Defrauding 101: Dirty Little Secrets

In the many accounts of the latest wrinkle in our huge mortgage crisis of the day, I have noticed that media always makes room for some one decrying those homeowners who stay in their homes because their mortgages are unenforceable. So color me bleeding heart liberal, but I do not see how anyone can look at those cases where due to fraud the homeowner and family have been contracted to buy a house that now the bank/mortgagor wants more than they do, and decide the case for the other party to the contract on the house. Now, without clear title to the house, that other party can’t even legitimately sell it.

Lest we forget, the subprime mortgage debacle, now called ‘toxic assets’, began when firms discovered a bonanza in massive sale of mortgages that were not appropriate to home buyers, that then they resold so that no risk was incurred by them. In the hearings on those subprime loans, time and again the congress heard testimony from those who were inveigled into taking loans that had ‘bubble’ payments. The ‘bubble’ payment is a mortgage debt that rises after an initial very low rate, to another rate adjusted to pay off more quickly, making the rate generally beyond the original purchaser’s reach.  . . .

In many cases, purchasers were told that the original rate was the permanent, or fixed, rate. In many other cases, papers were so extensive and hard to understand that the purchasers did not catch onto the fact that they were buying over their heads and were doomed to lose their homes. Sellers of these unaffordable mortgages got big bonuses for the sales, larger bonuses as the price of the loan went up.

Often the firms peddling these doomed loans operated in less affluent neighborhoods, and aggressively sold the loans to those in need, who could least afford them. Many were elderly, and many were convinced that they were going to be able to re-finance when house prices, inevitably, went up. Many new homeless were not feckless – instead, they trusted professional hucksters who were making money hand over fist while passing on the bad product, mortgages doomed to failure, into the world financial market.

As noted in 2009 Illinois hearings on mortgage fraud; Household engaged in a wide scale pattern and practice of misrepresenting loan terms, selling loans with prepayment penalties and balloon payments without consumers’ knowledge, packing credit insurance products into consumers’ loans, refusing to give consumers loan payoff information, and writing loans that Household knew consumers could not afford.

Those hard sell tactics were used on those least able to afford the loans in many cases, and those are the victims now being forced out onto the street.

Investors suffered losses, pension plans were decimated and countries went into turmoil as, like Iceland’s banks, the AAA-rated toxic assets they had bought were discovered to be just so much bad paper.

Judging that the homeowner should take the loss for the financial disaster the world is just beginning to get behind us could make sense only to those who’ve steeled themselves to blame the poor for corporate bodies’ as well as their own, mistakes. Putting granny out on the diminishing ice floes available warms the cockles of wingnuts’ hearts for some reason. Guess she was asking for it when she baked those cookies for you.

The alternative for banks/mortgagors has always been renegotiation to make mortgages affordable. Sadly, that would mean financial firms’ accepting losses just like everyone else involved in the sales made during the years of inordinate, and unjustifiable, profits. That loss has been fought back by financial institutions, with the grounds that they are protecting shareholders. Not exactly. Corporate executives’ salaries in financial institutions have been a major object of the profits, and as they produced ruinous levels of risk for shareholders, salaries of executives have been inflated beyond credibility.

As we ought to have expected, financial institutions have a great way to make the gesture to renegotiate without actually doing it. A few cases have been reported on. Here’s one;

August 5, 2009 – I received a Special Forbearance Agreement with the schedule of the reduce payments to begin on 8/15/2009. I called loss mitigation before signing the documents to confirm that by making these reduce payments I would not be affected negatively since I was current and did not want my credit or account to be affected. The representative stated that because I am going through the modification process that it would have no affect on my credit or account and not to worry.

October 18, 2009 – I received a delinquency notice. It stated that I was $3984.50 delinquent.

In yet another instance of deceit about modifications, the case went to court. We have one really big block to findings for plaintiffs in cases of fraud. The plaintiff has to prove intent to deceive, something that is nearly impossible. The case that went to trial in Maryland was dismissed and reported under the headline; Breach of Contract and Intentional Misrepresentation Complaint Dismissed In Home Loan Modification Case. The homeowners had, as in the case above, agreed to loan modification terms that would allow them to meet the payments; subsequently, the financial firm violated its own agreement and continued to inform them they were delinquent. They were defrauded a second time, in the court system.

The sickness of a system that gives every advantage to the profiteers off of the unfortunate victims cannot be overemphasized. While all of us want to make a profit, only the psychosomatically disordered really want to make it by ruining investors, even to the global level they’ve reached now. We all have a very great interest in putting back into place the regulations that prevent the criminal element from the favoritism shown under existing law.

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Author: Ruth Calvo, 66 and retired, is a longtime political activist for progressive causes and writer as well as a daily editor here at The Seminal. She worked in the office of TX. Senator Ralph Yarborough after graduation from Wellesley College in the 60’s, served on the Council on the Arts after receiving their award for playwriting, managed some political campaigns in Maryland, and served several years as assistant to Maryland House of Delegates member Delegate Gene Counihan.

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