The Obama administration’s mortgage scandal decisions to-date were made in the face of such unprecedented complexity and political impenetrability that some amount of reasonably momentous error was all but preordained. This has nothing to do with politics. Both major parties are equally at fault for ignoring the electorate for a beneficial resolution. The reader should read these words as an indictment of the decisions made by the Obama Administration during its first term in office. However, the fact is that the Republican party as a whole has done nothing to help the administration contend with the catastrophic economic situation our nation continues to face. In point of fact, the Republicans have engaged in obstructionist politics during a time of national crisis and should be ashamed. I can’t imagine the question that were our crises made from war, their acts would have been seen as nothing short of treasonous and therefore would have been unthinkable.

All told, as related to our nation’s economy, every American citizen today should view the on-going inaction on both sides of the aisle, as utterly intolerable.

This past week, Kristin Roberts and Stacy Kaper, writing for the National Journal, documented the appalling story of the incomprehensible failure of the Obama Administration to arrest the damage being caused by the foreclosure crisis that’s still tearing through American families and households with the destructive force of a category five storm. Roberts and Kaper began their article recounting a recent meeting at the Treasury Department, at which they said, civil-rights and housing advocates were “presenting a brutal reality check to President Obama’s Treasury secretary. The administration’s housing programs, they said, were ill-conceived, had failed woefully, and would be indefensible in an election year.”

Reportedly, Janet Murguia, president of the nation’s largest Latino-rights organization, gave Mr. Geithner an ultimatum: “Make dramatic changes to your housing program, or the National Council of La Raza will be unable to carry Obama’s message to Hispanic voters in 2012.”

We can guess that Geithner’s considered response might have basically been, “Yeah, well if you don’t like Obama, I’m sure you’re going to love Mitt Romney.”

It is incomprehensible that our plight is not even close to being over. We don’t even have a plan on any drawing board that one could credibly claim has even the remotest chance of abating a crisis that can only continue to break the economic back of our middle class, ultimately destroying our citizenry’s faith in what has been referred to as “The American Dream” for more than 200 years. Ours is not so much a financial crisis… nor a liquidity crisis… nor a credit crisis… nor a crisis caused by over-leverage and excessive debt. What we are experiencing is a crisis that is being perpetuated by the near complete loss of trust on the part of investors and consumers.

A Brief History

During the summer of 2007, investors around the world lost trust in the mortgage-backed securities and their complex derivatives. We haven’t had a meaningful private securitization of such debt since that time, and we aren’t going to see such private securitizations of mortgage debt anytime soon. In fact, the only securitizations of mortgage debt we have today are government guaranteed via Fannie, Freddie, FHA, VA, et al. Absent the government guarantee, there would essentially be no mortgages available… period.

Over the handful of years between 2003 and 2007, investors bought into securities rated AAA… but soon found out they should never have been rated AAA. Almost overnight, demand for these securities dried up, and the banks that were holding Collateralized Debt Obligations (CDOs) on their books found that they couldn’t be sold… and if they couldn’t be sold, then what were they worth? And the answer was that no one knew.

These are the “toxic assets” that then Treasury Secretary Hank Paulson was planning to buy with the TARP funds… until he realized that banks wouldn’t sell them at a discount, and that it would be political suicide for him to buy them at face value.

The result of all this was that housing prices that had started dropping during the summer of 2006 after Alan Greenspan raised interest rates 17 times in a row, now went into a credit crisis inspired free fall. The further they fell the more people went underwater… and the more that went underwater… the more fell into foreclosure. Without credit being available and with home equity evaporating, spending by consumers fell off a cliff… companies started laying off workers and unemployment had nowhere to go but up… which in turn increased the number of foreclosures, which in turn lowered housing prices… forcing more underwater, thus leading to more foreclosures still.

So… with the number of defaulting loans continuing to rise each year since 2006, investors have incurred losses that now total well into the trillions. Some of these losses were the result of some variation of securities fraud, to be sure. But as the crisis has been allowed to grow in size and scope, it’s become more and more difficult to tell which securities were fraudulently packaged and which were destroyed by the damage our government failed to mitigate at every single opportunity.

Investors got burned big time, and their burning isn’t nearly over yet. You don’t need an MBA from Harvard to come to the conclusion that the prospects of any solution anytime soon are… slim, and none. Just a few weeks ago, Institutional Risk Analytics (“IRA”) Vice Chairman, Christopher Whalen, speaking to the audience at American Enterprise Institute, described quite succinctly why talk of housing recovery is premature. Not to put too fine a point on it but the phrase used was “dead cat bounce.”

As Mr. Whalen said at the conference: “There is no private label market nor is it likely that the private label market for RMBS is going to recover anytime soon. Memo to Peter Wallison, Rep. Scott Garret (R-NJ) and our other friends in Washington working to eliminate Fannie and Freddie: Stop talking about a private sector alternative to the GSEs in the near term. There is no private sector alternative to the government housing agencies.”

“The lack of credit availability is the chief reason that housing will not recover in the near term.”

Whalen also points out that beyond the issue of investors losing trust, until the Fed raises interest rates the private label market for non-conforming loans and RMBS won’t be back no matter what. It’s not hard to understand… with rates at zero there is simply no incentive for private investors to take on the risk of non-conforming residential mortgages. Or, in other words, if the spread isn’t there, you might as well just buy Treasuries.

According to Jonathan Corr, Chief Operating Officer of Ellie Mae, a company that tracks the characteristics of loans, credit standards are tightening. Corr told Nick Timiraos of the Wall Street Journal that conforming loans, which are those made by Fannie Mae and Freddie Mac, that were approved for purchases in February of this year had an average credit score of 764 and an average down payment of 22%. Applications that were DENIED had an average credit score of 732 and an average down payment of 19%. As far as refinancing goes, Ellie Mae’s report shows Fannie and Freddie February borrowers had an average credit score of 770.

With the FHA looking like the next mega-billion dollar bailout, even FHA loans are getting harder to qualify for… in February, the average credit score for someone trying to refinance through an FHA loan stood at 722, which is up from 706 last August. Purchase loans approved by the FHA had an average credit score of 701 with an average down payment of 5%.

Chris Whalen said it bluntly to the audience at AEI few weeks ago: “… forget the economist twaddle about consumer deleveraging. We have merely charged-off the worst defaults in the population, leaving the survivors to service mortgages that are at or below water in terms of LTVs.”

Historically, at least two-thirds of homebuyers are also home-sellers, that is to say they are selling a home in order to buy another. But, if half of today’s homeowners are underwater or effectively underwater, meaning they owe more than their homes are worth, or they would if sales commissions and other moving expenses were factored in… then they can’t sell… so they can’t buy. Many won’t be able to sell for a long, long time, and with housing prices continuing to fall, more and more are being baked into this group all the time.

At best all we’re doing is charging off the debt of defaulted borrowers, thus leaving behind a smaller pool of homeowners who have too much debt to function in the housing market. If historically two-thirds of homebuyers were also home-sellers, but half of those home-sellers now can’t sell… then the future demand for homes is going to be significantly lower than it has in the past.

There are first-time buyers, although not nearly as many as in the past. The population is down, and the prospective buyers have witnessed all equity evaporate from their parent’s homes. So except for the rare buyer that isn’t concerned about equity increase of their new home, there aren’t going to be any prospects.

All told, demand for homes in the future will be significantly lower than in the past… period. And if demand is going down, prices cannot possibly increase.

All of this ignores the elephant in the room: the increasing numbers of foreclosures and their associated backlog, referred to as the “shadow inventory,” neither of which are capable of coexisting with a recovery in housing prices.

In 2011 the number of foreclosures slowed down, in some states quite significantly, but not because of borrowers becoming more able to pay their mortgages. Foreclosures fell because of banks holding back as they awaited final determinations on things like the Attorneys General national mortgage settlement, and some states, specific court decisions.

There doesn’t seem to be any conclusive numbers yet, but 2011 will look flat when compared with 2010 instead of increasing as it otherwise should, and this will make for some deceptive statistics showing the crisis being somehow nearer its end… when it’s not. In fact, all reports already indicate that the number of foreclosures is increasing as we watch.

Reuters reported such news on April 4, 2012:

Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.

“We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010,” said Mark Seifert, executive director of Empowering & Strengthening Ohio’s People (ESOP), a counseling group with 10 offices in Ohio.

“Last year was an anomaly, and not in a good way,” he said.

In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur.

Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January (of this year).

More conclusive national data is not yet available.

RealtyTrac has published estimates showing that the number of foreclosures in February of this year as compared with January’s numbers increased in 21 states and, “…jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).” According to RealtyTrac’s CEO, Brandon Moore, the “numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed.”

Other evidence of foreclosures not happening in 2011, but set to happen this year are seen in a January 2012 report by the Neighborhood Economic Development Advocacy Project (“NEDAP”) in New York. According to Reuters, that group’s study found that…

“… in the first half of 2011 the number of 90-day pre-foreclosure notices in New York City outnumbered court foreclosure actions by a ratio of 14 to one, indicating that while proceedings were initiated against many homeowners, they were left incomplete.” “Now the banks have a settlement, foreclosure numbers for 2012 are going to be high,” said NEDAP co-director Josh Zinner.

Other than some fringe number of truly unfortunate borrowers who bought at the worst time under the worst terms… or those that were speculating on the edge who lost homes as soon as the home loan market froze… foreclosures have always been caused by negative equity colliding with a “life event.” If you’re underwater and something bad happens… with divorce, illness/injury, or job loss being the BIG 3… you’re a foreclosure waiting to happen. The foreclosure crisis has hit minorities harder than middle class whites, but that’s just a function of two things: predatory lending practices that preyed on lower income minorities… and people with further to fall taking longer to do so.

A banker explained that lending is really just a game of hoping a loan is refinanced before a life event hits. If I loan you money for one year, I can charge you a very low interest rate because it’s unlikely that you’ll get hit by lightning… or divorced, laid off, injured or seriously ill… within a year. But, if I loan you money for 30 years… well, now all kinds of crap can happen that can impair your ability to repay the loan as agreed. In fact, banks figured a mortgage would be around for maybe seven years.

Today? Millions of people cannot refinance or sell their homes… so, that means millions of loans are going to be around a lot longer than anyone expected. And the longer a loan is around, the greater the likelihood that a life event will show up and slap you off your track at least for some period of time. And when that happens while you’re underwater you can’t sell… so, BINGO! You’re a statistic in the foreclosure crisis… an “irresponsible borrower,” a deadbeat debtor.

In behavioral economics and sociology it’s called the “just world hypothesis.” We need to believe that when something bad happens to someone, it’s somehow that person’s behavior that caused the bad thing to happen. That’s how we make ourselves feel safe… by believing that we live in a just world. Random bad things that could happen to anyone are terrifying… like shark attacks, lightning striking… 9-11.

People ask me all the time why our REST Report customers don’t report back and why they’re so reluctant to speak as recommendations. It’s a quiet crisis because no one tells anyone when they’re at risk of foreclosure, or when they lose their home… or when they save it through some sort of loan modification. It’s all related and makes sense when you see the whole experience. Until then, everyone looks the other way… assume that the person losing a home was irresponsible… shouldn’t have bought a home in the first place… is nothing like you.

The National Journal’s reporters, Roberts and Kaper, whose story titled, “Out of their depth,” tells of an Obama Administration that, in their words, failed to help homeowners because it just “didn’t have the stomach for it.” The plain truth is that only the nation’s courts can be counted on to protect the homesteads of individual borrowers. Enter either the REST Report or the REST Titlwe Search.

“Although the federal government would spend reams of cash to stanch, to some degree, the losses suffered by the financial sector, the auto industry, and state and local governments, suffering homeowners would see no such relief.” Treasury was the department running the nation’s housing policy.

The “task” as Roberts and Kaper phrase it, was not so terribly complicated that it was beyond these genius IQs’ abilities to do something right… something at least marginally effective in the eyes of America’s homeowners. They didn’t because they didn’t care to… and every single American homeowner who has paid the least bit of attention should recognize that as being the truth.

The current situation is that they still don’t care… headed into the election and clearly they still have learned essentially nothing about a crisis that’s plain as day, completely out of control. Amherst Securities forecasts another 9.5 MILLION homeowners at risk of foreclosure. That’s in the neighborhood of being twice as many as we’ve had to-date. Another 9.5 million foreclosures and the only homeowners with equity will be those who own their homes free and clear.

There was nothing wrong with the idea of a Net Present Value test, in principle… it’s in the execution that fell apart. That’s what caused Americans to lose trust in government. Summers and Geithner were simply the wrong people to execute this sort of program, and Obama should have known that. Maybe he does now, because the scuttlebut is that Geithner is gone after the election.

This failure belongs to the Obama Administration… from start to flummoxed… plain and simple and in no uncertain terms. However, it just doesn’t really matter who gets the blame for failure here. The solution is to use a pre-existing legal remedy. No one should have to pay for their loan modification. But you do, if you want to prevail. It doesn’t matter which servicer you have. If you amortize the REST $795 price tag for the five to nine years of your loan modification, it’s a paltry sum to assure success. And again, once you file the application legally, you won’t pay a mortgage payment for two months anyway.

If HUD handled medical emergencies, everyone would die.

Given the recent Robo-signer settlement, if the homeowner lost a home to foreclosure between 2009 and 2011, they are said to be receiving between $1,500 and $2,000 as compensation for some unspecified degree of improper or fraudulent foreclosure having taken place. I steal your house and pay you $2000 blood money. Cool, huih?

In Obama’s typical fashion, he held a single press conference, said some great sounding things about justice for homeowners and making banks pay, and we haven’t heard from him on the subject since. Appears to be a repeat of the stern speech given to the nation’s servicers a year ago last November.

Broken Chain of Title or Quiet Title Action

Even when used successfully as a defense in a foreclosure proceeding, the improper signing of affidavits or assignments has proven itself, at least in the vast majority of instances, to at best result in a delay. The servicer attempting to foreclose may be forced to re-file with proper documents, but they almost always do… and the foreclosure proceeds in almost every single case.

More importantly, however, the use of improperly signed documents as a defense in a foreclosure is more often than not, simply ineffective from the homeowner’s perspective. No delay is granted and the foreclosure proceeds as if the documentation was flawless. Judges simply care more about a borrower not having made a payment in two years than who signed the assignment of the deed of trust.

Foreclosure defense lawyers all say that they raise issues pertaining to document signing as they might visit any port in a storm… hoping to gain some leverage that leads to their client’s loan getting modified. None seem to believe that borrowers are truly damaged by such improper signing, and most judges evidently agree. Either we need new judges or you’d better be caught up on your payments.

The moral of the story about foreclosure defense is that, in almost all cases, if you haven’t made your mortgage payment for a couple of years, the safest path to saving your home is through a loan modification. And don’t shoot the messenger, but if you’re trying to save your home… you should also be saving money.

The other problem with our current fascination with who signed what is that it’s driving homeowners to buy forensic loan audits, securitization audits and countless other reports of questionable value to those trying to save homes from foreclosure. They find out that something was done improperly and think that it means that they can use it to save their home from foreclosure. In almost every single instance, they find out they were wrong… and by then, it’s too late to get their loan modified.

These are the facts… the unpopular and perhaps unfair facts that are the result of the Obama Administration’s handling of the foreclosure crisis. You can continue to blame the banks and mortgage servicers if you want to, but their role has never been to ensure societal fairness… they are, after all, bill collectors and as such they are responsible to their shareholders and investors… not to you or me as delinquent borrowers.

When you want companies to all do something that’s not in their financial best interests, that’s when government has to step in. We tried the same thing during the Great Depression of the 1930s… a voluntary loan modification program. It’s true. Didn’t work then either, and the St. Louis Federal Reserve has a paper all about it. Do you think Geithner and Summers missed reading it?

This time it’s HAMP. It’s up to you, the homeowner to enforce it. Enter the REST Report.

Simply put… we are earning less today because we are consuming less today. That’s exactly the opposite that Wall Street wants us to believe. We should not be tolerating any more of what we’ve been fed since the crisis began, because for six years we’ve been told things about our housing markets and the impact of foreclosures that have been proven repeatedly to be wrong.

As 2008 began, the Congressional Budget Office (“CBO”) forecasted that the budget deficit in 2009 would be just 1.4 per cent of GDP. As it turned out, 2009’s budget deficit skyrocketed to 10 percent of GDP. The cause of the dramatically increasing deficit in 2009 is found in the fallout from the housing bubble… not irrationally exuberant spending programs and not excessive tax cuts; as the Republicans would have us believe.

According to a disturbing recent study, while during the Clinton Administration the top one percent got 45 percent of our economic growth and during the Bush Administration that affluent group got 65 percent of our growth… in 2010, the top one percent picked up an unconscionable 93 percent of the gains in that year… and 37 percent of the gains went to the 15,600 uber-rich households that make up the top one-tenth of one percent. There were no gains at all for those in the bottom 90 percent, and in fact, this sizable group has seen their average annual adjusted gross incomes fall by $4,843 since 2000 to $29, 840 (adjusted for inflation).

The culprit is housing.

If you’re in the bottom 90 percent, chances are you don’t own a whole heck of a lot of stocks… for you it’s your home’s value that makes up the lion’s share of your wealth, and home prices once again fell in 2011. The median home was worth 6.2 percent less in February of this year as compared with the prior year. And yes… if you haven’t figured it out yet, home prices are still falling with no end yet in sight.

All of this should paint a clear picture… even under the most optimistic set of assumptions we’re not looking at any sort of real recovery… the kind you can feel as well as read about… being a possibility this year… and not next year either… or even during the year after that. Our accumulated wealth has been stripped, and Bernanke can lower interest rates until he literally can’t and we’re still going to save for quite a while before we spend again.

Economists point out that savings rates are only hovering around 5 percent, but you have to consider that represents savings at roughly zero interest.

Of course, at some point rates will have to rise, and while some point out the benefits that come along with higher rates, I’m pretty confident that the Fed Chief is in touch with the concept of what will happen to the millions of underwater adjustable rate mortgages when rising rates make for higher monthly mortgage payments that cannot be refinanced. Get ready, ‘cause when rates do rise, there’ll be a whole new group of the “irresponsible,” arriving on the scene.

In a year or two from now the foreclosure crisis will collide with the realities of STATE budget deficits, which are the kind of budget deficits that can’t be addressed by printing money.

State budget estimates for the upcoming fiscal year show that states still face a long and uncertain recovery. For fiscal year 2013, thirty states have projected shortfalls totaling $49 billion. State budgets are poised to continue to be a drag on the national economy, threatening hundreds of thousands of private- and public-sector jobs, reducing the job creation that otherwise would be expected to occur. Watch education and health care threaten to disappear. It woill take seven years to get them back on a normal track. In California and Florida over the last two years, state college tuitions have risen by roughly a third… that’s a 33% increase in the cost of going to college, and it means that many students won’t be attending as planned. If you think that’s just them, you just aren’t paying attention. How are we to attain or recapture world productivity with no education?

We need to let our elected officials know that we will no longer tolerate pointless inaction caused by inane debates over such things as “moral hazard,” and the selective preservation of the sanctity of contracts. You can’t eat moral hazard or santity of contracts.

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The internet being what it is, certain search terms need to be empahasized so that you can find the best information. The REST Report is best classified as loan modification software, or mortgage modification software. It’s claim to fame is that you use it to calculate Net Present Value exactly the way the banks do, using the same software. It is best used as a do it yourself loan modification or do it yourself mortgage modification. loan modification and short sale are beneficial foreclosure alternatives that benefit both homeowner and mortgage investor and make the mortgage servicer do the loan modification process in good faith. They must comply with the mortgage relief act in the mortgage loss mitigation process. I have offered loan modification services for three years. Our loan modification success is 4000 successes out of 4000 submissions. I’ll be happy to send a loan modification example in the form of a sample REST Report. I also have a proven loan modification hardship letter developed over three years of practice.

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