July, 2007: Livinglies describes and predicts the meltdown

History shows that the descriptions and predictions in this piece I wrote 1 1/2 years ago were unfortunately on target. What I didn’t realize at the time, was that many if not most of the money was at that time going for “refi’s” that homeowners did not solicit or want. There was a knock on the door in some reverse red lined neighborhood, and some nice looking person introduced themselves as a Representative of First National Bank on the Corner.

As a new bank in the neighborhood (created by some investment banker on Wall Street, but of course that wasn’t disclosed) they had a brand new program just for that neighborhood. The house was paid for and had been in the house for generations. Six months later these victims found that the papers they signed, the assurances they received of another refi that would remove the reverse amortization, adjustable features, were all fraudulent and now they were facing foreclosure and eviction. These scenarios played out millions of times over and have created the New American Tragedy. 

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7-13-07 Amazing. Where is the outrage? Here is how this works. In effect a tacit conspiracy between builders of new construction housing in tract developments, mortgage brokers, and investment bankers are turning ordinary people into sub prime borrowers, canceling out a lifetime of gains and rewards that normal people have worked for according to the rules.

The syndicate lures people first into trusting them and then into making purchase and investment decisions that are nothing short of catastrophic and the syndicate knows it will be catastrophic — but not for members of the syndicate. A buyer/borrower is lured into a home too much for their finances — only they don’t get to find that out until long after the the purchase/investment decision is made. The appearance is that these people had all the time in the world to figure all this out and get the right advice, and so it is their own fault if they get into a financial mess.

The reality is far different than the appearance, but political views, policies and perceptions are based upon the appearance rather than the reality.

The pitch is “no problem” — we will give it to you for less money per month than you pay now. Of course when they get to closing they find out that the TOTAL carrying costs on the new house are higher than what they were paying but they are too excited to give that much thought.

Of course the homes are all new homes that give the buyer fewer “amenities” than ever before thus requiring the new buyer to spend more money than he/she ever spent before on furnishings for their house, some of which, like window treatments, are mandated by the rules of the association that the developer wrote.

So after the buyer is totally broke and already behind the 8 ball, suddenly the thing he and the little woman had pushed under the rug, raises its ugly head —- the partially reversible, adjustable, no “fee” mortgage loan payments just went through the roof far beyond any ability they have to pay it, and now even beyond the ability to take it out of savings, that are now completely gone. In fact, these buyers are now maxxed out on their credit cards as well and falling behind on those payments.

Thus people deplete everything they have, run their credit rating into the ground, and are now red meat for the predators who started all this — the tacit syndicate composed of developers, mortgage “brokers”, and investment bankers. They never lose money. The people who lose money are the little people (the bread of the sandwich). On one end is the borrower/buyer and on the other is quite possibly the same person who has purchased the mortgaged -backed securities his broker touted to him. The appearance of wealth is what propels the buyer/borrowers and investors who buy the securities.

The lack of risk and accountability is what propels the syndicate. The government does nothing because under the Peter principale if you can get one of these cycles going, you will be long gone and in some other elective office when the shit hits the fan. In fact, a clever politician will tell you that when he was in power, the economy was much better — and when his opponent came in, everything went to hell in a hand basket.

So now the poor schlep is out of money, and can’t keep his home. No problem.

The mortgagee will refinance and make things easier on you, but there is the matter of certain fees, an even deeper reverse amortization that effectively transfers ownership of your home to the lender, and oh yes, your credit rating dropped by 200 points so your interest rate instead of “adjusting 2% is now up 5%. Before long, the second round starts, and the buyer/borrower has to sell the home with most of the furnishings etc he/she bought at a price that is a fraction of what they paid, to people, who have real money — because these perks on not so available on resales as they are on new construction.

Of course it is has been a while since the original buyer/borrower has called that broker who touted and pressed him into selling some conservative investment and buying these mortgage backed securities — but that broker has since quit the business and now works for his uncle selling aluminum siding or has moved onto another city and another brokerage house. They finally determine that the securities they bought and that were so good have been “down-graded” from a “BUY” to a “SELL” at any price — because the mortgages that backed those securities were comprised mostly of mortgages just like the one that got you into trouble in the first place.

All the exits are now closed and the the good hard-working people who played by the rules and were deceived by their trust in people who were out to take them down now find themselves near the poverty line when before this they were up and coming. It is the American Tragedy of the early 21st century. It will continue until as a society we insist on the REAL facts, and people in whom we repose our confidence are accountable for their actions.

When those people act in their own interests and contrary to the public interest they should lose their license to work, just like any doctor, lawyer, accountant, engineer or other licensed profession. Instead, there is a wink and and and the game goes on. It isn’t market forces that are driving this pattern, it is raw political power and greed disproportionately distributed, maintained and enforced by the government that was formed to protect people from exactly this sort of thing.

3 Responses

  1. The mortgage meltdown was happening end of 2005. We saw cash out mortgages pushed to the hilt as we went over hundreds of customers complete financial statements. Mortgage lates, high ltv, high revolving debt and in capacity to continue funding a mortgage they couldn’t afford unbelievable expectations. Most of the leads we recieved we could not fund.

  2. I couldn’t agree with you more about the Government Neil,
    Bravo Well Said

  3. Thank you very much for your post. Absolutely excellent information and very useful for me. Great done and keep posted. Looking forward to reading more from you.

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