Mortgage Meltdown Madness: The mess behind the financial crisis

Here's the fundamental question of our time: When banks should be doing anything to keep more people in their homes, why are they making it so difficult to do that? The answer is more complicated than Greed, but that's certainly getting warm.

Considering their multi-billion-dollar bailouts, you would think banks and their servicing agents would be happy to extend some of those tax dollars to the people who paid them.

But across America, journalists echo a similar story about what people actually have to go through to try and modify their mortgage and save their house. It's an absolute mess full of rip-off agents and bureaucratic nightmares.

In comes The Nation with the best account I've seen yet, called Mortgage Madness, with the most likely reason why it's so difficult to get a loan modified: It's not in the loan servicer's interest.

Loan agents, operating as private firms contracted by banks, get paid when they collect payments. Wasting time dealing with people's personal issues just isn't part of their bare bones operations they've been running for years. And banks don't offer them much incentive to do so despite federal incentives that the Obama administration offers banks. The Nation story documents well the harassment homeowners face and the utter incompetence among the mortgage industry.

I wrote about this in part at Miller-McCune.com in March, featuring Horatio Bernard in Baltimore, Maryland. Bernard found himself scammed by a home loan modification scheme and some shoddy communication skills by his local Chase Home Financing branch. The explanation I got at the time from a researcher was that the task to modify so many loans is just too great.

Later I put out a couple stories for KBOO radio in Portland, one about distressed homeowners at a home preservation event and the other about direct action at home foreclosure auctions at the county courthouse. One homeowner said how he had to destroy his credit in order to renogiate his mortgage. Another man told me about how difficult it was to reach a mortgage agent. In the piece on the auctions, I got a feel for the vultures in the back end of this whole process.

The overriding question remained: Why aren't banks and servicers easier to deal with at a time when saving a house is clearly a much better deal than going into foreclosure.

National Public Radio is doing a pretty good job documenting this story, both during its morning and evening news hours and through Chicago Public Radio's This American Life. This morning's story on trying to buy homes on short sales is another good example.

But this piece, Are there more foreclosures than necessary?, part of Planet Money, comes closest to addressing the question. His answer is this: Refinancing or dropping the principle of a loan reflects on the bank's balance sheets immediately, but foreclosure today won't reflect on the bottom line for another year. And banks are only concerned with the here and now.