Should Wall Street Turn Over Bonuses to Subprime Victims?

That’s what several groups, including the National Training and Information Center, the NAACP and homeowner and community groups from around the country, are suggesting.

It’s an interesting idea, and you can read more about it here, on the NTIC’s website.

During my Power Lunch stint on CNBC yesterday, one of the guests was Inez Killingsworth, a board member of the NTIC, who said the the research of her groups shows that Wall Street has “blood on their hands” in relation to the sub-prime slime. I agreed with her (securitizations, anyone?), and then asked her something along the lines whether the fact that lower Wall Street bonuses this year should be punishment enough. (You try to challenge all guests.)

Truth be told: I could have done a better job asking the question. (Sorry, ’bout that Inez! Did not intend to put you on the defense and you did a great job responding.) It would’ve been more accurate to have asked her whether it was punishment enough that mortgage-related bonuses on Wall Street are being slashed, per various stories and reports.

Killingsworth said her group believes Wall Street should set up some kind of fund for owner-occupants who were can’t afford to stay in their houses because of predatory or simply sloppy lending practices.

Consider, the case, for example, of a reader (an employee of the state of Tennessee) who posted this on my blog:

Thanks to NovaStar, me, my husband and, our five children will not have a home. Our loan was sold to a company named Saxon and the payment has went up 340.00 per month. We can not pay an additional 340.00 per month. This is also a fixed rate loan!

I contacted her and asked her how her fixed rate loan could rise. Here’s what she said:

NovaStar let our insurance with Farm Bureau lapse in April. We had no idea! Insurance and taxes are supposed to be included in our payment and are in the loan agreement. The new company Saxon forced insurance on our acct. when they bought it and say that NovaStar was not charging us enough escrow! I can understand some escrow increase but with 5 children we cant afford the extra $340.00 per month increase.

And perhaps she shouldn’t have received the loan in the first place, but armed with plenty of cash one offering after another underwritten by eager Wall Street investment banks during the go-go days, NovaStar (NFI) and other sub-prime lenders were more than happy to oblige. (The Wall Street relationship to this cut many ways.)

Which gets us back to the proposal: Should Wall Street hand over any remaining mortgage-related bonuses?

Comments

[Augustus]

First, the lady should simply get her insurance reinstated with State Farm. Should not be a problem if the premium is paid. I'd be very surprised if State Farm did not send her a notice when the premium was not paid by NovaStar. The mortgage holder/servicer must require and provide insurance if the homeowner does not take care of it. The cost of this type of coverage provided by the mortgage holder is extremely high - it comes from the same package that provides insurance for forclosed and nonoccupied properties. Factor in a possible miscalculation on the escrow amounts from the beginning, a possible 4X cost of the new hazard insurance, and there is a very large increase in the escrow payment. The lady can correct all of this by getting insurance with State Farm again and paying attention so that it does not lapse.

[WAKEUP]

Insurance companies regularly fail to notify homeowners when mortgage holders don't pay premiums. The corporate-to-corporate mentality sets in, and the actual customer is lost in the shuffle. P.S.: The only bonuses that have been "earned" in this off-the-wall financial circus must be for incompetence, or graft, or both.

[YoungMoney]

Why should the wall street firms that did the securitization be at fault, how about the the servicers instead (as your example suggests they are different)... brilliant?!

[David Barsan]

Last time I checked, Goldman wasn't out pushing $300k interest-only loans to people making $30k/year and approving them without a down payment. Wall Street giving up bonuses won't do anyone any good....that's ridiculous.

[One DustyCowboy]

I don't like the title in reference to subprime "victims." Our system is so focused on everyone being a victim. These people made serious investment mistakes hoping for something that was too good to be true.

I'm sorry; there is no law against stupidity or greed...