In Nevada, banks were recently accused in court of acting in “bad faith,” when they refused to negotiate or accept new conditions on a loan agreement. Another suit, brought against Bank of America, claims the megabank accepted government incentives for helping their debt-ridden clients, only to renege on those promises later.
Borrowers claim that banks, many of which were the recipients of a huge government bailout during the 2008 debt crisis, have failed to act responsibly in renegotiating the terms of mortgages with clients. The banks argue it is well within their legal rights to foreclose on delinquent debtors. Moreover, financial and legal experts say borrowers themselves, trapped in an ‘underwater’ home, are looking for a bailout themselves.
Bad faith the result of poisonous financial cocktail
Accusations of bad faith and “gaming” the system are to be expected from both sides of the bank-borrower bargaining table. The hard truth is that inevitably someone must pay. The dirty secret (really, not very secret) is that the economy is still laden with poisonous debt from a huge overstock of foreclosed houses. Too, borrowers nationwide who owe more than what their home is worth are seen by the banking world as a whole. The big-picture math adds up to a poisoned financial system where banks and borrowers are all too happy to pass the buck.
Few options for banks and borrowers
Frankly, the federal government can’t carry on picking up the slack (search ‘debt ceiling,’ if you don’t watch the news). Federal programs to inspire banks and lenders to act in good faith and push loan modifications have seen mixed results. Banks and lenders may want to get cozy sooner rather than later—they are in it together.