Make Banks Write Down Underwater Mortgages


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EDITOR’S COMMENT: UNFAIR, RIGHT?  Why should people who made a bad deal get out of it? That is rewarding stupid behavior and will just make them do it again, costing us taxpayers even more money. And what about me? I’m underwater or I have paid off my house completely. I paid my mortgage and I honor my debts. Isn’t THAT the way it is supposed to be?

HERE’S WHY THAT IS INCORRECT: WHEN YOUR DATA IS WRONG, SO ARE YOUR CONCLUSIONS. Yes it WOULD be unfair if people were getting a handout for making stupid decisions. Like the Banks got $16 trillion for making bad decisions and we would both agree that was wrong and stupid. But what if you knew that the “handout” would cure the economy, make America great again and would raise your income and assure the prospects of your children? Isn’t that the rationale behind justifying all that money given to the Banks. What if the commercial landscape was forced to become fair to consumers as a result of the power of consumers as a whole who were no longer enslaved by debt they were hard sold on taking on? What if the deficit went away as a result of doing a principal reduction to homeowners? Would you still feel the same way?

All that is theoretical to the naysayers so here are some real facts that show quite clearly that the money siphoned out of the U.S. economy (homeowners lost around $10 trillion so far) went to the Banks. And here is how they did it: appraisal and ratings fraud.

  • Virtual every person who signed loan papers was seduced by false assurances from “experts” at the closing table that the terms of the loan were fair, that the risk of loss was non-existent, and that the property value would go up so it wasn’t a matter of buying or financing a home for more than you could afford, it was a matter of it being a smart investment, whose rise in value would more than offset any increase in payments or any shortfall in the borrower’s income.
  • That is why I say that these were not mortgage loans. They were one part of a larger scheme to issue bogus mortgage securities to investors who were lured by much the same talk PLUS false appraisals on the value of the property (a responsibility of the LENDER, not the borrower) and false ratings on the value and quality of the toxic “bonds” sold to investors (a responsibility of the LENDER, not the borrower who didn’t even know about it).
  • So the borrower finances a house worth in actuality $300,000 for $500,000 because the “appraisal” comes in at $520,000. He’s been told by realtors, sellers and banks, mortgage  bankers, mortgage brokers, loan originators (many of whom (10,000 in Florida alone) were convicted felons having committed economic crimes for which they were fresh out of jail, his property will appreciate in value (because real estate “never goes down, a blatant lie) and that in a couple of years it will be worth $650,000, he can refinance, pocket the difference to pay for the mortgage and go on vacation.
  • The 10% interest rate contained within the loan doesn’t matter because that $50,000 in interest per year is being accrued — added to the balance he owes, and he only needs to pay $800 per month. With an income of $40,000 per year, he can afford that. SO he does it because he doesn’t know any better or even how to inquire further.
  • So the investor gives the investment banker $1 million expecting a return of 5% which turns out to be the same $50,000 per year in interest that our borrower is supposedly going to pay sometime, somewhere, some how. But he investment banker has loaned the borrower only $500,000 in order to get ON PAPER that the interest income from the loan will be the $50,000 per year that the investor wants.
  • Wait a minute. The investor gave $1 million and the loan was only half a million. That leaves half of one million dollars of investor money NOT LOANED. It stayed in the investment bankers’ pockets as trading profits and fees because they sold the $500,000 loan for $1 million to the investor.

Did the investor know that? NO. Did the borrower know that? NO. Was the borrower supposed to be advised of that? YES — under the Federal Truth in Lending Act, those disclosures are required to inform the borrower that  if the fees and profits are so high he might get a lower interest more affordable loan at a true fair market value on his house and actually live happily ever after.

So right after the closing, neither the borrower nor the investor knows that the property value was actually $300,000 and that when the party is over, THAT is exactly where the price is going or lower. The appraisal was false as were the representations made when the loan was sold to the borrower and the investor. So tell me, do you still think that principal should be CORRECTED to reflect the truth of the matter or do you want to support the banks in their lies to the borrowers, investors and the taxpayers, who are footing the bill in amounts actually exceeding our gross domestic product?

Not enough? How about the fact that the loans was sold multiple times and the intermediaries were taking so much in fees that the total profits and fees, unknown to the investor and borrower, were in the millions of dollars for that half million dollar loan? do you still think borrowers are deadbeats trying to get out of a legitimate debt? Or are you starting think they they like all of us, have been the victims of the largest economic crime in the history of the human race and that when fraud is committed it is up to the fraudsters to make restitution — by lowering the principal balance to (a) the real value of the property (b) less any amounts of money they have already received as creditors.

How about that? Now what do you think is “fair?”

A Solution to the Foreclosure Crisis: Make Banks Write Down Underwater Mortgages

This guest op/ed was written by Pastor Lawrence Willis, president of the United Black Clergy of Washington, and Mila Dolan, a Renton resident who is currently facing foreclosure and is a member of Washington Community Action Network.

The federal government and state attorneys general, including Washington State’s Rob McKenna, are currently negotiating a settlement with the big banks over foreclosure abuses, with a deal expected within the next few weeks.

Unless the public stays vigilant, this settlement could turn into a slap on the hand for Wall Street, with a slap in the face to homeowners.

Recently reported settlement proposals would effectively absolve major financial institutions of meaningful civil and criminal liability in one of the largest alleged fraud schemes of the Wall Street Recession.

Because the deal lets the big banks off easy, attorneys general from New York, Delaware, Massachusetts and Nevada are no longer participating in discussions (with California mostly out as well). The last thing Attorney General McKenna should be doing right now is absolving the big banks of responsibility for their role in the foreclosure crisis.

We want to applaud Senator Maria Cantwell (D-WA) for demanding in a letter recently that the Department of Justice fully investigate fraudulent foreclosures before coming to a settlement that lets the big banks off the hook. Cantwell rightfully insists that a final settlement must adequately compensate victims of the foreclosure crisis.

So, what would a fair settlement look like?

Forcing big banks to write down all underwater mortgages to market value would help stabilize the housing market while helping families and our economy get back on track. Widespread principal reduction would save Washington homeowners $496 per month, add a total annual stimulus of more than $1.4 billion, and create more than 20,000 jobs.

Those are big numbers, especially in a struggling economy.  Fewer families would lose their homes, more money would go in homeowners’ pockets, and more jobs would be created—all resulting in a stronger economy.

It’s no secret that Washington has been hit hard by the foreclosure crisis. According to a recent report by the New Bottom Line, there are currently 238,476 underwater mortgages in Washington.

RealtyTrac reports that Washington had over 29,398 homes go through foreclosure in the first six months of 2011.

Imagine the entire population of SeaTac getting evicted in just half a year.  That’s the scale of this problem.

A national study by the Center for Responsible Lending found that black and Latino borrowers, respectively, were 76 and 71 percent more likely than whites to experience foreclosure.

You don’t have to look hard to find people who are impacted. At church every Sunday we hear of another family that’s been foreclosed on, or is facing foreclosure.

It’s clear to us the impact underwriting principal could have on our lives and the lives of those in our communities. An additional $496 per month could save someone’s home. It could determine whether a family that can afford to put food on the table. It would pump much-needed money and jobs into our economy and set us on a path toward recovery.

History has shown that letting big banks off the hook does not help our communities. After being bailed out by taxpayer dollars, the big banks saw their profits skyrocket, while low and middle-class families have carried the burden of the financial crisis.

The big banks need to be held accountable for their role in crashing our economy and Washington State residents deserve tangible results.  We have a chance to do right by families throughout the country by require the banks to write down all underwater mortgages to market value.

If Rob McKenna settles for anything less, it’s a clear sign that the big banks are more important than the millions of middle class families who are suffering.

6 Responses

  1. Always glad to see the few articles out here that actually make sense – we are in Nevada, grossly underwater, have never missed a payment, and are unable to refinance or sell because our property value has dropped by 60%. In the face of such a deficit, even though we do not want to default, the question has to be asked: when do you stop throwing good money after bad, when do you get off the sinking ship? Banks and commercial borrowers do it all the time, and no one seems to think that’s a moral problem. At some point, self-preservation kicks in, and you can choose to go bankrupt trying to bail a sinking ship or you can exit the ship on your own terms, and with a life raft and at least a prayer of starting over. The middle class is being eroded before our eyes, and it’s hard to fathom why, when there are viable solutions such as the two above on the table, there’s been no meaningful action to help 11 million homeowners that are in this predicament. Where did all the settlement money that was supposedly set aside go? I don’t know a single person who has benefited from any of those funds. And to all those who like to throw around the terms “irresponsible” or “overextended,” I can assure you that is NOT the case for many of us. And even for those who might legitimately fall in that category, aren’t we sort of past the whole finger pointing and name calling stage at this point? Isn’t finding a solution and fixing the problem more important? After all, the foreclosures and broken neighborhoods aren’t doing your property values any good, nor is the stagnant economy and job market necessarily good for you/your children, so sitting in self-righteous indignation and not supporting a practical solution to re-start the economy makes you part of the problem.

  2. at the camps –is this barracks ? will it be available for homeless elderly? —the ones who cant have social security because we can still ambel a bit with a cane— those average 78 yr olds that on second thought tim geithner believes govt shouldn’t pay to not work–ie no social security so no homes–no food–no meds——

    In the Movie Indepenence Day—the pres asked the alien “what do you want us to do?” to which the alien replied “DIE” “DIE”——-sounds like tim geithner’s solution to the american people

  3. It would take a great deal more than writing down the principle balances of mortgages to “make America great again”.

    We have lost our civil liberties, we are now subject to indeterminate detention and torture without charge or trial, and non-elected, well financed operatives are stirring up trouble worldwide, for which our families well bear the consequences.

    Writing down the principles on properties that had values inflated to begin with is just common sense and justified to correct that easily identified initial problem in a cascade of problems surrounding these “loans” made in the decade of financial terrorism. But the rate at which property prices continue to fall will make this effort a too-little-too-late virtual bandade on a real severed artery.

    When you stop to think about the millions of dollars it’s going to cost us in litigation and filing costs to determine the true creditor and get a clear title, the minimal write downs we’re likely to get from bankers like Jamie Dimon who claimed principle reductions “were off the table”, seem laughable and woefully inadequate.

  4. A proper legal conclusion if you follow all of failures right through obtaining physical chain of custody of the purported “note” —-is that the assets should escheat to the state—-finders keepers doesnt apply in intangible assets like homeowner promissory notes—-arguably the transfer of account that occured at the time of default resulted in the abandonment of the asset by the trusttee owner.

    Equity abhors a forfeiture and the judges resist the idea of forfeiture of a claim by technicality–its that simple—-but the opportunity to award the asset to the state is a —thence to some local communtity action corp—-that will actually help the judges immensely–give em an alternative, rquest for relief and order other than a forfeiture of the intangible–if you cant work out a deal with your local quaisi govt agencies–then maybe you belong in a rental

    this is a lot better alternative than anything managed by the banks as a rental–currently the solution on the table./.

  5. Maria Cantwell has not responded to my request for her to ask for Mary Shapiro’s resignation. My thoughts are that Cantwell’s letter to Holder is a “get re-elected” ploy. She knows that nothing will come of it. But, actually asking for Shapiro to step down would do something.

    Shapiro is the head of the SEC. She has charged Freddie ex-execs with securities fraud and AT THE SAME TIME allowed them to each sign a no-prosecution agreement. This behavior has got to stop. I hope that each and every one of you will call her office and actually ask her to step up to the plate.

    Notice that her letter has had no effect? She has not asked for a coalition of Democratic Senators who are NOT up for re-election to join her.

    I want this government to STOP paying us “lip service” and start really doing something.

  6. I dont see how giving the banks any credit to have authority to do anything, including write down the mortgages when they have committed the biggest felon there is in history, and owe the homeoweners and the non homeowners for lost wages, incomes and business loss and the fraud, exceeding the mortgage and they dont lawfully own the mortgage, and are stealing houses for free. Talking to them to write down the mortgage is accepting they own the mortgage, and upping a contract with a fraud debt collector that does not own the debt unless you tell them you owe them money, then you have made a contract with them and you owe them money they never loaned. This does not seem reasonable to me. The money would not even go to the party that loaned the money. It would go to crooks.

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