Why banks would rather foreclose

freedomwon

LoanSafe Member
Oct 30, 2010
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If the FDIC would simply do away with the loss share agreements, banks would have far more incentive to modify loans & the real estate market could cover much more quickly. I realize it's more complex than that, but unless that changes, banks will continue to foreclose in record numbers.

Why are banks being rewarded for losses at the expense of the taxpayer?
 

ytrewq

LoanSafe Member
Apr 20, 2011
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Or is it the opposite?

So, am I understanding correctly, that the banks' best gold mines using this scheme, are the properties that are the most upside-down?

And are properties 'safer' from a fast foreclosure, and not the low-hanging fruit, if the note is closer to the real market value, thus not a whole lot of money to make for the bank?
Now I'm really confused. Previously I've read that the banks foreclose sooner on the smaller mortgages because they can pretend that the big upside-down mortgages are really assets to satisfy their reserve requirements.
 

ytrewq

LoanSafe Member
Apr 20, 2011
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Please don't be confused by my question, I'm a greenhorn, new at all this, with a fico score of 820 before yesterday, just trying to translate the crookedness and trying to figure out what a criminal bank mind would do if in the bank's position.
Not your question. I'm genuinely confused by what the banks do:) Hope this link works, it shows that in recent history that banks foreclose on the small ones first. Foreclosure Roulette Revisited | ForeclosureTruth | Foreclosure News, Opinions and Analysis
 

ytrewq

LoanSafe Member
Apr 20, 2011
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Your question was:"...are properties 'safer' from a fast foreclosure, and not the low-hanging fruit, if the note is closer to the real market value, thus not a whole lot of money to make for the bank?"

The link I posted (and his previous article on Foreclosure Roulette) show that banks have other motives based on study of 154,000 foreclosures which drive them to foreclose if the note is small and close to the market value which are different compared to the strategy outlined in the Sun Sentinel article. So what are the banks up to and when using a particular strategy seems uncertain in any particular case. No argument about banker ethics and whether they are on our side. Hope this clarifies my previous post. Throw in the HAMP, short scale scams and you get what he calls roulette because it is a game the banks play in determining who gets quickly foreclosed and who doesn't meaning you can't figure out what your odds are but you will worry about it to their advantage.Thanks.
 

ytrewq

LoanSafe Member
Apr 20, 2011
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Also to quote the author: "...those who took the biggest loans, on the nicest houses, with the largest lines of credit to buy lots of shiny new toys will also get the most free rent when they strategically default."
 

davephx

LoanSafe Member
Jul 21, 2009
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The FDIC loss sharing is only relevant to failed banks - mostly small ones we have never heard of other than a few larger workouts.

The bigger issue in my view is the banks do not own most 1sts that they service and about 70% of 1sts are GSE backed. The servicing bank makes millions in fees to foreclose vs pittance to modify and the taxpayers take the huge loss in sale at distressed prices via the GSE's. So its a huge taxpayer transfer of payments to the big banks to pay their millionaire execs and millions of profits to shareholders.

This was not the intent of HAMP which is an outstanding program if the banks followed the agreements they signed as part of their TARP bailout. But they refuse to abide by their participation agreements and will commit consumer fraud (as AGs show etc) to maximize their protits regardless of their agreements. They are only in business to maximize profits to shareholders, not any public good.

This is similar to health care with zillions of insurance companies having to may all the excecs huge salaries and maximize profits to shareholders. So insurance companies and banks get rich and the taxpayer and those needing affordable health care get screwed.
 
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