America which tends to hold onto their mortgages so they have some more flexibility in making the loans so they don't have to be as conforming. Other banks that want to resell have to follow fannie/freddie guidelines.