Except in this case the law is against the lender. The required settlement conference requires that both parties bargain in good faith, not just sit there and draw a line in the sand.

While I generally believe that banks get a bad rap from people who don't understand the realities involved, after having two parents in the industry for my whole life, this is a case in which a lending institution needed to be hammered down.

Ftr, even with the astronomical Rates if people unable to pay their mortgages, and with sufficient efforts made to remedy the issue, most banks are still refusing to assist the homeowners and are the main contributing force behind the housing foreclosure issue.

Foreclosure is a very costly process.
The bank is responsible for legal cost associated with the foreclosure.
They become responsible for all taxes owed once the foreclosure process begins.
They lose revenue from the halt of principle and interest payments
Once they do get the deed to the house they have to deal with the effect a foreclosed home has on market value, meaning one foreclosed home on the block automatically brings the value of surrounding homes down as well as the market value of the home.
they have to pay for upkeep and bringing the house up to a sell-able condition.
They have to pay whatever real estates broker cost to get the house on the market.
As a reminder...they are not receiving any money for the property during this period. From the first missed payment to sale of the home can take over a year.

Once it is accepted that the homeowner will not be able to catch up but will be able to pay under new terms it is a win win situation to work with the homeowner.

The only good that comes out of a foreclosure is the deal the next buyer gets. Everyone else losses big time. The homeowner is out of the home and loses any equity in the home, neighbors lose as there equity takes a hit from the foreclosed house and the bank can lose anywhere from 40 to 80cents on the dollar.

If the lender believes they have the legal right to have the house foreclosed and they want the home foreclosed they operate in good faith up to that point. Good faith doesn't require them to accept less than what they feel they are entitled to under the law.

The main contributing forces behind the housing foreclosure issue are stupid people borrowing and stupid bankers lending way more money than the borrowers could hope to afford to pay back.

Greed all around

Lenders, trying to make a few extra $$$ start offering non traditional loans to regular folk offsetting the risk by increased rate.

Folks - we shall call them by the common name "idiots" jump on the bandwagon and start chasing homes they normally could not afford.
The next group of folks -also known as"asshats" - start taking out jack ass loans like ARMs, interest only and whatever fuckall "should only be for wealthy people" loans because:

• Their friends told them about all the money that can be made from flipping houses and they no a "friend" who does it.
• They read this great book about how to make money in real estate
• They'll just sell it before the mortgage resets and then they'll make a killing because "you can't go wrong " in real estate

Finally you have "the jackasses" all the folks who were the core demographic for sub prime loans.

Lenders stop taking ownership of loans by selling them off as soon as soon as the borrower signs the paper work. So the guy working the mortgage doesn't give a shit about the quality of the application or loan because they are just going to sell it off to Ginnie Mae or some other institution so that the loan could be bundled up with a bunch of other loans in a mortgage backed security. Hell, maybe that MBS wilol get bundled up in a collateral debt obligation and then they can take out a credit default swap on it and make a fucking killing on the market.
And guess what? It doesn;t matter if half your mortgages were made to unemployed convicts and homeless people...the ratings agencies will still slap a triple A rating on the security those mortgages are bundled into!!

Since there is such a nice revenue stream from selling off these mortgages lets generate as many loans as possible to whatever demographic we can find that can sign their name. Hell, the government is always pushing to up homeownership and all those stupid reports we have to submit to the gov have to breakdown the portfolio to make sure we are abiding by all the regulations so lets mipress em by listing a bunch of mortgages to poor people!! Who the fuck cares if they probably will defualt on the mortgage 2 years from now...by the time we won't even own the mortgage (or the risk that goes along with it) anymore.

Lets just sell sell sell. Maybe even hire some PR firms to spread the word to the public that all these kooky mortgages are a sure thing and that everyone should by a home. Who cares if these people don't know what they are getting into.

Don't get me started on the people that took out all these fruity mortgages to buy houses.



who that was a fucking tangent...

Anyway...now it looks like most of the foreclosures are being generated by people who took out regular mortgages and were prime. So now the foreclosure rate is being pumped up from poor economic conditions. Lets not forget that a lot are health related as is the case with the people in the story.

must stop typing.

now I'm rambling

Good faith isn't demanding double the current debt amount. If the term of the loan is cut short by the lender, then said lender has no claim to 20+ years worth of interest.

Given what I've absorbed regarding the North American banking system by osmosis over the years that my parents worked in banks, in various capacities, this particular bank has some agenda other than simply maintaining their profit on this loan. The amount of money that they would lose on a property that has been devalued, by foreclosing on it, could approach the amount that they were legally entitled to. Something else is going on here.

The best interests of the bank's stock holders are served by extending the loan and reducing the interest rate, in order to either minimize or eliminate losses. The judge recognized that the bank's representative wasn't dealing in good faith and apparently had more than a little to hide, so he slapped the bank down. This seems to be a completely appropriate approach in this situation.

Here's the real issue: Banks were making loans to people who probably never should have qualified for them. They used predatory lending practises in order to do so. The loans were upside-down from day one. It doesn't take a stupid person to fail to understand finance. I've run into loan officers who don't.

The banks were using these essentially worthless loans in order to create profit in other arenas. If a regular business rather than a lending institution cooked the books the way that they did, the board of directors would be out on the street and the stock holders would be storming the gates. The stupid people were the excessively greedy ones who didn't think that this massive Ponzi Scheme would ever come crashing down on their heads.

so sigining a 30yr loan really doesn't mean you have to honor..........IC

That's about as reasonable a comment as, "So killing someone means that you don't have to go to jail."

and i agree

The term of the loan was cut short by the borrowers deciding they were no longer going to pay. The borrowers were the first ones to fail to live up to the terms of the loan.

You are making a lot of assumptions here about what is in the best interests of the bank and its shareholders. You assume that the only sources of revenue available are the value of the house or payments by the borrowers. That isn't necessarily the case. Is the bank going to receive TARP money to make up for the difference between the value of the house and the value of the loan? Will they receive a similar payment for modifying the loan?

You also assume modification of the loan is best for the shareholders. If the loan is modified the bank may have to carry the lost revenue on their balance sheet for the life of the loan. If they foreclose they can take one big hit in an already crappy year and be back to showing a profit in a few years. The latter alternative is usually better for the value of a company's stock, thus better for the company's shareholders.

If you want to absolve the borrowers of all responsibility for the current situation that is your purgative. I place the blame equally on the lenders and the borrowers.