The Incompleat Curmudgeon

A couple buys a house. They make the mortgage payments regularly for years. Then the guy loses his job, or a spouse gets sick and the bill is far beyond what the insurance covers, or some other disaster keeps them from being able to make the payments they signed up for.

The bank forecloses. It kicks them out, and puts the house on the market, where it sits…and sits…and sits.

If it’s a rental property and the owner defaults, the bank kicks out the tenants (even those who have been faithfully paying their rent) and forecloses. The property goes on the market, and sits…and sits…and sits.

The property doesn’t sell because the real estate market sucks. It’s vacant, so vandals show up and do what vandals do. Over time the uncared-for property deteriorates. The property looks bad because it is bad, so the value goes down even more. Other properties in the neighborhood lose value because nobody wants to live next to a vacant, run-down property.

Who loses in this situation? The people who defaulted lose, of course. The renters lose because, even though they’ve paid their rent, they get evicted. The neighbors lose because their property isn’t worth as much as it was and if they need to sell…well, it’s a negative feedback loop.

But do you know who else loses? The bank. They have a property that’s losing value. They’re paying real estate taxes and maybe minimal maintenance, but they can’t sell it because the market keeps dropping. And they’re getting no income from the place. None. Zero. Nada.

Fannie Mae stopped evicting renters from foreclosed properties in February, giving them month-to-month leases until the property is sold. Good idea: not only does it give the renters what they signed up for, but it gives Fannie Mae some income. Any bank could do that, but very few have. They’d rather kick out the tenants and lose money.

After all, they lobbied very hard to defeat a measure introduced in the senate Thursday. It would have allowed bankruptcy judges more flexibility to modify the terms of mortgages, and would have given the banks some income, where they now have…none. Zero. Nada.

Maybe I’m missing something, but it seems to me that it would be a good idea to keep renters in foreclosed properties and to work with people who are having problems paying their mortgages so they can pay something even if they can’t pay as much. That would keep them in their homes while giving the bank some income.

But then I’m not a banker.