Foreclosures in Wenzhou strain guarantee companies

15,000 foreclosed properties in Wenzhou pummeling guarantee companies

Nosedives in the Wenzhou property market of up to 50% have forced some property buyers to stop making payments to the lenders and drop their guarantees to companies as their mortgages have exceeded the property's market value. Many have literally abandoned property, a tremendous fallout for the city's 300 surviving guarantee companies,

The 300 guarantee companies capitalized on the "residual value of collateral," using the remaining quota in a property mortgage to leverage a second mortgage. For example, banks, out of safety concerns, typically approved a mortgage of about 60% of the evaluated value of the property, with 40% untouched. Guarantee companies will try to offer mortgages for the remaining 40%, and claim a service fee. The entire operation relies heavily on a stable property market.