FedUpUSA

Archive for September 20th, 2010

Well, at least one Member of Congress is paying attention (even if he is pretty much a crazy person).  Why isn’t anyone else paying attention to the immense amount of fraud being perpetrated on the American people by the banks?

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The key story from this morning was the Bloomberg report that GMAC Bank had halted foreclosures in 23 states, following disturbing news from last week that rekindled the latent debate over whether servicer banks do in fact own deeds to mortgages on which they foreclose on, and whether the entire foreclosure process is in fact fraudulent (one judge found it to be so, creating a massive headache precedent for the banker community). Yet the company which initially agreed with Bloomberg’s version of events, is now retracing and claiming that foreclosures are in fact continuing… with a footnote. Reuters reports: “GMAC Mortgage, a unit of Ally Financial Inc, is continuing with all new residential foreclosures despite a report it had stopped them, a spokeswoman said on Monday. But some evictions have been suspended while the company reviews its internal procedures, the company said.” Maybe the company can clarify just what event catalyzed the decision to suspend evictions, and specifically which “internal procedures” are being reviewed. Also, it is about time for the ABA to step in and share some insight on a topic that has millions of Americans suddenly in arms. And since that won’t happen, it is up to the one or two politicians who are not in the bankers’ (and the Fed’s) pockets to raise some noise. Enter Alan Grayson who in a letter just released to a Florida Supreme Court Justice says:”If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities.”

Grayson, best known for his endless skewering of Ben Bernanke and his henchmen during congressional hearings, has just sent a letter to Justice Canady of the Florida Supreme Court, demanding a halt to all illegal foreclosure activity. GMAC may have dodged the bullet, but the stink that Grayson is about to dig up may end up killing a massive, and illegal, funding loophole for the entire banking industry.

Full letter below:

September 20, 2010

Chief Justice Charles T. Canady
Florida Supreme Court
500 South Duval Street
Tallahassee, FL 32399-1900
 
Dear Chief Justice Canady,

I am disturbed by the increasing reports of predatory ‘foreclosure mills’ in Florida.  The New York Times and Mother Jones have both recently reported on the rampant and widespread practices of document fraud and forgery involved in mortgage assignments.  My staff has spoken with multiple foreclosure specialists and attorneys in Florida who confirm these reports.

Three foreclosure mills – the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern – constitute roughly 80% of all foreclosure proceedings in the state of Florida.  All are under investigation by Attorney General Bill McCollum.  If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities.  This is lawlessness.

I respectfully request that you abate all foreclosures involving these firms until the Attorney General of the state of Florida has finished his investigations of those firms for document fraud.

I have included a court order, in which Chase, WAMU, and Shapiro and Fishman are excoriated by a judge for document fraud on the court.  In this case, Chase attempted to foreclose on a home, when the mortgage note was actually owned by Fannie Mae.

Taking someone’s home should not be done lightly.  And it should certainly be done in accordance with the law.

Thank you for your consideration of this request.
 

Sincerely,

Alan Grayson
Member of Congress

ZeroHedge

Day in and day out I hear it from readers who insist that we are not in deflation and will not be in deflation because prices are rising and continue to rise.

Still others tell me it is illogical for a deflationist to like gold.

When I counter with a discussion about credit conditions I tend to get a blank stare or a comment like “I do not care about credit conditions. I own my home. What I care about are rising prices of food and energy.”

When I counter with falling asset prices and zero percent interest rates on savings accounts I am likely to get as statement like “Who cares, I rent?”, or perhaps “The poor have no assets or savings, all they care about is food prices.”

Really?

Such comments come from those who are not thinking clearly about what’s important. Here’s why:

• In a fiat credit-based financial system, when credit is plunging businesses are not hiring. There are currently 14.9 million unemployed who want a job but do not have a job because businesses are not hiring. There are 2.4 million “marginally attached” persons who do not have a job yet want a job, but are not considered unemployed because they stopped looking. There are 8.9 million part-time workers who want a full time job but cannot get one because businesses are not hiring. There are countless millions of college graduates who are underemployed, working at WalMart, delivering pizzas, or attempting to sell trinkets on eBay, because businesses are not hiring. There a still millions more in college hoping for a job upon graduation who will not get one because businesses are not hiring. This is all related to the ongoing credit contraction.
• When credit is plunging so do yields on treasuries and in turn yields on savings accounts. Those on fixed incomes attempting to live off interest income are screwed. Indeed, many are rapidly draining their principal because they collect no interest.
• Those who have a job, pay for those who don’t. Food stamp usage is soaring and now costs over $60 billion dollars a year.
• When credit is plunging, consumers are not shopping, business earnings are under pressure, and wages stagnate or in many cases outright decline. Even those with jobs and no debt have been affected by deteriorating credit conditions. Public employees had escaped this debacle so far, but that is about to change in a big way, with huge implications.
• When business earnings are under pressure or when business owners face uncertainty over consumer spending trends, businesses cut back on benefits, especially health care. Those with health cares benefits are asked to chip in more of the costs. This too is a function of deflation.
• When profits are weak and business uncertainty high, stock prices do not act well (at least in the long run). Those with 401Ks or personal investments are affected.
• With credit falling and wages stagnant or falling, anyone in debt is likely to have a harder time paying back that debt. Foreclosures rise so do bankruptcies and divorces. Entire families have gone homeless.

So, What’s Really More Important?

Expanding credit (inflation) created an enormous housing bubble, a commercial real estate boom, a rising stock market, and an enormous number of jobs.

Contracting credit (deflation), burst the housing bubble, burst the commercial real estate bubble, burst the stock market bubble, resulting in millions of foreclosures and bankruptcies, millions of broken homes, millions on food stamps, 26.2 million unemployed or partially employed, and countless additional millions who are underemployed.

People notice food and energy prices because they tend to be somewhat sticky. Everyone has to eat, heat their homes, and take some form of transportation at times, but is that what’s important?

No!

In the grand scheme of things, nominal increases in food and energy prices are but a few grains of salt in the world’s largest salt-shaker compared to the massive effects of rising or falling credit conditions.

Yet, every day, someone writes to me complaining about the price of milk (or something else) going up 30 cents or whatever telling me that is “inflation” or that is what is most important.

Inflation/Deflation Definitions Once Again

• Inflation is a net expansion of money and credit, with credit marked to market.
• Deflation is a net contraction of money and credit, with credit marked to market.

Those are my definitions. I cannot force anyone to accept those definitions but they do explain what is happening quite nicely.

Conclusion

Those who think prices are what matters, even those who have no debt and no assets, are simply missing the boat about the importance of credit expansion and credit contraction in fiat credit-based financial system. As shown above, a credit contraction affects everyone, in many ways, and in far more important ways than simple price changes.

The stimulus and bailouts helped the financial economy (for a while), but not the real economy. Because credit dwarfs money supply, trillions of dollars of so-called stimulus vanished into thin air, with no lasting impact on the jobs market.

The inflationists and hperinflationists who ignored credit and focused on money supply alone (or consumer prices) never saw the plunge in interest rates coming or the massive pounding in global equity markets.

Those who knew a credit implosion was coming, got treasury yields correct, the equity crash correct, the rise in the dollar correct, and the strength in gold correct.

Gold does well in times of economic stress, especially in the senior currency – in this case the US dollar. It is the only commodity whose long term trendline is intact from 2000. Gold is money and as money it should do well in deflation in the country of the senior currency. It did.

In credit-based system, especially where credit dwarf money supply, credit itself (and the value of credit marked-to-market on the balance sheets of banks) is of paramount importance.

Those who insist inflation is about prices, as well as those who view inflation as an increase in money supply alone (ignoring credit), are going to continue to get the economic picture wrong.

If you are focused on prices or money supply alone, you are focused on the wrong thing.

In a fiat credit-based economy, where credit dwarfs money supply, changes in credit is what’s important, not changes in money supply, not nominal changes in prices.

It’s as simple as that.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com  

Home sales follow very seasonal patterns.  Yet much of this natural mechanism was stunted by banks delaying foreclosures and the government artificially stimulating home sales.  Now that much of the stimulus has been exhausted, it is clear that home prices are correcting once again.  It is hard for many to imagine that home prices can go lower especially after a vicious correction.  Yet we have become conditioned to the notion of expensive home values by years of targeted propaganda.  Home prices in many regions like California are still inflated even after significant price corrections.  The upcoming decade will prove to be a weak one for home prices yet economists are once again making absurd long-term predictions regarding prices.
Take a look at a recent survey of 100 economists:

Just look at how the survey has shifted over each month of data.  In the earliest survey in May, most expected no housing price declines for the year.  Of course, we now know that homes will most definitely end the year with price declines.  For 2011 the economists expect prices to increase and it steadily paces upwards deep into 2014.  Why should we even believe a group that could not see the housing bubble coming?  We are to believe that this group has an idea of the actual appreciation rate for housing in 2014?  You might as well call the psychic hotline and ask her about this.  Even over a four-month period, economists couldn’t get this year correct!

Yet if we look carefully at the data, it is clear that we are in for a long haul with housing.  First and foremost, the middle class has been dismantled from every angle.  Incomes have remained stagnant for well over a decade and artifacts of middle class living like healthcare and college seem to get more and more expensive by the day.  What does this mean?  More money is consumed by other items besides housing with a smaller amount of disposable income.  Housing is still a necessity but it is easily substituted in the market.  If you can’t buy, you can rent.  So prices need to fall to meet the ability of what Americans can pay.  Sure banks wish they could get top dollar for foreclosed homes but that isn’t what the market can sustain.  Just look at the number of troubled mortgages in the U.S.:

None of us (short of those who lived through the Great Depression) have seen something like the above.  Each past due mortgage is a story of the deep recession.  A job that has been downsized, an illness that has eaten up a larger portion of savings, or simply the inability to continue paying on a toxic mortgage are all stories playing out each and every day.  The above chart shows that we are still near the peak and with the employment market still weak, why are we to expect any sudden change in the trend?  The secret to the recovery isn’t so shocking and once we start adding a sizeable amount of private sector jobs (300,000+ per month) then we can issue predictions of home prices rising.  Until then, it is merely parlor game speculation to say home prices will go up in 2014.

Why else do we expect home prices to fall in the upcoming year?  We already know that negative equity is the number one reason in predicting foreclosure.  And the amount of negative equity mortgages is still incredible:

Places like Nevada have nearly 70 percent of all mortgage holders underwater!  Arizona is up to 50 percent and 1 out of 3 mortgage holders in California owes more than their home is worth.  In other words, they have a giant incentive to strategically default.  Many in these states have no intention of allocating 70 to 80 percent of their income to some toxic mortgage on a property that is worth half the peak value.  The amount of shadow inventory on the bank balance sheet is growing larger and larger by the day.  Banks were hoping that by now, three years into the greatest banking bailout and wealth transfer in history, home prices would be back up.  Yet that hasn’t happened for average Americans.  Homes that hit the market will command lower prices to justify the economic realities faced by Americans.

Many adhere to the theory that prices have corrected so deep and so fast that they must bounce back like a rubber ball hitting the ground.  Yet when bubbles pop, there is no reason for this to happen.  Take a look at price declines in major areas:

Nationwide home prices are off by 30 percent from their peak.  How big is this?  Since the Great Depression we hadn’t seen one year of nominal price declines in real estate.  You can see the damage in other areas as well.  But prices are still too high even after this correction because the magnitude of the bubble was incredible.  Take for example a home in California and walk through this hypothetical case:

1998:  home sells for $190,000

2002:  home sells for $250,000           +31%

2005:  home sells for $400,000           +60%

2007:  home sells for $650,000           +38%

2010:  home sells for $350,000           -46%

Most of the time people just look at the last sales reference point.  It is an incredible fall from $650,000 to $350,000.  But look where it came from.  Prices are still close to double what they were in 1998 yet incomes over this time remained largely stagnant.  If we account for inflation, we are looking at a 35 percent increase yet the current price is much higher.  The current sales price is still too high even adjusting for inflation.  In other words, prices in many places are still in bubbles.

And the public is dealing with bigger issues like looking for work and holding on tight to jobs.  That is why if we look at current indicators of home action they are falling off cliffs:

Pending home sales have fallen off the cliff after the banking and government sugar high has worn off.  Mortgage applications are near all time lows.  Why?  Because people are not going to make the biggest financial decision of their lives in the weakest economy in a generation!  That is what banks and the political system fail to grasp.  Trying to keep home prices inflated has been an absolute catastrophe from a policy standpoint but has also cost the taxpayer an inordinate amount of money.  If you want to see where things stand just look at emergency unemployment benefits:

4.9 million Americans are receiving emergency unemployment benefits.  These are benefits that are paid out once the normal unemployment coverage expires.  All in all you have over 10 million Americans receiving UI.  How can one look at the above chart and expect home prices to go up?  The median household income of Americans is now under $50,000.  Adhering to tried ratios over decades of more stable housing days, it would look like home prices should be hovering around $150,000.  The current median home price nationally is approximately $180,000 or 20 percent too high.  If we look at niche markets in California you will find some areas that are still over priced by 50 percent based on local income metrics.  In other words, expect to read about falling home prices over the next year in the mainstream media.

My Budget360

Ally, actually “GMAC Mortgage”, which changed its name to reduce the “stigma” with taking billions in taxpayer bailouts, has apparently halted foreclosures:

GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

“Corrective Action”?

What’s that, GMAC?

You weren’t foreclosing on property that wasn’t actually owned by you, were you?

You weren’t selling property you didn’t actually have clean title to, were you?

The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

30 days is a long time.  I wonder what the problem might be that would force an extension on the closing of all REO sales by 30 days?

And more importantly, if you have bought a foreclosure from GMAC/Ally, did you actually get a marketable title in the transaction?

One wonders if the game is afoot….

*UPDATE*

Updated: 4closurefraud.org has emailed me and indicated that this may be related to the story they ran over there on the 14th…… 18,000 affidavits per month eh?