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Piggybankblog posted on 01/06/12
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Cross linked story with livinglies article
The investors who purchased David Stern’s foreclosure mill have taken the extraordinary step of announcing publicly that they had been duped into buying a “criminal enterprise.” Obviously they didn’t want to get caught up in the dragnet of prosecutors looking for convictions. Nobody would spend $60 million like these investors did and then announce to the world that not only was it worthless, it was worse than worthless. It turns out that once they owned it they discovered that the entire enterprise was based upon criminal and other illegal or improper acts. It will soon be obvious that virtually all the foreclosure mills operated identically to Stern because they were owned and operated by the same people.
Those criminal acts were all about pushing foreclosures through the system. The end result of foreclosure is that somebody gets the house upon entry of a “credit bid” which is to say that they don’t pay cash, they just submit a “bid” based upon the fact that the property was the collateral for money that was due them. Since Stern was not taking the homes, and it is obvious that others were taking the homes, the question is why did they need to go through all those gyrations and subject themselves to prison time if the mortgages were legitimate?
I think the question answers itself. No Bank would require, allow or promote practices that were criminal acts in order to foreclose on an otherwise legitimate mortgage, note and obligation. The only reason why criminal acts were required was that the mortgages and foreclosures were a sham. At this point, with all the publicity about robo-signing, surrogate signing, forgeries, fabrications, back-dating etc., and the Banks’ protestations that these are the result of paperwork problems that emerged as a consequence of the volume of foreclosures, the Banks have had more than adequate time and opportunity to prove their case — that the mortgages were legitimate and the foreclosures were proper, subject only to resolving some minor paperwork errors.
That they have not done so corroborates the point I made 4 years ago. In most cases, at the time the mortgage documents were signed at “closing” the originator showing on the note and mortgage was not owed one cent — because they never made the loan. The originator was a paid straw-man. Somebody else made the loan but the paperwork does not even hint at that fact. That means the paperwork refers to a transaction with the originator that never occurred. The intermediaries who created this scheme made tons of money without reporting or accounting to either the investors or the borrowers. So it looks like the loan is still outstanding and due when in fact it has been paid several times over. Foreclosures only represented another payment in addition to the other multiple payments of the loan.
The actual source of the loan, as I have stated for years, was a group of institutional investors who were induced into buying bogus mortgage bonds thus creating a pool of money. The investment bankers took a huge bite out of that pool before they started funding mortgages. They did it contrary to the expectations and understanding of the investors and the ratings agencies. It was like buying a new car: as soon as you drive off the lot you lose a substantial amount of equity because now it is a used car. In this case, the Banks drove the money off a cliff and the investors were lucky to receive a few cents on the dollar they invested.
The fact that the mortgage documents refer to a transaction that never took place should be interpreted as a fatal defect in the documents as well as violating deceptive lending laws on the Federal (TILA) level and state level. That defect means or should be interpreted to mean that there is no lien on any of those homes and it can’t be corrected without getting a signature from the homeowner or a court order clearing title. The Banks know as much as I do about all this. In fact they know more than I do and they know exactly how to clear title.
They couldn’t go back to the homeowner because the homeowner now knew what was unknown at closing — that the deal was toxic and stupid and couldn’t work. The Court would enter the order the Banks required if they proved that the requirements of law had been met in establishing a mortgage loan. They can’t. So they are left with (a) an unsecured PAID loan to an unknown creditor and (b) liability for fraud. And they can’t fix it.
So they started foreclosing and in order to do so they needed to finesse the borrowers and the Court system with documents that looked right but were pure fabrication. Millions of these foreclosures took place and the Judges who rubber-stamped them never bothered to look at whether the paperwork actually made sense. Now, like to or not, all those foreclosures need to be reviewed for fatal errors. And homeowners, getting wise to the fact that they might still legally own homes they were kicked out of years ago, are visiting lawyers to see what can be done to recover the property. My guess, is that the tide has turned. That means homes are going to be returned to homeowners. In turn that means the value attributed to the mortgage backed securities have also been false and that requires a significant write-down of non-existent assets.
The write-down of assets on the balance sheets of the Banks (which after all are not really banks) will diminish their capital to a point well under the reserve requirements by any standards whether FED, Basil or otherwise. The only real question left is whether we will act as a nation of laws or of men. If we are a nation of laws the fraudulent transfer of wealth from the populace to the banks will be reversed and the economy will start humming again. If we are a nation of men, then we must recognize that a coup d’etat has occurred and we no longer have the government or the society we thought we had.
Posted by Piggybankblog on 01/06/12
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Cross linked story with american.com
NEW YORK (TheStreet) — The White House has no plans for a new mass mortgage refinancing program, Bloombergreported, citing an administration official with knowledge of the matter.
Bank stockshad climbed Thursday afternoon despite concerns over the fate of European banks amid market chatter that President Obama might soon announce a massive refinancing program that could help boost housing and the economy in the election year.
A blog post by Jim Pethokoukis at the American Enterprise Institute appeared to generate much excitement on Twitter, although it was little more than speculation.
The article cited Jaret Seiberg of the Washington Research Group, who expects the President to appoint a “housing advocate” to the Federal Housing Finance Agency, the regulator and conservator of Fannie Mae and Freddie Mac, in much the same way he appointed Richard Cordray to the Consumer FinancialProtection Bureau- by making the appointment during recess.
Seiberg believes that Obama will announce a mass refinancing program for agency-backed mortgages that goes well beyond the HARP program once he makes the appointment.
According to the article, the Obama administration could announce a program modeled on one that was originally devised by Columbia University economists Glenn Hubbard and Christopher Mayer. Under that plan, all homeowners with a Fannie or Freddie-backed mortgage can refinance with a new mortgage at a fixed rate of 4.2% or less if they have been current on their payments for at least three months. And the clincher is that the plan imposes no other qualification – no appraisal or income verification.
The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year, according to Hubbard. It is expected to help refinance $3.7 trillion in mortgages and would come at an immediate fixed cost of $121 billion to the government.
“Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus — as measured over a decade -that would directly and immediately impact tens of millions of Americans suffering from the housing depression,” the article said, which seems to have spawned the $1 trillion refinancing program rumor on twitter. Here’s a look at the comments.
@Bergen Capital: “Rumors going around Obama proposing a huge(possibly 1 trillion) mortgage refinancing for troubled borrowers.”
@DougKass “This report of an Administration’s plan to prepare a massive refinancing of mortgages buoying housing stocks and mkt.”
The run up in bank stocks on Thursday might have in any case been somewhat premature even if the rumor was true.
According to Stifel Nicolaus analyst Chris Mutascio, if the plan were to be implemented as suggested, it would have negative ramifications for banks because they are biggest holders of agency mortgage-backed securities and bondholders would suffer the most pain from such a plan.
“Details of such a proposed plan are sketchy at best, and we have no idea of the chances of it actually coming to fruition. But, if it were to occur, someone has to pay for it. Unfortunately, it will be the bondholders because the plan is simply a transfer of wealth from the bondholder to the homeowner via a reduction in loan yields through the refinancing,” he wrote in a report.
Keycorp(KEY_) is most at risk with 24% of its earning asset base comprised of GSE- mortgage backed securities, higher than the group average of 15%. In contrast, Wells Fargo and JPMorgan might carry comparatively less risk.
Mutascio adds that if the administration were to impose such a plan without breaking “contract law”, the actual loans will have to be physically refinanced. In such a scenario, Wells Fargo will be best placed to benefit the most from wave of refinancing as it originated one in every four mortgages in the U.S.
–Written by Shanthi Bharatwaj in New York