Mortgage Meltdown: Reverse Negative ARM With Equity Kicker is Answer

Strategies for Living in a Failing Economy: Break the Bond of Mortgage and Note

While You Deal with Foreclosure and Eviction: Buy time and Make Money

Time for States and People to Act Now — Don’t Wait for Federal Government

Even while the Bush administration and bell ringers on Wall Street attempt to maintain the appearance of business as usual, the underpinnings of the entire U.S. economy are coming unglued and taking the Euro Union with it. Oil prices are up in U.S. dollars by 350%, up in Euros by 200%, and up in gold by 0% — that’s right. If you held gold when the price of oil started its meteoric climb in dollars, you would be sitting in the same position as before (no loss of purchasing power, oil would cost the same as before). If you held Euro’s, you would have lost ground, but only about half the ground lost by 300 million Americans who perform commercial transactions in dollars.

Besides the obvious importance of this to investment strategies, the consequence for every day American lives has been bad and is now turning catastrophic. The net buying power of the average American has been going down persistently for more than 20 years and the loss is likely to accelerate to hyper inflation levels that were unheard of in the lifetimes of most people living today.

The CDO (free money) scheme hatched on Wall Street where they created money and moved the risk away from those who were granting loans, opened the barn door and all the horses left. The scheme probably worked far better than they ever imagined it would — and far worse. The net effect is that tens of trillions of dollars have been moved like the water moving out from the beach before the tsunami hits. And now, like everything else, the pendulum starts swinging the other way. When the wave hits, it will bury some of the best companies along with the worst, and it will forever shake-up the way we conduct our commerce, monetary policy and political regulation of financial markets. Firing a bunch of CEOs isn’t going to cut it. Neither will sending them to jail, although they certainly deserve it.

And attempting to hold back the forces of change by avoiding the benefit to undeserving buyers/borrowers falls flat in view of the enormity of this worldwide fraud. Frankly, I don’t care if some people get an undeserved benefit and I don’t care if whether some people get fired or go to jail. What I care about is finding a way out of this mess — a solution that works, even if it means getting the people involved who created the mess or who should have known better. 

Current estimates now show a $10,000 decrease in the value of all homes that are near areas with high rates of foreclosures. So if you live in an area where there are 10,000 homes and 1500 of them are foreclosed, the 8500 other homes will sustain an $85 million loss. But the government and Wall Street reports only the loss in the foreclosures which is only part of the value of the 1500 homes that were foreclosed. So the government and Wall Street might report a loss of $5 million when in fact the direct economic effect is $85 million and the indirect economic effect caused by loss of consumer purchasing power is over $400 million. Multiply that times tens of thousands of communities all over the country and the world and you get a picture of how big this REALLY is.

So if you read the previous posts on strategies for dealing with eviction and foreclosure, here are a few pointers about why you should fight and why you will win if you take the fight to them.

IF THEY HAVE NO LIEN, THEY CAN’T EVICT AND THEY CAN’T FORECLOSE: A legal objective would be to separate the mortgage lien from the note in the transaction that you signed. This can be done in state court, bankruptcy court or by local government enforcement filing an action to help everyone stuck with this mess. By alleging fraud and other torts relating to the execution of the original documents, you form the basis of a “quiet title” action that can result in extinguishing the mortgage lien. This will still leave the note, but the note can then be adjusted downward either by negotiation, mediation judicial declaration or cram-down in bankruptcy. By separating the lien from the note, the right to foreclose and evict is permanently removed. They can’t evict and they can’t foreclose. Yes you probably need a lawyer to accomplish this, but you can probably find considerable help from a city, county or state attorney who is looking at state revenues dropping like a rock.

Reverse Negative ARM With Equity Kicker is Answer

Your only hedge against the massive inflation that is in process is the house you were cheated into buying. And the only hedge that CDO investors have against total or near total loss is to maintain a deal where recovery in full or nearly in full is possible. And this is the only hope for the intermediaries — developers, mortgage brokers, appraisers,  “lenders”, investment bankers, and retail securities brokers and institutional sales agents. The entire transaction must be recast to (1) stop the tide from coming back in caused by defaults and losses to CDO holders, (2) provide a reasonable period of time for recovery (sell-out of housing inventories), (3) provide a reasonable period of time for growth (normal demand-pull inflation), (4) provide a reasonable probability for recovery of investment in CDO securities and (5) provide a low but acceptable return to CDO holders while this mess gets cleaned up.

In order to make this happen, all the players — including culprits and ne’er do wells — must cooperate and will cooperate because they have everything to gain and nothing to lose. Lower mortgage payments to teaser rates or keep them there if they have not been reset. Keep it simple and gradually adjust it upward on a very slow schedule spanning 10 years. Eliminate negative amortization — except if the house is sold for more than the price paid. Provide an equity kicker to CDO holders that allows participation in the proceeds of sale over the adjusted principal borrowed. Adjust the original principal borrowed downward by 15% of the price of the house. 

Meanwhile, holders of gold reserves should be paid a fee for allowing issuance of gold redemption certificates that are issued as currency in the areas hardest hit by the meltdown. The spread of the new currency(ies) might occur in areas not directly impacted by the meltdown. Dollars will trade freely, but after some wild gyrations will find an equilibrium in parity with gold. Eventually a complete return to fiat money is possible but more likely, parallel currencies are likely to continue for quite some time. Hyper inflation will be mitigated, and the dollar, now headed for extinction might be saved. No guarantees, mind you, but it is worth a try. 

This writer, under the sponsorship of General Transfer Corporation has offered a prospectus to government leaders all over the country for the creation of two new entities immediately: The Interstate Finance Commission for regulation and the Interstate Currency Network, that will (a) make arrangements for issuance of gold redemption certificates as currency and (b) regulate the electronic funds networks who until now have operated as quasi-governmental entities with no accountability to the government, merchants taking electronic payments (credit, debit, ATM) or the consumers. 

The Federal government has demonstrated its lack of relevance and lack of power to do anything about this mess. By the time the next president and the next congress is sworn in, the damage will be irreversible. The people an the states must act immediately under the powers vested in them by the U.S. Constitution, forming regional coalitions and cooperating groups to facilitate and if necessary coerce the parties in cooperating with these remedies.

If you agree, send a copy of this email to your local government officials and newspapers. 

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