The Banks are Preferring Foreclosures to Other Alternatives Because of its Profitability

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Julie Parker

Julie Parker was born in March 19, 1983, in Lancaster – Los Angeles County, California. Her father is an experienced economist and businessman, who motivate her taste for the real estate market. Recently, graduated in Economics and now focus her studies in a PhD. Now she’s a consultant and webwritter of ForeclosureListings.com

Despite protestations the obvious truth is that banks have preferred foreclosures to other alternatives because they have the profit incentive to egg them on with it – harmful to the individual, the community and the country. The incentive is coming from the power lords.

It was the federal government that made taking of housing loans attractive for any and everybody by doing away with standard protective regulations. When the housing boom started the lenders began to circulate more imaginative and dangerous loans. The borrowers too joined in the party with ‘liar loans’ by making false statements about their income while the authorities chose not to check on the stated facts. This was followed by the housing bust preceding the Great Recession.

Millions of houses are foreclosed. The country is dotted with this blight. The banks are being told not to foreclose but try out other options but foreclosures are proving to be more lucrative to the lenders. The FDIC has come forward to guarantee (sometimes up to 90%) losses if a house is foreclosed. The money comes from the taxpayer while the bank pockets funds from the sale of the house added to what the FDIC gifts.

Most of the loans on residences were contracted at the time of the real estate boom. These were made into packages and sold to investors across the globe. The banks are only the servicers or money-collectors. The banks get their payment whether the unit is foreclosed or not.

Another hurdle is that the banks have to get the green signal from the investors prior to modification of the loan. It is the investors who are the present owners of the loan. The investors get paid as per pecking order and those who are in the lower rung of the ladder are reluctant to agree because considering the selling price currently, they get nothing from the deal. Thus why agree to a loan modification when Washington will make up for the loss?
The country is now facing a two fold problem that is having a snowballing effect on the economy. Millions are forfeiting their houses to foreclosure and the government is eating into taxpayer’s funds to give incentives to the banks to step up foreclosures in real terms. Both factors have resulted in the people losing their purchasing power. This has led to depressing business and that again has led to more unemployment leading to a vicious cycle. The unemployed and underemployed cannot pay their mortgage dues leading to round after round of troubles. The financial entities will not do anything willingly to bring an end to it.