Livinglies’s Weblog

This is reply to a question which has been posed to us recently by several readers through email and at least one comment. We have advised demanding the alleged lender (the one suing you in foreclosure or who has scheduled the sale) allow you to inspect and provide you copies of original documents so they can prove their standing or authority to proceed — or you can assert they have no standing, no authority because they don’t have the supporting documentation, they don’t own the loan anymore, and they have no written authority to proceed along with bona fide original documentation showing the assignment.  If they do not respond or admit they don’t have the documents, the case is over, you win they lose.

By the way, they are definitely NOT going to want to show you or anyone else that assignment. It has things in it that they don’t want public. 

But what if they come back with something — just not what you asked for, like an affidavit that says the original was lost? The answer is that an affidavit which does not contain an explanation for what happened to the original and does not attach a copy of the original with a person who REALLY knows, signing the affidavit that the copy is indeed a copy of the original, it is worth nothing. You win, they lose.

An affidavit without those components is simply an admission that they don’t have it. Case over.

The explanation must be plausible and be signed by someone who REALLY knows. If such an affidavit is sent in, in all probability is signed by someone who was presented with it along with the instruction “sign this or be fired.”

• So you want to ask by interrogatory
• or bluff them with a request for admissions 
• (or take their deposition), along with a subpoena duces tecum that demands they bring with them all the original loan documents — if they have some of them, they better have a very convincing explanation of what happened tot he rest besides “we can’t find it)
• that establishes that the person who signed it didn’t work for the lender at the time of the loan closing, and/or 
• had nothing to do with the loan closing, and/or 
• never saw the alleged original, and/or if they did see it, 
• whether they are taking the blame for losing it on themselves with again, a plausible explanation.
• whether they have been disciplined or if any change in policy was published for the company at the time of the alleged discovery of the “lost document.”

Without a copy of the original, nothing matters. They don’t have it and it is extremely unlikely that will succeed in proving the “lost document” since these documents are copied all over the place. If the copy doesn’t have your signature on it, it isn’t the original. The copy you have probably doesn’t have your signature on it either. Thus they can’t prove it with their records or even yours.

Gambling establishments know it, amusement parks know it, retailers know it — anything that separates your perception of spending your own money from the reality results in your spending more. And in the case of the American consumer, we are spending consistently more than we earn and more than we could ever pay back. 

We are all participating in a Ponzi scheme, relying on the next influx of credit from our home, credit card, auto loan or other lending scheme to pay the minimum payment on past debts. Meanwhile when we use chips at the gambling casino, we are not spending “money” so we spend more of it. When we use credit cards, we are not spending “money” so we spend more of it. When we use debit cards, we are not spending money so we spend more of it.

The result is that we walk out of the casino either broke or possibly in financial ruin. We get the credit card bill at the end of the month and we didn’t realize how much we spent. We see “over-limit” fees, late fees, and all kinds of interest and fee items that result in a “minimum payment” that is guaranteed to keep us in debt for life. We get our bank statement at the end of the month and for the 20% of us who even look at it, we get the same surprise — we spent more than we realized using our debit card, in stores and on the internet. We borrow on our home equity credit lines and increase our monthly payments to a level that is out of reach, or in the case of most Americans, to a level that is simply more out of reach that before (what’s the difference, I can’t pay it anyway).

For those of you who revel in conspiracy theory, here is one that is true. The deck is stacked against everyone by a tacit agreement between government and business. They want us stupid and ignorant. The Government, the retailers, the gaming establishments, the banks, the banking networks, non-bank credit card issuers and others on the receiving side of the dollars you spend all want you to avoid paying actual cash. Because they know that if you have cash in your hand you will regard it as yours, as you will be less inclined to part with it. They know that at the end of the month, if you are spending actual currency, you will be the one with money in your pocket and not them. 

Millions of Americans are steadily increasing their spending on credit cards, because they have no other place to go for the money to pay for their normal monthly bills — groceries, utilities, etc. Many are taking down the full amount of their home equity lines of credit for fear that these sources of credit will be frozen — a trend that is growing in the industry. People are taking this money and socking it away in investment accounts, which I hope are in Euro’s because the dollar is going to continue taking a major hit and inflation, while it is a global problem, is headed for far worse territory than most other places on the planet. 

The United States is a place of negative savings (i.e., debt) from top (Federal government) to bottom (you). And nobody is going to help you or your children or grandchildren because all the players have a vested interest in lying to you, misleading you and encouraging you to look at your finances as something other than your future wealth and security. If you are looking for help, look only to yourself and your family members. Get yourselves together and decide on how you are going to navigate the this mess. 

Here are some tips that will help:

1. If you must use credit cards to “make the month” then you are headed for a disaster. So plan for the disaster instead of burying your head in the sand. Get one card that you bring the balance down to zero and use it sparingly, making payments exactly on time and allowing the revolving credit option to be used. So you don’t want to pay the card in full each month, you want to pay it in two or three months. Get a new telephone line and give out the number to your friends. Put the old line on voice mail and unplug it, because the creditors are going to be calling. If you don’t hear the call, it will be less stress. Most card companies do not sue, they hound you through collection agencies. So don’t enter into payment  arrangements with them, and don’t use bankruptcy just because you piled up credit card debt. 
2. For Debt that you already have incurred and will incur in the near future, keep this in mind. You can game the system just like they have gamed you.  Inflation normally is not a  major factor in long term debt. But it is now. If you put off paying the debt, whether it is fixed or revolving, as long as possible, it is VERY possible that inflation will outpace the interest charges. There is no guarantee on this, but at this moment it looks highly probable. So if you pay these debts in 3-5 years it might cost you a fraction of the VALUE of what you owe now. 
3. Pay in cash for the things you are buying if at all possible. It will keep you focussed on what you are spending and if you put the known expenses in envelopes at the beginning of the month, you will still have money at the end of the month.
4. Your mortgage or rent payment takes priority. if that means not paying a credit card, so be it. Keep your house. It is the one non-dollar denominated asset you have. It is your inflation hedge.
5. If you can’t pay the minimum on the credit card, don’t pay it at all. It doesn’t make any difference.
6. Credit card payments should be the last thing on your list to pay after food, housing, medical etc. 
7. If you think you are headed for bankruptcy try to hold out until the next congress gets to work. It is highly probable that the Republican changes will be reversed and that the old rules will return along with higher exemptions. 
8. If you can’t get to an ATM to withdraw the cash and spend cash, then  use the debit card and your PIN, knowing that this is coming out of your bank account. But remember that each time you use that plastic card, you are one step removed from the financial decision as to whether to spend. The one who ends up holding the bag is you.
9. Take advantage of credit card balance transfers with zero interest wherever you can. Play the game. 
10.  If you owe taxes, make some minimum payment that you choose arbitrarily. Don’t enter into an agreement or make contact with the IRS unless they contact you.
11.  If you are falling behind in your mortgage or under stress, don’t wait until the breaking point. Call your mortgage company NOW and tell them you need an accommodation. Get a moratorium on part or all of the payments. Even skipping one payment might make all the difference in the world.
12.  Do NOT overdraft your account and do NOT go for a payday loan. There is NO benefit for you to do either. Both put you in the hole deeper. Work out something with your utility, borrow from a relative (AND PAY IT BACK!), but don’t go for these short-term options. All they do is take more money out of your pocket. 
13.  If your credit score is very high, but YOU know you are headed for disaster, then get as many cards as you can and use them judiciously, keeping in mind the above. If you are screwed anyway, the amount does not make any difference. 
14.  GAME THE SYSTEM: Think of your own ways to “Create” money or money supply in your life. Have Plan B for when you lose that job — what business could you get into on your own that takes very little money to start and which will give you SOME income. Look around and see what people need. You’d be surprised at what people are willing to pay for if it involves making their life easier, or making something convenient — like shopping for seniors etc.
15.  Eat Healthy and exercise: It will reduce your stress level and bring more oxygen and nutrients to your brain. You are going to need your brain for everything it is worth to game the system and escape from the trap that was paid for you and the rest of us. 

These tips are contrary to what you will hear from Suze Orman and other people. They are controversial. While I believe this is the best advice, I could be wrong. Use your own brain and when you consult with others remember the 80-20 rule. 80% of the people you ask, don’t know much and will give you stock answers. Those are the people that will end up broke when this is all over. But by all means seek out the smartest people you know and talk about these things. 

Mortgage Meltdown Remedial Legislation

Barney Frank has a good idea that will work. Mortgage notes must be reduced without penalty to borrowers, and of course continue the tax exemption for short sale. 

Cooperation will be needed by FDIC, Federal Reserve, SEC, FASB, IRS, Controller of Currency and Treasury Department. 

I would add the following AFTER reducing the mortgage by a flat percentage (because it will take too long to figure out 10 million mortgages on a case by case basis):

1. Contingent reverse amortization (betting that housing prices will recover particularly in the event that this plan is put into effect). 75-25 in favor of homeowner up to recovering value of home at time of purchase. Then 75-25 in favor of Lender over purchase price until full value of mortgage is covered. Encourages homeowners to stay in their homes instead of abandoning them. Covers 8.8 million homes instead of 1 million.
2. Allow contingent equity to reported as actual capital for lenders. Allows capital requirements and reserves to be met and allows further lending, increasing market liquidity in the credit and money markets.
3. Allow contingent equity to be reported as footnote capital for investment banking. Allow financial institutions to recover write-downs and avoid additional write-downs.
4. Allow contingent equity to be capital for CDO holders, including where used as collateral.
5. Use flat relief percentage unless hardship is demonstrated. HUD has hearings. Suggested decrease in mortgage debt 20%.
6. Use Fed Funds rate plus 1% as interest rate, 30 year amortization fixed. 3 point service fee that can be paid up front or 5 points if added to note. This applies to all mortgages. Opt-out provisions can apply for those homeowners who wish to opt out. Many will do so rather than go through the hassle of adjustment, even though most of the work will be done by lender.
7. 1 year moratorium on all foreclosures on primary residential dwellings, giving time for mortgages to be converted.
8. 2 month moratorium on payments of principal and interest on primary residential dwellings. Insurance and Taxes must still be paid. Borrowers given up to an additional 6 months to bring their escrow accounts for insurance and taxes up to date.
9. After 1 year moratorium, foreclosures resume only on those homes where the mortgage note has been reset, as above, and borrower has defaulted. 
10.  After 10 years original mortgage and note reinstated, adjusted for payments as above.
11.  On second homes provide relief, by half of the above, and after 5 years original terms reinstated. 
12.  Credit cards: Remedial cap on interest at 15%
13.  Credit Cards: If interest rate is already 15% or under, reduce the rate by 25%.
14.  Cap overdraft, bank fees etc. at 60% of current industry rates. 
15.  Payday advance: cap fees, costs and interest at 10% per month. Require payroll deduction for repayment over maximum of 10 weeks.
16.  Establish aggressive regulatory environment wherein the ultimate holders of risk (CDO owners) are educated as to actual quality of the mortgage-backed securities. This would include indexes identifying subprime loans, subprime borrowers, and various levels of prime borrowers statistically, so that ratings agencies, insurers, investors, fund managers, CFO’s and Treasurers can properly evaluate the risk of the investment. 
17. This uses full information to allow market forces to dictate the credit liquidity offered to home buyers and other consumer debt. In other words, if the buyers of CDOs had been told the truth about these mortgage backed securities, and other aggregate derivative investments, neither the ratings  nor the demand for them would have been nearly as robust. 
18. The meltdown would never have occurred. instead the incentive was to put out as many mortgage loans as possible, artificially inflated prices, because the lenders, closing agents, appraisers etc., were all incentivized to appease the confusion and worriers of the borrower and get the borrower to sign papers.

Perusing Credit Suisse’s latest proposal on Capital Hill, which expands Federal guarantees on mortgages, there is good news and bad news. Good that the severity of the problem is becoming more apparent to those with their fingers on the levers of power. Good also that Credit Suisse, while obviously seeking to protect itself, has at least addressed the issue of turning back the decline in the housing market. Good also that their assumption is that it is possible to turn back the decline. Bad that the assumption is still that foreclosures are going to proceed at a rapid clip.

Foreclosures on primary residences should not proceed, period. Political questions of who should qualify and who shouldn’t based upon political ideology should be put aside for the moment. There is no time to carve out language that satisfies a political consitutency. The housing market is in dire trouble and the threat to to the security of the nation is clear and present.

At this point the extremity of the situation makes the analysis increasingly simple and separate from politics: The cost of foreclosure and evictions to the economy and the taxpayers (and incidentally Credit Suisse), vastly exceeds the cost of keeping people in their homes, for the time being, at all costs. This obvious number crunching fact is evading the geniuses at Credit Suisse and all the other players.

They are assuming they can’t actually stop the foreclosures. Yes they can. They are factoring in a vast number of evictions becasue they are “inevitable.” Wrong again. Of course these points elude the geniuses who came up with the scheme that got us into this mess. The reason is that they are (1) crunching the wrong numbers and (2) not taking a broad enough view of the marketplace.

It is in the interest of every party effected to stop the foreclosures and evictions. The details of the workout are practically irrelevant except to say that the borrower must be convinced to stay put. At this point, any successful plan must include incentives for borrowers to reaffirm, modify or negotiate their payments and stay in the house they purchased. It might even apply to homes purchased speculatively at this point, although I admit that is a push too far for most people to accept. If you look at the economy as a whole and ask “what would be the best result if we had total control?” the answer is obvious — no defaults.

Remove defaults and the entire problem goes away. There is no time for political debate. Either this premise is accepted and acted upon right now or the worst case scenario IS inevitable. remove de faults and there are no write-offs. In fact, some of the write-offs can be recovered. Put a plan in place that contains incentives for EVERYONE (including government) to share the burden, and you have a working plan. The basic flaw of every plan proposed so far by anyone is that it focuses on one group or sector. That is no plan. It is an escape hatch that will allow the proponents to jump from the frying pan into the fire.

The ONLY plan is one which provides adequate incentives to all players —- borrowers, lenders, closing agents, mortgage brokers, lawyers, accountants, investment bankers, securities brokers, investors, fund managers, rating agencies and bond insurors. The plan does not need to be perfect to work. In order for it to START working it must first keep people in their homes.

Thank you all for your comments and suggestions. Very good thinking going on out there. The Garfield Handbooks will be completely ready to start downloading in about 3 weeks. I’ll keep you advised. We will be taking PayPal, Visa and MasterCard. Possibly American Express and Discover as well. We are presented with two issues that are sucking the economic and social life out of local areas and channelling the money into the hands of a few people. It is no accident that real estate in New York City is booming. That is where all our money went. And it won’t be any surprise when the market crashes there either — when it comes time to answer for what they did.In a fax and mail transmission to the governors, attorney generals, and local government officials of many states, combined with a cross country tour to meet with them, I am proposing plans for the establishment of two non-federal interstate agencies: The Interstate Finance Commission and the Interstate Currency Network. If we can get some traction on these programs, we can mitigate the dangerous, probably catastrophic effects of the credit crisis and mortgage meltdown on the local level. 

The first thing we have to do is freeze the entire legal process of foreclosures, with certain exceptions that have nothing to do with the predatory and deceptive practices employed to impoverish and enslave the middle class. 

The second thing we have to do is set up emergency regulations creating a new instrument that will replace the mortgage and note that currently exists on most homes that were purchased in the last 6-7 years. This instrument would provide for payments of interest and principle on a sliding scale, payments of utilities and other maintenance expenses of the home, and a commitment to remain in the home for at least 5 years. The instrument, technically dubbed a reverse negative adjustable rate collateralized debt obligation, would allow the lender or source of funds or holder of the risk to participate in the appreciation of the real estate on any amount of proceeds of sale or refinance over the original purchase price expressed in today’s U.S. dollars adjusted for an average of government indexed inflation and real inflation. 

The arrangement would last for a maximum of 10 years after which the deal would revert to the original contracts and instruments, with the right to enforce. The assumption here is that normal demand-pull will increase value and prices in real terms such that the actual value of the real estate is in excess of the original purchase price. This would eliminate write-offs for holders of CDO’s and an opportunity for everyone to recover their current paper losses. The program would be retroactive to January 1, 2007. No participant would be subject to criminal prosecution, civil claims or damages. (Amnesty program, because the perpetrators are participating in the solution).

The third thing is to set up new regulations providing for accountability and meaningful enforcement and penalties to lenders, title companies, mortgage brokers, appraisers, investment bankers and retail securities brokers for non- disclosure and participation in kickbacks, rebates or sharing in yield-spread premiums. as well as inflating prices and approving loans based upon the ability of the lender to earn a fee rather than the ability of the borrower to pay the loan.

The fourth thing is to enact emergency provisions that reduce the ability of credit card issuers to levy and enforce fees and usurious interest payments.

The fifth thing is to set up and order procedures that would enable community banks and credit unions to gain greater share of the market for deposits. Benefit programs for State and Federal Sources should be distributed into deposits to community banks and credit unions in a network that works much the same as present payment systems. Host computers could be established to to deliver benefits, but existing infrastructures of gateway, intercept and national network processing could easily handle this feature. Local money would be kept locally where it would be distributed. In addition, emergency enactment overriding the network prohibitions against use of terminals that emulate or duplicate ATM functions, such as Point of banking and Cashless ATM (dubbed ATM Scrip by some industry insiders) should allow local financial institutions to compete with larger institutions in providing convenient electronic access to cash for far lower costs. Current private network regulations require huge expenditures by community banks and credit unions to deploy ATAM technology which favors only the large institutions who lock out the small banks and credit unions from fairly competing with them.

Sixth allow small financial institutions to convert turnaway customers to prepaid cardholders. The logistics would be easy for any bank to do it. Allow outsourcing for program management and risk management vehicles. 

If a person does not qualify for a regular account, the FI could start one anyway. In the first permutation, they don’t give him the R&T, or the account number, and they don’t give him checks. They just give him a card. The account number is only known to the bank. If they want to include direct deposit, it might get a little more dicey but there is a digital field that identifies the transaction as check or EFT. The processor could simply deny all check transactions. In fact, the arrangement could be that that the employer gets the routing and transit and account number and the employee doesn’t. This could lead to further cross marketing products with the employer.

If the bank or a third party wishes to offer overdraft protection, this will require some technical changes but not much. The accounting for the overdraft and the automatic direct deposit repaying the loan can be handled by either an outsource provider or the bank’s processor. 

This gives the bank the opportunity to build relationships with both individuals and employers. Loans tend to become decentralized even they continue to use FICO, providing they emphasize face to face relationships which we all know reduce defaults. 

Later, when the portfolios are proven, an association could be formed that pools the risks of defaults and decreases the costs attendant to the creation, maintenance and expansion of the program. This association could be expanded into an EFT network and probably should be,  by simply making all participants automatic members of the network. 

On derivative security (distribution of risk) I would not throw out the baby with the bath water, although I certainly would not present it as an option at this time. But at some point, through CD’s that offer higher interest rates because of the higher profits in the local banks, or even an investment pool that is offered within each state, you satisfy the main purpose of decentralized banking — keeping deposits, loans, creation of money, and economic growth local. The argument that local economies had the life sucked out of them by big banks and big business is going to get a lot of traction right now even if there are some arguments against it.

By increasing revenues and decreasing risks, a rewards program could be established for saving on the issuance of prepaid cards. And local merchants could participate in a generic loyalty program associated with the local banks. Then of course we add the Cashless ATM, and we have a much more level playing field for competition between banks and credit unions and between small Financial institutions and large financial institutions. (By the way, in Nigeria and other parts of the world, the ATM Scrip ATM is the machine of choice, works very well, and the customers and merchants are very happy with it. See current issue of The Economist.)

The great likelihood is that the party is over for the credit card companies, the mortgage brokers, the appraisers, the construction lenders, the investment bankers and the retail brokerage companies. This plan, which requires very little tinkering with the technology currently in use is one step in the direction of recovering from the currency and inflation disaster that is already in process. 

More on the currency network in the next post.

We the People: Fighting Back

At first the U.S. Constitution was written without the Bill of Rights — 10 Amendments that spelled out the specifics of what the founders were looking for when they established the Republic for which we stand. When you read the whole Constitution, which isn’t long, and the Bill of Rights, which isn’t long either, you see something that isn’t in our social studies. There are FOUR sources of power, checks and balances, not three as everyone keeps saying.

The U.S. Constitution provides for three of them and hints at the fourth. It provides for the Executive Branch, the Legislative Branch, and the Judicial Branch.  Anyone with a passing knowledge of our system of government probably knows that.

But the Constitution starts out with “We the people” indicating, as Thomas Jefferson did, that all government, including the three branches established by the Constitution, derive their power from consent of the governed (the people) and are subject to the power of the people to change it. You might argue that this was a declaration delegating the power of the people to the three branches of government created.

The Bill of RIghts clears up any miscalculation by providing in the 9th Amendment, that all powers not reserved to the Federal Government and the States reside in the people. It also spells out many powers that are NOT allowed to either the Federal or State governments, including freedom of speech, a free press, freedom of assembly, freedom to petition to redress grievances, freedom to keep and bear arms, the right to equal protection, the prohibition of taking life, liberty or property without due process of law and many others.  

So it is not surprising that people are awakening to their power and exercising it as they defend their home, their lives and their property from predatory practices of financial institutions. Foreclosure and repossession are not the only options. People are refusing to go along with the regular business as usual and finding tiny slip-ups the predators made when they had the victims sign documents that were guaranteed to put them in debt for the rest of their lives. 

Make allegations of violations of truth in lending, claim rescission, fraud, treble damages, RICO conspiracy, Securities Fraud,  illegal kickbacks to mortgage brokers etc. Make the creditors work like they never had to work before. Make it sound like a class action. Get help.

I have a publication coming out in 45 days called Garfield’s Handbook for Borrowers in the Mortgage Meltdown including many defense strategies and the forms you can photocopy and send in without a lawyer. The Courts are duty bound to help you if you don’t have a lawyer. If you do get a lawyer, show him the book. If you want an advance copy of the manuscript, contact me at ngarfield@msn.com. The retail price is $19.95, but the pre-publication price is only $24.95. I can send it to you via email or you can order it in hard copy for $24.95 plus $6.00 shipping and handling. And if you want other people joining you in this crusade, it would behoove you to make sure they buy a copy rather than pirate it from you. It is going to take money to set up an infrastructure to get everyone the help they need.

Bankruptcy, state and federal judges are getting the message too. But we all know that nothing effective will come from the executive branch until a few months after the next President is sworn in (January 20, 2009). By then things will have fallen into hell and a hand bag. We also know that the legislative branch won’t be able to do anything meaningful, if they ever do, until new congress convenes after January 1, 2009. And Judges while sympathetic, need something to hang their hat on to justify equitable relief that stops mortgage contracts, notes, loans documents, and other transactions from running their course. 

In short they need you to stand up and say NO!

Start with sending form letters to all your creditors including credit cards, claiming that they have been overcharging you on fees, interest and minimum payments and that you contest the balance due.  Put the burden on them. If you live in a state like Arizona (A “trust deed state”) go down to the clerk’s office and get the forms necessary to contest the filing of the notice of foreclosure and eviction. If you get an order of eviction, don’t leave. They must still go to court and get an order to get you out.

Even after the order is entered, the only way they can get you out is if the sheriff send deputies to take you and your stuff out. If enough of you do this (and the number is already growing) neither the Court nor the Sheriffs will have the manpower to deal with the crisis and neither will they politcially want to be part of that problem. Give them the excuse and they will slow down or even back away.

If you have a choice between paying credit cards, or hospitable bills and paying your mortgage, then pay your mortgage but don’t give up on the attack against these creditors — all of them. The credit card companies generally don’t even sue and even if they do, they can’t take your house. Only the mortgage lender can do that. 

If you have a choice between paying your home equity line of credit and the first mortgage, pay the first mortgage.  If your equity has disappeared or turned negative, the LOC lender will have no choice but to make some deal with you.

Speaking of deals — approach the lenders from a position of strength. Get some help from people are aggressive advocates, whether they are financial advisers, lawyers, or accountants and go after them.  I have a website under construction at GTC-Consulting-Financial-Workout.bizsitepro.com.

Present them with a proposal that minimizes or eliminates the write-off and keeps your payments within bounds that you can afford. The lender and the investors that took the risk off the lender’s hands, will be in a position where they don’t have to write-off huge sums of money that will depreciate the value of their publicly traded stocks. Each deal they save represents $ millions to them in their stock price (and potential liability far in excess of the loan or investment itself). The leverage is on your side now. If these predators don’t cooperate now, they risk jail.

When you make the deal, do NOT accept an increasing mortgage balance. You don’t need to despite their demands that you do.  If the lender forgives part of the mortgage balance it is no longer a tax event to you. No taxes are do from you. The best deal will look something like this:

1. Make certain, in writing, that the mortgage lender agrees to file any report necessary to repair or preserve your credit score. 

2. Mortgage balance is no more than the amount you originally borrowed, less any principal payments made.

3. Future payments are what you can presently afford, so long as you can cover the utilities, taxes, insurance, and maintenance of the house (a vacant house is a tremendous liability to the financial institutions after foreclosure) and something toward the loan even if it doesn’t cover the minimum payment for interest. 

4. A seven year minimum period during which there will be no change of payments, no threat of foreclosure, no threat of eviction as long as you make the minimum payments described above.

5. In the event of refinancing the house within the seven year period, you owe them only what you originally borrowed less any principal payments paid to them, and they waive all costs and accept the cost of any recording, points, fees or other expenses on the refinancing. 

6. In the event of sale of the house, you get everything up to the original purchase price of the house. After that you share with the Financial institution, 50-50 up to 20% over the original price. After that it is all yours.

7. Do NOT accept any payment or amendment that mentions inflation or any index that is tied to inflation. This provision alone will kill you financially.

8. The more trouble you cause, the better the message will travel up the line through the mortgage broker, the lender, the investment banker and the investor that they have liability here, and they could lose not only the loan, but be paying damages as well.

9. Get together in groups. Find other people in the same situations. It does not have to be identical. Get in touch with your state’s attorney general, who is probably already taking action against the perpetrators of this massive fraud. Get in touch with any one or more of the attorneys who have so far filed more than 40 class action suits against the lenders, the investment bankers, the rating companies that said these were triple AAA securities and the retail securities brokerage houses. 

10. DO NOT GIVE UP. People high up in Federal, State and Local government understand full well that unless this monster is stopped in its tracks, the economy could actually fail and the dollar, once king in the international markets, could be worthless. 

11. FORGET ABOUT BLAME: Everyone in this scheme must be saved. You are all to blame to some extent from borrower through investor. We don’t have time for blame or prosecutions or investigations. We need remedies. Everyone is going to be affected by this. Some people will make a lot of money on the decline of the dollar. Some already have. But most people are going to be caught with their pants down and not realize until it is too late that they have been stripped of what they thought was their wealth. 

How to Benefit from the Mortgage Meltdown:

Tax assessments are heading south along with home valuations — at the moment. Price declines from lower demand and oversupply will continue in many places for years to come. 

If the experts are right, the first thing we can already see happening is that revenues from taxes based upon real estate valuation are declining and will decline by at least 15% by end of 2008, joined by decreasing revenue from issuing permits for new construction and all the administrative fees that go along with new construction, old construction, filing fees for deeds and mortgages etc.  

One ray of sunshine is that inflation has begun its launch into the twilight zone. As the value of each dollar goes down, that means it will take more dollars to buy something than it did yesterday. That means the absolute dollars in price and valuation will start to increase. If you know the dollars are worth less than yesterday, you will ask for more today when you sell your labor or even your couch at a yard sale.

So we have two opposite forces at work on prices here. One is a loss of demand and continuing oversupply causing what would ordinarily be a net loss of valuation and a net loss of tax revenues, and the other being inflation which will cause the price and valuations of things to buy or sell to go up in absolute dollars. Those dollars are becoming worth less and less as time goes on, so people are demanding more and more of them as payment for goods, services and taxes. 

Cities and Counties who assess real estate taxes expressed as a percentage of valuation will most likely see some relief. Hyper-inflation, expected by mid-2008, will result in much higher “prices” (expressed in dollars of declining value). 

While contracts and employment compensation will eventually be tied to some inflation index that people trust (not the CPI or PCE),  the lag time between the increased valuations and revenues resulting from inflation and the payment of contracts and compensation based upon older fixed dollars will produce a net gain for local government — and individuals. It could amount to a “windfall.” 

Consumers and borrowers can take a hint from all this. The price everything is going to increase exponentially while we take the hit from hyper-inflation caused by the largest case of economic fraud in world history. 

But your mortgage, consumer loans, lease and other contracts are expressed in old dollars: these are dollars that were worth far more then than they are now and dollars that will be worth far less in another year or two. 

It behooves you to take advantage of this bounce by going after compensation based upon fixed dollars adjusted monthly for inflation (resulting in receiving more dollars that are worth less) and paying old debts and payables in their original fixed amounts which have been devalued along with the dollar.  

Yes, it is complicated. But we all have an opportunity to game the system and get back part of what we will be losing as a result of the criminals who created this mess.  

Mortgage Meltdown: Get Out of Jail Free Card from Paulson

In the usual way of floating trial balloons before committing to anything, and without the whole hearted support from any of the many entities and people who have a dog in this fight, Paulson is “outlining” the proposal for “subprime relief.”

All information points to another intentional diversion from dealing with and getting disgorgement of money from hundreds, perhaps thousands of investment bankers, mortgage brokers, lenders, “retailers” and institutional sellers who converted assets to fees in a very simple scheme — churning, covered over by the complexity of “creative” derivative securities. 

Anyone can sell something if the cost is zero and the buyer actually thinks he is getting value. In fact, the sky is the limit because at no time is the market saturated with such a product. That is precisely why the “subprime mess” got so out of hand. And as Krugman points out today in the New York Times, we don’t know where or how how much toxic waste is buried. 

Paulson’s outline presents a plan that does little for the borrowers. It creates the illusion of a bailout when the investment world will not accept our word for anything (and so the illusion is doomed to failure). And the new wrinkle is that it puts the burden on the states and cities to do something about it, which in classical Washington political terms meaning that they are creating someone else to blame. 

Cities and states, already struggling are going to see significant declines in tax revenues and investment income, the value of investment funds and their assets specifically as a result of this mess. And it isn’t just a “subprime mess.” It is about the whole credit market. “Innovation” is just a code word for saying that we are going to create the illusion of money, everyone is going to buy into it because it looks free, and we will collect real fees while everyone else goes into the toilet.

And while we are all sleeping, CDOs and similar securities have been sold for 20 years based upon mortgages, credit card debt and dozens of other exotic theories of risk, none of which have any Triple-A merit but all of which have mysteriously been given the extremely high ratings as risk instruments. They have converted junk bonds to Triple A bonds with a stroke of the ratings pen. 

Meanwhile the co-conspirators, the U.S. Government and Wall Street innovators together with lenders with plausible deniability, and retailers of derivative securities that were sold not just deceptively but with outright lies and fraudulent ratings — they all get a free pass.

The sad truth is that investors are beginning to suspect that most of our market indexes are a hoax. They are probably mostly right. Vapor has been sold with the clothing of kings and queens. Unsuspecting people, government finance officers, financial institutions, fund managers, have been misled into destroying the value of what were real assets until they were invested into these exotic derivative securities, with the fraudulent ratings. 

The economy has been driven by consumer spending. Without liquidity offered by these exotic plans to lend money on credit cards and other consumer debt, whether securitized or not, the economy can’t run. Liquidity is drying up. Pumping more “money” into the system is not a long-term solution, it is a suicide pact for the dollar and for inflation. 

If we REALLY want to save our economy and its place in the world, we need to do something real, own up to the mistakes, hold the people who did it accountable, and make amends to the world as best we can.