wvbill wrote:Bill Moyers tonight on PBS:
http://www.pbs.org/moyers/journal/12112 ... file2.html
Indicates growing unrest against the banks and an interview with Howard Zinn...
The activism is not yet violent, but clearly increasing... It is going to get interesting...
Bill
A personal a observation-- the interview is very interesting and in many ways correct ,
how ever they fail to address at least three important issues.
One, they raise the 'social travesty issue' of the " pay day loan operators', the lenders of last resort.
Yes, their interest rates are very high, however the lenders also have very high levels of default. The people that go to them are desperate and bank loans or credit card loans are not available to them. They most likely also know the rates are high, but what can they do, if they need cash asap? Their friends or family may not have any money, So, do they go to an auto title loan company? the car has to be debt free. Go to a pawn shop? you need something of value to pawn. Commit a crime, like burglary or theft , get caught and go to prison? Go to a local mob loan shark , miss your payment and get your kneecaps broken? What can they do? So the goody two shoes want to remove one of their options, Nice.
The second issue is the community reinvestment act, that act forced banks to make loans to unqualified people, this was a disaster waiting to happen but lets not talk about that for it was for a social good.
And the third is that banks sold their loans.
Over the last 35 years of dealing with banks for loans on investment property ( more then four apartment units ) I have seen a change in their underwriting.
About 20 years ago I obtained a loan from a local "Chicago neighborhood bank" , this bank survived the depression, an older senior vise president one day explained the bank's philosophy regarding "commercial loans".
If they could not drive to the property, inspect it, and return to the bank the same day they would not make the loan.
The borrower had to have good credit and have experience, that is start with a small property and work one's way up to larger properties, as large as a small one hundred unit building.
They felt Ma's and Pa's were considered good risks since they were personally responsible , knew their tenants and would do all they could to maintain the property and service the loan. The amount of the loan was generally less then 75% of the property's value, and it had to have a good a debt service ratio.
The debt service ratio is figured as the total amount of possible rent that could be collected, less vacancy, less all expenses ,( insurance, real estate taxes, maintenance, utilities, replacement reserve , etc,) this remainder amount had to be greater then 1.2 to as much as 2 times the amount of the mortgage payments.
Also the bank asked them selves if the borrower defaults can the bank get all of its money back?
At this time it should be noted the bank held the loans and did not sell them to some one else , thereby keeping a closer watch on the loans, for they were on the hook if the loan went bad.
This bank was later taken over by a large bank and business practices were changed, they are currently in trouble.
About 15 years ago I dealt with another bank (which also survived the depression,) they prided them selves on servicing ma's and pa's because they were considered a good risk. About 5 years later, I noticed they were going after the Big fish, and a junior VP (in his early 30's and a graduate of an ivy league school) said so (the ma's and pa's were forced out through higher fees, less service etc.) After all, why service several dozen small ma's and pa's when you can write one large loan for the same amount to a corporation or sophisticated partnership and employ fewer personal?. There by increasing your bottom line. --- Well, they recently ran into problems , and to keep the show going they committed fraud, like possible jail time. The long and the short, the FDIC took a hit and liquidated the bank.
I think the above also helps substantiate the generational dynamics theory.
On a slightly different note, a friend of mine was notified that his commercial loan was being called, he has always been current with his loan and the property provides good security and cash flow for debt servicing. He was given 12 months to find a new lender .Commercial loans are a little hard to find but hopefully doable, His bank is one of the big banks that received TARP funds. Nice.
The above scenario is similar to my attorney's dad who lost a building during the depression because he could not refinance.
Variations on a theme.