Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Tenchusatsu who wrote (533437)	11/30/2009 4:53:43 PM
From: tejek	Read Replies (2) \| Respond to of 1574848

Ted, > Better to foreclose and sell the property.....that's the attitude of most lenders. Seems like you and Bentway are contradicting each other. Where Chris and I agree is that lenders don't want to hold onto property and become property managers. Its a non starter. So which is it? Lenders want to cut their losses and force foreclosure, or lenders would rather have someone continue to make payments despite the risk? The ideal is modifying the loan if that's possible. However, most of the time, banks will only allow minor modifications to the existing loan terms. Its usually not enough to keep the borrower in the property. So they foreclose, and then 'turn it'.....fix it up and resell it. After all, it's not like banks haven't tried to screw over borrowers in classic lose-lose situations before. The YouTube woman whose credit card interest rate was hiked up comes to mind. What do the banks have to gain from this lunacy? Bankers are not very flexible when it comes to these situations.......and I understand why. I mean they are out to make money, not lose it. Now things may have changed with this recent recession but I doubt it. If they are reacting the way they have in past recessions, this is the way it works: If a borrower is in default, they look to see what caused the default. A lot of a bad loans were written over the past 6-7 years. Most of them should never have been written.....and the borrowers should have remained renters. The only way underwriters got them into the loans was providing low, low interest rates that bumped up significantly over the next couple of years. Those loans are pretty much automatic foreclosure. The borrower doesn't have a chance in hell of making it. The next category are those people who did not have a bad loan but lost a job or developed a health problem that doesn't allow them to work any longer. If the borrower hasn't found another job and is not likely to find another job any time soon, then the bank is likely to go straight to foreclosure......esp. if the loan is 'underwater'.....the house is worth less than the existing note. However, if the borrower has found a new job or has developed other sources of income and the loan is not underwater, then the lender will consider a forebearance agreement. What a forebearance allows is certain modifications of the note. For an example, if you have defaulted on principle and interest payments for say 10 months, they can recast the interest over the remaining life of the loan although they don't like doing it and set up the defaulted principle as a balloon payment to be paid at the end of the loan. That's about as good as it gets and I suspect the people who fall into this category are a very small portion of the total defaults with which a bank is dealing......maybe 10%. Hence, when things get bad like they are now, banks expect to have a lot of foreclosures and so must build up their cash reserves to counteract the losses from all these foreclosed properties. That's why most banks have done equity raises. And those banks that can't are the ones you read about getting closed on Friday afternoons. Bigger cash reserves are necessary to offset the big losses stemming from foreclosures. They have to fix them up, keep them insured and maintained while they are getting fixed up and then can expect to take a sizeable loss when they finally do sell. Bigger reserves are the key.