How Servicers Engineer Defaults Using the Escrow Accounts, Forced Placed Insurance and False Projections

Servicers are creating the illusion of defaults by manipulating the escrow accounts even when no escrow account exists. So even where there is no agreement for the “lender” to maintain an escrow account, they will create one anyway and engineer circumstances to make it seem like a default occurred not just in the “escrow account” but in the accounting for principal and interest.



I have two cases involving this right now where I am attorney of record and several dozen where I am guiding lawyers and pro se litigants through the intricate process of showing that no reconciliation is possible between the payments actually made by the homeowner, the taxes that were paid, the insurance that was paid and who paid it or failed to pay it.

In one case in point, the servicer, as part of a modification required my client to fund the escrow in full with a lump sum payment, which they did. The “servicer” (BOA) failed to pay the insurance, which was then canceled and could not be reinstated without having an active policy in force.

My clients had to wait until forced placed insurance was established thus raising their total monthly PITI payment into the stratosphere, with BOA getting its usual kickback from BalBOA. Then my clients got regular insurance at a quarter of the premium that was charged to their account for forced placed insurance. Eventually BOA reconciled the “deficiency” without payment from my clients. But BOA continued to keep their account flagged as delinquent even though they had been paid in full for everything. Eventually BOA stopped accepting payments because the account was “late.” And then BOA filed suit to foreclose. Stay tuned on this one.

I have seen dozens of cases where the escrow is manipulated by either projecting taxes and insurance too high or projecting them too low. In the first case the homeowner instantly can’t afford the payments and in the second case they are suddenly hit with a demand for a large lump sum payment that most people can’t afford. Tens of thousands of homeowners have lost their homes this way even though they were completely current on their payment of interest and principal.

By the way these practices are illegal. But that hasn’t stopped the foreclosures.

Hat tip to Mark Chapin

Here is a more technical explanation for the accountants to ponder.

Re: Engineering default through leveraging projections and ignoring the law.

See Merger Rule

Leveraging the escrow disbursements through projections with assumptions for the future.

The Escrow low point projection makes assumptions into future periods and converts those to real time current cash requirements.

The escrow projection calculation assumes the projected disbursement of the inflated premiums of Force placed Insurance policies are repeated. That calculation incorporates that inflated projected payment into the Low Point Calculation for the Escrow Account by combining the projected with the actual disbursement. The projection is a phantom mirage at the time of the calculation which is converted into a real time cash requirement under the calculation employed by Citimortgage. A full payment of the actual escrow disbursement advance by the mortgagor or even more telling, the placement of mortgagor insurance would extinguish the reality of the base escrow advance. The basis for the calculation of the leveraged projection would not exist, but the real time billing based on the projection would remain.

The leveraged payment increase was in this case used to increase the monthly billing, from the previous monthly principal and interest billing for the note payment, by adding billing for the obligation suspended under the UCC 3 Merger Rule. The suspended obligation of escrow disbursements under the mortgage. The suspended obligation was maneuvered through engineering a default to a presentation as an unsuspended obligation.

The Engineered Default:

The new leveraged payment billing was then used as a measure, to compare regular payments of principal and interest that were maintaining the promissory note in a state of non-default, to make a decision to (1) to misapply payments, which should have been credited first to principal and interest as per TILA servicing requirements and the note itself. The misapplication created the illusion in the servicer records of partial payments, phantom escrow projections; and (2) then return the whole monthly principal and interest payments properly tendered as un-deposited and rejected payments. This action was necessary to further engineer the default by artificially creating the dishonor of the note itself. This action thereby was used by the servicer as a pretext to declare the entire loan: the note and merged, deferred obligation in default. to schedule CONSULT, leave message or make payments.

REMIC Trustee Must Sign Tax Return Form 1066

This could get interesting. It’s complicated but it looks like the administration is closing in on the so-called REMIC Trusts. I personally doubt if anyone is going to be willing to sign the REMIC Tax Reports. The reason is simple: the REMIC Trusts never operated and never received any investments dollars or any startup funds. They exist only on paper. Writing a trust instrument does not create a trust. It is only when there is property transferred into the Trust that the Trust is created and becomes a legal entity.  The blizzard of paperwork, forged and fabricated assignments, endorsements, backdating, etc. was meant to distract judges from the truth. It worked — up until now.

If the Trustee has some fool robo-sign the Tax reports, it is subjecting the person and the Company (frequently US Bank) to multiple Federal criminal and civil liabilities. If they say the Trust did operate when in fact it was not operating, they are cooked. If they admit that the Trust was not operating, then they are admitting that all those foreclosures past, present and future were a scam on borrowers, the courts and the economy. But that is not all there is.

The investors are in for a rude awakening when they find out that the “pass-through” characteristics of the REMIC Trust might not be operating either. That COULD mean that the investors are going to be hit with ordinary income taxes on every penny they received, whether it was principal, interest or anything else.

This is the natural consequence of fraud. As you will see when the movie “The Big Short” comes out in December, the phrase used is “fraud always goes south” meaning that at the end of the day everyone knows everything. The Banks and maybe even the Trustees may argue that they treated the money as though it was was a trust asset and that they should be treated as qualifying “REMIC” Trusts even tough the Trust had nothing in it. The case law is against them on that.

But the practice pointer suggested here is to ask for the tax return of the REMIC Trust in whose name “collection” or “enforcement” is sought. This is why I have been strongly suggesting that Accountants look at the mortgage crisis as an opportunity for them. With the help of a report from an accountant the demand in discovery for the REMIC Tax return is likely to produce some fireworks that end up in settlements. I would expand the request to include the financial statements of the REMIC Trust and the names of the parties who created them. You probably will never see either one. But when a judge says they do have to show their financial information and tax returns, it might just be that you have their backs up against the wall.


Major Economists Tell Obama to Reduce Mortgage Debt

What’s the Next Step? Consult with Neil Garfield


For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Comment: I think Obama is stuck on the idea that correction of loans to reflect their true value is a gift to undeserving people — because that is the message he is getting from Wall Street. I have demonstrated on these pages that correction of loan principal is not a gift, it is paid in full, and even if you disagree with indisputable facts, it is the only practical thing to do as Iceland has clearly shown, with the only growing economy in Western nations.

Now we find out that Obama was given exactly that advice 18 months before he won reelection. Let’s see if he does it. He sought got the advice of seven of the world’s leading economists who all agreed that reduction of household debt — and in particular the dubious mortgage debt that Wall Street is using to make more and more profit, is something that the administration should do right away.

We can only guess why the administration has not done it, but I know from background sources that this ideological battle has been going on in the White House since Obama was first elected. What is needed is for Obama to take the time to get to know the real facts. And those facts show clearly that (1) the foreclosures that already were allowed to proceed did so on imperfected liens which is to say the right to foreclose was absent regardless of the amount and (b) the principal claimed as due on those loans was (1) not due to the people who claimed it and (2) far above the real amount that was due because the banks stole the money from insurance, credit default swaps and federal bailouts from investing pension funds and other managed funds.

The banks claimed ownership of loans they neither funded nor purchased and also had the audacity to claim the losses and then overstated the losses by a factor of 10. The insurance companies and counterparties on the credit default swaps, along with the federal government, paid the banks who didn’t have a dime in the deal and therefore lost nothing. The investors received small pittances in settlements when they should have received from their investment bankers (agents of the investors) the money that was received.

An accounting from the Master Servicer and the trustee or manager of the “pools” would clearly show that the money was received and not allocated in accordance with the contrnacts nor common law. As a result we are left with a fake loss that was tossed over the fence at the investors. Had they allocated the gargantuan payments received from multiple insurance policies on the same bonds and loans, the principal would be reduced anyway.

This is why I keep saying that you should use Deny and Discover as  your principal strategy and direct it not just to the subservicer who deals directly with the homeowner borrowers but also the Master Servicer who deals with the subservicer, the insurance companies, the counterparties on credit default swaps, and the federal government.

Following the money trial will in most cases show that the lien recorded was imperfect and not enforceable because the party who was designated as the lender was not the lender, hence “pretender lender.” Following this trail from one end to the other and forcing the books open will show that most loans were table funded (predatory per se as per TILA reg Z) — and not for the benefit of the investors, but rather for the benefit of the bankers (a typical PONZI scheme).

In an economy driven by consumer spending, the reduction in household debt will drive the economy forward and upward. The real total in many cases is zero after credits for insurance, CDS, and federal bailouts. If you leave the tax code alone, and let the “benefit” be taxed, the federal government will receive a huge amount of taxes that the banks evaded, but they would get it from homeowners, whose tax debt would be a small fraction of the mortgage debt claimed by the banks.

The problem can be solved. It is a question of whether the leader of our nation studies the issues and comes to his own conclusions instead of being led on a string by Wall Street spinning.

Failure to act will produce a wave of strategic defaults because like any business failure, the “businessman” — i.e., the homeowner — has concluded that the investment went bad and they will just walk away — resulting in another windfall to the banks who after cornering the world’s supply of money will have cornered the world’s supply of real estate.


Modification Scam by Banks and Servicers


And see end of this article where the federal government could recoup $2.5 trillion right now and at the same time provide a $10 trillion stimulus to the economy without spending one dime.


Modification Scam by Banks and Servicers

The above link will tell you a lot about what is happening in the industry — but it still assumes that the loans were bundled and sold when they were not. So far as I can tell in 6 years of analysis and study by myself, my team and the published reports in the public domain, there is no evidence of bundling, no evidence the “pools” or “trusts” were ever funded by either money or loans.

To understand WHY and HOW modifications would be turned into a scam by the banks you must understand their motivation for intentionally taking less in a “foreclosure sale” than they can get in the secondary market for selling a new mortgage, modified mortgage or refinanced mortgage. As Reynaldo Reyes from Deutsch Bank put it — “it is all very counter-intuitive.” In other words, a big fat lie on a scale unparallelled in human history.

The motivation lies in the fact that everything is already paid. The money from insurance, credit default swaps and federal bailouts, together with multiple resales of the same portfolio and hence the multiple sales of each loan going into the pocket of each banker. Anytime a loan goes into foreclosure, it seals the deal — allowing the banks to keep their ill-gotten gains that could amount to as much as 40 times the principal due under the loan.

So they don’t want your $400,000 even if you have it, because it endangers the $16 million they received and might mean they must pay it back. And THAT is a contingent liability not shown on any of the mega bank financial statements. If it was, they would be declared insolvent, which is exactly the case — unless they can get all the loans into foreclosure with the exception of a few modifications or settlements done for PR, expediency or other reasons.

Hence the quote from one employee of a servicer that when he asked why a perfectly valid modification proposal was being rejected the answer from his boss was “we are in the foreclosure business, not the modification business.” Unfortunately the media report ended there. I always ask for something more, however. If they consider themselves in any business, as a “servicer” why would that not be simply to process the receipts and disbursements and correspondence with the borrower and the creditor? Why would they care one way or the other whether the loan was modified, settled, refinanced, paid through short-sale or regular sale? Why indeed.

The answer lies in the fact that the subservicers and Master Servicers are the real people handling the actual money and hiding the movement of the money, while they are forced to fabricate, forge and perjure themselves in millions of recorded documents to cover up the fact that the original loan documents were a sham.

If they did the original loan right, which would take no more effort than doing it wrong, then we wouldn’t have this mess. That would be because loan origination would return to the right business proposition — loaning money with the intention of getting repaid.

But here, because of the tricks and maneuvering of the investment banks, the goal was to fund loans that (a) would not and could not be repaid and (b) even if they were repaid, would be labelled as being devalued in a non-existent pool over which the Master Servicer had the exclusive right in its sole discretion to say that the portfolio had failed and the mortgage bonds had to be written down or written off.

It’s like buying 40 different policies of life insurance on your partner and then killing him. Without a conscience, you would be looking for lots of partners even as the grieving families buried the dead, their hopes and dreams forever changed.

Modification has never been about modification. It has always been about foreclosure, which puts the state stamp of approval that the loan failed. Everything LOOKS right, so the Judges rubber stamp them, because, as stated by thousands of Judges, these securitization arguments sound like a gimmick to get out of a legitimate debt. After all would a Bank with 150 year old gold plated reputation put itself in the position where all of its managers and executives could go to jail along with the legions of lawyers representing them? Of course not. But they did.

If you look closely at modification just as I have looked closely at the loan origination, you will see that like the original documents you are left with a holographic image of an empty paper bag.

The documents don’t track the movement of money which is to say that the payee and lender and the beneficiary had already agreed never to touch the money going in or coming out of the deal. Hence the note, which is a contract, and the mortgage or deed of trust, which is a contract was never funded. Those contracts may be in writing but they are useless pieces of paper that can’t ever be worth a dime without the signature of the homeowner on new documents connecting the dots to the the real lender and allowing the non-disclosure of the real lender to stand.

All of that is presumptively cured by the appearance of a deed on foreclosure arising out of a credit bid which we all know was not from a creditor and which the auctioneer and the trustee and the stated mortgagee and the stated substituted trustee, and the lawyers using it all know is a big fat lie. Since no cash was paid at auction, and the credit bid was invalid, the sale never occurred. Bu the issuance of the deed anyway creates the presumption that the sale did in fact occur.

Now we can look at how the modifications are a total scam just like the origination of false notes and mortgages followed by false assignments, endorsements and allonges.

Probably half the “foreclosures” (I put that in quotes because someday, I hope the homes will be returned to their rightful owner) result from the servicers telling the first lie: “stop paying your mortgage payments, because we can’t consider your offer of modification without you being delinquent.” Once again, borrowers are duped because they are hearing music in the ears. Stop paying? And it is the BANK that is telling us to stop paying? What could be better?

Then the games start. You might remember that in 2007 Katherine Ann Porter did a ground-breaking study that blew the lid off of this gigantic fraud not in theory but in a scientific study which found that no less than 40% of the notes signed by borrowers were INTENTIONALLY lost or destroyed. Once again, that is an interesting fact but I asked why a bank would take a valuable piece of paper and shred it. The answer is simple: if they showed it to the investors and others, they would be in obvious breach if not accused of Madoff or Drier type fraud and Ponzi schemes. So better to claim they can’t find it and make up the rest, than to show the actual notes, many of which were not signed by borrowers ever, but whose signature was photo-shopped onto the document.

Why mention that again? Because 80% and perhaps more, of the modification proposals are claimed as not received, lost or accidentally destroyed while month after month the homeowner gets deeper and deeper in debt on missed payments (that are actually not due at all, but that is another story). So the strategy is simple. Make sure people stop paying, make sure you can declare the default and acceleration of the full amount due, and then either foreclose or tell them their proposal for modification is rejected by the investor after consideration required by HAMP.

The homeowner is faced with 9-18 months of missed payments, plus fees and costs to reinstate the loans and some of them do just that. But most people have spent at least part of the money and are unable to reinstate the loan with this “creditor” who never funded nor purchased the loan and who is the servicer for a party that never funded or purchased the loan. Wall Street wins. Half of the people who were foreclosed were losing their homes not only to fraudulent tricky documents, but because the Bank had manipulated them into going into de fault when they were not in default, even assuming the loan origination documents were actually valid and enforceable (which of course they are not).

Sprinkle a little guilt and moral dilemma into the soup and you have the perfect scenario for Wall Street to foreclose on millions of homes, thus sealing the deal on profits that were multiples of the entire funding of the mortgages but which probably never reached the investors.

Here is something to think about: $13 Trillion in loans were written, $2.6 trillion went into “default” on which the loss was around $1.3 trillion because of the residual value of the house, and last but best of all, Wall Street has received no less than $17 Trillion more than the principal of all the loans written during the mortgage meltdown.

Is there any reason anyone should be making payments on their mortgage? If so, it should be to the federal government not the banks. If the homeowners were “given”their homes free and clear, they could be taxed on the windfall since it would not be forgiveness of debt of rather avoidance of debt through third party payment.


The tax liability would be a small fraction of the original mortgage which of course is invalid, but the loan proceeds were still received by or on behalf of the borrower so an obligation does exist (albeit without documentation like a note or mortgage) and its extinguishment is a taxable benefit to homeowners. The tax liability would be around $2.5 trillion, which means that the average liability of the household would be reduced by around 80% as it relates to the house. Everyone wins except the Banks who still will come out ahead because we all know that it never happens that the scam artist doesn’t have some of the money stashed away.


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Editor’s Notes:  

As we predicted more and more County recorder offices are suing to collect transfer fees on loans that have gone to foreclosure under the allegation that a valid loan and lien was transferred.  Expect other revenue collectors in the states to start doing the same for registration fees, taxes, interest, penalties and fines. This battle is just beginning. We are now about to enter the phase of finger pointing in which each type of defendant — bank, servicer, MERS, Fannie, Freddie etc. defends with varying exotic defenses that more or less point the finger at some other part of the securitization chain. 
The real story is that title chains have been irretrievably corrupted — which means that title cannot be established by using the documents alone. Parole evidence from witnesses and production of back-up documents must show the path of the loan and the proof that the transaction was real. Defenders of these lawsuits may be forced to admit that there was no actual financial transaction and that the assignments were assignments of “convenience” negating the reality of the transfer or of any transaction at all. 
Either way they are going to have a problem that can’t be fixed. They can’t prove up the documents because the documents are contrary to the path of monetary transactions and recite facts that are untrue —- in addition to the fact that the documents themselves were fabricated, forged, robo-signed and fraudulently presented. This is why I say that regardless of how hard anyone tries to do the wrong thing, the only right way to correct these problems is to negate the foreclosures that have already been concluded, stop the ones that are being conducted in the same way as the old way, and make them prove up their right to foreclose. They either must admit that there were not valid transactions — including the original note and mortgage — or they won’t be able to prove a valid transaction because the money came from sources other than those shown on the closing documents. 
The actual sources of the money loaned the money to borrowers without documentation believing they had the documentation. But the mere fact that borrowers signed documents is not an invitation for any stranger to imply that it was for their benefit. For these reasons the mortgage in most cases was never perfected into a valid lien and cannot be perfected without corrective instruments signed by the borrower or upon some order by a court. But the courts are going to be far more careful about the proof here. Most Judges are going to take the position that they could be fooled once when the foreclosure originally went through on the premise of valid documents and an actual financial transaction attached to THOSE documents, but that they won’t be fooled a a second time. They will demand proof. And proof according to the normal rules of evidence is completely lacking because the entire securitization chain was a lie from one end to the other.
The borrower will end up owing the money less offsets for payments received by the real creditor, once the identity of the real creditor is revealed, but the absence of a mortgage or deed of trust naming that actual creditor will void the mortgage and negate the credit bid at the auction.

Ohio lawsuit accuses Freddie Mac of fraud

by Tara Steele

The battle between Fannie Mae, Freddie Mac, and various government entities continues, each taking a different approach on the battlefield.

Freddie Mac sued by county in Ohio

Last year, Mortgage Electronic Registration Systems Inc. (MERS) became the subject of lawsuits from counties across the nation as District Attorneys allege the company never owned the loans they were facilitating foreclosures for, and in most cases, judges agree, and their authority to facilitate has been denied in several counties. Dallas County alleges the mortgage-tracking system violates Texas laws and shorted the county anywhere from $58 million to over $100 million in uncollected filing fees due to the MERS system, dating back to 1997.

Others sued MERS as well; in February, in the U.S. Court for the Western District of Kentucky, Chief Judge Joseph McKinley Jr. dismissed a lawsuit filed by the Christian County Clerk, denying relief to the County for the same relief sought by Dallas County and others.

Rampant mortgage fraud, continued robosigning

Studies have shown that MERS destroyed the chain of title in America, and other studies reveal that illegal robosigning is still in play, and that foreclosure fraud has occurred in themajority of loans.

As the courts have not yet rewarded cities, counties, or states pursuing action against MERS, other tactics are being taken by these entities, for example, Louisiana is using RICO laws to sue MERS.

Summit County, Ohio taking a different approach

Summit County, Ohio filed a lawsuit1 Tuesday against Freddie Mac, alleging a failure to pay fees on transfer taxes on over 3,500 real estate transactions over six years. Court documents show that the Federal Home Loan Mortgage Corporation is accused of committing fraud by claiming it was a government entity, thereby exempt from transfer taxes. The County has not released a final assessment of the amount they believe is due, but they will also be seeking interest and penalties.

This approach is far different than going after MERS (which coincidentally was established by Fannie Mae and Freddie Mac over 15 years ago), rather going directly after the still-functioning Freddie Mac.

“The reality is Freddie Mac is a federally chartered, private corporation and they should have been paying these fees and taxes,” Assistant Prosecutor Joe Fantozzi told the Akron Beacon Journal.

Freddie Mac and Fannie Mae began paying transfer taxes in 2009, so the lawsuit is only seeking transfer taxes due from 2002 through 2008, which in Summit County are $4 per $1,000 on all real estate transactions. Additionally, the county also charges a 50-cent lot fee and recording fees, which are $28 for the first two pages and $8 for each additional page.

Fannie Mae not named, FHFA already fighting back

Although Geauga County in Ohio sued MERS, Chase Bank, and CoreLogic, the Akron Beacon Journal reports that Summit County is believed to be the first county in the state to file legal action against Freddie Mac. Fannie Mae was not named in the suit due to the low volume of mortgages in the county it handled during the time period.

The Federal Housing Finance Agency (FHFA), the conservator of Fannie and Freddie, is fighting back on these same battle lines, suing in Illinois to validate the two mortgage giants’ tax-exempt status, the Chicago Tribune reported. This move is likely an effort to circumvent more lawsuits like the one currently being filed in Summit County.





Why Everyone Should Support Principal Corrections on Mortgages

First, let’s talk to the guy that says homeowners shouldn’t get a break because it would be unfair to him. After all he paid his mortgage and he is still paying his mortgage and nobody is helping him, right? Wrong. Everyone who has a mortgage is getting a federal subsidy. They get to pay less in taxes and the more they owe, the less taxes they pay. That is the interest deduction for home ownership. So the question is not whether homeowners should get help, because they all get help. And if the guy who still has his home doesn’t wake up to the fact that foreclosures mean fewer homeowners and fewer homeowners means that those who want to eliminate the home mortgage interest deduction will get more traction. They already have a number of people in high places who would like this federal subsidy eliminated because it does nothing for big business and big banking. Putting your support into whatever it takes for people to stay in their homes and pay on mortgages, even if they are lower, means more people that would join you in opposition to eliminating the interest deduction. Oppose them and it will cost you thousands of dollars in additional taxes.

Next, those who are ideologically opposed to any relief for someone who stops paying on a loan. They say that if we don’t hold the borrower’s feet to the fire, we will undermine the entire concept of credit because borrowers would think they could walk away from any debt and would do so. The evidence is in. Most borrowers don’t want to walk from their debt. They want the deal they were sold on by the banks — an affordable loan. They didn’t get it because the originators were not acting as banks. The originators were getting paid for signatures not good loans. What is undermining the credit industry is that nobody trusts the creditors and won’t take the deal on hedge products and swaps. It isn’t that the financial world trusts the borrower any more or any less. They don’t trust the banks because they corrupted the loan underwriting process and because it was the banks who screwed up real estate title and obscured the ownership of loans thus freezing the once liquid credit markets that were running very well on the Uniform Commercial Code. Now we are parsing words and splitting hairs — what is a possessor, holder, holder in due course, what is the effect of fabricated loans, assignments, substitutions, notices, auctions, credit bids, deeds and evictions? If you want confidence in the credit markets restored, we must show that we can control the banks so they can’t do this again.

The main reason everyone should support principal correction is that it is a correction. The values used were pure fabrication created to induce pension funds to throw money down a rabbit hole called a “REMIC POOL” and to induce the homeowner into thinking that he was getting the deal of a lifetime. That was fraud. And in this country when someone is defrauded we take the bounty away from the perpetrators and return it to the victims.


After 40 years of cutting costs and spending the American government has somehow avoided a conclusion that is so obvious that any child over the age of 10 would be able to give you the answer. This reminds me of the 30 year study by the American Medical Association in which they concluded that children grow in spurts rather than growing  in one continuous nicely drawn straight line. Any parent dating to the beginning of the human race has known that children grow in spurts and yet the AMA needed this study to be sure. Any child of average intelligence will tell you that it doesn’t make any difference what plans you make for taxes or spending if you don’t have any money.

The key to a stable budget for any government or any business or any person is the amount of income they deposit at the bank, and the amount of money they have at the end of the month. Government can plan higher taxes, but if there is no income or commerce to tax, there still won’t be any additional revenue. Government can plan to reduce spending, but if there is no income there can be no spending. There doesn’t seem to be any better foundation for government planning than developing policies that will increase economic activity which in turn will increase income and thus increase the amount of taxes paid to the government regardless of the rate of taxation. A quick look at the government surplus that accumulated during the economic activity under the administration of President Clinton will show that neither taxes nor spending had anything to do with the surplus. It was all about rising median income, rising employment, and therefore rising tax revenue simply because there was more to tax, not because taxes were raised or lowered.

The bottom line is that we must raise median income for the majority of Americans. And after decades of reducing spending and reducing costs by reducing labor expense we have eliminated the ability of our population to consume what we produce. Yet we maintain an economy that is based on the ability and willingness of consumers to spend. Under the self-serving theories of Wall Street we pursued policies that encouraged consumers to continue spending despite flat or declining median income.

We accomplished this miracle by giving the consumers money under the guise of credit cards, other plans of consumer credit, and of course using their homes as ATM machines, fueling a meteoric rise in debt that could never be repaid. Somehow we have managed to be surprised or at least act surprised when the time came for a credit crisis. The income that was once available for taxation and tax revenues has simply been converted to corporate income that is somehow not taxed at all. In a nutshell that is the reason for the recession, and that is the reason government has no money.

By shifting ownership from the average Joe who has no choice but to pay taxes, to the top Aristocracy who pay little or no taxes, we have cut off our noses to spite our faces. The demand that the average American pay for this shift of income and wealth, tax free, to the Aristocracy with fewer services and higher taxes is now on the table — unless it involves allowing yet another private enterprise being allowed to interpose itself and add to the bloat to take profit from a cost stream that was already too high. In my opinion you might just as well wave a red flag in front of an enraged bull.

Somehow we accepted the notion that allowing banks and non-financial institutions to get involved in the creation of money for the lending process was a good idea. Somehow it was acceptable that rates of interest that were previously regarded as crimes could be legal. Somehow we consented to plans which allowed the creation of industries that were unthinkable and unacceptable. Much of our prison system is now privatized, supported by lobbyists who want and get laws criminalizing behavior in order to keep prisons full, thus receiving about $40,000 per year per inmate. Somehow we thought it was a good idea to add private insurance companies to the delivery of medical care and yet we are surprised that the addition of a new layer of private enterprise seeking profit has resulted in higher costs.

I will not pretend to have all of the answers. But I think that some of the major answers are just too obvious to ignore. The wealth and median income of the majority of Americans must increase in order for our country to prosper. Without that you can increase taxes to 100% and you’ll still have an unworkable deficit. Reducing taxes on people who are not making any money anyway is absurd political showmanship. In order for wealth and median income of the majority of Americans to increase there are two things that must happen. The credit burden under which most Americans currently are buried must be adjusted; and their share of income received from revenue derived from the production of goods or the delivery of services must increase both at the point of production or delivery and at the point-of-sale. Without those simple directives, any other policy will amount to rearranging deck chairs on the Titanic.

This is neither radical nor revolutionary. Under the administration of Pres. Eisenhower the top tier of taxes was 90%, households were operating with one income, and overall the wealth and prosperity of the nation was rising. Thus looking at the administrations of a Republican president and a Democratic president and seeing the same result, we can conclude that we have gone astray. We had the right formula but we changed it anyway. We fixed what wasn’t broken. And now what we have is a broken system.

Printing more money and attempting to unilaterally adjust the foreign exchange system is not going to do much to raise median income or the wealth of the majority of Americans. Once again the only parties that will benefit from pursuing such policies will be the tiny fraction of wealthy Americans who frankly do not need any help. Each step we take widens the divide between the wealthiest Americans in the top one half of 1% and the rest of the country. Just the thought that there is a mayor in Michigan who was literally begging for donations to keep the city running should send shudders down any patriotic American’s back. But it doesn’t.

A quick scan of world history will tell you how this will turn out. The founders of our country were right––government exists solely by consent of the governed. They recognized that a change in government was required frequently in order to prevent disparities and oppression. They devised a system for changes in government that did not involve blood or violence. They did this because all of human history showed that such changes in government were inevitable and that without a system of laws accepted by the governed and the government, the change would be chaotic and usually involve bloodshed. It turns out that Jefferson was right. People will withstand all sorts of oppression, immorality and stupidity in their government right up until the point when they decide that they won’t stand for it anymore. On this blog and in my e-mail I already see the signs of people who have had enough. The polls and the elections strongly indicate that most people are coming to the conclusion that they have had enough.

Change is coming. The only question for government is whether it will lead or follow.

$120 Billion Owed to US Treasury in Excise Taxes?

by Anonymous2

Editor’s Note:
  • The reluctance of Federal, State, County and local agencies to collect taxes, fees, fines and penalties for transactions, failure to file and fraud is testament to the power of politics in our current society. I have it corroborated by dozens of experts from government agencies and tax experts who do not wish to be quoted because they fear reprisals. The $120 billion mentioned below is a tiny piece of the tax pie that would save virtually every budget from the disastrous cuts in social services and amenities that are considered the bedrock of our safety net and the defense and welfare of our citizens.
  • In Arizona alone, the estimate is that there COULD be receivables of over $3 billion — more than enough to completely eliminate the state deficit. In larger states the numbers are higher. At the Federal level the estimates range from $1.5 to $15 trillion in receivables on capital gains and income taxes. The big questions are (1) will ever know the true numbers and (2) whether we will ever do anything about it. These are not new taxes. These are taxes and fees, interest and penalties that are already due under existing law.
  • As we are already seeing on the World stage our proposals are rejected as soon as we put them out there for comment. Nobody trusts this country anymore, when push comes to shove. The crisis of confidence in world commerce is now at its highest point in our history and looks like it is getting worse by the day. I don’t see any way out of this except if we admit what everyone already knows and do something about it. I strongly suspect that the “pain” that our government officials are threatening us with to avoid telling the truth is just “control of the narrative.”
  • Even if there were SOME truth to it, how does that compare to the pain of losing our place in the world line-up? What will happen to us if we can no longer print money, which is the world’s reserve currency, and instead we have to go begging to other countries for loans. What conditions will they impose on us? Broaden your reading and you’ll see. It isn’t a pretty picture and it’s happening right now — all for the benefit and protection of a few banks that are so large and cross so many borders, that they appear to be beyond regulation. If we don’t do something soon that appearance will become our permanent reality.
by Anonymous2

I am looking for information regarding TEFRA and the fact that a note indorsed in blank to a trust is unlawful under some state statutes (NY for one) as well as under federal law.

Additionally, under TEFRA, any note indorsed in blank for which a bond or certificate is issued is subject to an excise tax of 1% of the value of the note for the term of the note. In other words, a $200k 30-year note, would b subject to 1% excise tax = $2,000 x 30 years = $60,000 paid to the IRS.

If my research is correct, the IRS has been cheated out of billions of dollars by these so-called “trusts.”


I like this post from a reader in Colorado. Besides knowing what he is talking about, he raises some good issues. For example the original issue discount. Normally it is the fee for the underwriter. But this is a cover for a fee on steroids. They took money from the investor and then “bought” (without any paperwork conveying legal title) a bunch of loans that would produce the receivable income that the investor was looking for.

So let’s look at receivable income for a second and you’ll understand where the real money was made and why I call it an undisclosed tier 2 Yield Spread Premium due back to the borrower, or apportionable between the borrower and the investor. Receivable income consists or a complex maze designed to keep prying eyes from understanding what theya re looking at. But it isn’t really that hard if you take a few hours (or months) to really analyze it.

Under some twisted theory, most foreclosures are proceeding under the assumption that the receivable issue doesn’t matter. The fact that the principal balance of most loans were, if properly accounted for, paid off 10 times over, seems not to matter to Judges or even lawyers. “You borrowed the money didn’t you. How can you expect to get away with this?” A loaded question if I ever heard one. The borrower was a vehicle for the commission of a simple common law and statutory fraud. They lied to him and now they are trying to steal his house — the same way they lied to the investor and stole all the money.

  1. Receivable income is the income the investor expects. So for example if the deal is 7% and the investor puts up $1 million the investor is expecting $70,000 per year in receivable income PLUS of course the principal investment (which we all know never happened).

  2. Receivable income from loans is nominal — i.e., in name only. So if you have a $500,000 loan to a borrower who has an income of $12,000 per year, and the interest rate is stated as 16%, then the nominal receivable income is $80,000 per year, which everyone knows is a lie.

  3. The Yield Spread premium is achieved exactly that way. The investment banker takes $1,000,000 from an investor and then buys a mortgage with a nominal income of $80,000 which would be enough to pay the investor the annual receivable income the investor expects, plus fees for servicing the loan. So in our little example here, the investment banker only had to commit $500,000 to the borrower even though he took $1 million from the investor. His yield spread premium fee is therefore the same amount as the loan itself.  Would the investor have parted with the money if the investor was told the truth? Certainly not. Would the borrower sign up for a deal where he was sure to be thrown out on the street? Certainly not. In legal lingo, we call that fraud. And it never could have happened without defrauding BOTH the investor and the borrower.

  4. Then you have the actual receivable income which is the sum of all payments made on the pool, reduced by fees for servicing and other forms of chicanery. As more and more people default, the ACTUAL receivables go down, but the servicing fees stay the same or even increase, since the servicer is entitled to a higher fee for servicing a non-performing loan. You might ask where the servicer gets its money if the borrower isn’t paying. The answer is that the servicer is getting paid out of the proceeds of payments made by OTHER borrowers. In the end most of the ACTUAL income was eaten up by these service fees from the various securitization participants.

  5. Then you have a “credit event.” In these nutty deals a credit event is declared by investment banker who then makes a claim against insurance or counter-parties in credit default swaps, or buys (through the Master Servicer) the good loans (for repackaging and sale). The beauty of this is that upon declaration of a decrease in value of the pool, the underwriter gets to collect money on a bet that the underwriter would, acting in its own self interest, declare a write down of the pool and collect the money. Where did the money come from to pay for all these credit enhancements, insurance, credit default swaps, etc? ANSWER: From the original transaction wherein the investor put up $1 million and the investment banker only funded $500,000 (i.e., the undisclosed tier 2 yield spread premium).

  6. Under the terms of the securitization documents it might appear that the investor is entitled to be paid from third party payments. Both equitably, since the investors put up the money and legally, since that was the deal, they should have been paid. But they were not. So the third party payments are another expected receivable that materialized but was not paid to the creditor of the mortgage loan by the agents for the creditor. In other words, his bookkeepers stole the money.

Very good info on the securitization structure and thought provoking for sure. Could you explain the significance of the Original Issue Discount reporting for REMICs and how it applies to securitization?

It seems to me that the REMIC exemptions were to evade billions in taxes for the gain on sale of the loans to the static pool which never actually happened per the requirements for true sales. Such reporting was handled in the yearly publication 938 from the IRS. A review of this reporting history reveals some very interesting aspects that raise some questions.

Here are the years 2007, 2008 and 2009:

2009 reported in 2010

2008? is missing and reverts to the 2009 file?? Don’t believe me. try it.–2009.pdf

2007 reported in 2008–2007.pdf

A review of 2007 shows reporting of numerous securitization trusts owned by varying entities, 08 is obviously missing and concealed, and 2009 shows that most reporting is now by Fannie/Freddie/Ginnie, JP Morgan, CIti, BofA and a few new entities like the Jeffries trusts etc.

Would this be simply reporting that no discount is now being applied and all the losses or discount is credited to the GSEs and big banks, or does it mean the trusts no longer exist and the ones not paid with swaps are being resecuritized?

Some of the tell tale signs of some issues with the REMIC status especially in the WAMU loans is a 10.3 Billion dollar tax claim by the IRS in the BK. It is further that the balance of the entire loan portfolio of WAMU transferred to JPM for zero consideration. A total of 191 Billion of loans transferred proven by an FDIC accounting should be enough to challenge legal standing in any event.

I believe that all of the securitized loans were charged back to WAMU’s balance sheet prior to the sale of the assets and transferred to JPM along with the derivative contracts for each and every one of them. [EDITOR’S NOTE: PRECISELY CORRECT]

The derivatives seem to be accounted for in a separate mention in the balance sheet implying that the zeroing of the loans is a separate act from the derivatives. Add to that the IRS claim which can be attributed to the gain on sale clawback from the voiding of the REMIC status and things seem to fit.

I would agree the free house claim is a tough river to row but the unjust enrichment by allowing 191 billion in loans to be collected with no Article III standing not only should trump that but additionally forever strip them of standing to ever enforce the contract.

The collection is Federal Racketeering at the highest level, money laundering and antitrust. Where are the tobacco litigators that want to handle this issue for the homeowners? How about an attorney with political aspirations that would surely gain support for saving millions of homes for this one simple case?

Documents and more info on the FDIC litigation fund extended to JPM to fight consumers can be found here:

You can also find my open letter to Sheila Bair asking her to personally respond to my request here:

Any insight into the REMIC and Pub. 938 info is certainly appreciated

Tax Apocalypse for States and Federal Government Can be Reversed: Show Me the Money!

SEE states-look-beyond-borders-to-collect-owed-taxes







As we have repeatedly stated on this blog, the trigger for the huge deficits was the housing nightmare conjured up for us by Wall Street. Banks made trillions of dollars in profits that were never taxed. The tax laws are already in place. Everyone is paying taxes, why are they not paying taxes? If they did, a substantial portion of the deficits would vanish. Each day we let the bankers control our state executives and legislators, we fall deeper and deeper in debt, we lose more social services and it endangers our ability to maintain strong military and law enforcement.

The argument that these unregulated transactions are somehow exempt from state taxation is bogus. There is also the prospect of collecting huge damage awards similar to the tobacco litigation. I’ve done my part, contacting the State Treasurers and Legislators all over the country, it is time for you to do the same. It’s time for you to look up your governor, State Treasurer, Commissioner of Banking, Commissioner of Insurance, State Commerce Commission, Secretary of State and write tot hem demanding that they pursue registration fees, taxes, fines, and penalties from the parties who say they conducted “out-of-state” transactions relating to real property within our borders. If that doesn’t work, march in the streets.

The tax, fee, penalty and other revenue due from Wall Street is easily collectible against their alleged “holding” of mortgages in each state. One fell swoop: collect the revenue, stabilize the state budget, renew social services, revitalize community banks within the state, settle the foreclosure mess, stabilize the housing market and return homeowners to something close to the position they were in before they were defrauded by fraud, predatory lending and illegal practices securitizing loans that were too bad to ever succeed, even if the homeowner could afford the house.

States Ignore Obvious Remedy to Fiscal Meltdown

without raising taxes one cent, many states could recover much or all of their deficit and perhaps some states could be looking at a surplus.
The money is sitting on Wall Street waiting to be claimed through existing tax laws, regulatory fees, and even damage claims much like the Tobacco litigation.
Editor’s Note: Bob Herbert of the New York Times correctly depicts the tragedy of the cuts to education, health care for children, and other essential services that we expect from government. And any economist would agree with him that budget cuts are the last thing a state or any government ought to do in a recession. But his story, and that of dozens of other reporters and opinion writers misses the simple fact that this crash, which is depression (not a recession) for many states need not be so painful.

The money is sitting on Wall Street waiting to be claimed through existing tax laws, regulatory fees, and even damage claims much like the Tobacco litigation. As I have repeatedly stated to Arizona’s Republican State Treasurer Dean Martin and Andre Cherney, the Democrat who wants to replace him, along with legislative committees and other government departments of many states, including Florida, they are owed taxes, fees, penalties and damages from the investment bankers who brought us the great financial meltdown.

It’s really simple, but the bank lobby is so strong and the misconceptions are so great, that they just don’t want to get it. In the securitization of mortgages, there were numerous transfers on and off record (mostly off-record).

Each of those transfers resulted in fees or profits made by the parties involved. All of that was ordinary income, taxable transfers, subject to recording and registration fees,and regulation by state agencies with whom the parties never bothered to register.

Each transaction that should have been recorded would produce revenue for counties in their recording offices if they simply enforced it. Each profit or fee earned was related to a transfer of real property interests in the state that were NOT subject to any exemption. The income tax applies. Arizona calculated what the income would be if they enforced tax collection against these fees and came up with $3 billion. I think it is three times that, but even accepting their estimate, that would completely eliminate their deficit and allow them to continue covering the 47,000  children they just cut from health care.

So without raising taxes one cent, many states could recover much or all of their deficit and perhaps some states could be looking at a surplus.
There are many ways to actually collect this money as I have explained to legislators, agency heads and aides. The ONLY reason communities are closing down police and fire departments, closing schools and cutting medical care for children is because the people in power are too beholden to the banking lobby and too fearful of angering the real powers on both the national and state levels — Wall Street.
March 20, 2010
Op-Ed Columnist, NY Times

A Ruinous Meltdown

A story that is not getting nearly enough attention is the ruinous fiscal meltdown occurring in state after state, all across the country.

Taxes are being raised. Draconian cuts in services are being made. Public employees are being fired. The tissue-thin national economic recovery is being undermined. And in many cases, the most vulnerable populations — the sick, the elderly, the young and the poor — are getting badly hurt.

Arizona, struggling with a projected $2.6 billion budget shortfall, took the drastic step of scrapping its Children’s Health Insurance Program. That left nearly 47,000 low-income children with no coverage at all. Gov. Jan Brewer is also calling for an increase in the sales tax. She said, “Arizona is navigating its way through the largest state budget deficit in its long history.”

In New Jersey, the newly elected governor, Chris Christie, has proposed a series of budget cuts that, among other things, would result in public schools receiving $820 million less in state aid than they had received in the prior school year. Some well-off districts would have their direct school aid cut off altogether. Poorer districts that rely almost entirely on state aid would absorb the biggest losses in terms of dollars. They’re bracing for a terrible hit.

For all the happy talk about “no child left behind,” the truth is that in Arizona and New Jersey and dozens of other states trying to cope with the fiscal disaster brought on by the Great Recession, millions of children are being left far behind, and many millions of adults as well.

“We’ve talked in the past about revenue declines in a recession,” said Jon Shure of the Center on Budget and Policy Priorities, “but I think you have to call this one a revenue collapse. In proportional terms, there has never been a drop in state revenues like we’re seeing now since people started to keep track of state revenues. We’re in unchartered territory when it comes to the magnitude of the impact.”

Massachusetts, which has made a series of painful cuts over the past two years, is gearing up for more. Michael Widmer, president of the Massachusetts Taxpayers Foundation, told The Boston Globe: “There’s no end to the bad news here. The state fiscal situation is already so dire that any additional bad news is magnified.”

California has cut billions of dollars from its education system, including its renowned network of public colleges and universities. Many thousands of teachers have been let go. Budget officials travel the state with a glazed look in their eyes, having tried everything they can think of to balance the state budget. And still the deficits persist.

In the first two months of this year, state and local governments across the U.S. cut 45,000 jobs. Additional layoffs are expected as states move ahead with their budgets for fiscal 2011. Increasingly these budgets, instead of helping people, are hurting them, undermining the quality of their lives, depriving them of educational opportunities, preventing them from accessing desperately needed medical care, and so on.

The federal government has tried to help, but much more assistance is needed.

These are especially tough times for young people. “What we’re seeing now in Arizona and potentially in New Jersey and other states spells long-term trouble for the nation’s children,” said Dr. Irwin Redlener, a pediatrician who is president of the Children’s Health Fund in New York and a professor at Columbia University’s Mailman School of Public Health.

“We’re looking at all these cuts in human services — in health care, in education, in after-school programs, in juvenile justice. This all points to a very grim future for these children who seem to be taking the brunt of this financial crisis.”

Dr. Redlener issued a warning nearly a year ago about the “frightening” toll the recession was taking on children. He told me last April, “We are seeing the emergence of what amounts to a ‘recession generation.’ ”

The impact of the recession on everyone, of whatever age, is only made worse when states trying to balance their budgets focus too intently on cutting services as opposed to a mix of service cuts and revenue-raising measures.

As Mr. Shure of the Center on Budget noted, “The cruel irony is that in a recession like this, the people’s needs go up at the same time that the states’ ability to meet those needs goes down.”

Budget cuts also tend to weaken rather than strengthen a state’s economy, especially when they entail furloughs or layoffs. Government spending stimulates an economy in recession. And wise spending is an investment in everyone’s quality of life.

All states have been rocked by the Great Recession. And most have tried to cope with a reasonable mix of budget cuts and tax increases, or other revenue-raising measures. Those that rely too heavily on cuts are making guaranteed investments in human misery.

FLORIDA BEWARE!! FBA non-judicial foreclosure initiative

Florida Bankers Association, controlled by national and supersize regional banks are trying to convert Florida to a “non-judicial state.”


Start writing letters and get others to write letters to the Republican controlled Florida legislature. This effort will not only deny homeowners essential rights it will vastly increase the pace of foreclosure sales, thus crashing the market values of homes across the state even further. Taxes will go up, services will go down.


Banks say cut out the courts

By James Thorner, Times Staff Writer

Published Thursday, January 28, 2010

If bankers get their way, Floridians facing foreclosure could be kicked out of their homes in as little as three months.

The Florida Bankers Association, the 400-member-strong lenders’ lobby, has presented state legislators with a bill to upend decades of Florida law and establish “non-judicial” foreclosures in Florida by July 1.

What’s a non-judicial foreclosure? Banks would accelerate foreclosures against defaulting homeowners by bypassing the courts. Judges would no longer rule on foreclosure cases.

Some states — 37 in fact — already grant that fast-track foreclosure authority, including California, Georgia, Alabama and Texas. But Florida, with its plethora of vacation and retiree homes, has always been big on homeowner rights.

If you’re a financially strapped Florida homeowner — 62,719 Tampa Bay properties got foreclosure notices last year — the 53-page bill contains worrisome signs:

• Non-judicial foreclosures must conclude in no less than three months and no more than a year. Most Florida foreclosures take a year to 18 months to work through the courts these days, longer if a lawyer fights a successful rear guard action. So in 90 days banks can theoretically auction the home out from under you.

The Florida Supreme Court’s newly endorsed mandatory mediation for lenders and homeowners would effectively go bye-bye. The bill provides only for informal meetings between creditors and debtors.[Editor’s Note: This triggered the FBA action. By ordering mediation, the creditor/lender would be required to be disclosed and the whole scheme would fall apart]

• Even after homeowners are evicted, banks can still pursue them for unpaid mortgage debt. But banks will waive that right if homeowners avoid trashing or stripping the house before the new owner takes over.

The bankers association has titled the bill The Florida Consumer Protection and Homeowner Credit Rehabilitation Act. Association president Alex Sanchez views the bill as a way to break a foreclosure crisis partly caused by mortgage fraud. [Editor’s Note: Old trick — name it something that conveys the exact opposite meaning of the bill].

He offered a list of innocents the bankers aim to help: neighbors annoyed by abandoned houses next door; condo associations pursuing dues from properties in legal limbo; cities grappling with urban blight; and judges overloaded with thousands of foreclosure cases.

“We don’t want the property. We’re not into the property management business,” Sanchez said of bankers. “We want to get a property out of the courts and sold to a productive Florida family.”

Finalizing a foreclosure is time-consuming and expensive. The longer a property lingers in the courts, the longer banks get no mortgage income from the property. One Tampa mortgage banker revealed this month that each foreclosure can cost lenders an additional $30,000 in legal fees.

The law would apply to foreclosures after July 1, not old cases already in the courts. Kristopher Fernandez, a Tampa foreclosure attorney, blames the banks themselves for much of the judicial foot dragging.

“These cases are stuck in legal limbo because banks don’t want to push foreclosures,” Fernandez said. “I’ve seen cases where nothing is done. The lenders don’t want these homes back. They know they have to pay assessments once they take them back.”

Pinellas-Pasco Chief Judge Thomas McGrady backs up that point. McGrady has talked about a “dam” in the courts from banks reluctant to schedule sales of foreclosure homes.

What’s the chance of this legal revolution getting consideration? The Florida Legislature convenes on March 2. As of yet, the bill has neither an official number nor formal sponsors.

With populism resurgent and anti-banker attitudes rife, passage could be a stretch. Gov. Charlie Crist would have to sign a pro-banker bill as he’s contesting a U.S. Senate seat with state Rep. Marco Rubio.

“We’ve had conversations in both chambers to have it filed,” said Anthony DiMarco, the bankers association’s executive vice president of government affairs.

“Sure, it’s a change in Florida law. But it will help us get to the bottom of the foreclosure crisis faster.”

Philadelphia Gives Homeowners a Way to Stay Put

The real story with real solutions or at least partial solutions. Sheriff Green started all this. Bravo. Now start thinking of all the profits, transfers and records that should have been reported, filed and taxed and the state budget problems will be over.

November 18, 2009

Philadelphia Gives Homeowners a Way to Stay Put

PHILADELPHIA — Christopher Hall stepped tentatively through the entranceway of City Hall Courtroom 676 and took his place among dozens of others confronting foreclosure purgatory. His hopes all but extinguished, he fully expected the morning to end with a final indignity: He would sign over the deed to his house — his grandfather’s two-story row house; the only house in which he had ever lived; the house where he had raised three children.

“This is devastating,” he said last month as he sat in the gallery awaiting his hearing. “This is my childhood home. I grew up there. My mother passed away there. My grandfather passed away there. All of my memories are there.”

A union roofer, Mr. Hall, 42, had not worked since August 2008, when the contractor that employed him as a foreman went broke and laid off more than 40 people. He had not made a mortgage payment in more than a year, and his lender, Bank of America, was threatening to auction off his house through the sheriff’s office.

In most American cities, that probably would have been the end of the story: another home turned into distressed bank inventory by the national foreclosure crisis. But in Philadelphia, under a program begun last year to try to keep people in their homes, Mr. Hall entered the courtroom with a reasonable chance of hanging on.

Under the rules adopted by Philadelphia’s primary civil court, no owner-occupied house may be foreclosed on and sold by the sheriff’s office before a “conciliation conference,” a face-to-face meeting between the homeowner and the lender aimed at striking a workable compromise. Every homeowner facing a default filing is furnished with counseling, and sometimes legal representation.

So, as Mr. Hall stepped into the ornate courtroom just after 9 o’clock, he was swiftly provided with a volunteer lawyer, Kristine A. Phillips. She huddled briefly with a lawyer for Bank of America and returned with a useful promise. The bank would leave him alone for six more weeks while his housing counselor pursued further negotiations in an attempt to lower his payments permanently.

“You’ve got more time,” Ms. Phillips told him. “We’ll get this all worked out,” she said.

“Thank you so much,” Mr. Hall said softly, his body shaking with pent-up anxiety now tinged with relief. “It’s a lot of weight off of my shoulders.”

In a nation confronting a still-gathering crisis of foreclosure, Philadelphia’s program has emerged as a model that has enabled hundreds of troubled borrowers to retain their homes. Other cities, from Pittsburgh to Chicago to Louisville, have examined the program and adopted similar efforts.

“It brings the mortgage holder and the lender to the table,” said City Councilor John M. Tobin Jr. of Boston, who is planning to introduce legislation to enact a program in his city modeled on Philadelphia’s. “When people are face to face, it can be pretty disarming.”

When homeowners in Philadelphia receive legal default notices from their mortgage companies, the court system schedules a conciliation hearing. Canvassers working for local nonprofit agencies visit foreclosed homeowners, distributing fliers that inform them of their rights to a conference, and urging them to call a hot line that can direct them to free housing counselors.

“You can feel a certain sense of relief from their just being able to speak to someone about the program,” said Anna Hargrove, who works as a canvasser in West Philadelphia.

Every Thursday morning, the courtroom on the sixth floor of the regal City Hall here is given over to the conciliation conferences. It fills up with volunteer lawyers in jogging shoes, who are representing homeowners; gray-suited corporate lawyers working for mortgage companies; and all variety of delinquent borrowers — elderly citizens leaning on canes, construction workers in coveralls, parents with bored children in tow. The lawyers exchange preliminary settlement terms, while the homeowners fill out papers and wait.

In some cases, deals are struck that lower monthly payments for borrowers and allow them to retain their homes. When a homeowner cannot afford the home even at modified terms, the program helps to create a graceful exit, in which the borrower accepts cash for vacating the property or signs over the deed in lieu of further payment.

Those outcomes are similar to the ones produced by the Obama administration’s $75 billion program aimed at stemming foreclosures, which gives cash subsidies to mortgage companies as an inducement to accept lower payments. But in Philadelphia there is one crucial difference: the mortgage companies have no choice but to participate. They have to attend the conferences and negotiate in good faith or they cannot proceed with a sheriff’s sale.

Since the administration’s program was begun in March, it has been plagued by complaints of bureaucratic confusion and the indifference of mortgage companies. Many homeowners who have applied for loan modifications complain that their documents have been lost repeatedly or that they have been rejected without explanation.

Right to Mediation

The Philadelphia program forces an outcome by bringing together all the principals in one room. If the mortgage company proves intractable, the homeowner has the right to request mediation in front of a volunteer lawyer serving as a provisional judge, who relays recommendations to the program’s supervising judge. If the judge finds that the mortgage company is not acting in good faith, she can hold the house in limbo by denying permission for a sheriff’s sale.

While data is scant, a legal aid group, Philadelphia Volunteers for the Indigent Program, has complete information on 61 of the 309 cases it has resolved since October 2008 through the anti-foreclosure program. Only five resulted in sheriff’s sales, while 35 ended with loan modifications that lowered payments, the group says. The remaining 21 cases were divided among bankruptcies, loan forbearance and repayment arrangements, graceful exits and straightforward sales.

Some suggest the city’s program is plagued by the same basic defect as the Obama rescue plan: Nearly all the loans that have been modified have been altered on a trial basis, requiring homeowners to reapply for an extension of the terms after only a few months — a process that appears rife with obstacles, according to participants.

“There’s no teeth to the conciliation program,” said Matthew B. Weisberg, a Philadelphia lawyer who represents homeowners in cases involving alleged mortgage fraud. “It’s a largely ineffective stopgap prolonging what appears to be the inevitable, which is the loss of homes.”

Still, Mr. Weisberg grudgingly praised the plan.

“It’s arbitrary and unpredictable,” he said, “but it’s better than what anybody else is doing.”

Sheriff Delays Auction


Philadelphia’s Residential Mortgage Foreclosure Diversion Pilot Program began with a resolution passed by the City Council in March 2008, calling on Sheriff John D. Green to scrap the sheriff’s sale scheduled for April. Low-income neighborhoods were already experiencing a surge of foreclosures involving subprime loans given to people with tainted credit. With unemployment growing, lost paychecks were now pushing people into delinquency, reaching into middle-class and even wealthy neighborhoods. In early 2008, nearly 200 homes a month were being auctioned by the sheriff’s office, about one-third more than in 2006.

In West Philadelphia, Councilman Curtis Jones Jr., one of the sponsors of the resolution, watched his childhood neighborhood consumed by foreclosure, as the homes of working families — their porches once lined with flower pots — were boarded up with plywood.

“It becomes a blight on your entire community,” Mr. Jones said. “It creates an environment that fosters everything bad, from prostitution to drug dealing to wildlife, like raccoons taking over whole houses. One house becomes 10, and 10 becomes the whole block.”

In response to the resolution, Sheriff Green canceled the April sale. Meanwhile, Judge Annette M. Rizzo, who oversaw a local task force on stemming foreclosures, joined with the president judge of Philadelphia’s Court of Common Pleas to develop the program.

For Judge Rizzo, a high-energy woman who has long taken an interest in housing policy, the moratorium presented both a crisis and an opportunity. The sheriff was effectively refusing to fulfill his mandated responsibilities, leaving his office vulnerable to legal challenge. But if the mortgage companies could be persuaded to participate in an alternative way of addressing foreclosures, more people could stay in their homes.

“I realized we’re either going to go down in flames or we’re going to be a national model,” Judge Rizzo said. “We’re going to look at these cases and see what we can work out.”

Mr. Hall knew none of this. What he knew was that his life seemed to be unraveling.

Home to Four Generations

Ever since he was a teenager, he had earned a middle-class living with his hands. He had been raised by his grandfather in his three-bedroom house on Akron Street, in a predominantly Irish Catholic working-class neighborhood in Northeast Philadelphia.

He had attended St. Martin’s, the Catholic school around the corner, married his childhood sweetheart and still remained in his grandfather’s house, sending his own children — two boys (now in their 20s) and a 12-year-old girl — to the same school.

Mr. Hall, a soft-spoken yet intense man with a silver-tinged goatee, had worked seven days a week for much of this decade, bringing home weekly pay of about $1,000 — enough to build a deck in his backyard; enough to obtain a fixed-rate mortgage and buy the house for $44,000 when his grandfather succumbed to Alzheimer’s disease in the mid-1990s; enough for a motorcycle and a boat.

But three years ago, Mr. Hall committed the sort of mistake that has upended millions of households. At the recommendation of a for-profit credit counselor, he took out a new mortgage — a variable-rate loan from Countrywide Financial, which is now owned by Bank of America. He paid off some credit card debt, and he borrowed an extra $15,000 to renovate his home, expanding his mortgage balance to $63,000.

The loan began with manageable payments of about $500 a month. But Mr. Hall’s interest rate soon soared — something he says was never explained to him — lifting his payments to $950 a month.

“When I got the mortgage, I didn’t really understand it,” he said. “They told me this would improve my credit and that was it. It was just, ‘sign here,’ and ‘initial here.’ ”

No More Construction Work

He might still have managed had construction not come to a halt. By 2007, Mr. Hall’s employer was cutting work hours. In August 2008, it shut down, turning his $1,000 weekly paycheck into an $800 monthly unemployment check.

Every day, he set the alarm clock and headed to the union hall at 5 a.m., waiting and hoping for work. Every day, he went home, still jobless and discouraged, now confronting the displeasure of his wife, who worked as a nurse, and who he said never came to terms with their diminished spending power. After months of bickering, she left him last December, taking their daughter.

“She was saying, ‘How are we going to have Christmas? How are we going to go on vacation?’ ” he recalled. “She just seen it getting worse instead of better, and she got depressed.”

In January, his truck was repossessed, leaving him to walk through the winter dawn to the union hall for his daily ritual of defeat.

He watched the For Sale signs proliferating on his block, as mostly elderly neighbors found themselves unable to make their mortgage payments. He saw their belongings piled up on their front lawns as they abandoned their homes to foreclosure.

In September, the envelope finally landed with his default notice. A canvasser knocked on his door, proffering a flier urging him to call the city hot line. When he called, a housing counselor helped him assemble the paperwork for a loan modification and prepare for his conciliation conference.

When he arrived inside courtroom 676 in October, Mr. Hall carried a sheaf of wrinkled papers in a white plastic grocery bag. He occupied a solid wooden chair as an announcer called off cases for hearing. “Number 27, Wachovia Mortgage versus … .” A girl no older than 6, with flower-shaped plastic barrettes in her hair, fidgeted as her mother applied for legal representation.

Mr. Hall was struggling to come to terms with what he assumed was the end.

“I put my whole life into this house,” he said. “After I do all this work, they want to take it from me. You’ve got to regroup and move, but where? If I can’t pay my mortgage, how am I going to pay rent? And I have a whole house full of furniture.”

When he got the news that he had a few weeks’ reprieve, relief quickly gave way to the worry that had dominated his thoughts for months.

“It’s postponing the inevitable,” he said.

“I’m a man,” he kept saying, trying to make sense of how a lifetime of working on other people’s homes had put him here, staring at the potential loss of his own home; still hoping for relief.

“I don’t want no handouts,” he said. “I just want a reasonable loan that I can afford to pay so I can get on with my life.”

DO NOT Walk Away From Your Home: Pretty Good Advice

DO NOT Walk Away From Your Home

There are a lot of people out there that are in such dire financial
straits that when it comes to their home they might feel the best thing is to just walk away. After having been served with a foreclosure action from their lender (and having reached a stage of helplessness) often homeowners simply pack up and move out. In my opinion this is never the best idea. In fact it might be the worst idea.

To begin, by moving out you will find that your legal obligations do not end. You’re still liable for taxes – a debt you do not pay nor owe to the lender but rather pay to your local government. If and when the house is in fact foreclosed upon, the general rule is that all taxes will be paid by the bank – even back taxes. However in this environment, an environment in which lenders are going out of business, don’t assume that even an action for  foreclosure that has been initiated will be competed. Lenders are in some limited cases walking away. What’s more if they do you could be left with fines and violations for having left your property abandoned. Everything from failing to mow your lawn to garbage that collects in your driveway. Take the case of Emily Trowel moved out in 2002 and then found that the bank never in fact followed through Now she not only has thousands in fines and violations against her but they want to throw her in jail!

What should you do? First, assume nothing. The normal procedures and the normal events are subject to tremendous pressure from the volume of defaults. This is not a normal time. Second, if you are in foreclosure action make sure that you remain in your home and treat it as if you still owned it until the judgment of foreclosure is final. Had Emily Trowel simply stayed in her home she would now own it mortgage free. If you lender folds, or fails to foreclose, you may be the beneficiary of a wind fall. Second, remember that’s it’s only too late to do anything when the foreclosure judgment has been entered. You can always cure your default right up and until the day of the final judgment.

Private Taxation — American Healthcare

The answer to our unique American set of issues is not a single issue proposed solution, but a sea change in our premise: either we are a nation of people and laws to protect, defend and promote the health, safety and welfare of all our citizens or we are a vehicle for corporate interests that will do anything to maintain their positions of power and profit. Getting rid of the influence of lobbyists and the effect of campaign contributions on candidates is not some lofty ambition or ideal; it is an imperative that is the ONLY answer to having food on the table, gas in the tank and a roof over our heads.

A candidate for public office must (a) spend the time to learn about economics (b)  demonstrate their independence from special interests, (c) demonstrate their proficiency in understanding how economic trends impact the average voter and (d) educate the voter as to how economic policies are being used against them and what they can do about it. 


Prospective voters who are considering support for candidates for public office or propositions and petitions having economic consequences are stuck between a rock and a hard place. The growing realization is that, in particularly in a global economy, some complex events are somehow having an effect on their daily lives. 

In the absence of any real information for each voter to make their own decision they are forced to rely on “mainstream” news, which is more fact based entertainment than informative, candidates who will say anything to get elected, and special interest advertising that mischaracterizes the choices.

Voters understand that food, fuel and medical costs are taking away more and more of their income with the same effect as if a new tax was enacted requiring them to fund the largest corporations in the world, whose losses are covered by taxpayers and whose windfall profits are closely guarded from consumers who don’t get the benefit of cost reductions, stockholders who don’t get the benefit of dividends, and merchants who don’t get the benefit of sales revenue from people who don’t have anymore money to spend. 

These “ private taxes” are reflective of the growing pattern of privatizing public finance. In short they are private taxes sanctioned by federal, state and local governments who themselves are victims of the pattern. In my opinion this represents “PRIVATE TAXATION” sanctioned by government.

Let’s look at some of the “proposals” for healthcare that are offered and watch how they work.


  1. American citizens spend more (35%-250%) on drugs, medical protocols,, tests and treatment than any other country in the world. The same drugs that cost $20 per pill in the U.S. can be purchased for $2.00 elsewhere. Protocols that would prevent disease or would cure them are virtually banned or are allowed to be “not covered” by insurance — resulting in the average person my age (61) taking thousands of pills per year that people in other countries are not taking because they don’t need them and because the pills themselves present risks of side effects that include everything up to and including death. 
  2. The financial excesses of the medical-pharmaceutical-insurance industry is supported by “laws” that protect the industry and which little or nothing to do with the health of any person. These excesses are present ONLY in the United States. 
  3. At the same time that we are spending more, we are suffering more medical disasters in more families every day. Longevity (life-span) in the United States is declining. Infant mortality is rising. Even average adult height has decreased in the Untied States and is now lower than many other countries.
  4. Protocols like chelation IV therapy, food supplements and vitamins, gene therapy, human stem cell therapy, and primitive cell therapy are being used all over the world, growing back diseased or missing organs, improving overall health, and improving vitality while at the same time vastly reducing the demands for medical treatment. Those other countries are spending less and delivering more. Several third world countries have now become centers for medical care of those Americans who have the money, time and physical ability to reach them. 
  5. National programs for health and fitness are not only improving physical health, but the all important index of happiness and contentment.
  6. Ideological arguments against these other systems are bogus arguments designed to distract American voters from the truth: the system is working here for those looking to earn a profit, whereas the system is working elsewhere in the world for those seeking to maintain a healthy population.
  7. The ideological argument against a single payer that negotiates prices, seeks preventative national programs and pursues the best possible treatments and cures is merely a hammer to threaten and frighten people with the prospect of “socialism” which most people translate as a loss of freedom, constant fear of government, loss of privacy, and a lack of disposable income at the end of the month.
  8. The truth is that all societies practice socialism as to those services that the government elects to provide. In the United States, taxes are used to pay for military, police, fire, education etc. In an ultimate irony, the heavy reliance on ideological argument over common sense has resulted in the the outcome most feared by those who are cajoled into voting against their interests: loss of freedom, constant fear of government, loss of privacy, and a lack of disposable income at the end of the month.
  9. The surrender of our healthcare to profit motivated private interests, like the surrender of prison management to private interests, like the surrender of regulation of sales of securities, creation of credit, expansion of monetary supply to private interests has led to a corporatocracy that threatens to consume the last dollar of every “average” American leaving them not only with no disposable income at the end of the month, but rather in debt up to their ears.
  10. Meanwhile the countries with “high” tax rates (which can simply be translated as honest transparency, as opposed to hiding the taxes in your utility bills, and covering up the private power of taxation given to corporate America) have satisfied, happy, free, contented populations who get along just fine and their citizens are not in debt and who are able to save up money and pay for things in cash.

American citizens have the exclusive right to vote in what should be a free society, but instead they are confronted with a corporate-government set of rules where the opportunities and choices are closing in on the the average guy or girl who is just trying to get through the month. 

Our incomes are being used to fund corporate losses, corporate abandonment of our own population for employment and training, military adventures that are funded by borrowing (which is future taxation), and huge windfall profits of oil companies, agricultural companies receiving “subsidies”, pharmaceutical companies, and insurance companies.

The answer to our problems is not a single issue proposed solution, but a sea change in our premise: either we are a nation of people and laws to protect, defend and promote the health, safety and welfare of our citizens or we are a vehicle for corporate interests that will do anything to maintain their positions of power and profit. Getting rid of the influence of lobbyists and the effect of campaign contributions on candidates is not some lofty ambition or ideal; it is an imperative that is the ONLY answer to having food on the table, gas in the tank and a roof over our heads. 

Mortgage Meltdown: Time for Groundhog Day reversal

Paulson’s announcement is really only a re-hash of prior “hope” and other plans. The important thing is that government and private sector are talking and starting to work together. We can only hope that they finally get down to business before the 30 day voluntary freeze is over and that the project, which is based upon voluntary compliance, will do SOMETHING.

The bottom line: Unless we have a groundhog day reversal of this entire scheme, homeless people will be streaming down every steet, local governments will own uninhabitable homes that were once in posh neighborhoods, and the entire U.S. economy, already reeling from the declining dollar, the exporting of everything we have including our own toll roads, will be turned on its head.

This Project Lifeline signals the public that the numbers have been crunched and that the upcoming news will continue to get progressively worse. Neither this administration, nor the lenders, would have any interest in helping borrowers unless they recognized that they had gone too far with the credit bubble; so far, in fact that they severely damaged almost every prospect for the country and its citizens. These ARE the people to undo the damage because we have no time to build a separate regulatory infrastructure to save our economy. But we must recognize that these are also the same people who came up with the fraudulent scheme of overvaluation, kickbacks and assignment of risk to unsuspecting investors based upon false AAA ratings and false insurance.

That they are all capable of just about anything to put money in their own pockets at the expense of the future of the country is now well-established. What has happenned is that they are now realizing bit by bit, that their own existence (and freedom if prosecutions ensue) has also been undermined by this boiler-room scheme. Although none of the news reports put it all together in one story, it seems that all appropriate agencies of the Federal government are on board, albeit without a clue as to what to do. And the major private  players are at least giving the appearance of being on board.

Yet the likely remedy will come not from Federal intervention but from State intervention because the laws of property are governed almost exclusively by State law. This is why the state attorney generals have standing to sue the lenders for their grossly inappropriate behavior. The tricky part is that the right to foreclosure, if stalled, raises consitutional issues of due process — which brings in the Federal goernment again, whose ineptness at dealing with reality is well-documented.

The fact is, no lender wants to exchange its loan portfolio for a portfolio of vacant, vandalized homes needing monthly maintenance and requiring the payment of taxes. That is exactly what will happen if this scheme is not put in reverse. Someone, somewhere will be in the reverse position of paying costs and taxes instead of receiving a return on their money. The BIG problem that the derivative schemers have created is that when they shifted the risk to unsuspecting investors, they created a class of potential involuntary homeowners who are more likely to walk away from their “investment” than pay for maintenance, taxes and upkeep.

On a smaller scale this would present a buying opportunity bringing glee to the eyes of every real estate investor. But on THIS scale it presents risks and probabilities of repeated foreclosures on the same property. Begin with the borrower walking away from an upside investment that isn’t worth his money or time in maintaining. Then start with the loan servicer, the lender and the investor. That involves foreclosures and assignments. Then they walk away from a vandalized house stripped of fixtures, appliances and copper wiring. So the local taxing authorities foreclose on the property again. The lender-derivative investor group is glad to be rid of the problem even if it means writing off huge losses.

This leaves a financially strapped city or county holding millions of homes that are in various states of decay in neighborhoods that have turned into ghost towns — by people who WERE paying their mortgage but stopped and walked away because home values and the quality of the neighborhood have deteriorated to conditions that are unsafe and unwanted.

Many billions of dollars in lost tax revenues will result in downgrading the investment quality of tax-free bonds, which is why Buffet is trying to shore up that piece with his $800 billion reinsurance plan. Buffet can’t do this alone. Nobody has enough MONEY to cure this. Reinsuring the bonds will only result in another round of foreclosures and assignments because the revenue streams to support the bonds are not there.

This is why we need a ground-hog day plan which puts everything in reverse, due process or not, and lands people, agencies, private sector, investors etc in as close a position as possible to where they were before this scheme was launched. In the end, there is no doubt that the taxpayers are going to take it on the chin here. We can only hope that our taxpayers will have any money to pay their taxes.

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