Archive for June 26th, 2012

My Conversation With a Banker

I had a conversation with a banker today, and as I reflect on our conversation, I have an inescapable and overwhelming desire to take a shower.  I’ve never rolled around in a pigpen for an hour, but that’s how I’d imagine it feels … grimy and dirty all over.  It wasn’t all bad, though – I used it as a tool to learn more about the foreclosure process.

The conversation started as I headed to court for a foreclosure trial … except we settled the case on terms my client found acceptable.  As opposing counsel and I sat around finalizing the settlement paperwork, I saw an opportunity to pick this banker’s brain.  Basically, I wanted to understand his motives and thoughts with respect to the foreclosure process.

During the conversation, many of my beliefs about foreclosure were confirmed.  For instance, this banker explained, just as I have believed for some time now, that banks are never going to offer principal reductions or other such settlements on mortgages that are insured by the federal government – what this banker called “GSEs.”  In this banker’s words, banks have “no choice” but to pursue foreclosure on such mortgages, as they have to procure title, transfer title to Fannie or Freddie, and collect full payment on the judgment from the government.  (Alas, banks do have a “choice” – they could accept less, but they’re so greedy that the greater good is never a consideration.  They’re never going to give a homeowner a break or act for the benefit of society when they can foreclose and get the judgment paid in full by the government … “our” government, that is.)

This banker also confirmed my long-standing belief that all of the foreclosure sales we routinely see where the banks bid up to their judgment amount – even when the judgment amount far exceeds the value of the property – is a byproduct of the government insuring these mortgages.  So if you’re not thoroughly disgusted already, take a look at or whatever website conducts the foreclosure sales in your county.  Whenever you see a bank bidding up to its judgment amount – which is what happens the vast majority of the time – that probably means the bank is getting that judgment paid in full by you, me, and “our” government.  It doesn’t matter that a house is worth $100,000 and a third-party investor is willing to pay $105,000 because he really likes that house – the bank is going to bid up to its $175,000 judgment because it wants to get title, convey title to Fannie, and have the government pay the $175,000 judgment in full.

You thought foreclosure sales were to sell properties to the public?  Think again.  It’s “our” government foreclosing on homeowners so banks can get paid in full.

So if you’ve been unable to get a principal reduction, at least now you know why.  Your bank isn’t going to reduce principal on your loan and accept payments over time when it can foreclose and get paid in full by the government.  It’s quite a gig … if you’re a bank.  Foreclose on Americans, then collect tax dollars from those same Americans to get paid in full.  Disgusting, eh?

This banker went on to explain that for those mortgages which are not “GSE,” his bank has more “wiggle room” to negotiate settlements.  Even then, though, his bank won’t offer principal reductions based on “principle,” which is his fancy way of saying they could, but they choose not to.  Ahhh, yes … we can’t have all these “deadbeats” having mortgages that actually reflect what their houses are worth … we have to continue forcing them to pay more than fair market value.

Which foreclosures aren’t “GSE”?  That’s easy – the ones where the banks don’t bid up to their judgment amounts.  For instance, this banker told me that his bank routinely gets a BPO (that’s “broker price opinion”) and bids 85% of that BPO.  If a third-party investor bids more than that, he/she gets the house.  So those are the only cases where there’s a true “auction” – where the bank isn’t getting paid by the government.

The worst part?  When this banker confused my friendly attempt to pick his brain about the foreclosure industry with a genuine interest in what he does, prompting him to suggest – totally unsolicited, of course – that I change teams and work for the banks.  His pitch?  Homeowners are ”limited” in what they can pay, and his bank can pay as much as necessary if I’m working for them.

I was thoroughly disgusted at this proposition, of course, as it was all prompted by money and not at all about helping people or feeling good about my work.  I wanted to tell him exactly what I though, but he was giving me useful information, so I responded with a polite “have you ever read my blog?  I hate the banks, and they hate me.”  His response?  ”We hate you because we like you, and we wish you were working for us.”

Eek, enough already.  Please, someone pass the soap.  I really, really need a shower.  That said, it was worth feeling dirty, I suppose.  The more I know, the more I can help homeowners understand just how corrupt and crooked the whole process truly is.

The other moral of this story?  While I’m appalled at bank misconduct, I’m convinced the government is just as much to blame.  After all, these perverse incentives to foreclose exist because “our” government insured these mortgages in full, creating a perverse dynamic where banks say they have “no choice” but to foreclose and get paid in full.  I don’t care if you’re Republican or Democrat (or, in my case, neither) … the government isn’t supposed to operate in this manner.

It’s all so dirty … where is that soap already?

Mark Stopa

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