Bank Conflicts of Interest on Foreclosures and Modifications

Arizona Advocates and Action
Arizona Advocates and Action

New Orleans My god, pinch me!  Unbelievably the august New York Times in its editorial today has bellied up to the right side of the bar in pointing out the obvious and long noted (including by me!) conflicts of interests enjoyed by banks in the foreclosure game where they often pretend to be chicken, but are usually fox.  The Times being the Times can’t quite get it all right.  They put the horns on the Federal Reserve as a sleep-at-the-switch regulator of this mischief and mess, when the Treasury Department and the Administration both deserve at least equal billing of this horror movie showing at homes all around the country.

But let’s not quibble and count our small blessings when they come:

That is a big reason that the Obama administration’s antiforeclosure effort, with its voluntary participation by banks, has fallen so short.

Here is the background. The big banks — Bank of America, JPMorgan Chase, Citibank, Wells Fargo — service most of the nation’s home mortgages for investors who own the loans. They are paid a fee by the investors and also make money from fees on delinquent loans.

Servicers are obligated to manage the loans in the best interest of the investors. That means modifying a troubled loan, if reduced payments would bring in more money over time than a foreclosure. Or foreclosing if a borrower cannot make the payments on a modified loan.

If only it worked that way in practice.

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Principal Reduction Versus Arrogant Banks

JAMIE-DIMON-largeNew Orleans From the day the latest foreclosure modification plan as announced several weeks ago, and it became clear that banks saw their participation as voluntary, I said this was not going to work. The government orchestrated immediate acceptance by their subsidiaries, Citi and Bank of America, but as surely as I predicted that was just the spin. In hearings before Barney Frank’s House Financial Services Committee yesterday executives from ungrateful, anti-family institutions, JP Morgan Chase and Wells Fargo, earned their pay walking the plank to whisper that “on, no, not me, bro!” when asked to endorse a broad – and necessary – program of principal reductions to keep homeowners from losing their homes.

This would be simply more bad news for the millions of owners who are taking water trying to stave off foreclosure and the other millions who are already under water on the value of the home, if it had not been so predictable that most probably didn’t expect much from this program anyway. Remember the details of the program were also crafted so narrowly that rich people would already be in heaven before a working man could crawl through the eye of the needle to get foreclosure relief. In fact I take that back, since in the last Obama modification program you had to prove that you were not in fact a working man, but could show a valid unemployment debit card.

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