View Full Version : The Great Mortgage Mystery
The following article is rated as one of the more popular recent pieces in and by the Wall Street Journal. It is, perhaps, worthy of reflection in terms of its broader implications.
Please note that I have merely offered the article. This posting does not constitute advice. ;)
LINK (http://online.wsj.com/article/SB10001424052748704011904575538453320468516.html?m od=WSJ_hp_mostpop_read)
The big question from the mortgage meltdown isn't why so many distressed homeowners are defaulting on their loans.
It's why any of them are still making payments.
In the worst-hit areas millions have no equity left, and little hope of seeing any anytime soon. The market value of their homes is far below the size of the mortgage.
If they just stop paying, what is going to happen to them? In many cases they may get to live in the home rent-free for months, even years, until the bank gets around to seizing it.
If Frank Abagnale—the con man played by Leonardo DiCaprio in the film "Catch Me If You Can"—were operating today, he'd probably be living rent-free in a super-luxury high-rise in Miami.
Consider the latest revelations. The big banks are so backed up with foreclosures that some of them resorted to hustling through repossessions without the proper paperwork. Some of them—including Bank of America, J.P. Morgan Chase and Ally Financial's GMAC Home Mortgage—have announced a temporary freeze in some states on further foreclosures while they sort through the mess.
In one case, a bank employee said she was approving 8,000 foreclosures a month. By my math, that's roughly one for every minute and a half. No, she wasn't reading all the documents thoroughly. (As one wit observed, the banks paid about as much attention to foreclosing on the loans as they did to making them five years ago.)
In many cases, thanks to the fallout from securitization, it's not even clear who owns the mortgage. The payments may be due to different financial institutions around the world, some of which have gone the way of all flesh.
No wonder a fair number of borrowers have simply gone on strike. Nobody knows exactly how many are doing so deliberately—a so-called strategic default—though some estimates suggest these may account for nearly a third of recent defaults.
According to the Federal Reserve Bank of New York, one mortgage borrower in five in Florida and Nevada is more than 90 days' late on payments, and in Arizona and California it's about one in eight. It's a wonder it's not more.
A while back I received an email from a woman in Florida that illustrates the issue.
Her neighbor across the road had stopped paying his mortgage about a year and a half earlier, she wrote. He was still living in his "luxury condo," and the lender hadn't come after him yet. After all, he told her, they were so backed up with the housing collapse it might take them years.
My correspondent—a lawyer—was wondering whether she was being stupid for continuing to make her own payments. After all, she, too, was deeply underwater; her mortgage was far bigger than the value of the home.
So what happens to those who simply go on strike?
Even where the bank is coming after them to evict them, it is taking months, maybe years. During that time they are living rent-free.
When they are evicted, the bank then puts the home on the market. It may take months more to sell. Let's assume it sells, but for a lot less than the size of the mortgage. What can the bank do then?
In some states, the bank can do very little. In so-called nonrecourse states—which include California and Arizona, two of the worst-hit in the housing collapse—banks basically have to eat the loss.
In other states, the banks have some ability to come after the homeowners for the shortfall. But for most distressed homeowners, this threat is more theory than reality. Why? The banks have too many cases to handle. And distressed homeowners typically have so little in surplus capital that there may not be much point.
Imagine you're the bank executive. The loss on the home came to, say, $200,000. The borrower is unemployed, driving a 10-year-old Chevy and living on food stamps. In another state. Or he has a part-time job in gas station, maybe $2,000 in savings, and two kids. How much do you want to spend on lawyers and debt collectors to hunt him down? How much do you think you're going to get back, after costs? You've got 5,000 cases like this.
Indeed, there's a lot the banks can't touch anyway. Money held in a 401(k) account, pension plan or individual retirement account is beyond the reach of creditors. So is college money for the children or grandchildren if held in a 529 plan for more than two years. And so are other assets; it varies by state. Often life insurance is sheltered: That may include mutual funds held in a variable annuity account. Once the borrower files for bankruptcy, the lender ends up with nothing.
Assuming people have taken legal advice, and taken the smart steps, the rules give many of them strong economic incentives to stop paying. In some circumstances, there might be state-tax consequences. They may find it harder to get a mortgage in the future. And their credit score will get dinged, sure, but in the grand scheme of things, is this really a fate worse than death?
The ruthless and the reckless have already walked. Meanwhile, the middle class continues to pay through the nose. It's that old "middle-class morality" that George Bernard Shaw mocked a century ago.
But is this really a case of morality anyway?
I'll confess this issue makes me uneasy. But my feelings are almost certainly awry. We live, alas, in a world, and an economy, which rewards ruthless self-interest and penalizes "morality." Just look at the big banks.
A mortgage isn't a blood oath, it's a business contract—a collateralized loan. It isn't simply a promise to repay the lender. It's a promise to repay the lender or to forfeit the home. Isn't someone simply fulfilling their contract by handing over the keys when asked?
The banks knew full well what the fine print said when they made the loan. And so they should: They wrote the fine print.
The economy will suffer if more homeowners default. But it will suffer if they don't. Those bad debts are doomed and need to be written off. Why should the homeowners eat them rather than the banks? Why is the reckless lender more at fault than the reckless borrower?
Japan struggled for 20 years with "zombie banks"—so called because their debts, if properly recognized, made them insolvent. Here in America, we have millions of zombie homeowners. Why is this any better?
Businesses make secured loans against property or collateral all the time. If the loan goes bad, the lender takes the collateral. Nobody expects executives to dip into their own pockets (a fortunate thing, as they never do). Bank executives pocketed tens of millions in the run-up to the financial crisis, directly as a result of the phony profits from reckless lending. Stockholders pocketed billions in dividends for the same reason. If the taxpayers hadn't stepped in, those banks would have collapsed and creditors would have lost a fortune. But they would have had no recourse—absent proof of fraud—against executives or those who owned equity.
Look through the financial statements of the big companies involved in the housing market, including major homebuilders and property developers, and you'll find frequent references to all the "nonrecourse financing" they've obtained. It's a boast. "Look," they're telling stockholders, "even if things go bad, the lenders can't touch us."
Apparently the only people who haven't gotten the memo are the middle class. For how much longer?
We will be seeing the falloutfrom this for years. Banks and mortgage companies are already revising how they do business. It is much harder to get a refinance, not to mention a primary loan. MERS has been a significant contributor to the confusion of just who owns the note for a house. This may be one case where technology wasn't necessarily a good thing.
GratefulCitizen
10-09-2010, 19:45
The big question from the mortgage meltdown isn't why so many distressed homeowners are defaulting on their loans.
It's why any of them are still making payments.
A few episodes of reality TV would have you believe that the USA is made up of ignorant, irresponsible narcissists.
(Watching a White House press conference or CSPAN can give the same impression...)
Parades of human debris tend to draw attention.
This does not mean that they are representative of the whole.
I suspect that the answer as to why any of them are still making payments is simple:
On average, Americans who have done what it takes to buy a home are honest, reliable people.
Americans are by far the most generous people on the face of the earth.
This is not a trait found in those who would dishonor such a significant agreement as a mortgage.
The problem people of this nation are not the majority.
It just seems that way because they're louder.
I suspect that the answer as to why any of them are still making payments is simple:
On average, Americans who have done what it takes to buy a home are honest, reliable people.
Certainly, that's a reasonable position. Now a rhetorical question - how do honest, reliable people react when they have been lied to?
I've included a link to another site - the author of the piece discusses the deep internal flaws within the mortgage system, and why it was destined to fail. Destined is a strong word, and I do not use it lightly.
LINK (http://market-ticker.org/cgi-ticker/akcs-www?post=168694)
I could of easily walked away from my last house and not paid the Mortgage. But I did the responsible thing and paid until it was legally out of my hands. In my brothers neighborhood in Florida. People walked away from not only their Houses. But even left their cars behind for the Bank to come and pick up. They literally walked away from their lives and all responsibility.
It took me about one hour to get my loan for my last house back in 1999. I don't think it will be that easy next time. Ill be renting for a few more years. There are good points to renting these days. Something breaks, they come and fix it. My biggest weekend project these days is usually changing a Light Bulb.
I don't think I stepped inside a Lowe's or Home Depot in over a year. Where before I was in those stores spending money every weekend.
ZonieDiver
10-10-2010, 12:38
Excellent! Great post and link. There is a 'paper trail' here (even if it is on computers). The reason it is not being followed - and won't be followed - is that 'they' who would/could unleash the 'followers' already KNOW 'the usual suspects' at the end of the rainbow standing beside the pot of gold.
It goes beyond party politics, Republicans and Democrats, and goes to 'us and them' - 'ins and outs' - 'greasers' and 'socs' if you will. It is, and has been, the ultimate con game. We're the rube watching the pea go under the shell - not knowing the deck's been stacked long before we entered the game, if you'll pardon the mixed metaphor.
The following link discusses the fate of a couple described as:
"They’ve never missed a mortgage payment—Brian and Ilsa are the kind upright, not to say uptight 60-ish white semi-upper-middle-class couple who follow every rule, fill out every form, comply with every norm. In short, they are the backbone of America. "
While the piece is a bit long, and has several instances of salty language, it offers an interesting perspective on the secondary effects of the mortgage situation. From the article:
Right now, people are having a little hissy-fit over the robo-signing scandal, and the double-booking scandal (where the same mortgage was signed over to two different bonds), and the little fights between junior tranches and senior tranches and the servicer, in the MBS mess.
But none of that s--- is important.
What’s really important is Brian and Ilsa: What’s really important is that law-abiding middle-class citizens are deciding that playing by the rules is nothing but a sucker’s game.
I encourage those with an interest in the broad implications of the situation to view the piece at LINK (http://www.zerohedge.com/article/gonzalo-lira-coming-middle-class-anarchy)
------------------------
If I may digress on a personal note - I am not advocating, nor do I advocate defaulting on mortgages or other contracts. There are consequences to such actions which require careful consideration and solid legal guidance by a capable attorney.
That said, the present situation exists. It is my opinion that it has broad economic, political, and social implications, and my posts seek to explore those possibilities.
Previously, GratefulCitizen suggested that Americans were honest, reliable people. Rhetorical question: What if that changes?
The Reaper
10-10-2010, 13:28
Say what you will, it occurs to me that the mortgage process, prior to political intervention, did what it was supposed to do and eliminated people who were unlikely to be paying back their loans. There was a reason that you had to make a 20% down payment, and have a job.
Once the standards were removed, and people could get home loans for hundreds of thousands of dollars with no income but welfare, and no job at all, a class of people were given trust who were bad risks, and had little sense of personal responsibility.
As I understand it, banks (along with Fannie Mae and Freddy Mac) were forced to loan money to unqualified people to increase the home ownership experience. Somewhere along the way, the mortgages were rolled into collateralized debt obligations and sold in packages of intermingled good and bad/high-risk loans to large institutionalized investors.
The housing rush created heat in the marketplace, and home prices soared based on demand, and many of the same people who should not have been offered loans discovered that they could refi and take out money to support their "beyond their means" lifestyle of immediate gratification without responsibility. "Flippers" glamorized on television shows bought up large numbers of properties and made large returns on their investments. Everyone rushed to get rich quick.
Some less than scrupulous appraisers and loan officers conspired to make these things happen in many cases, bending and stretching the truth in order to close the deals.
As I understand it, large financial institutions and investment firms not previously in the mortgage business bought the CDO packages, and made them significant parts of their portfolios, trading them repeatedly in short order, like they were stocks or bonds. When reality set in and the value of these packages dropped, companies found themselves in trouble, with some failing and others were bailed out by the government. It woulds appear that those bailed out did not necessarily learn their lessons, and have continued to engage in high-risk trading and rewarding managers who had made bad decisions. At the same time, do you really want a company with billions in assets being managed by a guy making entry level wages?
This has led to the bizarre situation where lenders lack the documentation to foreclose on properties they should own, homeowners buying a second house and defaulting on the first to take advantage of depressed market prices and to get out from being underneath on the first property, and people who could pay, just stopping making mortgage payments because they think that the bank cannot force them out, and the government trying to support them in those efforts. IMHO, we are increasingly no longer a nation of laws and doing the right thing, but a nation where political clout is the deciding factor.
All of that led us to where we are today, with the market attempting to sort itself out and the government trying to curry favor and save their jobs from the situtation that they helped create by throwing money of the American taxpayers at the problem in an attempt to stave off the wolf at the door.
I would say that there is ample blame to go around. At the same time, I consider it a matter of personal honor and responsibility to fulfill the promise I have made to repay my debts. Those who do not (and the government that allows it) are jeopardizing the system. I do not remember a guy with a gun at the closing forcing me to sign my name to the papers promising to repay my loan. Maybe others' experience was different. I may be upside down, but I will keep the faith, and not consider myself a sucker.
Just my .02, YMMV.
TR
I don't know if all the banks were "forced" so much it was that they could sell the loans they were making, I believe to Fannie/Freddie and perhaps a few others, as Fannie/Freddie were believed to be as safe as treasuries. So the risk was lost. Banks just focused on making loan after loan after loan to make huge profits, ignoring the risks inherent, because they were being passed on.BS2004--
FYI, a New York Times article from 1999 discussing pressure from the Clinton administration on Fannie and Freddie is available here (http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&n=Top%2FReference%2FTimes+Topics%2FSubjects%2FH%2F Housing&scp=2&sq=Fannie+Mae+to+help+them+make+more+loans+to+so-called+subprime+borrowers&st=cse&pagewanted=print).
HTH.
The Reaper
10-10-2010, 16:55
I don't know if all the banks were "forced" so much it was that they could sell the loans they were making, I believe to Fannie/Freddie and perhaps a few others, as Fannie/Freddie were believed to be as safe as treasuries. So the risk was lost. Banks just focused on making loan after loan after loan to make huge profits, ignoring the risks inherent, because they were being passed on.
My understanding was that Federal authorities threatened audits and investigations of any banks holding the line. I could be wrong.
TR
...........
My understanding was that Federal authorities threatened audits and investigations of any banks holding the line. I could be wrong.
TR
I would have to dig up what it was called but this mess started back with Carter - Yes, Carter.
It had to do with making loans, opening new offices (getting bigger) and getting good marks from the Feds.
Boiled down - it was that to expand into new areas you had to prove you were lending at the right % to the right race. It did not say you had to make loans to bad risks - just that the right % had to be made to the right race.
The banks at the time could write off a few bad loans as the cost of doing business.
Everything expanded from there.
You think the banks went bad? Just wait until Freddie & Frannie's ship hits the rocks.
Lots of FHA/USDA loans starting to show up where conventional and VA were the norm.
My understanding was that Federal authorities threatened audits and investigations of any banks holding the line. I could be wrong.
:( http://www.youtube.com/watch?v=_MGT_cSi7Rs
:( http://www.youtube.com/watch?v=usvG-s_Ssb0
:munchin
:( http://www.youtube.com/watch?v=_MGT_cSi7Rs
:( http://www.youtube.com/watch?v=usvG-s_Ssb0
:munchin
I could only stomach 60 seconds of that :mad:
dr. mabuse
10-10-2010, 21:21
My understanding was that Federal authorities threatened audits and investigations of any banks holding the line. I could be wrong.
TR
A little birdie said that it got so bad, the Feds were making calls every Friday afternoon to key people in the industry to see how many sub primes were written that week and to remind them what was expected.
But that's just hearsay of course. Barney Fwank's staffers said so. :rolleyes:
TR summarized the issue perfectly.
To share my own personal experience, when I lived in California, I worked in the wholesale mortgage department for a bank. It was a small group of less than 12 people that handled all of America by supporting a website, assisting loan officers process loans for their clients, and providing technical support for account executives (fixing their laptops given by the bank).
Before the mortgage crisis happened, it became apparent to us the detrimental problems facing the entire industry. The government on both sides wanted minorities to own homes as part of the "American dream." Fannie Mae and Freddie Mac were incompetent and a nightmare to resolve any issue when it was their fault. Everyone else cared about one thing only, profit for themselves, and damn everyone else.
This bank refused to deal with subprime mortgages because of the risks involved. When the housing bubble burst like all bubbles do (artificial prices are not based on a real market), we saw many companies close down and the people who worked for them were coming to us because they now had a major loss of income. These people were pure filth and it was horrifying to deal with them because they tried the same shady practices which we had to prevent.
As things got progressively worse, the bank decided to shut down the entire wholesale mortgage network which effected around 3, 000 people in 2007. There was no jobs available where I lived and I had no other choice but to move back to Florida where the unemployment situation is still lousy.
One of the reasons I haven't enlisted in the military yet is because I want to pay off all of my debts and despite the unfortunate circumstances which changed my life completely, it taught me a good lesson on the importance of saving money and being fully prepared for when disaster strikes.
GratefulCitizen
10-11-2010, 12:28
There are some irrational behaviors common in this nation which contributed to the housing bubble (and other bubbles).
People confuse price with value.
(Dan Ariely wrote a good book on the subject: Predictably Irrational)
Money is just a form of time.
The price you pay for something represents a certain amount of time taken from a finite lifespan.
If people think about what they are getting (house, car, whatever), how they will use it, and compare that with how much of their time will be taken in exchange, they might make different choices.
Also, people have to grasp the idea of a sunken cost.
It's worth what it's worth now; it doesn't matter what it was worth yesterday.
Tying these ideas together yields a simple concept: buy low.
Less expensive things can't fall as far in value, and have more room to move upward in value.
Saw house prices moving up in the early part of the last decade, prior to getting into my first home.
Wasn't willing to trade more than a certain amount of my life (money) to buy one.
By some miracle, the wife found a big enough house within my price range.
It had been vacant for some time, needed lots of work, and the yards were just giant weed patches.
Bought it in 2005, not under the best financing terms, and put plenty of work into it.
It went up in value by almost 50% over the past five years; just closed a refi with a nice low interest rate last weekend.
Price and value are not the same thing.
Buy low.
alright4u
10-11-2010, 23:19
How this happened is a mystery to me, but; I was searching for foreclosures (Condo's on the Gulf in Corpus Christi for a dear friend. He spent three years with Omega and CCS, retired a MSG; and; he puts up with me.
Well, I look up VA foreclosures for the AO. Well, the Houston Regional Office has the listings.
What I did not know was that Countrywide (Bye Bye) and now Bank of America
has the foreclosure authority and power for VA home loans.
This is where my foreclosed property search would start if I were looking, if the VA still pays agent commission?
Now, there are many ways to acquire property cheap now. The banks do not want to carry questionable liabilities past late December on their books. This is about the time to make the bank a cash offer from now to Dec 30 or so.
This entire mess is CRA to me, but; it gets more complicated when the spin gets thrown in. I hope a few get a good deal. Glad to see many still have honor.
Say what you will, it occurs to me that the mortgage process, prior to political intervention, did what it was supposed to do and eliminated people who were unlikely to be paying back their loans. There was a reason that you had to make a 20% down payment, and have a job.
Once the standards were removed, and people could get home loans for hundreds of thousands of dollars with no income but welfare, and no job at all, a class of people were given trust who were bad risks, and had little sense of personal responsibility.
I bought my first house in 1993 as a SSG, with a wife making close to minimum wage. I think I was offered four choices on mortages...VA, FHA, conventional, and adjustable rate. It was with great hand-wringing and angst at the thought of having to pay a whopping $740.00 a month for 30 years that I went with the VA.
Cut to 2003 and the purchase of my second home...I was given about 20 choices on mortages...interest only, 80/20 split, ARM, VA, FHA, etc... When my wifes cousin and her husband were qualified by a lender to buy a $200,000 house in 2004, while both were employed at BassPro as stockers, I knew there was a serious problem. There is much more with the story on the work history of those two...but the point is I wouldnt loan them $20.00 because I know I would never see it back, the bank was going to fork over $200,000. There was little due dilligence.
If there was less involvement by the government, the market would flush this out. Business is not in business to lose money...but when you create rules that allow institutions to make crappy loans because they can turn around and sell them back to the government, thus minimizing their risk...it is lunacy. Imposing socialist rules on a capitalist society is like making you play monopoly with candyland rules...just doesn't work too well.
GratefulCitizen
10-12-2010, 15:29
If there was less involvement by the government, the market would flush this out. Business is not in business to lose money...but when you create rules that allow institutions to make crappy loans because they can turn around and sell them back to the government, thus minimizing their risk...it is lunacy. Imposing socialist rules on a capitalist society is like making you play monopoly with candyland rules...just doesn't work too well.
Privatizing profits while socializing losses is nothing more than armed robbery with the government being the trigger man.
ZonieDiver
10-12-2010, 16:16
Privatizing profits while socializing losses is nothing more than armed robbery with the government being the trigger man.
That would make a great, though a bit long, bumper sticker. Well put, sir!
Here's a publication from Citibank discussing the problem.
Of note is page 3 - the investments involve special tax treatment. The lack of proper transfer may have an adverse effect on that tax treatment, and hence on everyone who purchased such things.
LINK (http://www.scribd.com/doc/39207581/CitiBank-Report-Foreclosures-Gone-Wild)
Their conclusion?
What Happens Next? Our speaker predicted that more and more lenders are likely to stop their foreclosure processes in both judicial and non-judicial states. He also expects more states’ attorney generals to get involved. At the federal level, it is possible than banking regulators might step in as there is legal and reputational risk for the banks involved. Ultimately, if these issues do in fact escalate, the Administration may try to broker some sort of settlement. If such deal brokering does take place, Levitin believes that “some payment” will be exacted from the lenders and servicers. The Administration could bargain for more mortgage principal write downs.
I have attached a PDF of an e-mail from John Mauldin - he has a strong history in the investment business and publishes it regularly. He has written several books about investments.
This PDF addresses the current mortgage and foreclosure problem, and the broad implications.
It is long - it may take as much as 20 minutes to read it. In my opinion, it is worthwhile, and it explains the potential problems in clear language.
So...if you own a house, owe a mortgage, plan on buying or selling a house, have a job or want one...it might be a really good idea to read the piece.
The linked item by Karl Denninger is part fact (rather interesting events, actually) and opinion. In essence, he suggests that the mortgage breakdown is an evolution of lawless behavior extending over two administrations.
Whether one agrees or disagrees with his positions, the developing social and legal situation is, IMO, of interest. They suggest trends of thinking and behavior, something that will affect our lives down the line.
House Stealing: Tickerguys Perspective (LINK)
(http://market-ticker.org/cgi-ticker/akcs-www?post=169420)
Lawsuits aplenty....
Mauldin's piece from yesterday points out that we have little choice but to securitize mortgages. The development here points out that the trust in such securities is dying. Rhetorical question: What happens if few people (or no one?) can get a mortgage?
More rhetorical questions: What happens if one cannot sell a house, or borrow money to buy a house? And what happens to the jobs that were part of the home construction industry?
LINK (http://www.fhlbc.com/fhlbc/docs/announcements/2010/MBSMemberletterFINAL.pdf)
October 15, 2010
Today the Federal Home Loan Bank of Chicago will file complaints against several defendants regarding some of the private-label mortgage-backed securities (MBS) they sold us between 2005 and 2007. We contend that the quality of the loans that comprise the pools of securities cited in today’s complaints was inconsistent with the description in the pre-purchase documents prepared by the underwriters and issuers of the securities. Relying on the pre-purchase documents, we invested in these securities with the understanding that we were purchasing higher-quality instruments than turned out to be the case. After careful consideration, we have concluded that we have an obligation to you, our members, to do everything we can to recover the value lost from investing in these securities.
(NMAP: Recover how and from whom? The money is gone.)
The lawsuits were filed in the Circuit Court of Cook County, Illinois; the Superior Court of California, County of Los Angeles; and the Superior Court of Washington, King County. The complaints allege the defendants made material misstatements and omitted important information in connection with the sale of these securities. The Federal Home Loan Bank of Indianapolis also filed similar complaints today. The Federal Home Loan Banks of Pittsburgh, Seattle, and San Francisco have previously filed similar lawsuits.
As we have discussed in prior member letters and SEC filings, and at the regional member meetings, the value of our private-label MBS portfolio has suffered dramatically. The securities listed in today’s complaints totaled more than $4.3 billion in face value and were all rated AAA when we purchased them. Since then, the same credit agencies that supplied the original ratings have downgraded substantially all of these securities to junk status. Proper accounting of our estimated credit losses on these securities has resulted in a total of $455 million in write-downs that have negatively impacted our income, our retained earnings, and our ability to restore a dividend. In summary, we are only taking these actions out of the belief that it would be irresponsible not to explore every available option to recover the value lost to our members.
(NMAP: And notice that this is the AAA rated part. The junior tranches face truly dramatic losses.)
In summary, we are only taking these actions out of the belief that it would be irresponsible not to explore every available option to recover the value lost to our members.
(NMAP: No, they're engaging in CYA. There is no money to recover. They chose unwisely, and they have squandered their shareholders' money. Rhetorical question: What happens to the economy as trillions (about 6-7 trillions) of dollars are recognized as losses that will never (can never) be recovered?)
The Reaper
10-17-2010, 08:45
Lawsuits aplenty....
Mauldin's piece from yesterday points out that we have little choice but to securitize mortgages. The development here points out that the trust in such securities is dying. Rhetorical question: What happens if few people (or no one?) can get a mortgage?
More rhetorical questions: What happens if one cannot sell a house, or borrow money to buy a house? And what happens to the jobs that were part of the home construction industry?
You might be forced to save and buy your home for cash.
TR
(NMAP: Rhetorical question: What happens to the economy as trillions (about 6-7 trillions) of dollars are recognized as losses that will never (can never) be recovered?)
I would wager that for some the remedy involves printing more money and Government intervention/takeover.
More rhetorical questions: What happens if one cannot sell a house, or borrow money to buy a house?
It means in a free market there will be opportunity for people to make money by renting out properties. There will be a plethora of renters until, like TR said, you can save up enough money to buy a house.
The second question you asked (about jobs) is harder to answer if you are only concerned with status-quo in regards to the construction industry. If building homes isn't making anyone any money, people will look elsewhere for business opportunity. Hey...how about "green jobs"?
It means in a free market there will be opportunity for people to make money by renting out properties. There will be a plethora of renters until, like TR said, you can save up enough money to buy a house.
The second question you asked (about jobs) is harder to answer if you are only concerned with status-quo in regards to the construction industry. If building homes isn't making anyone any money, people will look elsewhere for business opportunity. Hey...how about "green jobs"?
Free market....if the Government isn't stifle American Ingenuity..
For example:
After WWII my Grandfather became an employer, landlord, home builder and home seller. As I have been told many, many times 'Your Grandpa made it possible for many to own homes, that wouldn't ordinarily be able to afford a home'.
He built simple ranches, 2-3 bedroom and 1 bath.
There were no banks involved, you wanted a house you went and talked to Melvin. You put what money you could as down a down payment, signed a one page contract, shaked his hand and you made your payments directly to Melvin. When you paid off your obligation Melvin handed you the Deed to the property.
But now with EPA, FDA, USDA etc, etc, etc I honesty believe the current system prevents people like that from producing those results. Every time you turn around there is some new certification, license or regulation you must have to operate a business. And with each and every new certification, license or regulation (redistribution of wealth) comes new costs which pay for some new government bureaucracy, their weasel employees and the many cottage industries that ride their coat tails.
Until the .GOV to becomes private business friendly I don't see much in the way of jobs and a thriving economy.
You might be forced to save and buy your home for cash.
TR
Sir,
From what I have been reading, the problem is two-fold. On one had we've had plenty of buyers on the market, who shouldn't have purchased homes in the first place, inflated by government policies on home ownership.
On the other side, it seems that in order to squeeze more out of the housing market and hedge subprime risk, banks and financial institutions created more easier ways to package these securities without actually tracking their paperwork.
There have been several instances in which homes that were out-right owned by the person residing at said location has been foreclosed on, or homes that weren't in default that were foreclosed on. Along with not following various state laws required to ensure property rights are validated correctly.
Defaulting home owners on one side, banks scrambling by any means, including out-right fraud trying to re-coup their properties on the other side, in between are the taxpayers that have followed the right path getting chewed up.
If property rights cannot be validated (bank or homeowner) correctly, the situation does not bode well for anyone. Even if it's painful in the short term, due diligence needs to be established in the market - homeowners and banks , both.
This article seems to be pretty damning. (http://dailycaller.com/2010/10/14/thedc-op-ed-one-nation-under-fraud/)
amp... I could be misunderstanding it...but I think TRs comment reflects the idea that being a debtor might not be a COA. Want to own a house? 20% down might be required. Home ownership is not a constitutional right.
Paying cash for a house? :eek:
In all seriousness, what is borrowing - whether for a house or anything else? Simply this - we pull tomorrow's demand into the present. So if we charge a vacation on the credit card, we consume today and agree to pay at a future time. This can continue indefinitely - until someone, somewhere upsets the applecart and refuses to loan more money.
The cartoon character "Wimpy", always offering to pay at some future time for a hamburger today, is the icon of such behavior. He can eat on borrowed funds. The burger maker books a sale. The supply vendor books a sale. Everyone is happy - until Wimpy is revealed as a bankrupt who cannot pay. Then all those debts throughout the chain become worthless.
In housing, we as a society pulled every bit of demand forward that we could. We inflated the price of houses with artificial demand. We created a vast structure based on the debt - and now, Wimpy and his many imitators cannot pay.
This implies an extended period of low demand, hence prices that cannot recover or continue to decline. The building industry will see no new demand - indeed, will see a large supply overhand - and so they will not hire new people.
For the future cash buyer, one who obtains good value and bargain prices - this will be a grand opportunity. For those who have overvalued assets, the losses will be devastating. And those overvalued assets include mortgage backed securities held by individuals and organizations around the world.
Capitalism does involve creative destruction. That destruction is the key, for it is both necessary and painful. In this instance, the pain may be (in my opinion, will be) profound and will extend over years - or even decades.
Will we as a society and nation accept such pain? I doubt it. MOO, YMMV.
Sir,
From what I have been reading, the problem is two-fold. On one had we've had plenty of buyers on the market, who shouldn't have purchased homes in the first place, inflated by government policies on home ownership.
On the other side, it seems that in order to squeeze more out of the housing market and hedge subprime risk, banks and financial institutions created more easier ways to package these securities without actually tracking their paperwork.
There have been several instances in which homes that were out-right owned by the person residing at said location has been foreclosed on, or homes that weren't in default that were foreclosed on. Along with not following various state laws required to ensure property rights are validated correctly.
Defaulting home owners on one side, banks scrambling by any means, including out-right fraud trying to re-coup their properties on the other side, in between are the taxpayers that have followed the right path getting chewed up.
If property rights cannot be validated (bank or homeowner) correctly, the situation does not bode well for anyone. Even if it's painful in the short term, due diligence needs to be established in the market - homeowners and banks , both.
This article seems to be pretty damning. (http://dailycaller.com/2010/10/14/thedc-op-ed-one-nation-under-fraud/)
For me the homeowner paper work foul up or not, I did sign on the dotted line and I accepted the obligation. I don't care what some Lawyer can conjure up, if I cannot honor my end of the agreement I should not be entitled to the property.
My beef with this whole fiasco is the banks, mortgage lenders, title companies, appraisers, lawyers, politicians, etc were running what appears to be a multitude of rackets intended to bilk consumers out of their hard earned cash.
I want to see accountability, I want to see illicit assets seized and (figuratively speaking) big name criminals hanging from the yard arm.
amp... I could be misunderstanding it...but I think TRs comment reflects the idea that being a debtor might not be a COA. Want to own a house? 20% down might be required. Home ownership is not a constitutional right.
Apologies. I should further clarify; I don't disagree at all. I have not purchased a home yet and may not in the future for this very reason. I will buy what I can afford well within my means, when the cost is right. Until then, I will continue to maximize my TSP and other cash/simple investment.s.
What concerns me is the following:
1) Home owners that purchased homes who could never afford them using the government to hold on to properties, they don't legally have a right to.
2) Banks using any means necessary to repossess property, yet not having the proper legal documents to prove which properties they own, and using the government to weaken long standing State laws (the recent vetoed bill in Congress is a good example).
End result: While these two groups are fighting it out, our long standing property laws that validate ownership being turned on their head. What happens when laws that favor each side to a certain degree create dysfunctional hollow states? It becomes a race to what you can seize and squat.
This mess reminds me more of a third world nation property rights type scenario, rather than a first world nation. In India, I've seen the poor squat on property and take it. On the flipside, I've seen big business or government seize property, too, without much regard to law.
I have disagreed vehemently with most of the President's economic policies, however the veto of the law by President was correct IMO (http://www.washingtontimes.com/news/2010/oct/7/obama-vetoes-measure-on-notarized-documents/). Furthermore, the Federal government has no place in the homeowner crisis/mess in the first place (Freddie, Fannie, all of it) - it is a state level issue and this is a rare instance of the Federal government actually not misusing the commerce clause of the constitution.
EDIT: I'm not saying Notarization in one state should be rejected in another, due to technicalities such as embossed or ink stamps, BUT this is for states to work out. If this is the case, should CCW from one State be forced down another? Or a myriad of other "minor" issues that are solely between states be forced to be accepted in another? IMO, these are issues the States need to sort out, not the Feds.
Whole Post
I concur! Between all the rackets, we're degrading the foundations of a democratic Republic with long standing and well accepted laws. When the rule of law goes out the window, it becomes a dog eat dog world. Simple and straight-forward laws, enforced appropriately, are the bedrock of any civil society. Take the housing market, immigration, bailouts, etc. The foundations of this country are being hollowed out.
however the veto of the law by President was correct IMO (http://www.washingtontimes.com/news/2010/oct/7/obama-vetoes-measure-on-notarized-documents/).
IMO - A mere political move that will be negated in short order once we pass November 2nd. After November 2nd DC will once again wish to carry favor with their puppet masters at the banks for the 2012 election.
The cartoon character "Wimpy", always offering to pay at some future time for a hamburger today, is the icon of such behavior. He can eat on borrowed funds. .
So, what happens when you tell Wimpy you wont lend him the funds to buy his hamburger...old boy goes a bit hungry until he saves up 'till he can buy one.
I don't mean to suggest most folks can save enough to pay cash to buy a house without having to borrow. But...many can enact some discipline and purchase when they can afford it. That is the crux of the problem...people making poor decisions. Really poor decisions. I personally do not believe there is such an animal as "predatory Lending". What that term means to me...I shouldn't be borrowing if i cant get the prime rate.
It sounds calloused to an extent, but here is the deal...I have personally lived my life with some pretty conservative financial principles. Lack of financial discipline and responsibility should not be excused. Be a renter until your situation allows you to own.
GratefulCitizen
10-18-2010, 10:05
It means in a free market there will be opportunity for people to make money by renting out properties. There will be a plethora of renters until, like TR said, you can save up enough money to buy a house.
As with every downturn, those with cash, good credit, and disposable income will be able to profit from the downturn.
Have a close friend who is acquiring passive income streams due to cheap money and depressed real estate.
Annual ROI run about 40-50% in after-tax cash flow.
As with every downturn, those with cash, good credit, and disposable income will be able to profit from the downturn.
Have a close friend who is acquiring passive income streams due to cheap money and depressed real estate.
Annual ROI run about 40-50% in after-tax cash flow.
Believe me, I am looking HARD at this right now. Since I have no illusions I will ever see one red cent of social security payments, I figure I will need to do something to supplement my retirement. A few paid off rental properties might do the trick...
It appears that Wells Fargo is concerned about some of the mortgages it holds being rotten.
Ahh, but this is NOT about someone who isn't paying the mortgage. No - quite the contrary. Here's an excerpt.
ZeroHedge obtained an internal memo from Wells Fargo detailing the banks new procedures to handle what may be a flood of repurchase requests, as end investors use fraud allegations and sloppy paperwork to demand refunds on the mortgages they bought from the bank.
LINK (http://www.businessinsider.com/wells-fargo-mortgage-repurchase-memo-2010-10?utm_source=Triggermail&utm_medium=email&utm_term=Business+Insider+Select&utm_campaign=BI_Select_101810_Personal)
Oh, what a tangled web we weave, when first we practice to deceive. :munchin
GratefulCitizen
10-18-2010, 19:34
Believe me, I am looking HARD at this right now. Since I have no illusions I will ever see one red cent of social security payments, I figure I will need to do something to supplement my retirement. A few paid off rental properties might do the trick...
You're money ahead not to have them paid off.
Ironically, for the same given amount of investment, it's also lower risk.
More properties leveraged means more renters and a higher average occupancy (spreading the risk around).
Money is cheap enough that it's preferable to finance long-term in order to get a bigger difference between payments and rental income.
If rents go down, you've got margin to absorb it.
If the value of the property goes up enough, you can always sell (after sucking out all of the depreciation, of course :D ).
ZonieDiver
10-18-2010, 19:55
Just find a good 24 hour maintenance company! (I used a retired AF guy who was good at all kinds of things, and loved responding at 2 a.m.!)
You're money ahead not to have them paid off.
So, is the tax deuction going to meet or exceed the free money I would be paying to the bank in interest payments? If I had a $100,000 note, and a house payment of, lets say $800.00...I would be giving the bank $600.00 in free money for the first 10 years. I would end up paying over $250,000 for the house over the life of the loan. Would I make over $150,000 in tax deductions?
Oh no, not in MI. Here they sit at the local bar talking about how they got screwed and the (terrorists, government, democrats, republicans, fill-in-the-blank) are at fault.
IMO there are a variety of different elements at work here. I look at the difference in the work ethic of my father's generation and those of mine, and to say it's night and day is an understatement.
There is a very strong sense in my age group that certain things were promised and guaranteed[I] -- homeownership being one of them. Not that life is life, and bad stuff happens and you do whatever you can and the best you can -- but that jobs and homes and cars just [I]happen.
And if they don't happen, then something is wrong and whatever it is that's wrong -- it's not my problem and it's not my fault but somebody better fix it.
My dad was a union pipefitter for 42 years -- I remember him going off to work sick and running a fever because if he didn't work he didn't get paid, and he had a wife and 3 kids to take care of.
Can't imagine a 35 year old doing that these days -- no matter what the realities of the economy are.
That was a really good post. It is kind of depressing to think that is a common attitude. Opportunity comes calling all the time, but for some it is hard to recognize. The more guys that go hang out in the bar and bitch about (fill in the blank)...the better my chances are of finding work. That's why shit is never going to be equal...and shouldn't be. For the most part, if you bust your ass you can prosper. If you sit on your ass you can eke out an existence.
Oh no, not in MI. Here they sit at the local bar talking about how they got screwed and the (terrorists, government, democrats, republicans, fill-in-the-blank) are at fault.
IMO there are a variety of different elements at work here. I look at the difference in the work ethic of my father's generation and those of mine, and to say it's night and day is an understatement.
There is a very strong sense in my age group that certain things were promised and guaranteed[I] -- homeownership being one of them. Not that life is life, and bad stuff happens and you do whatever you can and the best you can -- but that jobs and homes and cars just [I]happen.
And if they don't happen, then something is wrong and whatever it is that's wrong -- it's not my problem and it's not my fault but somebody better fix it.
My dad was a union pipefitter for 42 years -- I remember him going off to work sick and running a fever because if he didn't work he didn't get paid, and he had a wife and 3 kids to take care of.
Can't imagine a 35 year old doing that these days -- no matter what the realities of the economy are.
I am going to have to disagree with you on that one. Seeing your father as an example, do you not try to follow in his footsteps? I see plenty of young people every day that have a very solid work ethic and they achieve it in one of two ways.
First, they use their parents as an example. They have parents that work hard, and they learn that working hard is what allows you to get a head in life.
Second, they use their parents as an example. They see their parents do nothing but sit around and bitch moan whine and complain about how everything wrong in their life is someone elses fault. They don't need to work hard because someone will come along and save them from themselves.
My kids have seen both. My three step kids have 2 parents who work their asses off. And through that hard work have a nice home, nice cars, the ability to take a nice vacation once in a while, and who have no debt.
They also have a parent who has been "taken care of" by someone else her whole life. When the kids were younger, they thought this was great. Gee mom, you don't have to go to work everyday, you can sit around and watch tv all day. That's what I want to be when I grow up. Until they did grow up and they have seen the littany of shitty rental homes they have had to live in at one time or another, the inability to go out to dinner once in a while because there is no extra money and no credit cards because credit no longer exists. Bankrupcy follows. All of this while their mom recieved $4000 a month from their father.
They learned that is not what they wanted their iives to become. So I now have 2 boys out on their own, that go to work sick, who are learning that earning a living is hard work, but are proud to say they purchased their first car with cash, etc.... etc...
It is all about perspective. I don't think we give this generation enough credit.
GratefulCitizen
10-19-2010, 14:25
So, is the tax deuction going to meet or exceed the free money I would be paying to the bank in interest payments? If I had a $100,000 note, and a house payment of, lets say $800.00...I would be giving the bank $600.00 in free money for the first 10 years. I would end up paying over $250,000 for the house over the life of the loan. Would I make over $150,000 in tax deductions?
Looking at it the wrong way.
Your investment is the down payment.
All of the payments on the loan are made by your renters.
The difference between rent collected (gross income) and the payments made (expenses) is the return from your investment (profit).
(Less other expenses, such as upkeep, paying a management company to run the property, etc. -- Some are tax deductible depending on law in your state)
The total value of the property and total payoff don't matter if you're looking for passive income.
The difference between rent collected and payments/expenses is what matters.
Any equity built up is just bonus.
All of the payments on the loan are made by your renters.
It can work that way. But what happens if you can't find renters and/or the rent you receive does not cover the cost incurred of owning the rental property?
http://www.cnbc.com/id/39745284
The sheriff for Cook County, Illinois, which includes the city of Chicago, said on Tuesday he will not enforce foreclosure evictions for Bank of America Corp, JPMorgan Chase and Co. and GMAC Mortgage/Ally Financial until they prove those foreclosures were handled "properly and legally."
It can work that way. But what happens if you can't find renters and/or the rent you receive does not cover the cost incurred of owning the rental property?
Agreed. I think it better to have one paid off property than three properties with mortgages. Just too much upside on the "stability" aspect. You got renters? 100% profit....and that house is paying for the purchase of another if that's the plan.
If you don't have a renter...you are only shelling out property tax and insurance payments until you get one...as opposed to making that mortgage payment.
Think about this...deciding on whether to have/not have a mortgage (provided you have the means to decide this) is making a decision on who gets the majority of my money. If I dont have one...gov-ment gets my money in earned income and property taxes. If I do have a mortgage...I pay less to gov-ment because of deductions, but I give more of it to the bank in interest payments.
Bank or gov-ment...the choice is yours.
This was an interesting discussion on the issues yesterday on Diane Rehm.
Tens of thousands of home foreclosures have been called into question. Attorneys general across the country began a joint investigation into foreclosure procedures. Several major banks suspended the practice earlier this month. But yesterday, one of them -- Bank of America -- said it would resume home seizures in some states because it found no serious problems. Joining me in the studio to talk about the mortgage foreclosure crisis, Kathleen Day of the Center for Responsible Lending, Greg Ip of The Economist, and Tom Deutsch of the American Securitization Forum.
http://thedianerehmshow.org/shows/2010-10-19/addressing-foreclosure-crisis/transcript
Richard :munchin
1stindoor
10-20-2010, 07:03
It can work that way. But what happens if you can't find renters and/or the rent you receive does not cover the cost incurred of owning the rental property?
Or in my case...the renter trashed the house to the tune of $10,000. That's what I spent on my credit card, doing the work myself (which probably saved another $5-10Gs) just to get the house into a sellable condition...which I did...the gross profit on my house...about $10,000. I broke even...and in my opinion, I came out ahead, because I no longer owned a house and had to find renters. I can do just about anything inside a house...from electrical to plumbing, drywall to paint...I've done it...and I don't care to ever join the ranks of "landlords" again.
I pay less to gov-ment because of deductions
AS long as the government allows you to have the deduction or finds another means to get it from your pocket to theirs.
I don't care to ever join the ranks of "landlords" again.
My Mom and her family were landlords for several decades and it can be a good gig, however I share your sentiments.
I read through this thread and learned a bit of different points of view. I wanted to share this video I first saw early last year that was put together really well and gives you a good visual on the credit and housing crisis.
The video is called The Crisis of Credit Visualized.
http://vimeo.com/3261363
TrapLine
10-20-2010, 09:12
As of today, my wife and I solved our personal mortgage mystery by paying it off. This is our first place, and have been there for about five years. It is very small and we will most likely be looking to upgrade in the near future. We have watched as our friends and co-workers have moved on to bigger and better while we have stayed put, and often wondered if we were missing the boat. In this case it seems patients paid off given the buyers' market we are likely to experience. We are both conservative and likely too risk averse to ever get far ahead. As it is, society currently seems to capitalize on people like us so that others who have made more risky choices can walk away. Maybe I am stuck in the old school, but for the time being it feels good to not be indebted to anyone, financially anyway.
...I've done it...and I don't care to ever join the ranks of "landlords" again.
I've got a ranch I inherited and manage under a family trust in NorCal's Sacramento Valley. I tried to sell it for over a year but - because of the foreclosure rate in that area - was unable to do so without literally giving the place away...so I went to the rent option until the real estate market shows signs of recovering.
I did some research and chose to contract with an established property management company who handles everything from advertising to on-going maintenance of the property and structures. They charge $100/Mo for their services and I have had nothing but excellent communication and service from them, and have a great family now renting my property.
I may have been fortunate and this might be a rarity, but being a 'slum lord' in partnership with this company has been virtually hassle free for me up to this point.
Richard's $.02 :munchin
Dozer523
10-20-2010, 09:32
As I always say, Afchic, reasonable minds can disagree....
I'll split the difference. Maybe people shoulda watched more The Waltons then The OC in developing their expectations.
1stindoor
10-20-2010, 09:47
I'll split the difference. Maybe people shoulda watched more The Waltons ....
I could never get past all of the "good nights."
BTW...bringing up The Waltons...shows our age.
I may have been fortunate and this might be a rarity, but being a 'slum lord' in partnership with this company has been virtually hassle free for me up to this point.
I'm happy to hear it. I had two good tenants that took good care of my house. My last one was enough to cure me of delusions of granduer. Of course it happened when I was deployed...so the Mrs. got to take care of getting them evicted.
Dozer523
10-20-2010, 10:01
I could never get past all of the "good nights." No wonder you didn't like it. The "Good Night Mary-Ellen ('STFU, Grandpa and get out of my room')" - part came at the end.:D
BTW...bringing up The Waltons...shows our age. "OUR" ??!!? Whatchu takin' 'bout Willis? I watch it on TV-Land :p
GratefulCitizen
10-20-2010, 13:14
Agreed. I think it better to have one paid off property than three properties with mortgages. Just too much upside on the "stability" aspect. You got renters? 100% profit....and that house is paying for the purchase of another if that's the plan.
If you don't have a renter...you are only shelling out property tax and insurance payments until you get one...as opposed to making that mortgage payment.
Think about this...deciding on whether to have/not have a mortgage (provided you have the means to decide this) is making a decision on who gets the majority of my money. If I dont have one...gov-ment gets my money in earned income and property taxes. If I do have a mortgage...I pay less to gov-ment because of deductions, but I give more of it to the bank in interest payments.
Bank or gov-ment...the choice is yours.
Large investments should not be made haphazardly.
The nature of the local economy, nature of renters, reputation of property management companies, etc. should all be considered.
One of the problems with paid off property and fewer renters is the inflation game.
The value of the property may or may not reflect the type of inflation specific to your spending.
All of the money invested to pay off a property could be stolen through inflation, and you might not get it back out of value increases.
The increase in value is also less liquid.
To use my friend's most recent investment as an example:
Carefully investigated properties in the area where he bought.
There is a glut of 4-plex apartments on the local market.
The rental market is quite stable.
Familiar with applicable law and acounting practices (has had rentals/tenants for ~13 years).
Found a low price on a 4-plex (already at full occupancy), financed terms to get the lowest payments possible.
At current rents, the property pays for itself at half occupancy.
At full occupancy the net return on down payment is ~40-50% per year.
After ~2 years of full occupancy, the investment has paid for itself.
Everything above half-occupancy thereafter is pure profit.
Risk is effectively reduced because it is spread over multiple renters.
The bank does make plenty off of the deal, as they should.
They have the largest stake.
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/19/AR2010101904845.html?hpid=topnews
Excerpt:
"In more than 25 years dealing with major financial crisis issues, I have never seen this many agencies focused on a single issue," said Andrew Sandler, a lawyer who works on government investigations. "We are beginning to see signs of extensive governmental investigation that may also have criminal law implications."
Federal law enforcement officials usually have little authority to prosecute cases involving foreclosure law because they are largely in the states' domain. But according to sources familiar with the investigation, the federal government has both an interest and the grounds to prosecute the abuses because housing agencies under HUD, particularly the Federal Housing Administration and Ginnie Mae, play a major role in insuring U.S. home loans.
Time will tell if that is a good thing or not and whether they merely scapegoat Strawmen
"Whenever there are suggestions that there may have been any kinds of issues with respect to disclosure, misrepresentations or omissions, we are always looking at that kind of conduct," SEC Chairman Mary Schapiro said Tuesday.
'Whenever' is such a broad statement *cough*cough*B***S***..... Savings in Loan scandal, Junk Bonds/Micheal Milken, Countrywide, Bernie Madoff
1stindoor
10-21-2010, 08:34
No wonder you didn't like it. The "Good Night Mary-Ellen ('STFU, Grandpa and get out of my room')" - part came at the end.:D
And...there goes another perfectly good keyboard...
Interesting new development from the good people of Kentucky.
LINK (http://market-ticker.org/cgi-ticker/akcs-www?post=170120)
The key issue is not, I think, that some people may wind up with a free house. This goes much deeper, IMO.
There are investors - including big players such as pension funds - that bought securities based on these mortgages. They will note that actual conveyance did not occur, and hence may allege fraud within the security they purchased.
Sounds like lawsuits all 'round, with no quick resolution. Perhaps that implies that it may be a long while before investors forget that they were burned.
Once again - this is about more than someone, somewhere getting a free house.
How about massive losses - hundreds of billions worth? How about taxpayers getting stuck with part of the bill?
Frequent use of the F word. Fraud, that is. And at such massive levels, with such breathtaking arrogance, that words fail.
All of that and more at the LINK (http://www.frontlinethoughts.com/pdf/mwo102310.pdf)
Once again - this is about more than someone, somewhere getting a free house.
That it is.
Roguish Lawyer
10-24-2010, 16:43
While I do not have time to get involved in a long discussion here, I do want to point out a few things:
1. Media reports are not direct evidence of anything. They are reports. And they are written (typically) by reporters with leftward, anti-business political leanings whose economic and career interests motivate them to exaggerate the facts and to give credence to allegations made by class action attorneys and others who also are far from objective in order to make something "newsworthy" and as "important" as possible. Just look at the adjectives and adverbs in any story and ask yourself whether the reporter is trying to be objective or make this sound like a really big deal.
2. The filing of a class action lawsuit, whether by a private plaintiff or a state Attorney General, constitutes nothing more than the making of allegations. Plaintiff-side class action lawyers and state Attorneys General (typically) are far from objective in bringing these cases -- the cases are brought in very substantial measure based on selfish economic and political factors, and quite often are completely baseless from a factual standpoint. That is not to say that all cases are baseless, but in my direct experience they usually are. Our legal system presently is set up so that there is little or no penalty for filing a frivolous or weak lawsuit; to the contrary, there are enormous financial rewards for doing so and that is why there are so many such cases.
3. Defendants in these cases almost never respond publicly (at least not in a substantive way) to the allegations in the press, so you are almost never going to see a balanced news report, blog or forum post regarding these things. You instead will see one side's allegations repeated and then usually amplified without basis. As a result, you see lots of people getting completely hysterical about what are nothing less than crazy conspiracy theories that will never result in the cataclysmic outcomes those people warn about.
While I do not have time to get involved in a long discussion here, I do want to point out a few things:
1. Media reports are not direct evidence of anything. They are reports. And they are written (typically) by reporters with leftward, anti-business political leanings whose economic and career interests motivate them to exaggerate the facts and to give credence to allegations made by class action attorneys and others who also are far from objective in order to make something "newsworthy" and as "important" as possible. Just look at the adjectives and adverbs in any story and ask yourself whether the reporter is trying to be objective or make this sound like a really big deal.
2. The filing of a class action lawsuit, whether by a private plaintiff or a state Attorney General, constitutes nothing more than the making of allegations. Plaintiff-side class action lawyers and state Attorneys General (typically) are far from objective in bringing these cases -- the cases are brought in very substantial measure based on selfish economic and political factors, and quite often are completely baseless from a factual standpoint. That is not to say that all cases are baseless, but in my direct experience they usually are. Our legal system presently is set up so that there is little or no penalty for filing a frivolous or weak lawsuit; to the contrary, there are enormous financial rewards for doing so and that is why there are so many such cases.
3. Defendants in these cases almost never respond publicly (at least not in a substantive way) to the allegations in the press, so you are almost never going to see a balanced news report, blog or forum post regarding these things. You instead will see one side's allegations repeated and then usually amplified without basis. As a result, you see lots of people getting completely hysterical about what are nothing less than crazy conspiracy theories that will never result in the cataclysmic outcomes those people warn about.
None the less it is a giant mess....I leave it at that.
It appears that the head bankruptcy judge in Arizona has entered the fray. New York's Mellon Bank, it seems, must produce physical documents. That would imply that the mortgage mess will become worse.
LINK (http://market-ticker.org/akcs-www?post=171757)
MERS Attacks! Coming soon to a political theater near you.
Richard :munchin
Get Ready for the Great MERS Whitewash Bill
CNBC, 12 Nov 2010
When Congress comes back into session next week, it may consider measures intended to bolster the legal status of a controversial bank owned electronic mortgage registration system that contains three out of every five mortgages in the country.
The system is known as MERS, the acronym for a private company called Mortgage Electronic Registry Systems. Set up by banks in the 1997, MERS is a system for tracking ownership of home loans as they move from mortgage originator through the financial pipeline to the trusts set up when mortgage securities are sold.
The system has come under scrutiny by critics who charge MERS with facilitating slipshod practices. Recently, lawyers have filed lawsuits claiming that banks owe states billions of dollars for mortgage recording fees they avoided by using MERS.
If courts rule against MERS, the damage could be catastrophic. Here’s how the AP tallies up the potential damage:
Assuming each mortgage it tracks had been resold, and re-recorded, just once, MERS would have saved the industry $2.4 billion in recording costs, R.K. Arnold, the firm's chief executive officer, testified in 2009. It's not unusual for a mortgage to be resold a dozen times or more.
The California suit alone could cost MERS $60 billion to $120 billion in damages and penalties from unpaid recording fees.
The liabilities are astronomical because, according to laws in California and many other states, penalties between $5,000 and $10,000 can be imposed each time a recording fee went unpaid. Because the suits are filed as false claims, the law stipulates that the penalties can then be tripled.
Perhaps even more devastatingly, some critics say that sloppiness at MERS—which has just 40 full-time employees—may have botched chain of title for many mortgages. They say that MERS lacks standing to bring foreclosure actions, and the botched chain of title may cast doubts on whether anyone has clear enough ownership of some mortgages to foreclose on a defaulting borrower. The problems with MERS system led JPMorgan Chase [JPM 39.61 -0.41 (-1.02%) ] CEO Jamie Dimon to stop using MERS for foreclosures in 2008.
Now it appears that Congress may attempt to prevent any MERS meltdown from occurring. MERS is owned by all the biggest banks, and they certainly do not want it to be sunk by huge fines. Investors in mortgage-backed securities also do not want to see the value of their bonds sink because of doubts about the ownership of the underlying mortgages.
So it looks like the stage may be set for Congress to pass a bill that would limit MERS exposure on the recording fee issue and perhaps retroactively legitimate mortgage transfers conducted through MERS private database.
Self-styled consumer advocate Neil Garfield says the legislation is already being drafted:
After years of negative judicial decisions about the use of a straw-man on mortgages, MERS was about to lose its existence as well as its credibility. But now all of that is set to change as Wall Street money is pouring into the coffers of those who are receptive (i.e., almost everyone in Congress). The legislation is already being drafted under the interstate commerce clause to ratify MERS and everything it did retroactively. It appears that the Obama administration is ready to pardon all the securitization deviants by signing this bill into law. This information is corroborated by several people who are in sensitive positions — persons who would be the first to know such proposals. Fortunately, there are some people in Washington who have a conscience and do not want to see this happen.
Garfield is overstating things a bit. In truth, the results of the legal challenges to MERS have been mixed. But it is very plausible that the banks might want to put to rest any ongoing uncertainty about the legality of MERS. I wouldn't be at all surprised if Congress manages to pass a bill that bails MERS out of its legal issues.
http://www.cnbc.com/id/40150186
Here's a link to an analysis of a single mortgage. Those who like organization charts (very complex charts!) will be in heaven.
LINK (http://www.zerohedge.com/article/just-when-you-thought-you-knew-something-about-mortgage-securitizations)
Rhetorical Questions: How on Earth is anyone going to be able to understand or manage such investments? How can the courts possibly discern who owes what to whom?
Rhetorical Questions: How on Earth is anyone going to be able to understand or manage such investments? How can the courts possibly discern who owes what to whom?
It would be difficult at best, quite time consuming and most likely cost prohibitive.
Maybe that was the idea....
Rhetorical Questions: How on Earth is anyone going to be able to understand or manage such investments? How can the courts possibly discern who owes what to whom?
And imagine what it must be like to be a realtor trying to do a property search in someplace like Jerusalem. :rolleyes: :D
And so it goes...
Richard :munchin
http://latimesblogs.latimes.com/money_co/2011/09/california-atty-gen-kamala-harris-breaks-from-national-foreclosure-probe.html
California breaks from 50-state probe into mortgage lenders [Updated]
September 30, 2011 | 1:51 pm
California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.
Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, Harris told The Times on Friday.
The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, Harris said.
“It has been a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.
Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.
[Updated 5:36 p.m.: Iowa Atty. Gen. Tom Miller, who has been leading the negotiations, vowed to press on.
“California has been an important part of our team and has made a significant contribution to this case,” Miller said in a statement. “However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks.”]
The removal of California from the discussions is a major blow to fraying efforts by the coalition, which has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.
“This whole concept of a settlement on foreclosure abuse is probably dead,” said Christopher Whalen, the founder of Institutional Risk Analytics. “Nobody in their right mind is going to opt into a settlement right now.”
For California homeowners, the move means the probable end of an opportunity for relatively quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed.
Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.
Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.
In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.
New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street's role in the mortgage meltdown -– focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.
Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.
A spokesman for Schneiderman, Danny Kanner, welcomed Harris's move.
“Attorney General Schneiderman looks forward to his continued work with Attorney General Harris and his other state and federal counterparts to ensure those responsible for the mortgage crisis are held accountable and homeowners who are suffering receive meaningful relief,” said Kanner.
Wth no authorization from Congress, President Barack Obama has announced that his administration--through the Federal Housing Administration--will insure refinanced mortgages for 2 to 3 million borrowers without verifying their income or even if they hold a job, according to the Department of Housing and Urban Development (HUD) (http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2012/HUDNo.12-045).
http://cnsnews.com/news/article/obama-will-make-taxpayers-guarantee-mortgages-without-checking-borrowers-incomes-or
He will never learn will he.
ZonieDiver
03-08-2012, 11:02
He will never learn will he.
Au contraire! I think he has learned all TOO well... that Congress has NO balls, collectively, and will do nothing to stop his usurpations.
Only WE, the voters, can now do that... and I am having severe doubts that this will be accomplished.
If I wore a tinfoil hat, I'd worry that even if the voters do act, he might use an 'international consensus to 'save us from ourselves' and try to stay in office!;)
"...A mortgage isn't a blood oath, it's a business contract—a collateralized loan. It isn't simply a promise to repay the lender. It's a promise to repay the lender or to forfeit the home. Isn't someone simply fulfilling their contract by handing over the keys when asked?..."
My BIL is a gunslinger CFO who goes into failing companies and helps turn them around for a piece of the company. Bright guy, very successful, very conservative. He often brings up the gist of the above quote and rants that the onus of default--seven years of credit purgatory--is unfairly falling only on the consumer while the banks have been bailed out again and again.
He has nothing against folks who clean up the place and leave the keys on the counter. He goes ballistic over those who are capable of making payments yet game the system by staying in the home for 12-18 months without paying while they secure another home at better terms.
greenberetTFS
03-08-2012, 16:29
And...there goes another perfectly good keyboard...
Same thing here,Dozer must not be allowed to comment,he's responsible for destroying a lot of our computer gear.........:rolleyes:
Big Teddy :munchin
Irritating as it is, this is just continuation of the same practices that got us into the situation we are in. The only difference is that Obama is playing the part of Angelo Mozilo and Fannie & Freddie are the new CountryWide.
The thing that hasn't changed is that it is coming out of the tax payers pocket.