“a really nasty little beast”
Governor Spitzer has announced plans to help stem the foreclosure crisis. From today’s New York Times:
The Spitzer administration plans to propose a legislative package on Tuesday intended to help stem the rising tide of home foreclosures by requiring lenders to try to work out repayments with borrowers before suing them.
The draft says the bill would:
require lenders to warn borrowers in writing 60 days before starting foreclosure proceedings and to meet with them to negotiate a settlement. The bill also aims to prohibit some of the riskier types of high-interest home loans that had spread during the recent housing boom and to tighten regulations for mortgage brokers and companies that service mortgages.
This is a huge problem in New York state (and Upstate in particular), as evidenced by this:
Lenders began more than 57,000 foreclosure proceedings in the state last year, an increase of more than 70 percent from 2005, state officials said.
Some lawmakers are calling for a year moratorium on foreclosures whereas Spitzer’s proposal is viewed as a “cooling off period” that may add a few weeks to the foreclosure process and lead to mortgage counseling, according to the article. Some see Spitzer’s proposal as competing with the one year moratorium, although Spitzer denies this and instead insists it is complementary legislation.
But the argument goes on (bold mine):
Sarah Ludwig, co-director of the Neighborhood Economic Development Advocacy Project, said the proposals could spur New Yorkers to take action to hold onto their homes.
“What the governor is proposing is a good thing because it gives the borrower more incentive to reach out to the servicer†of his or her mortgage, Ms. Ludwig said. “It gives both sides more leverage to work something out.â€
But Bertha Lewis, executive director of the community organizing group New York Acorn, said that an immediate moratorium on foreclosures would still be needed, even if the governor’s proposals were passed.
The subprime lending mess that led to so many foreclosures “is a really nasty little beast, so you need a lot of arrows to attack this,†Ms. Lewis said.
I know folks who have foreclosure problems. The lenders don’t cooperate. They don’t counsel them but threaten them. they tell them to pay or else. One has to be persistent to get to a higher up who can negotiate The new laws or policies would have to have some teeth in them to protect homeowners.
Those of us lucky enough to avoid this issue have a hard time understanding how difficult and widespread the credit and mortgage crisis is, but my impression is that one will need a new deal type strategy to attack it, and have the govt take over a lot of mortgages. Deregulation of banking (something Clinton supported) is at the core and only re reguation will solve it. Everyone here should read Bob Kuttner in the American Prospect. he is very insightful
Since I’m not an expert on this, perhaps someone out there can enlighten me. I read this article, in which the author Terrence Heath states:
So my question is: does today’s proposed new legislation differ from that which Spitzer described in the Wash Post editorial? If so, how? And if so, why should we believe it will not suffer a similar fate? Why should we believe that the Bush administration won’t block this legislation as well?
Paige, I just read Governor Spitzer’s website press release and it says nothing about how this bill differs from that he described in The Wash. Post. You pose good questions. I’m working on them.
Here’s the Governor’s press link:
http://www.ny.gov/governor/press/0304082.html
I’m sorry, but I don’t feel much sympathy for the vast majority of these people who are facing foreclosure. If they signed a mortgage they couldn’t afford or one that was just bad, they should face the consequences. If they were tricked into something that was less than legal that is another story.
Whatever happened to personal responsibility in this country?
G, I’m all for personal responsibility but doesn’t that also apply to lenders? The truth is that most people don’t understand a lot about real estate transactions and all that goes along with it and the so-called experts were misleading these people.
One article I read quoted a realtor from CA saying he had conducted 3,000 transactions in his career and only had 3 people to rescind the terms of their mortgages, one due to winning the lottery, one due to death and the other due to divorce. Yes, people should read the fine print but that doesn’t mean they will actually understand it. That is what the experts are for, isn’t it?
According to Gov. Spitzer’s press release today (3/04/08):
Overall, it is estimated that 20 percent of subprime loans will end in foreclosure and 54 percent of all foreclosure filings are on subprime loans. Nationally, the subprime market has grown from an estimated 10 percent of all mortgages underwritten in 1998 to about 22 percent in 2006. According to RealtyTrac, in 2007 there were 57,350 foreclosure filings in New York State affecting nearly 39,000 homes. The number of foreclosure filings represents a 55 percent increase over 2005.
Thirty-nine thousand homes is a lot of families to not have much sympathy for.
“The truth is that most people don’t understand a lot about real estate transactions…”
Who in there right mind goes to the table without an attorney?
That’s my point exactly, why would you agree to such a large purchase without working with someone you trust who has a good track record with family or friends or whatever.
So are you both saying that a buyer’s attorney should be required for all real estate transactions? To just create a law, impose the $500 fee as part of the transaction costs, sort of like a notary public is required when you add a spouse to a real estate holding?
The mortgage (which is where the problems exist) is separate from the transfer of the property. Signing the mortgage usually does not require a lawyer; transferring the property via legal deeds usually does require a lawyer. The truth is that most people don’t understand a lot about mortgages or long-term finances.
So Paige, does this mean you are in favor of an attorney requirement for buyers in mortgages?
No, I’m in favor of people being more aware about the long-term consequences of whatever deal they sign. I’m not sure an attorney is the right person; a financial advisor might be a better choice. I’m in favor of the buyers being better informed, and that raises another issue in that I have read how the mortgage holders do their best to disguise the true terms of the deal from the buyer.
This is where Spitzer’s legislation comes in.
Who better to read the fine print than the ones that write it.
Financial advisors don’t write the fine print, attorneys do.
That went out the window when corporate crimes and deception and fraud from our government officials disguised in the name of greed took it all away.
People stopped caring. People stopped trying. People just stopped.
If folks were misled then it should be dealt with according to the law. As Americans we need to stop living beyond our means and this might have been that wake up call for many many people.
I have a problem with my taxes going to support people who made bad financial decisions rather than those in real need.
So do you have a problem with your taxes not being able to go down when taxpayers bail out the lenders? Have a look at the financial bailouts to preserve “the economy”.
Do you mean because our local gov’t. offers financial incentives or perks to businesses and we, the taxpayers, are footing that gift-giving?
I mean this. The cost of bailing out lenders. I understand the bit about borrowers being responsible for their actions. Really I do and their needs to be some level of accountability. Still…
Lenders are in the business of lending. Every day they make loans to people. It is an a process that is practiced EVERYDAY. Their process is to maximize the opportunity to make loans. the more loans the more revenue.
Borrowers, what, buy a house periodically. Once every several years perhaps. House purchasing is an EMOTIONAL experience. Maybe some of you out there agonized for days over a home purchase but isn’t it an emotional experience? The paperwork to enable the purchase becomes details and is blinding as long as “your dream house” can be owned.
The point is of course the more you do something the better at it you become. All you second and thrid home purchasers - did you learn from your first purchase?
The bigger question is did the lenders learn from long line of loans.
Something doesn’t seem right lumping all borrowers and lenders together as having the same deficiency.
Well said! I agree.
Sure, its an emotional experience but my lender doesn’t accept love by the first of ever month.
Cute - maybe your lender accepts some other kind of emotion,.
Still the point is Lenders do this all the time - borrowers don’t. Yes, they should know more but they don’t.
There should be a more likelihood of the lender knowing more than the borrower.
Remember, too, that NY is one of a handful of states in which the buyers are represented by an attorney. Most places they aren’t.
Also, if you think that Joe Schmoe really understands an 86 page mortgage document, you’re kidding yourself. People sign them based on their trust in the system.
Finally, I just re-financed and had to pay 1/2 point to the gov’t to help bail out these companies that were floating crazy loans. Ticked me off.
“Trust in the system” is precisely it, Itchy. Sconsetmonkey thinks that we shouldn’t assume any trust and just all have attorneys. I think the loss in expectation of competence and ethics is a sad state of affairs.
You’re partially correct, if you trust the system, which in my mind is the goal, knock yourself out and sign away. If you don’t, secure representation.
I don’t, hence, my scumbag.
Sconset, you are not treating the disease here, you are just treating a symptom, which solves very little but does add more costs. By passing legislation that ensures lenders behave ethically we would not need to all get a lawyer. I think it was Shakespeare who said “first, kill all the lawyers.” I’m not taking that literally but I think if we get to the point where we trust no one in business, then it all fails from here on out.
We must demand ethics in business. Your approach is certainly going to protect you but it means you’ve given up on corporate responsibility. I demand more from business than that.
As Massa said in the press conference today, “those guys knew what they were doing.” Again, we must demand responsibility in business.
“Your approach is certainly going to protect you but it means you’ve given up on corporate responsibility.”
I have not given up, simply protecting myself in the interim.
Is that foolish?
When you say that everyone should take a lawyer with them for something where they have a reasonable expectation of decency and ethics in all parties involved (mortgage experts) then that is admitting you’ve given up, if only temporarily.
It’s good that you can afford to protect yourself. I reject the notion that others should not be allowed to buy a home if they cannot keep a lawyer on retainer or get one otherwise. I think that is a bit myopic. For most people, the only time they need a lawyer is if they get in trouble. Having a legal standard in place will eliminate the need for everyone to have, as you put it, “their own scumbag.” I don’t want to live in that scenario. Lawyering up is a recipe for exorbitant costs and gridlock.
It is unreasonable to expect the average American to get a lawyer for something that should be comprised of ethical people, such as buying a home. The costs of said purchase argument is not valid, to address your next response.
Cost is secondary because all business should have standards.
It’s not foolish for you to have a lawyer. It is unfair to blame others for listening to supposedly ethical information.
I have a hard time believing that going to the table with expectations as you have described won’t be sprinkled with some skepticism. “They” are there to make money. That is their function. Not acting as dream makers. Think of it as a one time insurance policy. Hoping the best from a situation is never a bad think however to be prepared is not submission.
Ever walked away from the “lending table”? I have. The terms had skewed in the last minute from the “deal” that had been agreed upon during the laborious paper work sessions. The fine print had altered the terms and I walked. End of story.
Protection, yes! Like those insurance payments every month just in case something goes terribly wrong. How is possibly the largest asset purchase of your life to be treated with such disregard? The fees paid to my attorney were less than a mortgage payment and worth every nickel given the scenario above. I agree that you should be able to purchase a home without an attorney, however, lawyering up in the beginning is sometimes a prudent alternative to lawyering up when you get in trouble as you say.
It should be comprised of ethical people but there are those that tarnish the industry much like many other avenues . The RIT photo program, for instance, has had in the past two years the two largest incoming freshman classes. Reason? No portfolio reviews for entrance. If you’ve got the cash c’mon up to Rochester! What kind of ethical practices are in place here allowing anyone with enough cash to enter a creative program with no expectations of the ability to perform in such a program. I only use this example as it is familiar to me. Would an applicant be accepted to a physics program without any credentials of past or potential performance in the discipline?
To be clear, I am not placing blame on those that have found themselves in a horrible situation, nor does my skepticism of the system deserve to be elevated to the status of facilitator of unethical business practices in this particular industry.
“Facilitator” might be too strong a word. I’m just trying to make the point that the bulk of the problem is vulture-type lenders who knowingly misled. I believe the word “foolish” was bandied about with regard to buyers.
I see your point about personal responsibility and I agree with it, I only want to extend that to lenders.
If there was inadequate protection for consumers — and I sense that there was — then this kind of thing is necessary. It’s easy to say people should have brought attorneys, but there’s all kinds of situations in which low information consumers are preyed upon. And this may have been one of them.
“And this may have been one of them.”
Don’t you mean 57,000 of them?
It’s also easy to say “you get what you pay for.”
Don’t people have an expectation of ethical behavior and competence in their lenders? What’s next, take an attorney with you to buy a new car? An attorney with you when your child gets braces? How about that wedding? Dream vacation?
Sure, if your car, braces, wedding or vacation cost as much as a house.
All I’m trying to say is that if you are going to deal with scumbags it’s best to bring your own.
He may be a scumbag but he’s my scumbag.
Sort of My Scumbag is better than Your Scumbag? This is a cynical position. Is there room for yet another law, a law that states an attorney must be present for buyers in real estate transactions?
It is cynical, however, my choice has served me well to date.
And the attorneys appointed by law in this transaction would be in who’s pocket?
If they were to behave unethically they would lose their license. In a perfect world they’d be in no one’s pocket. Are you saying a legally required attorney wouldn’t work because they would not be accountable to the buyer?
I think there are a number of factors that have contributed to this problem. People who are buying houses are a target - the realtors (who work for the seller unless otherwise specified), the mortgage brokers and the banks are all trying to make a profit off the buyers. All the folks on the business end of the home transactions go home with their commissions after the papers are signed, and the buyer is left with the debt. When a person is looking to buy a house, they’re often told they qualify for a much higher mortgage than they expected. So on a higher cost house, everyone else makes out - the percentages for the realtors, the commission for the broker, etc. They have incentive to sell the buyer more house than the buyer can afford. And for the first time home buyer who may not realize they’re being circled by sharks, and who may believe the experts are able to calculate what s/he can pay, they may be sucked in. This doesn’t even take into account the buyer who didn’t expect to lose his or her job, get downsized, laid off, or divorced (and I expect the economy has affected a lot of incomes), where suddenly the debt’s too big.
Comments about personal responsibility totally miss the point. When federal government policy allows banks and financial institutions to engage in risky financial practices, the individual consumer is not responsible for this policy. Rather government fails in it’s consumer protection functions.
Again Robert Kuttner is very good on this. You should read his articles in The American Prospect or read his just published book The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity Many if all the protections put into place to ban predatory financial and lending practices, and limiting banks participation in financial services have been repealed. We are back in a situation much like that before the Great Depression. For example the Gramm-Leach Bliley passed in 1999 fostered deregulation of banking services. The act repealed the Glass-Steagall act, a new deal era act (1940) which restricted the entry of banks into financial services. Banks had been able to provide some investment and financial services; these had to be kept separate from banking. This practice however was being circumvented in the 1990’s by the merger of Citibank with Traveler’s Insurance and other mergers. The act codified and legitimized these practices, and in addition allowed the financial service industry to introduce wide ranging changes in service
Again the individual is not responsible for this. Silly jeremiads about the individual fail to get at the abdication of public oversight by government and non-responsible behavior by corporations.
Second employees of such financial institutions are encouraged to sell financial services and risky loans since they bring profits (or so they think) to companies. Were companies responsible in giving advice to customers or did they like many brokers exaggerate or lie about consequences. Perhaps simply because of irrational exuberance the folks selling the stuff believe their own propaganda. Again if we banned all these practices in the first place we wouldn’t be in this mess
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