Banks delay foreclosures to collect more late fees
Original post made by resident, Barron Park, on Aug 2, 2009
1. Ultimately, when the home is foreclosed with inflated expenses, the bank gets to write off tons more expense and debt which magically helps them avoid paying even more taxes.
2. Delaying the write-offs allows the bank to maintain fictionally high appraisal values and thus avoid raising more money for capital reserves, avoid freaking out investors and basically avoid going bankrupt.
3. The new government programs pay the banks a percentage of any principal write-down or lowered payment and allow forebearance of a chunk of the loan all while paying annual servicing reward fees. So, banks can pile up the expenses for 6-18 months instead of foreclosing, then get paid a small percent by the government to write those expenses off not to mention the additional tax benefits of write-offs mentioned above (double dipping) and then get paid annually by the government to stall loan problems as the artifically low interest rate rises over 5 years and balloon forebearance payments come due in 15-40 years.
Essentially, the government program fees are not nearly as good as the fees banks can pile on in pre-foreclosure, so banks are trying to get the best of both worlds. They are using our bailout dollars to stay alive while piling up fictional mortgage expenses that will lead to massive tax write-offs which will be additionally tax-funded through government programs. The bank big wigs win either way. If housing recovers or stabilizes (highly unlikely), the slow bleed of foreclosures, write-offs and government programs will allow them to continue to cook their books while milking taxpayer money. If housing tanks, their ultimate tax write-offs will be even greater and they'll get bailed out by taxpayers OR they'll go bankrupt but will have forestalled bankruptcy by a couple years thus raking in millions more in bonuses needed to carry over their mansion payments during the depression.