“PRINCIPAL CORRECTION”: INDUSTRY AND GOVERNMENT BLOCKING SHORTSALES

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POLICY CHECK: The issue is not “principal reduction” or even “short-sale”. The issue is obvious. The “values” used in the marketplace were accepted because of lies that people relied upon, whether it was reasonable for them to have relied on those lies or not. It is not “principal reduction” that will correct the situation, it is PRINCIPAL CORRECTION. And that is a correction in our basic principles to reflect a policy of fair play.

The facts are in. There can be no dispute that the government is colluding with industry to prevent the housing industry from stabilizing. The poster boy for this patent policy is the current set of “rules” that exist throughout the mortgage lending infrastructure which prevent anyone who gets approval for a short-sale from receiving a new mortgage from anyone for at least 2 years. It is impossible to think of a scenario where anyone on any side of the political spectrum would approve this intrusion of the government (through Fannie Mae et al rules) into private contracts. In addition, it is just plain stupid. Add the current bankruptcy rules that allow investors with multiple homes to file Chapter 11 and strip the liens down to fair market value but block the lone, one-home homeowner from getting the same relief, and you have a perfectly clear explanation for our currently unfolding economic disaster.

The status of the market is simple and obvious: fair market values of homes are generally so far below the principal stated on the mortgage note that it is impossible for the property to be sold. It would require the typical homeowner to pay $100,000 or more (sometimes much more) to close the transaction with a satisfaction or release of the old mortgage. Since most homeowners do not have this money or won’t part with it if they do (since it would deplete what is left of their resources) practically none of the homes that are under water can or will ever be sold except in foreclosure auctions where the identity of the creditor, the amount due on the obligation, and the status of title are completely obscured, leaving a new field of collateral damage to the marketplace that might end up worse than the the one we already face.

This is an informal but nevertheless highly effective policy of price control which continues to artificially inflate a market that was already artificially inflated by fraudulent appraisals and fraudulent ratings — without which no borrower would have accepted the deal and no investor would have loaned the money. The ONLY beneficiaries of this policy are the players in the financial industry who continue to conduct business behind curtains of obscure “trades,” continuing to make money on a market they have essentially destroyed.

Government and industry continue to paint themselves and all American taxpayers into a corner where the stench of fascism (control of government by private industry) is rising to suffocating levels and producing an American voter who is sickened and disgusted by our failure to follow the only sensible path open to us: break the hold of the bank oligopoly. For years the economists from the International Monetary Fund, central banks from around the world, and “casual” economists like myself have been saying the same thing. But even those who favor smaller government keep voting for politicians who make it increasingly easy for giant profitable corporations to feed at the public trough while the small businessman locks the door for the last time and walks away.

  • $700 billion in TARP money is a tiny fraction of what was gifted to the financial industry.

  • That figure alone could be used as the basis for principal correction, since the banks received the money but continued to foreclose and still ceased lending — the very opposite of what the public expected. Out of the $7 trillion eventually granted, gifted, loaned or guaranteed for the financial industry why isn’t some portion of that money being used to allocate to specific loan accounts across the board? This requires the “principle” of grade school math.

  • It does not require a new law or rule.

  • The creditors received trillions of dollars on obligations that were neither in default nor delinquent as well as actual “troubled loans.”

  • Just applying simple math: If you take 7 million mortgages and apply the $7 trillion received by Wall Street, the borrowers should get credited for the $7 trillion. On average that would mean a credit or correction of the amount of the mortgage note of $1 million per mortgage!

  • OK, I’m oversimplifying, but not as much as you might think.

  • If you don’t like the borrowers getting credit for the taxpayer payment, OK, but why would you give the credit to the financial industry at the expense of the taxpayer? If the taxpayer paid it, why doesn’t the taxpayer get credit for it? Why would you credit the the financial industry for receipt of taxpayer’s money on debt portfolios and still allow them to collect the same amount on the debt?

  • And more importantly why would you give them the house too?

  • And if they got even more money from insurance and credit enhancements why isn’t the taxpayer, the borrower, or both given credit on the obligation that has so obviously been reduced?

  • If the credit due on the obligation was merely a transfer of the receivable to the government, OK, lets’ see the U.S. government in these foreclosures, modifications and short-sales — not the original creditors who have already been paid.

  • The windfall continues to go to non-creditors who never had a dime in the game getting a free house — and we are like sheep being led to slaughter continue believing that the homeowner is not taking “personal responsibility” — right up to the point when the bullet enters our brain.

The plain truth is that we are continuing the big lie and the longer we tell it, the longer we maintain it, the stupider we look, feel and act. We know housing lies at the bedrock of our economy but we are pursuing fiscal policies instead of real policies. Small wonder the economy is not responding. If we continue on this path, the United States will cease being a major world power thereby losing access to world markets and credit upon which it desperately depends. The use of the U.S. dollar as the reserve currency will also cease turning all that money out there into demand liabilities — which means that there will be demands made to redeem those dollars into other currencies or even gold. Like our health, we take it for granted until we lose it. And make no mistake, we are losing it.

Those economists have been outspoken in their criticism and very direct in their warnings — any other country would have long since been forced to undertake austerity measures and corrections to their financial systems that de-centralize the financial power structure. Many have suggested that if the U.S. did not have such clear military superiority that the Wall Street scheme that produced this mess would have been declared an act of war against all countries affected.

Because of a mistaken notion that we can allow banks and other companies to hide the true status of their balance sheets — when everyone knows the figures are cooked — we continue to allow the financial industry to do business as usual, making fictitious profits upon which they reward themselves with bonuses of real money. Instead of making things that consumers want, instead of doing things that consumers will pay for, we are a nation with our head in the sand pretending to do business when at least 40% of our “economy” is trading printed, fabricated paper (or now electronic evidence of paper) back and forth between themselves and calling it “commerce.” And then to make matters worse we fail to apply taxes on income that would apply to anyone else who reported such incredulous profits, leaving the taxpayer with a larger and larger bill whose eventual height cannot yet be determined. Federal and state budgets would be substantially enhanced by the collection of those taxes, but they don’t because they are controlled by the financial oligopoly.

Thus we are continuing to pursue policy that ignores the elephant in the living room — there is nobody left to buy homes, consumer goods and services because they don’t have any money nor do they have access to it. They perceive themselves as in debt up to their eyeballs and now the federal government is telling them that the surplus we had 10 years ago is now a deficit that puts each newborn in debt for the rest of their lives and the lives of their descendants.

REALITY CHECK: Unless we all state the obvious we can’t fix the problem. As long as we continue to direct our attention at “other issues” that are fabricated distractions from the financial industry, the housing market will continue to bust lower and lower levels, taking the rest of the economy with it, and causing social chaos as people are required to relocate with nothing left of their credit scores or bank accounts.

REALITY CHECK: If a new policy would allow the market to correct itself, if the markets caused an economic revival, if new businesses were created, if U.S. innovation regained its first place in the American arsenal, and if jobs were created with rising median income, what difference does it make if some people gain an unintended advantage? We have that unintended advantage right now with all the money being concentrated into a handful of banks and other oligopolies.  If everyone was more prosperous and secure would we really care if some people took undue advantage? And if the answer to that question is YES, then why don’t you care now because the advantage, unfair, illegal and immoral as it is, is now going to people who not only took advantage of the system but destroyed the entire financial system in the process.

POLICY CHECK: The issue is not “principal reduction” or even “short-sale”. The issue is obvious. The “values” used in the market place were accepted because of lies that people relied upon, whether it was reasonable for them to have relied on those lies or not. It is not “principal reduction” that will correct the situation, it is PRINCIPAL CORRECTION. And it is a a correction in our basic principles to reflect a policy of fair play. It is a policy that simply acknowledges the truth: that the prices used for sale of loan products and mortgage bonds were bogus. Starting from that premise existing laws, rules and regulations could take care of most of the problem. A change in the bankruptcy laws that allowed all petitioners the same relief for lien stripping to fair market value instead of excluding the small homeowner, would be very helpful as well.


17 Responses

  1. I went to the hearing yesterday regarding the motion to strike my affirmative defense. Guess what. My lawyer could not go and send another stupid woman who did not prepare at all, I have one case against USBank (first mortgage) and the other with BOFA (was dismissed already – 2nd). She though the motion to strike was regarding the BOFA case.
    She did not even read my file right !!!!! I could kill her.
    Thanks God the Judge swallow her stupid excuse and postponed for next Thursday.
    Now the most amazing – while i was arguing with her that I wanted to talk to the Judge, she was all lovee dovee with the attorney for USBank and did not tell me !!! So I am talking about my case in front of my enemy!

  2. The A Man

    This country is beyoind saving..Run for your life !

  3. Hell I never have anything to add.I just enjoy reading the postings and the comments.
    Great Job ! Hats off to everyone . Add me to the list, I will protest. Be a Patriot -Stop these bastards.

  4. America has been stolen. Manipulated and pillaged, plain and simple. We’ve all seen what happens when one entity gains the majority of deeds in the game Monopoly. It’s basically game over, as everyone ends up paying that one person just to exist. This is exactly what is happening in our world right now, and the only way to stop it is to topple the TBTF banks, and the fat cat elites that are behind them. They’ve equity stripped us, and now they’re very effectivelly taking the deeds to the land. We, the peasants, and our children, will need to work ever harder for their benefit. It’s time for a paradigm shift. Consider the following:

    ~~

    “Our problem basically is that we have a very distorted economy,” Greenspan said. Any recovery has mostly been limited to large banks, large businesses and “high-income individuals who have just had $800 billion added to their 401(k)s, and are spending it and are carrying what consumption there is.”

    http://www.bloomberg.com/news/2010-08-01/greenspan-says-decline-in-u-s-home-prices-might-bring-back-the-recession.html

    ~~

    “So about $800 billion per year has been transferred from the bottom 90% to the top 10%. In addition, it turns out that within the top 10%, almost all of that $800 billion has gone to the top 1% and especially to the top 0.1%.”

    http://motherjones.com/kevin-drum/2010/09/income-inequality-week-continues

    ~~

    “Well, the reality is that the game is rigged to take wealth away from middle class and working class Americans and to give it to the elite. There is a reason why they push credit cards on you so hard. That $6000 balance that you keep carrying will end up costing you over $30,000 to pay off if you are not careful. We were told that owning a home was “the American Dream” and yet predatory mortgages have destroyed the financial lives of millions of Americans. The majority of Americans now live “month to month” and barely save any money at all. In fact, Americans are programmed to be slaves of the system. We are taught that we need to go get a job (“just over broke”) and work ourselves silly all day, and then at night we are taught to collapse in front of the television where we are bombarded with messages telling us to be good consumers and to go out and get into even more debt so that we will have to endlessly work to pay it off.”

    http://theeconomiccollapseblog.com/archives/not-everyone-is-hurting-the-rich-get-richer-as-the-income-inequality-gap-explodes

    ~~

    “Consider: in 1928 the richest 1 percent of Americans received 23.9 percent of the nation’s total income. After that, the share going to the richest 1 percent steadily declined. New Deal reforms, followed by World War II, the GI Bill and the Great Society expanded the circle of prosperity. By the late 1970s the top 1 percent raked in only 8 to 9 percent of America’s total annual income. But after that, inequality began to widen again, and income reconcentrated at the top. By 2007 the richest 1 percent were back to where they were in 1928—with 23.5 percent of the total.”

    — Robert Reich in Unjust Spoils, The Nation, July 19, 2010

  5. This problem can’t be solved by any of the means mentioned. Why? Because the entire system is fraudulent. The banks don’t loan us money for our mortgages, so then, why should we pay them anything, save for a setup fee?

    Listen folks, this is not rocket science. If the banks don’t risk, then they shouldn’t collect. Plain and simple.

    Negotiating, modifying, reconciliation with those that are engaged in outright fraud and deception, complete with government running defense for them is the problem.

    IMO, the worst thing that humans have done to the planet is climate change. The worst things that humans have done to the human race was to SAVE THE FREAKIN’ BANKS! They NEEDED to fail! They are all crooks, and are stealing not just from us, but from our children and beyond. It MUST BE STOPPED!

    The treasury and all of Obama’s economic team need to be tarred and feathered. They are the ENEMY to all true AMERICANS! And they are going to crush what was a great nation, all in the name of hubris and rampant greed. Are their billions in bonuses worth losing our nation over?

  6. Anonymous Atlanta

    The link doesn’t work…

  7. SORRY ABOUT THE TYPOS IN THE LAST PARAGRAPH

  8. WE GOT INVOLVED WITHOUT KNOWING IN A PONZI SCHEME. THE ONLY WAY THE BANKS AND THE FEDERAL GOVERNMENT CAN GET OUT OF ADMITTING THAT IT IS A PONZI SCHEME IS TO ELIMINATE US OR THE INVESTOR. THE PONZI SCHEME INVOLVES COMINGLING OF FUNDS FOR THE COVER UP.

    THAT IS WHY PLAIN AND SIMPLE THE CITY OF BELL CASE STUDY IS THE ONLY WAY OUT OF THIS FOR US. NOT CHAPTER 11, 7,OR 13 BECAUSE WE ARE GOING TO THE FEDS FOR RELIEF. THEY ARE PART OF THE ALLEGED COVER UP. .

    OR LET THE HOUSING MARKET COLLAPSE AND START OVER AGAIN.

    IF YOU BLOW INTO A BALLOON AND IT EXPLODES YOU DONT TRY TO FIX THE BALLOON YOU GET A NEW ONE AND START BLWING INT THE BUBBLE ALL OVER AGAIN. WHICH IS WHAT THE BIG BANKS ARE DOING. THEY ARE CONSUMING THE SMALL BANKS AND OPENING UP NEW BRANCHES ALL OF THE PLACE.

    G-D SAVE THIS COUNTRY.

  9. I would also go on record for principle “correction”. This link below doe’s a good job of explaining the lies we have been under and how to end your “Commerce Game” by Mary Elizabeth Croft. This brilliant book is quite timely as was the case Sat, concerning “AWL”
    which by the way is right after “MERS” go figure. After reading 180 pages my mind is numb, and rightfully so you will see what I mean.

    http://sz0102.wc.mail.comcast.net/service/home/~/Mary%20Elizabeth%20Croft.pdf?auth=co&loc=en_US&id=2140&part=2

  10. Here’s a simple measure of how serious this problem truly is….

    Look at the average family income – compared to the average mortgage amount. They do not add-up or align.

    I looked at our our county’s average income, which is actually high at 71k per yr. But the average mortgage was around 347k and even at the lower scale of 275-325k it still does not work. A 300k mortgage will cost that family 1566-1600 P&I add in the taxes & ins and it’s at least 2000-2200 bucks and that doesn’t work no matter how it’s sliced.

    The only hope to fix this thing is to force the pretender-lenders to rewrite these loans at whatever these families can afford – period!

    So, for example a earning approx 71k per yr regardless what the original amount of the loan a judge should FORCE the lender to re-write the loan at NO-MORE than 160-185k with permanent 30yr rate no more than 4.5-5.0 interest rate.

    IMHO – As mentioned before those payments should NOT be paid to the lender but to a separate institution setup within the STATE and NOT Fed and NEVER to the lender. This would allow each state to deal with the issues within state courts where it should be. The payments could be paid specific coffers to help states work through the freaking economic mess created by these lenders. It would cut-off the corruption still floating within the Fed.

    The real issue is Debt to Income ratios. IMHO – that is the only way to deal with this issue to get it done. Then we could focus on PROSECUTIONS. Frankly, if I were the Gov of our State (MD) I would issue a mandatory order to our citizens – effective October 1, 2010 – anyone having a Countrywide Mortgage must make payments to Maryland Mortgage Fund (or whatever) send the payment WITH their monthly payment coupon… I realize it may not be possible but my point is simple. It makes no sense whatsoever to force families continue stressing & struggling to save their homes knowing the economy will get much worse before it gets better. Countrywide is only ONE of the obvious culprits but they would be they first on the list that I would make an example for betraying our citizens.

    I would order our courts to PRESUME the lender’s LIED and force them to account for every aspect of the mortgage loan – securitization process before they could even set-foot in our courtrooms. Any lack at any level dismisses the case and the state then owns that mortgage.

    I would setup a chart much like the tax codes…

    Income – mortgage amount = payment

    35-40k Income = 60-70k mortgage = 600 dollars per month – including taxes & ins
    70k income = 180k mortgage = 1,400 dollars per month – including taxes & ins

    It does NOT matter what their mortgaged amount was – that is ALL THEY CAN AFFORD – PERIOD. Any other bs only prolongs the inevitable collapse.

    The problem with the above is that it collapses the entire MBS investment side of this cluster-f@$%… That’s the real problem – no matter how they attempt to correct it – someone is getting royally screwed. However, maybe there’s another way IF our gov has the balls to do it. If the SEIZE the assets of the major culprits – Re-Invest those funds in other “LEGAL” investment stocks-bonds – etc, THEN – maybe these retirement funds might – MIGHT – have a chance to produce enough to sustain themselves.

    I don’t pretend to know how all this stuff works – but I sincerely believe the present course of ignoring the truth and allowing the culprits to escape without any real consequences will eventually implode into a chaotic vengence of retaliation – AND RIGHTFULLY-SO. Those like the top-CEO’s of CW Stanford L. Kurland,David Sambol, Angelo Mozilo, etc should all be executed. If these people are held not accountable by our courts – the PEOPLE will do it themselves. Bank of America – Lehmann, CitiMortgage, Chase, Wells Fargo, etc – all are learning that being TOO BIG TO FAIL has a SPECIAL UN-LEGAL status because the politicians don’t want to see their retirements evaporate. That type of thinking will NOT survive in AMERICA. That is ANTI-AMERICAN – and their will be consequences.

    I’ll get off my soap-box but the sooner they grasp this and deal with it legitimately the better-off this nation will be.

    Just my 2-pence…

  11. It was about 7:45 a.m. CST today when FOX NEWS ran this story:

    “COULD 60 MILLION MORTGAGES BE ‘FORECLOSURE PROOF’?”
    Finally, FINALLY, they ran a story base on the rulings in Kansas, Utah, New York, etc. stating that MERS has been found to “not have standing” to foreclose. Here we go! How about all you people already foreclosed on by MERS, eh? Yes, my friends, the time has come. The BIG LIE is about to be debunked.

    Thanks, Neil!

    Let’s go people! The truth is getting out!!

    Make some noise and send an e-mail to your FOX affiliates and request more information and airtime on this subject. They will oblige with more news if they know the viewers are paying attention to this story.

  12. I personal will sue First American Corelogic and now
    ZILLOW , for inflated AVM . I have the proof 100%.
    My wife told me ,I print to much , but now I have the proof. I also have hearing problems !! and correspond only per e-mail ,no phone calls.
    Send your Info to the State Attorney w proof and
    OCC and FTC to get it working , and talk to an Attorney.
    I still believe , that the AVM Systems cause the whole
    mess , what prevent the refinancing . We really have to
    wait what judgement come up ,that is the fastest way
    to recover. I have contacted Attorney Murray,Frank & Sailer in NY , who handle HELOC Classaction . How
    work this : $ 313,000.00 inflated AVM now 2 years
    later $ 126.000.00 ?Well in the neighborhood ,was a home sold for $ 600.00 !! , that what the AVM system included. AG Cuomo NY work on this too.
    It will be a long way to recover the AVM has to be stopped.

  13. I accepted a cash offer short sale for $80.000. My loan was $75.000 plus late fees, etc. I went to 3 closings and BOA never participated. And then came back with a higher offer, of which the buyers did not accept and ultimately ended up in court and the judge gave the condo to BOA, saying they could foreclose. Of which they still have not done. Go figure…
    any suggestions???

  14. Where can one go to actually prove in court that the appraisal was overstated?

  15. Neil

    Really great post – I have nothing to add!!

  16. I’ll go on record as being for principal “correction” ,, I like the term , it frames the problem well … although I don’t know how it could be accomplished without full disclosure of all parties involved in each transaction… and full disclosure in itself would lead to remedies outside of a new program.

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