Banks: Bad for the Blood Pressure

Two stories from the news in just the past few days about banks screwing over regular people:

Today on All Things Considered, the story of the King family of Wisconsin. They applied for a loan modification on their $130,000 house after one wage-earner's hours were cut. Their original loan was at 10 percent (10 percent!) through Countrywide, but the modification to 4 percent was through Bank of America. BoA lost paperwork, said the Kings hadn't paid when they had, and eventually took their house. They're now living in a church basement (with their eight children).

Recently (I wonder if it was after NPR called?), the Kings got a letter from BoA apologizing and saying they were entitled to the loan modification after all, and that they could have their house back. But -- and this is where my blood pressure really spiked -- their house had sat vacant and unheated through the winter, and now has 6 feet of water in the basement and other water and sewage damage upstairs.

So BoA is going to pay to repair the house to its previous condition. Rightly so, but what does that cost? How incredibly STUPID is that? If you know anything about contracting prices, you'd probably agree with me that the cost could easily exceed the value of the house.

And even if this works out for the Kings, there's no guarantee that all of the other people who've been messed up by the banks and their lost paperwork will get their problems straightened out. The NPR story said that tens of thousands of people are in the same situation.

Such as Nancy Gosselin of St. Louis Park, a Minneapolis suburb. She had a second mortgage of just $84,000, originally with a local Bremer Bank, but which was sold to CitiMortgage. Citi failed to properly record a single payment of $584 in 2009. Despite the fact that Gosselin attempted to prove she had made the payment and Bremer even confirmed she had (!), Citi added on a bunch of late fees (up to $2,500), and then began to refuse her subsequent monthly payments because her account was "in arrears." Suddenly she "owed" them $6,000. Citi has put the house up for a sheriff's sale on December 2.

Does that make any sense at all?

The Star Tribune's Whistleblower column has brought media attention to the case, plus the state attorney general's office is involved, so Citi will probably start rectifying Gosselin's situation soon.

But again, is media attention what it takes to get a bank to deal with regular people in a business-like way? That's not a system that people can trust. I hate to make a blanket statement that banks are evil -- in Gosselin's case, locally owned Bremer Bank stood by her -- but there is something very wrong here. Obviously, it's big banks that have lost touch with communities and gotten more concerned with their paperwork and hierarchy than their customers

At the same time, as an NPR follow-up piece to the King story discussed, mortgage interest rates are now at an all-time low, while availability of mortgages is beyond tight. This defies the logic of economics -- if interest is low, it's supposed to loosen the money supply, right?

These same banks are sitting on money that could be leant because they've increased the underwriting requirements until almost no one qualifies.