Our financial system is crumbling this week.

[IMADreamer]

I wonder if they could be faking documents to take over people's homes because they can sell the homes again and higher interest rates? Or Maybe dump the foreclosures as tax write offs? I don't know, I don't understand the situation well but I think it's entirely in the realm of possibility for a big bank to do that sort of thing. Hell I don't think it's too far fetched to think they'd do it just because they are [expletive].

[Jocephus]

im not sure i'll ever own a home.

[IMADreamer]

im not sure i'll ever own a home.

It's over rated. Taxes and maintenance suck. There is always something that needs fixed.

[Jocephus]

yea im not too bummed about it, though i suppose there might be some pride to owning a home...american dream and all

[AWvsCBsteeeerike3]

Right, what I mean is that I agree with your premise that it doesn't make sense on its face, but neither does lending money to people who can't pay it back. But someone is making a killing.

Definitely agree, in the end. But to understand what happened I think you have to acknowledge it made sense, at the time, for banks to lend money people couldn't pay back because

1. the banks didn't hold the loans; they sold them to people who then put them into some investment securities who then sold them to investors looking for 'safe' investments and, even if they knew what they were getting, collecting interest from a mortgage payment seemed like a decent enough investment. The banks made money originating the loans in the closing cost fees and were done. More fees = better business = end of discussion...they didn't care what they were selling, they were just selling it.
2. some of the loans weren't horrible assuming, as everyone did, home prices kept increasing. People could originate a loan, pay the low interest rate for a couple months/year, turn around and resell the home at a profit before the balloon payments came due, and everyone would win. Homeowner would make money, banks would originate more loans, mortgages would be paid in full, realtors would collect more fees, and investors could continue making these funds and charging investors premium rates to buy them. In this model, everyone is making a killing.

Of course, the basic premise: home prices continue to increase value almost exponentially, is absurd. As such, things that were legal, in hindsight, really shouldn't have been.

The poor and undereducated were sold the most complicated and 'worst' loans. Often times, even if the house increased in value, the homeowner was going to be unable to pay the note. The banks not modifying loans in cases they could have. Investment firms peddling [expletive] they knew was toxic. Etc etc etc.

In the end, I agree. What happened really should have been illegal on so many different levels and the banks largely were let off the hook.

[AWvsCBsteeeerike3]

I wonder if they could be faking documents to take over people's homes because they can sell the homes again and higher interest rates? Or Maybe dump the foreclosures as tax write offs? I don't know, I don't understand the situation well but I think it's entirely in the realm of possibility for a big bank to do that sort of thing. Hell I don't think it's too far fetched to think they'd do it just because they are [expletive].

Again, just looking at it from a financial standpoint, if the banks were going to foreclose homes so they could resell them and make higher interest rates off the mortgages.....they'd have to get the loan again and interest rates are still not much higher than even the lowest of lows. So, they'd possibly gain a marginal amount in the interest collected, plus the closing costs at the risk of losing the entire loan. The risk just doesn't seem to be worth the reward, especially since it is completely illegal and would end up being taken to court. People can easily prove they pay their mortgage. We agree they are largely [expletive] though.

[Joe Shlabotnik]

I wonder if they could be faking documents to take over people's homes because they can sell the homes again and higher interest rates? Or Maybe dump the foreclosures as tax write offs? I don't know, I don't understand the situation well but I think it's entirely in the realm of possibility for a big bank to do that sort of thing. Hell I don't think it's too far fetched to think they'd do it just because they are [expletive].

I think this has more to do with MERS and the problems it created during the housing bubble.

During the early Aughts, the banks used MERS as the clearinghouse for all the titles to homes they owned/bought/sold as a way to get around the paperwork, time, and money needed to go down to the courthouses around the country and update titles. The problem was MERS wasn't keeping good track and there are more than a few houses in this country where you can't get a good trail of title and who owns what. Look through the litigations listed on the wiki link for a taste of the scope of the problem.

So for the banks now in 2014, its a problem because there are courts who will throw out foreclosures if the bank can't show clear title to the property. And they can't show clear title in many instances because of the MERS mess. Which they created.

So Wells Fargo has now apparently developed a procedure to get around this bit of nastiness by making [expletive] up. And why not? As Warren points out, history has shown them they are above the law and can act with impunity.

Yet another object lesson in what happens when you don't let capitalism work and make those who [expletive] up lose.

[pioneer98]

2. some of the loans weren't horrible assuming, as everyone did, home prices kept increasing. People could originate a loan, pay the low interest rate for a couple months/year, turn around and resell the home at a profit before the balloon payments came due, and everyone would win. Homeowner would make money, banks would originate more loans, mortgages would be paid in full, realtors would collect more fees, and investors could continue making these funds and charging investors premium rates to buy them. In this model, everyone is making a killing.

This was a key paragraph:

Attorneys, forensic accountants and consumer advocates have long suspected that banks were systematically creating improper documents to prove ownership of loans. Foreclosure defense lawyers use the term ‘ta-da’ endorsement to describe situations in which they say a document appears, as if by magic, in the bank’s possession as needed in a foreclosure case—even though the proper endorsement was not included in the original foreclosure filing. It might sound like a technicality, but correct proof of ownership lies at the heart of the foreclosure crisis for securitized loans, which were sold by the lender that originally issued the mortgage. To legally transfer a securitized loan, the endorsements and allonges have to be created in a very specific way and within a specific time frame, usually 90 days after a residential mortgage trust closes. For many loans in foreclosure now, which were originated years ago and then sold, it’s way too late to correct incomplete documents, experts said.

Many banks were making more money just giving out mortgages to anyone that they could, and then selling them to dumb people on the other end of mortgage derivatives. They didn't care at all whether or not the waitress that they gave a $1 million mortgage to in Las Vegas would ever make a single payment. They sold it and that become someone else's problem! At least until the waitress actually did fail to make a payment and people who were short those derivatives came to calling, and whole house of cards collapsed.

[pioneer98]

I wonder if they could be faking documents to take over people's homes because they can sell the homes again and higher interest rates? Or Maybe dump the foreclosures as tax write offs? I don't know, I don't understand the situation well but I think it's entirely in the realm of possibility for a big bank to do that sort of thing. Hell I don't think it's too far fetched to think they'd do it just because they are [expletive].

I think this has more to do with MERS and the problems it created during the housing bubble.

During the early Aughts, the banks used MERS as the clearinghouse for all the titles to homes they owned/bought/sold as a way to get around the paperwork, time, and money needed to go down to the courthouses around the country and update titles. The problem was MERS wasn't keeping good track and there are more than a few houses in this country where you can't get a good trail of title and who owns what. Look through the litigations listed on the wiki link for a taste of the scope of the problem.

So for the banks now in 2014, its a problem because there are courts who will throw out foreclosures if the bank can't show clear title to the property. And they can't show clear title in many instances because of the MERS mess. Which they created.

So Wells Fargo has now apparently developed a procedure to get around this bit of nastiness by making [expletive] up. And why not? As Warren points out, history has shown them they are above the law and can act with impunity.

Yet another object lesson in what happens when you don't let capitalism work and make those who [expletive] up lose.

This was a great explanation.

[planet planet]

IMF speaks out against income inequality.

Similarly, a survey by The Associated Press late last year found that a majority of economists think income inequality in the United States is weakening its economy. Middle-income consumers are more likely to spend extra income than wealthier households are. As a result, stagnant middle-class income can depress consumer spending and overall growth.

"The IMF is coming kind of late to the party in terms of worrying about inequality and what can be done about it," said Nancy Birdsall, president of the Center for Global Development. "But they are a big player, so we're glad they came to the party."

Last month, an IMF research paper concluded that countries with steep income inequality are more likely to have briefer and weaker periods of economic growth. It also argued that efforts to redistribute income don't necessarily hinder economic expansion.

That runs counter to traditional thinking, which generally assumes a trade-off between economic growth and efforts to reduce inequality. Under this view, a higher tax rate on the wealthy or higher spending on social welfare, while it may reduce income inequality, would likely depress growth.