I am an average guy that likes to keep things simple and easy. I don’t like to use huge words to explain overly complicated things because that would just well, complicate things. Plus, I think there are a lot of the bloggers and writers out there that spend more time trying to impress their readers by the big words they use as opposed to keeping things simple and reporting on the facts.
This website is for the average person or homeowner to understand the what the hell is really going on in regards to the mortgage market and what and why lenders and servicers are doing what they do.
I am going to keep blogging about this and repeating myself till I’m blue in the face because I want borrowers to get a clear picture of what you are up against. It’s not that I want to Mr. Doom and Gloom or Captain Negative. No, It’s because I want to report to you the facts and explain to you what really is going on with your mortgages and your stupid lenders.
And what I have to report is well, doom and gloom and mostly negative facts. So I apologize for telling the truth. The truth hurts, yes. But knowledge empowers and that’s what homeowners need.
OK, back to the title of this post, “There’s an old investment saying that says “Paper losses don’t exist until you sell.”
The facts are that up to today, there are 182 lenders and banks that have imploded, went out of business, bankrupt, kaput since the beginning of 2007. The most casualties of ANY industry EVER in such a short amount of time. This isn’t a game or some made up number.
This is crazy stuff people. Unbelievable. You will never see anything like it again in your lifetime.
The small guys, you know the light weights, the 182 banks and lenders that have went out of business, couldn’t take the losses and they couldn’t hide them from investors. They HAD to report them and they had to go out of business because the losses were more than what they can hide and take.
Now, we have the big guys, the heavy weights, that are left standing. You know, CITI, Bank of America, Washington Mutual, Wells Fargo, Countrywide etc. These companies can take billion dollar hits and keep their doors open. Just like the $1.2 billion loss Countrywide Financial took.
What I would like for you to do is imagine your house as a piece of paper that the banks own. That paper they in turn sold to investors “x” dollars. That paper is then given to the servicer to manage and collect on the paper.
These servicers are really just debt collectors, who make money by making you pay the money that you owe on that piece of paper.
That paper is shielded and protected, if it is never altered. Meaning, if that paper stays in it’s original form, then per the contracts that govern this piece of paper, then nothing needs to be reported on or accounted for because the paper has never been altered.
OK, now lets take this piece of paper that the lender or servicer now holds and multiply it by thousands and thousands. Take Countrywide for example. They hold over 500,000 of these pieces of paper where the people that owe on that paper are late (delinquent on their mortgage). That’s a lot of damn crappy paper.
So, imagine that each of these pieces of paper are worth say on average $200,000 at face value. Now multiply the 500,000 by $200,000 and you have $50,000,000,000 billion worth of paper that is in danger of being a loss. Yes, that’s a lot of money folks.
Lets say that Countrywide starts really working with all these borrowers and they offer short sales, loan modifications, deed in lieus etc. on a massive scale.
Well, then per the contracts that they have with these investors, they will then have to report these changes, which actually would be losses to the investors. Countrywide would then have to place these losses on their books and that would not be a good thing for them at all because it would cause their stock to plummet and most likely put them out of business, for good.
You see if they do not work with you on your loan (ie: short sale, loan modification etc.), then basically your piece of paper (your home) would be foreclosed on. But the catch here is that piece of paper still has not changed or have been altered in any way. Countrywide is still holding it in their grubby little hands. That paper has only added more fees on to it which make that piece of paper seem more valuable on the books.
Oh, so clever isn’t it?
In reality that paper is worth a lot less then what the original face value is. A LOT!
So, on Countrywides books it would appear that all is well, when in reality that is far from the truth. But they could care less because they do not have to report any losses to investors till they sell that paper. Meaning, your piece of paper (home) will sit as an asset on their books until it is sold.
This whole process can take from 6 months to up to 2 years plus to sell that paper and report the actual losses to investors and who knows in this market if it will sell at all. All the wile Mr. Angelo Mozillo cashes out on his stock options. Laughing all the way to the bank as he runs over homeowners, legally, on the way to the bank. Must be nice?
What lenders and servicers are doing is holding on to your piece of paper and not altering it in any way. Meaning they are offering very few loan modifications and short sales for the simple fact that if they did help struggling borrowers then it would put them out of business because they would have to alter a ton on papers (notes). So, they put out bogus press releases. Like were modifying $6 billion in loans. Yada, yada, yada.
Oh what about the other $44 billion guys? They just suspect that the American people will remain as gullible as they have been and they are most likely right. Do people even want to know the truth or do they want to believe bullshit because it’s just easier that way?
Countrywide, WAMU etc. would most likely go belly up if they placed a massive efforts to assist struggling borrowers. So, they wait, hoping for a bail out by the government. Bush can’t have WAMU and Countrywide go out of business and these lenders know this.
They are buying time at the expense of homeowners. Waiting for tax payers to bail them out. Sick isn’t it?
They are not reporting the truth because they need to hide the real numbers and not cause panic in the markets. Thus most likely causing the stock market to collapse and every American to lose confidence in ALL lending institutions. Most likely, Americans would pull all their money out of the banks and markets, causing our financial system to fail and our dollar to collapse to basically nothing.
This is not a conspiracy theory boys and girls. This is reality.
If you do not believe me, well then I would say that these lenders have done a damn good job at influencing your thoughts and actions with their deception and propaganda.