Livinglies's Weblog

Foreclosures should happen because someone was financially injured by nonpayment — not because someone wants more profit.

We are in an economic recession and this is going to affect most of the owners of property who have executed paperwork agreeing to pay back a loan — a  loan that the funding source is receiving a profit far in excess of the amount loaned and a loan which the funding source is hoping will fail because they are betting on it.

Yes it is a Ponzi scheme and it continues every day. It is what is continually undermining the strength of our economy and what left us so vulnerable to a downturn. The banks sucked trillions of dollars out of the economy and were rewarded with “Bailouts” and immunity from prosecution for obvious crimes of fraud in the execution, fraud in the inducement, mail fraud, RICO etc.. And they escaped the one mechanism that could have rectified the situation — TILA Rescission — by shear blunt force.

The basic truth is that every foreclosure represents revenue to the parties who participated in starting it, nobody gets paid for owning the debt, and homeowners lose net worth, loss of life style and other damages. There are still more than 500,000 illegal foreclosures per year and they are about to rise again with the current economic downturn.

The banks make their money every time they originate a loan (through sham conduits to avoid liability for violations of lending laws) — and they make money every time a loan fails because they bet on it. The paradigm is upside down. Foreclosures should happen because someone was financially injured by nonpayment — not because someone wants more profit.

As people lose jobs, and as asset prices decline, more and more people will give up on making payments on residential debt. They won’t stop paying because they know the money is not going to anyone who paid for the debt. They don’t know that and if they heard it they don’t believe it. They will stop paying because either they are running out of money or because the price of the house on the market is much less than the loan — or both.

In some ways this is a carbon copy of the articles I wrote starting in 2006. The math is simple.

Home values are most closely related to median income (see Case-Schiller index) because that is what determines the ability of people to pay for them. Median income has not shown much improvement. But home prices have soared. Artificially low interest rate loans makes it seem like the household income that could have only afforded a house priced at $100,000 can now afford a house at $200,000. And incentives like no closing costs push borrowers to even go for a $250,000 house because real estate always goes up, right?

Not so much.

The “free money” injected into the marketplace by Wall Street Ponzi schemes has created the same variance between home prices and home value (based upon median income) as we saw in 1996-2008. We have another bubble and it is about to burst. A new tidal wave of foreclosures will start in a month or so, and the courts will be flooded with new litigation volume that they are still not equipped to handle.

Once again due process and black letter law will be thrown out the window for all except those who have the time, resources and money to stand and fight.

Filed under: foreclosure |