Why do Banks want to foreclose on so many homes so quickly?
I have come up with a list of possible foreclosure income streams that get generated when a bank forecloses on a homeowner. This list could explain why the banks are in such a rush to foreclose on a homeowner and not so interested in helping the homeowner.
1. The banks keep the original down payment once a home is foreclosed, which can be anywhere from 5% to 20% of the possibly over inflated value of the home when the foreclosure victim first purchased the home.
2. Home Equity lines, yes, there still are PLENTY of homes that have home equity value in them, which gets forfeited back to the banks as well. Think of it as filling up a piggy bank, and once full, it's all yours, but instead, its broken into and all of the contents go back to the big pig. In many instances, the piggy bank, (the home), is not broken and can be resold again.
3. Fees - lol, I know they exist because they are mentioned in practically every article I read about home foreclosures. The mortgage servicer may try and tack on an additional home insurance policy or pay for legally suspended property taxes then demand payment, which may include additional fees for creating the unnecessary charges.
4. Penalties - such as losing a home because a monthly payment was fourteen cents short and the resulting penalties equaled over 2,000 dollars, when this penalty cannot be paid, future mortgage payments are refused and foreclosure actions are initiated.
5. Accruing Interest charges on fees and penalties. If a fee or penalty is too much to pay, the fee/penalty debt begins accruing interest rate charges and possibly additional penalties as well.
6. Assessing charges for reselling the foreclosed home, such as the ads that are required to resell the foreclosed home and all ensuing paperwork.
7. Professional service fees that can range from attorneys & accountants, to appraisers and home improvement services.
8. MORTGAGE INSURANCE claims on the foreclosed home by the bank, called PMI's, can pay out 20% of the value of the home when originally purchased.
9. Banks can claim Income tax deductions from alleged losses from a foreclosed home.
10. Possibly an infusion of money from the government to the banks that we don't know about that replaces the "lost income" from the foreclosed upon home,
11. A new homeowner's down payment,
12. Monthly payments from the new homeowner,
13. Collecting money from the foreclosed upon homeowner and soon to be indentured debtor since they still owe the difference from the sale price of the house (many times less than 50% of what the foreclosed upon homeowner purchased the home for), plus accruing penalties and fees, and the original mortgage,
14. The foreclosed upon homeowner now has to rent, creating an income stream for some other bank owned property.
15. The foreclosed upon homeowner's credit is ruined and any future credit they do get will be with the worst possible terms, meaning the highest possible interest rates.
By foreclosing on the homeowner, the mortgage servicing company, the holder of the note, and the banks appear to be able to generate 15 income streams!
When Barack Obama helped pioneer HAMP (home affordable mortgage protection) the banks were offered 1,000 dollars to help homeowners reduce their home loans.
If you were either a note holder, investor, or bank, which would you prefer, fifteen income streams for foreclosing on a home, or a shiny 1,000 dollar bill from our government?
If anybody out there has additional forms of income from foreclosure actions that I am unaware of, please contribute them in the comments section.
4 comments:
You forgot default swaps and insurance against the securities just to name a couple
Wow, you are right, I wonder where they go in terms of revenue stream as compared to the other fifteen.
Anymore?
If there are so many income streams being created by a foreclosure, is not this the elephant in the room above and beyond the robo signing and fraudulent statements?
If 17 income streams results in fraud, what do we do going forward?
My solution is to rebate back 75% of the down payment and any built up equity to anybody who foreclosed upon.
Even though this looks like it hamstrings the banks, it actually doesn't. If the person chooses to stay in the home payment free for a couple of years, that could then be deducted from the down payment rebate check.
Now the homeowner has real options. They either get out right away and get back a significant portion of their down payment, or they stay put until that money is exhausted.
They can even sign an agreement that they will leave once the 75% down payment is expired.
The one group of homeowners who would not like this idea are those who signed predatory loans.
However, getting 75% back of the down payment might still be something to take the bitterness away.
Plus, a portion of that 75% down payment rebate check could be used to hire an attorney to sue the loan originator.
Most of the foreclosures are on sub prime, so the insurance is a percentage of the debt at least equal to 20% and in some cases much higher. That means this revenue would be a top billing in incentives.
Although on another blog, someone tried to make the issue of a year to collect as being a disincentive, the counter to this is that forclosure completion is being robo milled for just this reason.
http://www.macdc.org/research/Servicer-Report1009.pdf
And now for a little venting.
There is the biggest incentives ... incentive which people don't wish to think about. There was and still is widespread fraud and insider trading and collusion between the servicers and their bank affiliates. (and the insurers too being AIG saw the writing on the wall, but their collusion meant they also had to bite the bullet and take the fall lest their hand in the shell game be revealed)
With servicer info of which mortgages are likely to default, shorting that investment is a sure bet. The banks were well aware of the toxicity of the trades as they colluded to make them that way...
Sub-prime lending was a wonderful collusive effort in the banking business to rip off investors and now that that fleecing has been exposed (but for some reason no one has had jail time) now it is time for the banks and servicers to clear the mess and pretend they weren't part of the problem by foreclosing on those they duped into buying in the first place to feed the derivatives market.
Being credit rating companies admitted they give higher rating's to those servicer's that made the quickest foreclosures, they were are perhaps still are part of that problem.
The collusion is so widespread and the Government so intrinsically involved with Fannie and Freddie and the President himself motivating the market design that begged for a bubble... the unwinding (there will be no unraveling.. the regulators seem to have a mandate to ignore the big fish, to help keep the focus of blame on homeowners and bad luck...) of the mess to tell the whole story will be fodder for novels and journalists for the next decade.
The big banks perpetrated a huge scam and the economy and the homeowners are a big shrug. The big banks got payouts from the Government (TARP) for having made the mess and are back to business as usual.
I know I am rambling, but this is no conspiracy theory. This is a reality and more bubbles are being created. The watered down new regs protect no one so the 'little people' need to be wary of banks and their greed.
Thanks for being on the side of homeowners. I am in no trouble myself, but understand that home owners are helpless pawns and the ripple effect of massive foreclosures means more sad days ahead even for those feeling smug and secure.
Pauly, you are not rambling, thanks for contributing such interesting information.
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