Our situation summed up in one story

I am writing this post because I feel the need to show something to a Blogger friend. This post is for TOTWTYTR, who recently posted a comment to this blog:

Maybe I’m just drinking the conservative Kool Aid, but a close friend of mine who makes money from the financial industry, but not mortgages, explained it all to me. In addition I read up on it.

It started during the Carter Administration, but has gotten worse with each one since. Not only were banks and mortgage companies told that the government would make good on their losses, people like the excrable Barney Frank and Chris Dodd told the lending institutions they’d be labeled as racist if they didn’t lend money to minorities who almost certainly couldn’t pay it back.

As I said, there is plenty of blame to go around, but it’s the politicians, not the banks that deserve the most blame.

Now this post is not a flame, I am just hoping that I can convince those of you who feel the same way that you are being deceived. Here is my proof:

This home right here, a 576 square foot home with 2 bedrooms and one bath, was used as collateral for a $103,000 loan, according to the Wall Street Journal. Less than two years ago, Integrity Funding LLC gave a $103,000 mortgage to the owner, Marvene Halterman, an unemployed woman with a long list of creditors and, by her own account, a long history of drug and alcohol abuse. At one time, Ms. Halterman says, 23 people were living in the tiny house or various ramshackle outbuildings. Ms. Halterman hasn’t had a job for about 13 years, she says. She receives about $3,000 a month from welfare programs, food stamps and disability payments related to a back injury.

Now the Republican talking point states that the banks are not to blame, because they were FORCED to loan to minorities by the Democrats. Here is a picture of Ms. Halterman:

Oops. Not a minority. The motive here was not complying with some rule about minority lending, it was about money. The lending company was owned by Barry Rybicki, 37, a former loan officer who started it in 2003. Of the boom years, he says: “If you had a pulse, you were getting a loan.”

When an Integrity telemarketer called Ms. Halterman in 2006, she was cash-strapped, owing $36,605 on a home-equity loan. The firm helped her get a $75,500 credit line from another lender.
Ms. Halterman used it to pay off her pickup, among other things. But soon she was struggling again.
In early 2007, she asked Integrity for help, Mr. Rybicki’s records show. This time, Integrity itself provided a $103,000, 30-year mortgage. It had an adjustable rate that started at 9.25% and was capped at 15.25%, according to loan documents.
It was one of 197 loans Integrity originated in 2007, totaling almost $47 million.

At closing, on Feb. 26, 2007, Integrity collected $6,153 in underwriting, broker, loan-origination, document, application, processing, funding and flood-certification fees, mortgage documents show. A few days later, Integrity transferred the loan to Wells Fargo, earning $3,090 more, Mr. Rybicki says.

Now picture this, Integrity made a $103,000 loan, and collected $9,243 in fees, and only loaned the money to her for a few days, selling the loan before the first payment was even due. That is exactly what I said was going on, in my series of posts on the lending crisis. The payments on this loan were $881 a month, for a woman who only had an income of $3,000 a month in disability, welfare, and food stamp payments and had not held a job in over 13 years.

The home was valued at $132,000 by the appraiser, even though there is no record of similar homes in the area selling for that price. What makes this case so typical of all this subprime garbage are all the fees that were made by people who had no stake in it: The appraiser made money, then Integrity made money, and Wells Fargo made more when it was sold to HSBC, which also took a cut before dumping it on investors in mortgage backed securities that were inexplicably rated AAA by rating agencies that were somewhere between crooked and incompetent.

Actually, the piece perfectly illustrates the greedy, deceitful practices that has since brought our economy to its knees. It’s a great piece of reporting.

Sure, it is easy to lay all of this at the feet  of the borrower, but you would be dishonest in not pointing a few fingers at the lenders who should have known better, but were instead blinded by greed and profit. Three different lenders loaned her money on the “equity” of this nearly worthless home: The first for $36,000, then one for $75,500 to pay off the first, and then another for $103,000 to pay off the second. Each time, she got money at closing, and the lender passed the loan off on investors.

Read the linked article and realize one thing: Just because the Democrats are your enemy does not make the Republicans your friends, and just because the Democrats are lying does not mean that the Republicans are telling the truth.

Foreclosure Ripoff, Part IV (Strategic Default)

This is a continuation of Foreclosure Ripoff, Part I Foreclosure Ripoff, Part II, and Foreclosure Ripoff, Part III. You can read the rest of the story by following those links.

Strategic Default- Going John Galt on the Banks

What is a “strategic default” you ask? A strategic default is the decision by a borrower to stop making payments on a debt despite having the financial ability to make the payments. In other words, just walk away. Business does this all the time, and even uses the Bankruptcy Code to do it- See KMart. Some may call this unethical or immoral, but I am advocating making this decision as a financial one.

If you are sitting in a house that you owe $225,000 on, and that house is only worth $100,000 you WILL NEVER see a dime from the investment that you made in your home. Even if the housing market were to bounce back this year, and home prices increased at their historic rates of 5%, in 20 years your house would be worth  $265,000 and you will have paid $372,000 in interest and principal in that time.

Sometimes you have to recognize a bad investment and cut your losses. If you owned a stock that had lost 50% of its value, would you keep dumping money into it? Of course not. The more you pay into this investment, the more you lose.

In the above example, I hold on to that home, and lose $107,000. If I had walked away in year one, and bought another (identical) home in year 5 for $161,000, I can still sell that home for $265,000 in year 20, but I would have only paid $124,000 in payments during the 15 years I “owned” it. Even assuming that I rented a house for the 5 years that my credit was damaged, I still come out with a $75,000 profit, and I am more than $150,000 ahead of where I would have been had I stayed in the home.

It appears like the banks are seeing quite a bit of this.

Sure, a strategic default will hurt your credit. What will losing $200,000 by holding on to a losing investment (the house) do to you? In exchange, you get to take the money you were using to pay your mortgage and pay off other debts during the year or so it will take them to foreclose. Just be careful if you plan on using bankruptcy as an out: skipping the mortgage to pay the credit cards is a no-no. Talk to your attorney.

The IRS may want taxes on any money that is not collected, but until December of 2012, that is not the case for mortgages used to pay for a primary residence. Talk to your attorney or tax professional.

Unless you declare bankruptcy, your mortgager may come after you for the deficiency balance.

If you are going to do it, make your preparations and do it before the banks have their way in the Legislature and make Florida a non-judicial foreclosure state. They are trying to game the system by throwing large amounts of cash at Florida’s Lawmakers. Get out while you still can. I know this isn’t for everyone, but this is really worth a look.

I have put a great deal of thought into this. We still haven’t seen the bottom yet. Interest rates are climbing, and the adjustable rate notes will be adjusting. Phase two of the housing crash is coming.

Foreclosure Ripoff, Part III

This is a continuation of Foreclosure Ripoff, Part I and Foreclosure Ripoff, Part II. You can read the rest of the story by following those links.

So the mortgage brokers, aided by the Realtors, began the fraud when they concocted information about income/assets and value of property on the individual loan applications. I know my mortgage broker fudged a few things, and at that he was more honest than most. He had a special appraiser that he used, and he told me that it was to my benefit- a too high appraisal, and my property taxes would be too high, too low and I wouldn’t get the loan. Wouldn’t you know, the appraisal was EXACTLY the agreed upon sale price for the house.

As a result, the mortgage brokers made thousands on each sale, billions as an industry.

Then the banks made billions when they originated the loans and then sold them to Wall Street Brokers. The asking price was usually about 102.5% of the loan amount. That means that a $200,000 loan was sold for about $205,000- usually within a few weeks of being written.

Wall street then sold them as mortgage backed securities to various funds around the world. These REITs made billions.

Then investors like myself, with their retirement money tied up in mutual funds, 401K funds, and retirement accounts that were professionally managed and heavily invested in these REITs see the value of their investments nosedive. As a result, my employer is going to cut retirement in half in the near future, meaning that I will soon have to make a decision to retire and look for another job, or face the prospect of having a much reduced retirement package in my later years. (The current math shows that if I retire now, I will make the same in retirement as if I stay another 10 years,)

The big investors got bailed out with tax money from my future, and the future of my children and grandchildren. Where is my bailout? To make it worse, the very banks and institutions that caused all of this are being paid by the government to fix the very problem that they created.

Then when it comes time to foreclose, the banks have lost the paperwork, so they simply forge and create new paperwork, and take your home.

The double whammy here is that my 401K is worth about 40% of what it was in 2007, and the triple whammy is that my home is worth about 40% of what I owe on it.

Doing the math, it is impossible for me to retire EVER under those circumstances. I will have to work until the day I die. There is only one way out-

Continued yet again

Foreclosure Ripoff, Part II

This is part 2 of this post.

So what we have here is the banks are writing loans with little regard as to whether or not people can afford to actually pay the loan, securitizing and selling the paper to investors as quickly as possible, all with little accountability or oversight.

In the middle of all this, the Fed lowered the prime rate from 6.5% to 1.0% in the wake of the 9-11 attacks and the financial recession that followed.

This was a situation ripe for disaster. The banks were selling loans as quickly as they could in a feeding frenzy of subprime lending. Every major bank had a subprime lending department. This wasn’t just in mortgages and real property. This was in credit cards as well. As credit became easier to get, more people got credit. The financial boom that began in the mid-90s was a result. Housing prices skyrocketed- nationwide they increased by 124% in just 10 years. In some real estate markets, the rise was MUCH higher. The Fed had to raise rates to compensate. This cause the Adjustable Mortgage Rates to climb, and many of the people with ARMs that they could barely afford to pay at the lower rate began to default when the increasing rates and payments pushed them over the edge.

The house of cards and paper began to collapse in mid-2007. As home loans began defaulting, the insurance companies providing mortgage insurance were among the first to go. Insurance giant AIG fell in September of 2008. Fannie and Freddie Mac went during the same month. By this point, bankruptcy filings had doubled, foreclosures were increasing, and housing prices had fallen 20%. Interest rates began to climb as some banks began to struggle.

As an example, the Middle District of Florida saw about 15,000 bankruptcy filings in 2006. In 2007 that had risen to about 26,000 and in 2008, it rose to 42,500. In 2009, there were nearly 63,000 bankruptcy filings, all in one Federal district. 2010 isn’t shaping up to be any better. The first two months of the year have already seen 9,500 filings.

The government has responded to all of this by borrowing more money and dumping it into the economy. Over $4 trillion since 2006, and half of that has been in the last year. The banks made money by making loans that should not have been made. Then they were ‘bailed out’ by other banks who used funds supplied by our government, and those banks are being funded by more government dollars, and are making even more money by foreclosing on homes that they cannot even prove they own the paper on, and meanwhile the American Public is paying the tab- twice. Once in taxes, and again in losing their savings and their homes.

We as a nation are responding to a crisis that was caused by too much borrowing and spending by borrowing and spending even more. We are essentially paying our Visa with our Mastercard. I fear that we have not seen the end of this financial crisis.

To be continued…

The foreclosure ripoff

Last month, I wrote a post about the foreclosure problem here in Florida and across the nation. When the financial problem began, I was a part of the crowd that was drinking the Conservative Kool-Aid and blaming government regulation and interference, with a heaping helping of blaming people for taking out loans they could not afford.

I have since reevaluated that position. There is blame enough for everyone, and the biggest crooks here are in the Nation’s Financial Sector. Let me walk you through this (all names used here with the Exception of MERS are fictional for illustrative purposes, and are not intended to represent real or imagined people or businesses):

First National Federal Bank of Florida makes a loan to the Smith family so they can buy a home. That loan is written down as a “note” and the “note” is secured by a mortgage on the Smith home. The Mortgage states that if the note is not paid, the owner or holder of the note is entitled to force the sale of the home, and the proceeds are used to pay off the note, with the balance of the funds going to the Smiths. The mortgage is recorded at the County Clerk’s office as an official record for about $10.

The bank sells that loan to a trust, where it is securitized, bundled with a few hundred other loans, and resold as an investment to the Franklin Secure Real Estate Investment Trust. The bank has made their money, and their risk is covered. There is no incentive for First National Federal Bank of Florida to make sure that the Smiths can pay the note, because the note will be sold long before the Smiths default. The only real motivation for the bank, is for them to originate as many loans as possible, and sell them quickly before they default. That is how an assistant manager at McDonalds qualifies to buy 5 houses.

The Franklin Secure REIT sells the notes to Richards and Company Investment REIT, who sells them to the Wells and Frederick REIT. The consumer never knows this, because the note is still serviced by the First National Federal Bank of Florida, who takes their payments and forwards them to the owner through a shell company (more on that in a minute).

There are thousands of mortgage transfers made each day in Florida alone, and continually recording these transactions at the County Clerk’s office at $10 a pop is costing banks $600 million a year. They decide that there MUST be an easier way. This is the “way” that they came up with:

So, in 1999 a Corporation called Mortgage Electronic Registrations Systems (MERS) was formed. MERS is a shell corporation that is jointly owned by the Nation’s large banks, has no financial stake in the real estate mortgages, but mortgages are all registered to MERS, and the 44 employees of MERS keep track of who actually owns what Mortgage. MERS is the registered holder on over 55 million mortgages. They avoid the $10 fee, and save the banking industry billions. The problem is that they have taken our Nation’s Public records system, and made it so no one knows exactly who owns what, and during all the transferring that went on, the original note is lost. This makes it impossible in many cases for a bank (any bank) to prove they own the note, but that doesn’t stop them from trying.

This allows mortgage fraud on a scale that was unheard of for the thousands of years of property law that existed before MERS came along. Fake assignments, contracts, affidavits, and other evidence has been used to take homes that banks had no right to take.

The reason why I support people fighting this is that since no one knows for sure who owns what, there is a chance that settling with who you think is the owner of your mortgage may result in the REAL holder taking your home when the note IS eventually found, or may result in more than one bank claiming that you owe them money. In one case here in Lee County, Florida, a homeowner was foreclosed upon by two different banks, both of whom claimed to be the owner of the mortgage and note, and both of whom had paperwork and “evidence” to prove it. (The cases are American Home Mortgage Servicing v. Joanne Fredenburg Case 08-CA-050001, and Deutsche Bank National Trust Co. v. Joanne Fredenburg Case 08-CA-051319)

There will be more to follow on this…