Banks lent money out to people that couldn't afford to make the payments and now foreclosures are going through the roof. To help fix the problem, several banks have created Mod Squads (*I* did not make up the term). These Mod Squads go around to people who are looking at foreclosure and try to modify the mortgage in a way that people will be able to stay in the home. They are doing this, as the article I read states, to help the home owner.
Is it true that they are helping the home owner? Technically, yes, they are. It is a very misleading statement though because most people don't have a good understanding of the process involved in owning a home.
Most of the people living in these homes consider themselves to be home owners. In fact, they've been told that they are. When they fill out credit applications, they check the box that indicates they are home owners. The truth of course is that they are loan-owners. Mortgage companies own most of the homes in the US.
You go around shopping for a house and find the one that is perfect for you (or that you think you can mark up and flip) and you tell your mortgage company. They buy the house so that it's reserved for you. You then make payments to them plus interest. If you are able to come up with two to three times as much money as the mortgage company paid, they sell the house to you. You are then a home owner.
Let's look at the situation that the banks created. Houses are being foreclosed upon. Who loses money? The loan owner loses whatever they have paid to the mortgage company, right? Most of that was interest and lost anyway. The amount of principle they paid in the first year or two barely amounts to a couple of grand. They can walk away and rent an apartment for half the cost of the mortgage payment.
The mortgage company, the home owner, on the other hand is stuck with a house that will appraise somewhere between 10% and 30% below what they paid for it. Some mortgage companies are trying, with little success, to sell their homes at the same price they paid for them. While they are holding them, they have to pay taxes and upkeep on the homes. Other mortgage companies are dumping the houses at a loss because no matter how you look at it, it's going to be a loss.
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