Foreclosure Fiasco Helps Delinquent Owners

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It looks like Wall Street is making another public relations blunder.

This time, it’s not phantom foreclosure documents, fat bonuses to executives at bailed-out banks or 30% surcharges on things like late credit card payments or checking account overdraws.

Now they are blaming anxious and struggling homeowners for the recent foreclosure mess.

Ironically, homeowners may get the last laugh from the foreclosure fiasco (or at least some much-needed breathing room), but more on that in a moment.

For now, the financial services industry is increasingly laying the blame for its own failure to police home mortgage documents on homeowners  - many of whom are jobless or unable to work for health reasons - who can’t pay their mortgages.

Sure, not every delinquent homeowner is sick or out of work. But with about three million jobs lost in the U.S. since 2007, and about three million foreclosures over the same time period, it’s hard not to notice how those two trends match up so neatly.

Unless of course, you work on Wall Street, where bailouts for toxic, billion-dollar banks are completely legit, but sympathy for struggling homeowners is in short supply. "If you didn't pay your mortgage, you shouldn't be in your house. Period. People are getting upset about something that's just procedural," Walter Todd, portfolio manager at Greenwood Capital Associates, told Reuters last week.

"Everyone's responsible for following the law. If we all don't have to pay our mortgage, should we just stop paying taxes, too?" added Anton Schutz, president of Mendon Capital Advisers. "Your mortgage didn't get to a robo-signer by accident; it's because you're not paying."

Of course, many of those foreclosures could have been avoided if banks had worked with more delinquent homeowners to modify their mortgages. Or if they hadn’t engaged in predatory lending schemes that put buyers in impossible positions to begin with. But tale after tale of lenders losing paperwork, not responding to homeowners’ requests for loan modifications, and turning down applicants who met their initial loan modification obligations are legendary in consumer advocacy circles.

But homeowners are gaining more leverage as the foreclosure scandal widens. One by-product of the scandal is that delinquent homeowners can stay in their homes for months without making any mortgage payments. Freddie Mac has taken a look at this trend (which can keep delinquent homeowners on the premises for eight months or so) and ironically concludes that it’s the banking industry’s fault.

According to the Oct. 26 edition of The Financial Times, Freddie Mac (Stock Quote: FRE) says that the foreclosure crisis has added at least two months to the time that delinquent mortgage holders can stay in their homes – free of charge.

That translates into eight months of free rent while banks and mortgage lenders hammer down the details that forced them to suspend foreclosures and raise the ire of both consumer groups and state and federal politicians.

It’s not a pretty picture on either side, but seeing emotionally-spent homeowners stay in their homes a bit longer because of mistakes made by big banks is a good case of “what’s good for the goose is good for the gander."

Especially when banks point the icy finger of guilt away from them – and toward American homeowners.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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