Why doesn’t the bank approve my modification?

There may be an economic interest at work against you. First know the bank will not look at your application until all requested documents are attached. Most people do not get all the documentation and the bank kills their modification on these grounds.

As to the economics, consider IndyMac went under and filed bankruptcy. The FDIC sold the IndyMac mortgages to what is now OneWestBank.  To see how it worked for the bank follow the example assuming a $100,000.00 morgage is in foreclosure and ultimately the house sells for $50,000.00 at the sheriff sale. Leaving a $50,000.00 loss. FDIC’s deal in selling the loan portfolio includes sharing the loss. Per the FDIC press release factsheet on the sale of IndyMac (FDIC-PR-20099-1/2/2009). Thus the bank takes the hit of the first 20% of the loss. The next 10%  is shared 80% with the FDIC and on the balance of the loss the FDIC share is 95%.

If you do the math for our $50,000.00 loss the FICD pays the bank $37,250.00 towards the loss. When you factor that the FDIC discounted the  loan 30% to sell it. The bank paid $ 70,000.00 for the loan. In the foreclosure it recovered $ 50,000.00 from the sale and $ 37,250.00 from the loss. When all is said and done that means the bank got $87,250.00 from our example defaulting loan. In other words it made a $17,250.00 profit on the foreclosure.