As a bankruptcy attorney serving homeowners facing mortgage problems in DC, Virginia and Maryland, I try to stay abreast of trends reading the columns of national economists and financial writers.
Financial columnist Ezra Kein’s essay “Digging into finance’s pay dirt” of Sunday, July 25, 2010 points up the seamier side of finance in America – predatory lending to the poor. Klein bases his commentary in part upon reporting by Gary Rivlin in his book “Broke, USA.” Klein writes:
But before they [the working poor] were Wall Street grist [for subprime mortgage lending by mainstream banks], the working poor were good business.
“To me, it was so counterintuitive,” Rivlin says. “People with no money in their pockets are good for business?” But they were profitable. And fringe finance bloomed. By 1996, there were more payday lenders than all the McDonald’s and Burger Kings in the land combined.
It was also a different sort of business. Unlike traditional banking, it wasn’t about finding good credit risks who could repay their loans promptly. Quite the opposite, actually. The central insight was that you wanted people who couldn’t quite stay ahead of the loan. Then you could hit them with late fees and try to get them to refinance with more fees and catches, and generally bleed them and bleed them and bleed them.
Reading the column it struck me that the worst of the economic crisis may have passed, but predation still continues. It has not stopped. It’s going on today, as we speak. Our bankruptcy law firm specializes in helping homeowners in DC, MD and VA, and we’re seeing it in how lenders deal with homeowners seeking modifications.
On more than a few occasions, clients have come into the office complaining that they were denied a modification after having made lump sum payments of thousands of dollars to lenders who misled them into believing the payment would help them get a modification.
It’s only after a very close reading of the letter by an attorney, and parsing its nuanced language, does it become apparent that that the lender was merely offering them a chance at a modification. As such, the homeowner’s payment was tantamount to putting money on the table for a roll of the dice. The tactic is reprehensible. Even more so when the lump sum payment exhausts the family’s last bit of savings and dips into rainy day funds borrowed from the savings of friends and family. In effect, the family made a payment and got nothing in return.
Last week we called a lender to check on the status of a modification. The lender’s staffer said that the loan was being reviewed for an offer, and then added it would help if they paid the mortgage. Query: If the homeowner could afford the mortgage, why would they need a modification?
Another client is converting her Chapter 13 case to Chapter 7 and surrendering her house because the lender has refused to modify her first mortgage. The lender has asked the court for permission to foreclose alleging no payments have been made for the past nine months resulting in a total of $30,436.61 in arrears and lender’s attorney’s fees. Meanwhile, the homeowner’s own records show canceled checks cashed by the lender during the period totaling $11,400.
The homeowner says she was instructed by the lender’s staff to pay what she could while the modification was pending. What good did the partial payments do her if the lender refused her modification and did not even bother to keep accurate records of payments she did send in? Beware. Remember that mortgage loan modifications are completely voluntary on the part of the lender. There are no guarantees. If you can pay, you should. If you can’t, then try a short sale or surrender it in Chapter 7. Don’t be misled. Don’t become one in which they try to “bleed them and bleed them and bleed them.”