For much of my career as a reporter covering the mortgage lending business, I have focused on technology and its promise of making things better, cheaper or faster. Sometimes, a tool can deliver more than one of these. Rarely have I seen one that delivers all three.
During the housing boom that started us on our journey into the new century, mortgage originators were happy to see any one of these promises fulfilled. Historically low interest rates, a vast array of mortgage loan products to meet any conceivable borrower's need and a federal mandate to increase home ownership had lenders attempting to respond to an avalanche of new business. They couldn't keep up and needed technology to do so.
It wasn't just technology, of course, that finally allowed the industry to meet the market need for home loans, there was a fair amount of process improvement that played into that as well. Sadly, the tools and processes that empowered companies to put so many Americans into their own homes during the boom are now being called into question by attorneys who are fighting the foreclosure process.
The same borrower who could not have cared less who signed on the dotted line in order to make the loan closing happen in time to avoid inconvenience suddenly is shocked and dismayed to learn that they don't recognize a signature on one of the documents in their closing package.
Is it possible, they and their attorneys wonder, that this person wasn't intimately involved in the loan closing and may not have known all the details of the deal? Doesn't this mean that the gentle borrower should get to live in his home for the rest of his life without every paying back a penny on the note?
Is this seriously a question that we're asking ourselves? Of course you have to pay back the loan. Either that or vacate the property. The fact that you've been living in the house for all of this time should be plenty of evidence that you intended to enter into the mortgage agreement, whether every "i" was dotted and "t" crossed or not. But perhaps I think that because I'm still paying my mortgage loan as agreed.
We probably should have expected this, I suppose. In hindsight, it makes perfect sense that the downturn following the most phenomenal, incredible and in all other ways totally remarkable housing boom in history would also be one of biblical proportions. Did we really expect all of those folks who suddenly found themselves in possession of an American Dream they had been taught to desire would just retreat back into the rental market without a fuss when the bubble burst?
I think the typical thought process went more like: “(1) they're telling me to sell these crazy loan products; seems stupid, but pays great; (2) I'll be so long gone before any of this goes bad; and (3) I get paid promptly. No-brainer. Sign here. Or don't and we'll just get someone to sign it for you later.”
Getting past all the noise about who's to blame for what — which bores me to no end given that the people who really scored big aren't even on the field of play anymore — we're ready to start fixing this problem. Unfortunately, we're operating in the U.S. home finance industry, the business no legislator seems to have the time to really understand but that every regulator feels honor bound to write a rule about.
So, now we find ourselves in the wake of a scandal at a major servicing house where some serious corner-cutting has called our entire foreclosure process into question and the industry's response has been to fall back into a defense position and freeze everything. If they don't, the plaintiff's bar will descend on them like a guillotine blade and that'll be the end of it. The foreclosure process, the built-in purge process for bad loans, is stalled again.
Who wins? For starters, about 10% of U.S. mortgage borrowers who now have a roof over their heads for free, at least for the time being. A few attorneys who serve this population who now have some real evangelists as clients who will send them additional criminal cases as they crop up (I don't see how there can be much money to be made in working for someone who honestly can't afford to pay his mortgage, so I figure it must be a marketing ploy). Some politicians who will earn media coverage by shaking a fist at the industry and acting like they're standing up for all homeowners, when really they are defending a small percentage of those who are taking advantage of the rest of us with the help of some clever attorneys.
Everyone else loses. Everyone.
Am I missing something here? Readers of this column have not been shy about writing to me when they disagreed with something I've said. I hope I'll hear from someone who can tell me that I'm missing a big piece of this story because, honestly, this is the stupidest thing I've ever seen.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant