“Language and speech are the means by which people communicate with one another. However, with the Big Banks, their silence conveys the loudest message.” [Anonymous – sort of.]
In Part One, I analyzed the recent Oregonian article, titled: “Lenders not engaging in Oregon foreclosure mediation program.” The gist of my post addressed the process under SB 1552 by which borrowers were intended to be helped under the law. However, it seems that the Big Banks are refusing to participate in a major component of SB 1552 – the part dealing with “at risk” borrowers who have applied for mediation in an effort to find a “foreclosure avoidance mechanism” such as a modification, forbearance, short sale, deed-in-lieu or some other method to avoid foreclosure.
When asked by The Oregonian why the Big Banks are uniformly not responding to these modification requests, their apologists, i.e. the industry lawyers, lobbyists and lackeys, have collectively shrugged and said, essentially, “Gosh, we have no idea,” adding, however, that their banking clients “…are talking to their legal counsel and other learned people trying to make rational decisions about how to proceed with this [‘at risk’ borrower mediation] issue.”
Also, as discussed in Part One, I quoted the actual verbiage of SB 1552, and concluded that it is perfectly clear the law requires that: “Within 15 days after receiving the [borrowers’] request, the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider identified in subsection (2)(b) of this section. The response to the grantor must include contact information for the Attorney General and the mediation service provider.” [Emphasis mine. – PCQ]
So what are we to make of this radio silence? One would think that with all the lawyers and other “learned people” on the payroll, there should be more than enough intellectual bandwidth for a Big Bank to make a “rational decision.”
However, if, by chance, there is some intellectual gridlock resulting from all those synapses firing at the same time, allow me to add my two cents’ worth. First, note that the banks’ legal response quoted above seems to have made a critical error, to wit, they have now limited their actions to rational decisions. I interpret this to mean that they are going to depart from their more common process of making irrational decisions,[1] and focus instead on syllogistic logic. Whew, that’s a relief!
Juuusst kidding! We know that can’t and won’t happen. It was just more legal meringue being served up to The Oregonian; fluffy, but no substance.
We know that Bank-Think occurs in quiet, air conditioned conference rooms in high-rise towers, where corporate decisions are never vetted for rationality, morality, or sensibility. If this were not the case, how does one explain all of the bonehead decisions the Big Banks have made over the past five years? I suspect this results from the fact that the execs making these dunderheaded decisions simply have no Jiminy Cricket on their shoulder, chirping “Let your conscience be your guide.” Thus, the Big Banks are freed of the normal constraints of rationality that govern the actions of common people.
So with this backdrop, why do you suppose that the Big Banks don’t wanna play on the mediation field known as SB 1552? Since they aren’t saying – which actually speaks volumes – we are left to do our own sleuthing. Here’s my take – in no particular order of priority:
1. Because they believe they can win in a court of law. This harkens back to the “Might Makes Right” theory popular, in say, the 1980’s and 90’s, when, according to Gordon Gekko, “Greed is good.” But as David dispatched Goliath on the battlefield, so too will the consumer attorneys in the courtroom. Good prevails over bad, and will again.
Bank muscle-flexing has long been a failed strategy, just as it was in their efforts to convince federal and state judges that MERS is a viable substitute for the recording of mortgage assignments. And just as it was when the banking industry, in an example of raw hubris, unilaterally decided to impose MERS on the country, rather than see permission through the state legislatures.
As I pointed out in Part One, the law is pretty clear: Within 15 days after receiving notification that an “at risk” borrower has requested mediation, the bank “…shall respond to the *** request and shall notify the Attorney General and the mediation service provider….” [Emphasis mine.]
Moreover, even though SB 1552 does not contain any express sanctions for Big Bank non-compliance, one can be sure the Oregon Attorney General and the pro-consumer lawyers in the state, will find ways to “encourage” cooperation. The likeliest source of such encouragement, and one the Big Banks fear, is the Oregon Unlawful Trade Practices Act, which may be privately enforced by individuals and also enforced by the Oregon Attorney General.
It is noteworthy that the Attorney General’s Administrative Rule 137-020-0805(5)(g) for Mortgage Loan Servicing, requires that all servicers deal with borrowers in good faith. The term “good faith” is defined to mean “…honesty in fact in the observance of reasonable standards of fair dealing.”
It does not seem much of an intellectual leap of faith to say that when Oregon law requires mandatory participation in mediation if requested by an “at risk” borrower, and that the failure to do so is a breach of the obligation of good faith.[2]
So one way or the other, I suspect it will not be long before the Big Banks make a short trip to the woodshed, compliments of the Oregon A.G.’s office and others. If not, someone is bound to ask the A.G. whether the money spent setting up this program, was all for naught.
2. Because they don’t give sufficient attention to the collective political clout of Beleaguered Borrowers, their supporters, and the current political climate. It’s as if the Big Banks have a tin ear, and don’t hear or recognize the sound of discontent – at least until it’s almost too late. But, truth be told, the Big Banks subscribe to a different Golden Rule than you and I. Theirs says: “He who has the gold, makes the rules.” And while I concede that the Big Banks have more money than their Beleaguered Borrowers, that isn’t the end of the story. There is the court of public opinion, which can be much more swift and unforgiving than the court system, where decisions can be appealed on ad infinitum.
The political resistance mounted by the Big Banks will bend when faced with withering public opposition to their conduct. The best and most recent example was the 11th hour passage of SB 1552, earlier in 2012. Here’s a brief history: Last Spring, Rep. Gene Whisnant (R-Sunriver) tried to kill two companion pro-consumer bills, 1552 and 1554. Remarkably, Rep. Whisnant’s district includes the Sunriver area in Deschutes County, Ground Zero in Oregon’s foreclosure crisis. Rep. Whisnant and his Republican counterparts, tried to do a “gut and stuff” on these bills – a political maneuver designed to emasculate the two bills. The blowback was immediate; according to The Oregonian’s Editorial Board, Rep. Whisnant had “…shown no willingness to give the Senate Bills a hearing.” But guess what? At the last minute, Rep. Whisnant folded like a cheap suit.
In prior posts, I have referred to Rep. Whisnant as a “Quisling” for opposing the mediation law, while at the same time, purporting to represent a constituency in dire need of its passage. And his gelatinous backbone did not disappoint. Smelling defeat and feeling the heat, he beat a retreat. At the last minute he defected again – this time away from the lender lobby he had so vigorously represented literally days earlier. He voted in favor of SB 1552! And as any self-respecting politico seeking a measure of redemption is wont to do, he quickly put his own name on SB 1552 as a sponsor – so he could tout his support for Beleaguered Borrowers come election time.
Now there’s a guy you’d never want in your foxhole during a firefight….
So, my take on the banks’ chronic hearing impairment is that it only lasts until the decibels exceed 115dBs – roughly the level heard at a raucous rock concert. At that point, the anti-consumer politicos like Rep. Quisnant Whisnant, will have an epiphany like Paul on the road to Damascus. The only difference is that their epiphany lasts only one election cycle at a time; they need to be reminded time and again, that their future is in the hands of their electorate. Lest you ask whether the Big Banks will just move their financial support to another hack, my suspicion is that the Big Banks will always opt for the devil they know, rather than taking a chance of the devil they don’t know.
In short, the Big Banks and their lobbyists, lawyers and lackeys may talk tough, but it’s not their jobs that are on the line. They can testify all they want to the Oregon legislature, wringing their hands as they paint scenarios of gloom and doom for the Oregon economy if fairness is actually brought to the foreclosure process. But when the dust settles, and it comes time to tally the votes, the politicos will do what is necessary to satisfy their constituency.
So the real focus on big issues such as SB 1552 and the Big Banks’ unwillingness to play ball, should be taken to the politicians that need the public’s support for re-election, regardless of their party’s stripes. Power is the aphrodisiac of many politicians, and those such as Rep. Whisnant can be counted on to do what is expedient at the time.
3. Because they do not evaluate how such conduct has so damaged – and will continue to damage – their goodwill on Wall Street. Closely related to public opinion, is Wall Street’s opinion, i.e. how the Big Banks are viewed by the investing public? In short, not so good. In a July 16, 2012 article, focusing on Bank of America, JPMorgan and Citigroup, Bloomberg discusses how Wall Street has treated them:
“Shares of all three now trade at a discount to book value, or what management says a bank’s assets are worth after subtracting liabilities. These discounts range from 72 percent of book for JPMorgan to 43 percent for Citigroup, according to data compiled by Bloomberg. This suggests that investors have ample doubts about the value of the banks in their present form.” [Underscore mine. – PCQ]
This tells me that at today’s investment value, most Big Banks are worth more dead than alive. In other words, as a single unit they are worth less than the sum of their parts. This gives new meaning to the term “Zombie Banks” and just another reason to break them up – i.e. to “release shareholder value.”[3]
So what will it take for the Big Banks to “play ball”? Perhaps when one CFO says to his or her CEO:
“You know, if we continue on this path of poking our finger in the eyes of the investing public, our stock price will never recover. I suggest rather than paying millions of dollars to get our name on a football stadium, that we invest some serious money helping the Little Guy. Nordstrom’s has done pretty well with the credo that ‘the customer is always right.’ Remember, the Beleaguered Borrowers we’re beating up on were our valued customers once upon a time.”
4. The Big Banks are not really financially incented to help “at risk” borrowers. As sad as it is to say, there is good reason to believe that they are not motivated to voluntarily mediate – unless they absolutely have to. An “at risk” borrower is not one they want to deal with; these folks are too far back in the foreclosure and pre-foreclosure line – and there’s no cutting in! Despite all the Big Banks say about wanting to help people avoid foreclosure, it does not really appear to be the case.
Point One: Big Banks don’t actually recognize their losses until the foreclosure is completed. [See Bloomberg discussion here.] This permits them to delay the inevitable. Since loan losses can necessitate an increase their capital reserves, banks prefer to push of the day of reckoning. Foreclosures take much longer than pre-foreclosure solutions such as short sales and deeds-in-lieu of foreclosure. The Big Banks don’t want to reach a pre-foreclosure solution for everyone at the same time. They want to control their flow of red ink. Better to turn the spigot slowly. If this were not the case, why wouldn’t the Big Banks just tell every borrower awash in negative equity to simply deed their homes back to the bank right now? That would rip the Band Aid off all at once, and homeowners could get on with rebuilding their lives. Of course, the Big Banks would have some “spraining” to do to their already disillusioned shareholders.
Point Two: The Big Banks make good money servicing loans. Especially those in default. They get paid more when the loans are under-performing or not performing. And with the aid of their affiliated companies providing default services, e.g. force-placed insurance, and kickbacks from non-affiliated companies, they have found that default servicing can be a lucrative business.[4] And in those cases in which the loan is not owned by the bank servicing it, they can take all the time in the world to foreclose, meanwhile, they collect the servicing fees.
Point Three: Banks really don’t want to mediate about modifying loans. In fact, they don’t want to modify loans at all. If they did, they would have done so when HAMP was first rolled out. It’s a waste of their time and money. Instead, for years, they have engaged in what has become known as “Extend and Pretend,” dragging out borrowers for a year or more, letting them believe they will receive a genuine offer of modification that would permit them to remain in the home – and then unceremoniously denying them for reasons that could have been determined immediately upon application.[5] The Big Banks know, as the statistics prove, that modification is just a temporary fix. A significant percentage, perhaps 50% or more, ultimately fail anyway. They only reason they continue the charade is because they can say that they “care.” So why would they want to mediate with “at risk” borrowers who simply hadn’t gotten the memo that modification is a sham?[6]
Point Four: SB 1552 requires a face-to-face meeting between bank and borrower. And the law requires that the banks’ representative must have actual authority at the mediation. It’s far easier to say “No” through a low paid employee in some distant venue, than to negotiate in good faith, mano a mano. Truth be told, Big Banks would rather not have to actually look borrowers in the eye. You see, if the “eyes are the window to the soul” borrowers would quickly recognize that the Big Banks have no soul.
Conclusion. So how will this standoff end? The answer will likely have to wait until the Oregon Legislature convenes in 2013. The lending lobby will say, “See, we told you it wouldn’t work!” Forgetting to mention that they were singularly responsible for the failure. After the finger-pointing and recriminations are over, the lender and consumer lobbies will likely work out a compromise. There are many bargaining chips on the table, and believe that as the camel’s nose is already under the tent, the “at risk” borrower provisions will – in one form or another – remain in the law. Time will tell.
[1] Such as levying a $5 debit card fee on their own customers shortly after sucking billions of bailout dollars from the public teat [i.e. the American Taxpayers]; or using those bailout dollars to fund multi-million dollar bonuses for their own executives; or post-financial crisis, placing billion dollar proprietary bets on derivatives and calling it “hedging” – making a mockery of the Volker Rule; or tampering with the international LIBOR rates for personal gain; or lending millions of dollars to known terrorist countries and drug dealers, in violation of federal anti-money laundering laws; or spawning MERS, the devilish strawman disguised as an angelic business model; or looking the other way as LPS and other toadies employed robo-signers to mass produce forged legal documents. Ahh, but I digress….
[2] It is possible, I suppose, that the Big Banks could argue that the servicing rules only apply when they are “servicing” loans, not foreclosing them. But from where I sit, if the servicer is the beneficiary under the trust deed, or the authorized agent of the beneficiary, and it’s servicing contract authorizes it to commence foreclosure, that this is clearly a servicer responsibility to which Oregon’s good faith rules apply.
[3] As an aside, and perhaps an issue for another post, one has to wonder if the Big Banks are really not, metaphorically, akin to Dr. Frankenstein’s Monster; an amalgam of disparate [formerly dead or dying] parts, like Countrywide, Bear Stearns, Wachovia, WaMu, Merrill Lynch, etc.] hastily assembled and infused with life-giving injections of money, all in a wild-eyed hope that the resulting Monster would somehow be better than the sum of its moribund parts. We now see that this experiment has failed miserably. Just ask Dr. Frankenstein’s able assistant, Brian Moynihan, Bank of America’s President and CEO. – PCQ
[4] And where it isn’t, they spin off the servicing rights to some of the bottom feeders in the debt servicing and collection food chain, e.g. Ocwen and Greentree.
[5] For example: “You don’t qualify because you make too much money.” “You don’t qualify because you don’t make enough money.” “You don’t qualify because your front end ratio is more than 31%.” Or, the Big Bank favorite: “You don’t qualify – period.”
[6] Remember, homeowners do not really need to “mediate” over short sales. They simply need to list the property, find a buyer, and if the price is supported by an independent Broker Price Opinion [“BPO”], the bank will approve it. Wham. Bam. Nothing to “mediate.” – PCQ
