1. A mortgage company is in the business of making loans not being a property manager. All that they like to do is make money by selling mortgage notes to other institutions and making quick cash or by holding onto the note and collecting the interest.
2. If a borrower misses 4 payments in a row the lender has the option to start foreclosure proceedings on the home. It is in the contract you signed with them and they are only doing what the contract says.
3. After you have missed 4 payments the bank holding the mortgage note has not received 4 months of interest on the principle balance they lent you. As an example a loan at $200k at 6% interest would have a principle and interest payment of $!200 a month in which $1000 of that is strictly interest. It sucks seeing that number. So in the 4 months you have missed these payments that’s $4800 that the bank could not relend or use to pay their own bills like salaries to their employees.
4. As soon as the foreclosure starts the bank has to hire people to go out to the property to see what condition it is in and if it needs to brought back up to code. The local county government will have to be contacted to get the previous owners name off of the deed. Then a realtor has to list the property. All of these people do not work for free and now the bank has to dip into their savings to pay these people to hopefully get it sold.
5. Since the bank owns the house out right now they have to do things like cut the grass and pay property taxes on it now too. So really that $1200 payment is lower its probably more like $1500 now with taxes and home owners insurance.
6. So the bank is spending money to just keep the house in working order while they try to sell it. Even if they are to sell it the banks usually undercut all the homes in the area so they can get it off their books. Most banks take a big loss with foreclosures. There is usually a loan that is still over 80% of the value of the home so even if they sell it and make 10% in equity all of the money they missed in monthly payments, taxes, upkeep, realtor fees, paying the next door neighbor kid $15 a week to cut the grass really adds up.
7. The mortage company is also not doing what they intend to do which is do loans and create new business. They are having to spend a lot of time going out and basically clean up the financial disaster that a foreclosure is so they can move on.
8. Put yourself in the banks shoes for a second. A borrower that takes out a $200k loan at 6% will pay $231,676.38 JUST IN INTEREST over the span of 30 years. So this means that you will pay $431,676.38 total over 30 years to pay off your house if you just make your minimum monthly payments. Kind of makes you want to be a bank now huh. Just sit back and watch the checks come rolling in every month for basically working one time.
9. The mortgage company is always going to be the one that is going to get the bad rap in this one. Its so easy to blame the bank but nobody ever said that I should have never taken that loan because I could not afford it.
10. The trickle down starts happening where banks have to start laying people off because you could just not make your payment. This causes jobs to be lost and companies to fold. This also affects your neighbors because now the mortgage company is going to want to sell this property below everybody else’s lowering property values in the neighborhood. The stock market starts tanking and property values drop quickly. Luckily this will never happen because real estate is the safest investment of all time…um…poop.