I recently wrote a couple of posts about the still present
foreclosure crisis: Heads
Up: Foreclosure still a reality for many homeowners, was a reminder that
the foreclosure crisis is still not over for many homeowners and for some of your
neighbors, and Heads
Up: Banks use calculation to decide whether to foreclose or not, which
explained how banks use a calculation called Net Present Value in
order to determine what properties to foreclose on or to agree to short sale.
What happens when it “makes sense” for a bank to foreclose on a property?
It means that based on the Net Present Value calculation the bank will make more money, or lose less money, now then they would if they decided to work with a homeowner to modify their current mortgage or work with a program like Keep Your Home California to do a principal reduction.
Banks make money by lending money. They do not make money by holding mortgages that are toxic, meaning they are not making them money. In fact when a lender holds a mortgage that is in default or a property they have foreclosed on it cost them even more money because the lender must hold in reserve the amount of the loan that is toxic.
Recently, Roxanne Morse PhD., was approved for a $100,000.00 principal reduction through Keep Your Home California. This was great news for her because Dr. Morse had been fighting to keep her home since undergoing brain surgery for epilepsy in 2010.
Morse, a Ball State graduate, moved to Oakland and bought her condo in May 2007. She began having issues paying her mortgage because of medical reasons. Her mortgage was modified for medical hardship and when the term ended, her lender at the time, ING, tried to place Morse in a loan she could not afford. She began the battle to keep her home.
The stories are similar for many and Roxanne’s was no different. Months of not being able to pay her new loan, no further assistance from her lender, months of stress, months of follow-up just to find out her lender was moving to foreclose as she was trying to find a compromise. Finally the rep at her bank recommended Keep Your Home California.
Morse applied for the program and was thrilled when she was approved for a $100,000.00 principal reduction through the Hardest Hit program. “I thought this was it and I was going to be OK.”
Unfortunately her lender is now refusing to work with Keep Your Home California.
We can only assume that the Net Present Value calculation is suddenly not on her side. With values rising and the lender being able to break even if they foreclose on Roxanne and sell her property suddenly it does not “make sense” to work with her anymore.