Sheila Bair wrote an op-ed article in 2007 that made people in Treasury think, “Sheila Bair is difficult.”
She was surprised to learn that mortgage servicers had pushed 99% of those surprise-reset mortgages (whose en masse defaults sparked the crisis) into foreclosure rather than modifying them. So she voiced her frustrations in an article.
According to the NYTimes:
[In an op-ed in the New York Times, she] called on mortgage servicers to reset adjustable-rate mortgages en masse. “These borrowers would still be required to make their monthly payments… Avoiding foreclosure would protect neighbouring properties and hasten the recovery.”
Although she made no mention of the Treasury Department, everyone in the bureaucracy knew that it was her real target. It was now official: Sheila Bair was difficult.
That’s one of two interesting things about the foreclosure process that we learned reading an interview with Bair in the NYTimes. Basically, that mortgage servicers “promised” (whatever that means, we don’t find out. Obviously, it wasn’t in writing.) to modify mortgages, but instead, they foreclosed on most properties and modified just 1%.
The second is that when explaining the rush-to-foreclosure process she says, “I think some of it was that they didn’t think borrowers were worth helping. There was some disdain for borrowers.”
Honest! And totally unproven because she doesn’t go into detail. But it reminds us of the opposite of when Jamie Dimon said, “Giving debt relief to people who really need it. That’s what foreclosure is.”
It’s a homeowner’s worst nightmare: That banks rush to foreclose 99% of the time because (Bair suspects) bankers have a disdain for borrowers.
Two other interesting points:
1. She echoes the voice of the public when it comes to capital requirements (they should be higher to discourage risk-taking behaviour) and the foreclosure process (banks should instead help homeowners modify the loans). She similarly seems to forget that politicians encouraged banks to loan to riskier candidates by throwing lawsuits at them if they disqualified borrowers with low income, and instead blames mostly the securitization process and banks’ eagerness to make risky bets.
2. She also thinks that Bear Stearns should have failed, not given to Jamie Dimon as a Christmas present, like the book, Too Big To Fail put it.
Bair told Joe Nocera:
“Let’s face it.. Bear Stearns was a second-tier investment bank, with — what? — around $400 billion in assets? I’m a traditionalist. Banks and bank-holding companies are in the safety net. That’s why they have deposit insurance. Investment banks take higher risks, and they are supposed to be outside the safety net. If they make enough mistakes, they are supposed to fail. So, yes, I was amazed when they saved it. I couldn’t believe it. When they told me about it, I said: ‘Guess what: Investment banks fail.’ “