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Banks Are Stupid At Business but the Homeowner is Supposed to Have Morals?

There's been a lot of interest around the mortgage defaults issue of late. It started with Richard Zaretsky's blog "WALK AWAY FROM THE PROPERTY - STRATEGIC MORTGAGE DEFAULTS GROW TO 26%. Then Broker Bryant's great post, Morally Wrong....OR...Financially Sound?, followed, by Jon Zolsky's posts, Painfully Adjusting to the World, and now, Show Me The Soul...

Some seem to think that it's morally wrong to make a decision to not pay your mortgage. I'm not arguing for or against that here. Everybody has their positions on this and likely nothing anybody else says is going to change their thought process on the subject, so why try?

That said, let's look at the bank's side of this for a moment. During the boom, lenders were giving out loans to practically anyone that was capable of breathing. We had subprime loans, no doc loans, the No Income, No Job Verification loan, 105% loans up to 125% loans and so on and so on. On top of that, we had lenders threatening to cut off appraisers that didn't value the property HIGH enough. Bad business decisions? Hmm, looks that way to me. Where were the lender's morals at this time? I think that they may have been lost in all the potential profits that were to be coming their way.

Fast forward to the bust years. Now, we've got homeowners trying to desperately stay afloat, many begging for their lenders to help them. What have the majority of lenders done? Turn a blind eye. Oh, sure, they SAY that they're willing to help, but very few actually do it.

First, you have to actually be behind on payments before the bank will even consider talking to you about helping. Then, you have to jump through a simply huge amount of hoops and red-tape to get any process at all, at which time, you are usually informed that you can't be helped, and your home will be foreclosed. That's stupid business, folks, plain and simple.

But wait, there's More!

Many banks say that they are willing to accept a short sale, but they drag the process along for months, when it should be taking weeks. if, IF, you actually get to the point where they are looking at an offer, all too often the lender rejects a perfectly good, sound, and reasonable offer, because it doesn't fit into their calulated formula. Yet, this same home, once foreclosed and bank-owned, will bring HALF the amount of the short sale offer. And it seems, everybody knows this but the banks. Stupid business?

Most banks won't even consider cutting the principle amount owed on a loan, or they make it so hard to qualify that most homeowners don't bother. Yet, these same loans that they refuse to restructure the principle amount by 75-90% of the original, thus making it a performing note, they will sell to another lender or investor for 10% of the balance. How do I know this. I have an friend that the lender refused to work with him on but sold his loan an investor for 10% of it's value. The investor that bought it, called my friend and told him, so that maybe they could work out a deal. Hmm, Stupid business? Smart investor, stupid bank.

Now we have lenders that are simply refusing to foreclose on property. They don't want it back because they don't want to be responsible for the taxes, insurance, upkeep, etc that goes with it and have decided that it's better to let the homeowner keep it...for now. All the while, they are still reporting to the credit bureau's that the borrower is late, they are still adding up interest, penalties, etc., and they are still tacking on additional junk fees. Stupid business? Maybe not, but where's THEIR morals in this?

The banks have been bailed out by the Government. It actually pays them NOT to help the homeowner and try to fix the banks' mistakes that they made during the boom years. The homeowner isn't so lucky. They have to work within their own means. I do think that a homeowner should TRY to work with their lender. I also think that they should TRY to sell the property through an agent that understands the short sale process. But in the end, if walking away is the best option, then they should do it.

_______________________

Roger Johnson is a Realtor with CENTURY 21 American Homes in Hickory NC .

You can reach me by email at rogerajohnson@century21.com or by phone at 828-568-2121 ext 310 .

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Posted by Roger Johnson, Realtor - Hickory NC Real Estate on 07/08/2009 11:26 PM

Comments (29)

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29 Comments on Banks Are Stupid At Business but the Homeowner is Supposed to Have Morals?

JUL

Love the rant. Agree with you all the way.

Thanks, Angelia!

it's always hard reconciling the fact that banks will take the path of least resistance (and the cheapest path also), especially when they control some of the biggest parts of many people's lives.

If it costs more to take over taxes, upkeep, etc than it does just to forego the payments that the owner has stopped making then the bank will just do nothing.

It would be great to see someone (maybe asset management companies) taking initiative and coming up with a program that allows them to approve the short sales rather than have to track it all the way back to the bank. maybe that already exists...

Such a mess. What really amazes me is the homeowner that cannot afford their mortgage, yet they have a blackberry, new beautiful TV (with satellite TV), and the list goes on. Like the old song goes "Come on and take a free ride...."

I think that many of your points are true, but I think it's unfair to group all banks together the way you do. I've seen some short sales get approved in a matter of hours, and some loan modifications get approved in a number of days. I've also had to deal with many borrowers who claimed that they were jumping through hoops for their banks, but weren't able to produce very simple documentation such as tax returns or W-2's. I think it's easy to blame a lot of the delays on banks, but I've found that many are really not that bad if you approach them with all of your ducks in a row. Now I'm not saying that this is the case for all banks, but it is for some.

As far as walking away, that's not really a viable option here in NJ. I've seen people walk away from their homes only to be stuck with large deficiency judgments which they were later required to pay. I don't think that this is ever a good decision even if it isn't a moral issue.

Read "The Creature from Jekyll Island: A Second Look at the Federal Reserve" and you will see that this alls started in 1913. We allowed a select few to create a banking cartel that was sold like a bill of goods to the American Public in the form of banking security. It essentially created provisions that started bank bailouts for bad loans way back then.

Does anyone remember Penn Central railroad, now known (and federally subsidized as Amtrak?)?

We need to go WAY back in our history to understand what has happened if we are ever to fix it. Once we began manipulating the market with legislation, free enterprise flew out the window. We've been paying for it ever since.

This is not a good situation. There are many in trouble eager for help that don't get it and still others who don't seem to know that they should be asking for help. I wish I knew the solution but haven't seen it yet.

JUL

Roger,

Not only is it bad business not to cut losses, it's greed pure and simple.

Folks -

Picture Bank of America, Wells Fargo, Citibank, and the others as bartenders!

They welcome you into their establishment, then offer you a drink - say, expensive single-malt Scotch, for example.

Then they offer you a second drink, then another, then another. Don't worry, the bartender says - "It's On Me!"

However, as you start to feel the effects of enjoying one-too-many cocktails, the bank/bartender gets mad!

"We don't want any falling-down drunks here in our bar," they say. "Get Outta Here! And, Don't Come Back!"

That sums up the mortgage market, folks! They get you drunk, and then blame YOU for getting that way!

How could you?

LOL!

DEAN & DEAN'S TEAM CHICAGO

Great post and we will see over time what happens to the real estate economy. Will Obama wipe out foreclosures on peoples credit report?

Deficiency Judgements...AKA when the other shoe drops. You can walk or run...but you cannot hide unless it is under the veil of bankruptcy.

Roger you are singing my song....this is the most rediculous thing..the banks SUCK...! They are doing their part to make this much worse than it should be..I had a short sale negotiator tell me that he won't approve a short sale for people who are current...he said...we are losing alot , they should lose too......crazy...

Hi Roger -- Your facts are indisputable. I see it everyday as we have a ton of foreclosures and short sales in Greater Cleveland.

Many times the banksters won't approve the short sale because they can get more money from collection on the mortgage insurance. Then they get the asset back through foreclosure and make some more money selling that too! It's like david trying to fight Goliath!

I also wonder why businesses, through the normal course of operating, get out of contracts all the time. Sure they may pay something to end a lease or obligation but it doesn't seem to affect their creditworthiness long term. Why is it so much harder and personally devastating to individuals than to businesses?

Comment # 15: The Banksters! LOL Seriously, love that.

The banks are notorious for making it all about the money, but when the consumer adopts that same mind set it's immoral. Good points. Thanks for the post.

Indeed. Looking at it from this perspective makes it all the more aggravating that the banks are being helped while homeowners are collectively, both the bad and the good, being thrown to the wolves.

I agree with Dean. I would add that the banks added tons of unqualfied order takers during the boom and paid them extra to get prime qualifiers into subprime loans. Now that the government has instituted a loan mod program, the banks have done very little to add staff to contend with the the meltdown. It is not unusuall to get paperwork lost in cyberspace.

Wow! Go do a little bit of work and look what happens! :-) Thanks for all the comments.

Joseph, you're right. All banks aren't the same, just like all homeowners aren't the same. There are always exceptions. I did say, generally speaking, after all. As to walking away, it's always an option. It may not be a good option or the best option, but it's there. State laws vary, but even a deficiency judgment may be a better choice. Depends on the situation.

Christianne, I'll have to track down that title. Thanks.

Terry, I agree 100%

Dean, great analogy!

Deficiency judgments are simply a consequence of choosing not to pay. There are consequences, but it's simply a business decision. Are the consequences better than current situation?

Konnie and Chris, I agree.

Donna, I have got to remember that term, "the banksters!" :-)

Jason, my point exactly. Thanks.

It does, doesn't it, William.

Joe, it's amazing how it doesn't work both ways, huh?

It woukd be nice if the lenders would offer a bit more "help" instead of looking the other way.

Exactly!

Without a doubt there's a lot of blame to pass around here...this discussion will go on for years!

Hey Roger!

Congrats on the feature, well deserved, and the blog was spot on. Why do the banks get all the leverage?? I guess we just have to rant, and move on. Ugghhhh!!

-Lisa

I think the banks have made their own mess, and are NOT helping homeowners get out of the trouble they're in. THink about that one rule about not talking to you until you miss a payment... what??? So you want me to get behind for real, then you'll talk to me about solutions to my problem?

Again, thanks for commenting. All are greatly appreciated.

Dan, sure, there's plenty of people to blame and plenty to blame people for. No argument here. I'm just pointing at that for some reason, many people seem to think that an individual not paying a mortgage payment is immoral, but it's just a business decision for a lender to not offer help, or to attempt any type of settlement that works. Why the double-standard?

Thanks, Lisa. The banks get the leverage because they have the lobbyists in Washington. All we have is our vote. I think maybe it's time to make that count.

Erica, I think you're right. That said, the banks had help in creating this mess, too. It was the Administration in Office at the time that pushed for looser lending standards, but that is a whole other post.

JUL

Hi Rodger,

I really appreciated reading your article. I can't agree with you more. I am a loan officer, and have found that most banks will do absolutely nothing for months. It is as if they do not want anything to happen. Just makes me wonder if this is a way to get more money from the Feds. There are a small percentage of banks that actually will work with their clientele and have approved short sales quickly and have even modified terms for their borrowers in a reasonable time frame. They are few and far between.

I would like to see the financial institutions forced by Government into a "reasonable time frame" or be penalized monetarily for failure to react within that time frame. Say 30 to 45 days. After all, I believe the financial institutions actually are the biggest piece of the this nightmare puzzle we are currently in. There greed our problem. Its a shame that someone has to even contemplate having to default in order to get the financial institutions attention to make a chage.

Thanks, Tom. I think you summed it up nicely with "There greed our problem"

Did you know there is a government agency that oversees banks and lending institutions? I am filing a complaint against one mortgage lender not because they refuse to cooperate and but because they have frustrated the short sale process. I have faxed my short sale proposal to them four times! I think as real estate agents we need to start fighting back on getting short sales approved. Check out consumer.complaint@ots.treas.gov for more info. And I agree with Tom, comment #27, the financial institutions should be forced into a reasonable time frame.

JUL

Thanks for the website link, Pamela

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