Remembering the "Me Decade"

I met a fellow today who told me that back in the mid-8o’s, after he graduated from college, he bought a single-family home by assuming the mortgage with an interest rate of 13%. Not only did that story take me back to the day of double-digit mortgage loans, it also reminded me of my collection days when banks actually held mortgage loans in their loan portfolios. This lone fact forced banks to find creative ways to deal with distressed loans and foreclosures. Allowing loans to be assumed by another borrower was one such way.

It worked like this. Say you were starting to have trouble paying your mortgage and the future looked bleak. Rather than wait too long before you became too far past due in your payments, you could approach your lender and ask if the bank would allow another qualified borrower to assume your mortgage. If done expeditiously, the borrower could get a into a new home fairly quickly and the seller could get out of their mortgage obligation without destroying his credit. It was the proverbial win-win-win for all parties.

It would be very difficult to pull that off today. Most mortgage loans are not held in portfolio and are sold in batches to the secondary market. From there, those batches are either combined with or separated into other batches and sold off to investors again. And so on and so. All of this could be happening as you keep making payments to the original lender who has agreed to “service” the loan. By the time you approach the bank (servicer) and they track down who actually owns your loan now, months could go and not only is your credit destroyed, but you are also most likely facing foreclosure.

It’s making me think that in our current situation, perhaps the best way to help the individual homeowner and the collective “us” as taxpayers, is to have the government buy back all of the troubled loans from the banks and liquidate them separately - like the RTC (Resolution Trust Co) did here in New Hampshire in the early 90’s when those banks failed. I’m not a “more government” type of guy, but I’m having a real difficult time seeing how to resolve this any other way.

I never thought I would miss the 80’s….