"Because that's where the money is."
- Famed Bank Robber, Willie Sutton,
responding to a reporter who asked him why he robbed banks.
Nakedcapitalism's Yves Smith muses about an interesting post from Housingwire.com on foreclosures. It turns out that of all of the housing foreclosures followed by RealtyTrac (one of the 'go to' sources on these things), over 50% of foreclosed homes actually have positive equity. That's right, banks are foreclosing on homes that can be resold at a profit at a higher rate than they're foreclosing on homes that are underwater.
Like famed bank robber Willie Sutton, the banksters are going after homes with equity because "that's where the money is." There's two possible reasons for this.
First, as I've been writing about for a while, it makes no sense for the banks to concentrate on foreclosing on negative equity mortgages because then they have to write-down the value of their assets and their managed portfolios. It especially makes no sense when you consider the banksters understand ...
* You can't claim bonuses, demand higher wages, charge hefty management fees, and then make billion dollar bets if your asset base is declining. Foreclosing only on homes that are underwater damages the asset base.
* New rules allow the banks to use Unicorn math to "reprice" their toxic assets, which artificially inflates the value of their asset base and portfolios (while regulating the market price out of the market). If you don't foreclose on toxic mortgages you can reprice the toxic instrument they are affiliated with.
Second, it's much easier to go after delinquent homeowners with positive equity, where court backlogs aren't so deep, and the outcome is more profitable. As Yves Smith suggests, with foreclosure rates rising in previously "safe" areas like Provo, Utah and Portland, Oregon, the banks seem to be going after the easy money. Because California, Arizona, and Florida have been the hardest hit states there's now a backlog of foreclosure cases there. This means more time in court, for longer periods, in these regions. Foreclosing on homeowners with equity in places like Utah is the industry's low hanging fruit.
And best of all, for the banksters, it's legal.
If you believe in reincarnation, I'm pretty sure where you can find Willie Sutton. He's on Wall Street.