Fund Managers’ Claims Against Investment Banks Skyrocketing


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


EDITOR’S NOTE: With fund managers facing questions about what they are doing to mitigate the damages from the fake securitization debts of all types, and facing questions about how they got involved investing pension money in the scam to begin with, they are now seeking cover under the umbrella of litigation against the investment banks.

Legally, this raises an interesting specter and the effect on even the fabricated transfer documents. If the “put-back” nuclear option is now coming into full bloom then it highlights an important legal fact: the loans were never endorsed without recourse and were never intended to be indorsed without recourse. And  to the extent that settlements have been reached, there is the problem of how to account for the balance of the individual loans supposedly in those pools and how to account for ownership of the loans.

Then there is this other nagging problem: since it was money from pensions vested to working people that funded the pools from which the bankers took their bonuses and funded some loans, and since some of those same pensioners are in foreclosure, how do we deal with the fact that they essentially loaned the money to themselves (without knowing it) and now they are losing their homes because the intermediaries ran off with the money?

The writing is on the wall — the number of people electing a strategic default (stopping payment on their mortgage) — is increasing at a geometric rate. The most common thread when I speak to the strategic defaulters is a simple business decision — the house is so far underwater that there is nothing else to do but walk away, or stay in the house as long as possible without a payment (and recover some of their investment).

So the fund managers are looking not only on at those mortgages that were foreclosed or are “in default” but at the number of mortgages and other types of debts that were “Securitized” and seeing Black Friday. Our computations here show that the best case scenario for the average homeowner is that if they entered into a loan transaction after 2001, the home is on average 30% underwater, once you take all the expenses of sale, commissions and other fees into account. for many who put a down payment of 20% or more, this is a hard pill to swallow, as it increases their loss from 30% to 50%. There are several areas in the country that we have direct evidence of 70% losses, not including down payment losses and other money invested into home improvements.

For many people this represents a loss of several hundred thousand dollars and they know they will never get it back by holding onto their home and high mortgage payments based upon a value for the property that was not sustainable. As seen in the recent Citi case with investors, they were only interested in closing the deal. They would say anything they had to say in order to achieve that objective because of the out-size fees and out-size resulting bonuses they received. Most of these loans were worth substantially less on the day of closing than the amount that the nominal principal stated on the note. Most of them have title and lien perfection problems that takes the value of the loan down even further.

Meanwhile it is becoming increasingly evident that the investment banks, as intermediaries, and the MBS Trustees and even some fund managers are avoiding their responsibilities to mitigate losses. In fact the investment banks and the other participants in the securitization chain, have taken the opportunity to worsen damages for investors and borrowers because they have written into their securitization documents fee structures that actually eat up ALL the equity in the property, leaving the investors and borrowers with nothing. Eventually that means decreasing the pension benefits upon which many retired people depend.

Why litigation can never resolve MBS put-back crisis

On Wednesday, the bond insurer Syncora filed its latest brief in its three-year-old litigation with Countrywide over $6 billion in Syncora-insured securities backed by Countrywide mortgages. Like its fellow bond insurer MBIA, Syncora was quick to assert claims that Countrywide breached the representations and warranties it made about underlying mortgage loans. Syncora’s lawyers at Debevoise & Plimpton sued Countrywide way back in 2009. Since then, according to a Sept. 16 Countrywide brief, Bank of America has spent millions of dollars locating, processing, and producing documents to Syncora. In the first round of discovery, the bank produced 18 million pages on the 114,000 loans underlying the five offerings at issue in the case. After New York state supreme court judge Eileen Bransten ruled that Syncora can rely on a statistical sample of underlying loans and Syncora identified a representative sample of 2000 mortgages, Countrywide ran a second, court-ordered sweep of its files and produced thousands of hard-copy archives on each of those 2000 loans.

Nevertheless, Countrywide and Syncora have only just begun their fight over missing documents in the loan files. Rememer, this particular fight isn’t about what the scores of pages in each loan file say about the underwriting on each individual underlying mortgage. This is a fight simply over missing pages. Countrywide and Syncora engaged in full-on briefing and oral argument over which side bears responsibility for identifying the missing documents. Then, after the judge said complete document production was Countrywide’s problem and Countrywide found a batch of documents that supposedly filled loan file gaps, Syncora protested that the discovery came too late.

Countrywide believes that Syncora intends to argue that any missing document amounts to a breach of Countrywide’s reps and warranties. Syncora’s response, filed Wednesday, is unfortunately sealed, although Syncora’s final summary judgment brief isn’t. Syncora has asked Judge Bransten for a declaratory judgment that it doesn’t have to show reps and warranties breaches were responsible for defaults on underlying mortgage loans in order to demand Countrywide buy back the deficient loans. That low standard would make the pending issue of whether a mere missing document amounts to a breach all the more important.

To understand why it’s so hard to assemble the underlying loan files, I talked Thursday to the head of mortgage operations at a company that evaluates mortgage loans for both banks and MBS plaintiffs in connection with reps and warranties claims. Typically, he said, his company receives pdf or tif images, either directly from a bank or mortgage originator or from a plaintiff’s discovery. Through at least five successive rounds of review, his teams log what’s in the files-which average 200-220 pages-and identify what’s missing. “It’s a mess out there,” he said, explaining that at the height of the housing boom, mortgage originators were simultaneously writing loans as fast as they could and switching from paper to electronic recordkeeping. Sometimes the loan files are incomplete because lenders didn’t conduct adequate underwriting, he said. More often they’re incomplete because of paperwork snafus.

Documents are missing from about one-third of the loan files his teams have reviewed. Typically, his company contacts mortgage lenders to ask them to search for the specific missing information, and usually, he said, the banks find it once they know what they’re looking for. Only when his company has done all it can to put together the missing pieces does he check for errors in the files. And then, he said, his group has found an average error rate of 60 percent.

I asked whether it was fair for plaintiffs to foot the bill when his company calls mortgage lenders to ask about missing documents. He agreed that it’s not, that banks should be searching for files on their own. “We shouldn’t be doing their job for them,” he said. “Plaintiffs shouldn’t be paying for it.”

Let’s step back for a second, though, to think about the implications of the sort of effort his company pours into assembling and reviewing individual loan files. Syncora’s Countrywide case is relatively small by MBS standards, and the judge overseeing it has approved sampling. There are still 2,000 loan files (comprising at least a dozen documents and scores of pages) at issue. Extend that sampling rate across pending reps and warranties claims, and assume that both sides in each case are doing the sort of re-review my mortgage friend describes. They have to: Depending on how Judge Bransten rules in the Syncora and equally ripe MBIA cases against Countrywide, banks could end up liable for every loan file that’s missing a document.

Now imagine that Bank of America’s proposed $8.5 billion reps and warranties settlement falls through. And imagine that, as I’ve predicted, securitization trustees and MBS investors step up their breach of contract demands. We’re looking at breathtaking legal fees and costs. If you’re a lawyer working on either side of the MBS litigation or a business specializing in re-underwriting mortgage loan files, maybe that’s a good thing.

But if you’re just someone wondering how the economy can recover with MBS liability looming overhead, it’s definitely not.

(Reporting by Alison Frankel)

Follow Alison on Twitter: @AlisonFrankel

Follow us on Twitter: @ReutersLegal

14 Responses

  1. C:\Documents and Settings\Bryce Easton\My Documents\Dog3\top-foreclosure-firm-threw-homeless+themed-halloween-bash.htm

  2. I have found that there is truly a difference between the Government, Wall Street, the Banks, and Prostitutes…At least the prostitutes are honest.

  3. Thank you Ann…
    Last year (before I realized extent of fraud), I became an insanely squeaky wheel with my “servicer” (of what?), and after several insanely stressed out and angry months managed to get a HAMP trial payment plan for a mod—made one payment—sent faxes, emails, snail mails (including the foreclosure mill), demanding they stop the foreclosure machine and PROVE in writing that there was a mortgage somewhere that my payments were being conveyed to.
    They couldn’t—so I stopped paying…and they stopped sending statements…
    I got everything in writing and refused to talk to them on the phone—waste of time.

    If there was ANYTHING legitimate about the servicer and what they were/are doing—then just ignoring me wouldn’t be happening…it’s so obvious…and SO CRIMINAL.

  4. Important Strategy Update: Florida Attorney’s & Homeowners…Don’t Be So Quick To Discard Those Modification Papers Just Yet!
    by Anthony Martinez Esq.
    i1 Votes

    It’s no secret modifications are a sham for the most part. On the left you have the servicer calling or sending those one pagers requesting you to provide them with your financial status information while on the right you have Marshall C. Watson or the Florida Default Law Group moving full speed ahead on the foreclosure lawsuit through the court. What to do what to do what to do!

    Judges want to help homeowners and have been looking for reasons and lawful ways to do it. They’ve found one and attorneys and homeowners should pay careful attention since judges can’t scream it to you out loud. It’s one word…HAMP! That’s right the HAMP Program! Now of course we know the HAMP Program is pretty useless overall but it’s the next best thing to offering the judge a white chocolate moca grande from Starbucks! Why you might ask? Because HAMP is a federal requirement that allows judges to say “if the homeowner and bank are in talks who am I to stop those negotiations…sale is set aside/cancelled until there is an agreement or resolution!”

    Motion practice is great and filing Motions to Vacate Summary Judgment and Set Aside The Sale are important however in Dade County and Broward County, the foreclosure process is taking on new forms. There are now hearings specific to the sale and the Judge is not able to hear arguments because they are not the judge in the case. What this means is their sole purpose is to grant or deny the sale and if you come in with proof of ANY modification talks they will DENY DENY DENY! Other judges from different counties who are the judges on the case are doing the same. So when you get that modification package in the mail keep it close to your file. Fill it out and be prepared to send it in right before the sale. Hold on to those one pagers that say you may be eligible for a modification. All of these documents are PROOF that a modification is viable under the HAMP Program.

    Another important strategy to note is when on several occasions you receive these one pagers that state you may be eligible for a loan modification and then receive something to the effect that says the owner of your loan does not offer modifications. These are great documents to hold on to and present to the court at the right time when you argue the bank is playing games with you. It frustrates the judge and causes them to get proactive.

    For attorney’s in the trenches who receive cases late in the game where final judgement has been issued and a sale date is on the rise, the accurate tactic seems to be what I have described above. Get these modification papers from the client, go to the hearing with papers in hand and explain to the judge your client is in modification talks. Once the sale is cancelled, file your Motion to Vacate Summary Judgement and set it for special hearing to show that material issues exist and get the judgement vacated then. It the sale goes through anyway remember you have 10 days so have that Motion to Vacate Final Summary Judgement and Set Aside the Sale/Certificate of Title ready and file it. Let opposing counsel set it for hearing as this will give your client more time in the property. Always remember, be prepared…be prepared…be prepared!

    Good Luck!

    AMA NOTE: The foreclosure crisis is not just about people losing their homes to foreclosure. It’s about homeowners who invested in their futures but were lied to from the very beginning about the contract they were entering into. It doesn’t matter if you are foreclosed on or not. If you’re a homeowner, you’re affected by the lie. If you are in foreclosure you should fight to keep your home. If you’re not in foreclosure you should know that there is over a 95% chance that you’ve been paying a servicer every month an amount of money that was never and is not being applied to the loan you obligated yourself to. With that in mind you should know your options

  5. This might seem redundent and thank you cube2k but I just saw this send this to a friend


  6. More insight into what U.S. Trustee Lawrence Sumski does…. and what he will not do, along with an older but representative case about Chase Manhattan:

    Accordingly the Court will find and infer from the entire record before the Court that there was a conscious decision by Chase as a corporate entity to continue to show the cured items as live items under the negative escrow balance rather than to honor and recognize the effect of a chapter 13 and curing those items through the plan. The Court also finds that there was a conscious decision by Chase to continue to show the excess attorney’s fees that were disallowed by the Court as a live item of obligation by the debtor.

    The testimony by Chase’s witness that its software at the time would not accommodate separate accounting and recording of payments coming from the trustee under the plan I find amounts to the “computer did it” defense. That defense is a nonstarter in this Court’s judgment since intelligent beings still control the computer and could have altered the programming appropriately. 2 See In re Price, 103 Bankr. 989, 992 (Bankr. N.D. Ill. 1989); and In re Stucka, 77 Bankr. 777, 783 (Bankr. C.D.Cal. 1987). To paraphrase the old quote “garbage-in” adage a version here pertinent would be “contempt-of-court-in” and “contempt-of-court [**10] out.”


    2 Although perhaps below their dignity and customary practices Chase employees were not precluded from getting a quill pen and ledger book to keep track of the effects of a chapter 13 plan in progress if indeed it was beyond the powers of mortal men and women to re-program their computer.

    The actions by Chase in this Court’s judgment deserve the imposition of punitive damages in this case. Chase acted with clear knowledge of the bankruptcy, the plan, and the confirming order and acted deliberately in a manner contrary to those requirements, knowing that it was violating federally protected rights, or at the very least acting with reckless disregard as to whether it was doing so. Cf. In re Wagner, 74 Bankr. 898, 904 (Bankr. E.D.P.A. 1987).


    Someone Is Going To Jail For This: MF Global Caught Stealing Hundreds Of Millions From Customers?

    bottom line $700M+ is missing , stolen from customer accounts in the last few days in an attempt to buy time… The theft was discovered and scuttled a buyout deal …

    Jon Corzine , ex (D) NJ Gov. and former Goldman Sachs CEO needs to be fitted for an orange jumpsuit…

    As interesting as this is it is still just a distraction.

    Goldman employees , even EX-Employees , still so plugged in that they are … TBTJ (too big to jail??)

  8. @enraged

    let’s analyze this statement from your post:|main5|dl9|sec3_lnk3|108920

    ” MF Global, a trader in commodities and derivatives brought down by bad bets on Europe, filed for bankruptcy protection on Monday, leaving behind more than $2 billion in debt to some of Wall Street’s biggest players.”

    Ok, what does that mean

    key words or statements

    BETS – means gambling

    “filed for bankruptcy protection” – corporation so no individual loses, only the company loses. Not quite the same as an individual filing for bankruptcy protection. Oh PROTECTION. Protection from WHO?

    “leaving behind” – not sure what that means. Anybody?

    “2 billion in debt to some of Wall Street’s biggest players” —–say did they have insurance, why that would be the biggest Wall Street players. Say, who are they?




    and they are worried about some 300k in debt home owner who hasn’t paid on his mortgage for 6 months now and must default……………

    and now our biggest players must worry about the home owner?

    OH, lets pass the buck to some debt collector……………….

    all underneath it all is some pretender lender, why………

    so Wall St can do what they do, rip you offfffffffffffffff

  9. @enraged

    you said

    “MF Global is filing for bankruptcy… leaving some of Wall Street’s “biggest players” 2 billion poorer… The clean up continues.”

    And your link………………..

    But read between the lines and realize they made lots of money over the years, or months,

    and the key guys walk away with big bucks in their pockets,,,,,,,,so they don’t care,,,,,,,,,,,,,,,,,,since they will start another ponzi scheme…………..

  10. Carie,

    I signed at 100,000.

    I wish all would report in as they say.

    No worries, you will not be found out. You have to realize there are many websites and rabble rousers if you will and no harm has been to these people. Hey Dylan Ratigan started it and he is still speaking loudly…………..what do you have to worry about by not speaking up…………..

    there is nothing to fear, but fear itself…………………

  11. http://WWW.GETMONEYOUT.COM 235,070 so far…

    It’s Time to GET MONEY OUT of politics

    Bailouts. War. Unemployment. Our government is bought, and we’re angry. Now, we’re turning our anger into positive action. By signing this petition, you are joining our campaign to get money out of politics. Our politicians won’t do this. But we will. We will become an unrelenting, massive organized wave advocating a Constitutional amendment to get money out of politics.

    We are using our ability to influence media outlets as a platform to force this issue to the center of the 2012 elections. We are using The Dylan Ratigan Show to build this digital wave, so join us. As the petition grows, the wave grows. Email, Facebook, Tweet — GET MONEY OUT.

  12. Off topic to a point…

    MF Global is filing for bankruptcy… leaving some of Wall Street’s “biggest players” 2 billion poorer… The clean up continues.


  14. ok, from yesterday this video has gone up by 100k hits. Now 219,000, yesterday 119,000. Just click “Watch on YouTube”

Leave a Reply

%d bloggers like this: