Gump59 – Why buy performing mortgages? If they are producing income for their owners, why wouldn’t they be held onto?

ANSWER: You’d buy a performing mortgage if you thought that you were buying it at a bargain, guaranteed with Triple AAA rating. If you buy a mortgage note that has a principal balance due of $500,000 and the stated interest rate is 6% you are expecting $30,000 in income. But if you think you are buying it for $250,000, and still getting $30,000 per year, then you are getting 12% plus a $250,000 bonus (when the note gets paid off). In the mortgage meltdown, this is what occurred. But what they were buying was one performing mortgage and 1,000 mortgages that already had the fuse lit to blow up (become non-performing). On paper it looked like 12%. In reality it was 1%, and that too vanished when the stuff hit the wall. As for the principal due on the note —- well that also vanished. The intermediaries (depository lending institutions and Wall Street investment bankers) got paid twice or three times (with Federal bailout) over, the borrower lost everything, the investor lost everything. Now the officials who gave the bailout understand that Wall Street pulled off the greatest triple fraud in history — the investors, the borrowers and the taxpayers — and in many cases because of pensions, annuities and other factors it was the same person getting pounded by the same transaction over and over again.

Neil F. Garfield, Esq.

4 Responses

  1. You should attend our workshop in Napa or Orlando. New rules on Chapter 13 cram down for mortgages are subject to varying interpretation. The weaker the case presented by the party seeking to foreclose, the more likely the cramdown will be to zero or nearly zero. Check viability of contingency fees for results.

  2. That is a very helpful blog entry. My company thanks you for your contribution to the betterment of the legal blog stratosphere!

  3. SEC Filings for “Wells Fargo Home Equity Asset-Backed Certificates 2005-2 Trust” show first 8k (income distribution) sept 05,also oct, nov, dec, and they file a Form 15 to end the tax identifier number obligation to report on Jan 18, 2006. Out of business? huh? April 7th 2008 Fitch Rates top 8 classes “affirmed” and 8 lower classes downgraded. where are they now?

  4. Neil, couple questions for you:

    “But if you think you are buying it for $250,000, and still getting $30,000 per year, then you are getting 12% plus a $250,000 bonus (when the note gets paid off).”

    Can you explain the mechanics of how they pulled this part off in more detail? How did they trick them in to thinking the principle was $250k instead of $500k?

    You mentioned that the investors are losing everything but the intermediaries are cashing in big time. What about CDS? I thought they were supposed to protect the investors. Are the Trusts that bought the CDS keeping the anything they get from the CDS instead of dispersing it to the investors or are they not being able to cash in on the CDS?

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