Mortgage Meltdown: Time for Groundhog Day reversal

Paulson’s announcement is really only a re-hash of prior “hope” and other plans. The important thing is that government and private sector are talking and starting to work together. We can only hope that they finally get down to business before the 30 day voluntary freeze is over and that the project, which is based upon voluntary compliance, will do SOMETHING.

The bottom line: Unless we have a groundhog day reversal of this entire scheme, homeless people will be streaming down every steet, local governments will own uninhabitable homes that were once in posh neighborhoods, and the entire U.S. economy, already reeling from the declining dollar, the exporting of everything we have including our own toll roads, will be turned on its head.

This Project Lifeline signals the public that the numbers have been crunched and that the upcoming news will continue to get progressively worse. Neither this administration, nor the lenders, would have any interest in helping borrowers unless they recognized that they had gone too far with the credit bubble; so far, in fact that they severely damaged almost every prospect for the country and its citizens. These ARE the people to undo the damage because we have no time to build a separate regulatory infrastructure to save our economy. But we must recognize that these are also the same people who came up with the fraudulent scheme of overvaluation, kickbacks and assignment of risk to unsuspecting investors based upon false AAA ratings and false insurance.

That they are all capable of just about anything to put money in their own pockets at the expense of the future of the country is now well-established. What has happenned is that they are now realizing bit by bit, that their own existence (and freedom if prosecutions ensue) has also been undermined by this boiler-room scheme. Although none of the news reports put it all together in one story, it seems that all appropriate agencies of the Federal government are on board, albeit without a clue as to what to do. And the major private  players are at least giving the appearance of being on board.

Yet the likely remedy will come not from Federal intervention but from State intervention because the laws of property are governed almost exclusively by State law. This is why the state attorney generals have standing to sue the lenders for their grossly inappropriate behavior. The tricky part is that the right to foreclosure, if stalled, raises consitutional issues of due process — which brings in the Federal goernment again, whose ineptness at dealing with reality is well-documented.

The fact is, no lender wants to exchange its loan portfolio for a portfolio of vacant, vandalized homes needing monthly maintenance and requiring the payment of taxes. That is exactly what will happen if this scheme is not put in reverse. Someone, somewhere will be in the reverse position of paying costs and taxes instead of receiving a return on their money. The BIG problem that the derivative schemers have created is that when they shifted the risk to unsuspecting investors, they created a class of potential involuntary homeowners who are more likely to walk away from their “investment” than pay for maintenance, taxes and upkeep.

On a smaller scale this would present a buying opportunity bringing glee to the eyes of every real estate investor. But on THIS scale it presents risks and probabilities of repeated foreclosures on the same property. Begin with the borrower walking away from an upside investment that isn’t worth his money or time in maintaining. Then start with the loan servicer, the lender and the investor. That involves foreclosures and assignments. Then they walk away from a vandalized house stripped of fixtures, appliances and copper wiring. So the local taxing authorities foreclose on the property again. The lender-derivative investor group is glad to be rid of the problem even if it means writing off huge losses.

This leaves a financially strapped city or county holding millions of homes that are in various states of decay in neighborhoods that have turned into ghost towns — by people who WERE paying their mortgage but stopped and walked away because home values and the quality of the neighborhood have deteriorated to conditions that are unsafe and unwanted.

Many billions of dollars in lost tax revenues will result in downgrading the investment quality of tax-free bonds, which is why Buffet is trying to shore up that piece with his $800 billion reinsurance plan. Buffet can’t do this alone. Nobody has enough MONEY to cure this. Reinsuring the bonds will only result in another round of foreclosures and assignments because the revenue streams to support the bonds are not there.

This is why we need a ground-hog day plan which puts everything in reverse, due process or not, and lands people, agencies, private sector, investors etc in as close a position as possible to where they were before this scheme was launched. In the end, there is no doubt that the taxpayers are going to take it on the chin here. We can only hope that our taxpayers will have any money to pay their taxes.

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