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December 19, 2012

The Mortgage Scam Against Widows, and Why No Mortgage Lender Should Ever Get Legal Immunity

Posted in: Uncategorized

Dealbook had an item yesterday about the qualified mortgage rule and the bid by mortgage lenders to acquire a “safe harbor,” essentially a shield against consumer lawsuits, in the process. I’ve already gone over this topic and continue to oppose giving banks a safe harbor of any kind on the merits. But just to shift gears away from the precise details for a moment, consider why you would want to give any entity that does something like this protection from legal exposure:

Geraldine Bates lost her husband to kidney failure last year. Now, she has fallen behind on her mortgage payments and is terrified that she will lose her home in Jacksonville, Fla.

Ms. Bates, 70, is caught in a foreclosure trap that is ensnaring widows across America: she cannot get help lowering her payments until her name is added to the mortgage note, but the lender says she must be current on payments before that can happen [...]

Just as the housing market is recovering, a growing group of homeowners — widows over the age of 50 whose husbands alone were holders of the mortgage — are losing their homes to foreclosure because of a paperwork flaw that keeps them from obtaining loan modifications.

In the latest chapter of the foreclosure crisis, homeowners over 50 are falling into foreclosure at the fastest pace of any age group, according to nationwide data, in part because women are outliving their spouses and are unable to cope with cuts in their pensions, ballooning medical costs — and the fine print on their mortgages.

There’s nothing necessarily against the law here; the problem is the law itself. But this is the mentality of mortgage lenders and servicers, who will evict someone from their home on a technicality without any problem. These people deserve special treatment under the law somehow? In what way have they shown the upstanding moral character in their business dealings that would make such a situation palatable?

The idea that the government has to provide incentives to banks to make good loans is warped. Banks should want to make good loans so they can recoup their investment and turn a profit. Getting a shield from homeowner lawsuits should not be any kind of sweetener to that exchange.

The Consumer Financial Protection Bureau didn’t have much of a choice on the safe harbor: it was mostly written into Dodd-Frank. But they can choose how to interpret the rule, either narrowly (just on the matter of ability to repay) or more broadly. And they should take into account the mass of documented fraud and shady dealing that this industry has engaged in over the past several years before deciding whether to grant them immunity.

Photo by Lance Page/truthout under Creative Commons license.


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