Cash for Keys

The current housing & credit crunch owes its birth to a practice of greed that started several years ago by predatory lenders and some major American financial institutions that packaged subprime mortgages as AAA secured bonds. These bonds were in turn peddled to the worlds markets, but with one caveat, that; if they defaulted, they would have to be repurchased by the issuing lender. The problem that these were in reality, subprime or poor-risk-income stated loans was lost in the American housing and loan boom that followed.

“Refinance your mortgage and have the American Dream, own your own home, “the ads cried. “Refinance and get cash back. In fact, refinance at even 2% ARM rates and don’t worry about the balloon interest rate, your property value will increase by then and with even modest inflation, your spending power will be greater then, and you can always refinance your mortgage at a fixed interest rate. Besides you get cash back. Pay your bills with a lower interest rate and just use your home equity as collateral, “the ads cried. “Borrow $500,000 for $1000 a month, “the ads streamed. “Remember you get cash back,” the ads screamed.

Bankruptcy laws were modified because credit card companies and loan originators that were making record profits saw no need to ever truly write off notes permanently. “We can always repackage old bad loans and sell then as secured bonds to the markets as well and make even more money, “they maintained. And the lenders and banks contributed heavily to the good Republicans to change the laws that were keeping them for making more money, this way the economy could really boom and everybody could get cash back.

But with the similarity that gravity and markets tend to share, the mortgages started to fail. For what goes up indeed comes back down. The borrower could not meet their adjusted-rate mortgage and its balloon payment. Jobs had been outsourced, petroleum was at $100 a barrel, gasoline was over $3 per gallon and property values were falling; not rising, they were falling. The job market for the middle class was shrinking. Income ratio with the upper class was widening. It now took three jobs to pay the bills and daycare and healthcare costs were growing and jobs were disappearing and the new jobs paid less money.

“I can’t pay my mortgage, “the homeowners cried. “I have less income now and my home loan is based on higher earning power,” the small business owner cried. “I have to compete with the worlds markets and they work for pennies in third world countries,” the business man cried. But the market continued on.

“I can’t pay my mortgage; I have too many bills the working mother cried. I can’t pay my mortgage, “the working man cried. “I need to refinance, “they both cried.” I can’t buy all these defaulted loans back, I’ve spent the money and it’s leveraged heavily, “the mortgage lender cried. They needed help but still the market continued on. Lenders sought buyouts and loans and still the market continued on.

Homeowners facing foreclosure called lenders and requested help. “Well, you can’t refinance as there is no equity. You can’t reinstate or pay all the back payments that are owed, because you have no income to pay the payments that are due. You can’t do a forbearance amendment as you can’t afford either the existing the payment and you have no money to make a lump sum note payment. We cannot do a modification or apply the missed payments on the back end of the notes because you can’t afford the existing payment. We can’t do a short sale because there is no equity and the loan officers have tightened up the lending requirements and you lack the income to credit ratio necessary. Frankly, you can’t afford the house, “the lenders replied.

“What can I do?” the homeowners cried.” Well, we can offer you something called deed in lieu, “the lenders replied. “We will give you cash for keys. You move out and we take the home, but you get cash back,” the lenders replied. “That way you can get a new start.” So in the end the homeowner takes cash for keys and the lender who is bankrupt at noon is bought by a bigger lender and the government bails them out. But remember, you got cash back.

“Cash for keys”, the new mortgage lender cried, “Cash for keys!!”

-Thomas P Love