Tuesday, January 22, 2013

Mortgage Foreclosure Abuse Proceeds

In my view lenders are not the only mortgage foreclosure abusers. The public has not been made aware that significant  mortgage foreclosure abuses have been perpetrated by borrowers. Many defaulting borrowers have been living in their homes (often having not put much money down in the first place) rent free for months and even years. In essence, because of the delays occasioned by "messed up" foreclosure actions or otherwise, and just the long delays in judicial foreclosure states, many borrowers have already actually benefited from this crisis.

I understand the need to discipline the lenders for shoddy, improper, and even dishonest, foreclosure processing, but if I were the judge I'd ask the complaining borrowers two questions--

Did you get the money? Did you pay it back?

According to an article in the New York Times, a Florida foreclosure defense attorney said he had basically three types of borrower clients:

1. Those who lost jobs or had medical problems and through no fault of their own and are unable to pay. Clearly the kind of borrowers who should be given loan modifications.

2. Those who can pay but don't . This happens usually where the value of the home  is currently less than the amount of the mortgage; otherwise known as "underwater". They are just staying put "rent free" for as long as they can hold out, often with an attorney's help. Afterward when the foreclosure is final, which is usually months and even years, they will just find an apartment to rent.

3. Those who could pay but won't, and in fact have rented out the homes. They are keeping the rent and still  not paying the mortgage!   Aggressive lawyering in those situations can delay the foreclosure for a long time. Hopefully this is an aberrant situation.

Even in states that allow for personal deficiency judgments after the foreclosure, the banks have not gone after borrowers for loan deficiencies. This is typical even where borrowers have substantial assets. By the way, there may be a shareholder suit somewhere out there for the failure of the banks to go after those who can pay.

The Times article said that this phenomenon of living in homes rent free has acted as a kind of "silver lining" in the financial crisis, creating  an  economic boost to the economy that had not been reported.

I believe that many lenders and their servicers acted improperly and should be heavily fined for not following proper legal procedures. The lenders, attorneys and the courts, got overwhelmed with loan defaults when the economy collapsed, and, while inexcusable, that was a big factor with regards to the shoddy foreclosure processing.

However, I don't see why borrowers should get anything, unless of course they can show actual damage.

I guess the good news is that the various multi-billion dollar settlements with the banks are more of a private sector economic stimulus, and in that sense maybe helpful for the recovery. Kind of a reverse TARP, but one that doesn't get repaid at a profit like the one the banks paid!

However, who gets the money and for what?

It's going to be like hitting the lottery for some borrowers (worthy or otherwise), compliments of the banks. The Times is already complaining that too much money may go to higher income borrowers. Excuse me, but isn't that an oxymoron? How do high income borrower even need help of this kind?

The real question is, were borrowers actually damaged by "robo" signings and other shoddy practices?

Did anyone lose their home who were paying their mortgage payments? I haven't heard about them, and believe me we would have.

Listen, I'm not saying that any borrowers wanted to default on their loans. But many who took those subprime  NINJA loan weren't completely innocent either. They did walk out of the bank with a lot of money, which they haven't paid back.

The whole economy crashed, lead by the collapse of the housing market. Maybe these lawsuits regarding improper foreclosure practices are just a proxy for  punishing banks for  having made subprime loans in the first place.

 The banks should be punished for improper foreclosure practices , but the money should be better spent and not go those who may not have been  damaged, and may even have been abusers of the foreclosure process themselves.

I have a better solution. As to what to do with the many billions of dollars of settlement proceeds from the banks, rather than giving it to borrowers (all of whom clearly defaulted on their loans, and who may or may not have suffered damages as a result of lenders' enforcement efforts), why don't we give the money to the poor, feed the hungry, shelter the homeless, educate our children or even pay down the debt and reduce the deficit?


Thursday, January 3, 2013

What is a Bailout?

What is a bailout?

For example, AIG and GM. What does it mean that AIG and GM got bailed out?  Shareholders got wiped out.  All of the senior executives got fired. Creditors lost money (certainly in GM). Isn't that plenty of moral hazard?

What's left of AIG and GM beyond the name and the business that continues to operate with the jobs of  workers below senior management?  Assuming the business had intrinsic value and the shareholders got wiped out  and senior management got fired, what is the basis of complaining about bailing out "fat cats"?

I recently read a piece which said:

"A bailout (in my book) means the shareholders benefited from the government action. I don't see any shareholders of AIG and GM saved, I see them obliterated. As such I disagree with the term bailout and prefer restructure."

I dwell on this issue because I think it is important that people know the truth of what a bailout means so if needed in the future politicians' and peoples' judgment will not be distorted by the demonized use of the term.