Tuesday, January 18, 2011

Let's try to understand the mortgages that were at the root of all the mortgage frauds that we've discussed.

Makes sense doesn't it?  We couldn't have 99.9% of the cases of mortgage fraud cases that we've discussed if not for the exotic mortgage backed securities that came into being over the last decade, so why don't we take a look at the journey a simple home mortgage makes from inception to securitization in order to understand why our nations economy is in so much trouble.  A man named Dan Edstrom did just that, he reverse engineered his mortgage from the 1003 mortgage application to the monthly payments and figured out where everything went every step of the way then prepared this fantastic flowchart, take a look, as always click to enlarge...


Having a bit of trouble understanding it?  You're not alone, it takes a few runs to fully understand how screwy it is, come to find out that it took Mr. Edstrom a year to figure it out!  Not to mention that Mr. Edstrom reverse engineers these kind of securities for a living!  Check out Mr. Edstrom on CNBC...



How many owners does this one note have?  Can you imagine trying to get everyone to agree on something like a loan modification?  Think about how many times this loan has been bought and sold and how much money has been made before there was a single payment even made!  Now considering the amount of money that was made from packaging these loans into securities we can begin to understand why lenders were in such a rush to lend money to ANYONE.  Suddenly we can understand why builders were in such a rush to push urban boundaries outward (IE building subdivisions in the Everglades) so they could keep building more homes to further the "American dream" which was nothing more than a guise for the bankers to sell more of these loans that they had no intention of keeping.


So here we are being told day in and day out that our economy can't get back on it's feet until these mortgages are sorted out and foreclosures return to normal levels.  How can that happen when most people can't even identify who owns these mortgages?  Even worse, when is our government going to get serious about prosecuting the people who created these mortgages rather than the poor schmuck on the street who took advantage of the money the banks were freely giving away?  Don't hold your breath, they're too busy going after the guy next door who overstated his income on his 1003...

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