Folks, we in the Christian community need to have a very serious discussion.  We’re seeing more and more headlines about banks and mortgage servicing companies that are getting caught fraudulently creating mortgage documents in order to process foreclosures.

You might very easily ask: “What does this have to do with me?”  It has a lot.  In fact, I’m guessing that 80% of my readers that currently have a mortgage loan are having fraud perpetrated upon them behind the scenes.  That’s a pretty serious allegation.  Let’s investigate what I’m talking about.

“Debt” is simply a promise of future labor.  “Money” is a claim on the promise of future labor (a claim on debt).

What happens when you take out a loan, such as a mortgage to buy a house?  You are presented with a contract that makes a promise of your future labor.  This contract means absolutely nothing before you sign it – it’s just unclaimed debt.  What happens after you affix your signature?  That contract is now money.  It is debt that has been claimed by the lender.  In return, you receive money in the form of “currency” with which to buy your house.  The nation’s money supply immediately increased by whatever amount the loan represented.

What happens if you went back to the lender six months later and told them that you were going to stop paying on the loan?  The lender could show you the mortgage loan document, signed with your personal signature guaranteeing repayment.  If you still refused to pay then the lender would be completely within their rights to foreclose on the property and remove it from your possession.

Are we all in agreement so far?  Good.

Now let’s take things a step further.  “Joe” takes out a $100,000 mortgage loan at the ABC Bank.  “Sam” takes out a $200,000 mortgage loan at the same bank.

ABC Bank decides that it doesn’t like having two mortgage contracts in its file drawer – it would rather have just one.  What does it do?  It creates a brand new “debt instrument” (mortgage contract) for $300,000, and puts the two original contracts through the office shredder.  Problem solved.

One year later “Sam” falls on very difficult financial times and can’t continue making his mortgage payments.  ABC Bank decides that the only resolution is to foreclose on “Sam’s” house.  Sam goes before the bankruptcy judge and has his house taken from him.  That’s legitimate, right?  Wrong.  This is where things get somewhat confusing from a Christian perspective.  “Sam” still knows that he took out a $200,000 loan.  However, ABC Bank has no way of producing the loan document (contract), since they put it in their shredder.  “Sam’s” official signature promising repayment is gone.  There is no more official promise of future labor – and there can be no claim on a non-existent promise.  This means that the $200,000 of newly created money actually doesn’t exist.

“Sam” doesn’t know this.  He just thinks that he’s stuck losing his house, since ABC Bank is still acting like it has legal rights to bring foreclosure proceedings against him.  They don’t – not without a contract that is affixed with “Sam’s” signature.

This is where the current media headlines are coming from.  Banks and mortgage servicing companies are creating false mortgage documents, and actually forging signatures in order to get foreclosure judges to reassign ownership of houses.

Now you’re probably saying: “This is interesting information, but how does this affect me and my house?”  Let me start with the conclusion.

Most of those reading this that have a mortgage loan are having fraud leveled against them by the financial industry.  Most of the loan documents that were signed by the buyer have been destroyed.  This means that most are sending in monthly payments to a “servicer” to pay for debt that contractually doesn’t exist anymore.  Here’s how it works.

Mortgage companies gave out loans like candy, to anybody with a pulse and a signature.  They really didn’t care if the loans could ever be repaid, since their intent was never to put the loan documents in their file cabinets for servicing.

Instead, most mortgage loans were immediately sold to investment banks.  These banks piled loans of equivalent types together, such as 30-year fixed rate.  The various piles were then divided into “tranches” (pronounced “tron-chuz”).  Each tranche was rated by various ratings agencies (Moody’s, Standard & Poor, etc.) and then sold off to investors as “Mortgage-Backed Securities (MBS)”.  The investors represented a wide range of people and organizations from all over the world.

What happened to the original mortgage documents?  They were all destroyed.  How do the investment banks know who to fraudulently collect monthly payments from?  They created an organization known as “MERS (Mortgage Electronic Registration Systems)”.  MERS exists to assign “servicers” to mortgage loans.  It is highly likely that the company you send your monthly mortgage payment to has absolutely no claim to the original note, which doesn’t even physically exist anymore.  You can check to see if your mortgage is being handled through MERS by clicking on the above link and doing a property search.

Think of the ramifications if this information becomes common knowledge.  Mortgage foreclosure proceedings will be stopped throughout the US, since mortgage servicers don’t have the right to initiate proceedings on property that they don’t have a claim on.  There would also be many people that simply stopped paying their mortgage, since they will realize that their debt document was destroyed.  Mortgage industry chaos could ensue.

We could also see housing sales plummet even further, along with home prices.  This would occur as buyers could not be guaranteed clear title to a home.  Title insurance companies would be unable to obtain original loan documents that had been destroyed.

I’m guessing that the Federal government will step in somehow and do something to allow the fraudulent foreclosures to continue.  To do anything else would be to invite an economic firestorm.

It has been, and still is my opinion that buying any form of housing right now is a very poor purchase.  If the fraudulent practices of the mortgage industry become well known then home prices could easily drop another 30% or even 50%.

If a home purchase is undertaken then a lawyer with expert knowledge regarding clear titles might be a wise decision.

Your comments and questions are welcome…

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