Banks Won't Stop Foreclosing Until Profits Are Removed.

Banks have no incentive to re-negotiate loans. They lose all service fees and income that the loan would have otherwise paid off had it remained solvent.The banks stand to incur even more loss if they rework the loan for less.
It is profitable for them to foreclose on the home and the biggest reason that it is profitable to foreclose is the FDIC in the event of foreclosure, would cover from 80%-95% of losses, using the original loan amount, and not the current balance. The FDIC does not cover losses in a re-negotiated loan.

Here is an example from I AM Facing Foreclosure.com.

How does this translate to the “Real World”?Let us take a hypothetical situation. A homeowner has just lost his home in default. One West sells the property. Here are the details of the transaction:

• The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount up to $550,000. At 70%, OneWest bought the loan for $385,000


• The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.


• ‘FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is $315,000. If the FDIC is covering “ONLY” 80% of the loss, then the FDIC would reimburse OneWest to the tune of $252,000.


• Add the $252,000 to the Purchase Price of $185,000, and you have One West recovering $437,000 for an “investment” of $385,000. Therefore, OneWest makes $52,000 in additional income above the actual Purchase Price loan amount after the FDIC reimbursement.

At this point, it becomes readily apparent why OneWest Bank has no intention of conducting loan modifications. Any modification means that OneWestwould lose out on all this additional profit.

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So here we are after bailing out the banks.The taxpayers via the FDIC are actually paying the banks to take their houseaway from them. The way I see it the FDIC needs change some rules in order to cover the loses the bank would incur by renegotiating the loans to keep familiesin homes and only cover the incurred losses in a foreclosure. Either way it isthe taxpayer that is footing the bill. Until it is less profitable for the banks to proceed with foreclosures over renegotiating they will continue to foreclose and the economy and neighborhoods will continue to decline with boarded up houses. Itis capitalism. make it more profitable for the banks to help people stay intheir homes and I bet the foreclosures rates would immediately begin to falloff. But right now the banks have no incentive. Ultimately it is the taxpayerthat is footing it one way or another and as a taxpayer I would like to see theFDIC able to cover losses the bank incurs to keep someone in the house instead of it being used by the banks to profitoff the misfortunes of the homeowner by foreclosures. I would think that the FDIC would also be paying out less to the banks by only covering the actual losses be it from foreclosure or from renegotiated loans.