Archive for March 30th, 2012

America’s Problem, in a Nutshell

I recently had a disturbing, eye-opening telephone conversation with an attorney for the plaintiffs.  Below is my attempt to paraphrase part of our conversation (which I initiated in an attempt to discuss the resolution of foreclosure cases on a widespread basis), and to use that conversation to show exactly what’s wrong with America.  Follow along with me.

Stopa:  Most of my clients aren’t trying to just “delay” or “live for free,” but want to find a reasonable business solution as an alternative to foreclosure.  Will your clients give loan modifications or deficiency waivers?

Plaintiff’s atty:  Some of my clients will make business decisions to settle cases.  Many will give deficiency waivers, some will give loan modifications.  The private lenders are more apt to give loan modifications.

Stopa:  What do you mean by “private lender”?

Plaintiff’s atty:  Not a bank.

Stopa:  How can I distinguish, on a global, widespread basis, which banks will give deficiency waivers and which will not?

Plaintiff’s atty:  If Fannie and Freddie aren’t involved, then most of my clients will give deficiency waivers.  But if it’s Fannie or Freddie, then deficiency waivers are rare.  I’ve gotten some, but it’s much more difficult.

Wow.  Isn’t that wonderful, folks?  Fannie Mae and Freddie Mac won’t give loan modifications, and they won’t give deficiency waivers, either.

Bear in mind, of course, that Fannie and Freddie are government-sponsored enterprises.  The purpose of their existence, according to Fannie’s own website, is to “serve American families and the housing market.”  Yet it’s these government entities which simply refuse to negotiate with homeowners.

When I lamented this to the attorney with whom I was speaking, his response was “they can’t waive deficiencies when it’s taxpayer money.”  Riiight.  But it’s okay to insist on collecting deficiencies from those very taxpayers?  And to pay bank lawyers to pursue those deficiencies when most of those homeowners aren’t collectible anyway?

Whose objectives are being served here, exactly?  If the point of Fannie is to “serve American families and the housing market,” how, exactly does refusing to negotiate on deficiencies and refusing to give loan modifications accomplish that goal?

When homeowners can’t get a loan modification and can’t get a deficiency waiver, they have no choice but to keep fighting their foreclosure case with an attorney like myself, file bankruptcy, or both.  Instead of criticizing foreclosure defense attorneys or those homeowners trying to survive, why isn’t anyone attacking the root of the problem?  To wit, it’s absolutely appalling to me that we’re in an election year and nobody is talking about how the U.S. Government is incentivizing foreclosures on a massive, widespread basis.  Don’t bother trying to learn about this on the news – our media isn’t talking about this.  Nobody is.

Sometimes, I think the government is just as much to blame as the banks themselves.  Between the over-involvement of Fannie and Freddie, and the government insuring so many mortgages that all the banks want to do is get a final judgment and then submit an insurance claim (for the value of that judgment less the appraised value of the house) to the government, it’s no wonder the economy can’t right itself.

If you think that sounds nuts, go look at the foreclosure auction sales.  Follow the money.  The constant, pervasive theme when you watch these sales is that the plaintiffs routinely bid up to their judgment amount, even when that is far in excess of the property’s current value.  Why, you ask?  Why would plaintiffs bid far more than the properties are worth (instead of allowing a third-party to pay and take title)?  Remember, if a bank takes title at the sale, it has to pay for maintenance, property taxes, and, when it sells, a real estate commission.  Why do all of that rather than let a third-party pay at the foreclosure sale?  I’m convinced it’s because banks want to take title, get an artificially low appraisal, then submit an insurance claim to FHA for the difference between the judgment amount and the low appraisal amount.  Remember, our government has federally insured most of these mortgages, so why wouldn’t a bank do that?  Foreclose, get a judgment, and get paid in full by the U.S. Government.

This is the problem, folks.  There was no downside for these banks when they gave out these loans during the real estate boom.  If the borrower pays the loan, the bank collects interest on a performing note.  If the borrower doesn’t pay, then the U.S. government pays back the bank, in full (to include default interest at 18% and all of the other bogus charges the banks build into a foreclosure judgment).  The system is so perverse, with such obvious incentives to foreclose, is it that surprising to see the banks do what they do?  It’s like asking who is more to blame, the 23-year old who won’t get a job and is living with his parents and always high on drugs, or the parents who keep giving him the money to buy those drugs?

The banks may be on drugs, but “our” government keeps giving them the money for the drugs, hand over fist.

Mark Stopa

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