Just before the government stepped in and stole the show with the news of a program to help troubled homeowners, a few of the big banks like Bank of America and Citigroup had announced their own plans to work with troubled borrowers.  Nobody wants the appearance of being strong-armed by the government to do the right thing.  The banks knew this was coming from the Obama administration in advance and one of two things is true: 

1) The banks planned a preemptive PR strike that would make them smell like roses or...

2) The Obama administration worked with the banks on the plan and suggested they announce their own programs ahead of the government’s so the mass portion of the uninformed public whose gut reaction to everything these days is to cry “bailout!” wouldn’t do so.

Here’s a blurb from the New York Times article on Bank of America’s announcement:

Bank of America officials said the maximum reduction would be 30 percent of the value of the loan. They said the program would work this way: A borrower might owe, say, $250,000 on a house whose value has fallen to $200,000. Fifty thousand dollars of that balance would be moved into a special interest-free account.

As long as the owner continued to make payments on the $200,000, $10,000 in the special account would be forgiven each year until either the balance was zero or the housing market had recovered and the borrower once again had positive equity.

The average amount of time Americans spend living in their home before moving is 6.6 years.  Does this mean we can expect another housing crisis when the members of this statistic decide it’s time to move out of their house?  Will the bank come after them for the remaining amount?  Will the government?  Somebody needs to ask the banks these questions and the banks need to answer them.

Bank of America and the other large banks’ proposed plan isn’t about goodwill; it’s about the transposing of one mathematical formula for another.  If you reduce the principal owed on a home by 30% this is roughly equivalent to cutting the homeowner’s mortgage interest rate in half.  Something tells me the banks would rather call it a Reduction of Principal Plan than a Refinance to Lower Interest Rate Plan. 

The article goes on to say,

Bank of America said it would be offering principal reduction for several types of exotic loans.

Are exotic loans different from endangered loans?  Do I have one of these mysteriously monikered loans?  I hope so.  Just to be safe I’m going to spray-paint my cat to look like an ocelot because according to Bank of America this is a “by invitation only” program.  It’s not the first time a bank has had an “invitation only” soiree.  You can read about an infamous bank bash at a repo'd mansion here.

The bank developed the program partly because of “pressure from everyone,” Mr. Schakett said. Even the investors who owned the loans were saying, “maybe we should be doing more,” he said.

I love these investors’ lackadaisical approach this crisis.  It’s as though they’re deciding on what to order for lunch.  “Maybe I should have the Stewed Pygmy Marmoset Brains or maybe I should have the grilled cheese sandwich with a side of fried Mwanza Flat Headed Agama lizard feet.  Hmmm… both sound good.  What are you having, Bob?”

On a national scale, such a program risks a political firestorm if the banks are unable to finance all the losses themselves. Regulators like the comptroller of the currency and the Federal Reserve have been focused on maintaining the banks’ capital levels, which could be hurt by large-scale debt forgiveness.

Here’s a solution:  Let’s have troubled borrowers pair up with organizations like PETA for assistance a la Octomom by placing signs in their front yard in return for paying their mortgage.  I would like to request the National Brain Transplant Center put up a sign in my front yard.  If they could throw in a free brain transplant to boot I’d like that too.  I know there might be few risks involved like constantly smelling burning feathers or memory loss but nothing would please me more than to have no recollection of this foreclosure fiasco.

Given the track record of the big banks making good on their promises and the fact that as corporations their board of directors must concern themselves with profits first and goodwill last, the federal government are the only ones who can pull this off.  Call me a socialist if you like-- no, seriously, call me a socialist.  I used to drive a Mercedes, then a Volvo and then a Saab before downgrading to a scooter that’s made in a country with similar equal access to healthcare for all… such a dirty, dirty concept these days.  All three contraptions are some of the best I’ve ever owned (code word for leased).  Come to think of it, most of my favorite products come from-- wait for it… socialist countries.  Oh, the horror!  For a word with no concrete definition people sure love to pigeonhole the concept of community as evil according to political trends of the day and decade.  Okay, now you can call me a communist if you want but for the record my cat is orange, not red.