How Banks Work
First of all, why does the bank have the right to take your home? They do because the house was set up as the security (the thing of value) to “protect” the bank from losing the money that they have lent you.
That being said- the bank really does not want your home. What they want is the interest on the money they loaned you. Owning property is counter productive to the way banks make money. Owning property costs them money, it doesn’t make them money. Think about it, the property doesn’t pay them any money, people do. All the bank is trying to do by “taking” a home back, is to cover their losses on a loan in default.
Owning property hurts the bank in other, more severe ways than just being an unwanted expense or a non-performing asset to them. Banks must report the amount of REO’s or Real Estate Owned property, (these are homes that have gone through the foreclosure process, and have been to auction, and no one has bought them, and now the bank is stuck with them) to the Federal Reserve. The 1st slap on the wrist that “The Fed” will impose is charging a bank with too many REO’s, a higher interest rate on the money they borrow to lend to customers. At this point, the offending bank cannot compete effectively with other lenders who borrow their money at the lower rate. The next step “The Fed” will take if the balance of REO’s remains out of compliance, is, that they will restrict the bank from making any new loans. That completely dries up their stream of income. It is obvious that a bank will do almost anything to avoid these two consequences of “taking back a house”.
Another internal motivator that discourages a bank from taking your home is the cost of the foreclosure process. It costs a bank an average of $50,000 in “in house” costs, attorney’s fees and agent’s commissions, just to bring a house to the court house steps, for an auction. Additionally the vast majority of homes at auction are not being purchased by investors. This is because the starting bid (or what is owed on the first mortgage + fees) is not a good enough bargain. The real estate market everywhere has slowed to the point that investors need a really low price to make a purchase worth while to them.
As stated before, homes not purchased at auction become the REO’s that hurt the bank. With the vast majority of these homes going back to the bank, this puts the banks in a very uncomfortable position. This is to the advantage of those willing to go to the work to negotiate with the bank. The bottom line to this whole explanation is that knowing all this should give you some hope and some leverage in dealing with the bank. After all knowledge is power.
Try to stop foreclosure! You can avoid foreclosure! There are options!
Article Source: http://EzineArticles.com/?expert=Kathy_Swift
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