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This is a Great Video Discussing the Fraudclosure

Dylan Ratigan interviews congress woman who seems to have an excellent understanding of the current crisis.  Marcy Kaptur representative from Ohio is taking a very strong stance against the big banks, Mers etc.  It is a positive sign congress is starting to see the reality of what has happened.  We can only hope that the American people will take the time to see what the really caused the crisis instead of trying to blame it on home owners. 

This video sums things up very well as does the book Econned by Yves Smith.

You can get copy of Econned here. 

Read More Here
and here


Felix Salmon in Reuter's blog writes about his doubts banks will fix themselves

Felix Salmon story from November 23, 2010 on how to fix foreclosuregate

Michael Barr’s departure is a serious loss for Treasury. I spoke to him on Friday; he was in Ann Arbor, where he’s returning to law school, and he wanted to take serious exception to my three monkeys post, where I accused Treasury of willfully ignoring the banks’ culpability in the mortgage crisis.

Barr rattled off a laundry list of reviews which are being done by various arms of the government, including what he described as an “11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks”. That information is finding its way to the state attorneys general, in their review. Meanwhile, said Barr, an alphabet soup of regulators (OTS, OCC, FDIC) is looking at various financial services companies (MERS, along with lots of different servicers, trustees, and banks); HUD is holding everybody to FHA and HAMP guidelines; and the FTC is looking at non-bank lenders. And keeping everything coordinated is the new Financial Fraud Enforcement Task Force which has been put together under the leadership of Justice’s Tom Perrelli.

“Why are we investing these resources and including Tom Perelli in the discussions?” asked Barr. “We’re holding the banks accountable to fix it.” I asked him whether he thought that was even possible.

“Their conduct suggests they can’t,” he said, adding that “they can be held accountable for not following the law. HUD can assess significant fines on them.”

Barr was clear about what he expected to happen in 2011. Specifically, he said, “if there are legal violations found, banks are responsible for fixing them and for addressing the problems.” And more generally, the government’s actions “will increase the chance that when foreclosures happen, they will happen according to established law.”

The timetable for all this? The reviews should be largely completed this year, with the full scope of the problems being apparent by the end of January. By the end of the first quarter, the banks should be in serious discussions about how they’re going to fix what’s broken.
Stress-testing the Banking System: Methodologies and Applications
And then it gets necessarily hazier: “Institutions are resistant to change and have difficulty implementing,” said Barr, but “you’ll see flow improvement over the course of the next year.”

Could I hold Treasury to that? Sort of: “You should hold us to whether things get better or worse. If a year from now nothing has changed, that would be a reasonable criticism.”

I have two fundamental reasons to be skeptical of this approach. Firstly, it won’t work: the banks and the servicers simply aren’t set up to magically make their processes perfect, and the threat of lawsuits isn’t going to change that. And secondly, insofar as the problems are systemic and threaten the solvency of the banks, Treasury is going to blink first. As we just saw in Ireland, today’s governments are constitutionally incapable of forcing real pain onto banks.

But at the same time, there’s zero chance of getting any kind of resolution to the mortgage-mess problems if the government doesn’t have a firm grasp of exactly what they are. Barr told me that they’re doing file reviews which take between five and eight hours to go through a single loan file: this is hard, detailed work, and at the end of it all there will be a real understanding of what needs to be done—something necessary, if not sufficient, to finally resolve this mess.

Barr is a very honorable man, and a very hard worker, and I give him a lot of credit for the (mostly) excellent CDCI project. (I have quibbles about it, but can’t go into detail about what they are because most of what I know I learned as a board member of LESPFCU.) I think that Treasury is entering into this whole mortgage investigation in good faith, and will do what they can to push the banks to fix what’s fixable.

But I’m also pessimistic about their prospects: I suspect that only a radical restructuring of the entire securitization architecture—and especially the broken relationships between investors and trustees, and between trustees and servicers—has any chance of actually working. That is clearly not going to happen. But if you believe in the power of legal action to effect change, then maybe Treasury’s approach might work.

Read more on issues of bank fix or bank scam here
and here at financial reality revisited

Banks selling assets as complete denial starts to pass.

Banks finally purging toxic assets after 3 years of hold and hope. as noted in this NY Times Deal Book article. 

It defies logic that the the federal government let the banks kick back and wait for the crisis to pass.  The interests of the banks and other Wall Street players were put well ahead of the interest homeowners.

The bait and switch move played with the tarp was classic political negligence that is often perpetrated on the American Tax Payer in the "best interest of the country."  Imagine if the government had forced the banks to follow through on the sale of the toxic assets on the big bank balance sheets.  We may have had a far better outcome than the 3 years and counting recession. 

Yes, that was the plan put forth by the government before TARP, but After TARP the plan was changed to just let the banks sit on the money in the hopes that they could recover all of the profits they would be forfeiting with the write downs. 

The Insider Trading and Securities Fraud Enforcement Act of 1988 and expansion of control person liability

The TBTF (too big to fail ) banks really pulled it of well.  But they likely  knew if the democrats took over they would not dare question the use of tarp funds and by the time the depths of the problems with the securitization trusts surfaced,  it would be too late to drag things out any further. Again too late to drag things out " in the best interest of the country."

Not only did the regulators not do their job of over site prior to the financial crisis, they are not doing anything about the nefarious actions of the banks and brokers that is still going on as banks stall for more time to try and remedy a situation that can only be fixed by illegal activity.
more on banks holding of toxic assets here


Foreclosure Detectives battle with the banks

 the full story from the Walll Street Journal

URBANDALE, Iowa—In two squat, suburban office-park buildings here, Richard Barrent is digging through loan files that could help decide who pays for the mortgage-paperwork debacle.

The former Wells Fargo & Co. quality-assurance manager's two-year-old company is part of a cottage industry of loan detectives obsessed with detecting fraud, misrepresentations and violations of underwriting guidelines. Such discoveries can be used as ammunition to force banks and other lenders to buy back loans from bond insurers, holders of mortgage-backed securities and other customers of forensic loan-review firms.

"There is a growing interest across the board" for such reviews, says Charles Cacici, managing member of Risk Management Group, a Brooklyn, N.Y., company that also scours mortgage files for problems. Competitors include Digital Risk, Clayton Holdings and Allonhill.

NUMBERS GAME: Barrent Group Chairman Richard Levitt, at left, with President Richard Barrent at Barrent Group in Iowa on Monday.

The tedious business, usually involving hundreds of pages per loan, has taken on new urgency since the foreclosure problems erupted in mid-September. Losses to U.S. banks from loan repurchases could reach $40 billion to $90 billion, according to J.P. Morgan Securities. Previous estimates were much higher but have declined partly because it is so difficult to compel lenders to take back loans.

Loan files sometimes can be hard to get. And mortgage companies often dig in their heels when confronted with a demand to repurchase a loan. That can result in negotiations or lawsuits that can stretch for months or more—or a stalemate.

"It is a day-to-day, hand-to-hand combat," Bank of America Chief Executive Brian Moynihan said recently when describing the Charlotte, N.C., bank's resistance to loan-repurchase requests.

In the worst-case scenario for investors, months of effort can result in nothing. Those odds are likely to discourage some investors from pursuing loan repurchases, which could reduce overall losses for banks. The payoff for investors and bond insurers when a bank eats a shaky loan: The lender typically must pay the difference between the original loan amount and what was recovered in foreclosure, or unpaid principal plus accrued interest if the loan is outstanding.

Losses on troubled loans can sometimes hit 80% of the original loan amount, says Mr. Barrent, the 49-year-old president and chief operating officer of Barrent Group. He won't identify any of the company's clients, though he says the firm is talking with bond investors about how to recoup losses from sloppy mortgage servicing.

Among the companies trying to make banks eat shaky loans are Fannie Mae and Freddie Mac. Last month, a group of large investors objected to the handling of 115 bond deals issued by units of Countrywide Financial, now part of Bank of America.

In one typical example, Gayle Hanson, a senior loan auditor for the Barrent Group, sifted through 331 pages of loan documents as part of her autopsy of $165,000 home-equity line of credit on a Colorado Springs, Colo., home. The file included multiple copies of the mortgage and notes detailing efforts to contact the delinquent homeowner.

She also scours credit reports, property records, appraisals, telephone listings, photographs of the house for signs that it was an investment rather than a primary residence, and any indication that the borrower owned property not disclosed on the loan application or that the appraisal was inflated.

Ms. Hanson found that the Colorado Springs borrower had at least three undisclosed mortgages totaling $520,000 in addition to nine investment properties listed on the loan application.

The files contained little information to support the borrower's claim that he earned $13,500 a month, as well as $5,700 a month in income from rental properties. "The underwriter didn't do due diligence on this," she said. Barrent wouldn't identify the borrower or lender.

Barrent works with clients to select mortgages with a high probability of problems. Misrepresenting income is the most common defect in loan files reviewed by the company's 38 employees. That isn't surprising given that many loans it reviews didn't require borrowers to document their earnings.

One borrower whose loan was scrutinized claimed to be a shoe salesman earning $35,000 a month. A regional sales manager who cited earnings of $250,000 a year actually made $47,000 as a clerk for the same company.

About 65% of Barrent's reviews result in a loan-repurchase request. Banks have bought back about 1,100 loans, or about half, with clients of the loan-review firm recovering nearly $142 million in losses, according to the company. The figures reflect reviews for bond insurers and exclude loans for which negotiations are continuing.

Closely held Barrent gets paid an undisclosed fee for each loan it inspects or in some cases, a portion of the recovery. "You are going to have to pound the table and go the distance," Mr. Barrent says.

Investors in mortgage-backed securities face tougher obstacles than Fannie Mae, Freddie Mac or bond insurers, says Glenn Schorr, an analyst at Nomura Securities International Inc. Bond investors typically must prove that an underwriting breach, not tumbling home prices or rising unemployment, "materially and adversely" affected a loan's value, he says.

In addition, contracts on bond deals often require investors to win support from 25% of the voting rights in the trust before they can petition for access to loan files. Even then, "the servicer will, in many cases, refuse," says Talcott Franklin, a lawyer in Dallas who has been organizing bond investors to pursue such claims and represents investors with at least a 25% stake in more than 3,000 bond deals.

Some investors are using outside data to build their case. David Grais, a New York lawyer representing two Federal Home Loan banks in lawsuits against securities firms that sold mortgage-backed securities, recently hired CoreLogic, a Santa Ana, Calif., company, to supply public records data on 750,000 loans in more than 250 bond deals.

Mr. Grais used the information to look for signs of inflated appraisals, undisclosed liens and investment properties or second homes that had been listed as primary residences. Nearly half the loans had at least one material flaw, he says, adding that he is optimistic that the results will convince a judge to give him full access to the loan files.

"We have lined up a battalion of loan file reviewers," he says.

Write to Ruth Simon at


Bank Testimony Does not Add up

Banks testimony does just not add up, full story from NY TIMES article. 

The large banks say they are doing everything they can to avoid foreclosure, but that is not the reality on the ground,” said Patrick Madigan, an assistant attorney general in Iowa who is a lead figure in the investigation. “The question is, Why?”

Mr. Madigan mentioned some theories, saying any or all could be true: “Is it the fact that the current servicing system was not designed to do large numbers of loan modifications, is it being understaffed, incompetence or the servicers having the wrong financial incentives?”

The major lenders are scheduled to appear on Capitol Hill on Thursday for the second hearing this week on their foreclosure procedures. The pressure to reach a settlement with the attorneys general will likely intensify after the hearing, which will be led by Representative Maxine Waters, a Democrat from California and outspoken critic of the mortgage lending industry.
But quick fixes are not likely, the attorneys general said. Richard Cordray, the Ohio attorney general who lost his bid for re-election this month, was hesitant to predict a significant outcome.

“Something will come of this, no question,” Mr. Cordray said of the inquiry. “The question is whether it will be a meaningful resolution that will make a real difference or a missed opportunity. It’s not entirely clear at this point.”
Some experts were willing to go even further, saying the lenders were impervious to change. For 18 months, the Obama administration has promoted modifications that would keep families in their homes over foreclosures that would kick them out. The programs have had some success but ultimately have done little to stem the tide.
“The banks’ act was to put their tail between their legs, act contrite before Congress and change nothing,” said Adam Levitin, an associate profesor of law at Georgetown University who testified before Congress on Tuesday and will testify again on Thursday.

More on the PR effort from the lenders here in The banks continue to play victim in crisis

The banks hope to buy off the attorneys general with money, perhaps to establish a compensation fund for victims, Mr. Levitin said. That, he said, would prevent attorneys general from “digging deeper and uncovering more rot in the mortgage system. My fear is that the banks’ calculus is correct.”

There were fresh reports on Wednesday that the foreclosure situation was deteriorating. Another 35,000 households entered foreclosure in October, the data company Lender Processing Service said, despite freezes instituted by lenders as they reviewed their practices. About 4.3 million households are either in serious default or in foreclosure.

The housing market also showed fresh signs of trouble. CoreLogic, a data company, said Wednesday that home prices fell 2.8 percent in the last year. Earlier this week, another information company, DataQuick, said sales in the Southern California market had dropped 24 percent in October from last year.

“We agree with the attorneys general that a housing market recovery is vital to restoring economic growth, and the sooner we resolve the outstanding issues, the better,” said Lawrence Di Rita, a Bank of America spokesman.

For the banks, the immediate cost of halting foreclosure is not significant. Brian Moynihan, the chief executive of Bank of America, said it totaled $10 million to $20 million a month. Bank of America has frozen foreclosures in 27 states.

A far greater threat to the broader financial system is the possibility that investors will force financial institutions to buy back hundreds of billions of dollars in soured mortgages, according to a Congressional Research Service report prepared for Thursday’s hearing and obtained by The New York Times.

Loan buybacks could shift $425 billion in losses on mortgage-backed securities from the investors that owned them to the banks that helped originate or assemble the securities, according to the report, far more than most estimates floated on Wall Street.“Loan buybacks have the potential to cause the banking system to become undercapitalized once again or to cause individual large banks to fail,” the report says, “even if that outcome is unlikely.”

While bank officials agree that a settlement with the attorneys general is not in the making anytime soon, they remain eager to put the controversy behind them. Bank of America’s reputation, in particular, was hammered last month as the uproar grew over claims that the industry had pursued foreclosures in cases where documents were lost, missing or barely reviewed before they were signed by bank officials, a practice known as robo-signing.

What is more, as the nation’s largest mortgage servicer — it handles roughly 14 million home loans, or one in five American mortgages — it has more to lose as the investigation drags on. The majority of its troubled portfolio was picked up in 2008 when it bought Countrywide, whose aggressive subprime lending practices made it a symbol of industry excess.

“What makes it a little more pressing for Bank of America is their level of exposure,” said Guy Cecala, publisher of Inside Mortgage Finance. “Whatever the issue is, Bank of America seems to have a target on its back from people looking to be compensated for losses.”

As the beneficiary of two government bailouts, both repaid, it has been eager to maintain good relations with regulators.

Representatives from Bank of America and the other main players in the mortgage servicing industry — Ally Financial, JPMorgan Chase, Wells Fargo and Citigroup — will testify at Thursday’s hearing. A top mortgage executive at Citi plans to testify that the company identified 14,000 foreclosure cases where errors may have been made, including 4,000 where a notary may have been absent when they were signed. The bank, which until now has defended its processes, still insists that in each case the original decision to foreclose was correct and that the paperwork will be refiled.

Mr. Levitin, the Georgetown professor, will argue in Thursday’s testimony that the business model at servicing giants like Bank of America and Wells Fargo “encourages them to cut cut costs wherever possible, even if this involves cutting corners on legal requirements, and to lard on junk fees and in-sourced expenses at inflated prices.” That results in foreclosure, rather than modification, being a better bet for servicers.

In removing such incentives, the attorneys general have the task of encouraging a new system that changes behavior. “We are trying to create a paradigm shift in the way foreclosures are handled,” said Mr. Madigan, the assistant Iowa attorney general.


More Financial Reality.: Financial Stability Oversite Committee

More Financial Reality.: Financial Stability Oversite Committee

Financial Stability Oversite Committee

Members of the Financial Stability Oversight Committee

c/o Secretary Geithner, Chairman of the FSOC

1500 Pennsylvania Avenue NW

Washington DC, 20220

In light of the recent report from the Congressional Oversight Panel regarding mortgage irregularities, we are writing to support the panel’s call for a new round of stress tests to examine stability issues arising from residential mortgages held in securitized pools. Stability issues that have not been included in previous stress tests include liabilities for breaches of representations and warranties in Pooling and Servicing Agreements, liabilities arising from systemic mortgage documentation irregularities, and conflict of interests for servicers affiliated with firms that hold significant portfolios of second liens. We urge the council to recommend that its members conduct specific, thorough reviews of the potential effects of these issues on the risk profiles of the institutions they regulate and also that the Federal Reserve incorporate these potential liabilities into the new round of stress tests it announced earlier this week. We urge that the Financial Stability Oversight Council consider, in light of those stress tests, requiring that some financial companies divest affiliates involved in servicing securitized mortgages.

First, we urge that the members of the Council examine a representative sample of collateral loan files of each major servicer to determine if the files contain all the documents required by contract or by law, including the note; mortgage, deed of trust or equivalent document; and all documents evidencing or constituting the necessary assignment, delivery and recording of those documents. The Council should determine if the documents satisfy contractual representations and warranties in the pooling and servicing agreement or other governing instrument for the mortgages in question, and if not, any potential liability that may result. The collateral loan files examined should be selected at random, not by the servicers.

Questions about the documentation of securitized mortgages have received much recent attention. The financial institutions involved in securitization, including sponsors, trustees and servicers, have said publicly that any problems are isolated, technical in nature and easily cured. Others contend that the problems are pervasive, incapable of cure, and may ultimately require financial institutions involved in the securitization of residential mortgages to repurchase at face value hundreds of billions of dollars of mortgages, many of which are now non-performing. Many of the financial companies with potential liability to repurchase those mortgages are on any list of systemically significant firms.

More to the story here.

Second, we urge the Council to examine the servicing of first mortgages by servicers that hold second liens or are affiliated with firms that hold second liens. The largest servicers hold almost half a trillion dollars in second liens, which are valued for accounting purposes at approximately 85 percent of face value. Those servicers, also systemically significant firms, assert that the second liens are performing, as are the first mortgages on the same property, and thus the second liens are accurately valued. The servicers contend that any interest the servicers may hold in second liens has not affected their servicing of securitized first mortgages. Others contend that there is an indefensible conflict of interest for servicers of securitized first mortgages to hold second liens on the same property, that servicers have acted contrary to the interest of the beneficial owners of first mortgages to avoid accounting losses on second liens, and that servicers face significant unrealized losses on those second liens.

An important purpose of the Dodd-Frank Act is to identify risks to the financial system as early as possible, so that regulators can take corrective action or minimize the disruption to the financial system that results from the insolvency of systemically significant financial companies. It is also a purpose of the Act to make risk to our nation’s financial system transparent in order to restore the confidence of the American people in the financial system and in their government. It would serve those purposes to examine these issues and make the result of that examination public.

Finally, we urge that the Council consider use the authority under the Dodd-Frank Act to require that financial companies divest affiliates or other holdings involved in servicing securitized mortgages. There is no apparent advantage in having financial companies that securitized mortgages also act as trustees or servicers, and there is an obvious conflict of interest. The uncertainty about the extent of the risk to our nation’s financial stability posed by the mortgage irregularities is largely the result of the control of critical information by financial companies at risk of insolvency from potential legal liability to mortgage investors and others. The control of critical information by financial companies with a possible motive to conceal systemic risks is incompatible with the intent of the Dodd-Frank Act, and is a grave threat to our nation’s financial stability.

Thank you for your attention to this matter.

Andre Carson (IN)

Stephen Lynch (MA)

Joe Baca (CA)

Jackie Speier (CA)

Danny K. Davis (IL)

Laura Richardson (CA)

Barney Frank (MA)

John Conyers (MI)

Luis Gutierrez (IL)

Maxine Waters (CA)


Minyanville Article Warren Buffet's Humbug

If Warren Buffett wants to tarnish his golden years emitting the gushing drivel that appears in today’s New York Times, he has undoubtedly earned the privilege. But even ex cathedra pronouncements by the Oracle of Omaha are not exempt from the test of factual accuracy. Specifically, his claim that “many of our largest industrial companies, dependent upon commercial paper financing that had disappeared, were weeks away from exhausting their cash resources” is unadulterated urban legend. Nothing remotely close to this ever happened.

The fact is, there was about $2 trillion in commercial paper outstanding on the eve of the Lehman failure. And it's true that funding of this short-term paper was highly dependent upon money market funds that suffered multi-hundred billion outflows after First Reserve broke the buck owing to its holdings of toxic Lehman paper. So it's accurate to say that the commercial paper market had seized up and that massive amounts of maturing paper had no ability to roll.

But those specific facts about the condition of the CP market do not remotely prove that the nation’s great industrial corporations were on the edge of an economic black hole or that Main Street would have experienced crippling waves of defaulted payrolls for lack of cash. Indeed, even a cursory review of the composition of the $2 trillion CP market as of September 2008 shows that the “blowup” was actually about losses on reckless bets by a few thousand money managers, not the availability of ready cash to millions of Main Street businesses.

In the first instance, well less than $400 billion of the total CP outstanding consisted of industrial corporation paper -- that is, funding of the kind that might have been ordinarily used to cover payrolls and similar operating expenses. But let some enterprising graduate student investigate the limited universe of investment grade industrial companies then accessing the CP market. How many of these issuers lacked unused back-up revolving credit lines at the banks -- for which they had been paying “standby” fees year in and year out for just such a contingency as the Lehman event seizure in the CP market? The answer is virtually none: The great industrial companies to which Buffett refers used CP because it was cheaper (even with 15 bps of standby revolver fees), not because they wished to put their enterprise in harms way every 45 days. Moreover, there is not a shred of evidence that any bank even threatened to default on contractual obligation to fund these back-up lines.

The next crucial fact is that the entire balance of commercial paper then outstanding -- some $1.6 trillion -- had nothing whatsoever to do with funding business

see full article here
see related stories here


Stoller: A Debtcropper Society

original link to story here at Naked Capitalism

Stoller: A Debtcropper Society

By Matt Stoller, a blogger-turned Congressional staffer. He was a policy advisor to Rep. Alan Grayson on financial policy issues. Cross posted from New Deal 2.0.

A lot of people forget that having debt you can’t pay back really sucks. Debt is not just a credit instrument, it is an instrument of political and economic control.

It’s actually baked into our culture. The phrase ‘the man’, as in ‘fight the man’, referred originally to creditors. ‘The man’ in the 19th century stood for ‘furnishing man’, the merchant that sold 19th century sharecroppers and Southern farmers their supplies for the year, usually on credit. Farmers, often illiterate and certainly unable to understand the arrangements into which they were entering, were charged interest rates of 80-100 percent a year, with a lien places on their crops. When approaching a furnishing agent, who could grant them credit for seeds, equipment, even food itself, a farmer would meekly look down nervously as his debts were marked down in a notebook. At the end of a year, due to deflation and usury, farmers usually owed more than they started the year owing. Their land was often forfeit, and eventually most of them became tenant farmers.

They were in hock to the man, and eventually became slaves to him. This structure, of sharecropping and usury, held together by political violence, continued into the 1960s in some areas of the South. As late as the 1960s, Kennedy would see rural poverty in Arkansas and pronounce it ’shocking’. These were the fruits of usury, a society built on unsustainable debt peonage.

Today, we are in the midst of creating a second sharecropper society. I first heard the term “slaves to the bank” from a constituent fighting a fraudulent foreclosure. The details aren’t so important — this couple had been illegally placed in a predatory loan — but at one point, the wife explained that she and her husband were so scared they would have “given their first born to the bank to keep their home”. That was fear speaking, total unadulterated panic. And as we watch debt-holders use the ornaments of fear, such a loan sharking company that set up fake courts to convince debtors they were losing cases, we should recognize that what the creditor class wants is what they’ve always wanted: total dominance of our culture.

Today, the debts do not involve liens against crops. People in modern America carry student loans, credit card debt, and mortgages. All of these are hard to pay back, often bringing with them impenetrable contracts and illegal fees. Credit card debt is difficult to discharge in bankruptcy and a default on a home loan can leave you homeless. A student loan debt is literally a claim against a life — you cannot discharge it in bankruptcy, and if you die, your parents are obligated to pay it. If the banks have their way, mortgages and deficiency judgments will follow you around forever, as they do in Spain.

Young people and what only cynics might call ‘homeowners’ have no choice but to jump on the treadmill of debt, as debtcroppers. The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens. Debtcroppers don’t start companies and innovate, they don’t take chances, and they don’t claim their political rights. Think about this when you hear the calls from ex-Morgan Stanley banker and current World Bank President Robert Zoellick and his nebulous mutterings pining for the gold standard. Or when you hear Warren Buffett partner Charlie Munger talk about how the bailouts of the wealthy were patriotic, but we mustn’t bail out homeowners for fear of ‘moral hazard’. Or when you hear Pete Peterson Foundation President and former Comptroller General David Walker yearn nostalgically for debtor’s prisons.

Unclogging our constipated economy is not a complex problem — we must simply wipe out the bad debt that cannot be paid back. The complexity of the problem lies in the politics. Debtcroppers have no power, except to stop paying their debts. The constituents I worked with on a fraudulent foreclosure eventually did just that. She and her husband, unshackled by panic, began rebuilding their lives, throwing away their indentured servitude to the bank that abused them. They found their dignity, and used the court system to claim their rights as citizens. They fought the man, successfully, and wiped out their debt. And that is a very scary threat to the creditor class, perhaps the only thing they are really scared of.

The Plight of the Share-Cropper. Includes Report of Survey Made By the Memphis Chapter L.I.D. and the Tyronza Socialisty Party Under the Direction of William R. Amberson


Next sub crisis in housing could be banks refusing to disperse escrow accounts

The next possible shoe to drop in the housing crisis is going to be with home insurers who are paid through escrow.  (taxes being paid in escrow may be another thorn in the side of the banks and homeowners). 

Rumors are stirring that the banks are neglecting to pay out to insurers who are due to be paid from their escrow accounts.  This may be a red flag regarding cash flow or it may be just another way for the banks to thumb their nose at contract law.

For all the propaganda you are hearing and seeing in the media, the financial reality of the banks, is that they are in the midst of a massive cover up.  This should be seen as nothing new, but the fact that it now seems the government is complicit in the cover up will potentially put the American Economy into a major tailspin. 

The big banks have succeeded in killing the housing industry through their use of creative financing (IE CREDIT DEFAULT SWAPS)  and now are in process of denying their insolvency behind the cloud of MERS, Foreclosuregate, Fraud, and the "deadbeat homeowner."(of course this terminology-deadbeat homeowner- is latched onto easily by the self righteous, narrow minded, or those with any relationship to a too big to fail banks or formerly known as Wall Street Investment Houses. 

The banks are using their own errors and acts of fraud to their benefit.  They (the banks) now have a battle that has nothing to do with the question of insolvency, which of course is the reality now that billions of dollars in bank collateral has dropped well below the value of the encumbering mortgage.  (What we think is an encumbering mortgage anyway) read more here. 
The problems are snow balling for the banks and the home owners.  The incentive for banks to pay insurance on underwater or defaulted homes is dropping.  This is evidenced by the questionable disbursing of payments out of the escrow accounts. 

HP 12c Financial Calculator (12C#ABA)HP 12c Financial Calculator (12C#ABA)


The Moral Hazard argument regarding mortgage foreclosure

The moral hazard argument has been the standard line from the banks and the government regarding mortgage relief and principal write downs for home owners.  The theory is that there would be too much out cry from the general public if certain people received more help with their mortgage.  There are people who would be upset about this of course.  However, it appears that we all may suffer longer if something isn't done to eliminate the rapid increase in  underwater mortgages.

Secured or unsecured that is the question

secured or unsecured is the new question that could kill the banks


Securitization flow chart

Read over this securitization flow chart  to get a better understanding of what happens to mortgages after they are closed. 


Credit Default Swaps Defined

Credit Default Swaps are one of the creative finance products that led to the demise of the economy.  These CDS are responsible for losses to the American home owner that was in the Billions.

[Credit Default Swaps as Defined on
How They Work

A CDS contract involves the transfer of the credit risk of municipal bonds, emerging market bonds, mortgage-backed securities, or corporate debt between two parties. It is similar to insurance because it provides the buyer of the contract, who often owns the underlying credit, with protection against default, a credit rating downgrade, or another negative "credit event."

 The seller of the contract assumes the credit risk that the buyer does not wish to shoulder in exchange for a periodic protection fee similar to an insurance premium, and is obligated to pay only if a negative credit event occurs.

It is important to note that the CDS contract is not actually tied to a bond, but instead references it. For this reason, the bond involved in the transaction is called the "reference obligation." A contract can reference a single credit, or multiple credits. (To learn more about bonds, see our tutorial Advanced Bond Concepts.)

Insert Mortgage Backed Securities in place of bond to relate this definition to the housing collapse.

As mentioned above, the buyer of a CDS will gain protection or earn a profit, depending on the purpose of the transaction, when the reference entity (the issuerhas a negative credit event. When such an event occurs, the party that sold the credit protection and who has assumed the credit risk may deliver either the current cash value of the referenced bonds or the actual bonds to the protection buyer, depending on the terms agreed upon at the onset of the contract. If there is no credit event, the seller of protection receives the periodic fee from the buyer, and profits if the reference entity's debt remains good through the life of the contract and no payoff takes place. However, the contract seller is taking the risk of big losses if a credit event occurs.  ]

So you can see that these could be seen as smart business if you are buying CDS to protect your interest.  What changed in 2005 was that CDS started to be sold to uninterested parties.  The seller was allowed to offer protection against a "credit event" even if they were not in a position to suffer a loss.
The protection sellers began collecting premiums from uninterested parties that would eventually be responsible for the collapse of their companies.  The most recognized company was AIG.  They were the seller of protection for MBS. 

Bear Trap, The Fall of Bear Stearns and the Panic of 2008

Several billion dollars worth of CDS was sold to Goldman Sachs by AIG.  When the MBS begin to fail AIG did not have the reserves to pay the claims.  The biggest beneficiary of the AIG bailout by the government was Goldman Sachs.  The money put up to by the government was primarily to pay the buyers of the Credit Default Swaps on the Mortgage Backed securities.  There were winners that made billions even if they stood to not loose a penny if the entire MBS market defaulted. 
Credit Default Swaps also made the sub prime mortgage market grow because as long as investors had the ability to buy protection on risky MBS, they was a demand for this sub prime product. 

Tax payer and Real Estate owner left holding losses

The US Tax payer was sold down the river by the banks and the government when they played the greatest shell game in history.  They created a system that would take the economy down and when it happened they came to the government for a bailout. Congress was sold a bill of goods.  Congress was eager to buy that bill for many reasons but mostly out of fear of losing votes in upcomming election.   Trillions of dollars given to the banks and insurers and the issues were not addressed.  The economy is still being held hostage.

and the government is likely to hand over billions more to the banks before this is over. 


MERS demystified by Christoper Peterson

This is the summary from a working paper written by Christopher Peterson.  You can find the paper in its entirety
here .


Christopher L. Peterson

"The name of MERS, a company that does not actually own any interests in land, increasingly inserts inert gaps in county recorder grantor-grantee indexes that disseminate the chain of title to millions of homes. This growing separation between actual ownership and legally recognized public notice is likely to significantly undermine the usefulness of real property recording systems over the long term. Moreover, courts have held traditionally held that a security agreement that fails to name a mortgagee is void. Because MERS is not really a mortgagee, financial institutions are, in effect, asking that courts treat lenders and their assigns as mortgagees even though their own security agreements do not. Even if courts reform void security agreements into equitable mortgages, the resulting litigation is likely to pose significant challenges for financial institutions seeking to foreclose, obtain deficiency judgments, and petition of relief from the bankruptcy law’s automatic stay. Furthermore, this inconsistent position taken by financial institutions in order to avoid paying modest fees to county recorders has the potential to be challenged. Many counties rely on fees from mortgage and deed of trust assignments to fund the vital services they provide to their communities. Courts that take offense at this use of tens of thousands of uncompensated “vice presidents” could equitably estopp financial institutions from denying liability for unpaid recording fees. Looking toward the future of American mortgage finance, counsel for financial institutions need advise their clients on the real and growing risks associated with using the MERS system. County recorders, state legislatures, and the judiciary each need to do their part to restore confidence, stability, and transparency in public land title records."

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"While the MERS system may reflect Janus in its two-faced land title theory, a demystified narrative of the company is actually more penetrably simple. Hubris was the essential theme in Greco-Roman mythic tragedies and was the vital sin of figures like Icarus, Narcissus, Andromeda, Niobe, Arachne, and Ulysses. Each found tragedy after their overweening pride showed disrespect to deity and the basic values those deities embodied. MERS and its members believed that they could rewrite property law without a democratic mandate. Although our myths have changed, many of our court houses and capital buildings continue to this day to bear resemblance to Greek and Roman temples as homage to the values of humility and respect for the rule of law. The unfolding drama of the MERS system will tell us much about whether those values endure."
More information regarding RMBS and servicing agreements here. 
This is a great paper by Peterson.  He digs down to the root of the Mortgage Electronic Registration System.  It is clear that the banks have been playing fast and loose with the law, completely disregarding chain of title law and precedent.  The issue now is whether the the government has the political will to hold the banks accountable.  Even though it is becoming more evident that Mers is a shell company put in place to avoid the payment of registration and title fees, it appears that congress is more interested in burying these violations.  The congress and many involved in the government have the misconception that quickly brushing this under the rug will lead to a economic recovery.  But the truth is that there are too many laws that have been broken and the trust of the public has been jeopardized.  People will not want to buy property if they can not get clear record of title.  The laws will have to be changed or ignored to get the banks out of this situation. 


Liar loans and options arms: they are not the issues deepening the recession

response to a comment at WSJ online
Those with adjustable rates and "liar loans" the worst of the worst have already been foreclosed. The resets were long time ago. Now people who have survived job loss or under employment are running out of reserves as prices continue to decline. Even if 40 % re default it leaves 60 % that stay off the market. If prices keep going down there will be more incentive to default, so letting everyone fall is going to prolong the crash. People who can pay will not stay in their home if it falls to 170% LTV. Most of the people who are being foreclosed on now are people who lost their jobs or lost most of their business. These are not liars, cheats or thieves. If I you are so worried about someone getting help, why don't you just go to the bank and renegotiate your loan. Now is the perfect time, if your house is underwater or if your rate is higher go to the bank, they don't want more defaults and if you are a great borrower and payer you could talk them in to a better rate for yourself.

People act like most people who have lost a job bought homes they couldn't afford, but they could afford it when they were working. if they were working in housing, construction, mortgages etc, they might be unemployed or making half of what they made at their last job when they qualified for their mortgage. If the market would not have been pillaged by the big players, people who needed to downsize could sell their home at a minimal loss or breaking even. The worst case would be needing a few thousand added on to their new loan for a lower cost home.
What do people expect anyone to do if they bought a house when they had a great job and were making great money? If they can't sell their home how do you expect them to pay for it if they took salary cuts or job cuts altogether. People can't possible believe that with unemployment so high and the economy obviously in a major recession, that everyone who bought a home could find a job with the same income quickly enough to not fall behind on their mortgage.
A little thought and common sense would go a long way before blanketing everyone who is falling behind as a liar or deadbeat. This recession didn't start yesterday.
Liar loans are not the problem.  Banking fraud is at the core of the recession. 

From Washington's Blog via Naked Capitalism
"Even Alan Greenspan is confirming what William Black, James Galbraith, Joseph Stiglitz, George Akerlof and many other economists and financial experts have been saying for a long time: the economy cannot recover if fraud is not prosecuted and if the big banks know that government will bail them out every time they get in trouble."

read the full story here:

You Need A Budget (YNAB) - Personal Finance Software

The biggest mistake was toying with housing in the first place. If anyone would have realized that it was housing that creates so many jobs, drives the economy and eases the burden on Social Security, they would have wise to keep everyone's hands off the golden goose.

Realtors and everyone else need to realize that our golden goose has been killed by "best and brightest" and their is no recovery in sight.

The trust in the banking system has been shattered. The banks will have to have a bailout again or have congress amend the laws that are being broken or the economy will be years to a true recovery.

The banks have sugar coated everything so they could stay alive. They spoon fed obama and love it. He is so afraid to cross the banks it isn't even funny. So don't count on the government putting those comitting fraud in check. Obama had no clue what is going on and the banks are ruling the country. Just as they have the past several years.

Our golden goose was shot by Wall street. It was still kicking though when Paulson let the banks suffocate it.

Washington Dc is the land of cowards and narcissists. Until we have a president with some stones to stand up to the banks, clean up the fraud running rampant in the banking system, housing will be a crap shoot, not a good investment.

Buying versus renting: Analyzing the alternatives (Creative financing skill development series)

Definitive Guide to Buying Your First Home


More Financial Reality.: congress is fleecing America

More Financial Reality.: congress is fleecing America

Banks failing fast, more closed Friday Nov 52010

Credit Default Swaps

for more on banks closures and mortgage fraud go here

and here The reality of finance and comment on the stories. 

Story from Huffington post

MARCY GORDON, Associated Press

WASHINGTON -- Regulators shut down four more banks Friday, bringing the 2010 total to 143, topping the 140 shuttered last year and the most in a year since the savings-and-loan crisis two decades ago.

The Federal Deposit Insurance Corp. took over K Bank, based in Randallstown, Maryland, with $538.3 million in assets, and Pierce Commercial Bank, based in Tacoma, Washington, with $221.1 million in assets. The FDIC also seized two California banks: Western Commercial Bank in Woodland Hills, with $98.6 million in assets, and First Vietnamese American Bank in Westminster, with assets of $48 million.

M&T Bank, based in Buffalo, N.Y., agreed to assume the deposits and $410.8 million of the assets of K Bank. First California Bank, based in Westlake Village, Calif., is acquiring the assets and deposits of Western Commercial Bank. Heritage Bank, based in Olympia, Wash., is taking the assets and deposits of Pierce Commercial Bank, while Los Angeles-based Grandpoint Bank is assuming the assets and deposits of First Vietnamese American Bank.

In addition, the FDIC and M&T Bank agreed to share losses on $289 million of K Bank's loans and other assets. The FDIC and First California Bank are sharing losses on $83.9 million of Western Commercial Bank's assets.

The failure of K Bank is expected to cost the deposit insurance fund $198.4 million. That of Western Commercial Bank is expected to cost $25.2 million; Pierce Commercial Bank, $21.3 million, and First Vietnamese American Bank, $9.6 million.

Like these four financial institutions, the banks that have failed this year are smaller, on average, than those that succumbed in 2009. That has meant the deposit insurance fund has suffered a milder loss, which has reached about $21 billion so far this year, compared with $36 billion in 2009.

Still, banks, especially small community institutions, are falling as soured loans have mounted and the economy has sputtered. The wave of closings points to the lingering power of the recession more than a year after its official end.

Florida, Georgia, Illinois and California have each seen bank failures in the double digits this year. Some communities in those states are still reeling from the financial meltdown that brought an avalanche of bad loans, especially for commercial real estate. The closures have compounded the problems in areas already straining under high unemployment, foreclosed homes and vacant malls and office buildings.

The pace of failures has accelerated as banks' losses on loans for commercial property and development have mounted. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.