I liked this article by RJ Eskow (emphasis added):
“Here’s the complete sentence from the Times article: “Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork …” That’s a point the financial services industry is only too happy to underscore: “We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure,” the article quotes an industry spokesperson as saying.
While the Times journalists did some excellent reporting for this piece, their sentence (above) framed the situation so well – from the financial industry’s point of view, that is – that a quote from the industry itself was almost redundant. Sure, a lot of people “bought more house than they could afford,” and some of them did so irresponsibly. But the financial industry’s all too happy to leave it at that, characterizing all these foreclosures as problems of individual character rather what they really are: a breakdown of process, law, and ethics on a systemic level.
According to the most recent report from Lender Processing Services, Inc., 9.22% of all mortgages in the US are delinquent – and that’s not counting those that are in foreclosure. 8.22% are either in foreclosure or more than 90 days overdue. All told, roughly 11% of all mortgages are either delinquent or in the foreclosure process. That’s a problem with the system, not the product of millions of flawed individual characters.
Here’s the bottom line: More than one in ten mortgages is in bad trouble. What’s more, one in four mortgages is underwater, which means there’s not enough collateral to cover billions of dollars in loans. The generous explanation for the banking industry is that they’re completely incompetent at what they do. A huge chunk of the loans they’ve written are bad. Forgive the language here, but the bank-friendliest explanation for this systemwide breakdown is that bankers suck at what they do.
But the real explanation is that they knew these loans were bad — and wrote them anyway.
Why? Because they intended to make quick and easy money by pumping up housing values, churning loans to customers who they knew couldn’t pay. (The customers didn’t know that, but the banks did.) They thought they could float this crap game forever, riding an ever-growing bubble and tossing the defaulting homeowners away when they couldn’t pay the nut. But the bubble burst and the crap game got shut down.
They were able to walk away from this massive nationwide scam by convincing the country that the only irresponsible parties were people who “bought more house than they could afford.” It worked, too. But now they’ve been caught in widespread fraud — and they want to walk away from that, too. Nobody’s suggesting there weren’t irresponsible buyers out there, too. But so far, the bankers have been able to convince the country that the “moral hazard” was everybody’s but theirs — even though they were running the entire system, and it’s the entire system that’s broken down.
This time, the guilty parties should be made to pay for criminal behavior. And they should be forced to accept some of the financial consequences of their bad behavior by writing down some of the principal on the bad loans they’ve issued and sold.
A loan is a contract, an agreement between two parties. The lender agrees to provide a certain sum of money, which the borrower agrees to repay according to agreed-upon terms and conditions. One of the biggest problems with the foreclosure fraud scandal – and the systems, tricks, and traps that created it – is that it obscures the contractual record between the parties, leaving all the information (and all the power) on one side of the transaction.
Consider the woman whose bank offered to let her skip a monthly payment in return for accidentally changing her locks, and then proceeded to foreclose on her. With shell games like the mortgage industry’s MERS, which obscures the actual trail of ownership and insulates the lender from court proceedings, the bank in question doesn’t even have to show up during the foreclosure process. That means that she’s denied the right to face her trading partner in court. Due process is trampled upon, and so is the right to legally enforce a contract.
People facing foreclosure aren’t just people who lost their jobs or “bought too much house.” They’re people who had a deal with their bank. Then they were hit with late fees, or unilateral changes to their loan terms, or other surprises that caused them to fall into a spiral of debt. Of those who have missed payments, many of them have a legitimate case to make: that the other party broke the contract and that’s why they’ve missed payments. The foreclosure fraud scandal has taken away their right to defend themselves in court.