Burning Down The House

Watch out
You might get what you’re after
Cool babies
Strange but not a stranger
I’m an ordinary guy
Burning down the house

-Talking Heads

Yesterday while reading an article in the NY Times titled “Banks Starting to Walk Away on Foreclosures” I was reminded of the movie Fatal Attraction. In the climax of this highly successful “bunny boiler”, Michael Douglas drowns a crazed, knife wielding Glenn Close in the bathtub. Exhausted, he turns to comfort his wife when suddenly Close leaps out of the tub, knife in hand…

The article features a single, African-American woman, Mercy James, who went through the whole gut wrenching process of buying a rental home, getting behind on the payments, and having it foreclosed upon by the bank, her tenants forced to evacuate.

Presumably,  Mercy went  through all the classic stages of grief including denial, anger, and finally, acceptance.  But like the false ending in Fatal Attraction, the bank found a way to further threaten her well being. Instead of finalizing the foreclosure, the bank walked away without informing her, leaving her financially responsible for additional liens and physical damage to the property that accrued during the foreclosure process.

It used to be a person’s home was her castle. During the last decade, thanks to cheap credit and lax underwriting standards, that castle morphed into a ready-teller machine to fuel a now collapsed bubble economy. Now’s it’s morphed again into a 21st century debtor’s prison with many owners owing more on their home than it’s worth,  and worse, captive to accelerating monthly payments that can increase 50% overnight. Vacant foreclosed homes are now magnets to vandals, druggies, and squatters, further dragging down the value of home prices of entire neighborhoods, spreading the misery.

The real estate lexicon has been expanded to include terms like “key mail”, which when I was selling real estate back in the ’80s (when a first mortgage could be had for a mere 19%) was called  “a deed in lieu of foreclosure.” Increasing a home’s curbside appeal now includes “painting the dead grass green” because banks are too cheap to keep the lawn watered. Non-conforming loans, so called because they didn’t meet Fannie Mae and Freddie Macs underwriting criteria, are now called “sub-prime.” (How these two government sponsored entities were conned into turning a legitimate secondary market into a derivatives fueled casino by well-heeled corporate lobbyists is a story yet to be fully told.)

Some excerpts from the article:

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.

[…]

In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

[…]

“Nobody has any idea who owns what or who’s responsible,” said Judy Fox, Ms. James’s lawyer at the Notre Dame Legal Aid Clinic. “It’s a very common story.”

Mayor Stephen J. Luecke of South Bend added: “It’s just a crime the way it puts people in limbo. They first off have gone through the grief of losing their house, then they move out and find out that they still own it and have responsibility for it.”

It’s like a remake of Night of the Living Dead—  zombie homes spawned by zombie banks.

History will record that Bush’s push for an “ownership society”, which raised the percentage of homeowners from the low to the high 60’s percentile by changing the whole lending culture, became the narrative host to which a great many “innovative” highly leveraged financial parasites became attached. Parasites that are now bringing down the entire world economy.

Pass the zombie repellent, please.