In a layman's eyes, no offense to loan brokrs, 'was just askng 'bout would happen to houses that forecloses?

Question

Somehow, there's someone out there that's carrying the burden. Where did the money go? Who has it. Where was it in the first place? Are bank account holder be affected? If you will answer, please don't get carried away with being upset. This is a good question and answer topic because we have kids out there who wants to learn. It could be your kids.

Answer 1

Most houses that are foreclosed are insured in one way or another. If a house is mortgaged for more than 80% of its value in a single mortgage the borrower will pay private mortgage insurance or an FHA premium or the property will be insured by another government program. The banks have found that they are usually safe with an 80% loan to value ratio. That means they usually can recover 80% of the home's value even if they have to foreclose. It is only the secondary lenders (home equity loans, etc.) that are really hurting right now. Despite what you read, most areas of the country are not witnessing a tremendous rise in the number of foreclosures. Foreclosures are up, but the numbers are in the thousands, not millions.

It is also important to note that these houses are not simply abandoned. They are sold and re-enter the housing market.

Answer 2

The Lender loans $$$ based upon the value of the home (and other factors). The Borrower pays it back. The burden is on both (Borrower owes money to the Lender who has a "risky" venture in giving out that $$).

A foreclosure occurs because the payments have stopped. Money already paid by the Borrower is applied to the principal balance. After the foreclosure sale (state law dictates how this occurs), the highest bidder takes the property and the original Lender gets paid in full. If no bid is accepted the Lender will hire a real estate company to list and sell the home. Most of the mortgages are held on the secondary market - not your local bank (national banks excluded). These giant corporations are affected by foreclosures. However, these same companies hold 100's of millions of dollars in mortgages so the small percentage that go to foreclosure do not adversely affect them as much as you might think. And in almost every case, the Lender will recoup all or most of the loan.

Answer 3

A house that is foreclosed upon means that the bank did not receive the money it was owed in time. They will kick the people out living in the home by use of police force if necessary and sell the home on the open market. The banks take market value like anyone else. Sometimes they will sell short on it but mostly sold at market value. The money gets paid back. No bank will willingly take a loss.

Answer 4

The lenders and their investors bear the burden of these foreclosures. I recently noted an article in a business publication indicating that, if all the folks who are currently in trouble facing foreclosure end up going that route, the loss to lenders, investors, and others will top $170 billion nationally.