Wednesday, May 20, 2009

The United States of Entitlement

The Wall Street Journal ran a very disturbing article today about Bruce Marks, a self-appointed champion of the little guy against the evil banks that have the temerity to expect people to pay back the mortgages that allow them to buy the house they live in.

Bruce Marks doesn't bother being diplomatic. A campaigner on behalf of homeowners facing foreclosure, he was on the phone one day in March to a loan executive at Bank of America Corp.

"I'm tired of borrowers being screwed!" Mr. Marks yelled into the phone. "You're incompetent!" Before hanging up, he threatened to call bank CEO Kenneth Lewis at home to complain about the loan executive.

Mr. Marks's nonprofit organization, Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners -- emblazoning "Predator" across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it's called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.

In the 1990s, Mr. Marks leaked details of a banker's divorce to the press and organized a protest at the school of another banker's child. He says he would use such tactics again. "We have to terrorize these bankers," Mr. Marks says.

Well that is very noble. Apparently the thought is that people who are unable to pay back a loan that they agreed to pay back for a house they are living in because of money loaned to them by a back should feel perfectly justified in having a thug harass someone else’s family and children. Takes a pretty tough guy to go after a child in some perverse crusade to “terrorize” business people. Here is a prime example:

One borrower at Columbia was Kenneth Brown, a truck driver from Richmond, Va., who had driven over 300 miles to attend. Though he said he was still current on his mortgage, Mr. Brown hoped to get his monthly payment of about $1,600 cut in half by lowering his loan's 12.5% interest rate. "I'm not leaving till I get something in my hand," he said as he sat in the arena.

So this guy is a truck driver who signed a mortgage for 12.5% and a monthly payment that is $1600. First, the bank probably never should have made that loan. Second, this guy has a responsibility to pay back what he agreed to. If he can’t pay the debt, he can’t keep the house. Somehow it is justified to go get a guy who takes pleasure in terrorizing children to try to force a bank to change the loan terms because you feel entitled to something lower. Last I checked, banks are for-profit organizations and having worked for a number of years in banking I can tell you that the last thing that a bank wants is the hassle of foreclosing and taking possession of a home. To hear this nutjob describe it, “predatory” lenders are out making loans hoping that people wouldn’t be able to pay the loan so they could foreclose on them. That makes perfect sense because banks lose money on foreclosures, so why wouldn’t they try to make as many bad loans as possible? I can’t tell if Bruce Marks is ignorant or just a demagogue.

Here is how the real world works. You find a house you want to buy at a price you agree to with the seller. You find a lender who will loan you an enormous sum of money that you agree to pay back over time. If you have great credit and a down payment, you get a favorable rate because the bank takes less risk. If your credit stinks, you are a riskier loan for a reason and thus you pay a higher rate. Virtually every bank offers payment protection in the event you lose your job, but no one ever takes it because up until last year people leveraged themselves to buy the most expensive house they could. If you can’t make the payments, the bank is protected by the collateral of your house. If you can’t pay as you agreed, you don’t get to keep the house (or car or boat). This is the world of make-believe that Mr. Marks inhabits:

"We have the opportunity to change how lending gets done in this country," says Mr. Marks, whose group is itself a mortgage broker and has 40 offices staffed with housing counselors. He favors a return to more traditional standards, with full documentation of income and the same fixed interest rate for everyone.

Instead of relying on credit scores, he thinks lenders should look into the reasons for any late payments in prospective borrowers' past and prepare renters for the responsibilities of home ownership. Then, if people are given a loan they can afford, they shouldn't be required to make a down payment, he argues.

Documenting income makes sense and banks are getting back to that. No down payment loans? Not so much. No down payment loans mean no personal equity in a house and it makes it a lot easier to walk away. The logistics of lenders investigating late payments adds enormous underwriting costs to the loan. Guess who is going to have to pay that? Think the bank is just going to throw up their hands and eat the cost. Not hardly.

It is easy to rail against the evil corporate suits and roll out people losing their home. But in order for the lending system to work so that people can buy houses without paying cash, lenders need to make a profit which means that they need to get paid back as agreed. The more expensive you make it for banks to loan money, the fewer people will be able to get a loan and the more it will cost all of us. Nothing happens in a vacuum, what impacts one area of the economy impacts it all.

Welcome to the United States of Entitlement, where everyone deserves a mortgage regardless of credit history or ability to repay and if you don’t get the deal you want, thugs and terrorists like Bruce Marks will come after you and your family until he gets what he thinks is “fair”. Little wonder the people of this country elected Barack Obama to be Enabler-in-Chief.
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