Allocation of Third Party Payments and Loans to Specific Loan Accounts

TURNING A DEFENSE INTO AN AFFIRMATIVE DEFENSE FOR SET OFF AND A CLAIM OR COUNTERCLAIM FOR DAMAGES AND ATTORNEY FEES

So the question is how would you allocate third party payments and what difference will that make to a Judge hearing the case.

ASSUMPTION: XYZ Investment Banking Holding company has received a total of $50 billion in third party payments from insurance, counterparties, credit enhancements (moving money from one tranche to another within the SPV “Trust”), and federal assistance or bailout. Each one of these is subject to separate analysis, but for simplicity we will treat them all the same.

  • The money received was for “toxic assets” meaning bad mortgages or pools that were written down in value because of the presence of bad loans in the pools. Whether those loans really made it into the pool when the “assignment” was years after the cutoff date in the PSA and was for a non-performing loan which is specifically excluded in the PSA is yet another issue that requires separate analysis.
  • Out of the many SPV entities created and sold to investors, 50 were in the status of default or write-down, triggering the insurance, bailouts etc.
  • Arithmetically, assuming $1 billion goes to each pool under the assumption they were all the same size (not true in reality, so you would be required to make a calculation to arrive at the prorata share of each pool which involve several factors and is subject to a whole separate analysis that will be ignored for purposes of this example).
  • Out of each pool, 50% of the loans were in some stage of negative credit event. Thus we have $1 billion to allocate to 50% of the loans.
  • For purposes of this example, the assumption is that each loan was the same size and that there are 4000 loans each with a nominal principal balance of $350,000 claimed.
  • For purposes of this loan each borrower stopped making payments under identical terms 6 months before the receipt of the third party payments.
  • If we ignore the payments then each loan would be entitled to a credit of $250,000 and the investors in each pool would receive a pro rated share of the $1 billion, which amounts to $250,000 per loan.
  • If we don’t ignore the payments and assume that the payments under the note would have been $2,000 per month principal and interest only, then $12,000 wood first be allocated to the past due payments and the default, in relation to the creditors (investors) would be cured. This would be in accordance with the note provisions that first allocate receipts to the payments due.
  • Then fees and costs would be paid off, which we will assume are $13,000, as per the terms of the note.
  • Thus the $250,000 allocation would be reduced by $25,000 before application to principal. That leaves $225,000 allocated to principal.
  • Reducing the principal by $225,000 leaves a balance due on the obligation of $125,000 ($350,000-$225,000).
  • Reducing the balance for the appraisal fraud at origination: (1) appraisal for this example was $370,000 (2) real fair market value was $250,000 (3) borrower made down payment of $20,000 (4) total damages for appraisal fraud = $120,000.
  • After reduction for appraisal fraud the balance on the obligation in our example here is $5,000.
  • Under TILA the failure to disclose the hidden fees and hidden parties and resulting effect on the APR, would mean that the borrower is entitled to either rescission or return of all payments made including the costs of closing and points on the loan, plus attorney fees and possibly treble damages which would mean that someone owes the borrower money, the obligation has been extinguished, the note is evidence of an obligation that has been paid in full, and the mortgage secured is incident to a note securing a non-existent obligation. Either way, under rescission or allocation, the borrower owes nothing.
  • The net result for the creditor is that they get or should get $250,000 cash plus a claim for damages against numerous parties for ratings fraud, appraisal fraud and securities fraud.
  • The net result for the intermediaries who stole all the money including the third party payments is that they get the shaft including possible criminal liability.

A very similar allocation procedure would be appropriate for the top quality performing loans under the theory of identity theft. Without using these high FICO credit-worthy people’s identity and loan score they would not have had the golden cover to the heap of dog poop stinking underneath.

18 Responses

  1. Gregory has a very good point. Bankruptcy courts – if attorney is on ball – do not tolerate claims by parties that are not the creditor. Accounting for recovery matters in bankruptcy. This should also matter in federal and state courts – but the burden of proof is reversed.

  2. Gregory:

    What does that have to do with the original post?

  3. The VA case cited here (Horvath) is NOT a bankruptcy case. This is significant because there is no burden of proof issue in bankruptcy — its on the collector (movant). Also, the judge in Horvath did not have the benefit of LEGAL ANALYSIS of why the debt collector in that cae did not have the right to enforce the subject debt. Those in VA and DC facing these issues are encouraged to contact attorney Gregory Bryl through bryllaw dot com.

  4. Dana ottwell:

    We’re hear in Virginia, whoever told you that doesn’t know what they’re talking about. Contact us, let’s see if we can’t point you in the right direction.

  5. So if someone were to short sale their home is the diference between what the Borrowers owes and what the property sold for insured as well. It seems Banks rather foreclose then Short sale the homes.

  6. This is probably the most accurate explaination I have read so far. My issue and where I lost ground is that in VirginiaWe are a business freindly State. So these issues are falling on Def ears when you go into court. What we are told is we have little of no recourse and to file BKY.

  7. More legal babble.

    The acts contemplated in the mortgage agreement were simply lending money on one hand, and, on the other, to repay that money with interest and provide the property as collateral. What the lender subsequently does with the mortgage note does not alter the nature of the initial agreement, and certainly does not render its purpose illegal.

    Moreover, “[Plaintiff] provides no factual or legal basis, and the Court finds none, to support his contention that because [Plaintiff’s] default triggered insurance for any losses caused by that default or `credit enhancements,’ he is discharged from the promissory notes and the Property is released from the deeds of trust.” Horvath v. Bank of New York, 2010 WL 538039 at *2 (E.D.Va. January 29, 2010).

  8. Here is my suggestion;

    find your MBS and contact as many homeowners in the same MBS (if any) still paying their mortgages.

    Have them stop paying. All the securities will be worth nothing, and lets see what happens.

    http://www.loanperformance.com/pressreleases/default.aspx

    ¨Using the security ID, we link the LoanPerformance mortgage data to the auction data. We obtain a total of 280,086 mortgages that act as collateral for the 241 mortgage backed securities. Of these mortgages, 219,955 have positive balances (i.e. have not paid off) at the end of the month before the auction date. For each mortgage, LoanPerformance provides many details such as the name of the originator, security underwriter, and servicer, the loan-to-value ratio (LTV), the borrower’s FICO score, the type of property, whether the interest rate is fixed, floating, or hybrid, the purpose of the mortgage, whether the owner reports occupying the home, whether income has been verified, the mortgage term, and the origination mortgage balance. In addition to the static contract details, LoanPerformance provides monthly updates for each mortgage on payments and delinquencies, allowing us to create measures of ex-ante and ex-post performance that we use in the empirical tests¨

    http://isites.harvard.edu/fs/docs/icb.topic207177.files/03_12_Mayer.pdf

  9. Deposition by Duces Tecum- Has anyone successfully posed written depostion questions to the Plainitiffs in forclsures. I know for me, Pro Se, I can not afford $1500 per day for real depostions with a court reporter. All the points in this editor notes would be great to ask the VP of the Bank in a NOTICE of DUCES TECUM by Written Deposition Questions. thoughts????

  10. Still can’t get ahold of Brad keiser and have no idea what the status is of my QWR that he did for me!!!!

  11. PLUS WHY DO YOU THINK THE BANKS HAVE SPENT SO MUCH MONEY ON PROPOGANDA NOT TO FOLLOW THE LAWS.

    LIKE WHERE IS THE NOTE AND WHAT IS THE CHAIN OF TITLE?

  12. I THINK YOU GUYS NEED TO SEE THE MOVIE

    “MY COUSIN VINNIE” WITH DANNY DEVITO

    KNOW EXCUSES GET THE JOB DONE ATTITUDE.

  13. The
    Investment Company Act of 1940

    http://www.law.uc.edu/CCL/InvCoAct/index.html

    Inside Information and Market Making in Secondary Mortgage Markets

    http://isites.harvard.edu/fs/docs/icb.topic207177.files/03_12_Mayer.pdf

  14. NEIL GARFIELD & PATRICK PLATIE, YOU HAVE BOTH BEEN AT THIS FOR A LONG TIME.

    PLEASE SIMPLIFY YOUR ARGUEMENTS TO

    A. THERE ARE “X” PIECES TO THE PUZZLE. WE ONLY HAVE “X – Z” PIECES.

    B. THERE ARE “X” PIECES TO THE PUZZLE BUT THEY ARE NOT WHERE THEY ARE SUPPOSED TO BE. AND THERE IS A SINISTER REASON FOR IT.

    BANKS HAVE TO ANSWER TO INVESTORS AND THEY DO NOT MAKE STUPID MISTAKES

    A. LOST THE NOTE
    B. FILED AN NOD BY MISTAKE LET ME FIX IT. (THAT ALONE IS GROUNDS FOR SLANDER OF TITLE, RUINING CREDIT FICO SCORE, SINCE IT IS PUBLIC RECORD THE WHOLE NEIGHBORHOOD AND BUSINESS ASSOCIATES KNOW ABOUT IT ETC… LOTS OF MONEY FOR THE BORROWER. IT IS NOT ONLY THE 4 MONTH IT TAKES TO FIX THE MISTAKE.

    WE DO NOT NEED TO KNOW THE PROCESS OF HOW THE PIECES WERE MADE. WHAT CHEMICALS IT TO TOOK TO MAKE THE PIECES OF THE PUZZLE.

    IT ALL BOILS DOWN TO WHERE IS THE F@#$$ING NOTE. WHAT IS THE CHAIN OF TITLE AND DID YOU FOLLOW THE LAW.

    SO DONT ACCUSE MR GARFIELD OF MAKEING UP THINGS AND NOT GETTING TO THE POINT. I AM SURE AND I CANT SPEAK FOR HIM HE IS AS FRUSTATED AS ME THAT IN CALIFORNIA THE SYSTEM IS BANKRUPT. JUST LIKE THE STATE.

    IF THE LOWER COURT JUDGE DOES NOT FOLLOW THE RULES WE GO TO APPEALS COURT. An appeal does not look good on the Judges record. I DONT BUY WHAT THE ATTORNEYS IN CALIFORNIA ARE SAYING THAT IT IS A WASTE OF TIME TO APPEAL. NO JUDGE WANTS TOO MANY APPEALS ON HIS/HER RECORD.

    A POLICE OFFICER CANNOT GIVE YOU A TICKET
    UNLESS HE/SHE FOLLOWS THE RULES. CALIBRATES THE SPEED GUN ON TIME. ETC….

    SO THE BANKS CANNOT FORECLOSE UNLESS THEY HAVE THEIR PAPERWORK TOGETHER

    AGAIN NEIL AND PATRICK FIND A WAY TO SIMPLIFY

    LIKE WE KNOW THE SUN WILL SET IN THE WEST IN CALIFORNIA. WE DO NOT HAVE TO KNOW THE PHYSICS BEHIND IT. JUST THAT IT HAS BEEN DOING IT FOR A LONG TIME.

    AS THE WISEMAN BRAD KEISER SAID

    KEEP IT SIMPLE S—-D.

    GO BACK TO SOLVING ALGEBRA EQUATIONS. IF YOU HAVE AN ALGEBRA PROBLEM WITH 30 STEPS AND YOU MAKE A MISTAKE AT STEP NUMBER 3. YOU CAN DO THE REST OF THE PROBLEM THINKING YOU ARE CORRECT ONLY TO FIND OUT AN HOUR LATER THAT YOU MADE A MISTAKE.

    YOU HAVE TO GO BACK AND DETECT WHERE YOU MADE THE MISTAKE AND DO THE PROBLEM ALL OVER AGAIN.

  15. I still think we ought to stick with what arguments are going to fly in court and ditch all the theoretical stuff that a real judge is not going to be interested in or care to hear. Fraud is real. Not having standing is real. Not owning or possessing the note is real. Let’s get real.

  16. HARVARD
    JOHN M. OLIN CENTER FOR LAW, ECONOMICS, AND BUSINESS
    LEGAL AND ECONOMIC ISSUES IN LITIGATION
    ARISING FROM THE 2007-2008 CREDIT CRISIS
    Jennifer E. Bethel
    Allen Ferrell
    Gang Hu
    November 17, 2008

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1096582

  17. This is mixing apples, oranges, grapes, lemons and every other type of fruit. One cannot simply lump all of this together and work any type of calculation.

    CDS are private party contracts, with only the Pool as a reference point and nothing else. It is like going to Vegas and betting on a football game, unless there is an actual CDS purchase in the PSA. Good luck finding one.

    TARP was used because the lenders,, when Securitizing loans, usually were to keep the lowest tranches. The payments would be for those assets. See the PSA for which tranches were kept by the lender.

    Insurance payments were usually like PMI, which covered individual loans. Comparatively few loans had this, in relations to the total.

    Interest Rate Swap credit enhancements is a totally different animal which would not have applicability.

    Over-collateralization is not a separate payment from another entity. It is “over-payments” to the guaranteed income stream to the trust, whereby when monthly payments do not meet the needed income stream, then the over-collaterialization makes up the difference.

    Then you have the issues that “top rated” tranches get paid first, and bottom tranches get paid last, if at all.

    Just endless rambling……..

    Patrick Pulatie
    Loan Fraud Investigations

  18. Ok. So I tried to buy a slice of the pool that my mortgage is securitized into only to find out it hasn’t existed since june of 2009.

    What exactly does this mean, does it work to my (the homeowner) advantage?

    What should my next steps be? I never expected the security to vanish and I have no idea what to do now.

    Tia

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