Financial Rape: Mortgage Servicing Industry Screwing Consumers

Foreclosing on mortgages that have been paid off. Kicking families out of homes when the mortgage isn’t in arrears. Selling mortgages to other mortgage service companies who steal property owners blind with fees and unnecessary insurance. Courts siding with property pirates. Government bail out for mortgage buccaneers. It’s not a movie. It’s reality and it’s coming to a house near you.

Industry analysts say many factors generated this perfect storm of mortgage catastrophe. Most of them are blaming problems on the sub prime market. As one reporter sees is,

When home values finally maxed out in 2006 – not because of any general trouble in the economy but because asking prices outstripped the means of new buyers – the stage was set for a reversal. Speculators backed out of the market and defaults began to rise for sub prime borrowers, who face higher interest rates because they present a higher risk to lenders. When adjusted for inflation, housing prices have fallen an average of 8.9 percent this year…). Most economists expect them to fall further. (Christian Science Monitor, 12-10-07)

An article in the Boston Globe maintains that the roots of today’s mortgage meltdown go back decades. Robert Kutner’s analysis notes that
THE SPIKE IN defaults on "sub prime mortgages" has exposed underlying weaknesses in an economy built on too much speculative borrowing. It's not clear where all this will end, but for now credit is drying up for blue-chip corporations as well as high-risk mortgage lenders. (Globe, 11-19-07)

The speculative borrowing, the purchase and rapid selling of homes “flipping”, the bundling of suspect mortgage products as “investments”, combined to create an infection so pervasive and powerful, that pension funds stand to lose billions in the after math is this debacle.

Consumers are being figuratively raped in a variety of ways, including being victimized by mortgage companies, ripped off by crooked real estate brokers, mortgage companies and a complicit federal court system which more often sides with mortgage insiders and their thieving accomplices in the mortgage banking system than the helpless homeowner whose house is stolen out from under him right on the courthouse steps.

Unbelievably, crooked bankers and their cohorts in the legal profession have kicked people out of their homes when the homeowner has proof that the mortgage is up to date, or even paid off. In one spectacular case in Ohio, a judge threw out a foreclosure of at least 11 homes, when a German bank that purchased the mortgages as an investment could not prove it held title to the property.

Listen up all of you deregulation fans: this mess is landing at your door with a vengeance. Several analysts have traced the roots of this meltdown back to the 1980s, when deregulation set a slow moving financial avalanche in motion, beginning with the Savings and Loan scandals. According to Suttner:
The mortgage business has long been a tug of war between a social commitment to broad homeownership and the schemes of private financial operators looking to make a quick buck. In the wake of the Great Depression, the US government devised a strikingly effective system for bringing homeownership to the masses. Since the late 1970s, however, this system has been dismantled in the name of deregulation, causing a string of disastrous results. (Ibid)

Kutner believes that the mindset created by deregulation has fueled a crop of financial pirates who have captured public policy and are manipulating it for massive private gain. He notes similar speculation in mortgage investment, particularly on the institutional level, has spread the cancer throughout the economy. Institutional investors such as pension plans are holding a massive amount of risk.
Every investor, from retirees to university endowments, is at risk if the inflated stock market turns out to be another bubble. Even if the wider damage is contained, some 2 million mortgages are scheduled for rate increases this fall, and foreclosures are expected to soar. (Ibid)

This slow rolling avalanche has the possibility of not only putting homeowners out in the streets, but devaluing their pensions as well. While most, including the President, are blaming sub prime lending as the culprit, sub prime mortgage problems are just the tip of the iceberg. As in the Savings and Loan meltdown of the Eighties, “…there are many individual culprits, but the real problem is the ideology of deregulation and the capture of public policy for private gain by the financial industry.” Ibid

Congress, the courts and legal system have bent over backwards to placate business, particularly banks, builders and mortgage companies. Now, the chickens are coming home to roost on these rotten eggs and the entire nation is about to be suffocated by the stench.

One research company blames the mess on complacent federal regulators.
Federal regulators and mortgage lenders were largely responsible for a housing and mortgage crisis that's likely to worsen, according to a white paper submitted today to the Federal Reserve by Weiss Research, Inc., an investment research firm. (Press release)

The research paper, which was submitted to the Federal Reserve notes three problem areas:
· Rather than act as a moderating force, the Federal Reserve played an important role in further inflating the housing bubble that's at the root of the current crisis.

· Rather than accept a decline in lending volume as homes became less affordable, lenders debased their standards and incurred the risk of serious long-term damage to their finances, the industry, and, ultimately, the economy.

· Wall Street's large-scale transformation of mortgages into securities significantly boosted risk-taking. (Ibid)

Kutner and other critics of the President’s plan say the catastrophe is deeper than the President’s plan let’s on, and, the President’s proposal really does noting to stop the eventual meltdown of the housing finance industry. In short, as one an investment pro notes,
While the President's announcement is welcome news for the more than
one million Americans who face the risk of foreclosure, it does nothing to address the problems that got us where we are today," said George Favvas, SmartHippo.com's CEO. (Press release)

Favvas says the entire debacle was fueled by greed, where consumers wanted something for nothing and the mortgage banking industry put quick profits over their obligation to their investors. The pain has the mortgage banking industry twisting in knots and has put a major hurt on American homebuyers as well. All in all, Favvas says the blame can be spread with a wide brush.


"Let's face it. A lot of this was fueled by greed - greed on the part of some consumers who got into loans they knew they couldn't afford, but also greed on the part of certain lenders and borrowers who put short-term financial gain ahead of their customers' best interests," said Favvas. (Ibid)

For Favvas and many others, this partial collapse of the housing and mortgage banking industry, along with a meltdown in the investment community and can only be rectified by a restructuring of the entire industry, and that is something that will not sit well with the current mosseybacks in the industry and their congressional shills.

All is not lost, however. Faavas believes that the industry is evolving, in part due to the presence of new technologies, which allow investors and borrowers access to a broader scope of information and more control over their investments and borrowing. Hence,
"The sub prime crisis has triggered the beginning of a fundamental
transformation which will lead to a more consumer-centric approach to
lending based on transparency and accountability," Favvas said. "The
lenders who understand and embrace this transformation are the ones who
will succeed in the long run." (ibid)

It all goes back to the power of information. Information is power and those who have little or no access to information channels are powerless. Simply put, the new technologies will allow consumers to access a broader base of information, however, only if they are Internet and computer savvy. Those without the technical skills to access the Internet, those who do not have access to information sources, will be left out in the cold and be victimized just as they are today.

According to Favvas, consumers who do not know how to do the research, who do not have access to credit information “…currently end up with higher rates simply because they lack the necessary information or knowledge to negotiate the best possible deal.” Moreover, a slight deviation in mortgage interest rates "can mean the difference between being able to send your kids to college or not." The Internet has the power to level the playing field and put the balance of power back in the hands of the consumer, where it belongs. (Ibid)

The bottom line is that regardless of what the government does or fails to do about the ongoing problems and corruption in the mortgage industry, one thing is clear. Unless consumers take the time to research the industry, to find out where the best rates are and who the bad players are, the out of control pirates in the mortgage industry will continue to rape American home buyers, and the proven complicit courts will seal the deal.

Monica Davis is an author, public speaker and columnist with 5 books and hundreds of articles published.