Balancing the Scales of Justice for Pro Se Homeowners

The Big Short…how does this relate to YOUR Mortgage?

Posted by on Dec 28, 2015

The Big Short…how does this relate to YOUR Mortgage?

The Big Short released in US Theatres on December 23, 2015; this movie, with actors such as Brad Pitt, Christian Bale, Ryan Gosling, Steve Carell (who I did not recognize!), Marisa Tomei and cameo appearances from Selena Gomez and Margo Robbie, tells the tale of industry players who recognized the pending crash of the US Housing Market in 2008 and as a result, created the “short” to financially benefit from the crash. The Big Short is an interesting movie – though for any borrower or homeowner looking for a solution out of their own ticking time bomb of financial destruction, the Big Short comes up short with any meaningful answer or guidance.   If anything it may leave you with a profound sense of rage and loss. Rage that millions of American’s were duped with the false illusion of homeownership through irresponsible loans, and unsuspecting investors were induced into financing the damn things to feed the demand of…investors wanting the MBS; rage that once the lenders and Wall Street firms realized what was about to happen they did nothing to stop it but rather participated in the “shorts” to benefit from the impending crash. And loss, that our government is so corrupt instead of tossing these criminals (all of them) into jail our taxes were used to bail their butts out.

The Big Short is about one piece of the ugly housing crash; and the “big short” came about after the crash had been put in motion by the real culprits. The maverick shops[1] that recognized the massive, fraudulent Mortgage Backed Securities (“MBS”) being sold with bought ratings[2] by banks and Wall Street from Moody and Standard & Poor’ started the market by creating the “shorts” (Scion bought 1.3 Billion in shorts, which Deutsche, Morgan Stanley and such, gleefully created/and sold but then had problems providing pay out numbers, alleging the “dog ate my homework” kind of excuses when Scion came to collect). The movie talks about the criminal acts of Goldman Sachs, Solomon Brothers, JP Morgan Chase, Deutsche Bank, Morgan Stanley, Moody, Standard & Poors, and the SEC (illustrated with one young woman interested in working for the very banks she was supposedly responsible for ensuring compliance, and instead, engaging in a one night stand with a banker who could potentially get her a banking job). The movie does not do a great job of drawing a bright line between the addictive gambling we call “stocks” and the hard core reality of a family living in a van as a result of the inevitable crash.

The closest the movie gets is the visit between Mark Baum (Steve Eisman renamed as Baum and played by Steve Carrell), his team, and the “party boy” mortgage brokers in Florida, who brag about getting multiple homes for strippers (you know, the ones that strip and dance on a pole) by selling NINJA (No Income No Job Application) loans. Bragging they can get a signature on Friday and the loan will be sold by noon on Monday is probably the most telling statement, in regards to borrowers, of the two plus hour movie.    The second most telling statement is the private MBS (Mortgage Backed Securities) ran out of prime borrower loans to pool into the MBS – ergo the push to pick up subprime loans. Talk about perfect timing for the likes of Countrywide and New Century, Angelo Mozilo must have thought he died and went to heaven when Wall Street came knocking at his door, begging to purchase his crap loans.

The reality is the damage to the borrower was done years before the Big Short took place; when Wall Street recognized the investor appetite for mortgage backed securities was beyond what the market could responsibly fulfill, they turned to subprime loans. The subprime market invented a slew of irresponsible financial products that had low teaser rates, or pick a pay options, among other features that pretty much ensured the borrower would never pay off the loan. The lenders rationalized these ticking time bombs of financial destruction with the big lie – the borrower could refinance out of the crappy loan with the increased equity in the property. According to the movies “party boy” brokers, as incentive to get borrowers into these loans, mortgage brokers were paid fees five times that of a responsible loan. Specifically, brokers were paid a measly $2,000 fee for a 30 year fixed rate loan (triple AAA paper the MBS market typically relied on for the securities); whereas putting someone into an Adjustable Rate or Negative Amortization loan paid fees in excess of $10,000 (ergo why borrowers that did in fact qualify for 30 year fixed rate loans were steered into the ARM and NegAm products). With the sheer number of loans going from an average of 10 applications/loans a month to 50 or 60 per month, per broker – you can see the potential for the fraud. In one scene Baum’s man talks with a tenant who asks about the landlord – which according to the paperwork is the name of the dog of the property owner.

So here you have the blue print for the massive fraud – Wall Street demands more loans – lenders respond by coming up with the exotic loans that provide a low teaser rate so anyone can qualify temporarily –which the lenders quickly sell to Wall Street (alleviating any risk for actual performance on the loan), Wall Street converts the loans into mortgage backed securities which Moody’s and Standard & Poor’s give a false triple A rating, and then Wall Street quickly sells the doomed loans to the investors (your pension plan). In 2007 the rates started adjusting and boom…2008 sees a massive rise in defaults when low $1,000 mortgage payments quickly escalated into $3,000 and $4,000 payments. The housing market crashes taking the life savings and homes of millions of Americans along with it.

I highly recommend the Big Short; in fact I will probably buy the book just so I can explain what happened with my Jenga Blocks.   The movie makes the-big-short-teaser-postera serious attempt (with comedy and a great ensemble) at explaining this incredibly boring subject. A subject that is, in fact, so ugly because of the destruction it wrought on the US and world economy and insidious because it shows just how immoral and corrupt our federal government and banking system is. Even after everything that happened…all the truths that were revealed, not one single banker; not one single stockbroker; not one single ratings agency – faced criminal charges. Instead, the US Tax payer was tapped to bail out the criminals and the bank’s CEOs were invited to the White House for dinner.  Not the ending one would expect (or hope for), but an ending that inevitably happens in a society that values money over honor, truth or justice.

[1] Apparently Eisman’s group stumbled into this with a wrong number phone call.

[2] This would be like you paying Experian to give you a 800 FICO score so you could get a low interest loan.

 

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