Tangled Webs Unravelling

A conversation recently led to some one I know, who actually isn't capable of forming judgments anyway, declaring that homeowners who had bought into mortgages they couldn't afford had merely demonstrated salesmanship on the part of the sellers. It's pretty sad if the right wing is admiring that technique at the heart of our credit crisis, of real estate agents duping the unwary.

I have heard so much of the tragedies involved, and the fees paid to agents who signed up buyers for the more profitable mortgages, that I suppose I thought anyone could see the fraudulent practices that have caused such massive home losses.

Today, I am encouraged. It seems that the very artistry of the mortgage packages may be saving people from losing their homes. Very encouraging.

California and Illinois recently sued Countrywide Financial for using deceptive marketing tactics to convince borrowers to buy or refinance using complex "creative" loan products, while the lender routinely overrode its own standards to expand the number of loans it sold, in order to realize bigger profits from the resale.

Other homeowners have been able to use the Byzantine complexities of the mortgage market to their advantage, for both good and ill. A California judge recently ruled that a debt-ridden couple's home equity line of credit (HELOC) could be discharged in their bankruptcy filing, due to the bank's failure to perform due diligence and offering them the loan despite their clear financial problems.

Said Judge Leslie Tchiakovsky, "In general, a lender's reliance is reasonable if it followed its normal business practices. However, this may not be enough if those practices deviate from industry standards or if the creditor ignored a 'red flag'...[T]he Bank ignored a 'red flag' that should have called for more investigation concerning the accuracy of the income figures."
(snip)
Smith says that more homeowners should challenge foreclosures by lenders who can't prove they legitimately hold the loan, and that many innocent buyers are the victims of "very unscrupulous activity" propagated by lenders and investors who are motivated by "nothing but greed."

"They knew [the market] was all going to collapse eventually," Smith said. "They said, 'Let's just make as much money on the front end as possible and not worry about the back end."

Even Smith's hometown of Independence, a small city of 113,000, has been hit hard. "I've seen homes that were bought for $1.7 million go back on the market at $680,000 to get them sold quick," she said. "In a row of ten homes, maybe one-third of them will have foreclosure signs out front."

Although the Bush administration and Congress have both put forth numerous plans to help stem the tide of foreclosures, political gamesmanship and pressure from the financial industry has slowed progress. The largely voluntary mortgage rescue plans implemented by the financial industry have helped few homeowners to date.

That banks should have exercised 'due diligence' in making loans is obvious, and that in the past the lenders and sales agents were expected to place loans that were repayable is part of the problem. Buyers expected that they would be put into loans they could repay, for the good of the lenders. That those lenders were only a way station in the lending process, and passing on bad loans to other financial institutions that didn't have the information that they were bad loans - there you actually do have something that 'no one could have anticipated'. A homebuyer simply would have had to be versed in arcane financial devices even to suspect what was happening.

That grounds of foreclosures can and should be fought as the frauds they result from - now that is helpful. Consumer protections have been shredded by the occupied White House, to the detriment of our economy and American consumers.

The mess will need to be cleaned up, and the representatives of America's interests that a Dem administration can and will provide, will have a lot of tangled webs to unravel before they can put this economy back together again.