One of the largest problems with the big banks’ “systems” for evaluating mortgage loans for modification is the sheer volume of loans to be reviewed. No, I’m not buying in to their nonsense spin that they’re doing the best they can; it’s just that the silly homeowners won’t cooperate by sending the proper paperwork.
And I certainly haven’t changed my mind about all the delaying tactics being an intentional strategy to either drive people away without a mod or drive people deeper into debt so that a mod becomes impossible. Those are deliberate systems put into place by the big banks to manipulate the intent of modification programs like HAMP and to scam their customers.
But, even if the banks were honestly trying to help borrowers retain their homes, there are two big roadblocks.
First, the vast majority of homeowners aren’t really the big banks’ borrowers. Most of those mortgage loans originated by Wells Fargo, Chase, Bank of America and their cronies weren’t retained by the institutions that wrote the loans.
If you bought your home during the frenzy of the recent real-estate bubble, your loan was most likely bundled into a mortgage-backed security and sold on before the ink was dry on your purchase agreement. The riskier the loan (those creatively structured sub-prime loans), the quicker it was securitized.
If you bought your home before the real-estate bubble and weren’t a sub-prime borrower, your loan was sold on, as well. That’s because, at least in the early days of securitization when there were still regulations and standards in place, each bundle of loans had to include a certain percentage of high-quality “performing” loans along with the riskier junk loans.
So, suddenly, the company that once bore the risk for the performance of your loan was no longer in that position, no longer had a stake in ensuring you could pay off the loan. Instead, the big banks became loan servicers, which means they make more money (in the form of fees charged to the investor) when something goes wrong with the loan than when you’re just going along making your payment every month. That means foreclosure is more profitable to them than restructuring your loan so you can keep paying.
How ridiculous is that? Talk about a business plan that is not sustainable. It’s all about making those record profits and obscene bonuses in the short term, no matter the long-term cost to the economy or the bank itself.
The second problem keeping the big banks from properly reviewing mortgage holders for loan restructuring is sheer volume. More than 2.5 million home loans have gone into foreclosure in the past two years. That’s a lot of paperwork, even if the banks weren’t playing the “we didn’t get your documents; send them again” game.
What that means is that whether your mortgage qualifies for a modification isn’t decided based on the judgement of an experienced mortgage loan professional. Whether or not you qualify depends on how a bank employee (or contractor) interprets those income and expense numbers you send over and over and which figures he or she decides to input into a computer program that decides whether you qualify.
For the most part these people parsing your financials don’t have much experience or training. And they are highly incentivized by the banks to find ways to ensure you don’t qualify. But even if they were experienced, honest people trying to actually help homeowners avoid foreclosure, the system is doomed to failure. When computers instead of human beings decide the fate of mortgage-holders, of course the numbers of foreclosures will grow.
Again, the sheer size of the big banks sets up a lender/borrower relationship that benefits neither party in the long run – another unsustainable business model.
The real problem here is that the banks have become too big to provide the services they were created to provide. It’s not “too big to fail.” It’s truly “too big to succeed.” Banks with no connection to their customers, writing loans they don’t intend to own long-term, is a recipe for financial disaster. Add on the billions they made bundling all kinds of questionably created mortgages into big-dollar securities and the billions they derive from their loan-servicing subsidiaries and you can see that the big loser here is the consumer, the person the bank is supposed to be serving.
Runaway greed, short-term thinking and the impersonalization of banking services have brought down the largest economy in the world. The big banks have made themselves too big to sustain, too big to do the job they were created to do.
So what can you do about this? It’s actually pretty simple. Stop doing business with a bank to whom you are just a number. Move your money to a local/regional bank or credit union and start establishing a relationship with the people who handle your financial affairs. When it’s time to finance a house loan, a car loan or any other loan, you’ll be working with an institution that is going to own that loan for the duration and that won’t.
A banker with whom a customer has done business over the years can take into consideration the borrower’s full financial picture. Has the person been a loyal customer for many years, always managed his or her finances responsibly, paid off other debts fully and in a timely manner? Is the current hardship a temporary situation caused by circumstances beyond the borrower’s control? If the answer to those questions is “yes,” an experienced financial-services professional is likely to see that customer as a good risk and work to restructure a loan to the long-term benefit of all parties.
On the other hand, if the customer has a history of overdrafts, late payments and general poor financial management, perhaps that person doesn’t get a loan in the first place. Disappointing for the customer, but surely a much more responsible way to do business. A sustainable way to do business. A bank serving its customers the way banks are supposed to.
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