Mortgage Debt and the Looming Foreclosure Crisis

as the FED runs out of bullets, local governments are stepping in – Published on Global (first on Web of Dept), by Ellen Brown, July 6, 2014.

… The Fed’s massive quantitative easing program was ostensibly designed to lower mortgage interest rates, stimulating the economy. And rates have indeed been lowered – for banks. But the form of QE the Fed has engaged in – creating money on a computer screen and trading it for assets on bank balance sheets – has not delivered money where it needs to go: into the pockets of consumers, who create the demand that drives productivity.  

Some ways the Fed could get money into consumer pockets with QE, discussed in earlier articles, include very-low-interest loans for students and very-low-interest loans to state and local governments. Both options would stimulate demand. But the biggest brake on the economy remains the languishing housing market. The Fed has been buying up new issues of mortgage-backed securities so fast that it now owns 12% of the mortgage market; yet housing continues to sputter, largely because of the huge inventory of underwater mortgages.

According to Professor Robert Hockett, who originated a plan to tackle this problem using eminent domain, 40% of mortgages nationally are either underwater or nearly so, meaning more is owed on the home than it is worth. Seventy percent of homes that are deeply underwater wind up in default.

Worse, second mortgages are due for a reset. Over the next several years, principal payments will be added to interest-only payments on second mortgages taken out during the boom years. Many borrowers will be unable to afford the higher payments. The anticipated result is another disastrous wave of foreclosures.

The mortgage debt overhang was the result of financial deregulation and securitization, which created a massive housing bubble. When it inevitably burst, housing prices plummeted, but mortgages did not. The resources of the once-great middle class were then diverted from spending on consumer goods to trying to stay afloat in this sea of debt. Without demand, stores closed their doors and workers got laid off, in a vicious downward spiral.

The glut of underwater mortgages needs to be written down to match underlying assets, not just to help homeowners but to revive the economy. However, most of them cannot be written down, because they have been securitized (sold off to investors) in complicated trust arrangements that legally forbid renegotiation, even if all the parties could be found and brought to agreement.

Reviving the HOLC: … //

… The Eminent Domain Alternative: … //

… The MERS Trump Card:

If the eminent domain plan fails, there is another way local governments might acquire troubled mortgages that need to be renegotiated. Seventy percent of all mortgages are now held in the name of a computer database called MERS (Mortgage Electronic Registration Systems). Many courts have held that MERS breaks the chain of title to real property. Other courts have gone the other way, but they were usually dealing with cases brought by homeowners who were held not to have standing to bring the claim. Counties, on the other hand, have been directly injured by MERS and do have standing to sue, since the title-obscuring database has bilked them ofbillions of dollars in recording fees.

In a stunning defeat for MERS, on June 30, 2014, the US District Court for the Eastern District of Pennsylvania granted a declaratory judgment in favor of County Recorder Nancy J. Becker, in which MERS was required to come up with all the transfer records related to its putative Pennsylvania properties. The judgment stated:

Defendants are declared to be obligated to create and record written documents memorializing the transfers of debt/promissory notes which are secured by real estate mortgages in the Commonwealth of Pennsylvania for all such debt transfers past, present and future in the Office for the Recording of Deeds in the County where such property is situate.

IT IS STILL FURTHER ORDERED AND DECLARED that inasmuch as such debt/mortgage note transfers are conveyances within the meaning of Pennsylvania law, the failure to so document and record is violative of the Pennsylvania Recording Statute(s).

Memorializing all transfers past, present and future, probably cannot be done at this late date – at least not legitimately. The inevitable result will be fatal breaks in the chain of title to Pennsylvania real property. Where title cannot be proved, the property escheats (reverts) to the state by law.

Only 29% of US homes are now owned free and clear, a record low. Of the remaining 71%, 70% are securitized through MERS. That means that class-action lawsuits by county recorders could potentially establish that title is defective to 50% of US homes (70% of 71%).

If banks, investors and federal officials want to avoid this sort of display of local power, they might think twice about turning down reasonable plans for solving the underwater mortgage crisis of the sort proposed by Senator Merkley, Professor Hockett and Attorney Cahan.

(full long text with hyper-links).

(Ellen Brown is an attorney, founder of the Public Banking Institute and the author of twelve books, including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally).

Related Links:

Articles on Paul Craigh Robert’s Website;

The Real Economy Is Somewhere Between The Toilet & A Rat Hole, on ZeroHedge, by Tyler Durden, July 7, 2014 (first by James H Kunstler on;

The Circulating Money Supply: Why QE3 Won’t Jumpstart the Economy—and What Would, on Global, by Ellen Brown, Sept 21, 2012;

Jeff Merkley’s HOLC-Type Plan for Underwater Borrowers, on FDL, by David Dayen, July 26, 2012;

Mortgage Electronic Registration Systems MERS … is an American privately held corporation. [1] MERS is a separate and distinct corporation found as a nominee in mortgages after the turn of the century and is owned by holding company MERSCORP Holdings, Inc. MERSCORP Holdings, Inc. owns and operates an electronic registry known as the MERS system designed to track servicing rights and ownership of mortgage loans in the United States and has a banking, mortgage and financial related membership …;
(MERS disambiguation: Middle East respiratory syndrome, … (MERS) is a viral respiratory infection caused by the newly identified MERS-coronavirus (MERS-CoV) … this article is about the disease);

FILM: Will Work For Free, 126.35 min, uploaded by Maveric Media, Nov 5, 2013: OFFICIAL RELEASE 2013, a documentary by Sam Vallely on the subject of technological unemployment;

The Fed Has Spoken: No Bailout for Main Street, on truthout, by Ellen Brown, Jan 14, 2011;


Beware The Looming “Wave Of Disaster” From Home Equity Payment Resets, on ZeroHedge, by Tyler Durden, Nov 14, 2013;

Schweiz Suisse Svizzera Switzerland:

on wikipedia:

Other Links:

An interview with an ex-Navy Seal, on Humanitarian Texts, July 9, 2014;

in german: link auf for download: ANATOMIE EINES ULTIMATUMS = Fulford-Dossier, 86 Seiten.

How do we revive the global union movement? on Socialist Unity, by Josiah Mortimer, July 7, 2014;

Growing Influx: Germany Caught Off Guard By Surge in Refugees, on Spiegel Online International, by , July 7, 2014 (Photo Gallery): The German government is expecting around 175,000 people to file applications for asylum this year, the highest number in two decades. Regional politicians are acting surprised, but there have been signs of this development for years now …;

Video: Interview with Ukrainian rebel leader Igor Strelkov, after rebel breakout of Slavyansk in Eastern Ukraine, 6.09 min, on Socialist Unity, by Ed team with english sub-titles, July 7, 2014;

Interview with RT on latest developments in Ukraine, on Socialist Unity (first on RT), by John Wight, July 3, 2014;

… and this:

Recipes for Ramadan on YouTube:

Elders React to Homeless Transformation (Memorial Day), 9.30 min, uploaded by TheFineBros, May 22, 2014 … and more in autoplay.

Comments are closed.