“Greed is good.” Gordon Gecko, Wall Street, 1987.
I suppose some would say it is unfair to paint all Big Banks with the same HSBC brush, now that it’s openly admitted to money laundering for terrorist organizations and drug cartels. Well, too bad; I can’t resist. They just have too many things in common:
Following a rough and tumble year in the banking industry, Belial Bank’s feckless fearless leader, B.L. Zebub, believes it is high time to bring some levity and loyalty to the lowly troops who have been tirelessly foreclosing all the Beleaguered Borrowers they may have missed the first and second time around. Mostly, however, B.L. is concerned about the reputational damage his bank has suffered this year. Once known as the largest bank in America as measured by hubris, it is at risk of losing this mantle of distinction. On the Chinese calendar, 2012 has been Belial Bank’s Year of the Rat.
B.L. is hoping against hope to instill a sense of pride among the rank and file; he knows that his company’s promise to the feds to install a “single point of contact” [or “SPOC”] for every borrower seeking help, has become a sham. Problem is, after a couple of weeks on the job, the SPOCs either quit, get fired, or leave to take more respectable jobs in the collection and repo industries. And then there was the public relations nightmare Belial Bank suffered after it was disclosed to the press that the top brass were giving prizes to supervisors who could run up the highest number of SPOCs for a single borrower in the shortest amount of time. Last week’s big winner, Art O. DeLay, won a hundred crisp dollar bills and the afternoon off to visit The Devil’s Den Gentlemen’s Club, conveniently located just down the street from Belial’s headquarters. [Cover charge waived.] Continue reading “Belial Bank’s 2012 Holiday Planning Meeting”
OK, I admit it! I am suffering from chronic MERS fatigue. Every few days, in some part of the country, MERS gets sued by someone. Sometimes it involves a pending foreclosure; other times it involves some state or county suing to recover lost recording fees. And the beat goes on. MERS apologists, aka the Big Banks and their toadies attorneys, appear before one judge or another with arguments so specious as to make intellectually honest lawyers grimace and intellectually dishonest lawyers grin. – PCQ
On Thursday evening, November 15, we learned through the Oregonian, that the Multnomah County Commissioners unanimously authorized the filing of a lawsuit against Mortgage Electronic Registry System, also known as “MERS,” which describes itself as follows: Continue reading “MERS Fatigue”
“Some borrowers default because they no longer possess the ability to repay their mortgage loans. However, there is a group of borrowers who may continue to possess the ability to repay but who elect to default for strategic reasons. These borrowers are commonly referred to as “strategic defaulters.” For purposes of this report, strategic defaulters have the financial means to make their monthly mortgage payments, but choose not to and walk away from their contractual commitments to pay.” FHFA’s Oversight of the Enterprises’ Efforts to Recover Losses from Foreclosure Sales – FHFA Office of Inspector General [Audit Report October 17, 2012]
The online website, DSNews,[1] recently posted an article announcing that “According to a recent survey that polled 1,026 U.S. adults, 32 percent stated they believe homeowners should be able to strategically default without facing consequences.” The survey was conducted by JZ Analytics, pollster John Zogby’s company. According to the article, Mr. Zogby personally found the results “alarming.” “What jumped out is how many Americans feel it is acceptable for homeowners to walk away from a mortgage and go into foreclosure. If Americans carry on with that mindset, it will continue to cause problems as the economy undergoes a slow recovery.”
What I found “alarming,” and what jumped out at me, was that Mr. Zogby, who supposedly has his finger on the pulse of America, would be surprised at all. So, in an effort to learn more about this senior analyst at JZ Analytics, I dug into the deepest recesses of the Internet, and the best I could determine was that he apparently has been on Mars for the last five years looking for signs of intelligent life that he could give polling surveys to. Given this professional hiatus, perhaps Mr. Zogby can be forgiven for his incredibly lunk-headed reaction to an incredibly complicated issue.
Unfortunately, we’ll never know the exact questions that were used in the polling or the demographics of the persons polled. I’m guessing Mr. Zogby gave the poll out along with party favors at a liquor-infused retreat for lending industry big shots at some Bahamian luxury resort.
But never mind ignorant polls, polling, and pollsters. The term “strategic default” is a pejorative term cooked up by Fannie, Freddie, and the lending and servicing industries to stigmatize the banks’ former clients as irresponsible deadbeats. [“Don’t bother using your own money for a downpayment; we’ll just piggyback another loan on top of your first one, so you can use the bank’s money to finance 100% of your home purchase – it’s virtually free, and you can refinance over and over again, and never have to pay it off!”] Technically, the term “strategic default,” includes an implicit assumption that the borrower can “afford” to make their loan payments, but consciously chooses not to do so.
But let’s look at the real picture:
But wait, there’s more! Mr. Zogby’s above quote seems to equate not paying one’s mortgage with “going into foreclosure.” In fact, foreclosure does not necessarily follow from the act of not paying one’s mortgage. Many, many, folks are fully prepared to try to short sell their homes rather than being foreclosed.
This option presents several advantages for both lender and borrower: (a) A short sale is a much faster disposition option than any other pre-foreclosure alternative; (b) Certainly, it is much faster than waiting around to be foreclosed, which today occurs in fits and starts, as the Big Banks continue to be entangled in fiascos of their own making, such as MERS, robo-signing, borrower litigation, and a variety of other public relation embarrassments ; (c) A short sale is generally regarded by borrowers as having less of a stigma than being foreclosed; (d) Banks prefer the short sale process because that moves the property into the marketplace, where the carrying cost of taxes, insurance, and maintenance are shifted to new buyers. (d) Short sales are preferable to the banks over deeds-in-lieu-of-foreclosure, since, again, a short sale shifts the carrying costs to new buyers.
Not to be outdone in the Nuts and Dolts Department, Mr. Zogby’s effort at insightful comment to DSNews demonstrates a complete lack of understanding about today’s financial crisis. After climbing out on a shaky limb, he proceeds to saw it off thusly: “If Americans carry on with that [strategic default] mindset, it will continue to cause problems as the economy undergoes a slow recovery.”
Wrong, again, Boy Wonder. Today, our “slow recovery” isn’t the result of borrowers not paying their mortgages. In fact, if there were more folks who – for whatever good faith reason – chose to stop paying the mortgage on their underwater homes, they would get queued up faster for some form of pre-foreclosure disposition, such as a short sale or deed-in-lieu.
[BTW, I will accept almost any reason as a “good faith” reason. Remember, the bargain the banks cut with their borrowers and vice versa – which was memorialized in the promissory note and trust deed or mortgage – was that “If you don’t repay the loan, we get to take the home back and resell it to somebody else.” Also, remember that back in circa 2005 – 2007, both borrower and lender believed that skyrocketing property values eliminated any risk of payment default and foreclosure. At the time, no one, not even Alan Greenspan, saw what was to come from the “frothy” real estate market and essentially “free credit.” In other words, the assumption by all was that even if a borrower defaulted and was unable to refinance, the lender would get a property back that was worth more than when the loan was first made. To put a finer point on this Grand Bargain is to perhaps explain what it was not. It was not an agreement that borrowers must pay on a loan even if it no longer made any economic sense; it was not that repayment was “required” even if doing so was to the financial detriment, and possible fiscal ruin, of the borrower and his/ her family and future.
Rather, the deal between borrower and bank has always been clearly provided in the loan documents: “You pay off the loan and we will remove our lien from your property; You default and we get to take your property and resell it to satisfy your debt to us.” Nowhere in the loan documents is “strategic default” – whatever that is, addressed. – PCQ]
For Mr. Zogby and others who believe their expertise in one field qualifies them to make foolish statements in unrelated fields, the reason this country has undergone a “slow recovery” is thanks to our cracker jack government leaders who gave us HFA, HAMP, HARP [1.0 and 2.0], HAFA, First Time Buyer Incentives, and on and on, ad nauseum. The theory was to create the illusion that the Administration was actually doing something to help homeowners by throwing money at the problems, regardless of whether they worked. [This is discussed more fully here. – PCQ] But what the government didn’t do is FORCE – politically or otherwise – the Big Banks, who caused this crisis in the first place – to recast loans so they would work for homeowners. However, bank and servicer compliance is always voluntary. It’s all carrot, no stick.
The fact is that continental shift moves at light speed compared to loan modifications. The government has willingly permitted the Big Banks to game the system for the last five years. A crowning example of the government’s approach to helping consumers is to create the Dodd-Frank Act, a tome of 2,300 pages of gibberish that did nothing but leave the heaving lifting to the administrative process, where lender lobbyists could wine and dine their favorite political hack in order to emasculate the rulemaking. Today, over two years since enactment, the scorecard stands as follows: 63% of its rulemaking deadlines have already passed and only 29% of the required rulemakings have been finalized. Nice job. Virtually every government solution, including the faux $25 Billion National Mortgage Settlement, has been voluntary for the banks. The White House talks tough, but treats the lending industry more like Johnny Appleseed than John Dillinger. In short, Big Banks are permitted to cherry pick who, what, when, why, where, and which, borrowers they will help. The ones most in need of assistance never receive it. Default – or whatever pejorative one chooses to use, is the last resort.
When you couple the total failure of the government borrower assistance programs with the unemployment numbers, you get the real reason for our slow recovery. Homeowners are held hostage in homes they (a) can either no longer afford, or (b) need to move from for any number of reasons. Distress ensues. Job creation and relocation suffer. Confidence drops. Poll that Mr. Zogby!
Although I am not a fan of moral equivalency, no thoughtful discussion of “Strategic Default” is complete without comparing the plight of Beleaguered Borrowers with the fortunes of Big Bank execs for the last five years. Part Two will explore that topic.
[1] “DS” as in “Default Servicing.”
[2] Refinancing generally requires a 60% loan to value (“LTV”), but with market value appreciation, it was presumed that would occur.
[3] Many had “teaser” rates that were unrealistically low, and then adjusted to much higher rates. Some loans permitted borrowers to pay less than the stated interest rate, which meant that the deferred interest was added back to the principal and would also bear interest. These were the infamous “negatively amortizing” loans or “Neg-Ams.”
“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. Continue reading “SB 1552 – Why Don’t The Big Banks Wanna Play? [Part Two]”
“It’s one thing to be stubborn when relying on well-reasoned principle; it’s quite another to be stubborn relying on no principle.” Anonymous [Sort of.]
An interesting, though not surprising, article recently appeared in The Oregonian, titled: “Lenders not engaging in Oregon foreclosure mediation program.” Before discussing what’s behind the banks’ decision, it is necessary to understand that SB 1552, Oregon’s mandatory mediation law, is essentially focused on the following two groups:
The recent Oregonian article focused largely on folks in category No. 2, since clearly, banks that commence non-judicial foreclosures in Oregon must comply. So, with that preface, herewith are some snippets from the Oregonian article:
Before moving on, let’s look at the actual text of the law. What follows is taken from Section 2(7)(a) of SB 1552, the “at risk” provisions. The references to “grantor” refer to the borrower; the “beneficiary” is the lender or servicer that is foreclosing; the “trustee” is the foreclosure trustee who actually conducts the non-judicial foreclosure process; and the “mediation service provider” is The Collins Center for Public Policy, which has been designated by the Oregon Attorney General to coordinate all mediations arising under SB 1552.
So when the 2012 Oregon Legislature said that when an “at risk” borrower requests mediation, “…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….” [Emphasis mine.] – what did it mean?
As lawyers, we were taught that when certain legislative action is called for, it can be divided into those that are required versus those that are only permissive [or in legal parlance, those that are “precatory”]. For example, words like “shall” and “must” are mandatory. Compliance is compulsory. Words such as “may,” “should,” “can,” etc. are permissive. An example of a permissive statement in a will, might be: “I hope that my son and daughter will keep the house in the family.” It is purely a wish or desire; it is not a requirement. The will does not say that the son and daughter cannot sell the family home; to the contrary – they can do so without violating the terms of their inheritance.
However, as any sixth grader knows when his parents tell him that he “must do his homework before being allowed to play outside with his friends,” there is little room left for negotiation. So it is with the use of mandatory words such as “shall” in the “at risk” provisions of SB 1552. Had the Oregon Legislature intended for banks to have a choice in deciding whether or not to respond to an “at risk” borrower’s request to mediate, it could have easily said so by using permissive rather than mandatory words. By changing a single word, the mandate for how Big Banks are to deal with mediation requests from “at risk” Oregon homeowners would be entirely different. For instance, it could have said:
“Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent may respond to the grantor’s request by notifying the Attorney General and the mediation service provider identified in subsection (2)(b) of this section.”
Clearly, such a simple change was within the power of the drafters of SB 1552. To put a finer point on all this, let’s look at other portions of the “at risk” provisions quoted above:
Clearly, the use of the word “may” in these two instances, is because not all “at risk” borrowers” may want to mediate. And if they choose to mediate, they may not elect to notify the Attorney General. Those that do, can, and those that don’t, need not. These are voluntary choices; not mandatory imperatives.
Voilà! Now we know that the drafters of this legislation understood the difference between “shall” and “may”! They were used differently for a reason. Now was this all that difficult?
Remember, that both the lender and consumer lobbies were at the table when SB 1552 was negotiated. The Big Banks and their high paid lawyers could have pushed back on the choice of “shall” or “may” – but they didn’t. And so, when I hear lawyers, lobbyists and lender lackeys say that the Big Banks need to consult with “legal counsel and other learned people *** to make rational decisions about how to proceed…” I want to gag. Why the handwringing? “Shall” means “shall.” “May” means “may.” It’s not like we’re trying to interpret the First Amendment to the Constitution.
So when the mandatory mediation law says that banks “shall” respond, there is no room to rationally argue that they have a choice of not responding. Ignoring “at risk” Oregon homeowners who want to mediate a foreclosure avoidance solution clearly violates the spirit and intent of the law. And like so many other legal positions taken by Big Banks over the last five years, this too will come back to haunt them. [Continued in Part Two]
[1] This law does not apply to individuals, financial institutions, mortgage bankers, and consumer finance lenders that commenced 250 or fewer foreclosures in the preceding calendar year.
[2] In Big Bank lexicon, the term “good faith” is noticeably absent, so we can expect an argument from the lenders’ lobby and lackeys, as to exactly what that term requires of them.
[3] Note that 1552 only applies to non-judicial foreclosures. Thus, a lender could decide to avoid the mandatory mediation process altogether, and simply file the foreclosure in court, and proceed judicially.
[4] Lest someone say that this was a bonehead mistake, I think not. Legislative negotiations on such a volatile issue can result in an impasse, where the consumer lobby must say to itself, better to have the provision included, even without a built-in enforcement mechanism, than to have nothing at all. I agree. The fact that mandatory mediation is in the law at all, is a minor miracle. I’m comfortable with leaving it up to a judge to determine if it’s OK for the Big Banks to thumb their noses at Oregon’s distressed homeowners. So far, the courts have been lining up pretty consistently behind the Little Guy – Niday being the most recent example.
[5] Jim Markee, a lobbyist representing the Oregon Mortgage Lenders Association.
Federal Reserve: “Bank Secrecy Act and Money Laundering – Money Laundering involves transactions intended to disguise the true source of funds; disguise the ultimate disposition of the funds; eliminate any audit trail and make it appear as though the funds came through legitimate sources; and evade income taxes. Money laundering erodes the integrity of a nation’s financial system by reducing tax revenues through underground economies, restricting fair competition with legitimate businesses, and disrupting economic development. Ultimately, laundered money flows into global financial systems where it could undermine national economies and currencies. Thus, money laundering is not only a law enforcement problem, but poses a serious national and international security threat as well.”
Financial Crimes Enforcement Network, Treasury Department: “The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and other purposes, some of which include:
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In a highly competitive race to the bottom of the Big Banking Cesspool, British banking behemoth, Standard Chartered, has managed to push HSBC off of the “Money Laundering” section of the major financial papers. Continue reading “Big Bank Money Clients: Drug Dealers and Terrorists?”
An interesting article appeared in the July 23, 2012 online American Banker, entitled “Banks Employ Artificial Intelligence to Deepen Understanding of Customers.” The gist of this well-written and comprehensive article was that the Big Banks are now using sophisticated data mining of social media and other high-tech tools to gauge consumer sentiment.
My reaction? On a going forward basis, e.g. to evaluate various business decisions – perhaps whether to institute a $5 debit card fee [did this analysis occur to B of A last year? ~ PCQ] – it may make some sense. But the real problem isn’t gauging consumer sentiment as much as it is fixing consumer sentiment.
As I have said before, the reputations of Big Banks is at “Manson-level lows.” Big Banks, not regional or community banks or credit unions, have developed for themselves reputations that can evoke a visceral response. The feelings are deep and long lasting. For every one person affected by Bad Big Bank Conduct, another dozen folks have heard it and experienced it vicariously. Artificial intelligence, [is that really the best choice of words?] may be helpful on peripheral issues or forecasting public reaction to future business decisions, but it is woefully inadequate in dealing with the systemic reputational fallout plaguing Big Banks today – i.e. the perception that they have no soul; no principles; no moral compass. They are institutional zombies.
In the Japanese culture, executive leadership would publicly apologize for the havoc wreaked on the public for the financial crisis. Then they would step down. In the U.S., the Big Banks just pay bundles of money to clueless and intimidated regulatory agencies [whose employees hope to work at a Big Bank someday], admit no wrongdoing, and go on doing essentially the same as before, only slightly older and wiser. The American Public views Big Banks as above the law – and why not? That appears to be the case. A good example is the recent capitulation by the Justice Department in cutting Goldman Sachs loose on all sorts of federal criminal charges in the Abacus scandal.[1]
The answer to the problem of public perception isn’t data mining and nuanced social media searches. Nor it is making huge charitable donations done solely for the PR benefit. Rather, the industry needs to put a human face on their banks; the CEOs need to publicly admit the failures of the past; apologize [generically, of course, to avoid the class action attorneys] and commit to doing the right thing – then do so!
[1] Abacus was the name of the junk investment Goldman sold its customers, while at the same time, disparaging it internally and betting against its success. Guess who made out like a bandit on that one? Goldman, don’tcha know? They were compensated when their investors bought it, and they were compensated again when the investments failed. Goldman neglected to disclose to their Abacus investors that the hand-picked junk was selected by another client, John Paulson, who was making a $1B bet against that investment. It was a sort of “reverse cherry-picking” selection process. Abacus was doomed to fail and Goldman, who created it, got paid on both sides of the transaction. Senator Carl Levin, Chairman of the Senate Committee investigating the financial crisis [perhaps the best resourced and comprehensive governmental report to date – PCQ], called Goldman’s actions “deceptive and immoral.”
[Door Slamming]
Her: “Honey, is that you? It’s awfully early for you to come home. Are you ill?”
Him: “Yeh, I know it’s early. I’m OK. I just didn’t feel like working anymore.”
Her: “What’s wrong? Don’t you enjoy your work kicking people out of their homes anymore? I thought you loved having Big Bank clients who specialized in that sort of thing.”
Him: “That was then, this is now. After a couple of years of writs of executions and evictions, the thrill is gone. I’m tired of watching U-Haul trailers getting packed up and children on the sidewalks crying. I never thought I’d say it, but maybe I’m starting to grow a conscience – hard as that sounds. Whatever it is, I’m beginning to wonder if I’m playing for the wrong team. I’m noticing how people kinda shy away from me at the cocktail parties now. Like I’m some kind of monster. I remember early on when we had our soirees, I was the life of the party, regaling everyone with stories of my latest foreclosure, and how I kept postponing the auction sales letting the beleaguered borrower think they were actually going to get a loan mod, and then at the last minute, when they were on the 99-yard line, I’d drop the hammer and foreclose ‘em. I had people rolling on the floor laughing. Now no one wants to hear about this anymore. I feel like the lonely Maytag Repairman.” Continue reading “A Curious Day At The Foreclosure Mill….”
In Parts One and Two I addressed the favored status of the ratings agencies in affecting all manner of financial instruments and investment decisions. But now, as an outgrowth of Dodd-Frank, the agencies’ impact appears to be on the wane. The new OCC regulations are figuratively airbrushing the ratings agencies out of the financial landscape. My third post on the agencies addresses the final insult, as the private sector snubs them.
The shenanigans that Moody’s and Standard and Poor’s pulled in the two years leading up to their massive ratings downgrades of 3Q 2007, have come home to roost. At the same time that Dodd-Frank has smacked them down, it appears Wall Street is also now beginning to ignore them. [In fact, one might wonder if legislative comeuppance was even necessary, inasmuch as the agencies are now receiving less and less attention from the very industry upon which their existence relies. In short, it appears that we are witnessing a sort of Darwinian result, akin to what happened to the dinosaurs, who simply got too big for their own good. – PCQ] Continue reading “Ratings Agencies Get Their Comeuppance – They’ve Been Downgraded! [Part Three]”
