Sad News on the Wicked Local Blog, and San Diego Plays Hardball With Irresponsible Lenders

According to Chris Biondi’s post from the 23rd, a Taunton woman killed herself as her home was approaching auction, saying she wanted her son and husband to use her life insurance to keep the house. I know I sound like a bleeding heart — but this is the reason we have things like bankruptcy laws.

It would be nice if the less-government crowd were right — if banks would take a breath, self-regulate, realize that foreclosure is bad for all of us, and come up with plans for refinancing, interest reduction, and outright debt forgiveness for homeowners who are in trouble. But according to the July 19 issue of The Economist, banks spent millions to lobby to have themselves deregulated; that’s how we got here.

It’s also true that bankers — the people, not the institution — hate bankruptcy. I used to work in a bank, and the dominant attitude — one you were expected to mirror if you worked there — was that people who overspend and then can’t pay should be ruined. Bankruptcy is legal stealing. People who can’t pay are deadbeats. Looking down on them had the air of a moral obligation. The intimidation of the bill collector is what holds the banking system together, after all — only, right now, it’s particularly bad for business.

It’s true that homeowners got greedy; but the “Twin Twisters” of Fannie Mae and Freddie Mac aren’t the fault of imprudent buyers.

Essentially, The Economist says that taxpayers are paying for the bailouts of these two mammoth companies. But the taxpayers didn’t reap the rewards of any of the profits made by these leviathans — they aren’t actually socialized. The article seems to say that no one ever believed that the feds would let mortgage mega-banks perish, and that we’ve been had — bailing out these institutions means irresponsible businesspeople are being rewarded for intentionally seeking deregulation, marketing the heck out of a really, really bad idea, keeping their jobs and houses, and sticking us with the bill.

What’s worse is that we’re spending money to bail out the banks and doing very little for homeowners faced with foreclosure. There’s some hope on this front, however. According to a Reuters article, “San Diego’s city attorney said on Wednesday he filed a lawsuit against Bank of America Corp … and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a ‘foreclosure sanctuary.’” We need to see more than this — we need to see lenders propose a workable plan to get this market back on the rails. And we need our legislators to get tough on the industry until that happens. High-five San Diego.

The smartest thing for banks to do is to rehabilitate customers. They lose a pile of money on almost every foreclosure, and they’re removing families from the pool of potential buyers just when the real estate market needs them most.

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