Michigan GOP Sponsored Foreclosure Bills Would Cost Banks Money & Would Not Speed Up Foreclosures
As I wrote about last week, the Michigan GOP dominated Michigan Legislature is using legislation written by the Michigan Bankers Association and lobbyists representing foreclosure mill operator David Trott to shorten Michigan’s post Sheriff’s Sale redemption period from six months to two months.
These bills introduced by Michigan Senator Darwin Booher are based not based in reality. Booher believes the faster you remove someone from the house the house can be sold. To Booher’s constituents in Northern Michigan who know nothing about 21st Century mortgage lending, it sounds like a great idea.
In Tuesday’s Lansing State Journal, Booher stated:
Michigan Senator Darwin Booher Is A Clueless Boob
It appears the Michigan Bankers Association and the GOP are as ignorant about 21st Century banking as Booher.
Booher claims to had been a banker for 40 years (apparently not in this century). Booher and his GOP colleagues in the legislature and MBA are making a lot of assumptions. They are basing these theories on outdated mortgage banking models. Models that haven’t been used since George Bailey was saved by Clarence the Angel.
They also seem to be oblivious to what is currently going on in the industry. The Michigan GOP seems to want to ignore the mandates being handed down by the U.S. Treasury. At the end of the day, their ignorance will actually cost banks hundreds of millions of dollars annually. The Michigan GOP is wasting taxpayer money monkeying around with Michigan foreclosure laws.
Treasury Has Mandated That Banks Hoard Foreclosed Properties And Ration Them Off
One of the key reasons why you still see homes across Michigan that appear abandoned and blighted is because of the U.S. Treasury. Treasury has mandated that the major servicers and the FHFA limit the sales of seized properties. FHFA will only allow servicers to sell to one out of every foreclosed 50 property. This is to drive up demand for a limited number of properties and thus drive up property values.
Any changes the Michigan Legislature makes to shorten the redemption period or even the foreclosure process will have zero effect.
The Fantastical Wonder World Of The Michigan GOP Mind
The Michigan GOP and Michigan Bankers Association seem to believe mortgage loans are still written like they were a century ago. Where if you wanted to buy a house, you went to your local bank and pulled out a loan. They financed it and serviced it.
This sounds like a great business model and it was. It helped George Bailey survive the Great Depression in “It’s a Wonderful Life.” It helped many real-life banks survive the Great Depression. However, this isn’t the 1930s and George Bailey’s business model went the way of the Victrola and 78 rpm records.
SB 383 and its companion bills would have helped the bankers of the 1930s. However, it won’t help the banks of the 21st century.
This Legislation Would Hurt A Bank’s Bottom Line
There are two types of Banks who actually hold their own paper. You have your small podunk banks and credit unions who hold their own paper. Then you have banks like Wells Fargo who hold toxic loans no one wants. Wells Fargo is holding billions of dollars worth of toxic Option-ARM loans they inherited from Wachovia.
These loans only make up less than 15% of the loans on the market. The rest have been bundled together and put into Mortgage Backed Security Trusts. The rest have been sold off for pennies on the dollar to smaller hedge funds and individual investors.
Lenders that service loans for Mortgage Backed Securities Trusts make more money on loans that are in default. This is why they are eager and willing to lie to homeowners to get them go into default.
How Wall Street Pockets Billions On Servicing Loans In Foreclosure
One way servicers make their money is by exploiting their role as a mortgage servicer for the MBS Trust. Mortgage servicers get paid a percentage of the total amount owed to a particular MBS Trust pool. If that balance increases so does the payments made to the mortgage servicer. This is where defaulted loans come into play.
For example, a typical Michigan homeowner owes $150,000 on his or her mortgage when they go into default. The servicer will usually add padded fees for unpaid taxes, forced placed insurance, appraisals, legal fees and document preparation fees. Consequently, the balance the homeowner now owes could increase to $195,000.
If the homeowner fights their foreclosure, the loan could languish in default for as long 3-4 years. This also means more padded legal fees and unpaid interest being charged to the homeowner account. This could cause the balance to swell to $300,000. If the homeowner is forced to vacate or is evicted, the mortgage servicer gets paid this money from the MBS Trust.
For example, an MBS Trust Servicer gets paid 1% for servicing a 5000 loan mortgage pool with an outstanding balance of $2 billion. They get paid $20 million. Then let’s say 40% of the loans in the mortgage pool go into default with a 30% increase in the balance. The servicer fees being charged to the MBS Trust and the $20 million being paid to the servicer now increases to $26 million. You can read more about how the system works at a blog I wrote about three years ago.
Michigan GOP Fantasies Will Destroy The Lending Industry
Assuming that by some act of divine providence, the GOP’s fantastical theory that all Michigan homes will be sold immediately after the Sheriff’s Sale does come to fruition, the lending industry would lose nearly $100-$150 million annually in servicing fees alone for their loans in Michigan.
It’s not the homeowner or Michigan law causing a delay in the foreclosure process, it’s the mortgage servicers and the federal government. The same mortgage servicers who are members of the Michigan Bankers Association.
Thanks To Mr. & Mrs. Michigan GOP Politician, MFI-Miami Sales Increase 500% When You Do Something Like This
When bonehead Republicans like Booher are willing to prostitute themselves to the banking lobby, my phone rings off the hook with people inquiring about MFI-Miami and our sales usually increase by 500% in the next quarter.
In the past five years, MFI-Miami has successfully assisted clients in getting nearly $75 million in principal reductions or canceled out mortgage contracts. Because of mortgage expertise of my staff, it costs a bank or a mortgage servicer nearly $80,000 in legal fees to foreclose and evict one of our clients.
These figures also don’t reflect the costs it took the banking industry and several foreclosure mills to combat several Michigan counties who sued them over unpaid real estate transfer taxes. A discovery made by MFI-Miami when we worked on the Lucas case in 2010. Although the counties lost, these court battles still cost the industry nearly $1.5 million in legal fees.
If this bill does get enacted into law, I can almost guarantee that MFI-Miami’s Michigan clients will cost the banking industry an additional $24-$48 million or more a year in litigation costs.