Thursday, September 24, 2009

The Banks, as I See Them

I must be getting old, for I long for a simpler time when banks were local organizations who actually provided good customer service to valued customers within their communities ... when your true credit worthiness was assessed by that local bank, and when the mortgage loans they made stayed in their portfolio of accounts. Something horrible has happened over the years as apathetic American citizens weren't watching, as lobbyists got their way with Congress and as the big corporate banks swallowed up our local banks, supplanting them with corporate drones whose only mantra is bottom-line profit and greed.

We retired in 2006, moved and built our retirement home in Northern Nevada expecting that our Columbus, OH home would sell in a reasonable period of time. That, however, hasn't been the case. We've now been trying to sell our previous home without results for almost 4 years. Had we sold it during the year before retirement, we'd be in great shape, but we waited until we were a couple of months from retirement. Looking back, that was a mistake.

Act I of our saga began almost immediately after our home hit the market. Dominion Homes, a mega-builder in Columbus, OH flooded the market with the first of the foreclosures. Needless to say, everybody who was looking scooped up some newer homes at bargain basement prices and we weren't able to find a buyer. In year 2, the city, in its infinite wisdom, decided to rip out the street on which our home sits. There was this big gaping hole all the way up and down the street. And, while all the new water, sewer, gas and storm lines are great for resale, it did nothing to help us find a buyer because there was no way to get a moving van to the house if someone decided to buy it. Then, in year 3, the economy boarded a rocket ship and blasted off to some distant galaxy! In all that time, we've continually dropped the price, we've had NO offers, and we've watched housing values plummet ... and I firmly believe the banks are at the root of that decline.

Back to my earlier point, banks no longer hold home loans in their portfolio of accounts. This may be an oversimplification, but ... they sell off those loans which are then packaged with other loans and then sold off again (you know ... all those junk loans they talked about in the news throughout last year). So, when a homeowner gets financially distressed and finds it difficult to make payments, the bank that made the loan is no longer in a position to be able to refinance that loan by adjusting the term or rates. It's no longer their loan and it's practically impossible to separate it from the other loans in whatever package it got sold in.

Because the banks no longer hold their own loans, it allows them to spawn bad practices. Greed and the almighty bottom-line profit motive set in. Since they aren't holding the loans, riskier policies and practices supplanted tried and true practices. No longer did people have to have 20% down ... 100% was financed using a regular home loan for the purchase (75-80%) and a home equity loan (20-25%) for the down payment. And, if that wasn't insane enough, because the housing market had done so well over time, the Banks decided to promote interest-only loans, with a balloon payment down the road. People (some of whom would probably have had trouble financing a stick of bubble gum) started buying homes with literally nothing down using interest-only loans, figuring they'd make interest payments for a couple of years, then sell, take their profit to use as a regular down payment and then buy another home. But, the housing market collapsed before they could do that.

So now, we have even more foreclosures out there and the Banks are now serving up Act II. Since the Banks can't or won't (that's not exactly clear) renegotiate loan terms by adjusting the rates or length (term) of the loans, they're foreclosing on massive numbers of loans and putting people on the streets. Then, to make matters worse they're doing really stupid things that are causing housing market values to plummet even further.

A case in point is my competition for the sale of our 2500 sqft ranch-style home. In 2005, it would have probably sold for somewhere close to $400K. It's now listed below tax appraisal price and below $300K ... and still no offers. A bank foreclosure of a 8000 sqft home that was purchased around 2 years ago for just under $900K (2 stories, full basement, in-ground swimming pool on acreage). Now, if you know anything about mortgage loans, you know the owners didn't manage to pay down the mortgage by any serious amount in the first couple of years. Rumor has it the remaining mortgage is just under 600K ... but get this ... it's listed in the MLS for $300K! So let's see if I got this right. They foreclosed on the homeowner instead of renegotiating a change in interest rate or term of the loan and forced them out on the street so they could list the house for a price that would yield a $200-300K loss? How can I compete in this market against that? It just infuriates me!

I'm really beginning to despise the guys at the top at those banks, who make million-dollar salaries and who are destroying the housing market and ordinary American families in their pursuit of the almighty dollar to line their personal pockets.

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