New Paradigm - Shank the Bank
The bank makes its money by taking yours, it is called 'interest'. As in it is their best interest to keep you in a loan paying more than your asset is worth. Homes had been safe investments for the long term, but as of late too many involved viewed the home as an asset for value purposes and too many Federal programs wanted to allow even the most unreliable, to retain a loan. In the middle of 2005 and 2006, this market was at it height. In fact, in most cases home's values were inflated by 30-40% over market value; but people were paying it. As the Recession started in 2008 people began to see just what a joke the real estate scam was. Homes began dropping value by the hundreds of thousands, keep that in mind. That dropping value was realized as people became 'underwater' on loans, which is a nice bank term for "owning more than the asset is worth". As a result people scrambled to refinance to grab a hold of the plummeting Federal interest rates (another dramatic failure that time will reveal). Citizens quickly found that they didn't "qualify", that's right, the same group that told you what the asset was worth 3 years ago, the group you relied on to assess and fund, has changed the rules. Now the market dictated that the asset was worth far less, however, the paper of your debt still existed. Now you were officially, screwed. You owed more than the asset was worth and no bank was going to fix that for you; they were too busy milking the government to clear their sub-prime debt (FYI: Sub-Prime debt is the result of charging a customer less than the prime rate - which is impractical and makes no financial sense - the result is during adjustment the payment becomes insanely high).
So what to do? In the late 2009-2010 time frame a term thrown around routinely was "loan modification". A loan modification essentially meant that in the face of absurd hardship, the bank would conceivably reassessing the terms of the loan by reducing the interest rate on the asset. This is quite possibly the dumbest thing ever done if it didn't include a principal reset to current value. Here is why, having a loan that is underwater adjusted to a lower loan rate is the equivalent of agreeing to pay too much on an overvalued asset. In simple terms: Imagine you buy a 30,000 dollar car for 50,000 dollars and then were proud as punch that you were paying 1% interest. You bought an overvalued asset and are paying incredibly high for something with zero value. These things will come back to haunt people in the future.
Now the glory of the short sale. The short sale involves a bank agreeing to take less then the loan was worth, essentially releasing the borrower from the previous obligation. These are overwhelmingly common in 2011/2012. Why? Because they allow a smart homeowner to get out of an underwater asset with essentially little loss to financial capacity. However, these are entirely a one-off scenario. Nobody can tell you for sure how it works, everyone is guessing from the Lender to the Bank. The fear the bank will attempt to put on a homeowner to avoid a short-sale or foreclosure is that your credit rating will be destroyed - though there is absolutely no measure of how bad this will be. So now we've come full circle, we're back to the "credit".
Credit ratings were established by banks to assess how reliable a possible investment was; yes you're an investment. A high rating indicated good change of payback, a poor rating equaled a good chance of loss. Here is the catch, the credit rating is maintained by the financial sector, the bank dictates the term and evaluates what "good" is; a bank also holds this over your head if they fear you leaving. Now once you realize that you only need credit if you lack liquidity or require (require) a large bulk purchase, you realize you don't really care about credit.
Think about this, the more money you keep, the less you get credit for, the more likely it is you will not truly "require" credit. Estimate that the average US Household will purchase 2-5 homes and 4-10 vehicles over their lifetime, throw in 2 kids in college if you'd like. That means there are roughly 17 times you'll require credit, if you don't invest smartly and you know, make your kids work like real people. So for the vast majority of your time on this sphere, you don't require a bank's credit - and if you plan it well, you'll need it a lot less than that. Remember that the banking sector is a large scale scam that has gone on since the dawn of the first "currency". In the history of the United States there have been several attempts at a "U.S." bank, every attempt..failed. There is a reason, it is a fraud. A bank is good for one thing, safeguarding your liquidity. They have the physical capacity to secure it. When it comes to your best interest, don't look to the bank...shank it. More to come.
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