Not to be outdone by Wall Street, Organized Crime positioned themselves to get a piece of the sub-prime mortgage action too.
When the easy money loans started, the idea was good. Poor people were going to be able to buy a home- The American Dream realized. Unfortunately greed has a nasty way of rearing its ugly little head into even the most well intentioned plans.
At the beginning of the real estate boom, you had to have stellar credit (High700 FICO scores) to be able to get 100% financing. (Close on a 80% first mortgage, and a 20% equity loan, from the same bank, simultaneously).
As the boom heated up, the Global Economy roared, (especially the Asian markets), and Cash rich foreign investors, turned to Wall Street to find them safe havens to park their money. Wall Street created the Market Backed Securities (MBS's). As the demand (and profits) grew, the criteria to obtain the mortgages loosened, as Wall Street opened their doors wide to encourage real estate borrowing. Programs were created including 100%-120% loan to value financing; Negative amortization loans (you pay part of the interest and what you don't pay gets added to the principal); Interest only loans. No documentation loans. No income No credit loans. No closing costs loans; or you could finance them. The higher the points and interest rates, the more you could borrow. (Remember this is a story about greed). It got to the point that all you had to do to get a mortgage on real estate was have a photo id and breathe.
But seriously, and this is very serious, fueled by the upward real estate market, the ease of borrowing, Wall Streets' greed, willing participants, Organized Crime of several different ethnic persuasions, and national origins, seized upon the opportunity to get into the game and they created a cottage industry for themselves.
Organized Crime began manufacturing “Straw Buyers”.
People with no jobs, no credit histories, no visible means of support, were turned into documented upstanding, taxpaying, credit worthy home buyers and borrowers.
The process of creating "straws" was really quite simple.
The first step was to deposit money into a bank account in the "straws" name. Banks don't care where the money comes from, just that it exists, and is verifiable with 3-6 months bank statements.
Next step was to get a job for the straw. Rather than create jobs, they created Straw Companies- companies that had telephone numbers and addresses that could be verified. It could be an office or a storefront anywhere with a lot of phone numbers and a lot of signs in front. Once the Straw Companies are "in business" it was easy to verify employment.
Now they had to find some real estate. This was easy. Find a builder with units that weren’t selling. Buy in depressed areas. Buy the last couple of units in a job, buy the houses that had problems, doesn’t get the sun, gets too much sun, the one that gets all of the noise from the highway. Pay the builders full asking price, maybe more (maybe less). You get the picture. The builder or the broker are only too happy to sell the units. So happy in fact that they will enter into a contract where the buyer is allowed to re-sell to a third party (The Straw), at higher prices, no or small down payments, etc.
Next they had to hire the right mortgage broker/bank. The mortgage broker is responsible for verifying the employment, the contract deposit (which previously had been deposited into an account in the straws name), the tax returns, current living expenses, etc, and has to find the loan. It is the mortgage broker that hires the appraiser that is going to bring the loan in at the right price.
Mortgage brokers/banks guarantee loans that they sell to the Banks. If the loan defaults during this period, the mortgage broker has to buy back the loan, or make those payments. This period is usually a year.
When I look at the foreclosure files at the Richmond County Clerk's Office, it is hard not to notice that the dates of the commencement of the action, and the dates of the actual signing of the mortgage are not that far apart. It's just incredible that in so many foreclosures- No payments were ever made.
American Home was a Mortgage Bank which is the same as a broker basically except that they have a warehouse line which allows them to close now place the loan later. They were forced to buy back a couple of million in bad paper (defaulted within a year) and then their lines were frozen forcing them to go out of business. (Not so innocent victims).
The appraiser had to bring the house in for much more than its asking price. Appraisers were happy because they were working regularly. The realtor, the builder and the lawyer had to not ask too many questions. Finally there is the buyer -the "straw".
I’ve often wondered what the Straw Man gets. Live in the house without making payments until the post foreclosure ejectment action for possession? Think that there was word of mouth advertising in certain neighborhoods- “Live free for a year in a new house, just sign the papers"
Last year, when the “Sub-Prime Mortgage Market” started to crash, the media’s hype was to blame it on the interest rates going up on the adjustable mortgages. And that probably did affect some of the people. And of course there are/were too many people who were living way over their heads, and constantly refinancing in an upward market, using their equity to carry the monkey.
But I have never heard a report that attributed any blame for the crash of the real estate markets like Florida, Texas, Nevada, nor a little closer in areas like Mariners Harbor and Port Richmond to fraud and/or Organized Crime.
Certainly neither SIBOR, The Staten Island Advance, nor the Richmond County Clerk's Office, kept track of straw loans. But it is interesting to wonder how big a role Organized Crime played in the crash of the sub-prime mortgage market? and if that is why Staten Island have one of the highest per capita rates of foreclosures in the Country?
(I have no actual firsthand knowledge of any transaction, nor of any participant (knowingly or not) in any such fraudulent or illegal transaction or scheme).
………..to be continued
Wednesday, October 15, 2008
Sunday, October 5, 2008
Why does Staten Island Have so many foreclosures? .........continued
We probably should have known that there was something wrong, when our mortgage payments went to MERS.
MERS stands for Mortgage Electronic Recording Systems. (Others include ASC American Servicing Company, Litton, etc.). These aren’t banks. These are the companies that service the loans: (bill for the payments; pay the insurance and taxes, etc.). They are also the parties that send the files to the lawyers and are sometimes plaintiffs in foreclosures. But they don’t own the mortgage.
Once upon a time, we worked hard, we deposited our money in our local “Banks”, and when it came time to buy a house, our bank gave us the mortgage. Northfield Bank is still like that, but Richmond County no longer gives residential loans. Others that still make mortgages, but have very strict guide lines are Emigrant, Astoria, and Ridgewood. Locally we have the United Brethrens. These institutions tend to loan their own money (depositors' money) and are very careful and generally don’t run into any problems (although they have an occasional foreclosure because bad things do happen to good people!).
These days, most people wind up going to a mortgage broker, or one of the big lenders (Countrywide, Wells Fargo, etc.). People get mortgages based upon: Credit scores; percent of money put down, (Loan to Value- LTV); and income to Debt Ratio (DTI). Mortgage Brokers and bankers fit their customers into neat little packages based upon the available programs at the time. SONYME, FHA, Fannie & Freddie set criteria from which they lend. But not all borrowers can qualify or “conform” to the guidelines.
For those borrowers, Wall Street developed various products. Since we were in a real estate boom and people tend to respect their home as an asset, Wall Street seized upon the opportunity and got into the mortgage business. Lehman Brothers used their own companies, Aurora and FNBA, to make loans that did not meet the stricter criteria of Fanny and Freddie, and FHA, etc.
Once bundled into a large enough block of mortgages, Wall Street sold these MBS’s, (Mortgage Backed Securities) to AIG, Merrill Lynch, Mutual Funds, and Pension Funds. The United States has the most stable government and economy in the world, so foreigners like to invest here because it is safe: foreigners like The People's Republic of China and the newly rich entrepreneurs in India. So that’s who owns the MBS’s, (although pretty soon it is going to be the US Treasury and the US Tax Payer!). But you do not see any foreclosures where the plaintiff is any of these names.
When mortgage loans are sold, they are “assigned”; and the assignments have to be recorded to be enforceable. Public Records (County Clerk’s Office) may list MERS or one of the other servicers as the record Mortgagee, although they are not the owner of the mortgage.
Many foreclosures are commenced while the real owner of the mortgage, the Plaintiff in the foreclosure, is not the record owner. A Federal Judge in one state decided that if the Plaintiff is not the actual mortgagee, the foreclosure could not continue. Another Judge in another state found that the real owner has to sign the foreclosure papers for them to be enforceable. Of course the problem often is that not even the servicing company knows who the real owner is.
Most of the Staten Island’s judges allow the “servicing companies” and/or Mortgagees that are not of record to maintain foreclosures ; and allow foreclosures to proceed although the real owner of the mortgage isn’t the plaintiff in the action, or the assignments weren't recorded at the commencement of the action, (or not even prepared or signed).
While selling blocks of mortgages is nothing new, they used to be sold in groups where the majority were conforming loans (75-80% LTV), although there were always banks that specialized in less than stellar loans and bad credit. BANKS. It used to be that the Banks made money either by loaning the money and making the interest, or by servicing the loans (making a percentage of the amount collected). Used to be, but that’s not what happened here. More on whom the banks loaned money to in a future email.
So Wall Street told their investors that these MBS’s were just like municipal bonds, only not tax-free. The Port Authority is going to sell bonds to build a new Goethals Bridge. If there is a default, will the bond holders have the right to foreclose the mortgage on the Bridge? I think not. Is this not the same thing?
A customer of mine called me the other day and asked me about a property that was boarded up and had a Marshall’s notice on the door. I went to the County Clerk’s office and reviewed the foreclosure file. The referee’s deed put title into: “Deutche Bank National Trust Company, as trustee for Fremont Home Loan Trust 2006-1”. The house has since been listed on the MLS, and the name of the owner is listed as Premier Asset Services (PAS).
So who owns the Real estate?
………………..to be continued
MERS stands for Mortgage Electronic Recording Systems. (Others include ASC American Servicing Company, Litton, etc.). These aren’t banks. These are the companies that service the loans: (bill for the payments; pay the insurance and taxes, etc.). They are also the parties that send the files to the lawyers and are sometimes plaintiffs in foreclosures. But they don’t own the mortgage.
Once upon a time, we worked hard, we deposited our money in our local “Banks”, and when it came time to buy a house, our bank gave us the mortgage. Northfield Bank is still like that, but Richmond County no longer gives residential loans. Others that still make mortgages, but have very strict guide lines are Emigrant, Astoria, and Ridgewood. Locally we have the United Brethrens. These institutions tend to loan their own money (depositors' money) and are very careful and generally don’t run into any problems (although they have an occasional foreclosure because bad things do happen to good people!).
These days, most people wind up going to a mortgage broker, or one of the big lenders (Countrywide, Wells Fargo, etc.). People get mortgages based upon: Credit scores; percent of money put down, (Loan to Value- LTV); and income to Debt Ratio (DTI). Mortgage Brokers and bankers fit their customers into neat little packages based upon the available programs at the time. SONYME, FHA, Fannie & Freddie set criteria from which they lend. But not all borrowers can qualify or “conform” to the guidelines.
For those borrowers, Wall Street developed various products. Since we were in a real estate boom and people tend to respect their home as an asset, Wall Street seized upon the opportunity and got into the mortgage business. Lehman Brothers used their own companies, Aurora and FNBA, to make loans that did not meet the stricter criteria of Fanny and Freddie, and FHA, etc.
Once bundled into a large enough block of mortgages, Wall Street sold these MBS’s, (Mortgage Backed Securities) to AIG, Merrill Lynch, Mutual Funds, and Pension Funds. The United States has the most stable government and economy in the world, so foreigners like to invest here because it is safe: foreigners like The People's Republic of China and the newly rich entrepreneurs in India. So that’s who owns the MBS’s, (although pretty soon it is going to be the US Treasury and the US Tax Payer!). But you do not see any foreclosures where the plaintiff is any of these names.
When mortgage loans are sold, they are “assigned”; and the assignments have to be recorded to be enforceable. Public Records (County Clerk’s Office) may list MERS or one of the other servicers as the record Mortgagee, although they are not the owner of the mortgage.
Many foreclosures are commenced while the real owner of the mortgage, the Plaintiff in the foreclosure, is not the record owner. A Federal Judge in one state decided that if the Plaintiff is not the actual mortgagee, the foreclosure could not continue. Another Judge in another state found that the real owner has to sign the foreclosure papers for them to be enforceable. Of course the problem often is that not even the servicing company knows who the real owner is.
Most of the Staten Island’s judges allow the “servicing companies” and/or Mortgagees that are not of record to maintain foreclosures ; and allow foreclosures to proceed although the real owner of the mortgage isn’t the plaintiff in the action, or the assignments weren't recorded at the commencement of the action, (or not even prepared or signed).
While selling blocks of mortgages is nothing new, they used to be sold in groups where the majority were conforming loans (75-80% LTV), although there were always banks that specialized in less than stellar loans and bad credit. BANKS. It used to be that the Banks made money either by loaning the money and making the interest, or by servicing the loans (making a percentage of the amount collected). Used to be, but that’s not what happened here. More on whom the banks loaned money to in a future email.
So Wall Street told their investors that these MBS’s were just like municipal bonds, only not tax-free. The Port Authority is going to sell bonds to build a new Goethals Bridge. If there is a default, will the bond holders have the right to foreclose the mortgage on the Bridge? I think not. Is this not the same thing?
A customer of mine called me the other day and asked me about a property that was boarded up and had a Marshall’s notice on the door. I went to the County Clerk’s office and reviewed the foreclosure file. The referee’s deed put title into: “Deutche Bank National Trust Company, as trustee for Fremont Home Loan Trust 2006-1”. The house has since been listed on the MLS, and the name of the owner is listed as Premier Asset Services (PAS).
So who owns the Real estate?
………………..to be continued
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