Greedy, Stubborn & Stupid? No, Just Greedy

I’m sure like a lot of people (and almost all *Realtors), I assumed that banks’ unwillingness to modify underwater mortgages en masse was due to greed, stubbornness, or stupidity — or a combination of all three.

And while I think that there’s plenty of evidence to support that view, at least there’s now a wisp of a counter-argument, made by The New Yorker’s James Surowiecki (“Not Home Yet“).

According to Surowiecki, banks don’t modify mortgages because — surprise — it’s not in their self-interest to:

Foreclosing is often more profitable for lenders than renegotiating is. There are two reasons for this. First, about thirty per cent of delinquent borrowers “self-cure” after missing a payment or two, they get back on track without any help from the bank. Second, between thirty and forty-five per cent of people who do have their mortgages modified end up defaulting eventually anyway.

Don’t worry, there are still plenty of reasons to hate the banks (at least the too-big-to-fail ones).

*Like many Realtors, I’m personally aware of hundreds of short sales that languished for lack of bank approval, only to re-appear on the market at some later date — significantly the worse for wear — as foreclosures.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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