CW 188: Foreclosure Fraud Explained with Greg Hunter Investigative Journalist & Founder of USAWatchdog.com

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Welcome to the Creating wealth show. This is your host, Jason Hartman. And this is episode number 188. Wow. You know, after doing this, what, four and a half, five years now, we're almost at episode 200. Thanks for sticking with us and I hope you're getting a lot out of the show. We had a fantastic Masters weekend. It just ended and it just concluded yesterday. And it was just a great weekend. Three days packed full of experts and information and fantastic clients. We'll give you more of a brief on the weekend on a future show. But I just have to say that I absolutely love all of our clients and appreciate your support and appreciate you listening to the show and thank those of you who flew out and traveled quite a distance to come and join us for the Masters Weekend. We really appreciate that. That is a nice compliment and we're glad that you find that worthwhile to jump on a plane, rent a car, pay for a hotel, all of that stuff to come out to the Masters Weekend. I don't want to go into that too much now. We'll update you on a future show about Masters weekend and some of the guests and so forth and have some various audio sound bites from that. But this topic is rather, well, topical. I wanted to get it out to you quick. I recently interviewed Greg Hunter, who is the head of USAWatchDog.com and he's an investigative journalist and he's been doing quite a few stories on foreclosure fraud, the MERS system. You've probably heard that acronym, mers. We'll be talking about that here on the show. That's mers and how Congress may have tried to legalize foreclosure fraud, the implication of foreclosure fraud and whether or not it might mean another meltdown of the banking system. Without further ado, I'd like to get this interview right out to you rather than waiting on it. We have a lot of great shows coming up, of course, on a variety of different topics on home based businesses, Internet businesses, lots more on real estate investing and Internet marketing and the whole gamut. So we will be back with the interview with Greg here in just less than one minute.

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It's my pleasure to welcome investigative journalist Greg Hunter to the show. He is a very, very interesting and knowledgeable journal. Got a tremendous background in the media and so forth with cnn, I guess is cnn. Greg, your most recent CNN was most.

Recent before that Good Morning America. And a year ago I started my USAWatchDog.com, i trademarked the name and my first week or so of putting this on, first month I'd have eight people, 10 people.

Right.

Last month I had 84,000 visitors and 275,000 page views. And the month before that was about the same. And it's really, really growing.

Well, you're doing some great work. So Greg, welcome to the show. Let's maybe first.

Out that last week I believe it was JPMorgan Chase decided to halt foreclosures. And now this morning I was just sent an article which I have not had time to read, that B of A is halting foreclosures and wells may follow. Is that correct?

That is correct, yes.

What's going on out there?

Well, for years what the subprime crisis was all about was actually the tail end of the mortgage backed security bonanza. They wanted to sell houses to anybody with a pulse so they could get the mortgage and package it into a security and sell it. Mortgage backed securities. They have tens of trillions of mortgage backed securities out there. It's one of the biggest pieces of the over the counter derivative. It's a derivative that's derived from. So they weren't really worried about the paperwork. They were worried about the income flow, the derivatives derived from people making their mortgage payments. And they would sell these bonds to CalPERS, you know, to the Texas state teachers funds to hedge funds, banks, and they would all pay a couple of percentage points higher than a Treasury, but they were equal to a Treasury. They were a risk free return, triple A rated. Well, now we find out they're not so triple A rated. And now we find out that these mortgages that they produce, they didn't keep track of the paperwork. Now you can go on my site, usawatchdog.com and you could take a look at one of the things that I've written about just in the last week. I did all foreclosure this week. And that was, could foreclosure fraud cause another banking meltdown? And the answer is yes, it could be. So imagine a market where there are 60 million homes, 60 million homes, 60 million mortgages that are electronically filed and something called the mortgage Electronic Registry system, the MEER system. You don't have the paperwork, you've lost the paperwork or there's fraud on the paperwork. For whatever reason. You can't go to court and go to court and say, hey, you, Honor, we own this house and John Smith here stopped paying for it and here's his original promissory note. And if you look on my site, could look under my bio section and look at a piece called Produce the Note. I was one of the first journalist on the mainstream media to come up with, wow, this is a big problem. They cannot produce the proof. They own the house and they want to go to court and take your house. And they have to produce the note. They have to produce the proof. So here's what this is all about. You know these robo signers, well, they were signing off on what Alan Grayson, a congressman from central Florida and others called mortgage fraud, foreclosure mills. They were just inventing the documents, getting an affidavit signed by a notary to say, yeah, this is true and accurate and it isn't the proof to foreclose on a house and taking it to the court and say, hey, we have an affidavit signed by our back office. This shows we prove. Wait a minute. No, it doesn't. It was fraudulent. They don't have the original documents. Uh oh. Now fast forward to last week. They tried to pass a bill. They did pass a bill in the House and the Senate and the Senate slipped it through without any public debate because of a senatorial procedure, both Democrats and Republicans. This is why I dislike. Both parties unanimously voted for a bill that would force courts to accept any out of state documents signed by a notary. So in other words, if they fraudulently produced. And they were producing these, according to Alan Grayson, by the tens of thousands to Prove the bank owned the real estate that they were foreclosing on that they robo signed. Well, they were signing documents that were fraudulent, that that was a promissory note that they would take in and show the judge. Hey, see right here. John Smith. Oh well this is a, this is a notarized by our affidavit. Is this the original document? Well no, but we authenticate. We have authenticated it with our notaries. Well no you didn't. They were going to pass a bill that forced the courts to accept that making it very hard to foreclose on a house. Well guess what President Obama did. He manned up. He manned up and said no, no you didn't. Oh no you didn't. Veto. First of my office coming up. I'm going to veto this bill. No way. I'm not signing this. You think about the trial attorneys that have helped put him into office. You're going to say, well you're just going to kibosh the constitution and the courts. You're going to basically allow the banks to fraudulently come up with documents. Well they can not. Only if you quit making your payments. There are stories about people who didn't even have a mortgage. This was in Bloomberg didn't even have a mortgage and they were foreclosing on the guy's house. Wow.

Amazing.

Now you think about. Let's let this settle in here for your listeners. 60 million homes, 60 million mortgages are in the Mears system, the mortgage electronic registry system. No paperwork for 60 million mortgages. No paperwork for 60 million mortgages.

Amazing.

Oh my goodness. Well, if you packaged up tens of trillions of dollars in mortgage backed securities and you sold them to hedge funds and to pension funds and banks are sitting on this and there's no backing to the mortgage backed security. You don't have clear title or a clear path to the title for the real estate that backs the security. Do you get how vast this problem is?

It's a giant problem and it leads to the biggest ever moral hazard possibly. Let me ask you a question first because I don't want to leave the subject of what Obama just did. So that means kind of generally then that if someone bought a property outside of their state, they probably had a notary in their own state.

No, no, no, no. It has nothing to do with that. It has to do with the banks in one state, headquartered in one state producing a document where if they're foreclosing in another state, they produce a document that would force the courts to accept it unchallenged. So in other words, just say you've been paying, you couldn't pay your mortgage or you've been paying your mortgage or whether. And all of a sudden the bank wants to foreclose on your house. What has been happening with the robo signers? This is all about what these quote unquote robo signers were doing. Were signing documents that were allegedly fraudulent. That wasn't the original signature of the homeowner on the promissory note. That wasn't the original paperwork the homeowner signed. That wasn't the terms of the original document that's supposed to be registered and tracked with a paper document passed off from one to another, not bought and sold on an electronic system. And so what he said was, oh no, no, no, no, no, you can't. We're not going to force people to take fraudulent documents. We're not going to force the courts to accept documents from out of state where they can't verify their authenticity. We're not going to do that. That's not going to happen. I'm going to veto this bill. So that's what happened. And that's the reason why they were signing these things in mass. They had 60 million mortgages out there. 60 million. They don't have the paperwork that shows they own them, they bought them, they sold them, they made a commission, they packaged them up into a security. Oh, by the way, where's the paperwork that says 3131 Deer Park Lane?

We don't have it. You see what I'm saying?

Yeah, yeah, absolutely, absolutely.

What the, what they knew with the Senate bill, with the House and Senate Bill 3808 was going to do was force courts to accept any notarized document. So in other words, they can invent a document, get a notary falsely to say, oh yeah, this is an authentic document.

Right.

And take it to the court and take the houses back.

So they're not going to be able to do that. And so that means it's going to, that means it's going to be much harder for lenders to foreclose on properties. Right.

But it also means the bigger picture, there's no backing for the tens of trillions of dollars and people are going to have a hard time getting their head around this. No backing for the tens of trillions of dollars for mortgage backed securities.

So what does that mean? I mean that means, that means that.

These securities that, remember they had the credit, remember they said they had a credit freeze up, they didn't have a credit Crisis. They had a collateral crisis. Yeah, they were using these mortgage backed securities at secure collateral as money and then everybody went err, oh no, no, no, that's not money. Oh, I don't trust the collateral. Well now you find out why they didn't trust the collateral. They're not trusting the collateral because there's no now there's no clear title to the collateral backing up the mortgages. Now think about that. Some of these banks, I think Wells Fargo alone has 5 trillion in over the counter derivatives. A big chunk of that's got to be mortgage backed securities. Some of the other banks have tens of trillions. And because of a accounting rule change by the financial accounting standards boards called fasb, Financial Accounting Standards Board, they change the rules. They threw out 200 years of accounting principle in what you say, hey, I'm going to value an asset on my books and it's called fair market. I'm going to mark to market, I'm going to value it for what I can get for today. And they changed it to mark to model. You can value it at whatever you think you can get for it in the future. That's like me having 10 ounces of gold and I want to go to the bank and say hey, I have enough collateral to make this loan. But you know what? I'm not going to value my 10 ounces at $1,343 an ounce. I want to value it at 10,000. I really have $130,000 in collateral. I look a lot better than what I really do because I'm going to value my gold for what I think I can get for 10 years from now. You understand how that works. So they change the accounting to make the banks, the big banks look better than what they are. And it's not just the securities are holding on their books. Even the smaller banks, the commercial real estate, the physical residential real estate, you know, if they loaned money on this stuff in 2004 and 5 and it's gone down 40%, guess what? They're still holding it on their books at what they loaned money on it at 2004 or 5. Even though the, even though the thing's down 40, 50%, some states it's down 50%.

But how come they didn't have the mark to market?

Because they changed the accounting rules.

Right?

They went from valuing what you should value your and they should be ashamed of themselves at the financial accounting standard boards because that's legalized. I wrote about this on one of my pieces. That's Legalized accounting fraud, government sanctioned accounting fraud that only makes the banks look better than what they really and truly are. And then they say, well, it'll boost profits. Well, you bet it does. If you can hold bad loans and bad deals on your books at whatever you think they should be. Any money you get in, wow, that looks like a profit. In reality, you know, you could be insolvent.

So Greg, I mean, what's going to happen then? I mean, what's your prediction on this? Is the government going to bail out all of these funds and all the, and just print more money overtly or covertly? How will they do it covertly?

Well, for example, the Federal Reserve took 230. This came up in a congressional hearing. It's in the Federal Register. Alan Grayson was asking Vikram Pandit, the CEO of Citigroup about, hey, you know, the Federal Reserve took $230 billion of toxic mortgages, mistakes off your books. And he just looked there and smiled, said, yeah, unbelievable. 230 billion. That's beside the tarp. That's beside any money given to him. That's beside all that they had that. And they weren't the only bank that had toxic securities. These mortgage backed securities. If you have a security that's paying an interest rate and A, you lose the backing to the security and B, people who are paying the derivative, the derived value, the income stream people stop paying their mortgages. How much is that bond worth? Oh, oh, oh, here's another one. You know how they wanted to have these mortgage modifications? You know, they wouldn't do it permanently. They didn't do it because they didn't own the note, they didn't own the actual physical. They've already packaged this and sold this. So let's say they go to Greg's retirement fund that I have for all the teachers in Minnesota and they say, hey Greg, remember that security rated AAA equal to a Treasury? Yeah. It's great. It was just as safe as a Treasury, right? Yeah. And we said, we're going to pay you 7%. Yeah, well we can't. We can only pay you 3%. And then I bring the contract up and I. Hold on a minute. Oh, right here, right Here on page 16, subparagraph B says if you change the terms of my note, you got to buy it back. It's called a buyback clause. Guess how many of these securities they wanted they were going to change the interest rate on and guess how many they were going to buy back. Hmm. Guess who bought a bunch of mortgage backed securities that be the Fed Right. Why do you think they bought them? Because nobody else would buy them. Now you think about that. Let's say I'm Mr. Gold Hedge Fund and I say, hey, listen, I'm going to sell you something equal to a Treasury. And a year or two later I say, yeah, remember that thing that was equal to a Treasury? A risk free return. Yeah. It's not worth anything. Don't you think that should be fraud?

Absolutely it should be fraud.

Not a single person has gone to jail. Do you know how many people we sent to jail during the Savings and Loan scandal? About a thousand.

Keating did some.

You know how many people have gone to jail through this scandal, which is about 40 or 50 times bigger. None. A Bernie Madoff.

And what's with Mozilla? I mean, is anything going to happen to him?

Who knows? But bank of America, you know, they, they recently stopped their foreclosures and you know, of course they bought Countrywide Financial. There were plenty of, let's just call it, irregularities in the mortgage application process.

Well, you know, bank of America was already bankrupt. They were bailed out. And Merrill lynch, you know, had the dead marrying the dead. Merrill lynch was bankrupt. They were bailed out and forced to be, you know, put together. And now they have this catastrophe on top of that. This is a catastrophe for America if you add up all the, the foreign wars that we're fighting, all the, the future commitments and debt and the current debt and the deficits spiraling out of control and now the banks can't even collect on the collateral at whatever, $0.50 on the dollar. They can't even go to court and collect the house. Back to your question. So what's going to happen?

Yeah, I mean, great.

Inflation.

How big? Okay, so yeah, inflation is certainly coming. I mean, I think we can all see that. But how big? Before you say we get into the specifics of inflation or deflation, how big would the bailout have to be?

Tens of trillions. According to the bank of International Settlements.

That'S a Zimbabwe style inflation problem.

Well, let's just talk about what a derivative is because you have to understand this to understand how vast and massive the problem is. And incidentally, this has never happened in human history. I know, I was at CNN and you know, they had Fortune magazine in Money and CNN Money and I stood up in a group of people and said, hey, the bank of International Settlements says that the over the counter derivative market is, you know, I don't know, 600 trillion or 700 trillion at the time. 600 trillion. 600 trillion. That's 6,000 billion. Okay, some say it's twice that. But let's just say, I mean, you know, if you, if you owe me 5 million or 10 million, you can't pay it. What? It's still a mind numbing amount of money. Okay, so let's just use bank of International Settlements. That's the central bank of central bankers. So I stand up in the, in the room and say, hey guys, there's some women there too. The derivative market is 600 plus trillion dollars. Where's that traded? And nobody looked at me and I said, this is not a trick question. Where's that traded? And they just looked at me and I said, wow, we're missing a huge story. We have a 600 trillion dollar market and we don't know where it's traded. Let me tell you where it's traded. It's some dude calling another dude saying, you can buy this, it's over the counter from me to you. Now, now let's understand what that means. There's no public market. Okay? So let's just hold that thought. There's no public market. Let's go to where there is a public market. Let's say the Chicago Board of Trade. Let's say I want to buy a bushel of corn. Can the guy selling it to me stick some ball bearings in there to make it make weight?

Not legally.

Ah, if he doesn't have enough corn, can he stick a couple of shovelfuls of beans in there and say it's corn and beans, but it's here, it's a bushel. Can he do that?

No, that would be fraud.

Why?

Well, because it's not what you thought you were buying.

Well, but don't you think the Chicago Board of Trade has rules, regulations, standards?

Yes, but not the over the counter market.

Yeah. And they say, oh, this over the counter. These mortgages are hard to price. You bet you they are. If you put them on a public exchange, you'd find out what they're really worth. Because a bushel of corn is selling for, I don't know, $8, $4.75 and you have bid, you have ask, you have price discovery, over the counter derivative market. This is what the financial regulation still didn't do. And the reason why they didn't do it, because they put it on a public market and they actually had a bid asked, you'd find out this stuff was worthless or 10 cents on the dollar or 50 cents on the dollar. Now you take a look at 600 trillion. Let's just say 10% of it's bad. I think it's way more than that. But let's say 10%, that would be $60 trillion, the world GDP for the year.

Wow.

Do you understand how vast this problem is now? There are derivatives for all kinds of things. There's interest rate swaps, there's mortgage backed securities, there's derivatives for credit card debt, there are derivatives for student loans, there's derivatives for heloc, there's. You get what I'm saying?

For everything.

I know I was calling the financial manager of the bankers, North Carolina, his name is Tom. And I said Tom, you have, says here you have $90 million in backup. I said yeah, so what is that? He goes well it's mortgage backed securities. I said so you got to get on the phone and call some dude to sell them. There's no public market. Pause. Yes, that's right. He says, but we were able to look through those. We got 35% loan to value minimum. So we really got a good thing. I said oh really? You really did, did you? He said yes. I said can you stop a homeowner from taking out a home equity line of credit on that home? Long pause.

No. Are you understanding what he's got? And backup. He's got something that they can take the equity out of that he has to get on the phone and try to peddle in mass to somebody. You think he'll get par money for that now? Do you think his backup is worth par what he paid for it? The answer is no, not by a country. Especially if you don't have clear title to. You don't have clear type. You don't have clear title to the houses and the security, the backing of the mortgage backed security. You don't have the houses. No, we've for, you know, we know. No.

Yeah, it's an amazing problem. It's. There's so much cookery and irresponsible will cause a.

It is going to cause a banking calamity. It is going to cause severe currency devaluation because you've seen how they bail out the rich. They are going to bail out. They have bailed out the rich. One of them that got bailed out was Warren Buffett. Warren Buffett. I'll just name off some of the companies that got government largeness in some form or another. TARP or the Federal Reserve took some of their assets off their books or a loan, a backup by the federal government for bonds of general electricity. Goldman Sachs. His biggest holding is Wells Fargo. Let me tell you if the government wouldn't have stepped in, Berkshire Hathaway would have taken a giant hit.

Let me take a brief pause. We'll be back in just a minute.

Have you listened to the Creating wealth series? I mean from the beginning? If not, you can go ahead and get book one that shows 1 through 20 in digital download. These are advanced strategies for wealth creation. For more information go to jason hartman.com.

So let's just talk about. Are we in? I know your answer, but I want to ask the question in a way that gives adequate weight to the deflationists out there. Deflation or inflation now and in the future?

Well, listen, number one, it's not either or.

We talked about that.

Okay? It's not either or. Who says it can't be both at the same time?

So I say it, it can because I say and it has been the.

Real estate prices as opposed, as opposed.

To price of food or gas.

Yeah, and that kind of stuff. And you have yet to see the real inflation deflation. Right now mortgage rates just went down to an all time low for 30 year money is 4.27%. If you look on my site on one of the stories I did about double dips coming everywhere, you'll find out why it's so important for the government to push down interest rates. Now if you want to buy a mortgage, you go to your bank at, you know, Bob bank and you say I want to get a mortgage. And if you have your 20% down and fit all the criteria you can get a mortgage, then Bob takes and sells that to the government because only the government, only the taxpayers would be stupid enough to loan money at 4.27%. The commercial arena cannot compete with the government. And the government is basically propping up the mortgage market. They have more than 90%. Meredith Whitney says 95%. Banking analyst Meredith Whitney says 95% of the mortgages produced today are backstopped by the government. They were provided by the government. Now think about what happens to real estate prices. They've already happened. We've had rates going down and the properties have gone down. Think what happens if rates were at a normal 8 or 9%. What do you think would happen to the value of real estate?

I think we'd see deflation on real estate prices where you've got a lot of land in the equation. But I think we'd see rents inflate at the same time.

You got it. Inflation and deflation. I think ultimately what's going to happen according to people like John williams of shadowstats.com is that we could see a massive sell off in the US Dollar. Well, you know how much we import that is oil. And they trade oil in dollars. And the whole world is basically right now locked in a competitive devaluation spiral. They're trying to export their way out of troubles and nobody wants to have the strong currency. And up until now we have been the tallest midget in the room.

Right? Right. I always say we're the best house in a bad neighborhood.

Well, I don't know if we're the best house at all. In lieu of we have, according to Lawrence Kotlikoff, a University of Boston economist, this is a mainline guy. This is a real guy. He says, you know what we have Enron. His words. Enron style accounting. We have fraudulent accounting at the federal government and our debts and commitments really are $202 trillion. Now you think about that.

I only count them at about 60 trillion. But how do you get it up?

$202 trillion? Real debt and commitments 15 times worse than what they say it is. And you think about that kind of debt and commitment and there is no way we ever pay that off. And the money we have today.

Thank you for listening to the Creating Wealth Show. This is Jason Hartman, your host and we appreciate you following the show. We have many, many episodes, hundreds of episodes, and some of the older episodes have been archived and placed in our Members section and that applies to this one. So we include a sample that's about 25 minutes long. And then for the rest of the show you can go to our members section@jasonhartman.com. many of the other shows are still in their full length complete version. However, some of the shows like this one are in our Members section where you can hear the show in its entirety. And again you just need to go to jasonhartman.com and you can get the full show there in the Members section. Plus a whole bunch of other great members benefits and resources, whether it be documents, forms, contracts, articles, other video and audio content. Just a great resource. So be sure to join as a member@jasonhartman.com and thanks again for listening to the Creating Wealth Show.

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