NPR Report: How We Found Our Toxic Asset

NPR Report: How We Found Our Toxic Asset

There’s no store where you can buy toxic assets; you have to know a guy. We know Wit Solberg, a former Wall Street trader.

Solberg left Wall Street to set up his own shop, Mission Peak Capital, in Kansas City, Mo. He and a dozen guys sit at desks with their tools: monitors, potato chips, Snapple, chewing tobacco. Pretty much all day long, Solberg looks at those monitors and evaluates toxic assets.

“The big black Angus cow that everybody wants? We’re not buying that cow because it’s too expensive,” he says. “We want the cow that’s got a wounded leg, but she might produce a few more calves for us — and [she’s] cheap.”

Tracking Our Toxic Asset

Solberg starts searching for a bond we might want to buy. And that searching looks a lot like checking your e-mail. Brokers keep sending him announcements about which toxic assets are for sale today. One says: “Cheaper!” Another says: “Super senior steal!”

Around lunchtime, Solberg finds a bond he likes for us. It’s called an Option One Mortgage Loan Trust, or OOMLT (pronounced om-let). Solberg thinks we should offer to buy the bond for “half a cent” on the dollar. That means that, for every $1,000 of the bond’s original value, we’ll offer $5.

But it turns out the guy who’s selling the bond wants 17 or 18 cents on the dollar — more than 30 times what we bid. Solberg says these kind of huge spreads are pretty common in the toxic asset business. People just radically disagree about what things are worth.

Do You Own Part Of Our Toxic Asset?

We’d like to meet some of our partners in the pages of this gigantic financial transaction. If you bought a home in 2005 in Sarasota, Fla., ZIP code 34232, let us know in the comments below or e-mail us. Or if you’ve owned our toxic asset (CUSIP: 41161PUA9), let us know that, too.

We spend two days with Solberg looking for the right toxic asset. One, full of what appear to be California McMansions, seems promising. Solberg prints out a 604-page prospectus that reads like a historical record of the entire financial crisis. It’s all in there — vaporized companies, people struggling to pay their mortgages, and some horribly complicated logic describing which bond holders get paid, in which order, under which conditions. But that bond falls through, too.

Finally, we find a beautiful, totally toxic asset at what Solberg thinks is a good price: $36,000. Back in the bubble, somebody paid $2.7 million for this thing. We buy a piece from Solberg for $1,000. It’s going to be our encyclopedia of the financial crisis.

What Our Toxic Asset Looks Like

Our toxic asset has 2,000 mortgages, many of them in hard-hit states like California, Arizona and Florida. A lot of the people in our bond are really struggling. Almost half are behind on their mortgage payments, and 15 percent of the homes are already in foreclosure.

At some point those homes will be taken over and sold for a loss. Every time that happens, the bond shrinks. Eventually, our part of the bond will disappear entirely.

Until then, we get a little money every month from people paying off their mortgages. We just got a check for $141. If it goes to Thanksgiving, we could double our money.

By the way, we bought the asset with our own money. Any proceeds will go to charity. If we lose money, we take the loss.

18 Responses

  1. ANONYMOUS or someone, can anyone tell me about the securitization of the American Broker Conduit pools. My loan may be in one started around August 2007. Is there any connection to Wells Fargo, Option One, American Home Mortgage in any of the ABC pools? I’d like to get ABC’s PSA for my pool and to find out more about the pooling of ABC’s mortgages after it was sold to WL Ross & Co. Many Thanks…

  2. Daniela Mars,

    Yes, putting real estate into a trust is possible in the State of Florida. It’s usually done as part of estate planning. I worked for a short period of time with an attorney who did wills, trusts, and estates. The majority of his clients had the titles to their properties in family trusts.

    From what I remember, it is something that you would need to have an attorney set up as there can be tax consequences.

    Disclaimer: I am not an attorney and this should not be constued as legal advice.

  3. Daniela Mars

    I think that they are talking about title to homes being held in a trust. This is not the same as “mortgage lender’s title insurance” – which we are forced to pay for at closings. The problem is that in order to purchase or refinance, the property has to be free and clear of all liens – this is to protect the new lender. You can also purchase continuing “buyers title” (which is required when you first purchase a home – but not for a refinance).

    As the Massachusetts Landmark case demonstrates – title is flawed in foreclosures because the real party was not represented and, therefore, discharges are done by the wrong party – who had no authority. Documents are false all over the place. This will eventually cause numerous problems – and must be addressed by title agencies. Courts are not helping by accepting anyone who walks into court and claims to have authority to foreclose.

    I think, if a judge is going to foreclose under the wrong party name (judge will never admit this) – the judge should be asked to submit the complaint to a Title Agency – to insure that this it valid and demand confirmation in writing from the title agency. I have already seen that title companies are not buying the “assignments” – no matter what the judge does. Force the judges to require proof from title agencies by investigating all assignments, endorsements, power of attorney, affidavits – etc. Just because a judge grants a foreclosure – does not mean mortgage title is valid.

  4. Anonymous,

    Is this possible in Florida ?

    http://www.foreclosureforum.com/trust.html

    Title Holding Trust Training

    (Trust Kit + 7 Hours)
    Overview
    It’s somewhat surprising that most people, even those with a fair amount of real estate experience, don’t appreciate the nuances involved in holding title to real property. The most common presumption people have is that it’s best if their title is in their name. But like most presumptions, that’s about the worst choice one could make.

    The reason is that things happen to people (lawsuits, tax liens, judgments, divorces, death, etc.) that can instantly cloud the title to whatever they hold in their names, making it impossible to sell or refinance until their title is cleared of such impediments. The problem is ever more severe when multiple parties, especially non-related investors, are joined together on title.

    The Alternative
    Don’t put title in a living, breathing human’s name. For years real estate pros have deftly sidestepped title calamities by vesting their properties in a legal, virgin, non-living entity (such as a corporation, a limited partnership, or a title holding trust).

    Nowadays though, many of them are switching to the use of the non-taxed title holding trust since California is now imposing (as of January 1, 1994) a minimum, yearly franchise tax of $800.00 on any and all entities required to be registered with the Secretary of State, regardless of whether or not they’re currently doing business in California. [California Revenue & Taxation Code, Section 23081(b)]

    So even the newly adopted and novel “limited liability company” is being assessed the franchise tax board’s $800.00 minimum yearly tax.

    Keeping the title to your property clear of any clouds is so important, that even the use of a taxable corporation to hold it is preferable to keeping it in your name. Unlike us mortals, a legal entity won’t suddenly disappear, die, or become incompetent overnight. And note that control of a corporate entity takes the form of privately transferable personal property (i.e. shares of stock, partnership units, beneficial interests, etc.) whereas the transfer of title to real property is publicly recorded for all the world to see and investigate.

    “Teflon Coat” The Titles To Your Properties
    Create a legal, artificial association for each property you now own and deed your title over to it. Don’t worry, you’ll still be able to transfer the ownership/control of that entity back and forth privately. The absolute best entity for the task is the title holding trust or land trust because it’s the most private, cheapest, easiest and fastest to legally create.

    Title companies regularly accept the title holding trust format because it was originated by one of the largest title companies of all time, Chicago Title & Trust Company, and because it’s a time-tested device that’s been used to hold title to property (especially large investment properties) since 1891.

    “No Hassle” Guarantee
    If, at the end of the seven hour training session, you were still uncertain about the efficacy of the trust format, or if you weren’t satisfied that you would ever use it-you’d owe us absolutely nothing. You’d just give us our forms kit back and we’d cheerfully return your uncashed training fee.

    Learn How To Do It
    All it takes to start using the trust is to spend an afternoon with us in San Diego. We will explain the use of all the master forms in our 102+ page trust kit and relate with you real life examples of the wide variety of problems it has solved or avoided (especially the “privacy of ownership” angle) during the 18 years we’ve been using the trust format. Our training fee is $1,600 for one person or $2,600 for two.

  5. Anonymous , great comments and thanks. You can learn more about me by a google search or at http://en.wikipedia.org/wiki/Nye_Lavalle. A good friend and colleague of mine is the former national sports columnist for the AP who busted Mark McGwire years ago with the Andro in his locker.

    He’s been talking with a few publishers and investigative business reporters about working with us on a book on the mortgage market and how lawyers and banks and even HOAs are stealing people’s homes and our retirement and pension funds. His name is Steve Wilstein and you can learn more about him at http://en.wikipedia.org/wiki/Steve_Wilstein.

    You certainly have a level of proficiency and knowledge that people like myself, April Charney, Neil, Brad, and Max Gardner have been talking about for years. You’re helping us fill in a lot of blanks and confirm our suspicions that the notes never left the originator or were held or possessed by them and that the trusts were shell, something a former gf who was a CFO for major bank told me.

    In any event, please continue the dialogue in any manner and we’re all eyes and ears!

  6. Nye Lavelle

    Thanks for response – I am not a whistle-blower – but stuck.

    And, my story also has many humorous aspects – great for a book – would love to give you – but not yet.

  7. foreclosurefight

    Yes, that is what I mean. Judges know title is a problem – and they do not like signing onto to it. This means stepping on the authority of title agencies – who may or may not find your mortgage title – insurable. It is a mess. NY contact tells me – “what difference does it make – no one has valid title” (i.e. – let the chips fall where they may – and who cares -everyone is in the same boat??) Well, we care.

    You have a very good case. Here is why. Ameriquest is dissolved – but they never went into bankruptcy. The assets (or business practice) of ACC Capital Holdings, including Ameriquest, Argent, Park Place – were purchased by Citigroup. Ameriquest Mortgage Securities – is non-existent. They are gone. They were dissolved in September 2007. However, companies have 3 years to “tie up” loose ends before they remove their company from registration in the state they registered. (this does not mean they can do assignments or power of attorney). Therefore, Ameriquest has until September of this year to remove entities from registration. Think your trial is in September????

    Ameriquest/Argent were originators that set up “shell” depositors – who set up shell trusts – and, therefore, were not subsidiaries of the security underwriters who purchased the mortgage loans outright (in most cases the depositors were subsidiaries of the security underwriter in securizations). However, as expressed by attorneys that set up these “ameriquest” trusts to these “depositors” – they were “shells” – and, once these entities dissolved – the trust is non-existent – unless someone owns up to ownership (which we really know is the security underwriters from the onset – but they do not acknowledge).

    Here are some clips from your trust prospectus/8-K/S-3 (registration statement).

    “The Certificates

    The Offered Certificates will be sold by the Depositor to the Underwriters on the Closing Date.

    The Class M-11, Class CE, Class P and Residual Certificates, which are being issued simultaneously with the Offered Certificates, are not offered by this prospectus supplement. Such certificates may be delivered to the Seller as partial consideration for the Mortgage Loans or alternatively, the Depositor may sell all or a portion of such certificates to one or more third-party investors in one or more private transactions.

    The Seller may be required to repurchase Mortgage Loans from the Trust in the event certain breaches of representations and warranties have not been cured. In addition, the NIMS Insurer, if any, or the Master Servicer may purchase Mortgage Loans 90 days or more delinquent, subject to the conditions set forth in the Pooling and Servicing Agreement. The Seller anticipates selling all or a portion of the Class CE, Class P or Residual Certificates to one or more unaffiliated parties in one or more private transactions. As part of such sale, the Master Servicer will agree, upon the direction of such purchaser, to exercise its purchase right with respect to Mortgage Loans 90 days or more delinquent, subject to the conditions set forth in the Pooling and Servicing Agreement. These purchases will have the same effect on the holders of the Class A and Mezzanine Certificates as a prepayment of those Mortgage Loans.”

    “The holders of the Class CE Certificates, the Master Servicer or the NIMS Insurer, if any, may purchase all of the Mortgage Loans when the aggregate principal balance of the Mortgage Loans (and properties acquired in respect thereof) is less than 10% of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date.”

    “Each class of Class A and Mezzanine Certificates accrues interest at a pass-through rate based on a one-month LIBOR index plus a specified margin, but such pass-through rate is subject to a limit. The limit on the pass-through rate for each class of Class A Certificates is based on the weighted average of the mortgage rates of the Mortgage Loans in the related loan group, net of certain fees and expenses of the Trust (including any Net Swap Payment and any Swap Termination Payment owed to the Interest Rate Swap Provider other than Swap Termination Payments resulting from a Swap Provider Trigger Event).

    From S-3 registration statement

    LIQUIDATED LOAN: A defaulted mortgage loan that is finally liquidated, through
    foreclosure sale or otherwise.

    LIQUIDATION PROCEEDS: All amounts, other than Insurance Proceeds, received and
    retained in connection with the liquidation of a defaulted mortgage loan, by
    foreclosure or otherwise.

    End -from me

    “or otherwise” is the key. This is where the trust is paid for in “recovery” for the sale of default loans. The sale price can be as low as pennies on the dollar. And, this is a defunct trust. “or otherwise” has already occurred – and quite some time ago. Who accounted for “recovery” on behalf ot the trust?? A defunct trust has no other option that to “recover” something by sale of whole loans. You have to find out – how much did the trust recover for sale of your default loan??? This, I know – is what happens. HOW MUCH DID THE TRUST RECEIVE FOR SALE OF THE LOAN. AND – who recorded the recovery to the IRS – on behalf of the trust??? IRS is part of big picture – but IRS does not care – as long as they get money.

    Your trust is gone – but you need to ask judge – if he thinks trust is still alive – then where is it (because Ameriquest is defunct – with rights sold to CItigroup) ?? Who is accounting for it??? All trusts must be accounted for as owned by some entity – who should now account for it on balance sheet according to new FASB rules. Since Ameriquest is dissolved – where is this trust? – your loan is no longer a mortgage-backed security, and, or where is the remnant pieces or “pools” that remain??? A loan has no value if there is no valid lien. At least – a secured valid lien. Appears there may be no valid secured lien in your case. Thus, you were left with a default debt owed to some undisclosed party – which is completely dischargeable – since there is no valid secured lien.

    By the way, there was a big multi-district class action against Ameriquest for predatory lending/TILA violations. Case was settled – in my opinion, because the judge claimed that TILA violations were “individual” and could not be a class action. Attorneys made a bundle – but the people were left with about $20.00 a piece. Fair?? Do not think so.

    And now for a little lightness

    To Deontos

    Think we should get together and send PSA and prospectus’ for bridges to judges – they just may buy it!!

    Disclaimer – (always need). I am not a lawyer – and this is not meant to be construed as legal advise and only for educational purposes.

    Always, we are here to fight together. Do not let go.

  8. Thank you for the information “Anonymous”…

    I fully agree that the March 2009 is absurd and that is the only one that is recorded (and created by DOCX)…yet the Judge allowed the sale to go through…WTF???

    When you say “restoring title will be a challenge” do you mean for them trying to prove up their case or for us to get the Judge to “get it”…

  9. Anonymous.

    Thanks and I, if anyone, totally understand about their retaliation and how they attack the whistleblowers. Whatever you feel comfortable sharing on here, let all of us know. If you have any suggestions in reading or links, let us know and we’ll trail that dog, or is it Shark? lol

    Many thanks again, you’ve been most helpful already confirming what a few of us already knew!

  10. Nye Lavalle

    Have a lot to tell – but, unfortunately, cannot tell yet – not even as Anonymous – because would know it is me. As soon as this changes – will let you know.

    foreclosurefight

    First, March 2009 assignment is absurd.

    Second, the reason they stopped reporting to the SEC in 2007 is because they filed a 15-15D – which suspends requirement to report. Claim hardship to report and do not have to if the investors in trust are less than 300. Almost all the SPV trusts filed a 15-15D. Investors are always less than 300 because all the certificates to the trust are sold to the security underwriters – in your case Merrill Lynch and RBS – only 2 investors directly to the trust. Then they may sell their own certificates to others or repackage the certificate/securities into synthetic CDOs.

    Third, the site you provide does not mean the trust is still ACTIVELY trading as security pass-throughs. The pass-through structure is dead as first set up. All that remains from these SPV are the mezzanine “pools” that once made up the trust’s pass-through structure. Distressed debt buyers/hedge funds can still buy “pools” at steep discounts. If the pool of “toxic” assets cannot be sold – then it remains with Merrill Lynch (BofA) and RBS. – who will shortly be bringing the conduit back onto their balance sheet (if they have not done so already). The QSPEs no longer exist in their original form.

    Fourth, Deutsche Bank was not only the trustee to the original trusts, but was also the “supplemental” trustee for credit swaps derived from the original trust that swapped default “pools” out of the trust.

    Restoring “title” will be some challenge.

  11. ANONYMOUS,

    If it was anyone else I would immediately say NO!
    But if you have a Bridge to sell. Please send me
    the Prospectus and PSA.

  12. ANONYMOUS,

    I have a few bridges to cross, defend, and blow up, but none to sell. Would love to chat with you and explore your knowledge for a book a colleague and I am writing.

    I believe you prove a point I have been talking about for years, if I am correct, these were never really “true sales,” but financing of receivables and should be on the bank’s balances sheet.

    Any info you have, whether as ANONYMOUS or identified, I would love. Many thanks for your contribution!

  13. http://livinglies.wordpress.com/2010/02/25/this-rmbs-%E2%80%9Ctrust%E2%80%9D-has-quit-reporting-to-the-sec-in-2007/

    This is information on the particular “Trust” that Douche Bank as “Trustee” has used to foreclose on our house…

    The “Trust” Cut off date” was in Feb 2006, stopped reporting to the SEC in 2007 and according to the Deutsche Investor Site, they are STILL actively trading and providing monthly statements!!! WTF??? Who the hell is watching these A***holes!!!

    For some strange reason, there is an “Assignment of Mortgage” to this Trust dated MARCH 4, 2009…THREE YEARS AFTER THE CUT OFF DATE OF THE TRUST!!!!

    Our Quiet Title Trial is in September…

    The Judge is going to be thankful that I bought him some new “whitie tighties” prior to Trial…because he is going to need them!!!

  14. Hi Deontos

    First, the trust is set up as an off-balance sheet conduit by the depositor – who is usually a subsidiary to the security underwriter. After the trust is set up – all the certificates to the trust are sold to the security underwriter (s). The only tranche – which is not a certificate – that is not sold to the security underwriter is the residual equity tranche which is usually held by the servicer, also usually a subsidiary of the security underwriter – or, in the rarer circumstance, the originator of the mortgage. The servicer then controls this tranche – to which all “bad” loans are subordinated. See my post to “Discovery Forensic Analysis & Motion Practice”.

    Default loans cannot stay “accrual” forever. Accrual means that the bank that is recording the note on it’s balance sheet (on or off) will stop accruing interest at a certain point – and charge-off the loan. At this point, the loan becomes “non-accrual” – meaning the loan stops accruing interest and is written off by the bank than accounts for the receivable loan (utilized in pass through) Only receivables may be passed on by securitization. What remains is a pool of defaults which are either retained by the bank for collection – or sold to default debt buyers/ hedge funds etc.

    It is all about accounting – or should i say – manipulation of accounting? You must remember that trusts do not have balance sheets – they cannot account for anything – including any recovery on foreclosed properties. Only the bank that owns the trust can account for any recovery in collection – if they have not disposed of collection rights.

    The problem is that is accounting is just not a subject of the ongoing discussion. And yet, accounting is the answer. Refer again to the Federal Reserve Interim Opinion report for the TILA May 2009 amendment for disclosure of mortgage “creditor”. According to the TILA, investors in MBS are not the creditor, neither are investors in REMICs, or pass-throughs considered the “covered” creditor according to the Federal Reserve.

    Security ownership is not the same as individual NOTE ownership. Ohio court pointed this out some time ago.

    I think we always have to look to Accounting 101- which has manipulated beyond credibility. The security underwriter owns the trust certificates – these certificates – along with the notes that support them – are the banks “toxic assets”. I am so tired of hearing that security investors own your mortgage note/mortgage/lien or any rights to your property. This is not what happened and does not exit today.

    The banks are to blame. They own it – or they disposed of it. And the trusts are gone – over – dissolved – insolvent- bankrupt – and no longer trading. If you can find anyone who will sell anything – or claim to sell you any “certificate” to anything – then I have a bridge to sell!!! Send them to me.

  15. Anonymous,

    Related to what “fighting hard” was suggesting. I realize the “toxic asset” is NOT a BOND. I assume what is being sold are the “trust certificates”. Those certificates give one a right to an income stream FROM the Notes. Correct?

    If you had paid the $36K and the “trust” went to “final rest”.
    (ie No more income stream.) THEN WHO ENDS UP WITH THE NOTES? The Notes, are what gave the trust value in the first place? Wouldn’t the owners of the Certificates by right of subrogation now own the Notes? Or did they relinquish any rights to the “security” when they bought the “Certificate”?

  16. Riddle me this- if there are so many of these toxic assets for sale for under 20 cents on the dollar, what exactly is a buyer, either a whole buyer, or like NPR, a small fractional buyer, getting? Is this what the distressed debt buyers (Greenwich Capital etc) are buying, while the servicers are buying the collection rights and passing on the proceeds of their collections to the toxic asset purchasers, or what?

  17. Bonds? What is bought is not bonds – it is not even “junk bonds”. And certainly is not a “security”. Most of these trusts are insolvent and no longer traded.

    What was bought in the case above was, as claimed “a toxic asset” – nothing more. And, you just made the bank who owns the bankrupt dissolved trust – $1000.00 richer. Hope the bank will use it to help some foreclosure victim.

  18. I have been asking about this for two years, when i found out the MBO that our loan is in is about bankrupt and two years ago selling at 15 cents on the dollar.

    WHY can;t we buy our loan out of the bond fund?
    OR
    Buy the entire MBO bond fund?

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