Yves Smith: Obama Pressing for a “Shock and Awe” Mortgage Mod Program, 3 Million in 6 Months

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM


EDITOR’S ANALYSIS: The plan is from Wall Street, the facts are fictional, and the result will be negligible. I commend Obama for getting more aggressive but his advisers are still not giving him the right information. If he had it, I believe he would be acting differently. He has a practical problem of putting the housing crisis behind us in a way that is politically possible. The answer is PRINCIPAL CORRECTION TO TRUE FAIR MARKET VALUES WHEN THESE DEALS WERE MADE. Anything less will maintain the current foreclosure climate for decades, keep unemployment in double digits, and prevent any real recovery from the economic meltdown they are still trying to hide.

It is really a matter of finding a true and understandable explanation for why so many people are getting the benefit of a downward correction in the principal. It is simple — they stole the money, no borrower would have signed documents on property that was worth half the debt. It was a lie and we are correcting that lie.

Obama Pressing for a “Shock and Awe” Mortgage Mod Program, 3 Million in 6 Months

Today, March 16, 2011, 2 hours ago | Yves SmithGo to full article

Given how well “shock and awe” worked in the Iraq war, I’d see the Administration’s use of that expression in the context of the mortgage mess as a Freudian slip.

I must confess to being surprised at the report by Shahien Nasiripour of Huffington Post, namely that the Administration is pushing for an even more aggressive-looking mortgage modification program than has been rumored. The reason I’m surprised is that this effort, even though it appears misguided on several fronts and falls far short of what is needed, represents an upping of the demands being made against banks. That is contrary to both the Obama Administration’s past behavior of making great sounding promises and walk them so far back as to wind up in a different country, and of inconveniencing the banks terribly much. But Shahien is an able reporter, so I’m sure he has the facts right.

The scorecard thus far appeared to be that the state attorneys general were the only group moving forward against the foreclosure fraud, but the bold promises of criminal prosecutions were quickly recanted. Instead, a 27 page outline of their settlement demands was leaked. As we discussed, it was a disappointment. Virtually all of it merely insisted that banks obey existing law. It has only two new requirements. One was ending dual track (if a bank is entering into a modification discussion or program with a borrower, it cannot keep moving forward in parallel with a foreclosure). The other was “single point of contact,” meaning having one person at the bank serve as case manager and be the interface with the borrower. We deemed that to be operationally unworkable even if the banks had their records and systems working well. And if they got those in order, borrowers would not need a designated person to make sure a modification request was handled properly.

There was also a rumor, which was connected to the AG negotiations, that the banks would be asked to make mortgage modifications at their own expense, and the number $20 billion was bandied about. The AGs and the Federal regulators seemed to be collaborating closely, which we also objected to; the state and Federal issues are very different. The idea that the banks would be pressured to make mods has gotten a huge amount of pushback in the media and from Republican legislators; there appears to be a full bore PR salvo underway.

Now notice all these ideas are being evaluated in a vacuum. We don’t know what liability the banks would be released from (the legal term is what form of release they would receive). Nor do we or the regulators have an even remotely adequate understanding of all the bad stuff the banks did. The media and anti-foreclosure attorneys have reported on various abuses, most importantly, servicer driven foreclosures, in which the borrower has either made all his payments, or perhaps been late on one or two, and impermissible application of payment, fee pyramiding and junk fees quickly drive a minor arrearage that most borrowers could correct into a foreclosure.

So despite my caviling, if the release covered only robo-signing and false affidavits, this deal (the 27 page term sheet plus a commitment to do mortgage mods) would be a very good deal for homeowners. But if it was a broad waiver, it would be a steal for the banks.

With that as an overlong but necessary background, the latest development looks like a ratcheting up of the effort against the banks, and perhaps a shift in who is in the driver’s seat among the Federal regulators. It had appeared that originally the Treasury was leading the cross-regulatory Foreclosure Task Force; it was the Treasury’s Michael Barr who spoke before the Financial Stability Oversight Council to launch it officially last November. Even then we deemed it to be an exercise in window-dressing that would make the bank stress tests look tough. It went from bad to worse when John Dugan of the Office of the Comptroller of the Currency, the most bank friendly regulator, spoke at recent Congressional hearings and indicated that the task force reviewed 2800 loan files of delinquent borrowers (from the bank side only; as we have stressed, independent verification was impossible given the compressed time frame for the whitewash exams) and found all bank foreclosures to be warranted. Needless to say, those who have been paying attention to this story saw the results as proof of the lack of interest in getting to the bottom of bank abuses. And the OCC playing a prominent role seemed to be further confirmation.

So here are the highlights from the Huffington Post story:

The Obama administration is seeking to force the nation’s five largest mortgage firms to reduce monthly payments for as many as three million distressed homeowners in as little as six months as part of an agreement to settle accusations of improper foreclosures and violations of consumer protection laws….

The modified mortgages could cost the five financial behemoths — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial — as much as $30 billion…

t also could lead to reduced mortgage payments or lowered loan balances for nearly two-thirds of the 4.7 million delinquent homeowners who have yet to fall into foreclosure, according to data provider Lender Processing Services.

The aim is to ensure the number of assisted borrowers is spread throughout the country, and that banks modify both expensive and inexpensive mortgages, people involved in the talks said. Banks also would likely forgive mortgage principal in situations where a pre-determined formula dictated that it was the best way to modify a home loan. Balances on second mortgages and home equity loans — of which nearly half of all outstanding loans are owned by BofA, JPMorgan, Citi and Wells — would also have to be written down.

That would then kick-start the healing process needed to clear the large overhang of repossessed and soon-to-be-foreclosed homes that’s depressing house prices and sapping consumer confidence.

This is pretty bizarre. It reads like HAMP 2.0. Notice that the banks are NOT being required to make principal mods. The story simply states, “reduce monthly payments”. So the $30 billion is presumably for a combination of servicer costs, payment reductions, and some second mortgage writedowns (since the Administration has stressed that these modifications are to come out of the hide of banks, I am curious as to how a bank would compensate a securitization trust for a first mortgage mod).

But $30 billion for 3 million homeowners, even assuming every penny went to principal mods, is a mere $10,000 per borrower. If you assume the bottom end of the target participation range (1 million), the maximum dollar amount ($30 billion) and modest budget for servicer costs (10% of mod amount), the highest average you could expect is $27,000 per borrower. That’s helpful but unlikely to be outcome changing for borrowers in distress. So this exercise appears to be about maximizing participation rather than really rescuing anyone. So this exercise appears also to be a stress test 2.0: that the Administration can uses this initiative as a way to talk up real estate and put a floor under the housing market.

Why is this a terrible idea?

First, there is good reason to believe that mere payment reduction plans don’t work when the borrower is upside down. Homeowners are not dumb. Why should they struggle to keep a home if in the end they will still face negative equity if they need to exit in the next few years? What is keeping a lot of these homeowners in place is probably inertia: they like the house, their kids are in local schools, moving is disruptive, and exiting the house involves a lot of hassle and probable adverse impact on their credit record. A payment mod does not change the basic equation. By contrast, the one party known to have tried deep principal mods, distressed investor Wilbur Ross, has reported far lower redefault rates than for other types of mod programs.

And a lot of borrowers are upside down. A recent CoreLogic report found that as of fourth quarter 2010, 11.1 million homeowners had mortgage debt in excess of the value of their house. Moreover, the negative equity for those upside down by more than 50% was $450 billion.

So what is a puny $30 billion max (which will include servicer expenses) accomplish? By itself, nothing except some modification theater. In combination with principal mods, which would come from reduction in principal balances by investors, you could see a positive outcome. As we have stressed, when banks foreclose, the losses to investors are 70% and rising as home values continue to fall and foreclosure defense attorneys are making headway in local courts making arguments based on chain of title issues. All but a tiny sliver of subordinated bond holders would welcome deep principal mods. When you are looking at 70%+ losses, 30% to 50% would look like a screaming bargain.

Second, servicers have every incentive to make sure mods fail. They don’t get paid to mod. They do get paid to foreclose. Their income is based on fees based on principal balances (which is one of many reason they’ve rejected principal mods) plus fees they earn for various activities performed in foreclosures. Tom Adams estimates that servicing is costing 125 basis points today, versus income of 50 basis points coming from regular servicing fees based on principal balances plus 30 to 50 basis points based on late, junk, and foreclosure related fees. So having borrowers fail is economically attractive to servicers.

Third, servicers have never been any good at mortgage mods. Tom Adams again:
Giving a modification to a borrower, principal or otherwise, is basically underwriting a new loan. Obviously, many of the lenders have proven that they were not very good at that. However, at least they had staff and “guidelines” for making the loans.

Servicers have neither guidelines nor staff for loan underwriting. Principal modifications were just not contemplated by the securitization model.

I’ve visited dozens of lenders and servicers over a 20 year period and the only company I saw that had a real policy for modifications was Household Finance (now a part of HSBC). Their stated plan was a perpetual debt model (”generational”). They aggressively offered modifications, sometimes even for moderately delinquent borrowers. They claimed about a 25% re-default rate (I looked at data that more or less confirmed this). Of course, left unsaid was that they didn’t always mind re-defaults as they were an opportunity for additional servicer fees on a loan that was going south either way (investors wouldn’t have wanted to hear that).

The next closest thing to a modification plan was Litton, which was an advocate of short sales based on their confidence in their own valuation of the loans. Litton only serviced loans on which they were the residual holder, so they had an economic incentive similar to third party investors, as long as their was value in the residual (which is pretty unlikely now, for most deals).

As far as servicer factory floors – rather than sweatshops, they bore a resemblance to college dorms – young staff with a high turnover rate (20-40% in good times), lots of calling campaign contests, decorations, balloons, morale boosters. Typical call center stuff, though the mortgage servicers were more aggressive with the morale stuff than credit card, student loan, etc.

Very different from commercial loan servicing, where the concept of -re-underwriting, modification, workouts etc. are much more a part of normal business.

Note that Goldman is now trying to sell Litton….not that there is anyone who could possibly want to buy it.

Law professor and securitization expert Adam Levitin has argued that servicers should not do mods, that the task needs to be assigned to a third party. There have been approaches to compensate for the lack of servicer skills in this area, including having mortgage counselors play a prominent role as well as the NACA approach, where an independent group verifies and uploads key borrower documents and works with borrowers to prepare a household income and expenses spreadsheet which is a key input to a loan re-underwriting. But absent a new approach, why should a repeated failed experiment of unmotivated servicers doing mods lead to different outcomes? I much prefer his not quite a joke solution of having the banks spend the then rumored settlement amount of $20 billion on Legal Aid. The threat of borrowers chipping away at banks enough to develop class action theories or prove out the New York trust theory discussed on this blog (which would pave the way to asteroid-hitting-the-finanical system suits against trustees) might change their incentives.

Fourth, the six month timetable is nuts. Servicers are factories. As the late Tanta pointed out, it takes servicers six months to implement the software changes associated with meaningful new initiatives. Even if they did a full court press, the most they could compress it to is probably four months.

Although a lot of the chaos of HAMP mods appeared to be servicer “dog ate my homework” loss of borrower-submitted documents, there is every reason to believe that a lot of the screw-ups reflected deep-seated operational problems. Servicers are working with platforms, both software and procedural, that are already deficient and cracking under the volume of delinquent loans. Asking them to do something different, on an aggressive timetable, and in high volumes is just about certain to create a complete train wreck.

Even though we are deeply skeptical, the dynamics are curious indeed. The HuffPo account states that the Department of Justice is leading the negotiations with the banks, and HUD, the Treasury, and the FDIC are on board. The OCC, which recently seemed to be in the driver’s seat, has apparently been marginalized. And the upping of the rumored amount to be extracted from the banks, $30 billion (admittedly a maximum, we’ll believe that when we see it) is markedly higher than the earlier $20 billion that elicited all sorts of noise.

Even though the Foreclosure Task Force’s exam was cursory, and managed to find that all foreclosures were warranted, save in a very limited number of cases when an “intervening event or condition” took place. Nevertheless, that review found legal violations (and the language suggests they go beyond the poster child of robosigning). Of course, a literature search or database query of court filings would have shown the same thing. But Walsh’s testimony in February made no mention of Federal violations (click to enlarge):

Screen shot 2011-03-16 at 5.22.32 AM

So what is the Administration’s source of leverage against the banks? In theory, it has a ton, starting (as we have pointed out in meetings with the Treasury) violations of REMIC, the IRS rules that govern securitizations (the investors would be charged but the violations result from bank failures to adhere to their representations in the pooling and servicing agreements; they have a basis for litigation, and this is a nuclear weapon level of threat). We raised it twice in an August meeting with Treasury when officials, including Geithner, piously maintained that there was little they could do about servicers. The questions about using IRS violations to bring servicers to heel were pointedly ignored. And we knew then that the issue had already been raised directly with a senior enforcement officer at the IRS who knew the REMIC rules and was initially very interested. The result? The report back was that the matter had gone over to the White House, which said it did not want to use tax as a tool of policy. Ahem, didn’t Obama swear to uphold the laws of the land?

But the bottom line, and it certainly has been consistent with the Administration’s posture, is that it sees its authority over the banks as being narrow. But the Huffington Post article mentioned consumer law violations, and the 2003 FTC/HUD action against miscreant servicer Fairbanks was based on a broad range of violations. Perhaps the powers that be revisited some of the thinking behind that action. One can only assume they have a real smoking gun; this sudden show of spine (even if the effort falls vastly short of a sound course of action) is very much out of character (although Treasury has been bloody-minded in its Volcker rule negotiations with banks, so this is not completely without precedent).

The Administration’s argument may also be that if the banks do widespread mods, they can also get consumers to waive their rights to litigate. That may be the real rationale for a broad-but-shallow strategy. No Federal or state governmental body can waive a private party’s right to seek recourse. But do the banks buy that they have real liability from chain of title issues? They appear to be in deep denial on this front, given the lack of investor lawsuits. But we are told that the reason that those who have studied the question haven’t acted isn’t that they think they have a weak case, but if they prevailed, it would blow up the banking system, which isn’t exactly in their interest. But if they came up with a more limited basis for action, they might well proceed if only to pressure servicers to do meaningful principal mods.

But even with this new desire by the officialdom to press forward, it isn’t clear the other moving parts will line up. The Administration is also pushing the state attorneys general to wrap up their settlement. But that group appears to be fracturing, with defections expected on the Republican side and probable among some Democrat AGs as well (the article mentions New York’s Eric Schneiderman as a possible holdout; we are also told the Nevada AG Catherine Masto is not keen about the deal). The banks also want a pound of flesh to come from Fannie and Freddie, which makes sense given that we have gotten reports from readers of HAMP mods being approved by servicers and nixed by the GSEs.

This is all very curious indeed. My gut (and it could prove to be dead wrong) is that there is no negotiating space between the banks and the Administration, that the bid and offer are too far apart. The haste on the part of the Administration to wrap things up is not likely to help them in the absence of a real threat; undue eagerness to strike a deal is usually a sign of weakness. But the $30 billion may also be on the table to give room to negotiate down for the banks to save face. Since the Obama Administration has never been very good at negotiating, the results even on a level of bargaining are likely to be underwhelming.

37 Responses

    “. . . . merely agree that the IMF should write in its ledger that it has an extra $14 billion ”

    Right now Congress is determining and voting on RAISING THE DEBT CEILING OF THE US GOVERNMENT.


    WHY? It’s explained in my earlier posts.

  2. see, they want to do loan mods, but we are fighting who owns what

    “The accepted principle of ‘modern money’ is to use records of ‘who owes who,’ kept by the commercial bankers, and accepted by the non­bank public as its medium of exchange. Instead of gold and silver certificates (“claim checks” on gold or silver coin stored for their redemption) we now use Federal Reserve “notes.” Fed. “notes” are the replacement for the gold and silver certificates, but are not the same in several ways. The ‘Fed.’ “note” is not a claim on a ‘record of debt.’ It is a token that represents the right of its holder to transfer the ‘record of debt’ to a NEW holder! in exchange for private property.”

  3. Here we here yet, is the middle class in this scene?


    With NET INCOME FALLING, INTEREST on BORROWING and TAXES to pay for unemployment insurance, welfare, etc. RISING, the INEVITABLE COLLAPSE of INDUSTRY is a POSITIVE CONCLUSION.”

  4. TO E.TOLLE:



    What function of Government could not be corrupted, by you?

    What business could not be destroyed, by you?

    What manner of injustice could not be inflicted on anyone, by you?

    What truth could not be suppressed, by you?

    What commodity could not have its price suppressed, by you?

    What commodity could not have its price supported, by you?

    What commodity could not have its supply decreased, by you?

    What commodity could not have its supply increased, by you?

    What information media policy could not be directed, by you?

    What educational material could not be distorted, by you?

    What school could not have its policies directed, by you?

    What crime could not be ‘gotten­away­with,’ by you?


    Government, Business, Justice, Truth, Prices, Supply, Information, Education, Schools and Crime are all subject to corrupting influences by anyone to whom ‘MONEY’ IS NO OBJECT!

    Government is controlled by Modern “money,” therefore Government does not create Modern “money,” or it would control itself. There is only one entity to whom Modern “money” is no object. It is the commercial banking system (under regulation by the Federal Reserve Board) that has an ‘OPEN ENDED’ checking account.

    “These are the men who create the money we all spend . . . . in effect they determine whether you will be able to buy a car, can afford to take a vacation or buy a new home. Their decisions can effect the security of your job . . . in the deepest secrecy they plot their strategy . . . . everything is cloaked in deepest secrecy . . . in making decisions they check with no one -­ not the President, not the Congress, not the people.”

    Page 14 PARADE MAGAZINE October 26, 1975

    The Commercial Banking system through its “monetized debt” (“Modern Money” represented by non­redeemable paper tokens) is the SUPREME force WHO’S WILL IS LAW in the United States.


  5. to E.Tolle:


    Who is this invisible government?

    What is its force?

    Where does it get its power?

    When will it end, if ever?

    Why does it persist over the truth?

    WHO . . . . . . . . The invisible government of the world is its world wide interdependent banking system.
    WHAT . . . . . . . . Its force is the “monies” of the world it creates.
    WHERE . . . . . . . . It gets its power from the fact that all “monies” today are monetized debt. The people’s credit, monetized by the bankers and used to control the people.
    WHEN . . . . . . . . It will end when its exposure will be accepted by the people and they refuse to use monetized debt as a medium of exchange.
    WHY . . . . . . . . It persists over the truth because all the power of “modern money” is used to subvert the truth and support a belief in the false world the people ‘SEE’ all around themselves.
    How can this small group of people, hidden within the main body, direct the policies of the body as a whole, without detection? It is possible because most people accept what they see and what they hear without applying any tests for truth. When only gold and silver coins were used and called money, it was believable that one nation might attack another to get needed material it could not “pay” for. But with modern “money,” created by the billions, and used to purchase with, why fight, for something you can get with “modern money,” which costs you nothing?

    The people will believe that one country attacks another for chrome, or nickel, or copper, never realizing that with “modern money” it can be “bought” for nothing. Who could you not corrupt, if money were no object? What could you not “buy,” if money were no object? Where could you not go, when could you not use it? Why would you not use “modern money” if you were the one ‘licensed’ by the world to create it? You do not have to go beyond the pages of the Wall Street Journal to find this truth.

    “In Kingston, Jamaica, this week, 20 representatives of the 128 members of the International Monetary Fund will be playing a marvelous game. The IMF Interim Committee — 10 delegates from the industrial nations, 10 from the developing countries — will create about $14 billion in fresh money, after they haggle over who gets to spend it, under what conditions.

    The international bureaucrats assembled in the sunny spa don’t normally admit that what they are doing is simply printing money; they describe the process as an expansion of IMF quotas. Nor is a printing press used. The IMF members -­ including the United States -­ merely agree that the IMF should write in its ledger that it has an extra $14 billion to lend to the poor and deserving.

    Now this inflation­groggy world certainly does not need the injection of another $14 billion in base money, likely to be multiplied into a far larger addition to the world’s money supply.”

    Review and Outlook Wall Street Journal
    Page 12 Wednesday, January 7, 1976


    “20 representatives of the 128 members of the International Monetary Fund.”


    “. . . after they haggle over who gets to spend it,”


    “. . . . fresh money . . . .”


    “In Kingston, Jamaica . . .”


    “. . . . merely agree that the IMF should write in its ledger that it has an extra $14 billion . . .”


    “. . . . this week . . . .”


    “. . . . to lend to the poor and deserving.”


    “Now this inflation­groggy world certainly does not need the injection of another $14 billion in base money, likely to be multiplied into a far larger addition to the world’s money supply.”

    AGAIN: How was the $14 Billion in New Money created?


    AGAIN: Who did the haggling over who gets to spend it?


    “Money power denounces, as public enemies, all who question its methods or throw light upon its crimes.”

    William Jennings Bryan 1896

    “We have awakened forces that nobody is at all familiar with.”

    John Connally — Newsweek 8­14­71

    “What’s at stake is nothing less than the economic order of the free world.”

    Austria’s then Central Bank Chief Wolfgang Schmitz 9­11­72


    “Those who create and issue money and credit direct the policies of government, and hold in the hollow of their hands the destiny of the people.”

    Rt. Hon. Reginald McKenna former president of the Midland Bank of England,
    ex-secretary of the British Exchequer 1920

    Twenty representatives of 128 nations create money, which is all powerful on government policies and destinies of the peoples of those governments. Representatives of 128 nations joined in one organization, to create a belief in monetized debt, to fool and exploit all the people of the world. No one nation could act independently without breaking the conspiratorial agreements that keep the world’s people fooled.

    “. . . . what is a dollar its just something artificial we throw out there . . . . what you’re doing is you’re fooling people . . . .

    Denis Karnofsky — Chief economic adviser St. Louis Federal Reserve Bank
    — on “NEWSMAKERS” Ch. 4 TV June 10, 1978

    Make­believe “money” can only be used when it is created in one human mind and accepted in ALL others. If any group of people or nations stopped believing in the monetized debt­make­believe “money,” its power to support belief in a false world, would be replaced by truth, proportionately. The whole world is in the grip of this monetized debt, ‘MODERN MONEY MADNESS’ and are believing that the world, as they ‘SEE’ it is the real world.



    The above is a totally irrational conception that appears to be rational only if one accepts that there is no intention of anyone ever paying­off the debts.

    “Debt — public and private — is here to stay . . . . What is required is not the abolition of debt, but its prudent use and intelligent management.”


    “In addition to securities, the federal government issues noninterest­bearing debt­currency or paper money. Currency is so widely accepted as a medium of exchange that most people do not think of it as debt.

    Page 6 “Two Faces of Debt”
    Free on Request: Chicago Federal Reserve Bank.



  7. Yesterday on Yahoo Finance they posted a story about people going to jail for not paying their debts. That story was designed to keep people in fear and paying on their stupid credit cards. Here is the real story:


    “Credit Card Defense Cases

    Credit card defense cases are an entirely different animal. Nearly all consumers that are sued for credit card debts do not appear in court and lose by default. This is a huge waste. The truth of the matter is, if you have an experienced consumer rights attorney in your side you will prevail more times than not. This is because these debt collectors that sue you are so used to people defaulting they don’t know what to do when someone actually properly defends the case. Often times, creditors do not have a contract that you signed. It may be that they’re trying to collect money that they are not entitled to, or that they can’t prove they are the own who actually own the debt. It may be that they are trying to collect interest that has not accrued. Furthermore, there are a large number of evidentiary issues that can be raised in fighting these cases.”


    I also want to point out here is California a creditor has to sue in Superior Court.

  8. “They do it ruthlessly and with malice aforethought. The bank knows exactly at what time they will sell
    you up because they have a secret schedule that demands that a certain percentage of their loans be
    turned into real wealth (your hard work of a lifetime) so that (your) real wealth can replace their fictitious
    book-entry credit.”

    from last post link “How to screw your Bank”

    now it’s Securization as opposed to book keeping entry

  9. “The banks lock up all your real wealth assets in return for loans of credit which they create out of thin
    air at no cost to themselves.
    The banks then loan you just enough credit to get you hooked but they carefully fail to loan you enough to
    actually pay your way out of the mess they have deliberately created for you. ”

    How to Screw Your Bank:



    The rule of law allows you to enforce your rights, to make them prove it up, validate their claims, show up, explain how they arrived at what they claim is owed, prove they have the authority to act, and force them to comply with state and federal statutes. It also allows you to collect from those who hide behind the telephone to harass, oppress, intimate and extort monies. I saw a case where a woman was told she would be arrested for not paying a debt and her kids would be turned over to foster care. She taped the call and contacted a NACA attorney. He started the settlement offer at over $200,000 with the collection agency. While they eventually settled for less, the collector was fired, and justice prevailed. The law works, but you must use the tools that make the law work.


  11. This was written Mar, 2009:


  12. Listen bk court isn’t for everyone bit if you want to stay in your home and be a slave to bk for 3 to 5 yrs go for it I settled alomost all my debt myself. But did I .. Crdit card debt us securitized remember… So the biggest freedom for me was to say sod the fico score. May be a problem
    later but it keeps me outta bk court. Just wanted to say bk isn’t for everyone … But … I they took the house. The only way thru this now is to call it exactly as it is otherwise our futures and generations after will be crippled. No rule of law. How scary is that.

  13. 100% BULL CHIT!

    Get into Bankruptcy court! Its the only way to win, and its less costly. Judges don’t play stupid games with incompetent lawyers.

    Unlike circuit Judges, Federal Judges are not frightened @ at getting overturned on appeal.

  14. E. Tolle – You da man!

    Debb Wynn – I like the way you think!

  15. Anonymous, you wrote:

    “Now — what do we do about it???”

    Now, isn’t that a huge question???

    The only way I know to answer it with my little cranial mass is to split it into two areas….the micro and the macro.

    On the micro front, what you and Neil and others are doing on this website and others is helping folks like me in more ways than you could ever know. I for one couldn’t even begin to tell you folks how much I’ve learned from you and also how much I genuinely appreciate all of the time taken to answer difficult questions for those of us who are seeking answers to some really tough complex issues. Thank you all.

    Having said that, it’s up to each and every one of us who have seen behind the veil to spread the gospel about the attrocities committed by the banks and how they need to be avoided like the cancerous rot that they are. If we all do our best to comment to friends, neighbors, relatives, and on other websites the message will get spread eventually.

    And we must continue to bring the fight to them. I would urge everyone contemplating strategic default to sue the banks instead. Let’s tie the bastards up and make it so expensive for them that they go under from their legal bills, just like so many of us have.

    Many, such as Chris Whalen and Bill Black will tell you that all of the banks that we’re fighting are insolvent already. If not for FASB and mark to fantasy, as well as gifts fron the treasury and the fed, just the 2nd mortgages alone would topple this Potemkin village in short order. Let’s keep up the attack.

    As to the macro, there’s a much more difficult battle to wage, as they have all the money, power, and influence. David and Goliath comes to mind. However, the events in Egypt should be the template that we seek, combined with the situation that Iceland confronted.

    The Egyptians faced impossibly long odds, we know how that turned out. Iceland was buried in debt and went from paradise to ruination almost overnight. But they had sack enough to tell the bankers to stick it where the sun don’t shine, and remember, they have very long sunless spells in Iceland. Ireland is teetering towards this front as we speak.

    Although seemingly an impossible task considering TPTB and their complete capture of our government, we MUST find a way to default on some debts and restructure others of these ridiculous obligations. I couldn’t possibly put it better than a commentor over at Yves Smith’s site when he/she said:

    “Why do sovereign governments borrow their ‘own’ currencies from private corporations (in the US – the Fed and the fractional reserve banks)?

    Why would a government – that is supposed to be representing the people – pay interest on debt to the bankers/elites?

    Of course, the reason is because it siphons all of the wealth from the bottom & middle to the top. It’s the scam of the century.”

    To tell you the truth, I believe the biggest impediment to this problem is exactly what you stated in your commentary, for I’m an old hippie and also don’t feel any of the power of the people in the present day, or anything even remotely like the volition of the people who were seeking change back then.

    I know the following statement will come across as heartless and cold, but I actually want things to get worse, which I believe they will anyway. The reason being that right now, those that still have their jobs, or have only had to cut back a little here and there don’t understand or share the pain with the millions who have been decimated by current affairs. And the MSM being solely owned and operated at the bequest of the elite paint such a rosey picture one would never know of the issues confronting so many across the planet, even right across the street on which you live.

    We must end the Fed. There’s no possible hope otherwise. Kucinich has a bill for this. As ex-NY Times author Chris Hedges says, vote for anyone on the ticket who is neither a republican or democrat. It doesn’t matter if he/she is a communist, the two party system has shown us that they are all bad actors in a horrible movie called the Beltway. The movie always ends badly.

    Although the majority of Americans are asleep and haven’t awoken to the blight around us, if things begin to shrivel for more and more they will awaken. And if there’s one ray of hope that I hold on to and believe with all of my heart, it’s that once Americans get it, that a very few greedy bastards are attempting to (getting by with) shove/ing the rest of us into a tyrannical state very much like our forefathers faced in colonial times, the gated walls that are hiding the elite will be torn down just like the force of that horrendous tsunami we all just witnessed. Live free or die? Hell yeah! Let’s do this thing. What choice do we have?

    ps. Love the idea of a national committee of sorts. Would vote for you and Neil to be the voice. I would bet the farm (that is if the bank doesn’t take it first) that there would be many thousands, probably hundreds of thousand who would rally to the cause with great voices such as the two of you. Count me in in any way I can help.

  16. The man… The rapist has to sleep sometime

  17. Deb Wynn this how they used too treat female rape victims in the United States up until the Eighties.

    This is how they treat Female rape victims in Iran and Libya and Saudi Arabia.

    Here we kill you economically In Saudi Arabia (George W. Bush walks and kisses the Saudi King and Prince) Iran and Libya they literaly kill you the Female Rape Victim.

    In Some Countries or Culture the Female Rape victim has to marry the Culprit.

    So what do you expect.?

  18. How can you modify a contract, a mortgage loan that wAs not that in the first place. And why on gods earth would anyone do business knowing 1. They screwed you in the beginning then 2. They tried to screw you again with bogus mod ( how can a sale of distressed debt be modified
    ?Soliman?) to steal after they had already Been unjustly enriched for losses that never really were( fancy book work”) and leave you for dead 3. They tell others to lie with the aid of well prepared software to execute the furtherance thereof 4.they are rewarded for this and do not fear punishment because there is none 5.and now they are going yo do it again
    just needed a reminder.

  19. Ian

    Loan resets are being done on mortgage (contracts) converted to default debts —- LIBOR – as stated in contract should no longer even apply. Problem is that the interest rate – then — can even be higher. But — no one is telling you WHO is doing this. No one is telling you – WHO your CURRENT creditor is.

    Government knows this. And, protecting everyone — except us.

  20. E. Tolle,


    Now — what do we do about it???

    I am a product of (hate to say it) — the 60’s — when we stood up for what we believed — we did not just accept what was happening around us – we spoke out.

    Once, as a student, had a professor tell me — that this generation (60’s/70s’ ) — was the best he had witnessed –due to their perseverance — and he was much OLDER.

    I am not seeing the same perseverance now — see — the 80’s “Me” generation — fighting for their own individual cause. And, the courts/government — like this just fine.

    Time to speak out — it is time to speak out – together.

    Would love to know where you are from – but respect your privacy.

  21. E Tolle,

    Wow, that was well written. I wish I could write like you but your statement is what I’m trying to say. We just have to keep repeating it, like a commercial, over and over and over. Word of mouth is more powerful that their controlled media.

  22. Ian, the LIBOR (London Interbank Overnight Rate) was the rate, set by the LIBOR Panel Banks, at which the banks would lend and borrow from EACH OTHER. While the Fed rate fell, the LIBOR increased. Again, the adjustable rate loans were all indexed on the LIBOR. Remember when your loan agent said “Rates are going nowhere but DOWN”? Well, they WERE going down. The only way most of these borrowers would default was if the rate increased enough to make the payments unbearable. THEY SUCCEEDED. With the resets, payments escalated 15%-30% at the expiration of the lock period. This was the hammer that put the nail in the coffin of the borrowers with ARMs. Period.

    And all fraud.

  23. The deception here is that we always come back to discussing modifying these loans. Even Neil mentions principal corrections in his header to this piece. THERE CAN BE NO MODIFICATION TO FRAUD. The original scheme was tainted at conception.

    Allowing the fraud to simply be reconstructed at a different rate or principal balance would be akin to allowing a bank robber to give back the ones and fives, keeping the fiftys and hundreds.

    The most difficult thing to keep in mind here is that we ARE dealing with bank robbers. We just need to have a new definement of that phrase. It’s the banks who are robbers.

    Only when the populace awakens to the fact that we’ve all been robbed, every single one of us, in every single nation in the world, will we be able to rid ourselves of the blight that is destroying our villages, towns, counties, states, countries, and planet.

    Securitization is simply a model of debt leveraging that has spun so out of control as to threaten life as we know it. It can be directly connected to the rise in food costs that are causing so much misery in the world as we speak. It can be directly associated with the speculation and subsequent rise in oil prices, even though one could argue the inevitability of that finite source rising higher sooner or later. But not just yet.

    It can be directly associated with the so called leaders, from governor Walker’s attack on wage earners to the British Parliament’s push on higher fees for tution.

    The massive debt that is to blame for the austerity measures being called for throughout the globe are simply due to massive and unsustainable debt loads due to the leveraging and securitization that occurs on every single back of every single person who actually works for a living, who actually provides goods and services.

    The people who don’t provide goods and services, the financial sector, profit on a massive scale from every product, every project, every infrastructure need, every single project that you and I create.

    Debt, and the leveraging thereof, is what has brought down, is bringing down, our system, our infrastructure, our way of living and cooperating worldwide. Until we understand that fact, and understand that we can’t adjust or modify anything created that simply sucks dry the true products and labor of people who actually create products and services, we will forever be in their world of lack, debt, and servitude. Screw them. Screw the central banks and the Fed. Death to Wall Street.

  24. Why can’t we just go to Bernake at the FED and get him to print up 1/2 trillion off budget. He testified he can’t remember who he loaned money to.
    Stan P

  25. The part that gets me, is that, if I do in the long run, and believe me I will make it very long, if I do end up losing my home, some other person is going to get the principle reduction that they wouldn’t give me. I mean, any sale of my home now is necessarily going to be around 50% less than what I bought it for, in essence a “PRINCIPLE REDUCTION” and I lose out simply because of bad timing???These homes are going to get a reduction one way or the other, but we who got scammed will get the double dose of losing the home as well, hell make that triple dose, cause our credit is screwed and we cannot now take advantage of the market correction that has now taken place.

  26. its obvious the government is unwilling to do anything. failure after failure after failure means they arent unable, but unwilling to do anything. the only thing left is for everyone who got screwed and continues to get screwed to stand up and be heard. loud and clear. when enough of us make noise, they cant ignore it

  27. 10K per homeowner? That is terrorism

  28. to posters:

    Please try to remember the difference between “Principle” and “Principal.”

    Erudition in writing depicts credibility.

  29. This was written in 2010:


  30. usedkarguy- this item first came to light last year,when, upon initial review,it seemed as though one or more of the banks were understating their borrowing costs. I don’t remember the specifics. But within a day or two, the banks had restated their borrowing costs(they had been caught) Can you explain how the juggling of Libor rates trickled down to illegal loan reset rates? My brain is incapable at the moment. I also remember reading in I believe an FBI report that 60% of loan reset rates were incorrect. And it wasn’t random,of course,most of them were reset in favor of the “lender”. Surprise.

  31. http://www.bloomberg.com/news/2011-03-16/bear-stearns-thrives-in-diaspora-giving-4-to-sheryl-crow-tune.html

    If you read that article, in my view it becomes pretty apparent that you have Wall Street and Main Street. Wall Street has turned Main Street into a trading vehicle. Wall Street has securiized everything, all loans are turned into notes that can be traded, all of Main Street is doing the work. So at the bottom of the pyramid Main St working and all monies flowing up the pyramid on paper traded. And it’s all based on debt.

    The Fed’s, banks, brokerage firms, insurance firms, mutual funds, hedge funds, pensions, other countries firms, etc – they are all trading these MBS/ABS, bonds, paper, etc.

    Does one really think they will do some massive principle reduction? By their own accounting rules, if they did a principle reduction, would they not have to devalue all the paper notes they are trading? oh boy, it’s all tied in together and we are trapped in the loop unless you get out somehow. I suppose by not using their source (using credit or debt).

    That article never mentions contract law or land records of recording loans. None of those people care about that. They do not give two hoots about the Main St guy who got took and set-up in endless debt.

  32. From the Wall Street Journal:

    The Securities and Exchange Commission and the Justice Department are investigating whether some banks deliberately tried to skew Libor by submitting inaccurate data to the BBA in the 2006-2008 period, according to government and industry officials. Authorities are examining whether banks whose funding costs were rising as the financial crisis intensified tried to mask that trend by submitting artificially low readings of their daily borrowing costs, the people said.

    WOW, talk about being “behind the curve”!

    I stated in my pleadings 3 years ago that the LIBOR was used to index the loans, and the the big “co-conspirators” (Citibank, HSBC, UBS, Bank of America) colluded to “raise the LIBOR” in the face of a falling FED rate.

    This was the tool used to drive up the reset payments on the ARMs; the only way these banks could INSURE that the borrowers could not repay the loans they took.

  33. […] Yves Smith: Obama Pressing for a “Shock and Awe” Mortgage Mod … […]



    Neil, can we please get an Awareness Ribbon going? Half black and half aqua blue, with the black folded over the blue.

    This will stand for the fight for principle correction of underwater homes. The black stands for the fraud incurred upon the homeowners and the blue represents being underwater as a result of all the fraud.

    I am beginning to make these, so if people can’t make their own, I can cover materials, time and labor for $5. Just email me at KPPI2U@gmail.com.

    Please, let’s get this movement more visible!

  35. It is time to get Greenpeace involved . How many tree’s the banks paperwork already killed.
    I send more than 200 pages to CHASE in the garbage and now the send me already another 8 application with 4 pages each. If we talk about
    million of homeowners , the rainforest is gone already.

  36. Does the Administration NOT understand that a loan can’t be removed from a REMIC to be modified??? Nothing can go in or be taken out after the closing date of the Trust…
    Has anyone cleared THIS with the IRS???
    There is no evidence at all that the Trust suing us exists. Plaintiff is ignoring discovery requests…Dirty dirty dirty.
    Fight them in court! Screw a Mod…they are not the party to modify or satisfy your mortgage. They NEED new paperwork listing THEM as lender. Don’t sign ANYTHING…HAMP would have given them brand spanking new Mortgage notes BUT for the GREED. They blew it…AGAIN!

  37. Lets not forget that Barack Obama announced HAMP almost two years ago. By holding out this long he can time this alleged giveback with his re-election plans.

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