Principal Reduction is Both Fair and the Only Practical Solution

From “Anonymous” in Response to Post about PAID IN FULL

Editor’s Note. I might have misstated the case when I said that investment banks are buying up the lower tranches. It’s not them. It is the people in the investment banks because they have another gambit to run on this. Anonymous, I would appreciate it if you would inquire and confirm, corroborate or rebut this statement.

The rest of your points are of course pearls. AND the specifics you offer make it increasingly clear that a principal reduction at the borrower’s end is only a reflection of the reality of the reduction on the creditor’s end — whether through payment, credit enhancement or waiver of rights that are questionable but nonetheless part of the deal.

One – in response to — “investment banks that are buying up the toxic waste tranches, ” —–investment banks are not buying up toxic tranches -they are consolidating these tranches onto their balance sheets -and writing them off the former receivable pass-through.

Two – we do not know what AIG (or other insurers) were entitled to once they honored the swap protection contract (they actually did not honor – the US Government did) – this information is not available. AIG could be entitled to whole loan collection rights. But, AIG “Obligations” are now owned by the US Government – who, by the way, is the party rejecting loan modifications – despite their law to promote them.

Three – paying an obligation for another party does not release action against the borrower. The debt remains. However, the real party must follow the law. The real party remain undisclosed. The real creditor must be divulged. And, any failure to disclose the real and current creditor deprives the borrower of the right to a modification negotiation with the actual creditor. We all know, by know, servicers are not the creditor.

Four- Use the paid “tranches” as evidence that the structure of the REMIC – as once originated (by cut-off date – ha ha) – is gone. Mezzanine tranche holders are only paid – if there is anything left after the A tranches holders are paid. And, this is ONLY for current pass-through. If the A tranches have been paid – in full- by swaps -there is nothing left to be paid to any M tranche holders. The “waterfall” structure is gone – thus, so is the pass-through REMIC that once organized the structured tranches.

Five – Balance sheet accounting is critical – who is accounting for the right to collect the loan? That is the fundamental question.

Six – As to “holder” of the note – there have been good challenges to the negotiability of the note posted here (see Collete McDonald). and post re- Professor at Pepperdine.

If you try to challenge strictly on fact that someone else “paid” the loan amount for you – you will not win. This has already been tested in debt collection. It will not work. But, this is greater than “debt” collection – as the current creditor is supposing to be negotiating with you according to Congressional law. You need to know your creditor – until you find that out – the foreclosure is a farce and and a fraud – upon you – and upon the court.

Finally, as Neil has stated many times, trying to get a complete discharge or “free home” will not work. Thus, trying to say the DEBT does not exist – will not hold. Only way you can possibly go this route is to claim that the account does not belong to you. And, that could be a focus – when a loan number has been changed (need less to say – your new loan number is not in the PSA “attached” “Mortgage Schedule.”

And, as PJ has also said – principal reduction is the key. There needs to be principal reduction with a fair interest rate.

Judges will not like hearing that the debt has been paid – and, therefore, you owe nothing. Need to shatter their “trustee” bogus Trust structure – and demand to know the current creditor. And, pursue counter-claims for a fraudulent foreclosure and fraud upon the court.

TO quote trespass unwanted,
I know nothing, and if I think I know something I know nothing. I don’t give legal advice because I don’t know legal things.

28 Responses

  1. First – forgot to add to previous post – that in all prospectus (do not like to say all – but everyone I have seen), the security underwriter purchases all certificate tranches for securitization. Some of these tranche certificates were retained by security underwriter (actually parent) and some were sold. So – they are always the starting point.

    To David C Breidenbach – Securitization for residential mortgages (different for commercial mortgages), and especially for subprime mortgages – was based upon the premise of credit enhancement – in many ways – including subordination of distribution. All loans in a original Mortgage Schedule (say original because some mortgage loans were repurchases and removed – no one ever questions this) are allocated to all tranches in the SPV. The Trusts were set up for over -collateralization. Thus, the senior tranches are paid first by CURRENT pass-through of mortgage loan principal and interest – and if payments exceed the amount paid to senior tranches – the (much smaller proportioned) mezzanine tranches were paid the excess current payment. All revolved around current receivable payments (current in accounting means easily converted to cash).

    When the defaults (payments) escalated, the SPV was not able to pay the current payments to certificate holders (and any derived security investors). The swap protectors were obligated to pay upon this default by the SPV. Included as a swap protector was AIG – who was bombarded with obligations. Government stepped in (of course) to bail them out – and honor the swap protection contracts (a swap is only a contract).

    If you look at current “distribution” reports – it will show that many senior tranches have been paid and closed (this is long before maturity actually occurred). ( it is difficult to get these so-called “current” distribution reports – and, it appears, they may simply be a “tracking” of the original mortgage schedule- but, they will show “Paid and Closed” for many senior tranches.) Thus, there is nothing left of “current receivables” to be passed through to the junior mezzanine tranches – if the senior tranches have been paid and closed.. The intended waterfall structure is broken. This is also evident by Maiden Lane – in which the government reports CDOs and CDSs – derivatives of the original SPV – ownership.

    This is a theory – but after much research – I think Louis Ranieri – inventor of subprime securitization – may agree that the intended original structure of the SPV – has been broken. You have to remember that the SPVs were set up for pass-through of current receivables. In Mr. Ranieri’s defense – no one anticipated the rapid default rate. But these mortgage loans were largely originated on “teaser” rates – and default was rapid. There was no out – no selling of the home (as prices RAPIDLY dropped)- and no refinance option. The victims were doomed – and the spillover to other home owners has been great..

    And, in my opinion, originating loans based upon the value of the home – and not the income of the borrower – is a subject of “predatory lending.”

    Further, the remnants of the SPVs are now being consolidated onto the balance sheet of the financial institution that securitized the loans.

    Again, the “broken” structure – is a premise. But, clearly from published foreclosure cases – courts base decisions on the original SPV set- up – and clearly do not question what has happened since then. There are just too many court decisions set in a time warp. Accounting is a snapshot in time – but that is only for current reporting. Accounting is ongoing – and reflects changes. Many judges and attorneys just do not like accounting.

    I am not asking for any “heads-up” by Neil when I post my comments. While I greatly appreciate this blog – and it’s tremendous contribution to the people, my goal is to simply help – with whatever premise, theory, or idea, that is possible to counter the nightmare that we have experienced. If Neil can use it – fine – if not – I tried.

    Again, I am not in foreclosure.

    To Neil – came across this legal advise regarding U.S. securitizations. see –

    Last part of answer to question #5 is disturbing – perhaps I am not reading correctly – but would appreciate your expert opinion. It states:

    “not uncommon for offshore SPV to establish one or more US subsidiaries for the limited purpose of holding defaulted assets or property received through a workout or restructuring.”

    Perhaps, you would like to look at.

  2. I think the high level tranche holders could be discovered using the CUSIPs if someone has access. They most likely have been pledged under the TALF program as collateral for loans if the banks are holding them from what I read of the NY Fed website.

    The entire thing was accounting fraud to allow such rampant mortgage lending and profit taking but the one thing to remember that the NY Fed has reported that the CDS contracts do not require ownership of the underlying certificates and are specifically allowed in multiples. This means they can have as many insurance policies on “sh*&ty” deals as goldy says thus making massive amounts after selling known fraudulent unenforceable junk to unwitting investors.

    If we can’t see the documents how can we ever know? They don’t seem to care about lying to the courts in the foreclosures so why would they ever admit this stuff exists. Whistleblowers with proof are the only way to expose and the only real way to get them is to indict the low level guys and get them to squeal.

    Anybody have any whistleblowers around?

  3. I am having trouble understanding the waterfall termination. Lets say that the senior tranche-holders were paid for a decline in value. It seems that the amount of decline is an issue–but just for argument the seniors got paid 50% by an insurance/swap that was created outside the securitization. But because the insurance wasn”t for 100% —the insurer does not become subrogated as in true insurance payoffs. So the senior receives a payment, but keeps the asset. Now lets assume for argument sake that the writedown was excessive because nobody knew what the risks were for the tranches–that the counterparty insurer did not realize that the seniors got the advantage of the waterfall. Now the seniors despite the 2008 panic kept the MBS for which they received payment from the insurer-swap counterparty. Now the seniors just keep on receiving checks as expected and continue to do so. If they would hold to maturity they get 150% of investment plus interest?? Do i have this correct? Help me people? Now lets say the senior –say a Class I MBS holder– it appeared to have been supported in part by the value of the Group I mortgage loans, but really if all of those loans stopped paying the senior still gets preference for payment out of junior classes supported by Group 2,3,4 etc mortgages, BUT WHAT HAPPENS WHEN THE GROUP I mortgage loan is foreclosed and the home sold and the proceeds received by the servicer? If the Class I senior is actually paid out of the payments made monthly by the subordinate Class mortgage groups, what happens to the foreclosure proceeds?? Do they search out the subordinate tranches that havent been paid in 2 years with this chunk of cash? Does the cash just sit somewhere to support future payments to the Class I supported by this now foreclosed Group I mortgage? Or does the servicer just pocket the cash–assuming there was something left after costs of foreclosure sale.? Does this answer change if the mortgage loan schedule was never filed with SEC and the pertinant UCC secretary of State office? In this latter case it would seem that the trust never really existed and the servicer was de facto non-recourse borrower of the MBS proceeds and payer of proceeds entitled to retain any excess of receipts over disbursements to MBS holders. This is what the question seems to be for me—who today receives the proceeds of foreclosure where the trusts were not filed correctly. CF 6/29/10 BNY v Raftogianis J. Todd NJ. i need help figuring what happens to foreclosure proceeds–further, i do not understand how the waterfall is cut off by the receipt by MBS holders of swap receipts contracted outside the securitization. I believe that the thrust of inquiry today is 1) where do the foreclosure proceeds go and 2) why did the securitizers –the bankrupt fly by nites we now all recognize—not file the mortgage loan lists most of the time—what advantage did they gain—surely it cannot be concluded that the failure to file 60% of the time was an accident? What was the fraud they were concealing?

  4. To Angry & Not Taking It-

    Double jeopardy – yes.

    To everyone else – a few things I know.

    1) The only reason a servicer would keep payments is if the Trust is gone – no place to remit the payments. If the Trust is still alive, which I believe it is not, then payments must be remitted by servicer to a account held by trustee and described under the PSA. There are some people that are currently paying. What is happening to their payments? These people are trapped – no one will refinance such a loan remnant of the crisis. You have to also remember that a servicer is a subsidiary of some corporation.

    2) High authority has confirmed to me that the SPV tranche holders are the creditor – not the subsequent security investors. However, many of these tranches are gone – paid by the swaps. Thus, even if the SPV is still alive – which I do not believe they are due to the destruction of the waterfall intended structure, and even if the SPV still holds your loan – which I believe they likely do not because already in default, your creditors are limited. You have a right to know that party (even if multiple – one with the largest position should divulge itself.)

    3) According to insiders, “moral hazard” is one of the main reasons the government has failed to help the people. Mr. Ben Bernanke has publicly stated the same. People in high positions claim that other people will be angry if certain home owners (they label us deadbeats) are given a break on their mortgages. I do not believe this is the current consensus anymore – our entire economy is being affected too much, and, it ignores the fact that these home owners are, for a large part, victims of fraud.

    4) Much secrecy is because of deregulation that allows hedge funds – and others who have profited from home owner hardship – to conceal their actions from the public and from us. If we could demonstrate this is court – it would go a long way in changing sentiment. But, these documents are just not available to us.

    Have to keep digging and working everyday.


    You raise a good point as to the servicer keep all the payments. As it has been proven in the two WAMU cases I have, the servicer(JPM not Chase Home Finance) is compelling the action under a bogus POA for the trustee. The trustee does not have control if the operation as the PSA has always shown the servicer was responsible for the foreclosure.

    That however is the crux of the issue. The certificate holders put up money to gain an income stream although they thought they were backed by the notes which were never deposited. This scam was different than typical bank bond holder deals that were present before this mess started.

    The servicer is in control of the “limited” replacement loans that need to go into the trust if one or two loans default but once the pool is shown to be failing the status is void and the default swap pays in to cover the “event”

    I would say that the default swaps may have been multiple and created to cover multiple things. One swap may cover the income stream which is why the trusts still exist and the other covers the principle balance which under REMIC is not allowed to be placed back into the trust mid stream. This leaves the servicer and master servicer in control of it all.

    The master servicer controls the REO and the Payout from the default swap covering the principle balance effectively holding the total balance of the top tier certificates and the REO valued at maybe 50%. Since they are prohibited from depositing the money back to allow the certificate holders to recoup their money under the IRS code they reinvest it most likely in buying the certificates that are valued at 5 cents on the dollar from the holders that got screwed.

    This will lead to a huge windfall when they weather the storm with the tax payer money such as TALF which is so much more than the TARP money and effectively allows the banks to pledge the top level junk they hold for real time cash.

    The trusts stay open as they are trying to bridge over the issue and play the inevitable boom bust history they have made us live in forever. The income stream comes from a separate swap that keeps the dividends paying but the value is shot to nothing making the bond holders want to sell and get out and the bank uses their money owed to buy them out and screw them another time.

    The servicer is then charging “special servicing” fees at a huge rate while body dragging the homeowners intentionally inflicting emotional distress so they want to walk away. This helps break their spirit and helps eat up the payments that are coming in that they pocket since the dividends are paid from the other swap contract.

    The servicer is the key as they have always and will always control everything and the homeowner gets intentionally abused and the investor has no clue. They want everyone to bailout and walk away from the houses and the investments because they have a plan to use that to make another round of huge bonuses. This is why they value the fraudulent loans at nothing because they are yet the real value of what is being laundered is the servicing rights and the collection of the REO.

    Lender Processing Services was funded in 2008 by JP and BoA so that they could perpetuate the fraud of collecting zeroed out loans and now the big law firms that receive the f/c files are going public set to retain huge pools of mortgage notes and continue the game.

    If anyone can say that this problem is happenstance and not premeditated racketeering at its most egregious I would say they are certainly fit to be judges or negative bloggers. The entire “foreclosure industry” was planned from the start in the late nineties and this is just part of the cycle they expect us to sit through. It is too well planned with the legislature passing all the little changes in law in preparation.

    Conspiracy theory or real conspiracy coming to fruition? I know where I stand.

    I created a coin phrase for this….compartmentalized fraud which goes well with plausible deniability and this cannot happen without a master mind that lays out the plan….who might that be?

  6. get this..
    litton loan has its own in house insurance co. owned by the parent c-bass.
    so they tried to escrow my acc $4000 every 3 months. EVERY 3 months! regardless of having insurance that never lapsed for 28 years.
    i have an accounting i received with a QWR that shows the $4000 credit in & debit out EVERY month!!!
    this is an accounting trick where no $ is ever needed only a credit from 1 office to another office in the same company..

  7. IAN
    why the secrecy or obfusication?
    taxes taxes taxes
    if the remic has been breached …taxes taxes taxes @ 100% .
    why does the reporting to irs STOP in 2008 ??
    the investment i spoke of re;suspense & escrow accounts the sevicers have a right to invest the funds in for their own profit…. taxes taxes taxes.
    i think litton loan sevices 41,000 loans
    late fees @ $150x 20,000=$300,000 ,
    homeowners insurance@ $4000 per quarter=$1,640,000,000,
    payment in suspense = [mine was $3500 so a modest est $1,200] x 20,000
    total investment $ avail = $1,664,300,000 for 1 month..
    omg thats crazy math here…

  8. To Whom It May Concern (i.e. all of us);

    One of the remaining pink elephants in the room for distressed American homeowners is the heretofore successful national narrative that homeowners who endeavor to bring all parties together, before a Judge, in a Court of law, are doing so to gain a free home, not to pursue justice. For most of us, nothing could be further from the truth.

    There is a natural, and painfully slow progression of shock, reaction, understanding, enlightenment and response that occurs during and after times of national crisis and disaster. In the initial stage(s) of the crisis, there is societal disorientation and confusion which allows any party(s) that may have been responsible for perpetrating the disaster, free reign to manipulate the national response, the media and therefore the national discussion. The initial societal confusion and disorientation also affords the instigators of the disaster a window of opportunity to profit at the expense of the citizenry and to attempt to put into place, measures to cover their tracks and to attempt to perhaps avoid legal repercussions at a later point in time.

    As knowledge, understanding and enlightenment within the citizenry grows, so does the prospect of correcting the destructive path that the crisis-instigators steered us toward. The citizenry is handicapped in many ways. A seemingly insurmountable obstacle for the citizenry, is that the crisis-instigators are unofficial owners, managers and operators of the bulk of the nation’s legal community.

    To add insult to injury, common sense suggests that most of the mortgage-crisis-instigators and perpetrators have, and continue to, use citizenry paid tax dollars, via TARP and other stimulus measures, to hold the Courts at bay while they attempt to criminally coerce homeowners, deceive investors, extort property, launder property ownership/title records, make evidence disappear, cover their tracks and generally keep We The People on a path to increase their wealth, and eliminate our own.

    The citizenry would be wise to step out in front of the crisis-instigators and to take decisive constructive action to protect ourselves and our country, by beginning to change the substance and tone of the national narrative. We should not waste valuable time and energy focusing upon what has been done. Our time and energy would be better spent learning from the wrongdoing of the past and applying the lessons we’ve learned to what should happen now and what will happen next.

    How might we accomplish this?

    We might consider making it clear, when we have all of the parties together in a Court of Law, that we do not want a ‘free’ home. Perhaps we make it clear that, if anything, we would want American taxpayers repaid by the servicers/entities that have managed to extort taxpayer dollars (probably) multiple times over, in full, for the same piece of property. Responsible American homeowners not only want justice, relief and remedy for ourselves, we also want justice, relief and remedy for our neighborhoods, our communities, our counties, our states and for our country.

    A responsible American homeowner, taxpayer and citizen might consider making it clear to the Court(s), the media, the politicians, our neighbors, anyone who will listen, and each other, that we are fighting against the offending parties, for the privilege to pay fair market value for our homes and to pay that fair market value to the appropriate “Lender”, which, no matter how you want to slice it, IS now the American taxpayer. If, in the process, we are able to expose misconduct and massive fraud, it would behoove each of us to designate all American taxpayers as the beneficiaries of the monetary penalties and awards that may result.

    Maybe individually and collectively, we can begin to enlist our local communities, our city councils, our local banks and credit unions in our quest for justice and our attempt to expose the massive fraud that has been perpetrated upon all of us.

    Most of the puzzle pieces necessary to begin correcting the pre-meditated mortgage crisis, have now been discovered or are within reach. There is no time like the present, to begin moving those puzzle pieces around, to see which ones fit best where, in efforts to begin the migration of wealth back into the deserving hands of American taxpayers.


  9. Ian:

    Could it be as simple as the notes, if “owned” by any identifiable entity, have never had the correlating “security instrument” properly perfected, or have no provable chain of title and therefore ALL notes so securitized are subject to setting aside in bankruptcy?

    Could it be that only certain entities in the scheme can “declare default” and enrich all the intermediaries while keeping both investors and borrowers in the dark as to the massive con?

  10. edgetraderplus:

    Thanks for asking. As far as I know (which isn’t much), the “loans” are said to have been sold as a “bundle” of hundreds, perhaps a thousand loans in a single pool. Are each of these “loan” “sales” really accounted for individually? By what entity (besides the loan “servicer”)? Does a “loan schedule” achieve “individual” accounting treatment? What about when the “loan schedules” in pooling and servicing agreements or loan purchase agreements are never even published or disclosed?

    Can the notes be “pooled” as to receivables and ownership (if this is the case) and over-collateralization and insurance, etc. to achieve a pass-thru rate for “certificate holders,” as well as an amount “taken off the top” for all the intermediaries and yet be accounted for as individual loans by the pool?

    I know that the servicers all account for notes separately on the borrowers end, but doesn’t securitization (with all the other stuff being done) have an effect on the individual identity of notes as far as the “true owner” is concerned? Most notes I have seen allow for “partial interests in notes” to be sold – so what of “partial interests in notes” sliced and diced in various tranches of securitizations and then re-securitized into “synthetic CDO’s?” If the servicer “declares a default,” does all that slicing and dicing simply vaporize and the individual note magically reappear once again?

    I apologize for a lack of understanding if I’m off track here. Just have a feeling that the accounting in securitization of notes can’t be as simplistic as servicers portray after the fact, when they maneuver to foreclose.

  11. To Dave Krieger- “….if the pass-through REMIC is gone, then the servicer/lender is keeping the mortgage payments for itself”. Exactly. Which is why, for the life of me, I cannot understand why the “trusts” or whomever are going to such indescribable lengths to conceal their identity. Think about that one fact for one hour, what other reason could there be- the great fear (tempered by their unflagging greed) is that someone will connect all the dots supplied by Neil, Anonymous, Soliman and others: the mortgages have been written down to zero, the entity foreclosing has no pecuniary interest in the note, the notes have each been sold to dozens of investors around the world, the trusts have been decommissioned as evident by SEC filings or lack thereof, the assignments are all forged, backdated,forward dated, notarized by non-notaries,MERS has absorbed all the recordation fees just in time to stretch the courts’ budgets like a violin string, the press/media is being fed patently false and intentionally misleading information on the root cause of the “foreclosure crisis”- I don’t know where it ends, but right now, the true identity of the creditor is being concealed, for what purpose,really? What is the truth? In actuality, what difference does it make if xyz hedge fund,vulture fund,distress debt buyer purchase pools of mortgages for 1cent on the dollar, and is netting hundreds of billions of dollars- who cares? There has got to be another reason for this veil of secrecy? Anyone?

  12. Monday 5 July 2010


    In what way were the notes commingled?

    They were aggregated and still retained their individuality. Unlike what is called “money,” which has no separate identity, the notes cannot be so “blended.”

  13. Anybody care to comment on the effect that comingling has on notes? Allegedly, mortgage notes were purchased in huge numberds, their “receivables” were comingled. Seems no way in hell these accounts could possibly be kept separate. How then can the note “regain” their individual identities as notes “endorsed in blank” to foreclose?

  14. “FDICs Sheila Bair has stated the servicers may be the “creditor/lender” – under certain circumstances. But Ms. Bair never explains the circumstances. – then we have to remember Ms. Bair is ignoring the TILA Amendment – which states the servicer is not the creditor – unless they acquire legal title. If not, the servicer is servicing for some other party – that we do not know.”

    My case [ where the lender Fremont before filing bk ch11 sold its residential [loans held i believe] & servicing platform to litton loan servicing [goldman subsidiary ] – if the servicer as a debt buyer hiding behind HSBC or other “banks” for tax purposes & obfuscation & to avoid liability , so as to move to foreclose on the discounted assets and [ that can only recoup [†-advances as investments] if the asset is liquidated. the servicer WOULD be creditor but will not admit this . WTF!!!! convoluted or what?

    † note- these advances & suspense accounts servicers set up – i have read in the PSA – the $ in these accounts [likely to be millons $$$ are allowed to be used as interest bearing & investment funds for the servicers profit.
    so why would they want this to ever be disclosed or brought to light!!??


    although the judges may not care to allow the current status of a [trust] to effect the borrowers claims or release the borrower of liability of their debt due to the dismantling or org trust being dissolved , if the loan # changes due to the mortgage & note [ asset in the trust] has be sold off -at a discount or possible set-off the borrower has no legal recourse [of] or to claim [ claim ; for lack of a more pertinent term] for benefit of the borrowers account relating to amounts due, the org loan # has been changed and note relating to the org# will not be paid off for reasons explained elsewhere here @LL ,is this not the case of borrowers double jeopardy re debt , and with your knowledge of the securities & trust structures how can we reveal this in accounting possibly obtained with DISCOVERY [ & yes ..a long shot if granted in a borrowers case] . collective brainstorm suggestion !

  16. Dave

    What you write is very important – and I have suspected it may very well be the case. “and we also forgot to mention that if the pass-through REMIC is gone … that means the servicing lender has been keeping all of the mortgage loan payments for itself, until proven otherwise.”

    FDICs Sheila Bair has stated the servicers may be the “creditor/lender” – under certain circumstances. But Ms. Bair never explains the circumstances. – then we have to remember Ms. Bair is ignoring the TILA Amendment – which states the servicer is not the creditor – unless they acquire legal title. If not, the servicer is servicing for some other party – that we do not know.

    And one more thing to edgetraderplus – it will take a long time for the many issues to find its way through courts. Eventually, I believe, much will be exposed. But, in the meantime, many people have already lost their homes. These victims will likely never recover their loss. And, again, I blame this on the government – for not stepping in immediately to help the homeowner victims. But, of course, the government was too busy bailing out the banks.

  17. edgetraderplus,

    Your post reminds me of a previous discussion here regarding the validity of “the law is the law.” Clearly, the law is subject to interpretation. And, in the case of securitization, and so many resulting foreclosures, many courts are trying to understand the process (some courts simply do not seem to even care).

    The NJ case represents a judge who clearly tries to justify his decision – as it applies to the law. Since prior law was not written in with knowledge of this current mortgage crisis and massive resulting foreclosures, judges who attempt to clarify their decision will encounter problems. Agree, the NJ judge’s explanation of MERS and splitting of the note and mortgage is weak. Further, securitization of mortgage loan (receivables) was done with a clear lack of transparency to all. In addition, the government stepped in quickly to save the banks, and by this intervention, furthered complicated already dubious “financial engineering.”

    As I once said here before, when the Enron scandal first broke, attorneys for Enron stated that the process was partly implemented on the confidence that judges and courts – would not understand. The same is occurred during the rapid securitization of mortgages. The process was set up to “beat” any already existing law. Of course, this does not mean their legal avoidance is justified.

    Nevertheless, the NJ judge does a good job of explaining the UCC and negotiation, endorsement, and transfer of mortgage notes. He gives a decision not just based on legal technicalities that are often used to dismiss challenges to foreclosure. The judge begins to open the door to the nuances of the securitizations that became the focus of the crisis. The mere fact that the government had to bail out the banks implies that the securitizations were implemented with questionable practice. And, the NJ judge at least attempts to try to address this fact. He gives the defendant the right to heard – and by requiring evidence. Many courts are not even doing that.

    We use the basics of cases like the NJ one, and not the weak MERS opinion, – to strengthen our own arguments.

  18. … and we also forgot to mention that if the pass-through REMIC is gone … that means the servicing lender has been keeping all of the mortgage loan payments for itself, until proven otherwise.

    If there is a re-securitization going on, it would violate certain FASB standards; deviation from which, would constitute fraud.

    The whole idea was to write down losses so the pools appear to be non-performing; so pull the performing loans out of a tranche that is substantially non-performing, move the performing loans away from that trust and call it a day.

    No capital gain, no tax paid, default insurance paid, TARP money paid, no right of subrogation, no recourse, several securities violations and federal criminal statutes violated in the process, future pass-through money moved off shore. Banks buying up banks; moving ever closer to one central bank that only Alexander Hamiltonians could love.

    Pure intellectual masturbation, as Fabrice Tourre so eloquently put it.

    No class action could right these kinds of wrongs. Either the defrauded homeowner moves forward to discover the wrongs committed, or we have status quo.

    The problem is … attorneys will have to take payments while educating themselves … defaulting homeowners do not have that kind of money. Foreclosure attorneys therefore have to have more passion than most who require massive up-front retainers.

    Homeowners do have an upfront option at the first sign of MERS … a quiet title action … it’s a state action … it melds with the qui tams filed … and they can’t remove it to federal court. The lenders must prove their claims or be dismissed from the proceedings. Discovery is allowed.

    More and more of these cases I’m seeing are past the time limitations for enforcing TILA and RESPA; so the homeowner-borrower’s options are limited. When attorneys put federal questions in their state pleadings, the lenders remove their cases to federal, where they run into people like Judge Teilborg (the Cervantes case). Lenders then throw Twombly and Iqbal in with their motions to dismiss; so don’t bring federal questions into the mix and give the lenders an out. That’s why we have state versions of federal laws. Even Max Gardner said every state is UCC-specific. This lends more credibility to quiet title.

  19. Monday 5 July 2010

    The case provided below is quite meandering by the judge who plays both sides of the fence, at length. It was fortunate for the defendant that the plaintiff was sloppy, else the case would have readily gone the other way.

    The Kansas and Nebraska cases are far more compelling and usable as case models.


    It is not the function of the courts to “unravel the mortgage fraud.”
    Courts will only decide on what is presented before them, and few, if any defendants will ever come close to making an argument that deals with the fraud at higher levels as a defense in preventing the foreclosureof their property.

    The argument of standing, a jurisdictional issue, is much more cogent and effective in having a chance to prevail. This New
    Jersey judge formed his own opinion that MERS, while not having the right to transfer a note in which it did not have possession, the issue of separation “was not one of intent.” See how judges in equity can say whatever they want to make a ruling?! He cited “substance over form.” Well, the Restatement of Mortgages says otherwise and well worth objecting to the ruling.

    Apologies if it seems I am right behind you with dissenting comments. I am not. One advantage I have being in Illinois is that it is a fact pleading state, and it requires more discipline to not argue sentiment or beliefs, and forces one to deal with provable facts to support any claim or defense. My comments here are merely addressing the case and not comments by you.

    I agree it is not basics that caused and continues to cause the fraud, but it is the basics that can best be argued to formulate a winning defense.

    Maybe at some point, I will post a few examples.


  20. J in CO,

    Good question – cannot open 2007 reported in 08. Notice Cusip numbers in 09 are very concentrated – similar. Want to say these are new issues. That is what was done -government backed new issues. 95% of mortgages granted in past couple of years are backed by Fannie/Freddie.- and maybe Ginnie Mae.

    Non-agency paper today is rare – although you see a few by BOA and JP Morgan etc.


    I am not stating there is a particular right or wrong way to challenge a foreclosure. I am not an attorney. There are many good ideas promoted here – and by experts. The more challenges – the better.

    What really irritates me is that the trustee is likely representing a dissolved trust, has no standing, and some party – who may have purchased the loan at a steep discount – is going to make a nice profit on the foreclosure. Further, if you do not know your real creditor – you have been denied the opportunity to negotiate a valid modification WITH a principal reduction.

    Need to change the sentiment in courts – need to get the judges on your side. This is my opinion – only – and my suggestions are only meant to supplement.
    Right now, there are few on our side – except this blog.
    We need to get courts back on the side of the people.

    You are right – should not be this way – but “basics” is just not what happened. Because there were no “basics” is what caused and continues to cause the fraud. You are not alone – it will take a long time for courts to really unravel the mortgage fraud.

  21. here is the link to the New Jersey case. the opinion can be found on

  22. Possible way to see if your mortage has been paid in full?

    I found my Deal ID in my trust that listed my property address and loan amount. It had a different loan number, than the original loan number on my note and deed from back in 2006.

    It also had a different loan number from the current one the sub-servicer is trying to foreclose on. So I now go look for ANY new/old/past loan number in the PSA “attached” “Mortgage Schedule.”



    [On File with the Trustee and the Securities Administrator]

    SCH. A-1

    and there is an exhibit to request the release of documents:



    [Name and Address of Custodian]

    Re: Pooling and Servicing Agreement (“Pooling and Servicing XXXXX XXXXXX XXXXXX Loan Trust XXX_XXXXXXX, Mortgage Pass- Through Certificates, Series 2006-XXXX

    In connection with the administration of the Mortgage Loans in the Trust created by the above-captioned Pooling and Servicing Agreement and that are held by you as Custodian pursuant to the above-captioned Pooling and Servicing Agreement, we request the release, and hereby acknowledge receipt, of the Mortgage File for the Mortgage Loan described below, for the reason indicated.

    Mortgage Loan Number:

    Mortgagor Name, Address & Zip Code:

    Reason for Requesting Documents (check one):

    __________ 1. Mortgage Paid in Full

    __________ 2. Foreclosure

    __________ 3. Substitution

    __________ 4. Other Liquidation (Repurchases, etc.)

    __________ 5. Nonliquidation

    Reason: ______________________

    Address to which Custodian should Deliver the Mortgage File:


    (authorized signer)


    Address: _____________________________________________

    Date: _____________________________________________


    Select option 1 and see WHAT/IF they send?

  23. Alina posted a NJ case here (cannot find now) that is very extensive and long. But, I believe, is very important. Judge goes into much – everyone should read. He concludes that the trustee was not in possession of the note at time of foreclosure and dismisses (without prejudice).

    “Holder of the Note” is important issues in foreclosure – and has been tough to address. Judge also talks about proper conveyance to Trust – and “warns” about attorneys who gain possession of the note for foreclosure.

    What he misses is – does the loan stay in the Trust – even if was originally properly conveyed – and, if so, is the loan/note currently there. And, of course, he does not address whether the SPV is still viable.

    Maybe Alina or Neil could repost the case here.

  24. Sunday 4 July 2010

    This post and comments are giving me a headache. There ain’t no way in hell many people will be able to mount such an esoteric defense in a foreclosure case.

    The KISS principle is alive and well:

    “That is NOT my signature on the copy of the note.”
    [Demand the original]

    “There is no proof that the original creditor assigned the note to ??? Plaintiff.” [Demand chain of title]

    “MERS admits it does not ever hold possession of any note, and if MERS assigns a note and mortage, it has effectively separated the two, making the mortgage unenforceable.” Read the MERS v Nebraska Banking case that explains all this, and read some of the related case cites referenced, as well. [The hard to find answers can be found under the brightest light]

    “I CHALLENGE PLAINTIFF’S STANDING!” A jurisdictional issue that can get the case thrown out!
    Jurisdiction can be challenged AT ANY TIME! Very important and potent weapon.

    Stick to the basics for which one can make a legitimate case and a possible win.


  25. Neil

    Believe you are questioning my point that investment banks are not purchasing the toxic assets. While I agree with you that some resecuritzation of currently performing “toxic” loan assets as occurred, this is being marketed through new vehicles via purchase of the pool of loan assets – and not the securities related to the original toxic SPVs. And, It does not relate to foreclosures. My point is that investment banks have been trying to rid themselves of the toxic assets they created – that has been the goal.

    Investment/commercial banks have been consolidating SPV conduits onto their balance sheet and writing off the toxic securities that were derived from the loan assets. This is evident in massive financial statements – in which there will be a small footnote that evidences their process of compliance with new FASB rules. These investment/commercial banks had numerous investments in their own conduits and in the tranches of other conduits purchased for CDOs (synthetic instruments NOT directly backed by the assets (loan) but by the tranche securities of the Trusts). The structure of the original SPVs is, as I have said, dismantled/dissolved. What we are left with is a hodge podge of derivatives and junior tranches held by the government in Maiden Lane – or written off by the large financial institutions.

    Investors “may” be purchasing shares in Maiden Lane – which holds many derivatives – CDOs and CDs. But, these investors are not the large financial institutions – they are hedge funds and other buyers who do not report their holdings. I say “may” be purchasing because we cannot see their holdings. The intention of Blackrock, manager of Maiden, was to eventually dispose of Maiden Lane assets to investors – largely – distressed debt buyers. Currently, I do not see any foreclosures being initiated by “investors in Maiden Lane.”

    Blackrock, by the way, wants principal reductions. This would, perhaps, insure more confidence in Maiden Lane, and that investors would receive a return.

    If we look at the way the courts are approaching foreclosures – they are holding borrowers responsible to some “moment in time” – when an SPV was created to pass-through receivable cash payments. Courts are not questioning what has happened to that SPV since that “moment in time.” Clearly, that SPV has been torn apart by initiated swap protection, sale of remaining toxic tranches to the government, and write-offs by the “certificate” holders of the tranches. The bottom line is foreclosure recovery will not be accounted for by dismantled SPV (who never had a balance sheet anyway). Accounting students know that a balance sheet is a “snap shot in that moment of time.” On whose balance sheet will the recovery be reflected? That should be simple for courts to enforce – but they are not. The government’s Maiden Lane complicates the problem because it appears to keep alive the original SPV (and its numerous derivatives)- which is simply false – as the “waterfall” structure has been broken. There are no receivable pass-through on foreclosures. So, if many of the senior tranches have been paid by swaps, and there is no “left-over” for junior tranches, there can no longer be a pass-through SPV. But, remember, the bottom tranches were not securitized, they were retained by the servicer (usually, but not always, a subsidiary of the parent who purchased the loans and securitized the receivables). I do not see these bottom tranches in Maiden Lane. Meaning they remain with the servicer’s parent. Servicer can only keep up payments for so long – on behalf of the default borrower – eventually, loan must be removed from the Trust.

    Aside from this – interesting article today at

    Mr. Retsinas states what we have said here – “we’ve essentially transferred wealth from existing homeowners to new homeowners.”

    And, Mr. Retsinas answer to lax “credit standards” is that “people were granted mortgages not on their ability to repay the mortgage, because it was clear that wasn’t going to happen. But there was an expectation that even if they couldn’t pay, the future increase in the value of the property would end up being the collateral for that loan.” but ” people, if they couldn’t pay, couldn’t do what they could do a year earlier, which is sell the house, probably for more than they paid, and pay off that mortgage.”

    Mr. Restinas does not state that basing mortgages on assets – and not income – could be viewed as predatory lending. And, Mr. Restinas omits that a big reason modifications fail is because there is no principal reduction.






  27. YOU said: ” If you try to challenge strictly on fact that someone else “paid” the loan amount for you – you will not win. This has already been tested in debt collection. It will not work. But, this is greater than “debt” collection – as the current creditor is supposing to be negotiating with you according to Congressional law. You need to know your creditor – until you find that out – the foreclosure is a farce and and a fraud – upon you – and upon the court.”

    most of the stuff out there says to challenge based on the note has been paid , sold or that you bought the house etc….

    so you are basically saying (if I am correct) that the only challenge that is effective is that the trustee has no standing, and that the creditor pursuing has no standing as they are not the current creditor (basically a loan servicer?) Is that what you are saying? ??? ?

  28. Neil/BRad/Anonymous,

    Very good info on the securitization structure and thought provoking for sure. Could you explain the significance of the Original Issue Discount reporting for REMICs and how it applies to securitization?

    It seems to me that the REMIC exemptions were to evade billions in taxes for the gain on sale of the loans to the static pool which never actually happened per the requirements for true sales. Such reporting was handled in the yearly publication 938 from the IRS. A review of this reporting history reveals some very interesting aspects that raise some questions.

    Here are the years 2007, 2008 and 2009:

    2009 reported in 2010

    2008? is missing and reverts to the 2009 file?? Don’t believe me. try it.–2009.pdf

    2007 reported in 2008–2007.pdf

    A review of 2007 shows reporting of numerous securitization trusts owned by varying entities, 08 is obviously missing and concealed, and 2009 shows that most reporting is now by Fannie/Freddie/Ginnie, JP Morgan, CIti, BofA and a few new entities like the Jeffries trusts etc.

    Would this be simply reporting that no discount is now being applied and all the losses or discount is credited to the GSEs and big banks, or does it mean the trusts no longer exist and the ones not paid with swaps are being resecuritized?

    Some of the tell tale signs of some issues with the REMIC status especially in the WAMU loans is a 10.3 Billion dollar tax claim by the IRS in the BK. It is further that the balance of the entire loan portfolio of WAMU transferred to JPM for zero consideration. A total of 191 Billion of loans transferred proven by an FDIC accounting should be enough to challenge legal standing in any event.

    I believe that all of the securitized loans were charged back to WAMU’s balance sheet prior to the sale of the assets and transferred to JPM along with the derivative contracts for each and every one of them.

    The derivatives seem to be accounted for in a separate mention in the balance sheet implying that the zeroing of the loans is a separate act from the derivatives. Add to that the IRS claim which can be attributed to the gain on sale clawback from the voiding of the REMIC status and things seem to fit.

    I would agree the free house claim is a tough river to row but the unjust enrichment by allowing 191 billion in loans to be collected with no Article III standing not only should trump that but additionally forever strip them of standing to ever enforce the contract.

    The collection is Federal Racketeering at the highest level, money laundering and antitrust. Where are the tobacco litigators that want to handle this issue for the homeowners? How about an attorney with political aspirations that would surely gain support for saving millions of homes for this one simple case?

    Documents and more info on the FDIC litigation fund extended to JPM to fight consumers can be found here:

    You can also find my open letter to Sheila Bair asking her to personally respond to my request here:

    Any insight into the REMIC and Pub. 938 info is certainly appreciated.

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