Friday, October 12, 2007

They Doth Protest Too Much?

What do you think of this story (from today's New York Times):

Countrywide Is Assailed in Protest of Policies

BOSTON, Oct. 11 — The Countrywide Financial Corporation, the nation’s largest lender and loan servicer, reported on Thursday that delinquencies and foreclosures in its portfolio were rising steeply.

A few hours later, the company became a target of borrower anger in Boston as about 100 people gathered at three Countrywide offices to protest its practices.

The delinquency figures released on Thursday by Countrywide together with the protest, organized by the Neighborhood Assistance Corporation of America, indicate that Countrywide finds itself increasingly at the center of the mortgage storm that began this year.

Thursday’s protest was the second this week organized by a borrower advocacy group and aimed at Countrywide. On Tuesday, ACORN, the Association of Community Organizations for Reform Now, organized a protest in eight cities....


In Boston, homeowners and community advocates rallied outside Countrywide offices. The protesters, many of them older homeowners, wore T-shirts that depicted a shark and the words “Stop loan sharks” on the front, and “sharks beware” on the back.

“Go down to Maple Street and see the homes that have been boarded up, that are being left, discarded,” said Cheryl Lawrence, a tenant organizer for City Life/Vida Urban. “People got into scandalous loans,” and now the homes are just sitting there, she said.

Later, several residents shared their mortgage problems, which have a familiar ring — homeowners facing foreclosure because they are unable to refinance or because their mortgage is now more than they can pay.
I have to wonder if this is the kind of thing community organizations should be using their resources to protest. I don't know all the details behind Countrywide's problems, but when it comes down to it, did they force anyone to take out a mortgage they couldn't afford? Are adjustable rate mortgages inherently a scam? What exactly are all these people angry at? If Countrywide lied to borrowers, defrauded them, or otherwise did anything illegal, ok. From the way the story has been reported, it's hard to tell if anyone is actually accusing them of that. It seems like there is just a lot of free-floating anger about the fact that people might lose their homes, and the response was to organize a protest. But I don't see anyone carrying signs that say "STOP MIDDLE-CLASS GREED!" or "END FINANCIAL ILLITERACY NOW!"

I do have mixed feelings about this topic. Home-ownership taps into some very deep emotions and I can understand how awful it must feel to strive to attain something that you then lose, with some big faceless corporation as the villain. But it's hard not to get a little judgmental when people seem to blame anyone but themselves when their decisions go bad.

24 comments:

Anonymous said...

I agree that no one is forced into a mortgage, and that homeowners should try to better understand what they can actually afford. But as a banker, those ads of "Own for less than rent" can be misleading. The issue is now so big that it is everyone's problem - the market is swamped with excess supply and dragging down prices everywhere, so we all should care.

SavingDiva said...

I also agree that no one forced people into their mortgages. I feel bad for people that fall on hard times, but I also think you need to be responsible for yourself....the protest? I think people need to find a better way to help people that are going through foreclosure...

Curtis Miller said...

People need to be more responsible for their own financial decisions. ARMs can be a good thing when used appropriately, those who don't know better end up paying too much for something and then can't afford it later.

My first home (condo) purchase several years ago when I was in the Chicago area was with a 1 year FHA ARM. I knew I would have to keep an eye on interest rates and refinance before things got worse. Fortunately for me, my rate actually adjusted down the maximum 1% the following year. I sold and moved back to St. Louis the following year.

mapgirl said...

I don't disagree in some respects. Predatory lending is a problem. However, buying into the myth of the American dream and its consumerist trappings is very dangerous. Homeowning is definitely a path to wealth, but ACORN can't work with every consumer to educate them about what they are buying. It's a Catch-22.

I'm of the firm belief that you don't buy/sign what you don't understand. Sure, I've signed for things without fully understanding all the terms. (Who reads a EULA in its entirety?) But on the stuff that really counts like a mortgage, it's paramount to understand what will happen when interest rates rise etc.

I'm sorry, but foreclosures to take a bit of time. Proceedings usually start after 2 missed payments. That's long enough for people to see if they are in a hole and strategize how to get out of it.

I feel very bad for people getting tossed out of their homes, but it's limited. In 2 months you can rent out an extra room to have a little more coming in. It takes 27 days to build a new habit of frugality. It's not hard to see the writing on the wall, but too many people like to stick their heads in the sand till it's too darned late.

Anonymous said...

The whole process has become absurd. The 100% mortgages should be against the law period. It's all predicated on the assumption that MV's and wages will continue to escalate tomorrow as they did yesterday -- something of a variation of the bigger fool theory that happened in the stk mkt of the 1920's -- i.e. you're a fool to buy it at that price but there will be a bigger fool tomorrow who will pay more for it.

With that said -- I don't feel sorry for those nutty enough to take out such a 100% ARM -- anyone who took economics in HS should know that's a bad idea. Looks like they are learning some economic concepts the hard way.

Anonymous said...

What you may not realize is that many of these people are preyed upon by mortgage brokers, an unregulated industry in many states. Purchasing a home is a very complicated process, and your broker is supposed to be your advocate--you are supposed to trust them in the negotiation, which is why you pay them in the first place.

However if they are crooked or predatory, telling you you can afford more than you really can so they make a bigger commission, how can you be expected to make a good decision?

Everyone is responsible for their own actions, and more Americans should be responsible for their own finances, but the mortgage market these days is incredibly complex and many people, including very educated people with high incomes, make the wrong decisions about what they can afford because this industry is largely unregulated and there are horrible people out there taking advantage of it to turn a buck.

Sicilian said...

The whole mortgage system stinks. #1 you are right nobody should have a 100%loan.
#2 Banks should follow sound practices when lending money. They have been greedy in this whole thing, and now they want us to help them. Please. .. . they have the properties. . . the people have nothing
#3 Customers need to educate themselves. They tried hard to push an ARM to me when I got my loan. . . . I told them straight. . . I can't afford for my payment to change. I will pay more interest now for the stability.
Now I know I was right, and I am in much better financial shape because I did not have an ARM.
Ciao

Anonymous said...

I'm not a huge fan of this type of protesting. If you're in the market for a home, you should know what you can/can't afford and do the research. Common sense tells us that if it sounds too good to be true, it usually is, but these people forgot that rule, and now they want to blame others. Predatory lending can be a huge problem, and I feel sorry for the owner who was late on a payment and their mortgage rate skyrocketed to 35%. In many of the ARM cases, however, the owners weren't thinking clearly or realistically. They saw ridiculously low rates and went for it, without calculating a worse case scenario. Yes, brokers can be bad and may have convinced them they could afford a more expensive place, but why did they allow themselves to be swayed? Know your budget and stick to it!

On a side note - I actually bought my apartment through NACA and it was definitely a process. You have to really want home ownership because they leave no stone unturned and you must be able to afford it. In order to participate in the program, you must attend a buying workshop and meet with a counselor to review/scrutinize your finances. You also have to set up a dedicated savings and/or debt reduction plan (this takes years for some people) and figure out how much you can realistically afford on your salary and savings. Only after your finances are in order are you allowed to start the search.

The upside: a low interest rate and closing costs/attorney fees paid for by the bank (it is not rolled into the mortgage.) Plus, you have a specific budget and know what you can afford. The downside: it can take years to qualify, it's a long and somewhat painful process, the house/apartment must be under a certain price (in my case, $385,000), and you are required to volunteer for a certain number of years. I was one of the quickest to qualify, at least in NY/NJ. It only took me 6 weeks.

Anonymous said...

Readers of PF blogs need to underatand that they (we) are what we researchers call a select sample and those that post are even more select. This means that they have characteristics that are not necessarily representative of the general population, right? For our own personal reasons we are devoting an atypical amount of time to developing a level of expertise about finances. There are other areas where we depend on other experts. If my doc prescribes a new med, I can look it up on the web and do some reading but at some point I have to rely on his expertise. I am also not an expert at auto repair despite detailed reading of Consumer Reports, edmunds, carfax, and the like. So, again, I am forced to rely to a certain degree on another person's expertise. That is what some of these folks are complaining about. Sure some were greedy and some were lazy, but some relied on an expert. And, although "predatory" tactics might not be illegal, they are unethical. And that's why the protest.

Jon said...

Help, I've been ripped off by my adjustable rate credit card. They tricked me by giving me a 0% "introductory rate" -- I don't really know what that means, they use such complex language. They told me that would help me save money! All I know is my payments doubled just a few months later!

Moneymonk said...

I'm glad there are programs like NACA, when interest rates go into the double digits. I feel that want the borrower is set up to fail.

Mrs. Micah said...

I wouldn't mind seeing, say, a law that made lenders spell everything out in really plain language as well as legalese. I also think that payday lenders (not the issue here, but I'd group them in this) and other groups that willingly lend to people they know won't truly benefit are essentially evil.

But it's also peoples' responsibility to know what they're getting into. Unfortunately, lots of people are not financially literate or even that good at math. Is it an excuse? I think enough of one to say that the banks should also be blamed for offering these loans.

Money Blue Book said...

True...no one is forced into agreeing to take on a risky mortgage, but one has to agree that there needs to be greater transparency in how mortgage terms are revealed.

Many of these people are indeed being targeted by certain mortgage companies for recruitment into particular types of mortgage arrangements.

I can sympathize if the argument can be made that they were unfairly coerced into a particular potentially unfavorable agreement due to their demographics.

What I can't sympathize with is if they went into foreclosure due to the market downturn alone. In this case, it's simply market efficiencies at work.
-Raymond

Bluebird said...

"If Countrywide lied to borrowers, defrauded them..."

Well, Countrywide's salespeople and paid agents -- independent mortgage brokers -- certainly did those things, and Countrywide egged them on, dangling larger commissions when borrowers got more expensive loans.

Were Countrywide's actions illegal? Probably not. Deceptive, dishonest, abusive? Absolutely.

Why are these people protesting? Now that this mess is coming unraveled, Countrywide is absolutely refusing to share in the pain. They won't modify loan terms, even in cases where the borrowers were clearly lied to. They are encouraging borrowers to give up their houses in lieu of foreclosure, then calling it "helping the borrower".

It's fine to talk about how borrowers are responsible for the loans that they sign up for. But it's also fine to call large corporations on it when they ruthlessly exploit the poor and the ignorant, taking their money and leaving behind wrecked lives and battered communities.

Jon said...

Bluebird,

It's impossible to be deceptive about what "ADJUSTABLE RATE mortgage" means. I can give you the executive overview in about 2 seconds: the rate is adjustable. Looking at some of the signs of the protesters ("My life isn't adjustable! Stop adjusting rates!") they obviously know what the words mean. Unless the agents told people they were getting a fixed rate mortgage (which should be fraud or something) then the ignorance excuse isn't very believable.

In any case, out of the millions of people who bought ARMs, do you honestly think a significant proportion were defrauded to the extent that they didn't even know the rate was adjustable? I doubt it because the FBI investigates mortgage fraud and you probably don't want the extra commission that much...

Also, the deed in lieu of foreclosure does help the person. With the declining housing market, there's no way the house would sell high enough to cover the debt, so it's going to foreclosure. Either way, the person is going to lose their house. The question is, do you want it done behind the scenes, or do you want it on your record for the next 7 years?

Bluebird said...

Jon,

I'm just not sure it's that cut-and-dried. Read this story from the Times.

Somebody defrauded somebody else, and all the bad actors were being paid by Countrywide.

In particular, the fact that Countrywide wrote the family a $596,000 pay-option adjustable loan with a large pre-payment penalty when their gross income was $50,000 per year seems wrong.

Every closing that I've been at, I've been given a huge stack of papers to sign; I relied on accurate advice and information from people at the table. It's easy for me to imagine how a poor, non-English-speaking borrower might wind up signing insane loan documents based on bad advice from the mortgage broker or salesperson.

My point is that Countrywide was compensating these agents and salespeople in a way that encouraged them to write loans that were, at best, disadvantageous for borrowers (e.g. extra commissions for high rates and prepayment penalties).

I think that responsibility for this mess lies with both the borrowers and the lenders. My view is that Countrywide isn't accepting responsibility for their part in this mess.

Anonymous said...

The next thing you know there will be protests demanding to bailed out from those "Nigerian" scams. People need to grow up and take responsibility for their own actions -- though I admit I would enjoy seeing officers of those "mortgage co's" tossed in jail with hard labor for 30 years -- with the hard labor part "reset" to a higher level after the first two years!

Penny Nickel said...

Temporarily leaving aside the issue of deceptive/predatory actions vs. lack of responsibility at the time of purchase, it sounds like these protests have a lot to do with how Countrywide is acting in the here-and-now.

This NYT article quotes a few consumer advocates, including this one:

But Mark Seifert, executive director of Empowering and Strengthening Ohio’s People, a consumer advocacy group in Cleveland, is dubious. He said his experience with Countrywide, one of the dozen or so lenders and servicers with whom he works on behalf of borrowers, has been unsatisfactory. “We have experience with Citi, Chase and a whole litany of other lenders,” Mr. Seifert said. “Some are better than others, but we are successful more than half the time with all of them. Except Countrywide.”

It sounds like Countrywide is especially unwilling to help modify loans, they're doing a lot of sketchy stuff with fees, and that they're extremely difficult to reach with questions and problems, which can exacerbate those "skyrocketing-late-fees" situations. In that situation, affected borrowers teaming up to protest sounds like a pretty appropriate strategy. Obviously demanding that borrowers get to keep the teaser rates isn't realistic, nor is completely denying individual responsibility, but it doesn't mean Countrywide shouldn't be blamed for their role in worsening a bad situation for folks.

Anonymous said...

Here's another article from today's Times that might be interesting--in NYC, predominantly hispanic and black neighborhoods were more likely to use subprime lenders than predominantly white ones--even when you control for income levels.

That tells me that there really are a lot of predatory things going in the mortgage market.

http://www.nytimes.com/2007/10/15/nyregion/15subprime.html

Jon said...

Bluebird,

That is a sad story, and like I said if there's fraud involved there are plenty of actions the victims have available. I'm glad that they have decided to take those people to court.

However, I think the overall proportion of people who were scammed in such an outrageous manner is pretty small. In your opinion, do you think 1/4 or 1/3 of all ARMs are the result of blatant fraud? I really don't think so. That's why I'm against a government bailout, either of the banks involved (who are truly not victims in any sense) or the people who fell for them (the vast majority of whom weren't scammed like that).

Philby said...

My question is, what specific abusive lending practices were Countrywide engaged in? Were they lying to their borrowers? If you're told what the terms are, in language you have a reasonable expectation of understanding, then the responsibility lies on you. Of course, I've seen some truth in lending violations, even from major lenders, so maybe some of these people are justified in their protests.

Brooke said...

With the danger of sounding crass, I'm not really sure I feel sorry for these folks protesting or anybody else who is in this mess. Debt is debt is debt, right? I'm dismayed by the fact that I've worked so hard to get out of debt and stay out of debt while others have been acting irresponsibly. I'm also concerned that these peoples' actions directly impact me and all of us, through lowered standards of living and increased pressures on the housing market (i.e. the devaluation of my home).

Anonymous said...

This mess was a result of the mortgage companies' greed and the homeowners' delusions.

It isn't one fault over the other--it's both parties fault. Banks need to be more upfront about the real mortgage payment and not lend to people who have zero savings and credit card debt. Homeowners need to be realistic on what they can (and can't afford) and need to make sure they understand what they're signing before they sign.

I live in California and the Chronicle recently wrote about 4 families near foreclosure. One guy makes $2600 a month but bought a home where the mortgage is $2200! Huh? He thought he could get extra work on the side. In the LA Times they chronicled a man who bought a $600,000 house and he made only $9.25 an hour! His plan to make payments, rent out the rooms and get his 3 adult daughters to give him money each month. Please! The stories were examples of delusion at it's worst.

Anonymous said...

Anon above 10/16/07 1:32 --- There's also a lot of consumer greed in that delusion. What do you think intoxicates them so? Maybe the thought of several hundred thousand dollars profit after a couple years, maybe?