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07-15-2008, 02:27 PM
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General question about Freddie, Fannie,...
...and other mortgage lenders...? I am a little confused as to where this so often talked about loss is coming from in the present economy. I get that x amount of homeowners are defaulting on payments. I get that x amount are being forclosed. I get that x amount are abandoning their mortgage payments, and moving in with momma. I assume a large percent of this mortgage debt for the above mentioned companies are for this reason. What I don't understand is, if the house is still standing and in good shape exactly where does the bulk of the loss come? isn't the overall picture one that more than 95% of homeowners are making their payments? IF the other 5% of homes are just vacated and resold at a later date and logic suggests that eventually new homeowners will come along to buy the foreclosers why such worry? it's not like the homes are being destroyed. Are analysts having us believe all the mortgage notes abandoned total losses? so if you still owe 100,000 on your home and you abandon it the bank is at 100,000 loss?
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07-15-2008, 02:30 PM
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The areas where it is hurting is where real estate prices got too high (the bubble). When the bubble burst - the house prices dropped. So the house that you purchased for 500,000 --- borrowed 500,000 from the bank to purchase is now worth 400,000. So even if the bank forecloses on the home....it's only worth 400,000. They lose 100,000 right of the top. Plus they incur the expenses associated with foreclosure.
This is happening on a pretty wide scale. Foreclosure rates are at an all time high and its not going to get better any time soon. |
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07-15-2008, 03:53 PM
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The losses come from when the banks or lenders sell the mortgage to a second or third party. They want to see monthly income uninterrupted being paid on those notes. With the sub prime mortgages, they were expecting 10 to 15% returns. Good loans are mixed in with the bad as a package. As soon as the income stops, they sell all those notes at a huge discount.
The other problem is that banks are terrible owners of foreclosed property and drive the price down by selling it for what ever they can get. Sometimes the bank waited so long to foreclose that the house is in poor condition. The main problem is that some communities have decreased in value up to 50% and the houses are no longer worth the 100% financing on them. |
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