The mortgage meltdown 101... junior edition, page 1

Some still do not understand the financial mechanics of this current crisis.
I will try to give a fairly simple rundown of what lenders did wrong.
I had a job in a very lucrative company in LA working in loan Documentation.
This position allowed me to get a bird eye view of the entire mess we are in today.

When a person applies for a mortgage they are asking for a long term loan.

Since you do not have $500,000.00 to buy a house outright you go to a
lender to front you the money.

The initial lender is usually not a huge firm such as WAMU or GOLDMAN SACHS,
rather a smaller entity -

lets call it Morts Mortgage.

Morts Mortgage is in the business of funding you that $500,000.00, setting the terms of the "agreement" and then selling the rights to this "agreement" - A MORTGAGE - to WAMU (Washington Mutual).

The way Morts Mortgage makes money is by lending you money at a rate higher then it pays for the money they lend you.

They also charge you various fees on this $500,000.00.

MM also makes money from WAMU when they sell "the life of the loan."

AS you know..

YOU are not really borrowing just $500,000.00 for your house.

You are also paying for the LOAN itself.

SO for a $500,000.00 loan you might end up paying $1,000,000.00 over the "life of the loan"*.

Or,* it might take thirty years for you to pay up in full.

AS you noticed there is another $500,000.00 you are paying...

This is where the "money" is made...

Morts Mortgage wants to give you your $500,000.00 house loan ( which will eventually end up costing you $1,000,000.00.)

However waiting 30 years to get the $1,000,000.00 back from you would make it very hard to offer other people loans in the mean time.

SO what MM does, is bundle together 100 - $500,000.00 mortgages just like yours.

THIS MORTGAGE bundle will be worth $50,000,000.00.
After YOU and the other 99 BORROWERS pay off this initial $500,000.00, you pay the additional $500,000.00.

ALL of a sudden MM has FIFTY million dollars worth of future mortgages in this bundle of 100.

MORT then calls WAMU and asks,,, "would WAMU like to buy this bundle?"

WAMU says, "why YES... we do!"

Representatives from MM and WAMU meet.

WAMU says.

" OK MORTS MORTGAGE... WAMU will GIVE YOU $60,000,000.00 for this bundle..."

Remember MORTS MORTGAGE only paid $50,000,000.00 to buy the 100 houses at $500,000.00 each.

SO MORTS MORTGAGE just made $10,000,000.00 dollars off the bundle of 100 mortgages they sold to WAMU.

WAMU has, in theory, made $40,000,000.00 - but it will take 30 years to earn all of that money back.

WAMU now depends on YOU, the MORTGAGE CHECK WRITER to pay them.

KEEP IN MIND...

WAMU has just spent $10,000,000.00, when they paid MORTS MORTGAGE off.

AND WAMU also spent $50,000,00.00 for THE 100 houses in the bundle.

The day after this "bundle sale", WAMU is actually $60,000,000.00 IN THE HOLE.

In fact it might take WAMU 20 years to make that $60,000,000.00 back.

However WAMU could care less...

WAMU can now brag that it has made a $40,000,000.00 "PROFIT".

Now WAMU also HOLDS $50,000,000.00 IN ASSETS --- OR YOUR PROPERTY until you pay in full.

BUT WAIT????

WAMU does not have to tell the "PUBLIC" that it is actually in debt
$60,000,000.00.

BREAKDOWN...

AS you can see there was NO paper money exchanged.

MORTS MORTGAGE and WAMU buy and sell CREDIT.

THE only "paper" money in this whole transaction is the MONEY YOU spend when you write the mortgage check every month.

TO put it in perspective

IF THE 100 people writing their mortgage checks each at $1,500 month.
WAMU is only receiving $150,000.00 a month.

ALSO WAMU IS actually IN THE THE HOLE = SIXTY MILLION DOLLARS...

THE PROBLEM-

WAMU just posted $40,000,00.00 in profits and $50,000,000.00 in assets...

BUT WE KNOW BETTER - INVESTORS and THE world do not.

WAMU IS ACTUALLY $60,000,000.00 in debt

and only receiving $150,000.00 a month...

THIS IS WHERE IT GETS WEIRD

WAMU is TREATED as if they are $90,000,000.00 RICH...

????????????? WHAT ??????????????

In OUR CITIZEN world - WAMU and its $$$$$$$$$$$$$ is just an illusion.

WAMU and the REST have repeated this trick so many times...

THESE institutions have ALL loaned and BORROWED so much money from each-other that they are unable to fund this or any other "business" illusion anymore.

ANYWAYS this is a Very general example and is more of a concept if anything.

THE inner workings ARE very complex...

THE laws are full of holes...

AMERICANS are not able to pay these mortgages any longer...

OFFICIALS look the other way...

AND THE "BOOKS" ARE SO COMPLEX that it would take an army of Einstein's
to decode the mess that MANY COMPANIES have created.

TAKE THE ABOVE EXAMPLE

ad more zeros

NEXT ad TEN THOUSAND "webs" from company to company.

EACH have borrowed and loaned eachother COUNTLESS times.

NOW, ad FIFTY countries - and another "web".

REPEAT and REPEAT

WHEN THE TOP MAKES THE RULES, THIS IS WHAT YOU GET.

THE DREAM HAS BEEN REALIZED.

DO not FOOL yourselves VAST FORTUNES have been made!!!

NOW GIVE US A TRILLION-- suckers

[edit on 26-9-2008 by mental modulator]

[edit on 26-9-2008 by mental modulator]

[edit on 26-9-2008 by mental modulator]

[edit on 26-9-2008 by mental modulator]