Massachusetts Sues 5 Major Banks Over Foreclosure Practices

Banks can only sell the foreclosed homes at the now depreciated market value- or less. They are taking the same loss as if they were to write down the current homeowner’s loan. And get this, they don‘t take a loss either way.

A real life example:

30 year loans at 5%

Value before collapse = $375000
Monthly payment (interest and principle) = $2000
Interest paid (bank profit) after 30 years = $350000

Now when the bank writes the home down either for a bank owned sale or for the struggling home owner (doubtful):

Current market value = $250,000
Monthly payment = $1300
Interest $233,000

Reduction in profit = $117,000

This reduction is equivalent to the original loan at an interest rate of 1.75% which is 3X the rate the banks pay us on a 12 month CD.

This baffles me because the banks are going to take the hit anyway because they can’t sell the home for more than market value and a most cases they take it the shorts (pun intended).

Why not work with the homeowner who would see a reduction of $700 in their monthly payment? Now banks are letting the home rot for months or renting it for ½ of the rental price of comparable homes in the area. Banks should partner with homeowner, especially since these assholes got us in this mess in the first place!