Thursday, April 03, 2008

Has the mortgage crisis shaken your confidence in the financial acumen of the folks running the banks? Well, maybe this will restore your faith. They may be hurting, but they haven't panicked. Instead, under pressure, with cool heads and eagle eyes, they've found a way to economize:

In some cities that have low property values, where there are dense concentrations of foreclosures, you see lenders who file foreclosure proceedings but don't actually take control of the properties, because the lenders have to maintain them and pay taxes on them.

Now, there are a few questions that bear asking about this novel economy measure. Like, if the bank hasn't taken title to the house, why do the impecunious former owners have to leave? Well, consider everyone else who's involved. There's a slow economy, and people need jobs:

... a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These little-known firms assess legal fees and a host of other charges, calculate what the borrowers owe and draw up the documents required to remove them from their homes. ...

Court documents say that some of the largest firms in the industry have repeatedly submitted erroneous affidavits when moving to seize homes and levied improper fees that make it harder for homeowners to get back on track with payments. Consumer lawyers call these operations “foreclosure mills.”

Consider it part of the stimulus program.

For what it's worth, I have yet to find a better answer to that legal conundrum in this comment thread on the story, from Barry Ritholtz's blog, though more than one person has asked. But you will find all sorts of other amusements. Like a mortgage broker explaining why he's blameless for any bad loans that he issued. The government made him do it!

As someone who has worked in the mortgage industry, I believe that it is patently unfair to say that lenders should be held responsible for foreclosures. Government programs made it possible for large amounts of people previously afford it to buy homes. The government did everything in their power to encourage this type of lending. As a result, many people who were deserving were suddenly able to buy a home. An unfortunate side affect [sic] of this is that many other undeserving people took advantage of the generous terms of the government's offer. I can testify from personal experience that it is impossible to tell if a person will pay or not. You can look at their credit scores or listen to what they say, but in the end all you have is a very fleeting impression of how that person behaves when they are over their head and terrified.I have no doubt that this is not the reason every one of these homes has been foreclosed on. There are many unscrupulous lenders. However there are at least as many legitimate lenders who try their best to make good loans. Holding these peoples defaults against them only reduces the responsibility of the many many people who took advantage of the system. Also most mortgage companies levy penalties on lenders for every mortgage they make that defaults.
It's true. The government made lenders stop redlining. And this guy's not the only one saying that that's why they stopped doing credit checks as well. Mind you, the government wasn't telling them to stop doing credit checks. But there were things they could do, and things they couldn't do anymore and it all got just so confusing.

So confusing that they didn't even wonder: if you know the prospective buyer's likely to wind up "over their head and terrified", maybe the ethical thing is to just tell them the whole thing's a bad idea, and not give them a loan.

Poor fellows.

More: Again via Ritholtz, some banks are doing the sensible thing, and just not foreclosing on properties that they couldn't sell right now anyway. It's the right thing to do, but nevertheless, it does have the consequence that even the current skyrocketing foreclosure rates are understating just how bad housing really is right now...


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