April Rant-It may be Lending...or it may be Predatory Lending

I was having coffee the other day with one of my bird dogs (the people who hunt up properties at risk of foreclosure), and he said to me, “Ever notice how ‘Banker’ rhymes with ‘Wanker’?”

I nearly choked on my coffee! I’m proud of being The Real Estate Rebel, but we were at a crowded café in the middle of San Francisco’s financial district, and even Jack Sparrow (er…CAPTAIN Jack Sparrow) knew to keep his voice down when the Governor could hear him.

Although now I can admit that the thought had occurred to me. Especially after I spent some time catching up on some of the latest shenanigans in the banking world. And “shenanigans” are about the nicest things I can call them.

Seriously, I’m thinking that some of this latest stuff may fall in the predatory lending category. I urge you to do some more digging and, if you agree, it may be time to call your local lawmakers to action.

So here’s what I’m hearing in the Loan Mod world, through conversations and digging around…

A homeowner applies for a loan modification…then the lender says that they’ll “consider” the application and while they’re doing that, the homeowner will be put on a 3-month trial repayment plan with a lower interest rate.

So far, nothing abnormally abnormal here. I’ve talked before about how shaky that is, but for now, I’m more ticked off at the NEXT point…

BUT THE BANK ALREADY KNOWS THEY WILL BE DECLINING THE MODIFICATION.

Yes, that’s right. This stuff isn’t rocket science. It’s not like there is an army of analysts taking that application for modification and pouring over it with a fine tooth comb to see what the bank should do with it. A few key pieces of data are plugged into a spreadsheet and the answer is there.

SOOOOOoooo…why do the wankers…I mean Bankers…approve the “trial period”??

Because it does two things for them:

1) During the trial period, any outstanding interest piles up and is capitalized if the application is ultimately declined. If the bank already know the application will be declined, it’s a way to get the outstanding balance even higher than when the trial period started

2) It creates a larger asset that may be picked up eventually by you and me via the intervention of TARP, who won’t be looking at where the balance comes from.

And if TARP doesn’t buy it, and if the owner goes into foreclosure, well, that’s just a bigger, inflated number that can be written off as a loss against any profits that year.

Holy cow. I’m really really smart, I’m really really tricky, and even I couldn’t have come up with a scheme that does all this.

So, ya know what, for the next few weeks, even if I whisper it, “Wanker” it is…

Stay Rebellious!
-Larry