Gimmick Accounting: How the Wall Street Banksters Keep Gaming Main Street and President Obama.

As an attorney in California who has represented many people during this most recent housing crisis I began to notice a strange occurrence. That many of my clients whose homes had been sold in foreclosure were being allowed to stay in their homes as soon as an attorney appeared on the scene. This usually happens even after they had already been served with a notice of eviction. Suddenly, all the activity in court seemed to stop in an instant.

In another situation, all of my efforts to negotiate a settlement agreement or loan modification on behalf of my clients turned out to be unsuccessful. However, my clients remain in their home until this day which is at least over a year since the time they first became delinquent. Why are the banks and theirs minions not forcing them out?

Well, one major reason is that they can’t afford to have the “notes” they claim they are acting upon examined to see if there were any problems which occurred during their preparation like evidence of predatory lending. Secondly, because most of these loans were “securitized” which means that interests were split up and sold several times over, they may not even hold or have possession any longer of the valid “notes”. But, there is an even more nefarious reason: they have chosen to rely on gimmick accounting.

How does it work? Under traditional accounting principles when a bank or other financial institution forecloses on a home they have to claim the losses in order to write them off. You might think that’s a pretty good deal for them. But, under the present economic conditions, where the government has established a “too big to fail rule” the banks, especially the largest ones who borrow money at an even lower rate than medium or small banks, can borrow money against their portfolio of assets and the overall valuation of the company. So, the gimmick is clear when viewed from this angle: they have decided to let the people remain in their homes to weather this economic storm so that they can foreclose and evict in better economic times in the future when values should be higher and when they could avoid major losses while still being able to basically “steal” money by borrowing such large amounts of money under such favorable terms from the government (which means you and me) during this insane period of greed and avarice. In short, they keep these delinquent loans on their books in order to increase the overall value of their business entity so that they can continue to borrow outrageous amounts of money from our central bank at the most favorable rate that one can find anywhere in the world right now based on these almost unsupportable values. Sadly, President Obama and his administration can not do anything to stop them since they have very little regulatory power in this area right now and probably won’t receive much support for any strong regulatory legislation in the future from a fractured and scared Congress.

What does all of this really mean? It means that the banks and their partners know that they can win just by waiting out the crisis without any reform. Today October 15, 2009, some of the highest delinquency rates ever were reported in Prime Loans. What are they? These are the loans given to people with the best credit scores. Now these borrowers have stopped paying their loans. The delinquency rate was over 6% and rising. A lot of this is due to the present unemployment crisis but that is merely a cause – some of it is also due to the accounting gimmick being employed by the banks and their “partners in crime”. They’ve determined that it is better to hold these really valuable loans on the books for their tremendous present positive accounting values while continuing to borrow all of that virtual “free” money from the government based on these same valuation and practices which borders on being fraudulent.

Loss mitigation is another area where the banks have employed other devious tactics to hurt borrowers. Loan modifications are at the head of these tactics. Many homeowners don’t realize that you have to “qualify” for a modification. Under present economic circumstances many people no longer qualify and others never really qualified since they received “stated loans”. So, the banks waste your time by forcing you to make many futile telephone calls and to write many unanswered letters. In addition, when a person is not represented by an attorney or other knowledgeable professional they might secure a loan modification which is merely a repayment plan which extends your loan or it contains provisions that waive all of the rights and claims you may have against the originator or servicer or servicers of the loan. Generally an originator would be the one who had you sign papers during escrow and the servicers are the ones who send you the bill and call your home regarding collections. So, loan modifications themselves may not be the best remedy for delinquent borrowers either and they may be entered into by the banks because it benefits them more than borrowers. Furthermore, many unrepresented people who have received modifications unknowingly waive any claim they may have had and many others have merely delayed the “inevitable” foreclosure.

In the immediate future, one can anticipate that housing values will not recover for another couple of years when one looks towards the housing economic landscape and understands the tactics being employed by banks and other financial institutions.

Unfortunately, the Obama administration has not been able to secure legislation that would allow the bankruptcy courts to “write down”  or "cram-down" primary residential mortgages. What are they? Generally, these are mortgages that people use to purchase their home to live in. “Write down” or "cram-down" generally means that judges will reduce the value or amount of the mortgage to its reasonable present value thereby, under present circumstances where so many homeowners are “under water” or the value of their home is lower than the amount they owe on the home that will usually mean, reducing the amount owed by the homeowner/borrower.

Thus, it is clear that until homeowners are allowed to have their “under water” mortgages reduced in bankruptcy, the Wall Street “Banksters” and their faithful minions will not modify their behavior and tactics and shall continue to employ tactics such as gimmick accounting as a ploy and a means of continuing the exploitation of Main Street and the very public that they should be committed to serving and supporting even in the absence of any regulatory bodies or legislation forcing them to do so.

At this time, all that President Obama can do is hope for a suspension of the "games" instead of a stoppage.

Note: This article reflects my opinion only and is not meant to offer any legal advice. Please contact an attorney in order to protect your rights.