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In hindsight (classic) this makes sense. I guess I was imagining a scenario where the house debt is already mostly paid off but not fully, the house is reposses

In hindsight (classic) this makes sense. I guess I was imagining a scenario where the house debt is already mostly paid off but not fully, the house is repossessed and the lender has the debt mostly already paid and now owns the property. I don't own any property and so I'm trying to build a mental model of all the moving parts.

cortesoft 8y ago
If the house is worth a lot more than the debt, you don’t see many foreclosures. An owner could simply sell their house and keep the profit, or take out a HELOC. Foreclosures are much more common when the debt level is high and/or the house is under water.
- mikefivedeuce 8y ago
  It's also dependent on the jurisdiction. In some cases the lender doesn't actually have a right to proceeds in excess of their loan amount (plus interest, penalties and fees).
  - verelo 8y ago
    One other thing to consider is brand reputation. Most lenders, big bank lenders at least, don’t want their brand being the one that took a family home away. Often before things get real bad they will offer to break the term and let you refinance somewhere else.
    - wbl 8y ago
      In the US 30 fixed have no prepayment penalty.
      - verelo 8y ago
        That's a good deal! In Canada pre-payments often result in fees, which isn't ideal. Good(ish?) news is the banks will let you transfer out with no fee (or a reduced fee) if they want to remove your risk from their portfolio.
telchar 8y ago
Historically[0] that was a profit center for contract lenders which people living in redlined neighborhoods (i.e. mostly black Americans) had to resort to if they wanted to buy a house before the reforms of the 1960's. These people would lend money for a house with very predatory terms. It was apparently common for a borrower to have their house foreclosed on for minor missed payments and the contract lender would simply repossess the house so they would have the house and all the payments they collected. The borrowers couldn't easily refinance since the neighborhood was redlined and there were few to no regulations on the contract provisions so a mostly paid off house could still be repossessed with no reimbursement. This was one of the major ways the black middle class was hollowed out since homeownership was one of the major sources of middle class wealth gain. [0] https://www.chicagoreader.com/chicago/contract-selling-redlining-housing-discrimination/Content?oid=25705647 https://www.chicagoreader.com/chicago/contract-selling-redli...
- dsfyu404ed 8y ago
  You're describing the "buy here pay here" used car lot model but for houses.
johngalt 8y ago
Foreclosure doesn't provide the entire value of the property to the lender. But it does allow the home to be sold at auction in order to recover the money owed. Any remainder is given to the home owner. That said it would be an exception to foreclose/auction a home with significant equity. Major underwriters want regular payments. If they wanted market value property, they would invest in that instead. If banks wanted to foreclose property, why wasn't 2008 a winning year for banks?

cortesoft 8y ago

If the house is worth a lot more than the debt, you don’t see many foreclosures. An owner could simply sell their house and keep the profit, or take out a HELOC. Foreclosures are much more common when the debt level is high and/or the house is under water.

mikefivedeuce 8y ago
It's also dependent on the jurisdiction. In some cases the lender doesn't actually have a right to proceeds in excess of their loan amount (plus interest, penalties and fees).
- verelo 8y ago
  One other thing to consider is brand reputation. Most lenders, big bank lenders at least, don’t want their brand being the one that took a family home away. Often before things get real bad they will offer to break the term and let you refinance somewhere else.
  - wbl 8y ago
    In the US 30 fixed have no prepayment penalty.
    - verelo 8y ago
      That's a good deal! In Canada pre-payments often result in fees, which isn't ideal. Good(ish?) news is the banks will let you transfer out with no fee (or a reduced fee) if they want to remove your risk from their portfolio.

telchar 8y ago

Historically[0] that was a profit center for contract lenders which people living in redlined neighborhoods (i.e. mostly black Americans) had to resort to if they wanted to buy a house before the reforms of the 1960's. These people would lend money for a house with very predatory terms. It was apparently common for a borrower to have their house foreclosed on for minor missed payments and the contract lender would simply repossess the house so they would have the house and all the payments they collected. The borrowers couldn't easily refinance since the neighborhood was redlined and there were few to no regulations on the contract provisions so a mostly paid off house could still be repossessed with no reimbursement. This was one of the major ways the black middle class was hollowed out since homeownership was one of the major sources of middle class wealth gain. [0] https://www.chicagoreader.com/chicago/contract-selling-redlining-housing-discrimination/Content?oid=25705647 https://www.chicagoreader.com/chicago/contract-selling-redli...

dsfyu404ed 8y ago
You're describing the "buy here pay here" used car lot model but for houses.

johngalt 8y ago

Foreclosure doesn't provide the entire value of the property to the lender. But it does allow the home to be sold at auction in order to recover the money owed. Any remainder is given to the home owner. That said it would be an exception to foreclose/auction a home with significant equity. Major underwriters want regular payments. If they wanted market value property, they would invest in that instead. If banks wanted to foreclose property, why wasn't 2008 a winning year for banks?