Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Friday, January 15, 2010

What the Hell?!? Friday - Starving the Beast

Here is Jim Kwak on Big Banks muffing loan modifictions.

Paul Kiel of ProPublica has uncovered multiple cases where homeowners are not getting their trial loan modifications made permanent. That’s not news. What is news is that the reasons the banks are giving for not making the modifications permanent are complete bogus!

. . .

There doesn’t even need to be intent here (although there could be). Companies focus on the things they think are important. During the financial crisis, all the banks were focusing on their cash levels every day, and I’m sure they did a very good job at it. They don’t focus on things they think aren’t important. It seems like JPMorgan Chase and Wells Fargo are not focusing on their loan modification programs, and Citibank is not focusing on delivering on its promotions, just on using those promotions to suck cheap deposits onto their balance sheet. If that ends up helping their bottom line, then so much the better for them.

There's a lot to this.  By way of personal anecdote, I refinanced my mortgage with one of these named Big Banks a few years back, and received a nice letter from them at the time confirming the pay-off of my previous loan and stating that they would also notify anyone else who needs to know - as is their legal responsibility.  FYI, the entity that needs to know is the registrar of deeds, in the county where you live.  They need to get the prior mortgage off of their books before you can do anything with your property, like sell, or even refinance again.

This is the situation I find myself in.  That prior mortgage, paid off lo these many years past, was never discharged with the county.  I am in the process of refinancing with my local credit union, to get a better rate, a lower monthly payments, and the hell out of the clutches of the robber barons who run these "too big to fail" money sewers.

If you have a friend in real estate, ask her or him how common this is.  It aint rare.  How did it happen?  My guess is some partially educated clerk stuck the papers in a drawer innstead of the USPS, and that was the end of it. You see, this is one more consequence of the profit motive: you have jobs done as cheeply as possible, which means performance quality is sacrificed to the minimum wage.

My new loan officer, the title company, and my lovely wife have been battling the Big Bank at the far end of the alphabet for over six weeks to get this simple paper-work assignment carried out.  Big Bank contracts this menial task out to a 3rd part vendor, and states it takes a minimum 20 business days, NO EXCEPTIONS.  That tells you everything you know about how much customer service means to them.  Meanwhile, we can't close on our refinance.

My first savings account was with a Savings and Loan institution, not a bank.  This was way back, long before the 1989 S&L crisis, an early adventure in deregulation, risky lending, executive overcompansation and moral hazard, whose lessons were forgotten in about 17 milliseconds.  Since then my dealings with banks have always left me feeling like the dead rabbit on the yellow line.  Thus, for simple savings and checking accounts, I abandoned banking for the comparitive warmth and comfort of my friendly credit union many years ago.

This mortgage with Big Bank is among the last vestiges of my dealings with large financial institutions.  I still need to re-evaluate my credit card holdings.  My plan is to eliminate any dealings with these "too big to fail" institutions.  Let's all do that.  Then, when they've shrunk to the point that they CAN fail, we can drown them in a bath tub.


BadTux said...

Unfortunately the majority of deposits at these "too big to fail" institutions are business deposits. For large corporations, banking with the local credit union isn't an option -- they need an institution with international reach and enormous ability to absorb and disburse funds.

I haven't dealt with one of these megaliths for decades, I've always banked as locally as possible. But they wouldn't even notice my puny little accounts. The hundreds of millions of dollars that Microsoft shuffles through their coffers every day, on the other hand... that's a different tale. But is Microsoft going to bank with Podunk Credit Union? Not hardly! They have no choice but to bank with Too Big To Fail Bank, because Too Big To Fail Bank is the only bank that has the sheer capacity to deal with the massive amounts of dough Microsoft pushes around every day.

- Badtux the Banking Penguin

Jazzbumpa said...

Well, yeah, but, hey, a guy can dream. And at least an individual can avoid being party to whatever in the hell it is that they do.

Maybe they wouldn't notice your puny account, but if it's your puny account plus my puny account, now we've got something going - just like the tea baggers.

And maybe a bank that shuffles Microsoft's money around ought not be in the home mortgage/savings/checking account business anyway.

Just a thought.


BadTux said...

I did a quick Google search, and 38% of bank deposits in England are in personal accounts, the rest are business accounts. My suspicion is that personal accounts account for an even smaller amount here, but I need to dig up the numbers, which don't appear to be out in the open like with the Bank of England's numbers.

So yeah, all of us leaving the Too Big To Fail banks might annoy them slightly, but they'd still be TBTF afterwards just based on business deposits... not that you should have dealings with TBTF in the first place, since they're evil soul-less cretins.

- Badtux the Numbers Penguin

Jazzbumpa said...

Well, if we can't even deprive the beast of a snack, at least we have a chance to avoid being the snack.

I hate it when I get devoured by an evil soul-less cretin.


Jazzbumpa said...

Now that I think about it a little more, deposits on their books are liabilities. It's loans that are assets. The best thing we can do is erode their asset base. And maybe it's only by 10%, say. A 10% asset loss is pretty meaningful.

So, no - we'll never be able to drown them in a bathtub. Bu we can take them down a natch, for whatever that might be worth.


BadTux said...

Ah, but they can make loans only if they have deposits. If you decrease their deposits by 10%, they have to decrease the amount of money they've loaned out by around 11% to have sufficient reserves to meet federal lending requirements (assuming the current 10% reserve requirement). Otherwise the FDIC can take'em over and "restructure" them. And the only way they can decrease their loans by 9% is to sell those loans to other banks -- like, say, the regional banks we deposited our dough into, which now have extra cash to use to buy up loans from big banks. So from a theory point of view, taking all our deposits out of the big banks and putting them into smaller banks *does* have the net effect of transferring assets from the large banks to the small banks, since the small banks will use our money to either originate loans themselves that the big banks can no longer originate (and thus have more assets), or will buy loans originated by the big banks because the big banks are having a fire sale to meet their reserve requirements (hopefully at bargain prices so that the smaller banks will make a nice profit from the cash stream).

But of course that's all theory. Reality is that it's going to be hard to move enough money out of the big banks to small banks for the big banks to even notice it. The big guys who have too much dough for the small banks to handle will always have their money in the big banks, and they control 90% of the cash in our banking system. And a lot of us who aren't big guys *already* transferred our dough to smaller banks. So the amount of little guys who still have their money in the TBTF is probably enough to make a small blip in some statistic somewhere, but insofar as having them actually care about that... not likely. Still, I have a policy of not supporting evil, so I'm staying away from the big guys as much as possible...

- Badtux the Finance Penguin

J said...

Credit unions are great, at least for those people who belong to unions, or public employee rackets of some sort (it's mostly schoolmarms, but cops have credit unions as well). Those of us unfortunate enough to be working in private sector, however, are forced to deal with BoA or other megalithic monsta-banks.

VI Lenin and bolshevik pals started the par-tay rollin' in 1917 by more or less smashing into the czarist banks, seizing currency and gold, arresting the stinkin' bourgeois pigs, and then issuing their own currency (or just paying workers with ...goods). A bit extreme but at times ...bolshevik reform seems like a fairly pragmatic solution to finance capitalism.

BadTux said...

Not true, J. When I was in Arizona, I worked for a small company with five employees. We signed our company up with a local credit union. It cost us a $20 enrollment fee and required only one (1) employee to be a member of the credit union. Later I moved to an area served by the Salt River Project water district. Every customer of the water district qualified to be a member of the credit union.

Here in California, we have state credit unions that are open to anybody who lives within a certain county. My credit union, for example, was formerly the Lockheed credit union but now that Lockheed has pretty much wound down its California operations, it's open to anybody who lives in Santa Clara County. For Federal credit unions in the area, most of them have an arrangement with local not-for-profit community groups wherein members of a certain group also qualify for credit union membership. For example, I go to one credit union's web site, look at the membership requirements, and they helpfully point out that I can become a member even if I don't work for one of the listed companies on their web site if I pay a $10 fee to join the Friends of the Public Library, which is open to anybody. If they had competitive rates compared to my own credit union I'd probably go ahead and do it.

In short, J, you're wrong. In almost all cases it's possible to find a way to join a credit union in your area, even if you work for yourself (!), assuming that you incorporate your business (which you should do anyhow for tax reasons). Just sign your corporation up with a local Federal credit union, voila. Just like the little five-man company I worked for in Arizona.

- Badtux the Finance Penguin

Jazzbumpa said...

I'll second what Tux said. I was in the private sector for my entire career, and always had access to a C.U. through my employer. These were big companies that had large union workforces, and maybe that had something to do with it. But I was always on the salaried side.

Here in MI there are community C.U.'s. The non-profit aspect is very appealing to the socialist in me.


J said...

Well, there you go: if you're in with the Water and power gang, you're in--a public employees union, still, like teachers or cops. Those who don't have the connections, aren't in--and LAWP about as nepotistic as teachers or cop shoppes.

J said...

So, you're wrong.

And yes, Jzb some trade unions have CUs. Oh well--that doesn't refute my point that CUs are by and large for public employee unions. Unions themselves often (not always) tend to be rackets as well. I didn't oppose CUs, anyway. The electricians or plumbers, carpenters etc should have a union and CU.

But with teachers and cops it's slightly different--one, they're not really tradesmen, but bureaucrats, and have cradle to grave support. And CU are not immune from corruption.

BadTux said...

Uhm, J, I am not now, and have not been at any time in the past fifteen years, a public employee or a union member. Yet I've been continuously a credit union member since 1999. In two different states, no less.

Are you in Los Angeles? In that case there's literally dozens of credit unions that would accept you as a member. For example, First City Credit Union will accept anybody who lives in Los Angeles County as a member. If you're in a smaller city like Ridgecrest CA even, there's a credit union you're eligible to join -- Alta One will accept anybody who lives in Inyo, Kern, and Mono Counties, for example.

In short, whining about how you can't join a credit union is BS unless you live in some really rural area that has no credit unions. Even in Arizona, hardly a friendly state for credit unions, I had no problem finding credit unions I could join. If you don't belong to a credit union it's more likely that you don't *want* to belong to a credit union, rather than that you *can't* belong to a credit union. 'Nuff said on that.

- Badtux the Credit-Union Penguin

J said...

You missed the point again, Penguin. Yes, one could probably find a credit union that will take poor or middle class people who don't belong to a union or work for a big corporation. And one could do a little cost-benefit comparison and perhaps some CUs would be superior to BoA. But that's not really the issue. Most credit union's are not statewide, and however horrible BoA does offer various convenient services, ATMs, etc. I've been in the teachers' CU anyway, and they had some deals, but often were just as corrupt and usurious (google that one) as BoA and the rest. The pensions, 401Ks and so forth are as subject to as much speculation as the normal banks, usually.

And the CUs of various types do sort of solicit say Lockheed 'bots, or Northrop 'bots, cops, teachers, etc. Not the case for ordinary citizens not in a unions or powerful corp.

cuadvocate said...

A couple of important clarifications about credit unions. I am the marketing officer at First City Credit Union, and saw this come up on our Google Alert.
1. Yes, anyone can join a credit union. It is a matter of determining how you are eligible. Check out www.findacreditunion.com, which will match you up.
2. First City does not serve everyone in Los Angeles County. We serve selected communities (mostly all communities east of downtown, the Antelope Valley, and areas around Long Beach.) We do not serve the west side, or the San Fernando Valley. We also serve about 80 companies, organizations and county departments, including the Sheriff's Department (original founders), DPSS, and DCFS -- plus Claremont Colleges.
3. First City is among the nation's strongest financials institutions with over 12% in capital, and less than 1% in loan losses. Member deposits are insured up to $250,000.
4. A huge benefit of credit union membership is personal service. You will not get stone-walled like you do at the big banks, and if you have a problem, you often can go as high as the CEO (you can at First City).
5. IMPORTANT: yes the big banks are convenient, but with technology so are credit unions. Most credit unions belong to the CO-OP ATM network, which has over 25,000 surcharge-free ATMs (more than Wells, Chase, and BofA combined, and there is a shared branch network where you can do branch transactions at participating credit unions (look up CU Service Centers).

Hope this information helps. Credit unions really are the BEST way to bank -- i firmly believe that, and think you will find that most members agree!


BadTux said...

What Tom says about the CU service centers and the ATM network is important. When I was in Louisiana, I was literally 2,000 miles from my credit union. I could walk into any 7-11 and withdraw cash *with no fees*, because the ATM's in 7-11's are part of the national CO-OP network. I have never had a problem *anywhere* that I've travelled finding an ATM that would accept my credit union's ATM card. I also do all my bill pay via my credit union's bill pay web site. And while my credit union doesn't have a branch near my house (the nearest branch is about 10 miles away), there is a CU service center literally around the block from where I live where if necessary to do something that can't be done via the web site or at that CU's ATM (which is part of the CO-OP network, and where I do most of my "banking").

My particular credit union has the best rates for pretty much everything. The only real issue is that they're *really* tight with their money, and if they have the slightest doubt that you can repay the loan, they simply won't loan it, and they require big down payments (don't even *think* of getting a car loan or a mortgage loan there if you don't have 20% down). Kinda like an old-fashioned bank before they started loaning money to anybody with a pulse, in other words. On the other hand, that's why they can offer such good rates -- their default rates are *very* low. And frankly, if you can't put that much down, you probably have no business taking out a loan in the first place...

- Badtux the CU-member Penguin

Jazzbumpa said...

Tom -

Thanks for stopping by. I greatly appreciate your insights.

We closed this week on our refi - finally. We are out of the clutches of GOfar DowntheWell. They slpow walked our escape for the greatest part of two months.

I'll add that the house was appraised for A LOT less than I paid for it in 1997, but the balance is still a lot less than that, so getting the loan was no problem.

What we need is an new Glass-Steagall act. This will go a long way toward reducing their "too big to fail" size.