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Saturday, November 27, 2010

So Which Came First, the Mortgage Note, or the Investor?

Maybe it is time to question the role of the "investor" in the mortgage foreclosure debacle of 2008-2010. We keep hearing that the "investor" must approve any changes to the mortgage.

Wait a minute, did the homeowner originally agree that their mortgage note could be resold over and over without the homeowner's written approval each and every time the note was resold?

Would it even be legal to put a "resell the note" clause in a homeowners mortgage contract without the homeowners written approval each and every time the note was actually resold?

Does it even make sense that an investor who did not even exist when the homeowner originally signed the mortgage agreement could then swoop in at a later date and actually hold that homeowner, hostage, over mortgage refinance opportunities?

Does it make any sense that the late to the game investor can nix any interest rate reduction the government might be willing to provide to the homeowner via taxpayer funded programs like HAMP ?

If you agree to buy a car and then afterwards a video camera is installed inside the car without your knowledge, and the video footage is then sold by the car dealership for a profit, shouldn't your permission be required before the video camera was installed in the car?

If you had been consulted about the video camera being put in the car first, and told that money could be made but that your agreement was necessary, would you not expect a "cut" of the camera profits?

What has happened in the home ownership situation is backwards to what should have happened. All homeowners should have been able to negotiate a BENEFIT, PRIOR to the reselling of their mortgage note to an "investor". Instead, the selling of the note to an after the fact investor is now being used as a billy club to stymie homeowners even when taxpayer back mortgage help is available.
Let us not confuse the investor that invests in the CONSTRUCTION of a new home before it is built versus the investor who invests in a mortgage note after the fact, as they are not the same thing.
An investor in new home construction puts up money up front to purchase land and build the home. When the home is then built and THE BANK approves a loan from their own money supply to a qualified homeowner to purchase that home, then the ORIGINAL investor is PAID OFF.
Example: Investor acquires a parcel of land that will accommodate 5 homes. Investor gets permission from the city to build on the parcel of land. Investor gets bids for constructing 5 homes. The bids are competitively priced because building five homes next to each other results in a discount purchases for the builder. Not only that, the builder can actually keep inventory in the empty lots while building the first few buildings. Whereas one home might cost 200,000 dollars to build, 5 homes might be built for 600,000. The investor has a 400,000 dollar margin once the homes are built and the bank and realtors find buyers for the homes.
(Ironically, it used to be that by the time the homes were finished and sold, the prices of the home had already risen so the investor is probably selling those 5 homes for a minimum of 250,000 each, meaning the margin of profit could rise to 650,000. Enough of a profit to build another four or five homes and actually own them outright!)
The homes are then sold and the investor walks away with their profit. ALL THAT is LEFT in regards to the mortgage is the HOME BUYER, and the BANK that provided the loan.
Unless the home buyer agrees in writing later on to "securitize" the loan, than all is well. However, if the bank unilaterally decides to securitize the loan at a later date, without the homeowner's approval or knowledge, those new investors CANNOT TAKE PRECEDENCE over the homeowner's right to pursue a more competitive loan refinance, under ANY CIRCUMSTANCE.
My contention is that no securitization can go on without the homeowners approval because this is in fact a RE-SECURITIZATION. The homeowner was already approved for a loan, there is no need to re-securitize the loan. Ironically, the act of resecuritizing the loan appears to actually hasten foreclosure activity. It sounds fraudulent to me to call reselling the note resecuritization if it actually does the opposite and actually causes the homeowner to have LESS refinancing options at a later date.
Now that the homeowner has a mortgage loan agreement with the bank, anything that happens after that point, without the acknowledged written approval of the homeowner, in my opinion should be void.

Any HAMP loan or refinance loan that now is being refused because of the invisible, after the fact "investor", in my opinion is nothing more than a straw man's argument being perpetuated by our own government, and the banksters who do their bidding.

Yes I have empathy for those investors who came after the fact, but those investors should not have been investing in these type of securitization schemes to begin with, specifically because the homeowners written approval was not included.

6 comments:

Lori Kelly said...

I have posted often on beingmiddleclass.org that had homeowners known the fate of their loans, would they have signed the loan documents? If MERS was disclosed and the fact that our loans would be put into an electronic system and transferred and assigned without any documents being recorded at county levels, how many would have agreed? I wouldn't have. It raises a red flag as to title issues, and one would have to weigh the consequences of the possibility of not being able to convey free and clear title.

Your question of which came first, the note or the investor is a good one. I would believe both happened. In some instances, the investor came first. And none other than good ol' Fannie lined up to buy the loan before the note was signed. Other cases, the investor came after the note was signed, as demonstrated in the pooling of loans and selling on Wall Street.

Anonymous said...

I'd point out how many things you get completely wrong, but mainly, you don't seem to understand the difference between a refinance and a modification.

You don't seem to know what the secondary market's function is either. Do you know what a servicing disclosure is?

Alessandro Machi said...

I don't mind anonymous comments, but I do mind being insulted by an anonymous person.

However, it's obvious you have not actually refuted anything in the article so your comment is somewhat unhelpful.

Banks get money from the fed, at zero percent for quite some time now and can now pass an additional interest rate margin reduction on to homeowners, many of whom are being hamstrung by "investors" who own the securitization to their mortgage note.

Homebuyers wanted to refinance their home via a HAMP, or other alternatives when the mystical, magical investor showed up and suddenly the banks hands were tragically tied. The banks were suddenly forced to follow what the investor wanted even when it resulted in an overwhelming amount of foreclosures along with an alarming number of refused HAMPs.

Lawsuits are now springing up all over the country because people were being subjected to Parallel Foreclosure without any warning to the consumer.

MSNBC's Dylan Ratigan just ran a phenomenal piece on FraudClosure that touches on my main premise that securitization happened that took away power from the homeowner and gave it to the investor without the home buyer ever agreeing to such terms.

This is HUGE as it rips to shreds the very notion of owning property and both sides agreeing to honor the original mortgage note.

My next article on this subject should really get you in a huff as well, but I STAND BY IT as well.

How Securitization Deceived Home Buyers into losing prior mortgage agreements and procedures without ever agreeing to such changes in terms.

Mortgage Note said...

Hello,

This is really interesting take on the concept. I never thought of it that way. Mortgage notes are also known as private mortgages or hard money lending when personal money is used to purchase and financing a property. Thanks a lot.....

Alessandro Machi said...

Mortgage Note, thanks for commenting.

When you say hard money lending are yout talking about a property owner who builds five home lots at a substantial discount using their own "hard money", then makes a decent profit when the five homes are actually sold via a realtor and bank?

The property owner can then put their own hard money profit in this time, and a couple years later can sell the houses for enough of a profit to where they can almost put up five more houses and pay them off in full without selling them.

I consider that pre-securitization.

After the property owner sells the first five homes through a realtor and a bank, that would be the first time the mortgage is securitized as the bank made the home buyer jump through many hoops to get their home.

Then comes SECONDARY securitization, in which an investor comes along and agrees to buy sliced up home mortgages called MBS, or mortgage backed securities, aka bonds.

Unfortunately, the banks are trying to give the MBS clients priority while abridging the rights of the homeowner to try and get a lower monthly payment on their mortgage.

In essence, the homeowner has LOST power and influence over their own mortgage note even though they never agreed to this!

Alessandro Machi said...

One year and 8 months after this article was first written, the Daily Mail is quoting Ron Paul as he questions why the Fed is hiding behind banking middle men. Ron Paul wonders why the Fed is hiding behind banking middle men

Remember the following excerpt from this article..."Any HAMP loan or refinance loan that now is being refused because of the invisible, after the fact "investor", in my opinion is nothing more than a straw man's argument being perpetuated by our own government, and the banksters who do their bidding."

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