Question by Lyle: How can banks come out with forclosing on homes?
Wouldn’t it be to the banks advantage to take less per month payment or refinance for the home owner to lower their payments. A lot of the houses sit for so long before they do sell they either have damage done to them or the bank takes a low price to sell it and sometimes a loss.
Best answer:
Answer by Rob
They do not come out ahead.
They lose money and then get
tax breaks for losing it.
Bankers can not think out side of
boxes even if it hurts.
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They lent people a certain amount of money. It’s not the bank’s fault the purchaser can’t pay. It’s just like a car being repossessed. If you can’t afford it, you shouldn’t’ be entitled to use it.
They gave those people cash money they are refusing to repay. They need to stick to the agreements or use government programs to modify loans, which they do in fact do every day.
The banks are being screwed by the buyers. They can not start writing off any loss until after the foreclosures happen, so it is usually in their best interest to foreclose. They not only have their own tax writes offs with capital loss, but insurance as well.
Actually, they can still make money, just not as much. Remember that most of a mortgage payment in the early years goes toward interest. Example: A $ 300,000 mortgage will have $ 87,600 interest paid at the end of 5 years (at 6% interest before this mortgage crisis began). When the bank forecloses and resells the home for $ 150,000, the bank will make an additional $ 107,800 (at 4% interest) for total of $ 195,400.
And if the mortgage was part of an investment package of mortgage backed securities, the government bought these securities from the investor (bank) at about 80% of the original price through the TARP bailout program. Then the bank made much more money because in the above example, the bank would have received up to $ 240,000 (instead of $ 150,000 from a foreclosure sale). So, after 5 years, the bank would have earned $ 240,000 + $ 87,600 – $ 300,000 = $ 27,600. That’s much more profit than on a 5 year car loan.