Mortgage Bailout

[lehighguy]

http://money.cnn.com/2007/04/13/real...ex.htm?cnn=yes

Mortgage bailout. Guess who's advocating it.

[bobman0330]

A mortgage bailout is one of the dumbest ideas conceivable. It would basically be a 12-figure handout to the financial industry. Brilliant. The system is working just fine, as is subprime lending. Of course poor people default on their loans more! They don't have much money!

For some reason, a lot of people think that the way to help poor people is to choke off their access to things rich people take for granted, like mortgages. And then they poo-poo the persistence of income disparities. What do they expect to happen when you restrict fat tax deductions and access to valuable assets to the wealthy?

[Msgr. Martinez]

Unless I'm missing something here, having a mortgagor default on his or her note seems like a pretty sweet deal for the mortgagee. The mortgagee collects payments and interest, and then when there is a default, it can foreclose on the house and sell it for, in most cases, more than its value when the note was made. Anyone in the industry have any insight into just how good of a deal this is for the mortgagees?

[hmkpoker]

Not when the borrower hasn't put up a down payment and doesn't have any assets. If the property doesn't sell above the purchase price at auction, in addition to any transaction costs, this is a loss for the bank.

[morphball]

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Not when the borrower hasn't put up a down payment and doesn't have any assets. If the property doesn't sell above the purchase price at auction, in addition to any transaction costs, this is a loss for the bank.

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Banks usually lose money on foreclosures, even when down payments are involved.

Aah, bailing out stupid people, it never ends.

[AzDesertRat]

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Aah, bailing out stupid people and companies, it never ends.

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[pvn]

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Aah, bailing out stupid people and companies, it never ends.

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Same thing, stupid companies are run by stupid people. [img]/images/graemlins/smile.gif[/img]

[AJackson]

[ QUOTE ]
Unless I'm missing something here, having a mortgagor default on his or her note seems like a pretty sweet deal for the mortgagee. The mortgagee collects payments and interest, and then when there is a default, it can foreclose on the house and sell it for, in most cases, more than its value when the note was made. Anyone in the industry have any insight into just how good of a deal this is for the mortgagees?

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I'm not in the mortgage industry, I'm in the building industry. From what I've observed these subprime loans are rarely done with much money down. I've done deals where there was 3-5% down and that was working into the sale price.

When a mortgage company goes to take back a house and resell it, it's not a quick process. Interest costs, taxes and insurance are adding up for 6+months. If they sell it through a realator, there goes another 6-7%. Most sell it at auction, which never brings full value.

[bobman0330]

[ QUOTE ]
Unless I'm missing something here, having a mortgagor default on his or her note seems like a pretty sweet deal for the mortgagee. The mortgagee collects payments and interest, and then when there is a default, it can foreclose on the house and sell it for, in most cases, more than its value when the note was made. Anyone in the industry have any insight into just how good of a deal this is for the mortgagees?

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I'm not positive, but I believe the bank has to auction off the property and refund any amount over the value of the debt to the borrower. I think what usually happens is that the bank wins the auction and then resells the property, but if the home value is substantially larger than the amount owed, then the borrower will get some money back. (Which makes sense... what sort of idiot would get foreclosed on when his property is worth more than what he owes on the mortgage?)

[Banks2334]

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I'm not positive, but I believe the bank has to auction off the property and refund any amount over the value of the debt to the borrower.

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You would be positively wrong.