Hoisted upon their own petard

Most readers will no doubt be aware of what has been dubbed the sub-prime mortgage crisis. It seems a few years ago, a bunch of American financial institutions while seeking new ways to make money decided that it might be a good idea to give home loans to individuals with less than stellar credit histories. Now a lot of those individuals wanted to get a home loan, but couldn't afford the interest rates the banks would offer them. So, the banks, wanting to make a deal said, OK, we'll give you a cheap interest rate for the first few years then. The more astute individuals asked, but what happens when the interest goes back up. I still won't be able to pay the loan. To which the banks replied, No worries. The value of the home will go up, and you'll improve your credit history by paying off the mortgage, so before the interest rates go back up you can refinance. At which point many signed on the dotted line, and all were happy.

Well, almost everybody. Because the banks realised, hey, we've got a lot of loans with a high risk of default and we still haven't made that much money yet because we're giving them cheap interest for a few years, and we need cash to make more deals. What can we do?

We can sell our interest in the mortgages. Someone else gives us a bunch of cash now, and we give them a slow trickle of cash as people pay off their mortgages.

Great. Let's do it.

Oh, no one wants to buy these. How about a package deal? We give them 9 safe mortgages and 1 risky one as a bunch.

That worked. And so it went. Banks got into loan deals, wanted to get rid of the risk and sold off their interests in the loans. Some went bust and their loans were bought by other companies. There has all round been a lot of moving around bits and pieces so no one was stuck with the hot potato of a bad loan.

Recently, this caught up with a lot of people. The cheap interest rate periods were finishing, house prices hadn't risen, refinancing was as easy as people had been told, and foreclosures abounded.

Except for one man. One bulwark against the mighty tide of foreclosures. The man who had a secret that allowed him to stand against those who would take his home from him. And no, it was not pay in time.

The thing that makes Joe Lents stand apart from the crowd is this. No one seems to own his mortgage. He hasn't made a payment on his $1.5 million loan since 2002. Companies have tried to foreclose on him several times. And all he does is say "Prove it's you I owe the money to". And it works. In all the financial shenanigans and wheeling and dealing, something got lost along the way. In trying to hide themselves from the risk, the banks have hid themselves from the rights to collect on the debt.

And it looks like Joe is not alone. Judges aren't being so lenient about the matter any more, and more debtors are forcing their creditors to put up or shut up.

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