The Banks Don't Want Your House If You Default

The San Francisco Chronicle reports:

Falling prices, sluggish sales and mortgages that let borrowers pile up debt faster than they can pay it off could put more Bay Area homeowners out of their houses this year than at any other time this decade.

By the end of September, 865 homeowners in the nine Bay Area counties had lost their homes through foreclosure sales, easily surpassing the 529 borrowers whose homes were repossessed all last year, according to the DataQuick real estate information service.

As borrowers who signed up for mortgages that started with low monthly rates face higher payments in the next two years, economists predict the situation will worsen.

But the good news is that banks don't want to take your home back. There's no money in it for them.

A letter from the bank threatening repossession can instill fear in many homeowners, who worry they'll be tossed out of their homes in short order. But actually there's a lot distressed borrowers can do to save their houses.

Banks lose money when they foreclose on homes, which means it's in their self-interest to work with borrowers who are in trouble.

"I don't care what people think -- we don't want your house," said Bob Caruso, national servicing executive at Bank of America.

BofA and other lenders say they will work with delinquent borrowers and help them put together a plan to get their mortgage back on track, in some cases giving the home owner as long as 18 months to catch up on payments.

The 865 foreclosures in the Bay Area so far this year represent only 9 percent of the 9,290 homeowners who received letters from their lenders alerting them that they had fallen behind on their payments.

While foreclosure activity is on the rise, it's still well below historic highs. Lenders auctioned off 5,380 Bay Area homes in 1996 after sending out 24,661 delinquency notices, the most in the 16 years that DataQuick has tracked foreclosures.

For the past four years, foreclosure activity has been kept near record lows because rising prices allowed homeowners to build equity quickly enough to stay ahead of their debt.

In 2003, lenders foreclosed on 1,104 homes, the highest number in any year this decade, according to DataQuick. This year, the pace of foreclosures is on track to surpass that mark.

The tide may be turning, said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley.

"There is no time in modern history when we've had such aggressive underwriting," Rosen said. "We have a potential this time to see a much more serious problem than any time we've seen in the past."

Many of banks let Fannie Mae have the mortgage.One would think that Fannie Mae stock will eventually take another hit.Unless you believe they are totally hedged.