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The Engineered Mortgage Scam

According to Richard Kelton (2010) pro se litigant and researcher (as he appeared in hour 3 on the Alex Jones Show October 20, 2010), says the mortgage fraud engineered borrowers to go into a loan product they could not afford because they profited at every

turn. They profited when: 

1. they sold the note,2. they filed a 1099A3. the borrowers paid late,4. the borrowers defaulted.

But, that was chump change...they really profited on the credit default swaps (CDSs),essentially a form of insurance which you see on the HUD-1 settlement statement as“mortgage insurance protection” (or MIP). If the borrower defaults on the note theinsurance company pays 80% of the principal based on that insurance premium.

What you don’t know is, on the derivatives market you get another 8 to 10 of those.Anyone who thinks their lender is going to give them a modification on their mortgage isdreaming! It is now coming out that some lenders who offer government modification programs do these “bait and switches” and grab the house right there!

The lender/servicer acts like they are going to modify, they indicate a requirement of adocument or two that isn’t clearly identified. After six weeks of going in circles they sayyou didn’t get us those two we needed so your modification is denied. The house is thensold off in minutes.

Another technique is they require two months past due to qualify, and when you initiatethe process, shortly thereafter you get a letter of acceleration of the note. They say “don’t 

worry about that”. They induce you to give them the two payments in arrears to trigger the foreclosure, and they run the foreclosure while they do the pretense modification.

According to Shahien Nasiripour (2009), Mortgage companies are more likely toforeclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure,mortgage servicers do not, says report author Diane E. Thompson, of counsel at the

 National Consumer Law Center . Servicers are the companies that manage the mortgagesand collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loanmodification will cost the servicer something. A servicer deciding between a foreclosureand a loan modification faces the prospect of near certain loss if the loan is modified andno penalty, but potential profit, if the home is foreclosed."

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Thompson attributes this to a system of perverse incentives created by lawmakers andrulemakers in the market, like credit rating agencies and bond issuers. The privaterulemakers typically dictate how a servicer can account for potential losses and profits.They hold enormous sway over securitized mortgages, which are owned by investors.More than two-thirds of mortgages issued since 2005 have been securitized, notes the

report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage,from collecting the monthly payments to initiating foreclosure proceedings. While they'reobligated to do what's best for the ultimate owners of the mortgage -- the investors --servicers have some latitude in deciding what course of action to pursue, be it aforeclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer mustfront the late payment to the investors. When a home is foreclosed, the servicer istypically first in line to recoup losses. But if a mortgage is modified, the servicer typically

loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenseswhen a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program tolimit foreclosures. The money is to be distributed to servicers who successfully modifyhome loans, with the hope that the incentives to modify outweigh the incentives toforeclose.

Thompson's report outlines eight specific steps to reverse this trend. They includemandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

 __________ Kelton, R. (2010). Special Guest: Randy Kelton, The Alex Jones Show Archives. 3rd

hour, October 20, 2010. Retrieved from,http://www.gcnlive.com/programs/alexJones/archives.php

 Nasiripour, S. (2009). Foreclosures are more profitable than loan modifications,according to new report. The Huffington Post. October 21, 2009. Retrieved from

http://www.huffingtonpost.com/2009/10/21/perverse-incentives-lead_n_328378.html