Backlash against banks growing over mortgage modifications
James Seeley, a machine shop supervisor at the University of California, Davis, just wants a modified mortgage that he and his wife, Sandi, can better afford.
It’s a common quest in this economy. Seeley’s wages are being cut. His house in Natomas has lost almost half its value. And he owes more than it’s worth, even with a $125,000 down payment in 2006.
"We want to get payments down to 31 percent of our income," said Seeley.
In Curtis Park, Hilary Egan is trying to do the same. Her contractor husband has seen a considerable drop in business. She wants a modification before their interest-only loan resets next year to higher payments.
The Seeleys and Egans, both current with their mortgages, have something else in common: Both their modification requests were denied.
Their rejections have aligned them with a broad and growing swath of public opinion: sore that a U.S. banking industry that has received billions of dollars in taxpayer support in the past year hasn’t reciprocated on their behalf.
"I don’t know a single person who has benefited from the money that was given to lenders," said Egan.
Added Seeley, "The taxpayers are the largest investor in these companies, so I would think they would be taking care of us first."
Banks and financial institutions aren’t usually adored even in best of times. But after absorbing much blame for exuberant lending that created the housing bubble, they are increasingly absorbing a backlash for their response to the subsequent foreclosure crisis.
It’s not hard to see why. While banks and loan servicers have promised for almost three years to better address rising stresses on their home loan borrowers, foreclosures and defaults still haven’t seriously slowed.
The eight-county Sacramento region has counted more than 42,000 foreclosures since the start of 2007. Many area neighborhoods are scarred by vacant repos and dead lawns that pull down property values of other homeowners. Statewide, the foreclosure tally has passed 410,000, and it’s believed thousands more are inevitable.
As a result, it’s not just borrowers griping about the inability of banks to contain the crisis. Elected officials, besieged by complaints from constituents, are increasingly applying pressure as well.
This month, the League of California Cities, convening in San Jose, will consider a resolution urging 480 cities to yank deposits from banks that "fail to cooperate with foreclosure prevention efforts."
"If you count up the money cities have in banks, that’s an amazing amount of power," said Los Angeles City Council member Richard Alarcon, a former state lawmaker. "We have never tried to seize it. I’m trying to seize it. If you’re not a good player on the foreclosure front, we’re not going to put our money in your bank."
Last week, the Elk Grove City Council voted 4-0 to back the notion and lobby for it at this month’s convention. The city of 141,000, one of the fastest growing in California during the housing boom, in the bust became an epicenter of defaults and foreclosures.
"It’s time. It’s past due. We should have done this some time ago," said Vice Mayor Sophia Scherman, who lives next to a foreclosed home. "It’s going to send a very strong message to these institutions."
Others aren’t so sure. Tony Cherin, professor of finance at San Diego State University, said, "I can understand the frustration."
But he said cities would have fewer choices for investing because of bank failures and mergers during the meltdown. He said cities’ options "may be limited even though they would like to divest themselves."
Two weeks ago, U.S. Rep. Doris Matsui, D-Sacramento, and more than a dozen other California House members applied their own pressure. They wrote Shaun Donovan, secretary of the U.S. Housing and Urban Development Department, urging him to turn up the heat on mortgage lenders to modify more loans. Matsui and others wrote that homeowners who use HUD-approved counselors to contact loan servicers are often "rebuffed or told they couldn’t be helped until they were behind on their payments."