TRUTH: Toxic Assets Held by Wall Street: $30 Billion, for everything else there’s MasterCard

The reason why the figure is so low is exactly why we have been saying that the Wall Street pretenders have no right to foreclose. They never owned the mortgage backed securities because they sold them “forward.” That’s a fancy way of saying they sold the securities before they existed. They were a figment of someone’s delusions of grandeur. Investors put up money FIRST and then Wall Street went scrambling looking for signature on notes from anyone and anything. As Brad Keiser says, a dog with a note in his mouth could get a mortgage for $300,000 and I understand that some dog in california actually did just that.

And Wall Street neither owned nor had any real control or rights over the mortgages and notes that were eventually signed — thus removing the possibility of criminal fraud charges being filed against the Wall Street firms that were selling “mortgage backed securities” without any mortgages to back them up.

This is not rocket science folks. The losers were the investors and the borrowers, not Wall Street and the same thing holds true for credit cards, auto loans, student loans and the rest of the securitized loan pools. The real problem is NOT bank losses because they don’t have any losses from defaulted loans.

Just look at default rates barely in double digits versus the value at which the CDOs are trading in single digits. The gap between 1% and 85% is easily accounted for by the fact that many of the entire pool of securitized laons are unenforceable and virtually ALL of the residential mortgage backed securities will never be LEGALLY enforced either. 

Those Notices of default, Notices of sale Foreclosure Suits, Motions for Summary Judgment are virtually all filed by imposters without any knowledge or concern about how much the REAL LENDER got paid from you, the government, insurers, cross collateralization etc. None of these intermediaries who are trying to steal your homes has any idea how to produce a complete accounting for what occurred with your loan.

That payment you make to your latest and greatest servicer is probably not due at all, and if it is, it probably is not due to the servicer you are paying. That’s why you need to ASSUME NOTHING and CHALLENGE EVERYTHING.

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July 9, 2009
With Assets Less Toxic, Banks Have Other Troubles By THE ASSOCIATED PRESS
Filed at 5:16 p.m. ET

WASHINGTON (AP) — The bundles of bad home mortgages that panicked the Bush and Obama administrations have turned out to be not so toxic for the financial industry after all.

After assembling $700 billion to deal with the problem, the government is devoting a relatively modest $30 billion to buy troubled mortgage-backed securities. With that on the back burner, the big threat to the economy is now believed to be troubled credit card, commercial real estate and commercial industrial debt.

These bad loans, made worse by the severity of the recession, could be responsible for two-thirds of banks’ losses.

”The commercial real estate time bomb is ticking,” Rep. Carolyn Maloney, D-N.Y., said Thursday at a congressional hearing.

On that front, the administration is still looking for a solution. A so-called ”legacy loan” purchase plan by the Federal Deposit Insurance Corp. announced last March has fizzled.

At the end of the first quarter of this year, banks held about $1.8 trillion in commercial real estate loans. About 7 percent of those loans were considered delinquent, almost twice the level a year earlier, Jon D. Greenlee, the Federal Reserve’s associate director for banking supervision and regulation, told Congress on Thursday.

”Yes, the need to buy toxic assets from the banks is less present than it was,” Sen. Chuck Schumer, D-N.Y., told The Associated Press. ”There are still lots of other problems.”

It’s hard to imagine today the dread with which Wall Street and top government officials viewed the mortgage-backed assets that banks were carrying last September. Lawmakers were told that these securities had so been so devalued that they had pushed the entire economy to the edge of a precipice. Congress moved swiftly to pass the $700 billion Troubled Asset Relief Program.

As initially planned, the program would have bought, managed and sold these toxic assets to allow banks to recapitalize and free up more lending. But then-Treasury Secretary Henry Paulson and other members of President George W. Bush’s team soon found that it was nearly impossible to assign a price to those assets. Instead, the Bush administration and later the Obama administration reassembled TARP into about a dozen separate programs.

The government now is making large, direct infusions into hundreds of financial institutions, and helping lenders modify mortgages. The government also is using loans and other subsidies to prop up the largest firms, including banks, automakers and an insurance company.

The Treasury Department predicts that it has about $127 billion in TARP money that has not been spent or earmarked for a particular program. Of that, $70 billion represents money repaid by banks and has prompted a debate in Congress as to whether it should be used to reduce the deficit or, as Treasury wants, as a contingency for other finanial sector assistance.

What’s more, administration officials warn that the mortgage-backed securities, amassed during the subprime real estate boom, could still come back and bite the financial sector. But for now, they’re not the main thing dragging banks down.

What altered the landscape? In a word, attitude.

”What we’re seeing is a change in sentiment and confidence,” said Mark Tenhundfeld, a senior vice president at the American Bankers Association.

To be sure, there were steps along the way that contributed. The board that sets U.S. accounting standards gave companies more leeway in valuing assets and reporting losses. Federal Reserve stress tests on the nation’s top banks also showed that even with their bad assets and troubled loans, they could still function. Pressed by the government, they then proceeded to raise $100 billion in new capital.

And the economy, though still sputtering, shows signs of bottoming out.

”The fact that the market itself and the institutions have actually strengthened themselves has given a degree of confidence that institutions may not be under such intense pressure to dispose of assets,” said Randy Marshall, who heads the financial services practice at Protiviti, a global business consulting and internal auditing firm.

Since the program was conceived in a desperate moment and no longer addresses the banking system’s root problems, Treasury would have been wise to scrap it, said Barry Ritholtz, head of the financial research firm FusionIQ.

”It doesn’t make any sense to take federal tax dollars and give it to wealthy private equity people to buy junk that should never have been produced,” Ritholtz said. ”None of the underlying factors that led to this crisis have changed, but the pain from this issue has stopped for the moment.”

And it remains an open question whether banks and investors will ever agree on the value of these assets.

Banks might value their pool of mortgage-backed assets at about 60 cents on the dollar while investors price them at about 30 cents on the dollar, said Douglas Elliott, a fellow at the Brookings Institution and a former investment banker. The government’s $30 billion public-private partnership plan could lead investors to pay 40 to 45 cents on the dollar, he said.

Even that might not generate enough interest among banks to reach the government’s goal of $40 billion in toxic-asset sales.

”It’s not a matter of how much toxic assets are out there,” said independent banking consultant Bert Ely. ”The question is do banks need to sell them, and can they get the price they’re looking for.”

3 Responses

  1. The article above is right on topic regarding Commercial Loans which is evident when a hotel here in San Diefo decided that it was in the companies best interest to walk away from their mortgage and let the hotel go into foreclosure.
    SAN CLEMENTE, CA – June 7, 2009 – Sunstone Hotel Investors, Inc. (the “Company”) (NYSE: SHO) today provided an update on its recent operating performance and finance transactions.

    W Hotel San Diego

    As noted above, on May 20, 2009, the Company amended its exchangeable notes indenture to provide that defaults by its subsidiaries on non-recourse indebtedness less than $300.0 million would not result in an acceleration of its exchangeable notes prior to maturity. This amendment was specifically aimed at improving the Company’s ability to manage its secured debt portfolio in the context of the inherent inflexibilities of commercial mortgage backed securities (“CMBS”) debt.

    As a consequence of significant and continuing deterioration in demand for luxury lodging and the introduction of numerous new competitive hotels in the San Diego market (including a number of luxury boutique hotels, two additional Starwood-branded hotels and a 1,190-room convention hotel), the operations of the Company’s 258-room W Hotel San Diego have declined materially. In the Company’s estimation the hotel’s operations have been permanently impaired as a result of the aforementioned factors. The hotel is currently forecasting 2009 EBITDA of between $1.8 and $2.2 million.

    The hotel is encumbered by a $65.0 million, fixed-rate CMBS mortgage that bears an interest rate of 6.14%. The mortgage matures January 1, 2018, and is non-recourse to the Company. Scheduled 2009 debt service on the mortgage is approximately $4.0 million. The principal amount of the mortgage equates to more than 30-times the hotel’s 2009 forecasted EBITDA, and more than $250,000 in debt per room.

    Over the last several months, the Company has attempted to work with the hotel’s CMBS special servicer to amend the terms of the mortgage to provide for a reduction in current interest payments. The special servicer has recently declined the Company’s proposed modifications. As a result, the Company has elected not to make the June 1st debt service payment on the hotel’s mortgage. At this point, the Company does not expect further negotiation with the special servicer, and the Company is prepared to convey the hotel to the lender in lieu of repayment.

    While the Company’s elective default of the W San Diego mortgage was precipitated by a number of unique, market and hotel-specific factors, in the future other factors may lead the Company to pursue similar options with certain of its other mortgaged hotels. The Company believes such cases will be limited in number. For perspective, the average mortgage debt per room of the Company’s mortgaged hotels equates to approximately $129,500, approximately half that of the W San Diego.

    Ken Cruse, Chief Financial Officer, stated, “As a result of negative supply and demand fundamentals in the San Diego market, we believe the intrinsic value of the W San Diego is now meaningfully below the principal amount of its debt. While the Company maintains more than adequate liquidity to support or repay this mortgage, we believe a conveyance of this hotel in settlement of the debt would be in the best interest of our stockholders as it would deleverage the Company, and would be accretive to both the Company’s FFO per share and credit profile.”

  2. BT
    I had great credit and borrowed plenty. You know money for free! I am willing to take the consequences for my bad judgement, but not until the Banksters are in Jail! They can have my house if they can tell me who owns it and how many times it was paid for with my good name and good credit. Until then I will fight to the end and if necessary burn my house down to keep them from making another cent on the back of my hard work. My whole live I have averaged 80 hrs a week of work so I could retire at the end. Most of my effort I put in my house which I believed was the safest place, I had lost a half mill in the Stock Market. SO I AM PISSED!
    A lot of people are pissed, but there seems to be no way to heard cats.
    Keep up the good fight! I am with you!

  3. As borrowers we are looked at as crazy when in court or that we are blaming or pushing our troubles on to someone else, they say you borrowed the money, you should do the moral thing.

    We have shoosen to fight. While I am trying to hold on to my home and some properties that are securitzed and fannie mae loans, realizing that bank of america and regions bank loaned money to me without any due diligence that i could repay or without any income check, they wanted to churn loans.

    It would be great if this great BLOG could start a forum where we could all post our filings, docs, and demand letters, so we can all share and fight this from a grass roots. THEN also a link where people could post any article or story in local papers about lenders and securitization issues.

    Being Pro Se, we need all the help we can get! thanks so much for this blog and site, it is a great help.

    I am struggling with the fact i can not pay and it is really killing my wife, but we feel the MBO thrist drove us to get money we should have never been allowed to have, if they would of siad no, we would not be upside down and watched our euqity and cash and net worth dwindle.

    any thoughts.

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