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Comment by have_faith | Hacker News Reader

In hindsight (classic) this makes sense. I guess I was imagining a scenario where the house debt is already mostly paid off but not fully, the house is repossessed and the lender has the debt mostly already paid and now owns the property. I don't own any property and so I'm trying to build a mental model of all the moving parts.

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Foreclosure doesn't provide the entire value of the property to the lender. But it does allow the home to be sold at auction in order to recover the money owed. Any remainder is given to the home owner. That said it would be an exception to foreclose/auction a home with significant equity.

Major underwriters want regular payments. If they wanted market value property, they would invest in that instead.

If banks wanted to foreclose property, why wasn't 2008 a winning year for banks?

Historically[0] that was a profit center for contract lenders which people living in redlined neighborhoods (i.e. mostly black Americans) had to resort to if they wanted to buy a house before the reforms of the 1960's. These people would lend money for a house with very predatory terms. It was apparently common for a borrower to have their house foreclosed on for minor missed payments and the contract lender would simply repossess the house so they would have the house and all the payments they collected. The borrowers couldn't easily refinance since the neighborhood was redlined and there were few to no regulations on the contract provisions so a mostly paid off house could still be repossessed with no reimbursement.

This was one of the major ways the black middle class was hollowed out since homeownership was one of the major sources of middle class wealth gain.

[0] https://www.chicagoreader.com/chicago/contract-selling-redli...

You're describing the "buy here pay here" used car lot model but for houses.

If the house is worth a lot more than the debt, you don’t see many foreclosures. An owner could simply sell their house and keep the profit, or take out a HELOC. Foreclosures are much more common when the debt level is high and/or the house is under water.

It's also dependent on the jurisdiction. In some cases the lender doesn't actually have a right to proceeds in excess of their loan amount (plus interest, penalties and fees).

One other thing to consider is brand reputation. Most lenders, big bank lenders at least, don’t want their brand being the one that took a family home away. Often before things get real bad they will offer to break the term and let you refinance somewhere else.

In the US 30 fixed have no prepayment penalty.

That's a good deal! In Canada pre-payments often result in fees, which isn't ideal. Good(ish?) news is the banks will let you transfer out with no fee (or a reduced fee) if they want to remove your risk from their portfolio.

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