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A question to those who are financial wizzards. Regarding the foreclosure rate.

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  • A question to those who are financial wizzards. Regarding the foreclosure rate.

    Why not eliminate the interest on the payments in order to recover just the principal? Seems to me that it would be better to shave off the extra money in order to just get back what you leant out. (I'm not sure if this is the right word usage, but I hope you understand)
    Make America Great For Once.

  • #2
    Originally posted by Bleacher Creature View Post
    Why not eliminate the interest on the payments in order to recover just the principal? Seems to me that it would be better to shave off the extra money in order to just get back what you leant out. (I'm not sure if this is the right word usage, but I hope you understand)
    That would result in a free loan. No way in hell. Lenders don't want to set that standard because then the next person who can't pay their mortgage will want the same deal.

    And it isn't like the banks just lose out on all that money. They now own a house. That is why most people have (or had) no problem getting a mortgage but it was secured with a house.

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    • #3
      Originally posted by Sheriff Blaylock View Post
      That would result in a free loan. No way in hell. Lenders don't want to set that standard because then the next person who can't pay their mortgage will want the same deal.

      And it isn't like the banks just lose out on all that money. They now own a house. That is why most people have (or had) no problem getting a mortgage but it was secured with a house.
      OK, I'm just trying to get some information. It just seems to me that if an institution could just recover what they originally loaned out, it would be better than a default, in which no one wins.
      Make America Great For Once.

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      • #4
        This is the great gap in my cognitive ability. Lady at the bank offers me a new loan with lower interest and I have no idea if it's a good idea or not. Money scares me. Unless it's in big stacks of green and I can stuff my pillow with it.
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        • #5
          Originally posted by Bleacher Creature View Post
          OK, I'm just trying to get some information. It just seems to me that if an institution could just recover what they originally loaned out, it would be better than a default, in which no one wins.
          I don't know the answer to this but you can't just say people get free loans.

          Stupid people meet greedy short sighted lenders....what a mess.
          Go Cards ...12 in 13.


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          • #6
            Originally posted by kah View Post
            This is the great gap in my cognitive ability. Lady at the bank offers me a new loan with lower interest and I have no idea if it's a good idea or not. Money scares me. Unless it's in big stacks of green and I can stuff my pillow with it.
            You have to be careful. Will that great low interest rate always be low or will it change in the near future. Many people got in trouble with those ARMs (Adjustable Rate Mortgages).

            If you are talking about a mortgage you have to watch for the fees. The rate may be a little lower than the next guy but they screw you with up front fees.

            With so many people looking to lend money fees have become more important for the lenders. Lots of places look just to rack up on fees because they are going to sell your mortgage to one of the bigger guys.

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            • #7
              Disclosure rules say they have to tell you what the total cost of the loan is, i.e. how much, at the end of the whole deal, goes to the paying the loan, and how much they make in interest. It is common to make 2-3 times as much in interest as the principal.

              The best rule of thumb I can give you is to IMMEDIATELY walk away from any loan that has any negative amortization. It's negative amortization that got most of these idiots into default - they're simply buying more house than they can afford.

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              • #8
                Originally posted by Bleacher Creature View Post
                Why not eliminate the interest on the payments in order to recover just the principal? Seems to me that it would be better to shave off the extra money in order to just get back what you leant out. (I'm not sure if this is the right word usage, but I hope you understand)
                Lenders will sometimes do the opposite. They'll let you make interest only payments. Of course they keep the juice going on the principal.
                "You're my wife Margene, you can't be seeing the girl I'm dating." - Big Love

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                • #9
                  When a bank collects principal that is not revenue to them. They are simply reducing the liability the customer owes them. Therefore, eliminating the interest portion of the payment would cut off the revenue to the bank. If it were a temporary measure to stem foreclosures, then it could be ok in theory. Unfortunately, the vast majority of banks do not hold loans in portfolios any longer. They are repackaged in bulk and sold to Wall Street as securities, called Mortgage Backed Securities (MBS). Wall Street takes the MBS's they purchase, and repackage them in bulk to foreign investors. Foreign investors end up relying on the the flow of Principal and Interest payments to make their purchase of these instruments a worth-while investment.

                  So - A: banks don't have the right to eliminate the interest component of a mortgage payment, because someone else actually owns the debt, and the bank is just acting as the agent that services the loan (collecting payments, keeping records etc...) and - B: the investors who do actually own the debt would never agree to allow a bank to make the decision not to collect interest - if they did agree to allow the bank to do so, they would still demand that the bank pay it on behalf of the customer and the bank would then lose money, and for that reason, they may as well just foreclose on the house.

                  So the other part of the post is discovering a solution to the housing mess. In my opinion, let the markets decide. People will lose homes, lenders will go out of business, and most importantly we will all learn a lesson. When the tide goes out, those without swimming shorts will be left naked at the beach, and those who were prepared and did business the right way will avoid the embarassment.
                  25MM jobs in 10 years / 4% GDP Growth / Insurance for everybody / Schools flush with cash don't produce results
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                  • #10
                    Thanks for the responses. I just don't want to see the government get involved in bailouts. IMO, that would be unfair to those of us who have made wise choices.
                    Make America Great For Once.

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                    • #11
                      My father in law is a home builder. He is finding that banks are getting truly desperate. They do NOT want to be in the business of owning homes, so they are doing a lot to keep people in their houses AND getting paid. The problem is that most people aren't taking advantage of the fact that these days banks are more than willing to renegotiate loans so that they can get anything at all in return. If the person goes bankrupt, the bank gets stuck with the house.

                      And it stands to reason, people who got sucked into these interest only, and no down payment loans aren't even approaching banks to work things out - they're simply walking away from the mortgage and ruining their credit because they don't know any better.

                      He told me about a couple who took out a second mortgage to pay for their daughter's surgery. They fell on hard times and sold the house. Couldn't close on it as the second mortgage hadn't been paid. They went to the bank, and the bank said cut us a check for 20% of what you owe us on the second mortgage and we'll forgive the rest.

                      Moon

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                      • #12
                        Our Fed Chairman suggested that banks do what your father in law is seeing.

                        People have some leverage against lenders, especially second mortgage lenders. We'll probably start seeing lots of commercials from folks willing to help borrowers negotiate deals.

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                        • #13
                          Originally posted by Bleacher Creature View Post
                          OK, I'm just trying to get some information. It just seems to me that if an institution could just recover what they originally loaned out, it would be better than a default, in which no one wins.
                          actually only on a subprime loan is the lender not completely protected.

                          on any other mortgage, either there was sufficient equity to insure the bank a safe takeout or the bank would have had pmi (private mortgage insurance) to guarantee the needed equity to get out of the house in a forclosure situation.

                          to simplify, as far back as banks have been doing mortgages 20% down payments has been somewhat of a standard. why? because it had been proven time after time that if a bank had a 20% equity position or more, and the mortgage got to a forclosure situation, that 20% equity position typically gave the bank more than enough room to enact eviction, forclosure, hire a realtor, fix the minor repairs needed to sell and then indeed sell the home and cover the balance and all the expenses to do so.

                          pmi guarantees the difference between 20% down and what the borrower actually does put down. so in the same scenario, if a forclosure happens then the bank calls in their pmi coverage to assist in covering the costs and expenses to liquidate.

                          banks typically do not hold subprime mortgages. if they do originate, they would have sold it likely before the loan even closed.
                          Roy Mueller

                          "It's kind of fun to do the impossible."

                          - Walt Disney

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                          • #14
                            Some great information here. Thanks guys.

                            I wish I understood this stuff better.
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                            • #15
                              Originally posted by ElviswasaBluesFan View Post
                              Some great information here. Thanks guys.

                              I wish I understood this stuff better.
                              +++
                              Make America Great For Once.

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