Rather than losing untold billions by mindlessly taking back houses in foreclosure regardless of the circumstances of the customer in foreclosure, you’d think the banks would be proactive in preventing the foreclosure in cases where it is so clearly in the bank’s interest. I mean, at least be willing to listen to your customer. Was the government bailout so lucrative that an entire industry doesn’t need to care about profitability anymore?
After all, it’s not like foreclosure’s an isolated problem. The Mortgage Bankers Association recently reported that nearly 1 in 7 US mortgages is in some stage of distress (either being paid late or already defaulted on). That’s almost 13 million households, an estimated 30 million Americans. It’s the worst this country has ever seen and it’s affecting every type of American!
Meanwhile, the industry is taking billions—soon trillions—in write-downs of property value. Just looking at the two most recent income properties Great Lakes Secured Investments bought makes a great example. In both cases, the house was bought for 80% or so less than what was owed the bank when it foreclosed on last year. And that doesn’t even include the countless other expenses such as utilities, insurance, clean-up, commissions, legal and title fees, etc. that the bank had to incur just to get that miserably low price.
And yet odds are the previous owner would have stayed and continued to make payments if the bank would have lowered their loan balance and payments by say, 40%. The bank could have saved the remaining 40% plus all those other extraordinary expenses and loss of income. You see, increasingly, there’s NOT an income or employment issue behind the foreclosure. Lowering the amount owed on the mortgage and / or the interest rate would have saved everybody a lot of grief and money. After all, I’d lay odds that the previous owner is now renting a similar place for about what the bank should have accepted for a loan modification payment.
But when it comes to banks dealing with customers, no news is good news. There will be no conversation with the bank about alternatives because that’s not the way banks do things. You can’t talk to the bank BEFORE foreclosure strikes. Instead, only after a borrower has already defaulted on the loan and ruined their credit can they get past the Customer Service gate to talk about an alternative to foreclosure. But by that time the opportunity for a win-win solution has passed.
I see this every day of my life: the homeowner with a 20-year perfect credit record, whose house is worth less than half of what it was a couple of years ago. They try to sell their house for a year, expecting no money whatsoever anymore. The housing market has humbled them. All they want to do at this point is walk away with nothing but their credit intact. But they can’t even do that!
This homeowner really has two choices, both of which involve destroying their credit:
a) Endure the hassle of trying to sell their home, this time at a discounted “short sale” price (less than what is owed on their mortgage), knowing they’ll not get one red cent from the sale
b) Don’t bother doing anything except let their house go completely into foreclosure by stop making payments, stop paying taxes, and live for free for up to a year, at least in most states
It’s no wonder most pick “b”. If you’re not getting any money and you’re credit’s getting destroyed anyway, why not live free for a year? (Some people claim that a “short sale” doesn’t have the negative impact on a credit report as a “foreclosure”, but not so).
The banking industry wants you to believe the foreclosure problem is symptomatic of the general economy, because it gets them off the hook of taking responsibility and being part of the solution.
By the way, written on the walls of one of the recent houses we purchased were the words: “we did not want to leave”.
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