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When your bank bets against you

Merkley
Jeff Merkley

A couple of months ago Senator Jeff Merkley met with a group of political-writing bloggers (this writer among them) to talk about various subjects. Merkley had one specific topic, though, that he wanted to address: Mortgage reform.

He outlined a half-dozen proposals on mortgage practices, most of which sounded as if they would be good business for banks and other lenders. (His most recent amendment was proposed on Thursday.) Some of them made you wonder, why don’t the banks just do some of those things, absent a law? They can’t benefit, can they, by the fact that houses by the millions are being foreclosed upon, driving down the value of their own assets?

The housing market may not; homeowners may not; but yes, it turns out that many of the lenders can. How?

Read today’s Steve Duin column in the Oregonian, focused on a foreclosure case in which a soldier based in Iraq may return to Bend on leave to … somewhere other than his family’s house, which may have been foreclosed on by then. His father (the owner) has been making payments and thought he was on a loan modification path until he abruptly learned, after paying for months and years in good faith, like so many others, that he wasn’t.

Merkley, has gotten involved in the case: “It has parallel elements to hundreds of stories we’ve heard. Families think they’re involved in modification, then suddenly discover they’re on the path to foreclosure. … This is not an accident.”

How so? Duin: “Many of the worst mortgages are pooled in trusts. The banks are selling securities that bet against those trusts. All too often, everyone but the homeowner gains “if the mortgage is dysfunctional.””

In other words: Your banker may be betting that your loan will fail, and make money if it does; and if it can mislead you, jack you around, withhold or deliver false information so that you lose your home – the bank wins. In the short term. Big picture, of course, the economy and homeowners, and the country, lose.

Merkley has been, from the evidence, pursuing the mortgage legislation steadily, but encountering plenty of resistance. A suggestion here: He (or, more practically, a staffer) should start a daily blog, detailing exactly what is happening with the legislative and from where, exactly, the resistance is coming. This whole area could use a much brighter spotlight, and Merkley would be well positioned to provide it.

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