Contrary to popular belief, banks aren’t thrilled at the prospect of foreclosure any more than the homeowners being foreclosed on. That’s because homeowners aren’t the only ones that lose in foreclosure. Banks lose as well. When a borrower can no longer make mortgage payments and after other avenues have been exhausted, foreclosure is the lender’s last resort. Essentially, the bank cuts its losses and tries to get back as much as it can through foreclosure.
Foreclosure costs rise with housing market
Since 2011, home prices have risen nationally by 14%. You might think that with rising house prices, banks would no longer be losing very much through foreclosure, but that isn’t accurate. One explanation for this is that the foreclosure process has been lengthened in recent years to protect homeowners’ interests. Because the responsibility of maintaining the property of a foreclosed home until it can be sold falls on the bank, the longer process equals higher costs. Today, a home is in liquidation for twice as long as it was in 2008 when the housing crisis began.
What it all means
All of this boils down to favorable circumstances for homeowners behind on mortgage payments. Though many borrowers mistakenly believe that their bank is out to get them, in the vast majority of cases, foreclosure is not a bank’s preferred outcome. They would much rather the borrower to catch up on their mortgage, even if that means lowering the interest rate or extending the repayment period.
If you are behind on your mortgage and nearing foreclosure, don’t assume that your bank is unwilling to work with you. Chances are your bank is anxious to find a solution with you. At worst, you can pursue a short sale in which your property is sold off for less than it’s worth. You get out from under your mortgage and your lender saves on foreclosure costs. In many cases your lender may be able to grant a loan modification to make mortgage payments more affordable.
Remember that the worst thing you can do is cut off all communication with your lender. Keep a line of communication open and both you and your lender may benefit from it.
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The purpose of foreclosure isn’t necessarily to make money. It’s as an enforcement and deterrence mechanism to punish losers/thieves who buy homes and then fail to make payments. Foreclosure prevention should be confined to cases where there’s genuine hardship, not “WAAAAAH! WAAAAAH! I BOUGHT DURING A BUBBLE WITH 0% DOWN AND MY HOME IS NOW WORTH 30% LESS! WAAAAAAH! WAAAAAH! HEEEEEEEELP!”
I totally agree with SPDRUN. Before this recent downturn, foreclosure used to be very simple for 100+ years in California. You miss enough payments, you lose the house. Period. End of story. None of all this BS loan modification crap, letting people sit in their house for 4 years without making a payment BS that the Government has created. I think it should be very cut & dry. The bank who made you a loan should be able to “take back asset” if the borrowers doesn’t pay. Just like if you don’t make your car payment your car get’s repossessed. WTF did it ever have to get more complicated then this?
If we would have let foreclosures just run their course naturally during this downturn, we would have had a much more real & healthy housing market to grow naturally post crash.
[quote=ctr70]I totally agree with SPDRUN. Before this recent downturn, foreclosure used to be very simple for 100+ years in California. You miss enough payments, you lose the house. Period. End of story. None of all this BS loan modification crap, letting people sit in their house for 4 years without making a payment BS that the Government has created. I think it should be very cut & dry. The bank who made you a loan should be able to “take back asset” if the borrowers doesn’t pay. Just like if you don’t make your car payment your car get’s repossessed. WTF did it ever have to get more complicated then this?
If we would have let foreclosures just run their course naturally during this downturn, we would have had a much more real & healthy housing market to grow naturally post crash.[/quote]
Could not agree more.
Additionally, it likely would have helped savers and those who are living on fixed incomes (including workers) because the policies of the past few years have primarily benefited asset owners at the expense of everyone else. This is what makes me so concerned about Janet Yellen. It is her stated goal to “reduce unemployment” by destroying the purchasing power of workers (and, by default, savers and people on fixed incomes).
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