1. Surprise: TBTF Banks Will Screw You

    Way back in 2007, I penned a post in which I voiced my displeasure with folks who whine about overdraft fees. In the comments, I was called lots of names … “bank apologist” among the nicest of these.

    Thanks to the fine, upstanding management team at Bank of America, I now have the opportunity to make something crystal clear: The Too Big To Fail Banks (TBTF) banks will screw you any chance they get. This is not a new opinion for me; I’ve felt this way since long before I started this here money blog. I’m just reiterating it here, for those who aren’t paying attention.

    I absolutely felt this way when I wrote the overdraft-whiners post, too. The way I see it, the fact that these banks will hose you at every opportunity is a given. Thus, we as consumers and bank-users must do everything we can to NOT give them that opportunity. That includes knowing how much is in your checking account at any given time, and not executing transactions above that amount, and not giving the bank any reason at all to slap you with a $50 service fee. If you DO give the bank a reason to FeeSmack™ you, then don’t whine about it.

    It’s plain as day: The TBTF banks are in charge. Our government and our economic system require this, because debt is money, and debt underpins EVERYTHING. TBTF banks hold, service, issue, and securitize debt in enormous amounts, so they make the rules. You and I simply have to play by those rules.

    Now allow me, if you will, the opportunity to show just how far TBTF banks (Bank of America, in this case) will go to (1) bend their customers over a counter, and (2) make a buck:

    JDSupra Law News: BOA Senior Admits to Being Told to Lie

    If you have dealings not only with Bank of America, but with pretty much any bank that’s “regional or larger” in size, you really should take a moment to read the article. I’d say that Simone Gordan’s affidavit is a staggering admission, but really, it isn’t. Of course BOA reps were told to lie to customers. BOA was woefully unprepared for the various mortgage- and loan-modification programs which U.S. FedGov thrust upon them, and besides, by lying to customers, there was cash to be made.

    From the affidavit, as stated by Bank of America senior loan collector Gordan:

    Using the Bank of America computer systems I saw that hundreds of customers had made their required trial payments, sent the documents requested of them, but had not received permanent modifications. I also saw records showing that Bank of America employees have told people that documents had not been received when, in fact, the computer system showed that Bank of America had received the documents. This was consistent with the instructions my colleagues and I were given. We were told to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payments (when in fact it had). We were told that admitting that the bank received documents would “open a can of worms” since the bank was required to underwrite a loan modification within 30 days of receiving those documents and it did not have sufficient underwriting staff to complete the underwriting in that time…. Site leaders regularly told us that the more we delayed the HAMP modification process, the more fees Bank of America would collect.

    Nice, huh? If you or I tried crap like this in our business dealings, we’d go to jail. But a TBTF bank does it, and they get paid.

    Are we clear on how this works yet?

    You must carry on your financial lives as if you are, well, prey.

    Because with TBTF banks, that is absolutely what you are.



  2. We Learn Nothing

    Yes, it’s a current article:

    Herald Tribune: Admin Aims to Increase Loans for Homes

    From the story:

    President Barack Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

    In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

    I should probably just stop reading the news altogether. Everything I read just about sends me over the edge these days.

    We (deliberately) learn nothing.



  3. Here We Go Again

    Not going to be much intro to this one. I’ll just repeat here the old adage: “If you can’t tell who the sucker at the table is, then it’s you.”

    LA Times: FHA Gives Defaulters Another Chance

    Unsurprisingly, it seems the FHA is bankrolling (well, guaranteeing) lots of “rebound buyers” in this latest round of home-buying hysterics. What’s a “rebound buyer,” you ask? Well, it’s gals and guys like Hermes Maldonado:

    After two foreclosures and two bankruptcies, Hermes Maldonado is as surprised as anyone that he’s getting a third shot at homeownership.

    The 61-year-old machine operator at a plastics factory bought a $170,000 house in Moreno Valley this summer that boasts laminate-wood floors and squeaky clean appliances. He got the four-bedroom, two-story house despite a pockmarked credit history.

    The last time he owned a home, Maldonado refinanced four times and took on a second mortgage. He put a Cadillac and Mercedes-Benz C300W in the driveway and racked up about $45,000 in credit card bills and other debts. His debt-fueled lifestyle ended only when he was forced into bankruptcy.

    His reentry into homeownership three years later came courtesy of the Federal Housing Administration. The agency has become a major source of cash for so-called rebound buyers — a burgeoning crop of homeowners with past defaults who otherwise would be shut out of the market.

    Good thing the nastiness of 2008 was all Wall Street’s fault, huh? What would we EVER do without government agencies like the FHA around, making things all better?

    Oh, and there is one more completely-unrelated story which I’d like to share:

    NY Times: FHA Audit Said to Show Low Reserves

    So, yeah … cruise on over to these two stories. And try to hold down your lunch.



  4. House Prices Suffer From Student-Loan Debt (But Colleges Seem Happy)

    For today’s “LOL” moment, I proudly present to you:

    Businessweek: Student Debt Is Stifling House Prices

    It’s pretty darn comedic when you think about it: A pharmacist earning $125k/year, and carrying $100k in student loans, is miffed that she can’t — for some unfathomable reason — go out and buy a home. Like, yesterday.

    Roshell Schenck has a Ph.D. in pharmacy and earns $125,000 a year. Yet, because she has more than $110,000 in student loan debt, counselors have told her she can’t qualify for a mortgage. “I’d love to buy and can afford to buy,” says the 28-year-old graduate of Lake Erie College of Osteopathic Medicine in Erie, Pa. With lenders scrutinizing college loans more closely than in previous years, it’s almost impossible for borrowers such as Schenck to get approved for mortgages. “My debt is crushing my chances of purchasing a home.”

    Roshell, say hello to my esteemed colleague, the Law of Unintended Consequences. Kinda crazy, isn’t it, how these days, the debt you’re already carrying seems to matter again? And, darn the bad luck, it’s mattering just when you’d really like to borrow even more! Ain’t that a kick in the pants!

    It’s not that I don’t have some sympathy for grads like Ms. Schenck. The situation she finds herself in — making a really nice income in a good field, but unable to qualify for a home loan due to six digits of student-loan debt around her neck — isn’t entirely of her own doing. After all, the government and our university system forced her to take out those loans—

    Okay, never mind. It IS entirely of her own doing.

    Look: She’s fortunate to be making the money she is. I mean, I would love to have an income like that.

    But only if there’s not $100k+ of debt attached to it.

    But She Wants It Now

    By my reckoning, Ms. Schenck makes enough money that paying back those student loans should be no biggie, in the grand scheme of things. A few years of scrimping, saving, and consistent four- and five-digit extra payments toward those loans, and she’ll be in fine shape.

    Admittedly, though, this concept works only if she goes all Dave Ramsey on it, and can manage to not play “Keep up with the Joneses” as regards her spending habits. (Yes, that dreaded disease which ravages so many of the high-earning types, like doctors, lawyers, pharmacists, and so on. Lots of money comes in the door, sure … and even more of it goes out. Wouldn’t want to not “look the part.” Heavens, no.)

    Back to the article:

    Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of 9 percent for 25- to 34-year-olds. Dubbing it a “student loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys (NACBA) warned on Feb. 7 about the effects of rising student debt on recent graduates, parents who co-signed their loans, and older Americans who’ve gone back to school for job training.

    Well, the good news is that borrowing of federally-subsidized student-loan dollars shows no signs of abating. So colleges will remain free to increase tuition at will, year after year, with no danger of “decreased financial resources” or anything outlandish like that out there to slow things down.

    “Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.

    Absolutely preposterous, says I. How great of a country can we be, really, when our citizens’ past borrowing proclivities keep us from borrowing skads more now, right at the time when we most need it? Pffft.

    I don’t know who came up with this silly idea that “Today’s choices create those of tomorrow,” but I don’t like it. And it seems like Ms. Schenck doesn’t, either. Since when should debt limit our choices? I mean, really.

    Someone should just, like, do something.



  5. Which Decade Is He Referring To?

    Aside from the scalding melodrama of the headline, I found this to be a pretty interesting piece:

    Fiscal Times: This Rule Could Kill the Housing Market

    The gist of the article centers on a chunk of the recently-enacted Dodd-Frank legislation — a chunk which contains the onerous requirement that lenders must maintain on their balance sheets some share of the risk of mortgages they sell off to investors.

    Oh, the horror. Mortgage lenders retaining a sliver of the mortgage risk they create? Dear Lord, what legislative insanity will we birth next?

    No, really. While I tend to come down against Big Government most of the time, given what happened in 2008 and 2009, I’m pretty content with mortgage lenders being required to balance-sheet some risk from the mortgages they create. To me, this sounds like a burden our esteemed megabanks worked exceptionally hard to earn during those heady years of the mid-2000s.

    But get a load of this choice bit of idiocy:

    Even frequent critics of lender practices, such as the National Community Reinvestment Coalition and the National Consumer Law Center, have joined bankers and bank lobbyists in calling for regulators to rethink the rule.

    “The proposal as introduced will literally erase a decade of accomplishment in defining what is a responsible loan,” said David Berenbaum, chief program officer with the Coalition, an advocacy group for community organizations that support affordable housing and equal access to credit. “It is going to narrow the range of loans that lenders are willing to originate to the point that only consumers with the best credit scores—meaning white and affluent consumers—are going to get loans.”

    Say what? A “decade of accomplishment in defining what is a responsible loan?” Can this guy be serious? Or is his definition of “accomplishment” just far, far different from mine?

    I’m thinking it’s the latter.



  6. Unleash the (CFPB) Hounds!

    For the three of you who are still wondering just what the heck the new Consumer Financial Protection Bureau (CFPB) is all about, well, I direct you to this fancy CNN Money presentation:

    CNN Money: The New Pup Watching Our Money

    I’m sure this new agency will cast just as watchful, keen, and vigilant an eye over our money as all the other government agencies do. I mean, this was Elizabeth Warren’s brainchild, so it has to be good, right?

    (If you think I’m being sarcastic, congrats! You’d win a cookie … if I had one to hand out.)

    And, in what has got to be one of the most pathetic “Reasons We Need This New Government Agency” passages I’ve yet seen, I encourage readers to mouse-over the red “16,109” circle in the “Mortgage Brokers” section of the CNN presentation. Read what Mr. Carlo Panno has to say about the “sack of money” the evil bank all but forced him to take to buy a house.

    Always the studious type, Mr. Panno carefully read his mortgage docs before signing them … noticed that his payments would balloon from $300/biweekly to $1000/biweekly after two years … and then STILL SIGNED THE NOTE because the broker “assured him” he could refinance before the two-year SAVINGS EXTRAVAGANZA expired. (Heard that one before? Yeah, me too. About a million times.)

    You know what I think? I am quite certain that there is not, and never will be, a government agency capable of protecting glasslickers like this from themselves. (Much less those dastardly banks and mortgage brokers — for whom, I should point out, I harbor scarce love.)

    Note to Mr. Panno: Next time you leave the house, don’t forget your helmet.



  7. Survey: Americans Want Mortgage Subsidies

    Fun new survey data out from Rasmussen, regarding Americans and how they currently feel about government participation in the mortgage market:

    Rasmussen: Mortgage Survey

    See the glaring disconnect in the first two items? If fifty-six percent of Americans think the government should stay “altogether” out of the mortgage market, but seventy-nine percent want the mortgage-interest deduction to continue, then an awful lot of people have an awfully shallow view of what “government participation” means.

    If you don’t think that the mortgage-interest deduction amounts to a subsidy for homeowners, and therefore, is the very essence of “government participation” in the market, then you’re nuts. Take away that deduction, and see what happens to home prices. Mortgage qualification standards are based upon that federal tax deduction being there, effectively “helping” people make their house payments. If the deduction were to go away, qualification standards would necessarily tighten. Joe and Jane Sixpack wouldn’t be able to qualify for as high a mortgage payment as they could previously, as more of their gross income would now be going to taxes. Thus, over time, home prices would decline.

    For this survey to mean much, someone really ought to define “altogether.” Because to me, that’d mean the dissolution of Fannie, Freddie, and the FHA, as well as the removal of the mortgage-interest tax deduction. But that wasn’t what the Rasmussen respondents inferred, or were told. Obviously.

    What an idea, huh? Get rid of Fannie, Freddie, the FHA — who between them control 90 percent of the mortgage market these days — and the sacrosanct mortgage-interest deduction. You want to talk about a full-on house price collapse? That’d do it!



  8. Home (Free) on the Range

    You want stimulus? Well, how ’bout the chance to go almost 15 months without a house payment?

    Thanks to cottony-soft (and FedGov encouraged) accounting standards, banks are loathe to foreclose on underwater properties. As a bank, realizing five- and six-digit losses is no fun. It tends to leave ouchies on your balance sheet, and more importantly, has a negative effect on management bonuses.

    Cause, meet effect:

    Defaulted borrowers were spending an average of 469 days in their home after ceasing to make payments as of July 31, so the financial attraction of strategic defaults increases.

    Four hundred days with no house payment? A fellow could save up quite a stash in his piggy bank, going that long without sending a check to the mortgage company.

    In any case, that tantalizing little snippet comes from an article at AmericanBanker.com.

    And speaking of homeowner savings, just imagine all the dutiful home care and maintenance being performed by all these “living free for now” borrowers — borrowers who know that one day the bank will be coming to throw their La-Z-Boy on the lawn and Master Lock all the doors. The question isn’t if, but when.

    Oh, I’m sure that leaky roof will get fixed. Any day now.

    Yes, indeed. Delaying foreclosures (most econ-types refer to it as “extend and pretend”) with schemes like relaxed accounting standards and FedGov-initiated can-kickings (HAMP much?) should work out just fine.



  9. Still Paying Your Mortgage as Agreed?

    Then you’re the sucker. (Assuming you haven’t already figured that out.)

    SF Chronicle: “Bill Would Shield Homeowners’ Credit Ratings”

    From the article:

    A bill introduced on Thursday by U.S. Rep. Jackie Speier, D-Hillsborough, would shield homeowner credit ratings after a loan modification.

    “To play by the rules, modify your loan and then have it as a blemish on your credit report is just flabbergasting; it adds insult to injury,” said Speier. “The credit system should not punish responsible homeowners who modify their mortgage payments to keep their homes.”

    There are lots of things I’d like to say to Speier, but none of them are nice. So, in the interest of keeping this a family show, I will refrain.

    I will just state here that, in my opinion, the only freedom this country strives for any longer is the freedom from responsibility.



  10. One Family’s Housing Woe

    A couple of weeks ago, in Ready to Own a Home?, I talked about some mistakes made by too-anxious homebuyers. Well, what do you know? The LA Times presents a fine example of just what I was talking about:

    LA Times: Undone By Their Dreams

    It’s one family’s tale of housing woe, to be sure.

    In 2006, Dawn and Michael Meenan found what they were looking for in Hesperia, in a community called Mission Crest. But they had declared bankruptcy four years earlier and were uncertain they could buy a house here. Then the phone rang.

    “Your loan has been approved.”

    Ah yes, the joys of housing bubbles … when folks four years removed from a BK can go out and borrow hundreds of thousands for a home in the desert.

    Dawn and Michael Meenan first explored Hesperia on Thanksgiving weekend in 2005. …They followed the signs and billboards to the subdivision, set off from the desert by a cinder-block wall. Six builders were showing model homes. A large red balloon soaring above one tract tugged at its anchor.

    …Amid the imposing two-story designs, they settled on a modest single-story home — yet with 2,400 square feet, it was large enough for their growing family. The sales representatives told them that one would be available on Newport Street by midsummer, and if they put down a $3,000 deposit they could lock in the price at $365,000.

    Lesson One in Homebuyer Edumacation: When people use the word “modest” to describe a $365,000 home, with 2,400 square feet, much buyer heartache lurks down the road.

    They could barely scrape together the deposit, and they didn’t have a down payment for the mortgage. The sales representatives didn’t seem worried. Let’s see what we can do, they said, giving the Meenan children crayons to color with and taking notes on the couple’s credit history.

    Countrywide Financial Corp. turned them down. Freedom Plus Mortgage said yes. After signing the loan documents, the Meenans worried they would be overextended, but they told themselves that this was what first-time homebuyers do, especially when they’re in their 30s and their family is young.

    Now where have I heard that before?

    Given their bankruptcy, the Meenans qualified only for a subprime mortgage. Their first loan was fixed at 7.375% for three years and was then adjustable; their second was fixed at 11.625% for 30 years. The payments came to more than $2,500 a month.

    Both loans were two percentage points above market rates, and in 2036 they would have to make balloon payments totaling nearly $300,000. Then there were the property and the community taxes — nearly $3,000 twice a year.

    You just know this is going to end well, right?

    But they managed. When Dawn’s maternity leave was over, she went back to work as a bookkeeper for an Irwindale-based online company that sells vitamin supplements. Michael worked in the firm’s warehouse. Together they made nearly $95,000 a year.

    Wow. That’s a very, very nice salary — for any family NOT sucked into a piggybacked $365k deathtrap mortgage. For a family who DID take on the loan, though … ’tis a different story.

    And did I mention the home’s location required the Meenans to undertake a 1-hour commute every day?

    If it was a sacrifice, they told themselves, it was worthwhile. They were building equity. They were improving their credit scores. In time, their income would rise, and they could refinance. That was what the sales representatives had told them.

    In March 2007, Michael was laid off and had to take odd jobs. Three months later, Dawn’s employer gave her a chance to start her own bookkeeping business. She could work at home, and as she brought in clients, the family income climbed back to near six figures. She and Michael felt secure enough to landscape the backyard, put in a patio and plant a vegetable garden.

    Whew. For a minute there, I thought this whole setup might not work out as planned!

    The idyll proved brief. As the recession deepened, Dawn lost clients, and their income started to fall. In December 2008, they did not pay their property tax. They didn’t have the money. Besides, they rationalized, homes in the area had dropped almost $200,000 in value, and they’d be getting a reassessment and their taxes should go down.

    Then one day, as Dawn organized the bills, she saw how fast they were falling behind. She was paying the mortgage later each month, and in July the interest rate on the first loan would reset upward. It could cost them anywhere from $100 to $1,000 more each month.

    All completely unexpected, of course.

    Of course.

    They spoke to the bank but were told that they didn’t qualify for a loan modification, and in May they just couldn’t pay the mortgage anymore. Sad and angry, they stopped paying on the first loan — then, two months later, on the second.

    They contacted a real estate agent to list the house. They waited until after Michael’s birthday in August to put up the For Sale sign. They didn’t want to have to explain the situation to their family just yet.

    In October, the house was sold for $125,000. As the family waited in the car, Michael went inside for one last look. The sunlight streaming through the windows looked different without the curtains, but it still brought back a flood of memories. When he saw the stain on the carpet from one of the children’s spilled drinks, he cried.

    There might have been a time when I’d feel sympathy for these folks, but not any longer. I’ve long since tired of it. No matter what anyone tells you, bad choices have bad consequences. (Unless you’re a TBTF bank. If that’s the case, and you made this loan, good on you. Thanks for taking such a prudent risk. As always, we taxpayers got your back.)