Debits & Credits: Trashing Borrowers

The WSJ's junk stats; read the Times; Fortune shines on Ground Zero, etc.

The Wall Street Journal gets a Debit this week for a flimsy page-one story on supposed buyers’ revenge causing foreclosed homeowners to trash their homes.

These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have “substantial” damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.

Wow. “About” half the foreclosed properties—trashed! Those borrowers are animals! Half of them, anyway, according to “estimates” from a “survey” by the world-famous-for-a-day “marketing and research firm” Campbell Communications.

How many again? Well, there were 2.2 million foreclosure filings in 2007, and 493,000 foreclosed homes actually on the market in January. No, but we’re talking about half of foreclosed properties “to be sold by mortgage companies.” That number is not shared with readers. But, right. Who’s counting?

Still, the Journal might have told readers that Campbell has a list of mortgage-industry clients a couple of subdivisions long. This is relevant, of course, because mortgage industry has a vested interest in making foreclosees out to be irresponsible brutes—better them than the real animals, sorry, the financial-services professionals, who created this mess.

The WSJ doesn’t otherwise back up the 50 percent number.

Still, with “half” of hundreds of thousands of foreclosures winding up with “substantial” damage, according to those sorry agents, it must be pretty easy to find at least a single one of those vandals. But, um, no.

A damaged house is described, and readers are strongly led to believe was trashed by the previous owners, though no one really knows or can prove who did it. Oh well.

Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child’s room once carefully decorated with a floral wallpaper stripe. It’s damage that Mr. Carver [an agent] described as “a vengeance-type thing.”

Or a “vandalism-type thing” by local kids. Who knows? Us, we think it was Agent Carver. But, sure. Whatever. It’s only journalism.

A second anecdote lays out the story of an unnamed owner of a house in foreclosure who did not damage his house and did not even say he was going to damage his house, but:

He called Mr. Carver after receiving the cash-for-keys note, but was left cold by the bank’s initial $500 offer to leave the house soon, intact and broom-swept. “If I stay here it will cost them a lot more money,” both men remember the former owner saying.

Obviously, the borrower (a 43-year-old father of two who had his mortgage payments jump to $4,000 from $1,800) is simply trying to make eviction as difficult as possible, which is not vandalism at all, is it?

The man says he was just pointing out that eviction is expensive for the bank and says he had no intention of damaging the house. But he had “pushed the right buttons” for Mr. Carver. “He didn’t actually come out and threaten the property in any way,” Mr. Carver says. “But I assumed that he probably wouldn’t be too happy if he got evicted and locked out.”

So, a story under a headline: “Buyers’ Revenge: Trash the House After Foreclosure” contains zero examples of an actual buyer trashing a house, and uses a PR survey to support its “half” claim.

The subheadline, “Banks Pay People off to Deter Home Rage; Loose Pets, Paint Spills,” or the headline on the accompanying video, “Banks Offer Bitter Homeowners Money,” is the more accurate summation of the story.

Of course, some unknown number of borrowers have trashed some unknown number of houses. We’ve seen this before from the Journal.

Leading by example

Leave it to The New York Times’s Gretchen Morgenson, along with Jonathan D. Glater, to show by example just how lost the WSJ’s front page is journalistically and morally on the borrower side of the mortgage story:

Foreclosure Machine Thrives on Woes

The piece continues Morgenson’s superlative work (second item) on lenders’ abuses of the bankruptcy process.

The story tells of a family, the Atchleys,

who almost lost their home in early 2006 when legal representatives of their loan servicer, Countrywide, incorrectly told the court that the Atchleys were 60 days delinquent in Chapter 13 plan payments two times over four months. Borrowers can lose their homes if they fail to make such payments.

After the Atchleys supplied proof that they had made their payments on both occasions, Countrywide withdrew its motions to begin foreclosure. But the company also levied $2,793 in fees on the Atchleys’ loan that it did not explain, court documents said. “Every paycheck went to what they said we owed,” Robin Atchley said. “And every statement we got, the payoff was $179,000 and it never went down. I really think they took advantage of us.”

The Atchleys, who have four children, sold the house and now rent. Mrs. Atchley said they lost more than $23,000 in equity in the home because of fees levied by Countrywide.

And the big picture:

A recent analysis of 1,733 foreclosures across the country by Katherine M. Porter, associate professor of law at the University of Iowa, showed that questionable fees were added to borrowers’ bills in almost half the loans.

Specific cases inching through the courts support the notion that figures supplied by lenders are often incorrect. Lawyers representing clients who have filed for Chapter 13 bankruptcy, the program intended to help them keep their homes, say it is especially distressing when these numbers are used to evict borrowers.

And, yes, there’s a difference between an academic study of 1,700 foreclosures and a survey by conflicted flacks of real-estate hacks, which is what the Journal relies on.

If business-press readers want the borrowers’ story, read the Times.

Good at Ground Zero

A Credit in the Fortune ledger this week for an excellent story on the hulking shell of the Deutsche Bank building that still looms at the World Trade Center site. This is good off-the-news coverage, and it’s something we’ve been waiting for.

Heavily reported (fifty interviews) by senior editor Nicholas Varchaver, along with research associates Doris Burke and Susan M. Kaufman, the story lays bare the environmental, technical, and political issues at stake in the saga and asks the right questions:

From a dispute between Deutsche Bank and its insurers, to battles between an overmatched agency assigned to revitalize lower Manhattan and environmental regulators, to the pressure from residents, to the brief presence of a Mob-connected contractor that was followed by a shadowy replacement with a name borrowed from an Ayn Rand novel, it’s been a miasma—a toxic project. It’s also a case study in what happens when good intentions collide with a paralyzing fear of making mistakes.

The paradoxes are endless. How did this project manage to be simultaneously hyper-scrutinized—with armies of regulators and monitors on the premises daily—and sloppy and out of control? And how is it that this skyscraper, the subject of tens of millions of dollars’ worth of environmental studies, is today described by some as a toxic nightmare and by others as only marginally contaminated? Then there’s this maddening bit of irony: Many of the calamities along the way were not only foreseeable but actually foreseen.

Fortune elegantly tells the story of the morass at Ground Zero through the story of this one building.


Debit the New York Observer and its muddled piece this week on the Bear Stearns saga.

To be honest, we’re not quite sure what the point is, but we think it’s something about the Bush administration tricking the press into thinking the financial crisis was more serious than it was so they could bail out a Wall Street bank. It’s confused in more than one way:

The roots of Bear Stearns’ collapse and of the current crisis are actually easy to grasp: The debt from subprime mortgages, which were fantastically easy to get in the housing boom’s heady days, was securitized, and those securities were traded like stocks.

They weren’t traded like stocks. There’s no exchange you can buy and sell these things on. That was part of the problem: no one knows what the values are.

The financial system—the actual nuts and bolts of American capitalism, the mechanisms and machinations that keep us, however close to teetering off, at the top of the heap and the envy of most even during tougher times at home—was never in mortal danger from one risk-addicted investment bank and its government enablers. The coverage eventually caught up with this reality once the hyperbole had its day(s).

It’s flippant to say the financial system wasn’t endangered by the collapse of Bear Stearns, which for a couple of days looked as if it might drag down the even mightier Lehman Brothers. In bank runs and panics, the domino effect is real.

These guys (Wall Street) grease the gears of the financial system, for better or worse. Take away that WD-40 and there’s a good chance the whole thing seizes up.

Been there, read that

We’d like to be happy The New Yorker published a big take on the death of the print media at the hands of the pesky Internets. Lots of good “big think” here about this particular moment in the history of journalism.

But it gets a Debit because it’s 2008 and most of this stuff has been written (and written again) for years.

The usual suspects are here: Huffington Post (est. 2005), Atrios (est. 2002), Talking Points Memo (est. 2000). Eric Alterman, who wrote the story, even throws a bone to the conservative site Little Green Footballs, another staple of the new media-beating-old-media genre.

Eminently good article

A Credit to Forbes and Richard Epstein, the great University of Chicago legal scholar, for his column about eminent domain in Port Chester and the dangers of unchecked political power.

Yet our Supreme Court remains on a constitutional holiday. Over and over the justices blithely assume that conscientious planners acting in good faith are entitled to ample discretion in allocating the costs and benefits of our social life. Sounds great on paper, but the sorry saga of Port Chester shows that when it comes to real estate, we have a government not of laws but of politicians. In matters that they really care about, like race and free speech, judges are quite capable of seeing through airy abstractions to harsh realities. Why can’t they do the same for property rights?

That gets it just about right.

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Anna Bahney is a Fellow and staff writer for The Audit