1. Yes, the average joe bought the marketing message of "housing prices always go up" and over bought at extremely inflated prices way over their means (pre-boom it was common thought to purchase a property 2-3 times your yearly income, in the boom many were doing as much as 10 times their yearly income). Morons that bought with less than 20% down, where the mortgage/upkeep costs were more than 40-50% of your bring home pay deserve to lose their homes. These are the stupid and the small time frauds.
2. Banks destroyed all criteria for giving loans. If you could fog up a mirror (even marginally) then the paperwork could be massaged to make it work. Why not? They had no intention of holding the loan so all the risk would be packaged to the trusts which were sold to the retirement/investment funds, plus they could collect fees from these trusts for servicing the loan (collecting payments etc).
3. When giving sub quality loans to people that did not have the means to support the payments on those loans didn't turn out to be a good business plan they fell back on taking money from the government to shore up their balance sheets.
4. Now, as seen in a number of court cases, it looks like the banks lied about the quality of the loans sold to the investors/retirement funds. This means when you retire and go to cash out that 401k the money might not be there as the investments look sour (which isn't a problem except they were sold as low risk premium securities).
5. Since the banks couldn't process the legal paperwork fast enough and didn't want to be bothered by those pesky fees at the county clerks office (you know, the ones the rest of us peons have to deal with when doing legitimate business) they created the MERS system. This electronic system which is owned by the large banks (they are all the large share holders in the corporation) is supposed to track the loans and the deeds to the properties sold and traded. When the loans turned out to be garbage and needed to be foreclosed on it turns out the courts require that you actually have a legal paper trail explaining the transfer of the rights to the property and the mortgage. When you find out you don't have that then what you do is put together a shady legal firm, hire minimum wage people to sign the papers for the lawyers and the notaries (you really don't need that certification or training for legal signatures lol). Now (through court hearings and depositions) it is coming to light that there isn't a proper paper trail, you may be sending your mortgage payment to a company that no longer has the loan (they consider it already paid by another investor).
6. The banks would foreclose on homeowners that are behind if they had solid legal grounds or it was financially profitable for them to do so. They don't have your best interest at heart, only the bottom line (as is correct with a corporation). What's the reason they are not doing foreclosures (I'm renting from a property that is 50% underwater, payments not made in at least the last 2 years, mod was denied, and there was a foreclosure notice on the door last oct)? Could it be that they don't have the proper paperwork (the average persons only defense against a corporation that has millions to pay lawyers) or that it's not financially sound (remember they are getting paid by the trusts to service the account even though they don't hold the mortgage).
Bottom line: Do you trust a large corporation and the US government to take care of you (the average middle class debt slave) through an electronic filing system wrought with corner cutting and out-and-out fraud with the security of (what is for most people) your biggest financial and emotional investment of a life time?
Karl Denniger has a lot of good information concerning the fraud in the system.
http://market-ticker.org/akcs-www?post=188061 is a nice post about MERS and it's legal issues in NY.
