Before I start, I think it's ok - and healthy - for banks to make a profit. I mean they are, after all, the clearing houses for $Money$, the lubricant of our global economy. I'm a politically conservative, business oriented, limited government, free market advocate... and as such, I like to see people working and making money, feeding their families, taking vacations... and keeping their homes!
I'm also in complete understanding of our frail human nature, where pride and greed are at our core... and where qualities such as humility are often thought of as "quaint." It's all about corporate culture and in circles where enormously obscene profits are for the picking, smoky back rooms are heard to say, "Do them, before they do you!" I can't wait to see the new film, "Wall Street: Money Never Sleeps," with Michael Douglas, Shia LaBeouf, and Josh Brolin. Talk about great timing for a film release! It plays on the bursting of the housing bubble and our current economic turmoil like a concert violin. And from a recent critique: "In Money Never Sleeps, greed is a constant high, with everyone chasing the dragon."
So, help me with this. A family buys a house in 2004 for $350,000. They can afford it, as both Mom and Dad have secure jobs and money in the bank. They even put a 20%, $70,000 down payment in the deal and secure a $280,000 mortgage. Almost everything in their monthly payment is interest and escrows for taxes and insurance. By 2009, their balance is $270,000. She loses her $48,000 job at the accounting firm and eventually gets one at Target for minimum wage. He is devastated when he is let go from his marketing position, where he had been earning $75,000 per year. By early 2010, they had missed 5 mortgage payments and were in a panic. They had always paid their bills on time and had great credit! The foreclosure notices started coming and the credit card companies called non-stop. All unfamiliar territory for this family.
Question: If it cost the bank about $40,000 in admin and carrying costs and professional legal and Realtor fees to do this deal... Why not evaluate the situation and do the same deal for the current owner? You know - keep this family in the house and the kids in the same school, etc. Their new payment would be where they could now afford it (similar to the rent they'd have to pay down the street to the guy who is also upside down on that house).
If it saves the bank $40,000 in the reality of the current situation, am I being naive to think this is a better solution?
3 comments:
This is exactly what all of the home owners going through a short sale feel. They spend months trying to work a deal with their bank. Whether it's dropping the interest rate or adjusting the mortgage amount. The Banks don't seem to give them the opportunity to keep their homes.
This is also the reason why home owners going through a short sale are so angry. I'm sure that most; given the opportunity, in this position would be willing to keep their homes.
Listen up Banks, Frank has a point here!!!
1. The problem is that the bank probably sold the mortgage and it got sliced into bits that are owned by dozens of different parties. This limits what the mortgage servicer can do without getting sued by somebody. Thus, even though it would make economic sense for the bank to renegotiate the mortgage to the current market level, their hands may be tied.
2. Maybe the bank figured this couple, with only one minimum wage job, would have defaulted on a renegotiated mortgage anyway.
3. The bank may not have the capacity to figure out who really can't pay and who would otherwise just be trying to take advantage of them. It may seem to make sense to renegotiate in one case, but if they get a reputation for easiness, then people who can pay will stop paying and they lose even more.
Dear Anonymous - All good points!
1. The banks already assign negotiators to short sales to work through this maze.
2. My scenario was not fully developed (limited space/time) - assume they can afford the new deal.
3. Yes, some would try to "work the system." To do this, you'd have to prove your situation.
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