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McShame! Buying Bad Mortgages

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Just before the start of tonight's debate between McCain and Obama, I sat and listened to Colorblind by the Counting Crows. I heard it performed live Saturday night; their show started with Lean on Me, by Bill Withers being pumped out of the speakers. At the end of the show the lead singer references the upcoming election and how important it was to vote. 

Palin speaks of her providential occurrence on the side of a Starbucks coffee cup. Well I had my own, standing on the lawn of the amphitheatre in the mud and rain, my arms around my 12 year old daughter. The tickets were given to me, by a friend 3 hours prior. The message was plain and simple; many great influencers with great ideas, in our American culture, have come from men with darker skin than mine. As the debate tonight concluded, I was reminded; some awful ideas have come from men with the same color skin as mine.  

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McShame! Buying up bad mortgages, really? Can we take more than a ten second look into this idea? Undeniably, the shortest amount of time he spent on any subject this evening.

This idea, in essence, would be you walking over to your neighbor who bought a BMW on a tricycle budget and offering to pay the full amount, as long as you can have the car when it becomes wholly inoperable.  The neighbor with the BMW is actually the bank, in this instance, not the person you know down the street facing foreclosure. Mind you, McSham never mentioned how buying the bad loans tied into our rescue pack already. I just don't get it.

Mortgages were sold to hopeful homeowners by me, as an intermediary, for the bank/mortgage company. The builder or current homeowner was paid by the bank/mortgage company. They would then take that mortgage and sell it to the secondary market. The secondary mortgage market would then package those loans, with principle and interest split among the securities. They then sold the securities on the stock market, so that they could make sure to get more money to repeat the cycle.

The mortgages over the past 5 years were not only written to people who couldn't afford the loans, but members of a pyramid scheme,  where the ones at the bottom spread out so far that they could no longer sell the homes and were left holding them.  When no one could buy them any longer, whether it was for the price of the home or the inability to qualify for the mortgage; they dropped the property to ensure their own survival.

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There are, although,  HELOCS (home equity lines of credit) people scooped up to pay for credit debt or just to feel richer by squeezing the last bit of liquidity out of their homes, when the price was high and the banks were turning over cash, like candy to kids on Halloween, once again at adjustable rates. HELOCS resemble, very closely, a credit card with a more attractive interest rate. Many of these adjust over time as well or rise up and down depending on the market. These people, I feel truly sorry for, really had no idea what was happening in the market. No one bothered to let them know, should a major crisis happen in this country, they may not want to have that payment. They should have considered that while a car payment may carry a little higher interest rate, you do not have to live in your car (well, you didn't back then) and shouldn't soak up the liquidity in your home to save a few bucks, in case you should have to default. 

Furthermore, if we should buy up bad loans, soaking even more money into buffering the pain of the banks, likely held by people losing their jobs yet to be foreclosed on and the last risky mortgages set to adjust over the next year or so, which should be few considering the banks usually kept better loans in their own portfolios. I would figure then that the majority of mortgages, McShame is suggesting we purchase, are the ones held by the vast base of speculators at the bottom of the pyramid still trying to hold their heads above water.  Who want to foreclose because their investment(s) went bottom up, exactly what they didn't leverage to deal with, but don't want to mar their credit.

We have already taken back Fannie and Freddie which, I believe, never needed to be out of government control in the first place. We have watched Lehman fall through. America bought into AIG, one of the mortgage insurers highly involved in many of these mortgages. They insured a portion of the loan should it default and took payments until the loan dropped below 80% LTV (loan to value). AIG was not going to see that happen for quite some time.  So we now just paid AIG to follow through on their mortgage insurance to the banks. What about the foreclosure and the amount the bank will get back from that home when it auctions or sells?

So let me get this straight, the majority of loans still needing to be purchased are in the banks own portfolios, the loans that banks felt secure enough about to hold on to instead of selling to the secondary market. These are the loans that for the most part were not high risk loans. The banks are free to do what they want and if they wrote loans, shouldn't they have to hold the burden?

What happens after the foreclosure? After the person facing foreclosure has their home taken, it gets sold on the courthouse steps. The representatives of the banks are there to buy the home if they feel they are not going to recover enough of their investment from the highest bidder. The bank then owns the home or declares the loss if the auction is at or above what they wanted.

If we become the bank in this instance, we should all have a huge problem with it. The government has not been very quick about saving the many people in foreclosure up to this point. What would make them change that now? What would make them not foreclose on us anyway, and become the purchaser at the auction or the entity who incurs the further loss? This seems irrational if it were to work out that way. We now have a homeless family unless it was a spec home. So in the end, Americans own a home that is worth much less than we purchased it for, from the mortgage company, in the original loan. So we are going to incur the loss, but yet there is no where to write it off at the end of the fiscal year.

I have a better idea McSham, how about we buy the mortgage from the bank on a short sale and then sell it back to the person who owned it originally, if they still want to own it. You never mentioned offering the bank only the amount the house is worth currently and not a penny more, then giving that house back to the owner for the same amount. Then we allow the housing market to get over its drunkenness (believe me the people who constructed this mess were, at the time, far from drunk). Then we could go and erase all negative accounts from credit reports, which have been reported over the past three years, including judgments already ordered. That would definitely help people. Especially the people considering suicide right now, because they feel they have been and are going to be further let down.

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 The banks have got to be held responsible for this. It is completely unfair to the American people to have to foot the bill to the banks to save our family, friends and neighbors from being homeless.  The banks are getting paid, very well. One of the big reasons this is happening; the institutions that should have been governing our heavy leveraging, which they were selling us, went out and heavily leveraged themselves. Now the companies left standing want us to help them out, at the expense of my children's unborn children.

This is the time for Americans to stand united and, once and for all, become colorblind.


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Keep your eyes not on the rock, but on the ripples it makes when thrown into the water.
I am a married mother of three beautiful children. I am concerned about their future. From all of the research I have done, it isn't looking good for (more...)

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