Look Who’s Pushing Homeowners Off the Foreclosure Cliff

[JHB]

1. "when homes go into foreclosure, banks lose money" -- maybe ordinarily, but not these days...

For example...

According to Realtor Carol Engler, the reasons for our seemingly perpetual housing crisis lie with current bank practices and the incentives they have to quickly foreclose on a property.

“The banks are immune to what's happening. They don't have any reasons why they should get on board with the modification programs or to help people stay in their homes,” Engler said. “The banks have all the advantages now.” Engler said the advantages that banks have — insured mortgages, federal handouts, etc. — make it more cost effective for them to foreclose on a house than to work on a modification.

When a bank tenders a mortgage without a 20 percent down payment, they typically require the borrower to take out a private mortgage insurance (PMI) policy intended to offset the losses a lender incurs if a borrower defaults. So if a person gets behind on their mortgage payments, there is little reason for a bank to enter into a protracted negotiation with the homeowner because any loss is covered by the PMI. And if a particular PMI covers only a percentage of a bank's loss, there are plenty of federal dollars flowing through Fannie Mae and Freddie Mac to make up the difference.

“One bank told me flat out they would rather foreclose because it's easier and cheaper than spending months going back and forth with a homeowner,” Engler said.

http://www.yumasun.com/articles/banks-76431-bank-engler.html

Not trusting this this to be the whole story, but with the sort of non-traditional practices that fueled the RE bubble, it's not surprising that traditional solutions aren't happening either.