Why Banks are Stupid to Foreclose–And Why They Do It Anyway

A friend of mine was a victim of foreclosure.  Yes, a victim.  There is no reason for banks to foreclose on honest Americans who’ve done nothing wrong except fall upon hard economic times while living in what is described as the wealthiest country in history. In fact, foreclosure costs banks and even taxpayers more than would allowing families to stay in their homes without paying their mortgage.

Again, my friend is a case in point. He fell upon economic hardship and worked desperately to keep his home and dig his way out of debt for over five years.  Eventually, the relentless economic onslaught he faced every day overpowered him.  Fortunately he had network resources that he was able to use to keep his family from living on the street. Regardless, he lost his house.

Now we live in South Florida, and this area was especially hard hit by the housing downturn. The values of houses have dropped, in some cases around 60%.  Currently there are hundreds of brand new houses sitting idle with no prospects of being sold.  Even the Habitat for Humanity house that was built in my neighborhood is empty.  Any prospective buyer could easily walk into any of these new homes for a steal. There’s no reason for such a buyer to ever even look at my friends old house. So there it stands.

And the bank pays for it to stand empty.  It is illegal to allow landscaping to grow out of control in my town, so the bank must pay to have the lawn mowed and the weeds pulled.  They have to pay to have the house maintained and cleaned (which they’ve not yet done). Eventually the paint will fade and in the wet South Florida environment the driveway and the window sills will be covered with mold and algae.

Then there’s vandalism.  This has already started.  With the economy bad and the houses just sitting, why should someone pay to have his air conditioner repaired when he can just help himself to a unit in a vacant home.  Nobody’s using it, after all. And try to explain that he’s stealing from the bank after the banks have virtually stolen hundreds of billions of dollars from us in the last year. So my friend’s erstwhile air conditioning unit is gone.  Good luck selling a house without an air conditioner in South Florida!  The bank will have to install a new one.

Now without air conditioning, it won’t be long before the air inside the unused house will become wet and stagnant, becoming a great environment for all kinds of spores to settle into the carpet and inside the walls. All of which will have to be dealt with by the bank, at a cost.

Of course, the police patrol the empty houses to make sure that they are not being vandalized or, God forbid, used by homeless people!  As yet I’ve not seen an analysis of how many man hours is spent by the police to patrol so many hundreds of empty homes, but surely this is time better spent on fighting crime than protecting the assets of banks.

Regardless, it’s only a matter of time before these houses become subject to vandalism and breaking and entering.  And sociologists are well aware of the broken window theory and the negative impacts of such on a community.

All of these things could have been avoided if my friend were allowed to remain in his home and the bank made more reasonable arrangements with him and his family to ensure the value of the property.  After all, there are other strategies that can be used than kicking someone out of their home.  So why don’t banks use the same innovative thinking to develop better solutions to the housing crisis.

Because it’s not always about sound financial decisions.  It’s also about power. In essence, the banks are nothing more than legitimized loan sharks.  If you don’t pay them back they will punish you.  They use fear and intimidation to get their money very much like the Mafia.  Often this fear is enough to make a nice profit.  Then there are times when regardless of the fear and the consequences, the debtor just doesn’t have the money.  Well, sorry.  Nothing personal. It’s just business.

Of course, such business doesn’t make sense financially any more than it makes sense to kneecap someone so they can’t work, making it harder to pay back the money.  Now here’s a point to ponder.  If banks are so caught up in medieval collection practices that only cost them money, what other anachronistic policies do they have? Why should we trust banks to run our economies?

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