remember; banks sell nothing but money. we don't produce anything. we are in the business of lending money and earning interest on that money. no other industry except maybe big oil is expected to give our product away and not get a return on investment (ROI).

If a borrower fails to make the payments as agreed, then they fail to pay for the product they bought. liken it to a drive off at a gas station, except at a gas station they prosecute you for a $60.00 drive off. most foreclosures can be avoided by paying the past due amounts, just like any other debt!

if a borrower is willing and demonstrates that willingness to repay their mortgage, then most banks/lenders will work something out with them. Here is the caveat; they have to be able to at least continue making the monthly payments an not continue to fall further delinquent. In other words, the cause of the problem has to be behind them, otherwise, the borrower gets to stay in the house and not pay for it, that's called a free ride and the last time I checked, everyone has to live somewhere. America is the land of the free not free ride!

Ryan - I am not so sure you understand my position. First of all, you have accused me of predatory lending, coming from someone in the business, I take that as an insult. First of all predatory lending is in fact illegal, you don't know me, or my business practices so you should put some more thought into your words before you utter or rather post them. Predatory lending, is in fact lending to someone you know has no ability to repay the loan you are making them, in mortgage lending it is for the sole purpose of getting your hands on their real estate.

In your opening salvo you wrote "What ever happened to the old way of doing business. Just going down the street to your neighborhood bank and get a loan at any time based on a handshake."

Apparently you are a novice lender, I assume based upon that statement that in your previous life, that is before someone told you you could make more money selling mortgages, you probably sold cars. I say this because only someone with limited experience lending would make that statement.

First of all, in the "OLD DAYS"; that is to say pre 1932, that would be when FNMA aka Fannie Mae or commonly refereed to as a GSE or government sponsored enterprises opened the door to home ownership for Americans, only 1 in 10 Americans actually owned a home! That's right, this was a renting nation. SO in the "GOOD OLD DAYS"you didn't get to own  a home unless you were wealthy and didn't really need a mortgage loan! Fast forward 40 years or even 60 years when my parents and yours decided to buy a home, say in 1970, they SAVED or was GIFTED 20% for a down payment,they went ot the bank and obtained a mortgage - sorry no handshake, business has never been done that way with banks, that's why we do 100 year title searches and they obtained a mortgage loan for 10, or possible 20 years. Your parents made all the payments, got their note and mortgage back and lived int he home until they died.

I think times have changed a bit dint you? Most home buyers I see these days don't have 20% to put down. SO banks and lenders alike have teamed up with insurance companies (PMI) to help make homeownership possible for more Americans by helping them to overcome the obstacle of homeownership to many people...the DOWN-PAYMENT.

Now, today homeownership is at record high, 69% of Americans own homes today. This is a good thing. However, when people get themselves into trouble, mostly because of poor financial management and overspending, they are left with nowhere to turn because we are in a soft market, they bought at the top of the market, financed 100% and now cant sell the house.

This brings us to why shouldn't the bank accept less than what the bank actually paid out? You claim it is better for everyone.

I challenge that.

You see it really only benefits the borrower (that is the person who owes the money for those of you new to lending) Lets say the buyer paid 100,000 for this house he can not sell. Lets say he also got some seller contributions for his closing costs of say 3000. So now he owes 103,000 because he financed 103%. We will assume for the sake of time here that he was in fact disclosed the terms of his loan since in fact he did have a choice to borrower or not to borrow. Some time passed and for whatever reason, he fell behind on his mortgage and doesn't get current. Next he tried to sell but cant because he owes more than the market is willing to pay him for it because of course he has to pay seller fees and he would like to make a buck or two. Finally someone has the back bone to tell him there is no way he can sell the home without reaching into his back-pocket. The problem is he is broke!

You are suggesting the bank should accept his short sale, because they loaned him the money HE ASKED FOR in good faith and forgive the short amount and he is now free to pursue another real estate transaction with another bank or lender.

I think if you ever worked for a bank or a lender that actually SERVICES the loans you originated, you might understand the PRINCIPLE Of lending. The idea is that you get PAID BACK IN FULL WITH INTEREST. Anything else is a LOSS...Why is this so EVIL? Oh yeah, and where is the borrowers responsibility in all this? If they had saved for a down payment, then they COULD take the loss in the short sale, why does the bank have to?

Hi Cara - thank you for your comments.

I am glad to know your business is booming, there is a real need for good credit counselors.

I had coffee with my insurance agent this morning. We concurred that insurance is a lot like banking. No one feels bad when an insurance company pays a claim; it is after all their business, right? And it is why we pay premiums, right?

The goal is to minimize the risk as the insurer, by spreading that risk over a large pool. This allows the insured to minimize their risk by assigning it to the underwriter. It is if you will; a partnership is formed between the insured and the insurer, after all, what are you getting from the insurer besides peace of mind and a promise? They don't sell ANYTHING. They don't make ANYTHING and all they really sell is PROMISES to PAY (that is exactly what the borrower sold the bank, a promise to pay).

What if the insurance company paid out more claims than they collected premiums? Then they couldn't pay claims when they come due. This is why insurance underwriters are required by law to maintain in reserve, sufficient monies to pay claims based upon the size of their portfolio. 

Premiums rise and fall with the stock market and losses. Right now, money can be made in the equities markets, therefore insurance rates are falling.

We got to discussing this topic of short sales and how there is a growing discontent by the real estate community with lenders who will not accept short sales.

He made a fantastic point;

"Why should the bank become partners with the homeowner (the seller) in their real estate purchase?"

That is in fact what is being asked when in most cases the seller is in the predicament, like you pointed out because they financed 100% or more if the purchase price. Or they sapped their equity (which is a long term gain) for short term purchases.

If a buyer is in the above scenario, they aren't even asking the bank to "share" in their loss. They are asking the bank to "Assume" their loss for them. The only exception to this would be if a borrower actually had a down payment and was asking the bank to share with them. This of course would be the exception. Because as you  know, people who put money into their homes, do whatever they can to keep their home, after all they have an INVESTMENT in their home, not just the bank!

Then he went on to say; "they wouldn't expect for the bank to share in their profit when they sell would they? So why do they expect the bank to share in their losses?"

Boy, did he nail that one down tight! He was absolutely right. There are loans that have a "recapture" component to them. Typically they are referred to as BOND LOANS. The seller repays the lender through the sales proceeds (by sharing in the net profit) for a below market interest rate. There is no such thing as a free lunch.

I applauded him for his brilliance.

But it really goes beyond that. It really becomes an issue of Fair Lending and an expectation.

Here's how; First, if you work for a bank, public or not your first responsibility is to return a profit to your share holders.

Unlike insurance companies, banks sell a product....MONEY. Call it heartless, but that is fact what we do. In return, we except repayment of that money, most often with interest! (that is called our profit because only the Fed's MANUFACTURE money)

How do you fairly make decisions to "forgive" ? For the purpose of asking this questions I have included the definitions of forgiver and covenant.

forgive; (1 a : to give up resentment of or claim to requital for <forgive an insult> b : to grant relief from payment of <forgive a debt>)
Covenant; 1: a usually formal, solemn, and binding agreement : compact2 a: a written agreement or promise usually under seal between two or more parties especially for the performance of some action b: the common-law action to recover damages for breach of such a contract

How do you fairly apply your decision to accept less (forgive a portion of) than the full payoff on an agreement that has a covenant in it without subjecting yourself to scrutiny by the regulators aka; FDIC (this doesn't apply to brokers because they have no liabilities of these debts because they brokered the loan to a bank or lender so brokers should comment on this) Let's say you forgive Mr. White who has a 700 FICO but not Mr. Black who also has a 700 FICO, or not Mr. Hispanic who has a  680 FICO? How do you explain the to the government boys?

This really comes down to "Deed in Lieu of Foreclosure". Most mortgage covenants allow this and in some states, this really allows the owner of the property to avoid deficiency balances (consult an attorney). Even if not a foreclosure loss mitigator can help negotiate this. Foreclosure or Deed in Lieu thereof is not the kiss of death. In fact, Fannie Mae will re-mortgage someone after only 24 months of a foreclosure! Most people think it is 36 month, but in fact, you can get a Conventional AND an FHA or VA loan after only 24 months out of foreclosure and BK! 24 months is an acceptable amount of time to rent, work with credit counselors, change your spending habits, or in the rare cases, find suitable gainful employment. I say rare, because we are, as a nation at a record low unemployment! A house after all is a big responsibility - as demonstrated buy the comments in this BLOG.

But here is something that non one has even mention;

The "banks" has a responsibility to report their experience and set proper expectations. Let's say short sales become the norm. Every lender decides this is the way to handle all situations that meet the conditions and market conditions we find ourselves in. Then the borrower is off scott free, no foreclosure in his/her credit history. Goes across the street, buy's his neighbors house at a "short-sale" and so the cycle continues. If we are going to let the borrower default their mortgage which is in fact what accepting less than the full principal payoff amount constitutes, and we do it without the deed in lieu of the foreclosure, then what have we done to the integrity of he credit reporting system? Have we not failed to honor our fiduciary responsibility. Hearken back to insurance claims, it is in fact why most insurance companies review your credit, check with your physiciann,  pinch for fat, draw blood, check your MVR and oh yeah, check your CLAIMS HISTORY all this if course contingent upon the coverage you are seeking BEFORE issuing you a policy.

What About Private Mortgage Insurance?

One more thing, if these loans are insured, either federally or privately, the insurers will not pay and let the borrowers off the hook! See insurers don't like that!

Does anyone even need to consider the consequences to the real estate market which is one of the largest market forces in this American economy? Not to mention the baking industry (it would in fact collapse, we saw that once in 1927)

a parting thought;

I wonder how many of these people have returned their cars to the bank and are driving junkers to save on  high dollar car payments!

How many have stopped eating out.

How many have turned off the cable or turned off their wireless phones and no longer have high speed internet?

How many of these people actually...PUT MONEY DOWN on their home purchase?

 Just a thought......