I Just Don’t Get It!!

A few years ago (2008) multiple banks were bailed out of their financial crisis by the US government through an infusion of billions of dollars into their companies.  Somewhere I thought those banks were supposed to help out those homeowners who were upside down in their mortgages through loan modifications…oops…the government forgot that clause when it was written and passed!  In the following years the banks began making profits and repaid their loans (some in record time, receiving kudos for repayment) while millions of homeowners lost their homes to the banks because the banks wouldn’t modify their loans, reduce principals or decrease interest rates.  Oh yes, some of the more “generous” banks accepted interest payments while tacking on penalties to the back-end of the mortgage and not reducing the principal.  Well, that’s fair isn’t it?

So, homeowners, not really knowing what to do, were scammed by newly formed companies set up to “help” homeowners renegotiate their loans and debts, because they were “experts”.  But wait, these distressed homeowners had to somehow come up with anywhere from $3,000 to $5,000 upfront for these companies to renegotiate their debts!  During the next couple years many of those companies scamming homeowners were shut down, but only after thousands of people ended up losing their homes, vehicles, businesses and savings after being convinced they should file bankruptcy…especially before the bankruptcy laws changed.

Keep in mind the President’s State of the Union address was on Tuesday, January 25, 2012.  President Obama promised to help get homeowners back on their feet by passing any bills brought to him to help distressed homeowners.

On Wednesday, February 8, 2012, the committee of attorneys general, given the order of negotiating a financial settlement with the five major American banks accused of abusive or negligent banking practices, reached an agreement that will require the financial institutions to pay a total of $25 billion dollars in reparations.   The money will be distributed to about one million borrowers who lost their homes to foreclosure by the five banks, which include Bank of America Corp. (which will pay the largest share of the money at approximately $8.6 billion), JP Morgan Chase & Co., Wells Fargo & Co., Ally Financial and Citigroup. Hmmm…aren’t most of these the same banks that were bailed out in 2008?

Hooray you say?  Don’t forget this was a settlement, so that means the banks got something in return.  The settlement releases the banks from civil government claims over improper foreclosures, robo-signing and other unethical and illegal tactics used in the foreclosure process and, perhaps most damning from the government’s perspective, the mishandling of requests for loan modifications, even after help was orchestrated in 2008 as part of the bank bail-out bill to help struggling homeowners do just that. The only saving grace, be it small, is banks may still be liable for a number of other government actions and individual litigation from investors over the ways home loans were packaged and sold as securities.

So now, 750,000 people may recover $2000 of everything they lost when their homes were foreclosed by these banks.  I won’t even go into the funds received by banks “forced” to sell those foreclosed homes!!  The rest of the funds will be used to buy down loan principals of about one million homeowners who are current on their mortgage payments.  Let me see if I understand this…a mere 750,000 of the millions of homeowners who not only lost their homes and credit ratings could recover $2000 while the rest of the homeowners who are current and upside down on their mortgages could see a reduction in their principal?  Boy, is that great or what?  The banks will use the money they agreed to pay in the settlement to pay 750,000, who lost their homes, $2000 and the majority of the “penalty money” will be used to pay themselves to reduce the principal on the notes they already hold.  It must be government math or something because I just can’t get the numbers to add up to $25 billion!

According to the Washington Post, the deal also brings to a close a separate federal investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009.  It seems to me that the banks definitely had the best negotiators for this settlement.  The banks will pay themselves to reduce homeowners’ loans, eliminate most of their liabilities AND Federal investigation into inflating appraisals from 2003 – 2009 AND it is only going to cost them a total of $25 billion!  I would venture a guess that probably about 75% of the money will be repaid to those same banks when they reduce the loans they hold.  What a sweet deal for the banks!  I just don’t get it!

2 thoughts on “I Just Don’t Get It!!

  1. On January 24, 2012, the day before the President’s State of the Union Address, my friend lost his home at auction. He had spent 2 years completing Bank of America’s paperwork to modify his loan and providing reams of tax returns, financials and everything else requested by B of A. He kept telling them he was upside down in his mortgage and could not afford to make those high mortgage payments any more. Their answer was that he was still current on his payments and there was no need to adjust anything. Baffled, he stopped making mortgage payments in the summer of 2011 so he could get his loan modified. Bank of America had discussions with him and asked for more paperwork and financials.

    A few days before Christmas the bank called to tell him his loan modification request had been denied. On December 26th he received a letter informing him that his home would be auctioned on January 24, 2012. Upset, this man called the bank asking what he could do to avoid his house being sold on 1/24/12 which would completely ruin his credit rating. They suggested “short selling” his home and they would agree to $350,000. His Realtor immediately went into action publishing a “short sale” status on the listing. Within a week the agent had 9 offers on the house with the highest being $309,000. The highest offer of $309,000 was submitted to Bank of America’s foreclosure company. Nothing was heard about the short sale offer even after daily phone calls.

    On the morning of the auction, Monday, January 24, 2012, the homeowner called the bank again to ask about the $309,000 offer. He was told the short sale offer had been rejected by Bank of America. Then my friend asked what the minimum bid for the house would be at the 1 PM auction. The answer was $250,000 minimum bid! There were 2 bidders at the auction that afternoon, the short sale buyer willing to pay $309,000 for the house and an investor purchasing foreclosed homes for an investment portfolio. My friend’s house sold at auction for $236,000!!! That’s $73,000 less than the short sale offer which included a reduced commission!!! Not only did the Realtor lose, my friend lost his home and his credit!

    The President’s State of the Union address the next evening only made me realize he didn’t have a clue what’s been going on with homeowners and banks!


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