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Joel Sucher

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Behind Every 'Distressed Asset' Is a Distressed Human Being

Posted: 03/30/2012 2:22 pm

I'm intrigued by the Orwellian phraseology that megabanking executives and the mortgage industry have coined to describe their work. They trade, for instance, in "distressed assets."

What's a distressed asset? From what I understand, an asset, like a subprime mortgage, is distressed because it fails to churn out the revenue stream it was originally supposed to produce. But post-crash, with a nod to obfuscation, "distressed assets" have become "legacy assets."

It doesn't take Umberto Eco to figure out the real meaning of these dehumanizing terms: for the millions of people whose assets - their homes - are underwater, it's their lives that have become truly distressed.

There are quite a few people who fall into this category: 10 million to 11 million, by some estimates, comprising a "silent minority" of middle and upper middle class folks. They may be your next-door neighbors, friends with whom you socialize on a regular basis, perhaps with kids who play with yours. Their distress may be only evident to themselves or their families. They might be embarrassed to let their friends in on the secret. The embarrassment is intertwined with guilt over mortgage payments that haven't been paid in months, perhaps years. A fair number may have tried and failed to make deals with servicers to no avail.

As victims of the financial downturn they struggle to keep up appearances, maintain the same lifestyle, go through the same motions. But behind closed doors they live in a constant state of fear, ducking calls from banking and servicing representatives, opening certified letters with shaking hands, simply waiting for the ball to drop.

That ball may come in the guise of a process server handing them foreclosure papers or a sheriff tacking a notice on the front door. It's a scenario that plays out endlessly across the country, every day - even in Hollywood, as evidenced by a recent story in The New York Times, where the author recounts stories of her neighbors - screenwriters, directors and actors - forced out of their homes.

In the aftermath of the robo-signing scandal, courts have made foreclosures and evictions much more difficult. For the silent minority of homeowners this may have provided a false sense of security. But things can and do change on a dime.

It seems that Shaun Donovan, with his engineering of the robo-signing settlement, has done his best to emulate former President George W. Bush's "mission accomplished" moment, trying to spin the deal as some sort of resolution. For the high-level execs in the megabanking industry, the settlement, along with consent agreements signed with the federal regulators, are the mea culpas necessary to restart the foreclosure pipeline.

In Florida (home of the get'em in, get'em out "rocket dockets," suspended for the moment), bankers, anticipating a glut of REOs, plan to push new legislation to speed up foreclosure times.
REOs? See, now they've got me talking in euphemisms. The acronym for "real estate owned" sounds like a delicious, cream-filled cookie and makes us forget what we're really talking about: seized homes.

While Donovan continues to make the media rounds (including The Daily Show) trumpeting the success of the settlement, he knows full well that it will do little to ameliorate the situation of the majority of the silent minority (only a sliver of these people are eligible for relief).

But as we roll closer to the final Presidential face-off, it seems that the bank with the worst rep - Bank of America - continues to grease its PR apparatus with "innovative" programs like one that will offer one thousand selected homeowners an opportunity to stay in their houses as "renters." My guess is that spin crafters behind this program expect garlands of gratitude to be hung around the neck of CEO Brian Moynihan. I daresay Brian's face will still adorn the dartboards of most of his mortgage customers.

I was talking with a colleague in the entertainment industry, also facing a mortgage onslaught by his servicer. Things got so bad after he exhausted unemployment benefits and was turned down for a modification that he had to apply for social services, food stamps among them. On the checkout line at a supermarket, a neighbor sidled up behind him. They began a conversation, but when it was time to pay the clerk, my colleague faced an embarrassing dilemma. The white food stamp card is distinctive, clearly different from an ordinary credit card, easily identifiable. Embarrassed, he did a quick palming of the plastic, and like a card sharp at work, ran it through the scanner while ramping up his niceties in a conversationally distracting manner. He did a cold sweat hoping the neighbor wouldn't notice the "EBT" (electronic benefits transfer) that popped up on the clerk's screen. It was all part of living under that sword, day after day.

There hasn't been a phrase like "distressed assets" or "legacy assets" coined to label this constituency. The four million or so people already foreclosed on have been dubbed, in proper form, "post-foreclosure migrants," in a Fed report issued last year. I'm not sure what you would call this new group, but if they ever decided to come out of the closet it would be a startling counterpoint to the happy face that Shaun Donovan and the Administration continue to perpetuate in this election year.

Joel Sucher, a filmmaker with Pacific Street Films in Hastings-on-Hudson, N.Y., is working on "Foreclosure Diaries," a documentary about the financial crisis. This article is courtesy of American Banker.