Want To Refinance? Good Luck

By Justin Gardner | Related entries in Economy, Housing, Law

Interest rates are at historical lows so many homeowners are calling banks and trying to get in on the action.

Only problem? Housing prices have fallen so much so that now people owe more on their homes than they’re worth…making refinancing an impossibility.

From Miami Herald…

In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth, according to sales and mortgage data analyzed by Zillow.com, a web-based real estate services firm. Many of them chose adjustable-rate loans and other expensive mortgages because that was the only way they could afford the payments.

Justin Miller, a broker with Resource Mortgage Group in Plantation, said the current rates, which essentially amount to ”free money,” are, in a sense, unavailable to those most in need.

”This is only putting people who are in a good position in a better position,” Miller said.

So let me get this straight…

  • …bankers put together trillions of dollars worth of questionable loan packages for people in every single income bracket…
  • …new rules allow the bankers to immediately repackage the debt and sell it off to other banks…
  • …banks start making A LOT of money off of this…
  • …so more questionable loans are created and more debt is sold off…
  • MEANWHILE…

  • …people start defaulting on those loans…
  • …bankers continue to sell the mortgages, but they are quickly becoming too toxic…
  • …home prices start dropping because foreclosures are happening left and right…
  • …thus creating a credit shortage…
  • …thus crippling the economy…
  • …thus necessitating the need for the federal government to pump nearly a trillion dollars into the system…
  • …thus forcing the Fed to drop interest rates so, among other things, people can refinance their homes with the new money available…
  • HOWEVER!

  • …only the people who paid enough equity into their homes to break even are now allowed to refinance because the “market” for homes has decided that our homes aren’t worth as much now? And who decides the value? Oh yes, the people hired by the banks who assess the value of the home. But let me ask you all something…how many of homeowners, at the time of purchase, had the value of your home come back at the exact same amount as the loan? Because I did…exactly. You know why? The bank tells them the value of the loan and wants to make sure that your property isn’t valued for more than the loan so they can keep you at the interest rates they signed the loan at!

How do I know all of this?

Because I recently tried to refinance my home and came face to face with this backwards logic.

Mind you, I’m not in any trouble financially, but because the values in my area had dipped a little bit I was unable to take advantage of these lower rates without coming up with a big pot of money to put towards the equity.

The irony here is that ALL of these banks don’t even have hardly any money to begin with. They merely had a little bit of cash and the blessing of the Fed to create more money out of thin air to lend it. That’s right, banks just create money they don’t have. That’s why you’re seeing all of these banks fail…because the amount of loans they created out of “fake money” was defaulted upon and exceeded the amount of actual cash reserves they had.

And the double whammy is they they get to charge a fixed interest rate on this fake money and we can’t do ANYTHING about it. And this was an interest rate that was gamed in the first place because the value of the property was determined before the person assessing the value even got there. Because, let’s remember, the value was created by the loan, not the actual market around the home.

Folks, I’m starting to become convinced that our entire banking system is predicated on systemic fraud and not one single bank has enough skin in the game to actual foreclose on ANY home since they never even had the money to lend in the first place.

And to that point, does anybody know of any legal precedent that basically states that a bank has to actually have the money they say they’re lending in order to lend it? Because that would seem to be the basis for all property law. And if they don’t have the money, if they just created it out of thin air, it would seem that every single homeowner can essentially tell the bank that if they don’t refinance they’re home, they will sue them to take their property back from the bank because the bank didn’t have any right to make the loan in the first place.


This entry was posted on Friday, December 26th, 2008 and is filed under Economy, Housing, Law. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

7 Responses to “Want To Refinance? Good Luck”

  1. bob in fla Says:

    WHOA, Justin! Since when does a buyer who owes money on the mortgaged property have the right to sue the bank who owns the mortgage for property that was never his/hers to begin with, & never will be until that loan is paid off? Never.

    Granted, you got screwed, or so it seems. OTOH, you signed on the dotted line w/o getting your own appraisal of the property in question. Bottom line, that property was worth what you (or someone) were willing to pay for it. The mortgage value was what the bank was willing to lend on it. These are not the same animal at all.

    In addition, it hardly seems fair to the bank to blame them for the decrease in value since every property in the country has lost value due to this busting bubble.

    There are laws that limit how much money a commercial bank can lend out; last I knew it was about 10 times what they held in cash/capital reserves. There used to be laws that would not allow commercial banks to engage in other types of investments, such as stocks, bonds, or those securitized mortgage obligations which brought all this shit down around our ears. There used to be a lot of financial regulation put into place during & following the Great Depression to make sure that never happened again. But over the past ~30 years, they started to be reversed because we didn’t need them any more, that free markets would regulate themselves. WE all know how that idea is working out, don’t we.

    Finally, your post is a good way to vent (sounds like you needed it) but if you want real info on yur rights in this matter, you’re better off paying an attorney for advice. But let’s face it, I think we all know you’re stuck with your situation, along with millions of others. And it sucks.

  2. Justin Gardner Says:

    Actually Bob, I paid for my own appraisal. But the way it works is the bank tells them what they loan is worth before the house is appraised. I asked why it was done this way, and I was told it was standard operation procedure…so what else was I supposed to do? I didn’t like it at the time, and I argued with them about it, but they wouldn’t budge.

    However, now that I’ve tried to refinance, the entire process seems even more fraudulent since the bank is taking that number and using it against me. I got one hell of a deal on the house and it’s worth much more than what I bought it for. I should be able to refinance, but I can’t.

    As for blaming the banks, as mentioned in the post…their lax lending policies created the bubble so they created the downturn as well.

    Also, the idea that they hold just 10% of what they loan out is pretty insane and goes to my point about it not seeming legal that they’re essentially creating money out of thin air. Does that seem smart to anybody? It’s a system that is bound to catch up with us at some point, and it looks like it finally did.

  3. Nick Benjamin Says:

    Strictly speaking they have every dollar. They never print money.

    At a huge, macro-level, the banking system creates money by allowing dollars to be spent more quickly. Say you put $100 in the bank, some dude borrows it to buy a car. The car dealership puts that money in it’s bank account. No bank printed a dollar. They all had actual, physical dollars.

    But your $100 deposit turned into two $100 deposits, and a loan. Without that loan your bank has no way to pay interest on your $100 deposit. And eventually all loans result in somebody stashing savings in another bank account.

    Smart banks don’t actually loan out your entire deposit. They know their customers want to make withdrawals, and that some loans just won’t be re-paid. The part they keep is called their assets-to-borrowing ratio. When you say the idea that they hold just 10% of what they loan out is pretty insane, you’re talking about an assets-to-borrowing ratio of 10%. A ratio that low is insane, stupid, etc. But 20%-33% is pretty typical:
    http://www.guardian.co.uk/business/2008/sep/23/morganstanley.goldmansachs

  4. bob in fla Says:

    Points taken, Justin. I could be wrong about the 10% capitalization, but whatever the figure is, it has worked well since the 30s, until now. Keep in mind that mortgages that are being paid on time are also assets that are earning money for the bank. And frankly, the problem has more to do with diversified banks & securitization of bundles of mortgages where the capital was leveraged at up to 40:1. Small, regional banks are so far doing well through this mess, according to everything I have read. The reason seems to be because the small banks deal with their local communities, never got into the investment bank schemes, & never got into the NINJA type mortgages to begin with. Thus, fewer foreclosures & outside drains on their capital.

    In ordinary times, I would suggest going mortgage shopping among other banks, but no one in their right mind are going to set up a new mortgage at good rates based on current prices. The market is just too unstable & unpredictable now. No one predicts the housing market has bottomed out; most I’ve read indicate next year’s prices will go down about as far as they did this year in the worst markets.

    So, unless you have an attorney who thinks you have a good case, you appear to be stuck with the higher interest rate. But that could change, after the banks learn what Uncle Sugar is going to do about mortgage bailouts (if anything). Or your state government – Florida is in the process of tightening up their mortgage regulations. It is possible you will be in a better position to negotiate in a few months.

  5. Jim S Says:

    Capitalization rules were changed in the ’90s. So no, they have not worked since the 30s. And not all smaller regional banks are doing well.

  6. terrina Says:

    The irony here is that ALL of these banks don’t even have hardly any money to begin with. They merely had a little bit of cash and the blessing of the Fed to create more money out of thin air to lend it. That’s right, banks just create money they don’t have. That’s why you’re seeing all of these banks fail…because the amount of loans they created out of “fake money” was defaulted upon and exceeded the amount of actual cash reserves they had.
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    terrina

  7. Deborah Says:

    I am not so confused now. I was wondering why a home just down the street from me, same size, same property size appraised at 30 thousand higher. I thought when I bought this house that it was a bit weird that the appraisal came in at the loan amount.
    I am not underwater but will soon be, and if I refinance (per financial advisor Obama), I will be that much closer to being underwater due to the cost of the refinance (6 thousand) being added to my principal.
    And it seems that anyone who takes the bait and refinances now is just giving more money to the banks and mortgage companies that caused this mess.
    I, dummy that I am, did apply for a refinance, was told by my broker that my house probably would appriase at 260,000, I paid 320,000 for it in 2005.
    The appraisal came back at 220,000 and now they say I have to pay for PMI which will not lower my monthly payments.
    I am also wondering now that this mortgage insurance is not another scam by the banks to keep the appraisals low so they can collect more money.

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