This blog warned a few weeks ago of a coming campaign by the officialdom against so-called “strategic defaulters”. It has arrived even sooner than we expected.
We warned that this development was the inevitable result of financial firms, taking an increasingly predatory posture toward their customers. Borrowers are responding in kind, by taking a cold-blooded and legalistic look at their agreements with lenders.
Now having said that, it is well nigh impossible to determine how frequently “strategic” or “ruthless” defaults are taking place. Even though it is in theory an appealing option for borrowers with severely underwater mortgages, it nevertheless comes with a lot of costs: moving and a trashed credit rating. And note that a bad credit report does not merely mean restricted access to borrowing, but it it is a big negative in the job market, now that many employers routinely pull credit reports. So I suspect the talk of strategic defaults greatly exceeds the reality.
In addition, the “strategic default” label presupposes that the borrower is under no financial stress and the default was purely elective. I suspect, instead, that the “strategic” defaults are instead anticipatory, that the borrower sees that he will wind up defaulting at some point and has decided to cut his losses.
Cynically, I must note a paper on this very topic by Luigi Guiso, Paola Sapienza, and Luigi Zingales appeared the very same week that Fannie announced its plan to Get Tough with the miscreants. And mirabile dictu, it does tell us what proportion of defaults are strategic (26%) and attributes it to the perception that the bank won’t pursue them.
Yet the authors admit it is difficult to identify which defaults are strategic defaulters:
It is difficult to study the strategic default decision, because it is de facto an unobservable event. While we do observe defaults, we cannot observe whether a default is strategic. Strategic defaulters have all the incentives to disguise themselves as people who cannot afford to pay and so they will appear as non strategic defaulters in all the data.
Yves here. So what did they do? They conducted a survey of “representative sample of US households” in December 2008 and March 2009:
We asked the respondents information about their home ownership and the date when they bought or refinanced their house. Moreover, we asked the following questions: ―If the value of your mortgage exceeded the value of your house by 50K would you walk away from your house (that is, default on your mortgage) even if you could afford to pay your monthly mortgage? where people could answer ―yes,‖ ―no,‖ or ―I do not know.‖ For people who answered negatively, we repeated the same question with a negative equity of 100K. For people who answered negatively, we repeated the same question with a negative equity of 200K (March survey) or 300K (December survey). In addition, we asked whether the respondent thought it was morally wrong to walk away from a house when one can afford to pay the monthly mortgage. Finally, we asked a list of questions about their political views and their views about recent economic policies and current events.
Yves here. I know this may sound terribly logical, but this is actually rubbish. I’ve done a tremendous amount of survey research. In general, you need to do a great deal of validation of the survey to make sure the question order or phrasing is not biasing answers. Businesses who have real money decisions hanging in the balance almost never do this, and I doubt these academics took this step either.
And more important, surveys on possible future actions involving money are notoriously unreliable. It is routine that consumers in a survey will say they will make a certain purchase in the next six months or buy a new product when in fact they do not. This approach is so notoriously useless that people involved in new product design have been using other approaches like conjoint analysis for over fifteen years.
Nevertheless, these suspect surveys (an update claims the percentage of strategic defauters is now 31%) appear to have provided the impetus for Fannies’ new aggressive announcements
The first is that the borrowers that the agency deemed to be able to make mortgage payments but nevertheless defaulted will not be eligible for a Fannie-backed mortgage for seven years after the foreclosure. Second is Fannie announcing it will start pursuing “deficiency judgments” in jurisdictions that permit it:
Fannie will instruct its servicers in an announcement next month to monitor delinquent loans on the verge of foreclosure. They will recommend cases for Fannie to pursue deficiency judgments.
Terence Edwards, executive vice president for credit portfolio management at Fannie, said these steps are meant to urge borrowers to work with the servicers.
“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting,” Edwards said. “On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”
Yves here. Let’s parse this: if you don’t talk to your servicer and then default, it presumably increases the odds greatly of being deemed a strategic defaulter. But the flip side is I can see plenty of instances where a sudden change in circumstances (job loss, medical emergency) could lead a borrower to conclude that he was now destined to default, and he needed to preserve whatever cash reserves he has, and talking to the servicer would be pointless. And of course, if you DO talk to your servicer, you will have to provide information about your finances, which might be used against you later if you default.
But more broadly, how credible is the threat of Fannie going after defaulters? Given the economics, this is mainly bluster, although I expect the agency to pursue some cases that appear obvious (to the extent it can judge “obvious” ex ante). collect a few scalps, and then run a very loud campaign about the cases it won in the hopes of deterring others.
Let’s consider some of the many problems Fannie faces:
1. It is going to have a very hard time determining who is a strategic defaulter. A credit report is not a complete picture. Small businesspeople often have corporate borrowings that are guaranteed personally; per above, a borrower could have had a sudden change in income or expenses. So it will be launching lawsuits with incomplete information
2. Litigation is expensive. If the borrower fights, legal costs will mount quickly. Fannie has the burden of proof and will likely need to do discovery (get the borrower to provide various financial records) and bring in an expert witness to make its case that the borrower was able to make payments for more than a short period beyond the default.
3. You can’t collect blood from a turnip. Even in those cases Fannie wins, the borrower may not be able to satisfy the damages and could file bankruptcy.
4. Fannie may lack standing. Recall that foreclosures are increasingly being challenged successfully because the party pursuing the foreclosure, usually the servicer, cannot act on his own, as an agent. The party bringing the action has to be the owner of the note, which is a specific trust. In many cases, the servicer or the foreclosure mill cannot establish that the trust it claims owns the note really is the owner.
A lot of these cases of “who really owns the note?” involve private label (non Fannie/Freddie) deals, but some important precedents also involve cases where the mortgage (which is the lien, and is separate from the note, which is the debt) was assigned to the electronic mortgage recording system, MERS. Recall that in all states except five, the note is the critical instrument, and must be correctly endorsed by all the intervening parties (a minimum of two between the originator and the trust, so a minimum of three endorsements are needed). It appears in many cases when MERS was used that the parties in the securitization chain instead relied upon it and fell down on endorsing the notes. I won’t bore you with details, but doing it ex post facto is not kosher. Since Fannie and Freddie required the use of MERS (IIRC starting in 2000), the same failures may have occurred, and as a result, the same arguments that have been perfected in some states to contest foreclosures may be applicable here.
Of course, this announcement also means that anyone who is a real strategic defaulter will need to be a bit cagier just in case (for instance, no e-mails or talks to friends or colleagues about strategic defaulting; in fact, having a document trail of current or expected financial stress would be advisable).
But either way, have no doubt the PR and threats of action to combat this trend will become more and more visible in the coming months.
64 comments
Comments are closed.
“Even if you could afford to pay…” is a nebulous concept.
It’s like the way HAMP eligibility is a one-size-fits-all income figure with no accounting for region of the country or one’s other expenses (things that in other contexts like the tax code the government does single out – medical expenses, childcare, college tuition, etc.).
It’s clear that this sign of the peasants getting uppity, a proto-jubilee phenomenon, is terrifying to the kleptocracy.
I like the way that, true to form, Obama has looked clumsy and uncoordinated in this announcement. Everyone assumes that the loathesome and almost universally reviled welfare parasite Fannie would never have done this on its own (not even in tandem with Freddie, who’s supposedly just observing), and that Treasury and the FHA are lying about not having coordinated it. Geithner’s statement was that this isn’t Treasury policy.
If that were true it would be reckless insubordination way beyond what McChrystal did.
But nobody buys that. It looks like Obama once again wants to get tough on the little people (he’s a typical despicable bully, always willing and eager to kick down), but true to his cowardly bully form he’s too much of a coward to take responsibility for it, so he floats this absurd nonsense that Fannie’s doing this on its own initiative.
Big picture, we should hail and support any kind of bottom up jubilation. The system’s main weapon is keeping us in thrall to debt and the “ownership” brainwashing of the debt ideology. The more these are purged, the better off we’ll be.
Not to mention that the sooner this absurd bubble deflates the better off we’ll be. Deflation harms the impoverished debtor only if he’s enough of a sheep to hold onto his debt like some masochistic fetish.
The debt is poison, and the choices are to swallow it oneself and commit suicide (and help murder one’s own people) or hand it back to the gangster and force him to eat it and die.
It’s obvious which is better.
What am I missing here?
NO one broke the arm of the barrower, and held them at gun point to take out the loan, and to suffer the pain of default. The fact that 99% of the barrowers never read the contract, and other closing papers, does not matter. They were told to get an attorney for any explanations. The barrower signed a closing document that said they understood the legalities, but they did not read that paper either but just signed it as if they do not have a brain in their head.
So who is to blame? The consumer could have said NO, and walked from the real estate closing, but NAY they put themselves in debt for 30 years taking 75% to 85% of their income.
Any dork knows the banks make a killing on any mortgage, not to mention the many add on cost like 100 bucks for document prep that is nothing but a hundred bucks for a cheap 10 cent copy. These are profits beyond imagination. In the first 4-10 years of the 30 year note all but Zero goes to the principle amount owed. Add it up, it is labor FREE profit money to the banks at the tune of over a 1,000 bucks a month for each mortgage. Stats show that on average every house in the USA will be sold by the owner every 5 to 10 years, so in effect the first years of the mortgage is free money to the banks. On average NO one really owns their house, the bank does, and the mortgage will never be paid off, but rather grow with inflation every time the home changes hands with a new debt.
But what does the so called home owner do—you got it, they refinance the house eliminating all their equity. Of course the banks will take their paycheck and start the 30 year payment clock all over again. So who is to be blamed? You wave money in front of a bank and you expect them not to take it? You are not that stupid are you?
And with the CCRs, zoning, home owners associations, state and federal restriction for land use—your property rights are diminished to the point that you have to pay to use the potty that you think you own. You do not even have a free place to take a shit. It is a great American scam perpetuated by the banks, and approved by the utterly stupid—gawd awful dumb— public.
There is away out, simply do not go into debt. Accordingly, if no one took out a mortgage, housing prices would drop 60% to 75% over night, and would be in line with other cash purchases. How can a nice 3 and 2, 1800 square foot home in the 60’s-early 70’s cost 17 grand, but today is over 200 thousand? How can that be? And do not blame the banks, the consumer gladly forked over his pay check for 30 years and will continue to do so for the rest of their life.
So what is your property worth? Come on now and be honest! YOU do not even have a clue, no one does. It is worth what a ready, willing, and able person will pay for it at closing— everything else is pie in the sky. And I bet your real estate agent told you what a good investment you made—ha ha ha—- you jerk! Home owners, paying a 30 year debt of most all their income, live in a dream world far from any shade of reality. I would venture to say a wild monkey has more brains.
All of a sudden the consumer runs out of cash and wakes up out of their dream world and says what am I doing making $1,500 a month payments for 30 years when I can rent for a grand a month and pocket 500 a month or have 6 grand a year to stash away? And that big screen NEW TV really looks good about now. What can I say but the bible is right—a fool and his money are soon parted.
What is the easiest and fastest way to get out of a sky high 30 year note that takes all your pay check? You have that right— “Hey you filthy bank, come and get your shitty house, and I hope you choke on it!!!!” ha ha ha. This is not a moral issue, you are not doing anything wrong, this is terms of the contract, it is a fair deal. I do not pay and you get the house— so says the contract. It is a fair deal, just as the bank was willing to take my paycheck was fair deal.
Well, to end this poorly written essay, I have one thing to say, come and rent from me. I have many single family residential homes all of high quality and below market value rent prices. I own them free and clear, no debt, so I can afford to give a low rental price. I just bought a 5 year old 2,000 square foot home and paid 190 grand cash up front for it from Freddy Mac. The owner walked away from it, the price was right so I bought it. Add it to my collection, it is on the rental market for $1,000.00 a month and it will not last long, it will be rented next week for sure. So I’m quite happy to see a strong rental market; and just like the banks I do love the cash flow as I am a greedy bastard. What can I say, I ripped off the other guy and I pass the saving on to you. I beat the system, and I’m not selling you anything. In fact I have nothing for sale—just houses for rent.
As for deficiency judgments, tell them to go to hell they will not get a dime but from some little old lady living out her last years and is scared as hell. Damn banks any ways.
But the deficiency debt is worth 5 to 75 cents per one hundred dollars cash to a collection agency—and tell them to go to hell also. The banks make money coming and going.
Don
A house like that cost my Mom and Dad 24,000 in 1962 outside Chicago, so that is a little higher than the price you quote. Today, in 2010 dollars, that is about 166,000 according to the the Bureau of Labor Statistics CPI change calculator. http://data.bls.gov/cgi-bin/cpicalc.pl
“nobody twisted the borrowers’ arm”
No, maybe not. But the originastor in the case of my refinance advised AGAINST an attorney (to cut costs and speed up application). As a matter of fact, the Loan Officer (who also ran the brokerage, and was an EMPLOYEE of the Originator) showed me a business card that said he was a real estate financial consultant. He told me that he knew as much about real estate l;aw as an attorney. He promised that he had my interests in mind. He fucking lied, period.
I owned my home for 16 years before I decided to refinance 4 years ago. The “lender” (who I found out later, was NOT the lender) had my property overappraised to make it look like I had home equity to borrow against. When I lost my second job 2 years later, I had to sell and get a smaller place. But, no one would list my home, because it was underwater by 50% (no, not 10% or 20%). I was duped into “borrowing” double the value of my home – I could not have sold it for the borrowed amount even a month after closing. I was required to use the “lender’s” appraiser. The paperwork had 2 different loan #’s and was missing disclosures. When I discovered the consumer law rights violations, I rescinded and offered the property as payment in full. But the “lender” refused to rescind, along with the servicer, and the fake mortgagee, MERS.
The servicer, without any legal standing, decided to try and foreclose 8 months later by recording a false assignment affidavit in the land record, clouding title and embarrassing the hell out of my family and I. On top of that, for the next 2 years the servicer systematically destroyed my credit rating and caused me to pay more money for auto and home insurance, caused my creditors to lower the limits and triple the low interest rates I had enjoyed due to my excellent credit. The servicer and lender refused to provide me with the identity of the owner of my negotiable note for more than 2 years, and now they tell me Fannie owns it. Bullshit. Fannie services it, I’m sure.
I rescinded. When they give me back the $70k of payments I made, completely fix my credit, and pay for the financial destruction they caused to me as well as pay me for my lost time and anguish, they will not get my home of 16 years. They already caused me financial damage and loss far in excess of the invisible money they “loaned” to me – besides, I will only tender the home to the rightful owner of the note – I have a right to make payment to whom is rightfully owed and NO ONE ELSE, and only AFTER I am reimbursed for my damages.
No one twisted the “lender’s” arm to force it to “loan” money. Unless you count Fannie and the Big Banks. But c’mon, now, who has more money, effective attorneys, and more knowledge? The homeowner, or the “lender”?
Put the fault squarely where it belongs, on the greedy, deceitful lender, MERS, and Fannie and it’s crowd – the ones who duped people like me into borrowing and also the ones who coerced other people to lie on the app.
The homeowners couldn’t fight what they couldn’t see – but the noteholders have pockets and can get lawyers – they are victims, too.
Tired of hearing about “irresponsible borrowers who live above their means”. I live in a middle-class neighborhood and anyone I know who is in danger of losing their home is NOT because they lived above their means – they fully expected that they would be able to sell their home to pay the mortgage should an emergency come up – but couldn’t – and if you look at history and the full picture, you will see that real estate value in general is right about where it should be – if it weren’t for Wall Street’s greed, real estate values would not have been artificially inflated – it was done to make the borrower believe that he had enough equity consideration to borrow against – when in fact there was no equity.
“but the bible is right—a fool and his money are soon parted”
Yeah I just can’t wait until I see headlines that finally show what’s really been going on. The Banks and GSE’s should go bankrupt – no one would be in debt if they didn’t exist.
Sir, if you DO have fre-and-clear ex-stolen Fannie Mae properties, congratulations. Since people don’t really care anymore or just can’t find an attirney to help, it is people just like you, landlord/slumlords who will have to deal with people telling you to change a lightbulb or else, you can deal with clogged-up drains and pet stains. When people just don’t care anymore, they just don’t take care of things. If you intend to get $1000/mo rent, you need to rent to people who have good credit and jobs.
Good luck!
I want to remind everyone that Fannie has very very little legal standing in non-recourse (or limited recourse) states, such as Florida, Nevada, Texas, California and New York. A first mortgage includes an option to walk away. Strategically defaulting is legally the same as strategically exercising any other option.
Notably these include the most underwater states, so this is largely bluster.
“…this is largely bluster” is true of most of the TPTB’s matrix, but under our collective hallucination, it works as long as a sufficient number are still blinded by the machine. That’s why this site is so vital for the awakening (and why Lieberman desperately wants an internet kill switch).
Florida is not a non-recourse state
“But either way, have no doubt the PR and threats of action to combat this trend will become more and more visible in the coming months.”
The only effect that will have is to give even more people the idea of strategic defaulting – people who might not have considered that otherwise.
Vinny
This is all about perception. It’s the same strategy Hollywood and the music industry use to discourage media “pirating”. They sue a couple grandmothers and the rest of the sheep fall in line. What matters is spreading fear, uncertainty and doubt among the desperate “small people” who would consider walking away. Only corporations and the well-connected get to walk away from a loan.
As Yves keeps pointing out, injustice of this sort is deeply corrosive to a society.
Yet Washington and its Wall Street overlords believe in belief. We’re not dealing with the reality-based community; they could give a fig for the facts. It doesn’t matter if Fannie lacks standing or if these lawsuits cost more to litigate than they recover. It doesn’t matter if there were no WMDs. It doesn’t matter if it was 50,000 barrels per day instead of 1,000.
But as we all know there’s a difference between reality and wishful thinking. Reality is unforgiving. You can’t spin it. That’s the problem our parasitic ruling class runs keeps running into: punishing defaulters doesn’t solve the problem of millions underwater and unemployed, it just prolongs the death agony of the banks. Their spokesman in chief Obama follows the same playbook. So fake financial reform takes precedence over reform that would actually prevent future crises, and fake health insurance reform defeats the real stuff, and cleanup workers in the Gulf scrape up the oil that washes up on sand in the morning but ignore the layer two-inch thick that deposited over night because it’s buried beneath two feet of sand. Yet the poison remains.
“This is all about perception.”
Your post is devastatingly spot on. Faith-based Reaganomics (“no, I’m not peeing on you; that’s trickle down from ‘free’ market heaven”, and “we have to fight them over there so we don’t have a mushroom cloud in the motherland”) finally collides with a reality-based world and the matrix is dissolving into it’s naked parts.
This vampire machine has finally siphoned too much blood from the consumer goose, so it can’t lay its golden eggs; it has extracted from and dumped too much on the planet that basic life support is now threatened; and it is killing so many, the unthinkable nuclear option becomes more likely from people with nothing left to lose. It can’t be much longer now—not too late, I trust—before an involuntary mass awakening (2012, perhaps?).
Doug Terpstra,
I thought Hannah Arendt put it most eloquently:
Under normal circumstances the liar is defeated by reality, for which there is no substitute; no matter how large the tissue of falsehood that an experienced liar has to offer, it will never be large enough, even if he enlists the help of computers, to cover the immensity of factuality. The liar, who may get away with any number of single falsehoods, will find it impossible to get away with lying on principle. This is one of the lessons that could be learned from the totalitarian experiments and the totalitarian rulers’ frightening confidence in the power of lying—-in their ability, for instance, to rewrite history again and again to adapt the past to the “political line” of the present moment or to eliminate data that did not fit their ideology…
The results of such experiments when undertaken by those in possession of the means of violence are terrible enough, but lasting deception is not among them. There always comes the point beyond which lying becomes counterproductive. This point is reached when the audience to which the lies are addressed is forced to disregard altogether the distinguishing line between truth and falsehood in order to be able to survive.
–Hannah Arendt, Crises of the Republic
Arendt sounds somewhat hopeful, but “under normal circumstances” is a big caveat. And even her ‘resolution’ sounds eerily similar to Orwell’s dark “1984 “ending: “This point is reached when the audience to which the lies are addressed is forced to disregard altogether the distinguishing line between truth and falsehood in order to be able to survive.”
That sounds like delusional relativity ultimately wins, depressingly similar to Winston’s final acceptance of doublthink under Big Brother’s ministries of truth, justice, and peace. Is it foolish to hope for a more enlightened breathrough?
Ms. Arendt DIDN’T say that what happens before a Big Lie is unmasked will be tidy or just. She had reason to know otherwise.
So, let me see if I have this straight.
OK: An airline declares bankruptcy so union contracts can be re-negotiated and total quantity of payments reduced.
Not OK: Individual voter declares bankruptcy so mortgage contracts can be re-negotiated and total quantity of payments reduced.
Have I got that right?
“i” wrote:
So, let me see if I have this straight.
OK: An airline declares bankruptcy so union contracts can be re-negotiated and total quantity of payments reduced.
Not OK: Individual voter declares bankruptcy so mortgage contracts can be re-negotiated and total quantity of payments reduced.
Have I got that right?
Don:
Not quite, as you are negating the “need” factor. The bank does NOT need to reduce your house payments, or your note. When you add up all the closing cost and at least one years payment on the 30 year note the bank made a killing. They are not motivated to do anything. They will find another buyer and start all over again. In fact after 3-4 years if you do not refinance, or add to the balance owed, the bank rather have the home back, as all their money is made in the first years of pay back in interest. They do not want the principle balance due, they want the interest—that is their motivation. They are selling money and there are lots of buyers.
For many year I made loans using a First Trust Deed, amortized over 30 years with a balloon payment in no less than 4 years, plus prepayment penalties, and closing cost as that is the greatest return on my dollar. I preferred interest payments only but that was a hard sell, but I got it at times.
I personally loaned 60% to value, and I hoped to get the property threw default. I wanted, and prayed, the owner would default on the note. And some times it would happen, and I giggled all the way to candy store. It only takes three months to repo on a default first trust deed, but it was worth it and I did all my own legal work to boot.
Could you bargain with me a lower payment and reduce principle because you went bankrupt? NO WAY, not even in your dreams—but I would add on a stiff late payment, as to the contract, to make your situation worse, drive you greater into debt, so I can get the property.
It is a dog eat dog world and Darwin is right, survival of the fittest and the smartest; the haves, and the haves not, duke it out. I want all the coins on my side of the table when the fighting is done—plus interest, plus anything else I can legally get. This is capitalism at its finest.
When a business goes bankrupt every one loses, so the NEED to lower the labor cost is great. That perhaps making a shop more profitable at lower wages will save jobs, and that is better than no job at all. More than likely there would be a clause in the labor contract to return to higher wages when the company rebounds. But that is kind of a sham, because management sucks out more of the dollars as they show up in the till. Good luck to labor, I would not want your job, you take the risk with no recourse. I do not go that rout to make a buck, I will get paid well for taking risk or I do not take the risk.
However if you notice banks do not bargain on any notes they hold even in the face of the shop going bankrupt. Because they are in controlling position, first up to get paid, and can even raid the company’s cash box, and bank accounts, if their payments are threatened.
In real estate things are different because the LAND, and improvement cannot be stolen or disappear or taken some where. The land is perpetual and everlasting and retains value to each and every generation. Land is the prime first up necessity of every human on this earth, greater than the air you breathe. You think you own the land but that is not correct, you own the “rights” to use the land, mineral rights to the center of the earth i.e. what ever is below the land, the sky rights above the land to some nebulous place in the atmosphere; it is the rights you own and not the land itself.
You cannot put the land in your pocket and walk away with it, and you cannot hide it. The rights can be divided out, sold and bought, and the “rights” sent over seas but the land stays where it is.
If I loan on property, I rather have the property than the principle owed me so why should I dicker? Your lost is my gain. Banks are no different, just more layers of BS is all. Banks are just another scam of the modern age. You play with fire and you will get burned.
You cannot get out of debt by taking out a loan—some one should tell this to Obama— he will go insane for sure. I would love to see the shock on his face when reality sets in. I would love to hold a note on the White House and have Obama (and his clan) go into default—ha ha ha—and I will NOT dicker a lower payment.
Don
These strategic defaulters are clearly terrorists — uppity resisting victims of a wealthy ruling elite corporate imperial gang rape — and they should be declared terrorists by the all mighty and all powerful god of the masses congress of scamerica.
Once declared terrorists they could then be tracked down by satellite, and Predator and Reaper missiles could be fired into their neighborhoods by scamerican elite missile pilots (the ‘Bottom Guns’, sitting on their fat asses in a trailer somewhere in the mid west watching video screens, eating cheese burgers, and killing on command like mindless robots). Snowbama, given that he is taking a first hand part in ODSD (Operation Demonize Strategic Defaulters), would of course apologize for any collateral damage and point out how important it is to the safety of scamerica to eliminate these strategic defaulters who hate us for our equal opportunity freedoms and want to disrupt our great scamerican way of life.
And anyone advising the terrorists how to peacefully resist — like in this totally UNPATRIOTIC little line here — would be jailed for fifteen years …
“Of course, this announcement also means that anyone who is a real strategic defaulter will need to be a bit cagier just in case (for instance, no e-mails or talks to friends or colleagues about strategic defaulting; in fact, having a document trail of current or expected financial stress would be advisable).”
Errrr …. Perpetual Conflict take down with a ruler and ruled world is the game plan here. It is getting soooooo obvious. It will, and is, working well, and will continue to do so as long as they keep it incremental AND the marks do not wake up to the NOW GLARINGLY OBVIOUS GAME PLAN!
We are all Gazans now!
No balls! No brains! No freedom!
Deception is the strongest political force on the planet.
“We are all Gazans now!”
And it was all so predictable.
As Henry Steele Commager observed towards the end of the 19th century: “If we subvert world order and destroy world peace we must inevitably subvert and destroy our own political institutions first.” The much-feared boomerang effect of the “government of subject races” on the home government during the imperialist era means that rule by violence in faraway lands ends by affecting the government of England, that the last “subject race” will be the English themselves.
John Jay in The Federalist Papers said essentially the same thing a century before that:
[A]bsolute monarchs will often make war when their nations are to get nothing by it, but for purposes and objects merely personal, such as a thirst for military glory, revenge for personal affronts, ambition, or private compacts to aggrandize or support their particular families or partisans. These and a variety of other motives, which affect only the mind of the sovereign, often lead him to engage in wars not sanctified by justice or the voice or interests of his people.
When the people and their interests become expendable, it’s just a small step from what John Jay describes to declaring war on your own people, which is clearly what Obama has done.
CIA director Leon Panetta confirmed your point almost exactly this morning (okay, short of killing strategic defaulters—on the record anyway). When asked about the order to assassinate an Amerikan citizen, he peremptorily stripped him of citizenship with the ‘terrorist’ label, making killing without due process implicitly lawful (as it is for Philistines in Gaza). “We don’t have an assassination list, but I can tell you this, we have a terrorist list and he’s on it.” (WTF?) Reportedly there are now more than a dozen such ‘legitimate’ US citizen-terrorist targets.
Ditto for covert wars and predator drone killings in Pakistan: “We are engaged in the most aggressive operations in the history of the CIA in that part of the world.”
“We were attacked on 911” is the last-word justification for all imperial killings anywhere (regrettable dismembered babies aside) including all covert CIA atrocities past present and future, done in the name of homeland security.
Also, “…the number of Al Qaeda is actually relatively small. I think at most, we’re looking at 50 to 100, maybe less. It’s in that vicinity.” On Taliban strength, “The Taliban…is obviously engaged in greater violence…in some ways they’re stronger, and in some ways they’re weaker…” he says with a shrug
Alrighty then … in the mission to “disrupt, dismantle, and defeat al Qaeda” will 1,000 soldiers per terrorist, nine more years in ‘the graveyard of empires’, and countless innocent deaths suffice? (or … should we just nuke ’em all and let God sort them out?)
MSM stenographers are incapable of questioning this farcical doublethink/doublespeak.
http://abcnews.go.com/ThisWeek/video/interview-leon-panetta-11026048
Gazan? Have you bombed schools for 6 years and screamed bloody murder when you were stopped?
Fannie and other parasites are wardens of the states that performed “almost” criminal financial act and now pretend to be holly and pure and act tough. If anything Fannie is Gazan!
And the lender who failed to properly underwright the loans, walked away with giant bailouts and billions in bonuses. Meanwhile, the debt assumed by central banks and governments to bail out the financial and national economic systems created massive public deficits. Deficits which some now claim can only be paid by cutting public benefits, Social Security, Medicare, Medicaid, state and local pensions, health benefits.
Austerity they scream! But it is austerity for you and not from them. When will they be willing to live on the median family income in the 50,000 dollar range and send the rest of their wealth to the federal government to pay down the debt? What you say… NOT ME!
Punishing those who walk away is yet another example for forcing all of the responsibility on the backs of the debtors. Nice work. Maybe we should all be bankers.
I can’t wait to return to the economies of the 19th century. After all it worked so well for the few while depriving the many.
I say good for Fannie. Because of the effective nationalization of Fannie, strategic defaulters are stealing from me. I don’t expect it to be very effective, but it puts enough doubt into borrowers’ minds that it pulls in another $10B or $20B, that’s great.
In 4 or 5 years, having done a strategic default will probably not be much of a negative. No way that house prices recover what they have lost by then – conceivably could be lower than today, even – and you’ll have to go into a deal with a good downpayment, real income and conservative debt ratios. You bring all that to the table and the chances are high the lender will just observe that your past default that it was one of those that made sense at the time, and was as much the lenders fault as anyone’s.
You gave about $8 trillion to the Wall St banksters:
http://www.nomiprins.com/storage/reports/sub032010.pdf
They do strategic defaults on CRE all the time. Or, as you put it, they are stealing from you too.
OK, so they are going after “strategic” defaulters, eh? Now if this means those people who speculated on the real estate bubble and lost, I’ve got no problem with that. If they are going after a family that was told “you better buy now or you’ll never have another chance at these prices” and fell for it, not so much.
It seems we all have short memories of the heady days of the bubble. Infomercials showing how to get rich in real estate. Programs passing as news that freightened first time buyers into the market.
So now here we are, talking as if we are dealing only with the latter situation. I say let’s go after the speculators, and they shouldn’t be too hard to identify. But leave the families that were duped by the hysteria alone, they may have learned a valuable enough lesson alreasy.
So what is Tishman Speyer going to do now that they cannot borrow any money for the next several years? What, they can? How’s that?
Strategic defaulters are hitting a nerve in the national psychic, a nerve that has been carefully massaged by the political class which has been selling the American dream
of home ownership along with leverage and speculation as a way of life. Washington D.C. is in a state of hysteria and as Yves has pointed out the new war against strategic defaulters has just began.
Beneath this new war image is the very real unwinding of American pyramid housing price structure as the next leg down in housing is pointed at the upper middle class white neighborhoods raising alarm bells throughout the empire.
The potential for default is implicit in the note and its companion contract the mortgage or deed of trust. If the note has a non recourse clause, the question of strategic default is moot. By the absence of a recourse clause and/or the presence of a clause that specifies that there will be no deficiency claim, the lender has granted a put option to the borrower. In that instance the borrower has an implicit right to default, move out and mail the keys. In that right the borrower has an implicit moral obligation to always act in his own self interest. Fanie and Freddie are chasing moon beams and this is a form of propaganda that will not sell.
What one ought to be wary of is that little 1099 document that says that in canceling your note you received income in the form of the loss the lender incurred in foreclosing and selling your former residence. That, and only that, is the impediment to the so called strategic default. You can take that to the court house and aseert that the lender was negligent in seeking fair market value.
It’s lawyers heaven. And Fannie and Freddie are going to be blown up in the near future so what’s to worry. As to MER they never did bother to record the conveyance of the note, again it’s lawyer heaven.
This is, after all, the American Way.
As to why this is all happening, consider those lovely little Federal Reserve Notes that are only redeemable for other lovely little Federal Reserve Notes. Also, comes now the trigger for the great tsunami of quantitative easing.
You should visit the Bureau of Printing and Engraving, they’re really very good at printing those lovely little Federal Reserve Notes. No more just drab greenbacks, they now come multicolored in very fashionable tints with curious little security threads imbedded. By the by, Crane supplies the special paper, is that a stock tip; disclosure, I do not own shares in the Crane Company.
After thought, is the Crane Company a public corporation?
The report by the academics on strategic defaults is just hilarious. It confirms what I have seen numerous times since the crisis began – when it coms to Fannie and Freddie and their mortgages people frequently just make stuff up. If the GSE’s are relying on this type of analysis elsewhere in their business, it’s no wonder they are in trouble.
Also – if these anti-strategic default rules go into effect (which I suspect is unlikely), the most direct impact will be for borrowers to stop saying anything to servicers. Why would you provide any information if it can later be used against you to build a case that your default was “strategic”? Since there isn’t any real definition of what such a default is, it will be defined arbitrarily and subjectively, and anything a borrower says could be used against him.
If there is consideration to an area’s economic ambient conditions, hogwash, is an appropriate term.
If there is NO consideration to an area’s economic ambient conditions, hogwash, is an appropriate term.
Just the same as a central bank adding liquidity can trigger a run, Fannie making threats against an abstraction can generate the opposite, unintended results.
Bottom line is Fan/Fred are on borrowed time, is facing ruin and this tactic on their part(s) seals it. What next? A large part of US properties are overvalued, with more to come. Real estate was a bubble, remember?
The actions of this GSE speak louder than words; a desperate and fatally wounded company in its death throes attacking its own clients. Keep in mind, Fannie itself has ‘strategically defaulted’, otherwise it would not be in receivership.
There is no way for the country to service, much less pay off the principle on its monstrous debts that increase by the day. Most of the debt will be repudiated. This is a simple, mathematical fact. The underlying collateral – suburban sprawl – isn’t worth very much.
While it would have been sensible to have gotten the process over and done with so that a less wasteful form of business could have been built upon the ruins, denial and prestige have triumphed! The sorry mess will drag the hopeless project out for years of misery and suffering. The loss from this will be in the end far greater than it would been by prompt restructuring. Unfortunately, the interval during which the restructuring should have taken place post- bailout/post- stimulus has come and gone. The bailout funds have been squandered, directed toward the managers and bond- holders.
The bailouts in their turn will be defaulted upon and require restructuring. The universal avoidance of any restructuring suggests that doing so is systemically fatal. The GSE’s are painted into a corner. Their customers are defaulting – for one reason or another – and the GSE’s themselves cannot restructure without triggering the grand collapse that they themselves are instigating at another level … by lashing their customers.
Ironic or what?
Hello Yves,
I wrangled with bad student loans for three decades. I regret that you may be optimistic.
Your four points:
1. It is going to have a very hard time determining who is a strategic defaulter. – Nope. Form 1040, line 37 (or net income, whatever) in a ratio to annual mortgage payments. If your income is above the minimum, you’re guilty.
But you’re also guilty if you’re not. Guilty of mortgage fraud. That no doc stuff from years ago.
2. Litigation is expensive. – Nope. Fannie will get enabling legislation from a rubber-stamp Congress. Just like the Department of Education did. Your next objection –
3. You can’t collect blood from a turnip. – Yes you can, if you wait long enough. Do you think Fannie will file as soon as they can, just because they can? The enabling legislation will remove the debt from statute of limitations & make it ineligible for bankruptcy. Just like student loans are. Fannie can sit back, just like the Department of Education sat back, watching line 37. Year after year, decade after decade. Until the Year of Your Spouse’s Inheritance. Then they will pounce. I have personal experience. I was 56 when I finally had money – and it wasn’t mine, but my wife’s. The DoE took only six months from the date I filed to bring matters to a head.
4. Fannie may lack standing. – They may, but proper enabling legislation will give them that, and more. Remember that Federal legislation trumps state & local legislation, and that legislation is, in fact, written by federal agencies & their corporate sponsors, backed up by the finest legal minds greedy people can buy.
This isn’t to say that Fannie will, or that Fannie won’t. It’s only to say that the Department of Education has & continues to do so, and they’re a nasty precedent.
In my case, decades of torment, waiting for the annual dunning letter, was offset somewhat by the fact that 30 years of inflation had reduced the loan to what was, in the end, a trifling amount. It was also offset by the fact that, if the debtor does nothing, if the debtor refuses all contact with Fannie, then credit reporting agencies will not accept repeated reports of refusal to pay. Meaning that one’s credit report can only be messed up once. Not forever.
Corporations forget & forgive & move on. Governments do not. Government is forever.
“I wrangled with bad student loans for three decades.”
Student loans — now that’s another trillion-dollar train wreck waiting to happen.
There’s a huge milking of the DoE and the military by online diploma mills currently in progress. There are now millions and millions of “adult learners” earning their BAs and MAs from these schools, learning nothing, yet amassing huge debts in the process. When they’ll hit the job market with their useless diplomas, they’ll be pretty pissed once their first student loan bill arrives in the mail.
I’m afraid mortgage strategic defaulters are just the first act in this very lengthy tragi-comedy. Sit back, and enjoy the show, my friends :)
Vinny
Dave,
You are utterly incorrect on your points 2 and 4. Real estate is goverened by literally hundreds of years of STATE law. The mortgage trust explicitly elect New York law as governing law. You can’t wave a magic Federal wand and revise contracts.
And 4 is a fundamental obstacle. Servicers and trustees are having trouble NOW proving that they indeed are the party that is entitled to foreclose. Standing is a fundamental legal concept. Judges are not going to tolerate someone asserting he has a legitimate claim against a borrower; he needs to prove he is indeed entitled to collect. The folks in the mortgage securitization pipeline often made a botch of this and there is no way to unscramble the eggs if they did.
As for 1, student debt, by not being able to be discharged in BK, is by implication senior to other personal debt. So you can do simple calculations based on IRS filings. That doesn’t wash for mortgage debt. It is merely parri passu with OTHER personal debt (the portion not satisfied via the sale of the house) AND junior to student debt. So you need to look at someone’s obligations to determine ability to pay. And credit reports often don’t have a full list (such as business debt guaranteed personally, medical debt, etc).
As for 3, you again assume “enabling legislation”. Really? How many friends does Fannie have in Congress these days? It has become a political liability to take money from them.
I don’t know what kind of fantasy you are running, but assuming that the Feds will create legislation that would upend state law regarding the single biggest asset class in America, residential homes, is s non starter.
Hello Yves,
I am hoping you are right. I pray that you are right. I am aware that state law, and 800 years of English Common Law, rule all real property transfers. But my experience of the US government is that it is mindlessly, horribly cruel.
The increasing Establishment hysteria over ‘strategic default’ could be characterized as the ‘naked’ emperors trying to pass measures to ensure that we continue to admire their beautiful wardrobes despite the obvious unraveling of their parade .
True enough.
Think which would look better on the balance sheet. The value of the house at mortgage face value (100%) at locally appraised value (75%) at current market price (50%) or at market price if they tried to sell any of them (salvage value of the materials). The amount they are howling about is the face value. The unreality here is that the assets are unimpaired, so the liabilites are covered.
No.
The word “insolvent” has come up more than once. If the feds wind down this pig, one hopes the bondholders and other plutocrats will take the hit first, the way they didn’t for the banks and the hedge funds and the car companies. Otherwise more tax money disappears and there’s more call for “austerity”.
This is flailing. On Christmas Eve last year, Geithner took off the cap on Fannie/Freddie losses for 3 years. The two GSEs have become the American mortgage market, and they have also have been forced to swallow huge amounts of crap mortgage securities from the banksters. Fannie’s threats are actually a continuation of Administration policy to blame homeowners for the problems the banksters created. We have seen it all before. The lines about people buying too much house, lying in their mortgage applications, not being financially savvy enough. All of these, of course, leave open the obvious questions of why the banksters lent them the money in the first place or why they were so sloppy in their paperwork or why they depended on MERS (one of the most important and least reported aspect of the whole mortgage mess). Now we see the next iteration, the threats against strategic defaulters even if what a strategic defaulter is or how many are out there is unknown. Or even if a homeowner is legally within their rights to opt for strategic default. As I said, this is flailing. Obama, and Bush before him, have refused to do anything remotely serious or adequate about the nation’s mortgage crisis. The reason they have not remains the same. Any real action would show that banks have vastly overvalued their assets and would expose their ongoing insolvency. So the Obama Administration falls back on bullying and threats directed not at banks but homeowners. This is meant to be a bright shiny object, a distraction.
You hit the nail on the head:
1) Banks create trillions in bad loans.
2) Banks create hundreds of trillions in bad loan “insurance”.
3) Bush “economy” tanks, bad loans go “poof”.
4) Banks get tens of trillions on US taxpayer bucks and loan backing.
5) GSEs buy bad loans made by banks as part of 4 above.
6) GSEs go after “defaulters”.
Maybe it’s just me, but squeezing the little guy for doing something that corporations do every day isn’t going to fix the very real problems listed in 1, 2 and 3.
Oh right, it was the “poor people” that caused the problem. Unfortunately, poor people have existed, well, ever since people have been around, and if offered money, they would both need it, and take it. Blaming “poor people” for crashing the world’s economy is about as stupid as invading the wrong country supposedly to catch a terrorist living in a cave in the mountains of a different country or as Richard Clarke put it: “Bombing Iraq after 9/11 is like invading Mexico after Pearl Harbor.”
Well, OK, I guess we are that stupid…
The whole point of that little exercise you just described was precisely to take from the poor to give to the rich.
It’s unfortunate we can’t just do it directly, and have to resort to this kind of charade to put a fig leaf over it.
The Fed took over Fannie/Freddie. If Fannie/Freddie are going at an attempt to squeeze blood from turnips, it will presumably be under the direction of the Federal Government.
What if this whole game was instigated by our own government as an alternative, easier way of exercising eminent domain on land?
Almost like Communism – no one “owns” a right to the land, but they stay in debt to the Government by paying the land taxes and “renting”, so to speak – while the Government can, at any time, pull you off the land if they want to build a road, mall, or what not.
I believe the USA has NO crude oil reserves, and I think it has been that way for several years now. All the nonsense about “buying from other countries” to “protect our oil reserves” is a giant sham, in my opinion. For decades, the US has been doing unthinkable things to obtain oil from other countries; from buying international fields to declaring war in order to get control.
If we have no reserves, stealing everybody’s real estate is a perfect way to secure the land in order to drill for oil in more areas. Fannie Mae supposedly has this “rent-your-home” program – I wonder if that program includes “renting” the mineral and air rights of the land the home sits upon – if not, I would say that it is entirely probable that this whole scheme was dreamt up by our own government in order to take control of the land.
After all, the “money” went somewhere – the Banks/GSE’s were collecting $1000’s in the first three years of every mortgage loan (that didn’t go to paying the principle), then they ended up foreclosing on these properties and remortgaging them over and over – where did all that money go? They didn’t “lend” it out because a promissory note is not cash – but the people who paid on the mortgage paid with REAL BANK MONEY – so where is it?
Looks like the Fed got the money and is now going for the land, while reducing the US population to being dependent on Gov funds to live and eat. I, for one, will not bow down and will not be converted into a slave without a fight.
We have a right to the pursuit of happiness – NOT.
I am not a financially savvy guy but it seems to me that Fannie & Freddie are insolvent and may not be around too much longer. Further, if their existence is based on mortgages, what will they do in the next few years after punishing people who may have returned to the housing market sooner if they were not punished? Will not they be losing business? And what about the “shadow inventory”? Isn’t that going to take another toll on them during the upcoming time of reckoning? It seems they will be biting the hand that feeds them. But what do I know?
I still don’t get it.
If a borrower can not repay his debt, that debt will not be paid.
If a house is worth less than the mortgage, that house will not be sold at the mortgage amount.
Pursuing the money of those with no money does not sound workable.
But the money went somewhere. We can follow the money. Fannie Mac and Freddie Mac can follow the money.
Fannie Mac can reverse a transaction. If the original transaction can be deemed fraudulent, then this transaction can be reversed by pushing a button.
The money went from Fannie Mae to the lenders. Fannie Mae can send the mortgage back to the original lender and return the money to Fannie Mae. Easy.
Even if the original lender has closed, the pursuit of the money need not end. Pursue those who received the money.
Instead of threatening moneyless borrowers, pursue the characters who made large amounts of money fraudulently.
Unwind every fraudulent transaction, and collect millions. Subcontract the pursuit of these millions of dollars to thousands of hungry lawyers and accountants. Pay these folks a 10% recovery fee. This sounds like years of activity. Creates jobs also.
Real Estate agents, Appraisers, Bank Officials, and Mortgage Companies. There is a lot of money waiting to be recovered.
Sure sounds better than squeezing a few thousand dollars from those with no money.
You really don’t get it, do you?
The whole point is to put people onto a debt treadmill for the rest of their lives.
Why do you think we’ve gutted the bankruptcy laws in anticipation?
I thought gutting bankruptcy laws was intended to stop folks from discharging mountains of credit card debt (pre-real estate crash). Of course, the banksters will gladly take whatever benefit comes their way. The DOJ is only going after small fish in mortgage fraud cases (shades of the Keating Five!) instead of tackling the issue at its root and nailing the CEOs and CFOs who designed this mess. Securities designed by cows? Eliot Spitzer, where are you now that we need you?
Freddie Mac/Fannie Mae are insolvent. The government will not be able to maintain them indefinitely. Threatening not to make future loans to “strategic defaulters” is hollow. Mortgages for most people will be non-existent in a few years. We will become a nation of (predominantly) renters. Who the landlord will be (it will not be the government unless the government is a mask for private economic interests) is the only question remaining.
The whole idea of punishing “strategic defaults” is inherently totalitarian, because it logically implies the government writing your household budget for you, and if that’s not complete tyranny I don’t know what is.
“70% of your income goes to debt servicing? Oh that’s no problem, we ran the numbers, as long as you live on ramen noodles and don’t get silly ideas about sending your kids to college, you can totally live like that. So shut up, quit whining and keep paying your underwater mortgage.”
Of course, they aren’t really running the numbers at all; I’m sure they aren’t even making a reasonable attempt to reckon what it means to “be able to pay” your mortgage. But that just means they’re writing your budget for you without even actually thinking about it, which is hardly better.
I just know you’re gonna love the new austerity we’re cooking up for the Americans.
In that case, we’ll just have to roll out the guillotines. Do a little bankster “pruning”. I’m sure they cringe when reading this…lol Makes their little black hearts sink in fear.
Oh year, we’ll strike fear into banksters’ hearts. Fear, baby! FEAR!
Oh, yeah, baby. Roll out the guillotines. Roll in the banksters. Roll them mother fuckers in!
It’s show time!…huahaahaaahaaa! huahaahaaahaaa!
FEAR!
Tony
The truth is the banks have known foe years that this could happen at any time. All of the valuation models have a section on strategic default and, since the mid-90’s, have done significant research on this area. It has surprisingly led to a huge windfall profit for them over the years as they profited the lack there of.
Up till now, people have been loathe to default, there by reducing the total default that might be predicted by a rational simulation. That “triangle” on the curve has been slowly cut down over the years by competition, but make no mistake, the banks price in Rational Default. The current PR campaign is simply trying to reestablish the taboo that was very profitable for a long time.
some persons* are more equal then others.
*) according to SCOTUS, a person could be a corporation or a peon. Slaves need not apply.
And in other news, as the war grinds on, the quote of the day:
” Leon Panetta cites governance problems, drug trafficking and the Taliban insurgency. Progress is “slower than I think anyone anticipated, he says.”
It helps if there are no defined objectives. Then you can claim progress or lack of progress whenever it suits you.
FEAR!!!!
Next World Cup we’ll play with bankster heads.
Chop! Chop! Kick! Kick! GOOOOOOAAAAAALLLLLL!!!!!!
Let the good times roll, baby!!!
Let them heads roll, baby… down the pavement… spraying bankster blood all over the place…lol
2014 – The World Cup of FEAR!
Huahaahaaahaaa! Huahaahaaahaaa!
FEAR!!!!
Tony
Hahaha Tony, LOL! Nice to see someone with a sense of gory humor!
A parastic amoral society feeding on those who can be forced to pay the bill.
i say, do what a corporation would do. they are considered individuals and would a corporation continue to pay on an underwater asset?
or course not.
All that hand-wringing about producing the note is moot. They’re coming after borrowers *after* the foreclosure was signed, sealed and delivered.
But, Fannie/Freddie will have to prove that they did everything they could to maximize the selling price. If the borrower can show that the lender stalled so long that a short sale, with a higher offer, was thwarted, it would at the very least reduce the amount of the judgment.
I have no problem with people who overpaid at the top of the market making good on what they borrowed. Although the media wants us to believe these are all unsophisticated rubes just wanting a bit of the American dream, many of these are speculators who bought multiple houses or greedy people who repeatedly cash-out refinanced, extracting hundreds of thousands of “equity” to get Hummers and boob jobs. Why should the system just let them walk away with impunity? It’s mostly the taxpayers who end up suffering for their bad decisions.
The truth is that ALL defaults are strategic. No one makes every single payment possible, to the point that they can no longer buy food.
Every single defaulter is faced with a choice: to continue to pay money to the bank instead of to someone else. Whether they make this choice early or late, it is a strategic default.
good to see that those “predatory lenders” are getting a taste of their own medicine!
First, those predatory lenders GIVE A HUGE SUM OF MONEY to a helpless borrower at closing, allowing the borrower to move into a new house (or buy all kinds of toys if this is a cash-out refi). The predatory lender refuses to read aloud all of the documents to the borrower, knowing that the borrower has a three days to review the docs themselves, consult with others and back out of the deal should they decide to do so.
But now, the borrower gets even. After some time, he/she stops making mortgage payments. After getting a Default Notice and an Acceleration notice, they decide to “get even”, by continuing to live rent free in the house until the clock finally runs out. Then, maybe they rip out all the appliances and perhaps pee on the rugs before the Sheriff arrives.
That will teach those mean evil lenders not give them A HUGE SUM OF MONEY EVER AGAIN!
Residential mortgage loans typically consist of two elements: 1) a note between the lender and the borrower that sets forth the terms of the loan and establishes the obligation to repay the loan to purchase a property; and 2) a security instrument which, depending on the state, may be called a “mortgage” or a “deed of trust.” The security instrument is recorded in the county land records, telling the world that there is a lien on the borrower’s property. This lien allows the property to be foreclosed upon and sold if the borrower defaults on her or his obligation to repay the promissory note.
The homebuyer at the closing table signs the security instrument (“mortgage” or “deed of trust”). By signing this document, the lender and the borrower agree to appoint Mortgage Electronic Registration Systems Inc. (MERS) as the mortgagee as nominee for the lender and the lender’s successors and assigns. By doing so, the borrower grants the mortgage lien to the property to MERS, and the security instrument is recorded in the county land records. As long as the sale of note involves a member of MERS, MERS remains the mortgagee of record, and continues to act as a nominee for the new note-holder.
This statement is utter rubbish and comes directly from MERS’ corporate communications department. There are court decisions in numerous states, including state supreme court decisions, that have struck down MERS’ efforts to assert that it can act as nominee for the note-holder.
There is nothing in the PSA that suggests that MERS can act as a “nominee” for the note-holder, the trust. MERS has NO legal relationship with the trust.
MERS has several problems, one of which is that they typically separate the note from the mortgage. MERS holds the mortgage, somebody else has the note. This is a fatal flaw in all but 5 states. As one court said, “the mortgage is merely an accessory to the note.” In short, the two must travel together, a fact that MERS loses on every time. Another court pointed out that banks want the consumer to “jump through every hoop” but then they don’t worry so much about trivial technicalities, like the law.
Another interesting point that kills MERS every time is that most federal courts, where they have played, have reminded them about the law of agency and nominees (although most have questioned just exactly what a nominee really means). Specifically, they have reminded them that “if” you are the agent for another, which is fine, you must bring the action in the name of the “other” and not your own, which MERS typically does. Another of those “technicalities” that they can’t be troubled with.
Finally, I think the courts in Nevada got it right when the called MERS a “sham” and said they meant nothing. It is my understanding that this case has gone up and the appellate court agreed. The one thing MERS has assured us of is that we really can’t go to the courthouse anymore and expect to find out who REALLY owns anything, which is why there are several title insurance giants now instructing their local shops to back away from writing title insurance for any property which has been the subject matter of a securitization foreclosure “because we really don’t know who all is missing from the chain of title.”
The “little people” in this country aren’t going to be real happy when they wake up one day and find out that the banksters have destroyed the record keeping system that provides the only toe hold to wealth the peasants thought they owned.
I hope MERS Corp’s HQ is in a bunker.