Busted: Bankers and The Global Economy

April 25, 2008

Seduction of Investor Profits Continues

The new Home Ownership and Equity Protection Act was recently discussed by Federal Reserve Governor Randall Krozsner. Naturally, he mentioned the Hope Now Alliance, what he calls a broad-based coalition of government-sponsored enterprises, industry trade associations, counseling agencies and mortgage servicers. This alliance is working to find ways to help borrowers through the lengthy loan modification process.

The alliance is working on ways to standardize the loan modification process for sub-prime and alt-a loans to provide the relief needed for distressed borrowers. Unfortunately, each modification is done in a slow case-by-case basis at this time. They have not figured out a way to automate the process.

As part of their plan with their new supervision powers, the Federal Reserve is seeking to ensure clear lending standards through stricter regulations prohibiting abusive and deceptive practices under HOEPA. The idea is to protect consumers and preserve consumer choice by targeting protections to borrowers that face the most risk. The new changes require an assessment to assess repayment ability. Can you believe that an assessment to determine the ability to pay was not done routinely?

Another new requirement is to escrow taxes and insurance. This is an item that is always done in FHA and government loans. In their creativity and desire to bypass normal channels, mortgagers began to treat home loans like car loans, without the “unnecessary” expense of escrow accounts.

The Fed is also banning prepayment penalties in certain circumstances. Can you believe that housing loans have ever dictated prepayment penalties to enrich the lenders and investors? In many cases, refinancing loans creates the scenario of prepayment penalties.

The Fed has also placed a prohibition on paying a broker more than the consumer agreed that they would receive in the loan paperwork. Obviously the abuses in the mortgage industry have been rampant and wide.

The majority of bankers in authority knew “full-well” what they doing when pursuing predatory practices. The Federal Reserve is clarifying lending standards, which they believe will increase investor confidence in the mortgage market and help to revive the flow of credit to consumer. Apparently, the Federal Reserve is going to continue to allow the securitization of consumer loans, which created the crisis that the United States and the world is in now. That is not a wise decision and one that will continue to haunt the world financial system. The Fed will not resist bank profiteering, in part, because the Fed and its cronies are able to enrich themselves from this process.

The Fed is advocating strengthening of relationships between what it now calls CDFI investments and the mainstream banking system. Let the investor BEWARE. Don’t be seduced by the idea of fast profits using securitized instruments. The Fed is a corporate animal itself and can in a behind-the-scenes way, enrich itself through the use of these banking practices. Considering that the Fed is part of a global international system of banking originating from Switzerland and Rome should have a sensible world citizen alarmed. Investors should be wary of being fleeced through securitized bonds and other creative banking tools. The system is setting you up to lose in a Vegas-style operation.


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