What Are Banks Really Doing To Help the Economy?

THROWING ELDERLY WIDOWS OUT THE HOUSE  

What Banks are Really Doing to Help the Economy  

By David Petrovich and Jeffrey Ross Williams

 

The collapse of the U.S. economy and the global recession it spawned almost one year ago was precipitated by the banking industry's insatiable addiction to put money into the hands of every American, from teens to octogenarians, regardless of credit risk.

             Now that banks recognize embedded losses in their portfolios, many of these same banks that couldn't push money out the door fast enough are now terminating loans for frivolous and often unlawful reasons, forcing borrowers to the precipice of financial ruin.  Sacrificing good borrowers to salvage shareholder value and fund excessive executive compensation packages is indefensible, thwarts federal policies to curtail foreclosures and keep people in their homes, and violates the law.  Unless policy makers are educated about this new form of lender abuse, these banks that received billions of dollars in taxpayer bailouts will continue to act with impunity.

             We at SPOCH, the Society for the Preservation of Continued Homeownership, have fought for a decade against unlawful, over-reaching, and abusive lender tactics that too often drive borrowers into unnecessary foreclosure.  Today banks are desperate to reduce loan exposure in order to reduce their capital requirements, prop up balance sheet return on investment, and demonstrate to regulators that they have tightened lending standards.

             Unfortunately, suspending or terminating loans is one new tactic we at SPOCH are seeing on an unprecedented scale.  Banks are terminating loans for all sorts of reasons many of which are specious or based on hypertechnical violations of loan agreements or for diminimus economic reasons.  In all cases, the borrower's financial lifeline is suddenly cut, and medical bills, housing, education, utilities, and other necessary expenses can't be paid.

             One tragic example involves an 85 year old widow who was relying on a home equity line of credit from National City Bank to fund her necessary expenses.  The borrower, who was learning to become computer literate, attempted to make an online $30.18 monthly payment.  One week after she initiated the payment, the bank's customer service agent informed her that the payment was not completed as she clicked on the "print screen" button rather than the "pay" button on NatCity's website.  The borrower immediately made the payment upon learning of the website confusion.  Many months later, the bank sent her a termination letter for the accidentally late small payment.  Now she is on the brink of financial disaster and may be forced into foreclosure and bankruptcy.

             In addition to the small amount of the payment, NatCity's decision to terminate the loan is remarkable because it violates the Federal Reserve's, FDIC's, and Comptroller of the Currency's regulations and guidelines which prohibit terminating loans for delinquency when the lateness was due to an erroneous mailing address or an error in completing an online payment.  In this case the punishment just doesn't fit the crime.  The total lack of proportion between the borrower's accidentally late payment and NatCity's decision to halt credit advances is a stunning example of how far bank's have moved from valuing customer relationships to sacrificing such relationships on the alter of shareholder value.  NatCity's real motivation is obvious to all experienced observers: it used a specious and immoral claim of delinquency as a pretext to purge its loan portfolio of unwanted assets.  Such a tactic must not be condoned.

             We the People own many of the banks engaging in these despicable practices.  NatCity, in the example above, is now owned by PNC Bank, which received more than $7 billion in taxpayer relief.  How can a government owned and regulated institution practice such oppressive, illegal and unjustified actions?  Most of the borrowers who are innocent victims of this new phenomenon of wrongful terminations have no recourse as they lack the financial means to fund a lawsuit and have no access to media or political resources to forge a remedy.

           National City is not alone in its shocking indifference to the plight of those whose dollars, and whose children's future dollars, were by the stroke of a legislative pen used to replenish their vaults.  After pocketing taxpayer billions these lenders and mortgage servicers promised a lifeline to homeowners drowning under the weight of toxic mortgage loans.  Instead, these industry giants are victimizing hundreds of thousands of owners by wrongfully terminating loans or restructuring the loans on unfair and financially onerous terms.  SPOCH is seeing more temporary reductions in payments for the "lucky" ones while recouping fees and principal in a balloon payment.  For the not so lucky distressed borrowers, loan modification applications are often ignored by lenders, lost, intentionally destroyed, or used as a pretext to claim termination or suspension of the loan.

             SPOCH and other foreclosure assistance organizations don't take sides.  Rather, we seek a reasonable compromise that allows borrowers to rehabilitate their financial situation and maintain homeownership while lenders can avoid a nonperforming asset classification by accepting some modification in loan terms that would continue to produce revenue for the bank.  In the NatCity case, for example, rather than terminate the loan for an undisputed accidental late online payment, the lender should - if it was sincere in valuing the loan as a potential credit risk - propose adjusted loan terms rather than cut the widow's financial lifeline and set her adrift without any other resources. 

           NatCity's callous, wrongful, and egregious breach of its fiduciary duties is being replayed over and over across the nation by lenders and servicers.  President Obama's Making Home Affordable foreclosure relief program is receiving only rhetorical support from banks like NatCity.  Rather than work to rebuild our nation's long-term economic vitality, NatCity and its banking brethren provide only lip service to the President's program while flagrantly abusing innocent borrowers with impunity.  The human toll from such actions is being painfully felt and silently suffered by many borrowers like the 85 year old widow SPOCH is unable to help.  It's time for policy makers and regulators to stop protecting banks and start defending innocent victimized borrowers.

 

David Petrovich is the Executive Director, Society for the Preservation of Continued Homeownership, a 501(c)(3) nonprofit devoted to helping borrowers keep their homes.

 Jeffrey Ross Williams is a director of SPOCH, a former FDIC official and the founder and managing partner of The Williams Law Firm pllc in Washington, D.C. where he advises on financial institution matters and public policy.