Wednesday, March 9, 2011
Some banks could be making money off foreclosures
Some banks could be making money off foreclosures
Photo credit: AP Photo/David Zalubowski | FILE - In this April 4, 2010 file photo, a forclosure sign tops the for sale sign outside a home in Denver. Foreclosure activity jumped in 149 of the 206 largest metropolitan areas in the U.S. last year, foreclosure listing firm RealtyTrac Inc. said Thursday Jan. 27, 2011. (AP Photo/David Zalubowski, file)
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Real LI Blog Ilyce Glink is an award-winning, nationally-syndicated columnist, television reporter, radio talk show host and bestselling book author. Her syndicated column, Real Estate Matters, appears in more than 100 newspapers and Web sites across the U.S.
Q: We built a spec house in 2007 as the market declined. We've tried to do everything to get it sold and recently received a short sale offer on the home.
At first, our bank agreed to change the loan into an interest-only loan to help with the cash flow, but we can't manage to cover those payments. Then our bank went out of business and was taken over by another bank.
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We approached our new lender with the short sale offer and agreed to pay them most of the difference between the amount offered by the buyer and the amount owed to the bank by using our retirement savings, but they declined to accept the offer because of the loss sharing agreement they have with the government.
Now my husband was diagnosed with stage 3 cancer and he's unable to work, and all our cash reserves have been depleted to keep up our payments.
We are in our 50s, have always been fiscally responsible and want to do the right thing.
Foreclosure is not an option for us because of what it would do to our credit. We feel the bank has acted very irresponsibly and this loss share agreement is working against the taxpayer and for the bank. The bank has no incentive to work with us.
Do you have any suggestions for next steps and do we have any recourse for complaints?
A: We read your letter and felt sick. It reminds us of a story that was circulating a year or two ago that showed that buyers of banks that went under were raking in millions by taking over failed banks.
They weren't making this money as a result of their wise lending or better skills in making loans, but in large part from guarantees made by the U.S. government to the banks taking over the failed lenders.
The story went on to say that the worse a loan performed, the more money the bank made. It didn't quite make sense to set up a situation that allowed banks to make billions of dollars with no risk, but it seems to follow directly with what you are saying.
In your situation you could make the bank whole (or very nearly whole) by having the buyer put up most of the money owed on the loan while you put up the difference. Yet if the bank forecloses on you and gets half that amount from the sale, the bank might make out better.
How would that work? Well, if your bank purchased the loans on the books of the bank at, say, 70 cents on the dollar, and the U.S. government has a formula to guarantee the difference or a formula on the basis of the difference, your bank might make more money taking the loss than being made whole by you.
Read More:
http://www.newsday.com/classifieds/real-estate/some-banks-could-be-making-money-off-foreclosures-1.2744868
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