BOA Headache # 369: Merrill Lynch Execs Knew 2 Years Before Collapse

READ THE ARTICLE AT PROPUBLICA

EDITOR’S COMMENT: TALK ABOUT TRADING ON INSIDE INFORMATION! They all knew and were basically paid to make sure they kept quiet and to maintain the illusion of a liquid market. So tell me now how the investment bankers didn’t realize that loan underwriting standards were being swept under the rug. Tell now that it wasn’t the investment bankers who were creating a new set of loan underwriting consisting of whatever it took to get money from investors and signatures from buyers. And above all, tell me how this is all about greedy consumers buying more house than they could afford, or about taking on debt they couldn’t pay.

By the way, BOA acquired Merrill Lynch and was the source of interim funding, brokering their bogus mortgage bonds and heavily involved in the pulling of strings to enable this mess.

The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm

by Jake Bernstein and Jesse Eisinger
ProPublica, Dec. 22, 2010, 3:37 p.m.

Two years before the financial crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank’s own traders, wanted to buy the supposedly safe portions of the mortgage-backed securities Merrill was creating.

Bank executives came up with a fix that had short-term benefits and long-term consequences. They formed a new group within Merrill, which took on the bank’s money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them. The division creating the securities passed portions of their bonuses to the new group, according to two former Merrill executives with detailed knowledge of the arrangement.

The executives said this group, which earned millions in bonuses, played a crucial role in keeping the money machine moving long after it should have ground to a halt.

“It was uneconomic for the traders” — that is, buyers at Merrill — “to take these things,” says one former Merrill executive with knowledge of how it worked.

Within Merrill Lynch, some traders called it a “million for a billion” — meaning a million dollars in bonus money for every billion taken on in Merrill mortgage securities. Others referred to it as “the subsidy.” One former executive called it bribery. The group was being compensated for how much it took, not whether it made money.

The group, created in 2006, accepted tens of billions of dollars of Merrill’s Triple A-rated mortgage-backed assets, with disastrous results. The value of the securities fell to pennies on the dollar and helped to sink the iconic firm. Merrill was sold to Bank of America, which was in turn bailed out by taxpayers.

What became of the bankers who created this arrangement and the traders who took the now-toxic assets? They walked away with millions. Some still hold senior positions at prominent financial firms.

Washington is now grappling with new rules about how to limit Wall Street bonuses in order to better align bankers’ behavior with the long-term health of their bank. Merrill’s arrangement, known only to a small number of executives at the firm, shows just how damaging the misaligned incentives could be.

ProPublica has published a series of articles throughout the year about how Wall Street kept the money machine spinning [1]. Our examination has shown that as banks faced diminishing demand for every part of the complex securities known as collateralized debt obligations, or CDOs, Merrill and other firms found ways to circumvent the market’s clear signals [2].

The mortgage securities business was supposed to have a firewall against this sort of conflict of interest.

Banks like Merrill bought pools of mortgages and bundled them into securities, eventually making them into CDOs. Merrill paid upfront for the mortgages, but this outlay was quickly repaid as the bank made the securities and sold them to investors. The bankers doing these deals had a saying: We’re in the moving business, not the storage business.

Executives producing the securities were not allowed to buy much of their own product; their pay was calculated by the revenues they generated. For this reason, decisions to hold a Merrill-created security for the long term were made by independent traders who determined, in essence, that the Merrill product was as good or better than what was available in the market.

By creating more CDOs, banks prolonged the boom. Ultimately the global banking system was saddled with hundreds of billions of dollars worth of toxic assets, triggering the 2008 implosion and throwing millions of people out of work and sending the global economy into a tailspin from which it has not yet recovered.

Executives who oversaw Merrill’s CDO buying group dispute aspects of this account. One executive involved acknowledges that fees were shared, but says it was not a “formalized arrangement” and was instead done on a “case-by-case basis.” Calling the arrangement bribery “is ridiculous,” he says.

The executives also say the new group didn’t drive Merrill’s CDO production. In fact, they say the group was part of a plan to reduce risk by consolidating the unwanted assets into one place. The traders simply provided a place to put them. “We were managing and booking risk that was already in the firm and couldn’t be sold,” says one person who worked in the group.

A month before the group was created, Merrill Lynch owned $7.2 billion of the seemingly safe investments, according to an internal risk management report. By the time the CDO losses started mounting in July 2007, that figure had skyrocketed to $32.2 billion, most of which was held by the new group.

The origins of Merrill’s crisis came at the beginning of 2006, when the bank’s biggest customer for the supposedly safe assets — the giant insurer AIG — decided to stop buying the assets, known as “super-senior,” after becoming worried that perhaps they weren’t so safe after all.

The super-senior was the top portion of CDOs, meaning investors who owned it were the first to be compensated as homeowners paid their mortgages, and last in line to take losses should people become delinquent. By the fall of 2006, the housing market was dipping, and big insurance companies, pension funds and other institutional investors were turning away from any investments tied to mortgages.

Until that point, Merrill’s own traders had been making money on purchases of super-senior debt. The traders were careful about their purchases. They would buy at prices they regarded as attractive and then make side bets — what are known as hedges — that would pay off if the value of the securities fell. This approach allowed the traders to make money for Merrill while minimizing the bank’s risk.

It also was personally profitable. Annual bonuses for traders — which can make up more than 75 percent of total compensation — are largely based on how much money each individual makes for the firm.

By the middle of 2006, the Merrill traders who bought mortgage securities were often clashing with the powerful division, run by Harin De Silva and Ken Margolis, which created and sold the CDOs. At least three traders began to refuse to buy CDO pieces created by De Silva and Margolis’ division, according to several former Merrill employees. (De Silva and Margolis didn’t respond to requests for comment.)

In late September, Merrill created a $1.5 billion CDO called Octans, named after a constellation in the southern sky. It had been built at the behest of a hedge fund, Magnetar, and filled will some of the riskier mortgage-backed securities and CDOs. (As we reported in April with Chicago Public Radio’s This American Life and NPR’s Planet Money, Magnetar had helped create more than $40 billion worth of CDOs [3] with a variety of banks, and bet against many of those CDOs as part of a strategy to profit from the decline in the housing market.)

In an incident reported by the Wall Street Journal [4] ($) in April 2008, a Merrill trader looked over the contents of Octans and refused to buy the super-senior, believing that he should not be buying what no one else wanted. The trader was sidelined and eventually fired. (The same Journal article also reported that the new group had taken the majority of Merrill’s super-seniors.)

The difficulty in finding buyers should have been a warning signal: If the market won’t buy a product, maybe the bank should stop making it.

Instead, a Merrill executive, Dale Lattanzio, called a meeting, attended by among others the heads of the CDO sales group — Margolis and De Silva — and a trader, Ranodeb Roy. According to a person who attended the meeting, they discussed creating a special group under Roy to accept super-senior slices. (Lattanzio didn’t respond to requests for comment.)

The head of the new group, Roy, had arrived in the U.S. early in the year, having spent his whole career in Asia. He had little experience either with the American capital markets or mortgages. His new unit was staffed with three junior people drawn from various places in the bank. The three didn’t have the stature within the firm to refuse a purchase, and, more troubling, had little expertise in evaluating CDOs, former Merrill employees say.

Roy had reservations about purchasing the super-senior pieces. In August 2006, he sent a memo to Lattanzio warning that Merrill’s CDO business was flawed. He wrote that holding super-senior positions disregarded the “systemic risk” involved.

When younger traders complained to him, Roy agreed it was unwise to retain the position. But he also told these traders that it was good for one’s career to try to get along with people at Merrill, according to a former employee.

But Roy and his team needed to be paid. As they were setting up the trading group, Roy raised the issue of compensation. “The CDO guys said this helps our business and said don’t worry about it — we will take care of it,” recalls a person involved in the discussions.

The agreement, according to a former executive with direct knowledge of it, generally worked like this: Each time Merrill’s CDO salesmen created a deal, they shared part of the fee they generated with the special group that had been created to “buy” some of the CDO. A billion-dollar CDO generated about $7 million in fees for Merrill’s CDO sales group. The new group that bought the CDO would usually be credited with a profit between $2 million and $3 million — despite the fact that the trade often lost money.

Sharing the bonus money for a deal or trade is common on Wall Street, arrangements known as “soft P&L,” for “profit and loss.” But it is not typical, or desirable, to pay a group to do something against their financial interests or those of the bank.

Roy made about $6 million for 2006, according to former Merrill executives. He was promoted out of the group in May 2007, but then fired in November of that year. He now is a high-level executive for Morgan Stanley in Asia. The co-heads of Merrill’s CDO sales group, Ken Margolis and Harin De Silva, pulled down about $7 million each in 2006, according to those executives. De Silva is now at the investment firm PIMCO.

By early summer 2007, many former executives now realize, Merrill was a dead firm walking. As the mortgage securities market imploded, high-level executives embarked on an internal investigation to get to the bottom of what had happened. It did not take them long to discover the subsidy arrangement.

Executives made a sweep of the firm to see if there were other similar deals. We “made a lot of noise” about the Roy subsidy to root out any other similarly troublesome arrangements, said one of the executives involved in the internal investigation. “I’d never seen it before and have never seen it again,” he says.

In early October 2007, Merrill began to purge executives and, slowly, to reveal its losses. The heads of Merrill’s fixed income group, including Dale Lattanzio, were fired.

Days later, the bank announced it would write down $5.5 billion worth of CDO assets. Less than three weeks after that, Merrill raised the estimate to $8.4 billion. Days later, the board fired Merrill’s CEO, Stan O’Neal.

Eventually, Merrill would write down about $26 billion worth of CDOs, including most of the assets that Ranodeb Roy and his team had taken from De Silva and Margolis.

After Merrill revised its estimate of losses in October 2007, the Securities and Exchange Commission began an investigation to discover if the firm’s executives had committed securities fraud or misrepresented the state of its business to investors.

But then the financial crisis began in earnest. By March 2008, Bear Stearns had collapsed. By the fall of 2008, Merrill was sold to Bank of America. In a controversial move, Merrill paid bonuses out to its top executives despite its precarious state. The SEC turned its focus on Merrill and BofA’s bonuses and sued, alleging failures to properly disclose the payments.

As for the original SEC probe into Merrill Lynch’s CDO business in 2007, nothing ever came of it.

ProPublica research director Lisa Schwartz and Karen Weise contributed reporting to this story.

14 Responses

  1. M.Soliman,

    You know much — just would like to understand your writings better.

    Have reason for ANON.

    Fannie tended to keep default loans in securitized trusts for longer periods before removal. Banks remove them much quicker. Apparently, Fannie is stepping up the process.

    There is a distinction between certificate holders and security investors. The certificate holders are the tranche holders (which would be the security underwriters). The security investors – are investors who receive pass-through of current income.

    It is the bottom “servicer owned” “certificate tranche” – to which non-performing loans are subordinated – that holds collection rights.
    After servicer stops advance payments – collection rights are “swapped” out (the securities do not change hands because securities are only for current income) – and only collection rights remain – so security for non-performing loan no longer exists.

    You write — “Special Note: I heard from the FDIC and asked who is foreclosing and they responded the servicer’s.” Agree. But, we do not know whether servicer is collecting for itself (parent) or – for other parties — who would not be “security investors” but, rather, distressed debt investors. Distressed debt investors are not certificate holders – and are not part of the original trust’s derived securities. And, trustee for ABC trust has no role.

    Foreclosure attorneys lie to themselves by somehow convincing themselves that collection rights remain part of the trust. If servicers continue to make all advances to all security investors on all pass-through securities derived from all pass-through tranches –and for all non-performing loans, then this may be accurate. But servicers are not doing this — clearly impossible. And, many of the pass-through tranches have already been paid in full by the default swaps.

    Believe many states – such as Florida — have “rocket docket” — so that foreclosure can go through quickly before all of above is discovered and truth is uncovered. And, believe this is why Fed Res and OCC do not want regulation of the “debt collector” servicers.

  2. In Conclusion:

    (Try reading from bottom up as this is all encompassing and in order – starting from three back analysis.).

    The purpose and means for their intentions and object is for a registration of securities using loans to capitalize the SPE.

    You cannot use the loans as we know it for MBA and MBO registration of equities and capitalization purposes. This is what makes MERS so critical to the registering of securities in a “Deed’s for Bonds” securities offering.

    Look, accounting 101 say’s if the registered securities are offering a yield on the certificate rated by agencies it has divested of the original note of value.

    It causes the note to be “LOST” but lost to divesture and not poor custodial keeping. Lost note to devaluation sort of speak!

    Do you get it . . . the lost note?

    Special Note: I heard from the FDIC and asked who is foreclosing and they responded the servicer’s.

    I do like these people and they have been fair to me starting with the top people in Washington. I won’t say much more here – but will tell you

    * * * the servicing agent in a private Label Pass-through “DOES NOT” exist.* * * * or better yet, here;

    * * * the servicing agent in a private Label Pass-through “DOES NOT” exists.* * * *

    These foreclosures are for claiming assets for which no right to it title exists. Planes trains and automobiles when registered into a securities offering are owned by the creditors for the securitization. They are sold as receivables for assets owned by the investors as creditors. That’s called a look alike lease or hypothecation or “boring” return on investment.

    Not like these “pass thru’s that act like they own title to the collateral “realty “based on a foreclosure event.

    MBS and MBO’s take the home and cash it in for stock and then sell the stock certs for 10 times earnings based upon “RECEIPTS” If Enron or Tyco could have done that with a bank owned partner – they would have.

    Assets held are receivable’s to receipts without any QSPE value that shifts the liability to itself and the assets into a securitization under the REMIC SPE.

    The Defense is the QSPE with zero value in a “brain dead” understanding for the isolated “Nominal” beneficiary. This argument merit collections received from a neutral lock box and for which the seller cannot be a servicing agent to MERS so TELL ME . . . .

    Who Goofed? Counsel, why did you elect not to use my testimony? How Did These People Lose Their Homes Counsel? (No bench trial in Philly or UD in AZ, RI WA, OR & LA will overcome these arguments due to jurisdiction and common sense. As I was told, you will need to be heard at the Appellate level for unscrambling this hard boiled “Humpty Dumpty”.

    FDIC – In Rem Powers, Power to Repudiate and right of claims to stay any proceeding brought for relief and injunctive remedies, hmmmmm. The provision’s for GAAP causing controversy is Derecognition and demands No Controlling interest over a borrower decisions to make timely payments. There are no servicing rights in a whole loan sale as these foreclosure mills misrepresent to courts across the nation.

    Herein is a monumental argument the other side will avoid as it is deemed critical for a lawful right to enforce a foreclosure through MERS. (When I get attacked here and called Charlatan or rip off, be mindful of who’s behind it and for what purposes.)

    The only thing MERS as a beneficial interest for the securities holders are holding are “Servicing Receipt’s”. “Servicing Rights” not “RECEIPTS” provide ” Standing” to foreclose and are not the equivalent to a Master Servicer “Rights to Receipts” for disbursing earnings.

    The Fannie Mae thing is a clandestine and secretive “pre-emptive” move brought by a latest scheme under a quasi-government agency who itself is in receivership. Sorry but “WTF” (where’s the Fed.)

    It may all be to facilitate a “big gun’s” buyer who is behind the Feds latest move to shore up this one for one foreclosure battle (one home at a time) being fought by debt collectors and title holders to realty across the country.

    Some, not all, are getting hip to the fact you cannot do a credit bid for the entire amount of the balance outstanding due or tracking bids at a structured price at a trustees bid and sale as they do at 79. 9898% of the balance remaining.

    Attorneys, you do not get this why?

    1) The beneficiary cannot be grantee, and
    2) The highest bidder and
    3) Then satisfy GAAP and
    4) Accommodate a missing precedent*

    *Ownership necessary to bring a lawful foreclosure.

    These sales are reverse repurchases under a recovers master purchase and sale agreements and execution’s made one foreclosure at a time by traditional unclean hands.

    Its solely for purposes is “washing ” these assets and establishing basis in the “note”. The note we allege is originally divested of its value upon delivery into a MBS structured deal.

    Fannie eliminates this problem if they succeed by years end and one reason why a lot of borrower’s having been getting these generous stays from their anticipated sale date. January 2011 is teh great preempt strike (I hope not) .

    But, the Robo problem and challenge’s to MERS standing ends in a few days if the Fed succeeds with the Fannie Mae “ill contrived” desperation move against the homeowners. This said while the government will have no patience for the Attorney General’s in every state pursuing Debt Collectors. Foreclosure mills who are immune to prosecution under the Feds Repudiatory powers.

    Also remember – foreclosure transfer of title in a one action state cannot maintain its stuatory support for lenders against private parties claims of constitutional rights (property, slander, equity and color of badge) in a repossession of title while they claim no reliance on a government state or federal actor.

    There cannot be a non-judicial foreclosure in America where the lenders are in a foreclosure brought by a Gov. Actor in receivership and with the FDIC as a conservator.

    M.Soliman
    expert.witness@live.com

    (Love to hear your comments and see you out in Los Angeles. Neil. God Bless and I’ll be there for sure!)

  3. Anonymous –

    Do remember, the serving role in a whole loan acquisition will allow the bulk sale buyer to pair off the serving and sell the serving rights under a Fannie Mae endorsement.

    Hey , do you remember Mil Mascarra who wrestled in the 60″s . . .unmask yourself!

    Hey . . . . Jus kidding – But . . ..

    (continued) There are no serving rights here and a nominal interest “MERS” cannot initiate a foreclosure where beny is divested and NO SERVICER rights exist – ONLY rights to SERVCING RECEIPTS! Fannie Mil even acknowledges this if you read between the lines in their press releases “silly goose”..

    Want evidential support here – We Got it!

    [ It’s not that I want to harbor anything that can help for purposes of gain; its just been mentioned here on this site over a thousand times here.]

    Look my operative co-contributor. Merry Christmas and consider where the BOYCO decision failed to address this issue nearly three years ago. The Cleveland District Judge is the reason for most of all this confusion in Courts around the country for steering folks with the wrong idea. WRONG!

    He was on the right track in his decision but failed to see the accounting issues for a securities offering to work.and for causing a foreclosure to be improperly aligned . Unless the over collateralizationincludes purchasing a zero coupon bond …you get it?

    Hmmm. Nope? Well my sixth grade dissertaion shall continue here Roger. My anlaysts view for case analysis purposes in the Boyko decision is not in agreement with others who deemed it colorful by legal standards ( a joke) and the analysts who cite Duetsche Bank attorneys on record saying

    “. . . but Judge – this is how we always do these things”.

    The attorney was in fact correct and Boyko missed it. MERS is a nominal interest and acts as the beneficiary and its officer executes the assignment and nominates a substituted agent. *** But, only if the asset is owned WHOLE by the successor and assignee*** and then passes the test with anyone of the following;

    1) If a servicing agent was assigned the “Servicing Retained” servicing rights as buyer
    2) If a servicing agent was assigned the servicing rights under a provision of “recourse”
    3) If a servicing agent retained the servicing rights and remains the agent on record.

    What Boyko misses is that none of the above exists as the loans were non-qualified having transferred into a QSPE for GAAP purposes and that is an unavoidable missing condition precedent –where the receivables registered into MERS remain isolated from receivership and bankruptcy.

    Your loans are not owned untill post sale so WHO BROUGHT THE FORECLOSURE

    Thanks –
    Your Comments?

    M.Soliman
    Mailto:Expert.witness@live.com

  4. Anonymous –
    Bring it on – Love it!

    So Fannie Mae will take in assets that failed under its GSE underwriting criteria at time of funding?

    Help me here my “undercover brother” of servicing requirements. I owned a servicing company and Fannie endorsements are achieved at the time of the loans as settlement.

    Fannie doesn’t buy “shiest” or am I missing something?

    I love to learn, more than profess so … what do you know? A bulk whole loan acquisition by an approved Fannie Mae lender GSE purchasing the asset can gain Fannie Mae approval for a purchase of QUALITY assets, maybe? That is if it were meeting Fannie guidelines. Also, if purchased at a discount with certain guarantees and etc. . . . Then maybe Fannie Mae will endorse the buy side of the trade

    Anonymity (are you the oldest of the Jonas Bros.)

    You would need Bill gates or Soros, the Green Hornet or Icahn to float this mess of stress and for shareholders to get back into the game and only with a Fannie Mae endorsement and ….”Ka Boing!”

    Look – when I used the failed bank CitiFinancial (as of the first quarter of 2011) to float a pool of distressed impaired assets on a Citi – interim line, it was as an accommodation for purchasing $100 Million for purposes of flipping the asset elsewhere, I may need Fannie Mae solely as credit enhancement assuming I was buying the asset cheap enough.

    That endorsement for these loans under my own reps and warranties (which are so burdensome) can choke a team of Clydesdales.

    The GSE endorsement may also arise for purposes getting a longer credit term warehouse line for purposes of “aging assets” carrying loans as a sub-servicer for up to a year.

    Fannie Moe & Jack may also be used for purposes of aging the assets and selling the receivables at year end. Look, with a Fannie Mae endorsement there exists far better price execution under a Servicing Retained scenario’

    Possibly, my guess is what you have here is a Fannie Mae endorsement for better price execution under a defaulted Mortgage Backed Certificates Offering to have failed and for which depositors funds are sitting around unassigned.

    MSoliman
    expert.witness@live.com

  5. Anonymous –
    Bring it on – Love it!

    Actually, you’re the only one to date to pick this up.
    Do you know what you’re saying? And why conceal yourself with such a successful web site respected by so many …anyway? LOL

    A whole loan sale and transfer is eligible for Fannie Mae consideration with regards to these latest attempts to shore up the loose ends in these wrongful foreclosures. These Trusts are based on the fact the assets each benefited from a whole loan sales under FAS 140 and GAAP (the FASB codified rules variance and changes).

    Fannie Mae has released its interpretation of the criteria for purchasing these “toxic assets. Only a whole loan asset can be securitized upon the transfer of the “whole” entire asset meaning . . .No Servicing Retained Component for The Eligible Delivery Into A Trust!

    First, you say “Fannie always does . . .” What?

  6. How to limit the big bank bonuses? Just thinking out loud here…… what if the FDIC refused to insure banks with high bonus structures? Then wouldn’t depositors go to small and regional banks to get FDIC insured accounts?

  7. m.soliman,

    Fannie — has always done that — only they have waited often much longer than 4 months. The bank servicer may not even wait 4 months.

    There was never a whole loan commitment — only an assignment of receivables.

    And, question is — what do they do with them after the purchase?

  8. Kucinich introduces H.R-6550 the National Emergency Employment Defense Act of 2010. (NEED Act)

    People, this single bill could possibly fix 90% of what ails us. We are being raped and pillaged by the elite, and the method and means of our destruction is from the FED. We MUST end the Fed NOW.

    The intention of the bill is to nationalize the Federal Reserve system, create a monetary authority under the authority of the treasury, end fractional reserve lending, spend United States money into circulation to fund infrastructure projects, protect the social safety net, and provide full employment in the U.S.

    This Bill will restore the sovereignty of the United States. Only by taking the power to issue and regulate our own money are we truly sovereign as a nation.

    Take the time to read the Bill, which isn’t very long at all. Contact each and every one of your representatives and put pressure on them to support H.R-6550.

    If you truly want a return to constitutional law, this Bill is a measure to begin that process. Monetary reform is the most crucial element in restoring our Constitution! And we must act fast, as the Fed is trying to usurp our capabilities as we speak. Death to the Fed!

  9. After reading this article I really believe we should set up guillotines in the square of Mahhattan, and bring justice to the thieves. In fact we should set them up adjacent to the main branches of all the big banks. You can figure out the rest.

  10. Heres what we got on the Fannie Mae threat to Purchase Delinquent Loans.

    They are of course going to target certain specified REMICs and Structured finance transactions.

    Fannie will also Provide Additional On-Going Loan-Level Data for Certain Fully-Guaranteed Whole Loan Structured Transactions

    Commencing immediately, Fannie Mae will exercise its option to purchase mortgage loans that are delinquent as to four or more consecutive monthly payments from the Fannie Mae whole loan REMIC trusts and other structured transactions (REMIC trusts and other structured transactions that either are backed directly by loans insured by the Federal Housing Administration or guaranteed by the Veterans Administration, or have a credit enhancement structure with senior and subordinate classes, will not be subject to this initiative.)

    Going forward, each month we intend to continue to conduct purchases of loans that are delinquent as to four or more consecutive monthly payments from the Affected Trusts. However, our execution of this initiative in the future could be affected by economic, market, operational, and regulatory factors.

    Certain loans will also be exempt from this initiative (including those loans that currently or in the future are in a forbearance or repayment plan).

    The purchase of a loan from an Affected Trust has the same effect on the timing of certificate principal distributions as a borrower prepayment in full. Therefore, the exercise of our option to purchase delinquent loans may accelerate the timing of principal distributions on the certificates. Payments in respect of the delinquent loans initially purchased from the Affected Trusts will be distributed to the related certificateholders on the distribution date in December 2010.

    Payments in respect of subsequent purchases of delinquent loans will be distributed to certificateholders on the distribution date in the month following the month in which such purchases occur.
    Due to the volume of loans initially purchased by us under this initiative, we expect that the effect of this initiative on principal distributions for the certificates will be more pronounced for the December 2010 distribution date than for subsequent distribution dates. Look for the affected Trust for additional information regarding distributions of principal to certificateholders and servicing practices regarding troubled loans, including the optional purchases of delinquent loans from our REMIC trusts and other structured transactions.

    In addition, on or about December 27, 2010, Fannie Mae will begin providing additional loan-level delinquency data in the on-going monthly disclosure for fully-guaranteed structured transactions issued in 2003 and thereafter that are backed directly by whole loans.

    The current on-going loan-level data fields will be expanded to include the number of days a loan is delinquent (if any), the last paid installment date, and the loan status code (which identifies the current delinquency or default status of the loan or the borrower — e.g., delinquent, in a forbearance or repayment plan, borrower is bankrupt, etc.). This information can be accessed on Fannie Mae’s website in the Monthly Reporting Data section for fully-guaranteed whole loan structured transactions.

    During 2011, we plan to begin providing loan-level delinquency data for all fully-guaranteed structured transactions issued in 2000-2002 that are backed directly by whole loans.

    Investors may contact our Fixed-Income Securities Helpline at 1-888-BOND HLP (1-888-266-3457) if they have additional questions.

    Certain statements in this announcement may be considered forward-looking statements within the meaning of the federal securities laws, including statements about how we will implement our initiative to repurchase delinquent loans, and the amount and timing of our repurchases. Factors that may cause actual results to differ materially from the expectations in these forward-looking statements include our future funding needs, the rate at which loans in the Affected Trusts become delinquent, and those other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 and our reports on Form 10-Q and Form 8-K, filed with the SEC and available on the Investors page of our Web site at http://www.fanniemae.com and the SEC’s Web site at http://www.sec.gov.

    Soliman’s an industry expert I believe counsel should look close at the “Assignments of Mortgage Instruments” meaning an assignment of Mortgage, with all rights and risks inherent with the asset.

    Claims – These assignments are coined by the primary and secondary markets as a “Whole Loan transfer and are conducted by a bone-fide sale and transfer by lawful assignment. Therefore the asset under accounting principles are transferred forever, meaning lost to the parties receiving cash or other consideration for the whole loan they have sold.

    This is an important consider from a perspective of accounting rules FAS 140 and SFAS 140-3 and also for efforts to transfer Loans between Commitments.

    The notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction where the related Mortgaged Property is located are to reflect the transfer of the Mortgage to the party indicated therein.

    Plaintiffs’ claims are verified for which the lender listed on the deed of trust named as “lender” has made a bone-fide commitment to transfer the asset into a mortgage securities pooled investment registered on an accompanying balance sheet. According to Fannie Mae you can use Loan Delivery means and methods for that object to transfer loans from one whole loan commitment to another for anticipated investing and pool consideration.

    Nor can you transfer a loan that has already been submitted to the MBA and entered under MERS then later withdraw the asset into Fannie Mae.

    If the related Mortgage has been recorded in the name of MERS or its designee, such actions as are necessary to cause the designee to be shown as the owner of the related Mortgage on the records of MERS for purposes of the system of recording transfers of beneficial ownership of mortgages maintained by MERS. In either case, recording an assignment with the county or using the MERS system , you cannot transfer loans from a whole loan commitment to the investor meaning a servicing released entire interest in the sale into an MBS pool for which the participation in the loans performance is an integral part of the MBS process or vice versa. This is to mean you cannot transfer loans from a whole loan commitment away from the original intended investor meaning a servicing released entire interest in the sale is back out of an MBS pool.

    The sale of the entire asset by the lender in favor of MERS as a nominee indicates a less than arms transfer by the parties own admission. The sale into a participating structured financing transaction.

  11. And the heads start rolling….when?

  12. At least for few days , I try to keep my pill intake down ,It helps if you know the Newspaper think the same way.

    Have a still Christmas to all :

    http://www.huffingtonpost.com/rj-eskow/financial-reform-cutting_b_800402.html

  13. Very interesting.

    Like Goldman Sachs — shows Merrill purchased the loans before they securitized the receivables. Rarely do PSAs reflect the sale in the chain (and neither do indorsements and assignments).

    Also, CDOs are not part of the original trust — they are derivatives — (that is — derived from the securities that were derived from the loan assets that – in this case – Merrill owned).

    Believe many knew what was happening – and allowed it to continue.

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