The Engineered Mortgage Scam

According to Richard Kelton (2010) pro se litigant and researcher (as he appeared in hour
3 on the Alex Jones Show October 20, 2010), says the mortgage fraud engineered
borrowers to go into a loan product they could not afford because they profited at every
turn. They profited when:

1. they sold the note,

2. they filed a 1099A
3. the borrowers paid late,
4. the borrowers defaulted.

But, that was chump change...they really profited on the credit default swaps (CDSs),
essentially a form of insurance which you see on the HUD-1 settlement statement as
“mortgage insurance protection” (or MIP). If the borrower defaults on the note the
insurance company pays 80% of the principal based on that insurance premium.

What you don’t know is, on the derivatives market you get another 8 to 10 of those.
Anyone who thinks their lender is going to give them a modification on their mortgage is
dreaming! It is now coming out that some lenders who offer government modification
programs do these “bait and switches” and grab the house right there!

The lender/servicer acts like they are going to modify, they indicate a requirement of a
document or two that isn’t clearly identified. After six weeks of going in circles they say
you didn’t get us those two we needed so your modification is denied. The house is then
sold off in minutes.

Another technique is they require two months past due to qualify, and when you initiate
the process, shortly thereafter you get a letter of acceleration of the note. They say “don’t
worry about that”. They induce you to give them the two payments in arrears to trigger
the foreclosure, and they run the foreclosure while they do the pretense modification.

According to Shahien Nasiripour (2009), Mortgage companies are more likely to

foreclose on homeowners than modify their loans because they make more money off
foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure,

mortgage servicers do not, says report author Diane E. Thompson, of counsel at the
National Consumer Law Center. Servicers are the companies that manage the mortgages
and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan
modification will cost the servicer something. A servicer deciding between a foreclosure
and a loan modification faces the prospect of near certain loss if the loan is modified and
no penalty, but potential profit, if the home is foreclosed."
Thompson attributes this to a system of perverse incentives created by lawmakers and
rulemakers in the market, like credit rating agencies and bond issuers. The private
rulemakers typically dictate how a servicer can account for potential losses and profits.
They hold enormous sway over securitized mortgages, which are owned by investors.
More than two-thirds of mortgages issued since 2005 have been securitized, notes the
report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage,
from collecting the monthly payments to initiating foreclosure proceedings. While they're
obligated to do what's best for the ultimate owners of the mortgage -- the investors --
servicers have some latitude in deciding what course of action to pursue, be it a
foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must
front the late payment to the investors. When a home is foreclosed, the servicer is
typically first in line to recoup losses. But if a mortgage is modified, the servicer typically
loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses
when a loan is foreclosed, before any of the investors get paid. The rules for recovery of
expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to
limit foreclosures. The money is to be distributed to servicers who successfully modify
home loans, with the hope that the incentives to modify outweigh the incentives to
foreclose.

Thompson's report outlines eight specific steps to reverse this trend. They include
mandating that servicers attempt to modify a loan before initiating foreclosure
proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

__________
Kelton, R. (2010). Special Guest: Randy Kelton, The Alex Jones Show Archives. 3rd
hour, October 20, 2010. Retrieved from,
http://www.gcnlive.com/programs/alexJones/archives.php

Nasiripour, S. (2009). Foreclosures are more profitable than loan modifications,

according to new report. The Huffington Post. October 21, 2009. Retrieved from
http://www.huffingtonpost.com/2009/10/21/perverse-incentives-lead_n_328378.html