In real estate investments, every single action is followed by an opposite reaction and sometimes followed by equal reaction. The result that Bay Area sales of new homes have slowed to their lowest point in 15 years indicated that a rise in tension as lenders began to anxiously examine their lists of borrowers who have fallen behind on payments.
Let us take a look to examine why one area should be affecting the other. Lenders are trying to make their money by doing what they do most excellent: lending money to borrowers who pay it back with interest and thereby leading to a large profit. There is a certain brutal logic of specialization in this area which occurs by default. What I am trying to say is lenders are happiest when they lend money to borrowers and collect payments because their business is really grown up to do and borrowers need to borrow money at a rate they can afford to repay it.
Now the moment you have house sales falling and borrowers are failure to pay, lenders begin to get tense. They get nervous because they sense that the economy is taking a immerse which means that those borrowers who are tottering on the edge and are just managing to make the costs and have now fallen behind, and they are finding it more tougher to make ends meet. You would stay, at this point, that the fact that lenders have lent money with a house as guarantee would be enough to take the edge off their tenseness. After all, logic tells you, the moment a house owner cannot make payments and the loan goes into non-attendance. The lender will take ownership of the house, call foreclosure upon it, and get their money back.
Here the logic is absolutely wrong because lenders have specialized. Taking ownership of a home and selling it is the worst case situation for them because they know the have no particular staff to do this. It is a rich exercise for them in terms of managerial costs, because they are not geared up for selling houses and they will get back in most cases is going to be much below the house’s market value. It shows that the moment a lender decides to play hard ball with a house owner especially for those who can no longer make payments and take ownership of the house. Obviously they are losing money and are only trying to make a decision what an acceptable loss is.
This is terrible news for borrowers stressed to make ends meet because the lenders are getting activate happy and are less likely to listen to a home proprietor who has fallen after on their payments. Unexpectedly, the news come out from Bay Area is a clear signal that suddenly there is a very cold wind blowing in the home buying business and lenders are getting edgy.
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