Last month, I wrote a post about the foreclosure problem here in Florida and across the nation. When the financial problem began, I was a part of the crowd that was drinking the Conservative Kool-Aid and blaming government regulation and interference, with a heaping helping of blaming people for taking out loans they could not afford.
I have since reevaluated that position. There is blame enough for everyone, and the biggest crooks here are in the Nation's Financial Sector. Let me walk you through this (all names used here with the Exception of MERS are fictional for illustrative purposes, and are not intended to represent real or imagined people or businesses):
First National Federal Bank of Florida makes a loan to the Smith family so they can buy a home. That loan is written down as a "note" and the "note" is secured by a mortgage on the Smith home. The Mortgage states that if the note is not paid, the owner or holder of the note is entitled to force the sale of the home, and the proceeds are used to pay off the note, with the balance of the funds going to the Smiths. The mortgage is recorded at the County Clerk's office as an official record for about $10.
The bank sells that loan to a trust, where it is securitized, bundled with a few hundred other loans, and resold as an investment to the Franklin Secure Real Estate Investment Trust. The bank has made their money, and their risk is covered. There is no incentive for First National Federal Bank of Florida to make sure that the Smiths can pay the note, because the note will be sold long before the Smiths default. The only real motivation for the bank, is for them to originate as many loans as possible, and sell them quickly before they default. That is how an assistant manager at McDonalds qualifies to buy 5 houses.
The Franklin Secure REIT sells the notes to Richards and Company Investment REIT, who sells them to the Wells and Frederick REIT. The consumer never knows this, because the note is still serviced by the First National Federal Bank of Florida, who takes their payments and forwards them to the owner through a shell company (more on that in a minute).
There are thousands of mortgage transfers made each day in Florida alone, and continually recording these transactions at the County Clerk's office at $10 a pop is costing banks $600 million a year. They decide that there MUST be an easier way. This is the "way" that they came up with:
So, in 1999 a Corporation called Mortgage Electronic Registrations Systems (MERS) was formed. MERS is a shell corporation that is jointly owned by the Nation's large banks, has no financial stake in the real estate mortgages, but mortgages are all registered to MERS, and the 44 employees of MERS keep track of who actually owns what Mortgage. MERS is the registered holder on over 55 million mortgages. They avoid the $10 fee, and save the banking industry billions. The problem is that they have taken our Nation's Public records system, and made it so no one knows exactly who owns what, and during all the transferring that went on, the original note is lost. This makes it impossible in many cases for a bank (any bank) to prove they own the note, but that doesn't stop them from trying.
This allows mortgage fraud on a scale that was unheard of for the thousands of years of property law that existed before MERS came along. Fake assignments, contracts, affidavits, and other evidence has been used to take homes that banks had no right to take.
The reason why I support people fighting this is that since no one knows for sure who owns what, there is a chance that settling with who you think is the owner of your mortgage may result in the REAL holder taking your home when the note IS eventually found, or may result in more than one bank claiming that you owe them money. In one case here in Lee County, Florida, a homeowner was foreclosed upon by two different banks, both of whom claimed to be the owner of the mortgage and note, and both of whom had paperwork and "evidence" to prove it. (The cases are American Home Mortgage Servicing v. Joanne Fredenburg Case 08-CA-050001, and Deutsche Bank National Trust Co. v. Joanne Fredenburg Case 08-CA-051319)
There will be more to follow on this...
2 comments:
Although there is blame enough to go around, the main blame still lies with our elected officials and their lackeys.
Maybe I'm just drinking the conservative Kool Aid, but a close friend of mine who makes money from the financial industry, but not mortgages, explained it all to me. In addition I read up on it.
It started during the Carter Administration, but has gotten worse with each one since. Not only were banks and mortgage companies told that the government would make good on their losses, people like the excrable Barney Frank and Chris Dodd told the lending institutions they'd be labeled as racist if they didn't lend money to minorities who almost certainly couldn't pay it back.
As I said, there is plenty of blame to go around, but it's the politicians, not the banks that deserve the most blame.
I used to believe that, but after looking into it, I am not so sure. The subprime division (every bank has one) is the most profitable division of the bank. Between high interest rates, fees, and charges, the subprime unit pulls in much more money than the rest of the lending units. Interest only 5/1ARMs at 10% were pulling in much more than 30 year fixed rates at 5.75%.
This isn't just true with mortgages. Credit cards with 22% APR, $80 annual memberships, $35 late fee, $35 over limit fee, universal default charges, etc were raking in the bucks.
The only problem is with these risky loans, it was only a matter of time before something tipped over the delicate house of cards that most people built their credit upon.
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