I put this post under the Mortgage category since that is the instrument lender's use to foreclose. I add this input for clarity in this realm. Foreclosure is first and foremost the remedy of last resort for most lenders.
While in today's market, it looks like the first, it truly isn't. It costs a lot of money to foreclose. Holding the home in real estate owned (REO) status adds to the cost. Because everyone knows this, they keep repeating the same mantra: The lenders don't want to foreclose as it costs them a lot of money.
I say all that knowing it is true up to a point. But, only up to a point. I'll give several examples. If the lender forecloses on a house that has private mortgage insurance (PMI), the lender is virtually guaranteed to receive almost 100% of the outstanding indebtedness. PMI was invented for the lenders and not the borrowers. Hence, it gives them very little incentive to work with the homeowner and almost mitigates their expenses.
If a lender forecloses on a VA, FHA, or other government insured loan, they are guaranteed to get the indebtedness paid within a week or so after filing official notification they foreclosed. Another incentive for the lenders not to deal with the homeowner.
Congress has just passed a bail out package for the lenders. While Bear Stearns is technically not a lender, they were buyers of those mortgages. They turned them into CDOs, collateralized debt obligations, and made a blue fortune. The government not only gave JP Morgan the OK to buy Stearns, they gave Morgan the financing. Notice who isn't in the equation.
So far the cost to the lenders has been the non payment period plus the foreclosure period. Not too expensive when you consider the big picture. Another reason the lenders don't really care about actually foreclosing and taking the property is they are guaranteed an after market.
Once they own the house, it gets listed with a real estate agent and is immediately on the market. Even in today's environment those houses are being sold. In fact, there is an active REO group in almost major city. Call a real estate agent and I bet (s)he can point you in their direction.
The banks will accept low bids in this market because no insurance existed on the property to bail them out. Hence, you have an opportunity to buy a house at a great price.
The only real losers are the people who had the mortgage. Nobody is bailing them out and nobody cares. They fade into the crowd of unwashed masses and are forgotten.
By the way, since I deal in this market here is what one lender told me the parameters for how she decided what bid to accept:
"We don't have to accept any bid if we don't want to. In fact, we don't have to deal with anyone if we don't want to. We know that sooner or later we will get close to the price we want."
In other words, they believe they are prepared to wait out the market as well. That's foreclosure in a nutshell.
Ah...........got it........PMI that is, no wonder I don't get any feedback on my communications with the lenders borrower counseling program or loss mitigation department. So, what happens to the lender on the second mortgage ? Do they get a say or are they just stuck with leftovers ?
Generally speaking, lenders in second position lose completely.
Which means what ? The mortgage insurance does not benefit the holder of the second at all ? And if they don't recover their money from the sell off by the bank, they come after us ? There is no cooperation between the holder of the first and second mortgage ?
No cooperation at all. Lenders are like male rabbits, they eat their own kind. I don't know if they come after you but, generally, they don't because they have been wiped out and no longer have a claim. I would suppose there exists an enterprising lieyer sitting in his office thinking up a way to create an attack on those holding seconds. Maybe James Sokolove will especially if have mesothelioma (sic).
Knowing this is very helpful. The value of my home far exceeds the balance on the first. Knowing the mortgage holder and insurer have no obligation to the holder of the second tells me they have no reason to work with me. They will recover all of their money and then some. It would seem the carrier on the insurance would have some protections in place to benefit them as well as me such as requiring so many late or missed payments before foreclosure can occur.
