CBO: principal reduction best for economy

Three cheers for Chris Hayes on MSNBC. In his new show, ALL IN, last night he reported and editorialized on the mistakes of giving banks relief and “screwing” homeowners since 2008. On his show he had Elliot Spitzer who took the administration to task for not doing something before this time. And to top it off DeMarco, the head of the former government sponsored entities (GSE), who has single-handedly blocked principal reduction is being removed and his replacement is an ardent consumer advocate currently a Representative from North Carolina. Things are changing.

The Congressional Budget Office is accepted as a non-partisan agency which has torpedoed both Democratic and Republican proposals on the economy. Upon request from Congress, the CBO studied the mortgage and foreclosure market and concluded that principal reduction should be the keystone of policy for Fannie and Freddie because it is a win-win that will return money to the taxpayers, spur the economy with an fiscal stimulus with a program that costs nothing, increasing GDP and employment. The CBO unequivocably recommended immediate implementation of large-scale reductions in mortgage principal.

The momentum is growing for the reduction of household debt just as this blog, numerous economists and financial experts have been virtually demanding. Iceland has proved the point. We have there a live experiment. Iceland has adopted a policy of continual reduction of household debt. The result was a healthier economy growing at a higher pace than any other country hit by the world- wide recession because consumer wealth, confidence and earnings increased allowing for consumption of goods and services that are in sharp decline in the U.S. and Europe. And the banks in Iceland are healthier and better regulated than at any time before the crash.

It is clearly a win- win situation for all stake holders. All this is providing fuel for the policy of principal reduction in household debt, including mortgages, forcing the banks to eat the difference. Of course Iceland also jailed the bankers who created the conditions that caused the Iceland economy to crash n 2008. Now you wouldn’t know it ever happened — but only if live in Iceland. Policy experts here and the CBO that measures past, present and future effects of economic policies are now moving away from the disastrous European experiment in reduced spending (“austerity”) which kicked the Euro economy when it was already down.

This means that homeowners will fight even harder to stay alive while the new policies go into effect and the right thing is done for consumers and homeowners in particular, that will provide trillions in fiscal stimulus for the economy with little negative impact on the banks who were using other people’s money to fund the mortgages, suffered no loss in mortgage defaults and only reported losses on bogus mortgage bonds backed by mortgage loans, which in turn were guaranteed by Fannie and Freddie 90% of the time. Those GSE entities under a single Federal Agency now guarantee or own more than 90% of all U.S. mortgages.

The remaining correction in describing the mortgages that were supposedly filed on record is that the mortgages were for the most part unenforceable, as is consistently alleged by investor lawsuits against investment banks that created and sold the bogus mortgage bonds AND that the “reduction” is really CORRECTION to adjust for fraudulent appraisals on which homeowners, the government and investors relied.

For the first time the reception of homeowners has changed from deadbeat to the ultimate resource to restore economic growth and who were screwed worse than anyone in the criminal enterprise that Wall Street called “securitization.” There was no securitization. Wall Street banks put the money in their own pockets instead of funding the so-called asset pools, “trusts” and other special purpose vehicles that the investors belied was receiving their money. The paperwork is all a sham from origination, where the “lender” never loaned a penny through assignments that conveyed nothing and were completely unsupported by value or consideration.

CONGRATULATIONS TO THE SOLDIERS IN THIS WAR AGAINST OPPRESSION OF THE AVERAGE CITIZEN.

HAMP-PRA Program Explained

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For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Note: The PRA (Principal reduction Alternative) portion of HAMP has not been utilized with efficiency by homeowners. First of all  it is a good idea to have several copies —digital and on paper — when you submit your modification proposal. The pattern that is clear. They claim to have not received it, they destroy the file because one thing was missing, etc. So be prepared to submit multiple times and get in writing that the foreclosure will not go forward while this process is underway. A demand letter from an attorney referencing the Dodd-Frank Act and its prohibition against dual tracking, will probably produce some results, especially if it is sent to every known party at every known address including the tiny letters in a font so light you can barely see it on the bank of the end of month statement.

Remember you are in all probability communicating with people who never owned nor funded the loan nor the purchase of the loan and that in order to clear the title on your client’s home you will need a “Guarantee of Title” from the title company and I think it is a good idea to get a judge’s order (a) approving the settlement and (b) declaring that these are the only stakeholders. That Order probably will require notice by publication for a period of weeks, but it is the only sure way of ending the corruption of your title. If you are not in court yet, then see if you can work into the agreement that you can file a quiet title action and that the party approving the modification will not contest it.

As you know, if you have been reading this blog for any length of time, I do not consider the lowering of the principal due as a reduction or a forgiveness. This raises tax issues but also raises your chances of getting a very good settlement.

Don’t limit yourself to the documents requested by the bank. The package you submit should contain a spreadsheet of calculations and the formulas used by an expert to determine a reasonable value for the property and a reasonable rate of interest and term. In your submission letter, you should demand that the party receiving it (which I think should include the subservicer, Master Servicer, Investment Banker and “trustee” of the investment pool) must respond in kind unless they accept the modification as proposed.

Realize also that modification is a sham PR stunt, but it can have teeth if you use it properly. The current pattern is the “servicer” or “pretender lender” tells you that in order to get relief you must stop paying on your mortgage. Their excuse is that if you are paying, there is nothing wrong. My position is that if you are paying, you are undoubtedly paying the wrong amount of interest and principal because of the receipts and disbursements that occurred off balance sheet and off the income statements of the intermediaries who claimed the insurance and bailout money as their own.

Thus your expert should provide a formula and estimate of the amount of money that should have been paid to investors but which is sitting in  custodial or operating accounts in the name of the investment banker or its affiliate. If that doesn’t bring down the principal then move on to the hardship stuff mentioned in the article below. But remember that if the expert is able to estimate the amount of principal that was mitigated by the subservicer (continuing to make payments after the loan was declared in default) and When the receipts occurred, this would reduce not only the principal demanded by demonstrate the extra interest paid on a principal balance that was misstated in the EOM statements and the notice of default and notice of sale (or service of process in the  judicial states). In such cases, which is by far the majority of all loans out there including those paid off and refinanced, the overpayment of interest and perhaps even an overpayment of principal.

This is tricky stuff. You need an expert who understands this article and has some ideas of his/her own. AND you need a lawyer who wants more than to simply justify his/her fee. You want a lawyer, obsessed with winning, and who won’t let go until the other side gives in. Remember these cases rarely if ever go to trial. Once the pretender lender takes you as a credible threat they cannot afford to posture any longer lest they end up in trial where it comes out they never owned or purchased the loan, the investor’s agents were prepaid by insurance, CDS and federal bailouts. Millions of foreclosures preceded you in which title was corrupted by the submission of a credit bid by a stranger (non-creditor to the transaction. The tide is turning — be part of the solution!

The Home Affordable Modification Program (HAMP) was established a few years ago by the Departments of the Treasury and Housing and Urban Development to help homeowners who are underwater avoid foreclosure.

Since 2010, one of HAMP’s programs has been the Principal Reduction Alternative (HAMP-PRA). Borrowers who qualify for the program have their mortgage principal reduced by a predetermined amount (called the PRA forbearance amount).

A borrower qualifies for the HAMP-PRA program only if:

  • the mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac
  • the borrower owes more than the home is worth
  • the house is the borrower’s primary residence
  • the borrower obtained the mortgage before January 1, 2009
  • the borrower’s mortgage payment is more than 31 percent of gross (pre-tax) monthly income.
  • up to $729,750 is owed on the 1st mortgage.
  • the borrower has a financial hardship and is either delinquent or in danger of falling behind
  • the borrower has sufficient, documented income to support the modified payment, and
  • the borrower has not been convicted of a real estate related fraud or felony in the last ten years.

The end goal of the HAMP-PRA program is to reduce the borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines.

Major Economists Tell Obama to Reduce Mortgage Debt

What’s the Next Step? Consult with Neil Garfield

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Editor’s Comment: I think Obama is stuck on the idea that correction of loans to reflect their true value is a gift to undeserving people — because that is the message he is getting from Wall Street. I have demonstrated on these pages that correction of loan principal is not a gift, it is paid in full, and even if you disagree with indisputable facts, it is the only practical thing to do as Iceland has clearly shown, with the only growing economy in Western nations.

Now we find out that Obama was given exactly that advice 18 months before he won reelection. Let’s see if he does it. He sought got the advice of seven of the world’s leading economists who all agreed that reduction of household debt — and in particular the dubious mortgage debt that Wall Street is using to make more and more profit, is something that the administration should do right away.

We can only guess why the administration has not done it, but I know from background sources that this ideological battle has been going on in the White House since Obama was first elected. What is needed is for Obama to take the time to get to know the real facts. And those facts show clearly that (1) the foreclosures that already were allowed to proceed did so on imperfected liens which is to say the right to foreclose was absent regardless of the amount and (b) the principal claimed as due on those loans was (1) not due to the people who claimed it and (2) far above the real amount that was due because the banks stole the money from insurance, credit default swaps and federal bailouts from investing pension funds and other managed funds.

The banks claimed ownership of loans they neither funded nor purchased and also had the audacity to claim the losses and then overstated the losses by a factor of 10. The insurance companies and counterparties on the credit default swaps, along with the federal government, paid the banks who didn’t have a dime in the deal and therefore lost nothing. The investors received small pittances in settlements when they should have received from their investment bankers (agents of the investors) the money that was received.

An accounting from the Master Servicer and the trustee or manager of the “pools” would clearly show that the money was received and not allocated in accordance with the contrnacts nor common law. As a result we are left with a fake loss that was tossed over the fence at the investors. Had they allocated the gargantuan payments received from multiple insurance policies on the same bonds and loans, the principal would be reduced anyway.

This is why I keep saying that you should use Deny and Discover as  your principal strategy and direct it not just to the subservicer who deals directly with the homeowner borrowers but also the Master Servicer who deals with the subservicer, the insurance companies, the counterparties on credit default swaps, and the federal government.

Following the money trial will in most cases show that the lien recorded was imperfect and not enforceable because the party who was designated as the lender was not the lender, hence “pretender lender.” Following this trail from one end to the other and forcing the books open will show that most loans were table funded (predatory per se as per TILA reg Z) — and not for the benefit of the investors, but rather for the benefit of the bankers (a typical PONZI scheme).

In an economy driven by consumer spending, the reduction in household debt will drive the economy forward and upward. The real total in many cases is zero after credits for insurance, CDS, and federal bailouts. If you leave the tax code alone, and let the “benefit” be taxed, the federal government will receive a huge amount of taxes that the banks evaded, but they would get it from homeowners, whose tax debt would be a small fraction of the mortgage debt claimed by the banks.

The problem can be solved. It is a question of whether the leader of our nation studies the issues and comes to his own conclusions instead of being led on a string by Wall Street spinning.

Failure to act will produce a wave of strategic defaults because like any business failure, the “businessman” — i.e., the homeowner — has concluded that the investment went bad and they will just walk away — resulting in another windfall to the banks who after cornering the world’s supply of money will have cornered the world’s supply of real estate.

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Why Hasn’t De Marco Been Fired?

Editor’s Notes: It is already well -established that write-down of principal is the only sane thing to do in these circumstances. De Marco standing as head of of the GSE’s refuses to consider that and even refuses to push for modifications, preferring foreclosures instead. Foreclosures are what is killing the economy, destroying lives and providing windfall upon windfall profits to Wall Street. Who is in charge — De Marco or Obama?

He is still talking as though there are deserving homeowners and undeserving homeowners. In any PONZI scheme, there are people whose greed is more than other “investors.” But they are all treated the same when it comes to getting restitution. It’s time to level the playing field. Fire DeMarco and start forcing modifications and settlements where people can pay some reasonable amount of monthly payment on a reasonable balance that does not carry forward the appraisal fraud at origination of the loan.

AND by the way, when will Obama or Romney address the criticism that they are not talking about foreclosure, which is the elephant in the living room?

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SHILLER: Principal Must be Written Down for Economic Recovery

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Editor’s Comment:  

We are looking into the abyss of economic failure. For economists, the people who know the facts, the ONLY answer left on the table is principal correction or principal reduction. We have tried everything else.

The reason is very simple. The Banks created a market where prices soared above values and like any other situation where there is a false spike in prices over values, the correction needs to be made. The free market has already arrived at the same conclusion —- nobody wants those mortgages even if they were valid and enforceable. The refusal to rush toward principal reduction is putting the banks in an all or nothing position. The market and the economists have spoken — if that is the choice the banks will get nothing.

But the word from the banks is that we can’t have principal reduction. The real reason is that their balance sheets will be wrecked by forcing them to admit that those assets they are reporting are pure fiction — an inevitable consequence of bank excess finally recognized by the rating agencies last week. But the banks are spinning the myth that if principal reduction (in other words REALITY) prevails then everyone will want to do it. Assuming that is true, why not?  Shouldn’t everyone want reality? The Banks have had their windfall, they have been paid enough to pay back the investor lenders, and they are driving the economy into a ditch with their unrelenting death grip on the purse strings. 

Americans must decide between the Iceland model in which their economy quickly recovered, and the American model where we continue to languish with no real prospects for recovery. The European attempt at austerity drove them further over the brink. In fact, every policy is now debunked that ignores the realities of the market place and the reality of the importance of the housing market in ANY economic recovery. There is only one thing left. It is the right thing to do.

We have exhausted every idea except for doing the right thing. Restore homes to people who were unlawfully and fraudulently induced into signing papers that never even recited the terms of repayment as it was recited to the real lenders and which never disclosed the multiple borrowers on each loan, most of whom were hidden from the borrowers. Write down the mortgages just as the banks have already done, as confirmed by trading in the marketplace. What is so difficult to accept here?

People get windfalls all the time when bullies take over markets. And yes many homeowners will want the benefits of a write-down that the rest of the world already accepts as true and necessary. The result will restore wealth and power to the middle class, revive the economy and restore our prospects. We will have the resources to repair our ailing infrastructure (an embarrassment to world traveling Americans), invest in education and job training, invest in innovation and get back some of that pride we once had in America.

The only people stopping this are those who are pandering to extremists who would rather see the Country collapse than to allow a “handout” to those undeserving deadbeat homeowners. The facts and reality leave them unpersuaded because fanning the flames of ideology is how many politicians achieve power and maintain it.

Like I said last week. It comes down to this: country or chaos. What is your choice?

Robert Shiller: Lenders Need To Write Down Mortgages To Solve America’s Housing Problem

By Mamta Badkar

Yale economist Robert Shiller says the housing crisis is a collective action problem.

This means, he argues in a New York Times editorial, that if all mortgage lenders were to act collectively and write down what was owed to them by individual homeowners everyone would be better off.

Shiller offers a few types of collective action to write down mortgage principles. One involves giving “community-based, government-appointed trustees a central role” in writing down mortgages, any idea proposed by Yale economist John Geanakoplos and Boston University law professor Susan P. Koniak.

Another proposed by Robert C. Hockett involves “eminent domain” which allows government to seize property with fair compensation to owners when it is done in public interest—and could apply to mortgages:

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners. Taxpayers are not involved, and no government deficit is incurred. Since homeowners are no longer underwater and have good credit, they are unlikely to default, so the new investors can expect to be repaid.”

People are more likely to default on their mortgage when it is underwater i.e. when their homes are worth less than their mortgage. And  lenders lose money on foreclosures because of lower home values and legal costs. So it would be in everyone’s best interest according to Shiller if mortgage lenders were to take some such collective action.

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Bribery or Business as Usual?

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Editor’s Comment and Analysis:

There is only one way this isn’t an outright bribe that should land the senator in jail — and that is proving that he received nothing of value. Stories abound in the media about haircut rates given to members of government particularly by Countrywide, now owned by Bank of America. Now we see it on the way down where others go through hoops and ladders to get a modification of short-sale but members of Congress get special treatment.

The only way this could be considered nothing of value is if the banks that gave this favor knew that they didn’t lend the money, didn’t purchase the loan and didn’t have a dime in the deal. They can prove it but they won’t because the fallout would be that there are no loans in print and that there are no perfected mortgage loans. The consequence is that there can be no foreclosures. And it would mean that the values carried on the books of these banks are eihter overstated or entirely fictiouos. The general consensus is that capital requirments for the banks should be higher. But what if the capital they are reporting doesn’t exist?

We are seeing practically everyday how Congress is bought off by the Banks and yet we do nothing. How can you expect to be taken seriously by the executive branch and the judicial branch of goveornment charged with enforcing the laws? If you are doing nothing and complaining, it’s time to get off the couch and do something with the Occupy Movement or your own private war with the banks. If you are not complaining, you should be — because this tsunami is about to hit the front door of your house too whether you are making the payments or not.

The power of the new aristocracy in American and European politics is felt around the globe. People are suffering in the U.S., Ireland, France, Spain, Italy, Greece and other places because the smaller banks in all those countries got taken to the cleaners by huge conglomerate Wall Street Banks. Ireland is reporting foreclosures and defaults at record rates. It was fraud with an effect far greater than any other act of domestic or international terrorism. And it isn’t just about money either. Suicides, domestic violence ending in death and mental illness are pandemic. And nobody cares about the little guy because the little guy is just fuel for the endless appetite of Wall Street. 

If Obama rreally wants to galvanize the electorate, he must be proactive on the fierce urgency of NOW! Those were his words when he was a candidate and he owes us action because that urgency was felt in 2008 and is a vice around everyone’s neck now.

JPMorgan Chase & the Senator’s Short Sale:

It’s Hypocritical –But Is It Corrupt?

By Richard (RJ) Eskow

There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:

Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?

The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

People should be demanding those answers now.

When Jamie Met Mike

It’s not a pretty picture: In one corner is the Senator who wants to strike down Federal child labor laws and offer American residency to any non-citizen who buys a home with cash. In the other is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes.

“Giving debt relief to people that really need it,” said Dimon, “that’s what foreclosure is.” That comment is Dickensian in its insensitivity – and Dimon’s bank offered real relief to the Senator from Utah.

The story of the short sale on Sen. Mike Lee’s home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn’t believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation’s leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity – money owed to the banks for non-existent home value – is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were “underwater” (meaning they owe more than the home is now worth). That’s about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the “short sale,” in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike’s Deal

But Mike Lee didn’t have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn’t said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let’s see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You’d think a story like that would get a little more attention than it has so far.

The Right’s Outrageous Hypocrisy

We haven’t seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their “legal obligation” and the terrible “message they would send” by walking away from their mortgages.

Then he did a short sale on the MBA’s headquarters. It sold for a reported $41 million, just three years after the MBA – those captains of real estate – paid $74 million for it.

The MBA calls itself “the voice of the mortgage banking industry.”

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: “Losers! Losers! Losers!”

Mike Lee’s Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout of JPMorgan Chase after voting to end unemployment for jobless Americans. Lee also argued against Federal child labor laws, although he did acknowledge that child labor is “reprehensible.”

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes “the federal government’s out-of-control spending has evolved into a major threat to our economic prosperity and job creation” and that he came to Washington to, among other things, “properly manage our finances”. Lee’s website also scolds Congress because, he says, it “cannot live within its means.”

As Ed McMahon used to say, “Write your own joke.”

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy – and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like … well, like what JPMorgan Chase just did in London.

“Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap”

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from Wall Street New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 – as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks – banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads “Million Dollar Sellers’ Club.”

Mike Lee’s bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they’ve put into high-end homes, people like … well, like Mike Lee.

Jamie Dimon’s Outrageous Hypocrisy

Then there’s Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

“Yeah,” Dimon said of principal reductions for homeowners like Sen. Lee, “that’s off the table.”

Dimon’s been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a “loan by loan” basis.

The Rich Are Different – They Have More Mortgage Relief

“The rich are different,” wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that ” the only difference between the rich and other people is that the rich have more money.”

And they apparently find it a lot easier to walk away from their underwater homes.There’s been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don’t want to “reward the underserving,” since hedge fund traders who overestimated next year’s bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that’s where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that’s what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a “loan by loan” basis.

Immoral Logic

While this “loan by loan” approach lacks morality, there’s some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That’s why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they’re not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That’s where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

(“Sorry to interrupt, Mr. Dimon, but it’s London calling.”)

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here’s what the public deserves to know:

Could the writedown on the home’s value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don’t know enough to answer that question yet.

What are JPMorgan Chase’s procedures for deciding who receives mortgage relief and who doesn’t?

Dimon may prefer to handle these matters on a “loan by loan” basis, but there must be guidelines that bank officers can follow. And presumably they’ve been written down somewhere. Were they followed in Mike Lee’s case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, “a big elfin’ deal.” A mid-level bank officer isn’t likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee’s mortgage?

It wouldn’t be unheard of if a a sensitive matter like this one was escalated to all the way to the company’s most senior executive – especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM’s scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a “Friend of Jamie”?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide – even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called “Friends of Angelo,” named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a “Friends of Jamie” list at JPMorgan Chase – and is Mike Lee’s name on it?

Were there any discussions between the bank’s executives and the Senator regarding the foreign home buyer’s bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys – this doesn’t look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee’s home? 

JPMorgan Chase funded, and was an active participant, in the “MERS” program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

“Today’s Wall Street Corruption Fun Fact”: MERS was operated by the Mortgage Bankers Association – the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they’d been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by “average American” you mean “most homeowners,” then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee’s credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee’s mortgage write-off?

That gets tricky – but in a moral sense, you could certainly say that.

Short Selling Democracy

There’s no question that this deal is hypocritical and ugly, and that it reflects much of what’s still broken about both our politics and Wall Street. Is it a scandal? Without these answers we can’t know. This was either a case of the special treatment that is so often reserved for the wealthy, or it’s something even worse: influence peddling and political corruption.

it’s time for JPMorgan Chase and Sen. Mike Lee to come clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public’s entitled to some answers.


Another Ruse: Realtors Gleeful over Equator Short Sale Platform

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Editor’s Comment:

Banks have adopted a technology platform to process short sale applications. It is called Equator, presumably to imply that it equates one thing with another, and produces a result that either gives a pass or fail to the application. In theory it is a good thing for those people who want to save their homes, save their credit (up to a point) and move on. In practice it essentially licenses the real estate broker to take control over the negotiations and police the transactions so that the new “network” rules are not violated. This reminds me of VISA and MasterCard who control the payment processing business with the illusion of being a quasi governmental agency. Nothing could be further from the truth, but bankers react to net work threats as though the IRS was after them.

Equator is meant as another layer of illusion to the title problem that realtors and title companies are trying to cover up. The short sale is getting be the most popular form of real estate sale because it is a form of principal reduction where there is some face-saving by the banks and the borrowers. The problem is that while short sales are a legitimate form of workout,  they leave the elephant in the living room undisturbed — short sales approved by banks and servicers who have neither the authority nor the interest in the loan to even be involved except as an agent of Equator but NOT as an agent of the lenders,  if they even exist anymore.

So using the shortsale they get the signature of the borrower as seller which gives them a layer of protection if they are the bank or servicer approving the short-sale. But it fails to cure the title defect, especially in millions of transactions in which Nominees (like MERS and dummy originators) are in the chain of title. 

The true owner of the obligation is a group of investor lenders who appear to have only one thing in common— they all gave money to an investment bank or an affiliate of an investment bank, where it was divided up and put into various accounts, some of which were used to fund mortgages and others were used to pay fees and profits to the investment bank on the closing of the “deal” with the investor lenders. As far as the county recorder is concerned, those deposits and splits are nonexistent. 

The investor lenders were then told that their money was pooled in a “Trust” when no such entity ever existed or was registered to do business and no attempt was made to fund the trust. An unfunded trust is not a trust. This, the investor lenders were told was a REMIC entity.  While a REMIC could have been established it never happened  in the the real world because the only communications between participants in the securitization chain consisted of a spreadsheet describing “closed loans.” Such communications did not include transfer, assignment or even transmittal or delivery of the closing papers with the borrower. Thus as far as the county recorder’s office is concerned, they still knew nothing. Now in the shortsales, they want a stranger the transaction to take the money and run — with no requirement that they establish themselves as creditors and no credible documentation that they are the owner of the loan.

This is another end run around the requirements of basic law in property transactions. They are doing it because our government officials are letting them do it, thus implicitly ratifying the right to foreclose and submit a credit bid without any requirement of proof or even offer of proof.

It gets worse. So we have BOA agreeing to accept dollars in satisfaction of a loan that they have no record of owning. The shortsale seller might still be liable to someone if the banks and servicers continue to have their way with creating false chains of ownership. But the real tragedy is that the shortsale seller is probably getting the shaft on a false premise — I.e, that the mortgage or deed of trust had any validity to begin with. 

The shortsale Buyer is most probably buying a lawsuit along with the house. At some point, the huge gaps in the chain of title are going to cause lawyers in increasing numbers to object to title and demand that it be fixed or that the client be adequately covered by insurance arising from securitizatioin claims. Thus when the shortsale Buyer becomes a seller, that is when the problems will first start to surface.

Realtors understand this analysis whereas buyers from Canada and other places do not understand it. But realtors see shortsales as the salvation to their diminished incomes. Thus most realtors are incentivized to misrepresent the risk factors and the title issues in favor of controlling the buyer and the seller into accepting pre-established criteria published by the members of Equator. It is securitization all over again, it is MERS all over again, it is a further corruption of our title system and it is avoiding the main issue — making the victims of this fraud whole even if it takes every penny the banks have. Realtors who ignore this can expect that they and their insurance carriers will be part of the gang of targeted deep pockets when lawyers smell the blood on the floor and go after the perpetrators.

Latest Changes to The Bank of America Short Sale Process

by Melissa Zavala

When processing short sales, it’s important to know about how each of the lending institutions handles loss mitigation and paperwork processing. If you have done a few short sales in Equator with different lenders, you may see what while your same Equator account is used for all your short sales at all the lending institutions, each of the servicers uses the platforms in a different manner.

Using the Equator system

When processing short sales, it’s important to know about how each of the lending institutions handles loss mitigation and paperwork processing. Many folks already know that Equator is the online platform used by 5 major lenders (Bank of America, Wells Fargo, Nationstar, GMAC, and Service One). If you have done a few short sales in Equator with different lenders, you may see what while your same Equator account is used for all your short sales at all the lending institutions, each of the servicers uses the platforms in a different manner.

And, my hat goes off to Bank of America for really raising the bar when it comes to short sale processing online. And, believe me, after processing short sales with Bank of America in 2007, this change is much appreciated.

New Bank of America Short Sale Process

Effective April 13, 2012, Bank of America made a few major changes that may make our short sale processing times more efficient.  The goal of these changes is to make short sale processing through Equator (the Internet-based platform) at Bank of America so efficient that short sale approval can be received in less than one month.

First off, Bank of America now requires their new third party authorization for all short sales being processed through the Equator system. Additionally, the folks at Bank of America will be working to improve task flow for short sales in Equator by making some minor changes to the process.

According to the Bank of America website,

Now you are required to upload five documents (which you can obtain at http://www.bankofamerica.com/realestateagent) for short sales initiated with an offer:

  • Purchase Contract including Buyer’s Acknowledgment and Disclosure
  • HUD-1
  • IRS Form 4506-T
  • Bank of America Short Sale Addendum
  • Bank of America Third-Party Authorization Form

And, now, you will have only 5 days to submit a backup offer if your buyer has flown the coop.

The last change is a curious one, especially for short sale listing agents, since it often takes awhile to find a new buyer after you learn that the current buyer has changed his or her mind.

Short sale listings agents should be familiar with these changes in order to assure that they are providing their client with the most efficient short sale experience possible.


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