Do you think banks are forcing themselves to go out of business by foreclosing on houses? (read details)?

Question

I could understand the foreclosures if the real estate market was booming but it's not right now....and some people that are being foreclosed on can afford to make a portion of their mortgage payment so would it make sense for the bank to let them live there and pay the portion they can afford (within reason) and redo the terms of the mortgage instead of foreclosing on the house and having the house sit empty since it probably will not be sold for awhile?

*NOTE* for the rude people that think I can't afford my mortgage and will say something smart that is not why I am asking this question I am just wondering if this solution would be better for the banks....

Answer 1

A bank has a few possible options when it sees that a person can only pay a portion of the mortgage. Often times, as you say, they will allow a person to make a portion of the payment, up until that individual can start to make full mortgage payments. But, if they do not believe that the person will at any point, or at least not in a desirable period of time, be able to make regular mortgage payments, it might possibly become more desirable for the bank to simply foreclose, and try to take what profit it can from a sale of the home. But, you are slightly mistaken as to the reason why banks are failing. They are shutting down because of the failure of securitized mortgages. The value of those securities is greatly decreasing as foreclosures are increasing. Lower payments on mortgages would also decrease, and have been in fact decreasing, the value of those assets on banks balance sheets. Basically, it is the loss in value of those securities, commonly termed MBS's and CDO's, that is causing the failure of banks. As you can tell, lowering the payments will not help banks (decreased value of MBS's and CDO's), and may in the end hurt homeowners, who might lose the home in the end anyway, but have had to make a large string of payments to the bank, money which could have been spent otherwise. Bear Stearns, in fact, failed because of a severe loss in the value of its CDOs and MBSs, not because of any actual loans that it originated.