OK, you’ve convinced me. Lets just let everyone have their homes for free.

I object to the idea that the foreclosure process, or the homeowners who purchased the mortgages, represent the problem. The problem is the securitization and outright fraud on the way up, when the houses were sold. They sliced and diced mortgages and severed the relationship between the house and the owner. They did so despite knowing that this would make evictions difficult on the back end if the loans failed. So put the blame where it needs to be.

I share your view that the mortgageholders are the least part of the problem.

The so-called “mortage crisis” was entirely created out of whole cloth as an elaborate and sweeping scam in my opinion, with many interlocking layers of avarice and fraud combining to finally almost demolish the entire financial systems of the world. My post will be a little long, but perhaps you are the one who can finally answer some questions that I have about the whole sordid mess. Here’s how I see the whole thing playing out -please let me know which parts I have wrong.

#1 – Artifical Demand created for housing industry.
This happened when CEOs decided their personal welfare was far greater than the welfare of American workers or the American economy and they decided to ship off jobs oversees so they could personally siphon off more profit for themselves,subsequently screwing both their shareholders AND their employees. As a result, American wages begin their long slow flatline and failure to even keep up with inflation. What steps up to the plate to replace lost income? – Housing! Don’t worry about your crappy job, your house has appreciated and made up the gap. In fact, why not buy a few more houses since rates are so low and anyone can get a mortgage The new American industry of amateur “house flipping” begins, created entirely from the artificially low interest rates promoted by economic poseur Alan Greenspan and the tossing out of previous underwriting guidelines.Note – The NAR estimated that up to 1/3 of real estate sales during the boom part of the run-up was by “investors”.

Low rates
Once it became obvious that a real estate boom was spiraling out control, with low rates fueling exploding prices, Alan Greenspan and the Fed or any sane person in the finance industry could have seen that an appropriate raising of rates would have banked the fires. I think they chose not to because real estate and housing was the only leg still standing in propping up the American economy, already on life support in terms of jobs, wages, deficits, etc. Regardless of their reasoning and motives, the low rates continued and continue to this very day, still propping up the housing industry artificially.

Tossing out previous underwriting guidelines
In the old days before the boom, an investor had to put down somewhere between 10 and 20%, “skin in the game” in order to purchase investment real estate. No longer. 100% loans are written for investment properties – something previously unheard of.
We also start to see a new class of loan -referred to as “mirror loans”- all you have to do to qulaify is fog a mirror with your breath, or, alternately, “NINJA” loans – no income, no job, no assets, but, hey no problem!! Sign on the dotted line.

Now ask your self a very important question- why would formerly staid and sober, risk adverse bankers suddenly start writing mortgages that ANYONE could see would blow up in the very near future? We’ve all heard the stories (true) of cocktail waitresses buying several properties for multiple hundreds of thousands, etc.

Here’s the answer – Because they could. Suddenly, there was a market for BAD MORTGAGES! Why was there suddenly a market for bad mortgages? Because of the Greater Fool Theory. Banks and mortgage companies could write mortgages that stunk on their face, because they could offload them to the finance guys who would slice and dice them and sell them in CDO’s which they sold to everyone else in the world – widows, orphans, pension plans, hedge funds, other nations, etc.

I’m just a little person, but it seems to me that writing loans that are openly and tranparently crap, and selling them to others is FRAUD. The cocktail waitress who bought 3 houses is the least of the crime. The really criminal fraud was perpetrated by the mortgage brokers,originators and others who made that mortgage and then sold it to someone else. It’s like selling a car without a transmission, or a diamond that’s really a rhinestone, or any other hoary comparison one wants to make.

I also think there is a second, under reported, underinvestigated piece to this fraud and that involves writing and selling demonstrably bad mortgages in order to create a market in which to to bet against them and make money on the downside – a la hedge funds, Credit Default Swaps and the like. I’m not the first to make this comparison, but it is like building a facade of a house and then burning it down to collect the insurance as though it were a real house.

Now, one of the questions I have is:
Did the widows and orphans and nations and pension funds who bought these phony combustable mortgages soaked in gasoline have any idea of what they were really buying?

(My answer – I doubt it.) Did they know that in some cases they were buying a “slice” of a mortgage and not the entire mortgage?(This is my rudimentary understanding of what may have occurred when the mortgages were bundled and then sold in tranches- please correct me if I am wrong here)

Did the poor suckers who took out these mortgages also realize that they may never know who or how many ‘investor’ entities hold full or partial ownership of their mortgage? I understand this is a factor in why there are so few mortgage work-outs. The homeowners are making appeals to banks which are just front men “mortgage servicers” who are impersonating the actual owners. Little of this is known or made obvious to the sinking homeowner.

Are there players who gamed both sides, in other words, made the bad mortgages and then sold them to others and then bet against them ?

Everything I’ve written here is my personal opinion based on following this whole pathetic charade of a sham of a sham.

Please keep up the good work.

David I think you are mixing up some legal terms here. The “title” to the proeprty is in the name of homeowner.

And the banks didn’t break the chain of “ownership”, the homeowner owns the home. The banks (and MERS) broke the chain of assignment of the notes, and the chain of “interest in land” created by the mortgage deed.

What the banks lost in the process was standing to sue

And I personally have no sympathy. Title work, title attorneys, title insurance have been around a long time. Looks like they all just stopped caring about their standards and processes in pursuit of the buck. Too bad for the banks and the financial whiz kids if they were too busy minting money to take the time to dot a few important i’s and cross a few critical t’s and as a result of their own malfeasance lose the right to toss people out of their homes.

I still think the people who bought these bogus notes now have even MORE reason to sue the entities that created them and then couldn’t even process them correctly in order to ensure their validity to the purchasers.

The middlemen financiers who created crap through their willingness to purchase it, then bought crap, then peddled crap, and then didn’t even process their crap correctly should be run through the legal mills by the people on both sides of their corrupt game.

Yes – THIS is what Elizabeth Warren should be looking at. Not trying to reduce our credit card disclosure brochures. One pales in comparison to the other.