A Real Mortgage Fraud: Pre-Bailout Bailouts! By Gary D. Barnett
(2010-12-02 at 07:34:17 )

A Real Mortgage Fraud: Pre-Bailout Bailouts! By Gary D. Barnett

How can the government slow or stop the bank and mortgage company
bailouts that they have vowed to do, this to satisfy the duped voters,
without actually stopping the bailouts at all?

They can and are doing what I call a pre-bailout bailout.
How in the world does this work?

I do not think there is much argument that the government sponsored and
now nationalized enterprises, Fannie Mae and Freddie Mac, supply
approximately 90% of all home mortgages in this country.
Herein lies the problem.

First, I will begin with an anecdotal account that epitomizes what is
actually going on every day all over this country. Last year, I attempted
to ref inance my home mortgage locally. I was told that no appraiser in
the area would appraise my house due to the fact that no comparables were
available, so no ref inance could be done. Fast forward to one year later,
and my how things have changed. I wonder why? I went back to my local
bank to once again attempt to ref inance my loan, and the reception this
time was much different.

First, I was told that my bank would only be a facilitator in the
ref inancing process, but would not be involved or actually hold the loan.
One of the "big six" as I call them, Wells Fargo, would actually carry
the note. The next thing I was told was that no real appraisal would be
necessary to complete this loan. The lender then asked me if I would be
able to close this loan within two weeks. When all was said and done, no
appraiser ever entered my home, and the loan was approved almost
immediately. I am not a credit risk, but this did not seem proper to me
given the very apparent adverse economic circumstances we face.

The actual closing took place this September, and within 10 days of
closing, a letter of notification of assignment from none other than
Fannie Mae was mailed to me. This letter was sent to inform me that;
"the ownership of your f irst lien mortgage loan has been transferred by
Wells Fargo Bank, N.A. to Fannie Mae." Look carefully at this part: "The
transfer of ownership of your mortgage loan to Fannie Mae has not been
publicly recorded." Also included; "Fannie Mae is a shareholder owned
company with a public mission. We do not make mortgage loans but instead
provide funds to lenders by purchasing the mortgage loans they make."

You will have to excuse me here while I laugh out loud! This statement
not only is ludicrous and false, but also is based on the assumption that
all of us in the public are idiots! Oh, I see, they just hold and own all
the loans and take full responsibility for them, but they do not do the
initial paperwork.

First, where in the world does Fannie Mae get its money? They are
Trillions in Debt, and are Losing Billions, so how can they do this?
Does anyone dare to guess?

This situation gets even better for the banks. The bank in question here,
Wells Fargo, not only got paid up front to do the loan, but also gets
paid by Fannie Mae for the life of the loan to service it. All this takes
place without any risk of default whatsoever to the bank. In essence,
they handle the paperwork, get paid up front, and continue to get paid
for the life of the loan, and the particular loan is off their books
immediately. Their reserve requirements are never altered, and all risk
is eliminated and transferred to Fannie Mae. Talk about "stimulus"
potential!

This is in essence simply a transfer of risk to us lowly taxpayers. What
a deal! Do not worry though, because according to Tim Geithner on August
16th: "We will not support a return to the system where private gains
are subsidized by taxpayer losses." Really?

If this was just an isolated incident, then that would be one thing, but
this scam is happening every day at banks all over the country. Most new
mortgages and ref inances are being bought and all risk taken on by Fannie
Mae and Freddie Mac. This is a direct obligation to the taxpayer. Keep in
mind that the U.S. Federal Government placed these very corrupt and
bankrupt institutions into conservatorship (nationalized them) in
September of 2008, due to the sub-prime mortgage crisis. They were losing
billions of dollars then and they are still losing billions of dollars
now. They were bailed out, and hundreds of billions of taxpayer dollars
have been "invested" by the Treasury to keep them in business. Is this
being done to protect bank profits and eliminate their risk? Is this
being done so that another housing bubble can be built to delay the
inevitable collapse? Is this being done so that things will not look as
bad as they really are?

In my opinion, yes, yes, and yes! Remember that the on- or off-balance
sheet obligations of these GSEs is now over 5 trillion dollars; this not
including all the bailout money given to them or the constant losses they
continue to incur, so why else continue to support these failed
corporations?

I did speak with bank personnel directly and I asked them questions about
this situation. I also spoke with mortgage brokers working directly with
the banks to find out what was going on from their perspective. The back
off ice at Wells Fargo told me that these loans are fully serviced by the
bank, and that they are paid up front to do the loan, and have a
"private" contract with Fannie Mae to service the loans once they are
bought and transferred. I have to assume that this is the normal
operating procedure of the rest of the banks as well. They refused to
allow me to see this contract, so I am now attempting to get more
information from the "Government Sponsored Enterprises." According to the
mortgage brokers I talked with, Fannie Mae or Freddie Mac purchases
immediately most every single home loan from the banks and mortgage
companies. The banks know this going in, so are they going to scrutinize
these loans properly, or are they going to push as much through as they
possibly can so as to enhance their profit; profit I might add that is
gained by them without taking any risk?

If one is to apply logic where none obviously exists, and look at this
situation critically, only one conclusion can be reached. The banking
system is using taxpayer monies delivered to them by the government
through Fannie Mae and Freddie Mac, to make and service loans that carry
no risk to them, but puts a great burden of risk on the citizenry. All
the risk falls on the shoulders of the rest of us. This is why I call
this situation a pre-bailout bailout. Any and all loans done in this
manner carry absolutely no risk to the initial lender, and allow these
same lenders to continue this scam for an unlimited amount of time. With
no risk, why not? Each and every default will be the responsibility of
us citizens, and the banks will continue to show a profit, albeit a
profit captured by unscrupulous means.

The effect of this is many fold, but the bottom line is that banks will
look healthier than they really are and continue to pass off all risk,
the losses and debt at Fannie Mae and Freddie Mac will be mostly hidden
from the public, and the real estate markets will appear to be better off
than is actually the case. This will probably continue at least until
the "free" fiat money runs out and interest rates rise to where they
should. At that time, watch out, as trillions of dollars in losses will
be revealed. In other words, we will all pay for this one way or another!

The federal government now owns and controls most of the U.S. mortgage
market, so will the banks involved in this charade go bankrupt when this
con game falls apart? No. But Fannie Mae and Freddie Mac will.

So who will end up being responsible for all these losses that are sure
to come? We will, you and I, but the Banksters will still have their
wealth, their massive homes, their yachts, and their private planes,
while all the rest of us suffer in order to pay for it all!

October 25, 2010

Gary D. Barnett is president of Barnett Financial Services, Inc., in
Lewistown, Montana.

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