Posts Tagged ‘Mortgage Backed Securities’

Take a quick look at the following half minute long video…

What he is talking about is the decision that will have to be made as to how to deal with a catastrophic problem in the United States of America.

The problem is this.  When Mr & Mrs Joe the plumber bought their home, they went to the bank and acquired a mortgage.  Nothing unusual about that.  What happened next is what is now causing a massive and potentially Wall Street destroying problem.

The (too big to fail)  banks decided that they were not satisfied with the safe and slow return on mortgages.  They wanted their money now, and even more of it again tomorrow, so they “collateralized” their mortgage products.  Essentially slicing up the debts these Mr & Mrs plumber’s had taken on, against their property, then bundling these debts into financial products to sell to investors.

So now instead of one bank needing to have a return on the credit extended to Mr & Mrs Plumber, there was any number of investors who bought these investments in good faith.

What happened next is that many of these individual mortgages were taken on as a “sub-prime” agreement, whereby the payments would have to increase in a couple of years.  This was not a problem in the mid 2000’s, because the banks and finance companies were falling over themselves to offer cheap credit.  Mr & Mrs Plumber were being bombarded with offers and they reasonably were led to believe that in a couple of years it would be very easy to re-finance onto another low-rate mortgage.

A couple of years later the interest on these mortgages shot up, people started defaulting in large numbers and the banks panicked.  Credit stopped and banks fell over.

So now these collateralized mortgage backed debt obligations are piling up and turning toxic, hence the first bank bailout.

However, what the banks failed to realise was that foreclosing on Mr & Mrs Plumber and taking their house, to re-sell was a fraudulent act.

This was because a few years earlier, the banks and finance companies had decided that they did not like paying tax on inter-state mortgage transactions, so they created a company called MERS as a ‘holding company’ for these mortgages.  This allowed the bankers to avoid paying a lot of tax.  The trouble is, a Mortgage is a long-term consideration and therefore requires more evidenciary proof of obligation than a normal contract, where performance is less strictly enforced.  Where performance is to take place over a number of years on property, deeds, legal right of title and promissory notes come into play.

ALL these were missing from MERS.  Hence the courts in several states ruling that MERS has no legal standing to foreclose, and that MERS has no direct interest in ANY of these properties.

That last paragraph means that there are about 62 MILLION mortgages that cannot be lawfully foreclosed upon.  By my calculation based on an average mortgage of $500,000 is a potential loss to the (too big to fail) banks of 12.4 TRILLION dollars. $12,400,000,000,000.oo (that is a lot of naughts)

But it gets worse yet for the banks.  How? Well I am glad you asked, because it has transpired that when the (too big to fail) banks were cutting these mortgages and slicing them into the collateralized debt obligations, they were also copying mortgages too. The same single mortgage that Mr and Mrs Plumber were taking out in good faith, was also sold as a part of the CDO to different investment companies up to 20 times over.

So now decent, law abiding people who have been keeping up with their payments, and in some cases, people who have not got any mortgage at all, have had finance companies and investment companies attempting to foreclose on them.  How? Well these companies are finding mortgages were not being paid, because they were not real mortgages, or the owners were only paying on the one mortgage, and that was not the one that the finance company held.

The finance companies were also finding that due to the lack of legal chain, they had to fraudulently fake foreclosure documents, to be able to foreclose and there were even companies on the internet selling faked documentation to finance companies so that they could foreclose on properties that they had no lawful financial interest in.

So now it is being realised more and more that good decent people like Mr & Mrs Plumber are being kicked out on the street illegally and fraudulently and their property stolen from them.

SO the perfect storm is gathering.

The investment companies who bought these CDOs in good faith because the ratings agencies rated them AAA are wanting their money back.  The banks knew that they had sold the same worthless mortgages up to 20 times over and so the paper in the CDOs was junk.

The Investment companies did themselves no favours when many of them believed that MERS had legal chain of title, and so these companies burnt or binned their own documentation, be it deeds or promissory notes.  they were thinking that MERS would be able to foreclose for them if needed. Now it has been established that MERS cannot, these investment companies are left high, dry and penniless. So they are going to sue the (too big to fail) banks for their money back.

The people who have been fraudulently foreclosed upon are taking part in massive class action lawsuits all over the country, to get their property back or compensation and millions of people are being advised to squat in their own homes, as they likely cannot be lawfully foreclosed upon.

And in addition to this, the IRS is now sniffing around the banks to see if they can get the back-taxes on millions of transactions.

 

All in all this adds up to trillions and trillions of dollars in mortgages, fees, and legal costs. The too-big-to-fail banks do not have that sort of capitalisation (readies, money, cash, wonga) lying about, neither does the Government and the tax-payer sure as hell has not either as they are already down several trillion dollars in the bailouts that have already happened.

So what happens next?

Does the Federal Government step in an allow the banks immunity from prosecution, thus legalising the theft of millions of properties from hard working Americans, crashing the entire housing market in the process (what is the point of buying a house if it is not yours and the banks can steal them off you with impunity?)

Or does a court somewhere have the balls to uphold the law and by so doing, render ALL of Wall Steet bankrupt?

Or is there another, as yet un-thought of option?

The whole world should be holding it’s breath now.

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