FDIC Issues Curious Final Safe Harbor Rule

United States: FDIC Issues Final Safe Harbor Rule: Raises More Questions Than It Answers

Editor’s Note: The clear implication here is (1) that these deals can be “unwound” and (2) that the FDIC thinks it can specify the circumstances under which it will be unwound. The safe harbor here might be a smoking gun announcement that there are regulatory factors is legitimizing securitization schemes that we were not aware of up until now. We invite your analysis and comments.

08 October 2010
Article by Calvin Z. Cheng, Kenneth E Kohler, Melissa D. Beck and Jerry R. Marlatt

Recent weeks have seen a number of legal, regulatory and political developments in the realm of asset securitization, culminating for the moment on September 27 with the issuance by the FDIC of a long-awaited “safe harbor” rule specifying the conditions under which U.S. banks and thrifts may issue mortgage-backed and other asset-backed securities without the threat that the FDIC will attempt to unwind the transaction in the event of the issuer’s seizure by the FDIC.

Below we offer a summary of the FDIC’s final safe harbor rule. We leave it to the reader to reach her or his own assessment of where the securitization market is, where it is headed, and at what speed.

What Now? FDIC’s Final Safe Harbor Restrains Bank Securitization

They said they were going to do it—and now, some critics say, “they’ve really done it.”

On September 27, 2010, the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) resolved by a four-to-one vote to issue a final rule amending 12 C.F.R. § 360.6 (the “Securitization Rule”) relating to the FDIC’s treatment, as conservator or receiver, of financial assets transferred by an insured depository institution (“IDI”) in connection with a securitization or participation.1 Although initially prompted by the need to address changes to accounting standards on which the original Securitization Rule, adopted in 2000, was premised, the FDIC capitalized on the opportunity to address at the same time perceived structural failures inherent in the “originate to sell” securitization model widely believed to have contributed to the recent financial meltdown. As adopted, the Final Rule contains a number of reform-oriented qualitative conditions that securitizations must satisfy in order to be afforded safe harbor protections under the rule.

The Final Rule was issued a little more than two months after the enactment of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act mandates a host of securitization “reforms,” including requirements relating to risk retention, asset class differentiation, disclosure, conflicts of interest and due diligence, which are to be “fleshed out” and implemented through an interagency rulemaking process.2 Truly ahead of the game with the issuance of the Final Rule, the FDIC adopted securitization reforms before the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System, and the Securities and Exchange Commission (the “SEC”), the other regulatory agencies charged with adopting regulations to implement the securitization reforms prescribed by the Dodd-Frank Act. Notably, the Final Rule was issued prior to the SEC’s issuance of final rules (“Regulation AB II”) that would significantly modify Regulation AB, the SEC’s rule governing registration of and disclosures regarding asset-backed securities, by imposing qualitative standards and additional disclosure requirements on assetbacked securitizations.

Background

The FDIC originally adopted the Securitization Rule in 2000 to provide comfort that loans or other financial assets transferred by an IDI into a securitization trust or participation would be “legally isolated” from an FDIC conservatorship or receivership if, among other requirements, the transfer met all conditions for sale accounting treatment under generally accepted accounting principles (“GAAP”).

The Securitization Rule fulfilled two important functions. First, it satisfied a technical requirement of Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“FAS 140”), not uncoincidentally adopted by the Financial Accounting Standards Board (the “FASB”) at the same time the original Securitization Rule was adopted by the FDIC, that accountants have a reasonable basis for concluding that securitized assets have been legally isolated from the sponsor. Second, quite apart from the technical accounting purpose, the Securitization Rule has provided investors and credit rating agencies with substantive comfort that securitized assets will not be reclaimed by the FDIC in conservatorship or receivership of an IDI sponsor. Securitization participants have thus relied for a decade on the Securitization Rule as a safe harbor for assurance that investors could satisfy payment obligations from securitized assets without fear that the FDIC might interfere as conservator or receiver.

Such assurances were upended on June 12, 2009 when the FASB adopted Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (“FAS 166”) and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”). These new accounting pronouncements substantially narrowed the circumstances under which a transfer of financial assets in connection with a securitization may be accounted for as a sale and expanded the circumstances under which IDIs are required to consolidate issuer entities to which financial assets have been transferred for securitizations in their financial statements for fiscal years beginning after November 15, 2009.3 As a result, many securitization transfers that previously would have been treated as sales would be instead treated as secured borrowings to which the Securitization Rule would not apply unless it were amended. The uncertainty over whether the FDIC would continue to grant safe harbor treatment to securitizations of an IDI in a conservatorship or receivership created considerable marketplace concern that caused many then-pending securitizations to come to a halt.

Temporary Relief; Extended Relief and the Road to Reform

In response to the market uproar over FAS 166 and FAS 167, on November 15, 2009, the FDIC Board adopted interim amendments to the Securitization Rule that “grandfathered” all securitizations and participations for which financial assets were transferred, or for revolving securitization trusts for which securities are issued, on or prior to March 31, 2010 (the “Sunset Date”). The Sunset Date was subsequently extended on March 11, 2010, TO September 30, 2010, and ultimately by the Final Rule to December 31, 2010. Specifically, the interim amendments provided that such transactions would not be subject to the FDIC’s statutory authority as conservator or receiver to disaffirm or repudiate contracts or reclaim, recover or recharacterize as property of the institution or the receivership any such transferred assets so long as the transfers would have been accounted for as sales under GAAP as in effect before November 15, 2009 and satisfied all other conditions of the Securitization Rule. Portending things to come, the FDIC Board stated at the November 15 meeting that it would consider additional changes to the Securitization Rule that would not only address the impact of FAS 166 and FAS 167 after the Sunset Date, but also introduce qualitative standards for securitizations designed to encourage “sustainable lending” and avoid “massive losses” and “landmines” that had recently plagued IDIs.

On December 15, 2009, the FDIC Board issued an Advance Notice of Proposed Rulemaking (the “ANPR”) regarding possible amendments to the Securitization Rule. The ANPR included a draft of “sample” regulatory text (the “Sample Rule”) containing a then-provocative array of possible standards that would need to be satisfied in order for securitizations to qualify for safe harbor treatment under the Securitization Rule. After receiving a large number of comments on the ANPR, on May 11, 2010, the FDIC Board resolved by a three-to-two vote to issue a Notice of Proposed Rulemaking concerning proposed amendments to 12 C.F.R. § 360.6 (the “NPR”)4 that would become the Final Rule by retaining most of the features of the Sample Rule.

And Now They’ve Done it (The Final Rule)

The Final Rule extends the Sunset Date to December 31, 2010 and modifies the Securitization Rule in two significant ways. First, it takes the position that the safe harbor under the Securitization Rule should be applied differently for participations and securitizations depending on whether they are treated as secured borrowings or sales under the new accounting pronouncements. Second, it requires that securitizations satisfy reform-oriented qualitative standards before they can qualify for safe harbor treatment.

Qualification for Safe Harbor Treatment

The original 2000 Securitization Rule applied only to a single class of transactions—securitizations and participations that were treated as sales under GAAP but for the “legal isolation” requirement intended to be established by operation of the rule. The Final Rule is much more complex; it prescribes different outcomes for securitizations and participations, and for securitizations otherwise treated as sales under GAAP as opposed to securitizations that are treated as secured borrowing. As a result, the Final Rule set forth four different possible outcomes depending on the particular classification of the asset transfer under consideration.

  • Securitizations that are Treated as Secured Borrowings and Issued After December 31, 2010. The Final Rule assumes that most securitizations will be treated as secured borrowings under FAS 166 and FAS 167. Under Section 11(e)(13)(C) of the Federal Deposit Insurance Act (the “FDI Act”), the consent of the FDIC as conservator or receiver is required for 45 or 90 days, respectively, after its initial appointment as conservator or receiver before a secured creditor may take any action against collateral pledged by the IDI. This requirement could prevent the holders of securitization interests from recovering monies due to them for up to 90 days in a receivership, during which time interest on the investors’ securitization interests could remain unpaid. If not addressed, this potential delay could cause significant downgrades on ratings on existing and future securitizations.[Editor’s Note: This looks like an incentive for the repackaging of all prior securitizations]

    To address these concerns, the Final Rule provides that, with respect to securitizations issued after December 31, 2010 that are treated as secured borrowings for accounting purposes and that otherwise satisfy all qualitative standards under the Final Rule, the FDIC, as conservator or receiver, will be deemed to consent to the making of required payments in accordance with the securitization documents and continued servicing of the assets. Furthermore, the FDIC will be deemed to consent to the exercise of contractual rights and self-help remedies by an investor (1) commencing from ten business days after such investor delivers to the FDIC a request to exercise such contractual rights or remedies with respect to a payment default by the FDIC, as conservator or receiver, or (2) if the FDIC delivers a notice of repudiating a securitization transfer agreement during the stay period under Section 11(e)(13)(C) of the FDI Act and does not pay damages within ten business days after the effective date of such notice.

    The Final Rule clarifies that the FDIC will not attempt to reclaim any interest payments made to investors in accordance with the securitization documents prior to repudiation and that, as conservator or receiver, the FDIC’s failure to perform its obligations as a servicer triggers an investor’s right to exercise its remedies under the securitization documents.

  • Securitizations that are Treated as Sales and Issued After December 31, 2010. Under the Final Rule, securitizations issued after December 10, 2010 that are treated as sales under the new accounting pronouncements will not be subject to the FDIC’s statutory authority as conservator or receiver to disaffirm or repudiate contracts or reclaim, recover or recharacterize as property of the institution or the receivership any assets transferred pursuant to the securitizations so long such securitizations satisfy all qualitative standards under the rule and satisfy all conditions for sale accounting treatment other than the “legal isolation” condition.
  • Participations Issued After December 31, 2010. The Final Rule assumes that participations will continue to be treated as sales under the new accounting pronouncements. Accordingly, it provides that participations, including last-in, first-out participations, issued after December 31, 2010 will not be subject to the FDIC’s statutory authority as conservator or receiver to disaffirm or repudiate contracts or reclaim, recover or recharacterize as property of the institution or the receivership any assets transferred pursuant to the participations so long as such participations satisfy all conditions for sale accounting treatment other than the “legal isolation” condition.
  • Securitizations and Participations Issued Prior to December 31, 2010. The Final Rule provides that all securitizations and participations issued on or before December 31, 2010 will not be subject to the FDIC’s statutory authority as conservator or receiver to disaffirm or repudiate contracts or reclaim, recover or recharacterize as property of the institution or the receivership any such transferred assets, provided that such transfers satisfy the conditions for sale accounting treatment set forth by GAAP as in effect for reporting periods before November 15, 2009, other than the “legal isolation” condition, and the transaction otherwise satisfies the provisions of the Securitization Rule in effect prior to the date of the Final Rule.

Qualitative Securitization Standards

The Final Rule includes a number of qualitative standards that securitizations must satisfy in order to be afforded safe harbor treatment.5 Citing an attempt to respond to investor demands for greater transparency and alignment of interests of the various securitization parties, the FDIC structured the Final Rule to include specific standards for securitizations supported by residential mortgage loans (“RMBS”). The Final Rule retains most of the qualitative standards first featured under the Sample Rule included in the ANPR and retained in the NPR, with the one major modification being that it provides for certain requirements to “auto-conform” to regulations adopted through the interagency process mandated under the Dodd-Frank Act. Set forth below are some of the more noteworthy standards contained in the Final Rule.

Qualitative Standards Applying to All Securitizations

  • Unhedged Risk Retention. Sponsors must retain an economic interest of no less than 5% of the credit risk of the financial assets underlying a securitization until the joint interagency regulations required to be adopted, with respect to risk retention under the Dodd-Frank Act, become effective. The sponsor is not permitted to hedge the credit risk of the retained interest, but it may hedge the interest rate and currency exchange risk of the retained interest. After their effective date, the interagency regulations will govern the risk retention requirements for sponsors.
  • Increased Disclosures. Sponsors, issuing entities and servicers, as appropriate, must provide information regarding securitized financial assets in compliance with Regulation AB for securitizations issued through public offerings or private placements. Such disclosures are expected to increase significantly once the Regulation AB II reforms are adopted by the SEC.

Qualitative Standards Applying Only to RMBS Securitizations

  • Tranche Restrictions. RMBS securitizations must be limited to no more than 6 credit tranches and cannot include sub-tranches designed to further increase leverage in the capital structures. Notwithstanding the foregoing, the most senior credit tranche may include time-based sequential pay or planned amortization and companion sub-tranches.
  • Reserve Fund. A reserve fund equal to at least 5% of the cash proceeds payable to a sponsor must be established for each RMBS securitization to cover the repurchase of financial assets due to a breach of representations. The balance of the fund may be released to the sponsor after one year.
  • Prohibition on External Credit Supports. The credit quality of securitization obligations cannot be enhanced through external credit supports or guarantees at the pool or issuer level, but temporary payment of principal and interest may be supported by liquidity facilities. Additionally, loan-level credit enhancement, such as mortgage insurance or guarantees, would continue to be permitted.
  • SOX-like Affirmations/Additional Disclosures. Sponsors must affirm compliance in all material respects with all applicable statutory and regulatory standards for origination of mortgage loans and include loan level data to confirm compliance with existing supervisory guidelines. Such affirmations effectively create Sarbanes-Oxley-like certifications for RMBS sponsors that could increase their potential liability. The Final Rule requires that sponsors disclose any third party due diligence reports on compliance with applicable regulatory standards and representations and warranties made with respect to financial assets. Servicers are also required to disclose any ownership interest of servicers or affiliates in other whole loans secured by the same real properties that secure the loans included in the financial asset pool for an RMBS.
  • Servicer Loan Modification Authority. Servicing and other agreements must provide servicers with authority to mitigate losses on financial assets consistent with maximizing the net present value of the financial assets, including authority to modify assets to address reasonably foreseeable defaults. Servicers must act for the benefit of all investors and commence action to mitigate losses no later than 90 days after an asset first becomes delinquent.
  • Compensation. Fees and other compensation payable to credit rating agencies are to be payable in part over 5 years after the first issuance of obligations with no more than 60% of the total estimated compensation due at closing. This requirement is less burdensome than its counterpart requirement under the Sample Rule, which would have required that the compensation restrictions noted above apply to lenders, sponsors and underwriters. The compensation to all parties involved in the securitization process must generally be structured “to provide incentives for sustainable credit and the long-term performance of the financial assets and securitization.” Servicing compensation must provide incentives for servicing and loss mitigation actions that maximize the value of financial assets on a net present value basis.

What Now?

The FDIC’s issuance of the Final Rule comes ahead of interagency action with regard to risk retention as contemplated by the Dodd-Frank Act. Some industry participants fear that by being ahead of the game, the FDIC’s action may exacerbate confusion in the securitization market in a number of ways, including effectively creating an uneven playing field between IDI and non-IDI securitizers and making the safe harbor under the Securitization Rule less “safe” because of the subjectivity inherent in determining conformity to the qualitative conditions under the Final Rule.6

Footnotes

1 The Final Rule is posted at http://www.fdic.gov/regulations/laws/federal/2010/10FinalAD55.pdf .

2 For a discussion of the securitization provisions of the Dodd-Frank Act, please see our client alert, Dodd-Frank Act Securitization Reform; New SEC ABS Office.”

3 For most institutions, the new GAAP rules became effective on January 1, 2010.

4 http://edocket.access.gpo.gov/2010/pdf/2010-11680.pdf.

5 Such qualitative standards do not apply to participations under the Proposed Rule.

6 See press releases, each dated September 27, 2010, issued by the CRE Finance Council, “ FDIC Finalizes ‘Safe-Harbor’ Rule” and the American Securitization Forum, “ASF Says FDIC’s Safe Harbor Action Hurts Liquidity and Seriously Threatens Government’s Ability to Exit Housing Market.”

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

28 Responses

  1. Depending on what side of the deal they are on I’m sure they will just create new paperwork.

  2. Was there any associated “fiscal impact statement” or the like associated with this rule change? How does it effect the FDIC’s budget? How does it effect taxpayers?

    Also, I thought all of these securitization structures (mythical though they may be) had to provide safety for the investors in the event of a bankruptcy of any of the participants. How is it that the FDIC (banking public, taxpayers?) should be “on the hook” for anything, given that the players themselves probably figured out how to not be “on the hook” for anything?

  3. Ligitimate is spoken with a forked tongue. The trust has long gone

  4. I don’t know…..but I get the feeling that the “safe harbor” rule will allow for “payment” even where there is no payment. Which, of course, should mean that the borrower’s obligation is even more likely to be satisfied and extinguished….but what it probably will actually mean is that there will be more money for the banks, servicers, trustees, MERS, etc. to pursue foreclosures that they have no authority to pursue in the first place.

    This “rule” shouldn’t change the basic principles of the separation of the Note from the Deed of Trust; assignments of the Deed of Trust which purport to also assign the Note; and the resultant clouding/slandering of title, as well as all the undisclosed terms, parties and payment streams that were added AFTER the execution of the loan docs. Problem is, most judges are ignoring all those laws anyway.

    If the rule provides for the FDIC to become “trustee” of the securitization trusts, then this could easily be just another step in total government takeover. There’s already a huge land-grab going on with Fannie Mae and Freddie Mac gobbling up foreclosed homes. Sounds like communism to me.

    What a world. Think we’re in the end times now?

  5. Upon payment of
    such repudiation damages, all liens or
    claims on the financial assets created
    pursuant to the securitization
    documents shall be released.

  6. more good stuff…

    The Rule applies only to transfers
    made for adequate consideration. The
    transfer and/or security interest need to
    be properly perfected under the UCC or
    applicable state law. The FDIC
    anticipates that it will be difficult to
    determine whether a transfer complying
    with the Rule is a sale or a security
    interest, and therefore expects that a
    security interest will be properly
    perfected under the UCC, either directly
    or as a backup.

    C-YA MERS!

  7. You should read the rule itself it’s not all bad consider this. The FDIC is only going to honor LEGITIMATE TRANSACTIONS i.e. true sales
    A basic synopsis would be that if a bank has an obligation to service a pool it will keep doing so . Unless the FDIC determines it’s a bogus item then it will pay of damages to the investors and RELEASE THE LIEN

    “The
    Rule clarifies that prior to repudiation
    or, in the case of a monetary default,
    prior to the date on which the FDIC’s
    consent to the exercise of remedies
    becomes effective, required payments of
    principal and interest and other
    amounts due on the securitized
    obligations will continue to be made. In
    addition, if the FDIC decides to
    repudiate the securitization transaction,
    the FDIC will pay damages equal to the
    par value of the outstanding obligations,
    less prior payments of principal
    received, plus unpaid, accrued interest
    through the date of repudiation. The
    payment of such damages will discharge
    the lien on the securitization assets.”

    They stonewall the completely speculative securities..

    “The Rule provides that securitizations
    that are unfunded or synthetic
    transactions are not eligible for
    expedited consent under the Rule. To
    support sound lending, the documents
    governing all securitizations must
    require that payments of principal and
    interest on the obligations be primarily
    dependent on the performance of the
    financial assets supporting the
    securitization and that such payments
    not be contingent on market or credit
    events that are independent of the assets
    supporting the securitization, except for
    interest rate or currency mismatches
    between the financial assets and the
    obligations to investors.”

    How many trusts are empty?????
    What are the banks having problems proving?

    The actual transfer of the asset… read on…

    “Finally, although the Rule excludes
    unfunded and synthetic securitizations
    from the safe harbor, the FDIC does not
    view the inclusion of existing credit
    lines that are not fully drawn in a
    securitization as causing such
    securitization to be an ‘‘unfunded
    securitization.’’ The provision is
    intended to emphasize that the Rule
    applies only where there is an actual
    transfer of financial assets.”

    I think this is a good sign. Unfortunately it’s going to invite more fraud to make the transaction appear legit or not legit depending on who the party is.

  8. While I find Mr. S posts here at times very complex in his lexicon his recent post on the “safe harbor” rule struck a cord… in my own simple world have been following this agenda, moving slowly forward in the last few years, and it should scare each and every American to the core.

  9. James M

    Your post is thought provoking. Thanks

  10. I think Neil Garfield and Bill Black should double team the FDIC , and the FED. Both are ahead of the game. I believe they could catch the real theives and put an end to it all.

  11. @Anonymous,
    I get scared and then I think…..NO! There are too many of us……we can crush them! We proved we can with the 3808. We DID crush them. We need to do the same kind of campaign. We need a phone campaign to silence this once and for all.

    We all need to campaign to Obama’s phone tomorrow. We will NOT be silenced. Damn it. OUR RIGHTS HAVE BEEN VIOLATED. WE ARE THE VICTIMS OF FRAUD! WE WILL NOT TOLERATE THIS. Get mad and then get even.

  12. DyingTruth

    You are right – Karen is right – sensed something wrong today – before this came out. How the heck does the Fed Res complete an investigation in a month?? And, the FDIC? It is to shut us up – no court will grant time of day if Fed Res and FDIC says all is OKAY for foreclosures – despite mounds of fraud.

    Think James M is right – this is about bondholder rights – and not foreclosure fraud. But the bigger picture is the Federal Reserve’s connection to distressed debt buyers and Maiden Lane. Maiden Lane is like one big CDO. The original trusts have been dissolved and torn apart with remnants sold to government and then to distressed debt buyers. The original trustee role is gone. Nevertheless – the government wants the foreclosures to be go through en masse – and they do not care what fraud occurs in court – as long as they get the foreclosure.. They have to get the foreclosures – there are contracts now between Maiden Lane (government) and distressed debt buyers – that they MUST honor. Fraud is acceptable – just herd us out – according to them.
    They do not care about the fraud – this is just a carry on of the original goal and bailout.

    This has been a strategy to shut us down. Silence us. Pretend as if there are valid investigations. Listen to Bernanke from the onset – he was NEVER going to help foreclosure victims – and neither was Obama – or Geithner.

    We need to do more – have been saying that for a long time. Does not matter who gets in Republicans or Dems – Congress is bought.

    Need to take big action. Or – they will continue to crush us. Need to organize – and do a class action. know of some attorneys that will participate – need more.

  13. No need to get too alarmed. This is not an attack on people who took out mortgages, it is regulation to pre-gaurintee that investors in mortgage backed securities get to raid the FDIC’s public bank account first.

    Most of it has to do with the people who buy the trenches, the secularized bonds. It means that when the FDIC take over a bank the pools of mortgages for which it is trustee and/or servicer must continue to make payments to the bond holders even if he bank is broke and the mortgages from where the money is cumming from are bad.

    This is an automatic bailout for the bond holders to secure their ill gotten gains by guaranteeing their payments out of the FDIC public fund. A fund that was meant to secure personal bank accounts up to a dollar value, NOT guarantee intrest payments on mortgage backed securities that could total billions of dollars, and that each are individual way over the FDIC normal account insurance level.

    This also, in part, immunizes the Goldman Sacks of this world by MAKING the pubic purse make good the bonds it sells.

    This piggybacked on the good regulation that banks should have some skin in the game, by basically saying they can only sell on 95% of the value of the loan pool and must kick in 5% them selves. This will probably be payed by increased points on new mortgages.

    The extra 5% has to be kept on the books as cash, or something like cash, like negotiable notes. Hay don’t we have have 5% of the notes over becuase we could only sell 95% into the pool. Lets keep the best 5% for ourselves. The ones with the best payers on the best loan to value ratio. That works, just like cash see ?

    The basic 5% skin in the game rule is good but will be funged.

    The, FDIC must pay the billionaires intrest on their securities without fail as soon as they take over the bank is a raid on the fund that we pay through a tax on our bank deposits. A raid on the public insurance fund to pay the billionaire holders of secularized notes first.

    It is building in a golden parachute so that when more banks fail, or the government takes over Bank of America, they get paid first. That’s why it was implemented now instead of after the new law went into place. Implemented before the negotiation of the regulations between the regulatory agencies. It has to be in place before the big banks fail to make sure the funds automatically flow from the public purse to the fat cats. Most of whom are off shore
    Sovereign wealth funds like the royal bank-family of Saudi Arabia.

    We pay billionaires, foreign governments and kings first out of the FDIC funds (the bank don’t have none, that’s why the FCIC takes over) and you, dear tax payer, get to make up the difference.

    Since the tax man is filling the gap between the mortgage income and the secured bond, no more problem or liability for the bond packagers like Goldman Sacks.

    Should their be a major move for the FDIC to take over a number of the rather troubled big banks in the near or distant future this puts in place the golden hand shake for the owners of the secularized notes.

    See all the big guys float and the tax payers make up the difference. But you knew that was going to happen anyway.

    Aah, but there is a part III.
    See banks would create a trust, that held the notes, a trust like “Bank of America – 2006 note pool #5” or something more obtuse. For tax reasons they acted like this was a separate legal entity but often they were the trustee, bookkeeper and, they mixed up the funds between them and the trusts. This made the trusts just an extension of their own alter ego. That is a big legal and tax problem.

    In default the FDIC would go “Look here – Alter ego – mixed funds – not separate” lets take the mortgages out of the pool and sell them off to pay the depositors back he money in their bank accounts.
    So sorry, your trust’s trustee BOA was a crooked son of a … and you holders of what you thought were secularized assets held by an independent trust, well that was just so much legal fiction by the bank. See we have proof, they did not keep proper separate books accounting to the accounting standards. You don’t own anything more than an a note from a default bank. Go talk to Goldman Sacks about that, they sold you this junk.
    That was the old rule. Fraud in the trust invalidated the trust.

    The new rule means it is almost impossible for the FDIC to void any bad trusts use the mortgages to pay of the debits. (bad trust accounting, are you kidding ?)
    So the FDIC is unable to dissolve the bad trusts and unload the mortgages.

    FDIC get’s stuck as trustee, and must either foreclose or continue to pay the guaranteed intrest payments to the holders of the secularized high yield bonds, which are mostly your good old sovereign wealth funds. It dose this presumably out of our bank account insurance fund. Watch that go into the red in a blink of an eye.

    So instead of your bank insurance going to pay out your bank account deposits if the bank fails, and your taxes going to bail out our deficit, we will have to borrow more to bail out bad investments, sold by companies like Goldman Sacks, made by foreign governments, kings and billionaires.

    Maybe I am wrong, but that is what it looks like to me.

  14. Please do remember that ALL government power is and was delegated by and from the People (and cannot be delegated any other way by anyone) in the form of a Constitution and the FED, the FDIC and any other alphabet cereal agency purporting to be a legitimate arm of the Executive Branch or the Legislative Branch HAS NO CONSTITUTIONAL AUTHORITY. They are just another unelected sham trying to circumvent the will of People while posing as a deterrent to harmful activities.

  15. Elizabeth Warren: States Likely to Lead Foreclosure-Fallout Response

    http://blogs.wsj.com/economics/2010/10/26/warren-states-likely-to-lead-foreclosure-fallout-response/

  16. karen Pooley

    FDIC is just like the banksters they were in bed with them. So what they say really should not matter if we dont let them get away with it and apply pressure public opinion.

    Spreading the word means going on all the newspapers local and national, wallstreet journal new york times etc… and voice your opinion on relevant articles and also put links on the blog (Comments) livinglies articles maybe stopforeclosure now CNBC etc….

    Just like when Obama almost passed the Notary law and with our pressure and the pressure worked. The FDIC does not worry me.

  17. @Dying Truth,
    You don’t understand it either, right?

    Soliman doesn’t make sense, or maybe he does in his own GAAP kind of way. I’m not sure, but I think this is going to be a too much wine kind of night……I can feel it coming on.

    And, of COURSE, I won’t let them catch me signing a f***ing loan mod. I already knew that scam before it happened. I kept telling people when I started to see only loan mods filings in the Recorder’s office, something was up. And I have the same feeling RIGHT NOW!!!

  18. Karen Pooley,
    Please calm yourself, don’t be frightened, but be concerned, and Please for God’s sake if Anyone trys to get you to sign a modification agreement or anything of that sort DON’T (you will in effect be granting them permission to foreclose). This is where people will begin to show where they stand more particularly our so-called government. Give Soliman my best.

  19. @Dying Truth,
    Can the FDIC just “proclaim” and make it so?

    Who do we need to be getting on the phone to?

    OMG!!!

    Now I am really scared.

  20. Unconstitutional ex post facto, they are trying to quietly legitimize everything that they know was done wrong after the fact when the process of securitizing mortgages was never officially approved of in the first place and they’re trying to apply various “fixes” all over the place to make it all valid when they know it’s all void.

  21. @kickboxer…..
    How do you know this is scary? Does anyone understand what this means???

    I got a private email from M.Soliman, but I never know what the hell he’s talking about…..but his email said, “Game over.”

    WTF?????

    I am frightened and I don’t even know why. I don’t have the brain capacity for this…..someone decipher in layman’s terms!!!

  22. Scary chit. But they should be scared too. If they shut us down, God help them. Our only recourse left will not be pleasant for them.

  23. Karen Pooley,
    I say break out the pitchforks … ask questions later!

  24. @ A MAN,
    What do we spread? Did you understand the gist of this article? Because if you did, please explain to us in layman’s terms……

  25. I don’t know what the hell this whole article stated…..I just smell a rat, just like Anonymous.

    WTF is happening here?

    Do we need to be on a plane tomorrow with pitchforks in hand??? Because if they think they can put the genie back in the lamp, they have another thing coming…..it’s called populace rage.

  26. Another way is to go on local newspapers and spread the word

  27. The City of Bell Case study. This can only be won at the City County and State Level

    LATIMES.COM HAS ALL THE INFORMATION ABOUT THE CITY OF BELL.

  28. All going forward – which – attempts to recognize past errors.

    Everything is about going forward. But – and I will repeat here – because I am, very concerned. See below for duplicated post elsewhere.

    “Here is the fear I have – that the “one month” investigations by the Federal Reserve and FDIC – will conclude that all foreclosure documents are “in order.” Even though – no investigations of this magnitude can be concluded in one month. Are we being “set-up” for false conclusions of law by the Fed or FDIC – that states the foreclosures are in order?

    It is the Fed that orchestrated the ‘PROGRAM” to remove toxic assets from the banks to distressed debt buyers. The Fed has always stated – the foreclosures must go through – and there should be no principal reductions – due to “moral hazard”. Will they go against their own program??

    Tim Ryan – CEO and President of SIMFA (Securities Industry and Financial Markets Association) – ADAMANTLY stated TODAY – that the foreclosure MUST go through. He states that “these people” are very delinquent – and there is no choice. He almost implied that foreclosures -are a herd of cattle – to be removed – and as quickly as possible.

    If Federal Reserve and FDIC come out of investigation claiming foreclosures are “in order” – we are in big trouble”.

    See Neil’s post under – CONFLICT OF INTEREST — GOV. AND FINANCE SECTOR.

    Are we being Set-up?? – to rid the courts of challenges to foreclosures???

    Wake up people – these guys – know what they are doing. And – they want us – SHUT DOWN.

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