I hear it all the time, and frankly it is a legitimate questionâ€¦ why is the bank willing to foreclose on a home and take less money than what they would get if they modify?
Home bought in 2007 for $675,000 and the loan was $500,000.
Now in 2010 the home is worth $500,000 and the loan balance is $485,000.
Now if the bank were to foreclose, the sale price is not going to be
the $500,000 the home is worth, but less. An investor will probably pay
them $400,000 or the bank would end up buying the home themselves at
the foreclosure auction for that much, and then putting it on the
market for saleâ€¦ At the end of the day the bank is probably going to
recover $385,000 and the home owner would have lost their home and be
unable to buy another home for several years because of the Foreclosure
on their Credit Record record.
So why would they not let the home owner stay there and lower the
interest rate or modify the payment? Why not let you stay there for
$475,000 loan balance at a 2% rate fixed for 5 years? The bank would be
ahead and the home owner happy?
The answer is just as confusing as the problem itself.
First, it starts with the fact that what you call the Bank is really a Loan Servicer and Not a Bank.
Second, you do not owe them the money. Instead you owe the money to the
â€œInvestorâ€ and the investor could be just about anyoneâ€¦ part of your
loan may be owned by your Mutual Fund company or Pension Fund. They get
a saying in whether or not they modify the loan and what losses they
are going to take. Furthermore, your loan may or may not have Private
Mortgage Insurance and they also get a saying. If your loan was
pre-packaged by Fannie Mae or Freddie Mac, they may get a sayingâ€¦ If it
was owned by a bank that was closed by the Government, like Washington
Mutual, then the federal Government may have a sayingâ€¦
So imagine all these so called owners, each having a say and a plan
with their own rules and regulations, each trying to minimize their
losses (because the money has to come from somewhere) and you get a
bureaucratic gridlock. It is impossible for them to make a decision
that a natural person or entity would makeâ€¦ It is not because the bank
(Loan Servicer) employees do not care or want to help. It is not
because the government, it is not because it would make sense. It is
simply a sad reality and byproduct of the Corporate world we live in.
is like the old comedy script by Abbott and Costello Who -is on First and What â€“ is on secondâ€¦. You may feel like the short stop whose name is -I Donâ€™t Give a Damn!
That is the reason the bank (Loan Servicer) will not modify your loan, even when it makes sense to do so.
Loan Modification Comedy
â€¢ First Base: Who
â€¢ Second Base: What
â€¢ Third Base: I Donâ€™t Know
â€¢ Left field: Why
â€¢ Center field: Because
â€¢ Pitcher: Tomorrow
â€¢ Catcher: Today
â€¢ Shortstop: I Donâ€™t Care/I Donâ€™t Give a Darn/I Donâ€™t Give a Damn