What Will Happen to Mortgage Co.s' After Foreclosures?

Question

We live in CA and have 2 homes that will be going into foreclosure. Countrywide will not negotiate with us. What will happen to them when they only get maybe half of what all these thousands of homes they leant the money out for? They would have been better off to rewrote the loans don't you think?

Answer 1

They gave loans to people with no business with them in the first place. Rewriting them would not help anyone. It makes no sense to offer perks to flakes and not give honest people the same things.

They are not loosing as much as you think, most of those loans are still payable in full by the people who spent the money. Foreclosure does not relieve people of hundreds of thousands of dollars that they were given by Countywide or other banks.

Answer 2

Any lienholder can try to force a sale of the property through foreclosure, but usually only the first mortgage will get paid off through the proceeds of the sale. It just makes more sense for the second mortgage to try to work with the debtors to find a solution, since they wouldn't get anything from a sheriff sale. If you placed the bid and won, the proceeds of the sale would be distributed like any other foreclosure. The property taxes would be paid first, since the bureaucrats need to get their hands on the money as quickly as possible. Then the first mortgage would be paid off with as much of the proceeds as possible. Then any other liens, including the second mortgage, would be paid in order of when their lien was filed. If there is enough money to pay all of the second mortgage, then they get all of the rest of the money until they are paid off. Then anything remaining goes to other liens or to the homeowners are their gain from the sale. If there is not enough to pay off the second mortgage (or even all of the first mortgage), then the second will not be paid off at all or in full. It will be up to the mortgage company to sue afterwards for a deficiency judgment (an unlikely occurrence). So, just because it is a second mortgage suing for foreclosure, it won't really change how the liens are paid off in the end. You'll still end up with a title that has had the liens on it discharged through the county foreclosure auction. Hope that helps. ForeclosureFish

Answer 3

It is very true that lending companies lose money in foreclosure. Some companies have already gone out of business (these were primarily companies that originated loans and then sold them to investors packaged together. When the packaged loans started to sour some of the investors demanded their money back and the company didn't have it and folded).

Some companies will survive. Countrywide is likely one of these. They do business all over the country and many parts of the country are not suffering like CA is at the moment. They will lose money on these loans. In order to stop losing money, they will lend money only to good credit risks, shrinking credit available to those who are not great risks (sub-prime borrowers). They will try to fit all or most of their losses into a couple of quarter's to minimize the length of time this impacts them. So, for you, they take two losses and they do it in 4Q07. If they re-structure with people like you they risk dragging these underperforming assets into 2Q08 or 3Q09 (maybe you lose your job in 3Q09 and end up in the same boat, just later).

The obvious answer is that Countrywide doesn't agree with your assessment that it would be better off re-writing these loans. They want to cut them out of their portfolio right now.

good luck!

Answer 4

You live in California, where the real estate bubble has burst badly. In most other parts of the nation, real estate values have not fallen like they have where you live. I am in the Upper Midwest, and most foreclosures are selling for close to the outstanding debt on them.

If Countrywide were to 'rewrite' these loans, what would be the purpose ? To take the valuation loss, and then give the mortgage holder a reduced amount of principal to pay ?

Answer 5

They will not neccessarily sell ALL the homes immediately, as this will flood the market and drop the prices further.

Secondly they will LOSE MONEY, but this is their own fault for over-lending to people that would struggle if interest rates rose, and also they caused the problems themselves through this and simply plain old bad advice.

I would agree it would make sense to try to "rearrange" some financing on homes, but it's one of those things the Co decided and I'm afraid you need to live with it.

However, IF the properties are on the market way below "normal" market value, you could always try to buy back at a reduced price, assuming you can find a mortgage lender

Answer 6

not necessarily. They might already have made money on the their loans as they repackaged them in bonds called Mortgage Backed Securities and resale them to investors (i.e the huge Citi, ML and other investment banking write off). Second they might already have written off your loans which means that the losses are already in their books. Finally they have other cash resources to make for the loan shortage they will incure when foreclosing, such as deposit for their banking/deposit branches, principal payments and interest payments on their good loans, refinancing by rolling their debt obligation. For these companies to go belly up you will need a 20 to 30% foreclosure rate or higher. Sorry but these corporations are a business and borrowers like you who played the housing market were the fools not them.

Answer 7

Sorry for your trouble. Countrywide and its shareholders get hurt when they only get half their money back. But they deserve to. They took risks willingly, it didn't pan out, now they have to face the consequences. I do agree with you, by the way, they might be better off rewriting the terms. But that is their choice.

Answer 8

Not to kick you when you are down, but didn't you think this through when you purchased 2 homes? Was it necessity? If not, then you should have been far more aware of your financial situation, and that of the mortgages. Especially after the second house!!

Answer 9

Ouch two homes!?! I don't know your entire situation, but yes in most cases it seams that if the mortgage co's worked out something with the borrower it would be more beneficial for them AND yo in the long run... But, who are we??? we are the peons and know nothing...

Answer 10

yes i agree, maybe you can get someone to buy it before it goes into foreclosure..It takes time..I hear they were halting all foreclosure in Ca for awhile..The courts are not taking anymore.