The Real Issues Behind the Foreclosure Crisis

What is really going on in regard to the moratorium on mortgage foreclosures? A lot. Not all of it would qualify as  the best of “sense on cents”. My thoughts include the following:

1. Can we now declare the HAMP (Making Home Affordable) program to be totally futile? How is it that everybody on Wall Street and in Washington is now promoting that the economy will be harmed if we forestall the mortgage foreclosure process? What the hell have the wizards in Washington been doing via HAMP and through Freddie and Fannie for the last 18 months? The simple fact is our policy makers have done everything in their power to inhibit the markets from working. Now all of a sudden they become proponents of free market principles? Were we born yesterday? Not here at Sense on Cents.

I have continually harangued our Washington politicos for not allowing the housing market to clear and how forestalling that process would only prolong our economic pain. We’re feeling that pain now and will be for the foreseeable future.

2. Where are we going with this moratorium?

Do the banks, mortgage servicers, and originators run significant  litigation risks for improperly foreclosing on selected mortgages? Perhaps BUT I personally believe the smokescreen created by this process is a precursor to having Uncle Sam impose mortgage principal forgiveness as the price for settling the potential legal fiasco of improper mortgage foreclosures. Am I being overly cynical if not outright conspiratorial in my line of reasoning? The fact is I believe the White House has always wanted to write down mortgage principal as the mechanism to support housing. Does crafting principal forgiveness as the ‘settlement’ for alleged improprieties by the aforementioned mortgage originators become  a convenient way to subvert the courts on the issue of contract law? I am not a lawyer but my gut instincts tell me we are headed in this direction. Who gets hurt under this scenario? Mortgage investors who hold the mortgages which will have some form of principal forgiven. On that note, let’s navigate further.

3. The fact is the imposition of principal forgiveness may actually be less expensive for banks and servicers than addressing the real root problem behind many mortgages. What is that problem? The fact that a lot of mortgages in our nation today were fraudulently underwritten from point of origination and were then fraudulently conveyed via mortgage securitizations. A handful of investors (including some FHLBS and Freddie/Fannie) have pursued legal actions to have these frauds unearthed and adjudicated in their favor. How would that work? The banks and originators would have to purchase the fraudulently underwritten mortgages back at par. That cost would be enormous. Forgiving principal on an original fraud will not necessarily cure the problem BUT it does become a means of buying time or ‘kicking the can down the road.’ That my friends is all we have been doing for the last few years anyway so why stop now.

In less polite terms, Wall Street and Washington have been and continue to be hard at work to continue to disguise the massive Ponzi scheme that was our nation’s economy. The moratorium on foreclosures may seem like the principals are trying to be good citizens. I view it in a decidedly different light. The principals on Wall Street and their cronies in Washington are looking for a means to write off the stranglehold of massive mortgage debt that continues to cripple our economy. These developments are merely the next leg in the great financial experiment playing out on our national stage and economic landscape.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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3 Comments on The Real Issues Behind the Foreclosure Crisis

  1. How does principal forgiveness induce a title insurer to insure the uninsurable? I guess the logic goes that if banks only write down 40-50% of millions of mortgages, that people without jobs who are quite happy to live payment-free for 2 years, will gladly pay their mortgage again and never again will a foreclosure be needed?

  2. You guys. You don’t get it do you?
    Do you honestly read anything or do you just remark from other sheeple?
    I bet that if you did a little reseach, you might just find this mess to be quite a fiasco. Fraud does not do this justice at all. Such a small word for such a big crime.
    It is really something that a couple little guys in Podunk USA have provided the proof of such a large crime that very few even bother to research it. Evry bit of this is based on U.S. laws. If you only knew how the laws were written, then violated by these banks, you might change you mind about how you feel about the “deadbeats”. Just exactly who is the deadbeat? It is not the homeowner, I assure you that. But of course, if you guys want to keep ignoring the truth, go ahead, I can’t change that.
    Do you even know that the once legal papwerwork used to create the secured debt is now invalid? Do you know that the once legal paperwork was scanned into electronic images and now due to that scanning it has become an unlawful document? That is right. It has no supporting laws. And to top that off, it, the electronic images are what is being used to foreclose on homeowners. That is about as illegal as it comes. But, I suppose you don’t believe that either?
    All you have to do is read the U.S. laws to find I am speaking the truth.
    You see, the Uniform Commercial Code governs both the paper promissory note and the paper security instrument, the mortgage, deed of trust, what ever you want to call it. Look at Article 3 for the note and Article 9 for the security instrument. Keyword is “paper”. It must be in writing. Now when you are finished with that, look at 15 USC 7003 in the E-Sign Act. You will find that Article 3 & 9 are EXCLUDED from that “Act”. What doe that mean? It means those electronic images that are being used to foreclose homes has no lawfull support.
    Now, since we are on this topic of electronic promissory note, let’s look at the mortgage backed securities. Since the mortgages are scanned into electronic format, so are the mortgage backed securities. They come from the mortgages that were scanned. Legal? Nope.
    So, if you chose to degrade anyone who is losing their homes, maybe you should think twice, because you may be next.
    Oh, I forgot to mention this has happend to the commercial mortgages also.
    After that, you can look at all the student loans. They were done that way also.
    So, if you haven’t looked at the BIG picture yet, you haven’t been reading enough. These banks went so far out on a limb, that limb will be breaking soon. The fraud has been exposed and it is up to the people to get something done. Laws were created to help the banks. Maybe a vote for newer people in office might help solve the problem, because those in office seem to have created this mess.
    Once again, electronic promissory notes do not have any laws to support them.
    I know you don’t have to believe me, but I back this with the very laws of the United States. The truth hurts, and lies seem easier to handle.I personally am tired of the lies myself.
    Peace be with you,

  3. Its really astonishing to find out how poorly regulated the housing market is in the US. That’s the problem – its under-regulated. Without proper regualation the loan sharks feasted on the weak – and why shouldn’t they? The US has few of the basic consumer protections against predatory lending found in most advanced countries. You dont have these problems in Australia, Canada, or most of europe – hopefully, if the republicans dont get in the way, the mess can be fixed.

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