Bond Buyers Beware: Student Loans Mirror Mortgage Meltdown

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Editor’s Comments: Close your eyes. Imagine an upside down world in which the borrowers are having the most trouble keeping their loans current are the very same loans that investors can’t get enough of. Sound like the mortgage meltdown? That is because Wall Street is using the same business model. “Demand for the riskiest bunch—those that will lose money first if the loans go bad—was 15 times greater than the supply, people familiar with the deal said.”

So why would fund managers intentionally invest money in which they are most likely to lose money and their jobs? Answer: they wouldn’t. Somehow wall Street has again convinced or coerced fund managers to buy bogus bonds backed by student loans that are spiraling down the toilet even as we speak.

The “experts” attribute the surge to investor demand. I would scratch the surface and see why investor demand was so high, besides the obvious need to increase yield at a time when yields have never been lower.

The problem is that there is still no accountability for these loans or bonds. A young student asks for a loan and the bank showers him with “extra” amounts beyond what he requested. The payment is zero, so it is like free money and the novice financial victim doesn’t have the knowledge or skills to understand the flaws in what is being proposed to him or her.

Before you know it, the $25,000 loan he asked for is now $50,000 to take care of incidentals and living expenses, and the real amount borrowed will go up by anywhere from 6%-15% as interest accumulates is added to the principal. Once out of school, the interest rates shoots up and the next he or she knows, she now has around a $60,000 loan (despite asking for $25,000) with an interest rate of 8%, which means that interest alone is $4800 per year or $400 per month — the payment for a small car and insurance.

The mystery of why demand is so high when on the last round there was such a disaster can only be explained by reference to the sales talk given to fund managers and perhaps some overlapping or conflicting areas of interest.

This is not rocket science. The number of student loans failing is spiking and getting worse every day. Any asset backed security using student loans is depreciated worse than a new car driving off the show room floor. And listening to the bankers selling this stuff is like getting medical advice from a crack dealer.

So why are they putting pension fund money into an obviously failing investment? That is my quest. When I have the answer i will probably be able to further unravel the mortgage backed bonds a little further as well.

I keep  wondering if the bankers are actually doing the same thing they did with the mortgage backed bonds — tell the investor the investment is triple A rated, insured and hedged with credit default swaps. And I wonder if the fund managers understand that the triple A rating is subject to revision down to unrated, and that the insurance and hedges are payable not to the investors but to the investment bankers.

I also wonder if the notes will again disappear because of misrepresentations as to their content, and if the intermediary banks will again retain control over the collection process, create fabricated forged documents and offer of perjured testimony and affidavits from incompetent witnesses?

And I wonder if once again we have a stream of money coming from an unidentified funding source whose name is not included in the closing documents, and who agreed to repayment terms different than those set forth on the promissory note signed by the borrower.

This is why I am including Student Loans as an area of concentration on this blog and I will include other subjects as well that inform and assist those “in trouble” due to the greed and predatory lending tactics used by private bankers. It is worth mentioning that the private banking loans are in the process of being phased out for precisely the reasons stated above.

Now SOMEBODY must be making money on these bad loans and the good loans far in excess of the basis points usually applicable to lending. Where is that profit coming from? It can only come from the investors since they are the only ones who are putting their money at risk.

So to recap, after the mortgage meltdown we have what appears to be a repeat situation going on with student loans. The investment bankers are skimming deeply into investor money before they lend out anything. The loans were mostly bad loans that will eventually fail. The  bankers will collect insurance, credit default swaps and potentially another federal bailout. Nobody ends up with what they wanted except the investment bankers, of course.

Student-Loan Securities Stay Hot
http://online.wsj.com/article/SB10001424127887323293704578334542910674174.html

What’s Really Behind the Student Debt Boom
http://www.fool.com/investing/general/2013/03/05/whats-really-behind-the-student-debt-boom.aspx

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27 Responses

  1. addendum – time line to raise issues under 60b is 1 year after final decision, i was denied and so the appeal raises all the issues raised under 60b, you cant raise ANYTHING ELSE may save your case but in reality its a long shot but if its done well its your only option if you missed the 30 day deadline to appeal after the final ruling. occasionally you can extend to 60 day for good reason but more than that , time tolled.

  2. hman
    JG talks about a 60b frcp ( your timeline is 1 year) you can raise intrinsic and extrinsic issues being new evidence amongst other issues that may have effected the final decision being unjust and inequittible, my appeal spells it out
    case number 12-16192 USCA 9th circuit. i still have many challenges there and im shocked to the core of my being as to what they have done to me thus far, so brace yourself but please fight if you can. turn over every stone. exhibit evidence and case law for your record.

    not an attorney, dont want to be one, awful job, but if you can get one, a good one, you need one , so im just telling you what i did so far because it worked, so far. staystrong.

    and it aint over till fat gal sings. never never give up
    god has the last word.

  3. nm: hmmm…it certainly has that effect, anyway.

  4. hman – look into “newly discovered evidence” in regard to some kind of action to reopen the old deal or filing a new deal. It’s a place to start. I think nde is relevant to the old deal, not a new action. Get a research engine and start with nde in the search bar and then rule 60 and newly discovered evidence…? check out loislaw.com if you don’t have it already. get info then consult attorney about what you find.

  5. …in the end, the pilgrims got their stuffing back.

  6. Funny South Park tonight…about the true story of thanksgiving.. he who controls the stuffing, controls the universe.

  7. The only sick, pathetic, hopeless joke is that any American would be doing business with our our enemies, these foreign and domestic TBTF Corporate investor crooks and sheisters.

  8. $16 billion to the GSEs…..that’s a big fat lie….CNBC reported the total amount of the theft of U.S. TAXPAYER’S WEALTH since 2008, $60.4 TRILLION DOLLARS….

  9. What a sad, pathetic joke… It’s hopeless.

  10. This is a job for every American. Everyone needs to be more proactive. We need to all do our part… one nation under God, indivisible with Liberty & Justice for all.

  11. WE THE PEOPLE, of the United States of America, in order to establish a more perfect union, provide for the common defense, promote the general welfare and secure the blessings of ourselves and our posterity do ordain and establish this Constitution of the United States of America…..that’s WHO…

  12. “We need to boycott the Corps”

    Who is that “We” the stripper always refers to? “We need to do this, we must do that, we… we… we…” Hey, you’re part of that “We” thing, you know. What are YOU doing besides inflaming everyone and pushing everyone to do the work for you? Do it so we can see how it’s done. Better yet: shut up or put up.

  13. Too-Big-to-Fail Crowd Turns on One of Their Own
    By Jonathan Weil Mar 4, 2013 2:17 PM ET

    There’s a scandal brewing at the American Securitization Forum — and sure to be a lot of schadenfreude to follow. [A scandal? Just one? No kidding!]

    The trade association “fell into turmoil last week when most of the board resigned in a dispute with the group’s executive director over governance and bonuses,” Bloomberg News reported today, citing six unnamed people familiar with the matter. Members that quit include Bank of America Corp., JPMorgan Chase & Co., Deutsche Bank AG and Citigroup Inc.

    http://www.bloomberg.com/news/2013-03-04/too-big-to-fail-crowd-turns-on-one-of-their-own.html

    That too pissed me off.

  14. Who was mentioning “conflict of interest”? The whole thing is just one huge, monumental, walking conflict of interest!

    I’m posting only the beginning of this article. For one thing, I got me pretty riled up… and somewhere, someone is going to make a ton of money again and it ain’t gonna me. Or any one of us, for that matter.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/05/why-has-congress-left-housing-to-fannie-mae-and-freddie-mac/

    Why has Congress left housing to Fannie Mae and Freddie Mac?

    Posted by Neil Irwin on March 5, 2013 at 10:09 am

    Here’s how strange things have gotten in the world of housing finance. Fannie Mae and Freddie Mac, along with their regulator, are doing more to dismantle themselves than Congress can be bothered to do. Monday their regulator, Ed DeMarco of the Federal Housing Finance Agency, said that a new company will be formed that will do much of the back-office work of both firms, setting the stage for whatever Congress decides to do next to overhaul the mortgage sector.

    The two government-sponsored mortgage finance companies are nearing the five-year anniversary of when the feds took them over, a bailout that has cost taxpayers $131 billion so far. They have been vilified, particularly by conservatives, as representing the worst of crony capitalism (fairly) and as being major drivers of the financial crisis (unfairly). For many Republicans, their stated objection to the Dodd-Frank financial reform act (emphasis on stated) was that it didn’t do anything to reform Fannie and Freddie.

    And yet nothing. No legislation to overhaul the nation’s mortgage finance has passed either the Republican-led House or the Democratic-led Senate. The White House unveiled a plan for what to do—more than two years ago—that was less a plan than a menu of options from which Congress might choose in sculpting its own approach to reforming the government-sponsored enterprises, or GSEs.

    So what is going on here? How is this an area where seemingly everybody agrees there needs to be an overhaul, yet no actual legislative action?

    The answer boils down to this: Too many people benefit from the current system, and too many people have something to lose in any overhaul.

  15. Fraudulently induced bankster debt is a control mechanism of the bank owners. This is not about the money for them, it is all about control. They lend nothing and collect all payments as usury. It is control by investing in everything we pay for. Almost all tax money and social safety net money goes in their pockets and they dole out what they see fit. It is all robbery.

    Look around at the blight in our communities that they caused. They control the politicians, and the judiciary as well with our stolen wealth.

    We need to boycott the Corps, sue these crooks, abolish the FED and issue our own currency, U.S. BANK NOTES…

  16. Hman,

    My understanding is that you can, indeed, since the action is a new, different one, based on different breaches of law, even if the defendant is the same one as before. However, without specifics, it is hard to give you a definite answer.

    You would need to check with an attorney though. You don’t need to retain him but at the very least, check: even if you believe that it is a different action, with different allegations, it all comes down to whether the judge will agree (and make no mistake, if, indeed, the defendant is the same one, you can bet your boots that he will allege in his defense that it is the same action, with the same players and arising out of the same occurrence/event/circumstances and try to get you for defense costs and, possibly, sanctions.

    Hope that helps.

  17. Glad to see people are still fighting.

    Couple questions off topic if anyone has any info would be appreciated.

    If you’ve already went to Civil Court and case was dismissed. Time to appeal has expired. Home is not yet sold. Can you start a new lawsuit on different grounds?

    Say for example you found new information, like the trust your home was in has a current value of $0. However, this info was just discovered and wasn’t known at the time of your hearing can you file a new suit with the new info? Another QT on different grounds?

  18. Student loans are being used by the government to keep youngsters from rioting in the streets.. it’s meant to keep them placated with “free money” for 4-6-8 years… and set them up for a life of servitude to the same government that is destroying the jobs these students expect to fall into when they graduate.

  19. off topic but a parallel
    consider the music industry and how artists are exploited and royalties owed- the greedy company makes the rules, no oversignt, then interprets them being their own “regulator”, because they can. The system is a complete set up. i hope our children wise up. i think they are actually, least those who were not prevented from getting an education.

  20. [Cite as
    EMC Mtge. Corp. v. Atkinson
    , 2013-Ohio-782.]
    STATE OF OHIO ) IN THE COURT OF APPEALS
    )ss: NINTH JUDICIAL DISTRICT
    COUNTY OF SUMMIT)

    EMC MORTGAGE CORPORATION
    Appellee
    v.
    ROBERT W. ATKINSON, JR., et al.
    Appellant
    C.A. No. 25968
    APPEAL FROM JUDGMENT
    ENTERED IN THE
    COURT OF COMMON PLEAS
    COUNTY OF SUMMIT, OHIO
    CASE No. CV 2003 04 2401
    DECISION AND JOURNAL ENTRY
    Dated: March 6, 2013
    BELFANCE, Judge.

    {¶1}
    Defendant-Appellant Robert Atkinson, Jr. appeals from the ruling of the Summit County Court of Common Pleas denying his Civ.R . 60(B) motion. For the reasons set forth below, we vacate the judgment and remand the matter for proceedings consistent with this opinion.

    http://www.supremecourt.ohio.gov/rod/docs/pdf/9/2013/2013-ohio-782.pdf

  21. Very interesting and unusual foreclosure-related case. Appeal dismissed.

    http://www.supremecourt.ohio.gov/rod/docs/pdf/1/2013/2013-ohio-760.pdf

    APPEAL NO. C-120476
    TRIAL NO. A-0804913
    O P I N I O N.
    OHIO FIRST DISTRICT COURT OF APPEALS

    IN THE COURT OF APPEALS
    FIRST APPELLATE DISTRICT OF OHIO
    HAMILTON COUNTY, OHIO
    SUMMITBRIDGE NATIONAL
    INVESTMENTS, LLC,
    Plaintiff-Appellant,
    vs.
    AMERITEK CUSTOM HOMES, INC.,
    et al,
    Defendants,
    and
    TIMOTHY P. OLIVERIO,
    KELLY LOUIS OLIVERIO,
    LYNNE BAYER,
    AMBER N. MANGOLD,
    LORAINE A. DAHLHEIMER,
    PATRICE DAHLHEIMER,
    ADAM JANSZEN,
    MICHAEL S. ROSING,
    DONALD G. SEYFERTH,
    JACQUELINE M. SEYFERTH,
    DANIEL G. LEE,
    DAVID J. DIXON,
    and
    CARRIE M. MEYE
    R
    Defendants-Appellees.

    Appeal dismissed

  22. Put simply, it is totalitarianism disguised as money lending and investing.

  23. This is all bank owner greed ….they default, invest in their own scams and insure theselves on the risk and capitalize on the overissuance of the investments. Max Keiser has a name for them, suicide bankers. They set everyone up to fail by overissuing investments in revenue flows that don’t even exist. Everything is an illusion for the benefit of the bank owners who are control freaks….It has nothing to do with the money and everything to do with mind control because these banks do not lend any money.

  24. People in general did not get student loans to live off. They got student loans so they could pay the exhorbitantly high cost of education. I know people who got these loans many years ago BEFORE anyone knew there was a scam going on. I seem to remember an article about two years ago when the scam was first coming to light. That article was about NYU and usurious loans given to students.

  25. I have one of those loans that I received from Heald College and at the age of 71 the pitfalls for apiring minds callled students. I am disputing the method of these loans and cautioned many freinds while I was educating myself in law. It is greed that drives the bus over the cliff and inspite of the road signs it is compelling to students. On my agreement I requested and checked the box to send excess funds back to the lender FEDERAL LOANS. Many are not and just as menitoned are attempting to live off of the monies that are given to survive. It is a tragedy and they are at a high risk to fail.There cannot be that many jobs available in the medical, accounting, pharmaceutical and paralegal fields (“PARALEGAL” this is the one I had chosen because of Wells Fargo attempting to remove me from my home through foreclosure). I won the case but with a great deal of studying and Learning the legality of every aspect of law and it pitfalls is the first thing to learn before signing any kind of contract and what the outcome could be. Robert I. Wade.

  26. We are condeming our young folks to the same disaster as most of us have faced or are facing.Apply large syringe of cnacer to an already bleeding system.Makes sense doesn’t it?

  27. Sorry to say but… stupidity is doing the same thing over and over and expecting a different result each time.

    Those investors I hear crying foul on American greed or who got conned and lost a fortune in the could-have-been mortgage backed securities are the same ones who demonstrate that kind of stupidity. No pity from me here. Especially given the fact that the same recurrent themes have consistently emerged in the student loans: no notes, robot-signing, no securitization per se.

    Grow up and learn something. Can’t buy money with money. Especially when it’s backed by emptiness in a vacuum. And in the end, the only winner is the banker.

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