Foreclosure

The Election Of Donald Trump Is Already Having An Enormous Impact On The Economy

donald-trump-and-barack-obama-in-the-oval-office-public-domainThe election of Donald Trump has sent shockwaves through the U.S. economy and the U.S. financial system.  Since November 8th, the Dow has hit a brand new all-time record high, the U.S. dollar has strengthened greatly, and bank stocks are way up.  But not all of the economic news is good news.  Unlike stocks, bonds have reacted very negatively to Trump’s election victory.  The past week has been an absolute bloodbath for bond traders, and as you will see below this is going to have dramatic implications for all U.S. consumers moving forward.

Over just a two day period, more than a trillion dollars was wiped out as bond yields spiked all over the globe.  As CNN has noted, this type of “violent reaction” in the bond market has only happened three other times within the past ten years…

The rate on 10-year Treasury notes has surged to 2.3%, from 1.77% before the election. Last week’s spike in Treasury rates was so big, that it had only happened three times before in the last decade.

BlackRock’s Russ Koesterich called it a “violent reaction.”

The move stands to have broad repercussions for all Americans. Not only will the U.S. government have to pay more to borrow money, but mortgage rates and car loan costs should also rise. That’s because Treasuries are used as the benchmark for many other forms of credit.

As interest rates rise, virtually everyone in our society is going to feel the pain.

Those that need an auto loan in order to purchase a vehicle are going to find that loan payments are significantly higher than they were before.

Credit card rates will also go up, and those just getting out of school will discover that their student loan payments are even more suffocating.

But the biggest impact will be felt in the housing market.  The average rate on a 30-year fixed mortgage just hit the psychologically-important 4 percent barrier, and that could mean big trouble for the housing market in 2017…

The average contract rate on the popular 30-year fixed mortgage hit 4 percent, according to Mortgage News Daily, a level most didn’t expect to see until the middle of next year. Rates have now moved nearly a half a percentage point higher since Donald Trump was elected president.

“The situation on the ground is panicked. Damage control,” said Matthew Graham, chief operating officer of Mortgage News Daily. “People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn’t get it.”

Rising interest rates was one of the key factors that precipitated the financial crisis of 2008, and many fear that it could happen again.

And without a doubt, this rise in rates is going to affect the affordability of homes that are already on the market…

“If you’re going to buy a house and your mortgage payment went up by $200 or $300, you may buy a smaller house. There’s impact on interest rate sensitive sectors, like autos and housing, and also corporate bonds themselves, where financial engineering has helped juice up the equity market,” said George Goncalves, head of rate strategy at Nomura.

In addition, rising rates will make it more difficult for those with adjustable rate mortgages to keep their homes.  Foreclosure activity was already up 27 percent during the month of October, and many are projecting that we could see another giant spike in foreclosures during the months ahead that is similar to what we saw during the last financial crisis.

Many Trump supporters don’t really care what the rest of the world thinks of our new president, but this is an area where what the rest of the world thinks really, really matters.

The truth is that the rest of the planet is not all too fond of Trump, and if that makes them a lot less eager to lend us money that is a major problem.

The only way that we can maintain our massively inflated debt-fueled standard of living is to continue to borrow gigantic mountains of money from the rest of the world at ultra-low interest rates.

If the rest of the world starts demanding higher rates of return now that Trump is president, we are going to experience economic pain on a scale that most Americans don’t believe is possible.

One of our big lenders has been China, and right now they are deeply concerned about what a Trump presidency might mean.  Trump has talked very tough about trade with China, and the Chinese are gearing up for a major trade war.  The following comes from CNBC…

During his election campaign this year, Trump spoke of a 45 percent import tariff on all Chinese goods while failing to outline how it would work. Should any such policy come into effect, China will take a “tit-for-tat approach”, according to an opinion piece in the Global Times, a newspaper backed by the Communist party.

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.,” the Global Times article read.

Most Trump supporters assume that since Trump has been a very successful businessman that he will be able to strengthen the U.S. economy.

But it isn’t that simple.

The only reason we are able to live the way that we live today is because we have been able to borrow trillions upon trillions of dollars at irrationally low interest rates.

The moment the rest of the world decides that they are not going to loan us money at irrationally low interest rates any longer the game is over, and it won’t really matter who is in the White House at that point.

So watch interest rates very carefully.  If they keep going up, it is inevitable that a major economic slowdown will follow no matter what economic policies the new Trump administration implements.

Why Another Great Real Estate Crash Is Coming

ForeclosureThere are very few segments of the U.S. economy that are more heavily affected by interest rates than the real estate market is.  When mortgage rates reached all-time low levels late last year, it fueled a little “mini-bubble” in housing which was greatly celebrated by the mainstream media.  Unfortunately, the tide is now turning.  Interest rates are starting to move up steadily, even though the Federal Reserve has been trying very hard to keep that from happening.  A few weeks ago, when Federal Reserve Chairman Ben Bernanke suggested that the Fed may start to “taper” the rate of quantitative easing eventually, the bond market had a conniption and the yield on 10 year U.S. Treasuries shot up dramatically.  In an attempt to calm the market, the Fed stopped all talk of a “taper” and that helped settle things down for a brief period of time.  But now the yield on 10 year U.S. Treasuries is starting to rise aggressively again.  Today it closed at 2.71 percent, and many analysts believe that it will go much higher.  This is important for the housing market, because mortgage rates tend to follow the yield on 10 year U.S. Treasuries.  And if mortgage rates keep rising like this, another great real estate crash is inevitable.

This wasn’t supposed to happen.  Federal Reserve Chairman Ben Bernanke said that he could use quantitative easing to control long-term interest rates.  He assured us that he could force mortgage rates down for an extended period of time and that this would lead to a housing recovery.

But now the Fed is losing control of long-term interest rates.  If this continues, either the Federal Reserve will have to substantially increase the rate of quantitative easing or else watch mortgage rates rise to absolutely crippling levels.

Three months ago, the average rate on a 30 year mortgage was 3.35 percent.  It has shot up more than a full point since then…

Mortgage buyer Freddie Mac said Thursday that the average on the 30-year loan rose to 4.39% from 4.31% last week. Rates are a full percentage point higher than in early May.

And as the chart below shows, mortgage rates have a lot more room to go up…

30-Year Fixed Rate Mortgage Average in the United States

As mortgage rates go up, so do monthly payments.

And monthly payments are already beginning to soar.  Just check out this chart.

So what happens if mortgage rates eventually return to “normal” levels?

Well, it would be absolutely devastating to the housing market.  As mortgage rates rise, less people will be able to afford to buy homes at current prices.  This will force home prices down.

To a large degree, whether or not someone can afford to buy a particular home is determined by interest rates.  The following numbers come from one of my previous articles…

A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn’t.  8 percent was considered to be normal back in the year 2000.

And we are already seeing rising rates impact the market.  The number of mortgage applications has fallen for 11 of the past 12 weeks, and this has been the biggest 3 month decline in mortgage applications that we have witnessed since 2009.

Rising interest rates will also have a dramatic impact on other areas of the real estate industry as well.  For example, public construction spending is now the lowest that it has been since 2006.

And I find the chart posted below particularly interesting.  As a Christian, I am saddened that construction spending by religious institutions has dropped to a stunningly low level…

Total Construction Spending Religious

So what does all of this mean?

Well, unless interest rates reverse course it appears that we are in the very early stages of another great real estate crash.

Only this time, it might not be so easy for the big banks to swoop in and foreclose on everyone.  Just check out the radical step that one city in California is taking to stop bank foreclosures…

Richmond is the first city in the country to take the controversial step of threatening to use eminent domain, the power to take private property for public use. But other cities have also explored the idea.

Banks, the real estate industry and Wall Street are vehemently opposed to the idea, calling it “unconstitutional” and a violation or property rights, and something that will likely cause a flurry of lawsuits.

Richmond has partnered with San Francisco-based Mortgage Resolution Partners on the plan. Letters have been sent to 32 servicers and trustees who hold the underwater loans. If they refuse the city’s offer, officials will condemn and seize the mortgages, then help homeowners to refinance.

If more communities around the nation start using eminent domain to stop foreclosures, that is going to change the cost of doing business for mortgage lenders and it is likely going to mean more expensive mortgages for all the rest of us.

In any event, all of this talk about a “bright future” for real estate is just a bunch of nonsense.

You can’t buy a home if you don’t have a good job.  And as I wrote about the other day, there are about 6 million less full-time jobs in America today than there was back in 2007.

You can’t get blood out of a stone, and you can’t buy a house on a part-time income.  The lack of breadwinner jobs is one of the primary reasons why the homeownership rate in the United States is now at its lowest level in nearly 18 years.

And we aren’t going to produce good jobs if our economy is not growing.  And economic growth in the U.S. has been anemic at best, even if you believe the official numbers.

We were originally told that the GDP growth number for the first quarter of 2013 was 2.4 percent.  Then it was revised down to 1.8 percent.  Now it has been revised down to 1.1 percent.

So precisely what are we supposed to believe?

Overall, since Barack Obama has been president the average yearly rate of growth for the U.S. economy has been just over 1 percent.

That isn’t very good at all.

But remember, the government numbers have been heavily manipulated to look good.

The reality is even worse.

According to the alternate GDP numbers compiled by John Williams of shadowstats.com, the U.S. economy has continually been in a recession since 2005.

And now interest rates are rising rapidly, and that is very bad news for the U.S. economy.

I hope that you have your seatbelts buckled up tight, because it is going to be a bumpy ride.

20 Shocking New Economic Records That Were Set In 2010

2010 was quite a year, wasn’t it?  2010 will be remembered for a lot of things, but for those living in the United States, one of the main things that last year will be remembered for is economic decline.  The number of foreclosure filings set a new record, the number of home repossessions set a new record, the number of bankruptcies went up again, the number of Americans that became so discouraged that they simply quit looking for work reached a new all-time high and the number of Americans on food stamps kept setting a brand new record every single month.  Meanwhile, U.S. government debt reached record highs, state government debt reached record highs and local government debt reached record highs.  What a mess!  In fact, even many of the “good” economic records that were set during 2010 were indications of underlying economic weakness.  For example, the price of gold set an all-time record during 2010, but one of the primary reasons for the increase in the price of gold was that the U.S. dollar was rapidly losing value.  Most Americans had been hoping that 2010 would be the beginning of better times, but unfortunately economic conditions just kept getting worse.

So will things improve in 2011?  That would be nice, but at this point there are not a whole lot of reasons to be optimistic about the economy.  The truth is that we are trapped in a period of long-term economic decline and we are now paying the price for decades of horrible decisions.

Amazingly, many of our politicians and many in the mainstream media have declared that “the recession is over” and that the U.S. economy is steadily improving now.

Well, if anyone tries to tell you that the economy got better in 2010, just show them the statistics below.  That should shut them up for a while.

The following are 20 new economic records that were set during 2010….

#1 An all-time record of 2.87 million U.S. households received a foreclosure filing in 2010.

#2 The number of homes that were actually repossessed reached the 1 million mark for the first time ever during 2010.

#3 The price of gold moved above $1400 an ounce for the first time ever during 2010.

#4 According to the American Bankruptcy Institute, approximately 1.53 million consumer bankruptcy petitions were filed in 2010, which was up 9 percent from 1.41 million in 2009.  This was the highest number of personal bankruptcies we have seen since the U.S. Congress substantially tightened U.S. bankruptcy law several years ago.

#5 At one point during 2010, the average time needed to find a job in the United States had risen to an all-time record of 35.2 weeks.

#6 Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of the jobs in the United States are manufacturing jobs, which is believed to be a new record low.

#7 The number of Americans working part-time jobs “for economic reasons” was the highest it has been in at least five decades during 2010.

#8 The number of American workers that are so discouraged that they have given up searching for work reached an all-time high near the end of 2010.

#9 Government spending continues to set new all-time records.  In fact, at the moment the U.S. government is spending approximately 6.85 million dollars every single minute.

#10 The number of Americans on food stamps surpassed 43 million by the end of 2010.  This was a new all-time record, and government officials fully expect the number of Americans enrolled in the program to continue to increase throughout 2011.

#11 The number of Americans on Medicaid surpassed 50 million for the first time ever in 2010.

#12 The U.S. Census Bureau originally announced that 43.6 million Americans are now living in poverty and according to them that was the highest number of Americans living in poverty that they had ever recorded in 51 years of record-keeping.  But now the Census Bureau says that they miscalculated and that the real number of poor Americans is actually 47.8 million.

#13 According to the FDIC, 157 banks failed during 2010.  That was the highest number of bank failures that the United States has experienced in any single year during the past decade.

#14 The Federal Reserve brought in a record $80.9 billion in profits during 2010.  They returned $78.4 billion of that to the U.S. Treasury, but the real story is that thanks to the Federal Reserve’s continual debasement of our currency, the U.S. dollar was worth less in 2010 than it ever had been before.

#15 It is projected that the major financial firms on Wall Street will pay out an all-time record of $144 billion in compensation for 2010.

#16 Americans now owe more than $881 billion on student loans, which is a new all-time record.

#17 In July, sales of new homes in the United States declined to the lowest level ever recorded.

#18 According to Zillow, U.S. housing prices have now declined a whopping 26 percent since their peak in June 2006.  Amazingly, this is even farther than house prices fell during the Great Depression.  From 1928 to 1933, U.S. housing prices only fell 25.9 percent.

#19 State and local government debt reached at an all-time record of 22 percent of U.S. GDP during 2010.

#20 The U.S. national debt has surpassed the 14 trillion dollar mark for the first time ever and it is being projected that it will soar well past 15 trillion during 2011.

There are some people that have a hard time really grasping what statistics actually mean.  For people like that, often pictures and charts are much more effective.  Well, that is one reason I like to include pictures and graphs in many of my articles, and below I have posted my favorite chart from this past year.  It shows the growth of the U.S. national debt from 1940 until today.  I honestly don’t know how anyone can look at this chart and still be convinced that our nation is not headed for a complete financial meltdown….

The Big Wall Street Banks Have Found A New Way To Strangle The American People: Predatory Property Tax Collection

It turns out that the big Wall Street banks have found a dirty new way to make loads of cash from U.S. homeowners, and they really, really don’t want to talk about it.  So what is this dirty new business?  America’s biggest financial institutions have become property tax collectors, and it is extremely lucrative.  From coast to coast, the big Wall Street banks are buying up thousands upon thousands of tax liens and are making a killing by socking distressed homeowners with predatory interest, outrageous penalties and almost unbelievable legal fees.  In some areas, the big banks are able to foreclose on these homes in as little as six months.  The elderly and the poor are the most common targets of these practices.  An absolutely brilliant expose in the Huffington Post has brought these issues to light, and it is creating quite a controversy in the financial world.  The big banks are doing nothing illegal here.  Local governments are offering to sell thousands of tax liens and somebody is going to end up buying them.  But something seems extremely unsavory about the big Wall Street banks capitalizing on the economic downturn that they were so instrumental in causing in such a predatory manner. 

Today, millions of American families are barely hanging on to their homes by their fingernails.  Millions are out of work and millions of others are barely making enough to put food on the table.  Meanwhile, property taxes have absolutely soared in most areas of the nation over the past decade.  Many Americans are finding that when that time rolls around they simply do not have a big chunk of extra money to pay a property tax bill. 

So millions of American families, including many that have completely paid off their homes, now find themselves in danger of being thrown out on to the street over an unpaid property tax bill.

For many local governments, the headache of trying to collect on thousands of property tax liens is just too much, so they are glad to “outsource” the work of collection.

So how do the big Wall Street banks get involved?  Well, it goes something like this….

1) The big Wall Street banks set up or invest in shell companies that will disguise who they really are.

2) These shell companies run around and buy up all of the tax liens that they can get their hands on.

3) Predatory levels of interest (in some states as high as 18 percent), fees and penalties rapidly pile up on these unpaid tax liens.  The affected homeowners quickly end up owing much, much more than what the original tax bills were for.    

4) If the collecting firm has to hire a lawyer, then that gets charged to the homeowner as well.  The bloated legal fees for some of these lawyers can end up being the biggest expense of all.

5) If the tax liens do not get paid, the collecting firms move in to foreclose as quickly as legally possible.       

According to the Huffington Post, Wall Street banks such as Bank of America and JPMorgan Chase have been gobbling up several hundred thousand tax liens from local governments.  It appears that “distressed housing markets” are being particularly targeted.

Many of these tax liens are sold in online auctions, so it is unclear if many local government officials even realize who the big money behind many of these shell companies is. 

Once again, this is all perfectly legal, but it is more than a little distasteful.

The following video by the Huffington Post does a good job of summarizing what they found….

The truth is that there is a huge difference between the letter of the law and true justice.

Just consider the following tragic story from the Huffington Post article….

Barbara Carpenter, a 58-year-old disabled Ohio retiree, found herself in such a situation. The former worker for the American Red Cross struggled to save her Toledo home from a JPMorgan entity called Plymouth Park Tax Services, which in recent years has been among the nation’s top buyers of tax liens.

“It’s a great neighborhood and the house is in good condition,”said Carpenter, who paid $67,000 for the one-story home in 2004. But she fell behind in paying her taxes and a certificate for $1,500 in unpaid taxes was sold off to Plymouth Park, which is based in New Jersey.

Carpenter’s lawyer, Joseph Westmeyer, said Plymouth Park routinely charges an upfront fee of around $1,500 as soon as it buys the lien and 18 percent interest on the debt. If they don’t get paid, they foreclose.

“It’s not a good deal for poor customers,” said Westmeyer. Carpenter wound up selling the house in August for less than half what she had paid. Plymouth Park received about $12,000 in legal fees and other charges, including some additional taxes, Westmeyer said, quoting from court records.

Does that sound like an honorable way of making money to you?

Would you like to make your living by throwing elderly women out of their homes and into the street over unpaid tax bills?

Unfortunately, this problem is not going to go away any time soon.  One out of every six Americans is enrolled in a government anti-poverty program.  Tens of millions of Americans are barely hanging in there.  In addition, tens of millions of elderly Americans live on fixed incomes.  Meanwhile, property taxes just continue to go up in many areas of the United States.

Unless the U.S. economy experiences a dramatic turnaround, we are going to continue to see large numbers of Americans get behind on their property taxes, and the big banks will continue to be there to scoop up the tax liens.

Large numbers of poor and elderly Americans that don’t even have a mortgage will lose their homes and it will all be perfectly legal.  Executives at the big banks will be having a good laugh about their huge bonus checks as thousands upon thousands of our most vulnerable citizens are dumped out into the street.

But weren’t the big banks largely responsible for causing the housing crash and the economic meltdown that followed? 

Yes.

But so far none of them is really paying any kind of a price.  The big banks got bailed out by the U.S. government, and now it looks like the Federal Reserve is preparing another round of “backdoor bailouts” to help them out again.

But do the big banks show any mercy on the poor and the elderly who have gotten behind on their property taxes?

Not at all.

This is 2010 – a time when greed dominates the financial world and when most banks don’t seem to know a thing about kindness or mercy.

The Real Horror Story: The U.S. Economic Meltdown

This October, millions of Americans are going to watch horror movies and read horror stories because they enjoy being frightened.  Well, if you really want to be scared, you should just check out the real horror story unfolding right before our eyes – the U.S. economic meltdown.  It seems like more bad news for the U.S. economy comes out almost every single day now.  Unfortunately, things are about to get a whole lot worse.  The mainstream media has been treating “Foreclosuregate” as if it is a minor nuisance, but the truth is that the lid is about to be publicly lifted on years and years of massive fraud in the U.S. mortgage industry, and this thing has the potential to cause economic chaos that is absolutely unprecedented.  Over the past several days, expert after expert has been coming forward and warning that this crisis could completely and totally paralyze the mortgage industry in the United States.  If that happens, it will be essentially like pulling the plug on the U.S. economic recovery. 

Not that there was going to be a recovery anyway.  The truth is that economic statistic after economic statistic has been pointing to incredible trouble for the U.S. economy.

For example, the U.S. government just announced that the U.S. trade deficit went up again in August.  According to the U.S. Census Bureau, the U.S. trade deficit was $46.3 billion during August, which was up significantly from $42.6 billion in July.

So how much coverage did this get in the mainstream media? 

Well, just about none.

We have gotten so used to horrific trade deficits that it isn’t even news anymore.

But these trade deficits are absolutely killing our economy.

How long do you think that the U.S. economy can keep shelling out 40 or 50 billion more dollars than we take in every single month?

If you look at the countries around the world that have become very wealthy, almost all of them have gotten that way by trading with the United States.

Meanwhile, many of our once great manufacturing cities are turning into open sewers.

Every single politician in the United States should be talking about the trade deficit.

But hardly any of them are.

Is it because Americans have all become so dumbed-down that we don’t understand these things anymore, or is it because we are so distracted by the various forms of entertainment that we are addicted to that we just don’t care? 

But the trade deficit is not the only economic statistic that is getting worse.

According to the Department of Labor, for the week ending October 9th the advance figure for seasonally adjusted initial jobless claims was 462,000, which represented an increase of 13,000 from the previous week.

We have an unemployment epidemic going on in this country, but what did the mainstream media do in response to this news?

They yawned.  Instead, many of the “financial experts” were busy talking about how wonderful it is that the Stock Market is going up, up, up.

Well, as one reader recently reminded me, if you want to evaluate an economy by how much the stock market is going up, then the economy of Zimbabwe has had an absolutely wonderful decade!

The truth is that the stock market is not a good barometer for what is actually going on.

What is really happening is that the U.S. economic system is literally coming apart at the seams. 

Yet another piece of really bad economic news that just came out is that the number of home repossessions by banks set a new all-time record during the month of September.  The record total of 102,134 bank repossessions was the first time ever that bank repossessions climbed over the 100,000 mark for a single month.

The good news is that bank repossessions are about to come to a screeching halt.

The bad news is that it is because the U.S. mortgage industry is about to become completely and totally paralyzed by this foreclosure fraud crisis.

The following are three basic points to remember about this foreclosure mess….

A) Massive Fraud Was Committed At Every Stage By The Mortgage Industry

In a previous article entitled “Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds“, I attempted to describe just how widespread the fraud in the mortgage industry has been….

The truth is that there was fraud going on in every segment of the mortgage industry over the past decade.  Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay.  Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages.  These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments.  Those who certified that these junk securities were “AAA rated” also committed fraud.  Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became “lost” or “missing”.

Finally, when it came time to foreclose on these bad mortgages, a whole lot more fraud was committed.  Thousands upon thousands of foreclosure documents were “robo-signed”, but the truth is that investigators are starting to discover a lot of things about these mortgages that are a lot worse than that. 

B) Nobody Really Knows Who Owns Or Who Has The Right To Foreclose On Millions Upon Millions Of Mortgages

The legal rights to millions of U.S. mortgages has been scrambled so badly that it might actually be impossible to fully sort this mess out.  In particular, MERS (Mortgage Electronic Registration Systems) has created a paperwork nightmare that may never be able to be completely remediated. 

On a previous article, a reader named William left a comment that did a great job of describing the very serious problem that we are now facing because of MERS….

MERS – potentially the most serious problem because it affects who really owns the loans. Securitization mandates that loans be transferred into REMIC trusts within a strict timeframe. Late transfers are not allowed. In spite of the supposed “ease” of transfer through MERS, it now appears that perhaps 60% of US loans were never properly transferred. Absent remedial legislation, it is impossible to do so now. And the former owners may be out of business or bankrupt. So how do we get these loans to the trust beneficiaries who were supposed to own them? This is no simple paperwork correction. The train has left the station, with no more to follow.

C) Unprecedented Chaos Is Going To Erupt As Faith In The Mortgage System Completely Dies

So what is going to happen as a result of all of this fraud and confusion in the mortgage industry?  Well, basically everybody is going to sue everybody.  It is going to be absolute mayhem. 

Charles Hugh Smith recently put it this way….

Real estate attorneys can rejoice: everyone will get sued, in every court in the land. Banks will get sued, title insurance companies will get sued, realtors will get sued, foreclosure mills will get sued, MERS will get sued, and so on. The attorneys general of the states will all sue the banks and mortgage mills, claiming billions in damages.

Meanwhile, virtually nobody will want to buy any house that has been foreclosed on in the past ten years or so until this mess is sorted out (which could take years and years). 

Meanwhile, title insurance companies are going to avoid foreclosures like the plague.

Meanwhile, all of the investors that have been propping up the housing market by buying foreclosures are going to be fleeing the market in droves.

Meanwhile, the financial world is going to be trying to figure out which U.S. lending institutions are still solvent.  The value of most mortgage-based assets is now totally up in the air.

Meanwhile, millions more homeowners across the United States will be emboldened to quit making payments on their mortgages as they realize that those holding their mortgages may not have the legal right to foreclose on them.

And that is where the true horror of this entire situation may lie.  What is going to happen if millions upon millions of Americans holding underwater mortgages look at this situation and decide that they really don’t have to be afraid of the threat of foreclosure any longer?

If a massive wave of homeowners suddenly decides to simply quit paying their mortgages, it would basically wipe out nearly the entire mortgage industry.

That would likely mean more government bailouts, more government control, much higher mortgage rates and eventually a serious crash in housing prices.

This crisis is incredibly complicated and it has a ton of moving parts, so it is extremely difficult to describe accurately.  But the reality is that this mess has the potential to hurt the U.S. real estate market much more than “subprime mortgages” ever did.

Hopefully this crisis will not be “the straw that broke the camel’s back” for the U.S. economy, but with each passing day this thing looks even more horrifying. 

One way or another, real estate law in the United State is going to be changed forever as a result of this crisis.  It is going to be extremely interesting to see how all of this plays out.

Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds

The foreclosure fraud crisis seems to escalate with each passing now.  It is being reported that all 50 U.S. states have launched a joint investigation into alleged fraud in the mortgage industry.  This is a huge story that is not going to go away any time soon.  The truth is that it would be hard to understate the amount of fraud that has gone on in the U.S. mortgage industry, and we are watching events unfold that could potentially rip the U.S. economy to shreds.  Many are now referring to this crisis as “Foreclosure-Gate“, and already it is shaping up to be the worst thing that has ever happened to the U.S. mortgage industry.  At this point, it seems inevitable that some financial institutions will go under as a result of this mess.  In fact, by the end of this thing we might see a whole bunch of lending institutions crash and burn.  This crisis is very hard to describe because it is just so darn complicated, but it is worth it to try to dig into this thing and understand what is going on because it has the potential to absolutely decimate the entire U.S. mortgage industry.

The truth is that there was fraud going on in every segment of the mortgage industry over the past decade.  Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay.  Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages.  These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments.  Those who certified that these junk securities were “AAA rated” also committed fraud.  Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became “lost” or “missing”. 

Then, when it came time to foreclose on these bad mortgages, a whole bunch more fraud started being committed.  The reality is that the “robo-signing” scandal is just the tip of the iceberg.  The following are six things that you should know about how deep this foreclosure fraud crisis really goes….   

#1 According to the Associated Press, financial institutions were hiring just about whoever they could find, including hair stylists and Wal-Mart employees, as “foreclosure experts” to help them rush through the massive backlog of foreclosures that were rapidly piling up.

Apparently many of these “foreclosure experts” barely even knew what a “mortgage” was according to the AP….

In depositions released Tuesday, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits and that they agreed with the defense lawyers’ accusations about document fraud.

#2 There is soon going to be a colossal legal scramble to figure out who actually owns millions of U.S. mortgages.

In his recent article entitled “Invasion Of The Robot Home Snatchers“, Robert Scheer described the complete and total mess that the U.S. mortgage industry has created….

How do you foreclose on a home when you can’t figure out who owns it because the original mortgage is part of a derivatives package that has been sliced and diced so many ways that its legal ownership is often unrecognizable? You cannot get much help from those who signed off on the process because they turn out to be robot signers acting on automatic pilot. Fully 65 million homes in question are tied to a computerized program, the national Mortgage Electronic Registration Systems (MERS), that is often identified in foreclosure proceedings as the owner of record.

Meanwhile, more organizations are stepping forward to help homeowners fight foreclosures.  National People’s Action, PICO National Network, Industrial Areas Foundation, Alliance of Californians for Community Empowerment and the Northwest Federation of Community Organizations have all partnered with the SEIU to launch the “Where’s The Note” campaign which is going to encourage homeowners to demand to see the note before submitting to a foreclosure.  Campaigns such as this are going to make foreclosures much more costly for banks.

#3 Legal battles over foreclosure documents could soon spawn thousands upon thousands of lawsuits across the United States.

Adam Levitin, a Georgetown University Law professor who specializes in mortgage finance and financial regulatory issues was recently quoted in an article on CNBC as saying the following about the situation we are currently in….

The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

#4 The problems with foreclosure paperwork may be more widespread than anyone would have dared to imagine.

Attorney Richard Kessler recently conducted a study in which he found “serious errors” in approximately 75 percent of the court filings related to home repossessions that he examined.  Now he says that the foreclosure crisis could haunt the U.S. mortgage industry for the next ten years….

“Defective documentation has created millions of blighted titles that will plague the nation for the next decade.”

#5 If some banks discover that they are missing the paperwork for large numbers of mortgages (as is currently being alleged), those banks could be forced to significantly revalue those assets (as in “close to zero”) on their balance sheets. 

John Carney of CNBC recently described it this way….

The most damaging thing that could happen to banks would be the discovery that they simply cannot prove they hold a mortgage on a house. In that case, the loan would probably have to be written down to near zero. Even for current loans, the regulatory reserve requirements would double as the loan would no longer be a functional mortgage but an ordinary consumer loan. Depending on the size of the “no docs” portion of the loan portfolio, this might be a minor blip or require a bank to raise new capital to fill the hole in the balance sheet.

#6 Renowned investor Jim Sinclair is actually warning that the collapse of securitized mortgage debt could be the “final shot” that will wipe out many financial institutions across the United States. 

The recent warning that Sinclair posted on his blog is more than a little sobering…. 

I am asking for your attention again because of the depth of the fraud and now the size of the securitized mortgage debt OTC derivative pile of garbage that is in the trillions. This entire mountain of weapons of mass financial and social destruction is now in question. I have been telling you this for more than 2 years since the manufacturers and distributors of this crap were called by the NY Fed due to the loss of control over the paperwork.

I had dinner with my former partner, then lead director of and CEO of Bear Stearns. I could not contain myself so I asked him why he did so much business in OTC derivatives which were certain to bankrupt them. The answer I got was it was more than 50% of their profit. The right answer should have been it was more than 80% of their earnings.

Securitized mortgage debt is going to be the final shot that kills all kinds of financial entities in the Western world. The biggest holder of this putrid junk is pension funds.

Meanwhile, the stock market continues to go up, up, up as if everything is right in the world and as if a juicy new bull market is now upon us.

Well, let’s all join hands and sing happy songs around the campfire.

Perhaps if we all close our eyes and wish real hard all of this foreclosure fraud will just go away.

Then again, maybe not.

Foreclosure-Gate

If you work in the mortgage industry or for a title insurer, you might not want to make any plans for the next six months.  Foreclosure-Gate is about to explode.  It is being alleged that many prominent mortgage lenders have been using materially flawed paperwork to evict homeowners.  Apparently officials at quite a few of these firms have been signing thousands upon thousands of foreclosure documents without even looking at them.  In addition, it is being alleged that much of the documentation for these mortgages that are being foreclosed upon is either “improper” or is actually “missing”.  As lawyers start to smell blood in the water, lawsuits challenging these foreclosures have already started springing up from coast to coast.  In fact, some are already calling Foreclosure-Gate the biggest fraud in the history of the capital markets.  JPMorgan Chase, Ally Bank’s GMAC Mortgage and PNC Financial have all suspended foreclosures in the 23 U.S. states where foreclosures must be approved by a judge.  Bank of America has actually suspended foreclosures in all 50 states.  Now, law enforcement authorities from coast to coast are calling for investigations into this controversy and it could be years before this thing gets unraveled.

This thing just seems to escalate with each passing day.  It is being reported that the attorneys general of up to 40 U.S. states will be working together on a joint investigation into this foreclosure crisis.  Lawmakers in both houses of the U.S. Congress, including Nancy Pelosi and Christopher Dodd, have called for an investigation to begin on the national level.  U.S. Attorney General Eric Holder said last week that he is looking into the issue.  Things are certainly getting very serious out there.  Never before has there ever been such a national focus on foreclosure paperwork.

But apparently there are good reasons for such scrutiny….

*One GMAC Mortgage official admitted during a December 2009 deposition that his team of 13 people signed approximately 10,000 foreclosure documents a month without reading them.

*One Bank of America employee confessed during a Massachusetts bankruptcy case that she signed up to 8,000 foreclosure documents a month and typically did not look them over “because of the volume”.

But the “robo-signing” aspect of Foreclosure-Gate is just the tip of the iceberg.  Apparently there is a whole lot more going on than just a bunch of bad signatures. 

Peter J. Henning, a professor at Wayne State University Law School in Detroit, was recently quoted by MSNBC as saying the following about Foreclosure-Gate….

“You’ve got so many potential avenues of liability. You don’t even know the parameters of this yet.”

The sad truth is that potentially millions of foreclosures across the United States could potentially be invalid because the securitization process has muddied the chain of ownership.  In fact, an increasing number of judges from coast to coast have been ruling that the “owners” of the mortgage have no right to foreclose on a property because they lack clear title.

At the core of this title controversy is MERS – Mortgage Electronic Registration Systems.  MERS is based in Reston, Virginia and it was created by the mortgage industry to enable that big financial firms to securitize and swap mortgages at high speed.  MERS allowed these big financial firms to largely avoid the hassle of filling out more forms and submitting new filing fees every time that a mortgage was traded.

But now MERS is facing some very serious legal challenges.  A recent article in Businessweek described the situation this way….

A lawsuit filed on September 28th in federal court in Louisville on behalf of all Kentucky homeowners claims that MERS was part of a conspiracy to create false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures. Similar class actions have been filed on behalf of homeowners in Florida and New York. Karmela Lejarde, a MERS spokeswoman, declined to comment on any pending litigation.

The reality is that as millions of U.S. mortgages have been bunched together and traded around the globe at lightning speed, it has become increasingly unclear who actually has title to them and who actually has the right to foreclose on these properties.

Title insurers have backed the titles of millions of these foreclosed properties and now potentially find themselves in a heap of trouble.  Some of the biggest title insurers have already begun circling the wagons in an attempt at damage control.  For example, one of the biggest title insurance companies in the United States, Old Republic National Title Insurance, has already declared that it will no longer write new policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.

So what happens if nearly all title insurers start avoiding foreclosed properties? 

Won’t that make it much more difficult for the banks to sell the massive backlog of foreclosed properties that they have accumulated?

In addition, Americans that have purchased foreclosed homes may now be facing some serious problems themselves.  Millions of Americans may now “own” homes that they do not have clear title for.  When it comes times to sell those homes, many Americans may find themselves unable to do so. 

Needless to say, this is a complete and total mess.

Already, U.S. banks have a record number of foreclosed properties that they need to clear out, and now all of this scrutiny on foreclosure paperwork and all of these lawsuits are going to grind the process of getting these homes sold off to a standstill.

In fact, the true legacy of Foreclosure-Gate may be the massive amount of bank failures that it causes.

It would be difficult to understate how much of a nightmare Foreclosure-Gate is going to be for U.S. mortgage lenders.  Having to go back through the paperwork of millions of old mortgages is going to be a complete and total disaster.  If banks end up being unable to foreclose on a large number of bad mortgages, it could potentially be enough to put many banks out of commission for good.  Not only that, but the legal fees that many of these banks will accumulate defending lawsuits related to Foreclosure-Gate will be astronomical.

The U.S. mortgage industry was already on the verge of death, and Foreclosure-Gate may just be the straw that broke the camel’s back.

The reality is that U.S. banks are drowning in foreclosures and this current crisis is just going to make things a lot worse.  Back in 2005, there were approximately 100,000 home repossessions in the United States.  In 2009, there were approximately 1 million home repossessions in the U.S. and RealtyTrac is now projecting that there will be an all-time record of 1.2 million home repossessions in the United States this year.

For the U.S. mortgage industry, Foreclosure-Gate must feel like someone has dropped a bomb on them after they have already been beaten up and doused with gasoline.

Attorney Richard Kessler, who recently conducted a study that found serious errors in approximately three-fourths of court filings related to home repossessions, says that Foreclosure-Gate could haunt the U.S. mortgage industry for the next ten years….

“Defective documentation has created millions of blighted titles that will plague the nation for the next decade.”

While it may be easy to beat up U.S. mortgage lenders and say that they deserve all this, let us not forget that this is going to impact a whole lot of other people too.

It is going to become much harder to get a mortgage.  It is going to become much harder to buy a home.  It is going to become much harder to sell a home.  The U.S. housing industry is likely to suffer a significant downturn due to all of this.  There is even a good chance that the entire U.S. economy could be dragged down for an extended period of time.

So no, Foreclosure-Gate is not good news for anyone. 

Well, except maybe for lawyers. 

But for virtually everyone else this is really bad news.  Any hope that the U.S. housing industry would experience a quick recovery is completely and totally gone.

More Bad News: 10 Things You Should Know About The Latest Economic Numbers

On Friday, headlines across the United States declared that “unemployment remains unchanged at 9.6%”.  Many analysts rejoiced and heralded this announcement as a sign that we have hit bottom and that things will be turning around soon.  But is that the truth?  A closer look at the unemployment numbers reveals some disturbing facts.  For example, according to the Bureau of Labor Statistics, a broader measure of unemployment that includes workers that have stopped looking for work rose sharply to 17.1%.  But that is not the only troubling sign from this past week.  Agricultural commodities continue to skyrocket, which means that food price increases are on the way.  The foreclosure “robo-signing” crisis continues to escalate, and that threatens to throw the entire mortgage industry into a state of absolute turmoil.  Meanwhile, the U.S. national debt continues to grow and wealth continues to leave the United States at a dizzying rate. 

So is there reason for optimism?

No, not really.

Even if the unemployment numbers had improved slightly, the longer-term trends for unemployment are extremely troubling as you will see from the statistics and the chart below.

At the same time when so many Americans are out of work or can barely get by on what they are currently making, there is every indication that prices are about to go up.  Wheat, corn and soybeans all jumped in price on Friday, and it is inevitable that at some point these price increases will be passed on to consumers.  And if that wasn’t bad enough, now some Federal Reserve officials are actually talking about purposely generating more inflation in order to “stimulate” the U.S. economy.  

Meanwhile, this “robo-signing” foreclosure crisis threatens to escalate totally out of control.  Will we soon see thousands of court cases popping up from coast to coast challenging the legitimacy of foreclosure paperwork?  Will title insurers start totally backing off from foreclosed properties?  Banks were already completely overwhelmed trying to process the massive backlog of foreclosures.  Is this going to make the situation a whole lot worse?

The truth is that more bad news for the U.S. economy comes out almost daily now.  The following are 10 things that you need to know about the latest econ0mic numbers…. 

1 – Gallup’s measure of unemployment, which is not adjusted for “seasonal factors”, showed a sharp increase in September.  According to Gallup, unemployment has increased from 8.9% in July to 9.3% in August and to 10.1% in September.

2 – The seasonally-adjusted Alternate Unemployment Rate compiled by Shadow Government Statistics shows that the real unemployment rate in the United States is worse than it has been ever since the economic downturn began.  The Alternate Unemployment Rate calculated by SGS reflects estimated “long-term discouraged workers”, which the U.S. government stopped keeping track of back in 1994….

3 – The number of Americans working part-time jobs “for economic reasons” is now the highest it has been in at least five decades.

4 – 15.8% of Americans between the ages of 18 and 29 were unemployed during the month of September.

5 – Agricultural commodities continued to move higher on Friday.  Wheat, corn and soybeans all saw their prices soar.  Unfortunately for American consumers, this is part of a broader trend of rising agricultural commodity prices.  As this continues, it is inevitable that we will all be seeing much higher food prices at our local grocery stores. 

6 – It is being reported that PNC Financial Services Group has suspended the sale of foreclosed homes for the next thirty days.  This is the fourth major lender to take dramatic action recently.  Will nearly all U.S. mortgage lenders eventually be caught up in this crisis before it is over?

7 – Bank of America announced on Friday that it is now going to suspend sales of foreclosed homes in all 50 U.S. states as it continues to evaluate internal foreclosure procedures.  This “foreclosure crisis” threatens to decimate the entire U.S. real estate industry.  What has happened is that millions of U.S. mortgages were sold and resold around the globe at lightning speed and the chain of ownership for many of these mortgages become muddied.  In addition, it is starting to emerge that many of these lenders used fraudulent loan documents during foreclosure proceedings and company officials often used “robo-signers” to sign important foreclosure documents.  So now mortgage lenders, title insurers and those buying or selling foreclosed homes will be facing years of gridlock and chaos as foreclosure-related lawsuits multiply exponentially.  All of this is going to have a dramatic effect on the U.S. real estate market.  In fact, it is being reported that U.S. home sales are already starting to be affected by this crisis. 

8 – The U.S. National debt just keep growing.  If you took the national debt and divided it up among all Americans, each American (including children) would owe approximately $42,000.  So, for an average family of four, their share of the national debt would be $168,000.

9 – Interest payments on the U.S. national debt increased 13% in the fiscal year that ended September 30th.  If interest payments continue to increase that rapidly each year they will bankrupt the U.S. government very quickly. 

10 – It appears that some weird games are being played with the national debt numbers.  Back on September 29th, the U.S. national debt was 13.466 trillion dollars.  On September 30th, the U.S. national debt soared to 13.561 trillion dollars.  Then on October 1st, the beginning of the new fiscal year for the federal government, the U.S. national debt jumped up to 13.610 trillion dollars.  So how in the world does the U.S. national debt jump by a whopping 144 billion dollars in just two days?  Somebody has some explaining to do for this kind of accounting.

The United States was once the wealthiest nation by far on the entire planet.

But now we are in such a rapid decline that it is hard for most Americans to even comprehend it.

We are like that one couple that almost every neighborhood seems to have that has two shiny new cars in their driveway, that dresses in designer clothes and that seems to have plenty of money to take vacations and yet is in debt up to their eyeballs.

The truth is that the United States keeps getting poorer every single month.  The term “trade deficit” is not very sexy, but it is critically important to understand if you want to comprehend what is happening to the U.S. economy.  Every month tens of billions of dollars more wealth goes out of the United States than comes into it.  We are continually getting poorer.

To cover up our declining national wealth, we have gone into staggering amounts of debt.  We have maintained our lavish standard of living by piling up staggering amounts of debt on the national, corporate and consumer levels. 

The sad reality is that the U.S. government is not the wealthiest government in the world any longer.  Rather, it is the government that is the most in debt.  The U.S. national debt is the biggest debt that the world has ever seen, and it grows larger every single day.

We can’t keep up this charade forever.  At some point it is going to stop.

When this house of cards does come tumbling down, do you think that the American people are going to be pleased to learn that our leaders have squandered our once great wealth and have destroyed the greatest economic machine that the world has ever known?

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