Bank of America’s recent announcement of its intention to eliminate 30,000 jobs over the next few years has caused some concerns in the bank’s home-town of Charlotte. How many of the company’s 15,000 Charlotte employees will be affected we don’t know. But if that community is worried today, just think of the panic there would have been in 2009 if the big banks had not been bailed out—the lost jobs would have been greater and immediate.
But now this “too-big-to-fail” bank has made the business decision to trim down to increase its bottom line. If only this business decision would be followed by an even better business decision for the bank and the country.
Nobody I have talked to in the mortgage business understand why financial institutions would rather foreclose on a house instead of working with the owner to save the mortgage. It’s simply a terrible business decision for the lender.
A foreclosed property, even if investor-owned, must be resold in order to recoup some of the banks’ losses. But with a market glutted by foreclosed properties, the banks are losing up to 50% of the money they’re owed. This in turn dramatically reduces the value on the bank’s other mortgaged homes in the same neighborhood leading to more defaults from underwater homeowners and more losses for the bank.
Foreclosing on a house is also bad for the economy that needs a revival in housing construction to get back on its feet. But that won’t happen until the number of foreclosed properties is dramatically reduced. Then there are all the previous homeowners who have now lost much of their personal assets. These primary homeowners and investors won’t be contributing anywhere near as much to the increase in consumer spending we desperately need.
Then there is the negative effect on families struggling to keep together. New research is showing the incidence of child abuse has risen with the recession. Foreclosing gone wild is not good for the nation’s economy or families.
If Bank of America is going to lose much of the value in the homes it has foreclosed on and all the higher interest the homeowner was paying anyway, then the no-brainer better business decision would be to simply cut the borrower’s interest to today’s low rates and possibly extend the life of the loan. This would keep most homeowners in their houses and investors in the game due to much lower payments. Families would not be uprooted, neighbor property values would stabilize and there would be a demand for new housing construction.
A small business person would easily make this decision—so should Bank of America.