Michigan Today — Home And Health Care

How The Greed Rose On Wall Street

New homebuyers pay attention!!!

I wanted to explain in layman terms and in general on how
the greed on Wall Street materialized causing the housing bubble
to burst in late 2008. It all has to do with mortgage loans and
the beasts that service, sell, and invest in mortgage loans.

There are two distinct steps in the mortgage process involving
first the primary money mortgage market and then the
secondary money mortgage market. The first step is to
create a mortgage and a note. Usually a mortgage broker puts together a
borrower and lender together. Then a Mortgage banker lends the money by
creating a mortgage loan. The primary money mortgage market
like the banks, credit unions, commercial banks, and S & L’s then
warehouse mortgages and sell a large block of mortgages to
investors.

Specifically, the bank lends money to a borrower and in return the borrower
gives back a mortgage as a pledge or promise to pay. In addition,
a note is created to explain the details of the loan. The note is evidence
of the debt and is signed by the borrower. Once the mortgage is recorded
usually at the Register of Deeds, the bank has a lien on the property. It
can now sell its interest to free up its cash so it can lend again.

Remember that the lender (bank) has only a limited amount of cash
available. So it does not want to tie up all of its cash, so its sells the
mortgage loan to an investor. The bank can now make or originate more
mortgage loans.

The investors are the secondary money mortgage market.
They make money because the mortgage notes are large transactions and long
term, drawing compound interest.

The three major investment players are Fannie Mae, Ginnie Mae, and
Freddie Mac -all federal government entities. Now these banks and
investors make money on the volume of the mortgage loans.   To make
even more money and to leverage their money, they bundle the mortgage
loans and create bonds. These bonds are then sold to insurance companies.

In the 1980′s through the early 2000′s, Insurance companies liked
the bonds because they were stable and had a decent return. The banks
at the time had high standards; homeowners reliably paid on their debt;
and home values steadily increased. (Note: It used to be that new home
buyers put 20% down as a down payment and had 15 year mortgage
loans.)

Seeing the insurance companies investment success, International
investors wanted in on the action too due to the bonds’ stability, and the
hard equity. Due to this new demand, the supply of mortgage notes dried-up.
By 2001-2002 we were also experiencing a bull market; and over 11 trillion
dollars was moving and flooding the Global market looking for a home with
high and stable yields.

Consequently, the International community kept asking and pleading
that the banks create more mortgage notes. To create new mortgage
loans and to keep up with the high demand, the mortgage banks started
having to lower their standards in regards to debt to income ratios, loan
to value ratios, ability to payoff the loan, job stability, and credit.

Fannie Mae, Ginnie Mae, and Freddie Mac helped to encourage banks to
lower their standards by enforcing policies legislated by Congress.
Thus, banks created loans to people who were B/C borrowers in terms
of credit, income and job stability. The government pushed affirmative
action to get many minorities, women, and low income families to consider
buying a home. Normally, this economic group would probably not have had
down payments or would simply not qualify for mortgage loans. But needing
to bundle more and more mortgages to sell,the secondary money market
heavily advertised that owning a home was the ultimate “American Dream”
and financing and entitlements were available!

Through the bombardment of advertising, the government and real estate
agents convinced people that buying a home was actually cheaper than
renting.   Heck, one could take a tax deduction for interest paid and
thus not pay any taxes.   Of course banks were also coerced into lowering
their standards until practically anyone with a “heart beat” and verifiable
income or not could qualify for a 30 year interest only mortgage loan with
100% financing if willing to pay a high 9% to 12% variable interest rate.
By 2008, over 69% of the buying public owned their own home.   The risk to
banks for all of this lending was minimized by guaranteeing or insuring
nonconvential loans such as FHA and VA Loans so the banks did not lose
principal or interest.  If the interest rate was low, banks could also
charge points to earn a better rate of return at the start of the loan.

Oh and don’t worry, if you make timely monthly payments within a year
you can refinance to a 30 year adjustable rate mortgage (arm) to bring
down your mortgage payments. Home values will surely continue to rise.
The appraised value of your home will increase by at least 20% so you
will have built in equity for an 80% to 90% loan to value ratio required
to refinance. Certainly your income will also increase to support your
mortgage loan and to help pay-off the 8 to 10,000 dollar new origination
fees. The primary money mortgage markets figured they could make a quick
turn-around by cashing in on a host of banking fees and charges;and,
of course, new loans would be forever generated through the need to refinance.

Now The Greed Really Sets In

The mortgage business would be like a revolving door. Need some extra
cash to pay off some debts, go on a trip, or buy that new car — just refinance or
get a home equity line of credit. Want a lower interest rate, just buy some points.
Each point charged to the homeowner is worth 1% of the mortgage loan.  Since the
average homeowner moves every 7 years, the yield for the money mortgage markets
will be huge since most money is made from the fees and interest at the front end of
the loan. Very little principal is paid until near the end of the loan.  Oh, and do we
have a deal for you senior citizens. Just use your equity and get a reverse mortgage
to live out your golden years.

{If you are a homeowner, do you recognize yourself in one of the above scenarios?
Greatly explains why so many homeowners are now facing foreclosure.
It wasn’t just poor judgement.  Maybe some ignorance, but also plain old greed
and thievery.

The Feds, and the Investors were all making ungodly amounts of money.
The people on Wall Street even invented MERS a computerized system to speed up
the process of bundling up mortgages to sell on the International Market. However,
with the lowering of standards, huge debt acquired, and inflated values foreclosures
began to rise and fewer loans were made. Mortgage companies and brokers took
their money and ran. The housing bubble burst and the Insurance Companies with
huge pension funds and International Investors were left holding a bag of empty
promises. Banks, Financial Institutions, and Insurance Companies like AIG that
were considered too big to fail were given tax payer bail-outs. The CEO’s were
rewarded for their huge profits with huge bonusses. It made Bernie Maddoff and
the mob look like Putz’s.

Today, the National debt and government spending is out of control. Hundreds of
small banks have imploded, the big banks have nationalized, and none of the
International investors want to buy the toxic mortgage loans and bonds. Furthermore,
MERS has created a nightmare because it traded mortgages without the underlying
notes just to speed-up the mortgage process. So many foreclosures like in California
and Michigan may not be enforceable because MERS assigned investors the underlying
mortgages, but without holding and/or owning the underlying note as proof of the debt
owed.

Guess what? The United States Government still has to pay the interest on all of
the debt that it has acquired from its bail-out and stimulus packages. The National
debt is in the trillions of dollars, and continues to increase as we speak. It is
mathematically impossible for the next two generations of Americans to pay-off the
national debt. Compounding interest is a killer in itself not to mention the falling
of the “dollar.” The US can’t sell its mortgage bonds either because of the instability
and inflated values.

Good news though is coming out of Washington. What if Americans were to buy
these US bonds with their 401 K’s and annuities? The politicians especially the
Democrats are wanting to take American’s savings worth trillions of dollars and secure
these securities with US mortgage bonds. So we Americans who are working are having
to pay an enormous amount of taxes to pay for all the bail-outs, stimulus packages,
unemployment benefits and the interest owed on the debt. Furthermore, we are to
give-up any savings we may have in return for these high yielding mortgage bonds.
Our reward is “free” O’bama Healthcare, and maybe if you are one of the lucky ones with
a VA or FHA Loan your debt may be forgiven if you are facing foreclosure.

Facing Foreclosure?

I am not sure though that any bank, lender, servicing provider, or mortgage
investor would agree to forgiving the debt, because they don’t want to lose
one penny! Who cares if your home is underwater, Mr. and/or Mrs. Homebuyer
you promised to pay the mortgage with your house as collateral and the note
as evidence of all the debt owed and as previously appraised.

Actually, we are after all now just *indentured serfs working for the lord “Uncle Sam.”
Our freedoms have been stripped away, and most of us will be paying rent and
contributing all of our coins to the government coffers as will our children and
grandchildren.

Wikipedia: 

*”Serfdom is the socio-economic status of unfree peasants under feudalism,
and specifically relates to Manorialism. It was a condition of bondage or modified
 slavery which developed primarily during the High Middle Ages in Europe.
Serfdom was the enforced labour of serfs on the fields of landowners, in return for
protection and the right to work on their leased fields.  Serfdom involved not only
work in fields, but also various other activities, like
forestry, mining, transportation (both land and river-based), and crafts.”
Want to stop foreclosure, save your home, and reduce debt?  Get a Trustee Principal

Balance Reduction by calling Dave Brigle at Foreclosure Prevention Institute, LLC.

The hotline is 1.800.826.1929.  Visit also ForeclosurePreventionInstitute.com.
Saving the American Dream 800.826.1929