Why don’t banks allow customers that are in danger of defaulting to refinance at a terms they can afford?

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While I agree that this mess is of the buyer’s own making, I can’t understand why the banks and mortgage companies won’t allow the people to refi into a loan that they can afford to pay. We all know that banks don’t want houses (non-performing assets) especially in MASSIVE quantities. So why in the world would they refuse to refinace a customer into a new loan that they could afford? Instead of a happy loyal customer paying them in full for the next 30yrs, they end up with a house they didn’t want in a market that’s tough to sell anything in.

Banker’s and mortgage brokers, care to help me out on this one?
Pecola, your answer makes sense. I guess it would depend on how many in a particular package were in default.

rlloydevans, I appreciate your answer and agree with you if it was a fixed rate mortgage. What I’m referring to is ARMs. Why would any lender want a borrower to default on an ARM at 13% interest when the borrower could afford the loan at 7%? I understand that the borrower agreed to the terms of the ARM and should make every effort to pay. I just don’t understand foreclosing (in massive quantities) when a lower interest rate would keep the customer paying for another 25+ years.
You’d think even the investors backing the loans would want that. If the mortgage companies and banks go “belly up”, how does that benefit the investor?
Hollywoodmelody, thanks for the reply, however, you’ve apparently missed the point, too. I come across motivated sellers almost DAILY who could afford their mortgages JUST FINE until they adjusted to nearly double the original rate. Why won’t lenders reconfigure these loans in the cases where it makes sense (borrower has same job, debt load, etc. that they had when the loan originated. Why would a lender want yet another house in a market where foreclosures have skyrocketed and their coffers are flush with non-performing assets? I’m no banking expert but, common sense tells me that a loan paid back at 7% for 25 years is far better than a foreclosed home loan that paid from 5-13% for the first 5 years and pays NOTHING, ZERO, ZIP, ZILCH from now on.
As if that weren’t enough motivation to “work with” their borrowers, now many will have ruined credit, making them worthless as future customers for many many years to come. TY for your responses, but I’m still looking for an answer..
Felix,

Did you even read the question? How can a foreclosure be more “in their best interest” than a borrower paying a mortgage at 7% for 25 years?

5 Comments
  1. Reply
    rlloydevans
    May 14, 2011 at 1:33 am

    ACtually, the reason for this is fairly easy to explain. History shows, that if something happens that causes a person to be unable to pay their bills, the overwhelming chances are that person will continue with whatever activity (overspending, etc) caused them to get into financial trouble.

    SO, about 80% of the time if a person goes bad on the loan, if you refinance to something the person can afford now, chances are they will be back in trouble within another 18 months or so. And the WORSE thing a banker can do is give a delinquent buyer a deal, then the bank loses money on them all over again. In other words, that banker has to take a huge personal chance on you. It is a quick way for the banker to become an ex-banker.

    So, it is safe for the banker to end the problem – by strongly encouraging the borrower to cure the loan, either by refinancing through someone else or bring the payments current. If he does, he is a hero. If he doesn’t, it wasn’t his fault, but yours. And if he gives you a break and you burn him, he’s unemployed.

  2. Reply
    pecola30
    May 14, 2011 at 2:00 am

    Banks are often orgininators of loans and not the investors henceforth when the loan is orginated they are bundled together 5million for instance and bought by a particular investor and that particular portfilio conforms to a criteria that is agreed upon by the investor and the bank who orginated the loans. Modification of any portion of that portifilo often would only take place if that portfilio has an epidemic of defaults not one or two.

    hope this help pecola

  3. Reply
    hollywoodmelody
    May 14, 2011 at 2:12 am

    The lenders took it upon themselves to do some creative financing and that is why we are in a mess. If Buyers were allowed to refi with a loan of their choosing how would that benefit them? Most of them still could not afford their loans because there is always something better to do with the money. They would not be happy campers on either side because lenders would never be paid and the homeowners would never get to keep their houses with a debt hanging over their head.

  4. Reply
    Felix
    May 14, 2011 at 2:55 am

    cause its not in their best interests..

  5. Reply
    wlh1us
    May 14, 2011 at 3:27 am

    because the banks want to make money, if they were fair to the people they would go out of business, they want your property too

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