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Wednesday, August 19, 2009

Can You See The Truth About The Economic Crisis Yet?

Here is the headline of the story in the Washington Post:

Unemployment Spike Compounds Foreclosure Crisis

Washington Post Staff Writer
Tuesday, August 18, 2009

The country's growing unemployment is overtaking subprime mortgages as the main driver of foreclosures, according to bankers and economists, threatening to send even higher the number of borrowers who will lose their homes and making the foreclosure crisis far more complicated to unwind.

Economists estimate that 1.8 million borrowers will lose their homes this year, up from 1.4 million last year, according to Moody's And the government, which has already committed billions of dollars to foreclosure-prevention efforts, has found it far more difficult to help people who have lost their paychecks than those whose mortgage payments became unaffordable because of an interest-rate increase.

Early on in this disaster and the main reason for this blogs' creation was the fact that Wall Street and their brothers, the Main Street Banks, laid off all the blame on mortgage brokers. You know, saying that it was the mortgage broker that sold all of these "toxic" mortgages that people could not afford and caused this rash of foreclosures sending the economy on a downward spiral.

If that were the case then all the subprime loans - only about 15% of the mortgage market - should have foreclosed and life after sub prime death resumed.

But let us remind ourselves one more time that it was Wall Street that went on a rampage begging for mortgage paper for the insatiable appetite of their investor clients - individuals, retirement plans, governments, countries and even the banks selling them the paper to begin with.

Let's not forget those rating agencies that everyone believed. Their ratings were gospel. If they said it was AAA, they knew it was a good and safe investiment and of course they did their due diligence to issue such a rating. WRONG! They just flat out lied.

Let's go through the cycle of a mortgage loan once again. The mortgage broker took a loan application from a borrower. He then matched that borrowers credit, employment, down payment and assets to a lender (bank) who had guidelines that matched that borrower. The mortgage broker then sent the file with only the documents REQUIRED by the lender to that lenders underwriter who once again checked to see if that borrower met "their" guidelines. If the underwriter found that the borrowers credentials met that specific lender's loan guidelines, they - the lender - would approve the loan, clear the loan to close then FUND the loan.

Of course after the loan closed the lender sold it to Wall Street who in turn packaged that loan with thousands of others into a "pool" which they then turned into a security and sold it to their investment clients.

When the lender sold the loan to Wall Street, they were PAID IN FULL for that loan. The lender (bank) had no liability whatsoever for that particular mortgage.

The lender prior to selling the loan to Wall Street would appoint a "servicer". typically a company -subsidiary - of thier bank which in many cases carried a name similar to the lenders'. A servicing company in very simple terms is the collection agency responsible to collecting the payments, keeping the accounting of each account and sending the money collected to who ever OWNS the loan.

The explanation above is a simplified version but for the most part depicts accurately the origin and life of a mortgage loan and the function of a mortgage broker.

You see, the broker could not approve a loan, fund a loan or even securitize a loan. Third party originators as they are commonly called are simply free marketing and sales people for the lenders. The mortgage broker accounted for about 68%of all loans originated.

The loosening of credit and requirements were made by the banks and by Wall Street. The sole purpose of doing that was to create billions perhaps trillions of dollars of profit for themselves and their stockholders - and of course their executives as well. Their purpose was greed and never was to help the American people achieve the American Dream, improve their lifestyles and help the economy.

They knew of the disaster they were creating in what amounts to the largest Ponzi scheme in the history of the world. It was Wall Street in conjunction with the co conspirator banks that led us to this crisis.

But wait, maybe there is more to it. The banks and the major Wall Street firms began to fail - or at least they said they were. I still can't figure out how firms that made so many billions for so many years ran out of money and became insolvent. Where's The Money?

In the midst of failure they were deemed "to big to fail" and needed to be bailed out by the American Taxpayer who very quickly - and without any choice in the matter gave them more billions and into trillions of dollars.

So, these financial giants led us to the slaughter, with a gun held to our heads took more money from us and now are making even more billions by taking our homes leaving us all out in the street.

To be fair and to expose all, our not so revered Government Sponsored Agencies (GSE) - Fannie Mae and Freddie Mac - operated much the same as I described above. Now they are in a conservatorship directly under the control of the U.S. Government and still broke after the hundreds of millions we gave them. In fact, just last month Fannie Mae needed another $12 billion to bring their net worth to ZERO. (Fannie and Freddie also co conspirators in this Ponzi Scheme.)

(Bold emphasis not in the original article)
Economists estimate that 1.8 million borrowers will lose their homes this year, up from 1.4 million last year, according to Moody's And the government, which has already committed billions of dollars to foreclosure-prevention efforts, has found it far more difficult to help people who have lost their paychecks than those whose mortgage payments became unaffordable because of an interest-rate increase.
The figures in the quoted piece above come from Moody's - were they not one of the ones who falsely gave those AAA ratings? In addition, the government also provided this information. The government who it says committed billions of dollars to foreclosure-prevention which has helped relativelly few while the banks are foreclosing in record numbers and profiting.

Here is another piece from the story which should begin to shed some light.
During the first three months of this year, the largest share of foreclosures shifted from subprime loans to prime loans, according to the Mortgage Bankers Association.
Prime loans are the ones that are made and purchased by Fannie Mae and Freddie Mac. Interesting, those safe, good prime loans are going bad.

The article says it is a result of growing unemployment - which it is - but also know that Fannie Mae and Freddie Mac created the "Stated" loan program now commonly referred to as the "liar" loan. You see, Fannie and Freddie also securitized their mortgage paper and sold them to investors around the world. Fannie and Freddie were actually two private companies traded on the stock market. They were not - as most believed - government agencies. They were simply Government Supervised Agencies (GSE) for what ever good that did. Obviously the government did not supervise them or any one else very well. Had they done so we would not be in the mess we are in today.

Rep. Barney Frank (D-Mass) said,
"We are going to be seeing more foreclosures because of prolonged unemployment," he said. "These are people who weren't in trouble and wouldn't be in trouble if they hadn't lost their job."
A true statement but were it not for the actions of Wall Street, the banks and lack of any regulatory oversight none of this would have happened, unemployment would not be running rampant and the economy would not have crashed. It is almost a chicken and egg type story.

The banks triggered a landslide, turning property values upside down, shutting down thousands of companies, eliminating millions of jobs, forcing more foreclosures in a cycle that appears may be un ending for quite some time to come. Not to mention the trillions of dollars our children, their children and their children will be paying back. I fear the American Dream is lost for most people in this country perhaps for ever.

To read the entire Washington Post here



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