No other state has experienced the dizzying heights of the housing boom or the depths of the subsequent bust quite like California. Today, four metro areas in the Golden State have the highest foreclosure rates in the country, eclipsing -- for the first time -- even Las Vegas, Nevada. In last night's look at the housing crisis that continues to cripple this country, we traveled to southern California and met Lise Johnson, a mother of four who's been in the same home for 12 years and is desperate to stay put.
And then we did something that's hard to do... we followed Johnson's loan on its journey from a subprime (and now defunct) lender in California to Wall Street, where major investment banks bundled Johnson's loan, and thousands like it, into a security called the Rali Series. The Rali Series was an investment offering that included $9 billion worth of home loans, primarily from California, Arizona and Florida. Goldman Sachs, UBS and Citigroup peddled the Rali series to institutional investors, including pension fund managers, who were looking for a supposedly safe place to put their money.
According to attorney Joel Laitman of law firm Cohen, Milstein who is representing some of these investors, the investments were rated AAA and AA, meaning the likelihood of default was virtually nil. But in 2008, Lise Johnson and thousands of other homeowners faced exploding interest rates and stopped paying. That had devastating repercussions for Laitman's clients, who saw jaw-dropping losses when they opened their pension statements.
"The narrative thread that connects Lise and homeowners like her to my clients who are conservative pension fund investors representing working people like carpenters and boilermakers...is that these groups have been left holding the bag as the big losers in this mortgage-backed security scheme" Laitman told us. Meanwhile, Laitman says, the investment banks and rating agencies made a killing. "They made their money the minute the offering was done," Laitman says.
In our investigation into both ends of the housing bust, we found that today, homeowners who took out these loans, and investors, who bought them, often want the same thing... to modify the loans and avoid the auction block, where fire-sale prices mean investors recoup little. But getting a loan modification isn't easy. The government program Home Affordable Modification Program, or HAMP, pays servicers financial incentives, a few thousand dollars for every loan a servicer modifies.
But those 'financial carrots' aren't always enough. Back in Corona, California, Lise Johnson spent three years trying to get her loan modified. She says her mortgage servicer, Aurora Bank of Littleton, CO sent her down a rabbit hole of endless phone calls, lost paperwork and unanswered questions. Johnson's lawyer told us that for servicers like Aurora, foreclosure can be a lucrative profit center because they make money off of late fees and defaults.
Johnson's home was recently foreclosed. She received an eviction notice on October 13th, which she is trying to fight.
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End the government COVER-UP -- appoint an independent prosecutor to investigate crimes and corruption of the 2008 financial crisis.
The 2013 statue of limitations is approaching.
I'm mad as HELL and I'm not going to stop fighting for myself and others similarly situated!
Interesting.
R/ PRONESE
Formerly you were a main stream media poster child,
but now...
hey - I like the transition!
You know, all Americans must realize that this is our moment. We either step outside our comfort zone and speak up - or protract out a future wrought with sub-mediocrity for the rest of or lives and for those destined to be the "generations to come".
Too many challenges lay before us to harbour a stout but impotent ruling class.
You rely on others to say it is OK? You rely on representations from guys who will make money whether the deal is good or not? That's not the way that a prudent borrower or investor should proceed.
Also, let's not forget those who were already 10 - 15 years into a mortgage before the housing bubble broke and were told that they could modify their loans and take advantage of lower interest rates and fell for it. In Florida in particular, it was nuts, i knew homeowners getting phone calls everyday from real estate agents "checking" if they either wanted to sell their home or refinance the house. Many people sold their homes or refinanced their loans when they didn't have to. In the early 2000's almost everyone I knew was selling or buying a house. They got caught in the madness.
After all those dodgy loans were put though a blender, it was pretty hard for the investor to track what was in them (at this point even the banks don't seem to know) but there was that triple-A seal of approval. Surely the rating agencies had done their homework?
And the risk-averaging strategy of CDOs sounded plausible -- except that the palm-off-the-risk-to-others incentive for the loan originators to mass produce otherwise unacceptable high risk loans, greatly biased these aggregations toward instability, after which systemic collapse wasn't a matter of if but when.
In Mexico in the mid-'90s Wall Street engineered a currency coup that tripled the debt owed by small businesses and family farms and also allowed for them to be massively ratejacked on top of it. Mexicans consequently formed the "el Barzon" movement and pushed back Wall Street and deposed their ruling party of 60+ years. In this country YouTube phenom Ann Minch has already declared the debtors' revolt and begun going after them.
If you've been pushed under, you can read every other page of my book for free: http://www.scribd.com/doc/25443175/Debt-Hope-Down-and-Dirty-Survival-Strategies-Evaluation-Version-Complete
Campaign finance reform?
Most profitable Auction site I know of is Congress............................."What am I bid for my vote on financial oversight......Do I hear One million? Do I hear Two?"
Best Government money can buy.....................................and it shows.
Hardwork is needed to earn your wages.
Doesn’t claiming an ability to correctly classify the security of an investment, subsequently proven false, constitute cases of misrepresentation and misselling?
"unanswered questions"
Its as if some humongous red-tape worm has burrowed into the very bowels of co-operative human existence. Draining the life out of that victim. While the medicine necessary to expel it is being deliberately withheld.
The reasons why a security composed of subprime mortgages can be AAA or AA while none of the individual mortgages used to create that security is rated that highly are not intuitively obvious. In fact, for many people, it seems impossible that mortgages that are each risky themselves can collectively form a low risk investment even in theory. That background information needs to be part of this article.
The rating agency model is flawed where Goldman was hiring the agency to rate their product. If they didn't like what they got hired a different rating agency. It's a highly flawed model which was not addresses in Dodd-Frank despite Al Franken's pleas.