So if the sub-prime companies go from 5% interest to 10%, this causes foreclosures?
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At 5% the loans are losers. But what is worse are many of these loans are at 1%, or 3% and are to change to 7% or 8%. Keeping them at 3% or less they are horrible losers. Most of these companies invested in them knowing they would be losing money the first few years, but that later the increased rates would make up for it. Now there WILL BE NO profits, only losses.
So do you go for a quick loss and get it off the books, or do you slowly bleed away over years. Almost all businesses will cut the loss and try to move on.
Many businesses have no option. Their financial situation is based on the interest rates of the loans to reach certain levels. They have people they have to pay. If the receipts from the higher ARMS aren't there, they have to foreclose and sell the properties to get money to pay off their creditors
As it is, most of these businesses who gave these loans are going to go bankrupt. They are simply doing everything they can to keep the hounds at bay for as long as possible.
Mortgage companies live and die by the contract. Staying at 5% cuts their projected profits by at least 50% and the contracts are financed by real estate investment trusts, so they can't be modified by the lender after the fact.
only the federal goverment can force lenders to do that ..and they should on all loans taken out from the last 2 years ..
people be happier and vote for republican, if not then they will surely vote democrats this coming election as I will (republican btw)
that is not why they increased the rate. Companies had sold mortgages to people who agreed to the terms, and the mortgages adjusted over a period of time. An example would be that the rate would be 5% for a year and then adjust to another number after that. The change in rate, and thus payment, made it impossible for people with debt ratios that were high to continue to sustain the payments. All of this causes an increase in foreclosures along with other mortgage blunders.
They don't make any money that way - they give you a loan KNOWING they're going to increase your rates.
The best thing for you to do is monitor your credit report every couple months and keep it cleaned up so you can qualify for conventional rates.
Foreclosures are caused by many issues most of which have little to do with the interest rate. A deadbeat has no concern for what the rate is or will become. A person with every intent on paying but was recently laid off can also lose a home. A spouse that has poor spending habits can rack up more debt than household income can support. The foreclosure rate of subprime loans is still lower than that of conforming loans. If that became well known the house of cards the federal reserve has built would tumble down. This recent foreclosure craze might also just be another way the govt has designed to lower many of the middle class to the poor.
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