House Arrest (Underwater Homeowners) Direct Cause of Unemployment

Editor’s Note: Employers across the country are corroborating reports we have been getting for the last year — they can’t get qualified workers. Where are they? ANSWER: Stuck in a house they can’t get out of. A short-sale or modification would allow them to leave and go on with their lives. But around 1% of our current unemployment is now attributed to “house arrest.”

Like the rest of the media, The Economist avoids any talk of the nuclear option: that the mortgages simply are fatally defective and unenforceable. They don’t want to be accused of causing the demise of such venerable institutions as the mega banks. But this article does give a perspective from “across the pond.”

From the Economist:

Economics focus

Drowning or waiving

The policy options for alleviating America’s huge negative-equity problem

Oct 21st 2010

AMERICA’S south-west may be a very dry place but nowhere else in the country are more homeowners “under water”, owing more on their mortgages than their homes are worth. In cities like Phoenix and Las Vegas prices have fallen by up to 50% from their peak; more than half the mortgages in Arizona and Nevada are in negative equity (see map). Yet the problem is national. One in four American borrowers are under water. Over 4m households owe at least twice as much as their home is worth.

Such inundations have nasty effects. Homeowners that are reluctant to default but unable to sell at a loss are left stuck where they are. This throws sand in the gears of America’s famously fluid labour market. A recent IMF paper attributes 0.5 to 1.25 percentage points of America’s unemployment rate to this factor. Defaults may be an even bigger problem. Job losses will often push underwater borrowers into default since a sale isn’t a realistic option. And as the crisis has dragged on, more Americans have defaulted voluntarily. Estimates from 2009 suggest that 26% of defaults were “strategic” in nature; where equity has fallen below 50% of the loan’s value, around half of defaults are strategic.

The resulting foreclosures cause lots of damage. Underwater borrowers who sell their home typically get a price 13% below the mortgage value. When homes are foreclosed upon and sold by lenders, the discount rises to 35%, largely because the property is not being maintained. This steep drop in price harms other homeowners. The values of neighbouring houses are pushed down, forcing other borrowers deeper under water.

Since lenders bear the brunt of the higher losses that foreclosure entails, their general reluctance to modify the balance of mortgage loans is puzzling. If mortgages could be written down to a value above the likely foreclosure sale price, that would generate benefits for both creditor and borrower. Yet a report earlier this year into the government’s foreclosure-prevention programme showed that principal was forgiven in only 2% of cases. So what is preventing a better outcome?

Loan servicers, which manage loans on behalf of investors in mortgage-backed securities, may fear lawsuits alleging that borrowers have been treated too generously. Writing down loan values often affects more than one lender—second, third and even fourth mortgages were common during the housing boom. Banks are wary of moral hazard: if word spreads, borrowers with the ability to pay their mortgage may deliberately miss payments in order to get their loans adjusted.

This last problem can be addressed by changing borrowers’ incentives to default. Contingent write-downs are one example: loans would be written down in increments over three years, but only if the borrower stayed current on payments. Another is a “shared appreciation” scheme in which principal reductions are combined with an equity stake for lenders. Equity gains from subsequent price increases would be split between homeowners and lenders upon sale of the home.

Whether such ideas would prompt many more write-downs is unclear. They do not address the problem of multiple claims on the same underlying assets, for instance: that would probably require banks holding junior liens to take a more realistic view of their value and write them down. They also bump up against the complexities of modifying securitised loans. John Geanakoplos, an economist at Yale, proposes that this problem be addressed by adopting legislation that strips the responsibility for modifications from servicers and hands it to “blind” government-appointed trustees who would make decisions without knowledge of the loans’ status. Mr Geanakoplos reckons this would address the incentive problems and legal issues faced by servicers, which often have fiduciary duties to holders of mortgage securities.

A measure called lien-stripping, or, more commonly, “cramdown”, offers another way around the securitisation bottleneck. This would tweak the existing bankruptcy provision known as Chapter 13 to allow judges to write down the value of a primary mortgage. Cramdown is already allowed for other forms of consumer debt, such as mortgages on holiday homes. Research examining the impact of cramdown on agricultural loans found that banks usually got more than foreclosure value on reorganised loans, and that interest rates scarcely rose. At the same time the possibility of a principal write-down in bankruptcy made banks more willing to negotiate reductions pre-emptively.

Submerged acquisitions

Eric Posner and Luigi Zingales of the University of Chicago have proposed a plan whereby an underwater homeowner living in a postcode area which has suffered a certain level of price decline gets the right to approach a judge and begin negotiating a write-down. The pain of bankruptcy should deter opportunists; judges would foreclose on those who cannot afford even a smaller mortgage. The big drawback is that this would damage creditors’ rights. To make the outcome fairer for lenders Messrs Posner and Zingales propose a shared-appreciation scheme.

More ambitious still is the “right to rent” programme advocated by, among others, Dean Baker of the Centre for Economic and Policy Research. Mr Baker would give defaulting borrowers the option to rent their homes at market rates. The bank would obtain the whole of the equity stake in the house; with rental income still flowing in, sale of the property could be delayed until markets were healthier. Critics point out that property management is not a core skill of banks, but the job could be outsourced.

There is another way. In the 1990s Mexico cleaned up its debt crisis by offering large government subsidies, of up to 60% of a loan’s book value, to help pay down borrowers’ debts. Such a programme would not come cheap—America has some $766 billion in negative-equity debt—but it would have the distinct advantage of simplicity. The unfortunate truth is that there are no nice options left. Large-scale voluntary write-downs look unlikely—they surely would have happened by now. That leaves a choice between twisting lenders’ arms, throwing public money at the issue, or letting the waters close over people’s heads.

Finance and Economics

29 Responses

  1. PJ,
    The PUD on the mortgage application stands for Planned Unit Development. It speaks to the legal structure used to create the housing development. In many cases it means that the development is responsible for some maintenance and that creates dues and additional rules for the homeowners in the development. The lenders want to know what those rules and costs are.

  2. @ Pelucheven, great comment and explanation on “table funding” we could not have said it better oursleves.

  3. Thanks frankielee and DyingTruth

    Makes me feel a little better – But – if walls could talk – wish I could say more right now.

    At least we now have each others’ support – I did not have that years ago.- and it has been hard for me to trust anyone.


  4. Anonymous,

    Of course you’re right, and your concern is valid. There is every indication that ALL of the federal governmental entities are in collusion….i.e. let’s make this thing go away.

    There is, however, a fortified brick wall ahead, and these entities are heading straight towards it at breakneck speed. They can’t turn back. They must go forward to their complete destruction. Because the only way they exist is through fraud, deception, and trying to get everyone to admit to the status quo. That they support the banks, and the banks support them.

    Listen folks, the status quo is broken. And it can’t be fixed, without defaulting on 400 year law. Bring it on.

    Please do remember that ALL government power is and was delegated by and from the People (and cannot be delegated any other way by anyone) in the form of a Constitution and the FED, the FDIC and any other alphabet cereal agency purporting to be a legitimate arm of the Executive Branch or the Legislative Branch HAS NO CONSTITUTIONAL AUTHORITY. They are just another unelected sham trying to circumvent the will of People while posing as a deterrent to harmful activities.

  6. There is more corruption in the works to effectively enslave the middle class. Excerpt from the link at the bottom.>
    “Sen. George Voinovich, like Gregg a retiring lame-duck Republican, seems excited to vote for the deficit-commission recommendations on his way out the door. “We’re going to get some wonderful recommendations out of the debt commission,” Voinovich told Congressional Quarterly last week. It should scare us when senators who will never again face voters are taking the lead on major policy changes.

    Some activists on the left understand the danger. Obama’s key Social Security advisers from the 2008 campaign, Nancy Altman and Eric Kingson, didn’t hold back in describing the unfolding process:

    “President Obama and the leadership in Congress have delegated enormous, unaccountable authority to 18 unrepresentative, inordinately wealthy individuals. The 18 individuals are meeting regularly in secret, behind closed doors, until safely beyond this year’s mid-term election. If they reach agreement, their proposal will be voted on in December by a lame duck Congress, without the benefit of open hearings and deliberations in the pertinent committees and without the opportunity for open debate and amendment on the floors of the House and Senate. Despite the speed and lack of accountability, the legislation will affect, in substantial ways, every man, woman, and child in this nation.””

    Like I’ve been saying we’re going to need to affirmative action more severe than the normal avenues to redress.

  7. Pelucheven,

    Your paragraph that begins with “BUT” – is right on it. It is – as Neil has pointed out many times – “Table Funding.”

    My concern, again, is that those in control – DO NOT CARE. They made decisions at the onset of crisis – and they are sticking by it. Decision was/is – that we are to be the scapegoat.. And, these individuals/agencies continue to influence the courts by current investigations. If these investigations are NOT in our favor – we are dead meat.

  8. Can anyone make me feel better about this?????

  9. Will repeat post here AGAIN – because I am VERY concerned – and this post – is receiving more “hits”
    so – I will repeat.

    “Everything is about going forward. But – and I will repeat here – because I am, very concerned. See below for duplicated post elsewhere.

    “Here is the fear I have – that the “one month” investigations by the Federal Reserve and FDIC – will conclude that all foreclosure documents are “in order.” Even though – no investigations of this magnitude can be concluded in one month. Are we being “set-up” for false conclusions of law by the Fed or FDIC – that states the foreclosures are in order?

    It is the Fed that orchestrated the ‘PROGRAM” to remove toxic assets from the banks to distressed debt buyers. The Fed has always stated – the foreclosures must go through – and there should be no principal reductions – due to “moral hazard”. Will they go against their own program??

    Tim Ryan – CEO and President of SIMFA (Securities Industry and Financial Markets Association) – ADAMANTLY stated TODAY – that the foreclosure MUST go through. He states that “these people” are very delinquent – and there is no choice. He almost implied that foreclosures -are a herd of cattle – to be removed – and as quickly as possible.

    If Federal Reserve and FDIC come out of investigation claiming foreclosures are “in order” – we are in big trouble”.


    Are we being Set-up?? – to rid the courts of challenges to foreclosures???

    Wake up people – these guys – know what they are doing. And – they want us – SHUT DOWN.”

  10. What’s up with the PUD check box on mortgage documents… is it another land grab???

  11. Thank you again Neil Garfield and Company.

  12. Finally the Europeans are going after Bank of Amerifraud

    This really is a national security issue. You can not rule by might alone. The United States needs to go back to the rule of law.

    G-d Bless America
    we are desperate G-d.

  13. Yesterday my doberman cornered the banks drive by lady in the corner of the outer fence. She said she is required to ring the doorbell and look into windows to see if the house is vacant. I told her she is lucky that the dog didn’t kill her and she ignored the warning sign. I also told her to make an appointment next time.Tyler will sneek up from behind and scare the heck out of the intruder by growling and showing his teeth. Alot of people are going to get hurt accidently before this is over.

  14. Dear Mr. Garfield,

    This is a comment from the Washington Post, as you and your readers will see a whole bunch of people are satrting to get it and share it.


    THANKS!!!!! :0

    “You are hitting the issue again… download this report – Law Review regarding these loans and it will expose even more…

    As most realize – these loans were securitized – sold to sponsors – then to depositors – and the Notes then held by a Trust… thus the Mortgage Backed Security prepped & readied to be sliced/diced and sold to their happy investors…

    BUT – there is slight catch – the borrowers signed docs with the originators – the originators are usually the only entities on the loan docs – Deed of Trust (Mortgage) and NOTE (Promise to Pay). The originators did NOT use their money to fund the loan. They used warehouse funds pooled by the upper tier financial groups. The borrower signs the docs at settlement – originator receives their copies and file appropriate docs at State Land Records. The Deed of Trust shows the originator – but the originator Pre-SOLD the NOTE prior to settlement. This is why they used the NOTE purchaser’s money to FUND the loan. />>> DISCLOSURE VIOLATION <<<

    This is a blatant DECEPTION by the Lender because the originator is NOT the actual lender. In fact, FHA & HUD contend this is NOT a bona-fide purchase. However, that is not even the bigger point to the issue.

    The reason they had to create the fraudulent assignments & false affidavits is because of the DECEPTION above. The Originator filed the Deed of Trust as the Lender. However, the NOTE was already SOLD to the “alleged” purchaser – therefore MUST be recorded per State Real Property Laws & UCC. They failed to comply with those laws RIGHT THERE – thus BREAKING the CHAIN of TITLE – “FOREVER”.

    They attempt to reconcile the situation by filing fraudulent assignments. However, these assignments MUST be filed by the CLOSING DATE of the Trust – which is within 30-days of settling the loan. They cannot back-date those assignments and they CANNOT post-date – re-date or ASSIGN that NOTE… It is BROKEN. This is how they are being CAUGHT by the investors. The NOTES were NEVER Transferred to the Trust. The Trillions of dollars in MBS Investments tied to these loans are ALL FRAUDS…

    The Banks did not comply to those final steps of recordation to avoid paying the fees & taxes. Tax evasion to anyone else… but THAT ACT then destroys the Chain of Title – FOREVER. The only remedy is Quiet Title. However, the dirty secret these lenders were relying upon is that a FORECLOSURE is essentially Quieting the Title. It washes away past debts & sins to establish a clean Title. That is why these foreclosures are so critical – it allows these thieves to destroy the paper-trail.

    The above is WHY these foreclosures are FRAUDULENT. The Loans were decollateralized – decoupled – and are no-longer secured by the property. This is why they are attempting to keep everyone looking at the deadbeats NOT paying their mortgage. The defaults have merely EXPOSED the outrageous FRAUDS committed against the borrowers, federal gov – and their investors.

    Disgustingly – the bank regulators know it – the FBI knows it – OBAMA and Gueitner KNOW IT – THEY ALL KNOW IT – but if those foreclosures are NOT allowed – the investments COLLAPSE. Those investments are union & gov retirement funds. HENCE the title – TOO BIG to FAIL."

  15. Foreclosure Fraud – Fighting Foreclosure Fraud by Sharing the Knowledge
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    U.S. Probing Foreclosure Processing Firms

    Posted by Foreclosure Fraud on October 26, 2010 · 8 Comments

    “Mail and Wire Fraud, Money Laundering, Conspiracy and Racketeering”


    U.S. probing foreclosure processing firms
    By Ariana Eunjung Cha
    Washington Post Staff Writer

    The more banks foreclosed on homes, the more a little-known company in Florida called Lender Processing Services saw its revenue and stock price soar.

    For a fee, the Jacksonville company would locate and assemble the documents necessary for a lender to foreclose on a borrower who defaulted on a mortgage. Working on behalf of the biggest names in the industry, including J.P. Morgan Chase, Bank of America and Citigroup, LPS says it handles more than half of all foreclosures in the country.

    Now, amid reports of shoddy and possibly fraudulent paperwork, LPS as well as a handful of other document processors and law firms are coming under scrutiny for the criminal investigations into the foreclosure debacle.

    Law enforcement authorities on both state and federal levels are probing whether individuals at these foreclosure companies and at the banks that hired them committed an array of possible crimes – mail and wire fraud, money laundering, conspiracy and racketeering. No charges have been filed.

    These officials say they are taking a well-tested approach in their investigations: press low-level employees to implicate higher-up executives. Already, investigators have obtained in sworn testimony detailed descriptions of what took place inside the foreclosure companies.

    Florida’s attorney general, Bill McCollum, said in an interview that “we know there are problems of great significance” at LPS. He added that one of the most important questions being asked is, “Does this involve the CEO” of a major bank?

    “It’s way too early to tell whether the bigger financial institution had officers committing criminal fraud,” McCollum said. “It may be something that shows up, but it’s too early to say right now.”

    LPS is fighting back against what it calls “misrepresentations” about the scope of its problems. It recently hired as consultants Tony Fratto, who was a spokesman for the George W. Bush administration, and Taylor Griffith, a former Treasury Department spokesman.

    LPS spokeswoman Michelle Kersch on Monday said the company “is committed to providing authorities with any information that they need to better understand our business and the industry.” She declined to comment further.

    Formerly a branch of Fidelity National Financial – the nation’s largest title insurer – LPS was spun off in 2008. It’s still housed in the same complex as the title company, in one of two twin 12-story buildings with expansive views of the Jacksonville waterfront. With 8,900 employees, it is one of the city’s largest employers.

    Some homeowners contesting foreclosures have alleged that the firm’s employees forged signatures on paperwork that proves ownership of a loan. In other cases, the employees listed “Bogus Assignee” as the mortgage holder and “Bad Bene” as the borrower.

    After The Washington Post reported in late September on several instances in which a single person’s signature on some foreclosure documents appeared to be scripted by different people, LPS admitted that a subsidiary called Docx in Alpharetta, Ga., improperly prepared some documents used for foreclosures. Company officials said that the paperwork problems were limited to filings made in 2008 and 2009 and that the division has since been shut down.

    Continue reading here…


  16. Do not let your son’s and daughter’s fight for a country (for the rich) that will not fight for them! This country’s corrupt.


    Bair: Foreclosuregate Is A ****show

    Hattip Zerohedge:


    No **** Sherlock.

    Here’s reality:

    * Lots of notes appear to have never been conveyed. When the MBS holders get their landsharks into this, the servicers and securitizers are screwed. Got it? Done, baked, cooked, finished.

    * The only “Global Solution” is to put the institutions that did this into recievership. Right now. BEFORE the landsharks cause a VERY disorderly collapse. We have a resolution authority. Use it. These institutions must be forced to eat the crap that they foisted off on pension funds and insurance companies. If they claimed they had original endorsed paper for each loan (and they all did) and did not that is black-letter fraud. So is selling someone paper you claim is good when you know it is not, and again, we have under-oath testimony documenting that this was done willfully and intentionally. This is fraud in the inducement against MBS holders and those who committed it must be forced to eat the consequences.

    * The question of fraud in the inducement against borrowers must be answered to. This is not a “technical matter.” Citibank’s former chief underwriter has testified under oath that he, and the rest of management, knew that 60% of production was bogus in 2006 and 80% in 2007. These loans are avoidable under long-existing law. You cannot create a binding contract where you have reason to know that the other party cannot perform, and long-standing law codifies this officially in terms of debts and security instruments – giving someone a loan where they retain insufficient assets and income to pay as agreed renders the security of the instrument and thus the loan avoidable. Period!

    Dodd-Frank has a consistent procedure.

    It’s called RESOLUTION and you need to employ it RIGHT NOW.
    View this entry with comments (registration required to post)

    Posted 2010-10-25 11:31
    by Karl Denninger
    in Foreclosuregate
    To The States And The People: Stop The Madness

    You have the power.

    To The States:

    During The Depression, States put “hard stop” foreclosure moratoriums on banks and other institutions that were attempting the same sort of thing that is being done now. Florida in fact still has a law on the books that permits the bondholders to petition the court to set up a creditors committee, redirecting all payments through the Court Clerk until issues of standing are resolved. This was put in place in the aftermath of the famous “Swampland” fiascos in this state.

    Since land title issues are issues of State Law, the States have the power to put a stop to this crap. They have the power to declare that judicial or not, foreclosures without hard proof of standing and conveyance may not proceed.

    Real property – the family home – is the bedrock of American Society. While it is true that most of the people being foreclosed upon and evicted did not pay, what is also true and now documented by statements made under oath is that The Banks intentionally loaned people money they knew they could not pay back. This, under long-standing precedent both in common law and in fact recognized in the UCC, makes the debt avoidable.

    This is not about free houses. It is about the rule of law. Our federal government has studiously refused to act as required by that law when it comes to safety, soundness and prudence in lending matters by our nationally-chartered banks.

    But the matter of land titles and security interests in them is a matter of state law.

    The States must act – right here and now – in the following fashion:

    All foreclosures must be stayed until the following procedure is completed.

    All entities seeking to foreclose, irrespective of whether it is a judicial state or not, must come to court and prove up the provenance of their foreclosure. Specifically, they must be forced to prove all of the following:

    They are the actual holder in due course of the note, and can prove it with the original paperwork containing all allonges and endorsements from the originator to themselves.

    All those endorsements were made in due course of business, and not now as a “backdated” event in an attempt to mislead the justice system.

    The note, at the time it was originated, was negotiated in good faith. That is, it did not violate the implied covenant of fair dealing and there was a reasonable expectation that the terms of the note as originally drawn could be complied with to completion. This means that the original loan file in total must be presented to the court and subject to challenge by the debtor as to its provenance; the debtor must be given the opportunity to show that the debt is avoidable under the Uniform Fraudulent Transfer Act or violation of the implied covenant of fair dealing that attaches to all contracts and cannot be waived. Since we now know due to under-oath testimony that Citibank’s chief underwriter knew and reported that 60% of all origination was defective in 2006 and 80% in 2007, there is a strong presumption that loans made in these years, at minimum, breached this covenant.

    If all of these cannot be shown, then the foreclosure must be avoided. This will not, in most cases, result in a free house. If the note is not actually owned and properly endorsed by the party claiming a security interest, then they cannot foreclose at all, and the real party at interest will have to step forward. If that real party is a securitizer (or an originator who is bust, and their successor or bankruptcy trustee holds the paper) then they must come to seek the remedy desired. If they have been paid in full then the MBS trust who was defrauded (who believed he had the note but in fact does not) must first pursue recovery of the funds from the securitizer or originator, so as to restore that party’s standing. Once they have done so they can come to court and run the same three-step gauntlet.

    If the note cannot be proved up to have met the covenant of fair dealing in the inducement then the debt is avoidable and must be so-ruled. This too does not result in a free house, but it does result in the debtor being released from the debt without damage to their credit. They lose their home, but they never really owned it anyway. The creditor is left with the home, but has no suit-at-law to recover from the debtor, since he dealt with the consumer in bad faith.

    There is precedent for this – a very similar thing was done during The Depression. State and local governments refused to evict and told citizens to stay in their homes, “foreclosure” or not. With no ability to evict the madness stopped until the truth of the claims made could be sorted out. This must occur – we are not and will not get honesty from Washington; it must come from the State and Local governments.

    To The People:

    You must make it known to your state and local governments that this is what you demand. You must get them to back you, not the big financial institutions. This will likely mean, at some point, civil disobedience – that is, refusing to leave when allegedly “evicted.” It means enlisting your local county Sheriffs, who you vote for in less than two weeks.

    It means enlisting your County Commissions, pointing out that if they side with you, and not the brigands, their tax revenue will continue – but if they don’t, it will not.

    It means enlisting your neighbors, so they understand what’s going on, who destroyed their neighborhoods (the big banks – not you and your neighbors themselves.)

    And it will mean organizing boycotts – refusing to do business with anyone who presents a check from one of the big banks, refusing to do business with a local business that uses one of the big banks to process their credit card transactions or clear checks, in favor of those local businesses that use local, legitimate, honest banking institutions.

    View this entry with comments (registration required to post)

    Posted 2010-10-25 09:26
    by Karl Denninger
    in Foreclosuregate
    And Here’s Another One: Georgia

    These are getting rather, well, numerous. Kinda like rabbits…

    The claims here are familiar – MERS has no standing because MERS has no ownership interest. As a nominee MERS has no power beyond that of the underlying entity it serves as an agent of, and that agent must be identified and prove up it’s interest.

    This is pretty black-letter stuff, and people are starting to figure it out.

    Plaintiff shows herein that MERS’ foreclosure on Plaintiff’s property was not valid and was wrongful, as are those foreclosures by MERS on the property in the State of Georgia of all similarly situated persons to the Plaintiff wherein MERS sent the notice of foreclosure to the debtor and wherein MERS purports to have exercised the power of sale and auctioned the property. MERS does not have the authorized power to send a valid notice of foreclosure within the State of Georgia for those deeds where it is “solely a nominee” and does not have the authority or power under Georgia law to foreclose on a property or engage in an auction of sale on such property where is is “solely a nominee” on such deeds.

    As a result of such unifonn, wrongful conduct by MERS, the Court must, inter alia: I) invalidate the foreclosure sale, 2) order as void the Foreclosure Deed (or Deed Under Power); and/or 3) restore equitable or legal title, if possible, as it existed just prior to the foreclosure sale and award compensation for any damages suffered as a result of MERS’ actions. Alternatively, the Court should impose a constructive trust over the proceeds from, or the value of the property as determined by, any such foreclosure auction.

  18. Oh, It’s Those E-Vile Borrowers! Oh Wait… It’s Not?

    Who has read this one?

    The wayward behavior didn’t stop with drugs. Glover learned that his colleague’s art work wasn’t a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers’ signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash they’d be getting out of the loan and how much they’d be paying in interest and fees.


    What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents—the ones indicating the loan had an adjustable rate that would rocket upward in two or three years—near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

    People wonder why we can’t find an original note, complete with the documentation? Why the original loan files “disappeared” – this, in a business, that historically has all been about paper, and which has studiously kept it around?

    After all, you can walk into any office supply store in America and down one of the aisles you will find a product called BANKER’S BOXES. With good reason.

    This is the part of the lending story that nobody wants to talk about. Wall Street securitized this paper, even though they knew they were securitizing trash. The original documents would prove the frauds – if they were ever produced in court.

    So the key is to, of course, never produce original documents – that way they can’t be challenged, there is no evidence, and the only focus we have is on the borrower, who of course isn’t paying and thus we have an excuse to railroad him or her.

    Never do we look into what he signed (or didn’t), what was forged, what was gamed.

    The W2 that isn’t really his – oh, he submitted one, but the loan broker used a scanner and Photoshop, and the one in the file isn’t the one that the customer submitted. The borrower has a fixed-rate disclosure document, but in the file is an adjustable-rate one that was at the bottom of the 3″ stack of paper; the customer unwittingly signed that, and the fixed-rate one on the top was destroyed. The “GFE” – Good-Faith Estimate – that the customer has in his folder doesn’t match the one in the file either, because that too was doctored – and we know for a fact the customer didn’t change that piece of paper.

    Why aren’t we using the words “fraud”, “felony”, “prosecution”, or “criminal”?

    Because if we do, then we have to dig into how loans like this got made. How many of them got made.

    And how many of the so-called “deadbeats” are really beaten dead – by a financial system that rooked them and now has committed hundreds of thousands of felony counts of perjury to cover it up.


    Lenders ****ed, Looking For ‘United Voice’

    Uh huh…..

    Oct. 25 (Bloomberg) — Home lenders are making it tougher to get loans as investors step up demands for refunds on defective mortgages, damaging the housing market, executives said today at an industry conference.

    The damage came when the “industry” made loans they knew couldn’t be paid back. Now, as is the usual practice, they’re trying to blame it on someone else – in this case, the screwed investors.

    “This industry has to stand up and say, ‘Enough is enough,’ ” Ron J. McCord, chairman of Oklahoma City-based First Mortgage Co., said during a panel discussion with lender executives at the Mortgage Bankers Association’s annual conference in Atlanta, drawing applause from the audience. “We’re trying to be out here lending to help this recovery.”

    Suck eggs *******. Your “industry” trashed the housing market in the first place with your practice of predatory lending and intentional asset-stripping. Now some of the people you screwed with blatant lies in their disclosures are coming after you.

    Frankly, I think you’re lucky they’re using the courts and not the nearest lamp-post.

    “We all know we signed up for reps and warranties, but I don’t know if we thought we signed up to be an insurance company,” he said, speaking on the panel with Chamberlain and McCord.

    Uh, care to square that with Citibank’s chief underwriter? You know, the guy who said under oath the following?

    60% defective loans in 2006, 80% defective in 2007: Citibank’s former chief underwriter, who testified under oath that management was fully aware they were buying and selling trash.

    Or how about Clayton?

    Clayton, which was hired to do audits, revealed that about half of the loans did not meet standards, and that about 30% had “level three” disqualifications – that is, there were no mitigating circumstances that could merit an exception. They would be “put back” into the pool – and had to be “selected” three times before being “out”. The odds of that, if you were sampling ten percent? It’s 10% to the third power, or about 1 in 1,000 that the loan would not wind up in the pool.

    This isn’t about being an “insurance company.” It is about lying to people. The investors seem to think they’ve got a good case, and so does their new lawyer….

    Patrick, 50, is “fearless and tenacious,” said Dan Cogdell, a Houston criminal-defense lawyer who said she is capable of pit bull-like aggressiveness “if the need be.” If she succeeds in getting Bank of America to settle, it may trigger more calls for buybacks in the $1.4 trillion market for so-called non-agency mortgage securities, which lack government backing.

    Bank costs from repurchasing mortgages in such securities may total as much as $179.2 billion, including expenses related to suits against bond underwriters, Chris Gamaitoni, a Compass Point Research and Trading LLC analyst, estimated in August.

    Nearly $200 billion eh? That’s what I’d call “material.” It’s also more than the excess capital available in these institutions, which means we are indeed playing “Bet The Company.”

    The FDIC needs to step in now and “resolve” these institutions. When Bair said yesterday that this needs a “Global Solution”, she wasn’t kidding. It does. The solution is found in Dodd-Frank, and it involves taking all of these banks into receivership and cramming down their debt into equity, clearing the bad loans.

    Oh, and let’s not forget folks – behind these first mortgages are a whole lot of HELOCs and other Seconds, and nearly all of those are being held on bank books at 95 cents on the dollar – when in truth if the first is underwater and forecloses, they are worth zero.

    I have seen no honest discussion from any of these institutions as to the dollar amount of these loans on their balance sheets and a breakdown of how much alleged “value” is behind a first that is both underwater and has at least a 30-day late on it.

    Under any reasonable accounting any of those loans that are behind a 30-late should be considered “doubtful” and those behind a 60+ delinquent and underwater first should be written down to zero, as the percentage of those loans that cure are, for all intents and purposes nil.

  20. I believe the double standard of the MORAL HAZARD has to stop. They can cheat, steal, lie, forge and get away with it and no one goes to jail?

    I an very mad about all of this impunity!

    From The Forum: Two Banks, One House

    Oh, these are all technical errors, right?

    Nobody did anything criminal like selling the same loan twice, right?

    So the House next to Me has been foreclosed, for some months now…
    Windows boarded up, crew hired to clean the inside, indoor pool drained etc, NOTICE on the front door…..
    Century 21 sign recently sprouted up this week….
    This morning, My morning walk outside with coffee… A Truck & Crew pulls up..
    Guy gets out walks up to the front door….. Reads to NOTICE on the door…
    In His hand, He has a FORECLOSURE NOTICE of His own!
    Comes to the fence, asking Me “whom” boarded up the windows, put up the sign/notice, etc…
    I told Him, that It was Wells Fargo people that Foreclosed, didn’t He read the Notice?
    He was hired from BoA, to do the Foreclosure “Duties”, & “secure” the home etc, from damage/ Doing clean up, just like the last people done…..
    (@ this point,,,, I couldn’t help but “giggle”)He got irritated @ Me, and walked away……..
    He Looked around, checked the locks,Boarded windows, etc, (He had keys but the locks been changed), checked the back fence lock, and just said “Oh well”…… Thats another one..
    Overhearing, I asked what He meant by that comment…
    He just looked at Me funny, pulled up the real estate sign, put into the back of the truck and Left….

    “Oh well, that’s another one”???

    Exactly how many “other ones” are there?
    View this entry with comments (registration required to post)



    Douche-A-Bank? Here It Comes!

    The feeding frenzy continues….

    Assured said more than 83 percent of 1,306 defaulted loans examined in one of the transactions, ACE’s Home Equity Loan Trust, Series 2007-SL2, breached Deutsche Bank’s representations and warranties. In the second deal, Home Equity Loan Trust, Series 2007-SL3, 86 percent of the 1,774 loans breached the agreements, Assured said.


    This wasn’t intentional folks. The banks didn’t know.

    Oh wait – Citi’s chief underwriter testified that they did know?

    Uh, yeah.

    The big fat flush is coming on this one folks. The landsharks will make sure of it.

    You can take that to “the bank.”
    View this entry with comments (registration required to post)

    Posted 2010-10-26 13:05
    by Karl Denninger
    in Foreclosuregate
    Why The Banks MUST NOT Get Away With This

    It’s now in the mainstream media….

    People in this country may be uninformed or misinformed — but they’re not stupid. They’ll catch on to the message soon, if they haven’t already: There’s one deal for average people, but a different, far better deal for the really big and powerful.

    We can’t go there folks.

    There’s a limit to the screwing of this sort that the people will take. I have no idea where it is. Neither does anyone else. The Politicians definitely don’t; they’re tone deaf to this sort of abuse, because most of them haven’t bought their own groceries or pumped their own gas in 20 years. We have reported every time there’s an election how “Politician X” didn’t pay his 24 speeding tickets and as a result his license was suspended – but now he paid them and it’s all ok.

    These people live in a different world. If you or I don’t pay one speeding ticket the next time we’re tooling down the road the cop’s “robocamera” will pick up our license plate and we’ll get treated to the felony stop – that’s where four cop cars pull you over and the cop steps out with his gun out, behind his door, and tells you to get the f%#k out of the car and lie on the ground. Then, since you’ve got a suspended license, you get to spend the night in jail before you see The Judge.

    This isn’t hyperbole – it happens all the time. Sometimes it’s legitimately you trying to be an ass – you tossed the ticket and the warning from the state that your license and plates were suspended.

    But sometimes it’s not – you didn’t get the notice yet, or you send in a check but for the wrong amount. No matter, you get the felony stop treatment.

    Here’s the problem: If the people get into their head that not only politicians can do this sort of thing and get away with it when it comes to things like traffic tickets, but banks can literally rob the people with predatory lending and then enlist the courts to screw them a second time in unjustly evicting them from their house, there is a point where they will snap.

    That point is where people vote from the rooftop.

    That’s a bad place to see someone cast a ballot.

    Our society relies on the general premise that you can walk from the grocery store door to your car, and from your car into your apartment, in reasonable safety. That’s part of the unwritten social contract that binds all of us together.

    Nobody passed a law to make it thus – those laws were all passed for other reasons (e.g. “no murdering, no raping, no pillaging”) – but the general agreement among the population that these laws apply to everyone, and the people who disobey them will be punished, is why you can, in fact, walk from your car to your apartment with a reasonable expectation that you’ll get there without any extra holes added to your body.

    If this element of reasonable expectation is lost, we have instant madness.

    Once the population gets into its head that the very legal code that says you can’t steal someone’s house by lying about debts in court only applies to them, and not to banks, we’re not far from the general population deciding that the rest of the law doesn’t apply either – and if the banks aren’t going to play it legal and straight neither will they.

    Society cannot survive in its present form if that decision is taken by even a tiny percentage of the population. There simply are not enough cops – federal, state, local or otherwise – to enforce the law if the general social contract breaks down.

    You want to see the economy shut down? I mean really shut down? All we have to do is see a handful of people lose everything, conclude they have no recourse to the law despite lawlessness by the banks, and then take the critical (and ugly) next step and decide they have nothing left to lose.

    Will you go to the mall and shop if this sort of thing starts happening? Nope – and neither will I.

    We’ll wind up like Mexico, and damn fast too.

    No thanks.

    There’s only one way to prevent this from happening, and that for the law to be actually enforced against these jackals. You filed 102,000 perjured documents? Right over here into the dock you go – you’re going to prison – after a public and fair trial, of course (if the jury is full of people who got foreclosed on due to your “errors”, well that’s just gonna suck, isn’t it?) You intentionally concealed fraud in the inducement in the loan? Over here with that other guy. You sold “empty box” MBS to investors, or those that ridiculously violated the claims you made for loan quality? Over there…. “Heh Jack; we’re gonna need a bigger holding cell!”

    We can’t afford to see society’s general social contract break – and I don’t like the vibe I’m getting from people on this – the people are waking up to what happened – at all.

    If Washington will not enforce the law, the States must, and they must do it now.



  23. THAT’S IT….I’m not paying anymore!!!!

  24. Preemption . . . party over?
    FDIC Issues Final Safe Harbor Rule
    By M.Soliman

    Its official! The final rule amending 12 C.F.R. § 360.6 (the “Securitization Rule”) has made for a tough month for us and it is still not over. We felt very strongly at the beginning of year that the FDIC would do the inevitable. Accounting and legal professionals practicing securities law said they were going to do it—and now, some say, “They did it!.”

    There now is a face behind MERS people. Only less than 30 days ago the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) resolved by a four-to-one vote to issue a final rule amending 12 C.F.R. § 360.6 (the “Securitization Rule”) relating to The FDIC’s treatment, as conservator or receiver, of financial assets transferred by an insured depository institution(“IDI”) in connection with a securitization or participation.

    The FDIC’s role as conservator or receiver, of financial assets transferred in connection with a securitization or participation.

    Securitization Rule, adopted in 2000, was premised, that the FDIC capitalized on the opportunity to address at the same time perceived structural failures inherent in the “originate to sell” securitization model widely believed to have contributed to the recent financial meltdown.

    Securitization is the fraud and not the Robo Hobo’s who are contract government agents are. . It’s just like any other sale of assets by an originator, that should be questioned if implemented when an originator is on the brink of bankruptcy. The potential for such suspect actions, however, is not unique to securitization transactions. The same issues would arise, for example, if on the eve of bankruptcy an originator sold, or borrowed money by encumbering, a factory or equipment and similarly sought to dissipate the sale or loan proceeds.

    Such questionable uses of proceeds are more appropriately addressed by preference and fraudulent conveyance laws

    If your a member bank NA and out for the count consider securitization to increases overall value by providing a new source of financing, the capital markets, whose rates are systematically lower than the rates at which many companies commonly borrow. So long as the added transaction costs are less than the interest saved by using securitization instead of secured financing, there is a net gain.

    Last year, changes in accounting rules for securitizations called into question the effectiveness of the Securitization Rule. Modifications to GAAP through FAS 166 and 167 have made it significantly more difficult to achieve sale accounting treatment for transfers of assets in securitizations.

    Specifically, the change is for (FAS) 140 and will require that the underlying assets of some bank sponsored securitizations be consolidated on the balance sheets of the sponsoring banks. In addition to raising questions about the treatment of existing transactions that are required to be brought on selling institutions’ balance sheets, this development has also raised questions about . . .

    . . .under what circumstances, on-balance sheet securitizations should be covered by the legal isolation safe harbor, considering that many such transactions require legal isolation certainty in order to obtain external ratings or to satisfy investors’ due diligence concerns.

    And so, in an effort to address many of the above concerns, November, 2009, the FDIC issued a transitional interim rule protecting existing securitizations complying with the Securitization Rule until March 31, 2010 at which time a new rule would be put in place

    The current interim rule grandfathers all securitizations issued prior to March 31, 2010that otherwise comply with the old safe harbor rule, so long as those securitizations meet the requirements for sale treatment under GAAP prior to the effective date of the new Financial Accounting Statements 166 and 167 (January 1, 2010).

    Finally, MERS has a face!

    (who is MSoliman…we told you so! “Now, do I have your attention?”)

  25. Caught a little BBC News last night, and THEY had a nice segment about the securitization debacle. They were interviewing a BK attorney from New York, and he was eloquently conveying the notion that most of the securitized loans are indeed defective with regard to the title issues. We can’t get that story here. Only “Blame the Borrower” propaganda.

  26. !
    The fact is that the finance industry wrote off the debt long ago. Banks are out of it, THEY GOT PAID, many times over. There is no bona fide creditor.

    It’s the debt-buying law-firms (foreclosure mills, condo- and duplicitous “creditor’s rights” lawyers) holding the world to ransom. If their mission is to eliminate individual homeownership and re-introduce slavery through garnished wages they are doing a great job!

  27. Cheaper to give homeowners their homes!!
    Heck, if the regime can’t create jobs, they can sure create equity for the people!
    That would stimulate the economy and free up the courts for bigger stuff.
    The banks and investors can write off the debt…the Feds or whomever, I don’t know. No one knows where most of these loans are anyway, if they even exist.

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