Complicated portfolios made up of subprime mortgages, known as collateralized debt obligations, or CDOs, received the stamp of approval from rating agencies, but turned out to be a contagion that wreaked havoc on the global economy.

Lawmakers are now asserting that credit rating agencies (CRAs) like Moody’s Investors Service and Standard and Poor’s Ratings Services failed to expose the lurking dangers.

“Rating agencies continue to create an even bigger monster – the CDO Market,” wrote one S&P employee in an internal e-mail in December of 2006. “Let’s hope we are all wealthy and retired by the time this house of cards falters.”

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On December 30, I paid mortgages on line to try and get a little break by paying “more interest” in 2009. While doing this I made “side by side” comparisons of the mortgage companies or their servicer. The mortgage companies used in this comparison were Wells Fargo, First Horizon, Saxon, and Everhome. I used statements, company websites, and transaction fees to rate my mortgage companies.

The winner in the statement category is Wells Fargo. The W/F statement paper uses bold font and contrasting colored background to draw the eye to the information I need at a glance. Their entire statement, complete with payment coupon, can be copied or faxed on standard sized paper. For the compact size, more customer information is readily available on the front of the statement. Updates for customer address and telephone number are on the reverse of the payment coupon. Update information is printed one character per box and forces the borrower to be neat an aid to accuracy.

A close second in the statement category is Saxon. The different categories of information is separated in chart type blocks and accented by print in contrasting color. Customer service contact was on the back page of the statement and did not include informtion for hearing impaired customers. The statement information is standard size, but with payment coupon attached it would not scan or fax to standard size paper. Customer update information is on the reverse of the payment coupon, in a line format instead of blocked per character.

First Horizon statements use color highlight only on their name and logo. The balance of the statement is in black print. The category of information is divided into chart-type format and headline information is in bold font. Customer service information on the front page is limited to one telephone number and web address. Customer update information is on the reverse of the statement header. To use the update portion the statement is mutilated for personal file use and mailed separately from the mortgage payment. Also with payment coupon attached, the statement will not scan or fax to standard sized paper.

Everhome uses a coupon book. Contact information is included in the pages of the booklet. The drawback of a coupon book is that it obviously can not contain any current information about when a payment is received and how the payment is distributed.

W/F and Everhome charged no fee for online payment. Saxon charged $2.50 because the payment was handled by Western Union Speed Pay. First Horizon/MetLife charged a whopping $11.00 for using their website and paying online.

W/F, First Horizon, and Everhome allowed a higher payment for additional principal reduction when paying online. Saxon did not. I was unable to increase the payment from their “payment due” + processing fee.

W/F, Everhome, and Saxon payment confirmations (print for your records) were the most clear. Loan number and bank information and payment amount were on separate lines in a block. First Horizon payment amount and banking information were lost in a paragraph format below the loan information. I highlighted First Horizon information before filing for that reason.

I checked on the account activity information the next day, December 31. W/F and First Horizon indicated the payment received and the way the payment was allocated. Saxon reflected that a payment was received, but until the next statement is printed no distribution of the payment is available. Everhome did not update until January 5, 2010, even though the payment was made on December 30.

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Part of the reason for singing the mortgage blues today is our track record of the years 2000 through 2006. As consumers refinanced mortgage coompanies started searching for those who would refinance again and again. Non-bank financial institutions and shady lenders looked for new customers, and subprime liar loans were born.

In 2006 consumers took out $318.3 billion in equity from their homes, a more-than 10-fold increase from $26.2 billion in 2000, according to Freddie Mac. “Americans went on a spending spree,” Rutgers University economist Joseph J. Seneca said. “It used to be that 62 percent of the (U.S. economy) was consumer spending. That soared to 70 percent during the decade. We were spending all of our income and borrowing against our homes. The size of that binge was stunning.”

As regulators slept lenders turned to a new group of risky loans given to a new group of borrowers with certain “issues”, shall we say. The issues ranged from spotty credit to total stupidity relative to understanding how finance works.

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In the United States, years before the so-called “subprime crisis”, various financial businesses existed to serve the needs of the middle class. Among those were Household International, Citifinancial, and Avco. Household International represented the Household Finance (HFC) and Beneficial Finance brands.

As these companies were purchased or absorbed into parent companies, some were also charged with predatory lending. The brands learned how to push the law to the limits, and sometimes a little too far.

There was an implied class designation for those who used the finance companies. Most were blue collar, military, and those with lack of stability in their lives. This group later became known as subprime, although credit scoring drove the classification. The amount of risk relative to each loan mandated a higher interest rate.

Some loans were “second mortgage” loans, but the companies never filed documents at the courthouse. Household International’s HFC and Beneficial divisions gave customers the impression that loans were tied to their homes.

I didn’t take long for predatory loans to become acceptable subprime loans. Then the process moved to creative financing for prime customers and commercial loans.

There was an evolution of sorts. Unfortunately predatory lending – under a new name – spread to almost every aspect of home and business finance. Mortgages during the period are well known today, and the outcome effected almost everyone.

Two questions remain. How will future customers find valid financing? Also, why did American regulators ignore predatory lending before the practice went main stream? With the exception of Household International and Ameriquest, no charges were ever filed.

Year too late, SEC allegations, this time against Countrywide and Mozilo, are underlined by a trail of e-mail messages sent by Mozilo in 2006, before the subprime mortgage market collapsed.

“In all my years in the business I have never seen a more toxic product,” Mozilo wrote Sambol in an e-mail, referring to subprime loans that let customers borrow 100 percent of a home’s value by first borrowing 80 percent in the primary mortgage and then 20 percent in a secondary loan.

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The percentage of prime borrowers seriously delinquent on their mortgage rose 20.3 percent during the first quarter compared with the previous quarter. It was up 163.7 percent compared with the same quarter a year ago.

In comparison, the percentage of subprime borrowers seriously delinquent rose only 1.5 percent during the first quarter. It was up 54.9 percent from the same period a year ago.

Prime borrowers are seeing and increase in credit card payments, as credit card issuers demand a 5 percent repayment. A $200 monthly payment can jump to $500.

For homeowners with more than one credit card, the increase in monthly payments can be a disaster.

The figures represent mortgage payments and credit card payments in a duel for too little money in the family budget. The situation can become a downward spiral.

As industry cuts back, it is safer to fire or layoff employees with financial difficulties. Employers are protected or insulated from lawsuits if they claim the employee was “not focused” or a “financial risk.”

At the worst time in recent history the credit card industry is asking for higher monthly payments. It might be a long cold winter in America.

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This case is not as clear-cut as shady characters selling subprime paper while telling investors they were investing in safe government back student loans. Here is this case:

MBIA Inc., the largest bond insurer is suing two Merrill Lynch & Co. businesses, which are now owned by Bank of America Corp. over protection sold against mortgage-debt defaults.

According to a statement by Armonk, New York-based MBIA, the suit filed in New York State Supreme Court, is looking to unwind or recover payouts for $5.7-billion of credit-default swaps and related insurance sold against collateralized debt obligations.

MBIA Inc. in a statement said, as homeowner defaults began to soar, Merrill Lynch began misrepresenting the type of debts being protected, all a part of deliberately trying to offload billions of dollars worth of deteriorating sub-prime mortgages between July 2006 and March 2007.

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Our analysts study the financial crisis on a daily basis. Back in 2007 I warned our family, and friends with investments, that the market was too high at 12,500 and it could not be sustained. those who lost moeny on Fannie Mae, Freddie Mac, and AIG had no one to blame but themselves. Many people did not see the bailout bill, bank bailouts, and financial implosion on the horizon.

When the stock market imploded it simply reinforced what I said during the nightly news for years – that the stock market could not sustain advances as manufactured wealth from home equity was itself not sustainable.

The stock market will find a bottom and settle out nicely around 8500. I base this on historical analysis and daily reviews of the market bubble. Yes, the stock market went way down, but today – Wednesday, 15 April 2009, the market closed at 8029. It will go up, but will not see 13,000 until someone else manufactures another bubble.

Remember, the amount of a crash is directly proportional to the amount of manufactured weath and the resulting debt distortion.

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Draft legislation that would change how over-the-counter derivatives are regulated might prohibit most trading in the $29 trillion credit-default swap market. Is this needless regulation or a good idea announced too late to stop a disaster? Let’s ask the biggest party givers – AIG. U.S. regulators and politicians are stepping up pressure on banks to use clearinghouses and agree to increased oversight of the OTC markets to improve transparency amid the credit crisis. Bad bets on credit-default swaps led to the U.S. takeover of American International Group Inc. in September.

Proposed legislation would ban credit-default swap trading unless investors owned the underlying bonds. Putting an end to manipulating what isn’t yours might be good, although a little too late for this crisis.

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Financial woes spread to money market funds for the first time during this financial crisis. A $62 billion money market fund Primary Fund from Reserve on Tuesday saw its holdings fall below its total deposits, a condition known as “breaking the buck” that hasn’t happened to a money market fund since 1994. Money market funds are supposed to be conservatively invested and almost as safe as cash. Combined with a stock market loss of 450 points, something is clearly wrong.

What about the government’s balance sheet? How long can bailouts go on? The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs. (Treasury officials said the action did not mean that the Fed was running short of cash, but simply was a way for the government to better manage its financing needs.)

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Should we balance the nation’s budget or should we pay down the national debt? It would be nice to do both but that is not going to happen. Instead, thanks the most inept bipartisan government in history, we have mortgaged our future and the future of our children for generations to come. I’ve said for years that the real money makers are those who finance a nation’s debt. Here in the United States that entity is the Federal Reserve Board itself, owned by its member banks. The Federal Reserve Board lends money to the Treasury by printing federal reserve notes and selling them at face value.

As I write this article the national debt is $9 trillion (USD) and the interest is adding up by the minute. I must ask the trillion-dollar question: “Is the United States bankrupt?” The National Debt has continued to increase an average of $1.74 billion per day since September 28, 2007. Americans have mortgaged our social security system and retirements. Remember, Bin Laden said when Oil hit $140/barrel, it would break the backs of USA. Part of the rise is a weak dollar.

We cannot continue on the present course. A debt payment of $1 trillion (USD) per year can be better spent in many other areas, but until jobs stabilize and the dollar is stronger our present situation will continue to deteriorate. We cannot continue to bail out banks and mortgage companies. The government caused the problem with a lack of oversight and regulation, while a constant search for manufactured wealth and cash tapped the value of our homes. America went from a recession in 2000-2001 to near-bankruptcy by 2008. As we monitor the situation I put a debt calculator on this website – Mortgage Blues. However, the problem has grown well beyond the mortgage blues.

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