Archive | November, 2010

Guest Post: Ireland, Please Do the World a Favor and Default

30 Nov

Guest Post: Ireland, Please Do the World a Favor and Default

Today, November 28, 2010, 3 hours ago | Tyler DurdenGo to full article


Submitted by Charles Hugh Smith from Of Two Minds

Ireland, Please Do the World a Favor and Default

Ireland would save the world from much misery by defaulting now and driving the vampire banks into liquidation.

The alternative title for today entry is: Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. The entire controlled demolition of the Eurozone’s finances can be summed up in one phrase: privatize leverage and profits, socialize losses and risk.

The basic deal is this: protect the bank’s managers, shareholders and bondholders from any losses, while heaping the socialized losses and risks on the taxpayers and citizens.

While there are murmurings of “forcing bondholders to share the pain,” any future haircut will undoubtedly be just for show, while the Irish pension funds are gutted to bail out the banks.

EU Outlines Bond Restructuring Plan (WSJ.com)

Europe Goes “Completely Mad” At Suggestion Of Irish Default Demanded By 57% Of Irish Population (Zero Hedge)

Here is a chart which illustrates the dynamic at play in Greece, Ireland and indeed, the rest of the world as well: leveraged speculation and mal-investment lead to asset deflation and collapse.

 


Here is a chart which illustrates how asset deflation leads to taxpayer-funded bank bailouts and then sovereign default. It’s fairly self-explanatory:

 

It’s rather straightforward: as asset bubbles rise, they enable vast leveraging of credit and debt. Once mal-invested assets collapse in value, then the debt remains, unsupported by equity or capital.

As the Financial/Political Elites transfer these catastrophic losses onto the citizenry, they set off a positive (runaway) feedback loop: the Central State austerity required to pay the borrowing costs of the bailout sends the economy into recession, which reduces borrowers’ incomes, triggering more defaults which further sink housing prices. As prices continue falling, bank capital declines, requiring ever-larger bailouts to provide the banks with a simulacrum of solvency.

Austerity measures must be tightened to channel more of the citizens’ incomes to the banks, which further suppresses the economy, lowering tax revenues and incomes, which leads to more austerity to fund more bailouts, and so on, until the haggard remnants of a once-wealthy citizenry finally rebel against their Financial/Political Overlords and topple the government which arranged the bailout.

A new populist government announces a sovereign default, to widespread huzzahs from the unyoked citizenry.

The EU’s bailout of Greece and Ireland will only hasten this dynamic. The Power Elites are rapidly losing their credibility; just compare the market’s euphoric reaction to the Greek bailout in May and the openly negative response to the Irish bailout.

The money is lost, and Capitalism requires those who took on the risk to earn outsized returns must take the loss, come what may. When a nation such as Ireland is running a State deficit equal to 32% of GDP, austerity cannot generate the stupendous surpluses needed to make good the vast sums which are already lost.

And even if they could, why should the citizens save the banks and bondholders from the losses Capitalism requires? Mal-investments should be sold, for pennies on the dollar if need be, insolvent banks liquidated and bondholders handed 95% losses. Managers would be sacked, bonuses cancelled and shareholders wiped out.

It’s a little late to decide Capitalism is only fun when reaping gargantuan profits from highly leveraged mal-investment and fraud. Ireland, and indeed the world, will survive if all the vampire banks are liquidated. That is the end-state, and “buying time” just increases the misery of the citizens who have been yoked to save their “betters.”

Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. By defaulting, you would be doing the world (and your own nation) an immense favor.

Justice for Some

27 Nov

November 24th, 2010 BlogAdmin

Burden

NEW YORK – The mortgage debacle in the United States has raised deep questions about “the rule of law,” the universally accepted hallmark of an advanced, civilized society. The rule of law is supposed to protect the weak against the strong, and ensure that everyone is treated fairly. In America in the wake of the sub-prime mortgage crisis, it has done neither.

Part of the rule of law is security of property rights – if you owe money on your house, for example, the bank can’t simply take it away without following the prescribed legal process. But in recent weeks and months, Americans have seen several instances in which individuals have been dispossessed of their houses even when they have no debts.

 

To some banks, this is just collateral damage: millions of Americans – in addition to the estimated four million in 2008 and 2009 – still have to be thrown out of their homes. Indeed, the pace of foreclosures would be set to increase – were it not for government intervention. The procedural shortcuts, incomplete documentation, and rampant fraud that accompanied banks’ rush to generate millions of bad loans during the housing bubble has, however, complicated the process of cleaning up the ensuing mess.

To many bankers, these are just details to be overlooked. Most people evicted from their homes have not been paying their mortgages, and, in most cases, those who are throwing them out have rightful claims. But Americans are not supposed to believe in justice on average. We don’t say that most people imprisoned for life committed a crime worthy of that sentence. The US justice system demands more, and we have imposed procedural safeguards to meet these demands.

But banks want to short-circuit these procedural safeguards. They should not be allowed to do so.

To some, all of this is reminiscent of what happened in Russia, where the rule of law – bankruptcy legislation in particular – was used as a legal mechanism to replace one group of owners with another. Courts were bought, documents forged, and the process went smoothly.

In America, the venality is at a higher level. It is not particular judges that are bought, but the laws themselves, through campaign contributions and lobbying, in what has come to be called “corruption, American-style.”

It was widely known that banks and mortgage companies were engaged in predatory lending practices, taking advantage of the least educated and most financially uninformed to make loans that maximized fees and imposed enormous risks on the borrowers. (To be fair, the banks tried to take advantage of the more financially sophisticated as well, as with securities created by Goldman Sachs that were designed to fail.) But banks used all their political muscle to stop states from enacting laws to curtail predatory lending.

When it became clear that people could not pay back what was owed, the rules of the game changed. Bankruptcy laws were amended to introduce a system of “partial indentured servitude.” An individual with, say, debts equal to 100% of his income could be forced to hand over to the bank 25% of his gross, pre-tax income for the rest of his life, because, the bank could add on, say, 30% interest each year to what a person owed. In the end, a mortgage holder would owe far more than the bank ever received, even though the debtor had worked, in effect, one-quarter time for the bank.

When this new bankruptcy law was passed, no one complained that it interfered with the sanctity of contracts: at the time borrowers incurred their debt, a more humane – and economically rational – bankruptcy law gave them a chance for a fresh start if the burden of debt repayment became too onerous.

That knowledge should have given lenders incentives to make loans only to those who could repay. But lenders perhaps knew that, with the Republicans in control of government, they could make bad loans and then change the law to ensure that they could squeeze the poor.

With one out of four mortgages in the US under water – more owed than the house is worth – there is a growing consensus that the only way to deal with the mess is to write down the value of the principal (what is owed). America has a special procedure for corporate bankruptcy, called Chapter 11, which allows a speedy restructuring by writing down debt, and converting some of it to equity.

It is important to keep enterprises alive as going concerns, in order to preserve jobs and growth. But it is also important to keep families and communities intact. So America needs a “homeowners’ Chapter 11.”

Lenders complain that such a law would violate their property rights. But almost all changes in laws and regulations benefit some at the expense of others. When the 2005 bankruptcy law was passed, lenders were the beneficiaries; they didn’t worry about how the law affected the rights of debtors.

Growing inequality, combined with a flawed system of campaign finance, risks turning America’s legal system into a travesty of justice. Some may still call it the “rule of law,” but it would not be a rule of law that protects the weak against the powerful. Rather, it would enable the powerful to exploit the weak.

In today’s America, the proud claim of “justice for all” is being replaced by the more modest claim of “justice for those who can afford it.” And the number of people who can afford it is rapidly diminishing.

Foreclosure fraud on utube

19 Nov

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  • Lawsuits Against Lenders Accelerate Amid U.S. Housing Crisis

    12 Nov

    The U.S. housing crisis has caused huge loan losses at big lenders but also spawned a slew of class-action lawsuits against them, many alleging noncompliance with consumer disclosure rules.”The compliance issue is a ticking time bomb for some lenders,” said Louis Pizante, chief executive of Mavent Inc., an Irvine, California-based company that provides automated regulatory compliance reports for financial clients. “We have only just seen the beginning of the lawsuits.”

    Navigant Consulting said in a report last month that in the 15 months through March 2008 a total of 448 lawsuits had been filed related to the subprime crisis. Of the 170 cases filed in January-March 2008, 46 percent were borrower class actions.

    That compared to 559 lawsuits related to the U.S. savings and loan association debacle in the 1980s and 1990s, it said.

    “Each of the top 10 subprime mortgage lenders for 2006 was named in at least one borrower class action suit during 2007,” the Navigant report said.

    Lenders targeted include Wachovia Corp unit World Savings Bank, Bear Stearns Cos. Inc., Citigroup Inc.’s CitiMortgage, Wells Fargo & Co. Merrill Lynch & Co. Inc. unit First Franklin, and Countrywide Financial Corp., which agreed in January to be acquired by Bank of America Corp.

    “Looking at the volume and scope of the claims, there is an all-out assault under way against the firms involved in subprime loans,” Navigant Managing Director Jeff Nielsen said.

    Pizante and lawyers for plaintiffs said that if lenders lose such lawsuits, they may be obliged to return billions of dollars in interest and fees to borrowers. In some cases, homeowners could also have their loans declared unsecured debt by a bankruptcy court judge, allowing them to walk away.

    Pizante said Mavent had seen a dramatic increase this year in requests for compliance checks from lenders. But requests have also risen from investors looking to verify whether the loans that Wall Street banks sold them during the height of the U.S. property boom met all applicable laws.

    “In some cases it appears compliance may not have kept pace with the demand to get some of the more exotic loan products to market,” Pizante said.

    Under a U.S. law known as The Truth in Lending Act, lenders must disclose the terms and cost of loans to consumers. But lawyers representing borrowers in the lawsuits claim lenders gave borrowers loans with hidden costs and consequences.

    “The law requires lenders to disclose clearly and conspicuously what the ramifications are of a particular loan,” said Paul Kiesel, a partner at Kiesel, Boucher & Larson LLP.

    “But in many cases they didn’t even come close,” he said.

    Kiesel’s firm represents borrowers in more than 50 lawsuits involving Option Adjustable Rate Mortgages (ARMs), one of the more exotic loan products made available by lenders during the recent property boom.

    Lawyers representing lenders said that compliance cases can often come down to the interpretation of a single word.

    “This will be a long slog, but the industry will get through it,” said Tom Hefferon, a partner at law firm Goodwin Procter in Washington, D.C.

    The stakes are high for lawyers and lenders. But emotions are running high for plaintiffs who had subprime loans.

    Richard Carbone, 65, and his wife Carmen, 62, in Hesperia, California, are typical. They said that not only were they not protected but were cheated by their mortgage provider.

    Carbone, a Vietnam War veteran, said in August 2006 a broker called and told him: “‘Have I got a great deal for you.”‘

    The deal: refinancing his 30-year fixed rate mortgage to a loan charging only 2 percent annual interest.

    Jeffrey Berns of Arbogast & Berns LLP, who is representing the Carbones and 12,000 other subprime borrowers in class action suits, said the Carbones ended up with an Option ARM with the terms not explained in the disclosures given.

    “If I’d known what they were selling me, I would have stuck with my 30-year fixed loan,” Carbone said. “I was lied to.”

    With an Option ARM, borrowers can make a minimum monthly payment instead of paying the larger full amount due. But the unpaid remainder is then added to the balance of the loan.

    The loan interest starts at a low “teaser” rate, then goes up quickly. There are also stiff prepayment penalties.

    In two months the Carbones’ interest rate went up and they found that $800 per month was being added to their balance.

    “The average person would look at the deal as it was presented and think ‘this is great.”‘ Berns said. “But by the time they realize what they have, they can’t get out.”

    “The disclosures for some Option ARMs state that ‘interest rates may go up,”‘ Kiesel said. “But in 100 percent of cases they went up in the second month. That’s misleading.”

    Defense lawyers say that argument is unlikely to succeed.

    “That is standard language on mortgage loan disclosures,” said Jeffrey Naimon, a partner at Buckley Kollar LLP in Washington, D.C. “Interest rates go up and down all the time, so this is not the world’s strongest argument.”

    Foreclosure attorney

    12 Nov

    Our Bankruptcy Attorneys and Foreclosure Prevention Attorneys have options for every situation…you just need to call. Don’t wait any longer, it may only get worse…

    Bankruptcy Attorneys and Foreclosure Prevention Attorneys

    We know times are tough, you aren’t sure what to do, but you know one thing, you need to do something.  Maybe you are upside down in your home and tired of throwing good money at a bad problem, maybe you can’t afford your house payments anymore due to an adjusting loan, you’ve tried talking with your  lender and after months you have gotten nowhere and you are frusterated and scared.

    Your bills are mounting, your credit cards are maxed, you are starting to receive creditor calls…it is time to let the experienced bankruptcy and real estate attorneys at the McCandless  Law Firm step in and help you with all of your problems, we will steer you in the right direction for YOU. We are one of the few law firms that can assist with BOTH your real estate needs (short sales, foreclosure assistance, deed-in-lieu of foreclosure, rescission of foreclosure, etc) and/or your bankruptcy needs so whichever option fits you and your needs the best, you can rest assured that our experienced attorneys can assist you quickly and competently.  And with our offer of a free consultation you have nothing to lose and everything to gain.

    Call the Mcandless Law Firm today to schedule your free one-on-one confidential consultation with one of our experienced and caring Bankruptcy and Foreclosure Prevention Attorneys.


    Don’t wait any longer, it may only get worse…

    12 Nov

    Our Bankruptcy Attorneys and Foreclosure Prevention Attorneys have options for every situation…you just need to call. Don’t wait any longer, it may only get worse…

    Bankruptcy Attorneys and Foreclosure Prevention Attorneys

    We know times are tough, you aren’t sure what to do, but you know one thing, you need to do something.  Maybe you are upside down in your home and tired of throwing good money at a bad problem, maybe you can’t afford your house payments anymore due to an adjusting loan, you’ve tried talking with your  lender and after months you have gotten nowhere and you are frusterated and scared.

    Your bills are mounting, your credit cards are maxed, you are starting to receive creditor calls…it is time to let the experienced bankruptcy and real estate attorneys at the McCandless  Law Firm step in and help you with all of your problems, we will steer you in the right direction for YOU. We are one of the few law firms that can assist with BOTH your real estate needs (short sales, foreclosure assistance, deed-in-lieu of foreclosure, rescission of foreclosure, etc) and/or your bankruptcy needs so whichever option fits you and your needs the best, you can rest assured that our experienced attorneys can assist you quickly and competently.  And with our offer of a free consultation you have nothing to lose and everything to gain.

    Call the Mcandless Law Firm today to schedule your free one-on-one confidential consultation with one of our experienced and caring Bankruptcy and Foreclosure Prevention Attorneys.


    Some judges chastise banks over foreclosure paperwork

    11 Nov

    Gallery
    During the housing boom, millions of homeowners got easy access to mortgages. Now, some mortgage lenders and government officials are taking action after discovering that many mortgage documents were mishandled.

    ST PATCHOGUE, N.Y. – A year ago, Long Island Judge Jeffrey Spinner concluded that a mortgage company’s paperwork in a foreclosure case was so flawed and its behavior in negotiations with the borrower so “repugnant” that he erased the family’s $292,500 debt and gave the house back for free.

    The judgment in favor of the homeowner, Diane Yano-Horoski, which is being appealed, has alarmed the nation’s biggest lenders, who say it could establish a dramatic new legal precedent and roil the nation’s foreclosure system.

    It is not the only case that has big banks worried. Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

    Their decisions illustrate the central role lower court judges will have in resolving the country’s foreclosure debacle. The mess came to light after lawsuits and media reports showed lenders were routinely filing shoddy or fraudulent papers to seize the homes of borrowers who had missed payments.

    In millions of cases across the United States, local judges have wide latitude to impose sanctions on banks, free homeowners from their mortgage debts or allow the companies to proceed with flawed foreclosures. Ultimately, the industry is likely to face a messy scenario – different resolutions by courts in all 50 states.

    The foreclosure dismissals in this area of New York have not delivered free homes for borrowers. With so much at stake, lenders in this part of New York are aggressively appealing foreclosure dismissals, which is likely to keep the legal system bogged down, foreclosed homes off the market, and homeowners like the Yano-Horoski family in legal limbo for years.

    “We believe the Yano-Horoski ruling, if allowed to stand, has sweeping and dangerous implications for the entire mortgage lending industry,” said OneWest Bank, the family’s mortgage servicer.

    The situation in Suffolk and Nassau counties on Long Island and Kings County in Brooklyn- which have among the highest rates of foreclosure in the state and where the 81 judges handling foreclosures have become infamous over the past few years for scrutinizing paperwork for errors – provides a window into how the crisis could unfold across in the country.

    While the level of tolerance for document mistakes varies from judge to judge, the group as a whole has a reputation for ruling against mortgage companies when paperwork issues or other problems arise. At least one bank, J.P. Morgan Chase, requires document processors to separate foreclosures cases from these three counties from those in the rest of the country. A high-ranking executive of the company is specially assigned to sign off on the area’s foreclosure filings.

    Judge Dana Winslow of Nassau County says he’s thought a lot about why judges in his area are more apt to question filings. He said it comes down to one thing: Lack of trust for Wall Street. In this region, judges have seen a lot of inaccurate filings from the financial sector.

    Trust “of the lending institutions and Wall Street has eroded in some areas of the country more than others,” Winslow said.

    Craig D. Robins, a foreclosure defense attorney who authors the Long Island Bankruptcy blog, said of the Yano-Horoski case: “I think we’re going to see more decisions like this across the country. Many judges are finding their court calendars clogged with cases that have all these flaws in them that never should have been brought in the first place or should never have been brought without more due diligence.”

    Going forward, mortgage companies trying to foreclosure in the state of New York will face stiffer requirements. On Oct. 20, the state’s chief judge said attorneys for lenders will have to vouch personally for the accuracy of documents.

    “We can’t have the process being a fraud,” New York State Chief Judge Jonathan Lippman said in announcing the new procedure. “It has to be real and based on credible information.”

    Even before Lippman’s order, however, lower court judges were already raising questions about faulty paperwork in foreclosures.

    On June 17, for example, Judge Karen Murphy of Nassau County ruled that Wachovia Bank lacked standing to foreclose on a home because the document used to prove ownership of the mortgage was incomplete.

    On Sept. 21, Judge Peter Mayer of Suffolk County delayed a foreclosure by Ally Financial’s GMAC mortgage unit after noticing that the paperwork transferring the mortgage to the bank was dated two days after the foreclosure was initiated.

    And on Oct. 21, Judge Arthur Schack of Kings County dismissed a OneWest foreclosure motion because the bank had not adequately documented how the mortgage had been sold and resold to investors. He also questioned why the employee who signed many of the documents claimed to be a vice president of several different mortgage companies at the same time.

    In a different case in May, Schack ruled that HSBC Bank could not foreclose on a home because the paperwork that assigned the mortgage to HSBC from the original lender, Cambridge, was “defective.”

    That didn’t mean the borrower, Lovely Yeasmin, a 28-year-old cashier who immigrated from Bangladesh, got her three-story townhouse in Brooklyn’s Bushwick neighborhood for free. Wells Fargo, the mortgage servicer for HSBC, has not appealed the case. Instead, it has offered to temporarily lower her monthly payment from $4,700 to $3,000.

    Yeasmin’s eldest brother, Mohammed Parpez, 35, said that before the judge’s order, Wells Fargo was resistent to a loan modification. “The banks are crooks. They tell everyone they are trying to help people like us, but they are really doing the opposite,” Parpez said.

    Tom Goyda, a Wells Fargo spokesman, said that although the company “disagrees with the court’s findings,” it is continuing to try to work out a longer-term solution with the family.Members of the Yano-Horoski family said they struggled similarly to get their lender to modify their loan after Greg Horoski fell ill in 2005 and his online business selling specialty dolls suffered. After he underwent a triple bypass surgery, two stents and two hip replacements, he and his wife, Diane – who teaches an online English composition course – found themselves unable to pay the bills.

    Despite his pleas, Horoski said, he failed to get OneWest to come to an agreement, even though he became able to pay the debt after his company’s sales picked up.

    In his November 2009 ruling, Judge Spinner of Suffolk County blasted OneWest for negotiating with an “opprobrious demeanor and condescending attitude.” He also cited the bank’s “duplicity” in offering a forbearance agreement with a deadline that had already passed and for presenting contradictory paperwork claiming different amounts for what the family owed.

    With their case under appeal, the Yano-Horoskis now find themselves in a tricky position, wary of putting more money into a house that an appeals court could take away from them. While the other houses on their quiet suburban street are meticulously maintained, their front-porch light remains shattered and the paint on their house is peeling.

    They’ve shelled out $3,000 for a new hot-water system. They paid $2,000 for tree trimming after a neighbor complained. But they’ve let the $10,000 property tax bill become delinquent, and they worry an appeals court could not only reverse the earlier ruling but demand that the family pay back the mortgage for every month that has passed since.

    Nonetheless, Horoski remains optimistic.

    “People thought people who didn’t pay their mortgages were automatically deadbeats,” he said. “People are educated now. They are realizing all of a sudden how many hundreds of thousands of these homes that were foreclosed may have been done so with fraudulent documents.”

    Staff researchers Julie Tate, Alice Crites and Magda Jean-Louis contributed to this report. Faye Crosley forwarded this article to me and I have posted it for my readers. It would appear that some judges are beginning to thaw to the idea that this “bailout” is for the banks and the victims are being pushed aside by the foreclosure machine

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