Mortgae Fraud: How it actually works

This is a precise summary of the foreclosure fraud crisis facing this country and the world.

Mr Grayson did not tell you that much of the assignments to mortgage note servicing companies of rights to collect your mortgage payments, and foreclose if you don't are in essence void. This is because ownership of the notes and mortgages was not legally transferred. The transferring companies did not have the ownership rights to transfer!

This is an especially difficult problem for very many securitizations because these instruments required that ownership of the assets in them be legally and properly transferred by a finite, unchangeable date that has long since passed.This cannot be fixed by a later assignment,legal or not. The deadline has passed.

Follow closely now: The vast majority of these securitizations have been sliced and diced into an alphabet soup of derivative securities that were sold world wide. If the underlying collateral - the very mortgages and notes we are talking about - were never legally assigned then these further securitizations and alphabet soup derivatives have been created and sold fraudulently.Imagine the lawsuits waiting to be filed everywhere!

Nobody knows who actually owns what. That will have to be decided by, no doubt lengthy, court cases.

Additionally, trillions of dollars, yen, francs, zloty, euro and on of liability hangs over the heads of the financial institutions who solicited these mortgages in the first place, or who bought them and fraudulently repackaged and resold them!!!!

Yep, the major players in this cesspool are our very own US banking giants: Citi Bank; Wells Fargo; Bank of America and of course the investment banks that aided and abetted the securitizations and sold them on: Goldman, Merril Lynch, Lehmann, etc etc

Too big to fail?? They are too big to survive.

Think about this too: you, the law abiding homeowner have been making your payments on time, to a servicer who does not have the legal right to collect them from you because that right to assign did not legally belong to the institution who said it had legal ownership if your note - it clearly did not.
So you have been making payments to a servicer who has a disputed authority to collect them, and has been sending them on (less its fees, of course) to entities that did not have proper legal ownership of the notes.
What happens if someone else comes along and sues you for non-payment under the note you signed that they now allege they legally own? Mr Grayson tells you this has already happened in Florida!!

All you will be left with is crippling legal expense to prove that you are the victim of fraud.

The Florida courts and many of the other foreclosure courts have only very recently been grudgingly coming to terms with this. Remember, judges are elected, are usually lawyers or politicians, who are presiding over proceedings in which their fellow legal practitioners are presumed to be ethical. They dispense justice in these courts, or do they? They are swamped, have not got the time to read documents, dispose of cases in 90 seconds in the interest of clearing the docket. All on the say so of lawyers for document mills representations!!

Click on the Heading for a link to an absolutely scary summary of organized crime at work with our Government Blessing.

The unsaid consequence of all of this is that banks and other owners of affected mortgages have a bunch of unenforceable contracts that they show as assets. These will have to be "marked to market" - and reserved for on balance sheets or written off.

Whichever path they go down, the destination is the same - banks are bankrupt. That means that the value of their assets (including all the money we the taxpayers gave them) is arguably less than their liabilities. They should be dealt with through the bankruptcy courts: sell their assets for what can be recovered and pay off as much of the liabilities as the proceeds allow.

Then of course we the people must find a way to keep the promise of the American Dream enshrined in the tax code: homeownership - a safe and secure roof over your head - is an entitlement written in the tax code for decades. It is a legally sanctioned "entitlement".

There is a way to do this and solve the problem once and for all. I have laid it out in detail in several previous posts. They are in the archives. I will re-post them, updated,for convenience of readers.

Can GE survive much longer?

Jeff Immelt at GE just surprised the Markets with "better than expected" results. Is it all flim-flam? Porter Stansberry thinks so and his comments are below...

GE surprised Mr. Market late last week. Now... Mr. Market has the wisdom of a four-year old hopped up on cotton candy, so surprising him is about as difficult as replacing a light bulb. We offer you a more substantial (and sober) review of GE's earnings, below.

Here's a preview: We are less than impressed. In fact, we view the whole charade as sad and tawdry. It's flimflam on a grand scale, from no less than what used to be America's greatest corporation...

Let's begin with the much-ballyhooed dividend increase. GE says it will now pay out $0.12 per share every quarter instead of $0.10. While it is true that $0.12 is 20% more than $0.10, we doubt this arithmetic is very meaningful to bona-fide shareholders, who were collecting a quarterly $0.31 per share until early 2009.

The last time GE shareholders saw regular dividends around $0.12 per quarter was last century – 1999 to be specific. So, while you may regard this dividend increase as a significant step in the right direction, you might also see this extremely low payout level as the result of a "lost decade" at GE.

No matter how you view the news – as an exciting surprise or as a disheartening reality – there is one objective way to measure the dividend: by the yield it will produce for shareholders. Assuming GE continues to pay investors $0.12 per quarter, and assuming you buy the stock today for $16 (where it's trading now), you will earn a grand total of 3% per year on your capital.

GE's managers also want you to know its earnings were up last quarter – by 15%, to $3.3 billion. The results are so good, the company has promised to "extend" its share buyback program.

We've never seen that term used this way before. GE's managers clearly believe it's good news for shareholders. But what it really means is the company never bought the stock it promised to buy back previously. So the deadline for purchasing the stock had to be "extended." Imagine if your employer told you, "Great news, Bob, the company made more money than we thought it would, so we're going to extend your bonus payment – the one we didn't send you last year – to 2015."

Oh... one more thing. It's true that GE's reported earnings increased. But what the managers didn't mention was the company accomplished the increase despite a 4.3% decline in revenues. As any pizza chef can tell you, skimping on ingredients will only carry you for so long. Sooner or later, you gotta actually make more dough.

Finally... here's what GE CEO Jeffrey Immelt definitely didn't mention along with the promised 3% dividend and the "extended" buyback program: negative amortization mortgages.

When you think of GE, you probably think of its slogan: We Bring Good Things to Life. What GE actually does, however, is run a huge, highly leveraged global hedge fund that's almost totally unregulated. And the upcoming losses from this enormous financial operation will almost surely overwhelm the company's ability to finance its matching debtload. Let's run down the real numbers...

GE Capital has nearly $600 billion in assets. That's roughly 75% of all of GE's assets. When we say GE is really a giant, unregulated, global hedge fund, that's what we mean: Three-quarters of its assets are committed to the hedge fund, which it calls "GE Capital."

GE Capital does what most banks do... It borrows a ton of other people's money, invests it in ridiculously risky projects, and pays out bonuses to its managers, who retire before anyone realizes how much money they've lost.

GE Capital's nearly $600 billion in assets include $333 billion in receivables (think credit cards, car loans, and mortgages), $53 billion in property (think commercial real estate), and $81 billion in "other." We have no idea what "other" represents and would challenge anyone outside the company to explain it to us, as GE Capital's reporting is entirely indecipherable. Here's a good example... In one of its dozens of summary pages regarding its real estate investments, you will find this footnote: "Includes real estate investments related to Real Estate only."

We've never found a company that couldn't make its business easy to understand if it chose to do so. Warren Buffett, for example, runs a business that's similar in scale to GE. He writes the annual report personally, going over every key business unit in plain, clear English. GE's reporting is complex because it doesn't want you to know what's happened.

In any case... even assuming all $81 billion of "other" is money-good, we still believe the company is likely to declare bankruptcy because of investment losses within the next three years. Here's why: The company's total tangible net equity is only $40 billion. Thus, if GE were to lose 7% across all of its investments, its equity would be completely wiped out. In truth, whole book losses of even 2% or 3% would spook the capital markets enough that GE wouldn't be able to roll over its debts. And its near-term capital needs are massive: $227 billion comes due before the end of 2013.

We think its investment losses will total more than $50 billion over the next two to three years. Here's why...

GE Capital's total European exposure is $95 billion – that includes credit-card debt, auto loans, and mortgages. Any significant decline in the value of the euro would cause massive losses in these investments. And even if nothing bad happens to the euro currency (and we believe the euro must soon either be significantly devalued or significantly restructured), GE is still likely to lose an enormous amount of money on these loans. The reason why is buried in a footnote on page 21 of its second-quarter credit-quality report. It says:

"...At origination, we underwrite loans with an adjustable rate to the reset value. 81% of these loans are in our U.K. and France portfolios, which comprise mainly loans with interest-only payments and introductory below market rates..."

What that means is that GE Capital invested heavily in interest-only, variable-rate mortgages in the U.K. and France. Most of these loans haven't "reset" yet. And when they do, they have enormously high default rates.

Specifically, in the UK, 24.9% of GE's mortgages are more than 30 days delinquent. In Spain, almost 30% of GE's mortgages are 30 days or more delinquent. On average, of $50 billion in non-U.S. mortgages, more than 14% are delinquent. We estimate that at least 50% of these loans will end up defaulting.

According to Wells Fargo, defaults on these types of loans have been producing losses of between 60% and 70%. So... if you assume half of the mortgages default and you assume loss severity of 70%, GE should see losses on its non-U.S. mortgage portfolio of between $15 and $20 billion – not including losses on its $160 billion American mortgage portfolio... not including its commercial real estate losses... and not including its exposure to a euro currency crisis.

For taking on all of these risks, Immelt is offering you 3% a year. Plus a share buyback that's been "extended." Any takers?

Allstate CEO Says State Borrowing 'Out of Control

This should be no surprise to you, dear reader. “Nobody has the intestinal fortitude to actually move forward to try to change anything,” CEO Wilson said of government debt at the federal, state and local levels. “They’re just sort of sitting there waiting for disaster to happen.” And disaster is exactly what they're going to get.

Read the whole story here:
http://www.bloomberg.com/news/2010-07-07/allstate-ceo-says-government-borrowing-out-of-control-munis-may-suffer.html
or just click on the headline above

GE heading for bankruptcy

Porter Stansberry writes:

GE says it "brings good things to life," but in fact, over the decade, it has mostly been about bringing good debt to life. For many, many years, GE relied on its triple-A credit rating to borrow money cheaply in the 30-day commercial paper market and then lend it out at a much higher rate, via things like credit-card receivables. These kinds of financial strategies worked well during the debt-financed boom of 1995-2008. They don't work anymore. In fact, without a government guarantee backing its debts, GE would have already gone bankrupt.

Here are the core facts: GE owes its creditors $518 billion. That is not a misprint. It owns tangible net assets of only $17 billion. Thus, on a tangible basis, it is currently leveraged by more than 30-to-1. That's unheard of for a major industrial company. A 3.3% decline in the value of its asset base would wipe out all of its tangible equity. But here's the real problem. Last quarter, the company produced $2 million in operating income. Again, that's not a misprint. On $17 billion in assets, the company earned only $2 million. So... what will happen to GE if (or when) the free market sets its borrowing costs?

GE spent $4.3 billion on interest in the last quarter – thanks to the government's guarantee. So on an annualized basis, GE is now spending roughly $17 billion to service its $500 billion in debt. That's an annualized interest rate of 3.3%. This is not sustainable. Sooner or later, GE is going to have to pay a market interest rate.

Currently, the yield on high-yield corporate debt is around 10%. GE is now rated two slots above "junk" by Egan Jones, the only reliable ratings agency. So let's assume GM could still qualify as an investment-grade credit – which is a generous assumption. GM would pay something like 8% on its debt in a free market. That would cost more than $41 billion a year. Last year, GE earned $45 billion before interest and taxes – in total. It spent $33 billion of these profits on capital expenditures and necessary investments – expenses required to keep the business going. That left it with about $12 billion in what we call "owner earnings." That's not nearly enough money to pay the interest on its debts – whether they're backed by the government or not.

Imagine if the interest on your mortgage consumed 91% of your pre-tax earnings. Could you possibly avoid bankruptcy? No way, right? But... there's a big difference between owing the bank a few hundred grand and owing folks more than $500 billion. Last year, even though GE couldn't actually afford its debts and required a government bailout, it spent $12.4 billion on dividends for common stock holders. That's 20% more than it spent on dividends in 2006! (GE finally cut its dividend by 70% in February. It will be eliminated soon, I promise. Its creditors will finally wake up and demand it.)

Today the stock market values GE at $171 billion. In fact, the common stock – every single share – is not worth one penny. Plan accordingly.
Porter Stansberry

The fate of GM

Magic Act: Conjuring Up a Profit at GM Like a magician who artfully controls his audience's attention, the government's General Motors investment is all about financial diversion. Here's the fancy trick: It won't be very hard for a revamped GM to succeed at making a buck. Its debts will be cut from about $73 billion to about $17 billion. Its labor costs will be reduced by as much as $2 billion a year. On Wednesday, GM got even more help. GMAC, which funds dealers and car buyers, began issuing $3.5 billion in three-year debt backed by the federal government. This should cost GMAC about 2.2% annually. Ford Motor Credit just priced a five-year bond. It's paying 8%. "New GM" will thus have a far easier road to turning a profit over the next 12 to 18 months. And you can bet that first profitable dollar will be cause for celebration in Washington and Detroit. But let's break the magician's credo and show how the trick works. Beneath the magician's table is a black box. It happens to be stuffed with about $65 billion in cash. That's taxpayer money. Some $20 billion of it was given to GM over the past few months, and another $30 billion is being used for the company's reorganization. About $15 billion of it goes to support GMAC, which the Obama administration says is essential to keeping GM alive. Like any lender, the government would be expected to demand this money be repaid. But that's not really happening here. Save for $8 billion in debt and another $2.1 billion in preferred stock, the money is being converted into an illiquid 60% stake in GM. Why didn't the government take more debt and less equity in GM? It worried that GM couldn't bear the interest expense. Explained another way: The new GM may "succeed" at getting to profitability, but only as much as taxpayers have absorbed tens of billions of losses in upfront equity. GM's Fritz HendersonIn President Obama's view, this is all part of the path to helping "this iconic company rise again and move toward profitability." Measuring it as an investment, it appears nearly impossible that taxpayers will get their $65 billion in equity back. The government's 60% stake backs into an implied GM market capitalization of about $70 billion. It will support another $26 billion in debt and preferred stock owed to the U.S. Treasury and the UAW. GM's best market cap was $60 billion in 1999, when it was cranking out high-margin SUVs. Even with huge amounts of debt and other liabilities, GM produced record annual revenue of $176 billion. Also, its pretax, preinterest profit margins were a stellar 12.6%. With the bankruptcy plan, GM will have shed four brands, its majority-ownership stake in GMAC and most of its European operations. Roughly speaking, this might put its annual revenue at about $100 billion. Assuming GM can return to Ebitda margins of 10% (they're currently negative) would mean GM's earnings power will have been cut by over half compared with a decade ago. What is that revenue stream worth? Through most of this decade, one of the world's best car companies, Toyota Motor, has been valued at about eight times its cash flow to enterprise value. Say an outside investor is willing to value GM's cash flows at six times. Roughly speaking, that makes GM's equity worth $33 billion, meaning taxpayers' stake would be worth only $20 billion, less than half their original $42 billion equity investment. And that doesn't include the uncertain fate of the $15 billion given to GMAC. Still, one day in 2010 or 2011, GM will declare itself profitable. The government's bailout plan will be hailed. But it will be an illusion created by taxpayers' black box of billions.

U.S. Treasury tells GM to prepare for bankruptcy

General Motors was instructed by the U.S. Treasury to be ready to file for bankruptcy protection no later than June 1, The New York Times reported, quoting unnamed sources who are familiar with the matter. The government wants to see GM go through the bankruptcy process as quickly as possible to minimize the likely damage to the company's sales and to its image among car buyers, according to the newspaper. The New York Times Bondholders reportedly readying to fight GM bankruptcy.
Investors who own General Motors bonds are working on legal arguments against a potential bankruptcy filing by the troubled automaker, The Wall Street Journal reported, quoting sources acquainted with the matter. The bondholders fear that having GM in bankruptcy would force them to accept huge losses on their investments, according to the newspaper. Reuters.
This is unbelievable. who would have thought that a bankruptcy would force one to accept losses?

The changing American Dream?

Last week the Met Life Study of the American dream was making its rounds to trading desks and I found some
interesting items in there. First off the study found a shift in priorities from “investments” to “protection” . Unlike 12+
months ago when Americans craved a moderate dose of risk in their portfolios, today’s consumers are eyeing more
conservative investment and/or protection products for their personal safety nets. Among the top ten items that
consumers would most like to have in their safety net, most are insurance products — long-term care insurance,
health insurance, life insurance, annuities — or conservative investments such as cash or bonds. Only the fourthranked
(real estate) and tenth-ranked (mutual funds) carry a moderate level of risk. Last year, by contrast, the
number one priority was health insurance that continues through retirement (60%), followed by retirement savings
(52%). Stability and security are the new growth frontiers. One figure that might shock some readers - only 35% of
respondents had cash on hand for 3-6 months. A startling 59% of Americans say they would be somewhat or very
concerned about having to file for bankruptcy if they were to lose their job. This cuts across all generations and
income levels. Even mass affluent Americans are deeply concerned about bankruptcy, with 53% identifying
themselves as being at risk without a job. An equally high percentage of Americans is worried about home
foreclosure; two in three homeowners (64%) are concerned they would lose their home if they were to lose their
job. Generation X feels the most vulnerable, with 73% of Americans in this demographic group expressing concern.
Baby Boomers are the next most vulnerable group, with 63% reporting worry. Fears of bankruptcy and foreclosure
are also unusually high among Middle Market consumers — i.e., those between the ages of 35 and 44 with income
of $35,000–$100,000 per year. Two-thirds (66%) of these Americans risk bankruptcy if faced with a job loss. An
even higher percentage of Middle Market consumers are worried about home foreclosure, with 75% expressing
concern that unemployment would lead to the loss of their home.

Without a steady paycheck, 50% of Americans say they could not meet their financial obligations for more
than a month — and, of that, a disturbing 28% couldn’t support themselves for more than two weeks of
unemployment. This is pretty important stuff and hammers a theme we have stated for some time – consumer
deleveraging is just getting started and savings need to continue to rise. The attitude toward risk, if it endures also
has many big implications.
Source: 2009 Met Life Study of the American Dream

Market Reflections 3/5/2009

The day arrived that General Motors is talking of bankruptcy, sending money to safety in Thursday's session. The company's shares fell 15 percent to $1.86. Another routed blue chip, Citigroup, may get booted out of the Dow Jones industrial average because its share price is too low, ending today at $1.02 for another 10 percent plunge. Bank stocks in general were hit following a warning from Moody's. The GM and Moody's news, along with disappointment over lack of follow through to Chinese stimulus plans, sent the stock market tumbling once again, with the S&P 500 down 4.3 percent at 682.55.

Nearly 12 percent of U.S. homeowners with a mortgage are behind in their payments, data from the Mortgage Bankers Association. MBA said delinquency rates are now on the rise in states outside of California, Nevada or Florida. There's talk that the administration's homeowner relief program won't be much help for homeowners who are unemployed. Weekly jobless claims eased back from peak levels but are still reflecting severe contraction in the labor market. Tomorrow's monthly employment report looks to be one of the very worst on record.

The dollar firmed nearly 1 cent against the euro to end at $1.2558, gains on safe-haven buying. Money moved deeply into the front-end of the Treasury curve where the 3-month yield fell 6 basis points to 19 basis points. Gold jumped nearly $30 to $934.70. Oil, ending at $43.70 for April WTI, continues to hold in a tight range showing less and less reaction to stock market movements.

World's Biggest Bankruptcy?

The media have given London a new nickname: Reykjavik-on-Thames.

Britain's economy revolved around banking. British banks hold about $4.4 trillion in foreign debt. The total size of the UK economy is $2.1 trillion. This year, the British government nationalized major parts of the UK's banking system. In total, the UK Treasury is on the hook for over $2 trillion in potential liabilities, according to an estimate by the Office of National Statistics.

But Britain is NOT going to be the world's biggest national bankruptcy. The government debt of the United Kingdom is only around $950 billion... or about $15,000 per capita.




This week, the United States Treasury sunk another $30 billion into AIG... its fourth bailout. It also put another $25 billion into Citigroup. The Treasury is now on the hook for as much as $6 trillion in liabilities. Last week, the White House produced its new budget. President Obama wants to run a deficit of $1.75 trillion in 2009.

The Treasury will pay for these bailouts by borrowing money. The Treasury borrows money by issuing Treasury bonds. Tomorrow, for example, it will auction three-year, 10-year, and 30-year bonds. This auction should raise around $60 billion.

The "debt clock" measures the amount of money the government owes its creditors. Today, the U.S. debt clock reads $11 trillion. To pay off this debt tomorrow, the government would have to collect $36,000 from every American.

But America is NOT about to be the world's biggest bankruptcy.

Of the major industrial economies in the world, Japan's government is the most indebted.

Since its recession began 20 years ago, Japan has plowed trillions into its banking system via numerous bailout programs. Japan's mantra is growth without cost. As a result, the Japanese government has built up the world's most crippling debt load.

The government of Japan owes $7.8 trillion. That's $157,000 per capita.

We've been using government debt per capita to compare the government debts of Britain, the United States, and Japan. But government debt to GDP is the ratio economists use to compare the indebtedness of countries. The UK has a government debt-to-GDP ratio of 48%. The U.S. has a government debt-to-GDP ratio of 75%. Japan has a government debt-to-GDP ratio of 187%.

If there's going to be a major sovereign bankruptcy, it's going to happen in Japan. Its economy is a shambles. For years, Japan has relied on exports... but even that's drying up now. In January, Japan's exports plunged 47%, producing a trade deficit. People talk about Japan as a "nation of savers." But that's not true anymore. Japan's personal savings rate has collapsed from 16% in the early 1990s to 2.2% last year.

Japan has an aging population and no immigration. I can't see where it's going to find the money to pay off its huge pile of debt.

The way to play the collapse in Japan is by shorting the yen. Right now, the Japanese yen is the world's most popular currency. Traders perceive it as a safe haven. In 2008, the yen was the world's best performing currency.... Rising 33% against the Canadian dollar, 40% against the British pound, and 19% against the dollar.

Back in January, I told you a fall in the yen was all but inevitable. The yen is down 12% since that article. But according to

Japan Is About to Devalue Its Currency: Here's How to Profit
This Year's Triple-Digit Trade




a Merrill lynch report I saw yesterday, large speculators still have a $3.7 billion long position in yen futures. The analyst described it as "crowded."


The Japanese yen has been in a 40-year bull market. I think a new long-term bear market has just started... and it will end in the bankruptcy of Japan's government.

GM says it "may" go bankrupt. Which means it "will"

Thursday, February 26, 2009

GM's auditors are pouring through its financial statements to determine if it can continue as a "going concern." GM lost $9.6 billion in the fourth-quarter, so you can't blame them for worrying about bankruptcy. The current quarter is going to be another bomb.

According to CFO Ray Young, GM needs more federal aid (just $30 billion) to stay afloat. Even so, it's expected that GM will get the "going concern" notice. Most companies that receive one go bankrupt.

Auto bankruptcy is imminent?

Reuters reports the US government has retained two law cos with extensivebankruptcy experience and the investment bank Rothschild to advise officialson the taxpayer-backed restructuring of General Motors and Chrysler, a person with direct knowledge of the work said. New York law company Cadwalader, Wickersham& Taft was hired by the US Treasury last month and will consider a range ofpossibilities for the struggling automakers including the prospect of abankruptcy funded by the US government, the person said. Cadwalader is joinedby law co Sonnenschein, Nath & Rosenthal and Rothschild in working with USofficials as they prepare to review turnaround plans being readied by the twostruggling automakers, the person said. A spokeswoman for Sonnenschein in LosAngeles confirmed that the co had been engaged to advise Treasury on "ongoingmatters related to the 2008-2009 developments within the US automobile industry."

Face it, the auto industry in the USA is BANKRUPT, INSOLVENT and unrescuable. It is criminal for our government (read Congress) to billios of my and your money into this debacle.

$25 BILLION given to auto companies with great fanfare.... and behind the petticoat curtain the government hires a bankruptcy advisor!!!!

Stop this theft of our future well being now!

Bank of America bankruptcy?

US Senator Dodd doesn't see nationalization of Bank of America-DJ

then again he didn't see the economic train wreck coming either.

Obama administration and bank nationalization

The Obama administration and Democratic congressional leaders said they are considering a number of options to help banks in the U.S. and to stabilize the economy.
But the question on many people's minds is whether they are considering nationalizing much of the banking system. The Obama team has avoided the word altogether, while House Speaker Nancy Pelosi indicated that there is an internal debate going on regarding nationalization.

Nationalizing banks so government burocrats run them is absolutely a disastrous idea.

The problem the banks face is that they own billions( maybe trillions) of dollars worth of mortgages. These may or may not be performing for the mean time.

They also own billions of dollars worth of assorted valueless securities connected in one way or another with mortgages.

Politicians need to solve the mortgage problem and the constipation of lending that the banks suffer from will be massively relieved.

In this great USA home ownership is a right that is far more economically important that the right to free health care or free education. Allowing this mortgage crisis to continue is economic suicide.

Let the Treasury issue as many new 30-yr bonds as necessary to buy all owner-occupied mortgages at face value and replace them with new 4% 30 yr mortgages based on payments not exceeding 30% of last reported Gross Income on tax return. Issue these via The Federal Reserve and or Freddie Mac/ Fannie Mae.

Hire an army of contract lawyers to write mortgage agreements that obligate willing homeowners to repay the difference between the old value of the mortgage and the new value at sale of their property.

And watch out for the rush to release homeowners from their bondage!

Mortgage Workout 4: The real urgency

Its inauguration day. There is hope in the air. Change....

It is time for politicians to be patriotic and not parochial.

They MUST rescue the people of this great nation or the American Dream of home ownership willb be lost forever.

They must do this for the benefit of the country. To do anything other than a clean fix aimed laserlike at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.

Here is an example of how this would work, without using Bailout money, without cramping the style of politicians who want to free up money for stimulating economic activity and would restore the great hope of prosperity for this great nation and the world:

EXAMPLE:

John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).
Smith household income reported on 2007 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).

Current US 30 year Treasury notes have an interest rate of 3.125%.

Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.

Smith gets a new mortgage under this program with a 30 year term at 3.625% (3.125+0.5) for a nominal value of approx $600,000.(arrived at through DCF analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.

Ten years from now Smith sells the house for $700,000

He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.

He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.

His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. Banks can resell it or if they wish sell it to FNMA in the regular course of business. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!

Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.

There is a very real potential for gain by the government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established. The Fed will hire the necessary personnel to administer the program.

The banking system is unclogged and consumer confidence is restored.