How Are Banks Incentivised to Foreclose?

Video Script Below

Today’s topic is how banks are incentivized to foreclosure. I’m Steve Kramer of the Kramer Law Firm. I’m a Florida foreclosure defense attorney. How are banks incentivized to foreclose? The way that loans are processed is that they get transferred multiple times and they get securitized. And we have another video on topic of securitization - it’s an intricate process. But this loan moves around a lot and if you have been paying attention to the market, meaning not the stock market, not the real estate market, all of it. You know the market has been in the tank. A lot of banks have gone down and what happens is, you have had other banks to come in and buy up these old banks. And a lot of time part of the deal when one bank takes over another bank there are certain guarantees written into that deal. So Bank One West, take over Bank Wells Fargo for example, well Wells Fargo, has all of this bad debt that One West is going to take on. And the way that the FDIC incentivized this they say “look if you take on this bad debt we are going to guarantee a quarter of it.” So if these loans go bad and you go to foreclosure we are going to pay you back for a quarter of the original loan value. So what happens is Bank A takes over Bank B and they pay 50 cent s on the dollar for these loans and already they are guaranteed to be paid back a quarter of that, so they are only in for only about 25% of the loan. Now the only way they get this guarantee is if they get a judgment for foreclosure or whatever the deal is with the FDIC. But usually it is getting a judgment for foreclosure, and having the property go to auction and sale. And what happens is they are now incentivized to foreclose, they are now incentivized to get that judgment against you. And you wonder why can’t I get that modification, why can’t I get that short sale done? Why can’t I get something out of the bank? And the answer is that sometimes there’s more than meets the eye, there is also other issues out there where the banks can actually make money on a foreclosure. There’s a thing called re-insurance so when you put a bunch of notes together into a mortgage backed security they hire this company for example AIG; to actually insure the debt right? So that if your mortgage goes bad they actually trigger getting paid back on the amount. So now you are talking about government guarantees, re-insurance, and a variety of other incentives from the FDIC, the treasury, and the government - whoever - to actually foreclosure on you. And if you have heard, “The bank doesn’t want my house back”, sometimes that’s right but sometimes that wrong. Why am I telling you this? Because you probably got a lot of questions about this. If you are looking at a foreclosure, you’ve probably been racking your brain trying to figure out what can I do. The thing is I deal with this everyday. Call me at the number below and I would be glad to talk you anytime. Also if you are watching this video on Facebook or YouTube, please click the “Like” button below, this way your friends and family can benefit from the information I am giving you. Thanks for watching, I'm Steve Kramer of Kramer Law Firm.

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