The latest scandal to hit the real estate industry (foreclosure robo-signing) has really gotten me fed up. Is it wrong? Yes. Is it being investigated? Yes. We know they’re wrong, and they SHOULD be taken to task over it, but this problem is not a matter of whether banks should or shouldn’t be foreclosing on these homes, it’s a problem of paperwork being improperly reviewed.
The average home buyer spends less than 5 minutes reviewing their loan docs when they buy a home, and as it turns out the banks care about reviewing documents as much as the buyer does. I have a hard time finding anyone to be sympathetic towards in this mess. The homeowner has stopped paying the mortgage, and the banks want to recover their non-performing investment. At it’s core, the issue is simple: If you want to stay, you gotta pay.
It takes an average of 1.5 YEARS to be foreclosed on in Maryland. Even after the foreclosure, the former owner can stick it out in the house for an additional 3-4 months before the bank can finally get their confirmation complete and an eviction order through the courts. That’s nearly 2 YEARS of residency without a single mortgage or rent payment.
I think it’s important to remember that nobody would be in the situation if they paid their mortgage on time. I know that people feel cheated by the banks thanks to complicated loans and falling home values, and I don’t blame anyone who decides to walk away rather than continue paying, but it’s a damn shame that the same people who couldn’t be bothered to READ their loan docs now complain about banks not reviewing their documents either.
Everyone is getting cheated here, folks, and it’s a vicious cycle. Banks built exotic loans, buyers failed to pay attention, people lost control of their finances, banks started foreclosing, property values dropped, more people got trapped, banks foreclosed more, people started walking away, prices dropped further, banks foreclosed more, and now people blame banks for improperly foreclosing on people that AREN’T paying their mortgage. Don’t think for a moment that the banks are the only culprit, they’re just the easiest to blame.
(image courtesy of arriba via Flickr CC)
Brandie Young
November 2, 2010 at 5:49 pm
Thanks, Jonathan.
I’m right there with you. There’s an entire chain of blame here, and homebuyers need to own their fair share.
i could go on … but my soapbox is in the other room 🙂
Have a great day.
Brandie
Sheila Rasak
November 2, 2010 at 6:59 pm
Look, great blog and I mostly agree with you. However, you did leave out a vital point by almost indicating that your average homeowner has a choice on whether or not to pay their mortgage obligations and they simply decided not to pay. This is a bit misleading and I’m pretty sure it wasn’t your intent. I have true hardship cases where the homeowner CAN’T pay the mortgage. We are currently at 12.4% unemployed as a nation…not to mention any accounting for the underemployed. What about the hardship cases involving health, death of a family member, or relocation for a job opportunity?
Do I feel sorry for the mess the banks are in? You bet. Do I feel bad that the nation’s homeowners are suffering losses as well? 100% yes. These homeowners were capable of doing the math and if it felt too good to be true it probably was. There was a huge dog and pony show going on for way too many years suckering in many buyers who never anticipated a job loss, reduction of income, or death of a family member.
I can only say that the only reasonable way through this mess is to keep putting one foot in front of the other, stop the blame and shame game and move on by foreclosing where necessary and short sales on homes to help preserve the dignity and (some) credit for the borrower.
Jonathan Benya
November 2, 2010 at 7:16 pm
You’re very right, allow me a chance to clarify. Yes, there are plenty of people who are losing their homes because they lost their job, I get that. Strategic defaults account for roughly 18% of all foreclosures, nationwide, although that figure is higher in my home state.
I would be hesitant to try and factor health/death/relocation defaults simply because I’m not sure that is really a big influence here unless there has been a sudden decline in the general health or mortality rates in America. People get sick, die, etc. and get foreclosed on because of it. That’s happened for decades, and the exploding volume of foreclosures has nothing to do with those reasons.
It’s easy for us to play armchair quarterback, but vilifying the banks because they’re making not reading documents properly is not the proper solution. We need to accept that these people are in a bad way, work through the foreclosures, and recover our economy. We don’t recover by giving people an even longer free ride. Harsh, I know, but nobody is a saint in this mess.
I view people going to foreclosure as main street’s version of the bailout. The banks got the money, at least those getting foreclosed on have some financial relief for a couple years until the bank repossesses the house. I don’t blame people who stop paying their mortgage for being bad people, It’s your right to choose not to pay, just be prepared for the consequences.
I do think it’s unfortunate that banks put themselves in such a position that homes they should be foreclosing on are continuing to rest in limbo because the lawyers signing affidavits couldn’t put on a pair of big boy pants and do their damn job (pardon my french).
Mark Brian
November 4, 2010 at 11:06 am
It is a terrible mess we have in housing with the foreclosures, robo signer, etc etc. Isn’t human nature to want to blame others or find excuses for our behavior? I enjoy having the banks to blame, but totally understand that the blame should be shared by many. It is a complicated situation, and a sad or frustrating one also.
Melissa Zavala
November 4, 2010 at 8:42 pm
Jonathan: While it doesn’t always take two years in California, your point is well taken. Blame it on the banks; blame it on the economy or blame it on our government. What ever happened to taking responsibility for your actions?
White Bear Lake Homes
November 4, 2010 at 11:33 pm
One statement that Jonathan said above resonates with me the most, that is, “think it’s important to remember that nobody would be in the situation if they paid their mortgage on time.” I couldn’t agree more strongly! It is amazing how, in the last 3 years, that it has become acceptable to walk away from your financial responsibilities. Some try to disguise their guilt by saying, “Oh, we’ve decided to give our house back to the bank.” What?! “Give” our house “back” to the bank? When did the bank ever own your house? The bank is only a lien holder on the title…not the owner on the title! In any event, we are caught in a vicious cycle that will simply take time to smooth out.
Michael LaPeter
November 5, 2010 at 2:08 pm
Personally, I think the majority of the mess was caused by a combination of banks and investment banks doing sloppy work. Banks were purposefully lax in approving borrowers, because they were making a large profit. Investment banks and ratings companies were purposefully lax in packaging the loans into investments because they were making a large profit. They knew what they were doing, and the people at the top made a lot of money.
I don’t think they should be made the only punching bag, (homeowners have a responsibility too), but I think just saying everyone is to blame is not accurate enough to prevent this from happening again in the future. At some point, there needs to be a day of reckoning (or at least a little housekeeping) within the financial industry, or we’ll continue to have problems.
Jonathan Benya
November 5, 2010 at 2:16 pm
You could go a step further with that line of thought, methinks. Did the banks wake up one day and say “hey, let’s start lending to people with bad credit”, or did Government deregulation and encouragement from the feds push banks to make less than prime loans?
You’re right, there needs to be some serious housekeeping in the mortgage industry. If this market has taught us anything, it’s just how gullible people (at large) can really be when it comes to finanaces. I think everyone got bamboozled here. Banks, the Government, homeowners, you name it.