Foreclosures are often in bank’s best interest.

Yep, you read that right. While many, this blog writer included, are inclined to believe that foreclosure is disadvantageous for the bank, experts suggest that it’s the bank’s best option to deny loan modification and proceed with foreclosure. In several scenarios at least.

There is one type of situation where everyone seems to agree that loan modification is in the bank’s best interest. If the borrower can't sustain the present payments, either because the principle is too high or the interest is, but can make the modified payments.

In the case of a borrower who can’t make the modified payments under any circumstances, it makes sense for the bank to deny loan modification. But, in two other types of cases, there is no obvious answer, although data appears to suggest which way the bank wants to go.

There are borrowers who can catch up on their payments, but at great financial sacrifice, such as using the overwhelming majority of their monthly income to make the mortgage payment, what is sometimes referred to as “house poor”. In other words, bag your lunch, don’t take vacations and hope that there is no medical illness or unexpected event in your life. The quality of life may be lower and the lever of anxiety may be higher for these borrowers, but the bank has little financial incentive to help them.

The second subcategory of borrowers are those who can catch up, but will take a long time in doing so. Unlike the above example, where the borrower can make immediate changes and have the ability to pay, these borrowers may be able to cure over time. Whether it’s the uncertainty or the need to have it happen now, banks don’t appear interested in helping these borrowers.

The bottom line is that there will be no help to a foreclosure situation without at least some self-help from the borrower. The statistics show that a successful loan modification depends on convincing that bank that you can pay the modified amount, but that you cannot pay the present amount under any circumstances.

Mortgage service companies questioned about loan modification delays

Despite government efforts to make loan modification available to homeowners, those facing foreclosure are still encountering delays and resistance. Senior officials from the departments of the Treasury, Housing, and Urban Development called in representatives from these companies to respond to allegations that servicers failed to deliver.

The statistics, presented by the New York Times, are troubling. As of mid-July, there were 160,000 trial mortgage modifications made by servicing companies, with another 165,000 offers outstanding. The number of mortgages in the modification process pales in comparison to the more than 1.5 million properties that received a default or foreclosure notice in the first half of the year.

It may seem that the reason more farther behind without foreclosure being filed is because there are so many delinquencies and lenders have a backlog of foreclosure filings. But many believe differently. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans. Legal experts say the opportunities for additional revenue in delinquency are considerable, confronting mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages.

Data on delinquencies reinforces the notion that servicers are inclined to let problem loans float in purgatory — neither taking control of houses and selling them, nor modifying loans to give homeowners a break. Even more questionable is data reported from the realty research company First American Core Logic. From June 2008 to June 2009, the number of American mortgages that were 90 days or more delinquent soared from 1.8 million to nearly 3 million. During that period, the number of loans that resulted in the bank taking ownership of the home declined to 245,000, from 333,000.

Ultimately, the benefits of delinquency erode incentives for mortgage companies to dispose of troubled loans quickly, say experts, allowing distressed houses to decay and fall in value — a fact that many believe is of little interest to the servicer.

Shockingly, the major financial institutions deny that they would place their own profits ahead of the best interest of the borrower. One Bank of America official is quoted as saying: "that's just not the right thing to do". But there has been no explanation offered by banks and servicers for why the modification process is so slow, except for general claims about backlog. One thing is certain: loan modification is not happening for most people. And the mortgage service companies, who have a financial incentive for it not to happen, cannot seem to provide a reason

South Florida foreclosure rescue firms ordered to shut down

A Palm Beach Circuit Court judge granted an emergency ruling that four mortgage modification operations who are currently under investigation by the Attorney General's Office must cease doing business. The companies are: FHA All Day.Com, Safety Financial Services, Housing Assistance Law Center and Housing Assistance Now.

Two of the companies named above have been shut down. However, when investigators showed up at the businesses, they found employees shredding documents. Investigators reported that among the about to be shredded documents was personal information belonging to alleged clients of the firm.

State regulators have launched 81 investigations against mortgage modification operations, including 14 where lawsuits have been filed. Officials said investigators are looking at 86 additional companies and that the numbers may grow. The Federal Trade Commission also has launched a major crackdown on foreclosure rescue firms with its Operation Loan Lies, announcing 189 actions in 25 states earlier this month.

Bank of America begins foreclosure rescue assistance program in Florida

Bank ofAmerica has allocated up to $150 million nationwide to assist certain borrowers who experienced a foreclosure, short sale or deed in lieu of foreclosure on mortgages originated by Countrywide Financial Corp. BofA bought Countrywide in July 2008 for $2.5 billion. Borrowers who may be eligible for foreclosure relief will be notified by letter. The program, which is part of an agreement between Bank of America and the state attorney general, was supposed to begin last October. Better late than never, at least for some.

Foreclosure relief is the first of three components of the program. The second component is supposed to assist up to 400,000 borrowers who financed their homes with subprime or payment-option, adjustable-rate mortgages serviced by Countrywide in modifying these mortgages to affordable payments, either through reduction of principle or interest rate reduction. The third component provides relocation assistance in the form of a cash payment to borrowers who experience a foreclosure sale and agree to leave the property voluntarily.

Additional information is available at my.countrywide.com/media/HRPFactSheet.html

South Florida county's web page helps residents fight foreclosure

The town of Davie recenly launched its foreclosure prevention website. The site contains a printable resource guide to with information on ways to avoid foreclosure. Also available is a glossary of terms which may not be familiar to homeowners.

The town hopes to assist many of its residents who currently face foreclosure proceedings. There are currently over 400 homes in preforeclosure in Davie. The city commission has applied to the Florida Department of Community Affairs for $2.3 million in federal Neighborhood Stabilization Program funds to address the growing foreclosure problem.

Unlicensed contractors seek to profit from Florida's recession

A Florida homebuilder participated in a sting operation to expose unlicensed contractors who advertise home remodeling services. In the span of two days, the investigation revealed 15 unlicensed contractors advertising their services to, and gaining access into, Florida homes.

The process is simple: the illegal contractors advertise home remodeling services. Because they are not licensed, they do not pay insurance, taxes and other fees and are able to charge less for their services. This practice not only takes business and revenue away from licensed contractors, it places those who accept the services at risk. In addition to the lack of insurance, it is believed that many of the unlicensed contractors have criminal records, and some may be registered sex offenders.

Its no secret that everyone is trying to save money these days. But homeowners need to be more careful than ever about the ways they save money and who is allowed into their homes.