mortgages – Shortwoman.com

Someone Noticed the Man Behind the Curtain?

Today the Dow Jones Industrial Average was down over 500 points. Now make no mistake, I don’t like to read too much into the Dow. After all, it’s only 30 stocks, tweaked so the most expensive ones matter the most. However, the S&P 500 also dropped almost 5% today.

The culprit? “Fears over the economy.” That’s the same economy that — at least outside corporate boardrooms — was crappy a week ago, a month ago, a year ago. But now? Someone is exposing the Wizard behind the curtain and it’s obvious that Bad Things are afoot in the Wonderful World of Oz.

What’s different now? Is it that the State of New York isn’t going to let Bank of America get off with a pennies on the dollar settlement? Is it that Congress has done such a bad job that their disapproval rating is at an all time high? Perhaps it’s that we now understand some of the lies surrounding the federal budget? Maybe somebody outside peace activists has realized that we really are running 2 and a half pointless wars (to say nothing of thinking we can still starve Cuba into capitalism)? Did some stock broker take a wrong turn into the wrong neighborhood and notice that trickle down doesn’t work? Could it be that somebody noticed that unemployment is up nearly everywhere, and there’s nothing in the budget deal or any other federal plan that would create jobs?

Of course, I am not alone in thinking we never actually got out of the Great Recession.

If you are looking for a silver lining, mortgage rates are down due to the economic data. Assuming you have a job, and good enough credit to qualify for a mortgage.

In Closing: Fannie and Freddie were just following everyone else off the cliff; if we seriously believe that some criminals can’t be rehabilitated, the answer is life in prison, not a scarlet letter (oh but then we would have to think for more than 10 seconds); it still wasn’t the drugs, but the scopes; Toyota, and Honda lose to Nissan, Kia, and VW; tax reform zombie; you have to be wealthy to eat healthy; and aww honey honey.

Well Isn’t That Interesting

Gee, isn’t it peculiar that right after a very close election in Wisconsin, a voting official with a history of not exactly doing things the proper way happens to find just enough votes for one particular candidate to avoid a required recount, against pretty much every rule of computer programming and common sense?

Good thing there’s paper ballots. Somebody better pick those up before the mysterious fire. You never know when a mysterious fire can happen. You might be experiencing one right now!

In closing: the contents of Notorious B.I.G.’s pockets when he died; have a Koch and a smile; escaped leopard menaces children; blast from the past; Fox News through history; stop coddling the kids, they know better; yeah, because clearly Eric Holder has nothing important to do; it’s never been about deficit reduction (go ahead! shut the government down! but stop paying the worthless congresscreeps who got us here!); on the middle class; How to tell if your neighbor is cooking up explosives; what’s that doing in this century?; Detroit; the truth about how California reduced malpractice costs; make sure you are both on the mortgage; I doubt this seriously (did anybody bother to compare cost-with-coupon to cost of store brand?); stop tweeting ads; earthquake art; whistleblowers; and a cat with a gun.

Connecting the Dots

Today, the SEC announced fraud charges against a third banker for selling worthless and non-existent mortgages to Colonial Bank, leading to its collapse. This is on the heels said executive confessing to conspiracy and being sentenced to 30 years in prison.

Most reporting on “mortgage fraud” centers on one of two themes: Joe Average knew perfectly well he couldn’t afford the house and lied to get the mortgage in the first place; or robosigning was a just an unfortunate oversight caused by the sheer volume of foreclosures and nobody could reasonably predicted a problem. Both infuriate me. The first was only a small fraction of the foreclosures we have, and the second is merely a cover-up for the real mortgage fraud.

Let’s start from the beginning.

The buyer is told by an unscrupulous mortgage broker that he indeed does qualify for a mortgage, even though the mortgage broker knows that within 3 to 5 years, this buyer will have to refinance or go into foreclosure.
Some buyers — mostly minorities — are pushed into sub-prime mortgages despite the fact that they qualify for a better deal. They are at higher risk of foreclosure from day one and the mortgage broker knows it.
In some cases, a bait-and-switch occurs at the closing table. Either the documents presented are not what was promised, or only the first few pages reflect what the buyer was promised. The rest of the huge stack of paper the buyer must sign is at a higher rate or with worse terms.
The mortgages are sold to trusts, banks, insurance companies, pension funds, investment firms, Fannie Mae and Freddie Mac. They have been fraudulently represented as “performing” — that is, paying every month and likely to continue. Sometimes, these loans change hands multiple times. This is particularly true in an environment where some financial institutions have failed.
The original bank is now just the servicer, and they have every incentive to add fees, post payments late, deny short sales, deny mortgage modifications, and push the homeowner into foreclosure.
Meanwhile, in violation of the laws of every state in the union, they have failed to report the new mortgage holder at the county recorder’s office. After all, that costs money. Instead, they put together a private company to keep track of who owns what: MERS stands for Mortgage Electronic Registration System. The banking industry insists that this is fine, the law is quaint, this is the way everybody does things now, so the courts need to just accept it. Courts in several states have disagreed. Just because everybody goes above the speed limit doesn’t mean you won’t get a ticket.
The homeowner knows he is in trouble. He calls to ask about a mortgage modification. He is fraudulently told that they won’t even consider it unless he stops paying for 3 months. When the 3 month mark comes, the homeowner is in default and the foreclosure process is begun; it’s a race to see whether the modification or the foreclosure finishes first.
Default is where the robosigners finally come in to play. They have stacks and stacks of documents, some of which need to be fabricated because originals were shredded to hide fraud.
I would be remiss if I did not point out that in some cases, banks are foreclosing illegally: they foreclose on the wrong home, they foreclose without legal standing to do so, they foreclose in violation of a bankruptcy order, they foreclose on a member of our military who is serving overseas.
In the fallout, some financial institutions fail.
The banks turn around and sell the properties at absurdly low prices, sinking property values. In any other industry, they would face charges of dumping.

And there you have it. Robosigners and “people who should have known better” are only a very small part of the mess we now face.

Cross-posted at The Moderate Voice.

In closing: the center is further left; “don’t expose our law breaking trade secrets!”; odd recall; on austerity; women‘s issues; tied hands; seriously??; Pac-Man was supposed to be for girls; I’ve got a soft spot for VW, but this is not likely to be my next car; glad they can agree on something; Superman‘s citizenship and other issues; what are we hiding?; fix it; Matt Damon; and a picture:

Nevada Firestorm

And no, I’m not talking about the two multi-acre blazes within 4o miles of Las Vegas.

Well, the internet has been all abuzz over the latest from Sharron Angle. Everybody and their dog has already had something to say about her latest interview, including the guy who interviewed her. No wonder she does so few of them! Ezra Klein points out that the choice should be fairly simple, given that Nevada has one of the highest unemployment rates in the country, Angle thinks all those unemployed people should get up off their lazy asses and find a [nonexistent] job, and Reid keeps trying [and failing] to get unemployment benefits extended to at least try and prevent all those unemployed people from becoming homeless too. At least her website has been updated with a little less crazy. She still does think it’s unreasonably hard to get a ballot initiative up in Nevada. I have long urged people to Just Say NO to all voter initiatives, so this is just fine with me.

But wait! Let’s not forget that The Other Reid (he’d prefer to just be known as “Rory“) is in an election too, and his opponent Brian Sandoval has also been campaigning. This week he announced a plan for Nevada schools. It includes giving a “grade” to each school and allowing kids in poorly graded schools to transfer to better schools. Now, there’s 2 problems I see with this. First is that No Child Left Behind already allows the same freaking thing; why reinvent the wheel? The second problem is geography. Nevada is a big state with a small population, and 73% of the population is in one county. While the idea almost makes sense in the Las Vegas Valley, the Reno area, and the Carson City area, it makes no sense in the rural areas where the next school might be an hour or two away.

His second plan is the popular idea of making teacher pay dependent upon student performance. Well, here’s the thing. Teachers can only control what happens in their classroom, and even then only most of the time. When you’ve got kids worried about living on the street, kids stealing ketchup packets so they can have dinner, gang violence, child abuse, parents who don’t give a damn, official curricula that still use sight words*, limited ability to discipline students who are out of line, a bureaucracy that would make any government proud, and a half dozen impediments to learning in the classroom, merit pay is a sick joke.

And idea three is to outsource non-educational services. That would include janitorial services, human resources, and food service. It makes me wonder what firms I would find if I were to look closely at Mr. Sandoval’s investments! There is just no way that it’s cheaper to have a cleaning crew come in at night than to have one or maybe two people on hand all day to clean messes as they occur. Hiring a for-profit catering service to put the cafeteria ladies out of work is just madness. This is aside from the concern some parents will have over whether the employees of these firms might maybe have some desire to harm a child. As much as I would like to dismiss this as tinfoil hat lunacy, the fact of the matter is that Clark County School District has had incidents where non-teachers are accused of harming students.

* I was just horrified to learn what constitutes homework for a first grader!

In closing: A tangible Good Thing from health insurance reform starts today; mortgage rates at record lows, why aren’t we borrowing? (because unemployment is around 10% and most homes are worth less than what is already owed, duh); a financial reform package passed the House and is headed for the Senate, let the hunt for loopholes and political favors begin (it’s ok, banks will ignore what they don’t like anyway); fiscal austerity still doesn’t work; Real Socialists beg the wingnuts to stop calling Obama one of them; a bit of follow-up, the list of countries Van Der Sloot can be extradited to for more charges grows; both of these statements are logical, but both cannot be true; 100 Yen shops, the Japanese Dollar Store; vaccinate your kids!; smart pet tricks; flying cars; and libertarians.

Mortgapocolypse

Before we get to today’s news, let’s start with a bit of history and background on how banking and lending works. Long ago, the first bankers realized that the odds of everybody wanting their money at the same time were just astronomical. So if they were to lend some of that money out at interest, not only would they profit, but they could pass on a little bit of that interest to depositors, making people want to deposit money with them. Charging of interest is even discussed in the Bible, so we know it happened in Biblical times. This process in fact creates money, so it’s very important to the economy.

But let’s fast-forward to a mythical and highly simplified bank somewhere in America. We’ll call it Bailey Bank. Bailey’s got ten thousand depositors with an average daily balance of $1,000. Simple math says they have roughly $10,000,000 in deposits — small by modern standards but still nothing to sneeze at. The Federal Reserve Bank regulates how much money they need to have on hand, and also says how much needs to be deposited with them for emergency purposes. They still have plenty of money to lend out.

So Bailey makes a few dozen mortgage loans, and lends for a few farms and small businesses too. If they are short on cash, they can borrow money from nearby Potter Bank or from the Federal Reserve, at interest rates set by the Fed. These are the rates that Greenspan used to mess with, and the ones Bernanke can change today, not the rates that banks charge us but the rates they charge one another and the rate that the Fed charges them.

When they came to the point where they didn’t really have more money to lend, they sold a bunch of mortgages to Fannie Mae and Freddie Mac. Fannie and Freddie paid them to be the servicers — sending the bills and collecting the money — and paid Bailey most of the money they would have earned by keeping the mortgage until it was completely paid off. This left Bailey with more money to write more mortgages. But Fannie and Freddie have rules about what they will and won’t buy. So Bailey changed some lending policies to make sure that Fannie and Freddie would buy their loans. There are properties that you almost can’t get a mortgage on because other banks did the same thing.

You already know the sad story of banks being left holding the bag in the foreclosure crisis they created. And maybe you even have seen how banks are driving down property values in your neighborhood by dumping properties at ludicrously low asking prices.

This also left Fannie and Freddie behind the 8-ball, and it may yet cost American taxpayers $1,000,000,000,000 to fix it. Why bother? Because banks have stopped counting on holding mortgages until they mature and count on selling the paper to investors like Fannie and Freddie. Without someone to buy the paper and give banks more money to lend, lending will dry up even more than it already has. And that means almost nobody buys property without cash. It may already be too late to save Fannie and Freddie; they are being delisted from the New York Stock Exchange. It would be polite to say that’s a negative for the stocks.

But there is one ray of sunshine in the mortgage mess: the arrest of Lee Bentley Farkas of mortgage company Taylor, Bean & Whitaker. He and unnamed conspirators are accused of fraud in the TARP program, “misappropriating” $400,000,000, and causing the collapse of Colonial Bank by selling them $1,500,000,000 in bad mortgages. I agree that this prosecution is a good start.

In closing: Arizona still keen to repeal the 14th Amendment even as its schools wonder how to comply with state law; homelessness in America; China owns 13% of the publicly held national debt; some people said I was nuts when I suggested that some religious nuts favored the life of an embryo that couldn’t even become a baby over that of a fully grown woman; terrorist nitwits; and sometimes buttons are better than velcro.