Hiring an Expert: What Are you Looking For in Foreclosure Litigation?

I have spent the last 7 years developing the narrative for an expert opinion that could be presented, believed and sustained in court. In writing to a probable new expert we will offer through the livinglies.store.com I summarized what attorneys should be looking for when they consult with an expert in structured finance (i.e., derivatives, securitization etc.).

Here  are some of the issues you want covered by the expert declaration and testimony in court. The basic rule of thumb is that the expert must have both the qualifications to testify as an expert and a persuasive narrative of why his conclusions are right. Without both, the testimony of the expert simply doesn’t matter and will be rejected.

If you are a proposed expert in structured finance, then here is what I would want to know, and what I think lawyers should ask, depending upon what fact pattern is present in each case.

One thing I need to know is whether you feel comfortable in talking about the ownership and balance of the loan.

In one example American Brokers Conduit was the payee on the note and mortgage. We alleged that they didn’t loan the money. Our narrative ran something like this: if you ask me for a loan, and I respond “Yes just sign this note and mortgage” AND THEN you sign the note and mortgage AND THEN I don’t give you a loan, ARE YOU PREPARED TO SAY THAT THE NOTE AND MORTGAGE WERE DEFECTIVE IN A BASIC WAY, TO WIT: THAT THE SIGNATURE ON THE NOTE AND MORTGAGE WAS PROCURED BY FRAUD OR MISTAKE AND THAT WITHOUT THE IDENTIFICATION OF THE REAL CREDITOR BOTH INSTRUMENTS ARE DEFECTIVE.

Would you, as a reasonable business person accept a note purporting to be a negotiable instrument under the UCC if you knew that the transferor neither funded the loan nor (if they purport to be a successor) paid for the assignment?

What is your opinion of your position if you found out after acceptance of the note and mortgage that there was doubt as to whether the obligation was funded or purchased for value? What would you do or suggest to a client in either of those positions — (1) knowledge [or “must have known] or (2) no knowledge [and later finding out that there is doubt as to funding and purchasing for value]?

Are you prepared to say that the fact that the borrower actually did receive money as a loan from another different party does not create a circumstance where the borrower is construed to convey any rights to anyone other than the source of funds or someone in actual privity with the lender — and that both note and mortgage are defective under normal recording statutes — and certainly not a commitment by the debtor to BOTH the source of the funds and the receiver of the signed promissory note and mortgage?

In the one case referred to above, the corporate representative conceded that ABC didn’t loan the money. He was unable to explain what was transferred by ABC to Regents and from Regents to 1st Nationwide and thence to CitiCorp by merger. He admitted that “Fannie Mae was the investor from the start.” You and I understand that neither Fannie and Freddie are lenders. They are guarantors and they serve as Master Trustee for hidden REMIC trusts. (Do you know or agree with that assertion?)

But the question is whether the note is actual “evidence of the debt” (the black letter definition of a promissory note when it contains a promise to pay) when the creditor is identified as a party who was not a lender. In the absence of disclosures of some representative capacity for an actual lender, are you prepared to testify that the note is unenforceable even if the debt is otherwise enforceable in relation to the actual source of funds?

Or would you say that it is not enforceable by the stated payee but it might still be evidence of the debt and evidence of the terms of repayment to the third party source? How does the marketplace treat such questions in valuing a note and mortgage?

The question is whether the expert actually believes and is willing to argue that these conclusions are true and correct.  The expert must earnestly believe these assertions to be true, logically and legally.
Is it acceptable to the prospective expert to see a result where the application of law and facts results in the homeowner getting his home free and clear — on the basis that the wrong party sued him or initiated foreclosure (in non judicial states), or that the notice of default, notice of acceleration, and statements of money due were wrong.
The approach is an attack on ownership and balance. The balance would be wrong, even if the ownership was established, if the payments were not applied properly. The payments include all payments received by the creditor.  That includes all servicer advances directly to trust beneficiaries, as well as insurance and loss sharing payments (i.e., from FDIC and others) paid and received on behalf of the investors directly or the trust beneficiaries.
Part of the reasoning here is that you really have an interesting problem. The Trust beneficiaries agreed to “loan” money to a REMIC trust in exchange for a complex formula of repayment under the indenture of the mortgage bond (contained in the Prospectus and Pooling and Servicing Agreement). Those terms are different than the terms signed by the homeowner.
So there are two agreements — the mortgage bond and the mortgage note. Different parties, new parties are in the PSA as insurers, servicers,servicer advances etc. all resulting in a DIFFERENT payment from an assortment of parties expected by the creditor —different than the one promised by the debtor whether you refer to the note as evidence of the debt or not.Add the complicating factor that without evidence that the Trust was ever funded (i.e., without evidence that the broker dealer sent the proceeds from the offering prospectus to the trust) how do we answer the basic contract question: was there a meeting of the minds? The expectations of the lender (investors) and the borrower (homeowner) are entirely different and the documents used are completely different.

How could the Trust have entered into any transaction for the origination or acquisition of loans without evidence of funding?

On what basis can the Trustee or servicer claim any authority if the Trust was not funded and was essentially ignored? Does the expert agree that avoiding or ignoring the trust means avoiding and  ignoring the prospectus AND the PSA, which contains the authority for ANYONE to act on behalf of the investors, who are no longer “trust beneficiaries” but just a group of investors without a vehicle for their investment?

ESSENTIAL QUESTION: Is the expert prepared to testify about this aspect of structured finance — i.e., how do you connect up the debtor and the creditor? As an expert you would be expected to be able to testify on exactly that question.

And finally there is testimony about the mortgage. If the mortgage secures the note (not the debt, necessarily), which is what is stated in the mortgage, then is the expert willing to testify that the mortgage was defective and should never have been recorded?

Would it not be true, in your estimation, that if a homeowner executes a mortgage in favor of a party posing as a lender, and that party is not a lender to the homeowner, that you could testify that the moment such a mortgage is recorded it probably clouds title?

Would you be willing to testify that based upon those facts, you would say that it is an unknown variable as to who to pay?

Would you be wiling to testify that if you don’t know who to pay, you have no basis for trusting a satisfaction of mortgage from any party including the the original mortgagee?

And lastly that if there is no basis on the face of the instruments or in recorded instruments to presume a valid creditor has been named, that no better presumptions would attach to any assignment, endorsement or other instrument of transfer?

For information concerning expert declarations, consultations and testimony from experts with appropriate credentials to be qualified as an expert, or for litigation support, please call 954-495-9867 or 520-405-1688.

The Big Cover-Up in Our Credit Nation

Regulators have confirmed that there were widespread errors by banks but that the errors didn’t really matter. They are trying to tell us that the errors had to do with modifications and other matters that really didn’t have any bearing on whether the loans were owned by parties seeking foreclosure or on whether the balance alleged to be due could be confirmed in any way, after deducting third party payments received by the foreclosing party. Every lawyer who spends their time doing foreclosure litigation knows that report is dead wrong.

So the government is actively assisting the banks is covering up the largest scam in human history. The banks own most of the people in government so it should come as no surprise. This finding will be used again and again to say that the complaints from borrowers are just disgruntled homeowners seeking to find their way out of self inflicted wound.

And now they seek to tell us in the courts that nothing there matters either. It doesn’t matter whether the foreclosing party actually owns the loan, received delivery of the note, or a valid assignment of the mortgage for value. The law says it matters but the bank lawyers, some appellate courts and lots of state court judges say that doesn’t apply — you got the money and stopped paying. That is all they need to know. So let’s look at that.

If I found out you were behind in your credit card payments and sued you, under the present theory you would have no defense to my lawsuit. It would be enough that you borrowed the money and stopped paying. The fact that I never loaned you the money nor bought the loan would be of no consequence. What about the credit card company?

Well first they would have to find out about the lawsuit to do anything. Second they could still bring their own lawsuit because mine was completely unfounded. And they could collect again. In the world of fake REMIC trusts, the trust beneficiaries have no right to the information on your loan nor the ability to inquire, audit or otherwise figure out what happened tot heir investment.

It is the perfect steal. The investors (like the credit card company) are getting paid by the borrowers and third party payments from insurance etc. or they have settled with the broker dealers on the fraudulent bonds. So when some stranger comes in and sues on the debt, or sues in foreclosure or issues of notice of default and notice of sale, the defense that the borrower has no debt relationship with the foreclosing party is swept aside.

The fact that neither the actual lender nor the actual victim of this scheme will ever be compensated for their loss doesn’t matter as long as the homeowner loses their home.  This is upside down law and politics. We have seen the banks intervene in student loans and drive that up to over $1 trillion in a country where the average household is $15,000 in debt — a total of $13 trillion dollars. The banks are inserting themselves in all sorts of transactions producing bizarre results.

The net result is undermining the U.S. economy and undermining the U.S. dollar as the reserve currency of the world. Lots of people talk about the fact that we have already lost 20% of our position as the reserve currency and that we are clearly headed for a decline to 50% and then poof, we will be just another country with a struggling currency. Printing money won’t be an option. Options are being explored to replace the U.S. dollar as the world’s reserve currency. No longer are companies requiring payments in U.S. dollars as the trend continues.

The banks themselves are preparing for a sudden devaluation of currency by getting into commodities rather than holding their money in US Currency. The same is true for most international corporations. We are on the verge of another collapse. And contrary to what the paid pundits of the banks are saying the answer is simple — just like Iceland did it — apply the law and reduce the household debt. The result is a healthy economy again and a strong dollar. But too many people are too heavily invested or tied to the banks to allow that option except on a case by case basis. So that is what we need to do — beat them on a case by case basis.

Fatal Flaws in the Origination of Loans and Assignments

The secured party, the identified creditor, the payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust should have been the investor(s) — not the originator, not the aggregator, not the servicer, not any REMIC Trust, not any Trustee of a REMIC Trust, and not any Trustee substituted by a false beneficiary on a deed of Trust, not the master servicer and not even the broker dealer. And certainly not whoever is pretending to be a legal party in interest who, without injury to themselves or anyone they represent, could or should force the forfeiture of property in which they have no interest — all to the detriment of the investor-lenders and the borrowers.
There are two fatal flaws in the origination of the loan and in the origination of the assignment of the loan.

As I see it …

The REAL Transaction is between the investors, as an unnamed group, and the borrower(s). This is taken from the single transaction rule and step transaction doctrine that is used extensively in Tax Law. Since the REMIC trust is a tax creature, it seems all the more appropriate to use existing federal tax law decisions to decide the substance of these transactions.

If the money from the investors was actually channeled through the REMIC trust, through a bank account over which the Trustee for the REMIC trust had control, and if the Trustee had issued payment for the loan, and if that happened within the cutoff period, then if the loan was assigned during the cutoff period, and if the delivery of the documents called for in the PSA occurred within the cutoff period, then the transaction would be real and the paperwork would be real EXCEPT THAT

Where the originator of the loan was neither legally the lender nor legally a representative of the source of funds for the transaction, then by simple rules of contract, the originator was incapable of executing any transfer documents for the note or mortgage (deed of trust in nonjudicial states).

If the originator of the loan was not the lender, not the creditor, not a party who could legally execute a satisfaction of the mortgage and a cancellation of the note then who was?

Our answer is nobody, which I know is “counter-intuitive” — a euphemism for crazy conspiracy theorist. But here is why I know that the REMIC trust was never involved in the transaction and that the originator was never the source of funds except in those cases where securitization was never involved (less than 2% of all loans made, whether still existing or “satisfied” or “foreclosed”).

The broker dealer never intended for the REMIC trust to actually own the mortgage loans and caused the REMIC trust to issue mortgage bonds containing an indenture for repayment and ownership of the underlying loans. But there were never any underlying loans (except for some trusts created in the 1990’s). The prospectus said plainly that the excel spreadsheet attached to the prospectus contained loan information that would be replaced by the real loans once they were acquired. This is a practice on Wall Street called selling forward. In all other marketplaces, it is called fraud. But like short-selling, it is permissible on Wall Street.

The broker dealer never intended the investors to actually own the bonds either. Those were issued in street name nominee, non objecting status/ The broker dealer could report to the investor that the investor was the actual or equitable owner of the bonds in an end of month statement when in fact the promises in the Pooling and Servicing Agreement as to insurance, credit default swaps, overcollateralization (a violation of the terms of the promissory note executed by residential borrowers), cross collateralization (also a violation of the borrower’s note), guarantees, servicer advances and trust or trustee advances would all be payable, at the discretion of the broker dealer, to the broker dealer and perhaps never reported or paid to the “trust beneficiaries” who were in fact merely defrauded investors. The only reason the servicer advances were paid to the investors was to lull them into a false sense of security and to encourage them to buy still more of these empty (less than junk) bonds.

By re-creating the notes signed by residential borrowers as various different instruments, and there being no limit on the number of times it could be insured or subject to receiving the proceeds of credit default swaps, (and with the broker dealer being the Master Servicer with SOLE discretion as to whether to declare a credit event that was binding on the insurer, counter-party etc), the broker dealers were able to sell the loans multiple times and sell the bonds multiple times. The leverage at Bear Stearns stacked up to 42 times the actual transaction — for which the return was infinite because the Bear used investor money to do the deal.

Hence we know from direct evidence in the public domain that this was the plan for the “claim” of securitization — which is to say that there never was any securitization of any of the loans. The REMIC Trust was ignored, thus the PSA, servicer rights, etc. were all nonbinding, making all of them volunteers earning considerable money, undisclosed to the investors who would have been furious to see how their money was being used and the borrowers who didn’t see the train wreck coming even from 24 inches from the closing documents.

Before the first loan application was received (and obviously before the first “closing” occurred) the money had been taken from investors for the expressed purpose of funding loans through the REMIC Trust. The originator in all cases was subject to an assignment and assumption agreement which made the loan the property and liability of the counter-party to the A&A BEFORE the money was given to the borrower or paid out on behalf of the borrower. Without the investor, there would have been no loan. without the borrower, there would have been no investment (but there would still be an investor left holding the bag having advanced money for mortgage bonds issued by a REMIC trust that had no assets, and no income to pay the bonds off).

The closing agent never “noticed” that the funds did not come from the actual originator. Since the amount was right, the money went into the closing agent’s escrow account and was then applied by the escrow agent to fund the loan to the borrower. But the rules were that the originator was not allowed to touch or handle or process the money or any overpayment.

Wire transfer instructions specified that any overage was to be returned to the sender who was neither the originator nor any party in privity with the originator. This was intended to prevent moral hazard (theft, of the same type the banks themselves were committing) and to create a layer of bankruptcy remote, liability remote originators whose sins could only be visited upon the aggregators, and CDO conduits constructed by CDO managers in the broker dealers IF the proponent of a claim could pierce a dozen fire walls of corporate veils.

NOW to answer your question, if the REMIC trust was ignored, and was a sham used to steal money from pension funds, but the money of the pension fund landed on the “closing table,” then who should have been named on the note and mortgage (deed of trust beneficiary in non-judicial states)? Obviously the investor(s) should have been protected with a note and mortgage made out in their name or in the name of their entity. It wasn’t.

And the originator was intentionally isolated from privity with the source of funds. That means to me, and I assume you agree, that the investor(s) should have been on the note as payee, the investor(s) should have been on the mortgage as mortgagees (or beneficiaries under the deed of trust) but INSTEAD a stranger to the transaction with no money in the deal allowed their name to be rented as though they were the actual lender.

In turn it was this third party stranger nominee straw-man who supposedly executed assignments, endorsements, and other instruments of power or transfer (sometimes long after they went out of business) on a note and mortgage over which they had no right to control and in which they had no interest and for which they could suffer no loss.

Thus the paperwork that should have been used was never created, executed or delivered. The paperwork that that was created referred to a transaction between the named parties that never occurred. No state allows equitable mortgages, nor should they. But even if that theory was somehow employed here, it would be in favor of the individual investors who actually suffered the loss rather than the foreclosing entity who bears no risk of loss on the loan given to the borrower at closing. They might have other claims against numerous parties including the borrower, but those claims are unliquidated and unsecured.

The secured party, the identified creditor, the payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust should have been the investor(s) — not the originator, not the aggregator, not the servicer, not any REMIC Trust, not any Trustee of a REMIC Trust, and not any Trustee substituted by a false beneficiary on a deed of Trust, not the master servicer and not even the broker dealer. And certainly not whoever is pretending to be a legal party in interest who, without injury to themselves or anyone they represent, could or should force the forfeiture of property in which they have no interest — all to the detriment of the investor-lenders and the borrowers.

Why any court would allow the conduits and bookkeepers to take over the show to the obvious detriment and damage to the real parties in interest is a question that only legal historians will be able to answer.

Wells Fargo Attempting to “offer” Modifications But Refusing to Put it in Writing

Danielle Kelley, Esq. is getting corroboration on trial modifications from lawyers and other professionals assisting homeowners all over the country. She is bearing down hard on situations where the homeowner enters into the trial modification, complies with all the terms, and then is faced with a unilateral decision by the bank to foreclose anyway. Decisions are coming that have forced the banks to reconsider that position and lately there are other tricks being deployed — like refusing to put the modification offer in writing. Thus puts the homeowner in the position of paying money for nothing, which appears to be exactly what the banks want.

Here is what Darrel Blomberg in Arizona wrote to me this morning:

We all remember the Wigod v. Wells Fargo Bank N.A. (673 F.3d 547) case out of the Seventh Circuit.  You know, the one where Wells Fargo had to fess up and honor a homeowner’s modification after the homeowner had agreed in writing to a trial loan modification offer and subsequently made all of the required payments.

Anyway, I’ve been helping an associate with his home loan assistance request with, none other than, Wells Fargo.  After many months of doing the document and financial proctology dance with Wells Fargo, my associate had a success.  Uh, of sorts.

Wells Fargo called him today with the details of his trial loan modification offer.  (Did you catch that?)

We were on the call together with Mr. E. of Wells Fargo.  Mr. E., his single point of contact (at least his third one) ran down the details of the trial loan modification offer.  That’s fine and dandy.  Here’s the killer.  Mr. E. was asked when the trial loan modification offer would be sent to the homeowner in writing.  My associate was informed that nothing would be sent out until my associate had completed his three trial payments.

I could see exactly where this was coming from.  Wigod!  So, this is Wells Fargo’s feeble attempt to make sure they can, without accountability, deny a defenseless homeowner their rightful modification because nothing has been reduced to writing.

Do you think you would ever be able to transact business orally with Wells Fargo at any of their branches?

My answer to him was this:

If you kept careful notes, then the fact of the matter is that you have been orally informed that the underwriting is complete. That is what the law says — if the offer is made it means the underwriting has been completed. Talk to Danielle Kelley about these details, whom I am copying on with this email. I think I would serve a letter demanding that the offer be sent in writing because in order to make the offer they had to complete the underwriting and that there would be no choice but to make the modification permanent after the trial payments were timely made. As to forcing them to put it in writing, I don’t know. They are obviously trying to get the trial payments and then keep their options open for foreclosure despite compliance by the borrower. The Courts are not liking that one bit.

NOTE: FOR MORE INFORMATION ON THIS, PLEASE SEND EMAIL TO neilFgarfield@hotmail.com.

To all readers: Please add to this post by commenting below.

Who is the DEADBEAT: Borrower or Bank?

Many thanks to Danielle Kelley, Esq. for appearing on last night’s members’ teleconference. I forgot to give the number out for the firm: 850-765-1236

Just to cap it off, here is her Post from yesterday at Danielle Kelley Blog:

Danielle Kelley, Esq.

The propaganda from the banks has been far-reaching.   Even if they devised a scheme to fraudulently throw away a homeowner’s hope at a modification, they are still pursuing the “deadbeat” homeowner argument.  The essence is that the homeowner was not paying, so it doesn’t matter what happened after the homeowner defaulted.

That “deadbeat” argument is a myth.  Whenever I interview a client, I am careful not to lead them.  I simply ask the question, “What caused you to go into default?”.  Nine times out of ten I will hear, “The bank said I had to be so many months behind to help me.”  Or in the alternative, “My payments kept increasing and I didn’t know why.  I called the bank to ask and they told me that unless I was behind in payments they couldn’t help.”  After that the homeowner is left at the mercy of bank who is pretending to consider them for a modification, but yet fraudulently thwarting that process.

The first answer is the “stop payment” answer, which I have discussed in a previous blog.  The second answer is now what I call the “bait and switch” on escrow accounts.  Homeowners who pay monthly to the bank, unless agreed otherwise, expect the bank to take part of that payment and pay the taxes and insurance on the property with it.  If the bank does not, the escrow account goes into the negative and the homeowner has to make up the difference in the payment.  It is called an “escrow shortage”.  And no one is immune, not even those who pay every month, on time, and would not dare to consider themselves as people who would fall into foreclosure.

I have seen it time and again.  In one case, BOA inflated the escrow account $12,000 which resulted in a payment of $900 more per month.  That very case would become my own, with my father on our Note.  When he called to ask “why” the payments were going up he was given the script “To get that $900 off you need help.  We can’t help you because you are current on your payments.  You need to show us you need our help by making a partial payment.”  Later when the partial payment was not applied, BOA stated that to be considered for a modification we had to stop paying altogether.  Left with four years of modification attempts in bad faith, we were requested by BOA (in order to keep the modification file open) to record a quit claim deed to myself and my husband which came with a high price for documentary stamps.  We were told to submit letters to the bank, and then told we could not mention the “stop payment” language in them.  The letters had to be all about how we were suffering a “hardship” with no blame pointed towards the bank.  The reasoning?  They had to get Freddie Mac, the loan “owner”, to approve a modification, and Freddie wouldn’t dare approve a modification if BOA had done something wrong.  To this day, BOA wants to pursue a foreclosure, yet they have absolutely no explanation for what inflated the escrow account to begin with.

In another case, unrelated to me, other than my representation of my client, the bank stopped paying the insurance in full.  The homeowner had no idea that the insurance policy had lapsed until a year later when they were asked to make up for an escrow deficiency.  At a payment climbing hundreds of dollars more than they ever agreed to pay, when they had been making their payments in full and counting on the bank, per the mortgage contract, to pay the insurance, they were now faced with payments they should have never been liable for.  They were not a “deadbeat”.  They were paying in full all along.

Then the truth is brought to light, and the deadbeat argument fails because we learn that no one, not one person, is immune from this.  If a homeowner is making monthly payments and depending on a bank to pay the taxes and insurance, they are at the mercy of the bank. And often to a bank like BOA who is seeking to foreclose loans to get them off of their books, as their own employee declarations filed in the HAMP case in Massachusetts show us.

They have no incentive not to deliberately inflate a homeowner’s escrow account and cause the payment to rise to the point where the homeowner calls them and eventually ends up in default.  Their own employees have stated that they profit from foreclosures over modifications.

So before the argument is bought that the homeowner in foreclosure is a “deadbeat”, know this much, the bank can cause you to become a “deadbeat” too, even if every payment is made in full and right on time.

More Lies: Housing Data

BUYERS SHOULD BEWARE OF “GREAT DEALS”

AND ASK CITY OFFICIALS FOR REAL DATA

“You have to ask yourself the question “WHY?” why would banks reject modifications where borrowers would keep paying and instead foreclose and then abandon the house. Something is going on here.” — Neil F Garfield, livinglies.me

“The real answer is to go to the banks and stop asking for answers and start asking for the money they made while everyone else lost on the deal.” — Neil F Garfield http://www.livinglies.me

Editor’s Note: It’s all happening because whenever reporters, officials or investors research the housing market, they are getting data from the very people who don’t want you to know anything. Going to the Banks for mortgage and housing data is no different from asking a convicted felon (let’s say a rapist) for education on sex. You are going to hear what they want to tell you, not the facts.

As the article below points out, Banks and Realtors, as well as others who have a stake in making you believe that the housing market is (a) not that bad and (b) is getting better. Both statements are untrue. The people to ask are the city officials who are dealing with the aftermath of the holocaust caused by Wall Street mortgage manipulations, the county recorders, and the people themselves who live in neighborhoods that have been destroyed by foreclosure because most of the homes are vacant , stripped or the headquarters of the latest gang of thieves or drug dealers.

As pointed out below, the official Bank figures state that there are 5,000 vacant homes in Chicago. In a city that size, one would think that the vacancy is within reason. But the true facts are that more than 100,000 homes are vacant, with probably the same number about to be vacant as the homeowners confront mortgage servicers and banks claiming their homes but not yet doing anything about it.

These are the people who have strategically defaulted, stayed in the home, and then waited or put up a fight, lasting months or even years without payments, thus recovering part of the investment they made when they bought the house or bought the silly loan product that the “lender” pushed on them, knowing that the home would be in foreclosure.

So these people are sitting on homes that at best are worth 50% of the appraised value used when the “loan” was closed (albeit with someone other than the investor-lender). This part of the problem can be easily fixed by principal reductions or corrections to reflect market reality. Businesses do it everyday in Chapter 11 reorganizations. But the Banks bought their way into legislation that prevented bankruptcy judges from stripping residential liens down to their true value — which is the underlying value of the property.

So the only practical alternative is to walk away and let whoever wants to foreclose, go ahead and steal the property with a credit bid that comes from a party who never was a creditor in the financial transaction between the borrower and the lender. It all seems surreal but it is true.

THE RECESSION: Then you have the unemployment problem and the underemployment problem where people who had an income no longer have that income and they are running out of savings, retirement funds and credit to keep making the payments. This (a) obviously presents imminent foreclosures that are not yet on anyone’s books and (b) hides a valuation problem for homes that is sickening if you are accustomed to thinking of this problem as a cyclical problem that will fix itself.

As unemployment and underemployment rises, and wages either stagnate or go down as a result of inflation and a weak economy, median income drops. It is just a mathematical computation: arithmetic. If people don’t have the income to buy or maintain a house they are not going to own one. As the Case-Schiller index clearly shows, proven over 120 years of analysis, home valuations are so closely tied to median income that they can be considered the same thing.

The housing market stinks and it is dropping. City officials are stuck with figuring out how, on shrinking budgets, they are going to deal with so large a number of homes that are vacant with an endless supply of vacant homes in sight. Some cities are bull dozing the homes while others consider using eminent domain to ward off future foreclosures. The real answer is to go to the banks and stop asking for answers and start asking for the money they made while everyone else lost on the deal.

As intermediaries, the banks are supposed to get paid for their service in processing transactions, deposits and loans. We now have the banks entering any transaction they want as a principal without disclosure to either the borrower or the lender, and then, temporarily “owning” the loan, selling it 20-30 times. Having done that and made a fortune, they toss the “loss” over to the investor lender when there is nothing left in the investment. Pensions get slashed, retirement funds get reduced, and median income drops even further.

Very Bad Things Happen When We Depend on the same People Who Caused the Foreclosure Crisis to Track Its Destruction

Alternetnet/ by Sam Jewler, Chris Herwig

See Full article at very-bad-things-happen-when-we-depend-same-people-who-caused-foreclosure-crisis-track

AP Fannie, Freddie and BOA set to Reduce Principal and Payments

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Editor’s Comment:

Partly as a result of the recent settlement with the Attorneys General and partly because they have run out of options and excuses, the banks are reducing principal and offering to reduce payments as well. What happened to the argument that we can’t reduce principal because it would be unfair to homeowners who are not in distress? Flush. It was never true. These loans were based on fake appraisals at the outset, the liens were never perfected and the banks are staring down a double barreled shotgun: demands for repurchase from investors who correctly allege and can easily prove that the loans were underwritten to fail PLUS the coming rash of decisions showing that the mortgage lien never attached to the land. The banks have nothing left. BY offering principal reductions they get new paperwork that allows them to correct the defects in documentation and they retain the claim of plausible deniability regarding origination documents that were false, predatory, deceptive and fraudulent. 

Fannie, Freddie are set to reduce mortgage balances in California

The mortgage giants sign on to Keep Your Home California, a $2-billion foreclosure prevention program, after state drops a requirement that lenders match taxpayer funds used for principal reductions.

By Alejandro Lazo

As California pushes to get more homeowners into a $2-billion foreclosure prevention program, some Fannie Mae and Freddie Mac borrowers may see their mortgages shrunk through principal reduction.

State officials are making a significant change to the Keep Your Home California program. They are dropping a requirement that banks match taxpayers funds when homeowners receive mortgage reductions through the program.

The initiative, which uses federal funds from the 2008 Wall Street bailout to help borrowers at risk of foreclosure, has faced lackluster participation and lender resistance since it was rolled out last year. By eliminating the requirement that banks provide matching funds, state officials hope to make it easier for homeowners to get principal reductions.

The participation by Fannie Mae and Freddie Mac, confirmed Monday, could provide a major boost to Keep Your Home California.

Fannie Mae and Freddie Mac own about 62% of outstanding mortgages in the Golden State, according to the state attorney general’s office. But since the program was unveiled last year, neither has elected to participate in principal reduction because of concerns about additional costs to taxpayers.

Only a small number of California homeowners — 8,500 to 9,000 — would be able to get mortgage write-downs with the current level of funds available. But given the previous opposition to these types of modifications by the two mortgage giants, housing advocates who want to make principal reduction more widespread hailed their involvement.

“Having Fannie and Freddie participate in the state Keep Your Home principal reduction program would be a really important step forward,” said Paul Leonard, California director of the Center for Responsible Lending. “Fannie and Freddie are at some level the market leaders; they represent a large share of all existing mortgages.”

The two mortgage giants were seized by the federal government in 2008 as they bordered on bankruptcy, and taxpayers have provided $188 billion to keep them afloat.

Edward J. DeMarco, head of the federal agency that oversees Fannie and Freddie, has argued that principal reduction would not be in the best interest of taxpayers and that other types of loan modifications are more effective.

But pressure has mounted on DeMarco to alter his position. In a recent letter to DeMarco, congressional Democrats cited Fannie Mae documents that they say showed a 2009 pilot program by Fannie would have cost only $1.7 million to implement but could have provided more than $410 million worth of benefits. They decried the scuttling of that program as ideological in nature.

Fannie and Freddie last year made it their policy to participate in state-run principal reduction programs such as Keep Your Home California as long as they or the mortgage companies that work for them don’t have to contribute funds.

Banks and other financial institutions have been reluctant to participate in widespread principal reductions. Lenders argue that such reductions aren’t worth the cost and would create a “moral hazard” by rewarding delinquent borrowers.

As part of a historic $25-billion mortgage settlement reached this year, the nation’s five largest banks agreed to reduce the principal on some of the loans they own.

Since then Fannie and Freddie have been a major focus of housing advocates who argue that shrinking the mortgages of underwater borrowers would boost the housing market by giving homeowners a clear incentive to keep paying off their loans. They also say that principal reduction would reduce foreclosures by lowering the monthly payments for underwater homeowners and giving them hope they would one day have more equity in their homes.

“In places that are deeply underwater, ultimately those loans where you are not reducing principal, they are going to fail anyway,” said Richard Green of USC’s Lusk Center for Real Estate. “So you are putting off the day of reckoning.”

The state will allocate the federal money, resulting in help for fewer California borrowers than the 25,135 that was originally proposed. The $2-billion program is run by the California Housing Finance Agency, with $790 million available for principal reductions.

Financial institutions will be required to make other modifications to loans such as reducing the interest rate or changing the terms of the loans.

The changes to the program will roll out in early June, officials with the California agency said. The agency will increase to $100,000 from $50,000 the amount of aid borrowers can receive.

Spokespeople for the nation’s three largest banks — Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. — said they were evaluating the changes. BofA has been the only major servicer participating in the principal reduction component of the program.

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