One of the main objections to the bailout bill (and nearly every Wall Street bailout that has been done so far) is that it will not stabilize the housing market, loosen up lending, or help prop up the stock market. Thus, there was no point to an Emergency Stabilization Act if it would not have provided any stability to the economy. But all such market bailout acts and government programs are not really designed to help solve the crisis; rather, they are an excuse to use a crisis to enrich the upper class and expand government power.

Few politicians seriously expected the latest $700 billion proposal, as well as the $630 billion the Federal Reserve pumped into the financial markets on September 29, 2008, to solve the underlying problems. No matter how many bad CDOs, MBSs, ABSs, and other mortgage securities the banks would have been able to unload, they would still avoid providing loans to average Americans to purchase or refinance homes. Housing prices are still declining from record heights and Americans are being squeezed due to rising prices -- they could not afford a mortgage payment even if banks were still lending money hand over fist.

The bankers and politicians, then, knew that any bailout would not help average citizen. On the contrary, they understand quite well that these bailouts help only the upper class who gets to use the inflated bailout money first. The money is pumped into banks and other financial institutions who benefit from the current value of new money before it has had a chance to make its way through the system and devalue the currency. Of course, once the inflated money does make its way down to the middle and lower classes, prices have already risen due to more dollars chasing relatively fewer goods.

Such an economic "crisis" as the markets have been experiencing is the perfect opportunity to government fixers to come in and provide essentially free money to the politically connected financial power centers. The Federal Reserve and US Treasury knew exactly what they were doing with this bailout plan -- they were meeting a "crisis" with "decisive action" meant to "calm the markets." Translation: they were responding to a problem they created by rewarding their friends using the same tools that would ensure another crisis would need to be responded to in the future.

In the short term, as long as confidence in the dollar remains relatively intact, the rampant inflation can continue. The financial interests can keep the markets from completely failing, trusting that half the country is still hypnotized by reassuring messages from Fox News and CNBC about the strength of the economy and the government's ability to solve the crisis. This allows the government to steal more of the people's purchasing power through inflation, although it will set up the long term collapse of the currency.

The elites are well aware that a serious recession is now the only thing that will allow the markets to repair. Americans, instead of borrowing money from abroad and exporting inflation to foreign countries in order to finance current consumption, will have to lower their standard of living, begin saving again, and rebuild the manufacturing base of the country. Until that happens, the country is living on borrowed time and borrowed money. Meanwhile, the upper class is destroying the dollar through inflation so that the rich can confiscate as much money as possible right now to accumulate as many assets as they can in order to meet the coming financial storm.

(updated below)

This past weekend, the philosopher kings from Congress and the Executive branch met in Washington with the high priests of finance from the Treasury Department and Federal Reserve to decide how best to transfer $700 billion from the American people to the financial firms which have spent the past few decades taking advantage of the American people. Despite nine out of ten people being against the bailing out of Wall Street, government bureaucrats met throughout the weekend to assure that a compromise would be reached and passed. The bill that these wise leaders came up with, named the Emergency Economic Stabilization Act of 2008, promises to propagandize voters into believing that legislators did not just capitulate to very nearly every single one of Secretary Paulson and Chairman Benanke's demands.

The propagandizing of the bill has already begun, with the Congressional Budget Office releasing a letter (PDF) outlining the major provisions of the Act. Upon reading the letter, it is striking how many times it is mentioned that the government will be able to recoup its expenditures of taxpayer money on the sale of the "valuable financial assets" it will be purchasing to bail out the banks. After all, how could the government lose money on these assets when the Wall Street firms that hold them now are going out of business by the day because of the perceived (lack of) value of the debt instruments?

Further, it has been widely publicized that Fed chairman Ben Bernanke has recommended the government buy these worthless assets at 100% of their face value. It will be almost impossible to make any sort of profit on such high risk bonds when they are purchased with no discount, even though they are currently valued by the market at close to $0. The CBO states that "The program would probably include assets that have the worst credit risks and hence are difficult to price." Wall Street says "Just trust us and buy the assets at whatever we say they are worth."

The possibility of a loss on the eventual sale of the assets increases with the higher purchase price to begin with. The CBO notes this in the letter: "an overall net loss is more likely if the government initially overpays," which is exactly what is being proposed by the Federal Reserve and which the Treasury now has discretion over. The government can buy intrinsically worthless assets at 100% of their face value and lie to the American people by telling them to expect a profit in the future.

But the CBO even admits that the present value of the assets the government is expected to purchase $700 billion worth of is unclear, let alone a future value at which they may be sold. And with future failures and more foreclosure across the nation, the value of the assets will drop even further. Wall Street is dumping its garbage on the American people and expecting them to pay for it, with the vague hope of an ambiguous profit sometime in the future. But the assets are illiquid because there is no value to them; if they had any worth, buyers would still be available.

The Act will create a Troubled Assets Relief Program (TARP) to cover (pun intended) private banks' losses from consumer credit backed securities. Although the primary assets to be purchased will be commercial and residential mortgage backed securities, the Treasury is authorized to purchase, insure, hold, and sell virtually any kind of financial instrument. "Under the TARP, the Secretary would have the authority... to purchase any financial asset at any price and to sell that asset for any price at any future date." From credit cards to car loans to subprime mortgages, banks can drop off any old defaulted security in exchange for cash from the Treasury department.

Another atrocious aspect of the bill is that this is not a one-time $700 billion appropriation; rather, the banking system will have a $700 billion line of credit directly with the American people. The Treasury can only have $700 billion of assets to hold at one time, but once it begins selling them, it can then purchase more delinquent garbage financial instruments up to the maximum again. As the CBO letter states, "The purchase price of all such assets outstanding at any one time could not exceed $700 billion (though cumulative gross purchases could exceed $700 billion as previously purchased assets are sold)."

Wall Street even benefits from the protections designed to prevent against asset price abuses. Banks that sold securities to the government would also have to provide warrants or senior debt instruments. But a warrant that allows the Treasury to buy company stock at fixed future price from a bankrupt firm is just as worthless as a CDO backed by subprime mortgages.

But the irresponsibility does not stop even there, as Wall Street is expected to insist on higher prices for its junk securities if it also provides warrants or senior debt instruments: "since the warrants or debt instruments would have value, Treasury would generally face higher prices because sellers would seek compensation for both the value of the troubled asset and the value of the warrant or debt instrument." This must be as opposed to the relative deal Treasury would receive if it just bought the worthless assets with no guarantees. Leave it to financial investment firms to require people to pay money for services that the people themselves are providing the firms.

There is also a thinly-veiled attempt by the government to provide a jobs creation program for out of work Wall Street bankers. As the CBO puts it, "the government would have to compensate the private asset managers hired by the Treasury. Those administrative costs are not included in the $700 billion limit on asset purchases." Private asset managers? Well, someone needs to be able to figure out how much to pay for the troubled assets -- why not hire the professionals who used to work at Bear Stearns or Lehman Brothers to consult with the government, right?

But the most important question is what is in the bill for homeowners, who have been hit the hardest by the collapse of the lending industry and the housing market? There is roughly part of one sentence in the letter mentioning homeowners, urging various buzzwords and voluntary participation. "Require the Secretary of the Treasury to take steps to maximize assistance for homeowners, including encouraging servicers of the underlying mortgages to take advantage of the Hope for Homeowners Program." If this could be termed absolutely worthless, it could at least not be expected to hurt foreclosure victims even more; but the Hope for Homeowners Act, like all government programs designed to address the housing crisis, only makes the situation worse.

It is little wonder that the vast, vast majority of people across the country are against this bailout of the wolves of Wall Street. These firms have already received nearly a trillion dollars in bailout money -- giving them trillions more and allowing them to unload toxic debt from their balance sheets is nothing more than the government's complicity in securities fraud. No one should support this bill, least of all congressmen and women who will be required to go back to their constituents and explain to them why Congress stole billions of dollars from the people to bail out the same firms impoverishing the communities which elected them to Congress.

UPDATE: The bailout bill has failed! Score one for the people of the country against the financial interests. By a vote of 228-205, the House of Representatives voted down the legislation. But of course, this is really only the beginning and defeating one bailout means that another one will quickly be proposed or implemented.

As point of fact, while everyone has been discussing the bailout, the Federal Reserve has, with no authority at all from Congress, decided to print up $630 billion and hand it over to the banks. This is exactly what 90% of the country was opposed to when given the opportunity to make their voices heard -- but the Fed has just decided to give the financial firms nearly $700 billion anyway!

Not to mention the fact that, as more huge banks fail, the FDIC will need its own bailout if purchasers for deposit accounts are not found quickly, as in the case of Washington Mutual. JPMorgan Chase bought its deposits for $1.9 billion, which was $1.9 billion the FDIC does not have and would have had to borrow from the Federal Reserve.

But the defeat of the $700 billion billionaire bailout is possibly the first legitimate ray of light for homeowners and Americans in general during the current economic crisis.

One of the reasons homeowners have such a fear of being sued by their bank for a deficiency judgment after facing foreclosure is that nearly any lawyer they contact will bring up this possibility. Some attorneys may even use the threat of further litigation after foreclosure as a reason to file bankruptcy prematurely or otherwise pressure borrowers into retaining legal counsel throughout the process of disposing of the home. Lawyers, though, have a vested interest in keeping clients in fear of litigation, even for such a rare case as deficiency judgments.

Many in the real estate market are aware of the fact that banks rarely, if ever, sue former homeowners after a house has been lost to foreclosure. It is simply not in the bank's financial interests to hire local attorneys to pursue another lawsuit in the courts and obtain a judgment when it was unable to collect on the initial foreclosure judgment except by selling the underlying asset, the real estate. Lenders know that it may be difficult even to locate the borrowers after a foreclosure in order to serve them properly with the lawsuit. As well, it will be even more difficult to collect the potentially tens of thousands of dollars owed from families who just lost their largest (and sometimes only) asset and who have no respectable credit score to maintain.

But none of this common sense matters when real estate or bankruptcy attorneys are threatening foreclosure victims with the potential of such a judgment and the possibility of having their wages garnished, retirement accounts seized, or similar implausible scenarios. It would seem that this is little more than fearmongering, lawyers attempting to wring a retainer fee out of homeowners or push them into paying a filing fee for bankruptcy. But there are a number of reasons that homeowners are threatened with a deficiency judgment every time they speak with a legal professional regarding foreclosure.

Obviously, in states where deficiency judgments are allowed, there is the possibility of the bank suing homeowners to obtain one. If lawyers did not mention the possibility, and the mortgage company then sued after foreclosure, the homeowners may feel they had been improperly advised. Thus, lawyers should mention any possibility of litigation relating to the foreclosure matter at hand, including future lawsuits even after the house has been auctioned off. From the lawyer's perspective, past behavior is no indicator of future actions, and just because few banks have ever brought this lawsuit to court in the past does not mean financial firms will never use the law to go after former homeowners for even more money.

Homeowners , though, should evaluate the potential of being sued under such a case and not be afraid to ask their lawyers how many deficiency judgments they have had direct experience with and under what circumstances they occurred. A couple of such cases in decades of practice is a strong indication that banks may still be avoiding such lawsuits against former clients. Also, if the only homeowners the attorney is aware of who were sued after a foreclosure had clearly engaged in mortgage fraud or had substantial liquid assets they bank was aware of, and the current borrowers do not fit into such categories, then the fear of a deficiency may be unfounded.

There is little debate that America is now a society paranoid about being sued and knows that there is always the potential for a frivolous lawsuit by anyone against anyone else, and that the more resources one party has the more likely that party is to win. It should be no surprise that the legal profession is filled with some of the most unhappy people in the working world¹. Everyone fears a group of people who spend most of their time parsing words and phrases, looking for the simplest reasons to hang others on such legalese.

In foreclosure cases, in the best case a small local bank with tens of millions of dollars is suing a homeowner with little; in the worst case a multinational corporation with over a trillion dollars in assets is suing a homeowner with little. The deck is always stacked in favor of the mortgage companies in such instances in terms of financial resources and time available to go litigating for years. Unless homeowners wish to go down fighting on their own, there may be little money with which to mount their own legal defense with legal assistance.

Attorneys often find themselves in a difficult position in terms of discussing the real possibility of litigation with clients. Although the potential to be sued in any given situation is often quite minuscule, lawyers live in a world where everyone is always trying to get an advantage over everyone else and no one can solve a problem without the fine print and a judge to interpret it. To such eyes, the possibility of a deficiency judgment is a real one and one worth losing sleep over, just because the law is on the books allowing banks to go after former homeowners. Under the circumstances, it is borrowers who need to look a little closer and analyze the reality of the situation with some common sense and from the bank's perspective; i.e., why would the lender sue a homeowner again after foreclosure?

Source:
¹ http://business.timesonline.co.uk/tol/business/law/article2045254.ece

One proposal that is not as often thrown around the halls of Congress to solve the foreclosure crisis is freezing interest rates at a level low enough for most homeowners to afford their mortgage payments. Despite the fact that Congress has no authority to interfere in such private contracts, the Constitution has been somewhat ignored for the past hundred years. Thus, an interest rate freeze could be enacted (under some sort of tyrannical emergency powers act) and it may help homeowners save their homes, but it would still hurt the banks quite a bit, which is why the politicians would never go through with the plan.

Instead, all that is being offered is an ambiguous bailout package whereby the Treasury would borrow $700 billion from the Federal Reserve in order to provide welfare to any corporation that may be in trouble. Financial firms, automotive companies, and any other business would be eligible for a taxpayer funded rescue. In return, American homeowners are still expected to pay their mortgages and other bills at the predatory interest rates at which they were offered to begin with, while the banks dump the losses from these predatory loans onto the very people unable to pay them back.

All of these subprime, Option ARM, and other creative mortgages were packaged and sliced up and rearranged into bonds. The bonds were valued based on the income that they would generate over time through interest rates set at 3% for 2 years then 14% for 28 years as the rates reset based on market conditions. With the banks and the Federal Reserve controlling interest rates in the economy, it was a simple matter to offer low teaser rates and then spring the trap later on.

But the banks counted the value of these bonds based on this estimated income and with low default rates. The MBSs, ABSs, CDOs, and other confusing mortgage securities were valued under mark-to-market accounting rules, which ensured that they would look good for at least few years. House prices kept increasing and even if the underlying loans went bad, the properties could be sold and any losses on the bonds more than made up for. A mortgage servicing fraud industry based in out of the way states ensured that hedge funds based in the Cayman Islands could raid local communities in Detroit and manufactured suburbs in California from their offices in New York.

Now with the loans defaulting, these same giant investment firms and banks are being forced to take huge writedowns on the garbage bonds they had overvalued to begin with. Mark-to-market when the market has disappeared means they have to take the bonds and mark-to-zero. Now there is a lack of confidence in the entire financial system, with banks unwilling even to make loans to each other because of the uncertain exposure to such toxic mortgage securities.

Thus, if a freeze was enacted by the federal government and mortgage rates were set to a lower level, the bonds would have to be written down even further by the banks to mark them to their new market price. And this is still assuming that lower interest rates would help borrowers save their homes from foreclosure. At the least, banks would have to write down the value of the loans partially to show the lower interest rate; at worst, the loans would still default and have to be marked to trash.

So obviously, the banks do not like the idea of an interest rate at all. They would much rather dump all these worthless bonds on the American people instead of admit they hugely overvalued the housing market and have to write down the paper losses on securitized mortgages. This is why Fed Chairman Bernanke is asking Congress (and you and I) to buy these bonds from the banks at 100% of their face value, even though estimates of their true value range between 0-35% of face value at this point.

The Big Business and Banking Bailout for Billions Act of 2008 is just more socializing losses and privatizing gains. Nothing more, except that this time, it is on such a massive scale that no one -- the people, their representatives in Congress, even the docile media -- believes their deceptions anymore. Opposition against the bailout could not grow any more fervent, with over 90% of the population against it; in fact, the few people in favor of the rescue are most likely the ones employed by the financial firms and mortgage lenders likely to face bankruptcy without stealing billions of dollars from Americans.

For homeowners who are unable to keep their properties out of foreclosure or work out a solution with the lender, unloading the house may be the only option left. Selling on the open market or at a short sale, giving the bank a deed in lieu of foreclosure, and simply walking away are some alternatives that may be considered in such a situation. However, the deed in lieu may be one of the least understood options in terms of how it can help mitigate some of the worst effects of foreclosure. There are at least five reasons why homeowners may want to consider this option over giving up on the property.

1. Stops the foreclosure process immediately
The most important reason to consider a deed in lieu is simply to get the foreclosure process over with as quickly and cleanly as possible. Once homeowners decide that it is no longer worth the time or effort to fight the bank and they have no other option than to lose the house, ending the foreclosure becomes a higher priority. While dragging out the process for as long as they can is one approach to take with a house, offer the lender a deed in lieu can resolve the situation much sooner and allow the homeowners to get on with lives much quicker.

2. Can help credit with fewer late mortgage payments
Possibly more damaging to homeowners' credit than the foreclosure is the long string of late mortgage payments that lead up to the legal process. Every month that they miss the payment, the bank will report the account as late; thus, ending the foreclosure with a deed in lieu will allow the borrowers to keep a number of these late payments of of their credit record. This will help them begin to recover from the effects of foreclosure much sooner than if the house went through the full process and they had the maximum number of missed mortgage payments showing on their credit report.

3. Keeps a full foreclosure off the credit report
This benefit is somewhat of a consolation prize, as it will only slightly help the homeowners after the foreclosure has ended. While a full foreclosure will not be reflected on their credit history, a deed in lieu will be shown as relating to the mortgage account. While this is only a step or two above having a complete foreclosure, any little bit will help the borrowers in repairing their credit a little bit quicker over time.

4. No chance for a deficiency judgment after foreclosure
The main concern for many homeowners facing foreclosure is being sued after the process has ended for any amount they still owe on the loan that is not satisfied by the proceeds of the sheriff sale. This can be a real fear as banks add tens of thousands of dollars in fees on properties that have declined in price and will not sell for their full value at a county auction. But with a deed in lieu, the bank accepts the property back as payment in full of the loan and has no recourse to seek a deficiency judgment after the foreclosure has ended.

5. No sheriff sale or eviction proceedings
A final concern many homeowners have when going through the full foreclosure process is simply not knowing when they will be evicted from the property, or not having enough time to move out. Although they should be given notice of any eviction proceedings, homeowners may not know they are being kicked out until the notice is posted on their door indicating the sheriff will be there to change the locks in three days. With a deed in lieu of foreclosure, the bank and homeowners will agree on a date to have the property completely emptied, so there should be no confusion or uncertainty about when the borrowers must move out.

Unfortunately, not every borrower will be able to save a home from foreclosure; this is why alternatives like the deed in lieu have been designed to provide some assistance to homeowners even if there is no option to avoid moving out. While this method does not avoid having to move out and start over, it does stop foreclosure in its tracks and allows homeowners to mitigate some of the worst consequences of losing a home. Offering the bank a deed in lieu of foreclosure, while maybe not the best option, can allow borrowers to make the most of a bad situation and have a better chance at negotiating the rough road to financial recovery.

Appraisers use sales of homes that were made as arms-length transactions where neither the buyer was desperate to buy nor the seller was desperate to sell as a basis for comparing other similar properties in an area and estimating fair market values. A foreclosure property does not meet these criteria because of the nature of the legal process that the house is undergoing and the extra inducement that sellers have to find a buyer before they run out of time.

Houses in foreclosure are typically classified as distressed properties, which means that there is something wrong with their physical or legal condition that induces the owners to sell for less than the fair market value of the property. In some cases, this might mean a condemned house that the government has ordered repaired or taken down, one that has been severely damaged by a natural disaster, or one that has fallen into disrepair as a result of homeowner neglect in upkeep.

In such cases, the buyers of a distressed house are able to offer the sellers less than what the property would sell for if it was in a fairly decent condition. But these types of houses are also difficult to compare to other houses in the geographic area that are in better condition or where the owners have no added reasons to unload the property.

Foreclosure cases work slightly different compared to a house that is falling apart or damaged, but the lack of time many people have to sell before losing the home to a county sheriff sale indicates that the buyers have the upper hand in negotiating a beneficial price in order to complete the sale before the eviction. The current owners may not really want to sell the house to stop foreclosure, but have run out of other options that would have allowed them to keep the property.

This is one reason that properties in foreclosure often sell for less than their fair market value or the current market value of similar properties, even if there is nothing physically wrong with them. Appraisers know that the sellers may not even have wanted to sell, which can easily skew comparable valuation data.

Properties owned by banks after a foreclosure auction has taken place are only a little different. In these types of cases, banks may not take care of the houses which then fall into disrepair quickly, or vandals may strip them for any useful resources like copper pipes and electrical wiring, for instance. Banks also do not want to own these properties as they are a drag on the balance sheet and are often willing to entertain lower offers from real estate investors or buyers willing to fix up the properties.

But again, these types of sales are not between a disinterested buyer and a disinterested seller -- in most instances of foreclosure, the seller is willing to unload the property for just enough to make it worth their while and attain their goal of either avoiding foreclosure or unloading an asset that generates no profits. Owners want to sell to save the house and their credit from foreclosure, while banks just want to unload foreclosure properties from their balance sheets and get back to other lending activities.

Thus, foreclosure properties are not good candidates for comparable sales used in appraisals, except for possibly comparing sales of other foreclosed homes. Appraisers would much rather use home sales that were not completed under duress, because a certain home was condemned, sales between family members, or foreclosures. The values have too great a tendency to become distorted as one party to the transaction has more power and a better negotiating position than the other.

The response by the federal government to the collapse of the housing market has illustrated just how little power the people have and how corrupt the government and financial interests have become. It seems the further down the economic scale a family finds itself, the less assistance they can expect to receive from any source to mitigate the effects of foreclosure crisis. While banks and investment firms can expect to be bailed out of every bad decision they have ever made, homeowners have far fewer options and those renting a house or apartment that has fallen into foreclosure may have no alternative other than to move or be evicted.

The large banks and investment firms get inflated taxpayer money to bail them out of trillions of dollars of bad loans and mortgage securities. The latest proposal for a renewable $700 billion slush fund that the US Treasury will be able to use to bail out any company it sees fit is just another package of inflated money that will only prolong the economic crisis. The government will be taking money from all of us to pay for securities and assets that are illiquid because they are not worth anything. Tens of billions of dollars for Bear Stearns, $85 billion for AIG, potentially trillions of dollars for Fannie Mae and Freddie Mac, and now nearly a trillion dollars for any corporation that might need some extra money -- corruption and speculation are being rewarded on a massive scale.

In fact, this may be a lesson to both the financial markets and American consumers in general to rack up as much debt as they possibly can and then cry for a bailout. Corporations can engage in poor financial decisions, make promises they will never be able to deliver on, and put out shoddy products, knowing that the government will provide a backstop. Consumers, on the other hand, can borrow as much money as they qualify for and never pay back a dime, knowing that the banks they borrow from will receive their money anyway in the form of future bailouts. There is no longer any reason not to max out credit cards, declare bankruptcy, keep all the assets possible, and rest assured that the banks will be well compensated by the federal government.

Homeowners who are facing foreclosure, though, find that they have fewer options to save their homes than the banks to save their predatory profits. Borrowers who need assistance still have their money taken from them and in return receive a few token programs from the federal government and a lot of crocodile tears from officials who pretend to care. Most of the programs so far have been difficult to qualify for, do not address significant sectors of the housing market that are now failing, and are mainly completely voluntary for mortgage companies to participate in. It is no surprise that these programs have failed to stop foreclosure on any meaningful scale as of yet.

But at least homeowners are offered some sort of program, and more options are provided by private businesses, charities, and local governments. Renters, in many cases, simply get nothing from any source and are likely to be kicked out onto the streets if their landlord faces foreclosure. In the worst of all worlds, the tenants may not even be aware of the impending loss of the home if the owner of the building does not inform them, until they get the eviction notice from the local sheriff. Whereas banks can unload unprofitable assets onto us anytime profits begin to fall, and homeowners may have months in order to work out a solution to foreclosure, renters may have as little as one month to find other housing arrangements or move into their cars after a foreclosure.

The corporations and financial firms at the very top of the economic ladder are protected from failure and accountability, both personal and business, while homeowners are thrown a couple bones to chew on and renters are simply thrown out of properties they believed they had valid leases on. This situation is the result of government regulation and protection of a predatory system with a federal backstop against negative consequences. In effect, the government has told businesses that the more they take advantage of the people, the more they will be rewarded with even more of the peoples' money as bailouts. Everyone else, though, will be lucky to survive the depression and hyperinflation that the feds are putting into place in order to keep the profits flowing into Wall Street.

Sometimes, it is difficult to know when you have been beat, or when it is time to give up on something. With foreclosure, it can be quite different: it is actually very easy to know when it is time to throw in the towel. Foreclosure is a very costly procedure, both mentally and financially, so knowing when to stop fighting and when to move on with your life is very important. The only real issue for homeowners is to realize when it is time to quit fighting and how to successfully navigate the foreclosure process, with the least amount of damage to your credit.

Step #1 – Knowing when to quit
As mentioned above, with foreclosure, it may be very simple to decide when you should give up your home. Once you have examined these few issues, you should know if saving your home from foreclosure is still possible.

• Can you afford your home if your interest rate was set back to its original amount? If you can and your home has not already been sold, then keeping your home is still possible.
• Do you have enough money to pay 25% more than your existing mortgage payment? A repayment plan is possible if you can make your normal payment, plus 25% extra to pay the arrears.
• Even if you can afford your payment, is your total payoff more than the home is worth? If you are paying more than the home is worth, then why would you want to keep it? Unless you have a very strong sentimental attachment, or you expect the value to drastically increase in the near future, it is probably time to move on.

In general, you can calculate your total payoff at a 9% interest rate, over 30 years, if you are considering a mortgage modification or other payment plan. If this new payment is affordable for you and you are not paying more for the home than it is currently worth, then saving your home is probably an available option for you, as long as your income is stable enough to get through the plan.

Step #2 – Giving back your home without foreclosure
First, homeowners should be clear on one important issue: far too often, people who do not want to keep their home mistakenly believe they can just give the deed back to the lender and walk away free and clear. They think they can keep their perfect credit score and give back the home without facing foreclosure. This virtually never happens. Your lender does not want your home and they certainly do not want you to have the ability to give it back and walk away with no negative consequences.

The nearest option available that resembles this is a deed in lieu of foreclosure. This is when the lender accepts the deed for your home and forgoes the foreclosure process. If done correctly and quickly, this method could be your best alternative to foreclosure, but if not completed correctly, a deed in lieu can be more time consuming than going through the legal process and losing the home at sheriff sale.

Another alternative to foreclosure is to sell the home using a short sale. A short sale is when your lender accepts an offer on the home for less than what is owed. For example, if you owe $200,000 on your home, but the best offer you have is $130,000, then your lender may accept $130,000 as a full payoff. When you lender accepts such a settlement, this will (in most cases) stop foreclosure at any point of the process and if a deficiency judgment is not allowed, it can prevent any further damage to your credit.

Professional help is highly recommended for either executing a deed in lieu or attempting to sell for less than the total amount owed on a mortgage, to avoid the many legal “loopholes” and financial pitfalls that accompany either of these options.

If going through foreclosure is inevitable, then your best bet is to get through it as quickly as possible. Do not drag things out or waste time, explain your situation to your lender and make sure they know you want things to move as quickly as possible. Many homeowners and/or lenders drag the foreclosure process out for a year or longer. If this does last for more than twelve months, you can expect your credit to take another twelve months or even longer to begin the process of repairing itself. However, if the foreclosure only lasts for three months, your credit should be much less damaged and will not take as long to repair. Of course, this is assuming you only missed your mortgage payments during your hardship and your credit was good up to that point.

Step #3 – Stop dwelling on the past and look towards the future
Foreclosure is something that is happening to many people right now, so you are certainly not alone. There is no reason to keep yourself down or think that you did something wrong, you just need to make a fresh start and move on with your life. Your first step should be to get your income and expenses back on track. Find a new place that is more affordable and try to save as much money as possible.

After your income is stabilized, you need to begin the process of credit repair. The fastest and easiest way to repair your credit is to pay off everything negative on your credit report. You will need to order copies of all three reports and begin to settle any outstanding debts. There are credit repair companies that can help you settle these debts for much less than the amount owed, so it may be a good idea to work with a credit repair professional. But be careful, because there are very few qualified debt settlement and credit repair professionals out there. A handful of companies you find online, or advertising on TV are frauds and outright scams.

Last week, there was a lot of talk about the fallout from the credit crisis caused by the meltdown in the housing market and plans to stop the rising foreclosure rates, but will anyone ever take action? As we all know, public officials, including Congress and the President, all like to talk about their “big plans” once they take office, but very few ever deliver. Only time will tell if government offices have the ability to fix the problem, but if history has proven one thing, it’s this: Be very skeptical of anything an elected official promises!

In Chicago, Cook County Board President Todd Stroger is leading the efforts to impose a year long moratorium on foreclosures. Stroger is gathering signatures, speaking at public engagements, and sponsoring workshops throughout Illinois to help foreclosure victims. Entering 2008, Chicagoland foreclosure rates were at an all time high, but home sales are beginning to turn around and foreclosure rates are beginning to flatten out. Home sales are up 25% which will help the overall economy, but home values are still decreasing in many areas, indicating the market still has a way to go before supply and demand corrects. Overall home appraisals within the city of Chicago are down over 5% from last year.

Michigan activists and public officials are joining together this week in Lansing to march in a parade to halt foreclosures for up to two years. Michigan is one of the hardest hit states when it comes to foreclosure and decreased property values. The state senate bill protects homeowners for a period of 6-24 months, while giving would-be foreclosure victims a chance to get back on their feet. Michigan foreclosure rates were up 27% from last year, which is actually an improvement from previous periods. Foreclosure rates throughout Michigan were up over 100% in previous months! Michigan is still easily one of the top 10 states for foreclosure filings, but rates are finally significantly decreasing, although this market was also artificially pumped full of easy money, driving up prices to unsustainable levels.

Last weekend, Sept 7th to be exact, the government officially took over the mortgage giants Fannie Mae and Freddie Mac. Both of these organizations were created by the government and Fannie Mae was previously run by the government, so their takeover comes as not really much of a surprise. By taking back these organizations, the government hopes to provide stabilization throughout the financial system and the economy as a whole by showing that the US government will stand behind troubled private lenders and mortgage guarantors and continue to focus on providing low cost mortgages to home buyers throughout the US.

The end result of this “conservatorship” will probably be the American tax payers bearing the brunt of the foreclosure crisis, to the tune of at least $200 billion, although Fannie and Freddie guarantee about half of the $9 trillion American mortgage market. Senators nationwide are asking the newly appointed Chief Executives of Fannie Mae and Freddie Mac to temporarily put foreclosure proceedings on hold across the country to allow local governments and homeowners to find other options to stop foreclosure. Finding solutions will mean that taxpayers are not on the hook to make up losses due to foreclosures.

While foreclosures in many states such as Nevada, California, and Arizona still seem to be increasing, other states like Tennessee and Idaho are leveling off. Based on 2007 foreclosure rates, Tennessee rates are nearly identical this year. This may represent an improvement, but the state still has 13th highest rates, with over 1 in 600 homes in some stage of foreclosure. Nationwide, about 1 in 400 homes have received some type of notice indicating they are in default of their mortgages. The top ten states in foreclosure rates were Nevada, California, Arizona, Florida, Michigan, Georgia, Ohio, Colorado, Illinois and Indiana, in that order, although Michigan, Georgia, Ohio and Colorado all reported rate decreases and may soon find themselves dropping from the dreaded top 10 list.

Despite the help offered by most government plans, foreclosure rates across the nation have increased at their own pace and may now be finally starting to level out in some areas. The fact that this is happening just as the financial system goes into crisis and the Federal Reserve and US Treasury are stepping in to take over private companies indicates a lag time between when the crisis hit Main Street and when the consequence are felt on Wall Street. It also indicates how misguided it is to trust in government programs which are proposed to fix problems now, but do not take effect for months, thereby always attacking problems inefficiently and after the fact.

There seem to be a lot of misconceptions about how long a foreclosure can stay on the credit report of former homeowners, how long the foreclosure affects their ability to borrow negatively, and how long they will be unable to purchase a new home. Some borrowers believe, mistakenly, that they will never be able to buy another house, qualify for a car loan, or even get a credit card at a decent interest rate just because they lost a house. While the foreclosure will have serious negative consequences, the myths surrounding the issue can be much worse than the actual effects.

The worst news is that a foreclosure will remain on a credit report for the full seven year reporting period. Although borrowers can request the bank to remove the record at any time and delete mention of the foreclosure, banks are rarely interested in doing this, and there is little that could force them to do so. Thus, former homeowners will most likely have to deal with having the negative mark on their credit report for nearly a decade, although its most damaging effects will be felt in the earliest years after the loss of the home.

This is because the longer in time the homeowners are removed from the initial foreclosure, the less of a drag it will be on their credit scores. Missed mortgage payments and then a foreclosure filing can instantly drop a FICO score into the low 500s or even the high 400s by the time the sheriff sale and eviction occur. But as time goes on, as long as the homeowners work on repairing their credit history by paying off any other debts, using borrowed money wisely in the future, and disputing negative or old information contained on the report, their score will begin to improve despite the foreclosure.

When borrowers would be able to qualify for a new mortgage after the loss of a house is almost entirely dependent on the effort they put into repairing their credit and establishing a new, on time payment history. They may be able to apply for a competitive loan within a couple of years after the foreclosure if they are able to show excellent credit since then. Saving up for a true down payment of 15-20% of the purchase price of the home is also important to the banks when considering whether or not to offer a housing loan. But homeowners who focus on credit repair may be able to qualify for a new loan within 2-3 years after foreclosure, while other borrowers may have to wait 4-5 before their credit repairs itself enough naturally.

Of course, if homeowners are able to stop foreclosure before the lawsuit, sheriff sale, and eviction have completely gone through, they will find it much easier to obtain any new credit later on. But, unfortunately, this may not be possible for some borrowers who have no other choice than to give up trying to save their home. The best they can do after this is to work on their credit report and make sure they get a fresh start after losing the property. Although it may take at least a few years to qualify for any new mortgage, this period of time should be used to pay off other debt, establish on time payment history, and save up for a down payment on a new home. While the effects of foreclosure can be severely negative, borrowers also have many options in mitigating the worst consequences to their ability to qualify for credit in the future.

Thus far, all of the government plans to help save the housing market from collapse have been greeted with great fanfare by the media and politicians proclaiming their own expertise at solving the problems of the economy. However, few homeowners seem to have qualified for much actual assistance from the programs, and the requirements that have to be met have been strict for borrowers and lenders.

The Foreclosure Prevention Act of 2008, passed several months ago and signed into law by the president, is no exception. With the collapse of investment banking firms, the entire subprime lending industry, and Fannie Mae and Freddie Mac, it may be time to reevaluate such government programs that were designed to solve the problem and examine how the burdens placed on the parties to the mortgage have prevented homeowners from being able to stop foreclosure with government-backed loans.

There are numerous eligibility requirements for the Foreclosure Prevention Act of 2008, not just for the homeowners' monthly income and expense. However, it is usually the debt-to-income (DTI) ratio that precludes many of those who would otherwise qualify from obtaining federal help under such programs. With the FPA, the trend is no different, and the legislation actually prevents homeowners who truly need help from even qualifying for it.

On the original loan, borrowers must have had a DTI ratio above 31%. This means that the amount they were spending on their debt (housing and otherwise) must have been at least 31% of their gross income (income before taxes). For homeowners who obtained subprime loans, this will be an easy requirement to meet, but for those families who made conservative housing choices with affordable payments and then ran into a financial setback like a job loss or unexpected expenses, this requirement could prevent them from obtaining assistance, as they did too well of a job of managing their finances.

But there are other requirements related to income that are not determined by a simple calculation, and the subjectivity of some of these throws the entire purpose of the bill into question. Bureaucrats whose income and job longevity depend on the federal budget money flowing into their department may decide that it is better to cut expenses as close to the bone as possible, making decisions that result in their keeping the appropriated money instead of helping homeowners.

For instance, homeowners must prove that they can no longer make the payments on the loan as it is currently structured. They may be on time now or in default of the mortgage, but they must prove to the regulators that they are not applying for federal assistance just to receive a lower monthly payment. Of course, anyone applying for help is seeking lower monthly payments to prevent foreclosure, and it will be up to the self-interested bureaucrats to determine if they are able to make the regular loan payment.

Also, any second mortgage or home equity line of credit on the house would have to be paid off or removed from somehow before the FHA would agree to refinance the foreclosed property. The owners would not be able to obtain any new second mortgage except for necessary upkeep purposes for five years. With many of the subprime mortgage having been originated with a second mortgage to begin with (80/20 loans), this requirement will effectively lock thousands of families out of receiving federal assistance.

As with many of the federal programs designed to provide foreclosure help to homeowners, participation in the Foreclosure Prevention Act is entirely voluntary for lenders and will require mortgage companies to give major concessions in order to unload these foreclosed properties onto the government. It is inconceivable that many lenders will agree to these demands, moving forward with the foreclosure instead.

The main requirement lenders may balk at is that loans must be marked down to 90% of the current value of the property in question. For banks that made loans at 100% loan-to-value (LTV) on a house two years ago which may now be at 115% or higher due to declining real estate prices, this level of paper loss may be unacceptable. In fact, it would be just as easy to take the house through foreclosure, have it sold at sheriff sale, take the tax write-offs, and list the house for its fair market value.

Even worse, the Act requires banks to write off any penalties (including prepayment penalties) or fees charged to the borrowers that would otherwise be due if the loan was refinanced. In addition, the lender is required to pay 3% to the FHA a fee of 3% of the outstanding mortgage principal to have the privilege of dumping the loan onto the government. Depending on the size of the mortgage, it may cost far less in legal fees and other charges just to continue foreclosing.

Difficult requirements for homeowners to meet and onerous ones for lenders virtually guarantee the failure of government programs such as the Foreclosure Prevention Act of 2008. Its track record thus far has compared to the other plans like Hope Now and Project Lifeline in falling short of expectations to provide help to families in obtaining federally-guaranteed loans or qualifying for a reasonable mortgage modification. But it is just as inconceivable that the government will admit its programs actually encourage more foreclosures, as they will most likely be continued indefinitely, providing all the assistance of a parasite as they take money from citizens in order not to give it to needy homeowners.

With the surprising news from this weekend that Bank of America has decided to purchase Wall Street investment firm Merrill Lynch, some of the financial thunder has been stolen away from Lehman Brothers. But Lehman and Merrill are two of a kind, and the collapse of both firms in the space of a few days indicates how much confidence has been lost in any firm that took on great exposures to the subprime mortgage market.

The history of Merrill Lynch in the US housing market goes back decades further than the subprime mortgage crisis, though. During the 1980s, as Savings and Loans (S&Ls) were deregulated, Wall Street firms financed some of the frauds that resulted in the collapse of the S&L industry. Deregulation allowed S&Ls to accept brokered deposits where a large investment banking firm would package together accounts of $100,000. They then send these funds to regional Savings and Loans that were searching for funding for commercial real estate projects. Merrill was one of the largest deposit brokers on Wall Street.

In the midst of the post 9/11 American housing market recovery, Wall Street firms were buying billions of dollars of subprime loans from nonbank lenders. By the end of the bubble in housing and subprime lending, Merrill Lynch was one of the two largest firms (along with Citigroup) issuing Collateralized Debt Obligations (CDOs). After purchasing loans from mortgage originators, they would be packaged into Asset Backed Securities (ABSs) and sliced up according to risk. The riskiest parts of several packages would then be grouped together and further securitized into CDOs, and then sold to end investors around the world.

Merrill Lynch and the other Wall Street firms would, of course, generate commissions on every step of the process. Warehouse lines of credit were offered to subprime mortgage lenders in order to make loans to the public. Once the mortgages had been originated, the investment firms would purchase packages of the loans from the originators and securitize them.

However, Merrill took the process another step and actually provided loans to investors to buy their CDOs once they had been securitized. Most of the money on both ends of the transaction came from the Wall Street firm, increasing their exposure to the subprime industry by orders of magnitude. The firm would buy subprime loans from nonbank institutions it offered lines of credit to, securitize them into ABSs, create CDOs out of the riskier portions of the ABSs, then provide more loans to investors to purchase the bonds.

As one of the largest and most prestigious investment firms on Wall Street, Merrill Lynch could also aggressively target the subprime market. The banking giant paid more for loans than any other Wall Street firm, paying higher premiums for subprime than any other investor. As well, it would offer cheap warehouse lines of credit to nonbanks to make loans as long as they then sold the mortgages to Merrill for securitization.

The only piece of the total subprime puzzle that Merrill was lacking by the end of the housing bubble was owning its own origination company. Although it had been interested in purchasing New Century, the mortgage company balked at the deal and ended up in bankruptcy. Even by February of 2007, Merrill did not own a subprime lender, so it purchased First Franklin from National City Bank. Since delinquencies were already rising in subprime generally and at First Franklin specifically and concerns were being raised about the long term value of home prices, this was probably not the best business decision the Wall Street firm had made.

Just a year after buying the company, Merrill closed First Franklin in March 2008. From operating a trading desk where it would compete with Fannie Mae and Freddie Mac in the secondary market as buyers of unsecuritized whole mortgages to only funding subprime loans through First Franklin that could be sold to Fannie/Freddie, Merrill's origination and securitization business had made a 180 degree turn.

Soon after its ill-fated purchase of First Franklin, it was clear that Merrill had begun to see the writing on the subprime wall. The Bear Stearns hedge funds that collapsed in August 2007 had borrowed $850 million from Merrill Lynch in order to purchase more subprime mortgage bonds. Before the collapse, in Spring 2007, the firm issued a margin call to Bear Stearns and then took control of $850 million in bonds as the hedge funds could not meet the calls. A few months later, the hedge funds collapsed and the credit crisis began in the American and then the world financial markets.

Flash forward to this past weekend, and, amidst the attempts to keep Lehman Brothers solvent, Bank of America purchased Merrill Lynch. Now the largest commercial Savings and Loan in the United States, BofA, which just purchased the largest mortgage originator, Countrywide, is consolidating further by purchasing its very own Wall Street investment firm, Merrill Lynch. In effect, the entire subprime scam can be operated from within one corporation, from Merrill lending money to Countrywide to give loans to unsuspecting homeowners, to Countrywide selling the loans back to Merrill, to Merrill offering CDOs to BofA investment funds and depositors.

Since the financial industry will be taking this weekend to decide the future of Wall Street firm Lehman Brothers, this would seem an appropriate time to consider investment company's role in the subprime mortgage crisis. After all, from the implosion of hundreds of lenders, to the failure of Bear Stearns, the selling of Countrywide, and the latest Fannie Mae and Freddie Mac bailout, the collapse of Lehman is just the latest in a string of previous giants in the subprime industry going under.

Lehman Brothers had been one of the most prestigious names on Wall Street, playing in the world financial flows among such other firms as Bear Stearns, Citigroup, Merrill Lynch, Credit Suisse, and others. Lehman, along with Bear Stearns, though, led the way in subprime mortgage lending and securitizations of these loans into bonds salable to other end investors.

After the terrorist attacks of September 11, 2001, the largest Wall Street firms began reacting to the Federal Reserve policy of low interest rates and cheap fiat money by purchasing billions of dollars of subprime loans. These were most likely bought from nonbank mortgage companies, which borrowed money from companies like Lehman in order to make loans and quickly resell them to Wall Street.

In fact, Lehman very nearly owned this market, as other players like Merrill Lynch were late arriving to the subprime lending and securitizing game. Lehman Brothers and Bear Stearns were the major players in subprime, extending money in the form of warehouse lines of credit to nonbank lenders, buying the mortgage products, turning them into asset backed securities (ABS), and then selling these bonds to end investors like insurance companies, pension funds, local governments, and foreign banks.

Although the media portrays the credit crisis as if the largest Wall Street firms are simply unwitting victims of the subprime lenders and greedy homeowners who have decided to do nothing to stop foreclosure on speculation houses, the banking giants are counting on the ignorance of the public on at least two major points. Lehman participated in both of these games, drastically increasing their own exposure to the risks.

First, the Wall Street firms provided vast amounts of assistance to mortgage companies (subprime and otherwise) in going public. From managing their initial public offerings (IPOs) to giving the corporations loans in order to make subprime mortgages, Lehman could be involved with a lender from beginning to end, all the while hiding its role from actual home buyers. After helping companies go public and extending them lines of credit to make mortgages, Lehman would often buy the mortgages in order to securitize them and generate even more fees from the sale of the new bonds.

Second, as the hysteria for subprime loans grew during the early part of the 2000s, Wall Street firms would often become the owners of residential mortgage lending or loan servicing companies. Bear Stearns owned the notorious EMC Mortgage, while Lehman owned Aurora Loan Services. Conveniently, anyone who had a loan through these companies would not be able to connect the name of the lender to the Wall Street firm it was backed by, insulating the investment companies from negative publicity on the part of the subprime lenders they owned.

Hedge funds that invested heavily in subprime mortgage bonds were also often managed by the largest Wall Street firms. After all, unless the banking giants could control at least some of the money going into these securities, it would be difficult to increase demand artificially and convince municipalities and public pension funds to become investors. The credit crisis itself is popularly believed to have begun in August 2007 when two Bear Stearns hedge funds collapses due to a lack of confidence in its subprime mortgage holdings.

With the government takeover of mortgage giants Fannie Mae and Freddie Mac due to insolvency, it should come as no surprise that the investment firms most involved with the Government Sponsored Enterprises (GSEs) would also face collapse. When the GSEs experienced a wave of investigations and regulatory constrictions in the aftermath of the discovery of accounting regularities in 2003, Wall Street stepped into the void to provide securitization and purchase of mortgages.

With Fannie and Freddie's hands temporarily tied and unable to buy as many loans in the secondary market as were being originated, Lehman and others searched for or created new buyers. From selling mortgage backed securities (MBSs) to the GSEs to opening trading desks dedicated to purchasing unsecuritized whole loans from Savings & Loans and nonbank lenders, Wall Street could create mortgage bonds and sell them without the help of Fannie and Freddie. These loans would be packaged into MBSs and sold to investors with Structured Investment Vehicles (SIVs) taking the place of the government enterprises, with Lehman generating fees at every level of the process.

So, this is the company that all of Wall Street and Washington will be spending this weekend deciding the ultimate fate of. Whether it ends up in bankruptcy, is absorbed by another investment giant, bailed out by the Federal Reserve or the Treasury, or allowed to move forward with its "restructuring" plan, the firm has left an indelible mark on the US housing market. The smart money has left Lehman by now, just as it had left the subprime industry before its collapse; now the sharks must decide how best to dispose of the carcass and leave shareholders and the public with the responsibility of cleaning up the mess left behind.

The decade of the 1980s has traditionally been viewed as a time of strong economic growth and innovation, mainly due to the smaller government, pro-deregulation policies of the Reagan administration. However, this decade also saw the setup of the housing market for a future crisis, with pieces being put into place at the Federal Reserve and throughout the banking system.

After the high inflation rates of the 1970s had been defeated by the Federal Reserve's monetary manipulations, the home foreclosure rate began to rise precipitously. In fact, this rate tripled during the 1980s, despite stronger economic growth in other sectors of the market and the fact that unemployment rates began to fall during the decade.

One main factor that drove the rising foreclosure rates seems to have been the stagnating or declining of real estate values in housing markets throughout the country. High inflation was no longer driving up prices for goods, while collapses in the oil, gold, and other commodities decreased the amount of financial protection a home could offer in the absence of rising prices every year. The lack of appreciation in the housing market generally began to contribute to rising foreclosure rates

Although unemployment actually fell during the 1980s, one important trend had emerged since the previous decade. More workers began to go into business for themselves, which meant that they were much more exposed to the direct working of the market. With the shift in the 1980s from production economy to a service-based one, as well, homeowners could face severe financial disturbances but still count themselves as employed, albeit in a failing business they owned. Moreover, business failure rates did increase during the 1980s.

Thus, more homeowners became business owners, tying their personal financial fortune directly to the sector of the economy they had entered into. A failure of the small business could quickly push the household into foreclosure, and changing market conditions throughout the deregulation period and beyond guaranteed that many companies would not be able to react to the new paradigm.

Two other trends that bear mentioning is the growing dependency on consumer credit and the declining savings rate that occurred during the 1980s. Americans began their love affair with credit cards, and had learned from the previous decade that saving money in a bank could result in the value of that account being wiped out due to inflation or bank failure. So consumers began borrowing money and spending their own incomes on paying off these loans instead of saving for any kind of emergency. When a business failed or property values decreased, foreclosure became more likely.

The mortgage industry had also begun to change in the 1980s compared to decades before. Savings and Loan institutions had been freed from most regulatory burdens and began to use the remaining laws to engage in fraudulent loan schemes, mostly on commercial property, while Wall Street's securitization of mortgages kicked into higher gear. The use of mortgage servicing companies by mortgage holders also grew during the decade.

These three trends virtually set up the economy for a deceptive end run around American homeowners, although the final piece of the puzzle had not been inserted yet. But it was waiting at the Federal Reserve as of 1987, with the appointment of Alan Greenspan as chairman of the Fed.

From opening the flood gates at every sign of economic slowdown and injecting liquidity into the market to lowering interest rates too far for too long, Wall Street banking firms had found a friend in Greenspan. Moral hazard was routinely rewarded in the subsequent decade, from the Mexican peso crisis, to the Asian crisis, to the LTCM crisis, to the Russian debt default.

But during the 1980s, the housing market was increasingly set up for failure, with a tripling of foreclosure rates in the decade. Deregulation meant that large corporations were freed from laws designed to protect consumers, although it also meant that the government would step back into the picture to protect these businesses from failure or accusations of fraud or corruption. For all intents and purposes, deregulation meant giving politically connected businesses free rein to prey upon Americans with no potential for public backlash against such practices.

It was not until the 1990s, though, that the housing market boom began, and not until the 2000s that it turned into the largest speculative bubble the world had ever seen. The 1980s, though, began the necessary trends in the economy, in government policies, and in the personal habits of Americans. Once a few other bubbles had burst, there was seemingly no other option left to obtain massive profits than to blow up the real estate market.

The Roots of the Mortgage Crisis - The 1970s

An important point that homeowners should consider is keeping on top of all of the court proceedings if the bank sues them for foreclosure. Borrowers have every right to know and defend against any actions taken against them by their lender; simply falling behind on a mortgage payment does not automatically mean eviction is inevitable and will occur randomly, which is what many homeowners irrationally fear. If for no other reason, homeowners should keep up with the legal process just to know how much time they have left to save the house before a sheriff sale or move before being forced out.

The first way to track any foreclosure court proceedings is to keep an eye on the mail, especially any certified letters or documents posted directly on the property. All documents that are filed with the court in connection with a case, from the initial complaint to the order for eviction, must be sent to both the plaintiff and the defendant. Banks often have the local county sheriffs department or a professional process server hand deliver the complaint and any orders of the judge to the homeowners to make sure that they have been notified of all the steps taken during the foreclosure.

Also, many county governments now have the docket for each case available online through the official county website. This may be just a chronological listing of all of the actions taken during the case up to the present time, or it may even include digital scans of the actual documents filed, which may be available for download or purchase. In many cases, the most basic information given will include the contact information of the parties involved in the foreclosure lawsuit, any attorney information, the most recent motions filed and by whom, and if there is a hearing scheduled for any reason and when.

A final way to track foreclosure proceedings through a court is to call or visit the county clerk of court, who retains copies of all documents filed in civil and criminal cases. Homeowners are able to review or make their own copies of the complaint, answer, and all other motions right at the courthouse where a government official can answer (or not) any questions. This is also a useful resource for learning how the foreclosure process works in that individual state and county, as rules and laws vary considerably throughout the country.

One of the most common complaints of homeowners in foreclosure is that they feel they are in the dark about how the process works and how much time they have left. Especially if they have failed to pick up certified letters from the bank or have not read the complaint delivered by the sheriff, it may be difficult to know where their house is in the legal system. Too many homeowners do not find out about the auction of their house until the new buyer shows up to inspect the property or the bank is granted an order for eviction. Even if homeowners have no intention of defending a foreclosure lawsuit, though, they should pay careful attention to where the case is in the courts so that they can adequately plan for the future.

The news that 9% of homeowners with a mortgage are either late in their monthly payments or are in foreclosure seems to have been with a resounding silence by the media and the public. This is a record number and an indication that the collapse of the housing market is just hitting its stride, rather than finding a bottom or beginning to recover. But on the scale of financial disaster, the people have apparently decided that this news does not even rate.

Maybe there is no financial disaster meter any longer in the public mind because nearly all of this type of economic collapse news is filtered through our television culture. Nine percent of homeowners in foreclosure¹ is so out of context that it is entirely meaningless for most of the news-watching population. They are unable to appreciate what this number means, because they have nothing similar to compare it to; only further irrelevant information and more sound bites.

Foreclosure rates way up. McCain picks woman as VP. A few words from our sponsors. Local murder. Obama says something about faith. A few more words from more of our sponsors. Cubs lose. Olympics ended. A few more words from our favorite corporations. Weather will be nice tomorrow after rain tonight. Fannie Mae and Freddie Mac bailed out. CSI coming up next. Enjoy our Thursday night entertainment lineup.

What is the connection between any of that information? And why should people care about the foreclosure rates anymore than they care about the latest Pepsi advertisement or the fact that the Olympics have ended? Most people are simply watching the news to ensure they have repeatable sound bites for work the next morning if a semi-informed discussion accidentally takes place.

In fact, the way that our news media reports information, nothing is connected to anything else. All of the stories reported on television turn into nothing more than sound bites from a continuous stream of too much data presented as news entertainment.

And no one should care about the foreclosure rates when they are being sold cars with 0% financing every few minutes. Financial Armageddon is bad, but if it is presented as entertainment and punctuated with psychologically rewarding commercials, then it is meaningless at best and actually encouraging at worst.

In fact, the very medium of television is so insulting to the intelligence of the average human being that people simply lower themselves down to the level of the medium and discount any attempts at critical thinking or analysis. If every few sentences, I inserted a few kind words about Gateway Computers or Amazon.com, most people would stop reading, believing me to be hopelessly distracted or even schizophrenic. But this is exactly how television makes all news irrelevant.

People's ability to detect the collapse of our economy and financial system has been so deadened by years of having their intelligence lowered to the level of television that they probably will not care even if the system does collapse. As long as the Machine that delivers their ideas and entertainment does not stop, they will keep trusting in their unconnected distractions.

Source:
¹ mrmortgage.ml-implode.com/2008/09/05/9-of-all-mortgages-in-defaultforeclosure

Just as no ship can sail without a plotted course and no plan can take off without a flight plan, no homeowner in foreclosure can contemplate a successful journey to save a home from foreclosure without a comprehensive plan. No one plans to fail and lose their home; it is that most families fail to plan at all before, during, and after they have missed their first mortgage payment. The mission of every reputable foreclosure assistance company should be to help such homeowners put together a plan and then guide them through the completion of that plan.

At the most basic level, the level of the desperate family speaking to the loss mitigation or legal professional, planning is nearly always easier and less complicated than people expect.

The first place to start is by assessing where each homeowner is right now. This includes what they own, what they owe, what they earn, and what they spend. Of course, this is nothing but collecting baseline data; it does not deal with what the family wishes to do to get out of foreclosure or how they are going to do it. But this gives both the professional and the homeowners a clear, shared understanding of the first, most basic thing that anyone beginning a journey needs to know: exactly where they are starting from.

From there, a sort of wish list is created, detailing exactly the most preferable means of solving the crisis and how to begin recovering financially afterwards.

This is also a pretty straightforward process because it focuses on a few choices to be made. What do you want to do with the house? Sell it? Or keep it? And if you decide to keep it, how much can you afford to spend on it per month? Do you qualify for any government programs or assistance through local private charities? If you work with the lender, would a repayment plan be affordable? Or is a mortgage modification the only option? What would you do if you could?

Then the professionals and the family get out a calculator and see if they can turn those goals and dreams into a clearer picture. Some questions they will answer will be, How much will it cost for any solution? What is the gap between where you are now and where you would like to be? How much time do you have to accomplish this? Can we get you from here to there?

If the loss mitigation company finds out that the homeowners can get to where they want to go, then there is already a strong base to build a plan on. If not, then the homeowners may have to consider some trade-offs. Maybe they can get an extension of a sheriff sale but will not have enough time to sell or refinance. Or they may be able to refinance but would have to give up the extra car in order to meet the new mortgage payments. The borrowers will have such decisions to make, but when this process has settled, the basics of a plan will have been framed.

At this point, the assistance company and homeowners will begin to rely more heavily on the specialists -- the lawyers, loss mitigation professionals, and financial experts. They will be the ones negotiating with the mortgage company, its attorneys, and possibly even the courts and government officials, working out the technical ends of the plan.

The most important point for homeowners to consider is making sure the company they are working with delivers a plan that is complete and does what the parties agreed upon. Borrowers should stand up and request the assistance company to keep sending the experts back to the drawing board until the plan is just right.

Then it really becomes an issue of giving the plan the right amount of resources in the right time frame in order to complete it and stop foreclosure as efficiently as possible. Of course, as circumstances change, the plan may have to change on the fly, but homeowners should be able to follow through and meet their own financial commitment to saving the house.

In a nutshell, this is how the experience with a reputable loss mitigation company should work. What can not be described is the tremendous weight of concern that is lifted from homeowners when they know they have a first-rate plan in place. No one can relieve borrowers of the responsibility for their own success, but a comprehensive plan and a compassionate, informed assistance company can take away much of the anxiety involved with foreclosure situations.

In the foreclosure crisis, it bears mentioning that it takes "two to tango." Homeowners and lenders worked together to take advantage of the low mortgage rates and easy money conditions, and now they are forced to work together to prevent rising defaults from decimating the real estate market. But in this case there may be dozens or hundreds of other parties involved in the dance, as well, as ownership of delinquent mortgages have been called into question.

So homeowners took out a mortgage they did not understand and are now in default of? It seems that few people analyzing the situation have much sympathy for homeowners using the strategy of forcing the lender to show it owns the promissory note and has legal standing to foreclose on the underlying collateral and take the house back. In any such case where borrowers have missed numerous payments, though, it is only the owner of the mortgage that should be able to take the house through foreclosure.

But just who owns the mortgage?

Is it the original subprime lender that is now probably out of business? No, the original lender sold the loan to Wall Street in packages. Loans were originated and at the end of the month, potentially hundreds of similar loans were sold in bulk to Wall Street Investment firms, which may have provided the initial lines of credit to the mortgage originators anyway. In fact, lenders were really just front companies and conduits for Wall Street: money was loaned by Wall Street to homeowners through these lenders, and then Wall Street bought back the loans in order to take further steps to increase their profits on these mortgage collateralized debt obligations (CDOs).

Is it the Wall Street bank? No, investment firms sliced up rights to the packaged loans and sold them to other parties. Once the packages of loans were received by the investment banks, they were put into any number of different accounting vehicles or trust, typically a Structured Investment Vehicle (SIV) based in the Cayman Islands. Rights to payments were categorized by risk and the SIVs issued bonds based which were sold to investors, while rights to collect monthly payments from homeowners were sold to mortgage servicing companies.

Is it the SIV in the Cayman Islands that was assigned the mortgages? No, this was just the bank's financial sleight of hand to get the loans off its balance sheet. In any event, the investment firms sold off the legal ownership of the mortgages once they were securitized. Of course, now that many of these mortgages are going bad at incredible rates, the SIVs may have to be taken back by the banks and claimed on their balance sheets and written down to their current market values. The hundreds of billions of dollars in writedowns already taken may be just the beginning if these SIVs fail to meet the accounting rules for separate treatment. But they are still not the end owners of the mortgages.

Is it the mortgage servicer? No, they only bought the rights to collect the payments and take a portion before sending the rest onto the investors. Homeowners who are forced to negotiate with such a company for a mortgage modification or other solution to foreclosure are often turned down by the servicer because "the investors denied the request" for assistance. The servicing companies have always admitted that the final decision to foreclose or work out a plan is not in their hands; thus, they can not be the owner of the mortgage with full rights to make decisions about the loan.

Is it the investors? No investor was assigned as the owner of any specific mortgage, as the entire point of these mortgage CDOs was to spread the risk around. If hundreds of hedge funds, mutual funds, pension funds, and individual investors own small percentages of a single mortgage, then all of them would have to agree to move ahead with a foreclosure. But even then, if this ownership scheme were the case, then an assignment of the mortgage deed of trust should be somewhere in the names of all of these owners. Of course, this is almost impossible, and no mortgage that was sliced up and sold off in bonds has been assigned to the final investors.

Granted, homeowners who have fallen behind on their mortgage should eventually bite the bullet and try to find a way to stop foreclosure once ownership of their loan has been established in the courts. But if a hedge fund in the Cayman Islands, a pension fund in Australia, and a mutual fund in Chicago are all part owners of this same mortgage, then who could blame the borrowers for fighting this unnecessary complexity any way they can? It may be impossible to negotiate any solution besides foreclosure to such a tangled financial web of lies designed to spread the risk of foreclosure to hundreds of investors but leave all the harm of foreclosure squarely with the borrowers.

After all, it would be a little ridiculous for a bank to issue a mortgage and then the homeowners transfer their rights to the house to thousands of other people to "spread the risk." In fact, banks have clauses in loans to prevent just such a plan from happening with Due on Sale Clauses standard in mortgage contracts.. Homeowners, though, are simply expected to allow their mortgage to be assigned to hundreds of parties counting on their payments who have no real ownership interest in their loan and then quietly, with no fight, watch these same banks and investors foreclose on their house and render them homeless.

The average American has been conditioned to believe that taxes are an inevitable part of life and necessary to provide the most basic public services like roads, police protection, and social welfare programs. But direct income, sales, and property taxes are only the most visible ways that government takes over the rewards of productive activity from the poor and middle class, all while rewarding high income earners and corporations with tax breaks. Two regressive taxes that have hurt Americans include higher Social Security payments and inflation.

There seems to be a perpetual cry in the media and from politicians in Washington that Social Security will be insolvent within decades; therefore, either payroll taxes have to be increased for workers or benefits decreased for retirees. Unfortunately, government projections are routinely fudged, and making predictions regarding the state of a social program that typically runs a surplus every year is wildly pessimistic. In reality, warnings of Social Security going broke is nothing more than an attempt to shift tax burdens from the rich and corporations onto workers and the poor.

Because of the stable rate of taxation and the income cap, payroll taxes affect low income earners much more than those earning higher incomes. Combined with the portion of Social Security and Medicare that employers pay for their employees, nearly 14% of a wage earner's income is given to the government. Those with incomes over $90,000 only pay payroll taxes on this first $90,000, leaving them without a Social Security burden even if they take home millions of dollars every year. The amount of their income going to fund these programs is a substantially lower percentage than a family earning less than $90,000 per year.

Claiming that the welfare programs will go bankrupt in decades also ignores the fact that the entire government is bankrupt right now. There is always a budget deficit that the federal government funds by borrowing from other countries or borrowing from the Federal Reserve. Social Security, on the other hand, has historically run a surplus, bringing in more than it has paid out. This surplus is raided by the government, though, in order to lower the budget deficit very slightly every year.

Thus, calls for higher Social Security payroll taxes or decreased benefits is nothing more than a way to increase taxes on the poor and middle classes so that the government has more money at its disposal without raising taxes on the upper classes or business. Former Federal Reserve chairman Alan Greenspan routinely called for higher payroll taxes and decreased benefits in order to prevent a shortfall in the Social Security fund that was predicted decades into the future. This is simply scaremongering to convince worried workers to give the government more money to create a surplus which is immediately taken anyway.

But no acceptable amount of higher taxes or decreased benefits is enough for the federal government to meet its budget deficits. For this, the politicians turn to the inflation machine at the Federal Reserve, which prints any shortfall out of thin air in exchange for interest payments on Treasury Securities. Inflating the money supply, though, devalues the dollar and drives up the price of goods and services. Money growth over the past decade has driven up the price of food, oil, gold, and many other commodities.

The government and the banks in which the government deposits this newly printed money get a chance to use it before the inflationary effects are felt throughout the economy. This means that the rich and politically connected benefit from essentially free money, while the rest of us have to shoulder the burden of a debased currency and higher prices at the gas pump and the grocery store. Just like with Social Security, inflation is a regressive tax on the poor and middle classes and a way for the government to raise more money than it takes in while claiming to keep income taxes low.

Both payroll taxes and inflation affect the lower and middle classes more than big businesses or higher income earners. These are two of the most pernicious, regressive taxes that are imposed on the people disproportionately. Unfortunately, the scaremongering relating to the Social Security Trust Fund as well as the veil of secrecy around the issue of money creation and inflation have combined to trick the people into agreeing to pay more in exchange for a secure retirement and blaming speculators or Middle Eastern countries for rising prices. Government, though, has already raided the retirement accounts leaving worthless IOUs in exchange, and has debased the dollar in order to fund higher and higher deficits and make big government bigger.

Homeowners who got caught up in the real estate boom over the past decade and a half have, for the most part, begun to realize that putting all of their eggs in one basket has put their entire financial situation in peril. From facing foreclosure right now and having a scarred credit report to owing more on the mortgage than the house is worth, borrowers across the board face declines in the values of their most important assets -- their homes. But for the elderly and those approaching retirement age, the housing crash has even more serve consequences.

For those who relied on low payments from adjustable rate mortgages or perpetually increasing home values to create equity, the subprime crash that occurred in 2007 has wiped out many of the motivations of these products and assumptions. Payment resets can not be avoided when a house is underwater, as owners have no ability to refinance with no equity, locking them into their loan which may double in monthly payment. And real estate does not appreciate by 20% per year forever; eventually, prices have to come back down to the level of affordability. But this wipes out equity for homeowners.

Some borrowers who face monthly shortfalls during retirement due to little investment funds or low Social Security payments may be able to rely on a reverse mortgage to provide extra income. With such a product, a bank will pay off the current loan on the house and give homeowners a set amount of money every month until they die, adding these payments to the loan balance which will be paid off with the estate or through sale of the house. But when house prices fall, there is less equity for such owners to tap into, and banks may not be willing to make this type of mortgage for a property that is underwater. This can remove potentially hundreds of dollars of income per month from retirees unable to qualify for such a loan.

The role of the Federal Reserve in creating, maintaining, and exacerbating the crash also plays heavily into the extra risks retirees will have to take on due to the housing crash. Low interest rates and essentially free money policies helped create a boom in the housing market, while these conditions were held for too long and ensured the boom turned into a bubble. But with the Fed bailing out investment firms and banks to the tune of hundreds of billions of dollars and devaluing the dollar, the prices of nearly everything have risen for the average American.

Home prices were pumped up to unsustainable levels, oil prices seem to go up much higher than they ever come down, food inflation at the supermarket has hit over 10% per year, and currencies all over the world are collapsing against each other. Of course, because the government fudges the inflation numbers, Social Security benefits never keep up with the true cost of living, and those on fixed incomes lose more and more of their purchasing power with each day the government keeps spending and borrowing and the Fed keeps inflating. It should be no wonder if the elderly are unable to afford the fraudulent loan they were given, and can not find any other affordable housing due to rising prices everywhere in the economy.

While the effects of the banks' and the Federal Reserve's policies during the housing boom will effect every American, homeowner or not, the most severe consequences will be felt by retirees or those approaching retirement. Prices are rising in general, home values continue to drop off a cliff, the Fed is creating new "auctions" and "windows" to inflate the dollar, and the government keeps lying about the true rate of inflation. This means that life will get tougher for the elderly and their standard of living decline in proportion to their exposure to the real estate boom even as Social Security payments are kept artificially low and vanishing home equity makes refinancing or reverse mortgages impossible.

In terms of saving a house from foreclosure, defending the lender's lawsuit in court may be one of the most effective ways of going about this. Banks can easily become frustrated at the slowing down of the legal process and are more open to settling the matter out of court. While banks and corrupt judges will try and railroad homeowners defending themselves, hiring a competent attorney may allow borrowers to negotiate a resolution to the foreclosure that benefits all parties involved.

Even without using new or creative defenses to foreclosure, such as a produce the promissory note strategy or a Jerome Daly defense, homeowners can gain the upper hand in the legal system simply by having an attorney attempt to delay the sheriff sale for as long as possible. Every motion filed with the courts will have to be given attention and a potential hearing, all of which delays the bank's ability to take the home and increases the costs of litigating the foreclosure case. Lenders that are already faced with hundreds more foreclosures this year than last year do not want to spend additional time and resources fighting borrowers.

The benefit of hiring an attorney to file such motions to delay the public auction really comes in the form of a stronger negotiating hand in dealing with the bank. Most foreclosure victims simply roll over and let the mortgage company foreclose with no objection in the courts; in fact, banks and lenders' attorneys count on this when initiating the proceedings, hoping for a quick lawsuit and property auction in order to begin regaining losses on the loan. Borrowers who are represented in court by a competent lawyer show the bank that it will cost much more to go through with the lawsuit than simply to settle the matter in some more beneficial way.

Of course, before the bank even gets to the lawsuit portion of the process, homeowners should attempt to work out a mortgage modification or other plan to get the loan back on track. But if the lender does not cooperate with these types of negotiations, then it should not expect the borrowers to cooperate with the foreclosure lawsuit and simply give up the house with no fight. Defending against the court proceedings may be a last resort, but it can be a most effective one for forcing the bank to come to the negotiating table.

There are several different settlement options that homeowners may bring up, as well, depending on the financial circumstances they are currently in. While asking for another chance for a repayment plan is one option for borrowers who can continue to make their payments, those who can not save their homes but wish to avoid the most negative consequences of foreclosure can also negotiate with mortgage companies. All the bank will be offered in return is that the lawsuit defenses will stop and maybe that the owners will keep the property in good condition until ownership is transferred to the bank.

For instance, these types of borrowers can require the bank not to pursue a deficiency judgment after the house is sold, or to accept a deed in lieu of foreclosure instead of pursuing the sheriff sale at all. Another option is to have the bank auction the property for its market value, which will preclude any taxable forgiveness of debt. Borrowers can also ask for extra time, from a few weeks to a month, to stay in the house and move out peacefully, or even request a cash for keys deal in which the bank pays them to move out of the home without causing any damage.

In fact, the types of negotiations homeowners can enter into with lenders are nearly infinite. But none of this can be done without mounting the initial legal defenses in court, or else the bank, its attorneys, and the judge will most likely ignore the borrowers and push the foreclosure forward. This is why understanding the foreclosure process and hiring a competent legal counsel may ensure the best chance for finding a way to stop foreclosure, or at least avoiding the worst financial and credit consequences of defaulting on a mortgage and losing a home.

Foreclosure scam artists are one of the most dangerous predators in the real estate industry, targeting homeowners who are in desperate situations and tricking them into giving up their homes or much-needed cash that could be used to pay the mortgage or begin the process of financial recovery. Unfortunately, many borrowers are taken in by these sociopaths, who use the same old tactics over and over again to persuade owners to trust in unrealistic schemes that promise everything from saving the house to lowering the monthly payment with virtually no work or input from the homeowners.

One of the latest foreclosure scams to be caught, this time in Monterey County, California, targeted dozens of homeowners and ended up taking more than $65,000 from desperate foreclosure victims. The Mercury News reports on this story in which three suspects have been caught and charged with criminal conspiracy. One suspect has also been charged with numerous other crimes, including "residential burglary, elder abuse, and grand theft." But how they took advantage of their victims is another case study in the tried-but-true tactics of scammers.

The trio allegedly promised their victims, mostly Spanish-speakers in danger of losing their homes to foreclosure, that they could help negotiate lower monthly mortgage payments or refinance mortgage terms with lenders.

Prosecutors allege the suspects met with prospective "clients" from Feb. 10 to June 15 at a Gonzales home, where the homeowners gave the trio their loan information, filled out loan applications and paid advance fees of as much as $2,800 for the "service."

Though the suspects allegedly told their "clients" the money was a "loan processing charge" and "fully refundable" if the renegotiation efforts failed, when several of them requested a refund they were denied. Eventually, the "clients" were unable to contact the suspects.¹

In three short paragraphs, homeowners can learn exactly how most foreclosure scams work. An individual, usually representing an official or reassuring-sounding company approaches borrowers in default and promises to help them in any number of ways to stop foreclosure before time runs out. The owners, many times elderly or foreigners who speak English as a second language, fall for the charm and convincing nature of the scammers, and sign up for the service without performing enough due diligence to know if they can trust the company.

The fact that the scam artists took loan information from the owners in this situation described above is simply a charade designed to get the homeowners comfortable with giving information and eventually money in order to save their home. The victims mentioned in the article gave nearly three thousand dollars to the scammers and received nothing for the time and resources they expended trying to avoid the loss of the house. This is far too common a tactic used by foreclosure scams, which pretend to do a lot of work but really just do everything they can to wring money out of homeowners.

Finally, refunds and calls back from bona fide foreclosure con artists are virtually nonexistent in the real estate market, although guarantees of "fully refundable processing charges" are ubiquitous. Once homeowners hand over a money order for thousands of dollars, the scam operators disappear, moving onto their next targets and leaving previous clients to deal with their own foreclosure mess. Not getting a call back from an assistance company is one of the most common characteristics of this type of fraud, because the company does not dedicate resources to communicate with clients it has no intention of helping in the first place.

It is too bad that so many homeowners rely on others to help them avoid foreclosure when just a little bit of guidance, research, and advice can help them work with their lenders on their own. Hiring a company to provide legal research or document lending law violations can be a much-needed service, while other professionals can provide high quality loss mitigation assistance with valuable homeowner input. But simply handing over a check and expecting someone to "take care of" foreclosure is most often a trap laid by psychopaths taking advantage of the desperation of the possibility of losing a home.

Source:
¹ http://www.mercurynews.com/breakingnews/ci_10246964