We have a multi-year history of the banks dissembling and threatening the government - and by extension the people, effectively robbing the taxpayer both originally and on an ongoing basis.
A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
Why not? The banks are doing it. They're lying about asset valuations, they are intentionally "extending and pretending" that value exists in various loans and property when it does not, and they have undertaken getting that crooked policy turned into a legal act so as to be able to continue doing so.
If the banks can refuse to admit that a defaulted loan is in fact in default and get away with it why should the person responsible for paying that loan in fact pay? There is no need to do so for the bank to claim it's good! Sauce for the goose, Mr. Bankster.
While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.
Again, why not? The banks can do it and in fact are - why shouldn't the people do it? If you can manage to get away with it legally, there's no reason to deal with these people on an ethical or moral basis.
These institutions have demonstrated repeatedly that they will screw the people at the drop of a hat, that they will lie to their investors and the public (witness Dick Fuld's "burn the shorts" comments) and that they will play "extend, pretend and extort" when it comes to their reporting of losses and dealings with the government - and thus you, the taxpayer. They will even go so far as to rig bids and lie about that too, then "negotiate" to not be indicted in exchange for throwing certain individuals under the bus while they keep the ill-gotten gains they literally stole from the taxpayers.
From the lenders’ standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides technology, services and data to the mortgage industry.
You mean like the banks that have done the same thing to the taxpayer, stealing every nickel they're able, changing the accounting rules after the fact so as to make legal carrying a defaulted loan over recovery value and then crying poverty - and "bailout needed or the world ends tomorrow morning at 9:30 ET sharp when the market opens"?
You cannot deal with an immoral and unethical entity or bunch of entities in a moral or ethical manner.
If you do you will wind up broke - every time.
This industry has demonstrated time and time again the willingness to market products they know are toxic and cannot possibly be paid as agreed, to sell paper to investors claiming to have good titles on each loan when they in fact have "in blank" assignments that are not recordable, to use firms like MERS to get around state law requirements and cheat state, county and local governments out of their legitimately-owed recording fees and then to craft "loss share" deals with the government when they get in trouble (or buy out other failed institutions) so they have no incentive to deal with the public on a fair and equitable basis in modifying loans that are in trouble.
Nor was this sort of rookery limited to housing. We have naked CDS written without ability to pay, we have auto loans written on a "rollover" basis by GMAC and others (again, without any reasonable expectation of ability to pay), we have outright bribery and bid-rigging in the GIC (municipal debt) markets and we have credit products sold to municipalities that included proved felonious conduct (in the form of guilty pleas in Jefferson County Alabama.)
That's the short list my friends!
Sorry, no dice on the morals plea folks. Get good legal and accounting advice and then do what's right for you as a pure business decision without regard to morals or ethics. Ignore those who claim a need for you to behave "ethically" or "morally" - that's nonsense.
You have no obligation nor should you ever deal in an ethical and moral manner with an entity and industry that has demonstrated time and time again that it will not deal ethically and honestly with you.
All you have left when transacting with such an entity is to screw them at every opportunity just as they have and will attempt to rip you off should the opportunity arise.
I'll change my opinion when I see indictments for the bid-rigging scams aimed at the banks and their officers, when I see mark-to-market reinstated and every insolvent institution closed, and when I see those who have lied thus far prosecuted for their frauds - up and down the line.
Until then my view toward the banking industry can best be summed up as this:
From a report emailed to me over the weekend:
At the core of the foreclosure-prevention strategy is ignoring delinquencies. The percentage of older delinquent loans not yet in foreclosure is startling: 60% have at least 12 missed payments, and 35% have at least 18 missed payments. Add to this that three-fourths of delinquent loans are not in foreclosure, and we see that hidden losses well exceed those in the open.
Uh, they're not being "ignored" - this is systemic and intentional fraud.
Remember, these loans are either being held by someone or securitized into some sort of package. When you have a loan that has no chance of "curing" (to cure a loan with 12 missed payments the borrower would have to come up with the 12 payments to bring it current!) that loan should be carried at its recovery value - that is, the value of the collateral that can be seized and sold, LESS the cost of eviction, remediation and resale.
Does anyone recall all the entries I've written about getting competent legal and accounting (tax) advice before proceeding with any sort of action regarding walking away, short sales or foreclosure? This same report says:
Many homeowners would be better off going into foreclosure, than doing a short sale. Short sales are fraught with potential legal, credit, and complicated tax issues. For example, someone who refinanced could owe capital gains taxes, which are not forgiven under federal and California temporary debt relief acts. In the foreclosure route, borrowers can live in their house mortgage-free for at least one year, maybe two years. Both short sales and foreclosures are reported as “account not paid in full”, and are equally damaging to a credit score. An exception exists if short sellers can negotiate better terms with their lender on recourse liens. The other possible advantage to a short sale is the ability to get a mortgage again in 2 years (Fannie, Freddie), rather than having to wait 3-5 years after a foreclosure.
Homeowners pursue short sales, unaware of the problems they are creating for themselves. Their agents never warned them of deficiencies, ruined credit, taxes due on forgiven debt, or legal consequences. Agents made flowery promises to get listings, and now the lawsuits are starting.
No, really? You mean that people in the real estate business are less than truthful with their clients? That would never, ever happen with licensed professionals, right?
Then there's this, which I also have written about:
Another gray area is junior lien holders asking buyers for additional payments. As the market improved, juniors were no longer content with $3k thrown to them from the senior. They now want 10% of the junior note. They argue the additional payment is legal practice because the payment is made to escrow and appears on the HUD-1. However, they are actually hoping the senior lien holder does not read the HUD-1. The California Association of REALTORS® position is that all payments made by the buyer or agent in the purchase of a short sale must be part of the written short sale agreement signed by the senior lien holder. Concealing payments from seniors is loan fraud, and omitting these payments from the HUD-1 closing statement may violate RESPA. Some seniors reinstate their security interests because of the fraud. It’s surprising that the biggest banks are responding, when pressed on the fraud of their request, “just do it if you want the deal done”.
Right. Big banks saying "just do it"? Why would they do that? Is it so they can re-instate their security interests? No, nobody would ever do anything that hoses the consumer, would they? Naw.....
Few people understand that the bank that gave them their mortgage turned around and sold it into a mortgage bond, and the “bank” on their mortgage statement is actually a servicer.
Actually, it's a bit more complicated than that.
As I've been working on (and writing on) for a long time, and as a few attorneys are now starting to understand, the entirety of this process was corrupted and is rife with outright fraud from top to bottom.
Let's go through a (partial) list of the problems: