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Banks delay foreclosures to collect more late fees

Original post made by resident, Barron Park, on Aug 2, 2009

I read an interesting financial article this week in the Orlando Sentinel. I heard some of its points discussed today in the news, but I don't think it's widely known yet. Basically, it says that banks are intentionally delaying many foreclosures to collect more fees often at taxpayer expense (again!). This is sadly not a joke! Delinquency fees are usually 10-15% of mortgage payments and late charges (yes, this is in addition to delinquency fees...go figure) are often 30-40% of mortgage payments. Then, throw on servicing and other fees leading to a grand total of 150-160% of the original mortgage payment being tacked onto the loan. Why would they do this since you might think it does them no good with underwater houses? Let me count the ways...

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Comments (1)

Like this comment
Posted by Benefit
a resident of Meadow Park
on Aug 2, 2009 at 10:26 am

I do not admire the big banks, but doesn't this result in people being allowed to stay in their to-be-foreclosed houses longer without paying the mortgage at (mostly) the banks' expense?

And slow down the correction in property values?

Yes, some tax benefit and subsidy goes to the bank, but postponing foreclosures right now, while there are too many for the market to swallow, sounds like a good thing not a bad thing.

It allows more time for the market to find its way. Too steep a pricing decline driven by too many foreclosures too fast would lead to a kind of stampede, and prices would drop faster and even more than they otherwise would. Which I believe will be reasonably far and reasonably fast. Far enough that earnings, rather than various unearned gains, will afford them (at low mortgage rates). Fast enough that Obama will see it as president.

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