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So everyone is saying the banks are in trouble.
I don't get it.
The loaned money to people to buy a house.
they have made money on the interest up until now.
Now they get to take the house away from the people.
So they made money. And have the house.
they made double money.
what is the problem?

2007-11-08 10:09:19 · 6 answers · asked by Philip Augustus 3 in Business & Finance Corporations

6 answers

doesn't quite work that way. Here's the problem.

First, banks make money through interest on loaning money, not real estate. Their business is generally not set up to handle those types of transactions so by the time they are able to foreclose and pay off the attorney fees they generally lose money or break even at best.

But here's the primary problem. The loans that are in trouble are what is known as 'Sub Prime'. These loans are made to those individuals who do not qualify for a standard (Prime) loan due to credit history, income to debt ratio and/or low down payment or a factor of all three. Many of these loans were done through a fixed/adjustable type of mortage that is set up with low fixed interest rate for the first few years and then switchs to an adjustable rate. So, people get into the loans (who could not really afford them) with little or no money down and barely able to make the payments. Then a few years down the road, the adjustable rate change kicks in and they find their $900 house note jumps to $1,600 and they can't afford it any longer.

So.. the bank gives them months to try and come up with the money and then forecloses on them which takes another month or so before they can actually take possession of the home and if the people don't move they have to go through the eviction process which takes even longer. So now... 6 months after the last payment is made the bank can finally do something with the home. 75% of the time the people who are being evicted leave the home is a state of disrepair, appliances gone along with anything else they can remove (light fixtures, A/C units, etc.). So the bank ends up with a home worth less than the amount originally paid for the home and since the loan was made with little or no money down, the bank is holding ALL the loss.

Now.. this is happening alot in lower income neighbor hoods so the housing market is taking a beating making the home worth even less.

Now, I do believe that the banks set themselves up for this fall, but I put more blame on the unscrupless mortgage loan agents convincing new home buyers to sign into a loan they can't afford and don't have the money for. Then when all is said and done, the bank is screwed and left holding property they can't break even on, the buyer now has a foreclosure on their credit history and probably can't buy a home for years in the future while the Mortgage Loan Agent... he's made his commission and has moved on and has NO reprocussions what so ever.

Just my humble opinion!

I hope this answers the question!

2007-11-08 10:27:26 · answer #1 · answered by wrkey 5 · 0 0

The problem is that the people lending the banks the money don't trust the banks to pay up when the public lose their homes. The mortgage lenders don't get all their money from people paying their monthly mortgage payments. The mortgage lenders need a more reliable source of income and that is money lent by other banks, bank to bank lending.
It's this source of funding that dries up when people start being unable to pay their mortgage installments. The lending banks start to get scared that the mortgage lending bank will run out of mortgage income. The houses that are repossessed still need to be mortgaged out again to generate income so the risk is still there for the lending bank.

2007-11-08 18:19:56 · answer #2 · answered by Anonymous · 0 0

They lost the future income (profit) on the mortgage, which was already on the books as an account receivable, and they also lost their liquidity on their original investment. Sure they have a house, but until they sell it, they don't know how much of their money they will get back. In the meantime, they're incurring daily carrying and maintenance costs on the unsold property.
Most importantly, they are wasting Time, which in finance, is the machine that makes the money.

2007-11-08 18:21:41 · answer #3 · answered by righteousjohnson 7 · 0 0

Now the banks will be stuck with houses they cannot unload and payments they will not receive. It's a very bad situation- scary for all.

2007-11-08 18:14:17 · answer #4 · answered by ♥♣♥ 4 · 0 0

They have a house that they can't sell, and they don 't have the long term income from the loan that they were counting on.

2007-11-08 18:12:16 · answer #5 · answered by czekoskwigel 5 · 1 1

Seems mysterious does it not, and most folks are still paying the mortgage on time.

2007-11-08 18:13:33 · answer #6 · answered by .skjceuafrepiuahfpoefhpieuaf 3 · 0 0

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