Are Big Banks Evil?
The short answer to this is: NO. Big banks are simply corporations with good and bad sides to their business practices. News reports recently tell a negative story about the bigger banks in America.
NPR's "One Woman's Foreclosure Fight: Is Victory In Sight?" tells the story of a woman going up against her mortgage holder. After Debra Dahlmer's husband died, she could no longer afford her mortgage. Her guaranteed disability income would have covered her payments if the bank would have lowered her interest rate. Dahlmer's bank enrolled her in a temporary plan to make reduced payments. Despite following the bank's instructions and never missing a payment, the bank told her it considers her to be delinquent. What went wrong? Dahlmer's story makes you wonder: What happened? Why did the bank tell her she would be okay, but now she faces losing her home?
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Big Banks and Big Money
Mortgage expert Mark Jones says, "Smaller community-based lenders could and would retain and service many more of their own loans if the Mega Banks were not given the huge pricing advantage afforded to them by a disparate 'Guarantee Fee.'" He says the pricing advantage forces smaller would-be servicers to sell their loan servicing just to compete.
Selling the servicing is a common practice among mortgage companies. This means loan servicing ends up in the hands of these large financial institutions, regardless of where you go in the first place. As smaller mortgage lenders grow and prosper, this practice becomes less of an issue.
Jones continues, "This story is what happens when a big bank continues to try and reduce their head count and gain efficiencies, always on the backs of customers. And still there is a feeling of being "safe" when dealing with a big bank. It should be the other way around. People are safer with a community lender."
Lack of Personal Attention
Making their business more efficient and making cuts tends to cut into customer service. Many people complain that they do not have a direct point-of-contact with big companies. These institutions use call centers with hundreds of employees simply taking the next call. A customer could call and talk to one representative one day, and never reach that person again.
As anyone who's called into a massive call center can attest, you often have to tell your story again and again. When dealing with something as complex and important as a mortgage, this can get tiresome and frustrating.
With a community mortgage banker this problem doesn't exist.
Federal Regulations
Kansas City Fed President Thomas Hoenig is quoted in a Reuters News article as calling the big banks "government sponsored entities." He proposes regulating them like the huge mortgage companies Fannie Mae and Freddie Mac. While the chance of this happening are slim-to-none, it's an interesting thought.
The Kansas City Fed President's experiences shuttering banks during the savings and loan crisis of the 1980s (they were over-investment in real estate which caused hundreds of bank failures and led to a massive government bailout - sound familiar?) shaped his views about how to emerge from the most recent crisis.
Hoenig also maintains that these banks still are not prepared for the next financial crisis, even though new capital rules require lenders to raise billions of dollars to prevent future losses.
Should the government regulate the industry?
Your Takeaway
It's not a clear-cut issue with GOOD on one side and EVIL on the other. The mega banks are not out to destroy you personally. In fact, AmeriFirst Home Mortgage works with these banks on servicing from time to time. However, as community mortgage bankers like us grow and expand, servicing portfolios grow. This means fewer mortgages have to be "sold," which benefits home buyers. Local service means you can talk to the same person you spoke with last week if you have a concern. It also means you can talk directly to the company (in person, even) who holds your mortgage note.
You can read more about Dahlmer and her story in this NPR article and more about Hoenig's proposal to regulate the mega banks in this Reuters article.
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