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I have been doing intenstive study of foreclosures lately, and in the process I discovered yet another threat to homeowners on the horizon.   The trend is silently picking up speed, and has, so far, escaped the attention of mainstream media.

It’s my sincere hope, that some cosmic rationale will echo this blog and get the word out.  Hell, it worked for my interest-rate rant on the earlier “Mortgage Meltdown” post.  Yes, you can thank me personally for the fact the Federal Reserve lowered the Prime Rate and that the DJIA is over 14,000 points at the moment.  Heh.

Anyway, on to some serious shit.

It’s no mystery that people end up in foreclosure due to increasing interest rates on adjustable-rate mortgages, or due to life events like divorce, or job loss.  By now we’ve heard about the sub-prime mortgage crisis to the umpteeth degree, which has tightened lending policies across the board.

Meaning that home-equity lines of credit are also harder to get.  Hang on to that thought, it’s important later on in this post.

Now, just imagine you’re a homeowner who is actually doing ok with the mortgage, and your property taxes are paid on time, and your utilities are up to date.  But maybe because your wages have been stagnant and you’ve had some big-ticket expenses, you are behind on a credit card or two.  And maybe you have an old medical bill that went to a court judgment because your insurance only paid half of it.  

So, there you are, taking care of the most important things, doing what you can with what you have, because after all, the credit card bills and the medical bills can’t take away anything, right?

Wrong, thanks to a company called “Velocity Investments” and a score of others just like them.  Velocity Investments gets to be the black wolf in my fairy-less tale, because they turned up most frequently in my research of non-mortgage foreclosures.  They have a presence ( an evil presence ) in several states.  

Velocity Investiments is a huge debt collection company with an army of laywers.  What they do is buy charged-off debts, usually unsecured loans and credit cards, and also financial judgments.  They buy them from the original lender/creditor for pennies on the dollar. These debts can be anywhere from few months old to several years old, and the amounts are anywhere from couple thousand dollars, on up. 

Once they buy a debt, they send a fresh collection notice out.  Odds are it’s ignored because the debt wasn’t originally with them, and the confused homeowner may assume it’s a scam.  Or they just don’t have the cash to pay it, and shrug the whole thing off. After all, it’s just a credit card or whatever, right?

Not anymore. Velocity Investiments sends collection notices out and then, at the first legal opportunity, files a suit for judgment against the homeowner.  The judgment lists V.I. as the “assignee” of whoever the original lender was. Whether they bought the debt for pennies on the dollar is immaterial; they pursue the judgment for the full, original debt, plus add their own fees, interests, and legal costs.

If the homeowner doesn’t show up to fight the judgment - or doesn’t show up with a sharp lawyer of their own - Velocity Investments wins the judgment, which gives them the right to garnish wages and/or seize assets.  Including property.  Like, your house.

Wait…you can lose your house over an old credit card balance of three grand or so?

Sure can!  Velocity Investments merrily induces foreclosure on homeowners in this situation.  They sue, push the house into foreclosure, force it into auction at a Sheriff’s Sale, then collect the judgment balance from the sale proceeds.  Which includes their own interest, legal fees, and everything imaginable they can stick on to a debt they purchased for pennies on the dollar.  It is now collected in full, and the difference lines their pockets.

Any money left after the mortgage is paid, and V.I. is paid, and any other liens against the property are paid, goes to the former homeowner…but so what.  Their credit is now trashed, they lost their home, and odds are they won’t get another mortgage approved very easily.

Could anything stop this ugly situation?  Well, if the homeowner has enough equity in their house, they might try a home equity line of credit, to get enough cash to pay off these bloodsuckers.  But remember that it’s harder to get any mortgage credit approved these days. If the homeowner has items in collection, forget it.  Banks are slamming doors in the face of applicants right and left.

We’ve heard a lot about “predatory lending” in the media.  It’s time “predatory collection” was brought to light.   This is the worst possible time for collection companies to get tough with the homeowners who still have their heads somewhat above water, and have a little equity to show for it.   So why is it happening?  Why the nut-busting tactics?

Because in an effort to keep their homes in the face of flat wages, rising interest rates, and rising energy costs, and rising property taxes, many homeowners have let the credit cards and “little debts” go to hell.  Two years ago, when property values were going nowhere but up, it was easy to get home equity loans to payoff other debts, or get extra spending power.   That’s no longer a sure bet.  Even if one were to voluntarily put their house up for sale, today’s market is slow and and buyers are scarce.

Since my earlier posts on the mortgage mess, the Fed has lowered the prime rate, but banks and mortgage lenders are still waiting for a bigger bailout by the government before they loosen the lending standards to anything attainable by ordinary people.  This may come in the form of federally-insured holding companies taking on the mortgage servicing ( and risks) of subprime loans, non-comforming loans, and jumbo mortgages. 

Sadly, the endless pass-the-buck mentality between the Feds and the banking industry has put homeowners in the path of ruin.  While they remain stranded, the most aggressive players in the collection industry are sending in the wolves.  By the time a financial rescue, if any, is organized, it will be too late for many hard-working homeowners who lost the American dream.  

It’s been a long time since I picked up a comic book.  As a kid, I used to read them all the time.  “Thor” was a favorite, being one of the few Marvel characters that didn’t seem like just one more guy in a super-suit.

Anyhow, I came across the new “Thor” while browsing magazines the other day, and the artwork alone induced me to buy it.  My first thought was, “Holy @#$%, a comic book costs that much these days?”

And then…advertisements.  I know, I’ve been living under a rock, but I didn’t expect ads for Old Spice and Saturn in a comic book that just cost me four bucks to start with. 

Price aside, I had no complaints. The paper quality and artwork has come a long way. 

To my further surprise, the story was actually decent.  This was “Thor #3″ and apparently it’s a new series, as Marvel previously killed off Thor in some prior issue.

A bit of internet research got me caught up on all the back story.  Let me say, as an aspiring and perspiring author, it drives me nuts that comic book writers can get away with murder and not miss a sale.  Thor’s Marvel character biography will only make sense to you if you’ve:  1) followed the stories since their inception  2) taken drugs.

Thor, over the years, has been turned into a frog, has turned into a woman, has killed his brother twice, has been killed himself twice, has been impersonated by an alien, and has done everything short of being split into an atom.

But, here he is, fresh from the void, with a new look, and a brooding, pensive attitude that seems to be the persona trend these days.  (But I suppose being dead can make a guy cranky.)

I wonder what it takes to get on board as a comic book writer.  With that kind of leeway, I could really wreck havoc. Like… Next issue: Thor discovers a long-lost cousin.  Bahahaha.

 I’m being buried alive by my own junk.   I’m not a technoid or a gotta-have-it type, but somehow I’ve accumliated a small warehouse of obsolete electronic goods. 

 Remote controls that I can’t identify, that go to products I may no longer have, pile up for the day when I might get brave and throw them all out.

Tiny media cards that belong to various generations of digital cameras seem to multiply through the house, appearing at random.  Except, of course, when I need one, and then there’s none in sight.

Dead VCR’s sit silent and dusty, in case the $40 DVD player I own fails me, and in case I find wisdom in spending twice that much to fix a broken VCR.  Who the hell am I kidding?  Yet the VCR could be fixed, and therefore maybe should be fixed, but…why?

Perhaps most eerie, are the blank, faceless CRT monitors of computers long gone, that wait, disembodied and dark, to be reconnected with another machine and restored to life.  Alas, they wait in vain, as flat-panel monitors - from China - are available under $150.00.

Tangled nests of power cords, battery packs, and surge suppressors form a grotto of mysterious cables that daunt my organizational skills and therefore occupy a large box.  They lay in there, like dormant snakes, waiting for me to stick my hand in. 

For not being especially fond of technology, I wonder at my own inability to part ways with the electronic relics that haunt my home.  Maybe it’s that I hate wasting things.  This stuff still works, or might work, or could work, given some minor investigation and repair. 

Though the truth is, it can all be replaced, and in most cases it would be cheapier and easier to do so.  Yet the notion of disposable technology hasn’t taken root with me.  I’m used to electronics and gadgets costing a small fortune.  The idea of changing cell phones every year, or upgrading to the latest-and-greatest computer every new release, just doesn’t feel natural.  I still have this archaic mentality that stuff is supposed to last. 

And in my house, it does last! Whether it’s plugged in or not. 

Mattel’s woes over lead-based paint in toys manufactured in China, is a reminder that you get what you pay for.   It wasn’t the first incident of a tainted product from China and it won’t be the last.  

Most Americans are unphased by product recalls. We’re used to them.  Cars, spinach, laptop computer batteries….we’ve seen it all come back.  So when something flubs in China, we give a collective shrug, grumble a bit about shoddy, cheap manufacturing, and then go back to Wal-Mart and buy more Chinese crap.

What is being overlooked in the product recalls from China, is the fact that China itself is a communist country, and it cannot be trusted to be forthcoming on product safety. China does not make mistakes.  China does not apologize. 

And despite having the world’s largest population and scant natural resources to sustain it, China will never accept seeing itself as anything less than the most powerful nation on earth.  Quietly, as we buy cheap crap that poisons our pets and our children, and China destroys it’s own water supply to produce it….the Chinese government is busy building up it’s military and planning space missions. 

What, you think they’re just going to fold up shop when they run out of water, oil, or non-contaminated food?  Hell no.  China already knows it’s resources and population will reach critical mass within the next 10 to 20 years.  What China needs, China will get.  There’s no acceptance of economic failure when you have a population of billions to support and your goverment’s power has nothing to do with democracy.  

China did not become wealthy because of its clever ideas or scientific breakthroughs or social reforms or political freedoms.  Hello…anybody else the least bit nervous?

Have I mentioned yet, that China has more crimes punishable by death than any civilized nation in the world?  Including such hair-raising crimes like….tax evasion.  No appeals. Just a single bullet in the back of the head at point-blank range.  To catch up with modern times, some Chinese cities now use execution vans that look like ordinary police transport vehicles, and these cruise around to administer lethal injections.  How many people die like this?  Nobody knows. China doesn’t share that sort of info, and being a Communist nation, it never will.  Only high-profile cases, like the execution of a corrupt CEO, gets any press release through the government-controlled media.  The more mundane business, like the daily busload of prisoners taken to killing fields and shot, goes unmentioned.  

Speaking of unmentioned….anybody remember the Tiananmen Square Massacre in Bejing, in 1989? Nobody in China does. You’re not allowed to remember.  It didn’t happen.  Journalists were arrested for covering it.  If you’re in China and you Google it, nothing pulls up.  So it doesn’t matter that hundreds - perhaps thousands - of students and workers were shot down by the military during a democracy rally.  Not counting those arrested and summarily disposed of.  

Ya know what’s a kicker?  George Bush Sr., our president at the time, backed sanctions against China as a result of the incident.   That bit of history isn’t stopping Bush Jr. from accepting the Chinese government’s invitation to the 2008 Olympics.  Or from looking the other way as the Chinese Yen is illegally undervalued by it’s own country and the trade deficit grows.

Nobody remembers the Hainan Island incident in 2001, either…or at least knows it by the facts. A United States spy plane had physical contact with a Chinese military plane within International airspace.  The Chinese plane crashed and the pilot died.  The U.S. plane with 24 crew members made an emergency landing, and was detained.  The U.S. ended up sending two formal letters of apology and accepted responsibility for the incident…even though the black boxes of both planes were held by China and the cause of the air contact could not therefore be pinned to the U.S. pilot.  The crew members were eventually released to the U.S., after enduring Chinese interrogation.

But hell, we cheerfully ushered China into the World Trade Organization later that same year.   Our own government lauded China’s entry, pitching the boon of a huge market that would now be open to U.S. products.   The fact that most of China’s population couldn’t afford a ripe orange, even if they combined their money together, didn’t seem to phase us.  China’s piss-poor human rights record, and the edgy military incident of just a few months prior, didn’t matter when the cash register was open.  

One enormous trade deficit later, China owns more in U.S. financial securities than we would care to admit. 

There are two faces to China.  They allow us to see the “New China.”  Shiny. Modern. Efficient.  Recently considered a “developing country”, it now sees itself as a superpower, perhaps rightfully so.  Behind all the new plastic and lead-based paint, however, there remains the “Old China.”  Communist.  Forbidding. Silent. Unmerciful. The China we forgot, the China that Google isn’t allowed to show in Bejing.

 MaryAnne’s blog contains a reference to Andrew Keen.      He’s  a crackpot who laments that the amateur content on the internet will overwhelm us, and destroy all forms of Intelliegence As We Know It.  The advent of MySpace, YouTube, and countless blogs written by talentless hacks will result in a digital anarchy that will render us numb to true art.

Andy is missing the good stuff out there.  If he had any sense, he’d realize that our media and technology has always been measured by its ability to facilitate porn.  Yes, it’s PORN that drives mankind to the height of expression!  From cave paintings to Egyptian scrolls to the taboo novels of the Victorian era, the overwhelming creative urge has been to describe numerous sex acts and draw dirty pictures. 

And let us not forget the progress of the Industrial Age! Why, did Andy even know, that Sigmund Freud invented the first vibrator? Yes, it was a steam-powered device created to ease the nervous tension of his female patients. 

We must also recognize the tremendous medical advances of our modern times, which brought us Viagra!  

The Internet is the best thing to have happened to porn since the advent of the printing press.  In fact it’s even better.  Now, instead of buying over-priced dirty magazines and grainy movies in sleazy roadside shacks along the interstate, and supporting the mafia in the process…

…you can shop a variety of porn right from the comfort and privacy of your own home.  Best of all, so much of it is FREE!  Yes, there’s sex stories, photos, and movies, for every imaginable bent and fetish and preference…FREE!!  It’s a beautiful world!!

Much of this free porn content is from amateur efforts.  How can Andrew Keen find fault with that?  Maybe he’s never had to jostle his way through a pack of truckers and sailors to buy an over-priced, already-flipped-through adult magazine in a dark, dirty store in the wrong side of town.  I for one, appreciate the creative Internet endeavors of our ambitious citizens and their use of webcams and digital cameras!  WAHOO!

Continuing the prior post:

No one can blame the Fed for cutting rates after the events of 9/11.  But here’s why it lead to an overheated real estate market.

The Fed had already been cutting rates gradually through the preceeding years.  I was in the mortgage industry during the 90’s and watched the rates fall.  At one time, it wasn’t unusual to have a mortgage of 9 percent with good credit.   I could put you asleep explaining the Savings & Loan bailout years before that and the impact on interest rates. ( how about 14% on a 30 year mortgage? Yes indeedy) Instead, I’ll just bottom-line it for ya.

There’s no way the Fed could have prepared for 9/11.  The discounted rates of the 90’s had already helped the stock market gain inflated values, leading eventually to a dot-com bust.  While that was a bump on the road, the events of 9/11 caused a real financial panic and the Fed had only one card to play.  Thus, the prime rate was taken down again and again and again in the hopes of breathing life into a threatened economy.

When it started to work, the Fed kept it up because the housing frenzy was the only major source of new employment.  ( Manufacturing jobs, by this time, were going to China.)  And so the government embraced the fact there were 2.5 million licensed real estate agents and umpteen people working in construction and score of clerical jobs in the mortgage industry.  It was the only bright spot in an economy that saw real wages shrinking and other forms of employment disappearing as a whole.  The tonic given in remedy, was continually lower rates, which faciliated cash-out refinancing that gave Americans buying power for cars and splurges that basic wages would never cover alone.

So why did the party stop? This is where it gets controversial, and I’ve yet to see any “real” financial writers broach the subject.  But here it is.

Simply, the costs of the continued Iraq conflict forced the Fed to raise interest rates.  With a government in trillions of dollars in debt and the dollar weakening against the Euro, the interest rates had to go up before deflation caused it’s own havoc.  (think of the Mexican Peso, where it takes about 100 of them to buy a Coke.)   Iraq was supposed to be a SHORT conflict.   Easy in, easy out.  Just as the Fed couldn’t predict 9/11, it was not prepared for the Iraq Conflict to last more than…oh, 18 months.

As things stand, the Iraq conflict has no end in sight, the price of oil remains high, China has most of the manufacturing jobs, tech jobs have gone to India, and somewhere in there we had the Katrina thing too - but somehow we don’t see insurance companies bleeding to death like we do mortgage companies.  Interesting how that works, eh?

This is why I never majored in finance.  Frankly the subject pisses me off.  Anyway….

The Fed has had it’s head in the sand for the past six months, waiting for the real estate crisis to fix itself.  Sorry boys, but that won’t work.  It was delayed reaction by the Fed in correcting interest rates that lead to the current problem.  Would it kill the economy to loosen the purse strings just a little, and lower the rates just enough to give would-be home buyers and refinancers some hope? 

And about all these adjustable-rate mortgages…how about re-writing the damn loans and converting them to fixed rate?  Oh wait, that’s right…the interest rates now are TOO HIGH! DUH!!  Guess we still have to lower the prime rate a little bit, don’t we.

We also need a mortgage equivilent of the FDIC.   The FHA loan program has an outdated structure and it’s inapplicability to modern real estate is evidenced by how many consumers were driven into “subprime” mortgages.  This is the exact customer base FHA should be serving. 

It amazes me, that the Federal government jumped in on the Savings & Loan bailout in the 80’s, and entered labor negotiations during air-traffic controller strikes, and climbed all over insider stock trading and “accounting irregularities” and a hundred other things that can adversely impact the economy….but it can’t seem to take action as homes roll into foreclosure at alarming speed and a major sector of our economy is falling apart.

Earth to Fed:  This is your mess.  Clean it up. It won’t be cheaper or easier later. 

I’m months behind on my blog, so there’s a ton of personal rants that the public has been denied.  Not knowing where to start, I’m falling back on an old favorite - the sucky status of the mortgage industry.  Here’s a tidbit from an article in my local newspaper which explains what I experienced for myself: 

“Whacked by mounting losses from subprime, high-interest loans made to unreliable or overextended borrowers - mortgage lenders of all types are pulling back, fast and hard. Many are either going out of business or raising standards so high that only borrowers with pristine credit histories and ordinary deals need apply.”

“The lending straitjacket forces home buyers and sellers to fall in line with the stricter guidelines or get out of the market. Area real estate brokers report that deals are falling through as lenders snatch back promises made to buyers who went house-hunting with prequalification papers in hand.”

Yep.  Sure enuff.

There is a stingy spirit of over-correction going on, akin to paranoia, among lenders. It’s not just because of the very real losses, it’s also because of the perception that mortgage lenders themselves are at fault for the mess.  Frantic to appear diligent in the face of such criticism, lenders are removing the very bricks from the sidewalk in their haste to discourage customers.  Mortgage banking has regressed by 20 years in the process.  I believe it’s a devestating reaction that will compound the existing problem.  It’s especially distressing considering it’s not the lender’s fault.

It is the Federal Reserve, and it’s Chairman, that created the problem and must therefore be part of the solution.

Banks merely followed the Federal Reserve’s cues.  The Fed kept lowering the prime rate. Lending got easier because rates went down, and consumer buying power increased.  Home prices escalated madly, because the cheaper interest rates were, the more people could afford to pay for house.  As the Fed kept knocking down rates, the madness to throw around the virtually-free money and “get in” on the gold rush of real estate took on a life of it’s own.  Adjustable Rate mortgages sounded good in an environment where rates kept nosing south.  No-money down loans seemed fine when home values were soaring.

It was when the Fed started applying the brakes, too late, and too hard, that the true problem occurred.   Yes, there was mortgage fraud out there, with fake appraisals and shadow buyers, and rings of conspiracy to bilk banks out of loans that had no homes attached to them.   Then again, it was the Fed’s overzealous discounting of the prime rate that created the opportunity for fraud. 

We must remember that the Fed was desperate, after 9/11, to stimulate the economy. The stock market had tanked. The DJIA went from near 13,000 points down to about 7,000 in the course of a month.  Businesses were folding. Airlines were facing bankruptcy. Jobs were being shed by the thousands. The world, and the American way of life, had been ruthlessly shaken.  If faith was not restored in our economy, not only was recession possible, but a full-scale economic depression was likely.  One that could tank the economies of the world with it. 

More on this later.  Stay tuned for more boring economic opinion!

This is a return volley at MaryAnne’s blog entry of a couple days ago.  Yes, I know Jack, and in addition to her many references already listed, here’s a few more to ponder.

“Jack” is a popular name. It’s also defined in Webster’s Dictionary as a common term for manual labor workers - like lumberjack. 

The name “Jack” is found in a number of modern food brands, too.  Here’s a couple of them:

“Jack” is also a breed of dog - the Jack Russell terrier:

But we’d be missing the obvious, if we didn’t point out the name “Jack”  as it appears in equine circles.  For example, here’s a donkey breed known as the Mammoth Jack:

Not to be confused with the humble jackass.  Ahem.

In the music category, I don’t know how MaryAnne missed the 70’s classic hit, “Do It Again” by Steely Dan.  The name “Jack” is mentioned in the chorus.  Not particularily a comforting set of lyrics if you know Jack like I do.   With that in mind, I offer this token of goodwill to my opposite number: THHHBPTHPTH!!!!  

I recently returned from another long business trip. 

I’ll tell ya’ll right now, if you think a job eats up your life on a 9-to-5 basis, try adding company travel on top of it.  

I’ve said it before and I’ll say it again, it don’t matter how nice the hotel is, or how fancy your dinner is, if you’re by yourself, hundreds of miles from home. 

There’s nothing like a long day of travel to various client offices, followed rejections of your sales proposals, topped off by snotty emails from the boss, to sour a person.  I can completely understand why salesmen     kill themselves in hotel rooms.  There’s nothing like isolation, fatigue, and a complete lack of appreciation to run ya down.  

Fortunately, I had a laptop along and high-speed internet in my hotel room, and my cell phones, so my friends and cousins were never far away.   I still got lonely, though, because I didn’t rent a GPS with the rental car this time.  I had to settle for singing along to the radio and screaming out the window to amuse myself.