Problem with Mortgages, Foreclosures and Fraud

Executive Summary – There is a loud outcry in the sovereign community about the mortgage/foreclosure system based on fraud. We will try to explore and explain these arguments.

Where Does A Mortgage Come From – People generally go to a bank or a mortgage company (originator) and apply for a mortgage. The basic loan package includes credit history, financial information, an appraisal and purchase terms (if it is a purchase money mortgage).

How is a Mortgage Created – Based on the credit, promissory note (mortgage instrument) and collateral (the title to the real estate) a mortgage is created. It is basically making money out of thin air by the lender (bank). The bank is not lending solely to the credit worthiness of the borrower. This is a false statement. This is a description of a personal loan not a mortgage. The mortgage is based on the credit worthiness of the borrower (home owner or purchaser) along with the collateral of the real estate. If the mortgage is not paid according to the loan instrument terms then the lender has a secured priority interest in the real estate which can result in a foreclosure. Ok so let us completely drop the concept that the mortgages are based solely on the credit of the borrower. This is credit card debt and unsecured loan debt, not mortgages. Please be clear on this or you will be in the dark and misled by people trying to profit off of the foreclosure prevention industry directly or indirectly.

So is there Fraud in the Creation of a Mortgage Instrument – Well sure there is, if the banks are involved rest assured there is something wrong. Banks are as crooked as a dogs hind leg. Let me explain. Mortgages are created by mortgage originators which are often banks. They use money called a warehouse line of credit. This is money used to fund the mortgages and group them together into large parcels like groups of $100,000,000. The warehouse line of credit is used to find the mortgages until they can be sold in parcels or individually. These mortgages are then sold to other banks or investors which can be all around the world. When the bank sells the loan packages they then repay their warehouse line of credit. The loan originator tries to retain the servicing of the loan. The servicing means they will collect the payments from the borrower and charge something like 2% of the payment stream for this. They have to call and collect late payments and they also do the foreclosures.

Here is the kink. Mortgage packaging is based on loan to value ratio, value of the mortgage, and THE CREDIT RATING OF THE BORROWER. Class A paper (mortgages) must have people with good credit. So yes the bank is using your credit in part to make mortgages. The banks do not use their money to do so. They borrow money or manufacture money to get their based on the newly created debt or mortgage. So yes the bank is making money out of thin air based on your credit (debt instrument really) and guarantee to repay BUT you must remember that the real property is also involved.

A builder takes his funds or borrows funds and then builds a house. He then sells it. The buyer buys it through the process of a down payment and a mortgage. The builder gets his money back and profit from the escrow proceeds which consists of the downpayment and mortgage funds. To say that you should have the house for free because the bank made the money out of thin air based on my credit is leaving out a massive piece of the puzzle which is the collateral (house). The buyers of these mortgages (fannie, freddie and other buyers) are paying for a loan instrument that is backed by real estate. If there is a default then according to the terms and conditions of the instrument the real estate goes to the holder of the mortgage instrument. To say that the buyer should lose his money and the borrower should get to keep the house for free seems to be an inequitable solution. Correct me if I am wrong.

What the Mortgage Fraud Scandals Are About – Well those opposing the mortgage industry are contending that the person pushing the escrow may not have legal recourse to the house. This is a good point. They need to present the wet ink original loan document to document the right to foreclose to the court and the borrower. Good point. If they do not have this they may be foreclosing on a house they do not own and have no rights to. The lender doing the servicing may not know where the wet ink document is but that is his problem. He does send the mortgage payments into someplace so assumably he could contact them. They in turn may have sold the paper to another entity who sold it again and again. They may be collecting the money and sending it elsewhere with a big daisy chain.

Bottom line is they may not know where the wet ink original document is and thus cannot produce it. This means foreclosures cannot proceed since the chain of ownership cannot be established. They cannot show they have the right to foreclose on the property. Sort of where we are today except the banks starting lying and forging documents to get these foreclosures pushed through. The outcry has been massive. They foreclosed on people who had no mortgage and others who never defaulted on payments. The only way this could happen was forgery – creation of false documents.

Congress tried to immunize the lenders and streamline the foreclosures, nice of them to sell out the voters as always. Obama did refuse to sign it. Amazing! Congress can override him which is most unlikely. It will probably die. There will be an investigation. Some of the foreclosure services run by bar carrying lawyers will get run up the flag pole by the fed and the state attorney generals. They might get criminal charges bankruptcy for sure awaits them and probably being disbarred. These are collection lawyers who love to pick on those who are down and out, kick the man when he is down types.

The ultimate culprits, the banks will get off. If they pin culpability on the banks the law suits for damages will wreck the banks financially because punitive damages have to be proportionate to the size of the perpetrator, in this case massive banks. We expect the mortgage foreclosures will resume next year in the winter or spring. It is also expected that many more people struggling will stop paying their mortgages thus intensifying the problem with the default rate soaring. This is a good thing because it will push the federal reserve system closer and closer to being recognized as a ponzi scheme and failing.

Political Analysis – I have to admit that the various sovereign movements had to be a strong force in getting this fraud in foreclosures brought out into the open. The republic of the united states screams about the foreclosures and has an alternative government set up ready to go with a congress, president, supreme court and all. This is not making Washington D.C feel warm and mushy inside. How hard is it to convince a person facing foreclosure that real significant change is needed, not Glenn Beck or Tea party change. Well these people facing foreclosure are a captive audience. They are scared in Washington D.C, very scared. They will not let you see it openly but they are terrified.

What Next – Well the foreclosure fraud will take some months to get to the bottom of. Mortgage delinquencies will rise during this period. Lenders will scream help. I smell a bailout coming. I am thinking the banks will submit mortgages that are upside down to the fed. They will get bailed out by the fed. If the mortgage is for $350,000 and the house is worth $200,000 they will get a bailout of $150,000 in round approximations. The formulas will be more complicated taking into account payments stream, age of mortgage, interest rates, along with other variables. The borrower will have his mortgage reduced accordingly thus his payments go down. The printing presses will in reality print a lot of money hurting the value of the dollar. The debt will go up and the tax payers will have to absorb the costs of this. Those that do not own homes get stuck with the bill for those that do, thus an inequitable solution.

There will also be some sort of recourse to restore homes to those foreclosed on by fraud in recent times. This will serve to drive real estate prices down lower. The banks will be stuck with foreclosed homes at the higher prices which will now be harder to sell unless the banks wish to carry a loss on their books which can get them closed by the FDIC. This leads to another supplemental bailout as well again, thus more costs for the tax payers and a cheaper dollar. When the smoke clears where does this leave us? The housing industry may start to recover some at lower prices. People will have no equity as they did years ago but they will not be upside down thus houses can be sold again but only at walk away prices. Banks may be pressured to take people with what was two years ago considered unacceptable credit scores. The banks will need to see a job or some sort of real income stream available to repay the loan. I think the loan renegotiation will not be based on credit at all or it would not work.

The backlog of homes abandoned and in banks inventory, under construction and never completed, etc is massive. It would take many years to see a real recovery but this will give the kenyan president enough of a show to make people think he is starting to get a recovery going. Then he can run for re-election and say elect me and I can take us the rest of the way. He gets re-elected and then he rapidly resumes the destruction of the USA because he wants to, or his ideas are so stupid he doesn't know any better, take your pick bottom line doom and gloom. This mortgage foreclosure thing will NEVER result in any real change. For real change the federal reserve must be declared a ponzi scheme and their assets stripped and the debt declared illegal. The fed then prints money without paying interest to any private central bank. This would of course get copied around the world and everyone would be better off except a few hundred banksters. This is not anything that will come about voluntarily. They will keep throwing cosmetic do nothing superficial remedies at the people hoping they shut up and go back to sleep. War is something they will likely resort to as a distraction and they do love killing people. They just have to face the music and accept the inevitable. The world had had enough and whatever assets of theirs can be isolated will be taken from the central banks as the financial crisis widens and deepens. They would prefer to see a billion or two people homeless and starving rather than throw in the towel so it will need to happen without them volunteering to end it.

Credit Card Debt – After the mortgage foreclosure scandal there is going to be one regarding credit card debt. This is debt based on the credit of the borrower totally and here the sovereign arguments prevail. We await this scandal if the de facto government is still functioning.

Discussion – It appears that the government went too far with the banksters and their house of cards is coming down. I doubt they will recover. Best they can hope for is to slow down the sinking of the ship in various ways. Too many people know too much. Wait until next year when the people realize how much obama care will cost along with all their other new tax increases. Tax movements will get serious and large. People will probably go into disobedience, wait and watch.

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