Q: They wouldn't accept a deed in lieu or a short sale in 2007 when the equity was higher and it could have just been assigned to them. Then they conveniently lose your modification packet 12 times over 3 years. My mom always said, "actions speak louder than words." Well, their actions have proven over 8 million times that it is more profitable to foreclose than to just get the deed signed over to them or to do a short sale.
A: I understand your frustration, and it's hard to rationalize the lender's conduct at times. But I think that you're mixing several ideas. For example, earlier I wrote that "I can't even invent a scenario where a foreclosure would be more profitable than if the loan were being repaid according to the terms by the borrower." I was comparing foreclosure to repayment. In response, you're comparing foreclosure to short sale and deed in lieu, which is totally different. All three options (foreclosure, deeds in lieu, short sale) are money losers for the lenders. Sometimes one option may be better than another, but the lender loses with any of the three. In general, I believe that deeds in lieu and short sales have not been used more often simply because the lenders were ill-equipped to deal with the number of borrowers requesting those options. As for modification, that is largely a waste of time for both parties. The stats show that most people who default under the original terms of their loan default
again under modified terms.
Q: No disrespect (as I respect you and your words of wisdom immensely), but come on, you really think they are not profiting from these foreclosures?
A: Here is a typical scenario: Lender loans $500,000 to borrower to buy a house. The market value of the house drops to $300,000 and the borrower stops paying the mortgage. The lender forecloses, buys the property for $275,000 at the auction, and eventually sells it for $300,000. That's a $200,000 loss, and it doesn't even take into account the $10,000 the lender spent on attorney's fees and costs in order to foreclose. How is the lender profiting? The only way the lender could profit would be if it could sell the property for over $500,000 after the foreclosure. If the lender could do that, then there wouldn't be a foreclosure in the first place, because the borrower who can't pay his mortgage would have sold it himself when he found that he could not afford his mortgage. The reason for the foreclosure is because his house was upside down when he stopped paying. You probably already know that, but based on your earlier posts you seemed to be under the impression that the government or somebody else was reimbursing the lenders for any loss. By and large, there is nobody doing that. Indeed, if the lenders weren't taking the losses, then why did GMAC file for bankruptcy, which is the topic of your original question?
In any event, we've now moved far beyond your original question. I hope that I've answered your questions and I wish you luck in going forward. I will appreciate your positive feedback. Thank you!