Wednesday, March 5, 2008

These KLF guys are no idiots

Another excerpt from The Manual (1988)(I assume the KLF are not related to this company):

Banks are in the business of making money by lending it. The more they lend the more they make. They want us, the punter, to become addicted for life to the false sense of security it gives us. Banks will go to extremes thinking up new and ingenious ways of getting us to borrow money from them. First and foremost they want us to get into property: "Buy a house," because with your property as security they can always lend you more and more money. If things were to go badly wrong and you weren't able to keep up the interest payments they can always force you out of house and home and get their money back that way.

Of course, it would be bad for the banks if they were seen to be throwing too many families onto the street or forcing businesses to the wall in order to redeem their loans. They would always prefer to lend more money so as to help pay off the interest on the earlier loans. Banks have spent millions over the past few years trying to destroy the public's old impression of the bank manager in bowler, brolly and pinstripe, to the approachable and amiable sort of chap who will attempt at all times to say "Yes!". They have only done this, not because they like being nicer, but to seduce you into coming in and borrowing more money. Remember, when you are going in to see a bank manager you're going to see a pusher; a pusher dealing in one of the purest, most addictive drugs — money.

Bank Systems and Technology, June 2004:
Countrywide Home Loans Inc., a subsidiary of Countrywide Financial Corp. (Calabasas, Calif.; $97.9 billion in total assets), has reaped the benefits of the recent mortgage explosion, processing more than 150,000 loans monthly. Last year it handled $434 billion in new mortgages.

"The mortgage industry has seen a huge couple of years, due to the [refinancing] market," says Scott Berry, the financial institution's Agoura Hills, Calif.-based executive vice president of artificial intelligence. Countrywide has more than doubled the volume of its mortgage originations in the past two years, he says.

Its automated underwriting software has helped make that possible by speeding up the approval timetable. "Without the technology, there is no way we would have been able to do the amount of business that we did and continue to do," Berry says.

Wall Street Journal, March 3, 2008:

Countrywide Financial Corp.'s mortgage portfolio continues to deteriorate rapidly as defaults increase and home prices fall, a securities filing shows.

The Calabasas, Calif., lender's annual filing with the Securities and Exchange Commission, released late Friday, showed a big increase in late payments on option adjustable-rate mortgages, known as option ARMs. These loans give borrowers several choices of payment each month, including one that covers only part of the interest normally due. When borrowers choose that minimal payment, the loan balance grows.

WJLA, Washington, D.C.'s ABC television network, March 5, 2007:
A woman was forced out of her Arlington home Wednesday after unsuccessful attempts to sell her home. Cecily's troubles began when she was laid off from her job, which triggered a pileup of bills that she just couldn't pay and a string of mortgage payments that weren't being made. She said Wednesday was the worst day of her life. Moving crews pulled her couch, dining room table and computers out of her home and placed them on the street.

"This is what's happening across america. This is what's happening to families everywhere. They are being thrown out of their homes. If it can happen to me it can happen to anybody else," Cecily said.

Washington Post, February 22, 2008
(emphasis added):

The nation's largest lending institutions are lobbying hard to block a proposal in Congress that would give bankruptcy judges greater latitude to rewrite mortgages held by financially strapped homeowners. . . .

The legislation would allow bankruptcy judges for the first time to alter the terms of mortgages for primary residences. Under the proposal, borrowers could declare bankruptcy, and a judge would be able to reduce the amount they owe as part of resolving their debts. . . .

But the banks argue that any help the proposal might provide to troubled homeowners in the short run would be offset by the higher costs that borrowers would have to pay to get mortgages in the future. The reason, banks say, is that they would pass along the added risk to borrowers in the form of higher interest rates, larger down payments or increased closing costs.

If banks were unable to pass on the entire cost, they could be forced to trim their profits.

Washington Post, February 29, 2007:

Senate Republicans yesterday blocked consideration of a bill designed to prop up the struggling housing industry, declaring that the Democratic-backed provisions would harm mortgage lenders and inflame the housing crisis.

With a 48 to 46 vote, the Senate did not gain the 60 votes needed to halt a threatened filibuster on the housing package. . . .

The housing proposal includes billions of dollars for local communities to buy up subprime mortgages and a controversial rewrite of bankruptcy laws to allow judges to slash interest rates for low-income homeowners. The mortgage industry has waged a stiff lobbying campaign against the bankruptcy provision.

Nolo Bankruptcy Resources:
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. In Chapter 7 bankruptcy, property is sold (liquidated) to pay off as much of your debts as possible, while leaving you with enough property to make a fresh start.
Wall Street Journal, March 6, 2008:
Mr. Bernanke and the Fed are charged with protecting the soundness of the banking system. The bulwark of such protection is shareholder equity -- capital -- which is generated in part by income-producing assets known as loans. Yet the Fed chief has now advised that, as a matter of public policy, banks should take a chunk of that capital and transfer it to mortgage debtors. How this additional charge -- and new political risk -- against bank earnings will ease the mistrust at the heart of the current credit crisis is a mystery.

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