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EDITOR’S NOTE: Insurance companies are getting riled up about everything. As they discover that Goldman and other venerable institutions used the power of their brand as a substitute for telling the truth, they are suing.

The problem for insurers is a windfall for homeowners if they take advantage of it. The insurers specifically and expressly waived the right to pursue the underlying claims (i.e., the home loans) when they paid claims or made investments. The dirty little secret is that all that money AIG, AMBAC and others paid (including the Federal Reserve, U.S. Treasury et al) using mostly taxpayer money was (a) paid for nothing but (b) received as payment on the obligation. Wall Street wants the insurance money but it was paid to offset the losses declared by Wall Street on the underlying mortgages.

That means the obligations to investors were correspondingly reduced or should have been. Since the securitization documentation that the pretenders are using is the sole basis for their claim to foreclose, an agency relationship is established between the investor-lenders and the rest of the securitization players. Thus the insurance payments, the government bailouts, the counterparty payments were all paid and received under the express terms of the the agreements drafted by Wall Street. In those agreements the payments were NOT allowed to be used as a basis for subrogating to the rights of the creditor. Thus the payment was made and the second creditor (the insurance company) expressly waived its right to collect.

So what you have is two creditors — the investor-lender and the insurance company. The first creditor has elected not to pursue any potential remedy against individual homeowners even as the agents of the investors seek to collect for themselves (despite the fact that they never advanced the loan nor purchased it). The second creditor extinguished its rights as a creditor  voluntarily by express wording of their contract for insurance, counterparty on credit default swap etc. The only possible analysis of this is that either the note was split into two creditors, one of whom is barred from making claims and the other is electing not to pursue those claims.

The part that was paid by insurers et al should have been credited to investors’ accounts and in some cases probably was in fact credited to investors accounts but we won’t know that without discovery aimed at this very important feature of the money trail in the securitization illusion. THAT PART THAT SHOULD HAVE BEEN CREDITED TO INVESTORS, WHETHER IT WAS OR WAS NOT ACTUALLY CREDITED, REDUCES THE BORROWERS LOAN OBLIGATION WHETHER HE/SHE WAS MAKING PAYMENTS OR NOT. But this accounting is NEVER provided to the Court, to the Trustee of the Pool, to the Trustee on the Deed of Trust or anyone else. YOU MUST SEEK IT IN DISCOVERY.

Once revealed. it will prove that the notice of default was defective in the amount it claimed in addition to being defective because the servicer was still making payments to the investor-creditors to mislead them into believing the loan was performing. The use of substitute trustees that are owned and controlled by the banks enables them to avoid these factors because they are calling the shots — ordering the trustee to violate his statutory and common law duties of due diligence.

Insurers allege fraud at Goldman

By Bloomberg NewsJuly 8, 2011

NEW YORK – Liberty Mutual Insurance Co. of Boston and Safeco Corp. sued Goldman Sachs Group, claiming the broker made “misleading statements and omissions’’ in a preferred-stock offering for Federal Home Loan Mortgage Corp. in 2007.

The plaintiffs, which also include Peerless Insurance Co., said they invested $37.5 million in the offering of Freddie Mac shares, which Goldman underwrote, according to a filing Wednesday in federal court in Boston.

Goldman claimed Freddie Mac “already met its regulatory capital requirements’’ and that the offering was made to increase the mortgage company’s capital base, the plaintiffs said.

“The stated purpose for the offering was false,’’ the plaintiffs said in the complaint. “Goldman knew or recklessly ignored that Freddie Mac did not meet its regulatory capital requirements, and Freddie Mac remained severely undercapitalized even after the sale of the preferred stock.’’

“The suit is without merit and we intend to contest it vigorously,’’ said Michael DuVally, a spokesman for New York-based Goldman.

The insurers are seeking damages of more than $100 million and a trial by jury. They said in the complaint that their investments are “virtually worthless.’’

In 2006, home prices in the United States began to decline and subprime mortgage loans began to default at increasing rates.

Freddie Mac issued 240 million shares of Series Z preferred shares in November 2007, raising about $5.9 billion, according to the lawsuit. The shares were backed by “billions of dollars in subprime residential mortgages,’’ the suit claimed.

Goldman’s bets against subprime-backed securities resulted in a profit of $3.7 billion in 2007, the insurance companies claimed in the suit.

12 Responses

  1. Shortly after I wrote my comment below wherein I debated whether or not the notes are actually collateral for investors vrs owned by investors, I read a report on the UCC allegedly penned by some sub-committee sent out for comments. Another reader here posted the link yesterday or so (thanks). This short, considering the subject of the UCC, report takes the time to explain enforcement of notes which are used as collateral instead of sold. So it makes me think,
    “watch out, it’s coming” and the interpretation and rules for the game for use against homeowners are being formulated right under our noses. No, I don’t know that I got this right. But it looks that way and it’s dangerous. I’m not sure what it’s a prelude to, other than what I speculate here, but it isn’t good. It was allegedly done because we’re all too thick, including the judiciary, to understand the UCC. Well then, isn’t it odd this missive left out the very salient issue that a holder does not receive the benefit of the collateral (for instance)?
    Maybe whomever posted the link will repost the link. I downloaded it, but don’t have the link.

  2. what leverage does the fraudulent origination give me against the bond insurer? anybody? Buehler?

  3. I’m was thinking about whether or not the money paid to investors pursuant to their suits against the banksters retires the notes. Is it possible the notes are merely collateral themselves?
    I have thought the notes were cdo’s. Alternatively, I thought the notes and the certificates couldn’t co-exist. Maybe they can, but maybe not in the same party. The notes may be the collateral for the obligation to make the payment stream; are they collateral for payment by someone who is not the note maker (borrower) to the investors? If so, they do not create rights for the investors under the notes themselves as to the borrowers. And if so, the notes are to be retained by the trust as evidence of what notes are to generate that payment stream and to ‘dead end’ them as to further negotiation, that is, negotiation which would negate them as collateral for the payment stream.
    But in order for anything to be collateral, it must be siezeable by the person for whose benefit the collateral has been given (I would think) But, that siezure requires an action, maybe if only a demand for ownership of the notes which are actually held in trust for that reason, as well. And haven”t we read that investors, rather than siezing on the collateral put up by the issuer, is instead going after the issuer for relief outside the collateral? The trustee holding the notes in trust seems akin to the trustee in the dot holding title, either equitable or legal, depending on if in lien or title theory state, in trust for the benefit of the beneficiary, with the beneficiary actually holding no title itself. There’s a reason for this.
    If this is true, the trust investors hold no title or ownership interest in the notes and the note’s collateral, the dot’s; rather they are held in trust as collateral for the payment stream obligation.

    This is not the end of the story, if so. It’s the beginning. I can’t reconcile this with what I believe are the ‘true sale’ provisions in psa’s I’ve heard about. So far, the only true sale I find is that of the certificates, bonds, whatever they are, to the investors, with the notes and presumably the dots / mtgs themselves collateral for that newly created payment stream obligation. If so, then I don’t know who actually owns these notes, but it appears to be the last guy before the notes were used as collateral for the bonds to make them allegedly
    mbs’s, part of the sales pitch. Nor can I know why it was structured this way. I may never know, because my knowledge is so limited regarding Wall Street machinations in general. MS may know, but hasn’t said, at least in language I can assimilate despite my best efforts. So, MS, come out, come out whereever you are.

    If these notes held in trust are in fact collateral for the payment stream, even for the last guy to own the notes, the endorsements would have to have been done appropriately. There are recourse implications as to the endorsement language, as well, although they all seemed to bear endorsements without recourse.
    Because at least to some extent someone guaranteed that payment stream, the obligation to continue the payment stream continues beyond the borrower’s default. The payment stream guarantee for whatever length of time it persists is referred to as “shared risk” by FNMA, although “shared risk” may actually involve more than payment stream guarantee. The only way to stop this situation with the issuer or master servicer having to continue the payment stream, now out of its own pocket, is to foreclosure on the deed of trust. The foreclosures are generally resulting in losses. It appears the master servicers obligation to make the payment stream ends at foreclosure, but not before. And it also appears the investor is taking the hit on the loss at foreclosure. This would explain why investors are seeking relief in actions against the banksters, to offset those losses which they say they didn’t see coming, allegations based presumably on the reckless and wanton means of loaning money to anyone with a pulse, otherwise known as predatory lending, and willful mischaracterization of the risk by rating agencies in bed with the banksters. The investors are taking the hit on the devaluation of the collateral for the payment stream and they don’t want to. For all I know, those complaints included allegations of triple or 10 x collateralization or triple or 10 x sale of the same note. That’d be easy to do whether willfully or by accident (thanks to MERS), since they didn’t bother with the ‘paperwork’ generally.

    But this is not the end of the querry, because we don’t know who has the right to
    enforce the notes and dots in the “the notes are collateral for the trust” scenario. It would appear to be the owner who is not the trust. The trust cannot foreclose without an action to sieze the collateral from the issuer, (now that’s a hoot – the investor has to foreclose on the issuer, and then, is that what it is they really are trying to skip with lawsuits?) that collateral being the notes which are held in trust, unless there is a contractual agreement to the contrary which would pass muster, including as to articles 3 and 9 of the UCC.

    Or, I’m high – read mistaken – and the only thing true is that the issuer (or someone – master servicer?) must continue the payment stream unless and until there has been foreclosure.
    I sense there is more to this than has met our eyes to date. And they’re probably using HAMP funds for this instead of its intended purpose. Say the trust holds the notes in trust for the benefit of the investors (assuming they got there, which they didn’t). The question is, as collateral or as assets? That answer depends on whether or not the same people may own the notes as well as the bonds. Or , then again, is that why there’s a trustee? To lay claim to title of the notes while the investors own the certificates? Assuming the trustee holds the notes for the trust as assets, does this comport with not only the UCC but trust laws? Seems sophomoric, but I wonder if it is.

    Without knowing what relief exactly was granted to investors in any particular action against the banksters, we can’t know if that relief, the billions awarded, should retire the notes. Whether or not a court might find in favor of the homeowner on an equitable basis, even percentage-wise, I certainly couldn’t say, but it would depend on the investors true relationship to the notes.

    There’s a reason foreclosure actions are being brought by trustee’s (read those pesky servicers again in trustees’ names), even assuming arguendo the notes ‘made it’ into the trust, just as there was a reason they hid behind MERS successfully for so long. I would need more than a little help figuring this out. But if I were way out in left field, their bs could stand scrutiny, when the fact is, whenever it actually finds its way to a real spotlight, it hasn’t.

    And I sure as heck can’t figure out why an insurance company would waive subrogation. UNless they saw the devaluation of real estate coming and they knew they wouldn’t realize anything from subrogation. Something or they wouldn’t have done that. Probably couldn’t because of the way securitization is structured.
    For all we know, the insurance companies joined the gang betting against the loans and made more money on that deal then their payouts on the bankster claims. That would involve some shananigans itself, I would hazard a guess.

  4. Oh, to be able to plead my pro se case before Judge Schackj.
    This judge “gets it”. It seems they understand everywhere except in Florida, what the law is.
    The 5th court of appeals in the Taylor decision, shows that Florida’s senior jurist still don’t.
    I would hope the Taylor decision will be appealed to the state supreme court, and if no reversal and relief is granted, this is a good one to take before the US Supreme Court.
    I will say the Judge made a very complete, and through, cut and slice on the plaintiffs case.
    Thank you Judge Schackj, American Patriot and Master Jurist.

  5. The “payout” was already given when they made a NIM trust at the same time they made these fake securitized trust. No one ever talks about the NIM Trust’s on here though.

  6. Gene is exactly right. I think Neil missed the mark on this one in pursuit of a good headline.

  7. Yes, not only “embarrassing their money masters”, but embarrassing the and/or prosecuting them—because they are so directly tied to the government…!!!

  8. Gene, agree with your first observation. If the “purpose of the offering” was really to sell a “sack of s@#t” to enrich GS while screwing “investors,” then relevant CDS on the subject pools might still be material?

    Which reminds me… Roger Clemens was charged with felony counts and has been hauled to trial for allegedly giving false testimony to the Congress. Will the execs at some select large financial “institutions” be given at least the same treatment?

    Apparently the Congress, itself the object of contempt by most Americans, is more concerned with punishing those it deems guilty of “contempt of Congress,” rather than interested in seeking the truth in matters of much more import to all Americans… They want theater, but not at the expense of embarrassing their money masters…

  9. Neil’s comments misrepresent the case. The Investors bought bonds as investments and are filing suit because of that.

    Nothing is mentioned about payouts of insurance at all. So Neil’s comments do not apply.

    BTW, a Virginia Court ruled that CDS are a separate contract between parties that only use a Pool as a reference point. Therefore, no “double payment” occurs.

    Also, with CDS, anyone could buy the CDS. Private parties did all the time. The private parties were paid off, and not the loan. See “The Big Short” by Michael Lewis. This alone proves that Neil’s arguments regarding CDS is flawed.

  10. It would be helpful if the suit, or a link to the Complaint, were posted here.

  11. THey comit fraud on our backs bring down the economy lie cheat and stel in court close down state govenments and put our childrens education at risk. But foreclsosures continue no mortitorium what the heck will make obama and the goveners wake up how could no one be in jail yet?

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