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Two Wrongs Don’t Make It Right

Here is guest blogger Dean Hartman’s strong opinion on the current foreclosure mess. – The KCM Crew

This is just my less-than-humble opinion, intended to spark some dialogue.

A common scenario: People default on their mortgage (that’s wrong) and the bank is compelled to foreclose to protect the interests of their shareholders. During the process of foreclosing, the bank makes a technical mistake, or worse, the bank representative alters or forges a signature on a document to facilitate the foreclosure action (that too is wrong). That’s two wrongs. But, are they equally wrong?

I know that every circumstance is unique, but in an era of strategic defaults, doesn’t it seem that all this conversation is missing the point? Borrowers borrowed money of their own free will and they didn’t (or couldn’t) live up to their agreement to pay it back under mutually-agreed to terms. These borrowers received Good Faith Estimates and Truth-In-Lending Disclosures. They received Commitments, explaining the terms. They went to a closing where things were explained and documented for a third time. So the “I didn’t know what I was getting into” argument appears a bit fragile. The bottom line is that they didn’t make their payments. Why should they not be kicked out of their homes? Because of a clerical error?

It doesn’t seem right to me. It’s not fair. What many fail to see is that where banks ARE big financial institutions who received bail out money to survive, the banks are owned by shareholders who are people too. And the shareholders of the banks, lived up to their end of the agreement. They showed up at a closing table and delivered money. They only expected the agreed to repayment. But now, in many cases, they are being asked for concessions. Be it principal reductions or extended terms or lowering of interest rates, one side of this contract we call a mortgage is making concessions, while the other is using legal technicalities, to steal even more from the lender.
Delaying foreclosures hurts the lender and its shareholders. It makes our financial structure as a nation weaker. It continues to erode confidence in our economic future.

The only ones profiting from this are the ones who didn’t pay their mortgages and…the lawyers. Why do they deserve this? Lawyers are not out to help the recovery; they are out to line their own pockets. I doubt many of them even care about helping their clients because, in many cases, they are doing more damage than good to their long term credit and the nation’s economic recovery. (Their personal economic recovery is doing just fine.)

So, I agree that the lenders should not be altering and forging documents, but why is that violation of people’s morality worse than not repaying the loan? Why should the individual who owns shares of stock in a bank suffer more than the defaulting borrower? And why does our legal system reward the lawyer for prolonging the eventual agony?

A better future can only begin when all the inventory is absorbed back into the hands of people who will pay the loans back. Until then, prices will continue down, confidence will continue to wane, the lawyers will be richer, and the banks will need more federal money. (Remember, the taxpayer ALWAYS winds up footing the bill.) It’s just my opinion. Let the comments begin.

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25 replies
  1. Connie Pollard
    Connie Pollard says:

    The tentacles of this are far reaching. With these homes on hold, Realtors will not make their commissions, contractors will not be put to work repairing the homes, families who thought they had purchased a home will need to postpone their move or find another home to rent or buy. But worst of all – this mess just gets prolonged.

  2. Sam Ruta
    Sam Ruta says:

    Ok, let me get this straight. Back in 2008, when we are at the brink of destruction, the banks go hat in hand to the government and cry the blues to save themselves and they get billions of dollars for next to nothing in interest.
    And the reason we are at the brink is that all of those mortgages that they encouraged people to take because what the heck prices are going to continue to go up and they can always refinance. And oh yeah by the way, they sell pieces of these mortgage to all different kind of investors passing the risk down the road and they make a gazillion dollars. Again that’s ok.
    But now because the economy is still in the tank for the average guy who lost his job and now needs some help and we find out some yahoos at these fine upstanding financial institutions are committing fraud in signing off on the foreclosure process….oh yes, let justice prevail!!! Look, what’s good for the goose is good for the gander. The banks and the feds haven’t done crap for the distressed homeowner. How many of the loan modifications got approved?
    No body is suggesting that the individual homeowner abdicate his or her responsibility to pay their bills. But that goes for those folks at the banks who screwed up!! There is no excuse for fraud. God knows they had the money for a better monitoring system, courtesy of the US Tax payer bailout. Sorry no sympathy for them. My heart goes out to the folks who have been looking for work for over a year, lost their health insurance, now maybe their home because of the greed of Wall Street banks. By the way did you notice what the recent bonus payouts for the largest firms on Wall Street were? Most came from the 10 biggest banks in the country. Something like 150 billion dollars. Boo Hoo for them. Give me a break!

  3. Carolle Sanek
    Carolle Sanek says:

    Your explanation is simple and basic and written in a bottom line deliverance – it is black and white when there are many people who fall into the gray murky waters of being deceived.

    Altering signatures, using someone else’s name with better credit to push the loan through, and forgery are crimes committed by lenders. Please don’t sugarcoat that – they are crimes – if I did that or you did that we could go to jail. This happened in making the mortgage in the first place. Now we have notaries who are not notaries and more forgeries, all crimes in the foreclosure process.

    Your blog puts the blame on the homeowners more than on the lenders who created the mortgages and you are writing from a mortgage company slant.

    I agree 2 wrongs do not make a right but I also know that the lenders changed the laws without ever going to court to do so. They cannot bundle mortgages and sell them but they did. They cannot sell a mortgage and not pay the fees to the states associated with selling them but they did (see MERS). They cannot forge documents to put a loan through but they did.

    I sell real estate. I sold new homes as a buyer’s agent for years. I would sit in an office listening to the sales agents working for the big production builders put a spin on the financing of their homes to the point where the buyer thought WOW aren’t they being angelic? They are giving me a home with no credit check, no paper proof of who I am with a 1.99% interest rate. Where do I sign?

    These are called liar loans and in some cases they did 2 loans one for the 80% and another for the 20% down. How about the teaser loan that stated the buyer could refi in several years at a good rate that never happened.

    These same builders were raising the prices on their homes $10000 every time they sold 4 houses – BAM – sell 4 raise the price. They created the feeding frenzy then they gave the house away as above using in-house lenders or in some cases a well-known Nevada based lender.

    You left that scene out of your article. That is the 3rd wrong – the builders who came in, built all those pretty little houses, and like David Copperfield created illusions using smoke and mirrors of what people could afford and then rode out of town like thieves in the night.

    Let’s not forget before they rode out, they reduced the price of their last few homes to below what everyone else paid by $100’s of thousands of dollars thereby decreasing values leaving many people owing twice what others paid which all goes back to greed.

    Greed is a vice and some builders and some lenders were in the greed pack. What is with this battle cry that the lenders who were a part of this debacle deserve a pardon – they don’t. Here in Florida they are invoking the RICO act and investigating anyone involved in what might be considered criminal activity. I realize that is not every lender – I know there are many good ethical mortgage lending businesses, but the good need to throw the bad ones out. Don’t let bad apples spoil the bunch.

    That is why people need legal advice at this time – laws were broken. Last time I looked we have the right to legal protection in the USA! It goes beyond bottom line deliverance – far beyond.

  4. Andy
    Andy says:

    Terrific opinion piece, Dean! Thanks for sharing it.

    I agree with Dewey. This foreclosure mess began with folks not making their payments for whatever reason. There are severe consequences for not making mortgage payments. Those consequences should not be ignored or delayed because of errors or bad judgement in the clerical portion of foreclosure process. The foreclosed properties have to be washed through the system as quickly as possible so that a bottom to the market can be found. Until the bottom is found, the real estate market cannot begin a hearty recovery.

  5. Scott MacDonald
    Scott MacDonald says:

    Hey Dean,

    I couldn’t agree with you more – just posted about the same topic today. At settlement we hear and agree to the statement, “you pay, you stay, you don’t, you won’t”. It is as simple as that!

    Keep up the good work,

  6. Barbara D
    Barbara D says:

    You’re forgetting one very big issue. If these people were not in a healthy financial position to begin with the BANKS should NEVER have given them the mortgage in the first place. They pushed the mortgage through, knowing full well that their was potential for default. All one has to do is look at their earnings to know that these people were in a very financially precarious position, and giving them 100 or 110% loans was unethical to begin with.

    Yes, the buyers have a responsibility to read the fine print, and know what they’re getting into. However, the reality is that many of the people who have defaulted trusted those with the knowledge to explain what they were getting into, trusted that they would be not get a mortgage if they were not eligible, and wanted a piece of that pie that everyone is always advertising. Desire and greed are very powerful, aren’t they?

    So, if we’re going to suggest that the whining stop, let it stop at the top….the lenders.

  7. Betty Byrnes
    Betty Byrnes says:

    I can’t agree more!

    I definitely think these servicers need some scrutiny – but let the focus be on the short sale process. It makes absolutely no sense to procede to foreclosure when you have a ready, willing and able buyer waiting for a decision from the servicer.

    It seems they have more autonomy when foreclosing. Or maybe it’s as others said, they make more money when foreclosing than working out a short sale.

  8. Barbara D
    Barbara D says:

    *ooops…should have proofed this better…some typos…
    “there (was potential for default)”, not “their…”,
    and “…trusted that they would not get a mortgage” rather than “…would be not get a mortgage.”


  9. Alex Krumm
    Alex Krumm says:

    I think you’re exactly right, and the problems that the homeowners have are their own responsibility. They knew what their payments were to be and they knew (most of) the consequences for default. That said, the ‘robo-signing’ scandal certainly isn’t the only blame to be laid at the lenders doorsteps … big banks consistently wrote loans to parties without doing basic mortgagor qualification, wrote neg-am loans on the promise that prices would continue to skyrocket, and promulgated a ‘turn-and-burn’ mentality to the real estate industry. They SHOULD have known better, and they ARE partially at fault. If we let the homeowners fail, we should also let the banks fail, yes? Where does THAT leave us? Just playing devil’s advocate :)

  10. Dean Hartman
    Dean Hartman says:

    WOW! Love the passion. My basic point is that we are here today in a swamp, pointing fingers and blaming and doing VERY little to cure the problem. AND, the leeching lawyers are going to grab their money which would do more good in the hands of a healing lender, a distressed seller, or a homeowner hanging on.

    And remember, banks are people too! The questionable practices they have engaged in have impact on their shareholders and the taxpayers way more than they do on the individual wrongdoers.

    So many victims…..too few solutions. I believe we have to PUSH the inventory through ASAP, stop analyzing and get it done.

  11. Amanda Wilson
    Amanda Wilson says:

    Back in 2005, my bank gave me a loan AND I DIDN’T EVEN HAVE A JOB….I was instructed by the loan officer to lie on the application and I did! however, if the bank would have researched my application, they would have seen it was fictious in nature….Yes, I think anyone underwater on their loan should just STOP PAYING AND let the bank give us a principal reduction and a better interest rate..this is how we keep people in their underwater homes!

  12. Carole Sanek
    Carole Sanek says:

    Hello Dean I am all for getting the houses sold quickly except here in FL where vacant homes are a potential health hazard (black mold grows fast in a vacant home with no air conditioning going and those homes will be condemned) but I notice you seem to be staying away from the fact that there has been criminal activity and that needs to be addressed and to those who say everyone knew what they were getting into in payments is not true – many nice people got pushed into buying homes based on promises and no one knew values would come crashing down and while banks are people too – they are making miliions/billions – let’s see $100K default they get 85% from the govt equaling $85K they get to take the $100K dollar for dollar off their taxes and they make a profit on the REO sale because they sell it for maybe $50K did they lose money? No did their legal fees also get reimbursed by our government our taxes – yes. So when you talk to us about how we the taxpayers are going to bear the burden we are already doing that – sorry but the guilty lenders don’t deserve a free pass. Why are they getting all this money from the government which translates into us?

  13. ***
    *** says:

    Once again let’s throw the attorneys under the bus!!! The banks have no responsibility in this mess, right? Lenders acted like crack dealers enticing people to borrow money when they had no business doing so for the purpose of profit. They then dumped these toxic assets on investors who are now left holding the bag. The government (our tax dollars) bailed these institutions out. The banks lied, deceived and manipulated underwater homeowners with promises of modification and help when they knew that none was forthcoming. Now, they commit perjury, make up and back date documents so they can take back these properties that they never should have provided financing for. And Dean wants us to justify this because the borrowers did not keep their promise to pay. Remember the following:

    When the Nazis came for the communists,
    I remained silent;
    I was not a communist.

    When they locked up the social democrats,
    I remained silent;
    I was not a social democrat.

    When they came for the trade unionists,
    I did not speak out;
    I was not a trade unionist.

    When they came for the Jews,
    I remained silent;
    I wasn’t a Jew.

    When they came for me,
    there was no one left to speak out.

    Let the banks and the government run roughshod over the rights of those who “didn’t keep their promise” then whose rights will be run over next? Be consistent. If we let the those who did not keep their promise drown, then let the banks who participated drown as well. Have the same disdain when Brian Moynihan and Jamie Dimon get their bonuses this year.

    And I know that Dean didn’t always feel this way about attorneys.

  14. Dean Hartman
    Dean Hartman says:

    Where did I justify ANYONE’S behavior? Just wondering why the attorneys will actually profit from everyone’s misery………..that’s all. Moreover, the attorneys, through their paperwork and court actions, are prolonging the agony which will drag the pain on longer.

    I guess everyone has to put their head down at nightm believing it’s not their fault.

    One difference here is that MY NAME is attached to my views. And please don’t suppose to know my prior beliefs about attorneys. I actually think many of them are quite honorable.

  15. Matthew Ferrara
    Matthew Ferrara says:

    This blog posting is great; I think it is important to start telling the full story about foreclosures – thanks, Steve!

    Here’s the interesting part from my point of view. REALTORS are often amongst the most critical voices against banks (present company excepted), yet we’re supposed to be defenders of home OWNERSHIP. Just who do we think OWNS the homes? It’s not the people making the mortgage payments. Those are equity-renters who “may” someday come to fully own the home. But in the meantime, it’s the BANKS who own the homes; it’s their money that the majority of many transactions happen; and it’s the banks who have been losing the MOST during the strategic foreclosure mess. The so-called home owners, who get the benefit of every weepy-press-story we can write, are often nothing more than THIEVES. If they want to walk away, they should have moved OUT the next day. Yet many have sat in the homes for 1-2 years, not even paying whatever little bit they could, in a good faith effort.

    When I was raised, I was taught to pay my own way through life; never to steal; and to do the right thing. The story that isn’t being told is that banks – and their shareholders – are being robbed. Not all, sure, you can list all sorts of exceptions. But if you can’t pay for dinner, don’t go out to eat. If you can’t pay your mortgage, don’t stay in the home.

    I hear real estate agents every day griping about lenders being “stingy” and “stringent” with their lending. Hello?? It’s THEIR money! I see NAR airing a list of “grievances” with banks in the press. Um, did anyone over there stop to think that the banks are the REAL clients of the REALTOR? Unless you’re buying cash, there are THREE parties to every transaction: The seller, the buyer, and the bank. It’s time we stopped treating the third party so poorly.

    Just my opinion.

    Matthew Ferrara

  16. Peggy Harmeyer
    Peggy Harmeyer says:

    You had some great points and I have been working forclosures/REO and short sales for a while and the type of people who are forclosing on their homes are Two types I see most: 1. People that were late making payments then stopped making payments and never asked for help and may not have wanted help and they lived in the home until they were asked to leave or were vacanted from the home by sherriff ect.
    2. The Home owners that wanted to try and stay in their home but, just couldn’t make full payments so made an agreement with the bank and did a remodification and did not follow through with their agreement and for one reason or another didnt make a payment on time and then they owed a huge amount more on there home.
    But, I will say that in the last few months I have been talking to a few more Home owners that have had troubles when a loan was bought from another bank and the escrow and other fees became astronomical and their house payment became higher than they were able to pay. Has anyone else had this in the market they work in? What do you think they best recourse is when you think the home owner may have been wronged?

  17. Rod Smith
    Rod Smith says:

    I agree 100%. Instead of stopping the foreclosure process, those who forged or altered documents should be fired. Delaying the foreclosure is delaying the inevitable and the homeowner who defaulted should not benefit because of it. It is their failure to pay that started the ball rolling to begin with. This is especially true with respect to the “strategic defaulters” which really riles me. First we had people filing bankruptcy so they could go out and buy a new car and flat screen TV. Now we have people allowing thier property to go into foreclosure as a strategic move. Shame on you.

  18. *****
    ***** says:

    This is just my brief opinion. Everyone seems to be looking out for him / herself these days. Realtors have to work months and months with the hopes of getting paid on a short sale and the lender is the first one to be unrealistic about a purchase price and wants to cut comission to pad their pockets. “NOT”. It’s evident that they did not have systems in place to deal with this massive foreclosure mess however, it is what it is – work with those who can help the industry turn this around more quickly. Servicers are dodging Investors who want answers about bad securitized loans that they purchased. Wall street betted against these same loans that they sold to investors. Due diligence companies are in the middle of all this mess. A few attorneys are ripping off realtors who never see a preliminary hud -1. Example: Shorts sales are approved for 6% and agents are being told that only 4% was approved. The 2% goes to a company that the attorney has set up for a negotiating fee or however its structured. What is going on here? I clearly remember when the banking industry was trying to get into the Real Estate business … well they are in it and it seems that they don’t like it. I strongly believe that multiple players are the blame and a finger should not be pointed at just one. Realtors are working extremly hard to help homeowners, lenders, and this economy recover regardless of how all of this came about. Banks should follow this example.

  19. Elisabeth
    Elisabeth says:

    You actually make it seem so easy with your presentation but I find this matter to be really something that I think I would never understand. It seems too complex and very broad for me. I am looking forward for your next post, I will try to get the hang of it!

  20. John Epps
    John Epps says:

    I think Sam Ruta got it right. Especially when he says: “How many of the loan modifications got approved?” Google loan modification and you read horror story after horror story.

    And then there’s the bailout…where’s the bailout for the common folk? Moreover, last I checked, the banks still need these folks to make money so maybe its in their best interest to give concessions or actually process loan modifications instead of being greedy..


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