Sinergy
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Joined: 4/26/2004
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quote:
ORIGINAL: Termyn8or
In short, I stand behind my earlier assertion that banks WANT to foreclose, and that is because property is a much better asset than cash.
I disagree with this, in a sense.
The positive aspect is that the bank has a chunk of property, which, as you say, is a better asset to an individual.
Except the bank doesnt want an asset. They want money flowing in so they can reinvest it and make money. This property they foreclosed on no longer has a homeowner paying them $500 a month. No longer has a homeowner paying insurance on it. It is no longer somebody elses problem to pay taxes on it. What the bank wants to do is foreclose on it, write off the money they lent as a business loss. Then turn around and sell it to somebody else as soon as possible so they dont have to pay insurance on the property, taxes, they have somebody paying them actual money, etc.
What is happening now is the property they loaned somebody $500,000 to purchase, where $20,000 of it was paid back (not including interest) in the six years the person paid the mortgage, is something the bank wants to resell. Unfortunately, since there are 100s of other $500,000 houses that were foreclosed on, and 3 buyers, the bank has a choice. Choice A: sit on the property and lose money until housing prices go back up, or Choice B: Sell the house at a substantial loss and write off the business loss. Banks typically go with choice B, since a lower cost house sold to somebody paying the mortgage is a better investment then sitting on an expensive property waiting for a buyer.
This drives the housing market even further down than it already was for property owners.
I try to explain to people that there is an inverse relationship between interest rates and property values. Interest rates go down, property values skyrocket. Interest rates go up, property values plummet. Is it financially more intelligent to pay 10% interest on a $200,000 loan, or 6% interest on a $500,000 loan?
Sinergy
p.s. on a related note, when I had an $1100 a month mortgage, they got a check for $1250 every month.
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