Busted: Bankers and The Global Economy

April 7, 2008

Bankers Reap What They Sow

Banks are being overwhelmed by the U.S. housing crisis. Recent federal law enacted by President Bush is supposed to prohibit bankers from making dramatic moves against home buying borrowers during the crisis. As a result, the predatory lending that bankers have engaged in has come full circle. As homeowners stop paying mortages, more banks are often looking the other way.

This new approach by bankers presents problems for being able to effectively measure the banking crisis as well as violating their own by-laws and internal economics. The poor real estate market presents a major adjustment problem for bankers as home value continue to drop. Bankers have began to rationalize that owning an empty house that vandals can destroy or having homeowners trash homes before they leave as a result of ill will is not desirable.

The reality is that bankers are dramatically behind on dealing with the crisis. As a result, a record number of borrowers are at least 90 days late on payments for home loans. Just over half of delinquent homes are being foreclosed.

The folks that measure and make economic forecasts are unhappy. They sense that banks are “distorting” the foreclosure rate and fret that banks are delaying the worst of the housing crisis. The Federal Reserve has been reporting mortgage crisis statistics, although everyone is dealing with figures that are three months old.

The industry is anxious because of a perception that there is not a sense of what is really going on. More likely, the truth is resentment because the status quo is not being observed. This annoys accounting types that neatly project numbers and makes their job harder.

Legals fees, property maintenance, insurance and taxes on property that is held by bankers cost as much 15 percent of the value of each foreclosed home. As a result, bankers face a catch-22 as a result from irresponsible lending and past optimistic projections.

The Mortgage Bankers Association is facing major problems paying for new commercial investment properties that it occupies. Last year, they signed a mortgage for a fancy new Washington D.C. headquarters. Now the association faces tough times and a decline of 20% in the number of their members.

The Mortgage Bankers Association continues to make the public stand that “anytime is the best time to buy” using 10 year projections to justify their actions. The short-term prognosis is far less peachy as cost overruns and lagging tenant numbers loom.

The same mentality that bankers hold is the attitude that they have encouraged in the economy in general. Some authorities see what bankers face as poetic justice. The lobbying group is about to sign the final papers to buy their 12-story building for about $100 million. Financing costs are up as income spirals downward. The leasing market is slow, leaving the building without a single tenant.

The Mortgage Bankers Association has made an undisclosed number of layoffs to cope with their runaway spending and the declining market. In the meantime, the organization is looking a slashing costs across the board.

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6 Comments

  1. Even the banks had to know that sooner or later, borrowers with bad credit weren’t going to keep them profitable. People with bad credit tend to walk away when the going gets tough. They opted for quick profits instead of stability.

    Pingback by CapnCrunch — April 7, 2008 @ 7:29 am

  2. I agree. Banks have been pretty sloppy and still aren’t up to the task of dealing with their own mess. Poetic justice perhaps, but I don’t think they will learn a thing until they are banned from doing business. This kind of example might make bankers think again before getting careless and creating excessive opportunity. Excessive anything usually comes back to roost

    Pingback by billy2433it — April 7, 2008 @ 7:41 am

  3. Its too bad. The legal fees and expenses keep going even when the homebuyer is gone.This is a lose-lose situation for the bankers.

    Pingback by ForeclosureMan — April 7, 2008 @ 8:24 am

  4. Predatory lending has been a blight that needs to be corrected. I still see bankers doing their own thing, so I’d say that the problem of banker interpretation is bigger than ever.
    Reverse Mortgage Blog

    Pingback by Grimm — April 7, 2008 @ 8:26 am

  5. It’s about time that the bankers come to understand that actions have consequences.

    Pingback by Testy — April 7, 2008 @ 8:33 am

  6. The banks may be reaping what they sowed, but why are we stuck harvesting the crop with our tax money?

    Comment by Shaun Kennedy — May 8, 2008 @ 10:52 am


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