Looking deeply we can see that the borrower is the victim. It is naive to say that the lender foreclosed on the loan because the borrower defaulted. According to my teacher, Thich Nhat Hanh, "The manifestation of something or someone does not rely on one condition alone; it relies on many conditions. So, the idea that one cause can bring about the effect is not correct. One cause is never enough to help something manifest." So we must look further to see what else contributes to bring about a foreclosure. Perhaps then we will understand why I say that the borrower is the victim.
The valuation of the property is a very important factor along with financial hardship. In fact sometimes borrowers just stop repayments because it just doesn't make sense to pay an inflated price for a property when they can buy a better home for less. Even then the borrower is not at fault.
Lenders hire qualified individuals as underwriters and property appraisers who make the all-important decision of how much can be advanced to a borrower. It is the underwriter who assesses the financial qualifications of the borrower. Mind you, the lenders don't really look for poor, homeless, jobless individuals as customers. They look for individuals and families who can save enough every month to repay an amount that will be advanced to them which is determined by the lender. The amount of money that can be advanced to the borrower is capped at a certain percentage of the value of the property that will serve as the collateral. It is the lender, through its chosen property appraiser who determines the value of the property.
So we can see that the lender is not really providing housing to the homeless, jobless who really need financial assistance to buy a home more than anyone else but in fact are selling a product to those who they think can afford it. They are looking to profit. It is important to keep this in mind. They determine what you can borrow and they determine what the collateral is worth and they are looking to profit. You, as a borrower, are just participating in good faith, buying a shelter for your family. So your child can have his own room.
A few years later the old appraisal report is replaced with a new one and it is determined that your property is now worth much lesser than what it was initially appraised at. In fact, the outstanding balance on the mortgage is more than what the property is worth. Your mortgage is now what is known as an "underwater" mortgage. Enter Ocwen, very eager to buy such loans.
In case, the borrower continues with repayments as usual, not only does the borrower end up paying a lot more for the house than what it is worth but also has to deal with Ocwen every month to make sure she is getting her statements on time and that her payments are being applied appropriately and on time. She may also find that her monthly mortgage repayments are now higher thanks to Ocwen adding expensive insurance or other fees. The borrower is the victim. The borrower ended up paying much more for property than what it was worth because of the lender's inability to value the property accurately.
Either due to reduced monthly savings generally caused by reduction in income or increase in expenses (many times due to medical reasons) or simply because the property is worth much less, the borrower who wishes to keep her home asks the loan servicer, Ocwen, to consider reducing the outstanding principal in line with the reduction in home value. Ocwen will advise the borrower that they consider loan modification requests only on delinquent accounts, pushing the borrower into defaulting. Once the borrower has defaulted, Ocwen add up enough on to the statement like late fees and property inspection fees etc. to ensure that the borrower cannot catch up any more. They simultaneously begin foreclosure proceedings. In the event that the property is located in nonjudicial foreclosure state like California the borrower faces a race against time to keep her home.
The common ownership of Ocwen and Altisource have little to gain from a loan mod or a short sale but have lot to gain from foreclosure. Altisource stand to earn Buyer's Premium, Listing commissions, Web Technology Fee, Title and Escrow fees, Property Preservation Fees, Closing Coordination Fees and more! They also earn fees to process foreclosures on behalf of Ocwen in states like California. They also earn property inspection fees and may source appraisal reports through their own unit Springhouse AMC.
Looking deeper we can also see that companies like Altisource Residential buy loans for much lower than what the underlying security is worth. So if they foreclose and sell the home, apart from Altisource earning these fees, they would also make a "tax free" profit! Its much like buying and selling homes for profit, only it is tax free. Foreclosure wipes out junior liens and judgments from title and also either completely wipes out or reduces the HOA dues. This makes it even more profitable to foreclose.
With rising "REO to Rental" activity we can see that it acts as a strong motivation to foreclose. With buying a house becoming almost unaffordable in places like San Fransisco demand for rental properties is rising and it provides better return than a loan modification.
If we are mindful we can see that there is no reason to reject a short sale and foreclose unless Ocwen are working to benefit Altisource. As a part of the Ocwen's Assisted Short Sale Program properties are listed on HUBZU.com. So all they need to do is go with the best offer. However, we can see that foreclosing and selling the property will make more money for Altisource. So we can see why they will reject the short sale and foreclose instead.
The borrower has the odds stacked against her in all scenarios. Even in the case where the borrower just walks away, it is the loan servicer at fault for failing to counsel the borrower appropriately. For failing to highlight the alternatives to the borrower.
"According to Vijñaptimatra Buddhism, there are two minds and three natures of reality. The deluded mind is the cause of all sufferings - the first link of the twelve links in the cycle of Interdependent Co-arising. This cycle is know as the cycle of birth and death and the nature of reality perceived under the influence of the deluded mind is known as parikalpit svabhav - Samsara. In Samsara there is parting, dissatisfaction and misunderstanding.
The other mind, the true mind, creates a world of suchness. There is no birth and death. No coming, no going. No after, no before. No one, no many. No existence, no non existence. It is complete, lacking nothing. This nature of reality is known as nishpanna svabhav - Nirvana. In Nirvana, there is no parting. There is satisfaction and understanding.
Deluded mind creates suffering. True mind creates happiness. The link between the two is paratantra svabhav - interdependence. So in order to reach the shores of nishpanna svabhav, we must go through the world of interdependence. We must constantly learn to see everything in the light of interdependence. We develop our mindfulness to enable us to constantly see the interdependent nature of things."
Vijñaptimatra Buddhism For Dummies
When we see the borrower's plight in the light of such conditions as highlighted above, we are already in the realm of paratantra svabhav. We can clearly see that the borrower is the victim and it is unethical to foreclose. When we look at things like this we are only a step away from ending foreclosures and what a relief that will be for homeowners! They only thing that stands in our way is the greed of individuals and corporations like William Erbey and Altisource. So they must be dealt with.
Let us work together, mindfully, towards the goal of ending foreclosures. Mindfulness will always keep us on the right track.
(The author, Saurabh Singh, is a student of the Buddhist monk Thich Nhat Hanh. He is a Foreclosure Prevention Activist and a vegan. He is also a member of People for Ethical Treatment of Animals(India), Consumer Advocates in American Real Estate, UNITES Professionals and supports various charitable causes and crowdfunding.)
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