Housing Bust 2? Subprime No-Down-Payment Mortgages Surge, “Shadow Banks” Dominate

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Housing Bust 2? Subprime No-Down-Payment Mortgages Surge, “Shadow Banks” Dominate

 

Some of the same characters that played leading roles last time.

The value of the US housing market has ballooned to $26 trillion. In many markets, prices exceed even the peak or the prior bubble that blew up so spectacularly. This construct is weighed down by $14 trillion in mortgage debt, or about 76% of US GDP. Of that, $10 trillion is owed on one- to four-family residences. The numbers are big – and they matter.

But who’s doing the lending? More and more: nonbanks, evocatively called “shadow banks.” They have now overtaken commercial banks “to grab a record slice” of government-guaranteed mortgages, Attom Data Solutions reported in its housing report.

And these shadow banks are different:

[T]hey typically borrow from Wall Street hedge funds, private investors, or banks to make loans, then quickly sell these mortgages to Fannie Mae and Freddie Mac and other buyers, so they can repay their loans and start the process over again.Nonbank lenders dominate the origination of mortgages insured by the Federal Housing Administration (FHA) and by the Veterans Administration (VA), the riskier corner of housing lending due to no down payment or low down payment loans and poor-credit buyers.

So subprime mortgages with low or no down payments.

These government entities don’t actually make loans; they buy loans from lenders, package them into mortgage-backed securities, and guarantee them to make investors whole if the mortgages default.

Wells Fargo is still the largest mortgage lender by far, with 26,262 purchase mortgage originations in the second quarter, according to ATTOM. But number two is nonbank Quicken Loans with 18,753 originations, followed by Caliber Home Loans with 13,580 originations, followed by Bank of America, Fairway Independent Mortgage, JP Morgan Chase, Movement Mortgage, Prime lending, Guaranteed Rate, and Guild Mortgage.

Of these top ten originators, shadow banks originated 63% of the mortgages!

us-mortgages-banks-v-nonbanks

These shadow banks are barreling into the market by going after riskier borrowers and government guaranteed no-down payment or low down payment mortgages, with impeccable timing, now that the Fed’s monetary gyrations have inflated home prices nationally past the prior bubble peak, and in many markets far beyond the prior bubble peak.

And some of the same characters that played leading roles in the last housing boom and bust have reappeared. Remember Countrywide? The report:

In California, some of the largest nonbank lenders include PennyMac, AmeriHome Mortgage, and Stearns. All three are headquartered in Southern California, the epicenter of last decade’s subprime mortgage lending industry. And all three companies are run by executives who formerly worked at the once- giant Countrywide Financial, the now defunct subprime lender founded by Angelo Mozilo (Bank of America bought Countrywide for $4 billion in July 2008).

PennyMac, a fast-growing nonbank lender, is run by Stanford Kurland, a former Countrywide Home Loans executive and IndyMac director. Stearns, a Santa Ana, California-based nonbank lender, is run by Brian Hale, a former Countrywide division president. And Joshua Adler, who is AmeriHome’s managing director of secondary marketing, held similar roles at Countrywide and Bank of America.

Banks still originate the majority of mortgages overall, but barely! Their share has dropped from 91% of originations in 2009 – after many of the shadow banks had collapsed in the housing bust – to 51.7% so far in 2016. The share of shadow banks (blue line) has soared to 48.3% (chart by ATTOM):

us-mortgages-nonbanks-percent-of-total

These shadow banks dominate in mortgages that are insured by the FHA and the VA, including no-down-payment and low-down-payment mortgages for buyers with subprime credit ratings, the riskiest mortgages out there. Thus, FHA and VA backed loans have jumped from 6% of all purchase originations in 2006 to 30% in Q3 2016.

“The big banks have restricted their mortgage business,” Guy Cecala, publisher and CEO of Inside Mortgage Finance, told ATTOM. “Instead, banks like Chase and Bank of America are making jumbo loans to more affluent borrowers. More than 50% of their business is jumbo loans.”

Jumbo loans are not insured by the government. Nonbanks and the government are picking up the rest.

Increasingly, the federal government – FHA, VA, Fannie Mae, Freddie Mac, and Ginnie Mae – has played a larger role in the mortgage financing industry as the large depository banks retreat from the home loan market. In all, these five entities own or have guaranteed more than $5 trillion in mortgage risk….

That’s about half of the outstanding mortgage risk.

The role of the government entities that insure high-risk subprime mortgages has soared: The FHA insured 3.4% of all mortgage originations in Q1 2006; by Q2 2016, its share had jumped to 17.5%. Over the same period, the VA’s share soared from 0.7% to 8.7%.

This chart shows the share of FHA and VA insured mortgages as a percent of total mortgage originations by lender. For example, of the mortgages Wells Fargo originated in Q2, 12% were FHA (blue) and VA (green) loans, compared to about 42% for Quicken Loans:

us-mortgages-banks-v-nonbanks-fha-va

It is largely via this conduit of the shadow banks that the nationalization of the riskiest end of the mortgage industry is proceeding. It has now become completely dependent on government guarantees.

“The government is buying and insuring 60% to 70% of all mortgages,” said Richard X. Bove, vice president of equity research at Rafferty Capital Markets. “The government owns the mortgage market. It’s a nationalized market.”

This artificially pushes down mortgage rates as the risk is born by taxpayers. Low mortgage rates and no-down-payment and low-down-payment subprime mortgages are precisely what is required to inflate already inflated home prices further and drive Housing Bubble 2 to its peak. It creates the foundation for the next housing bust, where taxpayers and/or the Fed, will once again bail out investors in mortgage-backed securities. Why? Because politicians, always eager to buy votes, refuse to get the government out of the mortgage industry.

But there is no risk, we hear constantly. Defaults are at a record low. Same as just before the last housing bust. When home prices soar, no one defaults. You can just sell the home and payoff the mortgage. The problem arises when prices head south. Alas, there’s just no letup in dismal tidbits piling up about the condo markets. Read…  Is Chicago’s Housing Market Next?

It Was the Banks That Falsified Loan Documents

I know it doesn’t make sense. Why would a lender falsify documents in order to make a loan? I had a case in which a major regional bank had their loan representatives falsify loan documents by having the borrower certify that there were houses on his two vacant lots. The bank swore up and down that they were never involved in securitization.

When the client refused to make such a false statement — the bank did the loan anyway AS THOUGH THE NONEXISTENT HOMES WERE ON THE VACANT LOTS. Thus they loaned money out on a loan that was guaranteed to lose money unless the borrower simply paid up despite the obvious loss. The borrower’s error was in doing business with what were obviously unsavory characters. True enough. But he was dealing with the regional bank in his area that had the finest reputation in banking.

He figured they knew what they were doing. And he was right, they did know what they were doing. What he didn’t know is that they were doing it to him! And they were doing it to him in furtherance of a larger fraudulent scheme in which investors were systematically defrauded.

When I took the client’s history all I had to hear was this little vignette and I knew (a) the bank was involved in securitization and (b) this loan was securitized BEFORE the closing and even before any application for loan was solicited or accepted by the bank. The client balked at first, not believing that a bank would openly declare its non-involvement with Wall Street when the truth would so easily be known.

But the truth is not easily known — especially when the bank is involved in “private label” trusts in which there are no filing with the SEC or other agencies.

The real question is why would the bank ask the borrower to certify the existence of two homes that were never built? Why would they want to increase their risk by giving a loan on vacant land that supposedly had improvements? Or to put it bluntly, Why would a bank try to cheat itself?

The answer is that no bank, no lender, no investor would ever try to cheat themselves. The whole purpose of our marketplace is to allow market conditions to correct inefficiencies and moral hazards. So if the bank was cheating or lying, the only rational conclusion is not that they were lying to themselves, but rather lying to someone else. They were increasing the risk of non repayment and decreasing the probability that the loan would ever succeed, while maximizing the potential for economic loss to the lender. Why would anyone do that?

The answer is simple. These were not “overly exuberant” loans, misjudgments or “risky” behavior situations. The ONLY reason or bank or any lender or investor would engage in such behavior is that it was in their self interest to do it. And the only way it could be in their self interest to do it is that they were (a) not lending the money and (b) had no risk of of loss on any of these loans. There is no other conclusion that makes any sense. The bank was being paid to crank out loans that looked valid and viable on their face, but in fact the loans were neither valid nor viable.

Why would anyone pay a bank or other “originator” to pump out bad loans? The answer is simple again. They would pay the originator because they were being paid to solicit originators who would do this and then aggregate over-priced, non-viable loans into bundles where the top layer contained apparently good loans on credit-worthy individuals. And who would pay these aggregators? The CDO manager for the broker dealers that sold toxic waste mortgage bonds to unwitting investors. As for the risk of loss they created an empty unfunded trust entity upon whom they would dump defaulted loans after the 90 day cutoff period and contrary to the terms of the trust.

So it would LOOK LIKE there was a real lending entity that had approved, directly or indirectly, of the the “underwriting” of a loan. But there was no underwriting because there was no need for underwriting because the originators and aggregators never had a risk of loss and neither was the CDO manager of the broker dealer exposed to any risk, nor the broker dealer itself that did the underwriting and selling of the mortgage bonds.

Reynaldo Reyes states that “it is all very counter-intuitive.” That is code for “it was all a lie.” But we keep treating the securitization infrastructure as real. In the 2011 article (see below) in Huffpost, the Federal Reserve cited Wells Fargo for such behavior — and then the Federal Reserve started buying the toxic waste mortgage bonds at the rate of some $60 billion PER MONTH, which is to say that approximately $3 Trillion of toxic waste mortgage bonds have been purchased by the Federal Reserve from the Banks. The Banks settled with investors, insurers, guarantors, loss sharing agencies, and hedge counterparties for pennies on the dollar, but so far those settlements total nearly $1 Trillion, which is a lot of pennies.

Meanwhile in court, lawyers are neither receiving nor delivering the correct message in court. They seek a magic bullet that will end the litigation in their favor which immediately puts them in a classification of lawyers who lose foreclosure defense cases. The bottom line: the lawyers who win understand at least most of what is written in this article, have drawn their own conclusions, and are merciless during discovery and/or at trial. Then the opposition files a notice of voluntary dismissal or judgment is entered for the homeowner “borrower.” Right now, these losses are acceptable to banks who are still playing with other people’s money. If lawyers did their homeowner and litigated these cases aggressively, the bank’s illusion of securitization would end. And THAT means most foreclosures would end or never be started.

Wells Fargo Illegally Pushed Borrowers into SubPrime Mortgages

Banks Keep Winning, But Borrowers Are Picking Up the Pace

What’s the Next Step? Consult with Neil Garfield

CHECK OUT OUR NOVEMBER SPECIAL

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, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editors’ Analysis: Based upon reports coming from around the country, and especially in Florida, Nevada, New York, and other states, it seems that while the tide hasn’t turned, borrowers are finally mounting a meaningful challenge to the improper, illegal and fraudulent practices used at loan originations , assignments and foreclosures. As I have discussed with dozens of attorneys now, the strategies I suggested 6 years ago, once thought of as “fringe” are now becoming mainstream and the banks are feeling the pinch if not the bite of homeowners’ wrath.

The expression I like to use is that “At the end of the day everyone knows everything.” By using DENY and Discover tactics or strategies like that, borrowers are shifting the urden of persuasion onto the would-be foreclosers who in most cases do not have “the goods.” They are not a creditor, they didn’t fund the loan, they didn’t buy the loan and they don’t have any legal authorization to pursue foreclosure, submit a credit bid or otherwise trade in houses that were never subject to a perfected lien, and never owned by them.

It is becoming perfectly clear that something wrong is happening when the foreclosure strategies of the Wall Street puppets results in tens of thousands of homes being abandoned, blighting entire neighborhoods, towns and even cities. The banks are not stupid, although arrogance is not far from stupidity.

In ordinary times in any ordinary recession, the banks would do almost anything to avoid foreclose. They simply don’t have the money or the desire to acquire a portfolio of properties and they certainly don’t want to foreclose where the the end result is that the value of the collateral is diminished BELOW ZERO. And they certainly would not pursue policies that they knew would tank housing prices because it would only decrease the value of the loan and the likelihood of getting repaid for the loans they made.

But these are not ordinary times. Banks DO want price declines, so they can create REITS and other vehicles to pick up cheap properties. They DO want foreclosures even where the value of a blighted neighborhood is not worth the taxes, maintenance and insurance to keep the properties.

The reason is simple: if the loan is a total failure and under applicable state law they are able to create the appearance of a valid foreclosure, then the case is closed. Investors have not questioned the foreclosure process, mostly because they think that the basic problem was in the low underwriting standards which  certainly did contribute to the mortgage meltdown. If you look at most of the mortgages they have fatal flaws which increase the likelihood that the loan will fail — especially with blacks and other minorities who have been deprived of decent education and couldn’t possibly understand the deals they were signing.

Disclosure was required — but never made in terms that the borrowers understood — that the loans were being priced too high for the income of the household, and priced higher that the rates for which the household qualified. Blacks were 3.5x more likelihood to be steered into subprime loans when they qualified for conventional loans. People of Latin decent were treated like trash too being presented with documents that not only went above their education or sophistication in real estate transactions but also used words they never learned in English.

But the real reason I learned in my interviews was unrelated to the defective foreclosures. It goes back to the study made by Katherine Ann Porter when she was at the University of Iowa. Her study of thousands of mortgages and foreclosures came to the inescapable conclusion that at least 40% of all the origination documents were intentionally destroyed or claimed as lost. Other studies have shown the figure to be higher than 65%.

In ordinary times the  promissory note executed by the borrower in a conventional residential loan is a negotiable document supported by consideration from the payee who loaned money to the borrower. These notes were given to a custodian of records whose job was to preserve and protect these papers because they were considered by all accounting standards as CASH EQUIVALENT.

So on the balance sheet of the lender the cash was added to cash equivalents as total liquidity of the lender or bank. [What you are looking for on the balance sheet of the “lenders” are “loans receivable” and corresponding entry on the liability side of a reserve for bad debt. You won’t find it in the “new mortgages” because they never had the real stake or risk of loss on that loan and therefore was excluded entirely from the balance sheet or placed in a category in loans held for sale along with a footnote or entry that zeroed out the asset of loans for sale because they were committed to third parties who had table funded the loan contrary to the express rules of TILA and Reg Z which state that the loans are presumptively predatory loans if the pattern of lending was  table funded loans.] See My workbooks on www.livinglies-store.com

The notes were considered liquid because there was always a secondary market in which to sell the notes and mortgages. And there, the proper chain of authorized signatures, resolutions, and endorsements was carefully followed, same as they would require from any borrower claiming an asset as proof of their credit-worthiness.

So why would any bank or any reasonable person intentionally destroy the original documents that constituted by definition the origination of the loan collateralize by a supposedly perfected lien? In my seminars and workbooks I answer this question with an example: “If you tell someone you have a hundred dollar bill and that they can have it if they buy to from you for $100, but that you will hold onto it because you will make some more money for them by lending it out, then the fraud is complete. And there you have the beginning of a PONZI scheme.

As long as you are paying them as though they had $100 invested, they are happy. But what if you were holding a $10 bill and not a $100 bill. What if they took your word for it that you were holding a $100 bill. AND what if now they want to see the $100 bill? Now you have a problem. You have no $100 bill to show them. You never did. For a while you could take incoming investor money and then show the original investor the money but when investors stop buying new deals, then you don’t have the $100 bills to show everyone you dealt with because all you ever had was a $10 bill.

So better to say that you destroyed it under the premise that the digitized copy would suffice or lost it because of the complexity of the securitization process than to admit that you never had it to begin with. If you admit it, you go to jail and you are ordered to pay restitution, your assets seized and marshaled to return as much money as possible to the victims of the PONZI scam.

If you don’t admit it, then there is the possibility that after probing why the investors didn’t get their money back, they start discovering how you were using their money, and what you were doing as business plan. The only way to shut that off and make it least likely that investors would ever question whether you had represented the deal correctly at the beginning, to avoid criminal prosecution, is to COMPLETE the FORECLOSURE Process which gives the further appearance that there is an official state government seal of approval on a perfectly illegal foreclosure and probably an economic crime.

See below for the suffering and light and lives lost because of this incredible crime that nobody seems to want to prosecute. A crime, by the way, they has corrupted title records that will haunt us for decades to come.

wall-street-kept-winning-on-mortgages-upending-homeowners.html

Tax Impact of Principal Reduction

With the Obama administration and private lenders actively considering mortgage-principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued an advisory to taxpayers who receive — or seek to receive — such assistance if it’s offered.

Editor’s Note: The only thing I would add to this, for the moment, is that any principal reduction is basically an admission that your property is not worth the amount of the mortgage. If you have made demand for damages or relief based upon appraisal fraud or other causes of action in or out of court, the taxpayer can take the position that the debt reduction is also in lieu of payment of damages which often is not taxable. Under this theory — which may or may not apply — you would NOT be limited to your principal residence to claim an exemption. Consulting with a licensed attorney or accountant familiar both with federal and state tax law would be strongly advisable.

The reason I mention state law is that the reduction of principal might be the basis for contesting the assessed valuation of your home for real estate taxes, property insurance etc.

IRS tells homeowners how to get tax relief if a lender forgives part of their debt

Reduction of mortgage principal, usually considered taxable income, is expected to become more prevalent as the Obama administration and banks seek ways to prevent foreclosures.

By Kenneth R. Harney

March 14, 2010

Reporting from Washington

With the Obama administration and private lenders actively considering mortgage-principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued an advisory to taxpayers who receive — or seek to receive — such assistance if it’s offered.

The IRS gets involved in mortgage principal write-downs because the federal tax code generally treats any forgiveness of debt by a creditor in excess of $600 as ordinary taxable income to the recipient.

However, under legislation that took effect in 2007, certain home mortgage debt cancellations — such as through loan modifications, short sales or foreclosures — may be exempted from tax treatment as income.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp., recently confirmed that her agency was working on a new program to expand the use of principal mortgage reductions to keep underwater borrowers out of foreclosure.

Most major banks and mortgage companies have preferred monthly payment reductions and other loan modification techniques over cuts of principal balances, but a handful have made limited use of the concept.

One of the largest servicers of subprime home loans, Ocwen Financial Services of West Palm Beach, Fla., has strongly advocated principal reductions to keep people out of foreclosure, and claimed broad success with them. Ocwen President Ron Faris testified to a congressional subcommittee this month that borrowers with negative equity were as much as twice as likely to re-default after a standard payment-reduction loan modification than those who receive partial forgiveness on their principal debt.

But what are the tax implications when your lender essentially says: OK, we recognize that you’re underwater, maybe you’re thinking about walking away, and we’re going to write off some of what you owe to keep you in the house?

IRS guidance issued March 4 spelled out step by step how financially troubled and underwater borrowers can qualify for tax relief when a lender agrees to lower their debt. Here are the basics, should you be considering a short sale or loan modification involving principal reduction.

First, be aware that the federal tax exclusion only applies to mortgage balances on your principal residence — your main home — and not on second homes, rental real estate or business property. The maximum amount of forgiven debt eligible under the law is $2 million for married taxpayers filing jointly and $1 million for single filers.

But there are some potential snares: Your debt reduction can only be for loan amounts that you’ve used to “buy, build or substantially improve your principal residence.” This includes refinancings that increased your total mortgage debt attributable to renovations and capital improvements of your house. But if you used the proceeds for other personal purposes, such as to pay off credit card bills, buy cars or invest in stocks, the mortgage debt attributable to those expenditures is not eligible for tax exclusion.

When your lender forgives all or part of your mortgage balance, the lender is required by law to issue you an IRS Form 1099-C, a “Cancellation of Debt” notice, which is also sent to the IRS. The form shows not only the amount of debt discharged but the estimated fair market value of the house securing the debt as well.

A few other noteworthy features of the IRS rules: If you’ve been foreclosed upon or you do a short sale and lose money in the process, don’t claim a tax loss on your federal filing. The IRS will turn you down. However, if you go to foreclosure and your lender agrees to cancel all or part of the unpaid mortgage balance as part of the deal, then you can file for an exemption from the IRS.

What if your lender reduces the debt on your house but you continue to own the property and live in it? There’s a tax wrinkle in the fine print: The IRS will require you to reduce your “basis” in the house — your “cost” for tax purposes — by the amount of the forgiven debt. But that’s not likely to be a big concern for most homeowners digging their way out.

Finally, if you want to claim the debt-forgiveness exemption, download IRS Form 982 at www.irs.gov and attach it to your return for the year in which the debt was forgiven. And don’t assume that this tax code benefit to homeowners will be around forever. It expires at the end of 2012.

kenharney@earthlink.net.

Distributed by the Washington Post Writers Group

“The Prosperity Gospel”: Pastors Took Bribes From Mortgage Originators — $350 per subprime mortgage

And probably people “of the cloth” from all denominations.

We are a nation of faith. Jesus angrily drove the money lenders out of the temple. How can we stand by and allow the borrowers to be driven out of their homes?

The fact is most of these victims were hunted down like a foxhunt, with strangers knocking on doors, experts giving them quiet assurance of how wonderful their house was and how much it was worth, how wonderful it was that the bank would approve such generous terms (because they weren’t playing with their own money), and with undisclosed yield spread premiums of unimaginable size sometimes in multiples of the mortgage amount itself.

I have already spoken about how in Florida they hired and got licenses for 10,000 mortgage brokers to act as bird dog originators — all 10,000 of them were convicted felons, mostly for economic crimes, many of whom just got out of jail. Translation: they needed people who would be willing to lie in order to get borrowers to sign. Yet that was not enough. “One theme emerging from these suits is how banks teamed up with pastors to win over new customers for subprime loans.”

It is probably not politically correct and even offensive to say that American society has one faith in common: money. Belief in money and in particular that almighty dollar is something that all of us seem to converge on from disparate facets of life, class levels and religious faith. The protestant ethic on which our country supposedly rests, is all but dead. People who conduct their lives according to the principles of hard work, building a foundation of quality and prospering in the end usually are derided as old-fashioned or even naive in “today’s marketplace.”

If you really want to know why this nonsensical mortgage meltdown could occur, look no further. For all the cries of “shame” and demands for justice, our society, as a whole is doing virtually nothing about making sure it never happens again and in fact has already launched the next round of speculation based upon a government bailout of the losses when they occur.

It no longer matters if you work hard. It doesn’t matter if you are honest. It doesn’t even matter if what you do is successful. You will be paid a king’s ransom as long as you are playing “the game.” When the cards come tumbling down, it doesn’t matter — you are rich beyond your wildest dreams and even if you have nothing left to do, you don’t need to work anyway. The fact that tens of millions of people can’t work, are NOT rich, and have no income or safety net is of no concern. It isn’t that these people all lack conscience. The inconvenient truth is that they are following the rules of our society.

One recurring theme coming up in many lawsuits is “business Model” adopted by the Top Dogs (Bank of America, Countrywide, Wells Fargo etc.) who simply repeated the multilevel marketing schemes that proliferate across our great land in search of another unearned dollar.

I have already spoken about how in Florida they hired and got licenses for 10,000 mortgage brokers to act as bird dog originators — all 10,000 of them were convicted felons, mostly for economic crimes, many of whom just got out of jail. Translation: they needed people who would be willing to lie in order to get borrowers to sign. Yet that was not enough. “One theme emerging from these suits is how banks teamed up with pastors to win over new customers for subprime loans.”

Just look at how much trouble we are having distributing flu shots and getting people to accept the flu shot. Channels of every type and place imaginable are hawking the shots (which by the way I think is a good thing, and yes, I got one) at tens of thousands of outlets and delivery points. MERS says it has 60+ million mortgage transactions in its data records. How do you reach 60 million homeowners?

Well it turns out to be easy in country where the overwhelming majority of the populace are people of “faith.”

I invite you all to take a look at “Did Christianity Cause the Crash?” by Hanna Rosin published in the current issue of The Atlantic, December 2009 at page 39.

A Case in Point: Beth Jacobson, witness for the prosecution in City of Baltimore vs. Wells Fargo. Just the facts Ma’am. Virtually none of the mortgage “specialists” any of us spoke to over the phone had any education, training or experience in mortgages, finance or even bookkeeping. They were trained on how to look like they were experts. They would lie to you eye to eye. And they were rewarded. “Sometimes the bank would send a Hummer limo to pick up Jacobson for a celebration, she says. She’d arrive at a bar and find all her co-workers drunk and her boss “doing body shots off a waitress.”

Like any “good idea” (without any sens of “enough”) the marketing model of establishing sales channels through houses of worship was irresistible. After all, congregants were in a vulnerable mood when they went to church, they were easily pacified by their faith in their clergyman, and any “Wealth Now” seminar assumes an aura of both credibility at the least and mandate from God at most. And the Pastor, the Church or some “program” of the church would get a $350 “donation.” It didn’t take long for those in the congregation who were prospecting for the next person they could fool to get the point — bring subprime mortgage candidates to the bank and get paid $350 per mortgage. So if they did 10 mortgages per week, they earned themselves $3500 per week.

The results are well known, but not particularly flushed out. People who are living lives of quiet desperation under a mountain of debt they would never escape suddenly saw the jackpot. And so while the mortgage meltdown was in its hay day their income jumped from what had been $35,000 per year to an av erage of $350,000 per year. And after 2-3 years they were convinced that they now were big earners. When the crash occurred, they were slow to realize or believe that they were no six figure earners and they never were. They were low five figure earners, and those jobs were no longer available so now they would need unemployment or other public assistance.

What bothers me is not that people of the cloth are like anyone else — subject to temptation and possibly who got there because of the protection it provides for all sorts of deviants or corruption. N0, what bothers me is that even as mainstream media publishes these stories, the underlying assumption is that the mortgage mess is still MOSTLY the fault of consumers whose eyes were too big for their stomachs.

The fact is most of these victims were hunted down like a foxhunt, with strangers knocking on doors, experts giving them quiet assurance of how wonderful their house was and how much it was worth, how wonderful it was that the bank would approve such generous terms (because they weren’t playing with their own money), and with undisclosed yield spread premiums of unimaginable size sometimes in multiples of the mortgage amount itself. And yet the victims continue to be portrayed as gamers who lost. That bothers me because until we get all the facts out on the table, there never be a solution to this mess, this confabulation.

Until there is real understanding of the facts, we will continue to protect the large banks that are “too big to fail” and continue to ignore the plight of the common man and woman. As long as we persist, we will not rebuild the middle class. Without a stable prospering middle class, we are nothing. That’s the real irony. The wealth needs to be in the middle class to have society that survives itself. Legally I have no doubt that the wealth is there but it has not been claimed. Practically, until Judges and lawyers and homeowners “get it” they will continue to blame the “borrower” and let the pretender lender do body shots “off the waitress.”

Mortgage Meltdown and Foreclosure Defense: Private Lending Might be a Resource for You

Besides all of the strategies we are collecting for you here, there are some monetary resources you could consider. Things like reverse mortgages are not likely to yield you anything if you are in trouble because you needs lots of equity to get into those. But there are private lenders and peer to peer lending groups that are getting more active. 

Here are some resources you can go to to learn about and perhaps secure a private loan. These resources are equally applicable for those investors who wish to pursue higher returns by lending, peer to peer or in investment pools. Mostly these loans are NOT securitized. 

Description of Zopa and Prosper et al: http://www.mortgagenewsdaily.com/822006_Peer_To_Peer_Lending.asp

USA Today Article: http://www.usatoday.com/money/perfi/credit/2007-12-25-peerlending-min_N.htm

Peer to Peer Leader Featured on TV: http://www.lendingclub.com/home.action

Peer to Peer Featured on CBS TV: http://www.prosper.com/prm/borrower3.htm?site=&adcopy=b885409550&gclid=CObxkrn8wZMCFSRaiAodOkAocg&adgroup=bank&s=ggl&campaign=USState&ovmtc=broad&ovkey=peer%20to%20peer%20lending&prm=1002

ZOPA: https://us.zopa.com/ad/ad1.html?gclid=CO2Knvj6wZMCFSgtagodA3cbCA

Business Opportunity: http://www.privatelendingmadeeasy.com/

Mostly small business lending: http://entrepreneurs.about.com/od/financing/a/privatelending.htm

Luxury Mortgages: http://www.privatelendinggroup.com/

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May 24, 2008

OFF THE CHARTS

Mortgages Without U.S. Backing Start to Rise

THE private mortgage market in the United States — almost moribund in the wake of the subprime crisis that bankrupted some lenders last year — is showing small signs of revival.

In the first quarter of this year, there were $116 billion in private mortgage loans, loans not issued or insured by the federal government or a government-sponsored entity. That was up from $84 billion in the final quarter of 2007, according to a survey of lenders by Inside Mortgage Finance, a newsletter.

In the wake of the collapse of the private mortgage securitization market in the second half of last year, few banks were willing to make loans that they could not sell, primarily to the government-sponsored enterprises Fannie Mae and Freddie Mac. Those agencies are private companies, but they have a limited right to borrow from the Treasury, and investors generally assume that the federal government will bail them out if they get into serious trouble.

The agencies’ share of the mortgage market rose to a record 75.6 percent in the final quarter of 2007. Add in the 1.3 percent share for Department of Veterans Affairs loans, and the 4.5 percent share for the Federal Housing Administration, and the share of truly private mortgage loans fell to a record low of 18.6 percent.

In the first quarter, the private share recovered to 24.2 percent, meaning that in a country that considers itself the bastion of private enterprise, three of four new home loans had some sort of government-related guarantee.

“There are more banks and other lenders increasing their portfolio lending,” said Guy D. Cecala, the publisher of Inside Mortgage Finance. “At year-end, banks were reluctant to do any portfolio lending.” Portfolio lending refers to an institution’s making a loan and holding on to it, rather than selling it either as a mortgage or as part of a securitization package.

Much of that private lending appears to be in jumbo mortgages, which are too large to be bought by the agencies. The limit had been $417,000, but Congress has raised it temporarily, with differing limits in various areas.

There is still a great reluctance to grant mortgages to subprime borrowers. Mr. Cecala estimated that $10 billion in subprime loans were made in the first quarter, a little less than in the final three months of 2007. In 2005 and 2006, about one in five dollars lent went to subprime borrowers, with a peak volume of $625 billion in 2005.

While there is a little more private lending activity, the private mortgage securitization market continues to shrink. Investors have not yet been reassured that new securitizations will be safer than the disastrous ones from 2006 and early 2007.

A look at the total volume of mortgage loans helps to explain how the mess was created. In 2003, with interest rates at very low levels, a record $3.9 trillion in mortgage loans were made, most of them for refinancing. When interest rates edged up the next year, it seemed reasonable to expect a big falloff, but the decline was only 26 percent.

Mr. Cecala said that the mortgage industry, having greatly expanded to deal with the wave of refinancings, looked for ways to keep lending. The availability of alternative products, allowing larger loans relative to value, or giving borrowers the option to make very low payments for a limited time, grew. That easy credit helped to push home prices up, until they peaked in 2006.

Now, with mortgage defaults rising, Congress is expected to enact housing legislation to permit the F.H.A. to guarantee refinancing loans to homeowners in danger of losing their homes. A Senate committee approved a bill this week to allow such guarantees, but only if the loan amount was reduced to a figure lower than the current value of the home. Such a reduction would cause a loss for the original lender, but that loss might be smaller than it would be with the alternative: the house goes into foreclosure.

Read Floyd Norris’s blog at norris.blogs.nytimes.com.

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