Friday, July 18, 2008

BLACK MONDAY 2008: Foreclosure Apocalypse?

Dude, that's not the finger I'm feeling like giving here…

Okay. "Black Monday" already happened, in the 80's and then also back in the 20's according to some slang-artists, but one of the attorneys I work with gave this last Monday (July 14 2008) the name, and it seems to have stuck. You could also call it "Screw Everybody We're Foreclosing On You All" Monday, if you're so inclined.

Here's what happened, and pardon me if I sound a little frantic, but I feel a bit like Cassandra here; I'm freaking out about this but by and large, most people don't seem to realize it happened. Most people only know one or two people involved in mortgage negotiations, so they didn't see the coordinated collapse that I saw.

In a nutshell, what happened is that Monday morning, all the major mortgage banks in the U.S. issued some kind of order or decree, that they would cease conducting any kind of workouts or negotiations with borrowers, and instead foreclose on every home they could.

I know this because the nonprofit I work for is a sort of hub that helps people understand their options and take steps to avoid foreclosure. That means that I'm in regular communication with, among other people, brokers and lawyers who are trying to help people who have problems with their mortgages and need to negotiate with their mortgage companies; as well as individuals who are trying to work things out themselves.

Mortgage negotiations are absolutely critical…
Because mortgage problems are very, very often related to bad loans whose payments are increasing, or to properties whose values are now way under the value of the mortgage, or that have other problems like job losses or illness to deal with, helping people with mortgages often means contacting the lender and getting them to make a change to your mortgage so someone doesn't lose their home. They may change it from an adjustable to a fixed loan; lower your interest rate; forgive a late payment or two; or something like that. These "mortgage workouts" are not only common, but they are the accepted way for borrowers to handle problems with their mortgage. Governments and banks alike have been urging borrowers to contact their lenders and "work something out" as the main way of fighting foreclosures for some time now. That's basically what the whole "HOPE" thing the federal government "did" (if you want to call it doing anything) was. Unfortunately, the government neglected to give this solution any teeth by requiring banks to work with people, so thus far it's been a game of incredibly one-sided negotiations, often requiring people who are already broke to get legal help (a good lawyer can negotiate better than you can) if they want to keep their houses.

As if that wasn't bad enough, on Monday, the banks stopped making any deals.

Let me say that more clearly: As of 9 a.m. on Monday, ALL the major banks stopped making ANY deals whatsoever that I'm aware of. They even called off workouts that were in progress, including ones that were all done except for signing the papers. This is whether or not the borrower was actually in foreclosure yet.

…And now they're gone?
A comment related to me from someone who asked the biggest foreclosure law firm in our area about it was, "We've been given our marching orders: No more deals. No more workouts. We play by the rules, and if we can foreclose, we foreclose." Apparently these "marching orders" came down from every major bank (at least) in the U.S. first thing Monday morning, and as of today, there still seems to be no movement away from this new "policy" of letting homes go into foreclosure en masse, with no way out whatsoever for troubled homeowners.

One of the attorneys I work with was busy negotiating about ten cases for us, and his panicked phone call on Monday afternoon was what tipped me off. Then my company started hearing from people who were involved in their own negotiations, every one of them with a story about how the bank called them on Monday and called off the whole thing. At this moment, I'm not aware of a single negotiation that's still going on, with the exception of two that an attorney I know managed to keep alive by convincing someone he knew on the other side to risk their job by breaking the new rules.

That means…. Lost your job and missed a few payments? Pay them in full, right now, or lose your home. Grandma got shafted into an unfair mortgage she should never have been given? Pay it on its terms (unless you can refinance by some miracle), or Grandma's homeless.

Interest rate about to increase, making your payments jump several hundred bucks a month, even though your home isn't even worth the amount of your loan anymore? Tough titties.

…And much, much more. I talk to and meet with these people every day, and up until this week, it's been a source of great pride to be able to help at least some of them out, because almost none of them deserve to lose their homes.

Well. As of "Black Monday", people who call me can either
A) have the credit score and means to refinance (which means they can't have missed any payments, and their mortgage can't be more than about 80% of the new, lower value of their homes, and they have cash on hand for closing costs); or
B) pack their bags.

But WHY???
What's really scary, besides the fact that nobody seems to know this is happening, unless they do a job like mine; is that if they do know about it, they don't know why.

Since Monday, I've written to several blogs and called everybody I can think of short of my state representatives (who are next, if I can't get some answers soon) to try and figure out what the hell banks are thinking. Nobody can tell me — in fact, everybody so far has been shocked to hear what I'm telling them about Black Monday. Everyone who checks up on it agrees that it's happening — major foreclosure law-firms have their orders to cease negotiations immediately; and citizens not in foreclosure who were attempting to work a deal out themselves all got shut out completely. No explanations — even the super-huge law firms don't seem to know why they were given these orders, or towards what purpose.

Thinking more generally for a moment, it's hard to see what banks can possibly gain from this behavior: They lose usually at least $20,000 on every foreclosure, which is way over the cost of working out most loans with the borrowers. I don't know about you, but I'm used to banks at least making sense — they may be evil sometimes, but you know how they tick; they're doing what they're doing because of the bottom line. But no-one I've spoken to can tell me how forcing millions of homes to go into foreclosure helps the bottom line for anybody.

One super scary thing that someone mentioned to me as a possibly explanation is that maybe the banks have gotten together and agreed to try a "suicide gambit" — basically threatening to eradicate themselves (which is what unchecked foreclosures would do at this point) if the government doesn't bail them out (as it plans to for Fannie Mae and Freddie Mac). This would be the most terrifying thing I could imagine — especially for homeowners — because as we've learned by messing with suicide bombers, there ain't much you can do to fight someone who's willing to die for their cause. So, although I can't find the slightest shred of evidence that anything other than that is going on, I'm going to keep hoping as hard as I can that that isn't it. If it's anything else, some weird legal or tax thing maybe, then there's a possibility that organizations like mine can figure out a way to negotiate with the banks that takes their "concerns" into consideration.

Hopefully I'll have more information later in the week — I'm still trying to get permission from some of our executives to make the really heavy-dirty phone calls. But this is definitely real, and if it continues, (seriously, let's hope like hell that it's temporary), it could be the worst thing to happen to the U.S. — and even the world — economy yet.

By the way…please forgive my rather hideous grammar and typesetting skillz, and my tendency to babble lately. This week…all these people calling and me knowing in the pit of my stomach that I probably can't help them now and can't even tell them why…it's been incredibly tough. Sorry.


Nancy Belle
949-200-7335 (direct)
800-889-7372 (toll-free direct)