I was sent the following email from someone who clearly has not investigated and researched bank fraud since the mortgage mess started to brew. Here is what she said:
"Did the bank honor the terms of the original loan agreement? Did you? You call it a predatory loan which is an excuse for not reading the agreement. Unless the bank committed fraud, the situation is entirely your fault. Millions of people buy houses that are modest, maybe a bit smaller than they wish, because they know they cannot afford anything more. Perhaps you should have done the same. I have no sympathy for people that did not read the terms of their original loan agreement."
Ignorance and ideology are what is stopping the correction needed for housing and thence the economy which depends upon consumer spending, housing being a major component of that spending. So let's look at her self-righteous email, line by line and then see what she would say.
1. "Did the bank honor the terms of the original loan agreement?" Actually the answer is that in most cases there was no bank disclosed to the borrower. "Originators" referred to in the business plans of the banks as filed with the SEC clearly show that they relied heavily on "bankruptcy remote" non-bank thinly capitalized vehicles, which is to say straw-men in sham transactions leaving the borrower with no information on the identity of his creditor or how to contact them or pay them.
The whole idea here was to create the illusion of a transaction and then use paperwork that assumed the validity and reality of the transaction when there was no transaction. The originator was not permitted to take control of the money even for a minute, nor were they allowed to retain ownership of the loan on or off record. These companies were started for the sole purpose of originating loans, not brokering them and not lending the money to the borrower.
So the simple answer to the question is that no, there was no bank, and no bank honored the original loan agreement. Even where the "lender" was a bank or mortgage broker, the same story holds true --- they were used as straw-man conduits for the investors money who funded the venture believing they were buying mortgage backed bonds that were good loans approved in accordance with proper underwriting standards and then placed into a REMIC pool which was proportionately owned by the investor. In fact, the investment bank never funded the REMIC pool and never allowed the REMIC pool to enter into any transaction in which the REMIC pool acquired the loans through either origination or acquisition.
The bank therefore not only did not honor the agreement, it perpetrated a fraud upon the buyer and the lender (investors) by creating agreements that recited intentionally false facts as to both the identity of the creditor and terms of repayment. In fact, ask the bank if they were part of the agreement you are asking whether they honored. Their answer is no, we were not part of that agreement. So what was there to honor?
2. Did you honor the agreement? How do you honor a non-existent agreement with a non-existent creditor who never did their part of the bargain (loan money to the borrower)? The ideological writer of the above quote assumes she knows what happened with these loans when she does not have any clue as to the actual practice. The simple answer is yes, homeowners attempted to honor their agreements but hen were told when the appraisal fraud became evident, that they must stop making payments in order to apply for relief which of course never came. But at that point the homeowner, at the instruction of the bank that had nothing to do with the loan but was pretending to be the "lender" they had paid money up front to the bank, which was illegal for the bank to request or accept, and then piled up 6-12 months or more of payments that were offered but rejected by the bank once the loan was declared in default.
3. I would insert: which agreement are you talking about --- the one where the borrower agreed to pay money in exchange for a loan that never came from the payee on the note, or the one where the real creditor lender was offered not only payments from the homeowner but insurance (AIG) and proceeds from hedge products like credit default swaps? And then I would further add, how many times should "the bank" get paid on the same debt? If the bank already made $1 million on a $200,000 loan, why should they get paid again through a foreclosure and even a deficiency judgment, which leads to the question of who owes whom money? If the promissory note between the homeowner and whoever was pretending to be the lender at the loan closing says that payments received by the creditor should first be applied to the debt and then any overage, after deduction for expenses, is owed to the borrower, then it seems to me that the "Agreement" which has not been read by any of the ideologues who have an opinion on exotic financing instruments that they cannot begin to define requires the over payment to be paid to the borrower. Thus there can be no default if there (a) no debt and (b) money due back to the homeowner under the terms of the promissory note (the agreement you keep talking about, but have never read).
4. "You call it a predatory loan which is an excuse for not reading the agreement. Unless the bank committed fraud, the situation is entirely your fault." Ignorance is bliss. Popping your bubble, not reading the agreement is never a defense to the breach of any agreement, unless there is a provision to the contrary contained in the agreement itself or in the statutes governing the agreement. A predatory loan is defined by statute and case law as one in which the parties are unequal both in terms of bargaining power and sophisticated knowledge of transactions as complex as real estate deals where the number of documents and the thickness of some of them is staggering and despite the fact that the law requires delivery of the documents at least 3 days before closing so the borrower can get some advice, and that is exactly what the originators and now the banks claiming rights under the note, did NOT do. Some regulations describe a pattern of lending called table funded loans as predatory per se --- whether the borrower read the documents or not. These loans, laden with fraudulent representations made to both the real lenders (investors) and the borrowers (homeowners) were fraudulent according to common law going back centuries, statutory law going back decades and common sense. Where the loan comes from an undisclosed party and the loan documents (the agreement) "borrow" the transaction between the homeowner and a bank or other lender that is unconnected with the documents presented at the loan closing, there is no breach by the borrower because there never was a completed transaction with those who are foreclosing on properties by the millions.
5. So there being obvious evidence of fraud, using your logic, it isn't the fault of the borrower. It is the fault of the originator and all the bit players pretending to be dealing in real transactions when they were in fact dealing only in worthless paper.
6. Sympathy: Your lack of any sense of sorrow for people whose lives were turned upside down is disturbing and indicative how this mess happened. The banks were counting on people like you who without reading any of the documents themselves would nevertheless have an opinion on the documents and the behavior, with the assumptions that the bank was faultless.