First we need to acknowledge that the purchase or refinance for a home is the largest financial transaction that the average citizen ever enters.
Second we need to acknowledge that the purchase or refinance of a home is the largest financial transaction that an average citizen CAN enter.
Third we need to acknowledge that collectively the purchases and refinancing of a home is the largest part of consumer commerce in our economy and the largest driver of our economy which is 70% driven by consumer purchases.
Fourth we need to acknowledge that therefore the purchase or refinance of a home is the largest target for predators and well intentioned business people alike — if they like to think about big plans.
So it should come as no surprise that the moral hazard is stretched to extremes when it comes to all the sectors of the economy that rely on housing for profit opportunities. And that is why TILA — the Federal Truth in lending act was passed — to protect consumers in complex transactions far beyond the knowledge, training and comprehension of the average citizen. Unfortunately judges don’t take TILA seriously. I am going to do something about that. Reg Z says that any pattern of conduct involving table funded loans is PREDATORY PER SE. it isn’t just wrong, it is predatory which means that it is misrepresented to the borrower on a number of levels. AND IT SCREWS UP TITLE.
The sheer size of the homeowners and prospective homeowners taken collectively is both an opportunity for prosperity and an opportunity for disaster. Unless the playing field is leveled, citizens don’t stand a chance against the knowledge, sophistication and clever manipulation of the markets related to housing — financial, brick and mortar, services etc.
When prices get inflated far beyond actual value the market is out of balance. The price- value discrepancy occurs for many reasons but the reason it happened this time is that Wall Street cornered the market on the most basic commodity — MONEY. They took money under false pretenses from managed funds containing the pensions of citizens and loaned that money to citizens at inflated rates to cover up the fact that they had stolen the money from the managed funds.
Instead of putting the money in REMIC TRUSTS they kept the money, funded some mortgages and kept the rest. They covered up the theft by what they referred to as proprietary trading.
The proprietary trading is based upon fictitious sales of loans in transactions that never took place. The origination or purchase of the loan took place when investor money was used to fund the loan. The brokers diverted title to the note and mortgage to their own controlled entity and then sold the low quality crap to entities purporting to represent the investors — I.e., the REMIC TRUSTS. But the REMIC TRUSTS HAD NEVER BEEN FUNDED. So no such transaction could ever have occurred.
Nevertheless the broker dealers who took money from the managed funds using false pretenses (sale of bonds issued by the REMIC TRUSTS) created fictitious accounts in which they sold low quality loans with non existent underwriting to the REMIC TRUSTS whose accounts should have been with the TRUSTEE but instead were merely fictitious entries on the books of the broker dealer. The broker dealer then recorded a profit by selling low quality or non existent loans ( because they had already been purchased by others) to the accounts they created for the REMIC TRUSTS. THE PRICE WAS SET AT THE PAR VALUE OF THE NONEXISTENT HIGH QUALITY LOANS PROMISED TO THE INVESTORS.
Thus the broker dealers stole the money, stole the title, and eventually succeeded in most cases in stealing the house with inflated claims of balances due. Those balances were not merely inflated by circumstance but by design — by refusing to credit the investor and the borrower with third party payments that the broker dealer also insists were proprietary transactions.
Now the Federal Government in a misguided attempt to control the moral hazard of citizens (minuscule to the overreaching of the sophisticated banks) has skipped the bankers and loaded homeowners with the full weight of a scheme that was sold to them by predatory tactics and outright lies and manipulation of the players.
So now when a non profit offers to stabilize a community by buying the homes at the illegal auctions of property the Federal Government is actually trying to stop this healing step. It seems these neighborhood non profit organizations out to save their neighborhoods are being barred from exercising their right to buy property because they intend to sell the property back to the foreclosed homeowner at fair market VALUE instead of huge fictitious inflated prices used in the origination of the loan.
Massachusetts sees a problem with this. And the theory or ideology behind it is that citizens will flee from all their debts, thus collapsing the entire financial industry and our economy. Despite numerous reports and studies showing that homeowners would continue to pay a reasonable price based upon verified real income — the way the underwriting should have been done at origination, the government has decided that there is more moral hazard at the bottom, where most of the victims reside, than up at the top where sophisticated investment bankers and CDO managers and traders know every step.
Who believes that? Lots of people close to the levers of power in State NAND federal government. And even if they don’t quite believe it they don’t want to take the chance of being wrong and see the banks that created this problem, the ones that are now too big to fail and too big to jail bring down a financial industry dominated by 6 banks in a financial marketplace that is home to more than 7,000 banks and credit unions working off the same electronic funds backbone that the big banks used.
It is impossible for the system to fail if we let the banks fail, as they should with their moribund balance sheets filled with smoke and mirrors. But it is very possible for the system to fail if we ignore the damage to the core of our economy and the hardworking people that created that core.
Filed under: foreclosure