Friday, September 26, 2008

You are a mortgage lender

This post inspired by a comment in my previous post regarding mortgage ads. I don't know if this is going to go anywhere meaningful, so don't expect much.

Those with power don't like to share full and truthful information with the public. They're afraid we might do something about it. So this is based off of information that we are being fed.

Pretend for a moment with me that you work for a mortgage lender.

You have almost no money (or so we're being told). No capital. No cash.

Your whole existence is based around giving cash to other people to buy property with. You then collect cash from those people over time.

The average mortgage lasts around 7 years. Mortgage's do not go for the full term, due to properties being sold or refinanced.

Over the life of the mortgage you collect regular installments of cash. But at the end of the loan (typically around 7 years down the road), you get almost all of your original cash back. So everything you get payed during the regular payments is gravy (read: interest).

Right now a high percentage of people you loaned money to are not paying you back. So your getting less and less cash.

In some cases you give up on getting cash back and just take the property back. Your hope is to be able to sell the property and get you original cash back. The problem there is that it's very very hard to sell any property right now, and if you do, it will likely be for less than you originally loaned out for the property. So your cash is further dwindling.

I can see how there is a tailspin of less and less cash available to lend.

You need to get back on track of getting cash back from people. In order to do that you have to lend some out. In order to get more people to lend cash out might want to advertise.


Blogger Capn John said...

And that's exactly why I think it's a very foolish business practice for lenders to foreclose on mortgages.

There's a very small chance you'll be able to sell the house and recover all of the money you loaned the buyer, so why do it?

Why not be a considerate lender and try to work with the buyer so they can continue to make payments, even if they're smaller than you'd like, so you can at least get some cash flow happening.

9:27 PM  
Blogger April said...

If they could develop some sort of timeline to help "poorly advised" purchasers to get "back on track," perhaps you and I wouldn't be footing the bill for the next, oh say, 30 years!

1:37 AM  
Blogger BugHunter said...

John, in our current circumstances I'd have to agree. There is zero chance of reselling a house you foreclose on today. In the past, when there was a good chance (2001 -2004 it was practically garaunteed) of reselling, then foreclosure made a lot more sense. Banks aren't very good at rolling with the times it would seem.

April, so what plan would work? What do you mean by "back on track"? To me, back on track for these people means moving back into something they can afford, like an apartment.

9:10 AM  
Blogger Matt "The Bull" said...

yeah; If a house were "sellable" wouldn't the struggling homeowner do that. what makes a bank think they can sell a house???

12:56 PM  
Blogger Capn John said...

Matt, the struggling home owner is usually very reluctant to sell his house for 1/4 of what he paid for it and move into an apartment. And even if he is willing to do that he still has a huge mortgage hanging over his head, so now he's trying to pay his monthly rent AND make good on mortgage payments for a house he no longer owns.

By contrast, the Bank is more willing to sell a house for less than market value and will gladly accept a figure amounting to 25c on the dollar for a loan on which they believe the borrower has defaulted.

The former home owner still ends up in an apartment but at least now he doesn't have to worry about mortgage payments. In fact, with his credit report showing that he defaulted on his home loan, he'll probably never have to worry about mortgage payments ever again.

3:49 PM  
Blogger Wow Panda said...

Well, the 700billion deal just got struck down.

I am both happy and scared.

I am happy because it saved tax payers a lot of money.

I am scared because if the big ones going down, a lot of the common people will get hurt never the less.

And I don't think the government can make a loan better than private banks.

A better solution might be, give the surviving big players some incentive to buy the bankrupted ones (by striping the bad CEO down to their boons and some).

5:04 PM  
Blogger Capn John said...

Alan Fishman has been working for Washington Mutual for about 3 weeks now. He's doing alright for himself, too. He apparently got a seven and a half million dollar bonus ($7,500,000) for signing on with them, and after JPMorgan Chase complete their purchase of WaMu's banking assets, he'll move on to greener pastures and take an additional eleven and a half million dollars ($11,500,000) with him.

Not bad for temp work, hey?

11:47 AM  

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