Think about it…if you could buy some guy’s mortgage loan, whom you don’t even know, say for 10 cents on the dollar, why would you want to offer him a deal to modify his loan or grant him a short sale where Realtors, title companies and home owner associations all get a cut.     Nope, you would simply foreclose and FLIP THE HOUSE for a quick profit and do it all over again.

Below’s content is taken from Neil Garfield’s post called Just Say No.  He highlights a NY Times article where homeowners have simply had a enough and what happens when people take matters into their own hands.

Read on friends.  It’s not making the nightly news but we’re winning.  One swing at a time.

- The Bank Slayer

Just Say No

The notion that nobody is going to approve of borrowers getting a free house is a myth. It isn’t up to anyone but the people who own those homes. If given the choice they would negotiate in good faith. Given no choice, they won’t pay.

Just Say NO. That is the battle cry of more and more people as they survey their situation. They were snookered by a false appraisal and “borrowed” money on “collateral” that wasn’t worth anywhere near what was told to them and confirmed by their “lender.” Steered into loopy loans by people whose “commission” grew with each added element of stupidity, they ended up with payments that they either can’t afford or simply refuse to pay.

We’ve written about strategic defaults before. Now it is the obvious choice for many homeowners who find that they can keep their homes months or years without making ANY payments. The servicers, aggregators and investment banks who are running this show had their own reasons for not modifying the loans down to true fair market value on reasonable market terms — as long  as the loan is non-performing they make more money. Sounds counter-intuitive but nonetheless true.

Now enters the NY Times with a front page article that says what I have been saying for years — if the financial services industry doesn’t get their act together and do something smart like addressing REALITY, the people are going to take matters into their own hands. Their greed may land them in jail because when the smoke clears and thousands of these people end up with clear title to their property the investors are going to realize that it is not the servicer they should be suing so much as the investment banker who created this show.

In my view the only way for the investor to improve their outcome is by settling directly with borrowers. They will see far more money from homeowners who are motivated to keep their homes than they will be relying on an industry that is consumed with greed and gaming the system for every penny they can get.

If the investors as creditors don’t get engaged in this process their losses are going to mount. The only way they can plug the leak is by entering this three-ring circus and bring it to a halt. The notion that nobody is going to approve of borrowers getting a free house is a myth. It isn’t up to anyone but the people who own those homes. If given the choice they would negotiate in good faith. Given no choice, they won’t pay.

That litigation is starting to grow. In discovery the investor is going to find out that the investment banker made a profit, called a yield spread premium, the moment they bought a mortgage backed security which started a transaction that ended with a borrower signing a mortgage or deed of trust. The investors had no idea they were the start of the scheme. They presumed that the loans had been made and that someone in the line of securitization had been at risk when they approved the underwriting of the loan.

When the truth emerges that the investment banker was pocketing as much as 40% of the investments in mortgage backed securities, using the investor’s money to fund mortgages whose nominal value was 60% of the investment, and whose actual value was close to zero both for reasons of false appraisal, false ratings, etc., they may have something to say about it.

ST. PETERSBURG, Fla. — For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.

There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.

Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.

“We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”

They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering.

The couple owe $280,000 on the house, where they live with Ms. Reboyras’s two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point in future negotiations with their lender.

“If they took the house from us, that’s all they would end up getting for it anyway,” said Ms. Reboyras, 46.

One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.

It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”

His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees.

Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.

“The longer I’m in foreclosure, the better,” she said.

In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

About 10 new clients a week sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a maximum of six hours of attorney time. “I just do as much as needs to be done to force the bank to prove its case,” Mr. Stopa said.

Many mortgages were sold by the original lender, a circumstance that homeowners’ lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton’s case, Mr. Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her son’s case last December.

From the lenders’ standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides technology, services and data to the mortgage industry.

These “free riders” are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Lundstedt said. “These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.

“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’ ”

Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up.

Their attitude seems to have changed since he went into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels little urge to respond.

“I need another year,” he said, “and I’m going to be pretty comfortable.”

Looks like our Uncle figured it out.

- The Bank Slayer

It’s a slow day in a little East Texas town..

The sun is beating down, and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich tourist from back east is driving through town.

He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night..

As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.

The hooker rushes to the hotel and pays off her room bill with the hotel owner.

The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything. No one earned anything. However, the whole town is now out of debt and now looks to the future with a lot more optimism.

And that, ladies and gentlemen, is how the United States Government is conducting business today.

- Author unknown

By GRETCHEN MORGENSON – The New York Times

Published: February 13, 2010

As Washington spins its wheels on financial reform, it’s becoming painfully clear that the problem of entities that are too interconnected or “too politically powerful to fail” is also too hard for our policy makers to tackle.

This is more than unfortunate, given how large the too-influential-to-fail gang has grown in recent years. Once a small membership organization comprisingFannie Mae and Freddie Mac, the mortgage finance giants, and the occasional troubled auto company, the Future Bailouts of America Club now includes a long list largely populated by financial institutions.

We can’t be sure who the specific members of this club are — regulators simply say they know ’em when they see ’em. But this much is certain: They’ve seen a lot of them lately.
As taxpayers, we obviously can’t rely on lawmakers to address the risks we face from the ever-expanding corporate safety net thrown under teetering behemoths. But because we are footing the bills for these rescues — and will do so again if more crises occur — don’t you agree that we should know what these implied federal guarantees will cost us?

If the government won’t reduce the size of the safety net, and it has shown no appetite for doing so, it should at least tell us the price tag.   Marvin Phaup, a research scholar at George Washington University who examines federal budgeting, is one who is urging such an assessment. An expert on government guarantees, his wholly sensible view is that it is dangerous for possible bailout costs to remain unmeasured and, of course, unrecognized in the budget.

“If we are extending the safety net, extending the implied guarantee to the debts of a lot of other financial institutions, and we know those guarantees are valuable and costly, then we ought to start budgeting for it,” Mr. Phaup said in an interview. “We can’t reduce the costs of these subsidies if we can’t recognize them.”

Mr. Phaup has the bona fides to opine on this topic. He was the researcher at the Congressional Budget Office in 1996 who undertook the first efforts to assign a value to the implied federal guarantee backing Fannie and Freddie. When he prognosticated on the matter, the bailouts of those two hobbled entities were more than a decade away, but his C.B.O. report quantified the billions in benefits that the mortgage finance companies reaped each year from their implicit government backstop.

In 1995, the report said, the value of the companies’ government subsidy totaled $6.5 billion; this amount largely reflected lower borrowing costs at the companies, a result of views held by investors that Fannie’s and Freddie’s obligations had Uncle Sam’s backing.    THE C.B.O. report enraged Fannie and Freddie because it also showed how much of that financial benefit — fully one-third — the companies kept for themselves, their managers and their stockholders.

Mr. Phaup’s analysis showed that, counter to the companies’ claims, Fannie and Freddie did not pass along all the benefits to homeowners in the form of lower mortgage rates.
Moreover, who actually believed in 1996 that the government would ever have to bail out Fannie and Freddie? Perish the thought and shame on silly researchers like Mr. Phaup for even considering such possibilities.

Fast-forward to today, and the government guarantees for Fannie and Freddie have become painfully explicit. While it’s unclear how much their rescues will cost taxpayers, last Christmas Eve the government removed the $400 billion cap on the amount of assistance it was willing to provide the companies in emergency aid through 2012.
Today’s implied guarantees extend well beyond Fannie and Freddie. But owning up to future obligations associated with government backing is something that lawmakers are likely to fight vigorously. (Consider Social Security.)

But ignoring such obligations doesn’t make them go away. And getting a handle on their possible cost is a worthy exercise, for several reasons.

First, Mr. Phaup said, if we assign a value to the guarantees, the government would be better able to charge for it. “Even if we don’t do that, by recognizing the cost now we will save more because we will either tax more or preferably spend less” to pay for it down the road if need be, Mr. Phaup said. “In the end, that’s really the only way to prepare for a contingency like a meltdown of the financial system.”

A second benefit is that recognizing the costs of guaranteeing too-influential-to-fail institutions might reduce the ultimate obligation and persuade regulators and lawmakers to force those institutions to cut back on risk-taking.   It’s not as if the costs associated with these guarantees can’t be accurately estimated. Valuing so-called contingent claims, chits that have not been called in, has become a much more sophisticated process in recent decades, Mr. Phaup pointed out. “We know how to do it for private firms,” he said. “Fewer people in the government know how to do it, but those skills can be transferred.”

Edward J. Kane, a professor of finance at Boston College, agrees that the costs associated with providing a safety net for complex and politically connected companies should be quantified. “People talk about systemic risk, but they have no metric of measuring it,” he said. “If we recognize that obligations are being put on the taxpayer down the line, then they can be controlled and managed.”

Mr. Kane suggested that lawmakers create an independent entity to collect data from all the protected firms so a realistic price tag could be placed on possible bailout costs. “We would force the institutions to give preliminary estimates and then challenge them,” he said. The combined figure for all the institutions would represent the total responsibility being shifted onto the backs and wallets of taxpayers.

“If government officials really wanted to do something, this is the kind of thing they would do,” Mr. Kane said.

That is the rub, of course.