Do Banks Really Want Your Home?

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The standard line for the industry is “banks don’t want your home – they’ll do anything to avoid foreclosure.”Â The line seems to imply that you can simply pick up the phone and negotiate some other resolution to your delinquent mortgage payments to avoid foreclosure.Â Unfortunately the reality is often much different from the sanitized “sound bite” that we all get used to spewing forth every time someone mentions the word foreclosure.

But I have been hearing a lot of stories lately that seem to suggest an alternate theory.Â The stories seem to suggest that banks really do want your home.Â Consider the following:

short sales are often rejected when the offer price is less than 1 or 2% lower from the approved short sale price
loan modifications are not granted until borrower distress has been proven – like a missed mortgage payment or two
lenders are unwilling to stop the trustee sale even with a last minute short sale offer

Further

loan products have been developed and incentivized for consumption by the home owner based on unsustainable price appreciation promoting serial refinancing
equity-sucking option ARMs paid ridiculous commissions promoting abuses by originators
little rigor was shown in appraisal review departments to question massive run-ups on the same property in short time periods
100% – 125% financing options were made available for people with subprime credit

I know I have been guilty of throwing around the line “the banks don’t want your home” but if they didn’t want your home why are they guilty of the above actions?

If the bank holds the home they then get to determine what the home is worth.Â The home also goes on the balance sheet as an asset to the company – one that is valued by the company and its accountants.Â If the home goes in to foreclosure or short sale the losses are real and immediate – damaging the bottom of line of the company immediately.

If too many short sales get approved and if too many other foreclosure mediation products get approved the bottom line of the P&L gets hit quickly – and so does the stock price.Â If the stock price tanks and creates a run on the stock the company suffers a credit crunch of its own.

If I were a bank I’d want to slowly unravel bad loans and foreclosures so that my stock price moved more methodically rather than creating a panic by crashing with sudden losses of value.Â I’d rather do this and eat a few extra foreclosures at a slightly higher cost of sale than a short sale versus wiping out millions in market capitalization in a day or two.

I’m not normally a conspiracy theorist – actually the furthest from it possible – but couldn’t it just be a possibility that the banks in fact do want your home?