SEC JUST NOW SEEKING KEY INFORMATION ON MELTDOWN

THANK YOU ALLAN AGAIN!!!

Editor’s Note: Allan is right about his frustration with a government that is so slow on the draw. Yet if history teaches us anything it is that government, especially our govenment, tends tomove very slowly except for “emergency” situations, when most of the actions are flawed.

It would be a good idea to contact the SEC, ask for their form and give them as much information a you can. Remember, every homeowner involved with a securitized mortgage was a “CDO Player.” Hearing from you will balance the scales a little. The SEC will soon take notice that homeowners were sold  security the same way that pension funds were sold securities at the other end of the securitization chain. THAT is where the scheme unravels. And smart securities class action lawyers will finally see that there is more money in this unravelling than anything they have ever worked on in their lives.  

Business
SEC JUST NOW SEEKING KEY INFORMATION ON MELTDOWN

by Jake Bernstein and Jesse Eisinger, ProPublica
– December 16, 2009 3:30 pm EST

This story is part of an ongoing investigation with NPR’s Planet Money [1].

Former SEC chairman Christopher Cox, right. (Chip Somodevilla/Getty Images)
Former SEC chairman Christopher Cox, right. (Chip Somodevilla/Getty Images)

Almost three years since banks started taking losses that led to the worst financial crisis since the Great Depression, the Securities and Exchange Commission is still asking basic questions about what happened.

Were you there?

If you were involved in the CDO business during the end days of the boom, please contact us.

 

(917) 512-0258 cdos@propublica.org [2]

The SEC is conducting an information-gathering sweep of the key players in the market for collateralized debt obligations, the bundles of mortgage securities whose sudden collapse in price was at the center of the meltdown of the global banking system.

In a letter dated Oct. 22, the SEC sent what amounts to a questionnaire to a number of collateral managers, the middlemen between the investment banks that created the complex financial products and the investors who bought them.

Collateralized debt obligations are made up of dozens if not hundreds of securities, which in turn are backed by underlying loans, such as mortgages. Investment banks underwrite the structures and recruit their investors. Collateral managers, brought in by the investment banks but paid by fees from the assets, select the securities and manage the structures on behalf of the investors. CDO managers have a fiduciary duty to manage the investments fairly for investors.

Since 2005, $1.3 trillion worth of CDOs have been issued, with a record $521 billion in 2006, according to the securities industry lobbying group SIFMA. The collapse in value of mortgage CDOs triggered the 2008 financial collapse.

ProPublica and NPR have confirmed that the SEC letter was sent to several managers, although the distribution list was likely industrywide. At the height of the boom in 2006, only 28 managers controlled about half of all CDOs, according to Standard and Poor’s.

Banks began disclosing the first big losses on CDOs in early 2007. The infamous Bear Stearns hedge funds ran into problems [3] beginning that summer. By that August, the credit markets began seizing up. Merrill Lynch and Citigroup were among the hardest hit by losses on bad investments in mortgage-based securities and CDOs.

The SEC’s letter focuses on information regarding “trading, allocation and valuations and advisers’ disclosure,” though it also asks for other details on how the managers ran their businesses. The letter requests information on CDOs issued since Jan. 1, 2006.

The letter asks collateral managers for information about what investments they made on their own behalf and how they valued these investments. Securities experts say the letter indicates that the agency is still gathering basic information about the CDO market, despite its centrality to the banking crisis.

“One wonders why this letter, especially given the general nature of it, is just now being sent. And why wasn’t it sent several years ago, as the CDO market was exploding?” says Lynn Turner, who was the SEC’s chief accountant in the late 1990s. “It makes it look like the SEC is several years behind the markets.”

Even Wall Street executives and securities lawyers who were involved in the CDO business at its height have privately expressed surprise that the SEC was only now contacting them for such rudimentary information.

The SEC declined to comment on the letter. As a policy, a spokesman said, the agency doesn’t comment on its regulatory actions. The SEC has jurisdiction over CDO managers,and enforces rules against securities manipulation, among other violations. The letter does not use the words “inquiry” or “investigation.”

Interviews with market participants and former regulators point to several areas that the SEC might be investigating. Some managers had their own in-house investment funds and may have taken positions that were in conflict with those of the investors in the structures that they managed. In some cases, their hedge funds may have bet against the very slices of the securities they were managing on behalf of the investors in the structure.

Underwriting investment banks often had influence over the investment choices some CDO managers made, giving rise to another possible conflict of interest. The agency may be looking at whether that influence was proper or not.

“The possibility for conflicts and self-dealing is huge,” says Turner, the former SEC chief accountant.

To date, the agency has little to show for its probes into the causes of the crisis that engulfed global financial markets just over a year ago. In June 2007, Christopher Cox, then the SEC chairman, testified before Congress that the agency had “about 12 investigations” [4] under way concerning CDOs and collateralized loan obligations and similar products. A little more than a year later, Cox told Congress that the number of investigations into the financial industry, including the subprime mortgage origination business, had ballooned to over 50 separate inquiries. [5]

There could be multiple reasons why investigations are proceeding slowly. Such cases are complex and require enormous resources and expertise. Regulators also face the hurdle of proving intent to defraud.

Under Cox’s stewardship, the SEC fell into disarray [6], and it was harshly criticized by Congress and its own inspector general, particularly for its failure to catch [7] the Ponzi scheme of Bernie Madoff. The turnover of the new administration, which ushered in new leadership at the much-criticized agency, has also likely slowed efforts. In recent months, under new Chairman Mary Schapiro, the SEC has made insider-trading inquiries a high priority.

So far, there have been few indictments or civil complaints. In a sign of how long these cases can take, the mortgage company New Century Financial Corporation disclosed in March 2007 that it was the subject of an SEC investigation [8] into possible insider stock sales and accounting irregularities. It wasn’t until last week — Dec. 7 — that the SEC filed a formal complaint against former executives of the company. The government’s highest-profile prosecution involving the financial collapse – the case against two managers of the Bear Stearns hedge fund for alleged securities and wire fraud – failed to gain a conviction when a jury decided [9] that the men were simply bad businessmen rather than criminals.

Were you involved in the CDO business in the latter stages of the boom? We want to talk to you. E-mail us at CDOS@propublica.org [10] or call us at               (917) 512-0258         (917) 512-0258.

Write to Jesse Eisinger at Jesse.Eisinger@propublica.org [11].

Write to Jake Bernstein at Jake.Bernstein@propublica.org [12].

Want to know more? Follow ProPublica on Facebook [13] and Twitter [14], and get ProPublica headlines delivered by e-mail every day [15].

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FINALLY somebody’s paying George Santayana heed. “Those who cannot learn from history are doomed to repeat it.” My bet’s on repeating it, given how our political system works like a pendulum. How many bubbles did we experience in the last 10 years? What happens to regulation and resolve when there is a political changeover?

ALLAN
B e M o v e d @ A O L . c o m

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. 

Mortgage Meltdown: Local Government Meltdown and Benefits

 

How to Benefit from the Mortgage Meltdown:

Tax assessments are heading south along with home valuations — at the moment. Price declines from lower demand and oversupply will continue in many places for years to come. 

If the experts are right, the first thing we can already see happening is that revenues from taxes based upon real estate valuation are declining and will decline by at least 15% by end of 2008, joined by decreasing revenue from issuing permits for new construction and all the administrative fees that go along with new construction, old construction, filing fees for deeds and mortgages etc.  

One ray of sunshine is that inflation has begun its launch into the twilight zone. As the value of each dollar goes down, that means it will take more dollars to buy something than it did yesterday. That means the absolute dollars in price and valuation will start to increase. If you know the dollars are worth less than yesterday, you will ask for more today when you sell your labor or even your couch at a yard sale.

So we have two opposite forces at work on prices here. One is a loss of demand and continuing oversupply causing what would ordinarily be a net loss of valuation and a net loss of tax revenues, and the other being inflation which will cause the price and valuations of things to buy or sell to go up in absolute dollars. Those dollars are becoming worth less and less as time goes on, so people are demanding more and more of them as payment for goods, services and taxes. 

Cities and Counties who assess real estate taxes expressed as a percentage of valuation will most likely see some relief. Hyper-inflation, expected by mid-2008, will result in much higher “prices” (expressed in dollars of declining value). 

While contracts and employment compensation will eventually be tied to some inflation index that people trust (not the CPI or PCE),  the lag time between the increased valuations and revenues resulting from inflation and the payment of contracts and compensation based upon older fixed dollars will produce a net gain for local government — and individuals. It could amount to a “windfall.” 

Consumers and borrowers can take a hint from all this. The price everything is going to increase exponentially while we take the hit from hyper-inflation caused by the largest case of economic fraud in world history. 

But your mortgage, consumer loans, lease and other contracts are expressed in old dollars: these are dollars that were worth far more then than they are now and dollars that will be worth far less in another year or two. 

It behooves you to take advantage of this bounce by going after compensation based upon fixed dollars adjusted monthly for inflation (resulting in receiving more dollars that are worth less) and paying old debts and payables in their original fixed amounts which have been devalued along with the dollar.  

Yes, it is complicated. But we all have an opportunity to game the system and get back part of what we will be losing as a result of the criminals who created this mess.  

 

 

Mortgage Meltdown: Get Out of Jail Free Card from Paulson

Mortgage Meltdown: Get Out of Jail Free Card from Paulson

In the usual way of floating trial balloons before committing to anything, and without the whole hearted support from any of the many entities and people who have a dog in this fight, Paulson is “outlining” the proposal for “subprime relief.”

All information points to another intentional diversion from dealing with and getting disgorgement of money from hundreds, perhaps thousands of investment bankers, mortgage brokers, lenders, “retailers” and institutional sellers who converted assets to fees in a very simple scheme — churning, covered over by the complexity of “creative” derivative securities. 

Anyone can sell something if the cost is zero and the buyer actually thinks he is getting value. In fact, the sky is the limit because at no time is the market saturated with such a product. That is precisely why the “subprime mess” got so out of hand. And as Krugman points out today in the New York Times, we don’t know where or how how much toxic waste is buried. 

Paulson’s outline presents a plan that does little for the borrowers. It creates the illusion of a bailout when the investment world will not accept our word for anything (and so the illusion is doomed to failure). And the new wrinkle is that it puts the burden on the states and cities to do something about it, which in classical Washington political terms meaning that they are creating someone else to blame. 

Cities and states, already struggling are going to see significant declines in tax revenues and investment income, the value of investment funds and their assets specifically as a result of this mess. And it isn’t just a “subprime mess.” It is about the whole credit market. “Innovation” is just a code word for saying that we are going to create the illusion of money, everyone is going to buy into it because it looks free, and we will collect real fees while everyone else goes into the toilet.

And while we are all sleeping, CDOs and similar securities have been sold for 20 years based upon mortgages, credit card debt and dozens of other exotic theories of risk, none of which have any Triple-A merit but all of which have mysteriously been given the extremely high ratings as risk instruments. They have converted junk bonds to Triple A bonds with a stroke of the ratings pen. 

Meanwhile the co-conspirators, the U.S. Government and Wall Street innovators together with lenders with plausible deniability, and retailers of derivative securities that were sold not just deceptively but with outright lies and fraudulent ratings — they all get a free pass.

The sad truth is that investors are beginning to suspect that most of our market indexes are a hoax. They are probably mostly right. Vapor has been sold with the clothing of kings and queens. Unsuspecting people, government finance officers, financial institutions, fund managers, have been misled into destroying the value of what were real assets until they were invested into these exotic derivative securities, with the fraudulent ratings. 

The economy has been driven by consumer spending. Without liquidity offered by these exotic plans to lend money on credit cards and other consumer debt, whether securitized or not, the economy can’t run. Liquidity is drying up. Pumping more “money” into the system is not a long-term solution, it is a suicide pact for the dollar and for inflation. 

If we REALLY want to save our economy and its place in the world, we need to do something real, own up to the mistakes, hold the people who did it accountable, and make amends to the world as best we can. 

Mortgage Meltdown: Rules of Engagement

Mortgage Meltdown: Smoke and Mirrors Bailout

It is obvious that the “snooty” U.S. bankers, as the Europeans are openly referring to them, still think the world is stupid. The message is out. A massive fraud has ben perpetrated by creation of complex derivative securities that looked better than they were, were rated better than they were (bought and paid for ratings), the creation of funny money, and the apparent loosening of credit that was fictitious, as the many people who are now distressed borrowers can attest. 

The remedial action proposed is illusory just as the original loans and securitized CDOs were illusory. And the blessing they get from government and rating agencies is just a continuation of the cold, hard, calculating attempt to distract foreign government, local governments and investors all over the world from making a run on banks, investment bankers and clamoring for heads to roll.  

The current plan calls for a division of “qualified” borrowers into classes. The classes that are covered are people who (a) don’t need the help or (b) certain people who are not in default but who would otherwise qualify for a loan now. This leaves the vast majority hanging in the wind — millions of homeowners, millions of renters and tens of millions of people affected by the fraudulent issuance of CDO’s under false pretenses and misleading disclosure. That means government investment funds for cities, states and nations are in peril as well as managed funds and individual investors. 

Even the people who are in the class of “can pay no matter what” are in more peril than they think because of this debacle. They face risks of job loss, massive historical inflation, devaluation of the dollar, loss of pensions, loss of purchasing power from social security and governmental programs, investment losses from lower corporate earnings, decreased purchasing power from dividends denominated in U.S. dollars, higher taxes arising from decreasing revenues received by state and local government, medical emergencies where they find out that the coverage they thought they had is not as broad as they were told, increased sales taxes, and business, investment and property losses from storms aggravated by global climate change, where the insurance companies have either already pulled out or have inserted exceptions that will allow them to either reject claims or settle for pennies on the dollar. 

And then you have the renters who are not even included. They are being tossed out of homes where they are current in their payments but the house is foreclosed. Rents are rising and the number of homeless people and the economic status of homeless people is likely to change demographically in ways that will stun the American citizen.

Completely ignored is the issue of lender liability, securities fraud liability, and a host of anti-trust, FCC, and other violations entitling plaintiffs to recover not only compensatory damages but punitive, treble or exemplary damages. As stated by many central bankers around the world, everyone has a dog in this catastrophe. 

Here are the basic rules of engagement that should apply:

 

  1. All classes or borrowers and homeowners should be included, except those who can’t afford to maintain the property. This will take the heat off everyone even if there are reduced interest payments or deferred payments by extensions of maturity dates. 
  2. Any and every plan should allow for at least 7-10 years for correction of problems that were created.
  3. Disgorgement of profits and equity by investment bankers and other parties who sold the CDOs should be part of every plan relating to every class of investor and borrower.
  4. Focus not only on those who are subject to ARM resets in 2008, but also on those who have already been reset one or more times. A tiered approach would salvage consumer purchasing power and lead to a softer landing for the recession we all know will happen.
  5. Start with the premise that anyone who can afford to maintain this home, even without paying anything on the mortgage in the first phase, should be allowed to do so at least for a short while. 
  6. Focus on plans that allow some return to investors in the CDOs, even if those are reduced from what was expected. 
  7. Remedial federal, state and local legislation requiring cooperation of all parties is protected against the ex post facto prohibition in the constitution under public policy, extreme hardship, and protection of the security of the public from economic disaster and social unrest arising from the dislocation of millions of people from their homes. Change the bankruptcy laws where necessary to protect borrowers from the obvious abuse of power that was leveraged against them. Cap credit card rates, and start reducing them. At the moment they are robbing the economy of vital consumer spending dollars that would benefit the economy as a whole. 
  8. Allow developers, lenders, mortgage service providers etc to participate and get protection but reduce fees for mortgage service.
  9. Prosecute high profile offenders  under securities laws, fair trade laws, truth in lending laws, etc.  Real estate brokers and mortgage brokers who steered people into teaser rate mortgages when they otherwise qualified for better, more secure loans should be required to disgorge their fees. Investment bankers who are a the source of yield spread premiums should finance the disgorgement.
  10. Apply disgorgement of fees and excess profits and damages to both borrowers and investors.
  11. Establish a moratorium on all tenant evictions where the tenant is less than two months in arrears. 
  12. Establish short term rent control to allow people to get on their feet, provided the landlord is not taking an actual loss. 
  13. Cease issuance of extra currency and liquidity into the marketplace as soon as practicable. Every dollar issued, every bond sold represents a potential to come back as five dollars worth of inflation on the U.S. economy. 
  14. Establish a specialized division of the SEC to analyze exotic securities and establish whether the disclosure tends to mislead an investor. Post comments on easily navigated websites so investors can assess the risk they are taking.
  15. Prohibit any credit scoring, bond rating, securities rating where there is any connection, funds transferred, or other relationship between the entity issuing the rating and the issuer of the securities, making the loan, borrowing money or buying anything. 

Mortgage Meltdown: Fueled by Fraud

Most stories about the mortgage crisis begin with the idea that people were induced to buy homes they could not afford. This is mostly incorrect. The reason for the meltdown is that people were induced to “buy” mortgages they could not afford — when in fact they qualified for mortgages they could afford and would still be paying but for the deceit of mortgage brokers and even real estate brokers who were skimming from the transaction.  The lenders and investment bankers who are claiming “plausible deniability” on this are not telling the truth. We know that because they paid the kickback either directly or by financing it.   This is not a story about buyers who went into a frenzy buying things they couldn’t afford.This is largely a story of conversion of equity of innocent people into fees for well-heeld, well connected scam artists — i.e., the transfer of wealth from those who have money and whose intent to buy something they could in fact afford, was switched into a scheme to take away their money, convert it to fees, take away their houses and all the improvements they made on those houses, and take away the savings of investors who were duped into buying shares in managed funds and institutions that were buying “high rated” CDO’s. On the buying end of the game, here is how it works.

  1.  Joe Jones and his wife Mary go house shopping. They are well-employed, with reliable jobs, and good credit ratings. They have a well-analyzed budget as to what they can afford and what they can’t but hey lack one thing — sophistication in financial instruments and legal knowledge of complex mortgages. This presented an opportunity to the scam artists out there who are claiming protection under the law, because they say what they did was legal. It wasn’t and it isn’t. They lied, took money for lying, and intentionally used their position of trust for their own benefit instead of delivering the services and Joe and Mary thought they were hiring when they went to a mortgage broker.
  2. The real estate broker steers them to a mortgage broker that (a) will assure that the deal closes because they will do anything to get the borrowers to sign papers that misrepresent their financial position and that misrepresent the value of the home and (b) more importantly, will give the real estate broker a kickback for the referral because the mortgage broker is about to pick up a huge fee called a “yield spread premium.”
  3. The Mortgage broker is presented in one of two alternatives in this market: (a) give the customer the best mortgage they qualify for and collect a reasonable fee or (b) convince the customer to take a mortgage that appears cheaper but is in fact much more expensive, for which the mortgage broker will get a kickback representing a fee which is a percentage of the the difference between the value of the mortgage the customer should have received and the higher value of the mortgage they were convinced into signing. If the mortgage broker goes for the the dishonest option, he/she might earn as much as $10,000 EXTRA. 
  4. Since the application process is both complex and expensive in time and money the customer is not free to shop around as one might think from the advertisements. And the nuances of one mortgage proposal versus another, are not clear except to experts who conceived them — people who knew they were going to transfer the risk to investors up stream. Thus none of the downstream participants — the “lender”, the “underwriter,” the “appraiser,” the real estate broker, the title company, the lawyers, the mortgage broker or the seller/developer have any interest in keeping the transaction honest because they are all going to make money whether the deal fails or not. The risk is going to Wall Street where it is being parceled out in “derivative securities” in nothing less that clear securities fraud on MANY levels. 
  5. Thus we have fraud going on at both ends of the line — starting at the home purchase and ending with the securities purchase. The amazing part of this is that while they were all committing fraud with full knowledge of the damage to the buyers and securities investors, the giddy greed factor became so great that even the scam operators themselves took positions in the CDO’s (which might as well be called junk bonds or junk securities) so that they could sell them at a premium to multiply the fees they were earning from this scheme into capital gains many times the fees they were “earning.”
  6. So Joe and Mary can afford a mortgage where the total payments are $2350 per month but are steered into a mortgage where the payments appear to be lower. The deal is “explained” to them until their minds are numb with too much information and too little understanding. They listen to their mortgage broker who after all is the person they hired to advise them and who clearly does understand the complexities of these obscure documents and instruments of conveyance. 
  7. Joe and Mary are also encouraged to put down less money than they can afford because that makes the mortgage debt higher and increases the bonus kickback to the mortgage broker for converting them from a conventional mortgage that they can afford to a sub-prime mortgage (in sheep’s clothing) that they cannot afford. 
  8. Now it is 2 years alter and Joe and Mary are in shock. Their income is stable, their credit rating is great, they have a great family and they have fixed up the new house nicely to their liking. But they have a growing problem. The 6% mortgage they could afford for a conventional mortgage was never presented. They could have paid that off easily. Instead they have a sub-prime, negative amortization mortgage, adjustable in its rates and they are now up to 11% with payments more than twice what their budget will allow them to pay. 
  9. So Joe and Mary are either not making payments, offering partial payments that are being rejected by a mortgage service provider who does not have the authority to adjust anything, or about to stop making payments. They are considering bankruptcy to save them but there while relief might be available, all of their payments under a Chapter 13 plan, are subject to an additional 10% fee for the bankruptcy trustee to process it. So in fact they are facing worse trouble if they go that route.
  10. In short, they are screwed and nobody cares.
  11. But here is what ought to happen:
    1. They should get legal help because all sorts of laws were violated — including truth in lending, breach of contract with the mortgage broker, and fraud — civil if not criminal. 
    2. Lawyers should step up tot he plate and take these cases on contingency, forcing the lenders and investors to settle the claims by giving the Jones family a mortgage they should have received in the first place and paying them damages for the fraud that was committed. Fees would be paid by the scam artists instead of the lenders.
    3. The Sheriff should convene his economic crimes unit to investigate and prosecute people for this fraud.
    4. The Sheriff should also call a moratorium on evictions.
    5. The State and Federal Attorney General should do the same and should join with the attorney generals of other states much the same as was done when Big Tobacco was taken on. 
    6. The state legislature should pass remedial legislation changing the procedures for foreclosure so that the victims have more time to get their defenses up.
    7. The Congress should do the same and initiate regulation of interstate lenders and the mortgage brokers that enter the transactions with felony penalties for violation of the duty to disclose.
    8. The Governor should issue an order stopping eviction on all foreclosures until there is a hearing before a judge where it is determined that there is not at least probably cause to believe that a fraud was committed. 
    9. Class action suits should be initiated against the mortgage banking, investment banking and retail securities firms that created this scheme, with full restitution, fines and loss of licenses — people should not be put out of their houses, Wall Street scammers should be put out of business.
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