Independence Day Message to Community Bankers

I like MidFirst Bank out of Oklahoma. In fact, I like most Community Banks and most Community Bankers. They provide personal banking for solid people who are not particularly huge customers. And, I know there is a rivalry, I kind of like Credit Unions too, although they tend to lag behind in technology. The reason I like these institutions is that their business models are mostly the old model of service without gouging. They give you a sense that they consider you important (because you are) and that they exist to serve you instead of the other way around. Most of them had nothing to do with securitized mortgages.

And with modern technology there is virtually no service that is unavailable at a community bank or credit union. Even the convenience of ATMs. Since they pay the fee, they leverage off of the infrastructure of all the existing convenient ATMs all over the world. I can’t think of a single reason why anyone would do their banking anyplace other than a community bank or credit union. It’s a relationship, not just a marketing venture designed to engorge themselves on your lifeblood.

So I have a suggestion for the community banks which apparently has not occurred to them. Many, if not most of their employees and officers are in the same boat as all the other victims of the mortgage fraud that has become the Great Recession. The “fix” their employees are in is the same as everyone else — underwater, delinquency, and foreclosure. This creates enormous personal stress and decreases productivity while at the same time overlooks a premium opportunity for the community bank or credit union that employs them.

Solid people still exist. If you take away the fraudulent transaction (especially the fraudulent appraisal) that put them behind the 8 ball in mortgages, their FICO scores would be 100-150 points higher. So but for the housing crisis, their payment record and credit-worthiness is significantly better than first appears. Add back the points irrationally deducted from their credit score and you have an entirely different credit proposition. And a huge potential profit center with people the community banks and credit unions know — intimately.

As housing prices keep sliding down, it is hard to keep in mind that they won’t go to zero. But it IS true that houses will never become worthless. It’s also true that eventually, some time in the distant future, those prices will rebound. In the meantime, millions of homes are going into foreclosure and being sold on the courthouse steps for pennies on the dollar. The current practice is to drop the auction price within hours of the actual sale so nobody knows the deal until it’s all over. And the current practice is to make short-sales difficult, although not impossible. So here is my message:

Use the strength of your financial institution for the benefit of your employees. You might even want to do the same for some of your customers. Buy the homes at the courthouse steps, on short-sale or out of REO, make a deal with the borrower (your employee or customer) wherein the current owner leases the home with an option to buy the house back. It’s basically refinancing with principal reduction.

Sound crazy? Look at these numbers. EXAMPLE: Originally sold for $230,000 the house or condo is now worth no more than $90,000 in fair market value and it is going down. There are three price levels for the sale, each lower than fair market value — REO sale, short-sale and auction bid, each lower than the other. The final auction sale price will probably be somewhere around 50% of the distressed FMV.

Since you are buying the property at a price lower than FMV, your LTV will still be in the safe zone. You lease or sell the residence back to the same owner who got screwed by the big boys on Wall Street with the option or sale price at fair market non-distressed value. The bank makes a lot of money, the risk is extremely low, the homeowner stays in the home, the stress is eliminated, and the loyalty of the employee or bank customer will be the equivalent of a blood oath.

There are approximately 6,000 community banks in the United States. Applying their collective strength against the system being played by the securitization players can cause a major correction in the foreclosure crisis. In doing so, they will enlarge their customer base, vastly increase the level of deposits in each branch, and create an immediate investment (new loans) at rates that will produce affordable payments for borrowers, while at the same time include an extreme premium for the underwriting bank.

How ’bout it? If any banker reads this and is interested and wants to start such a program you can either do it in house or you can outsource to some people who are accustomed to serving community banks and credit unions. Those people are not hard to find. I know about a dozen of them myself. If you want to talk to me about it send an email to ngarfield@msn.com and in the SUBJECT MATTER, write in CAPS, “BANK MORTGAGE PROJECT.” If you are not a bank executive, you can still write to me, but don’t use that subject matter.

6 Responses

  1. You can’t beat our small town community bank. FB&T…

  2. Neil touches on one aspect of financing that seems largely overlooked – the “credit score.” That “score” is set forth by algorithms manufactured by “Fair Issac Corp” out of Minneapolis, and by their marketing they have convinced financial institutions to abandon any pretense of “know your customer” and assign all decision-making to the clowns that are creating the Scores. Since what Fair Issac Corp does is gross abuse of monopoly power in the market, it seems to me that the appropriate response it to file lawsuits against Fair Issac. Particularly disadvantaged are those folks who only purchase for cash – event heir homes and autos – and for them Fair Issac issues NO credit scores, so they can never obtain a credit card, or any other credit. Does that abuse the applicant? But of course. Time for more lawsuits.

    Incidentally, just for the record, I have NO credit score from any credit bureau, and no credit score from Fair Issac. But then again, I refuse to sign credit applications with abusive adhesion clauses in them. So call me cantankerous. I will be filing suit against Fair Issac shortly, when I get to it, and will let the readers here know how I made out.

  3. >> wherein the current owner leases the home with an option to buy the house back. <<

    As Oklahoma law last stood when I was more active in RE here was that the property owner could not lease with an option to buy because property owner might face having a court force the owner to refund every penny paid by the lessee/renter.

    The way it did work in Oklahoma you either just rented the property out, sold it in a cash for the Deed exchange or you could use a Contract for a Deed.

    The Contract for a Deed might work for the app you are trying to suggest.

    Then there is the issue of state/fed tax laws.

    And as always on every RE deal always pay the bucks to get a written opinion on the deal from a competent Lawyer, a stamped opinion from an engineer & a written opinion from your CPA/Accountant.

    If the opinion has any value to it’s an opinion worth paying to put it into writing!

    What is far worst though is the banking industry in the USA.

    Both the Bible & the US Constitution point out the ill effects of Usury.

    Usury once again needs to be outlawed in the US.

    In what used to be a free country "We the People" were supposed to be "Created Equal" & further have “Equal Protection under the Law”!

    As with so many other sectors of the economy the Banking/Insurance sectors are in complete violation of the "Created Equal” & "Equal Protection" clauses.

    If the individual was Equal with the Banks we also would be able to use the US's Fractional Reserve System & loan out 10 to 100 dollars for every one dollar we actually held in our pockets.

    We individuals can not legally do that so the Fractional Reserve System is in violation of US Law! IMO

    The Fractional Reserve Banking System also was one of the major causes of the US's latest economic “Credit” collapse.

    What needs to happen is that the people in the US need to stop depending on borrowing to finance their lifestyle & relearn how to just pay cash for their purchases.

    And the Banking & Insurance sectors need to be turned mostly into non-profits used for the sole purpose of providing a community service & of course they must be locally based, administered locally with transparent auditing.

    There are many other things that can be done to fix the many problems in the US, but almost none of those things will happen.

    BP & the US gov destroying the Gulf of Mexico is a prime example of that type of leadership's incompetence.

    Rather then racing to bring in the 2000 plus oil skimmers from around the US 2 months ago to try to clean up the disaster, I see in the news now that the gov says it will issue fines & felony charges anyone taking pictures of dead marine life/wildlife laying in the oil spill in any areas the gov. decides is restricted.

    So, for now, the US, the US states & Wallst corporations will fix nothing.

    BTW: Thanks for putting this site up. It's one of many that have sprung up that some of us are finding helpful in actual trying to fix problems.

  4. The origination of the obligation was misrepresented by way of the terms, the conditions, and false appraisals. More than likely the loan was never perfected for Fannie and Freddie to purchase. This government needs to re-think going after the homeowner. These S.O.B.s need to pursue the originators and the appraisers. Better yet a few Senators, Congressman, and the C.E.Os who created this mess. These people are the true culprits. There is no recovery in sight for those who can afford the payment. Thus we are under house arrest in a deflated ghetto. Consequently, we have to either walk away or remain in usury. Again, this government prefers to punish the innocent and set the guilty free.

  5. More, more, and more commonsense from Mr. Garfield’s continuum — elegantly explained.

    It is, or should be, a no-brainer for a community-centered bank or credit union to be the direct beneficiary of the expansion and further development of its local or regional economy interests; versus the funneling off-shore by the domestic/international thieves, WITH THE COURTS AND POLITICIANS AIDING AND ABETTING under the pretense of expediting the foreclosure process.

    This is the kind of solution that will be a game-changer when a few enterprising “community-lenders” prove the efficacy.

  6. When a banker tells you she is interested, please ask her for me if her bank is hiring.

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