What is the worry about sub-prime, if the home owner dont pay the home gets repossed.?

Question

I really can not understand why the worry about sub-prime, if you dont pay the bank or morgage company resposses house and they can sell it again and get their money back. They never lose nothing, but, perhaps high interest that they charged in the first place. It is only a paper loss not a dollar loss. All this fuss about hedge funds losses is only wall street cronies crying cause they did not get their over priced home money and interest on time, it is the rich crying that they did not make as much money as they wanted. They still got material holdings in that they hold title to foreclosed houses. Too much about nothing, but, the rich trying to get richer as usual circumstances in a few controling the wealth and the middle and poor suffering from the rich greed and incompetance.

Answer 1

Let us start with the things you said that are flat-out wrong:

1) It is only the rich who are hurt
The loans that were given were bundled together by the scores and the hundreds and turned into "Mortgage-Backed Securities" which were purchased by a wide-range of investment organizations. By the way - NO HEDGE FUNDS INVOLVED. These securities were bought by Mutual Funds, Investment Banks and Union Retirement and Pension Funds.

That means about 10million people have their retirement and pension monies at risk.

2) This isn't "real money"
Every one of these loans paid for a house, paid off a seller, paid for closing costs, taxes and fees. Every penny was real money paid to real people. We are talking about $1TRILLION in real money lost.

3) They (the banks) never lose nothing
I remember the 1980 S&L Debacle (yes, I'm that old) when hundreds of Savings and Loans went out of business because they were giving out inflated loans with creative terms like ARMS and balloon payments and the like, all from the surity that real estate prices would continue to rise so that if there was any problem you could always foreclose and sell the property to get your money back.

It cost the country $330billion dollars (in 1980 value dollars!) for the lost value. Mortgages became difficult to get and money became incredibly tight as losses mounted. Banks and S&Ls closed. People's savings and investment accounts were frozen for weeks and months while the mess was sorted out. The construction industry went bust and the country went into the worst recession since the Depression of the 1930s. The real estate market didn't recover for 5 years.

3) It is the rich crying
Since investors on wall street are no longer financing subprime loans, over 2million people who had gotten loans under the belief they could refinance no longer cannot. This also means that 20% of the people who could buy homes before - the SubPrime borrowers - can no longer buy so we have gone overnight from a sellers market - where sellers could sell there home for almost anyprice, to a buyer's market - where sellers can't sell their home at any price. Housing prices are dropping.

For the average family, their house is their largest and most important investment. To have their home decline in value is a danger and stress felt by 85million people in the USA. If they must sell now or in the next 24 months - due to change in job or other reason, they will lose thousands of dollars, which may well push them into bankruptcy.

The crying you here is not the rich, but the millions of families who will lose their homes, their savings, their credit and their future.

4) Rich get rich and the middle and poor suffer
Actually everybody, rich, poor middle, all suffer when something like this happens. The rich in $2million homes are getting foreclosed on the same way as a poor person in a $50k home.

It is all of our homes at risk. it is all of our jobs at risk (if this pushes us into a recession or a depression).

Answer 2

you have to remember this most sub prome mortgages are 80% -20% loans which means that if the house forecloses then whoever loaned the 20% loses out.
not to mention these homes are short sales if the house has a mortgage for 150k most likely the house will short sale for 80k
so all the lenders that did 20% seconds lose all the money they loaned! nationaly thats alot of money and many lenders are shutting thier doors. hudge fund money is not being put into subprime market because of the risk making it hard for lenders to find money to loan!

as far as the rich crying many hedge funds are funded by retirement portfolios like yours and your fathers they make offered a great return for little risk. some of these funds will take huge lossses.
dont think its the rich who has moeny in the hedge funds alot of the money is not a select few rich investors the majority is people like you and I who only know they have a 401k or something like it.

so y ou are totally wrong when a borrower defaults he ccauses the lender to pay alot of moeny to file in court and then take a lose on what they put out. also be aware home values are coming down so a lender wil be lucky to recoup 50% of what they have put out! not to mention what they have to pay in legal fees to foreclose and auction off!

Answer 3

Your misunderstanding of this issue and blaming the "rich" is a sentiment shared obviously by many and has helped to cause this debacle... People bought frivilously and did not hesitate to walk away when the payments got tough and this has overloaded the market. Good credit worthy people who are looking to sell are being penalized with the overloaded markets which lowers prices. This was initiated by the greedy lenders who utilized loose lending practices, ignorant buyers- some who were taken advantage of and others who did not understand ARMs resetting and used their homes as piggy banks. It is alot bigger than the way you put it. Also, the news ALWAYS slants everything doom and gloom... people are attracted to sensationalism and they buy more papers, watch more tv so advertisers sell more.... it is somewhat of a game.... it also feeds the frenzy....

Answer 4

It takes a lot of time, man hours wasted and money to recover a foreclosed home and there's no guarantee they will bet a buyer at the same price and same interest rate for income and every month that goes by without a mortgage payment coming in to the bank is a lot of lost income - plus with additional foreclosed houses on the market, it takes a lot longer to sell any house - current average housing inventory is 9 months, meaning at current sales to month average nation wide, it could take up to 9 months to sell every house currently up for sale - would YOU want to be the holder of house with no one paying you for 9 months???

Answer 5

First of all, what's to say they can get as much on a sale as the person owed? The market might have gone down, or the house might have been damaged in some way. If you don't think the market can go down, read some of the questions on this forum saying that they can't afford their house, but now it's worth lots less than they still owe on the mortgage.

Answer 6

The USA needs $3 Billion a day from oversees investors to keep our economy afloat. We have a 10 Trillion Dollar Deficit, thanks to Bush. The investors, banks and other financial institutions from Europe and Asia, have a big stake in the lending industries, getting up to 10% interest a year on their investments. If they are unhappy, we are going belly up.

Answer 7

Although I applaud your philosophy, your facts are wrong! Foreclosure right now, in this mkt., is the last thing a lender wants. I have answered this in detail to another questioner. Bottom line, the feds are offering a bailout to citizens right now! This is serious!

Answer 8

I'm not going to answer directly since it is too complex of an issue to trully give it merit.
But I will tell you that the issues you brought up regarding the rich & wealthy is how most countries see our government protecting the few and that is why they really don't like us.