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Behind Every ‘Distressed Asset’ Is a Distressed Human Being

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I’m intrigued by the Orwellian phraseology that megabanking executives and the mortgage industry have coined to describe their work. They trade, for instance, in "distressed assets."

What’s a distressed asset? From what I understand, an asset, like a subprime mortgage, is distressed because it fails to churn out the revenue stream it was originally supposed to produce. But post-crash, with a nod to obfuscation, "distressed assets" have become "legacy assets." 

It doesn’t take Umberto Eco to figure out the real meaning of these dehumanizing terms: for the millions of people whose assets – their homes – are underwater, it’s their lives that have become truly distressed.

There are quite a few people who fall into this category: 10 million to 11 million, by some estimates, comprising a “silent minority” of middle and upper middle class folks. They may be your next-door neighbors, friends whom you socialize with on a regular basis, perhaps with kids that play with yours. Their distress may be only evident to themselves or their families. They might be embarrassed to let their friends in on the secret.   

The embarrassment is intertwined with the guilt over mortgage payments that haven’t been paid in months, perhaps years. A fair number may have tried and failed to make deals with servicers to no avail.  

As victims of the financial downturn they struggle to keep up appearances, maintain the same lifestyle, go through the same motions. But behind closed doors they live in a constant state of fear, ducking calls from banking and servicing representatives, opening certified letters with shaking hands, simply waiting for the ball to drop.  

That ball may come in the guise of a process server handing them foreclosure papers or a sheriff tacking a notice on the front door. It’s a scenario that plays out endlessly across the country, every day – even in Hollywood, as evidenced by a recent story in The New York Times, where the author recounts stories of her neighbors – screenwriters, directors and actors – forced out of their homes.

In the aftermath of the robo-signing scandal, courts have made foreclosures and evictions much more difficult. For the silent minority of homeowners this may have provided a false sense of security. But things can and do change on a dime.

It seems that Shaun Donovan, with his engineering of the robo-signing settlement, has done his best to emulate former President George W. Bush’s "mission accomplished" moment, trying to spin the deal as some sort of resolution.  For the high-level execs in the megabanking industry, the settlement, along with consent agreements signed with the federal regulators, are the mea culpas necessary to restart the foreclosure pipeline. 

In Florida (home of the get’em in, get’em out "rocket dockets," suspended for the moment), bankers, anticipating a glut of REOs, plan to push new legislation to speed up foreclosure times.

REOs? See, now they’ve got me talking in euphemisms. The acronym for "real estate owned" sounds like a delicious, cream-filled snack and makes us forget what we’re really talking about: seized homes.

While Donovan continues to make the media rounds (including The Daily Show) trumpeting the success of the settlement, he knows full well that it will do little to ameliorate the situation of the majority of the silent minority (only a sliver of these people are eligible for relief). 

But as we roll closer to the final Presidential face-off, it seems that the bank with the worst rep – Bank of America – continues to grease its PR apparatus with "innovative" programs like one that will offer one thousand selected homeowners an opportunity to stay in their houses as "renters." My guess is that spin crafters behind this program expect garlands of gratitude to be hung around the neck of CEO Brian Moynihan. No, I daresay Brian’s face will still adorn the dartboards of most of his mortgage customers. And, if the true depth of the shenanigans perpetrated by the bank, now under review by the consent agreements, were to be fully disclosed, detailed and confirmed (including foreclosures on active-duty soldiers), I’d suggest investing in the stocks of pitchfork manufacturers.  

I was talking with a colleague in the entertainment industry, also facing a mortgage onslaught by his servicer. Things got so bad after he exhausted unemployment benefits and was turned down for a modification that he had to apply for social services, food stamps among them. On the checkout line at a supermarket, a neighbor sidled up behind him. They began a conversation, but when it was time to pay the clerk, my colleague faced an embarrassing dilemma. The white food stamp card is distinctive, clearly different from an ordinary credit card, easily identifiable. Embarrassed, he did a quick palming of the plastic, and like a card sharp at work, ran it through the scanner while ramping up his niceties in a conversationally distracting manner. He did a cold sweat hoping the neighbor wouldn’t notice the "EBT" (electronic benefits transfer) that popped up on the clerk’s screen. It was all part of living under that sword, day after day.

There hasn’t been a phrase like "distressed assets" or "legacy assets" coined to label this constituency. The four million or so people already foreclosed on have been dubbed, in proper form, "post-foreclosure migrants," in a Fed report issued last year. I’m not sure what you would call this new group, but if they ever decided to come out of the closet it would be a startling counterpoint to the happy face that Shaun Donovan and the Administration continue to perpetuate in this election year. 

Joel Sucher, a filmmaker with Pacific Street Films in Hastings-on-Hudson, N.Y., is working on "Foreclosure Diaries," a documentary about the financial crisis.

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Comments (4)
The commentary is insightful. The mental anguish of homeowners trapped in below market homes--unable to pursue better paying employment in other cities because of the trailing liability of a deficiency judgment.

The 1st and most important action that any lender can make is to restore the morale of the sinking homeowners. It is simple to cleanse the credit bureau report to provide the homeowner with a "clean start".
The financial institutions do not take into account the deleterious effect of a bad credit rating on new employment. in fact, most federal jobs of consequence give great consideration to the credit reports--and security clearances may be lost--contracts terminated --or access limited by negative or adverse comments. There is little rational basis for not only siezing a home but destroying an individual's future income streams. The financial industry must take note of the fact that each faceless credit--each REO represents an extended family: parents with shaking hands, children forced to conceal deteriorating family finances--college students who drop out because parents no longer can help support them. Grandparents facing their own problems--and facing the fact that they can never look to their adult children for help. The range of adversely affected people is much larger than those who signed the notes. Short term profits may turn into decades of citizen hatred with consequences as yet undreamed of.
Posted by OLDER&WISER | Monday, March 26 2012 at 4:41PM ET
I had, prior to a downsizing in december 2008, a 720 credit score and no lates on my Bank America Credit report "NO LATES" for 40 years and six months. I used all my liquidity to maintain my credit score.

I get calls frpm GE Bank, Citibank (Cardservices) that are really crappy. They and others upped my interest rates to 29%+. It's harder and takes longer to pay off the cards.

I hope the public that thought they had a relationship pays these greddy bastards off and never renews them.

vince h, march 26, 2012
Posted by vincehardwick@yahoo.com | Monday, March 26 2012 at 5:33PM ET
What will be the title of the documentary, "It's a Wonderful Life" Posted by Steve J.
Posted by T Stephen Johnson | Monday, March 26 2012 at 7:38PM ET
Great Piece. The great irony is that depersonalizing finance doesn't produce the best origination or collection outcomes. Our bank has taken some hits, but relatively few, because we habitually struggle to understand who we are dealing with and what the world might look like to them. This push to "repersonalize" finance kept us from aggressive origination during the bubble. Therefore we have proportionally far fewer foreclosures. When we do face an underwater borrower, we look aggressively for what can and should be done by both parties to solve the problem. Most people respond very responsibly to this approach. When people don't we do what we need to through legal means. I am sure we make errors of judgement both ways; too aggressive with some and too lenient with others, but for the most part the human approach works quicker and best for both parties.
Disappointingly federal policy is pushing us more toward depersonalizing finance.
Posted by batwell | Tuesday, March 27 2012 at 9:52AM ET
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