from our good friend Anonymous, he tells us why fraud is so important as a cause of action in these loan:
To answer your question – (and this is not directed at “You” – it is just to answer your question)
Because you used fraud to lend the money – that is, if you actually lent any money at all since prior mortgage may not have been even paid off – and/or funding/lending may have violated securities law and federal law designed to protect borrowers from your fraud. .
And, the fraud has many legs including
1) falsely telling borrowers the asset (house) was worth far more that it really was.
2) predatory lending – telling borrowers that they qualified for a loan based upon the (falsely) valued home asset – and not upon the borrowers income
3) Violating RESPA by not informing that the loan was table-funded – thus, concealing yourself as the actual lender – in violation of federal law
4) Violating TILA by charging yield-spread premiums for no work that was ever done.
5) Violating TILA by charging egregious loans terms – with near usury rates – and by failing to adequately disclose the terms – and hoping the borrowers – not as sophisticated as you – just would not notice.
All of this – and claiming the loan was securitized – when no documents support securitization. Losing documents and attaching false affidavits to cover up what was never done in the first place..
If you were lender/investor – who now claims money is owed to – then every party involved in the fraudulent process above – acted as your agent – because you concealed yourself.
And, by the fraud, a financial crisis was caused by your actions – blocking every homeowner from GETTING OUT of the fraudulent contract and/or by selling the home to resolve the situation.
You, as a concealed lender/investor cannot now come back – after all the damage and fraud you have done – and claim “But, you still owe me the money.” And, you cannot hide yourself, and with fraudulent documents, to then try to foreclose upon the homes – when you have to right to do so..
“You” – should be in jail.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: fraud |
vrenata,
You ask the million dollar (or should I say trillion as mortgages are in trillions) question — hope AGs and other investigators are on to all. Now — or never.
it seems as though the judges are not on our side. what can be done to convince them that regardless of wether the loans are being paid on, the initial fault was the fraud committed by the banks!
Roger Rinaldi,
Hi Roger — or usedkarguy — we have communicated before many times!!!.
Agree with you 100% — main focus is what you state —- “who is foreclosing on me? It can’t be these guys because…”
Following an attorney who exactly focused on this — waiting for decision. Demonstrated not party by tearing apart the PSA. Among many issues related to PSA – was Gary’s third question. But, defense attorney demonstrated – by particular PSA in question — it is not possible (other issues supported including POA). Would like to know if this issue is generic in most PSAs. Believe it is — and only one party can cause assignment (and not the originator). But, would like some support.
So – thanks for the support —- as you state “who is foreclosing on me? It can’t be these guys because…..” —- THAT should be focus. And, you need to demonstrate this. First start is to tear apart PSA – for judicial attention. Include demand for Exhibits – that are a part of – but may not be attached to any PSA provided.
PSA demands that ALL must be in compliance — otherwise you have —securities fraud (in addition to no standing/not real party in foreclosure action).
Also have much fraud in origination — as current REPURCHASE demands are demonstrating. But, foreclosure courts do not care about origination — this is for a different court (at least in judicial states). They want to know about the foreclosure claim before them – as you state. Have to use what you have — and read every word to counter. PSAs are loaded.
Thanks.
Gary, send an e-mail to me. I have something for you to read. usedkarguy at yahoo dot com.
Gary, please read the last few posts under “Power of Research”. You’re gonna bury yourself in a story you can’t hope to explain. Stick to the issue, “who is foreclosing on me? It can’t be these guys because…”
Gary H
I am not an attorney, Neil offers the expert here.
But, basically, the PSA outlines all the steps — you have to read through – it usually right up front in the PSA – which you can get on SEC website.
2. Anything can happen after delinquency — only the bank that acquired the loan can tell you what happened.
3. This is a very important question — and I would like Neil to address it. Many issues involved including the Mortgage Loan Purchase Agreement, validity of the assignment, timing of the assignment, Power of Attorney – as outlined in PSA.
I do not believe it can be done because originators are not the party that is to cause assignment to the Trust. This is, as outlined in most PSAs – the Depositor’s role.
Neil — can you address this??
Sorry, I missed some “wordage” here…..
I’m having difficulty in explaining the nature of securitizing the loan before it lands, if ever in a trust, in a brief I’m writing…..
Gary
Anonymous,
As a borrower I am challenging this in court pro per on all the issues you note below in this quote…..
“— investors know the risks— and chose anyway to invest. It is a difficult battle in court. And, should be a far greater challenge than challenging standing/real party/false documents/appraisal fraud/violation of consumer federal laws, etc. by the borrower.”
I’m having difficulty in explaining the nature of securitizing the loan before it lands, if ever, in a brief I’m putting together for the court. I know that a loan must go through 3 or 4 different steps before it “lands” in a trust, each step or transfer constitutes a sale.
My questions go are as follow…..
1. What rules mandate each step along the path to securitization and thereafter placement in a trust…..and is each step/transfer considered a valid sale?
2. If a loan is pulled from a trust after 90 days being delinquent, where does it go. Is it repackaged, re-rated and sold again?
3. Is it possible or rather legal for a loan to be directly assigned to an ABS trust by the Originator of the loan e.g. XYZ Mortgage Co. to DBNTC?
Gary
Bog G
Insurers cannot guarantee the “mortgage” either — they guarantee the payments to security holders. No one guarantees the mortgages – that is why a Repurchase Agreement is part of the Mortgage Loan Purchase Agreement. If there was fraud- and loans should have been repurchased — that is an issue between the parties to the Mortgage Loan Purchase Agreement — not the security investors – this is just for their view — fraud in mortgage loans should have been taken care of by Repurchase Agreement (part of MLPA)— which is now, finally, years later, being demanded because it was not done in the first place.
2) Market Comps??? Market comps were elevated — and home appraisers were “blacklisted” if they did not inflate property values. This was a scheme— and you always need victims for a scheme. House prices do not dramatically “DROP” in a short period — which is what occurred —- all supports inflated appraisals — and compliance by those in control —(And this is NOT the homeowners – they had no control). Market supply/demand is not catastrophic – as occurred. Ridiculously high comps – of course – required fraud. How else did they lure borrowers into the fraudulent deals??? They had a plan – and it worked well – for a LITTLE while.
3) No court is going to state that hedge funds are not sophisticated investors —- stupid – maybe – but sophisticated – they should KNOW the risk. Well know precedent as to investors.
4) You are not getting it — they are suing to be “made whole” — on the investment “potential” they lost. If you purchase a security for rate of – say 7% — and you only realize this for a couple of years — you could try to claim fraud — because you lost the opportunity to invest ELSEWHERE — at that rate or higher. That is what investors are suing for — the yield that should have materialized. This could be a decent argument – except courts have discarded it due to sophistication of investors — investors know the risks— and chose anyway to invest. It is a difficult battle in court. And, should be a far greater challenge than challenging standing/real party/false documents/appraisal fraud/violation of consumer federal laws, etc. by the borrower. But, investors get the media attention. Why?? the investors support the media. Borrowers do not have the same access – and judges just do not understand “financial engineering.” In fact, Enron defense attorneys banked on judge’s lack of knowledge. Enron was very similar to accounting fraud in SPVs. But, Enron did not threaten a financial collapse — the SPVs did.
Listening to Bernacke right now – he and other made a decision to “save” the financial system -and that meant scapegoats — you – and other homeowners. Whether this was right decision – is the question — and numerous allegations of fraud have surfaced since that decision.
As far as PERS — AGAIN –these investments did not meet their targeted interest rate goal — that is why they are in trouble. And, after crisis –even though principal is returned —there was no place else to invest to realize that targeted goal. Well, guess what??? they should not have been banking on “subprime” borrowers to front pensions/retirements at inflated interest rates – based on inflated loans – based on inflated home value appraisals. Should not bank on risky investments to fund long term pension — duration does not match. Poor investment decisions. Have no where else to go??? — that is because they participated in fraudulent investments – which helped fuel the crisis and collapse. PERS was precluded by investing in risky investments — who were they trying to kid — if they did invest????
Fraud is eventually exposed — just takes a little
time.
And, suggest you read “damages” requested for investor lawsuits — not one subtracts foreclosure proceeds to be recovered — WHY?? because they were never entitled to them…. Read the Damages requested sections.
Still trying to figure out on whose side you are on — all of above is clear cut— but you insist on challenging. Not that I do not enjoy conversing with you – but — you seem to defend whiney investors who did not realize high yields- which they knew were RISKY.. Were/are you an investor?????
No harm done if you are — you have a right to speak your mind — and I have a right to disagree.
I am on the side of the borrowers — they have been victimized. And, whiney investors do not cut it — they should have known better.
ANON
1. Look again at the PSA exhibits. Actual mortgages were guaranteed by a number of insurers down to about a 40% loss. That’s why they are suing the banks right now. Google insurer MBS litigation.
2. Property valuations were accurate if based on market comps. The fact that the money being pumped into the housing market was done for purposes of greed in no way made the comps fraudulent. The comps were what they were. Arms’ length transactions were occurring between buyers and sellers without pressure. Market comps were the only thing appraisers had to go by. And I do realize that there was quite a bit of appraisal fraud going on at the time, but getting ridiculously high comps did not require fraud.
3. Not all hedge funds were sophisticated. Check out Cambridge Investment Management’s lawsuit against the banks. Former Goldman guys. Seeking to recover $1.2 billion.
4. I have a hard time believing that everyone was made whole. Just Google “MBS litigation.” There are a bazillion law suits going on. BoA has pledged to fight every last one of them in the trenches if necessary. If everyone got bailed out, you wouldn’t see all these lawsuits. Check out state of Maine PERS and also Iowa. These guys lost majorly. They wouldn’t be suing if they just didn’t make their yields. Happens all the time in their private equity investments. They don’t sue. They are also very reluctant to sue because it shows that they had to take a loss. A loss is the last thing they want to admit. They make twice what they could make in the private sector, and can’t afford to lose those jobs. They’re all employees at will.
5. Bill Frey and Talcott Franklin have put together investor groups representing over $600 billion in MBS deals, and they are suing to recover.
Bob G
1) only the timely payment on securities can be guaranteed – (and securities are developed from the tranche structuring) —-mortgages/loans cannot be guaranteed. But for securities that were not GSE guaranteed – the mezzanine structuring of the SPV provided credit enhancement to senior tranches — along with credit default swaps.
None of this is guaranteed — and without the government bailout ——the banks would have gone under. That is where the term “Too Big to Fail” comes in. Think many are second guessing this now. They should have bailed the homeowner victims out first – this would have “cost” a lot less. – especially since banks are still on shaky ground – and there are many community banks to pick up the big bank demise business.
But, government wanted to “save face.” Face was already destroyed – no matter what they did.
2) The subprime lending starting going “wild” in 2004 — (government says 2005 – but disagree). This is when most of these SPVs were set up – the crisis exploded in 2007 —- thus, only 2 to 3 years after the “wild” run on Wall Street in which the fraud was discovered and, subsequent crisis “bailout”.– Bailout came quickly — not much time from fraud to bailout.
As to your statement – Mezzanine tranche investors tend to be sophisticated investors – such as hedge funds – chasing high yields – (and perhaps collection rights on foreclosures). These were subprime borrowers – Bob – what investor in their right mind would invest in “securities” derived from mortgage loans falsely qualified for – by borrowers with low FICO scores?? (all disclosed in SEC docs). The borrowers had no clue – they thought the asset (home) valuation was accurate – and they would be able to sell if necessary. For those that refinanced – they thought they were tapping “equity” in the home. But the “equity” never really existed — it was manufactured by the banks..
Unfortunately, all remedies were shut-down to borrower due to the exposure of the crisis – borrowers could not sell home- could not refinance. There WERE NO REMEDIES OTHER THAN FORECLOSURE. I just cannot believe that this occurred. Borrowers are still being held accountable for inflated loans on inflated home appraisals. HOW is this justified??
Putting aside the questionable motives of the hedge funds and other distressed debt buyers, it is like any other investment – these investors KNOW the risk – they banked on borrowers not being able to make the high (adjustable-rate) mortgage payments on loans originated with huge fraud. Would you invest in this??? They did – and it no one’s fault but their own – they know it. And, to boot – the “investments” were sloppy — never properly conveyed – with “investor” rights – in question.
Clearly, the “scheme” was quickly discovered – and collapsed. And, what do they owe to the homeowners that were defrauded?? –I believe they own restitution for the fraud.
But, to answer your question – did they lose money?? No – not most of them – the government bailed them out too -by also purchasing the mezzanine tranches (even though swaps were not derived). Government bailed out EVERYONE — have you seen the disclosure for bailouts??? They bailed out everyone – except the homeowner victims – the target of the fraud. No investor “lost” they just did not achieve their “targeted yield”. This is what many investors are suing for – And, as sophisticated investors – it is unlikely they will prevail on such claims Case law is against it.
Back to the “putbacks” — appears Freddie and Fannie have already been successful in some — so I would check the Freddie again.
ANON – Follow-up:
You said –
“4) Most senior tranches were rated triple A – thus, likely guaranteed by some some GSE. If you look at current distributions – most of the A tranches – are marked “PAID” – evidence that swap coverage returned principal to investors (100% bailout on on these swaps).”
TWO QUESTIONS RE ABOVE:
(1) Were the AAA “tranches” guaranteed, or were the “mortgages” guaranteed. This is an important distinction.
(2) Where/how can one find the current distribution reports for the deal tranches?
HOW CAN WE PROVE THE FOLLOWING STATEMENT TRUE:?
“Since the time period on these securitizations was short before the collapse — security investors in these upper tranches received full return of principal invested in security by the swap bailout.”
OK, FINALLY THIS …
IT APPEARS AS THOUGH THERE ARE TENS IF NOT HUNDREDS OF BILLIONS OF DOLLARS WORTH OF MEZZANINE TRANCHES THAT DEFAULTED. AND IT IS THESE INVESTORS THAT LOST THEIR MONEY. ARE YOU IN AGREEMENT WITH THE FORGOING STATEMENT? (Very important)
Thanx.
usedkarguy
Yes – believe you are right on this.
Gary H
Yes – but the trusts shows certificates sold to security underwriters (investment banks) – whose balance sheets are consolidated with parent. The step that is skipped is the sale of the whole loan to the bank itself – then the certificates are sold to bank’s security underwriting division (this is accounting gimmick because it is off balance sheet.
But, backwards with Fannie/Freddie – they sell performing loans to Fannie/Freddie – when becomes non-performing is when removed from securitization – and back with bank that owns the whole loan.
Bob G.
1) not sure what you are saying here. Perhaps, it can be construed a rescission of securities contract -just not the same as mortgage rescission – but either way – should help borrowers with argument that loans were fraudulent.
2) and 3) In this case – as in 1 – yes.
4) Most senior tranches were rated triple A – thus, likely guaranteed by some some GSE. If you look at current distributions – most of the A tranches – are marked “PAID” – evidence that swap coverage returned principal to investors (100% bailout on on these swaps). Want to also clarify that you are right that yield payments on MBS do include a portion of principal return – but early on all is interest – and, most investments in MBS include a reinvestment of that principal return to preserve principal investment for investor. Since the time period on these securitizations was short before the collapse — security investors in these upper tranches received full return of principal invested in security by the swap bailout. Very complicated fixed income/MBS — but all that is important to us – is investors were paid.
The lower tranches provided support to upper tranches as credit enhancers – — – principal investment was much smaller — and most investors dumped what was left on these M tranches – and government holds a lot of these.
NIM – not much disclosure on this – but many were “resecuritized” However, do not believe this was very successful as to marketing.
Believe you can find in PSA/Prospectus the collateral allocated to each tranche — have to go through. Also current distribution reports should show remaining balance. These, however, are difficult and costly to get.
Clarify #7 above. In practice, MBS investors strive to maintain principal – and invest for income. Point here is that investments reached a VERY early maturity due to default of issuer – which triggered swap protection. Basically the whole waterfall structure of the trusts was destroyed by this. Technically, the trust is then dissolved. Government actions may have “artificially” kept some tranches “alive.”
8 – not in trust PSA – but this is apparent because trusts are on current income pass-through – foreclosures are not liquid and not current. Think that is what investors did (run for hills) when they discovered the fraud. It is not a problem if there are a small number of foreclosures — when defaults became big – it is a problem. This is not to say some collection rights are not derived from lowest tranches – or servicer owned — but that is not part of trust — it is not securitized – it is derived from the securities that are derived from the loan assets. This is trick that foreclosure attorneys use in courts – they try to attach themselves to the trust by derivatives – but these collection rights are not part of the trust – they are derived by contracts – not securities.
9) Fannie/Freddie purchased both loans and securities – so hard to tell what their role – Sometimes they say they are an “investor” – (and Investor can mean just that they funded the loan – it does not mean current creditor.) Also seeing conflicting reports whether or not Fannie/Freddie has/had loan.. Freddie Fannie tended to keep non-performing loans (before charge-off and removal) in Trusts much longer that banks. No one really knows is going on at Freddie Fannie.
There is an example in Fed Res Opinion – on title using Ginnie Mae as an example —
“The Board has received a letter from
the Department of Housing and Urban
Development’s Office of General
Counsel, in its capacity as legal counsel
for the Government National Mortgage
Association (Ginnie Mae), seeking to
clarify Ginnie Mae’s status under
Section 404(a) of the 2009 Act. Ginnie
Mae guarantees securities that are
collateralized by mortgage loans. HUD’s
letter states that, as the guarantor of
these securities, Ginnie Mae obtains
equitable title in the mortgage loans but
further states that the issuers of the
securities retain legal title to the loans
that collateralize the securities.
According to HUD, legal title to the
loans is not conveyed to Ginnie Mae
unless the issuer of the securities
defaults in its obligations. If the
securities issuer defaults, Ginnie Mae
can immediately extinguish the
securities issuer’s interest in the loans
and take legal title. Based on HUD’s
representations and legal opinion
regarding Ginnie Mae’s status, the Board
believes that the requirements of
§ 226.39 do not apply to Ginnie Mae
until it finds the issuer in default and
acquires legal title to the loans.”
Question for you — if stated as a Freddie — you were supposed to be offered excellent refinance options — was this ever offered to you – did you seek it???
ANON – one other thing …
What’s your ballpark, back-of-the-envelope estimate for the amount of mezzanine tranches that were purchased in this fiasco?
ANON – You’re providing ALL OF US with incredibly useful info here. But stlll a little confusing. Follow me on this. This is very important …My stuff below is in caps in response to your statements just above my stuff.
1. “Investors are not suing for rescission – they cannot rescind a loan transaction – only borrower can.”
FROM MY READING OF THE PLEADINGS AND THE CASES, THE INVESTORS ARE NOT SUING TO RESCIND THE MORTGAGE LOANS BETWEEN THE MORTGAGORS AND THE SELLERS. ARE WE ON THE SAME PAGE HERE?
2. “They are suing because they invested in pass-throughs that were not qualified to deliver the yields they were promised. And, the Federal Reserve, Fannie/Freddie, Pimco – that now own these remnant pass-through securities – feel they were defrauded. Since originators are mostly gone – they can only sue the Depositors for repurchase of securities that remain (mostly mezzanine) since guaranteed senior tranches have been paid – that were backed by the fraudulent loans – that supposedly would pass through stated yields.”
OK, SO THE INVESTORS TO INCLUDE F,F, NYFED & PIMCO ARE SUING OR THREATENING TO SUE FOR RESCISSION UNDER THE FED AND STATE SECURITIES LAWS. THEY ARE SEEKING A RESCISSION OF THE DEAL WHEREBY THEY PURCHASED THE CERTIFICATES. IS THIS CORRECT?
3. “They are suing for repurchase by the originator as to loan (receivables) sold to Depositor owned trust for beneficial pass-through.”
I TAKE IT THAT THIS STATEMENT IS EQUIVALENT TO SAYING THAT INVESTOR PARTIES ARE SUING THE SELLERS/DEPOSITORS FOR A PUTBACK OF MORTGAGE LOANS THAT THEY CLAIM SHOULD NEVER HAVE BEEN ADMITTED TO THE TRUST IN THE FIRST PLACE. IS THIS CORRECT?
4. “The swaps were only paid on the higher “guaranteed” tranches – not the mezzanine tranches that invested much less principal – in return for a higher yield.”
ARE YOU SURE ABOUT THIS? I’VE READ A FAIR NUMBER OF PSAs AND THEY ONLY MENTION THAT THE SENIOR TRANCHES ARE OVERCOLLATERALIZED AND GET FIRST DIBS ON MORTGAGE INSURANCE PROCEEDS. I’VE NEVER SEEN ANY STATEMENT THAT ALLUDES TO THEIR COVERAGE BY CDS. CAN U DIRECT ME TO SOME SOURCE MATERIAL ON THIS?
I’VE ONLY SEEN MENTION OF NIM TRUSTS, WHEREBY IT IS THE NON-PUBLICLY SOLD TRANCHES THAT ARE COVERED BY NIM INSURANCE. THE NIM TRANCHES APPEAR TO BE THE TAIL END EQUITY TRANCHES RETAINED BY THE DEALMEISTERS, AND THE FINANCIAL GUARANTY INSURANCE THEREUPON INURED TO THEIR BENEFIT.
5. “Mezzanine tranches were not paid off by swaps – they were credit enhancers to the higher tranches.”
OK, WITH U ON THIS ONE ABOVE.
6. “But, they invested a very small principal amount – compared to the total. Those smaller principal amounts have been easily written off by those security investors. It is these mezzanine tranche holders that are suing the banks (Depositors) for repurchase.”
WHERE DO U FIND THE AMOUNT INVESTORS PUT INTO EACH TRANCHE?
7. ” * * * guaranteed senior tranches have been paid. * * * Principal is always returned once the security reaches maturity. All the investor is entitled to is an interest rate on their principal investment – which is returned at maturity.”
OK, SO EVEN THOUGH THE LOANS BACKING THESE SENIOR TRANCHES WERE MOSTLY 30 YEAR AMORTIZERS, THE SENIOR TRANCHES GOT PAID OFF IN LESS THAN 5-10 YEARS? HOW DOES THAT HAPPEN, AND WHY WOULD THE DEAL BE DESIGNED TO PAYOFF SO QUICKLY?
8. “For both senior and mezzanine tranches – foreclosure proceeds are not passed through – foreclosure proceeds are NOT current income – and will not be realized by beneficial security investors.”
UPON READING THE ABOVE IN THE SELLING DOCS, ANY INVESTOR WORTHY OF THE TITLE SHOULD HAVE RUN FOR THE HILLS.
9. “Equitable and legal title are two different things –
From the Fed Res Interim Opinion (now codified as Rule) —–”To become a “covered person” subject to § 226.39, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation. Consequently, § 226.39 does not apply to persons who acquire only a beneficial interest in the loan or a security interest in the loan”
OK, SO I CHECKED THE FAN AND FRED WEBSITES TO SEE IF THEY HAD AN INTEREST IN MY MORTGAGE LOAN. FRED SAYS THAT THEY “OWN THE LOAN.” BUT YOU’RE SAYING THAT THEY DON’T REALLY OWN THE LOAN, BUT RATHER THE PASS THRU CERTIFICATES. SO WHAT IS IT ? DO THEY OWN THE LOANS OR THE PASS THRU CERTS? MIND YOU, FAN AND FRED ALSO ISSUE THEIR OWN MBS. SO WHAT’S REALLY BEHIND THE CURTAIN? (ALSO, I TAKE IT THAT THESE FED OPINS CAN BE FOUND ON THE FED WEBSITE. IS THIS CORRECT?)
Bob G,
As to this quote from Anonymous, …..
“Finally, you say that the banks OWN the trusts. I don’t see how this is possible. The trustee has legal title to the assets, and the investors have beneficial title to the cashflows, no?”
I believe the banks being referred to here are the Investment Banks, Goldman etc. that were wholly responsible for repackaging and underwriting and own or owned the pools, which may have been resold to Freddie / Fanny when they became non-performing.
Anonymous…..please chime in here!
Gary
Bob G., I believe they have to fully extinguish the asset they are carrying or “servicing right”. The “servicing right” just happens to be the errantly recorded security interest in the county record. Remember, the loan has been extinguished, but not the profit carried as the servicing right, WELL, THAT’S REALLY THE HOUSE. Anon? Didn’t mean to cut in here. But isn’t that essentially it?
They extinguish the servicing right (gain on sale) with the liquidation of the real estate?
Bob G.,
Let’s start with your last sentence — the loans are sold to a “depositor” – the depositor then sets up a trust – they own it. How they pass-through INCOME – is ONLY by accounting gimmick that converts whole loans to securities. Once the securities are “dead” – the whole loan reverts back to the purchasing bank. Thus, the bank is left with non-performing whole loans – with no supporting income security investors – and this must be subtracted from available capital (BASEL II).
Government helped by purchasing “dead” securities – but bank cannot remove non-performing loans from balance sheet until loan is foreclosed – or collection rights sold. Government, in effect, has stalled recognition of banks non-performing loans – with derivative securities – leveraged over and over – until foreclosures are put through – or collection rights sold – via distressed debt securities – or outright sale of collection rights. They serve as a “dummy” – if you will – investor – but the conduit itself is back on balance sheet. Thus, the reason to “PUSH through foreclosures”.
The securities (from the off-balance sheet) conduit are now worthless because they cannot be traded – principal has been repaid by swaps – and the securities can no longer generate income pass-through – cannot be marketed – no one will buy them – except the government. Government is waiting for foreclosures – and encouraging them.
Investors are not suing for rescission – they cannot rescind a loan transaction – only borrower can. They are suing for repurchase by the originator as to loan (receivables) sold to Depositor owned trust for beneficial pass-through. They are suing because they invested in pass-throughs that were not qualified to deliver the yields they were promised. And, the Federal Reserve, Fannie/Freddie, Pimco – that now own these remnant pass-through securities – feel they were defrauded. Since originators are mostly gone – they can only sue the Depositors for repurchase of securities that remain (mostly mezzanine) since guaranteed senior tranches have been paid – that were backed by the fraudulent loans – that supposedly would pass through stated yields.
The swaps were only paid on the higher “guaranteed” tranches – not the mezzanine tranches that invested much less principal – in return for a higher yield. Mezzanine tranches were not paid off by swaps – they were credit enhancers to the higher tranches. But, they invested a very small principal amount – compared to the total. Those smaller principal amounts have been easily written off by those security investors. It is these mezzanine tranche holders that are suing the banks (Depositors) for repurchase.
Fixed income investments (and mortgage backed security investments) is for an “income” on principal invested. Principal is always returned once the security reaches maturity. All the investor is entitled to is an interest rate on their principal investment – which is returned at maturity. Not much different that a CD – but longer term and riskier. Riskier because of the risk of default by the issuing entity – which is what happened – the issuing entity (security underwriter – parent) could not perform – that is why the government stepped in.
Those in mezzanine tranches – who invested little principal – for the chance of a higher return – were not as lucky – they lost. But, as stated, their principal investment was MUCH smaller – and they knew the risk – they were credit enhancers to the senior tranches. That was the structuring of the SPV.
For both senior and mezzanine tranches – foreclosure proceeds are not passed through – foreclosure proceeds are NOT current income – and will not be realized by beneficial security investors
Equitable and legal title are two different things –
From the Fed Res Interim Opinion (now codified as Rule) —–“To become a “covered person” subject to § 226.39, a person must become the
owner of an existing mortgage loan by acquiring legal title to the debt obligation. Consequently, § 226.39 does not apply to persons who acquire only a beneficial interest in the loan or a security interest in the loan”
According to the Fed Res – (now rule) – a “covered person” is the entity that must identify itself as the creditor. And, a creditor must hold legal title – not “equitable” – title. A creditor it is not a beneficial security pass-through investor who may own equitable title to receivable pass-through. Again, a foreclosure is not a receivable. .
.
This seems like a contradiction. Please explain:
“The banks * * * are bringing the SPV trusts for pass-through of receivables back on balance sheet. And, these securities are now worthless – which is wrecking havoc on bank capital – all worthless BEFORE maturity was ever realized. The investors have been returned their security investment principal – and the banks have to take the hit.”
If the investors had their security investment principal returned, why would investor groups now be suing the banks for rescission or putbacks?
Also, you say “At maturity, the principal is RETURNED.” I thought that each security entitled the investor beneficiary to both principal and interest, not just interest alone. Aren’t these assets self-amortizing in conjunction with the underlying mortgage loans?
Finally, you say that the banks OWN the trusts. I don’t see how this is possible. The trustee has legal title to the assets, and the investors have beneficial title to the cashflows, no?
Bob G.,
No – the mortgagors pledge nothing. The mortgagors do agree, by contract, that loans can be sold. The originators sell loans to banks – and then the BANKS pledge your (receivable) payments. You have nothing to do with this “pledge.”
Yes, the banks must bring their “off balance” sheet conduits – back onto balance sheet – meaning they must now report that they OWN the trusts. This is similar to wealthy person who sets up a trust – and pledges – as you say – certain income to beneficiaries. The party that sets up the trust – OWNS the trust and assets – and they simply direct how income will be passed-through. THEY OWN THE TRUST – and passed-through your mortgage payments as income. This is clarified in PSA as all certificates to Trust were sold to security underwriter (actually their parent). The asset itself – (your loan) remains as owned by the bank. This has been confirmed to me by numerous authorities. And, now, even the receivables “pledges” are back on balance sheet. The loans – themselves – could never be properly conveyed to trusts- because you cannot transfer loan ownership to “Beneficial security investors.” This is why documents are a mess.
The bank is Not really paid by investors – investors let the banks hold their “principal” – in return for the pass-through on the payment receivables. At maturity, the principal is RETURNED. Investors invest a principal amount – in return for a yield. The bank is responsible to those investors – not you. They are securities – or were at least intended to be securities. Whether or not securities law was actually followed is another question. It is obligation that I am emphasizing – the borrowers DO NOT have an obligation to pass-through security investors – the bank does. They are NOT your creditor – the bank is – until they dispose of collection rights. All of this assumes everything was done properly – and this is certainly questionable.
The banks are not bringing the loans – back onto balance sheet – the loans never left. They are bringing the SPV trusts for pass-through of receivables back on balance sheet. And, these securities are now worthless – which is wrecking havoc on bank capital – all worthless BEFORE maturity was ever realized. The investors have been returned their security investment principal – and the banks have to take the hit. Only way for banks to “recoup” anything – is foreclosure – or selling collection rights to third parties – and taking tax write-off.
As to your “corridor contract counterparty” – SEE BELOW (taken from a PSA – I am not disclosing)— has to do with interest rate/payment guarantees. It is pursuant to agreements through the International Derivative and Swap Association — those good old unregulated credit default swaps. Most often, the trustee to trust – is also the administrator for the Corridor Contract Counterparty agreement pursuant to ISDA Agreement. Meaning the trust trustee – administers the swaps/credit enhancement contracts – they know where the collection rights to non-performing/default loans are – and they are NOT within the Trust. Note also that the entire receivables pool is allocated to ALL tranches in a trust. But, A1 – may indicate Fannie/Freddie security purchase – and they did purchase these securities.
THE CORRIDOR CONTRACT
The trust fund will have the benefit of one interest rate corridor contract
(the “CORRIDOR CONTRACT”), for the Class 1-A-1 Certificates, Swiss Re Financial
Products Corporation (“SRFP” or the “CORRIDOR CONTRACT COUNTERPARTY”), as
evidenced by a confirmation (the “CONFIRMATION”). Pursuant to the Corridor
Contract, the terms of an ISDA Master Agreement were incorporated into the
confirmation of the Corridor Contract, as if the ISDA Master Agreements had been
executed by the trustee, not in its individual capacity, but solely, as trustee
and the Corridor Contract Counterparty on the date that the Corridor Contract
was executed. The Corridor Contract was subject to certain ISDA definitions as
published by the International Swaps and Derivatives Association, Inc.
The Corridor Contract Counterparty under the Corridor Contract is Swiss Re
Financial Products Corporation (“SRFP”), a Delaware corporation and indirect, 424B5 · 77th Page of 211 Just 77th (New) “A-1+” from Standard & Poor’s.
The obligations of SRFP under the Corridor Contract are fully and
unconditionally guaranteed by Swiss Re. Swiss Re currently has (i) a
Beginning on the Distribution Date in December 2005 and on or prior to the
Corridor Contract Termination Date, amounts (if any) received by the Trustee for
the benefit of the trust fund in respect of the Corridor Contract will be used
to pay the Carryover Shortfall Amount on the Class 1-A-1 Certificates, as
described below under “–Corridor Contract Reserve Fund.”
ANON
Ok, so here’s what I’m getting from what you’ve stated:
The mortgagors pledge their monthly P&I pmts to the bank for their home loans. The banks have pledged the mortgagors’ P&I pmts to the trust. The trust looks at these pmts as “receivables” that are pledged as collateral to the certificateholder/investors.
But I believe that you have stated that the banks must now bring something back onto their balance sheets. Was it the loans or the receivables? But weren’t the loans properly sold/assigned to the trusts via the PSAs? And wasn’t the bank paid for those loans by investor proceeds for the certificate securities that they purchased? So how or why must the banks bring loans back on their books if they’ve already received payment for the loans from the investor funds?
John
What occurred in the appraisals is banks fraudulently inflating the home appraisal in order to qualify borrowers based on the ASSET – and not the ability to pay. This is called Predatory Lending. Most states have anti-predatory lending laws. The banks cannot qualify borrowers if these laws are broken in the process. Further, PSAs – Mortgage Loan Purchase Agreements/Repurchase Agreements prohibit any loans that violate Predatory Lending Law – meaning loan receivables should NOT have been assigned to Trusts.
Of course the bank has a duty to make sure borrower qualifies – and without violation of the law. Investors may be beating us to punch – by recent demands for repurchases. Banks have, as you say, no duty to make sure the borrower can make payments — IF and only IF the loan was granted BECAUSE the borrower qualified. If the bank qualified a borrower by fraud or predatory lending – this is a different story. Show me a CA case that states otherwise.
Table funding has not yet materialized in court actions – because borrowers cannot get adequate discovery. AGs should be addressing this. Violation of RESPA is a primary (or should be) focus of DOJs. And, this affects the YSP. There is case law on this – but do not see attorneys utilizing – believe they will in future.
Unless the TILA is changed – to make tender in full required, district courts may be in conflict over this issue – and therefore ripe for Supreme Court. Believe this is why they are trying to change the TILA – to prevent a decision by highest court as to conflict in district courts.
And, as to SOL – true, many judges do not give weight to discovery of facts as to SOL – but they should be – and some do. And, recent investigations are attracting the attention of judges. This is why it is critical that the hearings and investigations proceed fully and fairly. Could be that SOL may not start until these investigations are completed. .
ANON
Thanx.
Now, what is the definition of a “Corridor Contract Counterparty?”
Bob G
Not an attorney – and your question is very complex.
But, will say this – mortgagors are not considered a part of the PSA because only the receivables are involved in the securitiztion process. Removal of receivables from a bank’s balance sheet is role of securitizaton – and the PSA that is supposed to bind the parties to their obligations. Sale and assignment of loans are 2 different things. The loans are sold to the bank – before securitization – and the receivables are assigned to the trust/trustee after securitization. Since we do not own the loan receivables (the bank does) – our obligation remains to the bank – the bank’s obligation is to its investors. There should be no direct obligation from borrowers to investors.
Mortgagors are not obligated to the Trust – and are not part of the PSA. Therefore, do not believe the Trust can directly collect from mortgagors/borrowers. Borrowers did not pledge/transfer their receivables to anyone – the bank did. We are not violating the PSA – (and beneficial security investors) when there is default – the bank is. And, keep stating, the Fed Res – has already stated that beneficial security investors are not the creditor. This is why foreclosures should not be conducted under the trustee/trust. We have no obligation to them – the bank does.
However, the Trust Indenture Act may be very relevant for beneficial security security investors that are suing the bank. It is very contradictory that investors are suing the bank – AND suing (in effect) the borrowers at the same time for foreclosure. If successful, this means they are collecting twice – which SHOULD be impossible.
ANONYMOUS
Take a look at this. It’s the Trust Indenture Act of 1939.
http://www.sec.gov/about/laws/tia39.pdf
It appears to have been written with corporate obligors in mind, but aren’t the banks, servicers and trustees arguing that it is the mortgagors that are the obligors? If that’s the case, then why aren’t the mortgagors part of the PSA and prospectus? Under this Act, they are obligated to play an accountable part.
Also, the SEC’s telephon interpretive opinions are as follows:
“10. Section 304(a)(2); Section 304(a)(7)
Certificates representing a beneficial ownership interest in a trust
are offered to the public pursuant to a registration statement under
the Securities Act. The assets of the trust include a pool of mortgage
loans with multiple obligors administered pursuant to a “pooling and
servicing agreement”. Partial payment of the Certificates is
guaranteed by a third party. The Certificates are treated as exempt
from the Trust Indenture Act under Section 304(a)(2) thereof. The
guarantee of the certificates is exempt under Section 304(a)(7).”TIA OF 1939 – EXEMPTED SECURITIES AND TRANSACTIONS
What this appears to be saying is that:
1. TIA of 1939 would apply to the non-dealmeister tranche certificates, i.e., the ones offered to the public institutional investors.
2. It would not apply to the dealmeister tranche certificates.
(However, I believe that the prospectuses state that the certificates are not going to be registered under the Securities Act of 1933. Is that your understanding as well?)
But see the actual text of the law:
SEC. 304. (a) The provisions of this title shall not apply to any of the following securities:
(1) any security other than —
(A) a note, bond, debenture, or evidence of indebtedness, whether or not secured, or
(B) a certificate of interest or participation in any such note, bond, debenture or evidence of indebtedness, or (C) a temporary certificate for, or guarantee of, any such note, bond, debenture, evidence of indebtedness, or certificate;
SEC. 304. (a)(2) any certificate of interest or participation in two or more securities having substantially different rights and privileges, or a temporary certificate for any such certificate;
SEC. 304. (a)(7) any guarantee of any security which is exempted by this subsection;
What do you think? Do you think that the banksters will claim that the entire deal/PSA falls outside the purview of the TIA of 1939?
In California
1) the courts have ruled that the appraisal ordered by the bank is for bank protection only. The bank has no fiduciary duty to the borrower to disclose or to obtain a correct one. In Ca the bank acts in it’s own best interest.
2) Here again, the bank has no duty to the borrower to make sure they can make the payments. The courts have ruled that the borrower is in the best place for this.
3) table funding doesn’t seem to go anywhere, maybe the plaintiff’s attorney can’t plead correctly
4) many lender/broker’s are confusing the judge’s with this one because a broker does have duties unless the funded the loan first then they are also a lender without duties.
5) tendering has become a district court judges decision and most judges won’t apply a payment system or even consider.
Soooo the last subject is extension of the SOL’s here in California it is when you should of known not when you knew. Ca courts give this very seldom so beware.
John,
1) Except for rescission (statute of repose) – the SOL can be extended depending upon discovery of the fraud.
2) Who can come back?? The creditor who was not the real party in interest to begin with?? No – it would have to be the real party – and you already then have a fraudulent foreclosure – and violation of federal law – and have been denied the right to negotiate with your true creditor as mandated by HAMP.
3) To answer your other points –
1) Borrowers (I will not use the word debtors – because do not even know if debt exists) can easily get a new appraisal. Know one smart borrower who got an appraisal a couple months after the origination – the appraisal was for few hundred thousand less than the bank claimed at origination!!
2) Borrowers – can never “approve” – or qualify themselves – even if they would like too – so that is ridiculous. In fact, some mortgage documents show borrowers were denied – before they were approved – but need discovery for this.
3) It is now becoming clear that many loans were table-funded – Neil and his experts can help in demonstrating this. But, hopefully, AGs are also investigating origination fraud as much as servicing/foreclosure fraud.
4) YSP was charged when mortgage broker was involved – Table funding negates justification for YSP – since broker did not do extra work to find a better interest rate – then YSP (in form of higher interest rate) was not justified. If you did not have a broker – does not apply.
5) Referring to adjustable rate mortgages – if you did not have – does not apply to you. However, tacking on unjustified numerous fees in foreclosure – is outrageous – and can also be “usury” – need to know how those fees were/are applied and this may be attributed to servicer fraud – and, possibly manufactured foreclosure. Believe this is subject of current hearings. As far as “tender” – and TILA – you are referring to rescission. TILA is federal law – preempts state law – and unless the TILA is changed (which they are trying to do) – current federal district court law – which states that payments can be made – should stand.
If foreclosure has occurred despite the fraud, unless government does something, all you do is file new action for fraud/fraud on the court – if that is what you want to do.
Do not believe judges “hate” homeowners – believe – at the most – they may be biased – for many reasons. But, in many instances, judges have also been “duped” – just like homeowner borrowers.
They are using the money to fight the homeowners.
Senator Sanders :
http://www.huffingtonpost.com/rep-bernie-sanders/a-real-jaw-dropper-at-the_b_791091.html
Check the Fed Link , now is public .
NEW FED IDEA : WOW
http://www.mcclatchydc.com/2010/12/01/104568/fed-wants-to-strip-a-key-protection.html
Anonymous…just one more thing….2.5 million homes foreclosed says they can come back and get their money.Try and stop them in Ca,Az,FL,VA,WISC,CO,ILL etc.
My point….I think judges hate homeowners
Anonymous…..also all your claims have SOL’s so you better get crackin
John, on December 2, 2010 at 1:07 pm said:
Anonymous…..This would be the banks MTD
1) debtor needs to get their own appraisal..Ca law
2) debtor knows best what he can afford…Ca law
3) loan was not table funded…Plaintiff must plead proof
4) did not charge premium
5) 5.75% is not usury Plaintiff cannot use TILA in face of foreclosure without tender of loan….Ca law
Case Dismissed with attorney fee’s to defendant because it’s in the DOT.
Well stated Anonymous!
——
Lying banks = Boycotted Banks!
Looks like that old selling snakeoil stuff was really out there. It would be very interesting to find out the “mastermind” or masterminds that came up with this scam. I have a feeling that the scam started out smaller and snowballed as everyone in the chain of the transaction jumped on the gravy train. Remember, it is predatory lending to give a loan to someone who can never pay it back. The borrower did not commit predatory lending, the pretender/lender did. FYI, check out mortgagefraudblog.com. It is hilarious. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com
oh-oh – —-
Should be “NO right to do so” at end.
Sorry – those darn typos. Can you fix that Neil???