The Subprime Mortgage Meltdown? Blame it on the Banks Who Believed Their Own Lies

As the banks have become aware of just how much bad lending has been going on over the past five years, they have begun taking drastic measures to cut down their exposure to the subprime mortgage mess. Many lenders have gone out of business, filed bankruptcy, or stopped making loans to unqualified applicants, but this has caused a general drying up of credit in the economy. The subprime debacle is leading directly to a much more generalized credit meltdown, as homeowners in trouble will be unable to refinance their homes to save them from a financial hardship, and they will fall further and further behind on all of their bills. A quick refinance to consolidate and lower bills is simply not an option for a great number of homeowners now.

Banks are not even lending to each other very much right now. Many of the large banks, such as Chase, GMAC, and Washington Mutual, although they were not large players in directly lending to loan applicants in the subprime market, were voracious buyers of these loans. They would buy large numbers of bad loans, package them, and sell them to investors or hedge funds managers, who believed the returns would justify the enormous risks involved.

However, the mistake was in believing that real estate prices would just keep rising; if the homeowners with the bad loan defaulted, the banks would simply sell the property for a huge gain. Whether the owners made the payments or not, the investors would make money in a steeply rising real estate market. Of course, these geniuses failed to realize that large numbers of foreclosures would inevitably lower the home values in areas hit hard by defaulted loans. Once this happened, the charade could not last much longer and everyone realized just how toxic are loans made to people who could not afford to pay them back.

Now, with trillions of dollars of bad mortgage debt floating through the economy, banks are desperately attempting to reduce their exposure to the risks. If another bank requests to borrow money from a large lender, what is the reason? Because they are experiencing a short-term liquidity problem, or because the only way to stay in business for another few days is borrowing money that they will eventually default on once their mortgage clients default in even large numbers?

No one even really knows who owns these subprime mortgages, so every lending decision by a bank to another bank is now consumed by a fog of suspicion and distrust, which explains why credit is still scarce despite the Federal Reserve’s repeated lowering of the interest rate and direct injections of newly-printed money into the economy.

Of course, all of this reduction of risk, refusal to lend money to homeowners in trouble, and direct involvement in the economy by the central bank just leads to more problems for homeowners. They are unable to figure out who owns their mortgage, because the loan has been sold numerous times and is now in the hands of some hedge fund who sells the servicing rights to another company which then sells those rights to various other companies. Even courts now are throwing out some of these foreclosure because the plaintiffs can not prove their own the loan; while this is a positive development for homeowners, it does not allow the mortgage contract to be performed as written and leads to more confusion as to just what is going on with these subprime loans.

The homeowners are unable qualify for a loan to fix their problems temporarily, because banks are no longer lending money to people in their financial situations. And they can not even afford to keep up with rising prices any longer, as the Federal Reserve inflates the money supply, decreases the purchasing power of the dollar, and bails out banks directly. While no one party should get a direct bailout, the fact that the banks are getting it just to prop up their bottom lines for the short term will not do a single thing to provide help to homeowners falling behind. They still do not qualify for a new loan, whether the lenders have been given free money or not.

And the new money given to the lenders just increases the possibility of more foreclosures, which increases the chances that the banks will request more bailouts in the future, leading to more inflation and more foreclosures, and so on. This cycle of stealing purchasing power from the average consumer to give to the big banks because they may not make as high of profits as they once expected is no excuse for the act of stealing money from the homeowners to begin with. When the Federal Reserve, owned by the large banks to begin with, prints money to give to the large banks, this is nothing but outright theft from homeowners. As the money supply increases, money becomes worth less, but those who have access to the newly-created money can continue to prosper at the expense of those who do not.

With bad lending practices, absolutely confusing loan paperwork and unclear chains of ownership, and continually relying on inflation to bail them out of these poor decisions, the banks have been shooting themselves and their clients in the foot at every opportunity. Extracting as much profit as possible from the people through lies and manipulations is one thing; believing their own lies is entirely another. Of course, it always helps when the banks do not have to worry about things like accountability or being punished in the market. After all, they exercise inordinate control over the market through interest rates and money supply, and will begin the next bubble after the currently bursting one’s fallout has been cleaned up.


When You Should Not Use an Offer in Compromise to Settle Your Tax Debts

The IRS Offer in Compromise (OIC) is a structured IRS program which provides the tax payer a great opportunity to settle all tax obligations with the IRS permanently. Yes, many of us see new true stories on the internet often about several tax promoters’ failure to run their business continuously such as JK Harris and American Tax Relief due to their inability to match up their promises but don’t let that discourage you. If used effectively, the OIC program can eliminate your owed taxes completely.

One important thing you have to consider though is that the IRS isn’t stupid. They work for the federal government, so never expect that they will accept your offer just because you asked for it or you approached them through a tax attorney. The reality is that they may consider your offer only if it is within the best interest of the IRS. This is where a tax lawyer can help you to get to an agreement with the IRS. But did you know that there are situations in taxpayer’s life where it is best to not file for an Offer in Compromise? Yes, it’s true and here they are…

1. When you have pending taxes and you are planning to file bankruptcy

Would you believe that one can file Chapter 7 bankruptcy to completely wipeout old individual tax liabilities? So why worry about outstanding dues when you can walk away without paying a cent to the IRS. You might have noticed advertisements from so called tax relief firms who claim that choosing bankruptcy is not an ideal solution. But, the hidden fact is that these companies cannot make any money if you go for personal bankruptcy.

2. For people who have never been in compliance and never will be

Many do not know that whenever the IRS accepts your Offer in Compromise, the IRS expects the tax payer to be totally complying with the tax law. Upon acceptance, the person needs to file his returns and pay his taxes on time for a period of 5 years. If not, your OIC will be declared default and the IRS can demand all your outstanding tax dues with interest.

3. If you had rejections from previously filed OIC

The IRS doesn’t want to see several Offers in Compromises from a taxpayer. It will only lead to a rejection. Also if the offer isn’t competitive, then it will probably get rejected. In order to get your offer accepted, you need to come up with a true story that can persuade the IRS employee to consider your proposal. If you neglect this, either your offer will get rejected or you find yourself paying too much.

The IRS has only 10 years to collect the tax dues, after that they no longer can claim the debt and they write it off. But there are certain things that can halt the ten year clock from running. One such thing is the filing of offer in compromise. This is called as tolling the statute of limitations. Consider you filed your tax return for the financial year 2001 on time. Your taxes got evaluated on April 15, 2002 and there were some unpaid tax dues. When you did nothing to stop the clock, the IRS can’t collect your tax debt on or right after April 16, 2012. Yes, it means you owe nothing now to the IRS.

But if you file an Offer in Compromise, the statute of limitations will not run the entire time your offer is under review. I know of a case where a person filed six offers in compromise for 2002 year taxes. For every Offer in Compromise filed, the time limit will extend by a year. So in this case, the IRS can demand the tax due right up till 2018. If that taxpayer didn’t make the mistake of filing an offer in compromise, his problem will be already resolved now.

One drawback to this plan of action is that the taxpayer can’t expect the tax lien to get withdrawn or released if it was filed against him. An accepted OIC will show as payment in full on the credit report but a tax lien would appear as debt on his credit since it was went unpaid.