See also Genie Out of the Bottle — Kwak– Baseline Scenario

See also more-evidence-of-bank-fubar-mortgage-behavior-florida-banks-destroyed-notes-others-never-transferred-them.html

See Also diana-farrell-and-the-white-house-theory-of-bank-size

Editor’s Comment: It must be emphasized that what the banks are being forced to “buy back” is not the loans, it’s the mortgage bonds at face value because there were no loans in the pools. The banks may try to maintain the illusion by announcing that they are buying back the loans but that is exactly the opposite of the truth. If the loans were in the pool there would be no liability to buy back the mortgage bonds and certainly not at face value.

The Genie that is out of the bottle is not the creation of the mega-banks, as the White house spokesperson says, but that the entire affair was a charade. The money given to the banks was never based on “bad loans”. It was to cover liability for defrauding investors. The fraud is the same against the borrowers, which is why the banks will at best be left with some sort of free-floating claim to dubious obligations that are both unsecured and subject to set-off for violations of dozens of laws, State and Federal.

EDITOR’S NOTE: IT’S LIKE HAVING TO BUY BACK ALL YOUR SEWAGE FOR THE PAST 10 YEARS. The liability of the banks is virtually assured. They are painted into a corner and I cannot see anyway out of this for them. The liability is based in part on the failure of the banks to fund the pools, the splitting of the notes and mortgages into too many pieces and separating them from their origination documents. The result are free-floating unsecured obligations to unknown creditors.

The ultimate MYTH is that the collapse of the big banks is the equivalent of the end of finance. That is just not true. Unlike other countries we have some 7,000 community banks and credit unions many with tens of billions on deposit and almost all of which now have electronic capability for bill-payment, electronic transfers, etc. Under the new laws and under the old laws breaking up the oligopoly only decentralizes the power base of Wall Street — it doesn’t destroy finance.

The corollary here which Mauldin doesn’t seem to care about, but he should, is that as soon as we face the truth, we will discover that the great wealth transfer will be largely reversed and we will again have a  middle class with wealth, money to spend, invest and conduct commerce. If you want to see lending again then you need to re-introduce de-centralization, where lenders actually know the person or company that is the borrower and where the borrower has a personal relationship with the lending officer.

When will this nightmare end? When we care more about our grandchildren than our grandfathers, to paraphrase Golda Meir. When the pain is felt on Wall Street and the victims are at least partially restored to the condition they were in before this nonsense started, then we will be on a path to recovery, long as it might be. And before you say it, think about this: in our history and the history of other countries around the world, the “impossible” was done. Mission accomplished.

Thoughts from the Frontline Weekly Newsletter

The Subprime Debacle: Act 2

by John Mauldin
October 15, 2010

Visit John's Home Page
In this issue:
The Subprime Debacle: Act 2
Where is the Housing Recovery?
The Foreclosure Mess
Some Foreclosure Takeaways
Yankees, Rangers, and The Endgame

Trouble, oh we got trouble, Right here in River City!
With a capital “T” That rhymes with “P”
And that stands for Pool, That stands for pool.

We’ve surely got trouble!
Right here in River City,
Right here! Gotta figger out a way
To keep the young ones moral after school!
Trouble, trouble, trouble, trouble, trouble…

– From The Music Man

(Quick last-minute note: I think this (and next week’s) is/will be one of the more important letters I have written in the last ten years. Take the time to read, and if you agree send it on to friends and responsible parties. And note to new readers: this letter goes to 1.5 million of my closest friends. It is free. You can go to to subscribe. Now, let’s jump in!)

There’s trouble, my friends, and it is does indeed involve pool(s), but not in the pool hall. The real monster is hidden in those pools of subprime debt that have not gone away. When I first began writing and speaking about the coming subprime disaster, it was in late 2007 and early 2008. The subject was being dismissed in most polite circles. “The subprime problem,” testified Ben Bernanke, “will be contained.”

My early take? It would be a disaster for investors. I admit I did not see in January that it would bring down Lehman and trigger the worst banking crisis in 80 years, less than 18 months later. But it was clear that it would not be “contained.” We had no idea.

I also said that it was going to create a monster legal battle down the road that would take years to develop. Well, in the fullness of time, those years have come nigh upon us. Today we briefly look at the housing market, then the mortgage foreclosure debacle, and then we go into the real problem lurking in the background. It is The Subprime Debacle, Act 2. It is NOT the mortgage foreclosure issue, as serious as that is. I seriously doubt it will be contained, as well. Could the confluence of a bank credit crisis in the US and a sovereign debt banking crisis in Europe lead to another full-blown world banking crisis? The potential is there. This situation wants some serious attention.

This letter is going to print a little longer. But I think it is important that you get a handle on this issue.

Where is the Housing Recovery?

We are going to quickly review a few charts from Gary Shilling’s latest letter, where he review the housing market in depth. Bottom line, the housing market has not yet begun to recover, and it is not only going to take longer but the decline in prices may be greater than many have forecast. I wrote three years ago that it could be well into 2011 before we get to a “bottom.” That may have been optimistic, given what we will cover in this letter.

First, existing and new single-family home sales continue to slide, in the wake of the tax rebate that ended earlier this year. We have declined back to the down-sloping trend line. If you are a seller, this is not a pretty picture.


The homebuilding industry, which was the source of so many jobs last decade (aka the good old days), is on its back. This country needs a healthy housing construction market to get back to lower unemployment, and until the overhang in the foreclosure market is cleared out, that is unlikely to happen.


Lending is tighter, as is reasonable. Banks actually expect you to have the ability to pay back the mortgage you take out (solid FICO scores) and want reasonable down payments. Only 47% of applicants have the FICO score to get the best mortgage rates.

(Sidebar: Gary writes, “Furthermore, false appraisals rose 50% in 2009 from 2008. The tax credit for first-time homebuyers cost taxpayers about $15 billion, twice the official forecast, in part due to fraud. Over 19,000 tax filers claimed the credit but didn’t buy houses, while 74,000 who claimed $500 million in refunds already owned homes.” Where are the regulators?)

Shilling thinks prices are likely to fall another 20%. Given what I am writing about in the next section, that is a possibility. There is certainly no demand pressure to push up housing prices.

Finally, two charts on foreclosures. Residential mortgages in foreclosure are near all-time highs, close to 1 in 21 of all mortgages, up from 1 in 100 just four years ago. That’s got to be bad for your profit models.



Anyone who tells you the housing problem is “bottoming” either has an agenda or simply does not pay attention to the data. I really want to see housing bottom and then turn around and the home builders come back; the nation desperately needs the jobs. But my job is to be realistic. When we see 3-4 months of non-stimulus-induced housing sales growth, then we can start talking about bottoms.

But housing sales are not really the issue. Let’s look at the next leg of the problem.

The Foreclosure Mess

OK, in a serendipitous moment, Maine fishing buddy David Kotok sent me this email on the mortgage foreclosure crisis just as I was getting ready to write much the same thing. It is about the best thing I have read on the topic. Saves me some time and you get a better explanation. From Kotok:

“Dear Readers, this text came to me in an email from sources that are in the financial services business and with whom I have a personal relationship. The original text was laced with expletives and I would not use it in the form I received it. Therefore the text below has had some substantial editing in order to remove that language. The intentions of the writer are undisturbed. The writer shall remain anonymous. This text echoes some of the news items we have seen and heard today; however, it can serve as a plain language description of the present foreclosure-suspension mess. There is a lot here. It takes about ten minutes to read it. – David Kotok (

“Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper…only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage, the note, which is the actual IOU that people sign, promising to pay back the mortgage loan

“Before mortgage-backed securities, most mortgage loans were issued by the local savings & loan. So the note usually didn’t go anywhere: it stayed in the offices of the S&L down the street.

“But once mortgage loan securitization happened, things got sloppy…they got sloppy by the very nature of mortgage-backed securities.

“The whole purpose of MBSs was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with correspondingly higher rates of return.

“Therefore, as everyone knows, the loans were ‘bundled’ into REMICs (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then “sliced & diced”…split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.

“This slicing and dicing created ‘senior tranches,’ where the loans would likely be paid in full, if the past history of mortgage loan statistics was to be believed. And it also created ‘junior tranches,’ where the loans might well default, again according to past history and statistics. (A whole range of tranches was created, of course, but for the purposes of this discussion we can ignore all those countless other variations.)

“These various tranches were sold to different investors, according to their risk appetite. That’s why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.

“But here’s the key issue: When an MBS was first created, all the mortgages were pristine…none had defaulted yet, because they were all brand-new loans. Statistically, some would default and some others would be paid back in full…but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads…but what will the result be of, say, the 723rd toss? No one knows.

“Same with mortgages.

“So in fact, it wasn’t that the riskier loans were in junior tranches and the safer ones were in senior tranches: rather, all the loans were in the REMIC, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder last.

“But who were the owners of the junior-tranche bond and the senior-tranche bonds? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn’t be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.

“Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier tranche?

“Enter stage right the famed MERS…the Mortgage Electronic Registration System.

“MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two again …I know, I know: like the chlamydia and the gonorrhea of the financial world…you cure ’em, but they just keep coming back).

“The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities. Think of MERS as Dr. Frankenstein’s operating table, where the beast got put together.

“However, legally…and this is the important part…MERS didn’t hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.

“But the REMICs didn’t own the notes either, because of a fluke of the ratings agencies: the REMICs had to be “bankruptcy remote,” in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors.

“So somewhere between the REMICs and MERS, the chain of title was broken.

“Now, what does ‘broken chain of title’ mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it’s the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the ‘chain of title.’

“You can endorse the note as many times as you please…but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.

“If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.

“To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.

“Read that last sentence again, please. Don’t worry, I’ll wait.

“You read it again? Good: Now you see the can of worms that’s opening up.

“The broken chain of title might not have been an issue if there hadn’t been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn’t have bothered to check to see that the paperwork was in order.

“But as everyone knows, following the housing collapse of 2007-’10-and-counting, there has been a boatload of foreclosures…and foreclosures on a lot of people who weren’t sloppy bums who skipped out on their mortgage payments, but smart and cautious people who got squeezed by circumstances.

“These people started contesting their foreclosures and evictions, and so started looking into the chain-of-title issue, and that’s when the paperwork became important. So the chain of title became crucial and the botched paperwork became a nontrivial issue.

“Now, the banks had hired ‘foreclosure mills’…law firms that specialized in foreclosures…in order to handle the massive volume of foreclosures and evictions that occurred because of the housing crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.

“Well, what do you know, it turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby ‘proving’ that the banks had judicial standing to foreclose on delinquent mortgages. These foreclosure mills might have even forged the loan note itself…

“Wait, why am I hedging? The foreclosure mills did actually, deliberately, and categorically fake and falsify documents, in order to expedite these foreclosures and evictions. Yves Smith at Naked Capitalism, who has been all over this story, put up a price list for this ‘service’ from a company called DocX…yes, a price list for forged documents. Talk about your one-stop shopping!

“So in other words, a massive fraud was carried out, with the inevitable innocent bystanders getting caught up in the fraud: the guy who got foreclosed and evicted from his home in Florida, even though he didn’t actually have a mortgage, and in fact owned his house free -and clear. The family that was foreclosed and evicted, even though they had a perfect mortgage payment record. Et cetera, depressing et cetera.

“Now, the reason this all came to light is not because too many people were getting screwed by the banks or the government or someone with some power saw what was going on and decided to put a stop to it…that would have been nice, to see a shining knight in armor, riding on a white horse.

“But that’s not how America works nowadays.

“No, alarm bells started going off when the title insurance companies started to refuse to insure the titles.

“In every sale, a title insurance company insures that the title is free -and clear …that the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because…of course…they didn’t want to expose themselves to the risk that the chain of title had been broken, and that the bank had illegally foreclosed on the previous owner.

“That’s when things started getting interesting: that’s when the attorneys general of various states started snooping around and making noises (elections are coming up, after all).

“The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and now Bank of America have suspended foreclosures signals that this is a serious problem…obviously. Banks that size, with that much exposure to foreclosed properties, don’t suspend foreclosures just because they’re good corporate citizens who want to do the right thing, and who have all their paperwork in strict order…they’re halting their foreclosures for a reason.

“The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills’ forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their master’s will by a voice vote…so that there would be no registry of who had voted for it, and therefore no accountability.)

“And President Obama’s pocket veto of the measure? He had to veto it…if he’d signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as unconstitutional in short order. (But he didn’t have the gumption to come right out and veto it…he pocket vetoed it.)

“As soon as the White House announced the pocket veto…the very next day!…Bank of America halted all foreclosures, nationwide.

“Why do you think that happened? Because the banks are in trouble…again. Over the same thing as last time…the damned mortgage-backed securities!

“The reason the banks are in the tank again is, if they’ve been foreclosing on people they didn’t have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.

“And it won’t matter if a particular case…or even most cases…were on the up -and up: It won’t matter if most of the foreclosures and evictions were truly due to the homeowner failing to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that, now, all foreclosures come into question. Not only that, all mortgages come into question.

“People still haven’t figured out what all this means. But I’ll tell you: if enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loans and keep their houses, scott-free? That’s basically a license to halt payments right now, thank you. That’s basically a license to tell the banks to take a hike.

“What are the banks going to do…try to foreclose and then evict you? Show me the paper, Mr. Banker, will be all you need to say.

“This is a major, major crisis. The Lehman bankruptcy could be a spring rain compared to this hurricane. And if this isn’t handled right…and handled right quick, in the next couple of weeks at the outside…this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they don’t need to pay their debts?”

(I am not sure who wrote this, but if you want your 15 minutes of fame, I will be glad to credit you next week. – John)

Some Foreclosure Takeaways

Let me add a few thoughts. First, I agree, this is very serious. It has the possibility of seriously hurting the housing market, which as we saw in the first section is already on the ropes. But at the end of the day, there is a cure.

Someone borrowed money for a mortgage. Some entity is cashing a check if that person is paying. That entity should have the title until it is paid off. If someone is not making their mortgage payments, they should be removed from the house and it should be sold to the benefit of the ultimately correct and what everyone thought was the proper title holder.

If you took out a mortgage and now the title is in some doubt because the investment banks and mortgage banks and all the middle guys screwed up (big-time!) because they wanted to save some bucks and make some commissions, you did not win the lottery. That is not America as I know it. You can’t pay the mortgage, I am sorry. But you do not get to keep the house. The people who (thought) they bought the mortgage in a fair deal need to end up with that mortgage.

If you pay your mortgage, you get to have the American Dream.

We CANNOT allow this debacle to continue. It will bring the system down. Who will want to buy a mortgage that is in a securitized package with no clear title? Who will get title insurance? Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.

Let’s be very clear. If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.

This is beyond my pay grade, but there have to be some adults who can make everyone play nice in the sandbox. Ideally, someone in authority at the Treasury, with bipartisan support steps in and says everyone follow these rules, whatever these rules need to be.

I had a very spirited conversation with good friend Barry Ritholtz today (of The Big Picture). Barry runs money but is also a lawyer and has a somewhat different perspective. He thinks we do not need any legislation and there is a legal cure. He says that real trained people (lawyers and paralegals) need to look at each mortgage and figure it out, and that it can get resolved. It is expensive to the banks; but I agree, if it is just dollars I don’t care. Fix it.

But that is a maybe. Other people I talk to disagree. Some think we need some regulatory fixes. Some think we will need a legislative cure. But if we need to, there need be no finger pointing, no partisan BS. This needs to get solved.

Someone took out a mortgage. Some entity thinks they are owed money. Fix the damn paper trail so that happens, whether in a legal if time-consuming manner, in a regulatory fix, or with legislation.

Now, that is not to say the people who did this stuff did not commit felonies and such. We can sort that out over time. The longer we wait the worse it will get. Fix the problem and then go round up the bad guys. There are bigger issues in play here. (I know this will be somewhat controversial. Oh well.)

I get the fraud being done here. I am regulated by FINRA, the NFA, various states, the British FSA, and ultimately the SEC. If I did something in my business like the stuff described above, someone would come in and justifiably shut me down, fine me, and ban me from the securities business. Oh, wait. These guys ARE regulated by the above groups.

Finally on this topic, I shake my head when I think that the FDIC is now running several of the banks (think IndyMac) that are part of this foreclosure crisis. These are the guys who are supposed to be preventing something like this. Again, where are the adults?

The Subprime Debacle: Act 2

OK, this letter is already getting too long. I am going to finish it next week, as the next topic needs a lengthy treatment. But I will not leave you hanging. A quick preview.

All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.

And all this coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008. I hope I am wrong, but it’s all connected.

24 Responses

  1. Having just been used and abused and misused by fraudulent activity, I will say there is a way out of it. Because that’s why I’m probably SOL, because you can only get the justice (or the answering to justice) as much as the courts hearing your case are just and honest.

    Of course there’s the fact that if they fail, we WILL ALL GO DOWN with them now.

  2. I just read all of David Kotok’s comments and even though it was good, clear and well presented, it was the comments to ruined it.
    One writer made this self condemning statement about the position of MERS ” I hate people that have no idea what they are talking about and mislead people. They don’t even know what a Note and Mortgage are or what they are used for, holy cows.”
    All the while spouting things backwards that have already been clarified many times over.
    One more time for those who are dense and just not getting it.
    It claims the power and right to foreclose but that is a flat out lie they tell. BUT IT SOUNDS SO GOOD IN THE ADS!
    And they, the lenders didn’t create MERS for convenience, they created it to steal money from the states in taxes and recording fees. They brag on their site about how they average $33 per note recording. BUT NO MENTION THAT IN MOST STATES UNRECORDED MORTGAGES OR PROPERTIES ARE WORTHLESS, I
    At 65 million homes that is $2,046,000,000 or 2 billion dollars for only the FIRST non-recording! Now multiply that by every time they happily DIDN’T give a county that average $33 by 65 million by X number of times and then go take a couple of Excederin, because it’s truly mind boggling.
    Then maybe you’ll start to see why the states are broke and the counties are desperate to make missing funds but not knowing why the funds are missing.
    And like it was pointed out earlier, the banks are making a run on the county delinquent tax sales, potentially snatching homes for pennies on the dollar, homes that were never in foreclosure or in danger at all!
    It’s the dirtiest, lowest, most disgusting kind of double cross of all.
    Suddenly they have discovered a new gold mine to raid! And these will be clear title homes!
    It’s vindictive and mean.
    It’s like battling the ancient monster the Hydra with 3 heads, cut off on head and more grow right back.

  3. Dear Garfield,

    One of my clients ordered your COMBO report and it is just amazing. Thanks, great job!1!!!!!!!!!!!

  4. Dear Mr. Garfield and any one who would like to comment,

    I have a question about the repurchases of all those bonds that most likely have also been sold to the Federal Reserve.

    if the pretender lenders never transferred the assets into the pools for what ever reason, and as we are learning every day they broke the chain of title. can these pretenders now that they will own the bonds back and as they also allegedly hold the notes and deeds of trust, claim ownership and right to foreclose, even though they have been paid in full?

    Am I missing something here? I am sure I am!

  5. We have a similar issue here in VA, Wells Fargo, EMC, MARIX, WAMU, are foreclosing on the same loans, with the same law firms.

    The same loan, the same note, the same law firm, same robo signers, same house, same borrower.

    Quit title any one???

    The robo signer signed the affidavit for all the different entities the same day, and forgot to date the affidavit that empowered the trustee to appoint a substitute trustee.

    The required disclosures and dates were not followed.

    Now what would be better to wait for the foreclosure to go through or to stop it all together.

    The lawyer and the client are pondering because of the damages and very strong evidence at hand. They will be ordering a COMBO Analysis in the next few days.

    I am starting to think that these banksters are so clumsy and so used to commit fraud that they will do it over and over just because it is the way they are used to do it and have no other way.

  6. Wayne, I like your post except for one little thing: the part about making sure MERS was not involved in the chain of title. Unfortunately, for all of us MERS was involved in something like fifty million mortgages. The MERS problem is also going to have to be addressed in addition to all the others. MERS did not handle the mortgage chain of title papers properly. They broke the chain of title, too. No documentation for many, many, transfers of title. Neva


    Richard Zombeck
    Oct. 18 2010 Huffington Post

    Bankers New Tactic: Blame the Victim

    Once again, as another harebrained scheme unravels, the swinging dicks of Wall Street manage to appear impervious to reality and completely immune to the truth.

    Nearly every Attorney General in the country is now investigating what was not just simply serial fraud but a no-holds-barred crime spree affecting millions of mortgages across the country.

    If you want to see an excellent explanation of the foreclosure fraud, check out the in-depth post, “Foreclosure Fraud For Dummies” by Michael Konczal’s, a fellow at the Roosevelt Institute.

    The Wall Street frat boys, in a propaganda blitz that would make Tokyo Rose and Joseph Goebbels envious, have come out in droves to blame the victims.

    In a piece from the New York Observer, one guy who was most likely too gutless to be identified by name is described only as a man wearing a bespoke blue-striped shirt, a Hermés tie patterned with elephants and Ferragamo loafers said, “You had people putting zero down to get massive houses they couldn’t afford to be in, but now they want to stay. And the government wants to let them stay, because they’re voters.”

    One example of these massive houses is the house in Maine that started the robo-signer investigations. Nicolle Bradbury bought her house seven years ago for a whopping $75,000. “A major step up from the trailer she had been living in with her family”, the New York Times reported.

    Propaganda isn’t new to the Masters of the Universe. It started with the dream of homeownership and cheap loans. Alan Greenspan perpetuated the attitude by suggesting that people use their homes as ATM machines and praised the use of Adjustable Rate Mortgages (ARM). Wall Street ran with that and pushed ARMs at an alarming rate. At the height of the boom, during the four to five year period before the financial meltdown it was virtually impossible to get a conventional 30 year mortgage. When the financial crisis hit, banks quickly went into action and blamed the entire fiasco on subprime borrowers.

    “If it weren’t for the banks pushing these risky mortgages on brokers and agents with massive incentives, no one would have bought them. But when it’s the only thing you can buy and you’re looking at skyrocketing home values being artificially inflated, what choice do you have,” said Steve Dibert a loan fraud investigator at MFI-Miami.

    Bankers, of course, see it the other way around and prefer to blame homeowners — who had nothing to do with creating, what bankers refer to as “complex financial instruments” when asked to explain credit default swaps, securitized loans, and derivatives as if the rest of us are too stupid to understand.

    Citi chairman Richard D. Parsons told the Observer this summer in an interview, “The loans wouldn’t have been there in the first place if American home buyers, driven by what The Weekly Standard calls immediate gratification without personal responsibility, hadn’t overstepped their bounds.”

    Stories like Bradbury’s are the majority. As opposed to the occasional ridiculous story of the cab driver with eight homes and the 14-year-old who bought a McMansion with paper route money, which the banks would like us to believe are the cause of the meltdown.

    The majority are hardworking, honest people who simply want to stop being screwed at every turn. One homeowner who contacted me through had this to say:

    For the past three years, my life has been on hold. All of my income goes right back to fix my mistakes. I don’t have enough to eat but don’t qualify for food stamps because I make too much money. I don’t get free legal assistance to fight foreclosure because I make too much money. No help paying for my medicine because I have health insurance and make too much money.

    I work two jobs and burn the candle at both ends. I sold almost everything I have, which is fine; probably shouldn’t have it in the first place. Now I have two things left – my art house/foreign film movie collection and my childhood Lego sets that I wanted to give to my children someday. I shouldn’t have to be making that choice. Not this close to the finish line.

    Follow the money. I pay taxes. TARP gives that tax money to the banks. Some of it comes back to me to get me over the hump. I continue to pay taxes and my creditors. Everyone wins.

    Try to explain that to an editor for the Wall Street Journal, also for some reason anonymous in the New York Observer article who joked, “The problem is they don’t deserve to be in that place. They probably deserve to be there less than they used to,” referring to incomes lower now than they’d been when the loans were made in the first place. “You do need to foreclose, and you need to go back to people living in houses that are consistent with their income levels.”

    That’s right, let the serfs go back to their hovels. Cake anyone?

    Anton Schutz, president of Mendon Capital Advisers said, “Your mortgage didn’t get to a robo-signer by accident, it’s because you’re not paying.”

    “We’re not evicting people who deserve to stay in their house,” Jamie Dimon, JPMorgan Chase chief executive, said on a conference call with analysts on the company’s third-quarter earnings last week.

    John Carney, Senior Editor,, wrote, “It’s actually a bit sickening to hear defaulted borrowers describing the misdeeds of banks as ‘mortgage fraud.’ What some banks have done might well be fraud–but the fact of that fraud doesn’t erase the other fact that the borrower agreed to make payments or face the penalty of losing her home.”

    What Mr. Carney along with the rest of the foreclosure proponents, doesn’t seem to understand, or has conveniently forgotten, is that millions of homeowners were convinced by the banks and servicers that defaulting on their loans would help save the very homes he seems to think they deserve to lose.

    In many cases banks and servicers pushed people into default with false promises of modifying their loans. Banks were offered programs like Making Home Affordable and HAMP in an effort to negotiate interest and principal reduction with homeowners. The same banks and servicers told struggling and desperate homeowners that in order to qualify for the program they had to be in default. Once homeowners were behind on their mortgage, some were offered trial modifications that according to the program guidelines, were to last three months and then made permanent if the new payments were made on time. Over one million trial modifications were started, some lasting up to nine months. Inevitably, at some point in the trial process homeowners were denied a permanent modification – in most cases no reason was given for the denial. The banks and servicers took this opportunity to hold homeowners accountable for the difference in the payments, added fees and fines for default, legal fees, and a slew of other junk fees servicers have become notorious for, pushing them even further into default.

    By managing to keep people paying for a little longer, tacking on fees, and stalling the foreclosures, loan servicers were able to suck out an estimated $4 billion from struggling homeowners – all by playing them for suckers. In addition they were also over charging investors extra fees for managing the loans.

    Chandra Anand, 59, a telecommunications consultant from Germantown, told The Washington Post that he called his lender in the fall of 2008, before he missed any payments, to warn the company that his wife’s open-heart surgery might cause the family financial difficulty. He was told that in order to qualify for a loan modification he needed to miss payments. So he did and applied for a modification. He never heard back from his lender until he got a foreclosure notice in January 2009.

    Every time he calls his lender to resolve his situation an official tells him “to be patient, that it could take 60 more days to review things,” Anand said. “It’s now been a year and a half.”

    There are hundreds of stories like this, submitted by homeowners, at

    In response to attorneys general and lawyers questioning the paperwork around foreclosures a few of the banks have postponed foreclosures in an attempt to rectify the situation. To hear the banks tell it, it will be a quick fix.

    According to a Wall Street Journal article, a bank spokesman for Chase said that its cancellations only cover foreclosure sales scheduled between Oct. 9 and Oct. 31 because it doesn’t expect the review to take longer. Jamie Dimon, Chase’s CEO made a similar statement.

    These are the same bankers who told Congress nearly 2 years ago that it could take years to ramp up their infrastructure to handle loan modifications in order to help homeowners.

    Maybe they’re planning on another hiring spree like the one they had when they needed to foreclose on millions of homes.

    To keep up with the rash of foreclosures, document processors and mortgage service firms rushed to hire anyone they could — hair stylists, Wal-Mart clerks, assembly-line workers who made blinds — and gave them jobs in their foreclosure departments without formal training, according to court papers.

    Several of these employees have testified that they did not really know what a mortgage was, couldn’t define “affidavit,” and knew they were lying when they signed documents related to foreclosures, according to depositions of 150 employees for mortgage companies taken by a law firm in Florida.

    Martin Andelman of MandelmanMatters interviewed a former Chase employee who told him, “A perfect foreclosure was supposed to take 120 days and the closer you came to that benchmark, the better your numbers looked and higher your bonus would be.”

    The point is, foreclosure makes more money than modifications. It even makes more money than high interest rates. As Moe Tkacik, of Washington City Paper writes:

    Banks do not just walk away from a cash cow like “mortgage servicing” without a good reason. Mortgage servicing is a $200 billion a year business and that is not because of the flat 0.25% fee mortgage servicers receive to process the timely payments of responsible homeowners. In the boom years, mortgage servicers raked in fees every time they convinced a homeowner to refinance–the more “adjustable” the better!–and in the bust years, late fees and foreclosures are the cash cows. Like all things banks do, it is truly recession-proof! The catch is that because foreclosures sort of necessarily involve, you know, “laws” governing “property rights” and “trespassing” and whatever, they require someone acting on behalf of the theoretical new “owner” of the property (whoever that is) to sign an affidavit saying something along the lines of, “yes, I’ve thought about it and reviewed the documents and whoever the local sheriff is should know that definitely these people deserve to have their locks abruptly changed and all their shit ransacked by some contract team of meatheads, and whoever shows up on this property after that they should feel free to harass, arrest, and what the hell waterboard.

    Andrea Bopp Stark, a lawyer with the Molleur Law Office in Biddeford, Maine, told The Washington Post, “that a number of her clients should be eligible for loan modifications through a Treasury Department program but that servicers are in such a state of disarray that they often can’t give homeowners basic answers about the state of their loan modification request. Then a few weeks or months later, the same servicers evict homeowners as if those applications were never filed.”

    “Their whole bureaucratic procedure,” Stark said, “is working against helping homeowners.”

    “There are several class actions pending for homeowners who allege that they are being foreclosed despite being eligible for HAMP modifications,” said Alan White, a professor at the Valparaiso University Law School. “In a case where a homeowner should be approved for HAMP modification, but the servicer has lost the paperwork or just hasn’t responded yet, the robo-signer will send the foreclosure documents to the court without checking to see whether in fact there is an alternative to foreclosure in the works.”

    “We waited and waited and waited for wide-scale loan modifications,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, one of the first government officials to call on the industry to take action. “They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it.”

    The latest development, uncovered by Huffington Post Investigative Fund, is about banks now collecting taxes. According to the article:

    In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector.

    In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.

    Pretty convenient arrangement considering they also collect those taxes in the form of escrow payments from borrowers. I have heard and read hundreds of stories from homeowners who have paid their taxes and insurance through escrow payments with their mortgage only to find that the servicer didn’t actually pass those payments along to tax offices and insurance companies. Now the homeowner is behind on their taxes and the insurance has been canceled for non-payment. So, one department collects the escrow payments that should be going towards taxes, but doesn’t pay it, then another department takes over the collection of taxes and fines the homeowner – who has been paying all along. In many cases the the servicer don’t apply these payments to anything. They simply pocket the money, much in the same way they pocket trial modification payments.

    By blaming homeowners, bankers are trying to harness the anger of ordinary people — who are angered by the economic disaster that Wall Street itself created — and give ordinary people a reason to turn on each other.

    In a pervasive culture of greed, like the one that exists on Wall Street, the lack of ethics and compassion has permeated every corner of the industry. It has become more important for banks to simply make money at any cost than it has to take part and play a role in a flourishing and successful economy, as they are designed and expected to do. That being said, it almost makes sense that they would vilify the very people who they bilked, conned, and stole from, now that the jig is up.

    In her book” Bird by Bird”, Anne Lamott tells the story of a conversation with her pastor. In it she questions why she doesn’t have an abundance of money. The pastor says to her, “If you really want to see what God thinks about money, just look at who he gives it to.”

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  8. I think that John Mauldin supports what is happening to our country with the real facts……but what is evident to me is in the quiet left over from this escalating disaster. The spirit in the people, from all of the lawlessness and helplessness scarring our lives, is being sucked out of once was a great country!

  9. Robert Ponte is right–that is the single most important issue. The banks don’t loan us money, we loan it to them. This is not a secret, nor is it denied by prominent bankers, economists, or the Fed. It is the bigest lie of big lies that banks risk anything in “loaning” money. It’s only paper and digits–nothing of inherent value.

  10. The author is a recluse perhaps, a hermit watching the tubes from a cave. He still believes people owe something after he conveniently leaves out that the banks were already paid for all of our mortgages. Shall we say twice?
    Luckily, one can read an article and see the bias of the author. There is a sense of wanting to cover his ass that comes out all over the page. The author is an investor in the crap, and wants to influence the outcome.
    Why don’t we deal with the true suffering of the people of our country first, and the profits to fatten someone’s wallet second? Because that isn’t America as we know it.

  11. Been litigating for nearly a year. Moved case to bankruptcy and filed adversary. Wells fargo has submitted two different notes one endorsed in the BK proof of claim and one not endorsed in the adversary complaint. Two law firms representing Wells Fargo and two different Notes; one transaction? Comments suggestions….oh yeah a Subst. Trustee executed five months prior to the Creation of the Loan and Deed of trust…fubar

  12. Something is going to happen in a legislative way–my fearless forecast. We, the people, need to fight back at our corrupt government. The bank fraudsters need to be tarred and feathered. They are still doing loans and putting them in MBS’s. The banks are the new mafia. Money truly is the root of all evil. The entire planet is going to hell in a hand basket. How do we revolt about this mess? and the loss of our constitutional rights? Does anybody have any ideas how we petition the US Govt and the President to prevent this horrible fraud and subsequent felonies? We will need many, many people to participate.

  13. Our houses and properties are worthless anyways.

    Commercial properties also. Landlords are barely collecting rent. alot of landlords have not made payments for two years. etc……….

    Nobody is buying cars either. Overinflated because of easy loans in the past. Wonder how many car dealers can afford to pay their landlords.

    The banksters are like cancer.

  14. I think the genie is out of the bottle and he wont sneak in new legislation. If we dont let him. Just like the notary bill.

    The housing crisis is just the tip of the iceberg. What about the commercial loans? It is the same thing. The commercial loans are bigger and they have the same problem Security backed assets.

    What about homeowners making their payment and now demanding an accounting and their money back.

    The cheapest way for the banksters is to walk away from the so called loans. Claim they are just the servicers and walk away from the liabilities.

  15. Great detailed overview of the banking lies and deception. But John you are so wrong on one point. The funding of the “borrowers” loan was funded by their signature and promise to pay, money out of thin air, created by the “borrowers”. Why do you and so many smart people skip over this fact? Are you not aware of it? Are you afraid of this truth? You take such a drastic turn in your article, says through the bums out if they can’t pay. Pay for what? Pay back themselves? This fundamental fact must become public and the federal reserve needs to go away.

  16. The big banks are the new TAX MAN Big Banks great article. the above article and the one in the link. The banksters are like parasites leaches and are sucking our blood.

    Thank you Neil Garfield and Co.

  17. I pledge allegiance to the fraud of the United States of America and to the republic for which it stands, one nation under fraud with slavery and justice to no one…

  18. Great post and the Editorial comment was priceless. That is exactly what our pro se group has been preaching – John has been saying WAKE UP this is not about YOUR house it is about your kids and grandkids and America. Basically if we let this go we are selling our kids down the river with no life preservers.

    I say NO PAIN – NO GAIN.. We must restore honesty as an ethic in America or what do we have? The last two paragraphs of your editorial comments should inspire everyone to not sit on their butts, but to call, write letters, sue, demand answers, and talk to media. Do everything you possibly can because this is war on our country.


  20. Oh, ok. The investors were defrauded but the borrowers weren’t?

    We have all the laws and regulations in place to fix this. I guess enforcing them to the benefit of the homeowners is not good for the country, though. Therefore we should create new laws that preempt the current laws, taking away borrowers remedies in favornof banks and investors making sure they are allowed to pass GO and collect $200. This guy is a putz. Thank God he is nothing more than a blogger.

  21. If the title companies won’t insure these foreclosed toxic titles, how does one see an advancement in the housing market anytime soon!

    I fail to see how a moratorium, in order to untangle this mortgage mess, will hurt the housing market any more then the title companies are all ready doing by not providing insurance! No one will purchase a high risk or even low risk investment property with no title
    Fix the problem and the market will improve! Monkey around with lies and the whole country will suffer forever! You can take that to the bank!!

    U.S. officials should immediately require all lenders in the process of foreclosing or who have foreclosed on a home loan to produce the respective wet ink note, disclose the assignment information of that note, assure that MERS played no part in the assignment of the note and provide REMIC complience information on the loan. Everyone satisfied!
    These conditions met, title companies should have no problem providing title insurance, there is hope for the housing market.
    These conditions not met, then hold the bank accountable, confidence restored in the system, hope for the housing market! Bottom line, if the banks made a mistake they must pay, end of story!

    How does this affect the fractionalization of the note if an assignment of the note can no longer occur? It seems like banks will end up falling short on credit and have to get enough in reserve to meet FDIC requirements to balance their books. I think it might be possible that we will see people heading to the banks again to pull out their funds!More banks will fail!

  22. He is absolutely correct about everything EXCEPT for the housing price decline of 20% … With Bernanke firing up the presses again we will have enough inflation , even with stagnant wages , to push prices up slightly. It’ll be a stronger version of 1978’s “STAGFLATION” but without the cheap drugs and a funny SNL (thankfully there will be no return of disco).

    My big concern is that the president will push through some kind of band-aid/frankenstein bill between Nov. 2nd and January that will basically give the banks a free pass on all the illegalities and leave us and the country on the hook while extending the economic crisis.

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