On Sberbank and Cat Lending

In order to capitalize on the mortgage boom in the country, the Russian Bank Sberbank is offering a cat for free to those who get a mortgage. There’s a catch though: the cat is limited to two hours for new homeowners. The Moscow Times reports:

The bank is offering a choice of 10 cats to mortgage-buyers, who will get the pet brought to their door by a new delivery service. According to a special website, KotoService.ru, the felines on offer include a ginger cat called “Apricot” and a hairless cat known as “Kuzya.”

The gimmick appears to be an attempt to maximize profits from Russia’s mortgage lending boom as people watch their savings lose value amid a sliding ruble and rising interest rates.

Here’s the video from Sberbank:

The whole reason for the gimmick? Capitalizing on the superstition that maintains that it is good luck if a cat is the first to enter a new home.

(via Foreign Policy)

Nye Lavalle, Mortgage Sleuth

From my own personal experience and 20 years of research and investigation, nothing — and I mean nothing — that a bank, lender, loan servicer or their lawyer says or puts on paper can be trusted and accepted as true.

The quote above comes from Nye Lavalle, who after his personal experience of losing his home to foreclosure, set out to learn all he could about the mortgage industry, traveling nationwide to dig into records. In 2003, he compiled a dossier of practices at Fannie Mae.

For two years, he corresponded with Fannie executives and lawyers. Fannie later hired a Washington law firm to investigate his claims. In May 2006, that firm, using some of Mr. Lavalle’s research, issued a confidential, 147-page report corroborating many of his findings.

And there, apparently, is where it ended. There is little evidence that Fannie Mae’s management or board ever took serious action. Known internally as O.C.J. Case No. 5595, in reference to the company’s Office of Corporate Justice, this 2006 report suggests just how deep, and how far back, our mortgage and foreclosure problems really go.

“It is axiomatic that the practice of submitting false pleadings and affidavits is unlawful,” said the report, a copy of which was obtained by The New York Times. “With his complaint, Mr. Lavalle has identified an issue that Fannie Mae needs to address promptly.”

What Fannie Mae knew about abusive foreclosure practices, and when it knew it, are crucial questions as Congress and the Obama administration weigh the future of the company and its cousin, Freddie Mac. These giants eventually blew themselves apart and, so far, they have cost taxpayers $150 billion. But before that, their size and reach — not only through their own businesses, but also through the vast amount of work they farm out to law firms and loan servicers — meant that Fannie and Freddie shaped the standards for the entire mortgage industry.

Almost all of the abuses that Mr. Lavalle began identifying in 2003 have since come to widespread attention. The revelations have roiled the mortgage industry and left Fannie, Freddie and big banks with potentially enormous legal liabilities. More worrying is that the kinds of problems that Mr. Lavalle flagged so long ago, and that Fannie apparently ignored, have evicted people from their homes through improper or fraudulent foreclosures.

According to the report, Fannie held about two million mortgage notes in its offices in Herndon, Va., in 2005 — a fraction of the 15 million loans it actually owned or guaranteed. Various third parties owned the rest of the notes. At that time, Fannie typically destroyed 40 percent of the notes once the mortgages were paid off. It returned the rest to the respective lenders, only without marking the notes as canceled. According to Mr. Lavalle, Fannie Mae lacked a centralized system for reporting lost notes. And so the the potential for confusion and abuse became rampant. The piece explains that anyone who gains control of a note can, in theory, try to force the borrower to pay it, even if it has already been paid.  Or that someone might try to force homeowners to pay the same mortgage twice. Or that loans could be improperly pledged as collateral by some other institution, even though the loans have been paid. All of these things happened during and and after the financial crisis of 2006-2008. It’s refreshing to read that there were some people who took matters into their own hands and fought for the consumer.

On Moral vs. Contractual Obligations

From a very good personal story in The New York Times, about a financial planner who ended up losing his house:

Borrowing that much had seemed to make sense when the value of the home was still rising substantially every year, taking our net worth higher with it. But at that point, there was no way we could sell the home for anywhere near what we owed. Some of my friends were already doing short sales, where the bank agrees to let you sell the house for less than your loan balance. I was also aware you had to be three months behind in your payments before the bank would talk to you about the possibility.

At first, I dismissed the idea of a short sale. Late that summer, I sat down with a really close friend in Las Vegas, someone I looked up to. He cut to the heart of the matter right away: Why, he wanted to know, were we still making the payments?

Because I have a moral obligation, I said. You pay your debts.

He proceeded to explain that I didn’t have a moral obligation to the bank. I had a moral obligation to my family. I had a contractual obligation to the bank, along with a clear moral obligation to be honest in my dealings. What he was asking was this: Which is more important? Your contractual obligation to the bank or your obligation to your family to preserve your ability to make a living?

I had never thought of it that way. But it made sense. I summed it up to myself like this: I have a contractual obligation to the bank (as well as a moral obligation not to skirt the consequences of breaking it: losing my house and wrecking my credit score). But my moral obligation to my family trumps the contractual obligation to the bank.

I found this paragraph particularly enlightening. Do not be quick to judge others’ financial habits:

For one thing, I am less quick to judge other people’s financial behavior. I’m also more inclined to take into account personal factors that determine how people behave around money.

I have a friend who is going through a tough time financially. He has a high income, but is burdened by debt from a few real estate deals that went south. He continues to take fairly expensive ski trips. That would seem irresponsible in his situation, and maybe they are.

But I now realize that it is not that simple. Maybe those trips are keeping the guy alive, or saving his marriage or keeping him sane enough to work.

The author of the piece, Carl Richards, is coming out with a book The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money early next year.

Links of the Day (01/24/10)

Here are two interesting articles I read today:

(1) “Moscow’s Stray Dogs” [Financial Times] – a descriptive and insightful look into the population of roughly 35,000 stray dogs in Moscow. The articles goes in depth into the four types of dogs roaming the streets of Moscow (based on the dogs’ character, how they forage for food, their level of socialization to people, and the ecological niche they inhabit). What was most interesting to me was reading about the evolution of the dogs. Most intriguing are the Moscow Metro dogs:

They orient themselves in a number of way…They figure out where they are by smell, by recognising the name of the station from the recorded announcer’s voice and by time intervals. If, for example, you come every Monday and feed a dog, that dog will know when it’s Monday and the hour to expect you, based on their sense of time intervals from their ­biological clocks.

The metro dog also has uncannily good instincts about people, happily greeting kindly passers by, but slinking down the furthest escalator to avoid the intolerant older women who oversee the metro’s electronic turnstiles.

(2) “Underwater, but Will They Leave the Pool?” [New York Times] – an interesting look into why the mortgage default rates are so low.