Letter to Bank of America

One of our listener’s sent us a copy of this letter and asked us to post it. Given the nature of the topic and the issue, we have agreed with posting in hopes to get some comments on where our other listeners and readers stand on this issue. Please comment!

March 25, 2010
Brian Moynihan, CEO
Bank of America
100 North Tryon Street
Charlotte, NC 28202
Dear Mr. Moynihan:

I cannot begin to tell you how upset I am with Bank of America.

I just learned that you may forgive a portion of a mortgage principal for some mortgage holders. It appears that good people like me that have the ability to pay will receive no assistance whatsoever. That is a problem because for people like me it is not about the ability to pay, it is about being held hostage by the severely underwater property.
It is your bank’s greed that caused the housing bubble and burst. People like me – not a flipper – have lost 60% of the value of our homes because your bank simply dumps foreclosures in the market while the government bails you out.  Meanwhile I cannot accept jobs out of my area because I cannot sell my deeply underwater home.  I cannot move to a bigger home – which I need – because I cannot sell my deeply underwater home.  I will likely not see the value of my home return to what I paid for it until I am well into retirement. Meanwhile you expect me to throw my money away for the next 25 years and jeopardize my ability to retire as I had planned.  A principal reduction for people like me makes this problem go away because it levels the playing field.

Make no mistake – I did not cause this – Bank of America and other banks did.

If you choose not to reduce the outstanding mortgage principal for people like me, strategic defaults will only continue. That will continue to inhibit the housing market recovery and your bank will be no better off because you will only end up owning more foreclosed homes – and you know this!

Your position does not make financial sense whatsoever. Indeed I am certain a class-action lawsuit can successfully illustrate that Bank of America knowingly and patternly caused the bubble and burst and now knowingly is introducing bias into how it handles underwater mortgages.  It will be impossible to find an impartial jury because you have negatively impacted everybody. Your bank is the villain here and I am positive a jury and judge will see it that way.

I certainly would love to hear that Bank of America saw the error of its way and offer a principal reduction to all – regardless of their financial situation.  It is unconscionable that you would force some of us to ruin our credit through a strategic default while you have not truly solved anything.

Sincerely,

Andrew (Additional information withheld at request of submitter)


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6 responses to “Letter to Bank of America

  1. Michael Forrest

    First, my sincerely sympathies/empathies in regard to an extremely difficult and frustrating situation. Many of us are in similar situations. I think there is some validity to Andrew’s complaints – particularly in relation to foreclosures that depress the housing market. That’s just an economic fact.

    But it seems to be a pretty serious exaggeration to say that “It is [Bank of America’s] greed that caused the housing bubble and burst.” First, obviously, there were a lot of other players, not just BoA. Second, the government had a huge hand in pushing the banks to make loans they never should have made in the first place – all in the name of “fairness.” Nice intention, bad result (a common, liberal theme – and I include many so-called Republicans in that who behaved pretty much like liberals). There are other factors in play as well.

    It seems obvious that banks can’t get money from those who are broke – so the foreclosures seem unavoidable. But, if someone is fortunate enough to have weathered this economic storm and has enough to continue to pay, then we need to remember that banks are not 501(c)3 charities. And the the government doesn’t seem interested (or willing) to bail everyone out. The balance of the money has to come from somewhere. If a person can “afford” to pay, then they will pay.

    Perhaps that’s where the problem primarily started in the first place and is ending – government getting too involved in distorting the market (all in the interest of “fairness” and “saving the world”, of course). They’ve decided who is worthy to be made whole and who is not. Unfortunately, the people in the middle class who have struggled and strived to be responsible will once again bear the burden of those who were not responsible and the greedy.

    It almost makes one wonder, if the government can just take your money away through taxes, “bail outs” and plummeting real estate markets to “be fair”, is it really worth (or even possible?) saving up for the future? Why not just enjoy today and spend what we don’t have like so many others? Why not join the party?

    Ultimately, I agree that the middle class got stuck the most in this and it’s incredibly sad and frustrating. But there’s a lot of blame to go around – from the flippers, to the government to the banks – including, but not limited to, BoA.

  2. Maureen Williams

    I find myself in agreement with Mike, there’s more than enough blame to go around. There are also a lot of folks out there who bought way, way, way more house than they could afford, took out variable-rate short term first (and second) mortgages, and are now suffering the consequences of the de-valuation of their properties. (OMG, you mean a variable rate may go UP after a period of time ??? Color me shocked.)

    I think that the federal government condoned and encouraged this practice with Fannie Mae and Freddie Mac, encouraging (demanding?) lending to customers with questionable ability to re-pay and then selling off that debt to pass along the high risk. All the people who bought those houses with those funds were twisting in the wind when the market collapsed and their property values plummetted. And, they have done nothing to correct the situation, providing bail outs to the banks and then allowing the banks to continue the same practices that got them into trouble in the first place.

    Finally, the banks have not learned any of the lsessons of this debacle; rather than work with their customers to try to help both parties recover, they take the bail out funds and put them back into the derivatives market rather than using them to fund ventures worthy of their credit, thereby slowing the whole economy with negative growth and continued instability.

    One point of contention: Mike, we better save whatever we can, even if it’s in a regular savings account (or maybe a coffee can in the kitchen cupboard), becausewe won’t be able to depend on the government to bail us out, that’s for durn sure.

    MAW (off to fix the old car rather than shop for a new one)

  3. Michael Forrest

    Well said, Maureen and I agree. Ain’t nobody gonna step in and help *us.*

    I was being (mostly) hyperbolic about not saving anymore – I’m trying to save and be more frugal than ever now. But I’m still spreading my risk by putting my money into different types of investments. Even cash can be risky if we head into serious inflation. The safest route is still diversification, imo.

  4. Hey, I helped bail BofA out and they paid me 8 cents for every $1000 I put in my savings account last month.
    At the same time I have a 80%LTV conventional loan that is secured by a house worth only 40% of the collateral value. I did not over-buy, I did not borrow out my equity, I did not lie to get a loan. I think we create a moral hazard by bailing out these banks. They are less than honest with both their borrowers and their investors. So I feel that the government should take an equity position in these banks for any buydowns they finance. And the principal buydowns should not be optional based on the whim or hidden agenda of the banks.

  5. Let me first say this, so maybe it lessens the hate mail. Andrew – since I know nothing about your actual financial situation, I’m going to assume the following. You did everything right. You bought a house that you could afford. You held a good job and were caught up in cost cutting. Losing your job was out of your control.

    But please keep in mind that you made the decision to buy a home; you asked Bank of America to finance it because you could not afford to buy it outright; and you agreed to their terms.

    In assuming all this, I empathize with your plight. I hope that BoA accommodates your request and I wish you the best of luck in getting a job as soon as possible. I hope you have a strong support structure with both your family and friends to get through this.

    That all said, blaming Bank of America embodies all that is wrong with our country today, and is a harbinger that things will likely get worse.

    The financial crisis was caused by three constituencies, in concert with the market forces of supply and demand. I’ve listed in order of where I would personally lay blame.

    1. Irresponsible Buyers – those who thought it would be OK to break all conventional rules of what it takes to own a home. Income, down payment, etc. Some people lied. Most people took advantage of insane ways to get a mortgage. Again, assuming you are not in this category, you have mostly your irresponsible neighbors to blame.

    2. Government Policy – Lack of government oversight, and a philosophy that anyone should be able to own a home, regardless of ability to pay. This was led first by Fannie and Freddie securing loans for those with questionable means and credit, then the rest of the financials institutions followed suit, encouraged by congress to bring more people into home ownership. Enter derivatives, and the ability to pass off the risk, buy credit default swaps, and the rest is history. It should have never been allowed to happen, and congress and our regulatory agencies were asleep at the wheel.

    3. Financial Institutions –Yes they were greedy, but they were more stupid than greedy. You have to think of them more as kids in the candy store, what did you expect to happen? Remember when you actually needed to prove income and assets to get a mortgage? Remember when you had to put 20% down? Our government encouraged financial institution to relax these policies then yes, greed took over. They did not offer these mortgages because they expected you default and wanted to take your home from you. They got caught up in the same frenzy that we all did in the 90’s, convinced that the ride would never end.

    Add to all this the assumption that real estate prices will go up forever (which no asset ever does), and you get the collapse we saw.

    You are correct Andrew, it did start with greed, but the greed was mostly on behalf of the average American who felt “entitled” to own a home, regardless of their financial situation. This is the bottom layer in the house of cards. This crisis does not happen without average folks making the conscience decision to completely overextend themselves through mortgages, second mortgages, home equity loans, and credit card debt. And yes as you mentioned, the flippers.

    You are a victim of a society fixated on consumption vs. savings, not a victim of Bank of America. The irony in these posts is that you and I are angry in exactly the same way, for exactly the same reason. We just focus the blame differently. I am angry that my taxes are going up to bailout banks, underwater mortgage holders, poorly run car companies, and those who extended themselves on credit or couldn’t afford their mortgages. They are getting bailed out with my money, and your money. This is money taken from my family, and given to those who were not financially responsible. You are angry at the same thing. You did the right thing, but those who did wrong are getting bailed out.

    I just think your blame is disproportionally on financial institutions. Please remember, unlike the federal government, a bank cannot force you to enter into a contract for service. It’s a voluntary transaction, and you always risk a decline in the value of your home.

    So how do you go forward? I don’t know the mechanics of what’s in Bank of America’s best interest, but it would seem to me that helping you figure out what to do, in a proactive productive way, is in their best interests. I can’t speak for them I’m not a banker. It’s a shame if they don’t see that, but I’m not sure it’s a crime.

    And yes, they should have a responsibility to be part of the solution since they accepted bailout money.

    I guess my beef with this letter is the following; We are not owed anything! There does not always need to be someone to blame, or someone to sue. No matter how angry we are, and no matter how unfortunate our situation.

    We are not owed a stock market that keeps going up. We are not owed a home that only appreciates in value, or a home at all. We are not owed a job. We are not owed a pension, retirement, or healthcare for that matter. We are not owed a mechanism that bails us out of any situation when we get over our heads.

    We are owed the opportunity to pursue life, liberty, and happiness. And we are owed the option of taking personal risk to achieve these, and must live with the consequences of taking those risks.

    I’m not saying this to kick a guy when he is down. I say this to challenge us all to have a level of personal reflection that allows us to see that the more we rely on government and institutions, the more reliant on government and institutions we will become. The more we blame others, the more we will get ourselves in situations where we are blaming others.

    I wish you the best Andrew. I hope BoA comes up with a program that helps you out, and that you get a dream job that pays tons of money, and you never again have financial worries.

  6. To be clear, I am gainfully employed and can easily afford my mortgage payments. That is not the issue.

    Here’s my points:
    Mortgage underwriters (i.e., bankers) were the enablers. They could have decided not to approve mortgages for those that should never have had one.

    The premise behind mortgage underwriting is that real estate will reasonably hold its value, As long as demand is sustained (by underwriting mortgages) real estate at least holds its value. As a buyer, I too would assume the same premise as that is why I was approved a mortgage by the underwriters.

    Between the bank’s mortgage underwiters and its economists, they had to have known that they were artifically driving housing demand – and profiting handsomely in doing so. Although, educated, I did not have the resources to independently understand that the banks were artifically driving the real estate market. Hence I too assumed that when I bought my home, it would sustain resonable value – as real estate always has during my tenure on this earth.

    To summarize thus far – I did a conventional mortgage and bought a home based on a reasonable market value – not knowing the market’s demand was being artificially driven by aggressive and very risky bank mortgage underwriting.

    Jump ahead to post bank bailout.

    Bank of America et al receive TARP money and move toxic assets off their balance sheet. This enables them dump off these toxic assets – bad mortgages – and the underlying secured assets – foreclosed homes.

    The ‘dumping’ is done without regard to market values of homes. The consequence of the dumping has been to create a massive inventory of foreclosed homes into the market place. This articificially creates an massive inventory of homes which as we know drives down demand and drags down market values with it.

    So to circle back to where we are in this story, the banks created demand and subsequently killed it – while gettng TARP money.

    Let’s make this post about me now – as a representation of those that have no financial hardship, did nothing wrong, and are now worth less than the day we were born.

    I buy my home (in what is now known as ground zero – S. Florida) at the then market value of $400,000 – without any knowledge of what the bank’s were doing – my full faith and trust in the banks based on my prior real estate experiences.

    Today, banks are dumping the toxic assets pushing the value of my home down to $150,000. That’s a $250,000 decline in value folks.

    The rule of thumb is that real estate doubles every 15 years. So by the year 2025, I will cover the mortgage but still have totally lost my equity. In other words I an throwing away my money for the next 15 years.

    Because I have no financial hardship I am not going to receive any help. So, I have no hope of selling the property unless I get a principal reduction – which I won’t.

    I recently received a job offer out of state. I had no intention of accepting but I quickly realized that I couldn’t accept it because I can’t sell my house.

    I need to buy a bigger home due to changes in my life but I can’t because I can’t sell my home.

    I mention these examples because I bought my home based on my prior experience that there has never been a long period of time when buyers of real estate could not sell their property. “Underwater” was previously unheard of – even during the S&L crisis in the late 80’s.

    Now – through no fault of my own – I am pretty much stuck with this home – never my long-term intention. Meanwhile I read in the Wall Street Journal a woman who had a $1MILLION DOLLAR MORTGAGE got a principal reduction to $635,000. And I ask how is this fair?

    So, yes there may have been lots of people wanting to buy a home that couldn’t afford it. But it was the banks that enabled them to do so. It was therefore the banks – through approved mortgages – that are 100% responsible for this situation as they alone could have denied the mortgage.

    So yes, I do blame Bank of America (et al) because they knew what they were doing in driving the housing market up and in driving it back down. That put people like me at a huge disadvantage and that I – that did everything right – am now stuck bearing the burden.

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