Seeking A Smoking Gun In A Toxic Asset

Seeking A Smoking Gun In A Toxic Asset

by Chana Joffe-Walt

April 16, 2010

Audio for this story from Morning Edition will be available at approx. 9:00 a.m. ET

April 16, 2010

Recently, I got an e-mail. “Subject: Do you know your toxic asset is being sued?”

NPR’s Planet Money team had recently pooled $1,000 to buy a toxic asset — a bond backed by subprime mortgages — as a window into the housing bust. And for one confused moment, I actually thought we were being sued.

The suit was filed by a carpenters union fund in New Jersey; it turned out the carpenters were suing the bank that created both our bond and theirs.


A Toxic Tangle

The long, complicated history of one mortgage-backed security (MBS) that’s at the center of a lawsuit.

Credit: Alyson Hurt / NPR

In 2006, the fund invested $100,000 to buy a bond backed by mortgages. The bond is now worth about $5,000, and the fund wanted to know if there was someone to blame.

“I don’t know if you really make sense [of] who screwed up,” says George Laufenberg, administrative manager of the New Jersey Carpenters Funds. “Personally, I get a little angry over it because the system basically let everyone down. Period.”

The carpenters’ toxic asset began its life with the huge subprime mortgage lender Countrywide. So did ours. Countrywide issued bad home loans. But the lender collapsed. What’s more, Countrywide didn’t sell anything directly to the carpenters.

Is the seller to blame? That was the Royal Bank of Scotland, which bought mortgages from Countrywide, packaged them into complex securities, and sold them as supersafe investments.

For the carpenters to sue RBS, their lawyer would have to find the smoking gun of securities lawyerdom: a misstatement.

Caitlin Kenney/NPR

“Personally, I get a little angry over it because the system basically let everyone down,” says George Laufenberg, administrative manager of the New Jersey Carpenters Funds.

The carpenters’ lawyer, Joel Laitman, said he read through boxes and boxes of documents to find that misstatement: three lines stating that the underlying collateral in the mortgage-backed securities had underwriting guidelines that required a credit check. A credit check does not seem to have been performed on all these loans, according to Laitman.

“RBS made significant money churning out these triple-A, mortgage-backed securities, and they should be made to pay,” he said.

So the carpenters are suing RBS. The suit is working its way through court right now; RBS declined to comment for this story.

RBS itself nearly failed during the crisis. The British government had to bail the bank out, and the government now owns an 84 percent stake in the company. So if the carpenters win their lawsuit, it will be British taxpayers paying them back.

I wanted to check in with a British taxpayer, so I called the Marquis of Westminster, a London pub.

“On one level, it doesn’t seem to be fair,” Chris Hayes, the pub’s owner, told me. “But if it’s a bunch of average men on the street trying to get their money back, I suppose I wouldn’t mind so much. If it’s a bunch of carpenters, then good luck to ’em.”

8 Responses

  1. Ian

    Think you can go on MERS web site and search for member firms. I have seen affiliates of members, not actual member, sign of behalf of MERS member. Do not believe this is valid.

  2. When a note is assigned to MERS, that is bad enough, but if the entity doing the assigning isn’t a member of MERS, then that ends the chain right there. What is needed on Livinglies is an accurate membership roster for MERS. Doesn’t it seem odd that no-one has challenged an entity’s right to use the MERS system due to lack of membership? Were they ever a member? Was their membership cancelled due to non-payment of fees? I feel that it will be found that even non-members can use MERS if they pay a “one time useage fee”, for each transaction. Does anyone out there have any knowledge on my baseless accusations?

  3. PJ

    Isn’t Fannie Mae and Freddie Mac supposed to tell you if your loan was a Fannie or Freddie?? Does it matter what trust – if Fannie or Freddie owns your loan?? Remember – only receivables go to trust pass-through.

  4. 2 anonymous GSE’s do not file the same as “investment banks”… all that one can find , a commitment #’s go to a trust of “Jumbo Loans” back in 2006…. which has been shut down… funny that the mortgages we are researching are not ,were not ,and never were “Jumbo Loans”… go figure… Try knocking on Fannie Mae’s and the NY Fed’s door about that…

    Suspect that prime mortgages such as referenced , fully documented with high equity to loan obligation were thrown into this now collapsed pool between 2006 & 07 that were laden with sub-prime toxic , no doc loans…. to again “sweeten the pot” while the whole scheme was unraveling, to keep the game going. There are plenty out there in that void.. but that discussion and possibly “class action” is for another day.

    Etal…. “unjust enrichment” when you use peoples collateral with out permission, and subsequently impoverish said unsuspecting victims,when the current terms in DC & WS, deadbeat, flipper, speculator, lair is not applicable… What do you call those people?

  5. PJ

    Supposedly, can find if in GSE – Fannie and Freddie then the target.

    For private securitizations, most of the time the “Depositor” is the LLC subsidiary of the Bank that purchased the mortgage. Banks concealed ownership by utilizing off-balance sheet conduits set up by Cayman Islands affiliates. The prospectus tells you who purchased the loan – by looking at the security underwriter. Whoever the security underwriter’s parent is – is the owner of your loan – unless they have subsequently sold the loan to a third party debt buyer/hedge fund. Subsidiaries (depositors) do not account for anything – it is the parent corp. who files financial statements – and concealed ownership by off-balance sheet accounting.

    Note – some Depositors were subsidiaries of the originator. These trusts were shams from the onset – as this set-up was not complaint with “true sales” for various reason. “True sales” refers to removal of the receivables from the corporation to off-balance sheet conduit – this is the securitization process – it does not mean the loan is sold by security underwriter parent. It just means that the receivables were passed through by accounting conversion. Only receivables are passed-through in the process – not the loan itself. Trust does not own individual loans – it is an “assignment” of “pooled” receivables only.

    Scratch and dents that were set up for default loans are never “true sales” since there were no “receivables” to pass through. Only current assets can be passed-through.

    Know, I have said this stuff over and over – but fact remains is that it was the (too big to fail) banks who purchased the originated loans and own the loans.

    Cover-up was needed to protect big banks – and that is why so many have a problem. The government’s choice was to save the people (foreclosure victims) or save the banks. From the onset the government chose to save banks – and the people became casualties of the process. Thank Mr. Henry Paulson for that.

    I am not an attorney and this is not meant to be construed as legal advise and only for educational purposes.

  6. “Time to tell Congress and Administration to stop protecting the security underwriters who perpetrated this “Great American Fraud:” upon the people.”

    2 Anonymous….

    would like to do nothing more then that… but one can not do so if one is ignorant to the fact of “who” they are….. Have seen Goldman, Lehman, Bear and a myriad of others in SEC doc’s… acting in different roles in different prospectus, along with what appears LLC’s created for the sole purpose of a single issue/MBS/Bond predominantly located in offshore locations… for this simple person it is like trying to grab hold of mercury… especially when a loan is/was owned/packaged by a GSE… Perhaps looking in the wrong place?

  7. Look the problem is that the Federal Reserve and Congress needed to save the big banks – too big to fail – and at all costs – including blaming the American public. It is a disgrace that will, eventually, go down in history.

    From this post:

    “That was the Royal Bank of Scotland, which bought mortgages from Countrywide, packaged them into complex securities, and sold them as supersafe investments”

    Again, the security underwriters purchased the mortgages – and passed-through the receivables to investors. But the loans – themselves – REMAIN on the security underwriters off/on balance sheet. They are your creditor. They are your lender. They are your mortgagee. The “investors” are only investors in the pass-through receivables of the security underwriter that purchased your loan from the stated (falsely) originator.

    Time to tell Congress and Administration to stop protecting the security underwriters who perpetrated this “Great American Fraud:” upon the people.

    With every support that “investors” own the loan – it is a cover-up for the security underwriters – who, to date, have gotten away with great fraud. President Obama has done nothing to protect the pubic – his financial reform is – too little – too late.

  8. Come on people. These BANKSTERS need to be BEHIND BARS. They have screwed everyone indiscriminantly. Homeowners and investors, we were all suckers.
    All our boo hooing isn’t going to do anything unless we unite and put the BANKSTERS BEHIND BARS.
    Bring as many people up to speed as you can. Go to

    READ “Securitization is Illegal:RICO, USURY, ANTITRUST, AND TAX ISSUES” BY Michael Nwogugu, CPA, Cma (IMA).
    This pretty much explains it all.

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