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Foreclosure: myths and reality

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Articles - April 2013
Monday, April 01, 2013

BY MARK STEVENSON

Over the years since the mortgage bubble burst, the term “bank” has been a four-letter word and an easy target for the media, the legislature and the general public. In fact, my own peers at community banks and credit unions have been known to jump on the bandwagon through the sound bite of “Main Street vs. Wall Street.”

There is no doubt that risky mortgage lending contributed to the bubble that precipitated the financial crisis. Congress, investment banks, large banks, mortgage banks and brokers, and others up and down the chain encouraged and profited from this activity. Many community banks overconcentrated in construction and development loans, putting themselves and their shareholders in peril. Not to mention that many consumers applied for mortgages they couldn’t afford.

With an improving economy, I hear less vitriol directed at banks, but lately there’s a resurgence when it comes to discussing Oregon’s new foreclosure mediation law requiring mandatory mediation in nonjudicial foreclosures.

“The banks just don’t want to play,” reads one quote in a recent newspaper article. Legislators complain that banks have “dodged” the law at the expense of distressed homeowners; that they have no interest in bona fide mediation. Yes, it’s true that most Oregon lenders have avoided the non-judicial foreclosure route and opted instead for lengthier, more costly judicial foreclosures. But it’s not because banks have an inherent distaste for mediation.

To the contrary, any knowledgeable banker knows that the most successful and least costly resolution of problem loans depends on negotiating restructured loans with borrowers. Collateral liquidations (e.g., foreclosure) will almost always result in a greater loss to banks than a properly restructured loan based on a credible plan from a willing borrower.

Lenders have avoided nonjudicial foreclosures in Oregon because of various technical problems with the new mediation law, as well as a decision pending in the Oregon Supreme Court on the use of the national Mortgage Electronic Registration Service (MERS) to record assignments of notes and deeds of trust. The lending industry has suggested various legislative fixes that we hope will enable banks to utilize mediation. Several legislators on both sides of the aisle have said they find these fixes sensible and are considering them during the current legislative session. Across the country, more than 20 mediation programs are in place and being used by the same banks that have been compelled to avoid nonjudicial foreclosure in Oregon.

I understand the source of public frustration. Haven’t we all suffered the exasperation that comes with dialing 1-800, waiting on interminable hold, only to be disconnected or transferred to an unhelpful clerk in the wrong department who promises to get back to you but never does?

That seems to happen too often under a complex system in which many mortgages are sold by the original lender, resold again, securitized to anonymous groups of investors all over the world, and serviced by third parties who don’t even own the loans and are contractually limited to what they can and cannot do. These are bona fide challenges in need of improvements. And in fact, the new federal Consumer Financial Protection Bureau just released more than 2,900 pages of new rules related to mortgage lending and servicing.

Whether Oregon’s foreclosure-mediation program has been a step in the right direction remains to be seen, but meanwhile, let’s focus on the facts and leave hyperbole at the door.

0413 BOB FinanceMark Stevenson is the CEO of Capital Pacific Bank in Portland and is chairman of the board of the Oregon Bankers Association. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

 

Comments   

 
Guest
0 #1 ReaderGuest 2013-04-18 18:58:38
I worked as a loan processor for a major bank prior to the meltdown. The processor is the person who goes through the financial statements to make sure guidelines are met, for those who don't know the system.
I repeatedly advised clients that they didn't meet safe guidelines to receive their loan, and by repeatedly, I mean at least a quarter of the loans that crossed my desk. I would tell them that no, your '91 Ford Aerostar van shouldn't be considered collateral valued at $15,000, no, you and your husband don't seem likely to afford a 3300 square foot home in Los Angeles, no, your social security check of $983 won't be able to cover the mortgage of $1750 each month.
These borrowers would argue with me, the guy working the numbers, explaining this or that about their maxed out credit cards were none of my business.
All in all, the responsibility was the borrowers, not the banks. Trust me, the banks often made it quite clear to the individuals that their loans were not sustainable. All told, I think two clients of over a thousand accepted what I was telling them.
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Guest
0 #2 Former Loan PersonGuest 2013-04-18 20:08:09
Oh, wow, so actually banks have been doing all they can to rectify the situation. Good to know, and here I thought that everything I read from Mark was BS. Oh wait. I still think that.

The house next door to me has been vacant for five years. There were offers right when it happened (for far more than the current value), but the bank that owned it didn't respond. It's now been broken into, had other damages to the interior and exterior, become overgrown, and in general had its value diminished more than by simple depreciation.

The thing is, it's costing the banks money to do this, but there's an extreme shortsightednes s to completely sacrifice the future to avoid the current cost of funding your foreclosure/sho rt-sale department. It's not maliciousness, just incompetence.
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Guest
0 #3 in the knowGuest 2013-04-26 16:48:31
In short sale situations, the bank requires the borrower to submit a hardship packet in order to review the short sale offer. I have often seen great offers from buyers, and the actual borrower won't complete the hardship paperwork. Then the short sale offer cannot be reviewed. The buyer has no authority to know information about the loan, so they assume it is the big bad banks fault, when in fact it is the seller who has failed to do their part.
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