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Good Afternoon!  This is Connie Saunders with the Foreclosure Freedom Network Show!  I’m a licensed California Realtor and have been in the Mortgage Industry for the past 20 years.

Today I would like to shed some light on major events surrounding this mortgage Crisis.  I’m going to go quickly because there is a lot of data to cover, but you can type in www.foreclosurefreedomnetwork.com and enter my Blog from there. Each of my radio shows will be posted on the left side bar.  So you can listen to these again and again and I will have a written transcript for you to be able to follow along with.

To understand this current crisis, let’s go back in time to the Great Depression and passage in 1933 of the Glass Stegall Act, which forbade commercial banks from underwriting stocks and bonds.  This separated Mortgage Banking out of the fray and away from Investment Banking.  Investment banks were distinguished then as being able to facilitate the issue of stocks and bonds as opposed to Commercial Banks.  This was done to prevent the kind of speculative banking that was a key cause for the depression.

In 1987 Alan Greenspan moved from his position as being on the Board of Directors of JP Morgan to Chairman of the Federal Reserve Bank.  He held this position for twenty years.  His first speech before Congress in 1987 called for the repeal of the Glass Stegall Act.

The CRA was passed into law by Congress in ‘77 as a result of national grassroots pressure for affordable housing.  Only one banker approved this initially, because it defied all convention and defied banking sense.  It basically mandates each banking institution evaluate to determine if it has met the credit needs of its entire community and is looked into when an institution applies for deposit facilities, mergers, acquisitions and is therefore elevated in importance beyond common banking sense.

The Clinton Administration with the help of Greenspan revised the CRA in 1994 which became effective Jan 31, 1995 to mandate this ‘community investment’ for banks, regardless of the credit-worthiness of those getting the loans and increase the number and amount of loans to small businesses and low to moderate-income borrowers for home loans.  The revisions allowed CRA loans to be securitized.  Initially this was to meet ‘quota’s or win favor.

Also in 1995 Fannie and Freddie began to use automated underwriting systems (AUS) to evaluate the credit risk of single family mortgages before purchase.  This incorporated Automated valuation models to evaluate the value of the collateral backing a mortgage, such as the property value.  Their purchase rules initially required loans to have a loan to value ratio of 80 percent at that time.

In manual underwriting there are the three C’s, capacity, collateral and custom mortgage scoring incorporating credit scores and histories with loan application data.  This includes Loan to Value and borrower debt ratios and sometimes included proprietary market forecasts.

The first public securitization of CRA loans started in 1997 by Bear Stearns and began the ‘expanded secondary mortgage market which didn’t require that mortgage loans be backed up by bank deposits.  In 1999 the Glass Stegall act was repealed.  Greenspan remember had been pushing for this since 1987 and his efforts combined with changes with the CRA finally won.

This prompted packaging up large pools of sub prime mortgages and getting speculative investors to back these securitized mortgage pools in what was to become a greatly expanded ‘secondary mortgage market’.

CRA loans did not limit Fannie and Freddie to having a 20% equity blanket (loan to value) as time progressed, the percent of these loans with a much higher loan to value increased from a starting point of 30% to well over 50%.  So not only were the target public less stable financially but the financial buffer cushion was thinner.  Bottom line is and was that the higher the loan to value, the higher the percent rate of default.  Also the lower the FICO score, the higher the percent rate of default.

Now we’re not arms length anymore (from lender to borrower) - where the control is much higher because the effect of bad judgment is immediate and punishing.  We also have not just a simple secondary mortgage market of Fannie Mae and Freddie Mac repurchasing these loans from lenders to replenish bank coffers; but we have a greatly expanded secondary market which is involving pools of mortgages backing up stocks or shares sold to investors on the regular stock market.  Many insurance companies and hedge funds were prime investors in this kind of stock - to offset potential losses in other commodities or stocks, but these mortgages defy normal banking restrictions and are and were a set up for later failure.

The investment appeal for the stock market ‘investor’ dollar to go towards these securitized mortgages, of course, was that the higher interest rate and terms of the mortgages offered to a ‘subprime market’ which yielded a higher return on investment after the initial ‘teaser rate’ low interest time period of 2, 3 or 5 years expired and the real and actual terms went into full effect.

We’re going to take a quick break now and I’ll return in a moment with the second half of the Foreclosure Freedom Network Show with some vital information for you about this Mortgage Crisis, how it started, why it hasn’t resolved yet and what’s in our immediate future.  I’ll leave interpretation of events up to you.

In 1997 Eric Rosenblatt (VP of Fannie Mae) wrote a paper analyzing over 12,000 conventional loan applications to national mortgage lenders in 89 and 90 and argued that mortgage denials rarely occurred where the borrower had learned the lenders underwriting rules in advance.  In other words widespread borrower foreknowledge of such rules caused buyers to answer or choose correctly the avenue, which would cause the loan to occur.  Yet despite this foreknowledge and Rosenblatt’s warning, Fannie’s underwriting system allowed for paperless transactions with sub-prime - with wild abandon. Hmmm. It might be hard to remember the reasons for a law being adopted in depressionary times, however to simply ignore studies done like these 12,000 loans either defies logic.  Was this just stupid or deliberate?  These events happened concurrently, within Fannie Mae and were publicly known and disseminated to the entire banking industry.  Stupid?  Deliberate?  Hmmm, I wonder.

In April of 2004, a group of five investment banks (i.e. Goldman Sachs Henry Paulson) met with the regulators at the Securities and Exchange Commission and convinced them to waive a rule requiring set levels of reserves, freeing up capital, which the investment banks were able to use to purchase Mortgage Backed Securities.  What this then did was cause a huge spike in sub-prime funds available.  Paulson made better than 630 Million on his direct involvement in these ‘toxic’ loans, which are the main ones having gone bad causing the current debacle.

Many of you may recall that Henry Paulson, Hank, left Goldman Sachs mid 2006 and joined forces with GW Bush as Secretary of the Treasury.  Now you may also remember it was Paulson who got Congress to dole out 700 billion in stimulus money with threat of financial meltdown.

Central banks are privately owned financial institutions that govern a country’s monetary policy and create the country’s money.  The Bank of International Settlements (BIS) created in 1930, located in Basel, Switzerland, is the central banker’s bank, owned by member banks.  There are 55 central banks around the planet which are members, but the bank is controlled by a Board of Directors, which is comprised of the elite central bankers of 11 different countries (US, UK, Belgium, Canada, France, Germany, Italy, Japan, Switzerland, the Netherlands, and Sweden).

In January of 2004 they got together and issued new rules about the capitalization of banks, called Basel II.  Within Basel II was an accounting rule requiring banks to adjust the value of their marketable securities to the ‘market price’ of the security (Mark to Market).

These standards were implemented in the US on November 15, 2007.  The result was that the money froze up, because Banks had to recalculate their portfolio’s value based on Market Value, which had dropped and was continuing to drop in direct response to this.

The TARP money (700 Billion) approved mid ‘08 could not be used by banks because they could not loan based on the change in Mark to Market criteria.  This was uniform amongst banks.  Despite this impasse BIS refused to lift these regulations.  Jaime Caruana was the key person responsible for creating Basle II and has just been appointed in charge of dealing with the current financial crisis.  Hmmm.

Why, one might ask.  When stocks are in shambles cities team with unemployed and International Financial Control will be touted as the ‘cure’.  Follow the money.  Taking down the US dollar as the stable index for planetary finance is a good strategy for some.

April 2^nd, yes - Today - there is a London Summit of world leaders gathering to address the global financial crisis.  Here world leaders from 20 countries representing 85% of the world’s output will meet in London.

Their stated purpose is to take whatever action is necessary to stabilize financial markets and enable families and businesses to get through the recession and to reform and strengthen the global financial and economic system to restore confidence and trust and put the global economy on track for sustainable growth.  Globalization is of central focus to all discussions as opposed to ‘protectionism’.  1998 Globalization became a economic phenomena and means a merging of national economic systems through international trade, investment and capital flows, described by the left as a drive toward globalized economic system dominated by supranational corporate trade and banking institutions not accountable to democratic processes or national governments.

Do you think there may be an answer here, as to Why?  Give it some thought and be aware of what comes out of this summit.  This is not a minor event.