Tuesday, December 14, 2010

Secret of the housing crisis

Dan Rather Reports (HDTV) has made a compelling argument that explains why home foreclosures are proceeding apace, with no improvement over the last 3 years, despite public pronouncements by government and banks.

It's sooo simple. The banks don't own the loans. They sold them to investors in various bundles and packages. Their business is now...fees. Fees for administering loans--and fees for foreclosing loans and keeping homes in foreclosure, then selling them for a profit while the original loan owner takes it in the chops.

That's why people seeking to get into loan modification programs can't get them--they'll try for a year, with the bank "losing" all or part of the paperwork over and over and over and over and over. Because the bank makes its money off fees, not loans. Late fees. Illegal/unnecessary insurance fees. Lawn mowing fees ($100 to mow a forecloses home's lawn).

And one neat is telling people who've never missed a payment but want a loan mod that they have to miss three payments in order to get into the load mod program sponsored by the government. They do this over the phone so there's no physical record of this. Then when the payments are missed and the homeowner is told they're in the program--the new owners of the home shows up and tells them to get out. The bank forecloses--all they needed to act is those missed payments, and then the feels roll in.

This isn't nickel and dime stuff when you aggregate it. Wells Fargo make over $600 Million dollars in such "fees" last year--and the other big banks are making hundreds of millions of dollars in fees as well.

So yes the investors lose money on foreclosures--especially in the many, many cases where the owner could have and would have kept making their payments. But the banks aren't the investors.

The airlines are making fat profits off all those fees they're charging now--for each piece of luggage, for each blanket, bag of peanuts etc. It adds up. And the banks have taken the same route.

Remember the optimistic Hollywood classic movie "It's a wonderful life?"

Well, Mr. Potter won. And we're all living in Potterville.

1 comment:

n1ck said...

You should read Matt Taibbi's articles from Rolling Stone and his blog. He covers the stories that very few people cover.