Modifications: Interest reduction, Principal reduction, Payment reduction, and Term increase

In the financial world we don’t measure just the amount of principal. For example if I increased your mortgage principal by $100,000 and gave you 100 years to pay without interest it would be nearly equivalent to zero principal too (especially factoring in inflation). A reduction in the interest rate has an effect on the overall amount of money due from the borrower if (and this is an important if) the borrower is given 40 years to pay AND they intend to live in the house for that period of time. To the borrower the reduction in interest rate and the extension of the period in which it is due lowers the monthly payment which is all that he or she normally cares about.

Nonetheless you are generally correct. And THAT is because the average time anyone lives in a house is 5-7 years, during which an interest reduction would not equate to much of a principal reduction even with inflation factored in. Unsophisticated borrowers get caught in exactly that trap when they do a modification where the monthly payments decline. But when they want to refinance or sell the home they find themselves in a new bind — having to come to the table with cash to sell their home because the mortgage is upside down.

So the question that must be answered is what are the intentions of the homeowner. The only heuristic guide (rule of thumb) that seems to hold true is that if the house has been in the family for generations, it is indeed likely that they will continue to own the property. In that event calculations of interest and inflation, present value etc. make a big difference. But for most people, the only thing that cures their position of being upside down (ignoring the fact that they probably don’t owe the full amount demanded anyway) is by a direct principal reduction.

THAT is the reason why I push so hard on getting credit for receipt of insurance and other loss sharing arrangements, including FDIC, servicer advances etc. Get credit for those and you have a principal CORRECTION (i.e., you get to the truth) instead of a principal REDUCTION, which presumes the old balance was actually due. It isn’t due and it is probable that there is nothing due on the debt, in addition to the fact that it is not secured by the property because the mortgage and note do NOT describe any actual transaction that took place between the parties to the note and the mortgage.

British Government Getting Tough on Bankers

The Barclay Libor rigging scandal is apparently the straw that broke the Camel’s back in Great Britain. With various investigations of their co-conspirators in artificially creating moments in interest rates, the scam is unraveling. And in the balance, lies between $500 and $600 TRILLION dollars. How could that much money be effected when all the money in the world amounts to less than $70 Trillion? What the hell IS money anyway?

All these things are becoming less exotic and increasingly the subject of investigation, prosecution, conviction and sentencing in every place but the United States, where at this point in the savings and loan scandal of the 1980’s more than 800 people were already in jail. The British authorities are leading the way in Europe taking their cue from Iceland of all places, where prosecution of bankers has become the nation’s goal — bringing justice to the marketplace and bringing back certainty that those who play with the free Markets will be punished.

Iceland’s surge back to prosperity has been painful but they did it it because they forced the banks to accept “debt forgiveness” which is to say they merely forced the banks to admit that the debtors had been placed so far in debt with no assets or income to pay for the debt that it was
NOT going to get repaid anyway. That meant some of the assets on the balance sheets of the three biggest banks were worthless. Three banks failed and everyone held their breadth. Nothing bad happened. In fact the rest of the banking sector is prospering along with the rest of the Iceland economy.

In the U.S. Regulators and prosecutors seem to remain completely invested in the myth that bringing the banks and bankers to justice will bring down the entire financial system. It isn’t so and we know that because wherever the governments have cracked down on the financial services industry the economy got better — Iceland being only the latest example.

Back to the question: how could some reptilian behavior create more money than government allows and why is the government allowing it anyway? How could all the currency in the world be $70 trillion and the amount of money effected by the Barclay manipulation of Libor be ten times that amount, which is to to say ten times all the money the world? The answer is that it can’t. And the longer we pretend that it can, the longer and deeper will be the recession. The more we pretend that those exotic securities sitting in bank balance sheets are actually worth all that money, the longer we prolong the agony of the society that allows banks to exist. Those banks relying on fake assets should fail. It is that simple.

See Gretchen Morgenson’s article in the Sunday business section of the New York Times for a clear explanation of right and wrong and how the British are trying to get it right.

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Don’t be so fast to leave your home just because you are “behind”. Those payments might not be due at all or if they are, they are probably not owed to the people you are paying.

We are very pleased with the responses from our devoted readers, many of whom are direct contributors to this site. The insights, forms and analysis from the many soldiers — lawyers and laymen alike has made this site the premier resource for assisting distressed homeowners in gaining relief — sometimes total relief — from Mortgages based upon false appraisals, using predatory lending practices and withholding vital information from borrowers at the closing table.

How many borrowers would have signed on the dotted line if they had known that they were signing a ticket for unprecedented and unjustified fees and profits earned by unknown parties — sometimes as much as the mortgage itself?

How many investors would have put up the money if they had known that only some of it was being used to fund mortgage transactions and that the rest was being kept as fees, profits and reserves to pay them out of their own money? EDUCATE YOURSELF! DOWNLOAD THE ATTORNEY WORKBOOK WITH FORMS, DISCUSSION, PRESENTATION SLIDES, GRAPHS, GLOSSARY AND STATUTES OR BUY THE LAWYER\’S DVD CLE FULL-DAY SEMINAR SET

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NON-DISCLOSURE DETAILS FROM THE OTHER SIDE

ONE MORE QUESTION TO ASK IN DISCOVERY: WHAT ENTITIES WERE CREATED OR EMPLOYED IN THE TRADING OF MORTGAGE BONDS, CDO’S, SYNTHETIC CDO’S OR TOTAL RETURN SWAPS (NEW TERM)?

EDITOR’S COMMENT: LOUISE STORY, in her article in the New York Times continues to dig deeper into the games played by Wall Street firms. You’ll remember that the executives of the major Wall Street firms were spouting off the message that the risks and consequences were unknown to them. They didn’t know anything was wrong. Maybe they were stupid or distracted. And maybe they were just plain lying. The risks to these fine gentlemen and their companies are now enormous. If the veil of non-disclosure (opaque, in Wall Street jargon) continues to be eroded, they move closer and closer to root changes in Wall Street and both criminal and civil liability. It also leads inevitably to the conclusion that the loans and the bonds were bogus.

Yes it is true that money exchanged hands — but not in any of the ways that most people imagine and not in any way that was disclosed as required by TILA, state law, Securities Laws and other applicable statutes, rules and regulations. They continue to pursue foreclosure principally for the purpose of distracting everyone from the truth — that the transactions were wrong in every conceivable way and they knew it.

If there was nothing wrong with these innovative financial products why were they “off-balance sheet.” If there isn’t any problem with them now, then why can’t they produce an accounting, like any other situation, and say “this person borrowed money and didn’t pay it back. We will lose money if they don’t — here is the proof.” If everything was proper and appropriate, then why are we seeing revealed new entities and new layers of deception as Ms. Story and other reporters dig deeper and deeper?

The answer is simple: they were hiding the truth in circular transactions that were partially off balance sheet and partially on. I wonder how many borrowers would be charged with fraud for doing that? Now, thanks to Louise Story, we have some new names to research — Pyxis, Steers, Parcs, and unnamed “customer trades. They all amount to the same thing.

The bonds and the loans claimed to be attached to the bonds were being bought and sold in and out of the investment banking firm that created them. If they produce the real accounting the depth and scope of their fraud will become obvious to everyone, including the Judges that say we won’t give a borrower a free house. What these Judges are doing is ignoring the reality that they are giving a free house and a free ride to companies with no interest in the transaction. And they are directly contributing to a title mess that will take decades to untangle.

August 9, 2010

Merrill’s Risk Disclosure Dodges Are Unearthed

By LOUISE STORY

It was named after a faint constellation in the southern sky: Pyxis, the Mariner’s Compass. But it helped to steer the mighty Merrill Lynch toward disaster.

Barely visible to any but a few inside Merrill, Pyxis was created at the height of the mortgage mania as a sink for subprime securities. Intended for one purpose and operated off the books, this entity and others like it at Merrill helped the bank obscure the outsize risks it was taking.

The Pyxis story is about who knew what and when on Wall Street — and who did not. Publicly, banks vastly underestimated their exposure to the dangerous mortgage investments they were creating. Privately, trading executives often knew far more about the perils than they let on.

Only after the housing bubble began to deflate did Merrill and other banks begin to clearly divulge the many billions of dollars of troubled securities that were linked to them, often through opaque vehicles like Pyxis.

In the third quarter of 2007, for instance, Merrill reported that its potential exposure to certain subprime investments was $15.2 billion. Three months later, it said that exposure was actually $46 billion.

At the time, Merrill said it had initially excluded the difference because it thought it had protected itself with various hedges.

But many of those hedges later failed, and Merrill, the brokerage giant that brought Wall Street to Main Street, soon collapsed into the arms of Bank of America.

“It’s like the parable of the blind man and the elephant: you had some people feeling the trunk and some the legs, and there was nobody putting it all together,” Gary Witt, a former managing director at Moody’s Investors Service who now teaches at Temple University, said of the situation at Merrill and other banks.

Wall Street has come a long way since the dark days of 2008, when the near collapse of American finance heralded the end of flush times for many people. But even now, two years on, regulators are still trying to piece together how so much went so wrong on Wall Street.

The Securities and Exchange Commission is investigating whether banks adequately disclosed their financial risks during the boom and subsequent bust. The question has taken on new urgency now that Citigroup has agreed to pay $75 million to settle S.E.C. claims that it misled investors about its exposure to collateralized debt obligations, or C.D.O.’s.

As Merrill did with vehicles like Pyxis, Citigroup shifted much of the risks associated with its C.D.O.’s off its books, only to have those risks boomerang. Jessica Oppenheim, a spokeswoman for Bank of America, declined to comment.

Such financial tactics, and the S.E.C.’s inquiry into banks’ disclosures, raise thorny questions for policy makers. The investigation throws an uncomfortable spotlight on the vast network of hedge funds and “special purpose vehicles” that financial companies still use to finance their operations and the investments they create.

The recent overhaul of financial regulation did little to address this shadow banking system. Nor does it address whether banking executives should be required to disclose more about the risks their banks take.

Most Wall Street firms disclosed little about their mortgage holdings before the crisis, in part because many executives thought the investments were safe. But in some cases, executives failed to grasp the potential dangers partly because the risks were obscured, even to them, via off-balance-sheet programs.

Executives’ decisions about what to disclose may have been clouded by hopes that the market would recover, analysts said.

“There was probably some misplaced optimism that it would work out,” said John McDonald, a banking analyst with Sanford C. Bernstein & Company. “But in a time of high uncertainty, maybe the disclosure burden should be pushed towards greater disclosure.”

The Pyxis episode begins in 2006, when the overheated and overleveraged housing market was beginning its painful decline.

During the bubble years, many Wall Street banks built a lucrative business packaging home mortgages into bonds and other investments. But few players were bigger than Merrill Lynch, which became a leader in creating C.D.O.’s

Initially, Merrill often relied on credit insurance from the American International Group to make certain parts of its C.D.O.’s attractive to investors. But when A.I.G. stopped writing those policies in early 2006 because of concerns over the housing market, Merrill ended up holding on to more of those pieces itself.

So that summer, Merrill Lynch created a group of three traders to reduce its exposure to the fast-sinking mortgage market. According to three former employees with direct knowledge of this group, the traders first tried sell the vestigial C.D.O. investments. If that did not work, they tried to find a foreign bank to finance their own purchase of the C.D.O.’s. If that failed, they turned to Pyxis or similar programs, called Steers and Parcs, as well as to custom trades.

These programs generally issued short-term I.O.U.’s to investors and then used that money to buy various assets, including the leftover C.D.O. pieces.

But there was a catch. In forming Pyxis and the other programs, Merrill guaranteed the notes they issued by agreeing to take back any securities put in the programs that turned out to be of poor quality. In other words, these vehicles were essentially buying pieces of C.D.O.’s from Merrill using the proceeds of notes guaranteed by Merrill and leaving Merrill on the hook for any losses.

To further complicate the matter, Merrill traders sometimes used the cash inside new C.D.O.’s to buy the Pyxis notes, meaning that the C.D.O.’s were investing in Pyxis, even as Pyxis was investing in C.D.O.’s.

“It was circular, yes, but it was all ultimately tied to Merrill,” said a former Merrill employee, who asked to remain anonymous so as not to jeopardize ongoing business with Merrill.

To provide the guarantee that made all of this work, Merrill entered into a derivatives contract known as a total return swap, obliging it to cover any losses at Pyxis. Citigroup used similar arrangements that the S.E.C. now says should have been disclosed to shareholders in the summer of 2007.

One difficulty for the S.E.C. and other investigators is determining exactly when banks should have disclosed more about their mortgage holdings. Banks are required to disclose only what they expect their exposure to be. If they believe they are fully hedged, they can even report that they have no exposure at all. Being wrong is no crime.

Moreover, banks can lump all sorts of trades together in their financial statements and are not required to disclose the full face value of many derivatives, including the type of guarantees that Merrill used.

“Should they have told us all of their subprime mortgage exposure?” said Jeffery Harte, an analyst with Sandler O’Neill. “Nobody knew that was going to be such a huge problem. The next step is they would be giving us their entire trading book.”

Still, Mr. Harte and other analysts said they were surprised in 2007 by Merrill’s escalating exposure and its initial decision not to disclose the full extent of its mortgage holdings. Greater disclosure about Merrill’s mortgage holdings and programs like Pyxis might have raised red flags to senior executives and shareholders, who could have demanded that Merrill stop producing the risky securities that later brought the firm down.

Former Merrill employees said it would have been virtually impossible for Merrill to continue to carry out so many C.D.O. deals in 2006 without the likes of Pyxis. Those lucrative deals helped fatten profits in the short term — and hence the annual bonuses paid to its employees. In 2006, even as the seeds of its undoing were being planted, Merrill Lynch paid out more than $5 billion in bonuses.

It was not until the autumn of 2007 that Pyxis and its brethren set off alarm bells outside Merrill. C.D.O. specialists at Moody’s pieced together the role of Pyxis and warned Moody’s analysts who rated Merrill’s debt. Merrill soon preannounced a quarterly loss, and Moody’s downgraded the firm’s credit rating. By late 2007, Merrill had added pages of detailed disclosures to its earnings releases.

It was too late. The risks inside Merrill, virtually invisible a year earlier, had already mortally wounded one of Wall Street’s proudest names.

Tax Apocalypse for States and Federal Government Can be Reversed: Show Me the Money!

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As we have repeatedly stated on this blog, the trigger for the huge deficits was the housing nightmare conjured up for us by Wall Street. Banks made trillions of dollars in profits that were never taxed. The tax laws are already in place. Everyone is paying taxes, why are they not paying taxes? If they did, a substantial portion of the deficits would vanish. Each day we let the bankers control our state executives and legislators, we fall deeper and deeper in debt, we lose more social services and it endangers our ability to maintain strong military and law enforcement.

The argument that these unregulated transactions are somehow exempt from state taxation is bogus. There is also the prospect of collecting huge damage awards similar to the tobacco litigation. I’ve done my part, contacting the State Treasurers and Legislators all over the country, it is time for you to do the same. It’s time for you to look up your governor, State Treasurer, Commissioner of Banking, Commissioner of Insurance, State Commerce Commission, Secretary of State and write tot hem demanding that they pursue registration fees, taxes, fines, and penalties from the parties who say they conducted “out-of-state” transactions relating to real property within our borders. If that doesn’t work, march in the streets.

The tax, fee, penalty and other revenue due from Wall Street is easily collectible against their alleged “holding” of mortgages in each state. One fell swoop: collect the revenue, stabilize the state budget, renew social services, revitalize community banks within the state, settle the foreclosure mess, stabilize the housing market and return homeowners to something close to the position they were in before they were defrauded by fraud, predatory lending and illegal practices securitizing loans that were too bad to ever succeed, even if the homeowner could afford the house.

Residential Funding Real Estate Holdings, LLC – Option One Mortgage Corporation

from June Reyno:

Once all of this information has been compiled with all their names, titles, addresses, signatures, company affiliation– we should then begin submitting these (i.e. notary public signatures) to various state agencies for confirmation and verification that these “people” are actually who say they are on the paper closing statements (if it can be found) along with the foreclosure processing paperwork from the mortgage servicers. The real class liars in the industry.

These notary public “signatures” can in fact be confirmed because they must be registered with the State Dept. We can demand a “viewing” of that persons’ notary journal in their possession at all times and no one elses. And, whether the named person as it is typewritten in the foreclosure dcouments…”Vice President” who signed payoff statements from the Bank actually holds that “typed in” title and whether they were actually and physically present at the time the notary public verified identification of that person.

By the looks of the hundreds of fradulent paperwork I have personally examined thus far and viewing the names of people pushing foreclosure we do mistakenly think (and the judges mistakenly think this way too unfortunately) that nothing except hard, cold cash green money was exchanged at the closing table to purchase the collaterallized debt obligation. No such thing with securitization is there?

I’m betting with the sensible majority that no one ever paid or had any kind of “liquid cash” to show at closing and that it is by paper appearance only to convince and mislead others that these impostors paid for the property they actually stole from the homeowner upon foreclosure and that the investor was similarly ripped off who put up the money so that only a select few companies by design (going back decades + could line their pockets in the future with billions and billions of $$$ in profit to throw into their corporate treasure chest collected from suffering hardworking middle income American taxpayers!

A perfect example of equity stripping is our San Diego home we lived in for 20+ years. It was foreclosed on 2 years before and we didn’t know it because we sought bankrutpcy protection. We were evicted from our home and thrown out on the street by the foreclosure mill lawyers hired by the Bank and their realtor cohorts March 14, 2009. They succeeded because the pretender lender submitted false forged documents to the court and the Judges.

We purchased the house for $192,900 in July 1989. Our principal balance was reduced to $164,000 under a new loan with Washington Mutual. Throughout the refinancing period in which we borrowed from our equity period we were paying an average amount of about $1,500-$2,500 per month over the course of 20+ years. In April 2006, our house came in on an inflated appraisal value of $650,000. From that, we drew out about $34,000 on equity at refinance which all went back to the economy and for the purpose of preserving our good credit standing with our creditors. The principal balance came to $588,000 according to Option One Mortgage Corporation. Residential Funding Real Estate Holdings, LLC unlawfully purchased the property without notice by bidding against themselves on the auction (again without our knowledge and we were under bankrutpcy protection) for $361,200 when they foreclosed and assigned the house to Litton Loan Servicing/Option One Mortgage/Quality Loan Servicing San Diego. In March 2009 (when I was unlawfully charged with trespassing, vandalism and re-entry of property believing we were protected under the the BK laws and after and unlawful Judgement from the UD Court and was placed under arrest by the San Diego Police Dept.) Island Source II, LLC purchased the house for $211,500 (claiming they are [innocent] Bonafide Purchasers of value under CC 1161(a) for $211,500.

This month, March 12, 2010 Island Source II, LLC dba: Homecomings Financial Network in Minnetonka MN sold it to “InSource Financial Services, Huntington New York”, again, and again in violation of the Bankruptcy automatic stay; selling and transferring this time to a community homebuyer for $385,000 despite our opposition noticesand letters stating our intent to preserve interest filed with the County Recorder’s Office. The Judges [innocently] joined in on the pretender lenders fraud upon the court. Later, our appellate lawyer whom we trusted followed them to go against our interest and helped them to continue living the lie.

We were stripped of $450,000+ in equity.

Is this you?

Our house payment at last refinance in May 2006 $3,919.60 then in April 2008 the ARM adjusted to $5,800.00 monthly payment. Whaaat! Our house was sold and wrongfully foreclosed like millions of other American families who were steered into securitized mortgage loans without their knowledge but no Judge or the court or law enforcement cared enough to help us correct these hurtful and malicious acts.

Where was our “Fiduciary ” Trustee as named in our mortgage contract that should have been of our choice to explain the terms of our mortgage contract to us at the closing table?

Man Sends Message to Banks-Bulldozes $350k House

 Sending Banks a Message – Cincinnati OH  – Click Here to View Video

“The average homeowner that can’t afford an attorney or can fight as long as we have, they don’t stand a chance,” he said. Hoskins said he’d gotten a $170,000 offer from someone to pay off the house, but the bank refused, saying they could get more from selling it in foreclosure.  

Hoskins told News 5’s Courtis Fuller that he issued the bank an ultimatum.  “I’ll tear it down before I let you take it,” Hoskins told them. And that’s exactly what Hoskins did.

Editors Note – The borrower actually had equity in his home. The house was apparently worth $350k in today’s market and the bank was only owed about $170k.

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