Question about all these homeowners going into foreclosure?

Question

Aren't the financial institutions hurt when the people default on their loans? They now have a home and no money coming in. Why are these companies not working with these people and trying to keep them in their homes?

Answer 1

Many lenders, especially reputable, respectable lenders, WILL work with borrowers who are having problems. It costs the lender money to foreclose, and so we lenders don't want to do that.

Most people get several months behind before they even tell us there's a problem. By then it's a big problem. They owe 4 or 5 months payments, plus the current payment. If they're having trouble making the current payment, how are they going to catch up the old payment? In the beginning of a loan, most of the payment is interest, so very little goes to principal...it can become a vicious circle.

That's why responsible lenders only lend as much as the customer can afford.

So remember to do something right away if you're having trouble with your payments. That's the best chance you have of getting straightened out.

Answer 2

The lenders have already made huge profits just by originating all of these bad loans, and then packaging them off and selling them to investors and hedge funds.

If they have to take some losses now, that just eats into the profits they made from the bad decisions in the first place. They may have made $10 billion from bad loans and are now seeing losses of $2 billion. So, their profit has declined from $10 to $8 billion. That's not really enough to persuade them not to make bad loans in the future.

But it is a little surprising they don't work with the homeowners, even if they modify the loans and take slightly less for a while. It keeps the properties out of foreclosure while the real estate market recovers, and they can foreclose in a few years if the homeowners default again, but with a lot more equity.

Hope that explains it.
ForeclosureFish

Answer 3

the owners of the loans are indeed hurt when a property goes into foreclosure. one published estimate is that a foreclosure costs the loan owners about 50k. I assume this varies by size of loan and the condition of the resale market -- and thus is likely to be too small in many of the present cases.

however, when the "owners" of a home manifestly can not make even the initial payments [for an adjustible rate loan] the likely loss on foreclosure begins to look like small beans compared to the loss in value of the payments they aren't making. From the viewpoint of the loan owner, annual collections must total more than the taxes and insurance -- which are actual cash outflows without which the entire loan is a loss. Further, some cash to the loan owner [investor] is required -- servicing the loan costs money out of pocket, too.

so the investor/loan owner makes a hard choice -- do we accept less than what is due to us or do we eat the loss now?? If we take less today, will we ever get the remainder of our money or will the situation just get worse?

As I'm sure you've seen, the stock markets want the investors to recognize all of their losses as soon as possible [which is why CitiGroup and Merrill Lynch now nave new CEOs].

***
from the viewpoint of the home's "owners", if you are living in a 4000 sq ft place but your budget is really for a 1400 sq ft place, you are far better off to recognize the truth and move to somewhere that fits your budget -- even the utilities and taxes on the bigger place could easily be too much for your income.


does this help?

Answer 4

very good question, it appears the lenders are willing to take the hit to get what cash they can and turn it over. they are still hoping the majority of folks paying 8+% interest will keep paying, rather than work with folks who arent paying, they i am sure have tables and charts that show those who arent paying now are never going to pay no matter what the lenders do and they are right. you cant give them the money for free, and i have seen borrowers not even pay principal let alone interest. like everything else its a numbers game and the lenders dont care about you as a person or human being, the drive has alway been to make money, so now they will just be a little more careful. however, i think the days of cheap interest rates are gone for a long time, the money will be loaned out at 6-7% fixed rates to those with good credit so see u and i pay for this mess, and those with weak medium credit will pay more, and over a short period of time the lenders will recoup their loses. and i assure you the upfront money made by the lenders in fees and closing costs ie. pts. processing orginiation helped to offset any short fall they are experiencing now. yes some have gone out of business, but you should have seen the deals they were lending on, the borrowers were in trouble before closing but the idea was to put heads in beds and worry about it later. well its now later and lots of folks are paying the pipper. and i predict it will continue to get worse for the next 36 months. I dont know about u but i am sitting with a 4.99% fixed rate on a 15 year note, with no prepayment penalty, i have about 70% equity in my home,and no way will i ever refinance this house, i will never see that rate again and i dont think anyone out there can match or beat that rate in todays world.

Answer 5

The idea is that they get to keep a valuable piece of real estate if the mortgage is not paid. Like they could win a lot of money in real estate holdings. The money in mortgage holdings was bring in some cash but not a big foreclosure amount. The bank wont take a chance unless it will make a buck. You know at your bar the beer is cheap but the peanuts are making the profit.

Answer 6

Many of these "subprime" loans have been sold into CDOs (exotic bonds) that are now owned by outside investors, like hedge funds and investment banks. The loan servicer (company that collects the mortgage payment and manages the impound accounts) doesn't actually own the loan. They still have to pay the new loan owners and can't modify loan terms without the CDO owners' concurrence.
A very convoluted situation. Its not like the old days when you got your mortgage from the ABC Community Bank, who kept the loan on their books.

Answer 7

They should be!! If not more foreclosrues will keep coming out on the market and lowering home values. I ask myself that questions too. Some banks do automatically send out packages containing alternates to foreclosure so that homeowners can begin to weigh in their options.

Answer 8

It seems that most of thes banker fail to tell the home owner the can make extra payments against the principal to bring the interest down. They may have it in small print, But you never really hear of it.

Thats What I did when I got over time pay at work. All it took was a little at a time.

Answer 9

It appears that each bank is different and at the moment the impact is being seen on Wall Street. But when homeowners with issues are trying to work with the bank, they get the run around. The thought is that when it really gets bad, then they will be working with mortgage borrowers.

Answer 10

could be no longer a bailout. greater like an intervention. the government ought to agonize that when foreclosure initiate the valuables values will avalanche downward to the ingredient that their tax exams will must be adjusted downward. they ought to restrict foreclosure till the industry recovers. residences must be moved they visit pot mutually as placing. So bankers themselves won't make as lots via foreclosing and waiting till the industry returns. If something this might trash the industry worse than it already is. Any beneficial indication on the component to the government ought to breath some existence into the houuseing industry.