Here’s a sobering statistic: Some 42 percent of all borrowers with mortgages in foreclosure haven’t made a loan payment in two years.
That’s according to data tracking conducted by Lender Processing Services. They are the borrowers befitting from what a JP Morgan economist has called a “$50 billion (annual) squatters’ economy” by living in homes they have stopped making monthly mortgage payments.
It doesn’t come as a shock to economists who can tell you just how down and dirty the housing foreclosure mess is and how efforts to “prop up” bad loans only prolong the agony for all of us.
Out of this mess has come another wonderfully inept solution to take money from the responsible and give to the irresponsible. In a nutshell that is what the $25 billion settlement between five major banks and the government represents.
The low points include:
• $10 billion in the form of $20,000 reductions in loan principal for buyers who owe more than their home is worth. Freely translated, they bought more home than they could afford.
• $3 billion in the form of interest reduction for buyers who pay their bills on time. Given the fact almost all of the funny money loans with balloon payments or escalating interest rate have already gone into foreclosure, many of the benefactors will be those who refinanced their homes and used them as ATMs.
• $2,000 payments to those who lost their home in foreclosure not due to an error in recording their payments or the bank failing to honor conditions of the loan that both parties agreed to but because of sloppy work on foreclosure documents or the so-called robo-signing scandal.
It is the robo-signing that touched off the effort to secure a settlement. Banks can’t be defended on this one. They cut corners. Even so, there is no proof of even one homeowner losing their home due to robo-signing charades. All were already in default not just one or two months but six or more.
And while 49 state attorney generals and the federal government are slapping themselves on their collective backs, someone should stop and think about what really has happened.
First, the banks will be paying the $25 billion settlement with money – read that profit – that would normally go to stockholders. They are the same stockholders who have seen value plummet and dividends shrink or disappear. And who depends on dividends and stock? A lot of hard-working Americans who have met all of their obligations and who are in retirement or nearing that point, that’s who.
Second, the latest data from CoreLogic shows that 22.1 percent of all housing loans are essentially underwater mortgages. That is $699 billion worth of loans. If all $25 billion was put toward mortgage reduction it wouldn’t make a bit of a difference in the overall health of the housing market.
Housing prices need to stabilize and go up in value. That isn’t going to happen as long as the housing economy is in lifeboat mode and Uncle Sam’s henchmen decide who are the winners and losers among borrowers.
The banks got bailouts and taxpayers footed the bill. There’s no doubt about it. But most of it has been paid back.
The bailout going on now is essentially using responsible borrowers through the transfer of the income of banks to subsidize irresponsible borrowers. It will not be paid back.
Or, if you prefer less harsh terms, borrowers that got unlucky as they got caught with loans on homes they refinanced often to buy toys, fund college vacation, new cars, or trips.
At any rate, the government-imposed bank bailout of select borrowers will not be paid back.
Remember, this isn’t happening because of the original sin of loose mortgage money pushed by political pressure to loosen up lending standards so that more people who essentially couldn’t afford to buy homes could buy them. It is happening because of banks failing to correctly complete paperwork on documents connected with a number of homes after they went into foreclosure.
This column is the opinion of managing editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA. He can be contacted at firstname.lastname@example.org or 209-249-3519.