Monday, July 14, 2008

Mortgage Disaster

I believe that banking institutions are more dangerous to our liberties than standing armies. (Thomas Jefferson, US President; 1743 - 1826)
The Mortgage melt down this year is having a large effect on the economy of the U.S. I have been reading much about it and would like to break it down somewhat. First is a professional journalist breaking down the situation.

"The financial crisis comes from the collapse of an $8 trillion housing bubble.
Banks—and many homeowners—made a lot of bad bets on the
assumption that housing prices would always go up.
The shadow banking system—including the off-balance sheet
entities set up by the commercial banks—borrowed massively to make those bets. They invented exotic securities and over the counter, unregulated credit swaps and the like to add layers and layers to the house of cards. Now it’s collapsed. The real economy is in trouble. Consumers have lost trillions in home equity and are tightening their belts."

The best way i can understand it, is that, mortgage lenders looking for larger markets began selling mortgage more and more to people who could not afford them. The mortgage institutions made the mortgages seem within reach for many families who dreamed of buying a house, but who always thought the American dream was financially out of reach. So lawyers went to work, and packages fancy deals, pay low or no interest, with no down payment. With wording like this even i can afford a house, in theory. As long as the mortgage seller gets their fee who why should they care if the mortgage ever gets paid off.

Hidden deep within the fine print is the word variable, and initial. low interest initially, with steep rises very soon.

Some other shadiness included; firms that rent assets to people to help them fraudulently qualify for a mortgage - like loaning them money to keep in their bank account for a couple months so they can fool the lender with documented savings that evaporate the day after the mortgage is signed. Another popular ruse: The borrower pays an employer to pay him a lot of money in a fake job for a month or two so he can show a fat paycheck in his loan docs. Some real estate agents and mortgage brokers actually refer buyers to these services.

Should home buyers have know better yes, but the people peddling them knowingly broke laws, or treaded very close to the line.

Practices that allowed these tactics to operate under this present Bush administration were illegal under Clinton. Additionally when lines were crossed and local district attorney's pursued the case they were harassed by the Bush administration. Bush not only allowed these illegal practices to occur but he let them FLOURISH by attacking any state that tried to pursue criminal prosecutions against those that broke the law.

Bush's shady tactics can be seen most visibly with the fall of Elliot Spitzer, NY Governor, who was the strongest critique of bush, and was in the process of organizing the governors of all 50 states to file a suit in court against Bush's illegal tactics.

On to the ponzi scheme, low income people were sold a shady illegal bill of goods, i.e a mortgage they could afford temporarily, before rates increased.

The mortgages were sold to bigger mortgage outfits, and bigger, ones, and the initial seller of the mortgage closes his shop door and is long gone by now. One reason the mortgages were packaged and sold quick to other lenders or to investment houses as stock, was because of a federal law limiting how many mortgages a mortgage lender could hold, by moving them quick they could be involved in more sales and more money

Next the mortgages are packaged together and sold as stocks on the NY stock exchange. But who would buy a stock if it was not given a AAA rating by the top ratings firms in the U.S. The stocks were given fake AAA ratings, meaning they were perfectly sound investments. These ratings firms were being paid billions of dollars by U.S. investment banks like Goldman and Sachs, who also sold the bundled mortgage stocks.

So who were the suckers that bought the stocks, normal investors, foreign investors, foreign banks and governments, cities and towns in the USA, pension funds.

And one day when the invisible ink of those mortgage contracts became visible, and interest rates and monthly payments went through the roof. This along with house prices falling in 2006 for the first time in forever, lead to many, many people, not able to pay their mortgages. And that's all it took for the entire house of cards to fall.

Soon enough the AAA rated stocks began to drop and drop and drop. And for all those companies who invested hefty sums in these AAA stocks big trouble was on the way, for some. And if your mortgage firm invested a large amount in these volatile mortgage's than you are also in trouble. And god for bid your state invested your pension in these funds, like Florida teachers.

Bear sterns crashed, their stock was went from over a hundred to ten dollars overnight. If you owned Bear Stern stock you lost. But if you owned JP Morgan stock you won.

When Bear sterns collapsed, they could not really allowed to collapse because a company that size falling could tear down the whole American economy, right? Or so we are told.

So usually the govt via the federal reserve bank (The bank lends the govt money so the govt can give it away to the bank, and the taxpayer pays the bill) will hand over money to the failing banks as kind of an economic I.V. In total close to 400 billion dollars was handed out since Summer 2007 to ensure large banks would not collapse.

Yet Bear Sterns was not given a bail out like many other banks, and like Freddie mac, and Fannie Mae will get this week. Instead JP Morgan was given a bailout in order to buy the dead Bear Sterns. Why not just give the loan to Bear? Well it just so happens that the federal reserve bank of new york, the organization who saved the day with the bail out money is run by a board, who sits at the chairmanship of the board, the CEO of JP Morgan bank. Sweet. and i know what your thinking, who else sits on the board, the CEO of Lehman brothers.

Now if you follow the situation, family cant pay mortgage, bank does not get paid, stock prices fall, banks in trouble, banks restrict loans, housing prices fall, more people in trouble.

The governments solution? Banks get bailed out with 400 billion dollars and counting, And for the people losing homes,they get bail a 2 billion dollar bailout. Why wouldn't the people losing their homes get the bailout? Wont everyone win like that? People pay mortgage, banks get their money and operate normal, stocks go up, investment firms have no problems, no one loses a home.

Yet the government, an institution set up by and for the people, once again chose to help corporations over people. This has been the choice time after time. Will it ever change?

Another theory for the govt backed bailout of large investment houses is, layed out by attorney Sean Olender, is, "The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process. "

Another issue is that home prices are depreciating so rapidly that many find it financially beneficial to simply default on there mortgage payment and lose the downpayment which was nothing. It makes sense, why pay your mortgage for a house you pay a total of 500,000 dollars for if its now worth 300,000 dollars a few months later? And California law, where home depreciation reached a staggering 40%, has laws that allow banks to keep only the deposit on defaulted mortgages.

Well the good news is that many states and towns who invested in these shady stocks are suing investment banks. For example, meryl lynch is being sued for for fraud and misrepresentation, of stocks sold to the city of Springfield Massachusetts.

The city of Baltimore sued Wells Fargo Bank for damages from the subprime debacle, alleging that Wells Fargo had intentionally discriminated in selling high-interest mortgages more frequently to blacks than to whites, in violation of federal law.

Cleveland Mayor Frank Jackson has filed suit against 21 major investment banks, for enabling the subprime lending and foreclosure crisis in his city

June 2008, California Attorney General Jerry Brown sued Countrywide Financial Corporation, the nation’s largest mortgage lender, for causing thousands of foreclosures by deceptively marketing risky loans to borrowers. Among other things, the 46-page complaint alleged that:
"‘Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers’ long-term ability to afford them and to sustain homeownership’ . . .

"The company routinely . . . ‘turned a blind eye’ to deceptive practices by brokers and its own loan agents despite ‘numerous complaints from borrowers claiming that they did not understand their loan terms.’". . .

Underwriters who confirmed information on mortgage applications were ‘under intense pressure . . . to process 60 to 70 loans per day, making careful consideration of borrowers’ financial circumstances and the suitability of the loan product for them nearly impossible.’
"‘Countrywide’s high-pressure sales environment and compensation system encouraged serial refinancing of Countrywide loans.’"7

In a 2007 ruling in Wisconsin that is now on appeal, U.S. District Judge Lynn Adelman held that Chevy Chase Bank had violated the Truth in Lending Act by hiding the terms of an adjustable rate loan, and that thousands of other Chevy Chase borrowers could join the plaintiffs in a class action on that ground.

AdDiToNal fAcTs
-So far 6 lenders have failed this year

-90 banks are considered to be in trouble

-the current secretary of the treasury is henry paulson, who's last job was ceo of goldman and sachs, the only investment house not hurt by this housing bubble


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