Posted on 01/21/2011 4:21:56 AM PST by Chunga85
As the foreclosure crisis has escalated over the past several months, one overarching debate has been about who bears the most blame: homeowners or banks?
After everything I've learned and written about the foreclosure mess, my verdict is: The banks are responsible for 90% of the problem, troubled homeowners 10%.
Yes, every foreclosure involves a homeowner not paying his mortgage. But every foreclosure also involves a bank that made the loan. And usually another bank, or several more, that profited from securitizing the loan. And still another bank, or several, that profited from servicing the loan. Together, those banks have done three things that created the massive glut of foreclosures choking America's legal systems and laying waste to its real estate markets:
* They knowingly made millions of loans doomed for foreclosure as soon as the check was written. * They deliberately and/or incompetently failed to modify many salvageable mortgages. * They were so careless with their paperwork and processes that they've undermined the rule of law, clouded the title to untold numbers of properties and complicated the processing of the massive backlog of foreclosures that hurts the economically crucial real estate market.
Let's take a closer look at each factor.
What Happened to Underwriting?
Getting a mortgage isn't supposed to be as easy as getting cash from an ATM. Banks are supposed to make applicants prove they can repay loans before giving them. The process is called underwriting, and it's one of the most basic in banking.
Yet during the housing bubble, banks largely stopped underwriting in any reasonable way. Indeed, if the banks had been underwriting throughout, the bubble could never have inflated so much.
(Excerpt) Read more at dailyfinance.com ...
Did not read the article, but here is my thinking: Banks would not have made the non credit worthy loans without having an artificial outlet for selling them — to Freddie and Fannie.
Further, Freddie and Fannie set underwriting standards that became the ‘standard’ for most all mortgage loans, regardless of who initiated them. Consequently, any analysis is who was at fault is incomplete w/o a full analysis of the implications of government actions, either directly or through the quasi-government agencies, Freddie and Fannie.
* They knowingly made millions of loans doomed for foreclosure as soon as the check was written.
As they were demanded to do by federal law
* They deliberately and/or incompetently failed to modify many salvageable mortgages.
non issue - that responsibility stands with the owner,
Banks are not so required.
* They were so careless with their paperwork and processes that they’ve undermined the rule of law, clouded the title to untold numbers of properties and complicated the processing of the massive backlog of foreclosures that hurts the economically crucial real estate market.
Bingo - there is the salient issue - the rest are smoke.
The whole securitization of mortgages as well as the fact that banks were not required to sit on the loans they wrote had a big part in the housing scam.
I have zero sympathy for the banks in this.
$nip>
The big banks are reporting that profits are up. Citigroup is celebrating a 46% gain in share prices and net income of $1.31 billion. Wells Fargo just reported strong profits.Yet there are many reasons to doubt the good news. As I've said before, it is more likely that they are toast.
First, the income reports result in large part from reductions to loan loss reserves. Yes, banks are partying like it is 1999—everything is hunky-dory so there is no reason to sock away reserves against possible defaults. Heck, no one is going to default in 2011. Right? Move those reserves into the profits column.
Banks are not making any money in traditional lines of business—that is, by making loans. No one wants loans. The economy is down for the count. Other than pulling money out of loan loss reserves, banks can only make profits by revaluing assets. The write-downs of trashy mortgages need to be reversed. Banks trade trash with each other at higher prices, recording profits. They sell trash to the government at inflated prices—more on that below. And they jack up late fees on homeowners, credit card users, and other debtors. Even though none of those borrowers can actually pay the late fees, the banks book the revenue now.
But here is the much bigger problem: the banks are getting sued from here to Pluto by homeowners, soldiers and sailors, Fannie and Freddie, PIMCO, the NYFed, and just about anybody with access to a lawyer. And, increasingly, the banks are losing.
$nip>
Sure all those insolvent “homeowners” created 100 trillion dollar worth of derivatives based on garbage promise to pay.
I believe in Santa as well
Bank would have been much more careful about the loans if they had to keep them in house.
The article also neglects to put any blame on real estate agents and appraisers, both of whom profited.
Show me where in the CRA banks are told to encourage liar loans, make up credit scores, make up income numbers, etc, etc, etc. No bank being sued has used this defense because they will not be able to quote chapter and verse within the CRA that encourages such practices.
Banks basically took advantage of stupid gov regs to make money in the most rapid fashion possible. As the CEO of Bank of America stated - “Banks are not responsible for reporting impending problems, but to figure how to make money from the problem”.
IMHO the fed gov should prosecute the borrower and loan originator for loan fraud, and let both of them sweat and see who will rat the other first.
May they roast in Hell ......
The second issue probably hurt the value of the derivatives — better to have some money coming in, even if less than before, than to be sitting on a hunk of virtually valueless property. So someone still got burned besides the purchaser.
Anyone who received TARP money was part of the problem—and all those institutions should have been torn asunder and closed.
The bankers (and investment bankers) were vile and greedy—but the politicians who took their cash and licked their boots are equally guilty.
Stupid homebuyers were just stupid—time for them to lick their wounds, maybe learn something, move to a new location, and get on their lives as best they can.
Don't forget the Commander-In-Briefs, Billy-Bob Clinton.
How about those homeowners/buyers that failed to read the fine print while placing their initials on every page?
How about those homeowners/buyers who knew they could not afford the homes they were buying yet went on ahead and bought them?
No doubt scam banks and a crap load of libtard politicians share alot of the blame BUT homeowners/buyers should not ever be exempt from having a part to play in the overall “mortgage mess.”
Correct. The only thing missing was Oprah saying your
getting a free house!(for 4 or 5 years)
don’t get it. Banks and financials were forced to make loans to people that would not ordinarily qualify if they wanted to participate in the MBS system managed by Fannie and Freddie. this was the only way they could profit from the govt mandated lending requirements.
I don’t blame banks for doing this. I blame the govt for making risky lending a “cost of doing business”..
Take a look at the NBC/Comcast merger..
Comcast had to accept a laundry list of “civil rights” demands in order to get the Obama admin to allow the merger. They agreed to make up new channels for minorities, and agreed to give away free computers and offer cut-rate services like phone and broadband to democrat constituencies. So basically they chose to give free stuff to the Justice Brothers, LaRaza to grease the wheels. In turn they will hoist the cost of the freebies on the balance of it’s customer base in the form of increased rates and mandated channels.
Another horrible precedent set by the govt that will have unintended consequences down the road.
AKA..."Aid and Abet"?
The CRA baloney is nothing more than a red herring...and a very small one at that.
It will become very interesting watching this unfold...
There's a big helping of crow in the oven warming up for the apologists.
When banks turned into title loan businesses....
I am one of those people who never would have been able to get a mortgage in any market. I am a divorced woman who was left with a financial mess.
My Dad was beside himself with anger when I took a variable rate, 8.4% mortgage from Countrywide. It was explained in detail that I had 4 years at that rate and would need to remortgage.
I was not a deadbeat and I am so thankful for my home. I am retirement age and can remember being laughed at when I was 22 to even think I could get my own home. My salary wasn’t even considered when I was first married and we wanted to buy our first home.
So for me, this was a huge accomplishment. I did remortgage and have a 5.2% rate, which I know I could probably do better. Um and yes, I have a FHA through Bank of America—I can hear all of you groan.
The thing is, the bottom line is individual responsibility. I told that to my Dad in the beginning. I’ve been given this opportunity and now it’s up to me to decide what I want to do with it. On paper, I never should have a loan, on paper I should never do business with these banks. But I get up every morning praising the Lord for my beautiful home. I also am grateful to all those who helped me to get my home. I don’t take it forgranted. I didn’t go over what I could afford at the time and also considered what I could afford when I retired. Again, that was my responsibility.
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