May 1, 2010
POSTED BY OLIVER WRIGHT ESQ.
Numbers from ratings agency Standard & Poors spell out the cost of foreclosure to mortgage investors and banks. For subprime loans underwritten in 2006 it’s about 20% of the loan amounts outstanding. Here’s how they get that number: [pullquote]S&P figures 42% of the loans made that year to borrowers with bad credit will go into foreclosure.[/pullquote] Then it calculates 45% of the amount owed on those loans will be lost. Here’s the breakdown on that: 19% is lost due to the decline in the market value of the home. That’s about a $40,000 loss on a typical loan of $210,000. Then there is the 26% lost to the costs of foreclosure. It can take a year or more to go through the whole process from when a borrower stops paying to when the house is finally sold and the lender recoups whatever money it can. There’s 13.6% of the loan amount lost in interest payments. About 3% of the home value the lender has to pay in property taxes. There’s 1% in legal fees, 6% to real estate agents, about 3% of the loan spent on home maintenance.
