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I have the same question on short sales. Banks approve these things but then give buyers the run-around for months until they just give up. Eventually the forcl

by fr0sty 13y ago

I have the same question on short sales. Banks approve these things but then give buyers the run-around for months until they just give up. Eventually the forclosure goes through and the house is listed for 60% of the short sale price and sells a little higher. I can't imagine why the bank would throw away 35% of the value and sell a house as a forclosure instead of helping a short sale go through. Has to be messed up incentives but I can't begin to guess how they are set up.

DougWebb 13y ago
My guess is that they're writing off the full value of any bad loans, which reduces their taxable revenue from other sources. That must work out better for them then trying to get the loans paid back at reduced rates. Maybe they write off all of the high-rate interest for a 30 year loan period, which is way more than the likely income from a lower-rate loan over the same period. Nevermind that they could never actually collect the whole term's interest at the high rate. Whenever you're trying to figure out BoA, you have to keep in mind a few rules: they cheat, they steal from their customers, they lie to everyone including the government, and they do whatever gives them the most profit. You can assume their actions make perfect sense in light of those rules, if you knew the the accounting.
- fr0sty 13y ago
  Understood, and what you say _may_ factor into the thinking re: loan modifications, but my question was about short sales. In these cses the homeowner wants out and there is a willing buyer at X (which is less than the amount owed on the loan Y). In these cases why would the bank drag their feet when offered X (writing off Y-X) and opt to foreclose and accept Z which is .5X? Unless they are in some weird tax situation where a dollar written off is worth more than a dollar earned (unlikely) the only motivation I can think of is spite or ineptitude (since the owners credit is ruined regardless and the bank makes less money). There is perhaps some consideration to the fact that foreclosures are sold "as-is" for cash rather than financed with contingencies but that can't be worth the dollar amounts we are dealing with...
  - FireBeyond 13y ago
    "Unless they are in some weird tax situation where a dollar written off is worth more than a dollar earned (unlikely)" Actually, quite likely - $1 written off has a net "value" of $1 when written off, adjusted tax, etc., whereas $1 earned is actually $1 minus corporate tax rate.
MaysonL 13y ago
The point is, in most of these cases, BoA is NOT the owner of the loan, they are just servicing it, and they make larger fees from foreclosure than they do from short sales. In other words, they are screwing both the homebuyer, and the investors who own the bonds which own the mortgage.

by fr0sty 13y ago

DougWebb 13y ago

My guess is that they're writing off the full value of any bad loans, which reduces their taxable revenue from other sources. That must work out better for them then trying to get the loans paid back at reduced rates. Maybe they write off all of the high-rate interest for a 30 year loan period, which is way more than the likely income from a lower-rate loan over the same period. Nevermind that they could never actually collect the whole term's interest at the high rate. Whenever you're trying to figure out BoA, you have to keep in mind a few rules: they cheat, they steal from their customers, they lie to everyone including the government, and they do whatever gives them the most profit. You can assume their actions make perfect sense in light of those rules, if you knew the the accounting.

fr0sty 13y ago
Understood, and what you say _may_ factor into the thinking re: loan modifications, but my question was about short sales. In these cses the homeowner wants out and there is a willing buyer at X (which is less than the amount owed on the loan Y). In these cases why would the bank drag their feet when offered X (writing off Y-X) and opt to foreclose and accept Z which is .5X? Unless they are in some weird tax situation where a dollar written off is worth more than a dollar earned (unlikely) the only motivation I can think of is spite or ineptitude (since the owners credit is ruined regardless and the bank makes less money). There is perhaps some consideration to the fact that foreclosures are sold "as-is" for cash rather than financed with contingencies but that can't be worth the dollar amounts we are dealing with...
- FireBeyond 13y ago
  "Unless they are in some weird tax situation where a dollar written off is worth more than a dollar earned (unlikely)" Actually, quite likely - $1 written off has a net "value" of $1 when written off, adjusted tax, etc., whereas $1 earned is actually $1 minus corporate tax rate.

MaysonL 13y ago

The point is, in most of these cases, BoA is NOT the owner of the loan, they are just servicing it, and they make larger fees from foreclosure than they do from short sales. In other words, they are screwing both the homebuyer, and the investors who own the bonds which own the mortgage.