Why bank loans, forcing the mortgage companies and homeowners of foreclosures?

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Are not these companies make more money if allowed to do anything to keep their home and it’s something to lower their taxes cheaper? Not only would they still get money to help the mortgage crisis. Correct me if I’m wrong.
My mortgage advances to make affordable home program, but I do not know what the difference is to choose to refinance or change. My situation is that I really lost their income and at the same time, the value of my home has decreased considerably lower my mortgage balance so that I can not sell and my payments are too high to continue, I’m about to miss a payment this month.

  1. Reply
    February 13, 2011 at 1:45 pm

    You are right but the loans are set up to make money for the bank and by extending it they will lose there investors. On top of that. Banks are famous for spending the money before they receive it so to make so they are using the people that buy and sell homes to make the money they need to satisfy the investors. Which has created the crappy circle.

    THis is only what I see no experience.

  2. Reply
    February 13, 2011 at 1:57 pm

    If a place is worth 200K and the mortgage is for 250K and the owner can’t afford 250K but could afford 200K then I’d say absolutely they should lower the mortgage. They are only going to get 200K if they sell the place (plus have huge costs) so they may as well lower the mortgage in this case.

    However, suppose the place is worth 200K and the mortgage is 250K, but the owner can only afford 150K. In this case the bank would make money (or at least lose less money) by taking the place back and re-selling it (assuming they really could get 250K for it).

    I agree that in many cases (maybe most cases) the bank would be better off adjusting the loan and working with the seller, but certainly not it all cases by a long shot. Alsom the banks do work with the sellers in many cases but I suspect not nearly enough. Part of the problem may be they are just big unwieldy corporations that have trouble getting this sort of think done and maybe in part they are still figuring this all out. Anyhow, I agree that banks should do this more.

  3. Reply
    February 13, 2011 at 2:57 pm

    I wish it were that simple. When you buy a house and get a mortgage you sign a contract. It is not only with the bank, but you are in essence being loaned the money by all the depositors of that bank. Us the people who loan you that money. The bank is our “broker” lending our money to “credit worthy” people. The house is the asset, the house is the property of the bank, until the mortgage has been paid in full and the transaction is completed. If the debtor defaults on the loan, it becomes the full property of the bank, and the debtor “loses” the house. the asset (house) stays the property of the bank. An Asset, beneficial to the owners, or us the depositors to the bank, Unfortunately there are too many ‘foreclosed” homes on the market, and the Banks are having a difficult time selling the asset to make $ $

    Isn’t it a little bit different picture when you think of it as YOUR money being loaned out there?

    I don’t know if I would want my Bank to “forgive” the debt and allow the debtor to stay in the house (asset) at a reduced dollar amount, perhaps only as a renter. Until the Asset could be then sold at a profit, thus making money for us the depositors.

    There were definitely many unscrupulous brokers out there selling “bad loans and really raking in the commissions. A lot of people with really questionable credit got Million dollar homes which they never really could afford .

    I feel sorry for everyone out there who is in a financial dilemma. But I can’t help but wonder if they were just being a little too greedy and made bad decisions. Or lost their jobs; or whatever. We just live in tough times. SORRY!

  4. Reply
    Big daddy
    February 13, 2011 at 3:48 pm

    Why do you think that there is such an uproar about the bail out program? I’m against it as why should I pay for someone to keep their home when they couldn’t plan and budget properly in the first place? You know damn well that if this plan is implemented the tax payers will flip the bill. I really don’t care if the banks make money as their as big a problem as the borrower’s are. they got greedy as well, why should they continue to make money. This society and economy has been in fantasy land for too long, this crisis is long overdue and is necessary to correct the issue. Why make a home more affordable, so they can go out, spend more money and still not pay? This is an arm loan, just in a different format, if you lower a payment, the natural tendency is not to save but spend. Keeping people in their homes will not solve the problem, borrowers need to get realistic and learn how to budget, save and stop using homes as atms. Lenders need to stop approving loans without verifying income (still available in some markets) and in my opinion, stop offering interest only loans, all they really do is create illusion, not value

  5. Reply
    Expert Realtor
    February 13, 2011 at 4:42 pm

    Why should they?

    You obviously have no idea of how banks make money.

    They make money on the interest and closing costs of transactions, and they don’t always lose money on foreclosures either, especially if there is alot of equity.

    Funny that you aren’t even mentioning the LEGALY RESPONSIBILITY of people that bought houses that the couldn’t afford, lied about their income on stated income loans, and want to have their cake and eat it to.

    I DO NOT feel sorry for these people!

    Only the ones that were victims of fraud.

  6. Reply
    February 13, 2011 at 4:51 pm

    Not only would they make more money but our economy would be better. There are loss mitigation companies that can help people save their homes thru loan modifications with their lender. Not much news is going out about it though.

  7. Reply
    Rush is a band
    February 13, 2011 at 5:06 pm

    You are wrong. Here is why.

    First of all, you need to understand how a bank works. I deposit money into the bank. The bank takes this money and makes loans with that money. The difference in interest between what they pay me to borrow my money and what they loan it out for is the source of a bank’s operating income and profit. Out of that difference they have to pay for salaries, buildings, etc.

    Although much larger than this (many people’s deposits and loans are all mixed together), let’s give a simple example. I deposit $ 100,000 in the bank. The bank lends my $ 100,000 to you to buy a house. They give me anywhere from 1% on my money (if it’s a simple savings account and I can go and demand it at any minute) to 4% (if I promise not to use it for 5-10 years) and they are charging you 6.25% for the same money. They will make the difference, the 5.25% on it (or only 2.25% if I have it in a CD) over the year or a total of $ 5250 (not a lot, right?) or $ 2250 (even, less).

    The issue becomes when the money isn’t paid back. I expect my interest payment to posted to my account. If you aren’t paying the loan back then they can’t pay me the interest. If they aren’t paying me the interest, I might go and demand my money back. Now the bank could be in serious trouble, they lent my money to you to buy a house. You aren’t paying it back. They have to find a way to give it back. If they can’t, they are considered insolvent and the bank can fail.

    Banks are required to keep a certain percentage of their assets in cash (so that a certain amount of people can go ask for their money and they have it). Banks are required to do something about bad debt because their balance sheets state that they a certain amount of income coming in. If that income isn’t coming in then they have to try and recover their money. The only way to do that is to foreclose. They need the asset back so that they can sell it and recover some of the money. If they lowered the payment or the amount of the loan, they have to find a replacement for that income stream or they have to have more depositors put money into the bank to keep themselves solvent. If they don’t do it, they fail.

    The greater % of bad loans a company has, the more likely it is to fail.

    It wouldn’t help the mortgage crisis, it would drag it out over years and years. Many would fail (still a good chance that many will fail). Some of those people who were ‘helped’ with lower payments and loans would still default. It would extend the problem by years.

    good luck!

  8. Reply
    February 13, 2011 at 5:17 pm

    some got the answer some answered part of it… this whole bank issues with laons, foreclosures are deeper then what the media portrays.. but i wont get into details except…
    1. collateral debt obligations / hedge funds
    2. monetary policies (fiat currency)
    3. fractional reserve banking

    NOW to answer your core question… yes the banks are taking less then what people owe… its called a short sale (to sale to a new buyer – while the bank “forgives” the lopsided loan amount)…. if the current owner can show they can still make payments if the rates are fixed (the people who are having adjustibale loans) then you can request for a loan modification… if you just lost your job and need a temporary help then you can request for a hardship forbarnace…

  9. Reply
    Mr Financial Freedom
    February 13, 2011 at 6:14 pm

    Lots of great answers.

    I have one point to add. That is the issue of “Moral Hazard”.

    Let’s say I’m upside down in my home and facing foreclosure because my ARM adjusted, and I go to my bank and ask to not only get a low fixed rate, but also to have the lender knock $ 100,000 off my loan balance. They agree. Later that month I tell my neighbor about the great deal I received. He’s current on his payments, but because he bought at the same time that I did, he is also upside down in his property.

    What does he do? He stops making his payments and when foreclosure is filed he’ll expect to receive the same sweetheart deal that I received.

    Then lets say my house drops another $ 50,000 in value. What do I do? I stop making my payments again and wait for another sweetheart deal from the bank.

    Where does it end? Multiply this by millions of homeowners and you quickly conclude that this slippery slope will actually drive home values down further than foreclosing on homes where people cannot afford them and selling them to people who can.

    I believe that in the long run the economy and even the people who lose their homes will be better off. Get the damage down now, quickly and let us all start to rebuild.

    Mr. Financial Freedom

  10. Reply
    February 13, 2011 at 7:14 pm

    Modifications are generally designed for people who are late on their mortgae and/or owe more than the home is worth. Their’s no closing costs and the ‘new’ loan would be with the same bank. Generally less paper work is required.

    A refi involves more paperwork and and just about anyone who can afford the closing costs and has the required creid tcan qualify for the refi. A refi very often is with a differnet bank.

    Because you’re upside down on the mortgage (meaning you owe more than the house is worth) you may qualify for a mod. If you do, and the terms of the mod are better (that is, you can actually afford the home after the mod) then I’d say jump on the mod. One thing to keep in mind. Sometimes you are required to bring the mortgage current in order to get the mod. If this is something you have to do but don;t have the funds to get current, beg and borrow to get that money from family or friends.

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