Question by radio309: Help me with home loan problem.How come banks take such large losses on secure loans?When homes are sold.?
The banks get the most if not all the money back.
Best answer:
Answer by stephen t
No, they don’t. Banks lose on average $ 50,000.00 a foreclosure. Example, $ 300,000 house, say they gave borrowers 100% financing. Borrowers stop paying, months go by, the banks lose money because they borrow money too. Say there cost is 5% on loan so they are losing over 1K a month just for non-payment. They mail out letters have reps call borrower, that costs something. Then they hire a lawyer to do a foreclosure that costs $ 1,500.00 plus another $ 1,000 for advertising, court filing etc. The borrower files bankruptcy, this stops all collection action. The bank hires the lawyer to go to bankruptcy court to get relief from the automatic stay, $ 1,200.00 Months more the property is foreclosed on. No one buys it at foreclosure, the bank owns it. The borrower still has not moved out, so the bank has to hire the lawyer to do an eviction boom another $ 1,500.00. The bank can finally list the property, they give it to a real estate agent to market 5-7% commission upon sale. Oh, and the borrower trashed the place, so they either need to fix it up or take a low ball offer on the house. Meanwhile, property taxes and city water have not been paid, which the bank will have to pay. Finally, someone puts in an offer below market value, but the property has been sitting and house values have gone down by 10% in the past year. The bank hires the lawyer to do the closing another $ 1,000. In addition the bank has to pay transfer tax on the property.
You get the picture?
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very simple answer are fees and depreciating values. it cost money to sell a house, even for a bank. also, in most real estate markets right now, prices are falling. so if a house originally was bought for $ 400k with no or little money down and has now depreciated, the bank is paying the fees to sell the house at only $ 350k. in the mean time, nobody is paying the money that is owed on the original $ 400k.
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