Dear Future Homeowner:
During the preceding decade, the US per-capita home ownership percentage reached the highest ratio ever: 67.7% of American households owned their own homes. However, just a few years later, because of the nefarious dealings of the mortgage banking industry, the US economy and housing market imploded upon itself, virtually bankrupting the entire country. Millions upon millions of those same homeowners lost their homes along with their life-savings and, all too often, their dignity and self-respect. All of this mess was inarguably due to the greed and gluttony of some of the world’s highest paid people leaders within the financial world…stock brokers, banking officials and the highest echelons in the mortgage-banking industry.
When it was learned late in the 1980s and 1990s, by the self-appointed potentates of the major mortgage related institutions, that they could virtually eliminate financial risk and amass billions in personal commissions and pure company profits by creating misleading documents with only the appearance of mortgage loans, the industry and the real estate went wild.
Without a “lender’s” ever spending a dime, the new arbitrage device provided the industry with unimaginable profits throughout the free world. The standard practice among virtually all mortgage “lenders” at the time (the banks) became a process of creating debt-obligations with prospective home buyers who were given very low “teaser” interest-rates in order to lure them into applying for a loans they otherwise couldn’t afford: then selling those same so-called “loans” for cash to secondary note buyers, even before the first payment was due.
This practice virtually eliminated any risk of loss for the originating bank, while promising the secondary buyers gigantic profits when they sold the same notes to tertiary buyers (i.e., Wall Street who needed them as security for overseas stock purchases). This was a grand scheme…for a while…in that all the originating lender had to do was wait for the otherwise unqualified borrower to drop in, ‘make them a risk-free loan, then wait for them to default and foreclose on the property while pretending (O.J. Simpson-like) to look for the true holder in due course, and sell it again (‘thus duplicating the original scheme).
For example: Let’s say I loan you $100 and ask that you pay me back at the rate of 18 percent interest for a year. This would mean that at the end of that year you would have repaid (if you paid at all) a total of $118 for the $100 loan. Now, once the paperwork for that debt-obligation was created and signed (by you), I should have no trouble finding someone who would be happy to pay me, say $110.00 for the $118 receivable (‘a $10 profit to me for having done nothing, and $8 coming to the 2ndry note buyer (‘with no cash outlay on my part). That “secondary note buyer” could then either wait a year and collect $118 for his $110 investment…’or he/she should have no trouble in bundling, say, 100 or 1,000 or 10,000 of these “loans” and selling them to another note-buyer for, say, $112 each, thereby making two bucks apiece, thereupon providing the final note-holder a nice profit for all those little notes (‘in reality the actual numbers with respect to the sub-prime crash would be expressed in trillions of dollars, not just “dollars”).
Given the foregoing analogy, the reality is that it didn’t take long for the foreign end-buyers of US real-estate-secured mortgages (‘mostly China and Japan, but many other countries and overseas investors as well) to realize that they’d been sold the lowest grade mortgages of all (“C” paper that had been purported to be Moody’s “AA+” rated paper). The preponderance of those original “loans” had, in fact, for the most part, been made to unqualified buyers, and were actually, at the time of their inception, known to soon become 65% uncollectible (‘as discovered in ensuing years in court-hearings): thus the term, “Toxic Assets.”
It is at this point that foreign investors ceased their bulk-buying of notes and stock secured by US mortgages: thereupon clogging the system with million in unsold stocks and mortgages for which no one had any money to cover; thus creating the so-called “sub-prime melt-down” forcing the bankruptcy of one gigantic bank, mortgage company and wall street brokerage after another throughout much of the world–especially the US (e.g., AIG, Lehman Brothers, Bear Stearns, Washington Mutual, Countrywide, Indy Mac, etc.).
The result…’As fate would have it, the institutions tht were able to survive the milieu grew exponentially by cannibalizing the failed institutions, thereby making even more billions of dollars than before. This was, in no small part, accomplished by ruthlessly foreclosing on the toxic assets that they, themselves, had created (i.e., the bad loans they’d forced through without a penny’s risk to themselves, and for which they had already been paid by the secondary and tertiary investors and note-buyers) who snatched them up in a feeding frenzy and then “repossessed” as many as they could, in order to sell them for still more profit. This “blatantly criminal” act mercilessly put millions of distressed and now unemployed or bankrupt homeowners on the street. Then, to pour slat on the wound, these same criminals audaciously and unconscionably began auctioning the properties off to the highest bidder: ‘in effect re-selling them for still another whole new gigantic profit, and in many if not most cases, keeping the money (‘after all, due to the demise of the real estate market and plunging home values, the end-note buyers and investors were no longer secured or owed anything, or could not be found).
Obviously there was never any sharing of any of all the banking industry’s ill-gotten windfall with any of the people so egregiously duped, and so unwittingly drawn into to the contrivance (‘if not ‘out and out conspiracy’)…’whose lives and livelihoods had been decimated by the same greedy connivers that had been hired to protect their (our) monetary wealth.
THE GOOD NEWS (I.E., FOR YOU AND ME, THE CREATIVE REAL ESTATE ENTREPRENEUR)…
Despite what has gone on in past years with regard to the so-called “mortgage crisis” and resultant economic downturn, the fact is that there are currently millions of properties out there right now that are in the hands of people who don’t want them anymore but can’t afford to sell, and can’t afford to keep them either: but who are still making their mortgage payments.
With the various owner-carry scenarios that we use and teach, the loan payment-streams on these properties can be legally taken-over without standard credit qualifying or down payments requirement (‘i.e., assuming you but know how…’and that is precisely our reality…and our specialty). Correspondingly, there are millions of disenfranchised ‘would-be’ homeowners standing by, ready and willing to take over those payments and cover all costs of ownership for a chance to once again possess the myriad benefits, pride and privilege of home ownership.