Yesterday, in the comments, I wondered why it was necessary to entice mortgage lenders to re-negotiate loans, when it certainly seems like it is in their best interest to do so, and it seems there are a whole host of variables at play, including the bank’s capital base (again, over my head).
At any rate, a piece in the NY Times today tells the story of two cases. Worth a read.
cosanostradamus
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One of the reasons lenders don’t renegotiate loans is that no one asks them to. Same as when they turn down loans. They can be reasoned with, but most people don’t know that.
Another reason is that it’s hard to get to a person with the authority to reconsider or renegotiate a loan. Once you do, you get points just for having the brains & the balls to do so.
The people on the lower rungs in banking have no authority at all, and that includes your friendly (or not) branch manager. You have to be able to get to an executive, or a member of the underwriting committee. They have phones.
Having said that, there is a general reluctance to negotiate with deadbeats. People who are ripping you off are not customers, they are robbers. And no business wants it known that their prices or their policies are not carved in stone. But they never are.
For those who are getting into trouble, the best thing you can do is talk to your creditors. The worst thing you can do is not talk to them. This defies all instincts of avoidance and denial, but, unlike those "tactics," talking works. Get help talking if you’re not good at it. And don’t waste your breath talking to underlings.
No matter what happens, the goddamned sun is gonna come up tomorrow. You might as well plan on being there to see it.
It’s all psychology & human relations, this sh*t. Buy the next round and I’ll ‘splain it to ya, hunney. [hic]
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Bootlegger
The "zombie" banks (Clark Howard’s term for dead but still causing havoc mega-banks) are literally going off the deep end. The mortgage "restructuring" by the Big Bank in this article is one example.
I’ve had a 20 year relationship with Citi, paid off several loans with them and have their "diamond preferred" credit card with a fixed 7.9% rate. I’ve been a loyal customer, never missed a payment. Last time we moved I ran up a balance on that card paying for expenses and now we’re paying it down, a big chunk every month. The other day I got a letter from them saying they were doubling my interest rate. I called them and asked why they would do this to one of their best customers. Their answer? They need the money.
Now here’s the kick in the nuts for them. I’m paying off the balance, closing that account, and will never go back to Citi. They just ran off one of their best customers and I’m betting that I’m not the only one.
But let’s assume I didn’t have options and I was stuck with the doubled interest rate, in these financial times does it make sense to make it less likely that their customers can pay them back?! WTF! If I declare bankruptcy or just refuse to pay they can fuck up my credit but they don’t get shit.
The zombies are out of control and we need to take their heads off, NOW!
Dave
Citi is toast. There is no way they’ll ever have enough assets to cover their exposures. That’s why they are, in essence, eating their seed corn by running off customers like Bootlegger. They have to have the money to make their debt/asset ratio. The kicker is that they will never make it. They’d have been better off just accepting the inevitable and holding onto their best customers, which would make the eventual sale of the bank that much easier.
Evinfuilt
This is why they changed the bankruptcy laws, so they don’t have to deal with people or try and help them. Instead they force you to pay till your dead, then try to get your children to keep paying.
The bankruptcy bill was all about indentured servitude, its too bad the banks won’t be around to see it.
Comrade Mary, Would-Be Minion Of Bad Horse
So just how badly off is Citi? I have a Mastercard with them with a balance I’d love to see disappear.
ETA: Oh, wait — I pay off that balance every month. Sometimes fiscal responsibility just sucks, you know?
John S.
Because they are greedy fucking assholes with absolutely NO sense of self-awareness who enjoy living by the double standard.
Exhibit A – Chase CEO Jamie Dimon:
Says the guy that just collected $25 billion from taxpayers. We should revoke that money to teach HIS COMPANY a lesson that you’re supposed to meet your obligations, not run from them.
Surly Duff
Did you use this threat to leave when you questioned them about the rising interest rate? Usually, when I get someone on the phone, threaten to pay off immediately and leave, they quickly change their tune and get a manager to promise to lower the rate immediately and ask if there is anything else they can do for me.
Not surprisingly, most credit card companies are chickenshits that hope their customers don’t notice rate hikes. They will screw you as long as you are not paying attention, but will cave when the threat of account closure is broached.
cosanostradamus
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That’s another problem: It’s easier to find someone with authority & brains who gives a sh*t at a smaller local bank than a big national bank. The whole consolidation thing is a big part of our current crisis. Instead of Joe the banker, you get Bank the Army. They respond just like a giant monolithic bureaucracy where no one wants to take responsibility, and no one has any real authority. Everything is "by the book," as in the military. They’d rather lose "by the book" than win by breaking the rules. They’d get fired for that, even if they won.
Another problem with consolidation and institutionalization is that customers give up on trying to negotiate. The bad ones get all passive-aggressive and quit making payments in a funk, and the good ones "take their business elsewhere" in a snit. The no-brainer career dweeb or temp at the bank says "I’m sorry you feel that way," snidely, but of course the company gives them no reason to care. Everybody loses.
It would help if people on both sides knew how to negotiate, also. It’s not about one side screwing the other. It’s about arriving at a mutually beneficial arrangement. But most people don’t know how to do that.
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burnspbesq
This is an over-simplification, but as a general rule banks want to be in the banking business, not in the business of managing a huge portfolio of houses.
My admin got behind on her mortgage when her husband was injured and unable to work for several months. They probably bought more house than they could afford, facilitated by a low down payment and a low teaser rate. She was able to renegotiate into a 30-year fixed at 4.5%, but it was a long and arduous process, and there were days when she was so stressed out that I was ready to send her home to cool off.
I happen to think that a big part of the answer to this problem is to amend the Bankruptcy Code to allow cram-downs of mortgages on principal residences in Chapter 13 cases. It would be ironic indeed if Obama were to make Biden, formerly known as "the Senator from MBNA," the point man on that effort.
Zifnab
Fortunately, the ’05 Bankruptcy Act made it that much harder to just duck your head and get out that way. Now your debt can follow you to your grave and beyond. :-p Hurray, responsibility!
The original subprime scheme was structured around setting up the debt trap. You want the customer to get over his head, because then you control the interest rates and can milk the customer for as much as you want. And now the banks are desperately short on cash, so they’re leaning extra hard on their borrowers. The system is functioning as intended.
John S.
Fixed.
Rosali
I’m familiar with area where the woman whose loan was modified lives. The property values are going down and there’s a gang problem there. If it did not modify, the mortgage company would be stuck with a house that would not sell for many, many months and which would fall into disrepair very quickly. It’s in the mortgage co’s interest to restructure the loan. They would lose more with a foreclosure.
NonyNony
@Bootlegger:
In your eyes you’re one of their best customers. You make your payments regularly and on time, as you would expect a good customer to. It you were a tenet in a building, you’d be a model customer to your landlord.
In Citi’s eyes, you’re a "deadbeat". You’re taking their money and giving them nothing in return beyond the transaction fee that businesses pay to process your purchases with them. They get a minimal return on you as a customer, because the big money is in people who don’t pay down their card regularly and rack up fees and interest payments. Losing you won’t make them blink because they don’t think they’re getting that much out of you right now.
The problem is that the big banks have a model for credit cards that only provides "sufficient" profits if customers behave "badly". They need customers who occasionally (but not too regularly) miss payments, pay only the minimum balance on their card, and rack up a sizeable extra balance every month. THOSE are the customers that credit card companies fight over. Perverse, ain’t it? But it’s because without those kinds of customers, the banks can’t make the insane profit targets that their shareholders demand.
Credit cards using the model that we presume the credit card companies are using – a fee per transaction to the retailer and an assumption that the card holder will pay off the balance every month with an interest penalty if they don’t – would net a small, steady profit over the long term. Not good enough for modern corporations, which demand insane returns every quarter lest the shareholders get anxious and boot the CEO in favor of some corporate raider who will get them the returns they think are their due.
Zifnab
@John S.:
The fox should atone by guarding the hen house? I don’t know if that’s wise.
Bootlegger
@John S.: You got that right!
zzyzx
Citi holds my mortgage…. wouldn’t mind if that paperwork somehow disappeared if citi did ;)
jibeaux
No one could have predicted that renegotiating mortgages in such a way that the payments stayed the same or increased would be unhelpful.
jibeaux
@zzyzx:
Supposedly, a lot of the paperwork *does* disappear in all the packaging and repacking of mortgages. It is apparently a fairly effective foreclosure-stalling technique to demand that the lender produce the note.
Bootlegger
@NonyNony: Oh, I have no doubt that this is their strategery, but as you allude to it is clearly not a viable long-term strategy, hence the pile of shit they find themselves standing in.
I also bank with USAA, invest with TIAA-CREF, and have some financial relationships with my small local bank and credit union. These institutions are all about the customer first, last and always. Not surprisingly, they will be around when the dust clears.
Death to the Zombies! Off with their heads!!
Zifnab
@NonyNony:
That depends a lot on the business model of the credit card. High interest, low cap cards are designed to make money by have you pay 20% interest on a $100 purchase. That’s one way to make a buck.
But higher end credit cards are designed to encourage you to pay them back. You’ve got "rewards points" and "valued customer benefits" that all accrue based on when you pay them back. The card companies make the profit on you when you spend. And 1-3% of every purchase might seem small to you, but keep in mind that you’ve got people with $20k credit lines living off plastic. That means they get a percent cut on virtually every dime you spend. So if you spend $50k in plastic in a year, they pick up $500-$1500 dollars. They want you to use your card as much as possible, but they don’t want to be left in the lurch so they encourage you to pay it back as fast as you can. They encourage high rates of spending and make their money that way.
burnspbesq
I’m just hoping my regional bank, which is owned by BNP but operates with a fair degree of autonomy, isn’t killed by its big portfolio of commercial real estate loans. It’s not that I distrust Chase, which originated our mortgage and HELOC and has my credit cards, and will become much more convenient as a retail bank in SoCal when it finishes re-branding all of the WaMu branches next month. I just like having alternatives.
Bootlegger
@Zifnab:
That’s right, and this is where I thought I was with them. But then they get spooked and shit all over their themselves. They deserve to fail.
JL
Wells Fargo refusal to comment for the article was troubling. Here is a bank that can apply for tarp funds because they are to big to fail but their version of modifying a loan is to add penalties and such that your payment ends up being the same.
The Other Steve
Citi did the same to me on credit cards I don’t use. 19.9% interest now. I’m canceling, cause I don’t need or use it.
Bootlegger
@The Other Steve: Make sure you tell the poor sap on the phone why you’re doing it. They do collect the data on that and you never know if some sane person might actually pay attention.
WaMu dumped me on a $35k card that I’d paid off several times in the past. I called and let them know what I thought about it and the person on the phone told me she’d taken calls from dozens of good customers who would now never do business with WaMu again.
South of I-10
@Bootlegger: I had the exact same thing happen to me this week. Boosting my rate 5 percentage points. No late payments or anything. I found a couple of articles that indicate all of the big banks are doing this, Citi, Capital One, Chase, etc. The woman in the office next to me has Citi and they jacked hers up too. I am royally pissed off. So they get billions in bail out money, but that is not enough, they have to screw their best customers too. I feel sorry for the people who are already in trouble, if they miss a payment interest rates will now go to something totally ridiculous like 29%. I am drafting my email to every member of Congress (which will probably do no good, but will make me feel better) requesting that if these companies accept bail out funds, they not be allowed to do this. I am also requesting that the prior changes to the bankruptcy law be repealed, or at the very least that the top execs of these companies be forced to attend credit counseling classes, like the people who declare bankruptcy now have to do.
Bootlegger
@South of I-10: Yes, good, exactly what I’m doing too.
Also, call and ask them about it. I was given the chance to "opt out" of the increase. My penalty? They wouldn’t renew my card at the anniversary. Fine with me I said. Later.
Oh, and I mentioned the new regulations that prevent card companies from raising rates on customers who are paying as they should, apparently they don’t go into effect until ’10, so they’re trying to screw as many of us as they can before then.
Lupin
If you’re not adverse to camping, with all the empty houses, squatting should become quite easy.
It also makes you hard to find when credit card companies try to collect on their unpaid balances.
Punchy
Totally agree. They’re assholes behind your back, but the minute you get in their grill, force the issue, and point to your spotless credit rating, they’ll back down like the toothless fucks that they are.
jibeaux
Horrible new interest rate and unresponsive customer service from Barclays, which now holds the LL Bean visa card. I paid off the account, and am now sending a written U.S. mail cancellation copied to LL Bean. I despair that Barclays will care one bit, but retain a glimmer of hope that LL Bean might send me a gift card or something. Of course, I’d have to pay shipping since that was free with the card I’ve now cancelled..
Bootlegger
@Punchy: Normally this is what happens. Didn’t work this time. The sad lady on the phone told me they were doing this to everyone, period.
South of I-10
@Bootlegger: I called the night I got the notice but "due to an unusually high call volume, your wait time will be 45 minutes". I just didn’t have time to do it then.
My brother had a great idea for what we should have done with the $750 billion the first time. The "Plate Lunch Act of 2008". He figured out (cause he is a geek this way) that with that amount, you could pretty much buy everyone in the states1 plate lunch and 1 drink a day for 6 months (I asked about free refills, but he was a little iffy on that). This would stimulate pretty much every area of the economy from agriculture to pharmaceuticals (if you ate a plate lunch a day for 6 months, you would probably need some high blood pressure medication). Anyone who is hungry and broke would have at least one meal a day. He was modeling his plate lunchs on Dwyers.
passerby
@jibeaux:
Indeed. As long as banks are in the catbird seat it’s no wonder things feel hopeless. Banks have moved from greed mode into survival mode which for us means: Same Shit, Different Day.
Bootlegger
@South of I-10: Yep, everyone else calling to ask why Citi is screwing them too.
gex
@South of I-10: Congress can help out by legislating that new rates apply to future purchases, and not retroactive to purchases that were made under a previous rate.
At the time the consumer makes a decision to make a purchase, they are making that decision with a specific interest rate in mind. The approved transaction by the credit card company is a contractual agreement to lend the consumer x amount of dollars at rate y. Why we allow the companies to unilaterally and retroactively change y is ridiculous.
Bootlegger
@gex: They already did change those rules, but they don’t go into effect until ’10.
gex
@Bootlegger: They should make it retroactive to give these jerks a taste of their own medicine. ;)
Original Lee
Somewhat OT, but I have been perusing Barofsky’s report to Congress on TARP, and if this is a sample of what Obama means by transparency, sign me up for more, please.
I am, I think, a fairly typical American in that this stuff tends to make my eyes glaze over with noncomprehension, but I was actually able to understand almost everything in this report. I don’t mind being scared quite so much if I can understand what’s going on.
Bootlegger
@gex: Indeed. I’ll put that in my email to the congresscritters.
South of I-10
@gex: It is ridiculous, I absolutely agree. I think Bootlegger is right that they are trying to make these changes now before the new law goes into effect. After my brother proposed his plate lunch plan, I proposed bringing back the stockades for the people who got us into this mess in the first place and are now trying to screw everyone so they can keep their private jet. I will be first in line with some old crawfish heads.
Bootlegger
@Original Lee: Yeah, pretty cool. Just like O. Ya gotta love the way he just keeps moving forward, without drama or panic, just giving the peeps what they want.
Bootlegger
@South of I-10: It would be way cool if they put ’em in stocks on the back of a train and did a whistlestop tour so everyone could have the opportunity to throw fishheads at ’em.
John S.
Yeah, that’s exactly how it should be….
/rolleyes
If your glib analogy assumes that Biden is the ‘fox’, then you need to remember that he will be guarding the hen house with the farmer (Obama) holding a shotgun to his head.
Original Lee
@South of I-10: The Plate Lunch Act is a brilliant idea, especially if it comes out of conference as the Plate Lunch and Salad Bar Act of 2009. Has he gone to whitehouse.gov to post it as a suggestion yet?
South of I-10
@Original Lee: He hasn’t. We actually had a lot of fun discussing this. This all started with his lamenting the fact that you can’t stop at a gas station in S. Florida and fill up, get diapers, bourbon and a plate lunch like here in S. La. Apparently that takes at least three stops in most places?
As far as the Salad Bar goes, our model (Dwyers) usually has 5 choices for your main dish you pick two sides and get either a roll or dessert. We could always make one of the choices a salad bar.
Original Lee
@South of I-10:
In MD, depending on the gas station, you can fill up and get diapers, or you can fill up and get a fast-food lunch, but there are very few (if any) gas stations where you can fill up, get diapers, and get a fast-food lunch. To the best of my knowledge, there are NO gas stations where you can buy bourbon. (And if you tried this on a Sunday, you wouldn’t be able to buy bourbon anywhere at all.) I would have to agree that nearly everywhere I’ve lived, such an agenda would take at least 3 stops, as long as it’s not Sunday.
jg
How does JTP feel about this plan? His opinion is very important to me. If an out of work non plumber with no economic background has an opinion on this plan I need to know it.
patrick
from the article:
"Smaller companies like Ocwen that are under more financial pressure and have more experience in dealing with higher-cost loans have been most aggressive in lowering payments, said Mr. Dubitsky, the Credit Suisse analyst. Big banks like Wells Fargo, which would need to be retooled to emphasize modifications over foreclosures, appear to favor modifications that do not lower payments or debts very much."
lets see, they can’t keep up with payments at the current payment amount….so how is modifying the loan so the payments aren’t really any lower going to keep borrowers from being forclosed on anyway?
Bootlegger
@patrick: I missed this implication of this:
It implies that the Zombie banks are too big to succeed!
Mnemosyne
It’s not — it’s just going to give the bank a few more months (at best) of the same payment before they default entirely. But, hey, as long as the bank can report a halfway decent quarter, who cares what the next quarter looks like?
Everyone here is making me glad that I have neither a mortgage nor any credit cards. My debit card is my best pal even if it means I have a mediocre credit history.
gbear
I’ve got two credit cards; one thru National City and one thru my govt employee credit union. The credit union recently took advantage of everyone’s hate for the big banks and sent out letters inviting us to transfer our balances to the CU account at 5.9% with no transaction charge and a kicker that all of your payments would be applied to your existing higher rate (still 10.9%) before they started paying off the promotional rate. It’s hard not to wonder what the catch is going to be down the line, but at the moment I really like my CU.
Bootlegger
@gbear: Probably no catch at all. My guess is your CU is solvent like the others (thanks to the post S&L regulation) and they are simply taking this opportunity to make some good investments in their members.
Mnemosyne
Here’s a fun new story with the banks: Jobless hit with bank fees on benefits
That’s right — if your state provides your unemployment benefits on a card instead of by check, the bank will charge you every time you use it. And if you call to complain, they’ll charge you for that, too.