What if the loan was not securitized, PART three

This week we are examining the consequences of the proposition that the entire securitization chain is in fact a fabrication. I have likened the situation to a trust, interestingly enough, that has never been funded. The intent to fund the trust does not justify treating the asset as owned by the trust. The intent to execute a deed does not justify the intended grantee claiming the property as LEGALLY his. And the INTENT to assign or indorse or deliver a note, does not justify treating it as though the act was completed. Anyone who has been active in the field of mortgage examination, analysis or litigation knows that they have been frustrated in their attempts to receive actual documentation demonstrating the assignment, endorsement, and delivery of the evidence of the obligation that arose when the borrower executed the closing documentation.

In case after case we find that the status of the obligation is at best questionable. The assignment of the note does not appear to be in existence. No evidence appears showing an endorsement of the note. No evidence appears showing that these security instrument has in any way been transferred, nor has such a transfer been recorded. The only time we see such documentation is in the course of litigation. As long as the party making the representation has the word “Bank” in its name the Judges are understandably influenced to believe that such a party would not take the risk of misrepresenting their status intentionally. But they are wrong, as many recorded cases have shown as reported on this blog.

There is a steadfast refusal to respond appropriately to a qualified written request or a debt verification letter. Even when a case goes to litigation, there is a steadfast refusal to respond to discovery. It is only when a court has ordered the showing code actual executed, notarized documentation that these documents of transfer miraculously appear.

The only way we know that a loan has been allegedly securitized news if someone makes that representation in court, usually without the slightest presentation of evidence in support of the representation. We must believe the representation. The courts are inclined to believe the representation; but in case after case, where a judge has taken the time to actually examine the documentation closely, it has repeatedly been shown that the intermediary parties in securitization have clearly fabricated the documents of transfer solely for the purpose of supporting their position in litigation.

This means that at the time a default is declared, or a notice of default is delivered, it is on behalf of an entity with which the borrower has never done business. These entities suddenly flood the room claiming they are part of a securitization chain when no prior notice has been given in any manner, shape or form, despite vigorous attempts on the part of the borrower to discover the identity of the parties involved and the status of their obligation after third-party payments have been recorded and allocated to the loan.

The intermediary securitization parties steadfastly refused to account for third-party payments and affirmatively represent that such payments are irrelevant to the balance of the obligation. Examination of the facts indicates that their reason for taking that position is that they have kept the third-party payments and neither distributed same to investors who advanced to the pool of money from which the loans were funded nor did they even give notice to those investors that they had received such payments.

In fact, there is ample evidence to suggest that the servicers are in many if not most cases simply keeping the money they receive from borrowers and neither forwarding it to the original “lender” on record (the originating lender) nor to any other party.

Therefore we have actual facts emanating from both sides of this confrontation that suggests a legal paradox. On the one hand, it is apparent that the originating lender has been paid in full but remains on record where it is public notice to all interested parties that the originating lender legally owns the obligation, note and security instrument (deed of trust or mortgage). On the other hand, it is equally apparent that the originating lender did not in fact fund the loan made to the borrower. In virtually all cases the loan was a table funded loan as a matter of practice. Under regulation Z a of the Federal Reserve, this is presumptively a predatory lending practice, giving rise to a variety of remedies under the Federal Truth in Lending Act, which the courts have been reluctant to enforce. The act has teeth, and so does the RESPA, but the courts have mistaken the status of the parties and regard those remedies as windfall to the borrower when they are in fact providing a windfall to disinterested parties.

I am now of the opinion that virtually every document executed after the closing that recites some provision for assignment or transfer of the obligation, note or security instrument is void. The substitution of trustee, the notice of default, the introduction of previously unknown parties are all without substance.

25 Responses

  1. Tanks Don-CA a good summary argument

  2. Did you or did you not receive money from the loan?

    Answer: I believe an exchange occurred. The bank received my promissory note and deposited it as an asset, and converted it into a draft. The bank then “withdrew” that deposit and presented it to me as a loan. It was a zero sum exchange. The transaction was perfected. No further obligation is outstanding.

  3. Deb Wynn- could you further explain banks? Do you mean servicers, or foreclosure mills, or trusts, or actual banks that provide checking accounts, savingslaccounts, etc. The misuse of the catch-all term banks, is further concealment of what is actually going on. For instance, in one subdivision I drove through, out of 11 homes with “bank owned” signs out front, only 1 was actuallt owned by a bank. So this is further concealment of the truth. If the sign said “this property owned by a nonreporting trust which is in turn overseen by FDIC (closed) bank whose assets were used as collateral for a Federal Reserve loan prior to the principals being brought up on fraud charges by the FBI financial crimes unit. ” Ownership” by said entities currently in doubt due to forged assignments, nonexistent notaries, subhuman law firms enabling the whole fraud to continue along with judges who think that a lying attorney is more deserving than a defrauded homeowner. HOW ABOUT PUTTING SIGNS LIKE THIS ON EVERY FORECLOSED PROPERTY IN THE US? Maybe then even the dumbest judges might surmise that all is not as it seems.

  4. “banks”are self proclaiming to be “a debt collectorand any information …. Ect ectl. So where do they reveal the investors on who’s behalf they are collecting for and/ or rights to the receivable. The home itself thus depriving thousands of citizens their homes and the consequential damages. God knows we need consumer protection this whole mess is unbelievable and the far reaching consequences are yet to be realised. The people must stand up and the investors have lost confidence for sure . Consider

  5. Neil,
    What ever happen to Part Two of “What if the loan was not securitized’

  6. I Hate Investors, Lenders, Mortage Bankers, Escrow Agents, Brokers,LLCs, Lawyers, Attorneys, Partnerships, Court Clerks, Judges and I wish they were all dead.

  7. David C Breidenbach

    Actually, the open-investment fund is a type of hedge fund. As an example, ABFC (at least before 2005) was organized in this way.

    Some of these funds did publish initial lists – others did not. No SPV was required to publish a list with the SEC. They would often just refer to an file that was not attached. SEC says they did not have to.

    Further, since SPVs were not required to report after initial filings (15 D) – we do not know anything more as to what happened to these SPVs. And, hedge funds do not have to report at all. In theory, we would not even know if a static fund converted to an open-end fund.

  8. Watch Elizabeth Warren’s 2009 interview on video:

  9. An open pool should not represent that a loan list is filed and faili to file———-it would be a floating inventory or warehouse lien. There are many loan lists filed before 2005. There were many others both before and after that represented that they had loan lists but did not file them. The concept of collateral being non-specific in an off balance sheet pool seems strange to me-is this observation or speculation. please identify a couple of these securitizations with trusts with floating liens-i dont doubt they exist but id like to see one.

  10. 2 Anoymous

    “Actually, some of the SPVs were not organized as a REMIC. This is particularly true for securitizations before 2005. In these cases, the Trust was organized as an open-investment fund – meaning mortgage loans were not static – but rather continually assigned and removed. There are no Mortgage Schedules for these trusts.”

    Thank YOU! That is exactally what I have seen… and know first hand…

  11. URGE everyone here to contact President Obama to nominate Elizabeth Warren to the new Consumer Protection Agency.

    The banks are going to fight her nomination. Media is promoting that Mr. Timothy Geithner is now considered Mr. Obama’s first economic right hand man. Mr. Geithner is in opposition to the appointment of Elizabeth Warren. Elizabeth Warren is a consumer advocate – who fights for the people.

    I have no affiliation with Ms. Warren. However, her background supports a position of consumer advocacy. Mr. Geithner is a bank puppet. He will convince Mr. Obama to nominate someone who is not a consumer advocate – but rather a bank advocate – such as the false current “consumer” agency- the Comptroller of the Currency.

    Stand up to the power. Take the time.

  12. Actually, some of the SPVs were not organized as a REMIC. This is particularly true for securitizations before 2005. In these cases, the Trust was organized as an open-investment fund – meaning mortgage loans were not static – but rather continually assigned and removed. There are no Mortgage Schedules for these trusts.

    Nevertheless, the SEC has explained that issuers were not required to provide Mortgage Schedules (for REMICS- and were not required to update).. The SEC did not enforce disclosure – all due to deregulation. Therefore, you have to go to the party you are fighting and request the Mortgage Schedule – and all updates – you will wait forever for them to provide this to you – if ever. As Neil says – the court must order it.

    Yes, loans can be in multiple pools – because repurchases were not removed from original schedules. Any subsequent “distribution” reports would only include current defaults and foreclosures. And, if the Trust did not file a original Mortgage Schedule – you may never know that your loan was assigned to this Trust. In fact, a servicer can report your loan as part of a current report – even if your loan never made it there – or has long been removed. The servicer has the power to report what ever it wants – all to support them in court. The key is cash disbursement reports – where did the servicer remit any of your payments? The trustee MUST have a record of this – it is called a “Collection Account” – all must be accounted for. A mortgage schedule or current distribution report is not enough – need tthe Trustee’s report for remittance of any cash mortgage payments by the servicer. Servicer also has – but servicer will never produce. Need to also ask for Servicer Advances report – that is, the report that shows that the Servicer advanced any delinquent payments to the stated trustee for the named trust.

    But, of course, the judge must grant these requests.

    FOIA should provide the information to you – but it will take a long time – and I have witnessed the FOIA responding only with information that YOU PROVIDED THEM WITH.

    All is extremely frustrating..

  13. 2 David… “air loans”… would it be correct to assume that means using one loan repeatedly in various pools?

  14. Ditto THE A MAN – Great Job Neil!!!

    Particularly like – “In fact, there is ample evidence to suggest that the servicers are in many if not most cases simply keeping the money they receive from borrowers and neither forwarding it to the original “lender” on record (the originating lender) nor to any other party.”

    I know this to be happening. And, then why should anyone pay in the first place???

  15. 2 David…

    “Bottom line is that it was definitely NOT industry practice to leave loan lists out of filings..”

    Thanks this has stymied me for some time.. your post is quite educational and explains why you see a loan list on some SEC filings and nothing on others.

    If you may… please define a Fly-By-Nite by some examples. That would help also.

  16. David C Breidenbach

    this info you posted.. this is your knowledge ? is there supporting documentation that maybe used as en exhibit in a civil case?

  17. In the main body the following is stated:
    “The only way we know that a loan has been allegedly securitized news if someone makes that representation in court, usually without the slightest presentation of evidence in support of the representation. We must believe the representation.”

    This statement must be temprered so as to remove any implication that it is “industry practice” to fail in respect of properly recording loan lists in connection with securitization.

    The 1st point of foundational clarification is that securitization is designed to enable originating lenders to create an asset, then fund the asset acquisition with money obtained by issuing debt in the public markets. Under FAS 144, a lender was able to follow certain procedures to keep that debt off balance sheet, with some attendant income recognition/non-recognition features. The lender treated the asset as having been sold to a controlled trust in exchange for the trust creating and issuing its own debt instruments or trust “notes”. The trust notes are then issued by the lender to the public at a significant markup. FAS 144 provided that the assets [homeowner promissory notes] are in effect offset by the public debt issued by the trust/lender. The lender was able to originate and retain the promissory notes and associated mortgages that are used to enforce those promissory notes–while issuing public debt. Both the asset and liability theoretically left the lender and neither was shown on the lender’s balance sheet. This allowed new entrants to the marketplace to carry large amounts of substantially “non-recourse debt” without disclosing that debt to the shareholders. The design enabled the lender to avoid disclosing the over-leveraged position of the lender. It was a FASB endorsed device to minimize disclosure to the lender’s shareholders.

    These lenders retained servicing rights–the right to maintain collection accounts and benefit from the income received from holding the funds. The lender-servicer keeps the “float”. Float is the balance in the account left after receiving current payments from homeowners and paying out current obligations to the public MBS holders. Float tends to increase if there are undistributed proceeds of foreclosure received by the servicer. the servicer usuallly is entitled to retain the income stream from the float.

    This is a great deal for a lender-servicer. It does not show the homeowner promissory notes as assets nor the MBS liabilities on its balance sheet, but actually handles all the cash flows associated with these assets/liabilities. The lender retains income on the float–without having associated assets. This device enables the lender to show to its shareholders income from “servicing” without carrying assets on its books related to that income stream. The result is enhanced financial ratios such as return in invested capital, return on assets, etc.. this is the driver for FAS 144 treatment for “real” banks.

    However, the securitization process must be followed with care to keep the assets and debt off balnce sheet. The securitization process is dependant upon tranfer of legal title to the homeowner promissory notes from the lender-group to the trust. this is accomlished by various securitization documents that purport to transfer batches of homeowner promissory notes. The documents typically refer to attached exhibits that are supposed to list the homeowner loans /notes that are conveyed. The lists are supposed to be filed with the SEC on the docket associated with the trust. SEC generally REQUIRES those lists to be filed electronically because the lists of one-liner descriptions of the homeowner note makers, property address, terms etc. can easily run to 200 pages of printout. That is not so large as one might consider given the sheer volume of documents associated with the filing. The loan list is referred to oftentimes as the “loan schedule” or “mortgage loan schedule” etc. The big banks typically filed these lists with their securitization documents in electronic format. The big banks tended to follow the securitization rules for trusts that were designed to keep debt off their balance sheets where the big bank was the lender and servicer. Failure to file loan lists useful in identifying predatory loans etc, was not an industry standard and was not legally permissable. these same loan lists should also be filed with the appropriate Secretary of State UCC division as the core document in “financing statements” used to convey from the trust a right to foreclose etc by the Indenture Trustee.

    So if the loans were not transferred from the lender to the trust by listing and filing those loans, then the securitization was ineffective and the lender was not properly excluding the off balance sheet assets/liabilities and not properly reflecting income on the deemed sale to the trust. Similarly, the failure to make proper filings of the loan lists for UCC purposes failed the securitization. If the securitization failed, then the lendeoriginator-servicer continued to own the homeowner notes subject to the offsetting liability to MBS holders. The trust and the indenture trustee would not receive title to the homeowner notes.

    The loan lists were legally required to be filed with SEC and at least one Secretary of State office. These lists are not confidential. Proof may be had by a review of a big bank filing, in respect of its own securitizations. In these cases the trust typically bears the name of the big bank. These are to be distinguished from securitizations where the big bank is merely the Indenture trustee or custodian. In these latter cases the now bankrupt fly-by-nites simply used the big banks’ names but the securitization was undertaken in the name of the fly-by-nite. These often have no loan list filed–lack documentation of transfers of the notes etc. A significant practical difference is that the big banks were interested over the longer term in keeping the debt off-balance sheet in order to improve their financial ratios–upping their share prices. The fly-by-nites on the other hand were apparently not concerned about long term prospects–they weren’t worried that the auditor would put the debt on their balance sheets. This could be that the fly-by-nite either was not public and so was unconcerned about balance sheet presentation or expected to be out of the game as soon as the truth of their origination activity became known to investors in MBS.

    There are of course more insidious possibilities as to why the fly-by-nites were better off without properly filed loan lists. One possibility is that the fly-by-nite was salting “air loans” into its pools knowingly. Another possibility is that the filings would have readily disclosed entire “groups” of predatory loans. Another possibility was that the entity knowingly concealed the loan list to prevent today’s foreclosure defense bar from establishing classes of defrauded predated homeowners. Of course the reasons may have been several or a combination of the foregoing.

    Bottom line is that it was definitely NOT industry practice to leave loan lists out of filings..

    If anyone has evidence as stated above that a servicer is retaining the proceeds of foreclosure–by having obtained access to internal records please contact me. generally the servicing agreements provide for retention of the collection account proceeds without distruibuting the balances—but the provisions generally state that the account balance will be held in the name of the Indenture trustee. Consequently, I would posit that there are some indep[endent servicers out there that have large balances that they are keeping in separate accounts under the names of multiple trusts/trustees –with the servicer named as the account owner as agent for the big banks. If there are any disgruntled former empleees of servicers out there reading that have knowledge of this sort of activity —please contact me. dcbreidenbach@aol.com

    In order to meet then FAS 144 off balance sheet treatment, the securitization steps must be followed–including properly filing exhibits represented as “filed” in the pertinant SEC docket in respect of the referenced trust.

  18. Deby, I’m with you. What becomes of the PMI that they made me pay for?

  19. It seems clear that the Big Banks were creating
    credit out of thin air based on phony appraisals and the “money” never existed. Once defaults skyrocketed,
    this “unmoney” disappeared from circulation, setting
    off a chain reaction of defaults and deflation.
    Where all this will end is anyone’s guess, but the
    Courts should impartially enforce the rules of procedure against the parties and dismiss when the
    “pretender lenders” can not prove they own the loan.
    I suspect many people have won the “death gamble”
    (ie mort-gage) and now own their homes free and clear because the original lender “died” without ever
    lawfully assigning the Note and the Mortgage.

  20. Question – if we pay the mortgage insurance and the loan has been defaulted they (whoever they are) get to benefit from insurance proceeds – we borrowers paid for the insurance premiums to protect the lender – aren’t we entitled to know who the insurer was and if a claim has been made by the lender and how much paid?

  21. Great Job Neil.

    I think one of the points that we need to make while we get to the nitty gritty. is







  22. Neil, so everything that American Home Mortgage wrote on this Sec filling about their annual report is false ?


  23. NG,

    Thank you for all the hours you have dedicated to helping us distressed homeowners. You have given us much with which to fight back.

    Please also give us a PayPal email address so those of us who are able to can send our donations. I have gleaned so much from your blog and it is time I give back even if it is just a “widow’s mite” donation.

    I also would like to make a challenge for all others to do the same.

  24. NG: Thank you, thank you for the clarity. I would add that even the simplest act of applying / “signing” an endorsement stamp onto the note by the named “lender” is not only void, but is also arguably a specific fraudulent act. This might be another reason why discovery is so forcefully resisted.

  25. It makes my head hurt. When is a trust not a trust? When is securitization not securitization. When is a lender not a lender?

    Honestly, if the crimes involved were not so heinous and widespread, I think I would just move on.

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