Housing Can’t Recover Unless the Banks are Honest
If you want the facts, you know truth based information that really makes sense of Real Estate reality, then you have to read my good friend John Mulkey's post. It is a reminder of how too big can become really bad and people can drop like flies when they corporate entities do not answer to anyone including our own government.
While many have blamed irresponsible actions by homeowners for the recession and the collapse of housing, much of the problem lies with the big banks; and housing can’t recover unless the banks are honest. Just yesterday an article on ProPublica described how the state of Nevada is suing Bank of America, one of the prime culprits in the housing fiasco, alleging that, borrowers were duped into unaffordable loans and then victimized again through a misleading mortgage modification program that homeowners tried to use to avoid foreclosure. Finally, the suit alleges, the bank filed fraudulent documents to move forward with the foreclosures. (The full complaint can be read HERE.)
Sadly, the lawsuit describes practices which, according to homeowners, attorneys and investigators, were commonplace during the housing boom; and it also details how the banks continued to prey on unsuspecting homeowners by refusing to modify the majority of mortgages. Yet it seems that many lenders ignored principle, and used their position of omnipotence to drain the last dollars from those who had trusted them and a system they expected to be reasonable and honest. And once homeowners’ funds were drained, millions of them were kicked to the street and their homes sold to the highest bidder. It would appear that banking executives embraced Gordon Geckko’s philosophy in the movie “Wall Street” that “greed is good.”
But there’s nothing good about greed when it destroys the lives of those whose efforts have allowed it to exist and when that greed is carried to the extreme so that it wrecks the very system upon which it was founded. At that point it becomes little more than corruption and gluttony and a breach of trust with those who may lack the sophistication to protect themselves and who have the most to lose.
Yes, the banks and the GSEs began this crisis out of sheer greed, an unbridled chase for profits which in turn led to record-breaking salaries and bonuses for their executives. They created the instruments that demanded a loosening of lending standards, their marketing strategies encouraged borrowers to over-extend and they sometimes committed fraud when dealing with those borrowers. Then, when their house of cards collapsed, they came begging to the government to take money from the very people they had harmed in order to minimize their losses.
Then, as home values collapsed and struggling homeowners asked banks to make their plight easier by refinancing at the prevailing rates, those same bankers and the GSEs conspired to minimize approvals by maintaining standards under which millions of homeowners could not qualify. And there was no sincere effort from the Administration to encourage refinancing or loan modifications. Describing the problem, Sheila Bair, former head of the FDIC, said, “they (government officials) didn’t think borrowers were worth helping.”
For more details on just how corrupt the system has become, read the article, "Are the Housing GSEs and TBTF Banks Blocking the Economic Recovery?" from John Mauldin's "Outside the Box" newsletter. Among other issues, his article describes "how the GSEs and the largest banks are actively seeking to prevent Americans from refinancing their mortgages . . .” And while the obvious inference might be that the banks’ and GSEs’ actions comprise a conspiracy, it’s unlikely that the DOJ will be launching an investigation. The issues and actions involved are far too complex and link government, Wall Street and banking—all of which, including government, have incredible power and billions of dollars ready to be used to focus attention elsewhere.
Finally, those who feel the need counter my position by relating anecdotal accounts of irresponsible homeowners, I would ask to look at the facts. Yes, I’m aware that some homeowners made foolish decisions, that some even acted fraudulently, but such accounts cannot explain away the devious actions of the major lenders. This post isn’t about the careless actions of a few, but the deliberate actions of the leading mortgage institutions in the U.S. to grossly increase profits regardless of the costs or suffering such actions might inflict.
Yes, housing can’t recover unless the banks are honest . . . and unless serious changes are effected, that just might never come about.
More information can be found in the following sources:
“Housing Can’t Recover Unless the Banks Are Honest” - First published at: www.imsickofit.org
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