Mike the Mad Biologist

Our Pro-Bank Policies Are Losing the Elite

They’re almost there. The NY Times’ Joe Nocera on Foreclosuregate:

The lawsuit uncovered a raft of similar examples — case after case where the loan officers not only knew that fraud was being committed, but were actively engaged in committing it. “By about 2006,” says the lawsuit, “Countrywide’s internal risk assessors knew that in a substantial number of its stated-income loans — fully a third — borrowers overstated income by more than 50 percent.” And that is just one small subset of what went on at Countrywide. The truth is, any rock you turn over in the Countrywide subprime portfolio, something slimy is going to emerge.

That’s why most people, myself included, have no sympathy for Bank of America’s legal predicament — and no patience for its “we’re not the bad guys here” arguments. It is absolutely true that the homeowners that Bank of America wants to foreclose on are in default on loans they should never have gotten in the first place. (Gee, whose fault was that?) But it simply does not follow that the bank therefore has an absolute right to take back the home. Under the law, it has to prove it has that right — by filing documents that show that the owner of the mortgage has conveyed that right to it. That’s why this affidavit scandal isn’t some legal nicety. It’s about the single most important value of American jurisprudence: due process…..

Banks took advantage of investors every bit as much as they took advantage of home buyers.

And it would be nice, if just once, they would admit it. Instead, we get Mr. Noski, the chief financial officer, promising that the bank will fight these cases to the death because they’re looking out for shareholders. It’s appalling, really.

I admit it: I want to see the banks feel some pain. Most people do, I think. Banks did terrible things during the subprime bubble, and they still haven’t paid any real price. I find myself rooting for judges to rule against banks in foreclosure cases. I would love to see these big investors put the serious hurt on Bank of America, which will encourage other investors to pile on. I know this colors my thinking. I can’t help it.

Intellectually and psychologically, however, Nocera still can’t close the deal:

Yet I also know the flip side. If the foreclosure lawyers start winning a lot of cases, if judges halt foreclosures on a widespread basis, if investors start to extract billions upon billions of dollars from the banks — and if banks become seriously weakened as a result — we’ll be right back where we were two years ago. The banks will need to be saved for the good of the economy. The taxpayers will have to come to the rescue. That’s an appalling prospect too.

Banks: We can’t live with them, and we can’t live without them. It stinks, doesn’t it?

It’s very simple: we need banks and bankers, but we don’t need these banks and these bankers. As I noted, in this case, justice, even if it’s salted with a little vengeance, is good policy. If these banks emerge relatively unscathed, they’ll just go back to their old behavior the first chance they get. This is what sociopaths do. This is a ‘lose-lose’ situation; the question is do we want to lose little now, or big later.

But it’s still somewhat encouraging that the captured economic media are starting to become disgusted.

Comments

  1. #1 Physicalist
    October 27, 2010

    [I]n a substantial number of its stated-income loans — fully a third — borrowers overstated income by more than 50 percent.

    I remember shopping for a mortgage in 2003, and I was astounded when brokers would literally tell me that it really didn’t matter what I make, they could get me a loan for basically any amount that I wanted to borrow. I couldn’t believe it then, and now I still can’t believe that people let this happen.

  2. #2 sinned34
    October 27, 2010

    Back in 2004, that’s how my wife and I received our mortgage. We didn’t quite make enough to obtain the mortgage, so the broker asked us what we expected to make in five years, and that’s the number he wrote down. Of course, he didn’t actually TELL us that, we just thought he was asking questions.
    At any rate, my wife got afflicted by illness and stopped being able to work (thank Cthulhu for socialized medicine), and so we wound up having to sell the house before the bubble burst, and moved into something much more affordable.

  3. #3 scathew
    October 27, 2010

    Even working with reputable banks they would have given us obscene amounts of money and frankly encouraged us to take it. Sure, we could have paid the mortgage, but the tiniest slip in our lives and it would have been all over.

    Fortunately I and my wife come from sane stock and opted to go the reasonable route…

  4. #4 Eric Lund
    October 28, 2010

    I’m now counting myself fortunate that I had enough inertia not to refinance my mortgage after buying my house in 1998. (I paid it off this spring.) It wasn’t until 2007 or 2008 that I heard about stated-income loans. However, I had heard sometime in 2006 that banks were offering negative amortization loans (there apparently was substantial overlap between these loans and stated-income loans), and I knew then that things would end badly. To paraphrase the late Molly Ivins: Since then I’ve learned a lot about the questionable to fraudulent finance behind the bubble, but no new questions occur. “Say what?” and “Didn’t anyone think?” continue to cover everything.

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