People being allowed to stay in foreclosed homes; banks don't want the debt on books?

[dixiegrrrrl]

According to Deninnger in yesterday's column:

The real problem is this: The banks have been and still are lying about the value of these loans.

Nowhere is this more evident in the mortgage arena. People are being "allowed" to remain in homes where they have stopped paying the mortgage and banks are sitting on the foreclosure process.
Why? Because if they foreclose and sell the house they are forced to book the loss. But if they "forget" to foreclose they can hide the fact that there's an embedded loss, sometimes as much as 50%, from both regulators and shareholders!

The same thing is going on in Commercial Real Estate. Rather than force the defaults that are occurring to be recognized and foreclosed, the banks are "pretending and extending" terms. That is, ignoring the default and extending the terms of loans even though they are not performing, as this way they can (and are) avoiding taking the write-down.

This is accounting fraud, by the way, but nobody in the regulatory or law enforcement apparatus of this country seems to care.
http://market-ticker.denninger.net/archives/P2.html

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Anyone else heard of this happening???????

We know by now a smart play for people in foreclosure is to make the bank prove they have the mortgage,*
sounds like an added plan may be to try to extend stay in the house,while working on alternative living arrangements, and hope their bank will be slow to foreclose.

*Since, for example, BOA bought all of Countrywide's mortgages, and we know Countrywide sold the paper.

[Renew Deal]

1. I've heard about this

But I didn't know what the effect of it was. Very sneaky.

[MineralMan]

2. My next door neighbor stayed two years, rent-free

in his house after forclosure was threatened. He short-sold to a flipper, who asked him to stay to keep it occupied until he had time to rehab it. Well, the housing market crashed here, and the flipper couldn't make the payments, so he lost it to a second foreclosure, whereupon it was purchased by another flipper, who also let my neighbor stay in it, to prevent it from being stripped. Finally, after he couldn't pay the mortgage, it got foreclosed on a third time. My neighbor had to move out. Now, it's being rehabbed and is back on the market. My neighbor, whose financial situation has improved dramatically, is investigating buying it back at its current low value.

I hope he can buy it back. He was a good neighbor.

[notesdev]

3. Oh sure

This has been going on in residential RE for at least a year now. Banks can't handle the foreclosure volume, and given the hit to the price of the underlying asset (the house to be foreclosed), in many cases foreclosure just isn't worth it for them.

Delaying foreclosure also has the neat little side benefit of letting them not mark down the losses, as the article notes.

[phantom power]

4. I've been thinking for a while that's why they also aren't re-negotiating.

If they re-negotiate, it also hits their books. I wonder how long they can continue this weird game.

[lindisfarne]

6. They also have a huge backlog of homes they've foreclosed on but haven't put on market, hoping value

will eventually go up. There was an article about this a while ago, the main point of which housing values are going to stay low for a long time, due to this backlog.

[unlawflcombatnt]

7. That's right

Putting all those homes on the market increases the supply of homes for sale, and decreases the price.

They'd rather hold out for another bailout, and hope that there'll be enough speculative demand from the latest handouts to drive home prices up.

[lumberjack_jeff]

8. Welcome back!

:hi:

[lindisfarne]

5. Foreclosing doesn't make sense. The banks would lose less money in many cases if they simply

adjusted the mortgage interest rate down, to make monthly payments something the borrower could afford.
Obviously, there ARE borrowers out there who never will make the payment (or never had the intent of making the payment - Minneapolis had a group of investors like this).

But many owners who were making payments before interest rates adjusted upwards will.

This is one more case of bank execs being incompetent. Rather than adjust, they take the bigger loss caused by foreclosure (and then the house sits empty, and get destroyed, either by vandals or pipes freezing in the winter, etc.)