Just curious. One of our friends said they got a letter from the bank saying their payment is going up $300 a month in Feb and if they dont pay it, they will foreclose. (is that how it works?)
The properties in our area (and the rest of the country) are dropping in value below the owed amount on the mortgage. So, say they owe $300k on the house, but in auction it will only go for $260k- where is the benefit?
Why not keep the owner paying the same rate and avoid losing on a re-sale?
Now that I have a friend directly impacted, it has really got my brain working. Is there anything they can do? And no, my "friend" its not me- we are locked in fixed rate under 6%.
Is he in a variable rate mortgage? Who is his lender?
But yes, if you cannot meet your contractual agreements they can foreclose. :'(
Quote from: Court-Jester on December 11, 2008, 10:10:45 AM
Is he in a variable rate mortgage? Who is his lender?
But yes, if you cannot meet your contractual agreements they can foreclose. :'(
I am assuming that they have a variable rate- why else would they just increase the monthly payment? Not sure who the lender is. I get the info from my wife's conversations with her friend, so the accuracy of the details could be off..
Quote from: Stu Pedasso on December 11, 2008, 10:19:02 AM
I am assuming that they have a variable rate- why else would they just increase the monthly payment? Not sure who the lender is. I get the info from my wife's conversations with her friend, so the accuracy of the details could be off..
There are several assistance programs that lock the rate for 2 more years, and more and more lenders have been willing to renegotiate the terms, (I believe Chase modified all of its variable loans)
Best course of action would be to contact the lender
before defaulting, and trying to work out a deal with them.
Quote from: Stu Pedasso on December 11, 2008, 10:19:02 AM
I am assuming that they have a variable rate- why else would they just increase the monthly payment? Not sure who the lender is. I get the info from my wife's conversations with her friend, so the accuracy of the details could be off..
The other possibility that kills first time home owners that buy brand new houses (at least in Iowa), is that house property taxes start in year 2, so if you have an escrow in your mortgage for property taxes, your payment can shock you year 2.
mitt
Quote from: Stu Pedasso on December 11, 2008, 09:58:34 AM
Just curious. One of our friends said they got a letter from the bank saying their payment is going up $300 a month in Feb and if they dont pay it, they will foreclose. (is that how it works?)
The properties in our area (and the rest of the country) are dropping in value below the owed amount on the mortgage. So, say they owe $300k on the house, but in auction it will only go for $260k- where is the benefit?
Why not keep the owner paying the same rate and avoid losing on a re-sale?
Now that I have a friend directly impacted, it has really got my brain working. Is there anything they can do? And no, my "friend" its not me- we are locked in fixed rate under 6%.
Did your friend not read the "Truth in Lending Act" disclosures on his/her mortgage application?
Did they not plan ahead for the reset?
Adam
Quote from: DrDesmosedici on December 11, 2008, 10:30:28 AM
Did your friend not read the "Truth in Lending Act" disclosures on his/her mortgage application?
Did they not plan ahead for the reset?
Adam
Now, wait. We're operating in an information deficit here. I also think we're getting off track. The OP wanted to know what the upside of foreclosure is for the lender, especially if the buyers now owe more than the house is worth.
It's a good question, and I'd like to know the answer as well.
Quote from: Bun-bun on December 11, 2008, 10:58:44 AM
Now, wait. We're operating in an information deficit here. I also think we're getting off track. The OP wanted to know what the upside of foreclosure is for the lender, especially if the buyers now owe more than the house is worth.
It's a good question, and I'd like to know the answer as well.
The upside?
Let's see - they can write off the loss, and get someone into the home who can afford it.
Also, what a lot of folks don't understand is that someone, somewhere, bought a bond with your mortgage as part of it - that's how you got the $ to buy the home. Part of that bond is the overall return they'll get on it, and the return on that is dictated by things like the interest rate on the note. The reset of the APR is an obligation that the mortgage co. has to the individual who fronted the $. Cutting the yield negatively effects the rating of the bond.
Adam
PS: I absolutely agree re: calling the lender though - they
don't want to foreclose on your home! The carrying costs are rediculous ...
Quote from: mitt on December 11, 2008, 10:25:33 AM
The other possibility that kills first time home owners that buy brand new houses (at least in Iowa), is that house property taxes start in year 2, so if you have an escrow in your mortgage for property taxes, your payment can shock you year 2.
mitt
I'll bet you that is what it is. In MN it is a 2 year lag. This was new construction, and my guess is that they have been living there about 2-3 years.
In my case for instance- the tax this year is only on the land (2006)
In 2009 I will pay for what was on the land in December of (2007) which was a foundation and frame.
In 2010 I will pay for what was on the property in December of (2008) which is the completed home.
As for finding a buyer that can afford it- that may be tough considering so many people have been booted from their homes and wont be able to get approved for a mortgage for a few years. So you have a higher percentage of renters but a smaller pool of buyers to offer the actual rental properties. As a PR move, I would think these lenders would see a huge opportunity to be the "good neighbor" and help these people- while attracting new business by being a friend to the buyer. But thats logic, and I dont think anyone would want to do that.
Quote from: Stu Pedasso on December 11, 2008, 11:20:10 AM
I'll bet you that is what it is. In MN it is a 2 year lag. This was new construction, and my guess is that they have been living there about 2-3 years.
In my case for instance- the tax this year is only on the land (2006)
In 2009 I will pay for what was on the land in December of (2007) which was a foundation and frame.
In 2010 I will pay for what was on the property in December of (2008) which is the completed home.
As for finding a buyer that can afford it- that may be tough considering so many people have been booted from their homes and wont be able to get approved for a mortgage for a few years. So you have a higher percentage of renters but a smaller pool of buyers to offer the actual rental properties. As a PR move, I would think these lenders would see a huge opportunity to be the "good neighbor" and help these people- while attracting new business by being a friend to the buyer. But thats logic, and I dont think anyone would want to do that.
Can they get an adjustment on the tax owed?
If it's a property tax thing get that sucker re appraised and go to the City/County/State [thumbsup]
Adam
Bank-owned homes that have been foreclosed generally sit on the market and then sell for a fraction of their value (at least around here). The banks are already sitting on a ton of foreclosed homes, so they really don't want another, necessarily. When "flipped" on their home (owe more than it's worth), sometimes the owner can work with the bank to arrange a "short sale" where the home is sold for less than the mortgage amount but the bank agrees to take that reduced amount as payment for the mortgage. It still hurts your credit rating but less than a foreclosure.
The local sherriff has announced that he will not enforce any more foreclosure orders on people who have no other place to live, until Spring, because there are so many and it is an undue hardship in the Winter weather.
Quote from: seeker on December 11, 2008, 02:16:53 PM
Lenders lose money in a foreclosure. Lenders would prefer if people paid their bills on time. Lenders typically only foreclose to prevent losing MORE money by delaying foreclosure.
Here are some stats to show how much lenders lose for each foreclosure from the recent Congressional Oversight Panel report (starting on page 15) available here http://cop.senate.gov/documents/cop-121008-report.pdf .
1. Fed Reserve Board Chairman Bernanke recently reported that in 2008 there will be 2.25 million foreclosures
2. Each time a family loses its home due to foreclosure the value of every home within one eigth of a mile declines 1%
3. in 2002 when home prices were rising, researchers estimate that holders of a loan lost $59,000 for each foreclosure
4. S&P estimates that for subprime mortgages originated in 2006, servicers will only recover 55% of the total value of the loan on a foreclosed home. Total loses include direct costs, such as legal fees & maintenance that average around 26% of the loan, as well as loses for missed mortgage payments and declines in resale value. Also foreclosed homes often sell 5% to 15% lower than resale value of a comparable home sold by home owner.
Exactly -- just like your bank/CU doesn't want to repo your car, the bank really has no interest in getting in the real estate business.
Adam
Quote from: Bun-bun on December 11, 2008, 10:58:44 AM
Now, wait. We're operating in an information deficit here. I also think we're getting off track. The OP wanted to know what the upside of foreclosure is for the lender, especially if the buyers now owe more than the house is worth.
It's a good question, and I'd like to know the answer as well.
I was shown a foreclosed property last week, it was a short sale (they made sure to show they were pissed, by damaging the building, probably needed 20k to get back to where it should be,so I said no, it was also out side my price range, which my real estate agent doesn't like to hear :p). Value of the house was $60K more then asking price, so it really wasn't a bad deal, in fact it was break even for the bank.
they love to push short sales to get them off the market as quickly as possible, because it drives the value of all the houses around it down, the one I was looking at was pushing the values down about 3% in its neighborhood.
my undstanding of it, it works this way (I'm sure theres more to the story, but this is what I've been told)
so, For instance, lets say the home was valued at $240k, they paid on the note for 10 years@ 1400/mo with 5.75 interest, in the first 10 years, they've paid the bank $168,000, since they default, the bank takes the house (value of $240k) and the money paid, and sells it either internally at a insanely low price, like $72K to break even (employee, or usually big bank investor up for remainder of note, some times less, depending on the balance,or break even point) or they sell it on the market, for lower then market value and walk away with some profit.
so, if they sold the 240k house for 199,000 and keep the $168,000, they walk away with $367,000. They didn't lose money, but they didn't make as much profit as they wanted to (would have been 260k in profits, only got 127k) and with 367,000 back in there pockets and the debt cleared they can now write 330,000 in new loans.
they don't want to forclose, they obviously make way more when they don't, in good times a foreclosure or two was never a big cause for concern because they could sell for market value +, now with the new difficulty's for people to get loans, and problems with more and more foreclosures, its kind of a cause for panic, and they'll let them go just to break even, never mind make money.
I have a aunt and uncle who are pretty into this stuff, my cousin got her house at a insanely low price that way.
out my way, it seems only the mega loan houses (400k+) are coming up on forclosure, banks want market value on those things, and their willing to wait..