I’m Sorry But Anyone Getting Foreclosure Policy Advice From Dave Ramsey Is An Idiot

Steve Dibert, MFI-Miami

I’ve been spending more time in metro-Detroit since moving my processing here from Florida, I have had the opportunity to reconnect with some old political friends I have not talked to in nearly a decade.  Although it’s been pretty cool to see them and see that they are still active in the party, I feel disconnected from them and their causes.  This is mainly because when I try to explain to them what MFI-Miami does and what I have accomplished in the past four years, I get this weird look like I’m an alien from another world and it’s not a look of curiosity or wonderment but of confusion.  It’s like I’m speaking Chinese to a person from the back woods of Albania and it wasn’t just them.

When I began pitching MFI-Miami’s services to Michigan attorneys, I received two answers.  The first being, “Well, that‘s not the way we’ve always done it.” and the second being, “There are no defenses to foreclosure.” They would then dismiss me like I’m a Jehovah’s Witness who rang their doorbell at 7am on a Sunday morning.  Never mind the fact that MFI-Miami had been successfully helping attorneys in Florida, Massachusetts and New York craft these arguments since the crisis began or that I had been a contributor to CNBC and other international media outlets talking about mortgage fraud and foreclosure since 2008.

I realized it’s not just my friends in the Democratic Party or attorneys who don’t understand the fundamentals of banking and finance, it’s the vast majority of people in Michigan.  The scary part is people have no interest in learning about it and this is reflective in the quality of politicians that get elected here.

I was about to give up on Michigan when something interesting happened.

Thanks to a loss in population and Republican Legislators in Lansing trying to be cute by gerrymandering congressional districts, a unique Democratic primary is shaping up between Gary Peters and Hansen Clarke. Their districts were merged to form the new 14th Congressional District.  The new 14^th District is made up of Peters’ old district to the north in suburban Oakland County and Clarke’s old district in the south that covers half of the City of Detroit.

What makes this primary unique is the fact that unlike the rest of congress and most of the politicians in Michigan, both Clarke and Peters are talking about the never ending housing crisis and what needs to be done to correct it.

Last year, after the new district maps were approved by the Republican controlled Michigan Legislature, Clarke, immediately began campaigning on a social justice platform as he did in his previous campaigns for the Michigan Legislature and in his 2010 primary fight against the mother of former Detroit Mayor Kwame Kilpatrick.

Let’s be brutally honest, running around playing Don Quixote of Detroit may have benefited Clarke in past campaigns. It may even play well with the idealistic uber-lefties in the Occupy Detroit movement and Trotskyist extremists who make up a small percentage in the labor movement, but it isn’t going to work well with the educated white suburbanites who now make up over half the district and who will actually vote in a Democratic primary.

Clarke who is a devotee of radio show host, author and self-proclaimed biblical financial expert, Dave Ramsey, made the foreclosure crisis one of the cornerstones of his social justice platform.  Unfortunately, it has become obvious that whatever Hansen Clarke did before becoming a career politician, it didn’t have anything to do with finance or banking. He is totally clueless when it comes to the mechanics of mortgage finance and lending.

Clarke is campaigning on a bill he introduced in congress several months that calls for a 3 year moratorium on all foreclosures claiming,

“Suspending foreclosures would encourage banks to agree to modify mortgages and make payments more affordable.   At the end of the foreclosure suspension period, a court would be able to reduce the mortgage principal for underwater mortgages.This law would result in more vibrant communities and a healthier national economy. “

Huh? Am I missing something here?

I’m considered one of the leading experts in foreclosure defense and I have no idea how Clarke is reaching this conclusion.  It sounds like this plan is based on wishful thinking and it clearly indicates Clarke is pandering to people who are as ignorant about mortgage lending as he is.

A three year moratorium is not going to stabilize neighborhoods and it certainly is not going to help the economy for a multitude of reasons. If anything it will make matters worse.

If a person isn’t making their mortgage payments, they’re not paying their property taxes and homeowners insurance unless they have them escrowed as part of their payment.  That means if the homeowner isn’t making their payments, the mortgage servicer is and they’re not doing it out of civic pride. They’re doing it to avoid the property going to tax foreclosure because if that happens, the lender loses any lien rights they may have. The servicer applies these advances to the mortgage balance the homeowner already owes along with any unpaid principal and interest payments for three years.

This means if a homeowner owes $100,000 on his house and has a 6% interest rate on his mortgage at the time of the default. They would owe $123,400 after three years assuming they are only 3 months behind on payments when the foreclosure was initiated.  After you add the cost of property tax and insurance escrows of $3600 a year, the homeowner now owes $125,200 on a house valued at $35,000.  There is no way a bond holder is going to take a 72% hit on their investment.  Who are the bond holders Clarke is asking to take a 72% hit to their investment? Bueller? Bueller? Anyone? That’s right, Grandma’s Pension and Retirement Fund. So essentially, Clarke’s plan robs food and medicine from someone’s grandma in order to buy him a few votes in his district.

Besides, several foreclosure moratoriums have been happened since the crisis began in 2007.  The banks voluntarily imposed a nine month moratorium on themselves following the discovery of mass robo-signing in 2010 and another one happened last year, while the state Attorneys General were negotiating the mortgage fraud settlement. Neither moratorium did anything to stabilize housing prices in metropolitan Detroit.  Matter of fact, property values continued to decline.

At the end of last month, Occupy Detroit made a lot of noise by camping out in front of the home of Jennifer Britt in an effort to persuade Fannie Mae not to evict her from her home.  To their credit they have so far dissuaded Fannie Mae from sending over the Wayne County Sheriff and Flagstar Bank’s eviction goon squad.

Clarke decides this is an excellent opportunity to don his Don Quixote persona and exploit Jennifer Britt’s situation for his political gain.  This time, he issues a press release demanding Fannie Mae and Freddie Mac suspend evictions for 90 days.  As I type this I can picture Acting FHFA (the agency that oversees Fannie Mae and Freddie Mac) Director Edward DeMarco rolling his eyes.

Clark told the Huffington Post,

 “Currently Fannie Mae is evicting people on an arbitrary basis, destroying property values in neighborhoods and [decimating] city tax bases. It’s outrageous that our own tax money is being used to evict homeowners from their own properties.”

Again, I don’t know if Hansen Clarke is simply pandering to the Occupy Detroit crowd and his Trotskyist followers in the hopes it could help him win the primary or if he had this epiphany while beating bango drums and singing Kumbaya with Ohio Congressman Dennis Kucinich on the banks of the Potomac during a session break.

Clarke’s statement to the Huffington Post is not entirely true and it’s apparent he doesn’t understand the mechanics of how Fannie Mae and Freddie Mac operate or what they received from the TARP bailout.

Learning how both Fannie Mae and Freddie Mac operate isn’t all that difficult.  Thanks to the internet, their manuals are pretty easy to find and if all else fails, a member of  Clarke’s staff could hop on the Metro to Fannie Mae’s office in Georgetown and pick up a copy.

Like his his hero Dave Ramsey, Clarke takes an overly simplistic stance to a complex situation that is common with the uber-left in Detroit and other cities across the U.S. who believe everyone is entitled to a free house.  They forget home ownership is like owning a car. It is a privilege not a birthright.

There is also a misconception by Clarke that Fannie Mae and Freddie Mac arbitrarily buy homes at Sheriff’s Sales in Michigan and then randomly pick and choose who they are going to evict.

This is simply not true and I can’t believe I actually have to explain this to a member of the United States Congress especially one that went to Cornell and Georgetown.

First of all, Fannie Mae and Freddie Mac own nothing.  They act as Trustee and the insurer for the private label Trust who owns these loans and since Fannie Mae and Freddie Mac act as both the Trustee and the insurance provider for the investors, the investor gives them the authority to act as an owner of the mortgage note.  The reason they needed to bailed out by Treasury in 2008 was because Fannie Mae and Freddie Mac insured the loans in the mortgage trusts that went into default.  More loans went into default than they could cover so had Treasury not bailed them out Fannie Mae and Freddie Mac would have gone insolvent.  This would have created a cascade effect wiping out pension funds and hedge funds who invested heavily in Fannie Mae and Freddie Mac backed mortgage trusts.

Here’s how it works.  When you sign your mortgage, you sign a mortgage and a note.  The note is your promise to pay and mortgage attaches the note to the real property aka your house.  So if you break your promise to pay the lender they can take your house.  After you close on your mortgage you mortgage will usually stay in the originating lender’s name or MERS who is acting as the originating lender’s nominee (representative) and the note gets transferred to Fannie Mae or Freddie Mac without being recorded.  If you stop making your payments, Fannie Mae or Freddie Mac will temporarily assign the note again without recording it to whomever is servicing the loan and MERS will assign the mortgage to the mortgage servicer.  Fannie Mae or Freddie Mac will then instruct the servicer to foreclose as the owner of both the mortgage and the note.  It servicer who calls the shots during the foreclosure process not Fannie Mae and Freddie Mac.

Contrary to what the foreclosure mill may put on the Sheriff’s Deed, at the Sheriff’s Sale neither Fannie Mae and Freddie Mac buy anything and no money is exchanged because they already have an ownership interest.  If you press the foreclosure mill on this they will tell you that Fannie Mae or Freddie Mac bought it on a credit bid which is an subtle admission they legally have an ownership interest prior to and during the foreclosure process.

If I sound irritated, I am. I have been trying to explain this to Clarke and his staff for nearly a year but like it falls on deaf ears.  I know one individual who approached Clarke about this and he said it was apparent Clarke wasn’t getting it because he immediately started shouting repeatedly, “I’m a man of the people!”

America faces serious economic challenges in the coming decades.  These challenges are not simply debates about maintaining our shrinking middle class but how are we going to compete with China’s growing influence around the world.  The Chinese are building economic alliances with Brazil, Europe and even our biggest trading partner, Canada.  These challenges demand the average American and the average Michiganian have some basic understanding of how banking and finance work in this country.  These challenges also demand that our elected officials on the local, state federal level have even higher level of understanding of international finance and banking.  Right now, there are maybe two elected officials in Michigan that do understand finance and Hansen Clarke is not one of them.