If house prices go down, then the people making the payments are more likely to look at the value of the house versus what is left of the mortgage and just walk away leaving the mortgage holder with a house to foreclose on and try and sell - a process that can cost thousands of dollars. If a mortgage company is collecting $12000 a year on a house (6% on $200,000) and the house value drops so it can be sold only for a $10,000 lower value and it costs $3,000 to foreclose and sell, then the profit of the company has dropped by at least $1,000.
Worse, mortgages are sold between banks, etc., based on how good they are - how likely the payments are to continue - and if prices are going down, the more likely the owners are to stop paying, making the mortgages less likely to be paid out and thus less valuable for sale.How do house prices affect the profitability of a mortgage lender?
well if house prices go down, people will start buying property more and mortgage lenders make a profit out of it.
at the moment, it is kind of a recession period where interest rates are high, no one can afford purchasing a property, so mortgage lender do not sell any of their loans.. is that clear enough?
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