Investors are starting to wake up. First, they are filing suit in any court of competent jurisdiction alleging fraud in the sale of mortgage-backed securities. As discovery proceeds, they will also discover that despite assurances to the contrary not all of the money they advanced was used for the purchase of mortgage loans. In discovery, they will find that a substantial percentage of the money they advanced (by purchasing mortgage-backed securities) was used for fees and profits that were undisclosed to both the investors and the borrowers.
It seems that they’re finding a friendlier reception in state courts. As these investors suits multiply, it will have a dramatic affect on the way state judges view securitized mortgage loans. The allegations of fraud by institutional investors carries far more weight than an individual borrower making the same claims.
Borrowers and the attorneys who represent them would do well to track these cases carefully. I would ask that as you do so, you send copies to me at NGarfield@MSN.com. You will learn a great deal just by reading the complaints. You will learn even more if you keep track of the discovery proceedings in those cases. State judges that are presented with these claims will probably start issuing orders allowing the investors to proceed and discovery. Both the judges and the orders they issue should be tracked.
Mortgage Investors Turn to State Courts for Relief
By GRETCHEN MORGENSON
INVESTORS who lost billions on boatloads of faulty mortgage securities have had a hard time holding Wall Street accountable for selling the things in the first place.
For the most part, banks have said they can’t be called out in court on any of this because they had no idea that so many of these loans went to people who lacked the resources to make even their first mortgage payment.
Wall Street firms were intimately involved in the financing, bundling and sales of these loans, so their Sergeant Schultz defense rings hollow. They provided hundreds of millions of dollars in credit to dubious underwriters, and some even had their own people on site at the loan factories. Many Wall Street firms owned mortgage lenders outright.
Because many of the worst lenders are now out of business, investors in search of recoveries have turned to the banks that packaged the loans into securities. But successfully arguing that Wall Street aided lenders in a fraud is tough under federal securities laws. This is largely a result of Supreme Court decisions barring investors from bringing federal securities fraud cases that accuse underwriters and other third parties as enablers.
Where there’s a will, however, there’s a way. And state courts are proving to be a more fruitful place for mortgage investors seeking redress, legal experts say.
In late June, for example, Martha Coakley, the attorney general of Massachusetts, extracted $102 million from Morgan Stanley in a case involving Morgan’s extensive financing of loans made by New Century, a notorious and now defunct lender that was based in California.
Morgan packaged the loans into securities and sold them to clients, even after its due diligence uncovered problems with the underlying mortgages that New Century fed to the firm, Ms. Coakley said. In settling the matter, Morgan neither admitted nor denied the allegations. Her investigation is continuing.
One of the most interesting aspects of this case “is the active role of state regulators relying upon state law to protect investors,” said Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels in New York. “This state focus may well fill a void left by the U.S. Supreme Court’s increasingly narrow interpretation of the antifraud provisions of the federal securities laws as well as the relatively few S.E.C. enforcement actions initiated in this area.”
Last Friday, an investment management firm that lost $1.2 billion in mortgage securities it bought for clients filed suit in Massachusetts state court against 15 banks, accusing them of abetting a fraud. The firm, Cambridge Place Investment Management of Concord, Mass., purchased $2 billion in mortgage securities from the banks, and it says the banks misrepresented the risks in the underlying loans — both in prospectuses and sales pitches.
The complaint says the banks misled Cambridge Place by maintaining that the mortgages in the securities it bought had met strict underwriting requirements related to the borrowers’ ability to repay the loans. Cambridge also contends it relied on the banks’ claims of having conducted due diligence to verify the quality of the loans bundled into the securities.
The complaint also details the anything-goes lending practices during the subprime mortgage boom.
Interviews in the complaint with 63 confidential witnesses turned up such gems as Fremont Investment & Loan, which had been based in California, approving loans for pizza delivery men with reported monthly incomes of $6,000, and management at Long Beach Mortgage, also in California, directing underwriters to “approve, approve, approve.”
One Long Beach program made loans to self-employed borrowers based on three letters of reference from past employers. A former worker said some letters amounted to “So-and-so cuts my lawn and does a good job,” adding that the company made no attempt to verify the information, the complaint stated.
Such tales are hardly shockers. But they provide important context when Cambridge moves up the ladder to the banks that bundled and sold the loans.
For example, the complaint contended that Credit Suisse, from whom it bought $88 million of mortgage securities in 2005 and 2006, told Cambridge of its “superior” due diligence, including a performance review of every loan. Three-quarters of these loans are delinquent, in default, foreclosure, bankruptcy or repossession, the complaint said.
Bear Stearns, now a unit of JPMorgan Chase, sold Cambridge $65 million of securities. It owned three mortgage lenders and told Cambridge it sampled the loans it sold to check underwriting procedures, borrower documentation and compliance, the complaint said.
Among others named in the suit are Bank of America, Barclays, Citigroup, Countrywide, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS. All of those, as well as Credit Suisse and JPMorgan, declined to comment.
CAMBRIDGE’S lawyers brought its case in Massachusetts under laws barring those who sell securities from making false statements about them or omitting material facts. Jerry Silk, a senior partner at Bernstein Litowitz Berger & Grossmann who represents Cambridge, said, “This case represents yet another example of Wall Street banks’ failure to live up to their basic responsibility to investors — to tell the truth about the securities they are selling.”
Mr. Silk’s firm has jousted with Wall Street underwriters before. In 2004, it recovered $6 billion in a suit against banks that underwrote debt issued by WorldCom, the defunct telecom. Denise L. Cote, the federal judge overseeing that matter, concluded that because investors rely so heavily on underwriters, courts must be “particularly scrupulous in examining the conduct,” she said.
It is too soon to tell if investors will recover losses in mortgage securities. But the efforts are reminiscent of those in the mid-90s against brokerage firms that cleared trades and provided capital to dubious penny-stock outfits such as A. R. Baron and Sterling Foster.
For decades, companies that cleared such trades — Bear Stearns was a big one — escaped liability for fraud at these so-called “bucket shops.” But regulators went after clearing firms by accusing them of facilitating such acts; in a 1999 lawsuit, the Securities & Exchange Commission accused Bear Stearns of enabling a fraud at A. R. Baron. Bear Stearns paid $35 million in fines and restitution to settle the case.
If trust in capital markets is to return, investors must be able to believe what they read in prospectuses. Without that minimum standard, how can Wall Street expect the markets to function again?
Filed under: foreclosure |
Who is CIG HFI 1ST LIEN MORTGAGE ? BofA says this is the creditor to whom the dept is owed. They sent me a letter with this on it. Help, going to Mediation this week. Email chansonhall@att.net
Hi OP,
I read further up in this thread that you had been trying to figure out who CIG HFI 1st lein mort is. I am having the same problem. Mine says the owners are “CIG HFI FHLB652-1st LIEN MORT”. I can only guess what this means!? CIG = Corporate Investment Group?? HFI = Home Finacial Instrument?? FHLB=Federal Housing Land Bank ??? 1st lein Mort????????? Have you found anything out in these regards? I am still going to keep searching. I cannot find anything at Edgar or SEC filings, WTF!!!
Thanks in advamce, cheers!
Shawn BIerd
Anonymous I need to send you something about this on an
e-mail.
http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_C/NewsPage&cid=1176156240834
ANONYMOUS
Seriously, You need to be teaching some classes. I am sure several of us would be happy to meet for a weekend boot camp. Maybe Neil can help out.
What do you say?
ANONYMOUS-thanks for the kind words. My brain works perhaps a bit differently, I am in an artistic field, but do my own corporate and individual taxes, and the people in the local IRS office seem amused whenever I show up. I am not a liar, a cheat or a thief, I do not mislead people, hide the truth, tell half-truths, there is no fine print, and when I walked into a seminar at a trade show on contract law and quickly realized that the speaker was espousing 40 page contracts, I walked out and vowed to keep mine to less than 2 pages. (last year’s big project was 250,000. With that in mind, I am doubly furious at the horror show taking place in the courts across America. I am used to coming up with answers for impossible situtations. This is different, but there are similarities. I feel like I should make meaningful contributions, but, as many people in the artistic fields acknowledge, taking notes and following up isn’t our strong suit. So…..what to do? Copy all the results of these hearings, put them in order with a brief, yet succinct introduction, and Fedex or hand deliver them to hundreds of different courthouses and judges in several states to kickstart the process of understanding what is going on? I don’t know, and this is an honest attempt to get some direction. Everyone chime in, Please!
Anonomous Atlanta, on July 12, 2010 at 4:59 pm Said:
THE 2ND REVOLUTIONARY WAR IN THE YEAR 2010, HISTORY IS ABOUT TO REPEAT
ITSELF!!!!
“THIS HAS BECOME AN UNDECLARED WAR IN THE CONTINENTAL UNITED STATES, PERPETRATED BY THE FACELESS COWARDS OF THE FINANCIAL INDUSTRY.
IN 1803 THOMAS JEFFERSON REMARKED “THAT WHEN THE PEOPLE WHO CONTROL THE MONETARY SYSTEM AND GAIN CONTROL OF THE CITIZENS “THEY ARE MORE DANGEROUS THAN STANDING ARMIES”. IT IS NOT EXACTLY THE WORDING BUT THE POINT HAS BEEN DEFINED.
WHEN THE PEOPLE OF THE “UNITED STATES OF AMERICA STAND UP AND AGAINST THE BANKSTER’S” BY STOPPING THE FLOW OF MONTHLY MORTGAGE PAYMENTS TO THESE CROOKED THIEVES THEN AND ONLY THEN WE WILL PUT A STOP TO THIS CRISIS.THIS CAN BE ACHIEVED BY STOPPING THE FLOW OF PAYMENTS THAT MAY NOT BE DUE AT ALL. WELL HOW CAN I SAY THAT, IT IS SIMPLE I DID NOT SAY THAT, THE FOUNDING FATHERS WROTE THE “DECLARATION OF INDEPENDENCE”, “THE BILL OF RIGHT’S” AND “THE CONSTITUTION OF THE UNITED STATES OF AMERICA” FOR REASONS THAT WE AS A NATION AND A MEMBER OF THE GLOBAL COMMUNITY HAVE FOUGHT TO PROTECT US FROM WHAT IS HAPPENING ALL AROUND ALL OF US FROM 360 DEGREES ALL AROUND. OUR LITTLE TEA PARTY’S ARE A NANOTECHNOLOGY THAT LOOKS AND FEELS GOOD BUT HAS NO TEETH IN THIS “PC”WORLD. WE DON’T NEED BULLETS OR ARMED SOLDIERS, WE MUST SEND A VERY STERN MESSAGE OF NON PAYMENT TO THESE BANKSTA’S AND INTERMEDIARARY’S AND WHEN WE UNDERFUND AND CRIPLE THE FLOW OF CASH WE WILL HAVE BEEN HEARD AND IT IS THEM AGAINST US, NO MATTER WHO YOU ARE AND WHAT YOUR ECONOMIC SITUATION IS. Matter of fact the perpetrators’ are in grave danger and the longer this continues their personal safety is in imminent “DANGER”. They will be forced into hiding and will always have to look over their shoulders, much like the mobs of the earlier decades have shown. BLOOD (MONEY) IS WHAT WILL BE THE ULTIMATE PRICE AND NO MONEY CAN MAKE YOU ALIVE AGAIN. YOU REAP WHAT YOU SOW, SO STAND FIRM, SPEAK OUT AND BE A SOLIDER THAT WOULD MAKE THE HISTORY BOOKS, AND BEST OF ALL……STOP PAYING IN AN NON DEBTORS PRISON COUNTRY SHEEDS NO BLOOD AND MAKES HEROS AND ORDINARY PEOPLE WITH AN EXTRORDINARY MISSION. NO VIOLENCE, NO BLOOD SHED AND BEST OF ALL WE CAN LEGALY BRING THEM TO THEIR KNEES.
THIS IS FOR CONSIDERATION AND DEBATE AND THE VIEWS PRESENTED HEAR FALL UNDER “MY FREEDOM OF SPEECH RIGHT’S, SO IF I HAVE OFFENDED YOU RESPOND TO ME AND I WOULD BE GREATFULL FOR YOUR VIEWS. I AM NOT A LAWYER SO SEEK LEGAL COUNCIL IN YOUR AREA AND READ SOMETHING THAT MAY INSPIRE YOU “TO ACT LIKE AN AMERICAN”
Daniela Mars
Thanks for it is”getting better” – really good post.
The government just has to realize that if the mortgage related securities are rescinded – so should be the mortgage loans. And, we have to be out front to demand the same.
Ian
You got it. And, Neil alluded to this in prior post “Notice of Hearings” – maybe he did not allude as to the Depositor – but he alluded to the fact that documents simply do not exist.
Depositor role was critical – and most often, the Depositor, along with the security underwriter, were subsidiaries of the same parent bank corporation. I know of a few instances in which this was not the case – in those cases – it was clearly a “front” – and never a true sale. For the most part, it is the case – and, Ian, you get it.
OP CIG is a subsidiary of BOA. Unless you name the exact party – and the relationship the parent corporation – they will try to undo you. This is simply a legal strategy. It is like lying with your fingers crossed behind your back. But, the courts buy it. It is just legal maneuvering – and, frankly, fraud.
Has anyone ever noticed how many times corporate subsidiaries are sold or names changes? This is all to try to prevent liability. However, parent is responsible for all their legal mumbo jumbo and maneuvers.
Check this out. It’s getting better.
http://online.wsj.com/article/SB10001424052748704288204575362882033038278.html?mod=WSJ_hpp_LEFTWhatsNewsCollection
CIG HFI 1st Lien Mortgage- Bank of America. BofA claims in Court there is no such thing and CIG is a department within BofA. Corporate Investment Group Held For Investment 1st Lien Mortgage (means first mortgage on the property) they say and CIG is a department within BofA and BofA owns our NOTE. However BofA representatives say CIG HFI 1st Lien Mortgage is the investor. Tough to break this code. Any info in writing about CIG HFI 1st lien mortgage please email me at opgc2010@gmail.com
Anonymous- since the Ambac/EMC/New Century suit proves that the loans were sold to the Depositors, isn’t this something that could be shoved in front of a judge’s face, “…see your honor, the note WAS sold to the depositor,only it was not recorded in the chain of ownership, so every foreclosure that doesn’t show the note being sold to the sponsor,and then to the depositor, and then to the “Trust” is in fact a nullity. Or are you going to dismiss this with prejudice, and let these pretenders scurry back into their holes and fabricate all the missing documents before the rehearing”. And of course, if the mortgage was assigned to MERS without the note, and the collection rights were sold to some lowlife without either a perfected title or legal right to the note, then what now, your honor? Can you please rearrange my scrambled line of thought and comment? I am enjoying your posts,each and every one.
In the Cambridge case, plaintiffs are not only suing the security underwriter but also the Depositors – who purchased the loans from the originators. Depositors and security underwriters are usually both subsidiaries of the same parent corporation. Although this case may fare better in state court rather than federal, it clearly demonstrates the loans were purchased, by Depositors, before the receivables were securitized. Further, the certificate receivable tranches are sold to the security underwriter – before any resale to MBS/CDO security underwriters – and only for current income. All the investor lawsuits are for damages relief of lost current income.
“Tremble, banks, tremble!”
This article is in line with the appraisal fraud discussions:
http://www.tnr.com/article/economy/76146/tremble-banks-tremble
CO MINGLING OF FUNDS. CAN ANYBODY DEFINE?
SECURITIZED BACK ASSETS AND POOLING SOUNDS AND SMELLS AND LOOK LIKE
CO MINGLING OF FUNDS. THAT IS WHY WE HAVE CHAIN OF TITLE ETC…… WHICH THE JUDGES CONVENIENTLY IGNORE.
CO MINGLING OF FUNDS.
IT ALL BOILS DOWN TO COMINGLING OF FUNDS. AND IF THE JUDGE SAYS WHAT IS IT TO YOU?
YOU SAY JUDGE WITHOUT MY SIGNATURE THEIR WOULD BE NO COMINGLING OF FUNDS AND THE PARASITE DEAD BEAT BANKSTER COULDNT MAKE A FAST BUCK USING MY GOOD NAME.
THANX AND GOD BLESS
And here’s another, from Reuters:
“NEW YORK, July 9 (Reuters) – Goldman Sachs Group Inc was sued by Liberty Mutual Insurance Co, which accused the Wall Street bank of fraudulently misleading it into buying preferred stock of mortgage financier Fannie Mae that would become “virtually worthless.”
See article at: http://www.reuters.com/article/idUSN0915845220100709