There is no question that foreclosure is bad for our economy and our country. Many experts believe that the current economic crisis that we are experiencing was the result of home foreclosures. Last fall the number of home foreclosures all over the country reached all time highs.
Some people think the problem began a few years ago when lenders, realtors, and home builders thought it good for everyone to own a home. There were even government programs which encouraged lenders and borrowers to buy and finance homes. Advertisements proclaimed that “why should we pay rent when we can make house payments and own our own homes, and build up our own equity.” So home buyers were purchasing homes in record numbers. Because of the sellers’ market at that time, the prices of homes were also increasing in record numbers.
When a normal individual or married couple purchases a home, they don’t have a large amount of money to pay for a new home. They have to borrow the money from a bank or other lending institution in order to purchase the home. The lender known as a mortgage company then takes out a mortgage or lien on the home for which they are providing the financing. The mortgage or lien allows the mortgage company to foreclose on the home if the homeowner doesn’t make their house payments. What foreclosure means is that the mortgage company can call in the loan on the house and proceed to sell the home on the courthouse steps, in an auction format, if there is a buyer willing and able to pay off the outstanding mortgage. However, in most cases the there is little to no equity in the home, resulting in no buyers. In the case of no one biding on the property the mortgage company retakes ownership of the house themselves.
If the loan is an FHA or VA loan, the loan is guaranteed by the government. After a foreclosure, the lender then gets reimbursed by the federal government for the outstanding money owed to the mortgage company. The house then becomes the property of the United States. It is known as a HUD home and then sold by the federal government by silent bidding usually for much less than what the mortgage was. When there are a lot of foreclosures of these kinds of homes, our government loses money. This adds to our economic issues as a country, meaning that because it is our country, we all lose money in tax dollars.
If the home is a conventional loan, the bank must resell the home themselves. When there are a lot of foreclosures it is extremely unlikely that the mortgage company can sell it for the same or more than they are owed on the home. Therefore, the mortgage company almost always loses money on foreclosures. When there are a lot of foreclosures, the value of properties goes down. This is especially true when many of the homes were overpriced. These homes are considered underwater because they are worth less than the mortgage that’s owed on them. ...