The Washington Independent
The Washington Independent

Are Homeowners in Default to Blame for Foreclosure Crisis?

Reuters notes that Wall Street types are complaining that coverage of the current foreclosure crisis -- in which banks might have taken houses away from

Daniel James
News
Last updated: Jul 31, 2020 | Oct 15, 2010

Reuters notes that Wall Street types are complaining that coverage of the current foreclosure crisis — in which banks might have taken houses away from homeowners without the proper documentation — elides the fact that the defaulters *are *in fact in default.

“If you didn’t pay your mortgage, you shouldn’t be in your house. Period. People are getting upset about something that’s just procedural.” said Walter Todd, portfolio manager at Greenwood Capital Associates. [...]

“Everyone’s responsible for following the law. If we all don’t have to pay our mortgage, should we just stop paying taxes, too?” said Anton Schutz, president of Mendon Capital Advisers. “Your mortgage didn’t get to a robo-signer by accident, it’s because you’re not paying.”

John Carney has a smart and more nuanced post on the topic as well, here. I actually don’t disagree with these points. But I would also note that servicers have in many cases resisted helping homeowners in foreclosure with principal write-downs, modifications or other solutions. The system did not work to keep families in homes. It worked to process foreclosures as fast as possible.

To get a sense of how that happened, I spoke with April Charney, a lawyer at Jacksonville Area Legal Aid, a non-profit clinic that helps low-income Floridians. The interview is lightly edited for clarity.

TWI: Some, including J.P. Morgan Chase chief executive Jamie Dimon, are arguing that this is a paperwork problem, and the homeowners undergoing foreclosure were in default.

**April Charney: **There is a contract that Fannie and Freddie applies to all its home loans, a customer service, of sorts, that you pay for in your mortgage. It is hundreds of pages online and it’s called the “single-family loan servicing guideline.” There’s a section just for default loan servicing — for servicing loans when the homeowner is in default — and it lays out requirements of the servicers. Any servicer of a Fannie- or Freddie-backed loan, when a borrower goes into default, the servicer *has *to give the borrower this very special customer service to try to avoid the foreclosure.

It never happens. The servicers just push the loans into foreclosure. They’re missing that entire legal step. We have a complete and utter failure of default loan servicing — a contractually required step in the process that’s there to help homeowners in default. It is preexisting, far preexisting this crisis. And it’s in every contract, and every servicing agreement. The servicer is supposed to be *bound *to those best practices.

So I’m sick of hearing — they’re in default! They’re not paying their mortgage! They’re delinquent! The servicers have whole books of rules about what they’re supposed to do to aid the homeowner in that case. And they haven’t done any of it.

**TWI: **Are these guidelines, or are they actually obligated to do it?

**AC: **No, it’s a breach of contract. And it’s also in the pooling and servicing agreements [for mortgages that have been sold to investors, rather than being held by the mortgage-originating bank]. That’s a breach of contract, as far as the servicers and the investors are concerned.

**TWI: **And what were the lenders doing, rather than servicing the loans properly?

**AC: **The servicers were moving homeowners into foreclosure as quickly as possible. Basically, they were paid up to twice as much to finish the foreclosure. And their agreements [with investors] required them to do it within four months of default. Plus, they weren’t staffed up, they weren’t careful, they had absolutely no intention of providing the proper services to the homeowners. They were rubbing their hands, and licking their lips, and foreclosing as fast as possible, and getting paid.

Look, they agreed to service the loans! And there were regulations in place to keep families in their houses. You show me a family that goes through 30 years on a loan without a problem, and I’ll show you somebody who walks on water!

**TWI: **And what should they have been doing to keep families in their homes?

**AC: **There’s an entire process — it’s almost like an out-of-court bankruptcy plan, when you work through the guidelines. You can modify the loan, you can change the payment schedule. There’s all sorts of alternatives.

**TWI: **And so it’s unfair to push homeowners into foreclosure, then blame them for the foreclosure crisis?

**AC: **There was such a demand for securitized mortgage products, these loans were artificially appraised — appraised for much more than the homeowners could afford or the houses were worth. So, they’re liar loans in more than one sense. We have no appraisal system that’s functioning in this country. We have no title insurance system that’s functioning in this country. And we have no lending system that is functioning in this country. So we should probably stop the foreclosure system, that’s functioning too well, until we have that sorted out.

And I’ll note, these problems aren’t just in residential mortgage loans. These problems are in commercial loans, and credit cards, and student loans, and all sorts of other kinds of debt. There are a lot of shoes that are going to drop.

Daniel James | Daniel James is an author, keynote speaker, and entrepreneur who is a professional coach and gerontologist. Daniel holds a bachelor's degree from Georgia Tech, a master's degree from UCLA, a diploma in gerontology from the University of Boston, as well as a Professional Coaching Certification.

Related

$1.89 billion given to states to fight HIV

The federal government Monday announced more than $1.89 billion in funding to states to fight the HIV epidemic with access to care and with more cash for the failing AIDS Drug Assistance Program. According to an HHS press release , $813 million of that money will go directly to the ADAP programming. An additional $8,386,340 will be issued as a supplement to 36 states and territories currently facing a litany of unmet needs and access issues.

Army Data Shows Constraints on Troop Increase Potential

If President Obama orders an additional 30,000 to 40,000 troops to Afghanistan, he will be deploying practically every available U.S. Army brigade to war, leaving few units in reserve in case of an unforeseen emergency and further stressing a force that has seen repeated combat deployments since 2002.

1. Brian Schweitzer

As governor of Montana, Schweitzer doesn’t represent one of the most highly populated, high-profile electoral states in the country. But this

$1.3 Million for Brown

The GOP’s candidate in the Massachusetts special election raised more than one million dollars -- double the goal -- in a 24-hour moneybomb on the Ron Paul

$1.3 trillion in federal spending unaccounted for, report finds

Despite calls for independent bodies to keep government accountable, the Sunlight Foundation’s most recent Clearspending report has found the federal

#1 in Conspiracy Theories

Andrew Young’s tell-all biography of John Edwards, hitting shelves next week, is surging in one Amazon.com category in particular. #1 in Conspiracy

1 Brigade and 1 Battalion

ISTANBUL – It’s 10 p.m. in the lowest level of the Istanbul airport. In 20 minutes I’ll be allowed to board my plane to Kabul, bringing me to the

$1 Million for Toomey

Pat Toomey, the former Club for Growth president and leading Republican candidate in Pennsylvania’s 2010 Senate race, has announced a $1 million haul in the

1. Lindsey Graham

Sen. Graham (R-S.C.) is typically regarded as a reliable vote for his party, but he took the bold step of breaking with his fellow Republicans to join Kerry

Bachmann uncomfortable over earmarks ban

Republicans appear to have boxed themselves into a corner with their portrayal of earmarks as wasteful spending, as many of them have backed a moratorium on

Troubled mine holds hope for U.S. rare earth industry

China currently controls 97 percent of the world’s rare earth production. The Mountain Pass Mine could change that -- if it can overcome serious environmental concerns.

© Copyright 2021 The Washington Independent All Rights Reserved

Terms & Privacy | twi.news@washingtonindependent.com