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A Failing Battle to Fight Foreclosure

Ángel Franco/The New York Times

This headline caught my attention this morning:

Ten months ago President Obama announced a $75 billion program to keep as many as four million Americans in their homes by persuading banks to renegotiate their mortgages. Lenders have accepted more than one million applications and cut three-month trial deals with 759,000 homeowners. But they have converted just 31,000 of those to the permanent new mortgages that are the plan’s goal.

It’s hard to fathom how many people are battling or have succumbed their life’s savings (their home) to foreclosure. In the third quarter of this year, 937,840 families received a foreclosure notice. (up 23% over the same period in 2008.)

It is important for me to state this fact– I don’t know a single person in which a bank has permanently helped during this housing crisis. They have done some short-term things. But every person I know, including ourselves, who has needed their bank to re-negotiate or process a short sale, has eventually had to accept foreclosure.

The government bailed the banks out, they’ve given them significant incentives, and yet they take the governments money– money clearly given to help re-negotiate loans– and just accept it as profit. Here’s another quote from the New York Times article:

The servicing companies make money either way. The Obama program pays them $1,000 for each loan modified, and another $1,000 per year for three more years if the borrower avoids foreclosure. On the other hand, the companies make large sums charging late and legal fees on overdue mortgage payments, and sometimes it is cheaper to foreclose than to cut the mortgage payment. link

Simply put, if your home is underwater (you owe more than it is worth on the market) and you need your bank to help you there is nothing they are going to do. They are going to stall, hem, haw, and outlast you. They know, relying that you are an honest person, that you’ll pay fines to try to keep your home but eventually you’ll get tired of the process and accept foreclosure. At least that is the banks great hope.

Maybe it isn’t always that way? Certainly, there are enough short sales going through to fuel the market and keep people’s hopes up. But for every person I know selling their house who has tried a short sale, it is merely a holding pattern– a glimmer of hope to hold on to– on the path of accepting the humiliation of foreclosure.

Bottom line, why is this happening? The banks make more money when you foreclose than if they do a short sale or modify your loan. It is in their best interest that you foreclose! The nature of how loans were created the entire Bush administration was that a loan was generated on a house, then the banks commoditized the loans and sold them off as securities. (Something like a bond) Then they hired servicing companies to make sure you paid your mortgange and that the investors got money.

Then the bank took out bets (credit default swaps) against the people they lended to. That’d be you and me. Read this little article about a 19th century confidence scam, it’ll sound pretty familiar to anyone who has bought a house! Don’t think it is possible to dupe the entire nation? Two words, my friends: Bernie Madoff.

See, in essence, the bank wants you to foreclose so they can make more money. And their processors (subsidiary companies) want you to struggle so you keep paying interest and penalties as long as possible. Then, when you finally give up, they still get the property. Cute, eh?

What’s the solution? The easy solution is for people to start paying 20% more for a house than it is actually worth. But who wants to do that? I’m afraid the government may be the only entity that can help. (Short of every American just stopping payment on their mortgages.)

Someone needs to help people on a wholesale level, renegotiate their loans. Like a one time amnesty program or something like that. It would seem reasonable that the local assessment office, which values your home for tax purposes, should be able to act as an independent agent to your mortgage company. “This home is now worth 25% less, you’ll need to reduce the principle on the loan by 12.5% to meet the homeowner half way or face a $50,000 fine fr0m the municipality and lose your license in this state.

Of course, that isn’t going to happen either. There is too much money to be made.

This is why people say this is a mess! It’s a big ugly mess.

Want to learn more? Check out this special from This American Life called “The Giant Pool of Money.”

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Politics

Open System Health Care

new-medical-distribution-systemI don’t know about you, but I’m growing a little tired of the lack of progress and new ideas coming forth for health care reform. I wonder if instead of making private citizens scream at their elected officials we could get those causing the problem to scream, instead? Here’s how.

Instead of reforming health insurance (which is what we mean today by “health care reform“) what if we reform the industries at the root of the problem? What if the government opens up distribution channels to the raw supplies so you can buy the stuff you need on the open market?

Let’s say you need a new knee. The doctor says, “I could buy the part and it’ll cost you $2500 or here are the specs on what you need, you may be able to find the exact same part cheaper.” (Take away the fancy titles, this is not unlike going to get a new muffler!) The doctor gives you the specs for the item you need, and you go to Amazon.com and price the part you need for the operation. Amazon.com works directly with the manufacturer in Warsaw, Indiana to carry the most commor specs and carries them in stock. Based on the laws of supply and demand, you are able to go to Amazon.com and buy the exact part you need for $800. A week later it is delivered to your house and you take it with you to your surgery.

Same thing works for medical equipment. The current system will not allow you to go to Walmart.com to rent a wheel chair that you need after your surgery. Instead, your doctor calls the local medical equipment distributor and they rent you a wheel chair for $500 that they’ve rented 25 times already but paid $322 for from the sales rep. Under the new system, since you can now work directly with the manufacturer, you go to their website and buy the thing for $280 or you go to Craigslist and pick one up for $50.

Naysayers will toss out this right away… “what about drugs? You can’t open up the drug market!” You actually can open this up as well. Your doctor could provide you with a unique code which grants you a certain prescribed drug. You make that purchase online and cut out the middle man, it’s delivered to your door. For drugs that are abused, have it delivered to the doctors office. Since the office won’t be meeting with endless drug reps and DMEs they should have plenty of time to sign for stuff from FedEx.

This really isn’t that complicated. It just opens the system up. Currently, everything you have delivered to you in the health care system is based on a closed distribution model. You have no ability to determine what the manufacturer made the item for, what the mark up was when they sold it to the distributor, what the sales rep made when he sold it to the hospital, nor what the hospital paid for the item. You only know what they are charging you for on the itemized bill. And you know that it is all negotiable because that’s what Medicaire, insurance companies, and private individuals do. So you may see that the hospital billed $5500 for the replacement knee but because it’s a closed system you have no way of knowing that the manufacturer in Indiana made it (at a profit to themselves) for $600. Consequently, the closed system is bloated with mark-up. It’s a closed capitalist system.

We’ve done this same thing in almost every industry. Why not do this to health care?

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hmm... thoughts Politics

Following the money trail on health care

Watch the video below, and deny me the fact that the consevative media has been bought in the health care debate. I hate it when video proves the conservative agenda gone array. Or did Glenn Beck suddenly think that his 2008 experience was a lie?

As a friend said tonight in our small group, “How can Christians be for social darwinism?” It makes no sense to me either. When will the conservative evangelical cheer the Obama campaign for pushing for equality in health care? You know, like in the book of Acts. Or is it that they only believe survival is for the rich? How did believers end up on the wrong side of this discussion? Republicans do make strange bedfellows, don’t they?

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
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Thoughts? I mean, Glenn Beck couldn’t have flip flopped, could he?