In the 1960s protests against the war in Vietnam and racial segregation were on the news almost every night, a tradition which is now back with the Occupy movement and Bank Transfer Day (November 5th).
The nation’s credit unions report that at least 650,000 consumers moved accounts from major banks in the month before Bank Transfer Day, accounts worth $4.5 billion.
But what do these numbers really reflect? Will they produce changes in the lending system? And how will they impact the foreclosure marketplace?
“Big Banks,” says the Harris Poll, “may be vulnerable to losing customers to credit unions on November 5th, Bank Transfer Day, where according to social media, tens of thousands have signed up to drop Big Banks in favor of joining a credit union. While credit unions enjoy best in class customer retention rates (87 percent Extremely/Very Likely to Continue), the nation’s largest banks fail to engender the same degrees of loyalty from their customers. For example, only two in five of Bank of America’s customers are extremely or very likely to continue (40 percent), as are less than half of JP Morgan Chase’s customers (46 percent) and just over half of Wells Fargo/Wachovia’s customers (54 percent).”
Forbes magazine says the bank transfer movement could impact share values.
“Bank of America’s assets for consumer checking & savings accounts have grown slowly in the past two years, and the growing dissatisfaction from moves such as raising fees on debit cards could hurt the bank’s image. It took months for the bank to finally scrap this new fee, and many believe that the bank will find other places to hide the fees. This could result in customers shifting from the bank to its competitors.”
But the Bank of American has some 58 million accounts. Could a largely-disorganized protest movement really hurt the big financial firm where it counts?
Forbes says yes.
“Considering a scenario that 10 percent of the bank’s customers defect, this would mean a 10 percent decrease in deposit assets as well as a 10 percent decline in the bank’s consumer and credit card loans. These changes could erode as much as 5 percent of the bank’s estimated $11 value. And to make things worse, it would make growth prospects for the bank very grim — hitting future performance numbers.” (See: Unhappy Customers Threaten Bull Case For Bank Of America).
Despite such glum predictions, it’s not actually clear that there will be any meaningful impact on lender size or power.
While $4.5 billion is a big number the banking system is huge and the major players are enormous. The four largest bank holding companies — by themselves — have assets of more than $7.7 trillion.
- The Bank of America ($2.26 trillion)
- JP Morgan Chase ($2.24 trillion)
- CitiGroup ($1.96 trillion)
- Wells Fargo ($1.26 trillion)
In other words, the real measure that counts is not the $4.5 billion, it’s the popular will represented by people who took the time to move 650,000 accounts. The protest movement is both growing and real.
Look at the recent effort by major banks to impose monthly fees of $3 to $5 for the use of debit cards. The fees disappeared in the face of public discontent.
Imagine that the Bank of America could have charged $5 per month — the fee it sought — for 50 million debit card accounts. That’s $3 billion a year in additional revenue that’s now gone.
It’s tough to target something as complex as the banking system — how do you protest derivatives or why should anyone be angry with community banks? Street protests and camp-ins only have so much value.
Now, however, the protest movement is beginning to find visible targets.
- Occupy Wall Street is objecting to an as-yet uncompleted settlement between major mortgage lenders and the Obama Administration which might limit civil and criminal sanctions against lenders who submitted robo-signed foreclosure affidavits to courts.
- The Occupy Oakland movement is recommending that protesters take over foreclosed properties which are now empty.
- Again in New York, Occupy Wall Street organized a protest to get heat and hot water for a Harlem apartment building.
The new and targeted protests play directly to the media.
Think of it: A family hit with job losses moves into an empty foreclosed home. One parent is a veteran and the other uses a wheelchair. There are four children. The lender calls the sheriff to throw the squatters out on the street. TV cameras are there.
Children’s toys are scattered on the front lawn. Suddenly the public will to evict the family declines to pretty much zero.
What Lenders Can Do
In the same way that lenders gave up monthly fees for debit cards it seems logical that they will make further changes in the face of targeted public protests.
For instance, there is (and has been) a need to resolve the abandoned property issue. From the lender perspective, empty foreclosed homes are a problem because they produce no income, are open to vandalism and can fall further in value without maintenance and even upgrading.
Until this point the general lender policy has been to evict foreclosed homeowners as quickly as possible. The reason is to assure that the homes are available for quick re-sale. The federal Home Affordable Foreclosure Alternatives (HAFA) program actually gives $3,000 to foreclosed borrowers who quickly move out their properties.
But now the inventory of lender-owned homes is so huge that the idea of quick re-sales is no longer realistic, especially in major foreclosure centers such as California, Nevada, Michigan, Arizona and Florida. The better alternative — the one that works for lenders and takes away an issue from protestors — is to rent out foreclosed properties, especially to foreclosed owners.
“Renting foreclosed properties should be a winner for lenders given today’s marketplace realities,” said RealtyTrac.com spokesman Jim Saccacio. “Past owners are already in place and likely do not want to move. Lenders would benefit from the monthly income they receive as well as lower maintenance costs and reduced vandalism problems. Neighborhoods would benefit because fewer foreclosed homes would be on the market. And if home prices rise in the future, lenders will get more for their inventory of foreclosed properties.”
The Deed for Lease program introduced by Fannie Mae in 2009 shows one way a rent-back program can be structured by lenders. It allows former borrowers to stay in homes but the program has drawbacks — for instance the lease term is limited to one year.
But with an economy which stubbornly remains impaired, a better option may just be a foreclosure-and-leaseback arrangement where former owners can stay on as renters until the financial storm subsides. And unfortunately, the way things are going, that may be far longer than a year.
Peter G. Miller is syndicated in newspapers nationwide and operates the consumer real estate site, OurBroker.com.