Risky Business “Easy Money”

Here we go again.

Last week, the country’s biggest mortgage lenders scored a couple of key victories that will allow them to ease lending standards, crank out more toxic assets, and inflate another housing bubble.  Here’s what’s going on.

On Monday,  the head of the Federal Housing Finance Agency (FHFA), Mel Watt, announced that Fannie and Freddie would slash the minimum down-payment requirement on mortgages from 5 percent to 3 percent while making loans more available to people with spotty credit. If this all sounds hauntingly familiar, it should. It was less than 7 years ago that shoddy lending practices blew up the financial system precipitating the deepest slump since the Great Depression. Now Watt wants to repeat that catastrophe by pumping up another credit bubble. Here’s the story from the Washington Post:

“When it comes to taking out a mortgage, two factors can stand in the way: the price of the mortgage,…and the borrower’s credit profile.”

On Monday, the head of the agency that oversees the mortgage giants Fannie Mae and Freddie Mac outlined … how he plans to make it easier for borrowers on both fronts. Mel Watt, director of the Federal Housing Finance Agency, did not give exact timing on the initiatives. But most of them are designed to encourage the industry to extend mortgages to a broader swath of borrowers.

Here’s what Watt said about his plans in a speech at the Mortgage Bankers Association annual convention in Las Vegas:

Saving enough money for a downpayment is often cited as the toughest hurdle for first-time buyers in particular. Watt said that Fannie and Freddie are working to develop “sensible and responsible” guidelines that will allow them to buy mortgages with down payments as low as 3 percent, instead of the 5 percent minimum that both institutions currently require.”

Does Watt really want to “encourage the industry to extend mortgages to a broader swath of borrowers” or is this just another scam to enrich bankers at the expense of the public?  It might be worth noting at this point that Watt’s political history casts doubt on his real objectives.   According to Open Secrets, among the Top 20 contributors to Watt’s 2009-2010 campaign were Goldman Sachs, Bank of America, Citigroup Inc., Bank of New York Mellon, American bankers Association, US Bancorp, and The National Association of Realtors. (“Top 20 Contributors, 2009-2010“, Open Secrets)

Man oh man,  this guy’s got all of Wall Street rooting for him. Why is that, I wonder? Is it because he’s faithfully executing his office and defending the public’s interests or is it because he’s a reliable stooge who brings home the bacon for fatcat bankers and their brood?

This is such a farce, isn’t it? I mean, c’mon, do you really think that the big banks make political contributions out of the kindness of their heart or because they want something in return?  And do you really think that a guy who is supported by Goldman Sachs has your “best interests” in mind?  Don’t make me laugh.

The reason that Obama picked Watt was because he knew he could be trusted to do whatever Wall Street wanted, and that’s precisely what he’s doing. Smaller down payments and looser underwriting are just the beginning; teaser rates, balloon payments, and liars loans are bound to follow. In fact, there’s a funny story about credit scores in the Washington Post that explains what’s really going on behind the scenes. See if you can figure it out:

“Most housing advocates agree that a bigger bang for the buck would come from having lenders lower the unusually high credit scores that they’re now demanding from borrowers.

After the housing market tanked, Fannie and Freddie forced the industry to buy back billions of dollars in loans. In a bid to protect themselves from further financial penalties, lenders reacted by imposing credit scores that exceed what Fannie and Freddie require. Housing experts say the push to hold lenders accountable for loose lending practices of the past steered the industry toward the highest-quality borrowers, undermining the mission of Fannie and Freddie to serve the broader population, including low- to moderate- income borrowers.

Today, the average credit score on a loan backed by Fannie and Freddie is close to 745, versus about 710 in the early 2000s, according to Moody’s Analytics. And lenders say they won’t ease up until the government clarifies rules that dictate when Fannie and Freddie can take action against them.” (Washington Post)

Can you see what’s going on? The banks have been requiring higher credit scores than Fannie or Freddie.

But why? After all, the banks are in the lending business, so the more loans they issue the more money they make, right?

Right. But the banks don’t care about the short-term dough. They’d rather withhold credit and slow the economy in order to blackmail the government into doing what they want.

And what do they want?

They want looser regulations and they want to know that Fannie and Freddie aren’t going to demand their money back (“put backs”) when they sell them crappy mortgages that won’t get repaid. You see, the banks figure that once they’ve off-loaded a loan to Fannie and Freddie, their job is done.  So, if the mortgage blows up two months later, they don’t think they should have to pay for it. They want the taxpayer to pay for it. That’s what they’ve been whining about for the last 5 years. And that’s what Watt is trying to fix for them. Here’s the story from Dave Dayen:

“Watt signaled to mortgage bankers that they can loosen their underwriting standards, and that Fannie and Freddie will purchase the loans anyway, without much recourse if they turn sour. The lending industry welcomed the announcement as a way to ease uncertainty and boost home purchases, a key indicator for the economy. But it’s actually a surrender to the incorrect idea that expanding risky lending can create economic growth.

Watt’s remarks come amid a concerted effort by the mortgage industry to roll back regulations meant to prevent the type of housing market that nearly obliterated the economy in 2008. Bankers have complained to the media that the oppressive hand of government prevents them from lending to anyone with less-than-perfect credit. Average borrower credit scores are historically high, and lenders make even eligible borrowers jump through enough hoops to garner publicity. Why, even Ben Bernanke can’t get a refinance done! (Actually, he could, and fairly easily, but the anecdote serves the industry’s argument.)

(“The Mortgage Industry Is Strangling the Housing Market and Blaming the Government“, Dave Dayen, The New Republic)

Can you see what a fraud this is?  6 years have passed since Lehman crashed and the scum-sucking bankers are still  fighting tooth-and-nail to unwind the meager provisions that have been put in place to avoid another system-shattering disaster. It’s crazy. These guys should all be in Gitmo pounding rocks and instead they’re setting the regulatory agenda. Explain that to me? And this whole thing about blackmailing the government because they don’t want to be held responsible for the bad mortgages they sold to the GSE’s is particularly irritating. Here’s more from Dave Dayen:

“After the housing market tanked, Fannie and Freddie forced the industry to buy back billions of dollars in loans. In a bid to protect themselves from further financial penalties, lenders reacted by imposing credit scores that exceed what Fannie and Freddie require. ….And lenders say they won’t ease up until the government clarifies rules that dictate when Fannie and Freddie can take action against them.”

So the industry has engaged in an insidious tactic: tightening lending well beyond required standards, and then claiming the GSEs make it impossible for them to do business. For example, Fannie and Freddie require a minimum 680 credit score to purchase most loans, but lenders are setting their targets at 740. They are rejecting eligible borrowers….so they can profit much more from a regulation-free zone down the line.

So, I ask you, dear reader; is that blackmail or is it blackmail?

And what does Watt mean when he talks about “developing sensible and responsible guidelines’ that will allow them (borrowers) to buy mortgages with down payments as low as 3 percent”?

What a joke.  Using traditional underwriting standards, (the likes of which had been used for  the entire post-war period until we handed the system over to the banks) a lender would require a 10 or 20 percent down, decent credit scores, and a job. The only reason Watt wants to wave those requirements is so the banks can fire-up the old credit engine and dump more crap-ass mortgages on Uncle Sam.  That’s the whole thing in a nutshell. It’s infuriating!

Let me fill you in on a little secret: Down payments matter! In fact, people who put more down on a home (who have “more skin in the game”) are much less likely to default.  According to David Battany, executive vice president of PennyMac, “there is a strong correlation between down payments to mortgage default. The risk of default almost doubles with every 1%.”

Economist Dean Baker says the same thing in a recent blog post:

“The delinquency rate, which closely follows the default rate, is several times higher for people who put 5 percent or less down on a house than for people who put 20 percent or more down.

Contrary to what some folks seem to believe, getting moderate income people into a home that they subsequently lose to foreclosure or a distressed sale is not an effective way for them to build wealth, even if it does help build the wealth of the banks.”

(“Low Down Payment Mortgages Have Much Higher Default Rates“, Dean Baker, CEPR)

Now take a look at this chart from Dr. Housing Bubble which helps to illustrate the dangers of low down payments in terms of increased delinquencies:

Data on mortgage delinquencies by downpayment. Source:  Felix Salmon 

“When the mortgage industry starts complaining about the 14 million people who would be denied the chance to buy a qualified mortgage if they don’t have a 5% downpayment, it’s worth remembering that qualified mortgages for people who don’t have a 5% downpayment have a delinquency rate of 16% over the course of the whole housing cycle.” (“Why a sizable down payment is important“, Dr. Housing Bubble)

So despite what Watt thinks,  higher down payments mean fewer defaults, fewer foreclosures, fewer shocks to the market, and greater financial stability.

And here’s something else that Watt should mull over:  The housing market isn’t broken and doesn’t need to be fixed.  It’s doing just fine, thank you very much. First of all, sales and prices are already above their historic trend. Check it out from economist Dean Baker:

“If we compare total sales (new and existing homes) with sales in the pre-bubble years 1993-1995, they would actually be somewhat higher today, even after adjusting for population growth. While there may be an issue of many people being unable to qualify for mortgages because of their credit history, this does not appear to be having a negative effect on the state of market. Prices are already about 20 percent above their trend levels.” (“Total Home Sales Are At or Above Trend“, Dean Baker, CEPR)

Got it? Sales and prices are ALREADY where they should be, so there’s no need to lower down payments and ease credit to start another orgy of speculation. We don’t need that.

Second, the quality of today’s mortgages ARE BETTER THAN EVER, so why mess with success? Take a look at this from Black Knight Financial Services and you’ll see what I mean:

“Today, the Data and Analytics division of Black Knight Financial Services … released its November Mortgage Monitor Report, which found that loans originated in 2013 are proving to be the best-performing mortgages on record…..

“Looking at the most current mortgage origination data, several points become clear,” said Herb Blecher, senior vice president of Black Knight Financial Services’ Data & Analytics division. “First is that heightened credit standards have resulted in this year being the best-performing vintage on record. Even adjusting for some of these changes, such as credit scores and loan-to-values, we are seeing total delinquencies for 2013 loans at extremely low levels across every product category.”

(“Black Knight Financial Services’ Mortgage Performance Data Shows 2013 Loans Best Performing on Record“, LPS)

Okay, so sales and prices are fine and mortgage quality is excellent. So why not leave the bloody system alone? As the saying goes: If it ain’t broke, don’t fix it.

But you know why they’re going to keep tinkering with the housing market. Everyone knows why. It’s because the banks can’t inflate another big-honking credit bubble unless they churn out zillions of shi**y mortgages that they offload onto Fannie and Freddie. That’s just the name of the game: Grind out the product (mortgages), pack it into sausages (securities and bonds), leverage up to your eyeballs (borrow as much as humanly possible), and dump the junk-paper on yield-chasing baboons who think they’re buying triple A “risk free” bonds.

Garbage in, garbage out.  Isn’t this how the banks make their money?

You bet it is, and in that regard things have gotten a helluva a lot scarier since last Wednesday’s announcement that the banks are NOT going to be required to hold any capital against the securities they create from bundles of mortgages.

Huh?

You read that right. According to the New York Times:  “there will be no risk retention to speak of, at least on residential mortgage loans that are securitized.”

But how can that be, after all, it wasn’t subprime mortgages that blew up the financial system (subprime mortgages only totaled $1.5 at their peak), but the nearly $10 trillion in subprime infected mortgage-backed securities (MBS) that stopped trading in the secondary market after a French Bank stopped taking redemptions in July 2007. (a full year before the crisis brought down Lehman Brothers) . That’s what brought the whole rattling financial system to a grinding halt. Clearly, if the banks had had a stake in those shabby MBS— that is, if they were required to set aside 5 or 10 percent capital as insurance in the event that some of these toxic assets went south– then the whole financial collapse could have been avoided, right?

Right. It could have been avoided. But the banks don’t want to hold any capital against their stockpile of rancid assets, in fact, they don’t want to use their own freaking money at all, which is why 90 percent of all mortgages are financed by Uncle Sugar. It’s because the banks are just as broke as they were in 2008 when the system went off the cliff. Here’s a summary from the New York Times:

“Once upon a time, those who made loans would profit only if the loan were paid back. If the borrower defaulted, the lender would suffer.

That idea must have seemed quaint in 2005, as the mortgage lending boom reached a peak on the back of mushrooming private securitizations of mortgages, which were intended to transfer the risk away from those who made the loans to investors with no real knowledge of what was going on.

Less well remembered is that there was a raft of real estate securitizations once before, in the 1920s. The securities were not as complicated, but they had the same goal — making it possible for lenders to profit without risking capital.

The Dodd-Frank Act of 2010 set out to clean that up. Now, there would be “risk retention.” Lenders would have to have “skin in the game.” Not 100 percent of the risk, as in the old days when banks made mortgage loans and retained them until they were paid back, but enough to make the banks care whether the loans were repaid.

At least that was the idea. The details were left to regulators, and it took more than four years for them to settle on the details, which they did this week.

The result is that there will be no risk retention to speak of, at least on residential mortgage loans that are securitized.

“…..Under Dodd-Frank, the general rule was to be that if a lender wanted to securitize mortgages, that lender had to keep at least 5 percent of the risk…….But when the final rule was adopted this week, that idea was dropped.”  (“Banks Again Avoid Having Any Skin in the Game”, New York Times)

No skin in the game, you say?

That means the taxpayer is accepting 100 percent of the risk. How fair is that?

Let’s review: The banks used to lend money to creditworthy borrowers and keep the loans on their books.

They don’t do that anymore, in fact, they’re not really banks at all, they’re just intermediaries who sell their loans to the USG or investors.

This arrangement has changed the incentives structure. Now the goal is quantity not quality.  “How many loans can I churn-out and dump on Uncle Sam or mutual funds etc.” That’s how bankers think now.  That’s the objective.

Regulations are bad because regulations stipulate that loans must be of a certain quality, which reduces the volume of loans and shrinks profits. (Can’t have that!) Therefore, the banks must use their money to hand-pick their own regulators  (“You’re doin’ a heckuva job, Mel”) and ferociously lobby against any rules that limit their ability to issue credit to anyone who can fog a mirror. Now you understand how modern-day banking works.

It would be hard to imagine a more corrupt system.

We Failed The History Test

Depression Approaches…

In 1932, the third year of the Great Depression, 25 thousand homeless and destitute WWI veterans and their families camped around Washington, DC urging the government of President Herbert Hoover to make an immediate payment of about $500 which had been authorized by the Adjusted Compensation Act of 1924 but was not due until 1945.  Socialism had no yet grown roots and when these veterans lost their jobs they quickly fell into severe circumstances.  They called themselves the Bonus Expeditionary Force (BEF).

Drew Pearson wrote that they were “ragged, weary, and apathetic”.  Will Rogers said they held, “the record for being the best behaved” of any “hungry men assembled anywhere in the world.”  Though the soldiers and their families had no weapons and could not even be called able bodied the government acted as if it was under siege.

Yes, they were a nuisance.  They stank and some of them begged.  The government spread the rumor that they were Communists.  Business men complained that they hurt business.

Army Chief of Staff General Douglas MacArthur and his assistants Major Dwight Eisenhower and Major George Patton were assigned to rid the city of the vermin.  Eisenhower’s friend Brigadier General George Moseley suggested they arrest the BEF and others “of inferior blood” and ship them off to one of the remote Hawaiian Islands where “they could stew in their own filth”.

President Hoover announced that veterans were “entirely of the Communist element” and troops would “put an end to the rioting and defiance of civil authority”. Presently, led by Major Patton, troops of the 3rd Cavalry marched down Pennsylvania Avenue brandishing sabers followed by a machine gun detachment, men from the 12 Infantry, and six tanks.  Major Patton’s cavalry turned and charged directly into the crowd of unarmed protestors shouting “clear our”.  Tear gas was thrown and men women and children began a disorderly flight.  Three children were killed.

The main BEF camp was across the Eleventh Street Bridge.  In spite of the fact the MacArthur had been ordered not to cross the bridge, according to Eisenhower, he defied the order and allowed Patton’s cavalry to march into the camp throwing tear gas and burning everything that was combustible.

William Manchester tells this story at the beginning of his two volumes “The Glory and The Dream”. He writes that “well to do Washingtonians in yachts cruised close to look at the show. And at 11:15 P.M. they had watched Major George S. Patton, Jr. lead his cavalrymen in a final destructive charge.  Among the ragged bonus marchers routed by their sabers was Joseph T. Angelino, who, on September 26, 1918, had won the Distinguished Service Cross in the Argonne Forest for saving the life of a young officer named George S. Patton, Jr.

As the book progresses Manchester supplies the detailed results of the Great Depression. In 1932, stocks listed on the Big Board had lost 80 percent of their value.  General Motors and U. S. Steel were at 8 percent of their 1929 value.  Five thousand banks failed.  The Gross National Product fell from 104 billion dollars to 41 and 273,000 families were evicted from their homes.

Farm prices fell so that it was cheaper to burn corn than to sell it and buy coal.  Thousands of mortgage foreclosures made farm families homeless.  But in spite of the rural catastrophe city dwellers could still not afford .39 cent butter, .21 cent prime rib, or .20 a dozen eggs.

Men left their families and rode freight trains to other town seeking work; they got a free ride but no work.  Some school teachers worked without pay and many schools were closed.  One percent of the population owned 59 percent of the wealth.

While this tragic devastation was in full swing the nation’s newspapers were singing songs of recover. “BUSINESS PULSE BEATING FASTER, factories reopening all over the country”; “BOOM AWAKENS TEXTILE PLANTS IN NEW ENGLAND, capacity production reported in some cities”; “TRADE UPTURN WITHIN 90 DAYS NOW EXPECTED”.  Manchester writes, “Nowhere in any of these newspapers was there mention of the remarkable fact that in the United States of America, the richest country in the world, more than 15 million men were looking for jobs that did not exist.”

The suicide rate tripled and thousands packed union square in New York to hear Communist speakers.  When upstart Franklin D. Roosevelt was elected by a landslide it was noted that the popular vote for Norman Thomas tripled.  In some cities mobs broke into grocery stores and rifled the shelves, state houses were occupied, in Chicago teachers broke into the banks.

Peacenik Henry Ford began to carry a gun.  The moneyed gentry retreated to their country homes and mounted machine guns on their roofs.   The fuse was short and the nation was near anarchy when Roosevelt took over the presidency.

The Great Depression was an effective instrument to increase control over the populace by creating a dependent class.  If that was the goal, it was a great success.  President-elect Franklin D. Roosevelt assumed dictatorial powers with the blessing of many elected officials of both parties.  This situation was dire and volatile.  Roosevelt was able to remove the fuse and to employ an array of Socialist programs that became permanent parts of American life.

Jumping ahead to the present era, the United States of America, formerly the richest country in the world, is now a tyrannical socialist state where millions of citizens depend on government welfare. The current depression is not yet as brutal as its predecessor but in spite of the propaganda that things are getting better millions of Americans remain out of work and millions more are severely under employed.  Now, as then, veterans have become social flotsam and are often treated with suspicion by the government they served.

If severe economic depressions are unavoidable and not intended by devious power centers with ulterior motives, government assistance has been beneficial; so far we have survived without the guillotines of the French Revolution. Martial law would have been imposed long ago if government support had not calmed the populace.  As the strong arms of government keep us from falling it must be noted that the cost of the strength of governments must be paid by its citizens – governments produce nothing..  When the wealth well runs dry the inevitable results of bankruptcy will explode and government will have secured ultimate power.

There are glaring parallels between our current situation and the 1929 debacle.  Depressions http://en.wikipedia.org/wiki/Great_Depression are the products of the Currency Lords.  In the 1930s the money supply was restricted creating a dearth of buying power.  Today, the money supply is being dramatically increased and interest rates are being held at zero or less.  The house of cards will bring inflation followed by depression.

America’s armed forces are attempting to subdue the Muslim world which forbids usury and is less susceptible to the Currency Lords.  This strategy will destroy America and subdue Islam killing two major impediments to world government.

When governments wiggle out from under the dominion of the One True God (Lex Rex) and begins to see themselves in divine terms (Rex Lex) the world begins to march down a deadly road.  It has been marching down that road for several decades and we are beginning to see the mother of all empires in the distance.

The current attempt to subdue the entire continent under a single Rex Lex government is a deadly misadventure that the One True God is allowing because the citizens of the world have forsaken His dominion in favor of the dominion of men.

We are living under a tyrannical government because we have chosen to rule our own lives and to appoint human rulers who rule according to their evil proclivities.  When God’s people begin to humble themselves and seek His Will (obedience to His Law) instead of their own faulty reasoning we will be able to progress toward freedom.

Nations, rulers, leaders, pastors and citizens must attend to the Law of the Creator if we ever expect to see freedom again.

Housing: One Chart Says It All

Get a load of this chart from DataQuick’s National Home Sales Snapshot. It’ll tell you everything need to know about housing.

(Note: MSA=metropolitan statistical area)

As you can see, prices are flatlining or drifting lower while sales are sinking like a stone. That’s the whole ball of wax, isn’t it?

Sure, sales will increase in the spring (as they always do), but judging by the sharp dropoff in last year’s hottest markets, this could be the crappiest spring selling season since the crash.

Why?

Because prices are too high, rates are too high, “organic” demand is too weak, credit is too tight, and the pool of potential buyers has shrunk to the size of a walnut, that’s why.

The banks have reduced the percentage of distressed homes (foreclosures and short sales) on the market to roughly 11 percent from 59 percent in 2009. Fewer distressed homes mean higher prices, but higher prices mean fewer sales. It’s a trade-off. The banks get their money, but the market goes to hell. That’s how it works. According to most estimates, there are roughly 4.5 million homes in some stage of foreclosure. That means that –at the present pace–we should get through this Housing Depression a few weeks before Judgment Day. But don’t hold me to that.

Did you catch this gem on Bloomberg last week? It’s about the big private equity guys exiting the market. Take a look:

“Blackstone Group LP is slowing its purchases of houses to rent amid soaring prices after a buying binge made it the biggest U.S. single-family home landlord. Blackstone’s acquisition pace has declined 70 percent from its peak last year, when the private equity firm was spending more than $100 million a week on properties, said Jonathan Gray, global head of real estate for the New York-based firm…

“The institutional wave has passed,” Gray, who oversees almost $80 billion in property investments, said in a telephone interview. ‘It’s at a much lower level than it was 12 or 24 months ago.’

Private-equity firms, hedge funds, real estate investment trusts and other institutional investors have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years. They snapped up properties after prices fell as much as 35 percent from the 2006 peak…

American Homes 4 Rent and Colony American Homes, the second- and third-largest single-family landlords, also have been scaling back as bargains dry up…

“We’re going to have to probably slow down a little bit on our acquisition pace until we have a better view or actual certainty of the capital being available,” (Chief Executive Officer David ) Singelyn said.

Colony Financial Inc. (CLNY), a REIT that invests in Colony American Homes, slowed its funding for acquisitions last year to focus on improving operations, CEO Richard Saltzman said in a November conference call…

American Residential Properties Inc. (ARPI), a landlord with 6,000 homes, slowed acquisitions by almost half in its latest quarter ending Dec. 31. It invested $104 million in 633 homes compared with $204 million on 1,251 homes in the previous quarter, the Scottsdale, Arizona-based company said in a statement.” (Blackstone’s Home Buying Binge Ends as Prices Surge, Bloomberg)

Okay, so the speculators are getting out of housing. How’s that going to effect the market?

No one really knows yet, but it can’t be good, after all, all-cash deals amounted to nearly 50 percent of all homes sales in many of the hotter markets last year. That’s why prices went up even though the economy was still in the shitter, because the fatcats were loading up on cheap real estate. Now it looks like they’re headed for the hills. That’s NOT going to be good for sales.

Did you know that existing home sales have dropped for six months straight, dipping below trend to the same level they were at in 1998?

But how can that be, you ask, when everyone’s blabbing about the recovery? How can that be when the Fed has purchased more than $1.4 trillion in mortgage-backed securities (MBS) and rates are a measly 4.5%? How can that be prices have been climbing higher for more than a year?

Sales are dropping because millions of people are underwater on their mortgages and can’t afford to move. Millions more are stuck in their homes and aren’t paying anything at all. Millions more have student debt up to their eyeballs and will probably never own a home. And millions more still can’t find a job. That’s why home sales are plunging, because the economy stinks. It’s that simple. Sure, the market got a nice little bump from Bernanke’s $4 trillion liquidity-surge. Big whoop. Besides, that was 2012-2013. Today things are different. Today the Fed is winding down QE and there’s even talk of rate-hike. How do you think that’s going to impact sales?

Now get a load of this from Redfin:

“Home sales continued to be sluggish in February, and decreasing affordability is holding back would-be buyers, according to Redfin…. Slow sales have been largely attributed to low inventory for months, but many markets have now seen inventory rise while sales continue to fall. Several markets along the West Coast have seen sharp increases in inventory, yet home sales in the West fell 13.4 percent year over year, hitting their lowest point in five years in the first two months of 2014, while prices rose 19.1 percent year over year…

West Coast Sales Hit Lowest Point in Five Years

– In Redfin’s West Coast markets, sales fell 13.4% from February 2013, and hit a five-year low in the first two months of 2014. Sales fell most dramatically in Las Vegas (-22.7%), Sacramento (-21.8%) and Ventura (-20.8%). Across 19 markets, sales fell 10.3%, with markets east of the Rockies taking a less dramatic hit and a few even seeing modest increases.” (Redfin)

Did you catch that part about “inventory rising while sales continue to fall”?

For months, the media has been using the “low inventory” excuse for the rotten sales figures. Now they’ve moved onto “bad weather” to pull the wool over people’s eyes. Talk about a lame excuse. It’s been in the 70 and 80s in California for most of the winter and sales are down by a whopping 13 percent. Are potential buyers staying at home because they’re afraid of getting skin cancer? Is that it? (That’ll probably be the next excuse.)

So why ARE home sales tanking?

It’s because you can’t buy a house if you’re working graveyard at Freddie’s Burger Bar for $8.50 an hour. It’s because you can’t put together a 20% down-payment if you’re camped out on Mom’s sofa in the attic along with Uncle Murray’s trombone and your Dad’s photo collection of soup cans. It’s because you can’t qualify for a mortgage when 100 percent of your weekly paycheck goes to paying the VISA, filling the gas-tank, and buying a few groceries at Danny’s Discount Foodmart. It can’t be done.

That’s what’s really going on. That’s why the share of firsttime homebuyers is currently at its lowest level ever. That’s why purchase applications are at an 18-year low. That’s why the homeownership rate has slipped to levels not seen since 1995. And that’s why mortgage originations were down almost 60 percent year-over-year. It’s because the economy sucks. Everyone knows it.

Now take a look at one last chart. It’s by Logan Mohtashami at dshort.com. from an article titled,Mortgage Purchase Applications Running Out Of Time.

As you can see, there’s a pretty close connection between incomes (the green line) and the mortgage purchase applications index. (The people who can afford to buy homes.)

Surprised?

Of course not, because most people assume there’s a relationship between ‘what a person earns’ and his ‘ability to buy a home’. After all, we haven’t always lived in this bizarro credit-addled world where anyone who can sit upright in a chair and sign his name on the dotted line can buy a $450,000 rambler in Orchard Hills. That’s a fairly new development.

And that brings us to the point of this article, which is to show that all the monetary hocus pocus has achieved nothing. The Fed’s Koolaid infusions have been a dead-loss. The market is still flat on its back. Kaput. Which shows, that if you want to fix housing, you have to fix the economy. And if you want to fix the economy; you have to put people back to work and pay them a fair wage. It’s that simple.

So why can’t anyone in Washington figure it out?

(Note: As this article was going to press, the latest “existing home sales” data was released.) According to USA Today:

“Existing home sales slowed again in February, falling to the lowest pace in 19 months.”

So February was even slower than the coldest month of the year, January?

Unbelievable.

Foreclosure Filings Jump As Investors Eye Exits

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” – John Maynard Keynes, The General Theory of Employment, Interest and Money

It’s too bad Keynes isn’t around today to see how the toxic combo of financial engineering, central bank liquidity and fraud have transformed the world’s biggest economy into a hobbled, crisis-prone invalid that’s unable to grow without giant doses of zero-rate heroin and mega-leverage crack-cocaine. This is exactly what the British economist warned about more than half a century ago in his magnum opus, “The General Theory…”, that you can’t build a vital, prosperous economy on the ripoff, Ponzi scams of Wall Street charlatans, mountebanks and swindlers. It can’t be done. And, yet– here we are again– in the middle of another historic asset-price bubble conceived and engineered by the bubbleheaded crackpots at the Federal Reserve. Go figure?

Just take a look at housing, which is at the end of an astonishing 18-month run that was entirely precipitated by what?

Higher wages?

Nope.

Lower unemployment?

Wrong again.

Consumer confidence, bigger incomes, credit expansion, growing revenues, pent-up demand?

No, no, no, no and no. Economic fundamentals played no part in the so called housing rebound. In fact–as everyone knows–the economy stinks as bad today as it did 4 years ago when the government number-crunchers announced the end of the recession. The reason prices have been rising is because of the Fed’s loosy-goosey monetary policy (fake rates and QE), inventory suppression, bogus gov mortgage modification programs, and unprecedented speculation. (mainly Private Equity and investors groups) Those are the four legs of the stool propping up housing. Only now it looks like a couple of those legs are in the process of being sawed off which is going to put downward pressure on sales and prices. Take a look at this from DS News:

“A majority of experts surveyed by Zillow and Pulsenomics expect large-scale investors will pull out of the housing market in the next few years…

Out of 110 economists, real estate experts, and investment strategists surveyed in Zillow’s latest Home Value Index, 57 percent said they think institutional investors will work to sell the majority of homes in their portfolios “in the next three to five years.” These investors are largely credited with propping up housing during its recession, helping to keep sales volumes from plummeting too far.

While their withdrawal will most certainly affect today’s still-fragile market—79 percent of those surveyed said the impact would be “significant or somewhat significant” should investor activity curtail this year.”
Experts Predict Level Playing Field as Investors Withdraw, DS News

This is what we were afraid of from the very beginning, that the big PE firms would pack-it-in and move on once they’d made a killing, which they have, since prices soared 12 percent in one year. Now they want to get out while they getting is good, which means that–in some of the hotter markets where investors represented upwards of 50 percent of all purchases–there will have to be a new source of demand. Unfortunately, the demand for housing has never been weaker.

Sales are down, purchase applications are down, and the country’s homeownership rate has slipped to levels not seen since 1995, 18 years ago. The Fed’s $1 trillion purchase of mortgage backed securities (MBS) and zero rates have done nothing to stimulate “organic” consumer demand. Zilch. No “trickle down” at all. All the policy has done is generate a temporary surge of speculation that’s distorted prices and created conditions for another big bust. Get a load of this article from Housing Perspectives:

“Although household growth is the major driver of housing demand, getting an accurate picture of recent trends in this measure is difficult…In its recent release, the HVS reported annual household growth of just 448,800 in 2013. This represents a 48 percent drop in household growth relative to that from 2012 and marked the lowest annual household growth measure since 2008, in the depths of the Great Recession (Figure 1).

Repeat: “…a 48 percent drop in household growth relative to that from 2012 and marked the lowest annual household growth measure since 2008, in the depths of the Great Recession.”

Do you really think there are enough firsttime homebuyers in out there in Mortgageland to fill that gap?

In your dreams! Keep in mind, that a lot of firsttime homebuyers are collage grads who want to start a family and put down roots. Regrettably, nearly half of those potential buyers have been scrubbed from the list due to their burgeoning student loans which now exceed $1 trillion. These kids will probably never own a home, let-alone have a positive impact on sales in 2014. Ain’t gonna happen.

Maybe this is why the banks are suddenly speeding up their foreclosure filings, because they want to offload more of their distressed inventory before prices fall. Is that it? Check out this article on Housingwire:

“Monthly foreclosure filings — including default notices, scheduled auctions and bank repossessions — reversed course and increased 8% to 124,419 in January from December, according to the latest report from RealtyTrac.

This marks the 40th consecutive month where foreclosure activity declined on an annual basis, with filings down 18% from January…

As a whole, 57,259 U.S. properties started the foreclosure process for the first time in January, rising 10% from December…

…this month’s foreclosure starts increased from a year ago in 22 states, including Maryland (up 126%), Connecticut (up 82%), New Jersey (up 79%), California (up 57%), and Pennsylvania (up 39%).

Scheduled foreclosure auctions jumped 13% in January compared to the previous month.”, Housingwire

Like most articles on housing, you have to sift through the bullshit to figure out what’s really going on, but it’s worth the effort. The banks have been dragging their feet for 40 months now, slowing down the foreclosure process (and adding to the shadow supply of distressed homes.) in order to push up prices hoping to ignite another boom. Now–after 3 and a half years of blatant collusion–they’ve done a 180 and started speeding up foreclosures. Why?

It’s because they agree with the above-mentioned “110 economists, real estate experts, and investment strategists” who think that “institutional investors” are going to call-it-quits and move on to greener pastures. That’s going to push down prices, which means they’re going to lose money. So they want to get ahead of the curve and dump more houses on the market before the stampede. That way, they lose less money.

Keep in mind, the banks are up-to-their-eyeballs in distressed inventory. Even conservative estimates of shadow backlog puts the figure of 90-day delinquent or worse, above 3 million homes. But if you review the gloomier prognostications, the sum could easily exceed 6 million homes, enough to suck the entire bleeding banking system into a black hole of insolvency. There was an interesting article on the topic in Bloomberg last week. It seems that, “bond king” Jeffrey Gundlach has been warning mortgage-backed security purchasers that they should to pay more attention to underlying collateral in MBSs (vacant homes, that is) which have been “rotting away” for “six years” or more. Here’s a clip from the article:

“The housing market is softer than people think,” Mr. Gundlach said, pointing to a slowdown in mortgage refinancing, shares of homebuilders that have dropped 13% since reaching a high in May, and the time it’s taking to liquidate defaulted loans…

About 32% of seriously delinquent borrowers, those at least 90 days late, haven’t made a payment in more than four years, up 7% from the beginning of 2012, according to Fitch analyst Sean Nelson.

“These timelines could still increase for another year or so,” Mr. Nelson said, leading to even higher losses because of added legal and tax costs, and a greater potential for properties to deteriorate.”
Gundlach Counting Rotting Homes Makes Subprime Bear, Bloomberg

Let me get this straight: The number of “seriously delinquent borrowers” has actually gone up in the last year? Not only that, but many of these people “haven’t made a payment in more than four years”?

That’s a mighty fine recovery you got there, Mr. Bernanke. Sheesh.

Keep in mind, the backlog of unwanted homes could be a lot bigger than most people think. Way bigger. I was reading an article by Keith Jurow the other day, (“The Coming Mortgage Delinquency Disaster”, Keith Jurow, dshort.com) that paints a pretty grim picture of what is really going on behind the faux inventory numbers. Jurow–who has done extensive research on pre-foreclosure notice filings in New York state– says: “The number of monthly foreclosure filings in Suffolk County on Long Island …(were) more than 180,000 (while) fewer than 1,000 foreclosure filings had been served each month in (the last 4 years). By this calculation, Jurow figures that there should have been 1,192,000 foreclosures in New York state while the actual percentage of homes that have been repossessed remains in the single digits. (Read the whole article here.)

Chew on that for a minute. So, that’s a total of 180,000 homeowners who would have faced foreclosure under normal conditions, while less than 48,000 have actually been foreclosed. That’s 132,000 fewer foreclosures than there should have been IN JUST ONE COUNTY IN ONE STATE ALONE.”

The reason the prodigious shadow stockpile continues to balloon is quite simple, as Jurow points out in his piece: “Servicers do not foreclose on seriously delinquent borrowers throughout the entire NYC metro area. Completed foreclosures have actually declined rather dramatically throughout the nation in the past two years. The difference is that in the NYC metro, the servicers have not been foreclosing since the spring of 2009.”

So, there you have it; the banks haven’t been foreclosing because it hasn’t been in their interest to foreclose. Foreclosure sales push down prices which batters balance sheets and scares shareholders. Who wants that? So the game goes on. Only now, the dynamic is changing. Skittish investors are eyeing the exits, QE is winding down, and housing prices have peaked. The recovery has reached its zenith, which is why the bankers want get off on the top floor before the elevator begins its bumpy descent.

People who are thinking about buying a house in the near future, should watch developments in the market closely and proceed with extreme caution. No one wants to get burned in another bank swindle.

Who Else Is Paying For Their Endless War?

Let’s think about all those trillions of dollars that have been constantly pouring into war profiteers’ pockets ever since they invented Vietnam.  All those trillions must have come from somewhere.  Of course we all know that some of them came from the Federal Reserve where they print Monopoly money like crazy.  And, ironically, some of them have also come from multiple humungous loans from China.  Plus some of that money also found its way into the pockets of War Street at approximately the same time that “all the gold in Fort Knox” mysteriously disappeared.  And a few trillion also seems to have just materialized out of thin air — as if there was some ethereal war-profiteer fairy out there happily waving her magic wand.  But a lot of this destructive blood-money also came out of the pockets of us American taxpayers.  Trillions of dollars.  From you and me.

All too many of us hard-working Americans have been forced to gird up our loins and go without so that war profiteers can afford to live like kings, buy multiple yachts, drink Veuve Clicquot champagne and smoke Cuban cigars.

You and I have gone without jobs, schools, roads, police, fire departments, hospitals, etc. in order to pay handsomely for War Street’s right to kill babies and Live Large.

And, apparently, we are also being forced to live without the high-quality court system that we here in California had grown accustomed to.  How do I know this?  Because the Berkeley-Albany Bar Association just told me so!

At a recent luncheon meeting of BABA at the famed Berkeley City Club (designed by Julia Morgan herself) and over roast chicken, fruit salad and pie, a judge from the Alameda County Superior Court gave us a talk on the struggles that Alameda County is going through just to keep its court system working and its courthouse doors open these days.

“One billion dollars was lost in the budget last year,” the speaker told us.  “This is the toughest time financially in the history of this court.  We have never has to worry about money before — but now we worry about money all of the time.  It is very difficult to juggle to keep all of our programs alive.”  

“For instance, there have been 26 furlough days this year, where court employees didn’t get paid.  Courthouses are closed.  We used to have 72 judges and nine commissioners.  Now there are 18 vacancies this year.  We went from 940 employees to 720 employees.  We need 104 more just to operate.  There used to be seven civil court locations.  Now there are only two.  Four family courts have been reduced to one family court.  Four probate locations have been reduced to one.”  Heaven forbid that you should have to die and your ghost be forced to stand in line for hours at probate court.

“And if you get a traffic ticket anywhere in the county, you will have to drive all the way down to Fremont to contest it.  People stand in line for blocks at 5 am to get their tickets handled — and may still have to come back.  And the only reason Alameda County is barely keeping its head above water right now is because we have so many employees who are dedicated to bringing access to justice for all.  Sacramento County, for instance, doesn’t even have a civil filing office bull pen.  You just leave your unfiled summonses, pleadings and other documents in a drop-box.  Some counties have over 5000 unfiled documents right now.”

And where is the money from all those unpaid salaries going?  As far as I can tell, it is going into the pockets of tax-dodging corporate welfare queens and heartless and immoral war profiteers.  Christmas is coming up.  Would Jesus approve of all this random bloodshed and not-random greed?  Can you actually imagine Him saying, “I am Jesus and I approve this message.”  No way!

“Then there is the problem of criminal realignment.  30,000 prisoners have been released but next year there will be no money for their realignment — so more petty thefts will occur.  This will be very interesting to see.”  In other words, 30,00 prisoners will get out of jail with only bus fare and the clothes on their backs.

And also court electronic data systems have suffered.  “In some smaller counties, the filing system consists of putting papers in a box.  And our county no longer has the personnel to support inter-court filing of documents either.”  So you have to go to one specific court if you want to file a complaint or a probate document or a traffic ticket protest or an unlawful detainer.

And speaking of unlawful detainers (that’s where people who don’t pay their rent get invited to court by their landlord), the California court system has been flooded with them.  “There are so many banks with foreclosures.  These are our priority cases.  And 95% of them are getting settled because judges from other departments volunteer to help out and get these cases heard — because where else are people being threatend with foreclosure evictions going to go if they lose their homes?”

PS:  At its next monthly luncheon meeting, BABA asked a federal judge to speak — only he talked about an excess of money in America instead of a dearth of it, and how there have been whole tornadoes and hurricanes of money, flooding down on the USA like hailstorms ever since Citizens’ United took effect.

“And there is the additional problem of having individuals with unlimited personal bank accounts now running for office,” said the judge.  “When all this money flows into the election system, only wealthy people are elected.”  And why shouldn’t rich people invest in buying elections?  For every dollar a huge corporation or war profiteer spends on buying an election, he gets a 5000% return in pork-barrel dollars sent his way.

“Swing states are already saturated with money on the presidential-campaign level,” and so any more money being poured into those campaigns will have decreasing effectiveness.  “But large sums of money have an overwhelming effect on local elections.  But even though voters aren’t stupid, even when being constantly  bombarded with expensive ads, fair elections are still impossible under the current system,” said the judge as I happily ate roast beef, baby spinach and cheesecake.

“We in America have a very narrow view of what constitutes corruption.”  It’s not corrupt to buy an election any more — just as long as you use the new Supreme Court guidelines or have a friend at Diebold.  You can’t just slip a poll-worker a fin any more.  That’s corrupt.  You gotta be new-school about it.  

“Chief Justice Roberts stated that, ‘The Supreme Court doesn’t make the laws.  We just call balls and strikes’.  That is wrong.”  Especially when the current Supreme Court continuously calls out “strike!” even after a batter has obviously hit a home run.  
PPS:  “So, Jane.  What’s your moral here?”  The moral here is that we need to protect the integrity of our court system at any cost — even if it means that a few more war profiteers have to go without one of their yachts.  And also that I love all those Berkeley-Albany Bar Association luncheons.

6 Key Ways To Survive A Personal Economic Collapse

With all that is being written about the national economic collapse, people seem to be waiting for some huge event.

However, for many North Americans, the collapse is here. This isn’t relegated to only lower income neighborhoods. As an article from a Cincinnati new station stated, “Hunger doesn’t know a zip code.”

For many people who were formerly financially comfortable, the economic collapse has already happened in the form of a job loss, hours that have been cut back due to Obamacare requirements for employers, an exorbitant medical bill or other crushing debt, or simply an inflation rate that has outstripped your pay increases. Despite all of the warnings, many people are still going to be absolutely blindsided.

For many families, personal finances have reached a catastrophic level – they are left to make terrible choices:

• Which utility can I live without?
• Should I walk away from my mortgage?
• Should I eat something so I can work harder or should I skip meals so my kids have food?
• Should I use the grocery money to take my child to the doctor or should I wait and hope he/she improves without medical intervention?
• Do I risk the IRS-enforced penalties by forgoing enrollment in Obamacare or should I skip that whole grocery shopping thing so I can pay the monthly premiums and enormous deductibles in order to stay in the government’s good graces?

These are the kind of decisions that people across the nation are grappling with every day.

I’m talking about good people, hardworking men and women who have always been employed and paid their bills. A personal financial crisis does not just strike those stereotypical “welfare queens” with the long manicured nails, Gucci knock-off purse, and a grocery cart full of EBT-funded lobster.

I’m talking about the person next door, who seems to have it all together. I’m talking about that quiet family that sits two rows in front of you at church. I’m talking about that two-income family with two children and a car in the driveway that takes them to work and school 5 days a week. I’m talking about people just like you and me.

What is a personal economic collapse?

A personal economic collapse is a little different than the major crises you see all over Europe right now, where huge segments of the population can’t feed their children or stay employed. It is a crisis that just hits your family due to a given set of circumstances. (In actuality North Americans are on the brink of the kind of collapse that is occurring in Europe, but because of easy access to credit and a buy-now, pay-later society, many of us still have the appearance of prosperity.)

Here are some signs that you may be in the midst of a personal economic collapse:

• You can only afford to pay the minimum payment on most of your bills.
• The same dollar amount you used to spend on groceries doesn’t buy enough food to feed your family for the week.
• You can’t afford to go to the doctor when you’re sick.
• You are taking dangerous steps to “stretch” needed medications because you can’t afford the prescriptions.
• Your utility bills are past due and your power is in danger of being cut off.
• You skip meals in order to save money or to have enough food for your kids.
• You’ve lost your job or had your hours cut.
• You have lost property due to foreclosure or repossession (such as your home or your vehicle).

Surviving the crisis

Times are tough but you can survive this.

1.) First you have to see exactly where you are.

It’s time for a brutally honest assessment of your finances. If you use your debit card or credit card for most expenditures, you’ll easily be able to see what you’re spending and bringing in.

Print off your bank account statements for the past 2 months. On a piece of paper, track where your money is going. List the following

• Rent/Mortgage
• Utilities
• Car payments
• Vehicle operating expenses (fuel, repairs)
• Insurances
• Credit card and other debt payments
• Telephone/Cell phone
• Cable/Satellite
• Internet
• Extracurricular activities for the kids
• Extracurricular activities for the adults
• Dining out
• Groceries
• School expenses
• Clothing
• Recreational spending
• Gifts
• Miscellaneous (anything that doesn’t fall into the above categories gets its own category or goes here)

Don’t say to yourself, “Well, I usually don’t spend $400 on clothing so that isn’t realistic.” If you spent it, then it’s realistic. You are averaging together two months, which should account for those less common expenses. Brutal honesty isn’t fun, but it’s vital for this exercise.

So . . . what do you see when you look at your piece of paper with your average monthly expenditures for the past two months? Are there any surprises? Did you actually realize how much you’ve been spending? Most of us will immediately see places that we can trim the budget. Those $1-$5 purchases can really add up. Reining them in may just allow you to take care of an important need that you thought you could not meet.

It can’t continue like this. The economy will not withstand it. Step one is to see where you can cut things out right now from the above expenditures. Can you reduce your grocery bill? Slash meals out? Budget more carefully for gift-giving and school clothes?

2.) Rethink necessities.

If your finances are out of control, the best possible reality check is a stark look at what necessities really are. It is not necessary to life to have an iPhone, a vehicle in both stalls of your two-car garage, or for your children to all have separate bedrooms. People in Southern and Eastern Europe right now will tell you, as they scramble for food, basic over-the-counter medications like aspirin, and shelter, that necessities are those things essential to life:

• Water
• Food (and the ability to cook it)
• Medicine and medical supplies
• Basic hygiene supplies
• Shelter (including sanitation, lights, heat)
• Simple tools
• Seeds
• Defense items

Absolutely everything above those basic necessities is a luxury.

So, by this definition, what luxuries do you have?

3.) Reduce your monthly output

Reduce your monthly payments by cutting frivolous expenses. Look at every single monthly payment that comes out of your bank account and slash relentlessly. Consider cutting the following:

• Cable
• Cell phones
• Home phones
• Gym memberships
• Restaurant meals
• Unnecessary driving
• Entertainment such as trips to the movies, the skating rink, or the mall

4.) Waste not, want not.

We live in a disposable society. Food comes in throw-away containers. People replace things instead of repairing them. If you throw out more than a couple of bags of garbage each week, that’s a very good sign that you may be wasting resources.

Before throwing anything away, pause and think about how it might be able to be reused.

Food: Many times small amounts of leftovers can be recycled into a brand new meal. Meat bones can be used to make broth or stock. Small amounts of veggies or grains can be frozen and added to a future soup or casserole. Leftovers can be frozen in meal-sized portions to take to work for a brown-bag lunch. (Learn more about repurposing leftovers HERE.)

Clothing: Clothing that is torn or damaged can often be repaired with only rudimentary sewing skills. If it has been outgrown or cannot be repaired, often the fabric or yarn can be reused for other purposes, from cleaning rags to fashionable accessories like scarves and headbands, or home items like throw pillows, potholders or rag rugs. When all else fails, the fabric can be used for cleaning rags or patches to repair other items. Keep jars full of buttons, elastic, and other notions that can easily be removed before you throw a clothing item away or relegate it to the rag bag.

Electronics: Obviously, initially you should attempt to repair (or have repaired) electronic items that are not working. If this is not feasible, are there components of the item that can be reused, either now or in the future? What about hardware such as screws or fasteners?

Containers: Most food comes in a container of some sort. Before throwing the container away, consider whether or not it might be useful. Glass jars, plastic tubs, and plastic bags can often be reused to store food in your refrigerator or to contain food in brown bag lunches. Clean aluminum cans can hold all manner of items, from hardware and tools in a workshop to sewing and craft supplies. Use your imagination.

5.) Take control of your food budget.

The price of food is skyrocketing. Who hasn’t been to the grocery store recently and been shocked at the high price of that cart full of groceries or at the mysterious shrinking food packages that are the same price as yesterday’s larger ones?

Stockpile: Create a stockpile of nutritious, healthy staples at today’s prices to enjoy when the cost goes even higher tomorrow. (Learn how to create a frugal food stockpile HERE.)

Preserve: Learn to preserve food yourself when you come across a windfall. Pressure canning,waterbath canning, freezing, and dehydrating can allow you to take advantage of great sales or end-of-season scores.

Eat less: This suggestion isn’t for everyone, but many of us could stand to shed a few pounds. Perhaps now would be a good time to cut back a little and shrink both your waistline and your weekly food bill. Lots of people eat for the sheer entertainment of it or out of habit. Next time you’re watching TV, grab some mending or a crossword puzzle instead of a bag of potato chips. Dish out slightly smaller servings at dinnertime to leave enough to stretch the leftovers for a brown bag meal the next day.

Drink water: Skip the beverages and drink water instead. At less than $1 per gallon for purchased water you simply can’t beat the price. It’s better for you, also, than sugary drinks. If you are lucky enough to have well water or access to spring water, your drinks don’t have to cost you a penny.
Focus on nutrition instead of convenience: Buy the best quality of food you can, and skip the processed, nutritionless convenience foods.

Grow your own. In the summer, grow the biggest garden you can. In the winter, or if you are an apartment dweller, put some sprouts and greens in a sunny windowsill to add some fresh produce for pennies.

6.) Reduce your dependence on utilities.

Energy rates are skyrocketing. As the prices begin to rise, more and more people will be unable to pay their bills and eventually their power will be shut off. Check your bill each month and as prices increase, use less power. Try some of these ideas to reduce your reliance and drop your bills.

• Hand wash your clothing
• Hang clothes to dry
• Cook on a woodstove or outdoor grill
• Can foods to preserve them instead of relying on a large chest freezer
• Turn the heat down a few degrees and use non-grid methods to keep warm
• Use rain barrels to collect water
• Direct the gray water from your washing machines to reservoirs
• Turn off the lights and open the blinds
• Use solar lighting whenever possible

How do you intend to weather the storm?

There are bleak days ahead. Have you planned for this? What strategies do you intend to use to weather the financial crisis that is coming for all of us? What suggestions do you have for families who are undergoing their own economic collapses? Please post questions and ideas in the comments section below.

Source: The Organic Prepper

The Foreclosure Meltdown Was Planned – A Whistle Blower Speaks Out

“The trade in derivatives, using home notes, was designed as a Ponzi scheme. Excel knew it. Cadwalader, Wickersham & Taft (CWT), knew it. My fellow junior associates laughed at me, senior associates got mad at me, and the senior partners ultimately asked me to resign or be fired when I wrote repeated lengthy memoranda explaining this out to them.” – Charles Lincoln, III, PH.D., Harvard, J.D., University of Chicago, School of Law

Who is Charles Lincoln, III?

In October, 1993, Charles Lincoln, III began work as an associate at Cadwalader, Wickersham & Taft (CWT). He had just completed a judicial clerkship for Kenneth L. Ryskamp, U. S. District Judge, Southern District of Florida. During his clerkship with Judge Ryskamp, Lincoln had planned, coordinated, and framed the jury questions for a very large securities fraud trial in Palm Beach against Alan B. Levan’s Florida-based BankAtlantic Bancorp and Subsidiary Bank Atlantic Financial Company (BAFCO), which were heavily involved in Florida Real Estate from 1952-2011.

What he was about to learn, and challenge, would change the course of his life, from one of privilege to destitution.

In many ways, Lincoln might have appeared exactly the kind of associate who could be expected to make partner rapidly. Ambitious, bright, and energetic, CWT hired him because he received top law school grades in Securities, Antitrust, and Banking Law, as well as for his clerkship experience in Securities & Banking cases in the post-S & L Collapse period in Florida. He had also been President of the Environmental Law Society at University of Chicago, School of Law.

In law school, he had become intrigued by the role of securities in establishing, maintaining, and shaping the global-elites of the 20th century. The complexities of hierarchical and socio-political structures had been his greatest interest in Anthropology & History at Harvard.

In his first month at CWT he turned in 393 billable hours wildly exceeding any expectations. First year associates are expected to bill at least 2000 hours per year, Lincoln managed to do this in less than six months. At Cadwalader, Lincoln aspired to a professional specialization in securities litigation, fraud, shareholder’s and directors’ relations, rights and obligations, general agency and relationships of fiduciary duty.

Lincoln had taken up law as a second career after a decade as a working archeologist in Mexico & Central America, during which time he wrote a doctoral dissertation “Ethnicity & Social Organization at Chichen Itza, Yucatan” at Harvard’s Peabody Museum. His dissertation resulted from a project he directed in his 20s, funded by the National Geographic Society, Harvard’s Peabody Museum of Archaeology & Ethnology, and private donors such as Doris Zemurray Stone and novelist James A. Michener.

As an archaeologist, Lincoln had become frustrated, acutely aware of problems mounting in the world, which originated in finance. Determined to use law creatively as a force for positive change, he enrolled at the University of Chicago, School of Law. At the school, he served as President of the Environmental Law Society (ELS), presiding on a year-long symposium at the Law School in 1990-1991, concerning oil spills in the immediate wake of the Exxon Valdez disaster of March 24, 1989.

Raised as the grandson, and effectively adopted son, of a wealthy petro-chemical engineer & military supplier in Highland Park, Dallas, Texas, Lincoln was not a stranger to the better addresses in New York. The welcome dinner held at the Waldorf Astoria for the twenty associates hired at the same time, of which he was one, did not impress him. Cadwalader, Wickersham, & Taft, though claiming to be the oldest, founded in 1792, the same year as the New York Stock Exchange, was by no means the largest.

Lincoln knew Cadwalader’s history and greatest claim to fame and power. This is its status as primary law firm to the Bank of New York (BNY), now BNY-Mellon, founded in 1784 by Alexander Hamilton, 8 years before Cadwalader opened its doors under a different name.

The long relationship between the oldest bank and the oldest Wall Street Law Firm include Cadwalader’s role in setting up BNY to be the very first law firm to be traded on the NYSE. Cadwalader’s historical policies have consistently, matched and supported those of the BNY and the thinking of Alexander Hamilton.

Cadwalader’s flagship office was then at 100 Maiden Lane, in New York 10038, close to the heart of the financial district in New York.

Having been hired on for Cadwalader’s litigation department, Lincoln encountered a department which was essentially inactive in 1993. The only the only active cases involved municipal defense to voting rights act cases in California.

Even the litigators, in 1993, were all working on one project, one particular project which was shrouded in great mystery and secrecy.

The Excel Mortgage Project

Instead of litigation, Lincoln along with all other first year associates, were temporarily to work with the “Structured Finance Department” on preparing the registration statement of Excel Mortgage. Lincoln’s role was to review and assess a series of some 1500 Arizona residential properties in relationship to state and federal environmental law and geographic issues, such as cultural resource management, and other points relating to the entire history and possible condition and liabilities of these properties.

The 1500 or so properties, subject of his study, were earmarked as assets being “deposited” into the Excel Mortgage Bond Fund, along with promissory notes originated by a number of creditors on homes conforming to a certain size and value profile, but having no other relationship. These were not part of the same communities, not part of a single development project, not built by a common builder, or anything else. This struck Lincoln as strange. Why “pool” all these unrelated properties together? And would be in the completed “pool?” Why was the Bank of New York underwriting this project?

Enter the Securitized Derivative

Excel Mortgage, a highly valued client of CWT was about to become part of history, doing something that had never been done before: registering a bond for sale to the public, which bond was based on pooled notes, a hybrid of debt and equity interests in and contingent claims to realty. This type of financial instrument had never before been sold to the public, though it had existed for about 25 years in the “private placement” market.

Lincoln was unwittingly participating in the first initial public offering (IPO) of a bond, a debt instrument, derived in part from promissory notes, ‘debts,’ and in part from contingent pledges of title, ‘secured equity,’ in residential real estate.

Securitized derivatives were being born at 100 Maiden Lane.

Bernard Madoff, who founded the NASDAQ when he was 33, was a prominent client of CWT, walking the floors of Cadwalader late at night.

The entire staff of CWT, underwritten by the Bank of New York, supporting Excel, were charged getting these new-fangled “derivative” instruments past examination by the Securities & Exchange Commission (SEC).

This was an arduous, and expensive task, necessitating a “lint-picking” review, before these ‘derivative instruments’ could be packaged under the name of Excel Mortgage and offered both on the NYSE and NASDAQ. An SEC Registration Statement is an application for Federal Blessings affirming investing in a certain stock, bond, or “other instrument or obligation” is a reasonable investment for an average investor to make.

Supposedly “sophisticated investors” can do whatever they want to do, so long as it’s not expressly fraudulent or otherwise illegal. But the average grandmother investing for her grandkids’ college needs Federal Protection. Like “Social Security”, the concept of “Security” in the “Securities and Exchange Commission” is essentially a matter of “Trust us, We’re the Government.”

SEC Registration Statements require, prior to sale of any debt or equity instrument to the public, disclosure of all a companies’ assets and liabilities along with the qualifications of its officers and directors, and more.

Nobody outside of the law firms who prepare such things and SEC staff, would ever read this, but preparing the registration would bring CWT millions of dollars.

Excel Mortgage, however, was not selling stock in itself as an enterprise or an entity: it was selling a pooled collection of utterly unrelated and unconnected and barely similar promissory notes with contingent interests in, and access to, equity ownership of real property owned by 1500 different people and subject to 1500 separate notes and mortgages.

1993 – Anomalies, and Questions, Emerge

Who was to supervise its operation after “Registration”? What coherence did this “enterprise” have ASIDE FROM the Registration Statement? Would anyone ever recognize it as a “business?” If so, how and why? Lincoln was puzzled and perplexed, and not satisfied with any of the answers he was getting.

The SEC did not appear to inquire into post-issuance management or maintenance of the pool of assets. Once “securitized” the notes would still be handled by individual originators or assigned to servicers. Lincoln asked “what was there left to be assigned or handled once the notes and mortgages were pooled?”

The SEC is charged with protecting small individuals and the corporate investor.

The SEC is expected to be involved in examining and making inquiries about a company’s claims for potential and predictions of earnings or profitability.

On what opinion or data would these be based for the Excel Mortgage Pool, since there weren’t any?

The opinions used were based on the “normal statistical performance of similarly credit rated and similarly valued mortgages in similar markets from studies of a group at MIT Sloan School of Management headed by a then no-name professor Frank J. Fabozzi. Fabozzi, with close ties to the Bank of New York, was also among the occasional Night walkers at Cadwalader.

The process of preparing an SEC registration statement is a gold-mine for lawyers inclined to highly detailed work. Such a process for registration can normally require Lincoln said, over a thousand individual revisions. The Excel Mortgage registration would be subject to over 2,000 revisions, but in all this there was still no attention given to claims of ownership, transfer of title, the laws of agency and fiduciary duty of managers, any of the concerns which normally plague the corporate world and frame the concern of SEC examiners and securities lawyers.

What’s In It for CWT?

The careers of young associates, and even older partners, at firms such as Cadwalader, Wickersham, & Taft, Chadbourne & Park, Sullivan & Cromwell, or Skadden, Arps, depend upon work measured in billable hours. Cadwalader had a “billing goal” of multiple millions of dollars for the Excel Mortgage registration project.

Lincoln recalls three relevant details:

First, the firm was never able to reach it’s own goal of billable hours by the time the project was complete.

Second, the firm sent constant “internal memoranda” by e-mail to all employees, down to the lowliest legal secretaries and paralegals, to work harder and BILL MORE HOURS. It was simply inconceivable that Cadwalader might have to refund any part of enormous retainer paid for the Excel Mortgage, SEC Registration Statement project. The money for this had all been advanced by BNY, who counted on Cadwalader to do the job which needed to be done.

Third, the practical purpose of any billable hours stood quite above and beyond any possibility of doubt or question. In fact, any and all billings, however described, so long as they were assigned to the Excel Mortgage Registration Statement Account, were welcomed.

Lincoln was therefore able to unleash his curiosity, delving late at night after hours into issues which ranged far, far afield from the environmental history, condition, and culturally or historically significant use or contents of the subject properties.

Despite some losses during the 2007-2008, CWT was in 1993-1994, and remains today, the top firm representing the creators and implementing the designs of “structure finance and derivative securitization” world wide. Lincoln wanted to understand what he was doing, and what he was involved in creating. The more he found out, the more troubled he became.

As an entry-level associate at Cadwalader Lincoln received his own office and secretary and paralegal. Little time was spent interacting with others in the office. A quick question might be asked but friends did not come quickly. Each associate knew what mattered was the hours billed, and friendly socialization was hard to itemize even on the Cadwalader charts. Hanging over the heads of all new associates was the goal of “making partner.”

As an anthropologist, Lincoln saw immediately the subculture of the law firm had its own standards, values, and mandates. The firm had high standards for dress which included ties which remained in place all day, regulations for tie clips or tie pins and cufflinks and belts and, of course, shoes, whether white or “normal.”

Standards for women included skirts below the knee and mandated the length for sleeves and the height of necklines and collars. Even the length of hair, for women, was described and outlined in the firm guide, although one paralegal from the litigation department was granted a special exemption, for cause. Known to and noted by everyone in the firm, for his ponytail and paisley shirts, the associate was hired from SDS in California as “our eyes and ears to the lower classes,” as the senior partners consistently and uniformly described him.

Lincoln, as an undergraduate, had twice been voted, “best dressed man on campus”, but the whole Cadwalader atmospheric ethos of bloodless conformity, as noted above, was for him one of stifling suffocation.

The anomalies which began to intrude on Lincoln’s consciousness during his late hours trying to understand the “entity” being sold almost as if it were a company or entity, without actually being one, became an obsession. At first, this lead only to more billable hours, but the trip down the rabbit hole became increasingly disconcerting.

All questions of real value or reasonable expectations, lead the inquirer to the Bank of New York’s Heart, ending any questions.

The Disconnect between Law and Derivatives

Lincoln’s law school classes, under the University of Chicago’s Andrew M. Rosenfield, William Landes, Geoffrey Parsons Miller, and Richard A. Posner, and from his further and ongoing research as a Law Clerk with Ryskamp and now at Cadwalader, had considered the question of real value and reasonable expectations.

Issuing and selling securities, debt or equity, takes place when a company, or group of people who have control over assets they planned to use to make money, or with which they were already doing something generally profitable, or wanted to raise new capital and/or liquidate their ownership and interests in an ongoing and successful venture.

This did not come close to describing what Bank of New York had underwritten for Cadwalader to prepare for Excel Mortgage.

This SEC Registration Statement gave birth to new type of “debt-equity-derivative debt instrument” which had none of the elements or characteristics of a traditional enterprise at all. It was PAPER MADE FROM PAPER, SECURED BY PAPER.

Indeed, the Excel Mortgage Bond, which was soon to be popped onto the market with an SEC certification of Federal conformity was a creation of the lawyers, by the lawyers, for the lawyers.

As one of the most senior associates, now firm Chairman, Christopher White explained to Lincoln when he asked him, “Who will own the interests in these notes once they are securitized?” He grinned boyishly from ear-to-ear and said, “we will, because everyone will have to pay us to tell them.”

Without any unifying manager or common owner for these properties, the pool of notes struck Lincoln as like nothing so much as “res nullius” in Ancient Roman Law—the legal category of “property belonging to no one”, e.g. virgin forests, wild beasts and undomesticated fur and game animals of every kind, the un-owned and un-ownable creatures of the deep.

Excel Mortgage was going to pool all these “derivative” real estate mortgage interests, whose only commonalities marking them as similar were the price, promissory note, range, size and “single-family home-residential” nature of the properties, and the credit or FICO scores of the owners.

Having “pooled” these “cherry picked” assets, Excel was going to create a strange creature without an owner until either default or foreclosure moved someone to homestead these unownable notes back to control and “ownership” again.

In essence, the concept was, “everything belongs to everyone in common” and “debt is not individual but collective.”No one owes his or her debt to any person, but everyone owes it to everyone to pay. This concept seemed, even to Lincoln in 1994, strangely reminiscent of Aldous Huxley’s “Brave New World.”

The Excel Mortgage Bond to be securitized reflected an artificial “derivative” interests in a non-coherent, uncontrolled mass of wealth, which could and would have to be tamed individually, just like hunting the wild game of the woods.

There would be only a pretense of relationship between the notes originated and the notes collected upon.

There was no one to oversee the transfers, no one to audit the exchanges of values; there were quite simply no responsible parties anymore than anyone can take charge of wheat chaff thrown into the wind or the by-products of a paper mill dumped into a river, yet these “derivative by-products” were being STRUCTURED into something said to have value.

Around 1500 or 2000 properties had been collected together and placed in a basket or pool. But no single plan of real estate development or construction or sales was involved, nor was any contemplated. Nothing joined these properties as a class. Most were not new, but merely resales.

Raising the Issues

Lincoln dug in further, producing and circulating to all his fellow associates and the senior partners at Cadwalader his own memoranda: lengthy studies and analysis on issues such as the fiduciary obligations in the Law of Agency.

Fiduciary responsibility of issuers of securities to purchasers, holder in due course doctrine, implied covenants of good faith and fair dealing between parties to a contract, privity of contract itself, and commercial paper doctrines such as endorsement and ownership as holder, and the comparative rights and priorities of “naked” holders vs. “perfected” holders.

As Lincoln’s months stretched out among the whirring circular brushes which polished the green and white marble floors of CWT, he spent more-and-more time with the partners of real estate department, which seemed to understand his worries and concerns better than others, certainly better than the Fourth or Fifth year associate in charge of coordinating the Excel Mortgage Project who kept explaining “this is my road to partner; if I can finish this and make it happen, I won’t have to worry about how to live on these lousy six figure salaries anymore, I’ll finally be making millions, and that’s why we all came here, isn’t it?”

Questions Find Answers

Since it was not why Lincoln had arrived at 100 Maiden Lane this presented a dead end for him.

The real estate connection, and an aborted plan to open a CWT office in California, permitted him to compare the Excel Mortgage project with another, more traditional real estate development Sacramento, California.

An extremely prominent CWT client based in Los Angeles was complaining and encountering major problems because of a parallel but separate and distinct set of misapplications of the law of agency, fiduciary duty, and obligation, also originating from the same historical “Cadwalader Memorandum” on transfer of interests which had triggered the explosion of derivative innovations in the securities realm.

With CWT acting as counsel for an old and distinguished California family and collection of enterprises, the Ahmansons, tracts totaling several dozen suburban “townships” in El Dorado, Placer, Sacramento, Sutter, Yolo, and Yuba Counties had sold by the Ahmanson family to a Japanese firm and retained an “Ahmanson Construction Group.”

The intention was to build a resort in the area for the benefit of the Japanese owners acting as “construction agents.”

Normally construction is performed pursuant to agreements with “independent contractors” who make estimates but are not obligated to continue working if their estimated budgets prove insufficient to complete a project. The Japanese investors were seeking to securitize all the sales in this immense, almost unimaginable project.

Involved, were the Bank of New York, with Cadwalader’s long-time California based H.F. Ahmanson holding Company, parent company both to Ahmanson Construction and the since failed Home Savings of America Bank.

The “construction agency relationship” which Cadwalader had created imposed devastating duties and obligations on Ahmanson. As agents, Ahmanson Construction was obligated to use its own money to achieve the ends of the principal, in this case the Japanese company which had purchased the real estate but woefully underfunded the construction of the vast tracts of homes. Ahmanson could not make a profit or even break even. In effect, they had become slaves to the Japanese and might never be compensated.

Lincoln, having reviewed the facts, pointed out to Stephen Meyer, Richard C. Field, and John McDermott, the partners most closely associated with Ahmanson, that by not only failing to protect Ahmanson, but in fact, selling them into quasi-slavery as agents under a contract without guarantees of adequate funding to execute agency obligations, the firm had made a ghastly mistake amounting to nothing less than legal malpractice. This was a breach of fiduciary duty in and of itself.

Lincoln was told, “This firm has a policy of doing no wrong. Therefore, you are wrong. The firm is never wrong. You should reevaluate your conclusions.”

This happened in 1994, only two and a half years after the sensational October 1991 confirmation hearings for Justice Clarence Thomas. The Paula Jones allegations against the new President Clinton, were beginning. “Sexual harassment” became a great boogie-man haunting law firms all over America.

Consequences are Clarified

After reading his memorandum on the Ahmanson project, these senior partners asked Lincoln to leave the room.

When they called Lincoln back in, they told him, very solemnly,

“you know you need to keep your nose clean around here. We have all received reports that you have taken your secretary Alex to lunch more than once and what’s more you gave Holly, the Senior Secretary in recruitment & personnel, flowers for her birthday and Valentines Day. So just remember: never ever do anything, anything at all, that you would not want to see published on the front page of the New York Times. Anything here can be, you know, and anything will be, at the drop of a pin, because everyone is very sensitive to questions of decorum these days, and, after all, you are a married man.”

Lincoln reports he did not even bother to ask how they happened to think of this only after a three hour meeting concerning the Ahmanson contract of construction agency, when he had never heard about any concerns of this nature before.

At work, Lincoln continued to pile up daunting billable hours doing research on a growing list of issues, each going back to the dissection of the elements of value, which were being “deposited” into the derivative pool. He was determined to understand what was really happening. Why were they doing this?

Confirming what Christopher White had told him before, a Properties Department attorney named Stephen Meyer, advised Lincoln to keep his mouth shut, this happening shortly before Lincoln was asked to resign. Both men had made it clear, in nearly the same words, that Lincoln should be careful about questioning or criticizing firm’s plan for transforming the economy of the Western World, “this is how things are being done these days. We do because we get to charge everybody. This is how the whole world will be managed by 2020, we have a plan.”

As Lincoln was to discover, there was a plan. A book called “Cadwalader 2020” contained a comprehensive manifesto of how the world would be changed by the year 2020. Unsecuritized individual debt would no longer exist.

During Lincoln’s entire time at CWT, the firm maintained a high level of security over the Excel Mortgage work, work which finally involved everyone at the firm. All who worked at the firm had to submit to a frisk on leaving work. No papers or laptop computers or diskettes, this still the era of 3.5 inch diskettes, were to be taken home or removed from the premises, and no external e-mail was allowed connecting to firm e-mail. All firm e-mail was in fact carefully monitored.

To entirely use up the retainer on the Excel work, Lincoln and all the other first and second year associates found themselves in a large conference room supervised by some of the partners pasting labels on files.

The partners had to review the signature pages before officers of Excel would sign the documents, and the associates were there to prepare and affix signature tabs, saying “sign here, Mr. So-and-So, on to the final pages of Statement before final submission.

Lincoln said it seemed odd to use attorney billable time to prepare, double-check, and verify signature tabs, even on a super important document until you considered the driving desire of CWT to maximize their billable hours.

Billing rates were $150.00 an hour for new associates, $60 – 80 an hour for paralegals, and $40 – 50 an hour for secretaries. On being told that he had failed to bill his secretary’s and paralegals’ time for bringing him after hours meals and snacks, Lincoln asked the senior associate in charge of organizing the Excel Mortgage Project how much the firm billed out for the hourly operators of the automated circular marble floor polishers which whirred seemingly ceaselessly day and night throughout the offices. Epstein just glared at Lincoln silently. Those hours were not billable.

CWT was determined to drain every possible penny from the work done for Excel Mortgage, and did. This appeared to be consistent with the Bank of New York’s plan in financing the project in the first place.

As Lincoln’s research continued, the business plan being followed by Excel Mortgage also emerged, in all of its complexity and disturbing detail. The company had seen the potential to redefine a debt, recreating it as equity, and equity can be used as collateral for originating and extending more debt, which can be hybridized with contingent interests in an ever expanding pyramid of debt, doubled into equity, doubled into debt…. And again, this was the CWT-BNY plan for perpetual inflation.

There was quite simply no plan other than to pool and securitize the notes to issue X millions of dollars in bonds. These would be sold on the major stock exchanges, generating equity. The equity would be used to extend or originate more money to the borrowing public who then “sell” or give their new notes. This then generates more equity through debt, a constantly pooling and production of derivatives then sell to continue the cycle.

Ponzi Scheme Emerges

After his first month of painful research, it took Charles an additional 6 weeks to figure out and map the nature of the pyramid, another 6 weeks to check his work and accept the results, and then he started writing memoranda, one after the other, each one critiqued by other associates or the senior partners and getting longer and longer.

His first memorandum was entitled “The Law of Fiduciary Duty in Agency.”

His second was “Transfer and acceptance of instruments by endorsement and receipt: who is responsible?”

There were at least four others, the longest of which was over 500 pages.

Lincoln’s conclusion was breathtakingly simple: “merger of identities destroys the identities merged, there is no individual liability for debt in the absence of privity of contract, and no privity of contract without individual identity of contracting parties.”

It was clear from the elated attitude of the Senior Partners that designing and implementing the Excel Registration Statement, as the first IPO of its kind, stood in their minds as their most important contribution to western civilization, as envisioned through the world of “Cadwalader 2020”.

Finally, Lincoln was asked to resign, about six weeks shy of his first anniversary. His questions and concerns had not ended and the Partners were becoming hostile.

Leaving with a not quite “Golden Parachute” consisting of a $50,000 severance payment, he had vocally identified a series of challenges which the management of Cadwalader had no intention of addressing. It was now clear to Lincoln these were not any kind of mistake or oversight.

Lincoln’s final memorandum at Cadwalader opined, perhaps overestimating general knowledge of the law, “no mortgage note included in the Excel mortgage pool will ever be lawfully collected in the event of borrower/credit-debtor default, because the pooling of identities obliterates individual obligations and rights, and discrete transactions lie at the foundation of our system of contract and debt.”

At the meeting where he finally resigned, the Senior partners, perhaps understanding the American public better than Lincoln, said to him, “Who is ever going to notice lack of privity of contract besides you? They teach you all those archaic “Elements of Law” at the University of Chicago, we know all about it, but nobody does business that way anymore. The economy of the future is now, nobody cares about endorsements and signatures anymore, it’s all going to be electronic, anyhow.”

Lincoln responded, “well, then, you’re going to have to change the law.” And the masters of the CWT universe said, “Don’t let the door hit you on your way out, we write the law, we interpret the law, we tell everyone in America what the law means, that’s what we do.

The Price Paid

The next nineteen years of Lincoln’s life have been filled with constant attacks from the legal establishment from directions and in ways which exacted a hideous toll on him and those he loves. He has repeatedly learned what it is to be hated, rejected, despised, a man of sorrows and acquainted with grief. In those two decades he lost his wife, his birth family, and his son, all his inherited property, including several homes and a gigantic private library and personal collections of fossils, numismatic, painted, and sculptural art, his law licenses in three states and even his own not-at-all-insubstantial investments.

Lincoln notes that, after what can only be called a blessed beginning in life with his loving grandparents supporting him, an exceptional education, and basically a privileged and charmed first three decades of life, his consistent pattern of loss only began when he was 33-34 years with his entry into private law practice at Cadwalader, in what, quite simply should have been “the best of all possible worlds.”

Left with nothing, he refused to quit.

All of these events began after those critical months, less than a year, that he had spent at Cadwalader, Wickersham, & Taft.

As historical events unfolded, parallel to his own life, his worst projections regarding the impact of the new market in mortgage derivatives proved to be frighteningly accurate. Lincoln began to research how the runaway Ponzi Scheme could be halted, and reversed.

A Solution

According to Lincoln, for the past ten years, his life has been entirely shaped by the mortgage crisis and its origin in securitization. The question which, he says, drove him is how private property and integrity of contract could restored in the face of the “New World Order” Plan. This is the plan Lincoln first became aware from the internal firm booklet “Cadwalader 2020,” while he was working at CWT in 1993-1994.

Lincoln believes such restoration is possible. The systemic fraud has not gone unnoticed, as CWT and BNY clearly thought would be the case. Their concern is registering through the rising wave of settlements which are now extinguishing the cases they deem most threatening. These cases are now settling on the courthouse steps for significant amounts and return of the real estate, free and clear of mortgage related liens.

Banks understand the ominous possibilities they face if juries realize what really happened. And today, it is not just Cadwalader. Nearly every major financial law firm in the United States who is involved, directly or indirectly, in the implementation, defense, or coverup of securitization is potentially liable.

This potential for liability makes the settlements paid out by cigarette companies seem like chump change.
As long as such settlements are few and remain outside the view of the courts, the banks are safe. But the moment juries hear the facts, and see the reality, the banks are toast, and they know it.

And here, Lincoln said, is the leverage point from which change can be enacted. More cases must be litigated using the facts so cases won in the light of day can become case law and precedent. The war can be won, but will be costly. This challange requires, along with several lines of attack, the means for funding litigation.

One possible solution is to solicit private direct investment in litigation for individual cases in exchange for a share of the awards by the jury. Another is to design an “anti-derivative derivative” plan which bundles and pools both investments and potential awards, allowing Americans at all income levels to invest in the effort.

For this derivative, investors would understand both the risk and the benefits of investing.

Lincoln’s team, they know, cannot fund its efforts as the banks do, by an out of control pyramid scheme piling debt on equity to create more debt, but Lincoln sees a certain symmatry achieved by using the weapons created by the originators of the problem against them.

Either solution, Lincoln says, lies directly in the hands of Americans. If the money is available, litigation can go forward. He and the team see a build out across the country, with litigation taking place in every state as attorneys sign on and funds are available.

They have already begun. Lincoln’s team is now working with homeowners and the currently small number of attorneys willing to litigate. They have no illusions. They are aware they are going up against the most powerful institutions in the world. But they also know that, if they are successful, the crack now forming in the protections constructed by CWT, BNY, and so many others, makes it possible to reverse the ominous trends in the American housing market while proving it is possible to enact accountability for a corrupt establishment and good for the people.

If houses now held by banks go on the market, or are returned to their owners, the heavily inflated prices of homes will drop to its natural market level based on supply and demand. Communities will stabilize, as will the lives of Americans.

The America which emerges from this crisis can be very different. No stability will ever result from the current expectations of perpetual economic growth relying on perpetual inflation and perpetual motion in the market place, and the resultant social instability.

The 99% need to bring the 1% home to live with the rest of us in peace, Lincoln says.

Given the propensity of the legal establishment to go after activist attorneys, Lincoln admits this will not be without risk, but public involvement can help here, too. He remains confident, many will step forward. They did so in 1775 and in other times of crisis in America.

Failing to act, he said, means abandoning Americans to the cartels and monopolies who are responsible for what has happened to our country.

Lincoln and other members of the team believe strongly most attorneys and judges, when asked to make a choice in the light of day, will do the right thing.

The effort has already begin in New Jersey. Right now he has a case in motion in the Garden State, just across the river from Manhattan, where Cadwalader still holds sway at the ominously named “One World Financial Center.”

Now, they are looking for more attorneys who love and respect the law, and investors who know what matters most and want to make a difference. His website is, homeownersjustice.com.

What Recovery?

“4,594,000 Mortgages Going Unpaid in the United States.”

Buying a house is a lot like buying a car. If you don’t look under the hood, you could wind up with a lemon. Only with housing, it’s not as simple as checking the dipstick or looking for oil under the rear axle. No, smart home buyers check the data to see what’s really going on. That’s the best way to cut through the hype and separate the fact from the fiction.

Lately, interest rates have been inching higher while prices have been rising. The combination of the two has put the kibosh on sales leading to a more generalized slowdown. But sluggish sales and higher rates don’t tell the whole story. For that, we need to take a peak under the hood and see what the cheerleaders in the media have been hiding from view. And what they’ve been hiding is nearly 5 million homeowners who’ve stopped paying their mortgages altogether. That’s no small matter. Here’s the story from DS News:

“Lender Processing Services provided the media with a “first look” at the company’s mortgage performance statistics for the month of September….LPS counts a total of 3,266,000 mortgages nationwide that are 30 or more days past due but not yet in foreclosure. That tally represents 6.46 percent of all outstanding mortgages…..

Of the more than 3 million delinquent loans, LPS says 1,331,000 have missed at least three payments but haven’t started the foreclosure process.  Another 1,328,000 mortgages are currently winding their way through foreclosure pipelines, according to LPS’ data….

All-in-all, there are 4,594,000 mortgages going unpaid in the United States.” (“Number of U.S. Mortgages Going Unpaid = 4,594,000″, DS News) 

Yikes. Now, that doesn’t necessarily mean that it’s a bad time to buy a house, but one should at least be aware of the fact that there’s a gargantuan stockpile of backlogged homes just waiting to flood the market once the banks get their act together.  Of course, maybe that day will never come, right? After all, we’re already 5 years into this thing and the banks are actually dragging the process out longer today than ever before. Maybe you don’t believe that. Maybe you think that there’s actually a shortage of supply which is why prices have been going up for the last year or so. Okay, but why not withhold judgment until you check this out. This is from an article at Housingwire titled “Prolonged liquidation timelines shake up home prices”:

“Timelines on distressed inventory continue to drag on, while elevated mortgage loss severities continue to offset positive gains on home prices…..

Liquidations increased 32.2 months for the third quarter, up from 31.1 months for the second quarter, and also up from 28.3 months a year ago.  In aggregate, timelines have increased every quarter since the fourth quarter of 2008 and remain at historical highs…

Nonetheless, the most seasoned inventory continues to prove difficult to liquidate, skewing aggregate timelines higher.

“The percentage of distressed mortgages that are five or more years delinquent has tripled just in the last year,” Nelson said.” (“Prolonged liquidation timelines shake up home prices”, Housingwire)

Read that last line over a couple times and let it sink in: “The percentage of distressed mortgages that are five or more years delinquent has tripled just in the last year.”

That doesn’t sound like the “Happy days are here again” refrain we’ve been hearing in the media, does it? It sounds like the banks still haven’t even dumped the subprimes they’ve had on their books for 5-long years. In fact, the article alludes to that very fact. Here’s the money-quote: “Subprime loss severities have remained flat with timelines in excess of 34 months and home price gains lower than the national average.”

The banks are still writing down the losses on subprime mortgages? What a farce.

Now, I know the article was written in opaque business-journal-type gibberish that makes it hard to understand, but just consider what the author is saying: “Liquidations increased 32.2 months for the third quarter… up from 28.3 months a year ago.” So the banks are actually taking LONGER to process the gunk on their books than even last year. Why would they do that? Why would they drag out the process longer than they had to?

Three reasons:

1– Because they don’t have the money to cover the losses.

2–Because they don’t want to dump more homes on the market and push down prices.

3–Because the Fed is lending them money at zero rates so they can roll over their prodigious debtpile at no cost to themselves.

So, you see, the whole system has been rejiggered to accommodate a handful of underwater, zombie institutions who wouldn’t know how to make an honest buck in a normal business transaction if it was staring them in the face.

Back to housing: So there’s a humongous shadow inventory of distressed homes that have yet to reach the market. And the banks are dragging their feet to keep prices artificially high. Everyone knows this now, in fact, even CNN ran a story on the topic last week. Here’s a clip:

“Foreclosure sounds like the end of the line, but actual eviction can take months or years — even after the bank has repossessed a home.  RealtyTrac estimates that 47% of the nation’s foreclosed homes are currently occupied. The percentage actually tops 60% in some hot housing markets, like Miami and Los Angeles.

Those still living in repossessed homes include both former owners and renters. Either way, their time in the homes is mortgage and rent free….

And banks may be in no rush to kick people out. They will take their time in markets with a lot of homes for sale and depressed prices. Plus, letting homeowners stick around can help protect homes from abuse.” (“Half of nation’s foreclosed homes still occupied”, CNN Money)

What’s funny about this article is that the banks have been fighting tooth-n-nail for the last year for the Consumer Financial Protection Bureau (CFPB) to ease lending standards on their Qualified Mortgage (QM) rule so they can blow up the system again and leave us all with another 5 or 6 million foreclosures. What’s that saying about “old dogs and new tricks”?

There’s no point in going over the same material over and over again. People who follow the market already know that mortgage applications are down, rates are up, sales are down, prices are up, etc, etc, etc. But potential homebuyers should at least know that this is the weirdest housing market of all time. The extent of the manipulation is simply mindboggling. It’s a stretch to call it a market at all since the fundamentals have been tossed out and replaced with fake rates, fake inventory, fake mortgage modification programs, and fake demand. For example, get a load of this from RealtyTrac:

1—”All-cash purchases nationwide represented 49 percent of all residential sales in September…..

2–September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011. ….

3–“The housing market continues to skew in favor of investors, particularly deep-pocketed institutional investors, and other buyers paying with cash,” said Daren Blomquist, vice president at RealtyTrac. (“Institutional Investor Purchases Reach New High in September with 14 Percent of all U.S. Residential Sales”, RealtyTrac)

Does that sound like a normal market to you?

Whatever happened to firsttime homebuyers who used to make up the bulk of housing sales?

You know what happened to them, don’t you? They’re either buried under a mountain of student debt from which they will never emerge or stuck in crappy part-time jobs that don’t pay enough to even meet the monthly rent, right?  These people will probably never own a home; it’s just not in the cards, which is why firsttime homebuyers are following the Dodo into extinction.

And the same rule applies to “move up” buyers, too. Move up buyers are the folks who use the equity in their first home to buy a nicer home in a better neighborhood. Move up buyers used to be the second biggest buyer of homes in the US, but not any more. They’re struggling too, mainly because housing prices are still below their 2006 peak (which means many of these people are either still underwater on their mortgages) or because they have zero equity in the homes.

So, who’s buying all the houses?

Speculators. People who have no intention of moving into the homes they buy. That’s what keeps the recovery going.  And that’s what low interest rates and QE-pump priming achieves; it transforms markets that are a critical part of a thriving economy into an annex of the Wall Street Casino where houses are flipped in a frenzy of speculation like credit default swaps or some equally dodgy debt instrument. This is the world Bernanke has created, a topsy-turvy world of lightening-fast trades that blows up every 5 or 6 years.

I mean, think of it:  49 percent of all residential sales in September were all-cash purchases.

That’s ridiculous.

And where are all these deep-pocket buyers coming from?

Wall Street, of course. The big boys have switched from junk bonds and farmland to housing, which should be expected given the ocean of liquidity the Fed has pumped into the financial markets. Naturally, there’s been some spillover into housing which is creating a new regime of credit bubbles. Booyah, Bernanke, you’ve done it again!

Are you surprised? Are you surprised  that institutional investors are snapping up these foreclosures like hotcakes even though there are 4.5 million more in the pipeline? That must mean that the banks made some kind of deal with the PE guys that they wouldn’t dump their houses on the market without giving them a heads up first, right? (wink, wink)

Of course, it’s right. It’s all rigged. You know it, I know it, everyone knows it. The whole bloody country is owned by a credit monopoly that never gets tired of fleecing us.

That’s just what they do.

A Full Measure – War, Mortgages And Measuring The Human Spirit

When millions of people are suffering and dying we tend to focus on the stories of individuals who then come to represent them all. Anne Frank represents for a vast majority the ugliness visited on Jews during WWII. The stories are haunting. All stories of vast human suffering impact us.

Only those without conscience or empathy can view the suffering of others and not be moved. Anne Frank died before I was born, but sometimes, unexpectedly, you find yourself confronted with a story of human endurance which is overwhelming.

Another saga of suffering, endured by millions as World War II was playing out, is the massive geographical dislocation of millions of Eastern Europeans as the Soviet-German rolled into Germany from the east.

I learned about this story, unexpectedly, while reviewing a foreclosure case from New Mexico. For the Carl Mehner, who with his parents and siblings survived the nightmare of war, dislocation, starvation, the trauma has has been life long.

Carl’s father, an accountant in Dresden, Germany, and his wife were Christians of the “Sabbatarian” persuasion. Their faith made them targets of persecution in Germany as possibly sympathetic to Jews.

Carl’s farther, never a soldier, was forced into slave labor, separated from his family, and forced to dig anti-tank ditches.

In 1943, separately, they became refugees, attempting to reach the west as the Soviet Army swept in. Their children were 2, 3 and 6. Carl remembers sleeping in fields, ruins, deserted and destroyed buildings, hungry all the time. Walking seemed endless through a landscape of burning villages.

First separately, and then together, they struggled to find food for themselves and their children. Carl was always cold and starving. Traumas were continuous.

Reunited, Carl’s parents were determined to reach America. It was a ten year long struggle. In America, the family worked on a farm for food, as their children attended school.

Eventually, Carl married Frances Phillips from Southgate, California.

The couple eventually settled in Albuquerque, New Mexico where Carl served as chairman for the modern language department for 22 years, retiring in 2005. Frances ran a court reporting business.

Then, the mortgage meltdown began, taking their home without reason.

Fighting back Pro Se, Carl and Frances endured arrest, harassment, and abuse, as have others. They continue to fight. We never know what is possible until we have given our fullest measure. Carl’s parents taught him this, and he remembers.

Is The Housing Recovery Over?

Mortgage rates are rising and the housing market is getting weaker.  In May of 2013, the 30-year fixed rate mortgage was 3.59%. Today it is 4.71%, more than a full percentage point higher. That means that the payment on a $200,000 loan is 15 percent more than it would have been just two months ago. The higher rates mean that would-be homebuyers are getting less bang for their buck and might not be able to afford their dream home.  It means that housing sales will fall and prices will drop. Higher rates are poison for housing.

Last week, the Mortgage Bankers’ Association (MBA) announced that mortgage purchase applications had dropped 3 percent from the week before following a downward trajectory that has persisted for the last two months. At the same time, new home sales plummeted 13.4 percent in July to 394,000 less than a third of their total in July 2005 when sales tipped 1,200,000 per year. The impact on existing home sales is still unknown because the  data from June will not be released until late September, but given the uptick in rates, we can assume that sales will be well-below expectations. The housing market is cooling, sales are sluggish, and prices are flattening out. The recovery is over.

The big banks can see the handwriting on the wall and are making the adjustments they think will maintain profitability in a tighter rate environment. This is from an article by Christopher Whalen at Zero Hedge:

“Wells Fargo and Chase…. both told the industry yesterday that things might become grim in their mortgage divisions. Wells told investors at a conference that it expects mortgage originations to drop nearly 30% in the third quarter to roughly $80 billion, down from $112 billion in the second quarter……Wells has already cut 3,000 jobs in the mortgage business since July (roughly 1% of the bank’s total workforce). Mortgage-banking income dropped 3% at Wells Fargo and 14% at J.P. Morgan in the second quarter from a year earlier. At Bank of America, which announced 2,100 job cuts on 8/29, the decline was 22% from the year-ago period.” (“Mortgage Market Slump: Is it Interest Rates or Jobs and Consumer Income?“, Zero Hedge)

It doesn’t matter that rates are still low by historic standards. What matters is that the Fed’s unprecedented rate stimulus vanished overnight severely dampening the demand for housing. That’s why mortgage applications and new home sales are cratering, and that is why existing home sales will fall sharply. Because what matters is rates, rates, rates; the cost of money. Borrowers don’t buy a house, they buy a mortgage, and the price of that mortgage is what counts. When Bernanke started talking about “tapering” his asset purchases (QE) in May, he pulled the rug out from under housing leaving the market vulnerable to a sales shock. Now traditional buyers are putting off their home purchases for a later date while investors are headed for the exits. Check this out from Reuters:

 ”A recent survey by polling firm ORC International found that about 48 percent of investors surveyed planned to curtail home purchases over the next year…. Only 20 percent expect to buy more homes, down from 39 percent….

The softening of investor demand has also coincided with a drop in sales of so-called distressed properties, whether foreclosures or short sales. These homes usually sell for less than others and had been the focus of investor interest.

In July, distressed homes made up only 15 percent of sales, according to the National Association of Realtors. That matched June’s reading, which was the lowest since the group started monitoring distressed sales in October 2008…..” (“Analysis: Waning investor demand opens door for first-time U.S. home buyers”, Reuters)

As we’ve been saying for months, Bernanke’s Potemkin housing market is built on four very shaky pillars– (Low rates, suppressed inventory, excessive speculation, and Obama’s bogus mortgage modification programs) Significant change to any of these props will lead to a market stall and a sharp dropoff in sales. Here’s how housing analyst Mark Hanson puts it:

“All it will take is the wave of “cash-money” buyers ‘easing off” a bit; “some” of the organic first-time and repeat buyer cohort stepping away due to the sudden lack of “affordability”; and/or a wave of supply from “panic sellers” hitting the market to send sales volume and prices down sharply, over a very short period of time.”

Hanson is the second best housing analyst in the country (Robert Shiller still holds the top-spot) and his latest blog post is a “must read” for anyone who wants to know what is going on in housing. Here’s an excerpt from the post titled “Housing…Where we sit“:

 ”Starting in Q4 2011 “housing” was injected with arguably the greatest stimulus of all time; a 2% “permanent mortgage rate buy down” gift from the Fed.  As a result of rates plunging over a very short period of time in 2011 from the 5%’s to the low-to-mid 3%’s an instant 15% to 20% “purchasing power” was created out of thin air. In other words…somebody could buy a house that cost 15% to 20% more…ca-ching.”….

Some think the rate “surge” will have little impact… while the bears …. think the rate surge was a rare and powerful “catalyst” only rivaled two times in the last seven years.  The first, when the housing market lost all it’s high-leverage loan programs all at once in 2007/2008; and the second, on the sunset of the Homebuyer Tax Credit in 2010.

In both these previous instances …. when the leverage/stimulus went away … housing “reset” to the current supply/demand/lending guideline/interest rate environment, which in 2008 resulted in the “great housing crash”, and in 2010 the “double-dip”. Here we sit in a eerily similar situation.” (“Housing…Where we sit“, Mark Hanson)

The media has tried to downplay the importance of the spike in rates pointing to the fact that rates are still very low by historical standards. But Hanson disagrees. He thinks that the “the greatest stimulus of all time” has just been removed leaving the market exposed to a catastrophe similar to the downturn in 2008 or 2010. If he’s right, then September existing homes sales (which will be reported in late October) should fall precipitously, which they should since the fundamentals –wage growth and employment– are still weak.

Eventually the abysmal condition of the underlying economy will resurface. Bernanke’s smoke and mirrors can’t last forever. Keep an eye out for September’s existing homes sales.

The American Standard of Living Will Collapse Soon

When we talk of our standard of living most people equate that to all of the stuff and the money that they have. They feel that the more of each they have the better they are doing. Unfortunately for most, the last few decades have seen an artificial prosperity in the U.S. with an artificial standard of living. The standard they think they have is propped up by massive amounts of fiat money that can and will evaporate soon.

We have been brought to this point by irresponsible policies created by irresponsible people that seek only to enrich themselves at the expense of the masses. Many Americans have massive amounts of mortgage debt, automobile debt, credit card debt, student loan debt, business debt, medical debt and/or recreational equipment debt.

When the money ends and the people can no longer pay for the things that make up their standard of living, they will lose most of those things and be left with a lot of cheap trinkets made in China, many of which are probably broken already, to signify their standard of living.

When the artificial standard of living collapses into the real standard of living that most will end up with, there will be a lot of denial then a lot of anger. This will be a dangerous time for everyone, especially those that made prudent decisions most of their lives and lived within their means and will still have most of their wealth in tact when it’s over.

The envy that the political left has sown will reap a deadly harvest when this false paradigm ends. Politicians on the left and right are responsible for this mess but it is the social tension from the left that will cause much violence. People that have grown up in a system that taught them they are entitled to a certain standard of living will become violent when the things they were promised are taken away without warning.

Those that have spent wisely over the years and lived within or below their means will remain solvent while others sink in the ocean of debt they have set sail on. Many will not go gently into that good night and will strike out at anyone that they feel has more than their fair share of stuff when everything falls apart. This is the reason many have a plan to leave for more tranquil waters when the going starts to get bad. For those that have made the hard decisions and remain solvent, the coming chaos is a foregone conclusion and they are prepared for that. But what of those that only now realize the danger and seek to prepare for it?

If you now realize that your standard of living is about to take a drastic plunge it may still be possible to cushion the fall for your family but some drastic decisions will need to be made. When you see an accident about to happen, the actions you take determine whether you get a bruise, a broken arm or are killed outright. Your actions need to represent who you are and the situation you are currently living in.

In a serious crisis the things that are important are water, food, shelter, clothing, security, medical, transportation and communication. Sanitation is also critical for well being but for brevity we will assume that your shelter will cover that aspect. In day to day living the four things needed are food, water, shelter and clothing. These are the things most people will struggle to provide for their families so these are the things you will need to place emphasis on if you are behind the preparation curve at this point. The other items are not less important but will depend on your location and situation as to their need. Once you can provide the basics to your family then the other items will become necessary.

For someone living in the suburbs or urban area with a job and few survival type skills, it would likely be necessary to store some of your wealth in a form you can use later to care for your family. This may take the form of food, gold, silver, diamonds or some other durable wealth preserving tool. The idea for this type of individual is to have the means to provide food, shelter and clothing during hard times. Since this type of individual may have very few skills to fall back on to produce these items themselves they would need a medium of exchange to trade for those things for the duration of the crisis. That does not mean this type of person should not seek education to provide these items themselves but given certain time constraints it may not be possible short term. An individual in this situation needs to have a plan to deal with these conditions utilizing the resources available to them at this time. A portable form of wealth may be the only option if relocation is required due to a deteriorating situation in the cities and/or your primary shelter is lost.

An individual living in the country may have more opportunity to provide the basics for their family depending on their location and the resources available in the local community. The basics still hold true though for the rural individual. For this person the skills available may make up for lack of financial means to store wealth for future use. This person will still need food, water, shelter and clothing as a minimum for their family but they may be able to provide those things by different means than their city cousins. The availability of open ground to grow food and the availability of water on site in most places may decrease the need to seek out these resources for day to day living allowing more time to be spent on acquisition of shelter and clothing.

In The American Dream Lost I cover one strategy that can work for most average families and can be summed up as follows.

Purchase a good used RV or camper trailer for shelter.

Purchase two sets of new clothing for each person to be stored in shelter.

Purchase food to provide a minimum of two meals a day for a year.

Buy a shotgun and ammo.

Buy $30 face value in junk silver coins for emergency use.

These things can be bought today for under $6,000 and much less with some shopping around. They can mean the difference between becoming destitute and helpless or being able to live with a good quality of life. Measures should be taken to prevent the loss of this backup system in the event you must declare bankruptcy and lose everything when the system collapses. Unless a mad max scenario happens very fast, anything you do not own free and clear may be lost in due time by foreclosure. Above all if you decide to implement a plan like this or some other the most important thing to remember is not to wait until you have no resources left before you try to enact the plan. Most people try to run things out until the last minute and all resources are used up hoping things will change and the life they are accustomed to will be saved somehow. That is a plan for disaster in the current environment and is very dangerous for you and your family to depend on. You must set aside resources for the plan you devise and be prepared to activate it when nothing else can be done. That is a mental leap you must be prepared to take when the time comes.

A good quality of life should not be confused with all of the consumer things you now have and feel necessary to function every day. Some of the best things in life are free and this is the thing you must mentally prepare your family for the most. A collapse of our living standard will require everyone to adjust to the new reality and those that do not make the transition will cause a great many problems for the rest. One of the biggest problems we face are those that cannot or will not adjust and this is where the greatest danger lies in society when the system breaks down.

Source: Project Chesapeake

Time To Buy A House? Not On Your Life!

Soon the Foreclosure Floodgates Will Open and Prices Will Plunge…

Anyone who buys a house in today’s market should be aware of the risks. They should know that current prices are not supported by fundamentals, but by unprecedented manipulation by the Fed, the Obama administration, Wall Street Private Equity investors, and the nation’s biggest banks. If any of these main-players withdraws or even reduces their support for the market (in other words, if the banks release more of their distressed inventory, if rates rise, if PE firms buy fewer homes, or if the Congress curtails current mortgage modification programs), housing prices will fall. Given the increasing volatility in global stock and bond markets in recent weeks–which is likely to intensify as the Fed  implements its exit strategy from QE– interest rates will continue to fluctuate putting downward pressure on housing sales and prices. The impact the Fed’s policy will have on markets and the economy is unknown. The Central Bank is in uncharted water. That makes it a particularly bad time to buy a home. Caveat emptor.

When we say that fundamentals are weak, it means that the factors that typically drive the market are not strong enough to boost sales or push up prices. In a normal market, “first-time homebuyers” and “move up” buyers would represent the vast majority of sales. In today’s market, these two “demand cohorts” are actually quite weak, which is to say that current prices are not sustainable. Consider this: According to Lender Processing Services (LPS) Mortgage Monitor for April, there are  “4,699,000, or 9.76% of home loans delinquent or in foreclosure as of April 30th”…” (“Mortgage Delinquencies Down….But a Record 843 Days to Foreclose“, Naked Capitalism)

So, nearly 5 million homes are either seriously delinquent or in some stage of foreclosure. This unseen backlog of distressed homes makes up the so called “shadow inventory” which is still big enough to send prices plunging if even a small portion was released onto the market.   In other words, supply vastly exceeds demand in real terms. Now check this out from Zillow:

“13 million homeowners with a mortgage remain underwater. Moreover, the effective negative equity rate nationally —where the loan-to-value ratio is more than 80%, making it difficult for a homeowner to afford the down payment on another home — is 43.6% of homeowners with a mortgage.” (Zillow)

This might sound a bit confusing, but it’s crucial to understanding what’s really going on. While many people know that 13 million homeowners are underwater on their mortgages,  they probably don’t know that nearly half (43.6%) of the potential “move up” buyers (who represent the bulk of organic sales) don’t have enough equity in their homes to buy another house.  Think about that. Like we said,  housing sales depend almost entirely on two groups of buyers; firsttime homebuyers and move up buyers. Unfortunately, the number of potential move up buyers has been effectively cut in half.  It’s simply impossible for prices to keep rising with so many move up buyers on the ropes.

So, if “repeat” buyers cannot support current prices, then what about the other “demand cohort”,  that is, firsttime home buyers?

It looks like demand is weak there, too. According to housing analyst Mark Hanson: “First-timer home volume hit a fresh 4-year lows last month and distressed sales 6-year lows”.

So, no help there either. Firsttime homebuyers are vanishing due to a number of factors, the biggest of which is the $1 trillion in student loans which is preventing debt-hobbled young people from filling the ranks of the firsttime homebuyers. Given the onerous nature of these loans, which cannot be discharged through bankruptcy, many of these people will never own a home which, of course, means that demand will continue to weaken, sales will drop and prices will fall.

The banks have countered this weakness in demand by withholding distressed inventory. According to Realty Trac, foreclosures are down 33 percent in May year-over-year. There’s no reason for this reduction in foreclosures because there are nearly 5 million homes that are either seriously delinquent or in some stage of foreclosure. The banks are simply manipulating distressed supply to push up prices and avoid losses. To better understand what the banks are up to, check out this article on Marketwatch666:

“As of April, the average seriously delinquent homeowner has not paid on their mortgage for 503 days, and that the typical home in foreclosure has been delinquent for 843 days; in general, those who are seriously delinquent (more than 90 days past due) are not being foreclosed on, and those who are in the foreclosure process are not having their homes seized. Since this metric seems to be increasing an average of ten days a month, and new foreclosure starts are being added each month which should be bringing the average days down, we can only conclude that the foreclosure process is damn near frozen.” (“Mortgage Delinquencies Down….But a Record 843 Days to Foreclose“, Naked Capitalism)

“843 days”! That’s a new record, which means that the banks are actually dragging the process out longer today then ever before. This has had profound effect on prices which have soared by more than 10 percent in the last 12 months creating the illusion of a sustainable recovery.  Keep in mind, that the banks have little choice in the matter. They are still sitting on  more-than one trillion dollars worth of  non performing loans leftover from the recession.  If they simply dumped their backlog of distressed homes onto the market all at once, the deluge would push prices below their 2009-lows leaving bank balance sheets in tatters. That’s the scenario they want to avoid at all costs.   Now get a load of this article in last week’s Reuters:

“Well over a million U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday.

Some 1.7 million borrowers have missed several payments on mortgages backed by the U.S. government, the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development said in a joint report.

These loan delinquencies represent a “shadow inventory” of homes that could hit the market if foreclosed on, which would need be managed by government-run Fannie Mae (FNMA.OB) or Freddie Mac (FMCC.OB), or some other federal housing agency.” (“Shadow’ homes could burden U.S. housing agencies”, Reuters)

Actually, the numbers are much larger that Reuters indicates, but it’s good to see someone in the MSM finally acknowledging the magnitude of the problem.

It would be interesting to know how many of these 1.7 million non-performing loans were shunted off to Fannie and Freddie in 2009 and 2010 by cagey banksters who knew that they were essentially worthless.  We’ll probably never know for sure. The fact is, the vast majority of toxic mortgages weren’t created by the GSE’s but by crooked bankers who pooled the dreck into private label securities and sold them to gullible investors around the world.  Now, much of that securitized sewage is festering on the Fed’s bloated balance sheet. The Fed has replaced the shadow banking system as the place where bad loans go to die.   Here’s more from Reuters:

“Once seized, these so-called real estate owned properties, or REOs, present significant financial challenges to these government agencies, the report said.

“Not only are current REO inventory levels elevated … they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on,” the report stated….

The report said the shadow inventory, which is made up of loans that have been delinquent for at least 90 days, is more than seven times the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own.” (Reuters)

So, the number of seriously delinquent mortgages IS MORE THAN SEVEN TIMES  the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own?!? What the hell kind of shell-game are these guys playing?  Do you get the impression, dear reader, that the government is pulling the wool over your eyes? 7X is a bit more than a rounding error, I’d say.

Okay, so the government has been fudging the numbers to make things look better than they really are. (What a surprise) But why would the GSE’s try to hide what’s going on, after all, Fannie and Freddie have implicit government guarantees, so they don’t really have to worry about falling prices.  And, as far as the red ink, well, Uncle Sugar will take care of that, right?

Not exactly. It looks to me like Fannie and Freddie are tailoring their policies to meet the needs of the banks.  As Reuters reluctantly admits, “Even a fraction of the shadow inventory falling into foreclosure could considerably swell … inventories of REO properties.”

It’s simple, really; more foreclosures mean lower prices. Lower prices, in turn, mean heavier losses for the banks. That’s why Fannie and Freddie are playing hide-n-seek; it’s another giveaway to the banks.

Reuters again: “Fannie Mae and Freddie Mac owned about 158,000 REO properties at the end of September 2012, while HUD had about 37,000.” (Reuters)

Huh?  The author has already admitted that the real number is at least 7 times that amount (“Well over a million.”), so why the sudden reversal? Is he trying to downplay the bad news to slip it past his editor?

Many of the experts still anticipate between 3 to 6 million foreclosures in the next few years, so it is doubtful that the current strategy will work. Eventually, the floodgates will open, distressed supply will be released, and prices will drop.

And distressed inventory is just one of many headwinds facing the housing industry today. There’s also this: “Rising Prices Lead to Fewer Investor Purchases, Longer Holding Times“, DS News:

“Close to half—48 percent—of the investors surveyed in May said they will purchase fewer properties in the next 12 months than they did in the past year.” (DS News)

And this from CNN Money:

“Say goodbye to ultra-low mortgage rates.

In the past month, rates have been on the rise and they are expected to continue to climb. This week, the average rate on a 30-year fixed-rate mortgage jumped another 10 percentage points to 4.07% and are up from 3.3% in early May, according to mortgage giant Freddie Mac.

“It’s unlikely that rates will ever be that low again,” said Doug Duncan, Fannie Mae’s chief economist. “Those who didn’t take advantage of record-low rates have missed the boat — at least for now.” (“ CNN Money)

And this:

Application Volume Stumbles, Sales to Suffer, OC Housing News

“Mortgage application data for May lends credence to analysts’ predictions of a slowdown in the year’s second half, Capital Economics says in its latest US Housing Data Response.  According to Capital Economics’ data—compiled from statistics offered by the Mortgage Bankers Association (MBA)—total mortgage application volume fell 2.0 percent from April to May, the first monthly drop since February and the biggest decline since January.”  (“Application Volume Stumbles, Sales to Suffer“, OC Housing News)

And, finally, this from BusinessWeek:

“Hedge fund manager Bruce Rose was among the first investors to coax institutional money into the mom and pop business of single-family home rentals, raising $450 million last year from Oaktree Capital Group LLC.

Now, with house prices climbing at the fastest pace in seven years and investors swamping the rental market, Rose says it no longer makes sense to be a buyer.

“We just don’t see the returns there that are adequate to incentivize us to continue to invest….There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”  (“Carrington Stops Buying U.S. Rentals as Blackstone Adding“,  BusinessWeek)

I could go on, but why bother? You get the point. The fact is, is that this is a uniquely bad time to buy a house.  There’s too much uncertainty about rates, inventory, demand and investors. The risks far outweigh the rewards. Anxious buyers should hold-their-horses and wait for the market to normalize instead of chaining themselves to sinking asset that will cost them a bundle.  Remember, patience is a virtue. It can also save you a lot of dough.

Explaining America’s Meltdown – Judge Maloney Said, “Sounds Like Fraud To Me”

Locals thought the law suit filed by Jerome Daly against the local bank, to be heard on December 7, 1968, in the township of Credit River, Minnesota would be frivolous. The twelve jurors were practical men, citizens who trusted those in authority.

Jerome Daly, an attorney, faced eviction from his home. Daly, in arrears on his mortgage, had sued the bank as he faced foreclosure because while reviewing the papers and practices he had noticed the mortgage was issued with no legal ‘consideration’ between himself and his mortgage holder, the First National Bank of Montgomery.

Legally, mutual consideration is essential to any valid contract. This is defined as being, “Something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.”

The atmosphere in the courtroom changed abruptly during the testimony of bank President Lawrence V. Morgan. Daly cross examined the banker about the creation of money. Had any bank money been at risk? It had not, the banker admitted.

President Morgan testified this was standard banking practice, exercised by their bank in combination with the Federal Reserve Bank of Minneapolis, another private bank. Morgan admitted he knew of no United States Statute or law giving his bank this authority.

When Justice Mahoney heard this he stated, “It sounds like fraud to me.” The stunned faces of the jurors indicated they agreed with him.

The surprises continued. Further testimony revealed the Federal Reserve was a private bank, issuing money not backed by gold or silver, as mandated by the U. S. Constitution.

The Credit River Decision was never successfully appealed by the bank but is not considered to be a cit-able precedent because Maloney was a Justice of the Peace. Justice Maloney died August 22, 1969.

Maloney’s verdict also stated, “any provision in the Minnesota Constitution and any Minnesota Statute binding the jurisdiction of this Court is repugnant to the Constitution of the United States and to the Bill of Rights of the Minnesota Constitution and is null and void and that this Court has jurisdiction to render complete Justice in this Cause.”

Daly, a tax protester, kept his home. Later he was stripped of the right to practice law.

The facts presented remain true today, as America’s economy, and the money produced by the Federal Reserve, continue to push us closer to the brink of economic disaster.

There’s Still A Foreclosure Crisis

As Many as 90% of Foreclosed Properties Held Off the Market…

“I still worry about further price declines. There’s no really concrete reason for an upturn now. A recent survey of home buyers didn’t find any sudden change in optimism and there seems to be a souring on the idea of home ownership. That might reverse again as the crisis ends, but I suspect that it’s not easily reversed because the whole idea of proudly owning a home has been tarnished … That’s why I think home prices may still go down.” – Robert Shiller, co founder of S&P Case-Shiller Home Price Index

There’s an article on the AOL Real Estate blog that explains much of what is happening in today’s housing market although the piece was written back in July 2012. The article, which was written by journalist Teke Wiggen, was widely circulated when it first appeared, but has since been swept down the memory hole to make room for the nonsensical blabber about a “housing recovery”. Even so, it’s worth reviewing the content of Wiggin’s extraordinary piece since the facts are just as relevant today as when he first wrote them 7 months ago. Here’s a clip from the article titled “‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”:

“As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole.

Online foreclosure marketplace RealtyTrac recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers, the company said.

Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, which include mortgage giants Fannie Mae and Freddie Mac as well as the Federal Housing Administration.” (“‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”, AOL Real Estate)

It’s worth noting, that CoreLogic and RealtyTrac are two of the most respected names in the industry, in fact, Calculated Risk, the nation’s Number 1 economics blog, frequently uses data from CoreLogic to make its point that prices have “bottomed” and that housing is gradually recovering. Here’s more from the article:

“… if lenders turn their REO release valve to full blast, the deluge of foreclosures cascading onto the market could plunge the country into a recession, said Thomas Martin, president of consumer advocacy group Americas Watchdog.

“If they let the dam essentially break. It could be a catastrophic disaster for the U.S. economy,” he said, predicting that some major banks would fail and home prices would nosedive by 20 percent.

That doomsday scenario has many industry professionals supporting lenders’ tactics of holding onto most of their REOs. Otherwise, they would be “causing the floor to fall out from underneath the entire market,” Faranda said. He added that banks don’t have the manpower to push the paperwork required to put all their foreclosures on the market.” (“‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”, AOL Real Estate)

So, the banks are deliberately keeping the majority of distressed homes “off market” in order to keep prices artificially high, fleece another generation of credulous buyers, and effect the appearance of a revitalised and soaring housing market. Now–tell me–which part of this equation even vaguely resembles a “free market”? It’s all central planning by a criminal bank cabal that controls all the levers of state power lock, stock and barrel.

Even so, it looks like John Q Public has swallowed this latest load of public relations malarkey judging by data that shows that sales of new and existing homes are gaining pace. Ahh, but looks can be deceiving. A closer inspection of the data suggests that it’s not Mr. Public who’s buying all those homes, but deep-pocket speculators who’ve piled into the market seeking short-term gains. Check this out from Bloomberg:

“Transactions involving investors jumped 75 percent in November from a year earlier in 25 metropolitan areas tracked by Radar Logic Inc. It’s a market that could total 12 million homes, JPMorgan analysts led by Anthony Paolone wrote in a note last month.

Blackstone, the largest U.S. private real estate owner and the only firm with more homes than Hughes, has spent $3 billion on rentals, Jonathan Gray, Blackstone’s global head of real estate said today at a Credit Suisse Financial Services Forum in Miami. Blackstone said last month it spent $2.7 billion on 17,000 properties, accelerating purchases as prices rose faster than anticipated…

The New York-based firm, which started buying single-family houses last year, has bought so quickly it’s “warehousing” more than half of the inventory as it completes purchases, renovates and rents the properties, Gray said in January…

Whether the single-family rental market grows from “a $10 to $20 billion market to a $100 to $200 billion market” will depend “on how successfully institutional investors are able to execute over the next few years,” Bordia said.” (“Billionaire Hughes Chasing Blackstone as U.S. Rental King”, Bloomberg)

Get the picture? It’s a speculator feeding frenzy featuring some of Wall Street’s biggest names all plunging into the sharkpool at the same time. The only thing missing from this bizarre mix is the traditional young couple looking to partake in the American dream by buying their first home or the move-up buyer who wants to use the equity he’s built up over the last decade to buy that 3-bedroom Tudor in the country. Normal “organic” buyers have vanished from the marketplace while ravenous speculators are grabbing everything that isn’t bolted to the floor. Naturally, that’s pushed prices higher while creating the illusion of a thriving market.

But what do these investors really have in mind? Are they planning on becoming responsible long-term landlords committed to serving the needs of the community after the devastation they caused by crashing the financial system in 2008?

In your dreams! Here’s more from Bloomberg:

“New York-based JPMorgan, whose private bank oversees $877 billion, started pooling investments from its clients in mid- 2012 into a partnership to purchase distressed properties, betting that prices will rise over the next several years and provide investors with income from renters along the way, said Lyon…

The goal is to sell the houses within three to four years in one of three ways: through an initial public offering of a real estate investment trust, a sale to an existing REIT or to an institutional buyer such as a pension fund, Lyon, who’s based in San Francisco, said. Clients will receive a share of any price appreciation depending on the size of their investment.” (“JPMorgan Joins Rental Rush For Wealthy Clients: Mortgages”, Bloomberg)

There you have it. The banks are only going to hang-around long enough to see prices surge, then they’re going to dump their inventory back on the market so Mom and Pop can see their equity go down the drain for the second time in a decade. Nice, eh? Speculators aren’t interested in building a strong and sustainable housing market, what they’re looking for is a sharp jolt to quarterly profits, so they can nab that new Maserati Gran Tourismo for those long drives to the Hamptons.

And there’s another part of this story that may seem only remotely connected to the “vanishing REO inventory”, but it has a profound effect on the market all the same, that is, the fact that the banks are still cooking the books to make it look like they’re in better shape than they really are. If these fundamentally-insolvent financial institutions had been taken over and nationalized when the government had the chance in 2009, then their stockpile of toxic assets and non performing loans would have been processed and sold via a gov entity like the Resolution Trust Corporation (RTC) which helped to liquidate bank-owned assets following the savings and loan scandal. That means, housing prices would have found a real bottom by now, and the market would be experiencing positive growth. (unlike the fake investor-fueled growth we see now) But since the TBTF zombies were propped up by trillions in public funds, bailouts, handouts, subsidies and other forms of corporate welfare, the problem persists to this day. Get a load of this from Floyd Norris at the New York Times:

“The board that sets American accounting rules moved on Wednesday to substantially reduce the use of market values in financial statements. The move, if adopted, would give banks more freedom to value financial assets as they deem appropriate.

The proposal by the Financial Accounting Standards Board, contained in what is called an exposure draft, would also end the counter intuitive practice of a bank’s profits rising simply because its credit has worsened, and then falling when the credit recovers…

Under the proposed new rules, which are unlikely to become effective before 2015, it would no longer matter whether a particular bank asset was a bond or a loan. Either way, if the bank intended to keep the asset until it was paid off, it would be carried on the books at cost, without rising or falling in value when market prices changed.” (“Proposal Gives Banks More Freedom to Value Assets”, New York Times)

How do you like that? So, the banks are not only allowed to assign fake prices to their assets, they can also report an increase in profits when their credit deteriorates. Such a deal! In other words, if a mortgage-backed security (MBS) that’s packed with subprimes and liar’s loans has plunged to $.30 cents on the dollar, Mr. Banker can keep it on the books at 100 cents on the dollar, thus, preserving the confidence of his thoroughly-hoodwinked shareholders. This is just another illustration of how the banks have corrupted the regulatory system to the point where no one has the foggiest idea of what they’re really worth.

So, how does all this accounting hanky-panky connect with the fact that the banks are keeping 90% of foreclosed properties off the market?

It just explains how regulators have teamed up with the banks to keep the “housing recovery” charade in place. If the banks were forced to write-down the losses on their stockpile of non performing loans and defunct mortgages, then more REOs would be pushed onto the market and prices would fall sharply. But because the banks are allowed to lie, the housing depression drags on. That’s not only bad for the economy, it also puts the public at risk of another crisis because, as the Wall Street Journal notes:

“… investors will remain reliant on banks’ own views of the worth of their assets. Those judgments proved seriously flawed during the financial crisis and left many with insufficient capital. Taxpayers, who as a result were called upon to bail out numerous institutions, also are left more vulnerable.” (“Banks Have Their Way With FASB”, Wall Street Journal)

Allowing the banks to lie puts everyone at greater risk. Unfortunately, that doesn’t matter to Obama and his cohorts at the Fed. They’ve done everything in their power to preserve black box banking, an opaque, criminal business model built on deception, avarice and theft, the banker’s trifecta.

Another Giveaway To The Banksters

Obama, Housing And The Next Big Heist…

For those who missed President Obama’s latest giveaway to the Bank Mafia, we’ll repeat what he said here. This is an excerpt from Tuesday’s State of the Union Speech:

“Part of our rebuilding effort must also involve our housing sector. Today, our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years, home purchases are up nearly 50 percent, and construction is expanding again.

But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back, and we need to fix it. Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill. Right now, overlapping regulations keep responsible young families from buying their first home. What’s holding us back? Let’s streamline the process, and help our economy grow.”

First of all, whenever you hear a politician talk about “streamlining the process”, run for cover. The term is a right-wing formulation that means “remove all the rules which inhibit profitmaking”. Naturally, Wall Street’s favorite son, President Hopium, is more than comfortable with the expression and uses it to great effect. But what are the rules that Obama wants to eliminate, that’s the question?

Obama answers that himself when he says: “Too many families with solid credit who want to buy a home are being rejected.”

This is pure baloney. Borrowers with good credit who can meet the standard down payment requirement (usually 10 percent) can secure financing without too much trouble. The problem is that the banks don’t want to be limited to creditworthy applicants alone, because there aren’t enough creditworthy applicants interested in buying a house. That’s why they want Obama to loosen regulations on “government insured” mortgages so they can lend money to anyone they want knowing that Uncle Sam will pay the bill when the loans go belly-up. That is what this is all about; Obama wants congress to slap their seal of approval on a new regime of crappy loans that will eventually be dumped on US taxpayers. Here’s the story from Bloomberg:

“U.S. Realtors and mortgage bankers say they’re hoping President Barack Obama’s call for streamlining mortgage rules will lend new momentum to efforts to prevent imposing a strict minimum down payment for home loans.

… bankers and real estate agents …are angling for changes to a proposed regulation requiring lenders to keep a stake in risky loans say they hope Obama’s comments will help their cause.

At issue is the so-called Qualified Residential Mortgage rule, which six banking regulators including the Federal Deposit Insurance Corp. and the Federal Reserve are aiming to complete this year. The regulators drew protests in 2011 when they released a preliminary draft requiring lenders to keep a stake in mortgages with down payments of less than 20 percent and those issued to borrowers spending more than 36 percent of their income on debt…(“Housing Industry Pins Hopes on Obama to Soften Down-Payment Rule, Bloomberg)

Can you believe this hogwash? Regulators are asking the banks to retain a lousy 5% of the value on high-risk mortgages (so they can cover the losses in the event of another meltdown) and the stinking bankers are whining about it! Unbelievable. In other words, they’re being asked to put some “skin in the game” so they can pay off defaulting loans when they blow up the financial system again, and they don’t want to do it. The banks are fighting so-called “risk retention” tooth and nail, because they don’t want to tie up their capital. Imagine if your insurance company ran its business the same way? So, then your house burns down, and the claims agent tells you, “Sorry, Mr Jones, we can’t pay your claim because all our money is tied up in structured investment vehicles and dodgy debt instruments.” Are you okay with that?  But that’s what the banks are doing, and they’re doing it because they want to be leveraged “N”th-degree to maximize profits. Besides, they know from experience, that when the system goes down again, the USG will ride to the rescue and pay off their debts. So why hold capital?

Keep in mind, that the banks can lend whatever amount they want to whomever they want. No one is stopping them. But if they want the government to guarantee the loan (or if they want government financing), they have to follow certain rules. And the rules have to be clear because the banks have shown that they can’t be trusted. Here’s more from Bloomberg:

“Housing industry participants want the regulators writing QRM to drop the down payment requirement and raise borrowers’ allowable debt load to 43 percent, essentially setting the same requirements in both the QM and QRM rules.” (Bloomberg)

This is so stupid it boggles the mind. “No, Mr Bankster, Uncle Sam will not guarantee your putrid loan if the applicant can’t come up with a measly down payment or if his monthly payments exceed the standard 36 percent of income to debt.” This is so tiresome. There’s no point in putting people into loans that they can’t repay. We tried that. It doesn’t work.

Now ask yourself this: Why are the banks so adamantly opposed to what-they-call the “stringent down payment requirement”? Down payments have been SOP for decades. A 10 or 20 percent down is an indication that a borrower is responsible enough to set aside some of his income for the future, which reflects positively on his creditworthiness. It’s also an indication that the borrower is not going to cut-and-run at the first sign that prices are falling. Stakeholders typically stay with the ship even after it’s hit the iceberg, which helps to stabilize the market and prevent prices from falling off a cliff. The banks know this, which is why they typically demand a down payment on loans that are NOT guaranteed by the government. It’s only when the government’s on the hook for the loss that they don’t give a rip.

Bloomberg again: “Groups including the Mortgage Bankers Association have been warning about the impact of rulemaking in an already tight market.”

Now there’s a surprise. So bankers hate rules and regulations? Really? And they also think its terrible that borrowers need to have decent credit scores to qualify for “government backed” loans? Will wonders never cease. Well they won’t have to wait much longer, will they, because Obama has promised to loosen those “onerous” rules so they can get back to business and start fleecing people like the good old days.

Let’s not kid ourselves, the banks have figured out what many analysts have known all along; that low rates, mortgage modifications, and massive private investment (speculation) are not going to be enough to reflate prices and generate another housing bubble. No way. It’s going to take a total breakdown in lending standards so the banks can, once again, provide hundreds of thousands of dollars to anyone who can sit upright and scratch his John Hancock on a mortgage app. That’s what it’s going to take to erase the 30% loss in the value on the stockpile of garbage mortgages the banks still hold on their balance sheets.

Here’s Obama again:

“Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back, and we need to fix it. Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill.”

So Obama doesn’t just want to loosen regulations for new home buyers (No down payment, high debt-to-income ratio), he also wants to help refinance underwater homeowners who’ve been making their monthy payments regularly. But why? After all, the administration’s aggressive mortgage modification program (HAMP) is already providing low-interest refis for people who are as much as 125% LTV (underwater) What’s different about this program?

Ahh, that’s where it gets interesting. Here’s the scoop from Bloomberg:

“The U.S. Treasury Department and members of Congress are preparing to move forward with plans to expand government-backed refinancing programs to underwater homeowners whose loans are packaged in private-label securities.” (“U.S. Mortgage Refinancing Push Said to Advance in Congress”, Bloomberg)

“Private label”? So now the USG is going to guarantee the mortgages the banks concocted in their boilerrooms that didn’t even conform to standards that would allow them to be financed by Fannie and Freddie? That’s what Obama is pushing for? Yeegads! Here’s more from Bloomberg:

“Senator Jeff Merkley, an Oregon Democrat, is drafting a bill modeled on a proposal he outlined last year to set up a federal trust to purchase or guarantee refinanced mortgages….

The trust, as described in Merkley’s earlier proposal, would provide relief to borrowers with privately owned loans and probably would be set up under the oversight of an existing housing agency. If Congress doesn’t pass such a measure, the Treasury is drafting a plan to step in to pay for rate modifications for those homeowners.” (Bloomberg)

What? So if Congress doesn’t approve the bailout, then the Treasury will implement the plan anyway? Is that it? That doesn’t sound very democratic.

Bloomberg again:

“Under that option, the government would pay the difference between the new and original interest rates to the owners of the loans for five years. Investors in private-label securities have sometimes objected to mortgage modifications because of concerns their income could be reduced.” (Bloomberg)

Wait a minute. Shouldn’t the investors or the banks take the haircut instead of taxpayers? After all, whose fault is it that 5 million families have lost their homes to foreclosure since 2007 and 11 million homeowners are presently underwater? Not the taxpayer. Let the responsible parties bear the costs. That’s the way the system is supposed to work, right?

And Merkley’s proposal is just one two bills now awaiting congressional action. The other is the Boxer-Menendez bill which “promises lenders they won’t be forced to absorb the loss on refinanced loans that default.” (Bloomberg) Great. So, while the Boxer-Menendez bill will not refi loans that are not backed by Fannie Mae and Freddie Mac, (no “private label” loans) it will move (an estimated) one million high-risk mortgages off bank balance sheets and onto the public’s ledger. This is how the free market capitalism works in the US today; all the profits go to Wall Street and all the red ink goes to Main Street.

Obama doesn’t care if struggling homeowners get a break on their refis or not. It’s all a joke. He’s just helping his bank buddies cut their losses while they set the stage for their next big heist.

Landmark Asset Seizure Case To Be Heard In California Court

A San Bernardino County judge will preside over a case this coming January which has massive implications for the future of property rights.

On January 24th, a petition will be heard which was filed by a conservator requesting the court to revoke a twenty- eight year old deed of sale, notarized and recorded, in order to return the property into the name of the person who sold the property. Lois Risse of Yucaipa, California, is now under a conservatorship and the conservator, Melodie Scott, seeks to get a reverse mortgage on the property to pay for her fees as conservator of Risse.

Twenty eight years ago, Risse sold her house to her friend, Glenn Neff, with the provision she could live in it for the rest of her life. Risse is now 101 years old and was put under a conservatorship a year ago in a hearing in San Bernardino Court, a hearing at which she was not present. Neff has been paying the taxes and insurance on the property while Risse lives in the house, rent free.

In pleadings filed in support of her petition to take Neff’s house away from him, Scott cited a number of checks that were written to Neff by Risse over twenty five years ago. Neff has stated that there is nothing improper with the checks, most of which constitute checks which he took to the bank and cashed for his friend, Lois.

Scott alleges that Risse did not know that she was selling the property to Neff, an allegation belied by the notarized deed of sale, signed by Lois Risse. Melodie Scott also alleges that Neff took from the house other property, including a gun and pewter collection.

Curiously, Melodie Scott has virtually ignored the evidence that someone did indeed prey on Lois Risse. This reporter has reviewed documents from Scott’s own files that list a number of withdrawals from Risse’s accounts made by a neighbor from August/ September to December of 2011. The neighbor’s name is being withheld from publication at this time per legal advice.

According to Scott’s records, “Mr. X” made over thirty thousand dollars of ATM cash withdrawals from Risse’s account and also received thousands of dollars in questionable payments via check.

MISSING POLICE REPORTS

Last year, at least two of Risse’s friends and neighbors reported to Adult Protective Services concerns that the elderly woman was being taken advantage of by a neighbor, prior to the imposition of the conservatorship. According to a party close to the case, Melodie Scott has also stated she reported this to the police.

However, the San Bernardino County Sheriff drew a blank when asked if Mr. X’s name came up as a suspect in any reports. In fact, he does not come up on any report whatsoever in over twenty years, according to the media relations representative with the Sheriff.

Some of these allegations of fraud are alluded to by attorney Mel Friedland, who is representing Risse in the conservatorship case. In a report filed with the court on March 7, 2012, Friedland states that he was contacted by a former caretaker who had concerns about Lois Risse. Friedland writes:

“The informant further indicated that there had been two referrals to Adult Protective Service… On February 16 2012 I contacted Adult Protective Services and asked for information regarding the two alleged referrals and told I would be contacted. To date, I have had no contact from Adult Protective Services.”

IGNORING THE EVIDENCE OF ELDER ABUSE

Melodie Scott’s records clearly indicate heavy third person withdrawals from Risse’s accounts during the period of Fall through Winter of 2011, none of which involve Glenn Neff. The lack of any concomitant report in the Sheriff’s files raises some serious questions as to the functioning of the SB County APS.

Another conservatorship matter raised alarm recently when it was revealed that a report made to SB County APS was drastically altered by the time it got into the hands of the police agency to which it was referred. The initial report going into APS had alleged that conservatee Charles Castle had been deprived of his rights to due process in the initiation of the conservatorship and had also been represented by the same counsel, Bryan Hartnell, who was also representing the conservator in this same case.

However, by the time the Pomona Police went out to investigate APS’s allegations, the report had been strangely altered. The documents that Pomona P.D. Officer Catanese had in hand only stated that the conservator had misappropriated a social security check in July of 2011. As conservators take control over the finances of their wards, a report of this nature would be considered a non-issue and would result in a quick “case closed.”

A second report on the Castle matter was subsequently made to San Bernardino County, due to the fact that the first report had been tampered with. Apparently, that report was buried and no one ever went out to visit Mr. Castle from San Bernardino County APS. That agency has declined to discuss their dispensation of either Castle report.

A series of articles on the Castle case resulted in the resignation of both attorney Hartnell and the conservator.

The response from the County as to queries of a possible cover up going on within the ranks of San Bernardino County APS workers met with a stiff reply from County media rep David Wert, who called the allegations of a cover up “ridiculous, insulting, and childish.”

The Risse case is particularly troubling due to the plethora of documentation that the elderly woman was heavily preyed upon by others in the past year. The fact that no police report exists, in the face of multiple contacts with the authorities, coupled with the persistence of the conservator in attempting to seize the property Risse legally sold to her friend decades earlier, ramps up alarm that government agencies may be working hand in hand with private conservators in order to obscure bona fide instances of abuse and bleed money out of whomever may have it.

DEPOSING THE INCAPACITATED

To add to the nutty mix, Lois Risse has now been deposed by the counsel for Glenn Neff, Jack Osborn. Risse has been deemed incapacitated and had trouble remembering much of anything during the deposition. Elder attorney Marc Hankin has called relying on the memory of an incapacitated person to substantiate a claim of this nature : “irrational.”

Osborne has represented Melodie Scott in the past and has filed questionable documents in this case, including a response to the petition to return assets which was not even legally executed , lacking a date and place on the verification. Calls to SB Court questioning how the clerks could have possibly accepted such a document into the file have not been answered. Attorney Osborn has not returned calls from this reporter.

While the devil is in the details, and the details of the Risse case are individual and therefore unique to this case, a larger issue remains. If a conservator or anyone else with a power of attorney over an elder can revoke a decades- old deed of sale simply because they wish to drain the money off the property now, then no deed of sale can be considered final and no one’s property is safe from seizure by a court of law.

COURT GONE WILD

Court watchers have cited numerous irregularities in cases heard in San Bernardino probate court. In one instance, a man was permanently restrained from his own father without a hearing when he took photographs of his father which allegedly revealed that the father was being physically neglected by the conservator. Sitting probate Judge Michael Welch ordered the photographs destroyed and issued a permanent restraining order against the conservatee’s son, William Horspool, without ever calling the matter to hearing, a clear violation of due process.

In another instance, Welch approved the actions of a conservator who had “pulled the plug” on a mental health conservatee who had come down with pneumonia. The conservator decided—over the protests of the family– not to give the woman any treatment for the lung infection and instead to ply her with morphine. The woman quickly succumbed.

The Risse case may be considered a precedent setting case. During a time when foreclosures are rampant and allegations of mortgage fraud are escalating, we now must be concerned that our deeds of sale may, in fact, prove to be worthless.

History will be made in this hearing, which is open to the public and will take place at 1:30 pm in department S 15 on January 24, 2013 in San Bernardino Superior Court, located at 351 N. Arrowhead in San Bernardino, California.

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