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Oh, NOW Banks Believe in Mortgage Modification?

Foreclosed home ready for auction (photo: sgroi on Flickr)

You know, when I was growing up, foreclosure was a scandal. And in the early days of the burst housing bubble, most people still thought that it was. The people losing their homes were treated by courts, press, and society at large like deadbeats and ne’er-do-wells.

Then we began to learn the truth about predatory lending practices that steered homeowners away from conventional mortgages and into subprime mortgages. We began to learn that mortgage originators wrote loans with no assessment of whether or not the homeowner could actually make the monthly payment, because the originators were making their money on the fees, not on the loan repayment.

We learned that Too Big To Fail banks got paid 100 cents on the dollar in federal bailout money for the toxic assets supposedly backed by these mortgages. Doesn’t that mean the mortgage debt has been paid in full by the feds? Doesn’t the federal government own those mortgages now? Still, the banks and their servicers continue to file foreclosure actions on houses for which the debt has already been paid by the government.

Is it any wonder that people who thought they were entering into a legitimate business transaction and faithfully paid their mortgage for as long as they could found out that their lenders were not dealing with them in good faith on mortgage modifications? And this is despite the fact the government mandated and paid the lenders to do such modifications under HAMP and HARP. Is it any wonder they feel that the social contract between them and the bank has been broken?

So, it’s not surprising that homeowners no longer feel a stigma attached to foreclosure. It’s no wonder they now feel free to just turn in the keys and walk away. The social contract that is a part of every contract—a meeting of the minds and a basic level of fair dealing—has been broken by the banking industry. And that trust, once broken, can have a devastating long term effect on those banks. HuffPo even recommended that depositors move their money out of TBTF banks and into local community banks.

I think that Bank of America has sniffed the wind and realized that they have to start dealing in good faith on mortgage modifications pretty damn soon. . . .

This morning executives at Bank of America rolled out their new “Principal Reduction Enhancement” program, which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value.

-snip-

On the conference call to announce the program this morning, BofA’s credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are “more than we have ever experienced before.” He went on to say, “there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers.”

Considering that we have also learned that many of the banks lack the proper paper trail to prevail in foreclosure and that judges are beginning to wake up to this, and sometimes even cancel mortgages outright, it is not surprising that the banks are beginning to realize that their own bad faith, their own shoddy dealing, their own rupturing of the social contract has put them in a position where they may not be in the driver’s seat on foreclosures much longer. They may actually get scared into doing the right thing.

[Earlier posts in this series and related links at FDL’s Foreclosure Fraud Resources]

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Oh, NOW Banks Believe in Mortgage Modification?

You know when I was growing up, foreclosure was a scandal. And in the early days of the burst housing bubble, most people still thought that it was. The people losing their homes were treated by courts, press, and society at large like deadbeats and ne’er-do-wells.

Then we began to learn the truth about predatory lending practices that steered homeowners away from conventional mortgages and into subprime mortgages. We began to learn that mortgage originators wrote loans with no assessment of whether or not the homeowner could actually make the monthly payment, because the originators were making their money on the fees, not on the loan repayment.

We learned that Too Big To Fail banks got paid 100 cents on the dollar in federal bailout money for the toxic assets supposedly backed by these mortgages. Doesn’t that mean the mortgage debt has been paid in full by the feds? Doesn’t the federal government own those mortgages now? Still, the banks and their servicers continue to file foreclosure actions on houses for which the debt has already been paid by the government.

Is it any wonder that people who thought they were entering into a legitimate business transaction and faithfully paid their mortgage for as long as they could found out that their lenders were not dealing with them in good faith on mortgage modifications? And this is despite the fact the government mandated and paid the lenders to do such modifications under HAMP and HARP. Is it any wonder they feel that the social contract between them and the bank has been broken?

So, it’s not surprising that homeowners no longer feel a stigma attached to foreclosure. It’s no wonder they now feel free to just turn in the keys and walk away. The social contract that is a part of every contract—a meeting of the minds and a basic level of fair dealing—has been broken by the banking industry. And that trust, once broken, can have a devastating long term effect on those banks. HuffPo even recommended that depositors move their money out of TBTF banks and into local community banks.

I think that Bank of America has sniffed the wind and realized that they have to start dealing in good faith on mortgage modifications pretty damn soon.

This morning executives at Bank of America rolled out their new "Principal Reduction Enhancement" program, which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value.

-snip-

On the conference call to announce the program this morning, BofA’s credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are "more than we have ever experienced before." He went on to say, "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."

Considering that we have also learned that many of the banks lack the proper paper trail to prevail in foreclosure and that judges are beginning to wake up to this, and sometimes even cancel mortgages outright, it is not surprising that the banks are beginning to realize that their own bad faith, their own shoddy dealing, their own rupturing of the social contract has put them in a position where they may not be in the driver’s seat on foreclosures much longer. They may actually get scared into doing the right thing.

[Earlier posts in this series and related links at FDL’s Foreclosure Fraud Resources]

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Cynthia Kouril

Cynthia Kouril

Cynthia Kouril is a former Special Assistant United States Attorney in the Southern District of New York under several different U.S. Attorneys, former counsel to the Inspector General for the N.Y.C. Department of Environmental Protection where she investigated threats to the New York City water supply and other environmental crimes, as well as public corruption and fraud against the government, former Examining Attorney at the N.Y.C. Department of Investigation and former Capital Construction Counsel at New York City Parks and Recreation.
She is now in private practice with a colleague whom she met while at the USA Attorney's Office. Ms. Kouril is a member of the Steering Committee, National Committeewoman and Regional Coordinator for the New York Democratic Lawyers Council, a member of the Program Committee of the Federal Bar Council and a member of the Election Law Committee at the Association of the Bar of the City of New York. She is active in several other Bar Associations.
Most important of all, she is a soccer mom.