Monday, May 20, 2013

Why I believe the Banks, not Fannie Mae killed Housing.

Every once in while, I come across a news story that is so offensive, so evil, it makes me want to SCREAM!

 This is one such story.

It makes it clear and obvious why the banks are responsible for the housing issues, not Fannie Mae, or anyone else related to the government.

In Orlando Florida, a man had some issues paying off his mortgage.  So he wisely and prudently applied for and received a 'modification' of his loan.   Wells Fargo is, in my opinion, generally one of the better banks - note they actually did the modification. Wells Fargo agreed to accept a lower rate - commensurate with current rates - over a longer time.  He was told if he made four payments on time, then the lower rate would be made permanent.

Then his situation improved.

So, being a good citizen and a financially prudent man, he started putting a little extra into his monthly mortgage bill.  He also started paying it early.

Whereupon the bank foreclosed on him.

You see, the loan modification is a legal document.  His, like many others, expressly forbid people to pay extra money or pay early.  This in and of itself is within reason.  Banks lose money when you do this, and if interest rates have dropped even further they can't loan out your extra payments at the same rate you were originally paying.  So when they agree to give you a break, it is totally reasonable for them to say 'hey, no early/extra payments" with this special deal.

But a reasonable bank, would not have foreclosed.  I am sure that Wells Fargo foreclosed for some combination of the following:

  • Bureaucratic nightmare that tries to force irregular reality into perfectly shaped holes
  • Being a greedy, profit grubbing, house thief was too great a temptation
  • Literalists too stupid to think inside the box, let alone outside the box
But the bank did not have to foreclose.   What a reasonable corporation would have done is the following:
  1. Accept the check, but not cash it until the actual day the money is due.
  2. Mail him back a check for the over-payment(s)
  3. Along with a letter explaining that legally he can't pay more than the prescribed amount nor early, under the current contract
  4. Thank him for the effort and congratulate him on being a good customer
  5. Politely include a request to set up an automatic electronic transfer so as to prevent future problems
That is what a good business does, as opposed to what Wells Fargo did.

As I said earlier, Wells Fargo is one of the better banks.  They have not had the issues that Bank of America has.  So the fact that even Wells Fargo screwed up this badly is a fairly clear sign that the entire industry has major problems.

Most banks are bureaucratic nightmares, too focused on squeezing the last penny, who try to follow set rules, rather than think up new ideas, real customer service, or even good business.

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