Friday, September 05, 2008

We're All Fraudulently Induced Now

by Tanta on 9/05/2008 08:24:00 AM

Well, actually, it appears we've all been fraudulently induced for a long time but just didn't catch on until recently. Dear reader East Northport Slob sent me the link to this Village Voice article, which you think when you start reading it is just another one of those "lenders hose up foreclosure paperwork" things we've been reading for a long time, but then suddenly gives you this:

Catherine Austin Fitts, former Assistant Secretary of Housing and Urban Development, adds a new twist: She believes that borrowers can fight foreclosure because "most mortgages issued in this country from 1996 on were fraudulently induced."

Fitts said in cases of fraudulently induced loans lenders "knew they were issuing mortgages that were not affordable to the borrower," and the borrower "may not owe the money back because they essentially failed to disclose something about [the borrowers]' financial situation that they knew and the borrower didn't."
I'm sure we all have the same questions here: Who the hell is Catherine Austin Fitts? Why 1996? And how do you fraudulently induce people to sign a mortgage by failing to disclose to people some fact about their own financial situation?

I don't think I can help you with the last two, but I did some checking with Dr. Google on the first one. Let's let Ms. Fitts introduce herself:
In 1989, I was serving as Assistant Secretary of Housing. The housing bubble of the 1990’s had burst, and foreclosures were rising.
The "housing bubble of the 1990's" burst in 1989? Is there a wrinkle in the time-space continuum? Is The Truth Out There?
The mortgage insurance funds of the Federal Housing Administration (FHA) were experiencing dramatic losses. We were losing $11 mm a year in the single-family fund. All funds had lost $2 billion in the southwest region the year before.

My staff and I did an analysis of what had caused the losses. What were the actions that we could take?

Fraud aside, the single biggest cause of losses in the FHA portfolio was a falling Popsicle Index – an index that we coined as a rule of thumb to express the health of the living equity within a place.

The Popsicle Index is the percent of people who believe that a child can leave their home, go to the nearest place to buy a popsicle, and come home alone safely. It’s an expression of the sense of intimacy and well being in a place.

Not surprisingly, there is a correlation between the financial equity or wealth in a place and the living equity or human and natural wealth. Where the people, living things and land are happy, businesses thrive, and the value of real estate is good.
This seems to imply that if we could just cheer up our shrubberies, real estate values would improve substantially. I confess to wondering what could cause a "bubble" under this conception of things, but this may be because I'm still stuck in the wrong paradigm:
The Popsicle Index is the % of people who believe a child can leave their home, go to the nearest place to buy a popsicle or snack, and come home alone safely. For example, if you feel that 50% of your neighbors believe a child in your neighborhood would be safe, then your Popsicle Index is 50%. The Popsicle Index is based on gut level feelings of the people who have intimate knowledge of a place, rather than facts and figures.
I'm pretty sure that I feel that at least 50% of my neighbors believe that granite countertops are like a retirement account you can put hot pans on, but certain ugly facts and figures keep intruding on the conversation. Or, well, maybe not, given that since 1996 most of us weren't told the facts and figures about our financial situation in order to fraudulently induce us to buy homes with borrowed money. Or something like that.

Frankly, the Village Voice reporter should have hung up the phone here and gone out for a Popsicle. In fact, I suggest we all go out for a Popsicle. I for one feel safer out on the streets than indoors reading the news some days.