Are Banks Really Losing Money On Foreclosures?

You hear a lot about the housing market and foreclosures and how bad it is.  Real estate agents talk about how more people are renting now, it’s easier to rent a house than sell it.  I wanted to post about this interesting article I came across after having a discussion with a friend who is in real estate.

They told me what’s happening in the forclosure market, that the banks are actually making a lot of money.  In the case he cited, it goes something like this: a person bought a house with a mortgage over their head, a subprime mortgage, some years back.  Now, they are having trouble making payments, they talk to their bank which is supposed to help them work out a deal to stay in the house.

Well, the bank gets money from the Obama program (I forget the exact name) to “work with” the home owners for better terms.  The people are able to stay in the home for another six months or so, then they end up losing the house any way.  If it’s an FHA or VA loan, the bank gets covered for their “loss.”  They’ve double dipped at this point.

Here comes the shady part.  The banks, and I’m sure not all are doing this, but many are from my first hand reports, have a third party buy the house really cheap.  They fix the house up a little and sell it and make a profit from it.  The third party is in cahoots with the banks.

This article shows a bigger picture of what’s happening in real estate and the effects on the economy and communities.  I’m not big on letting the free market decide everything, but this is interesting to see another side of the foreclosure industry.

Banks Hide True Cost of Foreclosure Losses

 “Increasing foreclosures means increased numbers of distressed properties and more neighborhood blight—which means home prices simply can’t rise. Until the enormous inventory of foreclosed properties and short sales is cleared out, the market for new and previously owned homes won’t fully recover. And this is after trillions of dollars in commitments and stimulus programs direct from the U.S. government.

 Another negative impact on the real estate market is that banks have been able to maintain distressed properties on their balance sheets at historical costs rather than true market value. This disguises the real value of bank assets, but worse—it prevents the market from discovering the true price of things.”

read original post here

Do you know of any shady deals going on with real estate and the banks in your community?  The real estate market hasn’t bottomed out yet, I think, and still has a ways to go, which doesn’t bode well for many neighborhoods.

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