More mortgage mess, this I don't get...

[Wagner]

http://money.cnn.com/2008/02/06/real...ex.htm?cnn=yes

So people with high rate mortgages are simply walking away, taking the credit hit on foreclosure, and buying cheaper...

Here is my thing (now I'm not a mortgage bank, but I do run a business and understand profit vs loss) why would the bank not adjust the rate? Is it greed, or policy? Figure this, if the market is this bad and recession is in effect, why not lower the interest rate for these people? Instead of 8.9%, lower it to something they can pay, like 3%. They are still making a 3% profit and get to keep funds coming in, where as in a foreclosure they inevitably lose.

I don't understand that practice.

[MrLabGuy]

You're right...It makes no sense. Especially when you consider most of these loans were unconventional meaning that there was little if no money down and in some cases loan's of 125% of the value were issued. Take into account most of the property values were pre-crash so I'm guessing most of these foreclosures come with a BIG red egg.

My guess is the banks get to write off the loss which passes the burden off on Joe public.

[Wagner]

Originally Posted by MrLabGuy

You're right...It makes no sense. Especially when you consider most of these loans were unconventional meaning that there was little if no money down and in some cases loan's of 125% of the value were issued. Take into account most of the property values were pre-crash so I'm guessing most of these foreclosures come with a BIG red egg.

My guess is the banks get to write off the loss which passes the burden off on Joe public.

If that is the practice, it should be illegal.

[Juanted]

It's not that simple. (Nothing ever is.)

After the bank funds the loan, they package that loan with thousands other loans and sell them (usually in a product called mortgage-backed securities, or Collaterized Debt Obligations [CDOs]). In most cases, the originating bank does not even OWN the loan -- usually an investment bank does. The investment bank buys that package at a similar or slightly higher rate than the originating bank charged the homeowner. The investment bank wants to make money, obviously. Simply lowering the rates would not work. The investors would lose money, and lots of it. Grant it, they are losing money when a house is foreclosured, but eventually, they WILL sell that house and make money off it. They'll write off the losses now, and make it up in two years or so when the market rebounds.

Juan

[Wagner]

Well that seems like a very poor business practice, which might explain why so many are going bankrupt.

[Juanted]

It's only a bad business practice when banks loan money to folks they know they cannot afford.

It's all about bad loans and people exuberantly signing up for loans they should have never signed up for... and the banks who gave it to them.

Juan

[B-Line]

Ok, so truth is, I might be thinking of moving some time in the next year or two.
How do I take advantage (as a buyer) of some of these opportunities?

Thoughts?

[08WhtX5]

[quote=Wagner]http://money.cnn.com/2008/02/06/real...ex.htm?cnn=yes

So people with high rate mortgages are simply walking away, taking the credit hit on foreclosure, and buying cheaper...

Here is my thing (now I'm not a mortgage bank, but I do run a business and understand profit vs loss) why would the bank not adjust the rate? Is it greed, or policy? Figure this, if the market is this bad and recession is in effect, why not lower the interest rate for these people? Instead of 8.9%, lower it to something they can pay, like 3%. They are still making a 3% profit and get to keep funds coming in, where as in a foreclosure they inevitably lose.

I think the bigger issue is even if the banks could lower the rate, most of these people are walking away because their home values are plummeting and why continue to make payments on something worth significantly less than the amount owed.

I would also venture a guess that most of these people are not concerned about their credit because they probably had crappy credit to begin with.

[Quicksilver]

My question would be, How can they walk away and "buy cheaper".
How could their credit allow them buy a house at all???

Originally Posted by Wagner

http://money.cnn.com/2008/02/06/real...ex.htm?cnn=yes

So people with high rate mortgages are simply walking away, taking the credit hit on foreclosure, and buying cheaper...

Here is my thing (now I'm not a mortgage bank, but I do run a business and understand profit vs loss) why would the bank not adjust the rate? Is it greed, or policy? Figure this, if the market is this bad and recession is in effect, why not lower the interest rate for these people? Instead of 8.9%, lower it to something they can pay, like 3%. They are still making a 3% profit and get to keep funds coming in, where as in a foreclosure they inevitably lose.

I don't understand that practice.

[08WhtX5]

Originally Posted by B-Line

Ok, so truth is, I might be thinking of moving some time in the next year or two.
How do I take advantage (as a buyer) of some of these opportunities?

Thoughts?

I think as always cash is king!

If your also selling, your home will most likely be worth less than what is was a year or so ago but if your moving up you should be able to get more house for your money.