Monday, July 28, 2008

Judges Denying Foreclosures, But What’s The Point?

Brooklyn CourthouseWe’ve seen politicians proclaim the injustices of foreclosures, and now judges seem to be rallying around those ideas as well. The housing crisis has created two camps: one side which supports the homeowners, saying they were manipulated by the greedy lenders, and the other side which supports the lenders and their resolve to make a profit. The most popular side has obviously been the one supporting the homeowners; after all, it is much easier to feel for a family losing their home than a big multinational bank losing some money. Judges, though, are supposed to be impartial regardless of any personal feelings they may have.

The Wall Street Journal recently published an article about how a few judges from across the country have taken up the fight against foreclosures. They recount several cases where the judges seemingly go above and beyond in order to deny foreclosures. Here is one example as written in the article: “In June, the judge dismissed with prejudice two cases filed by a unit of Wells Fargo & Co. By doing online public-records research himself, the judge found that Wells Fargo didn't own the two loans, and his dismissals mean that even if Wells Fargo eventually obtained legal ownership, it could take up to another year to obtain foreclosure.” Wells Fargo said that they were acting as the trustee for a loan securitization trust which holds the mortgage, an arrangement which is pretty standard in the industry. This judge definitely went above and beyond in order to find a loophole which he could use to stop the foreclosure. And now, thanks to this judge, the homeowner gets to live in the home for another year on Wells Fargo’s dime. What the judge was trying to accomplish other than allowing the homeowner to mooch off the system for a while longer is not certain.

Wall Street Journal’s law blog author Amir Efrati tells another story of a judge named Arthur M. Schack. “In one of his foreclosure dismissals, Schack (Indiana, NYU Law) cited the film 'It’s a Wonderful Life' to make the point that homeowners now deal with 'large financial organizations, national and international in scope, motivated primarily by their interest in maximizing profit, and not necessarily by helping people.'” My question is, how does the fact the bank is trying to maximize profits have anything at all to do with the case? These major banks are all publicly traded and their main responsibility is to their shareholders and turning a profit, not helping people. I think Mr. Schack might be confusing these publicly traded banks with non-profit microfinance institutions.

Don’t get me wrong--I feel horrible that these people are losing their homes and having to go through the misery of foreclosure, but at the same time, I know that milking the financial system is not for the greater good. These judges can try all they want to delay the inevitable, but in the end these people are going to lose their homes. That’s the normal course of action when someone stops paying their mortgage payment. All that they are doing now is making life miserable for lenders and costing them more money in legal fees and lost interest. In case you didn’t guess it already, we can bet that those increased costs are going to find their way back to borrowers one way or another. So because these judges are making a stand and helping a few people, all the other borrowers out there can expect to pay the price. This isn’t exactly my idea of justice.


Anonymous said...

You're joking, right?

Have you seen the bigger picture of how the banking industry works worldwide and how insane their profitability has been through agreements with different countries' governments when we moved off the gold standard in 1971 and onto the FIAT money system?

Or search on YouTube for 'Corrupt banking cartels' - despite the name it's still fun to watch, and I dig the guy's voice.

I'm all for banks being able to remain profitable (well, okay, business in general - to keep the economy relatively stable - it's fascinating rubbernecking this!), but if these judges are basically making an example and telling the overzealous banks to "back off!" and work out a repayment plan with the borrower over the next year it would take anyway, I applaud them.

I'm not anti-bank, but it's good to see someone taking a stand here to balance things out a bit (one hopes). I'm no bleeding heart liberal either but if this sets an example for banks to be more open to repayment work-out plans with borrowers in a more collaborative way rather than with an iron fist...well I'd be curious to see how this progresses.

I know you're a blogger, but your lack of objectivity slanted your article so heavily that it became a parody of itself. Perhaps next time you'd consider taking a look from a few different angles and representing both sides, even if you don't fully agree with them. It makes for more informative and enjoyable reading.

At any rate, thanks for getting me thinking, and good to know there's some unusual 'specific' behavior happening given all the generic bad news we're fed on an hourly basis.

Eric Ames said...

Thanks for the comment Stella. I'll start by saying that I was very opinionated in this post, but I feel for good reason. One of the points I was trying to make here was that regardless of whether or not we feel bad for these people, that shouldn't affect the law. Judges by law aren't supposed to let their personal opinions or feelings interfere with their decisions. It seems though that this is the obvious case with a few of these judges. They are as you said making a stand against these banks. The question shouldn't be whether or not we support their views, but rather whether or not what they are doing is fulfilling their duties as judges. Once that question is resolved, and I do add that it certainly could be debated both ways, then we have to look at what the cost is of their decisions.

So even if we find that their actions are legit, and can agree upon that, what does it mean? This is I guess where the debate really heats up, and I do have a very strong opinion. I will start this argument by saying that my opinion is based on my experiences in real estate (I worked in a real estate office which also had a mortgage arm) during the subprime heyday. During that time I can safely say I saw WAY more (not even comparable) accounts of people taking advantage of lenders than the other way around (lying about their income, residence, and so on). Furthermore I also know first hand that people knew more about these subprime loans than they are now eluding to after the fact. Now that they are going into foreclosure it is easier for them to say they were taken advantage of, then to admit they just made a bad financial decision. This is not to say that there weren't people who were in fact taken advantage of, but I think if we were made privy to the true numbers we would see that those individuals were in the minority. To an outsider though who has limited knowledge of the industry and mainly gets their information from the media, they are led to believe that every single one of these subprime borrowers was bamboozled which just isn’t the case.

Now that you can see where I’m coming from let’s get back to the discussion about the impact of these judges decisions. The first point is that these people aren’t able to afford their payments, this is of course why they are in foreclosure in the first place. Therefore delaying the foreclosure process is simply delaying the inevitable, and just costing the banks more in legal fees and lost interest. Meanwhile the homeowner gets a free ride so to speak. This is where is really matters whether or not you think these people were taken advantage of. If so then you will likely think this is not such a bad thing, if you don’t then obviously this is outrageous. All this though isn’t even my main concern. Ultimately I’m not a big investor in banks, I got out of that long ago, so on the surface it is no skin off my back (or most people for that matter) if these banks lose some money. When you dig deeper though you will see that ultimately this is a big deal, and that everyone is impacted. What do you think will happen if these lenders are faced with increased expense in reclaiming debt? Well it is going to be returned via higher interest rates and fees. After all they are going to have to account for these risks one way of another, so in the end future homeowners will be subsidizing those homeowners in foreclosure. Furthermore if any of these banks ultimately are faced with financial turmoil there is always the possibility that the government will have to step in and offer a bailout of one sort or another. This could be in the way of honoring the FDIC guarantee (ie IndyMac), or it could be a full fledged bailout like in the case of Bear Stearns or Northern Rock in the U.K. You can be certain though if a major bank like most of the ones mentioned in the article go under taxpayers can expect to foot a very large bill.

Anyway I’m going to cut myself off there, but hopefully you can see now where I’m coming from. I do appreciate the comment though as I love a good debate.