Is anyone else skeptical of Chase Bank's newest efforts to do loan modifications for up to 400,000 of their customers? Call me a stick in the mud, but I have a hard time believing that banks are doing this for their client's benefit. To me it seems like they are doing this for their bottom line and their shareholders.
In this morning's Arizona Republic, Russ Wiles wrote about the opening of a Phoenix homeowner center to allow Chase Bank to "get up close and personal with troubled homeowners." Chase is going to "help" 400,000 of its customers stay in their homes. This includes homeowners facing foreclosure in Prescott, Prescott Valley, Chino Valley, and Dewey-Humboldt. See the whole article.
The problem I have with Chase's plan is that many homeowners are going to be stuck with homes that are going to be underwater for years and it's unlikely that many of them will emerge stronger financially. And most of them will fall into foreclosure anyway in the long run because banks are focusing on reducing the interest rate of loans rather than reducing the principal. See Bloomberg article.
But any delay in the foreclosure, even by a few months, adds cash flow to the bank, mitigates their immediate loss, and allows them to issue press releases on how they are taking care of their customers.
The bottom line is that banks know that its in the bank's best interest not to have the homeowner walk away from an upside down home. Depending on what study you read, it costs a bank about 20% - 25% of the cost of the loan to foreclose on a home, and in a declining market, even more:
According to mortgage financier Freddie Mac, the typical foreclosure cost is nearly $60,000. And officials at HSBC, North America, parent of HSBC Bank USA, HSBC Mortgage Corp. and HSBC Finance Corp., say their average loss on sale at foreclosure is 20 percent to 25 percent of the loan's value.
"We truly believe that foreclosure is the worst alternative for all parties concerned and go to great lengths to avoid foreclosure," Brendan McDonagh, CEO of Illinois-based HSBC Finance and former chief operating officer of HSBC Bank USA in Buffalo, said in March testimony to Congress. "Financially, it is our worst alternative."
via The Buffalo News
I personally believe that foreclosure and short sale are the cleanest ways for people to get out of their upside down homes if banks are not offering a reduction in the principal. Don't let the bank turn you into a mortgage slave.
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