Monday Morning Slap-down

From the newspaper equivalent of a triply used toilet-paper, Gretchen Morgenson writes: Cruel Jokes, and No One Is Laughing.

For the record, I like Gretchen Morgenson. To use the vernacular, she's aiiight in my book but sometimes in the interest of intellectual honesty, we have to "slap the bitch around" to put some economic sense in her. At least of the variety that Adam Smith might understand.

WHAT do banks call it when a troubled borrower abandons her home, sending them the keys?

“Jingle mail.”

“As difficult as the rescue prospects are for subprime borrowers, they are even worse for most pay-option A.R.M. borrowers,” said Michael D. Calhoun, president of the Center for Responsible Lending, a consumer advocacy group. “Three-quarters of pay-option borrowers are making the minimum payment based on 2 to 3 percent interest typically. The payment shock is so huge that a refinance is virtually impossible.”

Consider this as more evidence that we are moving into financial waters that we haven’t had to navigate in quite some time — if ever. Because other housing downturns were not national in scope and did not involve mortgages that had been pooled, sliced up and sold to investors around the globe, it is almost impossible to predict how long the turmoil will last or how financiers, regulators, municipalities and homeowners will manage its fallout.

BUT it is possible to get a feel for what is happening on the ground from a new survey of 2,400 real estate agents sponsored by Inside Mortgage Finance Publications. The survey taps into the outlook of people who see troubled borrowers firsthand, when they try to sell their homes before foreclosure occurs.

For example, agents participating in the survey confirmed what many borrowers say: that loan servicers are downright unresponsive. This is especially true when distressed owners try to sell their homes before being put through the trials of foreclosure. When they sell at a price that is lower than the outstanding mortgage debt, that is known as a short sale.

Asked how servicers could streamline such sales, one said: “Allow you to go directly to the loss mitigation department without having to speak or argue with eight people before they finally give in and transfer you.” Another said: “Respond to offers within five business days — they are killing the market by taking upwards of three months to respond to an offer.”

Lady, here's how it works.

All businesses exist to make money. THE END.

If you can't understand this, you should not write for the Business Section.

A bank will take a short sale if it believes that taking a loss "now" is better than running through the full gamut of a legal foreclosure process, and taking a loss "later", or if the loss "now" is smaller than the loss "later".

In other words, there is no God-given right to a short sale. Just a cold-blooded business decision.

Are you still with me, woman?

Now, a "loan origination" department is different from a "loan mitigation" department. Call it bureaucracy, or call it specialization of talent; this is the norm, and it's here to stay.

Charlie Chaplin could get away with criticism in an earlier age, but woman! I knew Charlie Chaplin, and you're no Charlie Chaplin.

Anyhoo, unless there is strong "evidence" of distress, there is no logical evidence for the "loan mitigation" department to conclude that they even need to bother to do a short sale. In fact, it seems to me that there isn't even evidence that they need pick up the phone.

Or in other words that even your peanut-sized brain may understand, a claim of distress is not the same as distress just like a claim of a crime is not the same as a crime.

In order to "claim" that you are distressed, you must actually be not only be distressed but show some evidence of being distressed like missing a payment or something. Losing your job would help. Being freshly divorced would help better. That kinda thing.

In the absence of this evidence, all the bank's poor employees see is some metaphorical hot air coming across the phone, and since they are in the business of "loan mitigation" not mind-reading, there's not a whole lot they can do.

Are you still with me, wise woman?

Now these "loan mitigation" employees, are precisely that. They want to see how much their employer can get back out of the deadbeats who borrowed the money, and you can't argue about the "deadbeats" part since they want to pay back less than owed hence giving the short sale its eponymous name.

Anyway, to that end, they need to look at the collateral.

Since they are specialized in "loan mitigation" and not "house appraisal", and they are not granted your superior intellect on economic matters, they will have to rely on some appraisal of the collateral. Unfortunately, the collateral has declined in value, and may decline further.

Now, not being the Pulitzer-prize winning intellectual giants that you are, they may ask for evidence about the collateral. This brings us back to an appraisal process to see how the collateral looks "now", and the market situations "now" as opposed to when the loan was made so they may need the services of an "appraiser".

Unfortunately, "appraisers" don't work for free which brings us back to point one about whether this cost is worth it or not. Also, if there are thousands of cases involved, it just becomes a business decision to lose the least amount of money, in which case you have to pick and choose your battles.

Are you still with me, my sweet bee-yatch?

Onwards and upwards then!

Lastly, no bank in their right mind is just going to let their lendees walk with a short sale. They are going to sue them for their assets, or garnish their wages; or the least of all leasts, put a ding on their credit scores.

Sometimes all of the above.

After all, borrowing money is not a God-given right contrary to what they taught you in your liberal-arts program.

So they are going to ask more than a few inconvenient questions to the borrowers, and ask for evidence, and work through the legal system, and all of this takes time. Sometimes it may be "upwards of three months" to work through this stuff.

Oh! the shocker!

Don't like it, bee-yatch?

Here's a shocker suggestion that you should write about in your next column:

"Don't borrow money!"