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Through the Federal Reserve Systems policy of Fractional Reserve Banking, banks can, and do loan 9x’s the Performing Assets** on their balance sheet. This means 1 million dollars in **Performing Promissory Notes (**Trust Deeds and Mortgages (know as “Paper”) where the homeowner is paying the monthly payment on time every month) can provide the ability for the bank to loan 8.1 million dollars, but only on Performing Assets**.
Example: $1,000,000.00 settled at 50% loss = $500,000.00
Bank net payoff = $500,000.0
After a required 10% Reserve of $50,000.00 deposited with, the Federal Reserve
$500,000.00 – $50,000.00 = $450,000.00
$450,000.00 x 9 = $4,050,000.00
Banks will take a loss of $500,000.00 in order to lend on $4 Million. Moreover, the bank has really loss nothing; the perceived $500,000.00 loss was paid back to the bank via insurances or bail out funds, (MI-Mortgage Insurance, the FDIC-Federal Deposit Insurance Corporation, TARP-Troubled Asset Relief Program, etc.)
The banking system is too important to fail, to “big to fail”, not unlike a few other industries in America; the Automotive for example.
As far as our government is concerned, when it comes to our Banking System, “the name of the game is BAIL OUT.” The banking system is the most important system in America, if it falls, America falls.
If the bank is holding Trust Deeds or Mortgages Notes (Paper) on 6 houses and those houses are valued at $200,000.00 each, that equals $1,200,000.00 in property value.
But if the mortgages against those houses is $450,000.00 each; then the bank is holding $2,700,000.00 in mortgages, and the homeowners are not paying; these notes are considered Non-Performing Notes (NPN’s) and worst yet the secured value is $1,500,000.00 negative.
The bank is holding a non-performing asset, which shows as a liability on their balance sheet.
Check out the numbers:
(Bank allowing Short Sale or Discounted Payoff)
Present Value of houses = $1,200,000.00
$1,200,000.00 x 50% = $600,000.00 perceived loss for the bank
$600,000.00 actual net for the bank after $600,000.00 perceived loss
10% Fed Reserve Requirement = 60,000.00
$600,000.00 – $60,000.00 = $540,000.00
$540,000.00 x 9 = $4,860,000.00
Here is how it works: (okay now, try to follow the numbers; it’s tricky)
$4,860,000.00 at 4.875% for 30 years = Monthly Interest of $19,743.75
– 10% of $19,743.75 = $17,769.37
$17,769.37 x 9 = $159,924.37
$159,924.37 @ 4.875% for 30 years = Monthly Interest of $649.69
– 10% of $649.96 = $584.72
$584.72 x 9 = $5,262.51
$5,262.51 @ 4.875% for 30 Years = Monthly Interest of $21.37
– 10% of $21.37 = $19.23
$19.23 x 9 = $173.09
$159,924.37 + $5,262.51 + $173.09 = $165,359.97
From the interest alone, that the banks can generate after 3 months, (the first quarter or Q1); they have created $165,359.97; a completely new mortgage loan (a Promissory Note) to lend, which they can again Fraction and collect interest on.
After a year (at the end of the forth quarter or Q4) they have generated $661,439.88; well over a half million dollars.
This is the Fractional Reserve Banking System at work; there is no REAL MONEY, it is all ledger balance but looked upon as money by the Central Bank (the Federal Reserve) and our government.
The banks are allowed to charge Interest on this ledger sheet money, and if not paid, they can take the property, to recoup “Loses”.
This type of ledger based balance sheet money is considered as part of what is called the M3 Money Supply. (Research this for yourself)
We as private citizens can not use this as part of our normal business practice; it is illegal for us, unless we are a bank (have a Banking Charter).
This process is OK, per se. There is nothing really wrong with it, per se. But it is not a right or wrong issue, this is how banks create money. But there should be some consideration made for the consumer when the system comes undone, as it has in our past economic environments.
So what do the Banks really lose by settling Mortgage Debt?
NOTHING!
Note: This is an abridged explanation of a detailed process. For detailed specifics, educated yourself about the mechanics of the modern money supply.
Many of us incorrectly call our “Home Loan” a Mortgage, but in fact, a mortgage is not what your lender gives you to Buy a Home.
A Mortgage Deed is actually the formal document proving the legal claim or lien on a piece of property that you give to the lender who holds it as security for the money you borrowed. The lien is recorded in public records.
On a mortgage, you pledge the property as security for the repayment of your loan, but you do not transfer title to the lender.
If you (the mortgagee) repay your loan in accordance with the terms of the mortgage, it is canceled or satisfied by the lender (the mortgagor). However, if you do not repay your debt, the lender has the right to sell the secured property to recover funds through a court proceeding called foreclosure.
In some states; like California, a Deed of Trust is used in place of a Mortgage Deed.
While a Mortgage Deed involves two people (the borrower and the lender) a Deed of Trust involves three people – the borrower (or trustor), the lender (the beneficiary) and a trustee, a neutral third party, such as an attorney or a title agent.
The deed of trust is also recorded in public records.
A Deed of Trust conveys title to the property, and Mortgage Deed does not.
In a Deed of Trust transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the loan to the lender. The Deed of Trust is cancelled when the debt is paid.
However, if you default on your payment of the loan, the trustee may sell the property at the request of the “lender” (actually the Promissory Note Holder) without a court proceeding.
The Lender is giving you a Loan.
Bridge Loans can give you a competitive advantage.
In a seller’s market, the competition for houses can be fierce.
Many sellers will turn down any offer they receive that has a contingency clause (for example, a clause that states the offer is contingent on the buyer selling their own house). This can be problematic for the buyer who does indeed have a house to sell.
To stay competitive in a tight market, some buyers make the choice of securing a Bridge Loan (also known as a Swing Loan or Bridge Financing). A Bridge Loan covers the gap between the time a buyer closes on their new home and the time in which their old house sells.
Typically a Bridge Loan is structured as a one year loan. The bridge loan pays off the buyer’s first house with the remaining funds, minus closing costs and six month’s of interest, going toward the down payment for the new house.
If after six months the first house has not sold, the buyer will begin making interest-only payments on the bridge loan. When the first house sells, the bridge loan is paid-off. If the old house sells within the first six months, any unearned interest payments will be credited to the buyer.
This is the typical bridge loan scenario for most buyers. In some cases a buyer may qualify for a bridge loan that simply adds the cost of their new house to their current debt.
A Bridge Loan can help you make a competitive offer on a property even though your first house has yet to sell.
If you’d like this extra bit of negotiating leverage, lets get together to talk about your options.
Contact Us; we look forward to serving you!
Purchasing? Apply Online Now
It can be a big step to buy a new home or refinance your mortgage.
Let us find the loan program that’s best for you. We have a team of mortgage experts to guide you through this important financial decision. For guidance in locating the perfect loan program for your situation, feel free to call 213-785-8167.
Although buying a new home can increase your frustration, it will also bring a huge sense of accomplishment. You didn’t pick a home that was right for someone else — you decided on the home that was perfect for you! Our trusted professionals can help you decide on the mortgage program that best fits your situation, too. Getting the ideal mortgage loan can be as fulfilling as obtaining the keys to your new home! We can help you get there.
Call us at 213-785-8167 or Apply Online Now
Refinancing? Apply Online Now
If you dread all the paperwork that you assume will come with refinancing, we’ve got great news! Let us show you a headache-free process from application to closing with our “Less paperwork and more personal attention” guarantee. If you want to lower your interest rate and monthly payment, we will simplify the process for you and eliminate your worries. We can even help you pay down your balance faster for a similar monthly payment. Let our team members guide you to the very best refinance loan! We look forward to discussing this with you.
Call Us at 213-785-8167 or Apply Online Now
Superb customer service
We will give you the personal attention you deserve and treat you with the respect due a valued customer. We understand the big commitment you are making in purchasing a house, refinancing, or cashing out your equity. So here is our promise to you: we can help you qualify, apply and be approved for the right mortgage for you.
The next step
Please spend some time on our websites to learn about us, what we will do for you, and how to start the process.
If your home is a Single Family Home or is 2 to 4 units, visit us at:
Or, call us at 213-785-8167 to chat with one of our mortgage experts. We’re ready to serve you now. For fast action call Arthur Bonner at (310) 386-1313
If your property is 5 or more units or is Commercial, Mixed Use, Office Space, Land, or any other kind, visit us at:
Or, call us at 213-785-8167 to chat with one of our mortgage experts. We’re ready to serve you now. For fast action call Arthur Bonner at (310) 386-1313
As concerns the Bank/Lender/Investor that holds your mortgage debt, in most cases the deficiency is forgiven. We make sure of this in your negotiated agreement.
In some states like California, if the debt in on your principal resident and the loan was taken to purchase the property, a deficiency judgment can not be sought, even if the Note were to before foreclosed.
The points to remember are: Principal Resident and Purchase Loan.
As concerns Debt Forgiveness for State and/or Federal Taxes; this forgiveness changes for year-to-year and administration-to-administration.
For the federal details of Mortgage Debt Forgiveness check out the The Mortgage Forgiveness Debt Relief Act of 2007.
For state specific details of Mortgage Debt Forgiveness, check with your state.
As well, most CPA’s, Enrolled Agent’s and seasoned Tax Preparer’s can help you with determining any tax liability.
It’s virtually impossible to change your score in the time between negotiating your mortgage debt, or when most people decide to buy a home or refinance their mortgage and when they apply.
So the short answer is, you really can’t “on the spot.”
But there are strategies you can live with to make sure that once your debt is settled and when you re-apply for a loan your score is as high as possible.
Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies. Once the mortgage debt is settled, start to re-establish your credit as soon as possible, by getting a few new trade-lines of credit (new credit card lines that show on your credit report) and most important, try as best you can, “to pay everything on time for the rest of your life.”
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries.
Changes in the law though have made “consumer-originating” credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that smart consumers shop around for the best mortgage and car loans and that people request their own credit reports to keep up with what’s on them.
Unsolicited credit card solicitations in the mail don’t count against your credit report, so don’t worry.
The two main components of your credit score are your payment history and the amounts you owe in ratio to the approved credit limit. Remember to keep outstanding balances below 50% of the Approved Credit Limit. Bankruptcy filings and foreclosures, which can stay on your credit report for as many as 10 years, can significantly lower your score. It’s never a good idea to take on more credit than you can handle.
!!! Late payments work against you. It’s extremely important to pay bills on time, even if it’s only the monthly payment.
!!! Don’t “max out” your credit lines. Remember, the size of the balance on your open accounts is a factor, lower balances are better.
It’s said that by carefully managing your credit, it’s possible to add as much as 50 points per year to your score.
A bite of insight:
America is a Debt Based Society.
If you carry No Debt, you will be issued No Credit.
Therefore always be aware of how much Debt you take on, compared to the Income you make monthly.
Never take more that you can pay, even when it is offered to you. AND IT WILL BE OFFERED TO YOU, EVERYWHERE YOU GO.
!!!! BECAUSE AMERICA IS A DEBT BASED SOCIETY !!!!
In America the mental attitude is promoted through the media, that your Credit Score is your Wealth, IT IS NOT.
This is a tick to get you into bondage to “THEM“, the “Controllers of Currency” . There is a good old science fiction movie from the 80’s titled “They Live” which is more relevant now, then ever; you may want to watch it to illustrate this point.
Be this as I may.
“If you carry No Debt, you will be issued No Credit.” And subsequently, will not be able to do any “Credit Based Business” in America. If you want Credit; you need to be in Debt. But again, never take more that you can pay, even when it is offered to you.
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