Shame and Guilt and how the banks use your good nature against you

I can’t think of any subject that has been so widely and frequently discussed and studied, over such a long period of time, by such a large number of experts and observers, who continually espouse such a diverse range of opinions and cite such a large number of conflicting facts, that is still so misunderstood.  Of course we're talking about mortgage loan modifications.

Let’s start with the questions on everyone’s mind… Why aren’t more loans getting modified?  Why is it so difficult to get the bank to modify a mortgage?  Why are trial modifications ending in foreclosure?  Why is it that people are consistently treated so poorly by the banks?  Is it the investors that are making it hard to get a loan modification?  Is the government doing enough to get banks to modify loans?  And should people hire an attorney to help them obtain a loan modification, or go it alone?  Or is a modification actually what you want, if by some slim miracle you slip through the cracks and get qualified. 

I think the fundamental thing that almost no one understands involves how a bank views a borrower’s request for a loan modification.  Lot’s of people, including me in past articles, have said that banks simply don’t want to modify mortgages.  Lot’s of people, including me, have also pointed out that servicers make more money by foreclosing than modifying loans.  All of those points remain accurate but are not necessarily the reason a modification works or doesn't.

Your bank views you calling to request that your mortgage be modified as the beginning of a process.  Maybe you truly need and deserve a loan modification, but maybe not.  The only way the bank will be able to tell one way or the other is by putting you through that process, and it’s not a pleasant process in the least.  Unless of course you're the loan servicer in which case this is a tremendous opportunity to run up unaccounted fees and random charges.

Let’s say that you’re someone that has good credit, you’ve never missed a payment, and now are saying that you need your loan modified or you may lose your home to foreclosure.  When you call your bank to ask about a loan modification, they’re going to tell you that they can’t talk to you until your payment is delinquent by at least 30 days.  You hang up the phone.  You’re disappointed.  And you now have your first decision to make: Do you let your credit score get trashed by going 30 days late on your mortgage?  It’s not an easy decision.  Once you head down that path it’ll be years before your credit score is back up where it’s always been, and if you need your credit to be good for other reasons, chances are you’ll decide that you no longer want a loan modification because the cost of trying to get one… sacrificing your credit score… is too high.
The bank’s process has just saved the bank quite a bit of money.  Had the bank agreed to modify your loan, it would have been like throwing money away unnecessarily because you kept making your payments without them having to modify your loan.  (Of course the credit implications of this scenario are far less severe than most people understand but the banks continue to play guilt and shame and end of the world scenarios in order to really push you into not questioning them)

Now, let’s say that you decide to go 30 days delinquent on your mortgage.  You call back, now 30 days late, but now your bank tells you that you have to be 90 days late before you can be transferred to a negotiator.  You hang up the phone.  Again, you’re disappointed.  Do you go 90 days late, or do you bring your loan current and forget the whole thing?  Some bring their loans current, others don’t.
If you don’t bring your loan back to current status, you’re about to start receiving a series of letters and phone calls designed to make you feel ashamed, guilty and scared.  And those letters will come more and more frequently, and they’ll be written using stronger and stronger terms.  And chances are you’ll feel worse and worse as time goes by.

Then in 90 days, assuming you’ve gone the distance, you call the bank again.  This time they’ll tell you that your credit score is now too low to qualify for a loan modification.  Now you’re enraged.  You stomp your feet.  And then, if there’s anyway you can do it, chances are you bring your loan current and try to forget the whole idea of a loan modification.  Maybe you get rid of a car payment to do it, maybe you rent out a room or take on a part-time job to generate the extra income you need, or maybe you borrow the money from a relative.  You never even bring up the whole experience to your friends or family members because you’re ashamed that it even happened.  You’re ashamed that you were having trouble making the mortgage payment that you signed up for, and you’re ashamed about having gone 90 days late on your mortgage payment and almost losing your home.  The whole thing becomes one of those skeletons that you hope will soon fade away in your closet of memories.  Besides, what would your friends or family members even say if you did tell them?  Do you think they’d be on your side and angry at the way your bank treated you?  Or would they take the view that the bank had every right to handle your situation the way they did, because after all, you signed the mortgage and agreed to make the payments… the bank has no obligation to lower your payment just because you having trouble making it.  You’re lucky the bank didn’t foreclose, in the eyes of your friends or family members.

Oh, and one or two more things, while we’re at it… maybe you should have opted for a little less house and not gone quite so far out on a limb… maybe you should have spent a little less on your car too, and not used your credit cards for all those nice clothes you wear… maybe you’re just living way beyond your means.  You’re probably not saving for retirement either.  You’re one of THOSE irresponsible people and maybe losing your home to foreclosure would teach you a lesson.

But, let’s say for a moment that you could not find a way to bring your mortgage payment current when told, when you were 90 days delinquent, that your score was now too low to qualify for a modification.  Now you’re 120 days behind, and soon it’s been six months since you’ve made a payment to your bank on your loan.  By now the bank is sending you the most threatening letters imaginable.  They could foreclose at any moment according to the letters, and their tone tells you that you are basically an irresponsible failure who cannot be trusted because your word means nothing.  You promised to make the payment and now you’re not living up to that promise.  You’re a promise breaker… a liar.  How do you sleep at night?  You shouldn’t even have friends, because if your friends knew what you were up to, they likely wouldn’t want to be your friend anymore.

You’re now seven months late, then eight, and then nine.  Now the bank is calling you almost daily, the pressure is becoming unbearable, you’re trying everything to make more money so that you can make the payment.  If you do find a way to come up with the cash, you bring your mortgage payment current immediately.  If you get a new job that pays more, you call your bank and start begging and explaining that everything is going to be okay… you’re working again… if they’d just please understand… you’re a good person… you’ll pay your payment every month and on time from now on… you’re sooooo sorry to have gotten behind… How about $1200 this week, and then $1200 the following week, and then $2000 by the end of the… blah, blah, blah. Does it feel like the bank is trying to bleed you dry? Cause they are!  At this point the bank will continue to come up with fees and deadlines until one day you're unable to meet the demand and they will foreclose just after they've taken every last dollar out of your pocket as you desperately try to save your home.

You’re a babbling fool that will agree to just about anything the bank says at that moment.  If the person you’re talking to at the bank acts the slightest bit nice to you, or comes off as even a little bit understanding of your situation… you gush with appreciation and feel like you want to be their BFF.   Thank you, thank you, thank you, thank you, thank you, thank you… really… thank you so much.  My husband thanks you, my children thank you… my dog thanks you.  Yuck.  It’s disgusting, really.

Or, maybe that’s not what happens.  And now you’re almost eleven months late.  You’re working.  You could make a reasonable payment if you weren’t so far behind.  You’ll never be able to pay off the arrears though, so what’s the point.  You’re desperate… you’re about to give up and resign yourself to the fact that you’re going to lose your home to foreclosure.  You’re trying to get used to the idea that you’ll soon be packing and calling the moving truck… its heart wrenching for anyone to watch.

Since foreclosure is now imminent, the bank can’t threaten to ruin your credit score anymore, as it’s already ‘F’ and would be ‘G’ if scores went that low.  The bank is now trying to figure out two things:
1. What is the likelihood of you being able to make the payment if the bank modifies your loan?  What if they take the amount in arrears, tack it on to the back end of the loan, and reduce your monthly payment by a couple hundred a month?  Would that do it?  Or would you agree to the deal and then not be able to make the modified payment… and again in six months end up right back in foreclosure where you are now.
If the bank thinks that might happen, they won’t modify your loan.  They’d rather foreclose now than go through this same thing next year and end up foreclosing then.  But that’s not the most important factor to your bank… this is all about your bank’s degree of certainty that if they modify your loan, you won’t be back in foreclosure anytime soon, and likely never.  Your bank views a loan modification as pretty close to unthinkable in the first place, so it’s unquestionable that it’s a once in a lifetime thing in their eyes.  You should be too embarrassed to even ask a bank to modify a loan a second time, according to your bank.  It’s almost like… if that happens, you’ll probably want to change your name and move to another state. What a load of crap the banks have peddled our way all these years.

So, you see… it’s a range.  In order to get your loan modified, you need to fall somewhere between “Definitely won’t default again if loan reasonably modified,” and “Will self-cure the mortgage before home is actually taken back by the bank”.  Get it?

I talk to people all the time that have recently applied for a loan modification, and they always talk to me about how it will cost the bank more to foreclose on their particular house, so they expect the bank to modify the loan.  But then the bank refuses, and I hear people say that they can’t understand it because the bank should do what’s in the best interests of investors.  Then we start talking about how servicers make more money foreclosing, all of which is true.  The problem with this line of thinking, however, is that it fails to incorporate all the data… it’s not just a numbers game to the bank.  First they need to know, if they offer you nothing, will you really end up losing the home to foreclosure, or will you let the Devil himself rent out a room to avoid that shameful outcome?  Then they need to know that if they do accommodate you and provide you with a modification, chances are good that you’ll never miss a payment for the rest of your life.

So, how should a bank go about getting the answer to either or both of those key questions?  Self-cure and/or re-default?  It’s not like you can find the answer to either of those questions from looking at an application or a credit report.  You certainly can’t tell by talking to someone on the phone.
The only way a bank can know for sure whether you’re going to self-cure and eject yourself from the foreclosure process, is to let you get to that point and see what you do.

It’s like a game of poker… will you fold under extreme stress and pressure and show up with the money to save your home, or will the bank actually be forced to foreclose, and therefore better off to modify your loan… and if they do approve your “mod,” as they say in the biz, will you make it just fine for a long, long time, or will you end up right back where you are today, next year at this time, if not sooner?
Once a bank knows the answer to those two questions about you, then the bank’s cost comparison between modification and foreclosure becomes pivotal, but until then, chances are the bank will play out its inherently superior hand and count on you folding your cards before foreclosure by coming up with the money you said you could not possibly come up with when you were talking with your bank’s representative about a loan modification.

I talked to a woman a few days ago, she said she was in her early sixties, said she owned two homes, desperately needed at least one loan modified and probably both, otherwise she’s going to be on the street.  She wanted me to recommend a few attorneys for her to talk to, and I gave her the contact information for the lawyers I knew in reasonably close proximity to her home.  Then she asked me a few questions, and the last one I’ll always remember.  Referring to the lawyer, she said: 

 “Do you think I have to tell him about my trust account?”  (Adorable, right?)  I answered as honestly as I could.  I said: “I wouldn’t.”  (It’s probably not the right answer, I        realize,but I’m just saying…)

The reason that, other things being equal, I advise people to hire an attorney to help them negotiate a loan modification is that their lender or servicer will ALWAYS have a huge built in advantage in any negotiation over the settlement of a debt you contracted to repay, because the moral norms for borrowers work against them, and the market norms that apply to banks, support the bank doing pretty much whatever it thinks it needs to do to get the borrower into compliance with the terms of his or her loan… or reclaim the property.
Even when people hear that a bank did something really egregious or even illegal, many of them just say: “Yeah, well, I guess that can happen.”  It’s as if to say that perhaps the bank went too far, but the borrowers were juggling flaming chainsaws in terms of risk, and the bank still has the right to take back its home and punish the irresponsible homeowner who fell outside of our society’s norms by failing to fulfill his or her promise to repay a debt.

See, there are some things in our society that work the way they do only because we believe they will work the way they do.  The FDIC, or Federal Deposit Insurance Corporation, is a commonly offered example of this principle at work.  The FDIC “guarantees” cash deposits up to $250,000 per account, as of last year, I believe.  So, no one has to worry about rushing down to the bank to get their money out if there’s a problem at the bank, the FDIC will cover any loss up to $250,000 per account.
Except, even in the best of times, the FDIC could not possibly come up with the money to cover even a small fraction of bank deposits in this country.  If there ever were a disaster that caused all the banks to fail, the FDIC would be meaningless.  The FDIC is an independent agency of the federal government and you might call it a “faith based” organization because it only exists to give us faith in our banking system, and only works as intended because of that faith.

Well, loan modification negotiations are a little bit like that.  The bank gets to use shame, guilt and fear to get you into compliance with your loan.  Once you’re deeply ashamed, you won’t tell anyone what’s going on… and you’ll feel worse every day.  Then you become afraid to answer the phone.  Then you’re turning off the machine… you won’t even want to hear the phone ring.

Your bank will also greatly exaggerate what it will cost you to lose your property to foreclosure.  You’ll be told that you won’t be able to buy anything for a decade, and all kinds of other nonsense.  By the time you’re done reading a few of the letters you get from your lender each week, you can easily become convinced that losing your home is almost the end of all opportunity in your life.  Might as well be a bum after that.  It’s absurd of course… you can buy another home in 2-3 years, if that’s even what you want to do.  There’ll be so many foreclosures on the market… you’re going to be hearing about foreclosures selling ten years from now.

The point is, that when homeowners start the process of negotiating with their lender, they’re not only subject to being made to feel guilty and ashamed, but they are also likely to over-estimate the personal cost of foreclosure, all as a result of the bank’s and our society’s intentional efforts to make borrowers feel that way.  It’s no accident.  You see, we keep the banks open and safe by believing in the FDIC, and we keep people from walking away from their homes when the value of those homes drops significantly by imposing our society’s moral norms, which include shame, guilt and fear, related to repaying debts.  If the government and the banks can make homeowners deeply ashamed and afraid to lose their homes, then fewer people will even ever ask for a modification in the first place.  With me?

Why the Bank Doesn’t Want You to Hire a Lawyer or other Expert…
When a homeowner hires an attorney to help negotiate a loan modification, that attorney is not going to being made to feel ashamed, guilty, or afraid… the borrower can be made to feel all of those things and more, but the lawyer, not so much.  He or she is a hired gun, if you will.  That’s why the banks don’t want homeowners to be represented, and why they want homeowners to call them directly.

Treasury looks the other way on this “put-the-borrower-through- @#!*% ” process because it understands that banks have to make sure that they are not throwing away money by modifying loans for borrowers who would have self-cured.  Nor does the government want the banks to modify loans for people who won’t be able to make the modified payment.  And since the only way for the bank to really know either of those things is to put the borrowers through their paces, as it were.  Many will self-cure, some should be foreclosed upon… blend, shake, stir and pour,,, see what comes out.  And of those that fall somewhere in the middle, some will have more or less equity, and some will be in markets where houses are selling relatively faster than others.

Out of that psycho-social-financial-market analysis, the bank will modify some loans… but the process used to conduct the so-called analysis is guaranteed to frustrate the @#!*% out of everyone who enters it that’s determined to obtain a loan modification.

Being represented by an attorney or other expert throughout the process is unquestionably better than not being represented, mostly because that attorney won’t be subject to the bank’s tactics of trying to shame, guilt or scare, and as a result of that, is likely to think more clearly than you would be able to.  And also because of the attorney’s or other expert’s knowledge of the law related to the foreclosure process and the HAMP guidelines, that attorney is more likely to get a result that’s acceptable to you, the homeowner… and by acceptable, I mean a modification that’s sustainable over time.


Absolutely not.  The situation we’re in today is NOT a normal market correction, and I thought I’d better make it clear how I feel about how the banks are handling loan modifications: I hate everything about it, and I think it could not be more wrong.  The Obama Administration has continued our government’s tradition of implementing pointless programs designed to help stop the foreclosure crisis.  Nothing our government has done has helped in the least… they’ve failed us at every turn.

PAY ATTENTION, I KNOW IT"S BEEN A LONG ARTICLE BUT HERES THE MEAT!

It’s not today’s homeowners that are responsible for the position in which they find themselves… no matter what anyone tells you… it is NOT your fault.  If someone would like to debate that point with me, bring it.  I’m easy to find.  But come to the discussion prepared, because I am.

This meltdown was caused by this country’s financial institutions, and not by people with mediocre credit scores who wanted to buy houses.  It’s the banks that did this, but no one is making them do anything to fix what they’ve clearly broken.

We’ve given the banks in this country something like $11 TRILLION so far, and we’re going to have to give them a lot more.  The so-called toxic assets are still right where they were last fall, and the banks that were too big to fail last year, are now bigger.  They have an obligation to act in the best interests of the homeowners they screwed, and in the best interests of our nation’s economy because without American taxpayers, they wouldn’t even be open for business.

So, don’t read what I’ve written and come away thinking that I approve of the way banks view borrowers asking for loan modifications… I don’t.  I’ve only written what you’ve just read because I think it’s important that people understand the dynamics of what’s going on… that the reason they feel guilty and ashamed is because the banks and our government want them to feel that way, so that people don’t just start walking away from their mortgages because they’re so far underwater.

They’re manipulating you into feeling ashamed for being in trouble on your mortgage… but don’t let them make you feel that way.  It’s not your fault… it’s the banks that wear the black hats in this horror movie, make no mistake about that.  And, in the event that you’ve already lost a home to foreclosure, don’t believe the crap about how your life will be ruined for another ten years.  It’s simply not true.  You may not be able to buy another house for the next few years, but so what?  We haven’t come close to hitting bottom, so you wouldn’t want to buy another home in the near future anyway.  All forecasts say that we’ll have 12 million more foreclosures in the next two years, and that number is probably low, so don’t feel alone and ashamed about your situation.  The people you’re talking to down the street have problems too, they’re just too ashamed to tell anyone about their situation, just like you’ve been afraid to talk about yours.

Let it go… and let’s turn up the heat on exposing what the banks have done and continue to do.

Please get angry! Get frustrated!  Get upset and choose to do something about it.. You'd be surprised at the level of success adequate professional and informed representation can get you.  You'll be amazed at the options and choices you have once  you stop allowing the banks to shame you into inaction.

Politics is still sleeping with the enemy.. GET MAD!

By Daniel Pennell, a systems expert who has testified before the Virginia House of Representatives on MERS - VIA Livinglies Web

This week demonstrated how financial special interests have created an obscene and incestuous relationship with the leadership in the state legislature and the Governor’s office in Virginia. This cabal managed to kill off a bill (HB-1506) proposed by Delegate Bob Marshall, a bill designed to protect the integrity of the county property records and preserve the integrity of home owner’s title to their property. Simultaneously they attempted to alter the Uniform Commercial Code (UCC) with HB-1718, such that any “record” (the previous version said document) signed or unsigned by a person they claim owed a debt would be good enough for the banks to win a legal judgment against a person. In other words a spreadsheet from a bank would be good enough to take someone’s home or report someone to a credit bureau. This was in direct response to a Supreme Judicial Court decision in Massachusetts, Ibanez, where the court said that a bank had to have proof it owned a mortgage before it could foreclose.

The problem that HB-1506 addresses originated in 1995 when Wall Street banks took upon themselves the authority to replace the existing public land title recordation system with its 300+ years of successful history, with a member’s only private system. This system called the Mortgage Electronic Registration System (MERS) gutted the public property records and left millions of homes with questionable titles. This was done without any government approval and against the recommendations of the title industry and the county recorders. MERS has been found by 10 state supreme courts to be acting illegally and is currently being sued by CA, NV, TN and 14 other states. The Federal Reserve, Office of the Comptroller of the Currency (OCC), regulator of the national banks and the FDIC are investigating MERS for questionable business practices and for the systemic risk it poses to the nation’s financial system. The CEO resigned last week. Speculation in Washington has the OCC taking over MERS and nationalizing our land records, a clear violation of states’ rights.

Delegate Merricks submitted HB-1718. Bills to change the UCC are rare because the implications of unintended consequences are usually substantial and unforeseeable. The bill summary on the Legislative Information System (LIS) says the bill is intended to address recent court decisions and changes in technology. There is no question that the bill was targeted at both protecting MERS and avoiding a court decision in VA similar to that in MA. Delegate Merricks, member of a bank board and a former vice president of a bank, seems to suggest that take the home first and then figure out who actually is entitled to do so later. Never mind the risk to title that a future buyer of a foreclosed home faces or that we have situations in VA where multiple banks are foreclosing at the same time on the same person. In that fight the winner gets the house and the loser the right to sue the borrower for the loan amount.

The banks wanted HB-1506 killed and HB-1718 passed to protect MERS and, I believe, to avoid providing proof to mortgage investors that they were defrauded. The requirement to record would have provided evidence to investors in mortgage backed securities (MBS) that what they bought was empty; the mortgages were never legally transferred to the MBS. In my humble opinion if you sell someone a security that you claim is backed by collateral when it is not then that would be securities fraud. Among these investors are Fannie Mae and Freddie Mac whose losses are being paid for with tax dollars to the tune of billion of dollars. Other investors include state and private pension funds. The total exposure to the banks exceeds $1.5 trillion. You can see why they would fight so to avoid a $21 fee and the right to use their own “records”.

HB-1506 was killed by the Speaker of the house (Delegate Howell), the Chairman of the Courts Committee (Delegate Albo), the Chairman of the Civil Subcommittee (Delegate Athey) and the governor’s office.

Delegate Howell, the Speaker, sits on the board of Virginia Heartland Bank.

Courts Chairman Albo received 13% of his campaign funds from the VA Bankers Association and more from two major bank servicers.

The lobbyist representing the bankers, Matt Bruning, at the hearing of the Civil Subcommittee was a former aide to the chairman of the subcommittee, Delegate Athey, and an aid to the governor.

A reason given by Delegate Athey for not passing HB-1506 on was that the governor’s office in the person of Terri Suit, head of the governor’s foreclosure task force sent a letter asking the subcommittee to hold off and let the task force work on it. The Virginia Public Access Project reports that Terri Suit, ,chair of the Foreclosure Task Force, was a paid lobbyist for the Mortgage Lenders Association and the “private” members of the Task Force largely comprise representatives of the mortgage industry.

HB-1718 was pulled from the floor when Delegate Marshall threatened to attach an amendment excluding mortgages from the language. Had the speaker left it on the floor, the members would have had to record a vote on the amendment and with the amendment there no longer was reason to pass it. Delegate Merricks sits on the board of Virginia Bank & Trust and has 25 years in the banking industry.

The relationships are so inappropriate as to cause any reasonable citizen to question the integrity of the process.

A survey released today in the Financial Times shows that Americans trust of all large institutions is at an all time low with only 25% of American saying that they trust financial institutions.

A survey published last week ranked Virginia as the country’s second most corrupt state only after Tennessee.

The citizens of Virginia appear to be making an accurate assessment based on the shenanigans going on in Richmond this week.

HAMP and The Treasury

So we've all heard about the HAMP modification program. It's been in the news for quite some time now and modification companies still suggest that struggling homeowners should scrape together their last few dollars and throw it to them so they can save their home.

The tragedy in this process is two fold. Firstly how someone can take a fee from another party without adding value is beyond me. There is no extra incentive for a servicer to accommodate a third party request for modification. Meaning that the third party adds no additional value to the homeowner who files his/her own paperwork. The only exception to this would be the third party document preparer who suggests that they are familiar with the banks qualifying process and what the borrowers income, assets, and other qualifiers need to be in order to get approved. Of course if this is the value that a modification expert intends to provide it seems obvious that the provider intends on manipulating the correct numbers and to provide the bank with the numbers that would fit in their box for approval regardless of what the true figures may be. This leaves the borrower on the hook for signing a document that does not reflect the borrowers true position and giving the bank leverage to pursue recourse based on fraud in the future long after the modification "expert" has moved on. Sounds pretty close to some of the foolishness that got us into this mess in the first place to me.

The other issue with modifications is that the servicers and banks are not incentivized to secure these modifications with homeowners. The financial incentives are far greater to bleed a homeowner dry with trial periods, late fees, lost paperwork, and other nefarious charges in order to line the pockets of the servicer. The bank of course has no intention of reworking any loan as it would have to purchase it back from the end investor or at a minimum get the investor to agree to new terms in order to facilitate an actual modification.

So you are asking yourself... "How come some people are getting modified?" The answer is that they aren't. The bank will occasionally alter front end terms on a security by giving the borrower a temporary teaser rate adjustment. While the bank shows the borrower the new payment in 16pt bold and italic font what they fail to highlight is that the fully indexed rate is not being reset but is actually accruing as a negative amortization feature and the additional interest that would've been paid had no adjustment been offered will eventually find it's way back into the loan re amortized over the course of the remaining unadjusted period or as a balloon at the end of the loan. And of course you know I don't even need to explain principle reduction because regardless of how far upside you are the bank is not making an adjustment.

So what are you to do? The secret to success when dealing with the banks right now is creating leverage and frankly getting mad enough to want to stand up for yourself and fight back. The banks have committed levels of fraud in servicing, securitizing, fees, and origination that would take a hundred blogs to explain even in it's most basic forms.

As Marcy Kaptur Congresswoman from Ohio recently shouted from the floor of congress... "People are rapidly losing hope and trust. They believe their government has been captured by special interests and no longer cares about them, and they are right.... You don't leave your home until you have had adequate legal representation!"

People please if not me find someone to protect you. Foreclosure, modifications, NOD's, Servicing, etc. are all legal procedures by nature. You have laws that can protect you and can bring the banks to the table in an honest and fair negotiation. Don't be willing to stand by and continue to let them have their way with you and every other hard working American homeowner who is so discouraged they have lost hope. Don't throw your money away at modification processes that have proven time and again that they are unsuccessful take some control back and fight for what's yours!

http://www.msnbc.msn.com/id/41299299/ns/business-real_estate/   Please Read and Get Mad!


(found this the day after I posted this blog)

A BILL to Terminate the Home Affordable Modification Program of the Department of the Treasury

Structured Finance 2.0

The real estate boom of the past decade resulted from the explosive combination of a few financial innovations greatly expanded during the previous decade most often with the help of calculated deregulations offered by politicians to their biggest benefactors. Structured finance, credit default swaps, and sub prime lending all moved into high demand and complicated structures. Most regulators, generally insiders, only saw the upside of these new structures and since they were sold to sophisticated investors well versed in risk and leverage they were subject to limited oversight by the SEC. Credit default swaps were protected by regulatory indifference and the Commodity Futures Act and Sub prime was fueled with a wink and nod approach by the Fed. The lack of oversight was intentional and had taken many years of deregulation to accomplish but at this point it was what both Wall Street and politicians wanted.

Traditionally banks had structured financial assets tied to the real economy. I.e. stocks, bonds, currencies, gold, etc. Structured products on the other hand were generated to have any set of given properties and returns they wanted and were backed entirely with derivatives. (Side bets on other financial assets) So you can either invest in complicated algorithms that produce returns based on performance of actual product or you can invest directly in the product that the calculations are based on. To complicate the issue further it is also possible to invest in a hybrid structure that contains both real assets as well as derivative bets against other real assets in a series of highly complicated mixes.

The advantage of structured finance is twofold. First it creates new assets that can be invested in while not being limited to OTC stocks and bonds. Structured finance as its name implies could be engineered to very specific investor terms of yield and timing which was essential for timing liabilities of the investors. Secondly by creating assets that were more customized for investors, businesses ability to raise capital should be easier.

As an example if an airline flight across the world were the real asset being invested in an investor would be hedged against possible risk if it included an option to buy oil at a cheap price in the future. Thus if oil prices rise hurting the profitability of the flight by decreasing demand, the secondary option would increase in value thus protecting the initial investment. Additionally, of course by multi tiering investments this way the banks would increase their fees and revenues for the additional structures. The other advantage that made these so appealing for the larger banks was that they had the greatest ability to create unique leveraging giving them the ability to charge a premium for these bundled packages and increasing their profit line as well as the volume of transactions.

As banks began structuring MBS and CDO SPV's for investors instead of the typical standard yield across the board they tiered the returns and graded the risk into multiple levels called tranches. This structure allowed the securities to generally be graded AAA without much thought and it allowed the banks to restructure entirely new products based on the high yielding higher risk 2nd and 3rd tiers. Eventually banks began creating CDO's squared which consisted entirely of other CDO's while still getting AAA grades. As housing prices increased due to the aggressive nature of lending which was of course due to the high demand for mortgage backed structured finance the bets seemed increasingly less risky as prices continued to climb. This perfect storm if you will was obviously doomed to fail as price climbs on the assets would be capped at whatever amount borrowers were able to continue making mortgage payments. This is why as the housing boom continued into the later stages lenders continued to create loan structures that allowed borrowers to purchase higher priced assets at lower incomes. This structuring allowed the banks to keep running up profits despite the obvious end of the line.

The issue of fraud at the point of structured finance is not just procedural but conceptual as well. To contest that banks clearly didn't account correctly and sold investors a bill of goods on the securitization side is obvious and is being proven in the courts today. What is also starting to be addressed now is the suggestion that banks using these structured finance tools to generate revenue continued to draw homeowners into loans that everyone knew would eventually default and that were clearly overvalued. The train was being floored even though everyone knew the tracks ended quickly up ahead.

From Sub prime to Alt A to Option ARMS retail financing options were created with a clear design to qualify more buyers in order to sell more structured finance at the expense of homeowners and investors worldwide.
As the banks passed through the risk from these obligations to investors they collected their substantial fees and bonuses.

If this weren't enough once retail demand for their mortgage backed securities began to wane instead of reading market conditions they created shell companies to purchase the derivatives that they couldn't sell on the open market thus creating false demand and keeping valuations high by manipulating the market forces. This not only moved product off the books and made the banks more attractive and sound but it of course generated millions in bonuses for the enterprising individuals who managed the false sales.

While structured finance is a useful tool, when it is unregulated the temptation to manipulate and abuse is far too powerful. It's time to take our markets back from those who choose to abuse them and it's time to call them to account for what they've done. Leaving millions of Americans homeless, upside-down, and in debt at the expense of bonuses is not acceptable behavior and even without formal regulation should've been stopped before we ended up here.

Commodities Bubble

Again another repost from April of 2008 and yet still very applicable. The commodities markets are heating up again due to a significant move out of the USD. These same principles need to be addressed and yet it's 3 years later. Someone needs to force the legislative and executive branches to account for this mess.

(April 2008 repost)


Bernanke is really putting his flawed logic to the test if he drops the banking rates again next Tuesday. From the beginning of his term as Fed chief there has been some inclinations as to his true positions on inflationary pressures and his seemingly controversial dismissal of their relevance in the broader market. His absolute commitment to accommodate and bow to big money's whims has been overlooked by many. Jim Cramer (Mad Money) virtually begged Bernanke to listen to the poor hedge fund managers and bank exec's during the CDO free fall from his MSNBC platform. Looking at Cramers record it would appear his greatest success is baldness and screaming. His investment house over it's entire existence is a woeful display of mismanagement and bad bets but since he had an associated level of success at a time when everyone was succeeding we now have to listen to him. When the hedges and banks mark to market indexing left them high and dry and they were stuck holding billions in questionable debt they had yet to unload to school teachers, metal workers, policemen, and the rest of us; they began screaming that the system that had brought them such success was now clearly flawed and could no longer be trusted. Instead of holding strong and governing the markets Bernanke has decided it's better to concede to the spectacle and tuxedo adorned monopoly men of Wall Street. He has consistently dropped rates and encouraged bailouts all while watching the dollar freefall to it's lowest levels ever against the Euro. He's watched as commodities have soared and has encouraged continued profiteering by lowering the inner banking rates and opening lending windows to non institutionalized banks. By doing so he can claim his trying to eliminate the credit crunch but all he's really doing is allowing the same individuals who ran the mortgage industry into a brick wall during their cash grab to turn their full efforts with an equal lack of restraint into the commodities market. Nobody could possibly believe that the cheap money made available by the Fed is going to collateralized debt, it's going straight into the commodities market and Bernanke keeps feeding the frenzy by discounting rates. The logic is absurd and clearly a man with the intelligence and experience of Bernanke is aware of exactly what's going on.

With an anticipated drop of .25% during next weeks meeting we can expect commodities are going to continue their rise. Oil and grain futures will continue to be used as a wealth driven tool as opposed to a hedge. If Bernanke chooses to take a stand and leave rates where they are, the sell off will be quick and prices will begin to realign themselves. Do we really need hedge individual fund managers to make billions in salaries at the expense of the many? Capitalism without restraint is oppression. Those who have bear a responsibility to act fairly and responsibly. Restraint, accountability, and compassion need to be returned to business. Our current success at any cost mentality is going to upend the very platforms we have used to achieve our current positions.


My question to Ben Bernanke is how much longer will you suffer that the least of those in this world suffer at the expense of significant profit lines for the few? Isn't your job Sir to protect the markets as a whole and not defend the few who are already positioned and protected? How many will be killed in food riots before you take a stand? You act as if you feel what you're doing is in the best interests of the world, but I contend that is only the case if your world doesn't extend past the platinum clubs of the Wall Street elitist's. It's time you either admit your true purpose or do the right thing. Leave the rates alone. Let the fat cats take care of themselves for minute while you care for those who you are truly positioned to serve.

Mark to Market Accounting Bias

I'm not one to toot my own horn but I think it's important that we recognize the issues assoiciated with deregulation and allowing the inmates to run the "ass"ylum (thanks for reminding me Sandra)as we have with commodities, structured obligations, accounting strategies, and general financial recklessness.

I wrote this piece in April of 2008 nearly three years ago and I feel it still needs to be addressed and finally writers and economists like William Issac the former head of the FDIC and author of Senseless Panic are being heard.

I read today that some economists have suggested that we freeze the "mark to market" pricing index that governs the values of securitized obligations for the next 12mos. What they are hoping is that stabilization of the indexes that sell and trade CDO's (sub-prime mtg debt) will help us find financial footing across all sectors. The sentiment seems more of a cash grab than an actual strategy to steady the roiling debt markets we are currently experiencing.

Let's start with the purpose of the "mark to market" financial grading system. As new debt instruments were established over the past 7yrs they didn't have a history of valuation. CDO's, CMO's, etc. were all valued based on market interest instead of market history because they were such new debt tools. Using a "mark to market" approach a daily value was calculated more or less on what people were willing to pay for the securities.

Now that the markets have destabilized and the instruments are being sold at deep discounts many are suggesting it's unfair to try and determine value using the system that brought them all the increases during their run. It seems that the sentiment is that if the mark to market is working overly optimistically then it is reasonable and an accurate assessment of qualified value but if the market is overly pessimistic then the valuations can't be trusted. The double standard is ridiculous.

That these financial minds of our times would make such a patently flawed suggestion and try to pass it off as protectionism is offensive and less than subtle. Clearly the banking and financial industries have only their interests at heart while attempting to spin it as a stabilization tool for the entire economy. Maybe they should've stabilized it during the run up. Maybe Greenspan should've recognized the potential pitfalls and done some preventive maintenance instead of dropping the mess right in Bernankes lap with a smile and a handshake. Not really Greenspan's strong point or philosophy for that matter.

Politicians not surprisingly have begun regurgitating the information that has been spoon fed them from the industry. McCain even recently mentioned the need to consider a stabilizing force in the mark to market evaluations. I'm not convinced if on rebuttal Mr. McCain could even remember his quote not to mention justify it's intent. I guess what angers me is that while profiteering on the backs of individuals on the front end with mortgages that nobody expected they could keep up with as well as back end profits by selling these same mortgages to investors with AAA ratings the industry is now suggesting it shouldn't suffer for their own indiscretions because it may effect the broader market and we just can't afford that. My thoughts, we can't afford not too. It's time for money to be accountable.

(Christopher Peterson MERS) Chris Peterson MERS

Chris Peterson Professor of Law at the University of Utah's Law School discussing before congress some of the issues relating to a circumvention of property rights using the shell corporation MERS by the banking industry. What we need to recognize is that this was not only an affront to our county and municipal coffers this was a ruse to take a transparent system of public record and make it opaque for the benefit of trading and selling individual property. The issue we have now is that without qualifying the banks standing in a foreclosure homeowners could potential receive claims from multiple individuals or entities that all suggest an ownership of their mortgage proceeds. If clear standing isn't presented how is a homeowner to know who legitimately to pay off in order to fulfill their obligation?

http://www.youtube.com/watch?v=8VpCUfC9k6M