Tell us how you’d like to see banks change the way they treat homeowners. Please use the comment section for your responses.
It appears that the biggest bailed out banks are proving the economic theory of moral hazard to be true — namely that institutions that aren’t punished for risk-taking will continue to take risks. On the other side, small banks that received bailout money now are taking fewer risks than other banks. That’s probably because increased capital requirements for the small banks that received bailout money had a larger impact on smaller institutions, according to the Fed.
The Fed’s findings echo concerns already raised by some experts that bailing out banks with few strings attached would create a tier of too-big-to-fail banks that continue to take excessive risks. Neil Barofsky, the former special inspector general of TARP, wrote last year that big banks “have become effectively guaranteed by the government no matter how reckless their behavior.”
Nobel Prize laureate Joseph Stiglitz, a professor at Columbia University and a left-leaning economist, wrote in January that TARP hardly helped the economy, since much of the money went to bonuses instead of lending. “It was wrong to think that the bankers would mend their ways — that they would start to lend, if only they were treated nicely enough,” Stiglitz wrote.
But the Treasury Department has held fast in its defense of TARP. Treasury Secretary Timothy Geithner said that it “first put out the financial fire.” Timothy Massad, the Treasury Department’s acting assistant secretary for financial stability, said last year that “to suggest that [increased risk-taking] is TARP’s main legacy is to ignore the facts, and to confuse the response to a crisis with the need to address the causes of the crisis,” according to Bloomberg News.
By 2009, the adjustable interest rate for Cassandra and Bernard Gray’s Durham, N.C., home loan had spiked to more than 12 percent. “I didn’t know if we were going to be on the street or in a shelter,” Cassandra recalls. “We couldn’t afford groceries. It got pretty bad.”
They were thrilled to sign up for a modification plan with their loan servicer, GMAC Home Mortgage, Cassandra Gray said.
The modification lowered their payment from $1,128 to $768 per month. But after three months, GMAC began returning their payments, the Grays claim in a complaint filed with the North Carolina Commissioner of Banks.
GMAC customer service representatives told them there was a “computer glitch” and that the problem would be resolved. Instead, GMAC twice started a foreclosure action.
GMAC claimed it had no record of any payment being received. The Grays have submitted bank statements that appear to show GMAC returning the $768 payment — several times. GMAC has since assessed more than $20,000 in interest and fees.
“I thought I was doing the correct thing” by obtaining a loan modification, Cassandra Gray said in a recent interview. “But I came home one day and there was a foreclosure notice on my door and a sign in my yard. I called constantly, but it was as if the dots were not connecting.”
A North Carolina clerk of court recently dismissed the foreclosure on grounds that GMAC had not properly demonstrated that it had standing to bring a foreclosure. But once GMAC gets its documentation in order, the loan servicer can foreclose again.
GMAC said it could not comment without borrower consent. The Grays did not sign a form authorizing the lender to talk about their case. But the lender did say that it is “working directly with the borrower to address their claims.”
Since 2007, nearly 9 million homes have been lost to foreclosure, according to data from RealtyTrac. About 4 million are currently in default on or in some stage of foreclosure. Some of these homeowners saw their payments skyrocket, some lost their jobs, and some bought a more expensive home than they could afford.
But many, like the Grays, say that their foreclosures or defaults were triggered by an error made by the mortgage servicing company. Common errors include late fees generated through questionable accounting and imposed without notice, excessive charges for property inspections and maintenance, and inflated or unnecessary attorneys’ fees.
Many homeowners who have tried to correct what seem to be simple accounting mistakes say that the servicers — often, an arm of a major bank — are unable or unwilling to help them resolve even the most basic problems.
“Every time I would call I’d get a different person,” said William Allen, a retiree near Baltimore who is fighting a Bank of America foreclosure. “I worked on it nearly a year and it didn’t do me any good.”
Another example of banks not willing to take the time to fix errors for a customer. Why do they bounce it around between customer service reps who never seem to solve the problem? Without media attention this poor guy would probably never have been able to get Bank of America’s attention. Even with media attention from a major network news agency, they don’t seem to be in any hurry to help him clear this up!