RESEARCH & LEARN

3 Reasons Lenders Want to Avoid Foreclosures


Mortgage Newsletter

Check Local Mortgage Rates

Today's Average 4.77%

Calculators

FEATURED CALCULATOR

Loan Program Choices

Use our calculator to find out your estimated monthly payment in advance: Enter the loan amount, interest rate, and length of mortgage.
Try our Mortgage Payment Calculator


TERMINOLOGY

Lenders want to avoid foreclosures just as much as the borrower. Banks make mortgages for one reason only: the money. The lenders are in it for the money, and if you foreclose, then they have lost money on that home. Banks are not in the market of owning and selling homes, and they do not want it to come to that. That is why many lenders are willing to work with borrowers who are possibly going to foreclose. They can offer loan modifications and allow short sales, both which can prevent a foreclosure, and keep the lenders making money.

1. Profits

A lender who grants you a mortgage is going to make a lot of money in interest over the life of the loan. The first ten to fifteen years of a loan is almost entirely interest. If you foreclose, they will miss out on all of that interest. They also will likely not get back what they originally lent to you. Especially in today's market where many homes are worth less than the mortgage balance, the lender will likely not regain there initial investment. Plus, if you are not making payments tot he lender, there is less money for them to lend to the next customer. So again, they will lose out on money they could have made on another borrower. So, there are several ways the bank loses money all on one person foreclosing on their home.

2. Upkeep of the Home

Once a foreclosure has taken place, now the lender owns the home. They are responsible for the property and keeping it up until it can be sold. This may mean heating the place to avoid pipe bursts, winterizing the property and caring for lawn maintenance to avoid a homeowners association conflict. There is a lot of work involved with keeping a home while it is vacant and the lender does not want that responsibility. Multiply that by hundreds and thousands of homes the lender may have to care for due to foreclosure.

3. Selling the Home

Once a foreclosure is finalized and the home is vacant, the lender has to begin the process of selling the home. They often use a real estate agent and have to list the home. They may have to make repairs so the house is up to codes. A buyer will want a good deal since it is a foreclosure, so the bank will often have to take a large loss on the property. Plus they have to pay all of the fees associated with sale, and the buyer will likely want some of their costs covered. Adding this to all of the other losses the lender will take over the course of a foreclosure, and you can see why they want to avoid them at all costs.