Missing a Human Face: the Juggernaut of Banks and Foreclosures

When the human element disappears from bank service departments with foreclosures rising, something needs to change.

When I lost all work for seven months, off and on, in 2009 and was relying on unemployment to pay my bills, there simply was not enough money so, right or wrong, I used some of the funds from the rents in the investment properties to supplement and fell behind on mortgages. Once I got another job, I began paying my mortgages with Sovereign again but, since everything was behind, I could only just keep up from where I already was... four months behind. I made two payments on both properties (4 mortgage payments) and I called to make sure that the bank would not send my account to foreclosure and never got a return call. I had sent a third set of two payments when I got notice from the bank's lawyer that they were pursuing foreclosure action. SURPRISE!

I called many times to plead my case and was told, "Sorry, nothing we can do... It has already gone to the lawyer. Apparently, there is no human override for the systems. I was advised to do a loan modification with the bank and tried to do it alone - filled out the papers, sent them in, incomplete, refused, ask again. Departments did not seem to interact with each other. For example, loan modification could not see that I was making payments, foreclosure did not know I was pursuing loan modification, although supposedly they were meant to be working as a team to resolve these kinds of situations... missing a human face.

In the meantime, the lawyer that the bank hired sent a process server to me to serve me with papers and to the duplexes with the paperwork to let the tenants know. OK, that is their right. However, this person told my tenants, all of them, that "You might as well get out now because you are going to be thrown out in a month." I have heard other investors report similar tactics. One friend successfully concluded a loan mod, sent back paperwork with a check, and his bank sold the property on the court house steps anyway. It did not sell so they bought it back for $100 and then notified him that they were forgiving the foreclosure entirely. CRAZY STUFF!

The tenants got scared and began withholding rent (totally understandable), making my already challenging financial situation worse. In the end, I was forced to evict two tenants and my best tenant left with no notice - 3 vacancies in two properties now bringing in $309/mo gross, instead of over $2000/mo. gross, going on three months. I think my property manager has filled those as of November 2009 - we shall see. Sovereign said the bank was not responsible except that they hired the lawyer who hired the process server who said this to the tenants and exacerbated the situation.

It seems counter-intuitive to me to refuse to deal in person with homeowners and investors who are actively trying to catch up. In addition, taking actions that make it likely that the bank will have to take back the house (decreasing their ability to lend), that the owner will short sale, walk away or even declare bankruptcy, makes no sense. My speculation is that the systems in place are insufficient to deal with the number of houses being taken back by the banks and human beings at the banks, trying to resolve difficult situations, are afraid themselves of losing their jobs if they intervene outside the bank system.

I think the people at the banks are probably doing their best but are overwhelmed by the volume of properties. I have hired a lawyer to stall the foreclosure in the courts, hired a loan modification expert to deal with the banks, all of which cost money that I could have been using on paying the mortgages. Also, since Sovereign was taken over by Banco Santander, my paperwork is now wrong and I need to resubmit. At the beginning, before Sovereign sent my case to the lawyer, I could have held steady and caught up once there was more work. Now, I just don't know because the bank's actions have made things worse. I am doing everything I can but may or may not be able to turn it around.

Did you know that the foreclosure process continues even while a loan modification application has been submitted so it is possible to lose the house while appealing the foreclosure, using the proper channels?
Did you know that a homeowner or investor can have someone short sale their property and, unless the bank forgives the balance in a letter, will be taxed on the difference by the IRS?
Did you know that banks must hold capital in reserve (I was told by a fellow investor it's a 10:1 ratio but have not been able to confirm that - does anyone know?) to cover the cost of taking back houses so that the more REOs they have in inventory, the less lending they can do?
Did you know that the adjustable rate mortgages (ARMs) on luxury homes are scheduled to accelerate in November 2009? What will that do to the banks' ability to lend money?
Did you know that many banks are simply not foreclosing because they can't afford to hold any more houses? In the meantime, perhaps the homeowner or investor has given up because they can't see a way to catch up in the current economic environment and move out. In or out, without the pride of ownership, the house will be vacant or more poorly taken care of because the owner already sees it as belonging to the bank, which benefits nobody.

Taken from www.responsiblelending.org site:
Projected new foreclosures in 2009 - 2,400,000
Projected homes lost through foreclosure over next four years - 8,100,000

Why do these numbers matter?
Foreclosure starts from 2007-2008 more than doubled from those in 2005-2006. For the entire nation, foreclosures in 2009 are expected to reach 2.4 million. This epidemic of home losses has a devastating impact on working families, and by depressing the housing market and increasing unemployment, also weakens the entire economy.

How were these numbers calculated?
This number is based on the annualized rate of foreclosure starts reported in the 3Q 2008 MBA National Delinquency Survey, adjusted to reflect the entire mortgage market (the MBA survey covers 80%).
Alabama - 17,471
Alaska - 1,702
Arkansas - 8,450
Arizona - 97,383
California - 380,324
Colorado - 31,479
Connecticut - 14,569
Delaware - 4,567
District of Columbia - 3,192
Florida - 348,743
Georgia - 72,358
Hawaii - 4,594
Idaho - 8,583
Illinois - 84,731
Indiana - 40,682
Iowa - 8,575
Kansas - 8,870
Kentucky - 14,883
Louisiana - 12,136
Maine - 5,636
Maryland - 40,537
Massachusets - 24,368
Michigan - 77,166
Minnesota - 34,641
Mississippi - 9,936
Missouri - 26,576
Montana - 2,105
Nebraska - 5,114
Nevada - 59,388
New Hampshire - 6,162
New Jersey - 49,838
New Mexico - 6,321
New York - 58,217
North Carolina - 38,328
North Dakota - 803
Ohio - 72,049
Oklahoma - 12,542
Oregon - 16,547
Pennsylvania - 42,141
Rhode Island - 7,247
South Carolina - 22,017
South Dakota - 1,379
Tennessee -27,744
Texas - 81,735
Utah - 13,425
Vermont - 6,162
Virginia - 40,155
Washington - 28,499
West Virginia - 4,087
Wisconsin - 20,620
Wyoming - 912

My fundamental question is how do we, as a nation, restore the human face to solving our nation's issues with foreclosures and unemployment? Clearly, the systems are broken and need to be fixed somehow. Together, we are resourceful. What can be done? In challenging times, the old rules must be renegotiated because they are insufficient to the needs of homeowners and investors and banks. Please comment with questions, ideas, thoughts...

Banks Tightening Up

I went to a meeting this evening of a real estate investment group I belong to called Philly Connected LLC. Our aim is to provide green affordable housing in Philadelphia. So we members have been working on creating business lines of credit, expanding credit card lines, and fixing our FICO scores so that we have the credit scores and funds to be able to invest in real estate.

So people I know who are investors have built up $1000s to $100,000s of available operating capital from these sources. OR THEY DID... What's happening as both individuals and banks panic is that banks are pulling back credit. So if you have a credit card with a $25,000 limit and $10,000 used, the credit card company may call and reduce the limit to $10,000. The same goes for home equity lines of credit and business lines of credit. If you are a business owner, suddenly the money to run the business could disappear overnight. An individual who has been handling their credit responsibly, with no more than 30-50% of the line of credit used, now, in a moment, has a maxed out their credit card, business or credit line. Their FICO score goes down even though they are still behaving responsibly. The lenders just changed the rules and the realities of the game.

I believe this is a temporary situation that will reverse in time, sooner rather than later. If businesses are unable to run effectively, banks will also be drastically impacted and that situation can't go on for along. The economy either contracts or expands. In a contracting market, the predominant feeling is fear and scarcity so money is moved around to pay bills, make ends meet. Resourcefulness diminishes. In an expanding market, love and action rule, paying bills but also having families, building businesses, buying homes and investment property, investing in the stock market, volunteering, tithing, travelling and going on vacation.

Which choice creates excitement, joy, community, commitment, involvement and love? I choose expansion and growth myself, especially in the face of challenging times. What about you?