“Making Home Affordable” is the name of the Obama Administration program to help underwater and delinquent homeowners avoid foreclosure. The government offers financial incentives to loan servicers that will cut deals with borrowers to reduce monthly payments. Recently the terms of the program were liberalized to allow more borrowers to qualify, and this week the White House made a big show of questioning mortgage company execs about the extremely small number of loans that have actually been modified to date.
What we’ve all been hearing is that the pace of refinancing is slow because the companies have been too slow to hire and train the necessary staff to get the job done. It turns out that understaffing and the alleged technical challenges in getting it done is nothing but a cover story that both the mortgage companies and the administration have been pleased to propagate. The real story, reported in today’s New York Times by the indispensable Peter Goodman, is that the companies make a huge amount of money by keeping borrowers in delinquency. They collect this rich revenue from fees for insurance, appraisals, title services, and legal services. Goodman illustrates the scandal in a sidebar about an African American borrower in Los Angeles who actually went out himself and brought three qualified buyers to his lender, Bank of America. The bank preferred to block the sales and keep the bad loan alive in order to be able to extract more fees.
It bears noting that Bank of America, a huge recipient of bailout dollars, has been running splashy full-page ads in newspapers across the country that tout its commitment to investing in minority communities. Given the degree of B of A’s hypocrisy, I’m surprised those ads aren’t causing copies of the papers to auto-incinerate. B of A, like other banks, targeted minorities for subprime loans in the first place and is exploiting them a second time now. This, not “Gates-gate,” is the racial profiling the country should be talking about.
In April I wrote a longer commentary here on Tom Geoghegan’s apt observation that today’s bankers aren’t like the bankers of old who actually wanted to see loans repaid.
Peter Goodman’s report today confirms yet again that we are in a bold new era of usury that no amount of windowdressing can fully conceal.
The business pages this week have been filled with silly stories on tiny signs of life in the housing market, whereas the big story—the millions of delinquencies and possible foreclosures waiting in the wings as people continue to lose jobs and take pay cuts—hardly gets mentioned at all. If the whole economic recovery hinges on avoiding this new catastrophe, you might think that Congress and the Administration would absolutely put a stop to the banks’ dirty dealing as reported by Goodman.
Don’t count on it. The Democrats—the party of the “little guy”—may be officially in charge of Washington. But the banks are still in charge of everybody.
Tags: bank bailouts, banks, debt, housing, hypocrisy, minorities
Looking to the servicers to "fix" the problem that they, their clients and their affiliated companies created makes no sense and will not work. The thought that paying them to do it makes it worth their while is just plain wrong.
The government has told the financial services industry that it "expects" them to utilize the HAMP program, and has linked their cooperation to obtaining bailout money, so they are going through the motions - for show. There may even be a few borrowers here and there who will "luck out" and get into it, so that the servicers can hold them up as examples of "how hard we are working with borrowers to help them". However, those are not the norm. What is the norm is rejections, refusals to take the applications, and "bait and switch", where the borrowers are instead steered into programs that have far worse terms, and where they are required to waive their legal rights and defenses in order to participate. Then the industry can proclaim that the "redefault rate" is too high, as though somehow it is the borrowers' fault that the only modification they could beg from the servicer was one on terrible terms.
Even if the servicers wanted to do HAMP modifications, which they do not, any successful program would entail a massive retooling, hiring many new people, and developing a process to bring this off. That would involve a substantial expense which is likely to equal or exceed the "incentives" paid to them by the Treasury under HAMP, thereby cancelling out any significant positive revenue to them. The process that results in their charging junk fees, late fees and other charges to the loans already exists, so costs them nothing to continue. It is a simple math exercise to see which benefits them more.
I defend these cases. I have the evidence in my files of the many clients who qualify for the program, who have BEGGED their servicer to consider them for the program, and yet receive no response. One case in particular comes to mind where the people clearly qualify, the servicer is a Wells Fargo entity who has signed on to do HAMP, and yet not only to they refuse to allow them to apply, they have hired a high-priced law firm to try to PREVENT these people from getting into the HAMP program, which would enable them to save their home.
Putting the servicers in charge of resolving the mortgage meltdown is putting the fox in charge of the henhouse.
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