Bank finance articles and tips

People who are seeking debt consolidation advice are usually up to their necks in debt and sinking fast. You can try to consolidate your debt which might give you a better overall interest rate. This is the conventional thinking. A new breed of debtors is taking a different route. They challenge the debt. How does this work?

You only need to pick up the newspaper or turn on the TV to realize the worlds banking system is in a mess. It started with the sub prime mortgages. The Wall Street boys realized that loans secured by US real estate were able to be marketed around the world. They could off load the risk of a borrower defaulting by selling the loan to some other bank or investor. They would make a few bucks originating the loan and then put it up for sale. To make sure they could sell it, they dreamed a system that would make even the worst credit loans look more attractive. They would take a loan and divide it up into different parts called tranches.

So instead of 5 people each owning an equal 20% share of a loan, they divided it up into sections based on when they figured it would default. The chances of it defaulting in the first 6 months would be very low, so they would give this part a Triple A rating. Most people don't default on a loan right away. The second 6 months would be a little shakier so the 2nd tranche might have a credit rating of only A. People in the 2nd year are even more likely to default so that part of the loan might carry a credit rating of B and so on. Remember these were loans that required no income verification and had reduced credit standards. An investor that demanded only the safest of investments might be directed towards the tripe A rated piece. A more aggressive investor might buy a B rated tranche and get a higher payout.

The problem was the entire loan was a C or D quality loan. Shaving the top portion of it off did not make it a Triple A rated loan. When the borrower defaulted, the whole loan went bad even the Triple A parts. This is what caused the economic meltdown.

So how does this affect you?

The first thing is these loans were cut up and diced into so many pieces, its hard to track down the actual owners of the loans. The owner of the mortgage is the one that has to foreclose on people who have defaulted on their loans. Many people have put off foreclosure simply by asking the court to prove who was foreclosing on them.

The banks were so busy writing new loans that they often did not fully audit the loan documents. They had "robo-signers" just sign every loan package. If there were mistakes on the loan documents, the contracts are invalid. A fairly common mistake was to mess up the legal description of the property. The loan you have been paying on may not even be for your house!

The credit card companies face a similar situation. Let's say they claim you defaulted on your agreement by not paying your June 2010 payment. They take you to court to sue you for the credit card balance. You know for a fact that you made the payment in June 2010 on time but forgot to make the August 2010 payment. You did default on the payments but not the payment they are claiming. People have been able to have their cases dismissed and in some cases have counter sued the credit card companies and won cash awards.

Please understand that nothing in this article should be construed as legal advice. You should always consult a professional who completely examines your documents before proceeding.

On the other hand, you may find that you don't need to consolidate your debts afterall. You may just be able to get them discharged due to mistakes in the paperwork by the banks.

For more debt consolidation advice and other strategies to reduce your outstanding debt, please click the link.

By Dave Berger
http://www.debt-consolidation-advice.org