Don't they have a lien on the property? So if the borrower defaults, don't they still have the value of the house. Might not be as much when the loan got originated, but worth something more than nothing.
2007-08-30 02:43:31 · 3 answers · asked by Spartan117 2 in Business & Finance ➔ Credit
It is not that they are worthless in fact, the investing market place is running scared as most of these funds have high risk mortgage loans in them that are currently and probably will continue to become non performing loans, which means the security backing them, that the investors actually buy - as they don't buy the actual mortgages, is not going to return the anticipated returns on investments; and, in fact will possibly cause the investors to lose their investment or a large part of it.
2007-08-30 02:51:50 · answer #1 · answered by H. A 4 · 1⤊ 0⤋
Here is how it works even if the house didn't drop in value:
The company forecloses on the house. This is not a cheap procedure. It requires a lot of expensive lawyer's time. Then they own the house, but what if the old owner is still there? The have to process an eviction. More lawyer bills and another three months! The company has capital tied up in the house and the foreclosed person has probably quit making payments.
A large part of the income for these companies is "loan origination fees". They have to keep making more new loans to keep this income stream flowing. With all the foreclosed houses being dumped on the market and credit tightening, there aren't many new loans to be written.
2007-08-30 11:17:12 · answer #2 · answered by Ted 7 · 0⤊ 0⤋
In very simple terms, it goes something like this -
A person went to a bank 2 years ago to borrow money to buy a house. The purchase price of the house was $200,000, and the bank paid for the house(loaned the person the money to buy the house for $200,000). The bank didn't even require the person to pay any money down.
Today, 2 years later, the market value of the same house is $170,000. So, yes, the bank can repossess the house, but if they can find a buyer, they would lose a lot of money. Besides, the bank doesn't want the damn house...they are in the money business, not real estate.
Hopefully I stated this as simply as possible to help you have an understanding of how this all works.
2007-08-30 10:07:11 · answer #3 · answered by Anonymous · 0⤊ 0⤋