Matthew Ferrara, Philosopher

Home Foreclosures Becoming the Next Asbestos?

Don’t expect housing to recover for years, if the trial lawyers have anything to say about it.

And when have you ever met a trial lawyer without anything to say?

According to the Wall Street Journal this week, blood is in the water in the foreclosure paperwork mess, and the sharks are already circling.

“There is a movement afoot by [state attorneys general] and private lawyers to use technical problems to avoid foreclosures where the borrower is in default and the foreclosure is in all respects substantively appropriate. These are lawyers where the best job they can do for their clients is to keep them in their houses without paying the mortgage,” said Andrew L. Sandler, a Washington securities lawyer who represents banks and firms that service mortgages.

Surprised? You shouldn’t be? What else do we do in America these days but sue everyone else for our own problems? Never mind how home owners get “into” a foreclosure mess in the first place:

Theystop paying their mortgages.

Sure, there are some exceptions, some paperwork mistakes, some people who have lost their homes because of clerical errors. Yet those are the exceptions – not the norms. Clearly there’s not a “class” of who are losing their homes en masse due to robber barons, or even robo-barons for that matter.

The trial laywers smell a payday, though; Once they start putting sobbing victims on the television and in the courtrooms, they’ll have no problem putting together a class action lawsuit. Yes, your Honor, I spoked four packs of cigarettes a day, but it’s their fault that I got sick. Yes, your Honor, I put an uncovered cup of hot coffee between my thighs and sped away from the coffee shop, but who knew the coffee would be hot? Yes, your Honor, I stopped paying my mortgage, but I never read the clause that said I really had to pay it back…

Trial lawyers, with the cover of Congressional hearings, FBI investigations and attorneys general, are going after banks and their servicers, arguing they were acting like “robots” filing papers that would “steal” people’s homes from them. Do you know who coined the term “robo signers”? A lawyer, of course. That’s the first step in winning a class action lawsuit: demonize the defendant.

Make him inhuman. Like a robot.

The banks have already slowed or halted foreclosure proceedings nationwide – sensibly aware of the legal sharks circling – at a cost of about $1000 per foreclosure per month. Some problems are being uncovered; but certainly not in percentages to justify the moratorium – or a class action lawsuit. Remember, banks that lose money on real estate won’t be inclined to lend it to homeowners in the future. If they do, it will be at significantly higher interest rates to cover additional and new risks like trial lawyers.

As John Carney at CNBC points out, none of this excuses banks for their shoddy and possibly (technically) fraudulent paperwork. But unleashing the lawyers and letting non-paying borrowers remain in these homes at is almost “double jeopardy” for banks.

Banks can make money lots of ways. Lend to Treasury. Lend to Chinese manufacturers. Lend to technology companies. They don’t have to seek out homeowners who bail – then call lawyers to get out of jail – as soon as the market turns. At some point, we’re going to need good relationships with banks to help us restart the housing industry. I

f they’re tied up in court, they certainly won’t be sitting around home sale closing tables.

What a mess.

  • The pendulum is swinging. It first swang the bankers’ way and now is swinging the forclosurees’ way.
    Out of this will come a new equilibrium.
    I haven’t a clue what this will look like.

  • Ccrestelo

    I thank your point is well taken about the foreclouser situation. That being said, you never seem to be open to part the banks played in all this. As an agent I had trust in my buyers bank and never even realized that in selling the note {and they made haste in doing that} that the banking industrey did not have a reasone to be thoughtfull in the loans they made. The Greed on wall Street was just as much a factor as we realtors that asumed that the Bank had our interest and our countrys interest at heart. Having to have to short sale and watch my clients foreclouse { all nice people with jobs -at the time- I now have no faith in the profit above morales and good practices that I had before. Will you ever address Banks and wall street greed and how they have undone Americans faith in our large institutions. This is a larger melegnace then the few home owner that got away with some free rent. And that does not justify the the home oner ether…

  • Thanks for your comments. I’m afraid we just see things from different perspectives, and I don’t think it was “greed” as you put it. But here are a few thoughts:

    1. If bankers weren’t “greedy”, you’d have no loans to sell homes with. Let’s stop calling “greed” a bad thing – and let’s use language like “profit” because that’s what banks do to make a living and pay people and pay their bills (and so, I suppose, do you). Banks make loans, expect to get paid, and sometimes resell them. They are not supposed to be the “moral” compass of society or police people from making bad decisions.

    Banks make money by making credit available. Period. If they didn’t, you’d have to find cash buyers and there’d be much lower home ownership. Just because banks resold loans doesn’t make them bad in ANY way that I can think of; and in fact they were ENCOURAGED to do so by Fannie and Freddie. LIkewise, their ability TO resell them made it possible for many people to buy homes they would NEVER EVER been able to afford – even those who did not “overbuy” but simply were extended credit. Remember, the REGULATOR (FHA) virtually forced banks to lend into the lower credit rankings with threats if they did not….

    2. If agents didn’t know that banks were reselling loans, then it occurs to me that agents don’t understand their industry. How can an agent actually act as a fiduciary for a buyer or seller if they don’t understand the entire process of the real estate industry, including how that process might affect their “client” after the deal is closed? Even having said that, you don’t have to understand the entire finance structure to still have counselled consumers not to overspend beyond their means. My agent and my banker counselled me EXACTLY THAT – even though they noted that I could borrow more, they reminded me of my total debt and responsibilites; both agent and banker advised me to be PRUDENT. So it’s clear the industries CAN produce “non-greedy” and smart bankers and agents.

    Lastly, I still don’t see why banks are the big bad guys? Bad banks have left the industry; many have been closed down forever – just as many real estate agents got into the business, made a killing, then left after they played their part (whatever that was)… should we say that those agents were negligent? Why is it so hard to put the onus on each entity squarely? And let’s remember that MANY banks did NOT have anything to do with the financial meltdown, yet we paid them all as bad.

    So, I’m not sure I can pick up your offer to discuss the “bad bankers” because it wasn’t their responsibility to protect borrowers from themselves. It was their job to make money – for which I (and maybe you, at the time) thanked them a lot as our 401ks and other investments were soaring….

    Does that offer a different way of looking at it?

  • Ccrestelo

    Thank you Mathew for your view on the Banks and greed, we do look at it from different perspectives but I always like to look at someone elses view point. I think that it is not as simple as ether you or I say. but at least we are ciping away to try to understand every ones responsibility in what happened. Thanks again