We've written quite a bit about collateral damage from the Great Financial Meltdown, and CD's first cousin, the Law of Unintended Consequences, or its ironical short form, LUC. As with all great disasters, we continue to see plenty of examples of both, and will for years.
There's a new underclass emerging in the U.S., at least when it comes to seizing the iconic American dream of home ownership.
There are hundreds of thousands of people that lost their jobs, through no fault of their own, and lost their homes, still not their fault, who would like to reboard the gravy train of American capitalism and are being prevented by the very agencies and people who have been charged with giving them a hand.
The following is a true story:
A homeowner, a graduate of a prestigious Midwestern university, was working in his chosen profession that he'd been educated for, and thought he was one of the lucky ones. Then, one day in 2009, he went to work only to be called into an assembly of all the company's employees to be told that this day was their last day on this job. The firm was broke. No notice, no severance.
He went home and told his wife, who happened to be very ill with diabetes. This started her downward heath spiral that culminated in her death last year. In the meantime, her husband looked in vain for work, while his home was foreclosed, his credit ruined.
Upon his wife's death, our once, and hoping to be future, homeowner, collected on a small life insurance policy, and finally did find a job in his field. He also found a house to buy and, to his delight, found that with the down payment he could now make, he could own for less than he was paying in rent, even with a high, private money interest rate.
A private lender did approve his loan request, and a sort of happy ending seemed imminent.
But you know what's coming. The folks of this particular underclass don't have much access to luck (spelled with a "k").
The house he put under contract was being sold as a "short sale." That is, the lender would be getting less than the original note amount. This situation is now common; in some markets, it's about the only way homes are sold.
The lender asked to approve the short sale was one of the mega banks (who shall remain nameless) that was one of the institutions in the forefront of the toxic mortgage mess, and has paid, not just millions, but billions to the U.S. Treasury to settle various claims.
The process started in October. As of now, the short sale still hasn't been approved. Not because it can't be, and almost certainly not because it won't be, but rather, because the lender is simply unable to handle these requests on a timely basis. This is a bank that, by the way, pointed with pride to its ability and efficiency in putting on billions of bad loans before the collapse in 2008.
In the meantime, the Consumer Financial Protection Bureau, the Big Dog federal regulator charged with protecting consumers from bad lenders, has come out with detailed regulations governing lenders who make loans on a primary home, including stringent guidelines for servicing the loans after funding. The rules go into effect this month.
The private lender in this particular instance has pulled his approval. He can't sustain the risk that the regs trigger. After all that our one-time homeowner has been through, it's likely he'll not own a home any time soon.
One of the worst things that a laissez-faire, capitalistic economy can do is deny a sizable segment of the population access to the benefits of that economy, but that's what's happening more than the regulators want to admit.
Pat Dalrymple is a valley native. He's been in the mortgage and banking business since 1961. He'll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.