Real Estate Market Collapse One Big Ponzi Scheme or Just Deadbeat Borrowers
What Caused the Collapse and Who Was Responsible
I wanted to write this article for several reasons. First, because I have felt the negative impact of the collapse of the real estate market personally. My career up until 2007 was in the new homes construction industry which gave me and inside look at the insanity and greed going on in the real estate market and which ultimately led to its collapse. When the real estate market started its downslide, it took with it a large portion of our family income as well as all of the equity in our personal home as well as an investment property we also owned. The long term equity in the two properties were to be used to supplement our income during our "golden" years. Also gone was our savings that we used to compensate for the loss of my income in our attempts to stay current on our mortgage and other monthly obligations all the while hoping and praying that the market would settle down and we could sell our home and scale down our living expenses. Trying to sell our home proved to be an impossible task even if we sold it at a loss. Prices of homes in our neighborhood have declined almost 50% and still are not selling without further price cuts and incentives.
The hardest hit areas such as Florida, California and Nevada have entire streets with only a few homes occupied. The sight of one home that is obviously lived in and well maintained, once the norm, now looks odd next to six other homes on the block that have windows boarded up and remain lifeless with the exception of mold and rodents as inhabitants. Many who were not foreclosed on have just decided to cut their losses and have walked away. National housing indicators predict that there will be close to 12 million foreclosed on homes by the end of 2012. The full impact of these numbers and what they mean have seemingly been overlooked as a national crisis by the powers that be. More alarming is the possibility that this figure of 12 million foreclosures by the end of the year could be seriously underestimated. I say this based on facts that the federal interest rates will eventually begin to move upwards. If or when this happens it will greatly affect millions of loans still held that are adjustable rate mortgages. These loans have remained stable and have not gone in to defaullt because they adjust to an interest rate that is tied to the federal rate which have remained historically low. What will happen to many of these loans if the interest rates start moving up? Many of the borrowers now current will begin to have difficulties in making these much larger adjusted monthly payments. This is especially true in our current economy where there are job losses as well as reductions in pay and benefits. This is all in combination of rising consumer prices of gas and necessities. In days past, equity loans were easily available to a borrower which could be used for almost any purpose. If someone needed some extra cash they could very quickly obtain an equity line of credit from the appreciation in their home value. Not only did this come in handy when facing a financial crisis, it was also used to make purchases of goods and services which helped stimulate the economy. The loss of equity lines of credit had a large negative impact on homeowners individually as well as on businesses supplying the goods and services that were no longer being purchased. Businesses started going under which, in turn, caused more job losses. This snowball effect continues to drag down our once thriving economy. Not only is there no growth in home equity, many of us with mortgages are "upside" down. This means that we owe more on our unpaid loan amount than our homes are worth.
How low will home prices drop? We all wish we had an answer. I have serious doubts when I read that the real estate market is improving. The justification in these assertions seem to be based on very limited and selective data which leads me to believe that it is more about some "feel good" press for the general public rather than the facts. If our own Government will not address the issue and devise a very good plan of action, I don't think we will see an improvement. Ten years from now, we will have massive tent communities? What kind of a world will our future generations face? Scary questions for scary times, but how in the world did we get here?
Is This America's Future
Are Huge Suburban Tent Cities in the Near Future
The baby boomer generation is one of the largest segments of the population and many will be financially hindered as they find their nest empty of the eggs they so carefully placed and tucked away for future use in their aging years. The large banks and wall street sold bags of worthless securities to investment funds used as retirement accounts of many who had worked their entire lives investing in only to find nothing left in those worthless accounts when it came time to use those funds. Not enough questions have been asked of how and why this was allowed to happen. Instead, our government and those who profited shamelessly still want us to believe their rhetoric aimed at diverting us from the truth. They are so desperate to make us believe the "deadbeats" did it so those acts of theft and fraud will continue to go unpunished as well as continue to go on to this date.
What kind of impact does all of this homelessness have on families and particularly our children? The collapse of the housing market continues to be a drag on the overall economy and threatens the very basics of our society but yet few politicians want to address it. Instead, many wish to put labels on the "deadbeats" who bought homes they could not afford and place the blame of our economic woes totally in the laps of these "deadbeats". I am sure that I will draw the wrath of some when I say only a deaf, dumb and blind person could believe this reasoning. The spreading of this nonsense was used as a direct campaign to distract attention away from those who have stolen not millions, not billions but trillions of dollars from hard working tax paying citizens of this country while our government, who is in place and paid to protect us, looks the other way. If one wants to really research this subject in depth, I warn that you may become physically ill at what your research turns up. The most efficient way to try and make sense of this whole process is to follow the money trail in this game of mortgage back securities, tax exempt pass throughs, collateralized debt obligations and my very favorite, derivatives or hedge funds. I think the derivitives really do a head number on me because I still find it difficult to believe. Yes, I understand it, but just can't believe such a scheme was going on at the same time Martha Stewart was behind bars teaching cooking to inmates for insider trading. I keep trying to figure out why Bernie Madoff sits in a locked cell. With enough research, you will find that when you signed your John C. Hancock on the closing documents, you had just launched your signatures in to the world of securitization. This subject is not easy to comprehend for the average joe or joelene. I could not possibly explain the scheme in its entirety in a hub. The subject of the securitization of loans could fill volumes of books and encompases many aspects of banking, securites, accounting, and many other fascets that can't be covered here. Those who have profited so greatly in this massive scheme of greed rely on the fact that the subject is far to complex for most, therefore, making it easy to point figures everywhere else than where they should be pointed. Just as magicians use the slight of hand and diversion to perform magic tricks, so have the bankers and wall street. They have been able to deceive many with their tricks of diversion and deciet while also deflecting attention away from those who were the grand players and profitors in the largest heist in American history. What is even more outrageous is the fact that these players are still allowed to play and have not been prosecuted for crimes that you or I would spend a lifetime behind bars for.
Isn't It Basic Contract and Real Estate Law
Traditionally, real estate law has held that the mortgage and the note go hand in hand. Where one goes the other follows. With the advent of securitization your note is separated (bifurcated is how it is referred) meaning your note can go to the north pole while your mortgage is sent directly south. The bifurcation of the two becomes necessary as it relates to securitization. It sounds like a great place, right...if you are the banker or Wall Street. I know that I did not take out a note paying a nice sum of closing fees and charges as well as that 6.5% interest rate knowing that really, there were many additional hidden players in the game and that my note was actually earning 10 times or more of it's face value. In other words, if I took out a loan of $100,000 and with interest, fees and charges at the end of the loan terms I would have paid a total of $160,000. This is what my loan documents show. But in reality, my signature and note really earned the pretend lender, I say pretend because they had no real skin in the game, many times more than that. One way was by selling my mortgage note numerous times to numerous parties. Try to calculate that one in your head. In fact, numerous undisclosed parties were profiting off of the undisclosed conversion of my note to a security without my knowledge and consent and with these undisclosed sales compromised my proper chain of title. I am not an attorney but I do know that basic contract law requires full disclosure of all terms and parties of a contract and real estate law specifically states there must be full transparency of all loan terms. One of the reasons for disclosure of all terms is to give each party a fair opportunity to know who they are contracting with and to negotiate the best terms. Would I have agreed to pay over $10,000 in discount points, fees and charges with a above market interest rate knowing that the $160,000 would actually be more like $1, 600,000? My answer is no, I, personally,would not have agreed to those terms. Some people may feel that they really don't care how much was really made and by whom and that is fine; as long as the "real" terms were disclosed and they had the opportunity to agree, negotiate or walk away. Not only were the banks and Wall Street making trillions of dollars by kicking families to the curb, foreclosure attorneys became a huge profit center of sickening proportions. Don't get me wrong by this statement, as I do very much believe in a free and capitalistic society, I just believe that capitalism should be based on earning honest money by honest output, not by government sponsored ponzi schemes at the expense of our entire economy and all those who make less than a few hundred thousand a year. One of the most troubling aspects is that all taxpayers dollars have been used to bail the banks out of trouble and they are still asking for more tax dollars by and through their business partners like Fannie Mae. Bank of America is one of the worst offenders. However, based on the bailout dollars received by this bank, Brian Moynihan, the CEO, received over 8 million dollars in compensation for 2011 based on his performance of running the banking operations. So digest this, we, the taxpayers, give money to the Bank of America based on operating losses to allow Mr. Moynihan to collect his measly 8 million. Now Fannie Mae wants more tax dollars because of Bank of America. Am I the only one who sees a problem with this? How can this go on in America? Do so few of us see through the lies and deceit by the banks and Wall Street because they are afraid of the truth? Is it easier to just bury your head in the sand rather than face the truth?
What Are Derivatives and Hedge Funds
As I said earlier in my hub, this is one subject that makes me absolutely crazy. I just want to jump up and down and pull my hair out every time I think about derivatives and hedge funds. What if I told you that you could cut the break lines on a vehicle, purchase an insurance policy on the vehicle insuring against any type of defect or failure and then sell the vehicle and collect the insurance once the brakes fail. Not a bad deal right. No, if you or I did it we would be prosecuted for fraud. However, this is what the banks and Wall Street did and which bankrupted AIG. However, the company philosophy at AIG during this time went something like this; bring on the parties, the booze and the beer all to be funded by taxpayers dear. We the taxpayers are the paying energizer bunnies...we just keep paying and paying without demanding truthful accounting and answers. Hedge funds and derivatives in the mortgage market billionaires out of a select few.
The Proftable Business of Increasing Homelessnes
David Stern ran a law firm that represented many of the big banks in foreclosing on properties the banks wanted to take back from borrowers who owed the bank money. David Stern was so busy in processing and foreclosing on homes that it is alleged the firm could not even process the paperwork and foreclosures in accordance with state laws. It was well known that Stern became so wealthy from his foreclosure practice that within a couple of years he acquired a 16,000 square foot mansion in a private Florida Island community in addition to expensive car collections and yachts. When investigations into Sterns operations began, Stern's lawyer replied that Stern did not take advantage of poor people who were losing their homes and getting rich off of it; it was more like a neurosurgeon that makes millions of dollars a year from people who sustain head injuries. By all accounts, Stern seemed unable to connect there was no moral equivalent between helping someone with a severe injury to being financially rewarded for the use of forgery, fraud and improperly throwing people out of their homes. Who can figure.
The Baum Lawfirm in New York is another firm that raked in money by the truck loads in their fast and furious foreclosure process. This firm, however, took it one step further by paying tribute to those they made homeless with their "Homeless People", Halloween Office Theme Party. Watch the video and see what you think. Are they a bunch of heartless bastards or is it no big deal as they tried to make it when the story first broke? Watch it and you be the judge.
Foreclosure King Baum
I am going to end this hub with an article I just read about Wells Fargo. There have been rumors floating about for some time with regards to Fargo and drug money laundering. However shocking this may be it now is made public that Wells Fargo has entered the for profit business of prisions. I guess they can give special privileges to their higher up drug pushers who get caught and must serve a little time. Wells Fargo always treats it's best empoyees with great benefits! Wells Fargo