Livinglies's Weblog

I’m sure many clients have had some conversation or asked for advice concerning their financial situation and in particular their homes. I am the author of this blog site — http://www.livinglies.wordpress.com — that seeks to aid people who are the victims of illegal lending practices. Most attorneys are passing up an unparalleled opportunity to earn high fees and high satisfaction from their clients by failing to research and understand the current environment of mortgages, notes, securitization, foreclosure and eviction.

I have seen emails regarding the case against appraisal companies and it is understandable that someone would issue the comment that it was negligence and not a pattern of conduct falling under TILA, RICO and other statutes and laws, but nonetheless it is wrong.  My research clearly shows that the three main rating companies — Fitch, Moody’s, and Standard and Poors — got into a turf war over market share and profitability. The investment banking community stoked the fires as much as possible and ended up negotiating ratings instead of issuing ratings based upon due diligence and industry standard analysis. My blog site will demonstrate that it was a pattern of conduct that existed, evolved and grew over many years, ending up with fishing trips and other perks given to the ‘analyst’ who was issuing the rating. The threat was that they would take their business elsewhere to get a rating if the issuer did not get what they wanted. This is all documented in writing in articles (Wall Street Journal, NY Times) and testimony. This was not negligence — it was an effort at plausible deniability.

On the other end of the spectrum there was the same fraudulent activity. The appraisals were of real property. And the appraisers who came in with the high appraisers got the business and were paid bonuses, whereas the honest appraisers were left in the dust with no business because they would not lie. In 2005 8,000 appraisers petitioned congress warning of the impending crisis and the fact that they were being financially damaged because they wouldn’t ‘play the game.’ Just last month, a class action of appraisers against the mortgage originators was filed for exactly that reason. 10,000 convicted felons in Florida were recruited and licensed as mortgage brokers, most of whom had been convicted of economic crimes. I’m sure the same figures hold true in most states that were hard hit by this scheme.

On the one hand, no investor would have purchased a AAA-rated MBS (cash equivalent) if they had known that the rating was based only on the top tier of a pile of junk, which is exactly what happened and is no longer disputed.  On the other hand, no borrower would have signed a deal that used his personal identity, credit rating and personal information in an elaborate scheme for selling unregulated securities to defraud investors, based upon a fraudulent appraisal of his property — an appraisal that he relied upon along with his reasonable reliance (according to black letter law) on the lender’s underwriting, due diligence and appraisal review procedures.

All of these people, committees and procedures were condensed into one desk with one person and rubber stamp that approved any loan application including the now infamous NINJA loan -no income, no job, no assets, no problem.  A Dog with a note in his mouth could get a $300,000 loan, because they were all table-funded loans for which the chartered financial institution was not at any risk, where the ‘lender’ on the note and mortgage had been paid in full in most case BEFORE the loan closing or contemporaneously with the loan closing, AND they had received a 2.5% fee for lending the use of their charter to an unregulated, unregistered entity that was in the home loan business by virtue of an illegal undisclosed pooling and services agreement and an assignment and assumption agreement, most of which violated the express terms of the note, the express terms of the Truth in Lending Act, and banking regulations.

The economics were flipped in the mortgage meltdown period of 2001-2008. The worse the loan, the higher the stated rate of interest on the note, even if the borrower was actually paying a tiny fraction of the interest, was not amortizing the note, and was not paying into escrow for taxes and insurance. Thus some loans had a stated interest rate of 16.5% which was thrown into a pool to lift the overall apparent yield, even though the borrower was paying 1% interest only on an option ARM.

Since the MBS certificates were being sold at 8% or lower return the total “value” of the mortgage doubled or tripled when thrown into the pool and that is what it was ultimately sold for — a $300,000 NINJA loan could be sold for $600,000 whereas a $300,000 conventional fixed rate mortgage to a borrower with an 800 FICO could only be sold for par value ($300,000).

The result was that Wall Street was bottle-necked with around $10 trillion from the sale of ‘mortgage backed securities’ for which they had no mortgages, no notes, no backing. So the pressure and rewards, bonuses, rebates, kickbacks and graft was intense as demands were made for loan documents of the highest dollar amounts possible. The sales effort was the most intense the world of financial services has ever seen with armies of mortgage originators (bird dogs) literally sent out to knock on doors, or cold call people from boiler rooms.

FACT: More than half the loans in trouble were refi’s NOT requested or solicited by borrowers. This was not a case of shady borrowers pushing the market looking for money. This was a case of money pushing the market looking for anyone who would sign loan documents. As long as the money was pushing the market the appraisals grew for entire neighborhoods and cities by virtue of the sheer enormity of the scheme.

The only way to satisfy Wall Street’s insatiable appetite for signatures was to either forge them, which they did, fake them, which they did, or lie about them, which they did. The best way to satisfy a demand for another $100 million in mortgage loans was to inflate a $50 million portfolio into $100 million. And that is what they did — on both ends of the spectrum, from the investor who put up the actual originating funds, to the borrower who thought he was simply financing his house.

The clients you can receive in your office are a complete cross section of society from retired nuns, to police chiefs, to professionals and workers of every type who under pressure and clever scripts (some of which Attorney General Gerry Brown in California actually has) they fooled even some pretty sophisticated, educated and experienced people. The reverse red lined area of low income, low education and no sophistication were red meat and easy prey. People who had owned their houses free and clear were convinced to go into deals where they are now homeless.

Despite clear Federal and State laws to the contrary none of these facts were disclosed to borrower or investor. Incredibly the standard answer we are getting now when we ask for the real holder in due course of the note and mortgage, is that this is ‘confidential’ information and cannot be revealed to the borrower or any of his representatives.

I could go on of course. The point here is that nearly all the foreclosures are fraudulent, nearly all the sales of mortgage backed securities were fraudulent, nearly all the credit default swaps were leveraged out of any sphere of being honored, and the same holds true with insurance products from AIG, AMBAC etc. In addition, most of the players have errors and omissions policies that cover the losses. The reason the credit markets are in paralysis is not because home values went down, it is because TRUST was destroyed in the financial system. Only $13 trillion in MBS derivatives out of a total derivative nominal value in the credit markets of $600 trillion. Even a 40% drop in home values would not account for 1% of the total credit market. The problem is that they all know now that this was outright fraud — like writing NSF checks or checks on a closed account. It cast doubt on all $600 trillion in credit derivatives. Auctions stopped, exchanges ceased operations, and normal credit liquidity was gone. The only difference is that the numbers are larger than the normal paper hanger writing bad checks.

Now add to this mix that 40% of the notes were intentionally destroyed, there is no chain of title recorded, and the proceeds of payments on each note were retained and not passed on to the appropriate holder in due course. Add also that contrary to the express terms of the note, parties with whom the borrower did not know he was in privity had secretly agreed to divert his payments to pay off a stranger’s loan.

Now I write to you to invite you to consider the following premise: that a firm that litigates securities issues is the most likely to gain credibility in front of a Judge in state, Federal or bankruptcy court in explaining these factors. Nearly 4,000 pro se litigants have had the lender tossed out of the foreclosure process and there are some lawyers who have dropped everything else because representing homeowners has turned the graph of their law practice into a hockey stick, making them more money than they ever saw in their lives. And yet…. most lawyers won’t listen. I have over 300 cases in Arizona alone to refer without a referral fee expected. I have given seminars in California and Arizona without CLE credits and I got a pretty good turnout both times, but no Arizona-licensed lawyer showed up even to the seminar in Phoenix. So far, I have no Arizona lawyer to refer cases to even though in the surrounding states I have many.

So here is my challenge or request or whatever you want to call it. I respectfully request an audience with the supreme leaders of your firm to present the business case for representing homeowners who  have obtained mortgages from 2001-2008 whether they are in foreclosure or not.

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: fees, foreclosure defense, foreclosure offense, fraud, lawyers |