Who Are the Bad Guys?

Sign Of The Times - Foreclosure Courtesy of ResPres

Foreclosures Aren’t New

REO properties have been part of the real estate landscape for many, many years. Foreclosure loomed large in melodramas in the late 18th and early 19th centuries. Typically a rascal with a handle bar mustache offered to postpone the seizure of the family homestead in exchange for the the virtue of the heroine  ( Wow- talk about loan workouts and modification!). But melodrama aside, most people were not involved in the drama of foreclosure and bank owned real estate.

Even so, these properties have been a part of the real estate landscape for many years, peaking in times of economic distress, and diminishing in times of economic plenty. From the REO inventory created by economic issues in the COLT states(Colorado, Oklahoma, Louisiana and Texas) in the early 90’s to the disposition of the S&L debacle’s real property through the RTC, to the very limited REO inventory of the last real estate boom, foreclosed properties have been with us consistently.

The Four Horsemen

In most cases, during normal markets, it seemed that the loss of most properties were due in a large part to four causes, Death (or illness), Drugs (or Alcohol), Divorce, or Disenfranchisement (actually this should be unemployment- or business failure, but I really wanted to be alliterative here).

While it was possible to be sympathetic to the borrowers who were overwhelmed by their personal issues or tragedies, the fact was that the majority of people who faced similar trials were able to continue making payments on their obligations. Therefore we all understood that when you borrowed money for a mortgage you had an obligation to pay that money back. For many years I explained the mortgage obligation with the rhyme, “If you pay you stay, If you don’t you won’t”, and so people who were foreclosed upon were not perceived as victims of the mortgage company, they were people who defaulted on an agreement and paid the consequences.

People lost homes, and they moved on. It wasn’t easy, but most people accepted that if they borrowed money, and did not live up to their obligation, they were going to lose the property that they pledged as security. In some cases, they rented, on others they moved in with friends or family, but they moved forward and tried to address their problems. In some instances they ended up buying a home a few years later.

Now the Rules Have Changed

Recently, I noticed a spate of news stories about people who were picketing the homes of mortgage company employees and executives. The “protests” were arranged by the Neighborhood Assistance Corporation of America (NACA) , who, according to their web site are a “a non-profit community advocacy and home ownership membership organization”.

NACA has created what they call an accountability campaign. Their web site explains it this way.

Executives of financial institutions have amassed huge fortunes on the backs of hardworking American families. While living in their many luxurious homes, they have refused to restructure mortgages that would allow families to stay in their homes. We need to make them accountable for their actions. Join the fight.

While NACA has agreements with many lenders to make your mortgage affordable, the below executives refused. Click on the lender/servicer below to see how they live and how to contact them directly.

As a result of this accountability campaign, Industry executives and employees of the non-cooperative lenders have had people protesting in front of their homes and their privacy violated. OK, I get it. The people who borrowed the money are not wealthy and the people who are executives of large companies make large salaries and live well. And I understand the anger and frustration of the people who are caught in this massive economic turmoil, and are trying to take what they perceive to be active steps to remediate their problem. But isn’t this , in at least some of the cases, misdirected anger or inappropriate behavior?

Is the Lender Automatically the Bad Guy?

Who is to say the the President or Vice President of the company was in fact aware of or responsible for (except in the most general manner) possibly predatory actions by a loan officer hundreds or thousands of miles from their office, and light years away from direct communication with these individuals? Does the economic plight of the borrower mean that this person’s family should be traumatized by such aggressive actions, and that their homes should be inundated by this course of action? Couldn’t the same effect be achieved by protests at the company’s offices or some other venue?

I know that the former mortgagor is the more sympathetic figure in the foreclosure, but does that mean that all of the individuals that worked in the mortgage industry during the boom are directly and solely responsible for the current situation? At some point the consumer took money from a lender and used it for their own perceived best interest. Shouldn’t they have some accountability?

I watched a television show recently which featured a story about a distressed homeowner. The woman was an elderly woman who had refinanced her home four times in four years. Each time she had taken $20,000 in equity out of her house. The story cast the loan officer as unscrupulous, and talked about improprieties in the loan process, like using her husband’s income for the loans after her husband’s death.

This poor older woman, obviously unsophisticated, looked and talked like a victim. As as she talked with the newswoman about losing her house, and the need for her to be helped, I didn’t hear her say that she would return the $80,000 in equity she had taken.  Though anyone would feel sorry for this little old lady, it did make me wonder what happened to that $80,000?  Was it spent? What did she use it for? Why shouldn’t she have to pay it? Could she really have been that unaware that she would need to make payments when she borrowed the money?

I Don’t Have Any Answers – Only Questions

I struggle with the whole issue of relief for defaulting borrowers.

I am completely sympathetic to their plight, and understand how anyone in that situation can want to seek relief. I am sure there are a percentage of people who borrowed money who anticipated appreciation that didn’t occur, pay increases that didn’t happen, others who lost their jobs in this recession, or did not fully understand the terms of the loan they took. Obviously people who borrowed more than the current value of their home need to have some incentive for remaining in the property, and paying that loan balance off. But all of that having been said, do you think borrowers should bear some responsibility for the repayment of the loan?

What do you think about these foreclosure situations? What about people that are making their payments? Aren’t they being penalized when these guys get a break? Should they be given some assistance? Is there a way to reward them for doing the right thing? Now is the time for your input. You have the questions – Do you have any answers?