Great article from Neil Garfield today–How Servicers Engineer Defaults Using the Escrow Accounts, Forced Placed Insurance and False Projections— about how the Wall Street wolves got their defaults to trigger the big payoff from the CDS: manipulate escrow accounts. Exactly this happened to me (from the article):
“…the escrow is manipulated by either projecting taxes and insurance too high or projecting them too low.”
My taxes were projected too low in order to make my monthly payment appear lower at signing. Like, way too low. Laughably, unrealistically low, especially when the tax bill for the year previous was available. At the end of the year, they—Countrywide–hadn’t collected enough to pay the taxes, creating an escrow deficiency, and that’s where the whole foreclosure mess started for me. I pointed all this out in my lawsuit and it of course fell on deaf ears.
Had Countrywide (this was in 2007) realistically projected what they knew I had to actually pay in taxes, I would’ve rejected the deal at signing because I wouldn’t have been able to afford it. But that’s how they sucked us in, with the lower payment, made possible by simply fudging the numbers. Some people would call it fraud. The pitch was this: we can lower your monthly payment if you’ll just refinance with us! But gotta have an escrow account with force-placed insurance! And so when that escrow account goes into a deficiency, as I believe was purposely done because the amount of taxes was underestimated at closing, you then have to pay a new, higher monthly payment to make up the difference. Or, default. Because default is what Wall Street wanted. Read “The Big Short” if you don’t believe me.
They wouldn’t let us pay the escrow deficiency in a lump sum. They tacked it on to the new, 30-odd% higher monthly payment, the very opposite of the pitch that got us to refinance in the first damn place. And we couldn’t pay it.
So glad to see an article about this. A small sense of vindication washed over me as I read it. So yes, default from homeowners was where Wall Street got the real payoff. Collecting on mortgages for 30 years each was chump change. The CDS and CDO markets were the tables where the high-rollers played. They put their own spin on the old Vegas saw that “The house always wins”—they always win your house, by purposely engineering you into default. It’s called MIHOP: “made it happen on purpose.”