Why Do Banks Prefer Foreclosure to Short Sale or Home Loan Modification?

I have long wondered why banks reject perfectly reasonable offers on houses that need a short sale. The banks take months to respond to an offer on a house, they refuse to do repairs required to make the sale happen, and they cut the agents' commissions at the last minute. They really seem to prefer to foreclose on the house, rather than work out a home loan modification with the underwater home owner, or accept a short sale offer at market value. When the house goes to foreclosure, it typically sells for far less that it would have by a short sale. What gives? How can the banks stay in business by willfully choosing to foreclose, and thereby receiving much less than they need to?

The guys at Think Big Work Small think they have it figured out. The FDIC seized the assets (bundled mortgages) of some inept mortgage lenders, and then sold the assets to other lenders at a deep discount. Then when the new lenders foreclose, FDIC compensates the new lenders for their losses, but not for their actual losses, but for the loss the lender would have incurred if the new lender lost the difference between the original mortgage amount and the foreclosure price. Of course, the new lender is not really losing that amount, because they bought the mortgages for less than was owed!

If this scenario is true, the FDIC is using tax-payer dollars (or I should say, increasing our deficient and borrowing against future tax-payer dollars) to enrich the lucky, well-connected banks that bought the assets of defunct banks. All these unnecessary foreclosures drive down the values of the neighboring properties, making it impossible for neighbors to refinance or to sell at a fair price. As long as the FDIC pays banks to foreclose rather than do a short sell or a loan modification, market value of all houses will be unjustly dragged down by the value of the foreclosed houses.

Are you horrified yet?

Go Solar with No Installation Cost

The amazingly fabulous Center for Biological Diversity (CBD) has found a unique and affordable new way for you to lease solar panels for your home, and at the same time raise $500 for the CBD. If you get the panels installed, please let me know how it worked out for you. Here's the plan:

Sungevity, a home-solar installer serving California, Arizona and Colorado, puts up solar panels on your house for free when you sign up to lease them.
You pay Sungevity on a monthly basis for your home-solar lease, usually the same or less than what your pre-solar electric bill used to be.

Sungevity pays the CBD a $500 referral fee for sending you their way.
Sungevity pays you an additional $500 cash bonus for joining the solar lease program, plus $1,000 credit toward your future lease payments.
In the end, you could end up having home-solar power for nothing more than you were paying in electricity bills before, plus $500 cash back and the chance to earn a generous donation for the Center for Biological Diversity. Not to mention the fact that the atmosphere will be spared roughly 8.24 metric tons of CO2 a year (roughly what you'll conserve by using solar on your home). It's a win-win-win situation.

To take advantage of this offer, please follow the steps below:

Go to the Sungevity home page to request an iQuote: www.sungevity.com
After you submit your request, you'll be taken to a page that asks you where you heard about Sungevity. Enter the following referral code: CBD.
Within 48 hours, Sungevity will send you an iQuote with your estimated monthly lease payment and savings. You then decide whether to enter a lease agreement.
If you are excited about this promotion and about raising funds for the Center's work, please spread the word among your friends and colleagues who live in Arizona.
This offer is good through the end of 2010.

If you have any questions about this program, please contact Brian Somers at Sungevity (bsomers@sungevity.com).