WHY DON’T MORTGAGE LENDERS LOWER THE RATE FOR BUYERS WHO FACE FORECLOSURE DUE TO THE BUBBLE BURST?
I do not assimilate since the mortage association would forclose upon the customer since of the housing burble detonate but charity the reduce rate. The mortage association after forclosure will have to sell the residence during the reduce cost to someone else. They will remove monies you do this, will they not? How can they have some-more income by forclosing as well as reselling during the reduce price. Who else is starting to buy it?
Posted on November 6, 2009 at 7:30 pm by admin · Permalink
In: Tips · Tagged with: Bubble, Burst, Buyers", Dont, Face, Foreclosure, Lenders, Lower, Mortgage, Rate
In: Tips · Tagged with: Bubble, Burst, Buyers", Dont, Face, Foreclosure, Lenders, Lower, Mortgage, Rate
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on November 6, 2009 at 7:30 pm
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Well, a lot of that is going on. Things are never as simple as they seem however. No longer do banks make loans on homes and then hold the mortgage. The mortgage is packaged with other mortgages and sold as a bundle to lenders throughout the world. This makes it more difficult to connect the buyer with the lender holding the mortgage (although it is happening). You can imagine the difficulties dealing with lenders from different cultures who may have diferent attitudes about negotiating with buyers who are defaulting.
Still, it is being done. As a borrower you will probably have to miss a few payments in order to get their attention (and blow your credit rating in the meantime). Then you can try and negotiate your best deal. Note that many areas of the country have public or charitable organizations to help people contact and negotiate with their lenders.
on November 6, 2009 at 7:30 pm
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Mortgage lenders lose money on a foreclosure, but they lose less than they would by substantially reducing interest rates on those loans. Mortgages at specific loan rates are packaged and sold to investors, who expect earnings based upon the original rate stated in the mortgage.
on November 6, 2009 at 7:30 pm
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There are two sides to that:
They basically cannot offer a new rate because the investors won’t take less then a premimum for the major risk of the loan.(no new loan with lower rate) That prevents the new loan. Next there is the problem that they have a contract with the previous investors (where the money for the first loan came from) that says that they will pass through either the principal and interest (from normal monthly mortgage payments) or the full balance of the principal (refinance or the mortgage is paid off)
Now as to your question about how they make “more” money with a forclosure. They don’t but it’s not that easy. You see the lenders borrowed the money first to give the loan to the homeowners; They won’t make more money which is why you keep reading about how various financial institutions are Writing down hudge amounts of money. Now on paper they have already devalued the CDO’s that are the packaged loans. (more complicated then it’s worth to explain, just remember where the money for the loan came from for the lenders to give to the person who needs a mortgage)
Basically the financial institutions have already written down the value of the loan and therefore the pass through value of the debt on the house.
Now here is where you have to apply some macro economics as it won’t make much sense to the average individual person.
This meltdown of the mortgage market is bad, real bad and there is a lot of blame to go around. Now with everything else in the history of the open markets the faster we get through this the better. We have seriously overbuilt the housing surplus, jacked up the prices to unheard of levels, and people who have no business owning a home have unbelievable amounts of debt on a house that isn’t worth it. The only way that this is going to come to an end quickly is to have the free market (the next set of house buyers) reset the prices and pay whatever the house is REALLY worth at auction. This is going to hurt all across america but it is happening and there isnt much any government or lender etc can do about it.
The Fed is trying to lower rates as fast as prudent to encourage any lenders who can squeeze out a loan to a homeowner a chance to get the lowest rate possible. But that is about it.
In the end prices will come down and then the markets will stabalize and life will try to get back to normal. Unfortunately along the way there is going to be a lot of forclosures.
on November 6, 2009 at 7:30 pm
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after the loans were packaged together with tens or hundreds of others and then re-cut into slices of different credit risk, and then sold to multiple different buyers, problems arise
suppose you want to reduce rates on a loan — whose permission to you have to get?
well, the people who took the riskiest end of the deal for sure — their value and income will fall immediately. how about the next set of loan owners? if you give now on this one and that makes them the next one in line for the next cut, do they get to vote now? how about if the next one is way worse than this one — should they have been permitted to veto cutting rates on the last one to save space for this one?
and there could be five or even nine or nineteen different owners, each with different priorities in the money order — do you try to get permission from each of them? on each deal? each set of deals?
what if loan owner 4 refuses but owners 5, 6, and 7 agree.?? does this mean that all deals are off until owner 4 agrees?
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owner 4 has only a few of these deals and isn’t inclined to male deals, whereas 5, 6, and 7 have quite a lot and can’t afford may foreclosures. but they compete with owner 4 in another business line, so he has incentive to refuse because more foreclosures hurts his competitors more than they do him.
and on, and on
***
PS I penciled out the Bush plan using an estimated 3% rate reduction for 5 years and found that this reduced the value of the loan by 11%. this seemed high, so I did it over — same result.
on November 6, 2009 at 7:30 pm
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Some companies HAVE figured that out and do that–the loss mitigation department may make that good call. Others are stubborn and don’t understand reality. Yes I know people signed for things they should not have but the situation is widespread and the mortgage companies, etc. made a lot of stupid decisions, so they’re not in a good position to hold the mortgagee to the letter of the contract as it can bite their bottom line pretty badly. They also could rework the mortgage and put more on at the end. They’ve got options.