"What do you do?" is one of those questions that calls for different levels of detail depending on the context. If I’m feeling particularly glib, I sometimes answer, "I sue banks."
People rarely ask the obvious follow-ups. Why do you sue banks? What did the banks do to deserve so much suing?
Instead they say things like, “That’s God’s work. Keep it up.”
This is a pretty dramatic shift from a few years back. Previously people wanted details. Are you suing banks because you’re a money-grubbing lawyer or some kind of quixotic bleeding heart who doesn’t understand the financial system?1 That’s all changed.
Some of it was the recession. Some of it was Occupy. Whatever the cause, it’s a pretty widespread assumption that the banks are so thoroughly up to things they should not be up to that the specifics of why they’re being sued isn’t particularly relevant. “I sue banks” is a bit like saying, “I punch Nazis.”
The answer I’m looking for is quixotic bleeding heart with a head for numbers. ↩
When U.S. Bank foreclosed on Candejah’s house, she decided she wasn’t leaving. She’d lost her job in the recession and her already predatory loan became impossible. That was three and a half years ago.
Candejah was one of the early members of Springfield No One Leaves, which is the most effective and inspiring grassroots anti-foreclosure and affordable housing group I know of. They run on a shoestring budget and have managed to keep a few hundred people in their homes for years. Bit by bit the banks are throwing in the towel and offering to sell the homes back after foreclosure for what they’re actually worth. Sometimes less.
Of course, there are a few problems.
- With a foreclosure on the credit report, conventional lenders won’t offer even a very small loan to solve the problem.
- After years in limbo, a lot of houses need some serious repair immediately, which is a massive up-front cost. While there are usually funds availabile to help low-income homeowners with this sort of big-ticket item. Except the recorded foreclosure screws up the title and nobody can lend.
- Poverty is geographically concentrated. Even where communities pull together to help out their members, their’s just not much money to go around.
So Candejah’s asking her friends, family, neighbors, and internet friends for help coming up with $20,000 to buy back her home and get the roof fixed for her family. This is literally all it would take to provide an entire three-generation family in stable housing.
Between everything Candejah’s been through and everybody Candejah has inspired, a friend of Candejah’s is a friend of mine. If that sort of thing works in reverse, please support Candejah as you are able or share her story.
Think of it like the 21st century version of a barn raising where a community comes together, everybody chips in a bit, and something important gets done.
Funny story about a bank. Wells Fargo forecloses on one of the predatory loans it serviced. The homeowner leaves. Then a few years later the city notices that the bank wasn’t maintaining the property1 and the city sues under an anti-blight ordinance. Wells Fargo’s attorney suddenly says, “Wait, we don’t own that property. Sure, we said we foreclosed. But we didn’t actually own the mortgage at the time. So make the homeowner pay for it.” This is a bit weird because Wells Fargo doesn’t seem to have mentioned to the homeowner that he still owns a house.
So now Wells Fargo is trying to make the guy they foreclosed on responsible for the repairs. This is going to be a bit tough for him because he lives in a homeless shelter.
I’m not saying that Wells Fargo didn’t maintain the property because it was in a community of color. Although Wells Fargo has [a record] on that sort of thing. ↩
For the majority of people who haven’t heard of Ocwen, it’s one of the biggest servicers of distressed and subprime mortgages. If the mortgage lender is a loan shark, Ocwen is the guy who comes by to collect payments and occasionally breaks your kneecaps.
To put this in perspective, this fine is about 28 percent of the entire value of the entire company. Think of this like the slap on the wrist that knocks off your arm and everything up to about the collarbone.
- There are 643,000 homeless people in the United States.
- There are 14. 2 million vacant homes in the United States.
It seems reasonable that various economic conditions could cause this sort of crisis of homelessness. And it’s reasonable that other economic conditions could cause a glut of vacant homes. But when we see both at the same time, the train has gone off the tracks. Maybe it’s time to stop evicting people after foreclosure if they’re willing to pay some reasonable amount of rent.
When I tell this to the attorneys in charge of doing the evicting, they tell me to be reasonable. I’m afraid I no longer know how. When the world is stuck in a fun house mirror and the world is warped beyond recognition, it’s hard to draw a straight line.
Politicians like to surround themselves with the real-life stories of people who have been helped by their policies. In some ways, this is great because it reminds everybody that whatever wonky policy is being discussed. It’s also sort of crappy because it means that people get trotted out sort of like props.
I saw something awesome earlier today. The State Attorney General, mayor, and a bunch of other elected folks did a round table discussion of their foreclosure prevention efforts. The idea was to talk about the program and then pat each other on the back for an hour. (“Thank you.” “No, thank you" "Isn’t it nice that we’re so good?") (I’m a bit cynical about the endeavor—but in the case of the Attorney General, some serious back patting is deserved. Most of you know Martha Coakley as the Senate candidate whose loss to Scott Brown opened the door for Elizabeth Warren a couple years later. As it turns out, she’s been a fantastic Attorney General for Massachusetts.)
In this case, the homeowner they invited to be on the panel gave them more than they had bargained for. She told her story beautifully. Then she sat politely while others talked. But at some point the discussion turned to the homeowners who continued living in their homes after a foreclosure sale because “the banks hadn’t gotten around to evicting them.”
The problem with all this talk is that in many (most) of those cases, the foreclosures were so flawed that the banks can’t evict the homeowner because the homeowner still owns the house. If you’re in that situation in Massachusetts and you want to keep your home, you have every legal right to challenge the validity of the sale. In practice, this means you live in your home until the bank decides to see reason and works out a way that you can resume making payments.
The low-income homeowner knew her stuff. (She’s an active member of one of the more effective community-led anti-foreclosure groups in the country.) So when people started talk about how they would never advise people to stay in their homes after foreclosure, she spoke up and let everybody know that in Massachusetts only a judge can evict you and that if you want to fight for your home, you should stay in it.
And she was right. Things had worked well for her because she hadn’t given up. Her case isn’t unique.
Is there really parity though between a bank having to pay out money and people losing their homes? Feels like a bank can just chalk this up to the cost of doing business.
I don’t think parity is quite the right word—because the bank isn’t a person. It can’t experience homelessness. It can’t suffer. It can’t love. It can’t experience hunger. It’s an entity that exists solely as a social construct. The bank has have employees, customers, or investors who are all people—but it isn’t an investor itself. In other words, “an eye for an eye” makes no sense when applied to the bank. The bank has no eyes.
Let’s also consider the other side. Seven hundred and twenty-five million dollars. It’s a lot of money. If the fair market value of your house is $200,000, you could buy 3,625 houses free and clear. I grew up in Bexley, Ohio. You could buy pretty much every house in town for $725,000,000. (You would proably have enough money left over to put a car in every garage, a pot in every kitchen and a chicken in every pot.) That includes the governor’s mansion. It’s hard to put a price on losing a home. But if you had to, the price would be less than $725,000,000. I’m not crying for UBS here—it’s just that this is a large amount of money. It’s roughly 1% of UBS’s market capitalization—and this fine is only for misconduct in the U.S. housing mortgage backed securities market. Also this isn’t a punitive thing. It’s paying back ill-gotten gains. It’s a bit like UBS stole every house in Bexley, Ohio and now they have to give them all back. (And when you look at the downstream foreclosure consequences, this is disturbingly close to what actually happened.)
I suppose the other half of this is that this particular fine wasn’t for foreclosure-related activity. It’s for misrepresenting stuff related to selling securities to Fannie and Freddie. Fannie and Freddie are now owned by ya’ll, the citizens, so this is really about UBS paying you back a bit. Sort of. Even that part is indirect. And it’s a bit more complicated than that because this type of malfeasance caused all sorts of housing market distortions that caused the a boom and then a bust and then a recession and then there was the recovery and it all is back about where it started except presto-chango you don’t own a house anymore. Or maybe you do own a house except you somehow owe twice as much money as the house is worth.
This is all a long-winded way of saying that I don’t think it makes sense to talk about parity in a case like this. UBS did some bad stuff. It got caught. Now it’s paying heavily.
I’m still simmering over this old Morning Edition story lamenting Florida’s foreclosure process. Before declaring a process is broken, a responsible journalist ought to ask two questions:
- What are the goals of the process?
- Are those goals being accomplished?
If the answer to that second question is “yes,” the process isn’t broken. It doesn’t mean it’s a good process—but identifying the reason for the process is important if you’re going to ask whether there might be a better way to go about it.
In this case, the story unreflectively blames a “cumbersome legal process” and “unscrupulous foreclosure [defense] attorneys.” There doesn’t seem to be much desire to discuss whether that process has prevented people from losing their homes who should not lose their homes. Or whether those “unscrupulous” attorneys have meritorious claims. If the homeowners actually defaulted on the loan, lenders actually followed the rules, and the lenders actually showed up and competently presented their case—it could be over in a tenth of the time it takes. But for some reason things keep dragging out and homeowners keep winning these suits. Perhaps there’s a better explanation than “process is broken.” It could be that the indigent homeowners just have magical attorneys who are way better than anything the lenders money can buy. Or maybe the homeowners actually have a case worth vindicating.
- <$1000payout received by settlement to an average borrower victimized by banks’ alleged mortgage-related abuses. Federal regulators slated 1,135 people who’d lost their homes, most of them members of the military, to receive a bigger piece of the $3.6 billion pie — $125,000 for each. For 80% of those being compensated, however, the return won’t be so rich. source
The Wall Street Journal’s take on this is a little strange to me. Here’s the lead:
The vast majority of borrowers being compensated for mortgage-related abuses will get less than $1,000 apiece, a sobering coda to a protracted attempt to help those who may have been placed into foreclosure as a result of banks’ mistakes.
A paragraph later, you get to this:
Another 53 borrowers were found to have lost their homes despite not actually defaulting on their loans.
So … wait. These guys foreclosed on fifty-three homes of people who had not defaulted on their mortgage? Why isn’t that the headline? (Those 53 and about a thousand others will receive payments of $125,000. This is in addition to whatever they recover in any lawsuits they bring.)
The reason most of the payments are “less than $1,000 apiece” is that the payments are going to four million borrowers. I know as well as anybody that the lenders screw things up on a pretty epic scale. But when you have relief that broad, you shouldn’t expect the median payout to be particularly high. There was a whole range of abuses. The most common ones were less clearly tied to the ultimate harm.
I like to keep this parade of links to gigantic and expensive settlements by our titans of finance coming so people can remember them when they’re tempted to say that nobody is being held accountable for the financial crisis. This half billion is on top of a previous $8.5 billion settlement. That was on top of a recent $25 billion settlement.