Banks Paying Cash to Homeowners to Avoid Foreclosures

Here’s the latest story that’s been getting buzz around the internet: banks are trying to get troubled mortgages off their books without having to go through costly foreclosure processes and they are offering homeowners cash incentives to do so.

The Bloomberg News story reads:

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

Losses for lenders are about 15 percent lower on the sales than on foreclosures, which can take years to complete while taxes and legal, maintenance and other costs accumulate, according to Moody’s. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, said CoreLogic Inc., aSanta Ana, California-based real estate information company.

I wonder why it has taken banks so long to do this. Any thoughts? What are the downsides to this approach? I can’t think of any yet.

Full Story: http://bloom.bg/wWF4W0

1 Comment
  1. John Wilson says

    It would appear that banks, in many cases ,cannot prove ownership of the mortgage, and thus offering  cash incentives to delinquent homeowners, ensures a proven mortgage to a new buyer.

       It means banks get off relatively scot free, for highly suspect previous behavior.  If all delinquent homeowners asked them to prove ownership, in court, the banks  probably could not do so, and would have to pay a well deserved total loss on these outstanding mortgages.

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