Fannie Mae or Freddie Mac, are two of the largest mortgage servicing institutions in the country, each one providing mortgage loan financing, home loans, home equity loans, and many other related products to the American consumer. Opportunity cost is simply the forgone profit that would have otherwise been derived from an alternative not selected.
Foreclosed properties are a huge drain on bank resources and the taxpayers who pay for their upkeep. This is why foreclosed properties are kept as such so that banks will not lose all of their resources by keeping them occupied. In order to properly assess opportunity costs for foreclosed properties, the cost and profits of all alternatives available must be evaluated and compared with the other options.
In the process of comparing foreclosed homes with foreclosed homes, one can determine what would have been more beneficial to the bank. For instance, a homeowner who was able to obtain financing through the FHA or HUD would have been more likely to make the decision to stay in their homes and enjoy lower mortgage payments and lower maintenance costs.
The FHA is actually the federal housing agency that insures the first priority of Fannie and Freddie. The FHA provides home loans directly from the government, which the lender will pay when there is an individual default on the loan. The interest rate is based on market rates. The FHA guarantees that the lender will never default on the loan.
The FHA also guarantees that the home owner will be able to keep his or her home. As a result, a homeowner who obtains financing through the FHA is usually able to obtain a lower interest rate as well as lower monthly payments on their home loans.
There are also advantages to obtaining FHA financing, in the form of reduced down payment requirements and the ability to purchase an older home. Homeowners who own older homes are usually eligible to receive federal loans from the FHA. Older homes are usually offered at reduced prices due to the fact that they are usually less attractive to buyers and tend to have lower maintenance costs as well.
FHA financing does not involve any type of closing costs or commissions. Therefore, an FHA loan does not require a property owner to pay any fees or costs associated with closing a mortgage loan. The FHA requires no upfront fees and can be obtained for up to five years.
Foreclosure auctions are also not available through the FHA. If you are interested in purchasing a foreclosure property for the foreclosure sale, contact the bank that originally foreclosed on the home to find out if you can take the home for free. However, it may be necessary to pay for all of the expenses of the auction, including the listing fees.
Foreclosure auctions are only held once per year in most states, but some states offer multiple auctions per year. During these auctions, foreclosure property is sold at one time. This means that many of the home owners who bid on their homes are unable to continue bidding as more homeowners come forward to take their houses. Many of the home owners in this situation have little money to begin with and would have difficulty paying off the mortgage loans.
In many cases, home owners who are unable to pay their mortgages and sell their homes are able to take home loans that were provided by the FHA. They would use these funds to pay off the mortgage, leaving them with only one monthly mortgage payment instead of two or three. These home owners are often the most desperate and willing to sell their homes because their credit ratings may be damaged after numerous credit reports have been missed by the bank.
Homeowners who are unable to maintain their homes on their own will be able to apply for a deed in lieu of foreclosure. The bank will accept a deed in lieu of foreclosure in exchange for a full payment of the mortgage loan. In exchange, the property owner will pay the mortgage loan at the end of the life of the home, leaving the homeowner with no more payment obligation.
While it is easy to see that the FHA can provide homeowners with an opportunity to stay in their homes, the downside is that it is very difficult to qualify for foreclosure loans. Homeowners will be required to have excellent credit ratings in order to apply for the FHA and they have a high likelihood of qualifying. This means that a large number of individuals are not able to qualify for FHA financing. For this reason, many home owners are able to stay in their homes but are forced to sell their homes on the secondary market, either by selling on their own or to a private investor.