Greenspan: If you can’t blame the borrowers, blame the investor — anyone but the real culprits

October 23, 2008

Alan Greenspan was wrong today when he said that investors did not look critically enough at the ratings. Finance is based upon trust, and these companies had been trustworthy for many decades. Here is the real story.

The very notion of pooling is and was illegal. Allocation of payments, recording statutes, recording fees, non-disclosure of lender (interfering with QWR and Rescission), non-disclosure of fees (TILA), non-disclosure of profits, non-disclosure of insurance (AIG), non-disclosure of Credit default swaps, uncertainty of possession, control and ownership of note, changing terms of note severing security instrument etc.

Why would you need all these insurance, cross collateralization, overcollateralization, and reserves if the mortgages were good paper? Because they didn’t have good paper. They dressed it up in a ballet costume, put some lipstick on it, got some judge to say it was the winner of a beauty contest and everyone (purchasers of mortgages and purchasers of mortgage backed securities) bought in reliance on the misrepresentations, fraud, non–disclosure etc. when if they had the true facts nobody would have bought.

To cover up the obvious illegality of pooling notes where the payments were mandated to be applied to the note obligation, they inserted buy-back arrangements that everyone understood would never be used and could not be used. It could not be used because the buy-back was between the mortgage aggregator, who no longer had possession, control or ownership of the note, and the lender who had already been paid. When it came to foreclosure and collection, whoever got the money either kept it or gave it someone else who kept it and used the same theory we are using — we’ll just keep this until we know who to pay.

Thus either the pretender lender or the mortgage aggregator or the investment banker KEPT the proceeds of the foreclosure without paying the only parties that MIGHT have had a claim to status of holder in due course. In plain words, they got paid twice over and perhaps more. The terms of the SPV provided for markdown of assets for an excess of non-performing assets. After the markdown, the investor was NOT entitled to any more of the actual proceeds than the markdown which was strictly within the sole discretion of the investment banker or the mortgage aggregator.

Add to this the fact that the economics of the finance market was turned on its head. REAL loans with REAL borrowers and REAL terms that were likely to remain in the status of performing loans had the least value in this securitization scheme.

For example: borrower has 800 FICO, $1 million in the bank, and an income of $5 million per year confirmed by income tax returns, the fact that he is the CEO of a public company where his income is disclosed, and through bank references in the usual manner of the usual loan. The loan is for $1,000,000, fixed rate at 6%. Title insurance, and property insurance included at closing and there is an escrow for taxes and insurance in the monthly payment. The interest income is $60,000 per year for 30 years. An investor might be willing to pay something close to $1 million for the $1 million loan. The lender makes sure it has one reliable honest appraisal which comes in at $1,200,000, and the due diligence review committee at the bank confirms the value of the house. Under normal circumstances, the parties in between would be getting a commission at the rate of some basis points on the deal, which is the way it always worked until the great mortgage meltdown of 2001-2008.

Now let’s look at what really happened. The borrower is a NINJA — no income, no job, no assets. First payment is $450, without any escrow for taxes or insurance, with the balance of the interest added to the principal as negative amortization. Title insurance, taxes and property insurance are in place for the first month. The loan is an option ARM, with resets eventually taking the loan up to an interest rate of 16.5% (this is a real case). Thus the interest income on the loan is stated as $165,000 despite the fact that the actual payments are at an annual rate of $5400, with no insurance payment and no guarantee the taxes will be paid. An investor knowing these facts would probably not be inclined to buy this loan at all.

It is obvious that somewhere in the first reset or second reset of payment the loan will become non-performing. Any person with a passing familiarity with mortgage loans would know that. If the investor was a risk-taker he would buy the loan at a deep discount, probably a few cents on the dollar. But if the investor did not know that this was a 16.5% NINJA loan and instead was presented with a purchase share in a pool of loans where the stated income was 6%, he would still pay full value.

Boiling the actual effect of this down to real dollars and cents, here is what happened inside the pool, unknown to the investor: they sold the 16.5% loan but they were only offering 6%. By doing that, they were able to sell the $100,000 loan to three groups of investors at full value pocketing nearly $300,000. This is only possible where the loan is “toxic waste” and the interest rate is therefore sky high. By hiding the loan in the pool, it looks to the investor as though he is buying the first loan in our example, but in fact he is buying worthless securities that are priced 100 times over market. This extra money made it possible to pay intermediaries 4-5 times their normal compensation and to press property appraisers into delivering appraisals that spiraled upward at the direction of the investment banker.

At the other end, the same thing was happening to the purchaser of the loan package — i.e., the borrower. Misled into thinking that the appraisal was a fair estimate of market value and misled into believing that the “lender” had a plan to refinance the loan every year or two, he came to reasonably believe that the finance people knew more than he did and took a loan that he would never have taken had he known the true facts. So you have two purchasers — a the borrower and the investor who would never have made the deal but for the outright criminal fraud of the intermediaries who cooked up the scheme to illegally issue unregulated securities.

4 Responses

  1. Libra99, you might be on to something here now? Hmmmm, wonder what would compel a rational person to do such a thing like that? Sadly, they will be caught and BBQ! Our prayers are with and for this person as they need them as our prayer are all we have left. Bless you Libra 99, and thanks for the pearls of wisdom here!

  2. Mort, god bless you and your family, we are so sorry to hear of the Gestapo coming, welcome to the corrupt BK Club; this is what just happened to you! This is what our corrupt Judge had in mind for us however realizing the judge was not impartial; we did our research on the judge first and found out that he was a law partner to the law firm that touted our lender, servicing agents and anyone involved in our note as their representative clients! Yes, believe that this is so! We were shocked to realize that this is what is really going on in our BK courts and at the expense of our….tax dollars as we, you, me and ALL OF US, are paying these corrupt judges salary! These judges are on our payroll!

    There is good news though, the trustee can be sued! I would commence immediately to suing his scummy little tail, however, get a lawyer! Do not try this pro se! It is a mean, cruel, broken judicial system out there or, the New Gold Rush and Frontier of our time with only lawyers and judges making a cent!

    We had the same thing happen in our BK case and, after weighing the cost of loosing our home against having a debt written off, we selected our home! Screw the creditors and for anyone considering a chapter 7 or BK, do not accept your case to be converted to a Chapter 7 as this is how they are steeling homes today with the assistance of DOJ, COURTS AND JUDGES!

    This corrupt syndication here in Maryland, Beltsville division of US Fed BK Courts, had this same scenario planned for us but thankful to God for the internet and the wonderful husband and wife who wrote of their Gestapo nightmare, The Night the Gestapo/Trustee showed up with the US Marshal’s and a door RAM in the middle of the night to take possession of their home and all contents therein! This poor couple did nothing wrong to deserve this injustice! The only thing they did was hire, unknowingly, a corrupt lawyer to file their schedules and, guess what, the lawyer left out of the schedules….that is right, nothing significant….,(the later is a standard ploy used by this CARTEL/syndication), a 20 year old dilapidated car that was worth much, much, much less than the couples million dollar house, contents and everything they had! This malicious, though calculated error, is what gave the trustee fuel to object to discharge and accuse the poor consumers of fraud! This is a real story and really did happen to these poor consumers just we are sure, this is what happened to you!

    To save ourselves, as we had already had 3 defective/corrupt lawyers all of whom are believed to be part of this corrupt syndication known as the Maryland BK Club/Mafia, but, we immediately dismissed our case and refused BK discharge! The judge became really, really mad at us and got pissed off when we dismissed our BK as his job was to facilitate further the theft of our home and to protect his clients, Our Lender, Servicing Agents etc., from our valid TILA and Document Fraud claims! This is correct, we swear and have documented proof to share!

    Sadly, we have found that this is going on every day in the 10 largest cities currently affected the most by the mortgage meltdown crises as how else do you think these cities, Maryland included, became the worst states most affected by the mortgage crises? It was for fair and equitable courts and their rulings, do you think? Heck no!

    Our advise to anyone in BK is do your research, check out your judge, his rulings, the trustees etc., and look to see if the same trustees end up working on all of a particular judges cases or, see if the judge is only handling particular set of creditors as this is usually a clue that the judge is on the bench to help the creditor/or, the judges client as you and I/Joe & Jane Consumer, are the furthest thing from these corrupt judges minds by fact, we are obstacles preventing the judge from cleansing their real client from their liabilities! Bush, with his 05 BAP laws made sure this task was streamlined and simplified for these scummy people and, do not fool yourself thinking, No, no, no, the DOJ, J stands for Justice, US Trustees office would not be in on such a scam; they are and it is happening everyday in our country! The really nice piece to this scam is that when the judge is giving you the boot from his court, he makes sure that he labels you as vitriol, onerous or something along those lines so that when you try to bring a later action against these pigs, the pigs lawyers parade the scathing order under the nose of the new judge thus in effect stopping you from brining your claims! You will need a lawyer so do not try this PRO SE!!!!!! WE KNOW, WE DID IT PRO SE! DOES NOT WORK!

    This is what our government has done for us, WE THE PEOPLE!


    If you have had a similar situation as ours stated above, please call or email us at or 410-257-5283, Tim and Kathleen

  3. And the banks scratch their heads and wonder why people send them white powder in the mail ??

  4. Thank you for setting forth this explanation.

    I discovered these “artfull” practices back in 2000. The adversaries did not like my disclosure. I was forced to file bk on one of my companies due to their false documents and affidavits of lawyers set forth by the financial institutions.

    Since then, I have been fortunate to have had family and friends who believed in what I said regarding the fraud and loaned us funds to live and fight.

    However, it eventually came to a personal Chapter 7, and a “gestapo” type eviction from our home by the Trustee.

    I have fought him every step of the way, and he now has admitted that there is NO valid first mortgage on the house.

    His solution – Stipulate as to “standing” of an unknown entity who advertised the home, then cried out, and foreclosed (not to mention refusing payments to stop it).

    Then the Trustee compromises and settles with the “lender” he deemed into standing, and got them to pay him $100,000 and probably more. He estimates his “final” report now to be entered (after numerous changes) to be filed in December 2009. Thus giving him cover to delay any objections to his administration.

    Trustee has refused to provide any documents requested to evidence his “reasonable” conclusions.

    Regarding Dr. Greenspan, I recognize that hindsight gives us all an avenue to think of questions. I think he is a smart man, and do not as yet question his integrity. I just read the link below. I have never heard of DAVOS.

    Thank you for your continued efforts to recenter our country.

    Mort(imer) Gage

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