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Beyond Outrage

Robert Reich is a prominent economic analyst who was recently touted as one of the 10 most respected public servants in the last 30 years. He served at the request of three presidents including an appointment by President Clinton as his Secretary of Labor. Time Magazine called him one of the best Secretaries of the 20th century. He has written 13 books including his latest “Beyond Outrage – what is going wrong with our economy and our democracy and how to fix it”. He also produced a documentary film entitled “Inequality For All”.

The Video – In the following short video clip, from an interview with Bill Moyer Mr. Reich explains, in his own words, why he is “Beyond Outrage” with the current state of our economy and political climate.

To watch the entire interview see billmoyers.com/episode/full-show-inequality-for-all/.

Economy is Based on Rules that Determine Economic Outcomes – Mr. Reich explains that the economy is based on a set of rules that determine economic outcomes and that for the most part these rules are stacked against the average wage-earner.

Why not Take Advantage of Favorable Rules? – So, the question becomes, why would anyone not take advantage of rules that work in their favor? Bankruptcy rules are intended to favor individuals and small businesses that have taken risks and failed. The theory is that with these protective rules investments in risky small business ventures are encouraged and jobs are created.  If the business fails, the owner can generally receive protection from his creditors and in most cases, either save the business or obtain a discharge of his debts and a “fresh start”.

What the Big Banks Say – For decades the “Big Banks” have successfully convinced many individuals that you should be “ashamed” to take advantage of these favorable rules. Suffice it to say that we strongly disagree!

The New Economy and the Mortgage Crisis

The trouble with paying off the mortgage.

I recently learned of some friends who had paid off their mortgage on their home. In years past, that is not something that I would ever consider to be a risky transaction, but in today’s new economy, you cannot routinely expect that your money will be forwarded to the actual holder of your note, and you cannot expect to routinely receive the original note marked “paid in full” and you cannot routinely expect to receive a Release or Reconveyance of the Deed of Trust.

The problem is that the “note” on your home was likely sold by the originator that retained the servicing rights [1] then assigned to a Sponsor for securities underwriting, [2] and then ultimately to a New York Trust. In this process there was a lot of “double booking” of loans because these transactions were recorded by Mortgage Electronic Recording System (known as “MERS”) which relied on a “person” entering “info” into the system with no checks and balances to make sure the input data was accurate. People have been sued multiple times on single notes and other similar irregularities have occurred. Lastly, there is LPS or Lender Processing Services which is an intermediary between the loan Servicers and the lawyers who bring the legal action on defaults whether by non-judicial foreclosure or suit on the note. [3] One LPS employee recently testified in court that he signed “tens of thousands” of Notices of Default on properties where he had no knowledge that the debtor was actually in default. This is called “robo signing” which is just one factor that has destroyed the credibility of the process.

The lesson in all this is that in this New Economy it is more important than ever to be proactive in protecting your assets.You should not take the advice of a loan servicing employee that recommends that you stop or reduce your mortgage payments while your modification request is pending. The default will trigger late fees and other charges to the Servicer and your payments will be diverted to a suspense account held by the servicer and charged for these fees. They also are able to lend these funds in what are called “overnight loans” for huge profits. The lender will never see the money.

[1] Which is highly profitable and an industry which has come under considerable criticism for its questionable tactics which many say amount to fraud.  Expect more disclosures to surface in this area of the industry.
[2] The assignments were generally not legal under most jurisdictions as these notes are negotiable instruments and need to be endorsed and physically delivered to the endorsee to transfer ownership.  Most of these notes ended up in New York trusts which were used as bankruptcy remote entities to securitize the notes as mortgage backed securities.
[3] The legal process has been sloppy at best as large volumes of cases are handled by a few overworked lawyers that share legal fees (questionable ethics practice) with LPS for the case referrals.  The sloppiness is cause by the system that rates that lawyers based on the volume of documents filed with the courts.