Where’s Lumpy?

At CNNMoney, Les Christie reports the stories of some folks with “distressed” mortgages.  Those quotations marks belong there, bub.  Sob story #1 starts as follows (emphasis mine):

A few weeks after the July takeover of the insolvent IndyMac Bank by the FDIC, the agency announced a mortgage modification plan to help the bank’s at-risk borrowers keep their homes.

One of the earliest homeowners to apply was real estate agent Sue Wright of Las Vegas Nev., which is one of the nation’s hardest hit areas in terms of foreclosures and home-price declines. But because she was current on her mortgage payments, the bank said it couldn’t help her and advised her to stop making payments for two months. She did that and called back right after her second payment was overdue.

So far, Les Christie has established that (1) Ms. Wright is current in her mortgage payments, and (2) the bank’s solution to this “problem” is for her to stop making payments.  I wonder who Ms. Wright was talking to: someone from IndyMac, or someone from the FDIC.

If she was talking to the Federal Deposit Insurance Corporation, an “independent agency of the federal government” (har har) according to its own web site, then something is really rotten.  If I called up State Farm and said “hey, I could really use some cash here,” would they tell me “you didn’t hear it from me, but go booze it up and wrap your Honda around a tree and we’ll talk?”  Right.  So why would the FDIC?  Right: they’re playing with someone else’s money.  Please don’t wonder why I don’t trust Leviathan to get us out of this mess.

If Ms. Wright was crying poor to whatever is or was left of IndyMac, then the real problem with the FDIC materializes: it tends to protect irresponsible (nay, criminal) bankers.  If advising credit-worthy clients to cement their reputation as “distressed homeowners” by defaulting on their loans counts as “responsible banking” then I’ve been reading all the wrong books.  Funny, according to the FDIC page on Wikipedia even FDR, of all people, saw where this would lead:

President Franklin D. Roosevelt was personally opposed to insurance because he thought it would protect irresponsible bankers, but yielded when he saw Congressional support was overwhelming.

The little ruse that FDIC/IndyMac/Ms. Smith hatched did blow up in their faces.  The CNNMoney article continues:

She was given a plan with a reduced interest rate and told to make the new payments for three months and the modification would become permanent. But after doing that, she received a letter from the bank telling her the modification was off; the investors wouldn’t approve it.

“It was the first time I heard the word `investors,’ or that the modification needed any further approval,” say says.

One hopes that someone at the FDIC got wind of this crap, and realized how it might go down in the press, should the reporting be handled by someone a little less credulous than Les Christie.

No specific reason was given for the reversal; it could have been any of 10 or 15 reasons listed on the rejection letter. The crazy part of the story is that the bank should be anxious to work out the mortgage for Wright and her husband, John.

They want to stay in the house; they’ve lived there for 15 years and, well, it’s home. They’re way underwater, owing about $510,000 on a property not worth much more than $350,000 right now. All they wanted was an interest rate reduction for five years. They didn’t ask the bank to “cram down” their loan to the $350,000. Meanwhile the market in town is just horrid.

“Nothing is selling in Las Vegas,” said Wright. “Nobody even goes to foreclosure sales anymore.”

No, the crazy part of the story is how anyone with a keyboard and without critical faculties deems himself or herself a  journalist nowadays.  Why would the bank be anxious to work out the mortgage?  Let’s review, shall we: they were current on their payments to begin with.  Why, oh why, would any self-respecting bank cut their interest rate?  The smarmy sludge about “well, it’s home” and their house being underwater has zero bearing whatsoever on their ability to pay.  For all we know, this family has a seven figure income.  Perhaps they are experiencing financial hardship that makes them truly unable to pay.  The article is silent.

Hey, I want to stay in my house, and I want an interest rate reduction.  I deserve it, don’t I?  Don’t we all?

Why is it that “predatory” lenders get excoriated in the press, but banks and homeowners who conspire to bilk the FDIC get nothing but sympathy?