The “Big Bad Bank” Mentality

Have you ever made a loan? Perhaps to a family member or a friend, or as an investment to small business or a colleague. When you made the loan, you likely had an understanding – an agreement – as to how the loan would be repaid. Now imagine that loan was not repaid . . . what would you do? Would you try to get repaid? Now imagine that after losing money due to non payment, YOU became the bad guy. How could this make sense? Well, it probably doesn’t. But this is exactly what’s happening in this time of the “Big, Bad Bank” mentality. In the rush to vilify the Big Bad Banks, much is made of the practices that result in throwing “innocent homeowners” out of their properties. Consider this: the average foreclosure timeline in Florida was 180 days in the middle part of the decade (up to 2007). Now, it takes roughly 2 years to complete the average foreclosure and lenders are waiting longer to initiate the suits. So where’s the rush? There isn’t one. I am not without compassion for hardship cases. If one cannot make payments due to illness, underemployment or unemployment, programs such as loan modification, short sale or deed in lieu of foreclosure should be made available. This is distinguished from defaults as a result of mortgage fraud, strategic default (having the ability to pay but choose not to) and reckless real estate investment. I realize that everyone has to make a living but I have yet to hear from a foreclosure defense attorney that his client did not default on their mortgage and was foreclosed on anyway. Most will readily admit that absent the borrower making loan payments as agreed, they can only delay the inevitable through stall tactics such as “show me the note” or lately, the uproar about “Robo” signers. Rarely is it disputed that the borrower did not repay the loan according to the agreed upon terms. The reality is that there are very few valid defenses to loan default. Cities, towns and even HOAs are also piling onto the Big Bad Bank mentality. Once a home is foreclosed upon, the banks are left to clean up a litany of code violations, fines and assessments that result from property neglect and unpaid association dues. Although the banks did not cause these issues, they are held financially responsible for them. Many local governments are charging $150.00 ($54,750 a year!) or more per day in fines for tall grass and unkempt properties to lenders who did not own nor had the legal ability to correct the violations prior to foreclosure. Some HOAs are gauging the lenders for thousands of dollars for frivolous “violations” such as trash cans being left out or the color of the curtains facing the outside.These supposed violations occur prior to foreclosure but the bank is left with the bill. Who else loses with the Big Bad Bank mentality? If you are among the roughly 90% of borrowers who pay their loans on time, you lose as well. The greater the losses incurred, the less likely they are to make future loans at favorable terms. Without the government propping up the mortgage markets, interest rates will surely rise and availability of loans will be reduced.