The Value of a Foreclosed Home Depends on the Bank

Posted on October 6, 2009
Filed Under Foreclosure Homes | 1 Comment

The US is yet to recover from the economic crisis. People are faltering on loans after job loss – a phenomenon that has made foreclosures very common. Certain regions are riddled with foreclosures. Now the question that arises is what could be the value of a house in a region that has many foreclosed homes. In the eyes of a banker who is out to recover losses from bad mortgage, it may appear to be a valuable showpiece.

It may be pointed out here that Obama’s Making Homes Affordable program could not work out only because the lenders delayed loan modification. Most of the banks are so preoccupied with foreclosure filings and selling homes that they really do not have time for mortgage modification.
Many banks are not even good at answering the mail and some are sitting pretty on loan modification since months. The Neighborhood Housing Services of Chicago, which is a non-profit agency, has seen how ordinary blue-collared workers are being harassed. These people, who had fallen behind on mortgage payments had applied to lenders but have not received any response from them.
NHS also held workshops for those who are at risk of losing their homes. Above 1,000 homeowners attended the workshops. The agency helped around 500 of them in filling up the applications and mailing them to the lenders. A mere quarter of these people heard from the lenders. The remaining received not even a phone call from the lenders.

An associate director of NHS, John Groene, says that the banks do not have enough staff to pursue the programs. The only two lenders to have responded promptly are J P Morgan Chase and Citi Mortgage. They are approving two out of three mortgages. Groene and other housing experts say that the concept of the loan modification program is good. But banks have responded very slowly to this.

Whenever a person applies for mortgage modification, the bank decides if it should modify the loan or file a foreclosure. Ultimately, it boils down to how much the bank will make in the sale. This is known as Net Present Value (NPV) in banking parlance. A factor that goes into computing NPV is how much the proceeds from the sale of that house will be. If a bank decides to foreclose and sell a house it does not have to divulge the NPV formula. This results in a pile up of foreclosed homes.

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