Should it come as a surprise that banks are handling foreclosures in the same impersonal, imprecise, haphazard fashion that they lent out the money that got us in to the crisis in the first place?
Lenders handed out mortgages to whoever would take one during the salad days of the early aughts, knowing in their heart of hearts that the home value would appreciate, and it really wouldn’t matter what a Wal-Mart employee’s actual monthly cash flow looks like. The mortgage would be sold on secondary markets soon afterwards, so it really didn’t matter what a lender thought of their borrowers. Well, these incentives tripped up the secondary and tertiary mortgage markets, as we all know, putting many people out of jobs, and unable to afford their home payments. So, we now get to see this impersonal process in reverse, as banks scramble to liquidate their backlog of homes in default, by foreclosing on them, then reselling. Turns out, it’s not so easy.
Recently, a lawyer named Thomas Cox questioned Jefferey Stephan, the head of GMAC’s “document execution team”, and it came out, during the deposition, that his job was to sign thousands and thousands of foreclosure-related affidavits every month — almost 10,000! The press has come up with the term “robo-signer” to describe this job, and for good reason. Crunch those numbers for yourself. With 21 workdays in a given month, Mr. Stephan was signing an average of 475 affidavits a day. If Mr. Stephan allows himself a well-deserved lunch break, that’s about one affidavit a minute. Lunch break or not, though, it’s clear that he isn’t reading the documents before he signs them, which is problematic when we’re talking about a sworn statement that can put a whole family out on the streets.
As you can imagine, this sometimes leads to mistakes. Back in May, Mother Jones reported that many people who have negotiated loan modifications with their lenders, through HUD’s HAMP program, have still been foreclosed on. Mark Pearce, North Carolina’s deputy commissioner of banks is quoted in the story saying “Basically, you have the right hand at the mortgage company not knowing what the left hand is doing,” inadvertently and ironically referencing a New Testament quote about not congratulating oneself for being charitable. But there’s no charity here. Banks, in their rush to liquidate this backlog of collateral, are making the same mistake they made getting into this mess: treating homes like commodities, and nothing else.
But despite the fact that banks, in their systematic negligence, are subverting the goals of the administration’s home loan modification program, the administration will not back the foreclosure moratorium that many policy experts are calling for. Why? Because it might disrupt the housing market, they say. And people call Obama anti-business.
Treating homes — and in turn, places — like commodities to be flipped, chopped up and securitized is precisely what got our economy in trouble. Doing it in reverse, by forcing people out of their homes despite their honest efforts to pay down their debt, will not fix the housing market. And it’s not good place-based policy, either.