Here's the latest. Everything is summarized in my letter to Carlos.
Hi Carlos,
Thank you for this ACRON report. It offers some very exciting prospects for our RADHA mortgage program.
I’ve just finished the re-write of the RADHA Manual. It took a month. (I’ve been off line during this time.) Writing about the RADHA Loan uncovered some extraordinary new insights to this housing crisis and transformed the manual into an actual book.
Here’s some examples:
Banks packaged a mortgage and called them a ‘securities.'
Insurance companies then insured this same mortgage and they called it a 'credit default swap.'
Different names by different parties but it’s still just a duplicate copy of the same mortgage.
Both of these industries are now writing off their respective securities which means they are actually writing off the same mortgage.
Each industry may have only written off 35% of their own securities, but combined, these two industries have actually written-off 70% of this same mortgage.
(The mortgage may have actually been repaid a couple times over.)
This write-down is recorded by each industry but never recognized collectively. No one sees this duplication because mortgages have been securitized (which divided these mortgages into little parts and sold them off to different buyers).
It’s nearly impossible to follow the individual mortgage through its securities process, but collectively, they can be traced by following the industry as a whole. Looking at the industry shows us that banks have written-off several times more than the actual real estate value from which these securities were issued.
Put another way, these companies (such as AIG) are worth significantly more and have far less liability then investors realize. Our real estate crisis is more a misreading of the actual value rather than proving to be as severe as we think.
No More ‘Underwater Homes,’ No More Toxic Loans.
The conclusion then is that WE CAN recoup a great deal of this extra value by simply running the money through the entire mortgage system again, starting with the homeowner. The ‘OTHER WAY’ to get rid of all these ‘toxic loans’ would be to refinance all ‘underwater’ homes (that owe more than they are worth). No more ‘underwater homes,’ no more toxic loans.
This approach of refinancing homeowners (rather than banks) would cost about 5% to 10% the price of the TARP program, plus it’s paid back within weeks (rather than years) and banks are refunded with rebates of 30% to 70% in return for their excessive write-downs on these (mortgage) securities.
(And it’s a market based solution rather than a gov’t takeover of the banking system.)
The ACORN report you sent gives us the best news of all: both banks and the Fed have now committed to refinancing most distressed homeowners any way. They even have the money budgeted to do so. There is no need for any further legislation or money to move this forward. Just show them this ‘secret’ of the mortgage duplication and they will have the clarity of purpose they now lack.
Financed with Write-down
The best part of this approach is that banks can simply pass off the write-down they already made on the (mortgage) security. Banks only need to credit this same write-down onto the homeowner’s mortgage.
This means it does not have to take additional capital to refinance homeowners into lowered mortgages. The bank can take these write-downs and use them like a new capital pool for lowering these mortgages. This new capital can replace the gov’ts own budget now slated to pay-down the homeowners mortgage.
If the bank made a 70% write-down on their securities (for example), they would pass off 40% of this onto the homeowner. The homeowner gets 40% knocked off from their mortgage. The bank gets back the (30%) difference between their write-down and the homeowners lowered mortgage. It maybe nearly impossible to correlate the investors to each loan so it would be more effective to do on an industry wide level of say a 40% write-down on all home mortgages. This is the purpose behind the TARP program but it cost trillions and is so nebulous as to how much will ever be recouped, or even when it can be cashed out.
These are some of the issues outlined in the book which is now called: ‘The Trillion Dollar Discovery.’
Maybe have your accountants and attorneys look it over and see what they think.
I’m enclosing a short (30 page, abridged) copy but the full unabridged (118 page) edition is also available in both hard copy and electronic (version) at lulu.com.
Go to lulu.com. Search under Trillion Dollar Discovery. Here’s the link:
http://www.lulu.com/content/paperback-book/trillion-dollar-discovery/6491549
There will also be information on our website: roopa.org.
$5 Trillion Potential Market for RADHA
As for the ACORN report you enclosed, you may have noticed the list of banks who signed on to Pres. Obama’s program. These are all the banks that have agreed to loan modifications.
The first 4 banks (BOAmerica, Citi, Chase, Wells Fargo) have a combined mortgage portfolio of $5 Trillion. The remaining banks have another $2 Trillion. Much of this $7 Trillion is slated for loan modification.
(The chart also showed a remaining $600 million in subprime mortgages.)
A lot of this $7 trillion correlates with their projections of (up to) 9 million homes estimated to be facing foreclosure (unless some action is taken). (14 million home are estimated to be underwater.)
The loan modifications (discussed in the article) are going to reduce mortgages so it equals just 31% of the homeowner’s income. This means banks will have to reduce the principle balance to meet this target (of 31% of owner’s income). They are going to be writing down a huge chunk of the loan.
As you know, the RADHA system covers the first 25% of the mortgages write-down without touching the principle balance.
Ex. Let’s say a bank needs to take a 40% write down on a $200,000 mortgage. The RADHA system covers the first $50,000. This leaves the bank only writing-off $30,000 rather than the entire $80,000. RADHA saves the bank $50,000.
The RADHA system also provides banks with the option to write this off a half decade later so it’s both cheaper and more flexible than any other accounting alternative. As a final bonus, the 1st Term Loan can be sold thereby recapitalizing banks with a 25% cash infusion against their entire real estate holdings.
Taken together, banks should be very interested in the RADHA Program. It allows them to reduce their principal write-off by 50% to 100% and still keep the owner in their home with a 25% to 50% (70%) reduction on their mortgage payments.
Developer wants to Sell 10 Properties using RADHA
There are other developments as well. For example, we have a developer here in Hawaii with 10 homes. He wants to sell all of them using this program. We can discuss this later.
For now,
Yours in the service to ‘build a house in which the whole world can live.’
