We may question the need for 17 brands of dishwashing detergent, but giving consumers choices is an excellent check against many types of harmful behavior of companies that make and sell products.
"This is the classic market response," said Katherine Porter, a consumer law professor at the University of California. "Consumers vote with their feet."
But when it comes to buying a home, these market forces are largely neutralized. That's because debt also has feet. These days home loans, especially loans in default or otherwise in distress, get traded around more often than a mid-career relief pitcher. The lender that makes the loan may sell it to an investor, like Fannie Mae and Freddie Mac, or another bank. Sometimes the original lender gets bought out by another bank and the loan is transferred.
For homeowners who remain current on their payments and can avoid financial distress, it rarely matters who owns or services their home loan. But when times get tough, that changes.
Jesus Gomez knows this firsthand. His home loan, originally with Charter Bank in New Mexico, has been sold at least three times since Charter was seized by federal regulators in 2010.
In 2008, Gomez borrowed $146,446 from Charter to refinance the mortgage on his Albuquerque home, which he built a few years earlier on land inherited from his grandfather. He subsequently lost his job as the beverage manager at a local Marriott and fell behind on his mortgage. In 2010 Gomez applied for a loan modification with a newly formed Charter Bank, now a subsidiary of Beal Financial Corp. of Plano, Texas. The bank turned him down, claiming he hadn't submitted all the proper documentation, then foreclosed just before Christmas that year.
Gomez, 32, says he kept photocopies of everything he mailed or faxed to the bank, which proves that he did, in fact, send all the proper documents. In court documents filed to fight the foreclosure, Gomez says that the "constant shuffling of the loan" led to confusion and mistakes.
According to balance statements sent by the bank, Gomez missed at least five loan payments -- but Gomez claims he made some of these payments and they were misapplied or not properly credited to his account.
Last summer, he was on the cusp of finally getting the foreclosure filing against him dismissed and winning a loan modification, he said, when the loan changed hands again. Ownership transferred to Beal Bank, another subsidiary of Beal Financial, and Gomez started from scratch dealing with a different lawyer hired by the bank.
"Every time I would try to work something out (the loan) would get bought and sold," Gomez said in a recent interview.
It's not clear why Gomez's loan bounced around among various Beal entities. A Beal Bank spokesman declined to comment on the case or on bank policies.
Porter, who has written extensively about the mortgage market, said the separation of loan from lender goes a long way to explaining why banks and so-called mortgage servicers so often bungle the job of managing home loans. In recent years, some loan servicers engaged in pervasive document fraud in order to speed foreclosures, refused loan modifications for qualified candidates, and wrongfully foreclosed on borrowers. Recently, five major banks agreed to pay $25 billion to resolve an investigation by state and federal officials into these practices.
These abuses are a direct outgrowth of all this walking mortgage debt. According to the Federal Reserve, of about $10 trillion in outstanding home mortgage debt, most is currently held by private investors, or owned or guaranteed by the government-controlled giants Fannie Mae or Freddie Mac.
Most of the rest is held by banks, though this debt also is frequently bought and sold. The bank's customer is now the "investor" -- not the homeowner. "You shouldn't expect those kinds of relationships to be responsive to consumer complaints," Porter said.
There are a few reasons to hope -- if not quite believe -- that the relationship between homeowners and the entities that own and service their loans will improve.
As part of the mortgage settlement, five banks promised to institute dozens of reforms in how they manage loans. The government has promised stiff penalties of up to $1 million per violation for those that violate the terms of the deal. Porter was recently tapped by California Attorney General Kamala Harris to ensure that the banks do as they promised.
But as The Huffington Post has reported, the banks have made many of these same promises, and then promptly ignored them, in the past. (Beal Bank was not a party to the settlement).
The new Consumer Financial Protection Bureau, created as part of the financial reform bill passed in the wake of the financial crisis, has also targeted the mortgage market as one of its top priorities as it tries to make borrowing more fair for consumers.
But these regulators don't have the authority to stop the securitization of loans, or to change how the financial institutions that service loans are compensated, which in some situations makes foreclosures a more profitable option than a loan modification.
There also hasn't been much indication that the true customers of the loan servicers -- investors that own the loans -- care ready to get serious about protecting homeowners. Loans held in pools are managed by trustees who are worried about returns, not foreclosures.
So what is a prospective home buyer to do? Small banks and credit unions also often sell their loans, but there are some exceptions. The State Employees Credit Union in North Carolina, one of the largest credit unions in the country with $24 billion in assets and 1.7 million members, services all of the loans that it originates -- even, in the rare instance when it sells those loans to someone else.
When a member is 30 days delinquent on a payment, he automatically is entered into the credit union's mortgage assistance program -- and, in what would be a shock to many large bank customers who struggle just to get a representative on the phone -- are invited for a face-to-face meeting with an employee to hash out a plan. There are some potential downsides: The credit union doesn't forgive debt in any situation, so underwater borrowers, who owe more on their mortgage than their home is worth, aren't eligible for principal reduction. Underwriting standards have traditionally been tougher,
But Mark Coburn, senior vice president for loan servicing at the Credit Union, said that well over half of the members who entered the program are either current on their payments for more than six months or on track to get there.
Gomez may finally be on track, too. Last week, he was approved for a trial modification with payments of $1,254 a month. He accepted.
Gomez said the experience did lasting damage to his credit and job prospects. A local Sheraton recently turned him down for a job as a food and beverage manager after they ran a credit check, he said.
He said he didn't know when he took out his mortgage that it could be bought and sold.
"Here you are signing this obligation to make payments for the next 30 years," he said. "Six months down the line you hear, 'we don't own this loan anymore, we sold it.' It's been an eye-opening experience."
Photo by Jake Martin