It’s a great way to get a loan, I used to get money from my relatives this way. It’s very simple. Let’s say you need a loan, instead of borrowing from your credit card at 15%, you split the interest difference half ways with a relative that has a deposit at 3%. So you and him end up winners, you get a cheaper loan at 9% (15% + 3% =18% / 2) while your uncle gets a 9% instead of the measly 3% offered by the bank.

Prosper.com and LendingClub.com offer the Internet revised version, where strangers bid for the interest on your loan.

According to the Prosper.com description: Borrowers with good credit (640+) post a loan listing and lenders invest $25 or more each towards your loan. They can bid your rate down in our auction process.

So if you need a $9,000 loan and want to pay 12% interest, you may end up only paying 9%.

In a similar statement, Lending Club offers investors higher returns (see report) and borrowers lower-cost loans through an online financial community that eliminates the high cost and complexity of traditional banks.

Stated simply, the notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.

But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it.

How about that? As it stands, if the alleged owner of the loan cannot produce the note, then, foreclosure cannot take place.

And continues,

Samuel L. Bufford, a federal bankruptcy judge in Los Angeles since 1985, has overseen some 100,000 bankruptcy cases. He said that in previous years, he rarely asked for documentation in a foreclosure case but that problems encountered in mortgage securitizations have made him become more demanding.

“My guess is it’s because in the secondary mortgage market they have been sloppy,” Judge Bufford added. “The people who put the deals together get paid for the deals, but they don’t get paid for the paperwork.”

Judge Bufford is also the co-author of the following presentation to the Bankruptcy Court Judges: Where’s the Note, Who’s the Holder.

To the point, demand by all means proof of ownership of the loan from the bank or loan servicer.

Update: Don Iannitti from Mortgage Professional, recommends lender officers to include in their loan modification package the essential investor loan modification approval, as well as loan ownwership proof, in order to smooth sail the loss mitigation process involved.

I knew there was something bothering me with the loan modification process, and it’s so simple, the true owner of the loan is an investor that is paying a fee to the bank or servicing institution for the service of collecting his monthly payments —that’s the guy the homeowner has to get to agree to any change or modification to his loan.

The investor is the owner of the loan, not the bank, nor the servicer of the loan, nor any government agency, nor all the scammers in between. I recommend reading California Attorney General Brown’s lawsuits against all sorts of scammers preying on folks facing foreclosure to be aware of these scams.

At the end of the day, the legitimate owner of the loan has the right to contest in court any change in the original loan agreement that he hasn’t approved.

Then, if you’re facing a loan modification, avoid intermediaries —they can’t promise you anything, except taking your $1,800 hard earned money. And the spectrum of lies starts with loan modification companies, greedy attorneys that know better, to loan servicers and banks that may not have any saying, because they sold the loan long ago, and are there to collect your payments for a fee.

Brown recommends contacting housing counselors approved by the U.S. Department of Housing and Urban Development (HUD), who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at 1-800-569-4287 (TTY: 1-800-877-8339) or HUD website.

My advice: get a good attorney (found this list in livinglies: lawyers that get it) that understands these issues, or get a Fannie or Freddie counselor —they’re on your side—, Freddie and Fannie have much to lose with your foreclosure.

Update: Subprime brokers rehashed as Loan Modifiers bring about further pain and chaos to foreclosed homeowners.

The government’s position appears pristine clear and justified,  “We need one agency for one marketplace with one mission — to protect consumers of financial products and services — and the authority to achieve that mission,” said Michael Barr, Assistant Secretary for Financial Institutions at the Treasury Department.

But, there seems to be a large opposition base, no Republicans in the House favor the passage of this bill. Rep. Cliff Stearns, R-Fla, said “They don’t know how much they are going to spend. They don’t know what resources they’re going to need. And also they are going to be taking on expertise on areas they know nothing about that the Federal Trade Commission has years on.”

As Elizabeth Warren most eloquently states, “Current bank regulators argued that the extensive use of these complex instruments reduced systemic risk, that it was good for us, and the profitability of the banks, but it turned out that the economy, consumers and families got hurt, and not only that, it also allowed banks to go broke.”

Elizabeth Warren, brilliant attorney, Senate appointed TARP overseer, longtime writer and advocate of consumers, would be the perfect person to lead this agency.

According to this Reuter’s article, the new agency, which Congress would have to approve, would have the power to write rules and design or ban financial products. It could also examine firms and impose fines and other penalties on almost any institution that offers products such as home loans or credit cards.

If you’d like to see a near-final draft of the proposed financial reforms, click on this Washington Post link.

“The American people sent me to Washington to stand up for their interests. And while I’m not spoiling for a fight, I’m ready for one”, Obama said.

We all know how utterly ineffective the SEC has been in regulating Wall Street, ENRON and the Madoff case stand out as the most blatant oversights.

And, although Chairman Bernanke has been doing a terrific job at the Fed, let’s not forget that the they were instrumental in facilitating the financial crisis —Mr. Greenspan fought adamantly against any attempt to regulate the derivatives markets, during his Chairman tenure, a riveting mistake that he has publicly recognized.

To wit, the Fed is mama bank, it’s charter mandates that it protect its puppies —banks, not consumers.

Interests at odds with consumers, which President Obama so eloquently explained today in a weekly radio address:

“These interests argue against reform even as millions of people are facing the consequences of this crisis in their own lives.”

“These interests defend business-as-usual even though we know that it was business-as-usual that allowed this crisis to take place.”

“Today, folks signing up for a mortgage, student loan, or credit card face a bewildering array of incomprehensible options. Companies compete not by offering better products, but more complicated ones—with more fine print and hidden terms.”

“The American people sent me to Washington to stand up for their interests. And while I’m not spoiling for a fight, I’m ready for one.”

Good luck!, Mr. President.

All of the supporters were Democrats except for Senator Charles E. Grassley, Republican of Iowa.

From the NYT article,

Mr. Sanders said the card companies and banks were engaged in conduct that could get others hauled into court. He said one-third of all credit card holders are paying interest above 20 percent and as high as 41 percent.

“When banks are charging 30 percent interest rates, they are not making credit available,” said Mr. Sanders, who noted credit unions are limited to 15 percent. “They are engaged in loan-sharking.”

And the roll call on this shameless vote is found in this NYT list

To sum up, Congress is not ready to place usury caps into law —bank lobbying still controls our lawmakers.

Some studies suggest that the (small) changes proposed in the most recent Congress bills could hurt the credit card industry’s bottom line for as much as $10 billion yearly.

On the other hand, banks are the biggest handout lobbiers in Congress.

Then, it’s pristine clear why bills are watered down as they get closer to passage, or they sit in limbo for years, till a new bill proposal is created, and the process starts all over again.

The main issues not mentioned in the bills, which I believe must be included are:

• Setting usury limits to cap interest rates
• Disallowing one sided changes to the credit card contract
• Making the fine print illegal

Obviously these measures would restrict the amount of credit offered, which contrary to banks arguments, I believe is a healthy thing.

It’s damaging for all involved to offer and take any kind of loans at usury level rates. In the end, consumers and banks fail at this game, and the whole of society has to come to the rescue at a huge cost.

Why are credit card issuers allowed to change contracts unilaterally? This is not the normal occurrence of doing business. Let me clarify this situation. A landlord cannot impose his request by simply telling the tenant that he will raise the rent unless the tenant replies within 30 days. The landlord may request a change to the contract, but, he may never impose a change by a mere 30 day reply imposition. If the 30 day reply imposition is abolished, then banks will have to offer us something in exchange to alter their credit conditions — a two way, instead of a one way street.

There are a few signs that this time around we may get a fair break. President Barack Obama met at the White House last week with the credit card czars and made it clear that he wants to sign a bill into law. He reaffirmed this priority at his prime-time news conference Wednesday evening, saying legislation was a must to protect consumers from “abusive fees and penalties.” 

Setting the record straight.

You can’t hammer a wooden stick through their hearts because they don’t have one!

Banks are following their cold numbers… which tell them to push homeowners over the foreclosure cliff. Lenders’ servicers, settlers and modifiers are flying overhead to take one final stab at the fallen homeowners with twisted promises, lies and half-truths. The first one, that it’s not out of their noble hearts —banks are commissioning them.

From this Miami Herald article, we get a clear picture of how Ocwen, a loan servicer company, has grown into a $42 billion loan modification portfolio.

As a VP for Ocwen, Paul Koches states:
“In the first quarter of 2008, we established a psychology department headed up by a former college professor who is a Ph.D. in consumer behavior research. We have brought behavioral research into our technology and hard-wired the results of that effort into our loan modification processes and platform with, among other things, scripting engines that are driven by artificial intelligence. It assists our home retention consultants in the most effective communications with borrowers in distress.”

Which should really read that Ocwen has perfected a system to take advantage of homeowners’ misfortune, their weak spots and how they will react in distress. I wonder how these vultures get to sleep at night. I guess it must be quite a drain to face one’s daemons through the day.

As to the advantage of a loan servicer like Ocwen, over loan modification agencies, he states:
“They should absolutely contact their servicers. They should be aware that there are these sort of independent loan modification vendors that are popping up on the horizon, and some of them may be effective, but generally they charge a fee. The borrower’s own loan servicer does not charge a fee.”

Of course the wolf under the sheep’s skin forgot to mention the bloated fees that are appended to the new modified loan, which you will be paying for years to come, while Ocwen collects upfront.

Sad, and more so, because banks are not taking up the government’s loan modification subsidies to homeowners —they couldn’t care less about you and me! So, the window is closing down on homeowner’s facing foreclosure.

Call your senator (202-224-3121) to let him know how you feel. We have to stop the abuse. Tell your senator we need Bill S61 now!

Update: Gruesome reality of the pain and chaos inflicted to foreclosed homeowners from rehashed subprime brokers, further warnings and advice here.

A couple of weeks ago, I found this fascinating video that I strongly encourage you to view. I feel so strongly about it, that I wholeheartedly believe it should be mandatory teaching in our children’s education programs.

Without going into much detail, which you will profusely find in Dr. Bartlett’s revelating lecture, the fundamental tenet is that any growth rate –small as it may be– has surprisingly devastating effects on limited resources, be it oil, food, or water. Hence, the major impact of overpopulation in the relentless depletion of natural resources.

I’ll give one simple example which helped me visualize the power of this phenomena.

Let’s suppose that we have a few bacteria in a bottle, which happen to double their population every minute. If we retrace our steps 10 minutes before the moment the bottle is full, we’ll find very few bacteria, 1/1024 of the volume of the bottle (1/2 one minute earlier, 1/4, 1/8, 1/16, 1/32, 1/64, 1/128, 1/256, 1/512 and 1/1024 ten minutes earlier).

Now, let’s suppose that the bottle represents all the world’s known reserves of oil, past and current, or the total amount of oil that we have consumed plus what we currently estimate we hold in reserves. It’s also widely accepted that we have already consumed approximately half of the total amount of oil in the world –or, that the bottle is half full. We also know that the world population grows at a 1.7% annual rate. Knowing these two facts, a good estimate is that in a little over 41 years the bottle will be depleted of oil.

A much better number would be GDP global growth, which has hovered around 3% for the last 60 years, although a 0.5% is forecast for 2009. Consider the fact that US citizens consume 30 times more energy than the Chinese average. So, let’s accept that world depletion of oil will occur in less than the 40 years, due to the expected increase in the Chinese standard of living. For an average 3% GDP growth, total oil depletion would occur in 23 years —spooky!

Then, our number falls somewhere between 23 and 41 years to depletion.

Let’s assume 32. I promised that the example would be simple.

Suppose that we find 3 more bottles of oil reserves, which would represent a huge amount of oil, 3 times all the oil consumed in the world throughout history extending to 32 years from now. One tends to assume that this huge find would allow us to continue consuming oil for hundreds of years. Not so, it would only last an additional 64 years, or two doublings after the first bottle was empty: 32 years till the first 2 bottles were empty, and an additional 32 till all 4 bottles were depleted.

Now, what do you think happens to a debtor with exorbitant credit card rates?

He would have to double his income every

• 10 years at 7%,
• 7 years at 10%,
• 4.7 years at 15%,
• 3.8 years at 18.5%,
• 3.2 years at 22%,
• 2.3 years at 30%,
• 1.75 years at 40%,

in order to keep up with the doubling of his payments.

Which, we all know would bring the ruin to anyone facing this insurmountable challenge, as a consequence of the unfair and unbridled interest rate practices of banks.

In other words, a debtor’s blood will run dry soon enough with these devastatingly high rates.