Steven2006 said:
Your not understanding the process. Millions of dollars worth of mortgages were bundled together and sold as an investment. Now determining what that investment is worth in this real estate climate is not only not easy but you need to have someone that can sell that investment to another investor. Let alone the fact that many of these bundles when previously sold were split up or consolidated into others as a new investment to be resold. What portion of that new bundled investment is from what portion of mortgage a, or b or c, or what portion might have stayed with the original bundled investment? These are very complicated investments adding up to large amounts of money that after the real estate crash are just almost impossible to be certain of their value.
It really is not just a simple easy solution as you suggest, that it why it is such a big problem and has caused such distress to our finical markets, and put our economy at such risk.
First of all....... the bundling of mortgages to sell
The mortgages existed as a contract between mortgagee and the mortgager.... IOW between the bank or finance company and the home buyer. Although it is common practice to resell these debt instruments to investors as a way of adding cash to finance more loans.......... the bottom line is the practice is done by mortgagers to maximize income through service charges and interest passed on to the borrower.
The bundling of mortgages is according to some criteria which serves the finance company's best interest: It may be by type, by risk, or by length of term.... or mixes of these or others.
Second; Once bundled by whatever criteria to sell to investors, the finance companys had several obligations which they got very loose with: to not misrepresent the mortgages in the bundle, and to assist in making contact with the borrower and helping to secure his agreement and contract to make payment to the new mortgage holder. The finance companies defaulted by misrepresenting the bundled mortgages to investors by passing them through rating agencies which were favorably inclined to accept the finance company's word that the notes were as or more solvent than what they truely were and gave them a higher rating than these bundles deserved..... thus falsely building investor trust and willingness to purchasing into these instruments than they would have if properly rated. The good ole boy system of trust and providing cover for each other was working here.
Then you have the sale of these instruments without the formality of legal follow-through of securing the new owner of the note in contract with the borrower: The original lender has sold the debt to another, without proper transfer of capital interest: After sale, he has written the note off as though paid in full..... although his payment came not from the borrower but from the investment group which bought the bundled debt. The borrower may be informed that he's to make payments to a new party who now holds his note... and proceed to do so based upon notification..... but at no time were many of these borrowers notified of securing their contract with a new note holder via their signature. The old lender no longer holds the note so they no longer have a claim of lien against the property...... and the new holder of the note does not have a legal contract or agreement by the borrower recognizing an obligation to pay with an executable lien against his property. The unraveling of this fiasco may not be that difficult if the instrument was only exchanged once. But when it gets bundled and sold as a bunch with more regard for the money changing hands ...or on accounts...... than careful follow-through with the legal instruments which convey the contract..... it is not the fault of regulations which existed but a matter of involving less staff, time, cost, and bookkeeping, to simplify and expediently pass along these bundles thinking that what had begun as an occassional practice, which had little consequence or risk, would suffice for large groups of instruments..... and be accepted unchallenged by the borrowers who were too ignorant to know the legal requirements necessary to bring obligation against them: They'd just keep paying to the 'new holder' based upon some letter received w/o knowing a legal contract had not been formed between them and the new mortgage holder..... Thus these financial institutions, for the sake of profit and expediency, did not do what a smaller institution who depends more upon reputation, trust, and sevice, and takes risks and follows policies more carefully to control risk, would have prudently done.
Finally, you add to that the churning of loans through mortgage mills which gain their fees ......not on financing, but acting sort of like a broker between the financiers and the borrower and make their money based upon qualifying consumers and instruments written and accepted..... with earnings of salaries, commissions, and/or bonuses........ and with the knowledge that the financial institution which originates contract with the buyer has little to no plans to continue holding the note through its term but will, instead, likely sell it off.
Add to this, the fact that churning money for profits is what it is about: The average consumer and first time buyer has no idea beyond his common sense and experience (which is pitifully small especially if young or inexperienced in budgets) so its not entirely a fault of ignorance..... when desire for the American dream meets the opportunity taken by others who sale homes and match with financing which exaggerate tax deductions of interest increase take home pay, exaggerate and play on the borrowers hope that his own income will continue to increase and that job security is a certain, that 'incidental and annual expenses required can be added to financing to ease the shock of annual payments for insurance and property taxes, that "new" means maintenance free ....... and no sudden and unexpected out-of-pocket corrections or repairs that may not be backed by seller or guarantees, that costs of housing is rising so sharply that today is better than waiting and saving to purchase tomorrow, and that ideally, the better deals were weeks, months, or even years ago, and that adjustable rates and balloons are nothing to worry about because one can either refinance or get a second loan...... as though this is easy after already being immersed in debt with a large mortgage.
No! Emphatically NO! These people should not be left off the hook and allowed to swap jobs and maintain their positions of trust with these financial institutions! If one principled person is coming out of retirement to work for a modest sum to change the character and integrity of a company and run it the way that it ought to be run and be responsible for placing folks under him in positions of trusts where delegation of authority is properly placed.... or shaken up as need be to keep discipline in the ranks of policy decisions and adherrance to policies which are set to maitain risk management in all areas.... of financing, solvency, responsibility to investors, and responsibility and honesty with borrowers..... then it is to be commended. The sad fact is that often in positions of leadership and business, from the top down, the graduate of Yale, Harvard, Stanford, Cornell or other similarly prestiged institutions..... will have more clout with his resume, than a graduate from a State University.......... and probably has been in circles where allegiance is more predicated to belonging to and agreeing with the advancement of brotherhood and its loyalties over that of personal integrity, ethics, and morality. As it is, while many of the players on top of this fiasco have gotten their wrists slapped and a few have had their jobs canned.... those under them which participated and helped in the hatching of these schemes and responsible for drafting policies and carrying them out are just moved up in a game of musical chairs, rewarding them with platforms for having carried out their own incompetence!
Unfortunately, some companies, like AIG, involved in long term investments made available to rich and poor alike, in large part holders of retirement planning and insurance instruments....... were also the victims of the financial institutions misrepresenting the risks and objective ratings of their bundled mortgages and derivatives.
It is not fair that these people get a bailout and that Congress get a buyout while the investor ...... and more importantly, the innocent American tax payer and his progeny gets stuck with the bill.
As for salaries vs bonuses...... All should be salaried: Bonuses should not apply if allowed at all except after a performance based upon confirmation of sound principles and solvency.
As for the tax system....... I think the whole shibang is in need of simplification and a major overhaul. A company which makes an ample profit one year is taxed on its excesses in spite of a downturn already occurring which shows its likely to experience difficulty in the next year, and possibly the next. When income averaging was wiped off the books, it eliminated the fair adjustment which might be of help to people and corporate interest in periods of economic adjustment such as the one we are in now.
