The question of whether lenders mistreat foreclosure victims has two sides and both are based on historical fact. The lenders' side is homeowners are financially irresponsible and are breaking a legal contract with the lender. The homeowners' perception of the foreclosure is that the lender is unresponsive to their need for help and wants to steal their home. Ironically, any or all of these accusations can be true at the same time.



The lender makes money from a couple of sources when they give mortgages or deeds of trust to homeowners to finance a home purchase. The most obvious is the interest charged on the loan. The lender makes the difference between the borrowed cost of money and the final interest rate charged the homeowner. Lenders borrow money from its savings account holders and the Federal Reserve. The lenders also make money from the closing points charged the borrower, which can be equivalent to many monthly mortgage payments. Since the average homeowner owns a home for about five years, the lenders get these closing costs (points) over and over from the same borrower. Other income comes from the sale of the lender's foreclosed properties called REO's (Real Estate Owned). Yes, banks can and do make money on foreclosures. It is not a calculated part of their income stream but it does happen particularly when the lender plans it by taking equity-rich properties back from homeowners.

The homeowners' perception may also be correct because the lender is often unresponsive or not supportive because it is one of tens of thousands the lender has to deal with at any given time. The lender's loan mitigation officer may have hundreds of files working at one time and is often unreceptive to calls from homeowners. A very few lenders have developed departments with field personnel to visit the homeowners and show them solutions. The lender gets an appraisal or BPO (Broker's Price Opinion) as soon as the loan is delinquent by a few weeks. This estimated fair market value of their home is used to determine whether the lender can get the remaining loan balance back from the sale of the property. This estimated resale value has to affect how the borrower will be treated, either with an aggressive attitude to get the property back and get the home's equity by offering a "Deed in Lieu of Foreclosure", or with a different legal approach to have the homeowner keep the problem property.

Lenders use strictly a financial determination to resolve the problem of the foreclosure because it is in their best interests. This cut-and-dry decision often results in the homeowner getting minimal help from the lender. Homeowners can simultaneously be correct in their perceptions because the lender may want their property for its equity and homeowners only see that the loss mitigation representative is unresponsive to their phone calls. The best solution is for the homeowner to steer the foreclosure process and understand his rights without possible biased help from the lender.