'Mortgage Prof': 5 Reasons Banks Would Rather Foreclose

[BridgeTheGap]

"Why won't the bank just reduce the amount of my loan instead of taking my home and then selling it to someone else for way less than I would have been happy to pay?" It's a question that gets asked repeatedly these days, especially by people who are facing foreclosure or are upside down on their mortgages.

For the answer, we turned to Jack Guttentag, the Mortgage Professor and Inman columnist.

Guttentag believes that lenders have been too stingy when it comes to reducing loan balances. Private lenders have offered loan reductions only sparingly, he says, and Fannie Mae and Freddie Mac not at all.

Here's the professor's take on why homeowners can't catch a break on loan reductions.

http://realestate.aol.com/blog/2011/10/18/mortgage-prof-why-banks-foreclose-instead-of-settling-for-les/?icid=maing-grid10%7Chtmlws-main-bb%7Cdl5%7Csec1_lnk3%7C105578

[dkf]

1. Well it begins to make sense why things are the way they are.

How many of these concerns did the mortgage modification program address? Was it designed to overcome these points?

[phantom power]

5. essentially none of them -- that's why we still have the problem...

There has been a complete failure to address the underlying system of incentives.

[ixion]

2. They were all okay about over-valuing the properties, though

which means they knew the outcome they were creating, and thus they are fraudulent.

And they should all stand trial.

[enough]

3. Reason #5 is interesting: Mortgage insurance works against you.

snip>

5. Mortgage insurance works against you.

When mortgages carrying mortgage insurance go to foreclosure, banks are protected up to the maximum coverage of the policy, which generally is enough to cover all or most of the loss. This discourages modifications, says Guttentag. Why would a bank do a modification for $15,000 if the $40,000 foreclosure cost is going to be paid by the mortgage insurer? Even if the insurance coverage falls short of the foreclosure cost, the shortfall has to exceed the modification cost before modification becomes financially more attractive.

[RaleighNCDUer]

4. Obviously, the answer to that is for the homeowner to get

mortgage insurance insurance which will protect them if the mortgage insurance throws their property to the wolves.

[MedicalAdmin]

6. If they foreclose on you...

... make sure that there is a way back into the house. Either re-occupy or, if that isn't an option, then show up one night and strip the fucking place to the bones by taking out all wiring and plumbing and don't bother shutting the fucking water off. Leave the fuckers with nothing just like they left you with nothing.

Take it all to a scrap dealer a small chunk at a time and rotate dealers if you can.

[dkf]

7. That screws your neighbors who are stuck next to what will become a derelict eyesore.

[MedicalAdmin]

8. It's going to anyway.

The banks are NOT selling these houses. They are sitting on them and in many cases just bulldozing them down and leaving the lot fallow. And if that house sits empty, eventually it will be stripped, if not by you then by someone with serious criminal intent. Would your neighbors what that house being cased, because that IS what will happen.

The net outcome is the same so why not get a little cabbage for getting screwed?

You seem to be under the impression that it is business as usual and that everything will be OK if we all just follow the rules. What fucking rules? The rules haven't been followed for decades and we are just starting to see that.

And to be completely nihilistic, they ain't your neighbors anymore.

[xchrom]

9. +1

[MedicalAdmin]

10. Thanks.

It's a business contract written by dirty rotten crooks and used to fuck regular folks with an un-greased 2x4.

If you are being forced out then get your 20 pieces of silver back from them.

[dkf]

11. Well you are turning maybe a 50% probability into a 100% probability.

And that depends where it is.