Banks and Their Buddies Learned Little to Nothing from the Great Recession

New Orleans     When we can muster up the attention span to read past the latest Mueller investigation activity and the Trump tantrums, we can see what Congress is doing to try to make life easier for the banks and gut Dodd-Frank requirements that force them to pay more attention in class rather than going the “greed is good” route.  It turns out that there is little relief in revisiting the lessons our old friends, the banks, have learned from their reckless behavior that led to the real estate bubble and the Great Recession only a long decade ago.

Of course, they certainly learned to be careful in dealing with the subprime lending market and its exorbitant and often predatory interest rates.  Wrong!  They only learned that they shouldn’t lend in their own names and through direct subsidiaries, but instead should supply nonbank middlemen with billions so that they can take the first fall when that bubble crashes.  The Wall Street Journal calculates that between 2010 and 2017, yes within 2 years of the meltdown and their repeated mea culpas to politicians and customers, they jumped in hard and collectively have made $345 billion in loans to such companies.  Many of these subprime loans are not in real estate, but in auto financing and similar areas that are even more unstable, if that’s possible.   Don’t for a minute think that this is just something the smaller fry are feeding on, because the big fish are goring on these loans.  Major bank loans to nonbank financial companies that loan money to subprime borrowers include Wells Fargo at $81.1 billion, Citigroup at $30.5 billion, Bank of America at $30.2 billion, JP Morgan Chase at $28.1 billion, Goldman Sachs at $22.2 billion and Morgan Stanley at $16.3 billion.

That’s not all that banks and their buddies haven’t learned.  On the wild right there are still pundits and posers who claim that loose credit standards, ACORN and the Community Reinvestment Act triggered the real estate meltdown and the recession, rather than their own activity.  Two researchers from the Urban Institute, which is the real estate industry and developers own think tank, in a working paper plainly state that the blame game is misplaced.

we … show that First-Time-Home-Buyers have similar loan performance as that of repeat buyers. This evidence indicates that the expansion of lending to include more marginal borrowers may not be the main cause of the financial crisis. Instead, the poor performance of the cash out refinances and refinances more generally, are more important contributing factors.

They put the shoe firmly on the foot of cash out refi’s that were popular for hordes of speculators and investors trying to take money out of properties as the bubble got bigger and then being caught short in their ability to pay as the market became overloaded and crashed.  In plain language speculators, big and small, with the help of bank’s emphasis on refinancing, were a much larger factor.

When banks won’t even admit to themselves what their role was in the crisis, how can they learn the lessons to avoid the next disaster?  Playing button-button on subprime loans and having their lobbyists dissemble in Congressional hallways about where the blame really lies are both signs of more meltdowns to come by the refusal to learn the lessons of the last one.

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Credit Scores and Healthcare Bills

Little Rock       If you have every tried to borrow money from a bank or buy a house, you have been introduced to the strange and terrible world of credit scores that are often key factors not only in whether or not you get the loan or are able to buy the house, but in the interest rates you are offered which translates into thousands and sometimes tens of thousands of dollars you will end up paying over the life of the loan.   Way too frequently confronting the reasons black marks appear on your credit scores goes back to disputes, where you were convinced you were being ripped off and fought back and whether you won or lost you find only when seeking a loan that you were still knifed in the back by the rouge bill collector anyway.   Too often this happens with medical bills which after an illness come flying at you from every direction it seems and invariably from outfits that you never realized even knew your name, but now are billing you, calling you, and so forth.  Anesthesiologists must be the worst offenders since you met your doctor so have no clue who might be the guy is who is billing you for hundreds of bucks while you were out cold.

In a significant development reported by the New York Times, a major credit card score generator, VantageScore Solutions, “has decided to ignore collection actions on credit reports – more than half of which are typically tied to medical debts – as long as the collections are paid.”  That seems exactly right!  The example in the story involved a woman who was going to pay $33,000 in extra interest on a home loan because she had mistakenly used her dental card rather than her medical card to pay a $700 charge.  She fixed it when her mistake became known and paid with the right card, but meanwhile was burned on her credit score she only found out later when it bumped her interest rate up.  Bam!

I can relate.  A couple of months ago, running to pay off my bills before going out of town, I threw the envelopes in the mail to Cox Cable and to CitiMortgage where I’m still paying a note on a fishing camp lost to Katrina 7 years ago.  A month later I got a foreclosure notice from CitiMortgage, even though I had paid the next month, and had ignored several of their envelopes when I returned home assuming the letters had crossed in the mail with my check.  I called them with fire breathing out of my nostrils.  They claimed they had never gotten the payment.  I told them the date it was sent.  I thought we worked it out at the end of the argument when we agreed I would stop payment on the earlier check and send them a new one.  If they got it right away, she claimed she would not report me to the credit bureau.  There was discussion of where the sun doesn’t shine.

A couple of days later someone from Citi left a phone message at the house that they had deposited my hundred dollars.  The same day a letter came in from Cox returning the check to CitiMortgage which they could not deposit.  Ok, you are with me now.  I had put the wrong checks in the wrong envelopes.  Then I got my monthly payment notice from CitiMortgage showing a random $100 they had applied to principal payment and a late charge.

Yep, back on the 800# fired up again.  Citi explained that it is their policy to cash any and all checks that come to them no matter who they are written to.  Fortunately Cox Cable and most other businesses, and even banks, don’t have such a ravenous practice.  I said you can’t have it both ways by taking my money, depositing it wrongfully, and sending me a late charge.  After she talked to her boss, they waived the late charge.  I let them keep the money though they offered to return it, since they were busted.

Mistakes happen.  That’s why we have “I’m sorry” as part of our common language.  When we’re wrong we make it right.  Unfortunately, when they are wrong, they make us pay.  VantageScore Solutions needs to be the model here for stopping these quick trigger credit and corporate culprits.

Credit Scores Audio Blog

Facebooktwittergoogle_plusredditpinterestlinkedinmail