THE PROMISSORY NOTES FROM BORROWERS ARE SECURITIES

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EDITOR’S NOTE: Since the beginning, my experience on Wall Street, the underwriting of securities and the trading of securities, led me to believe that the documents issued at the closing with the borrower were part of a securities package. The issuer was nominally the borrower, but the real issuer was MERS or the Wall Street investment banking houses that created the securitization scheme. Securitization means by definition, that securities were involved. You don’t to be a finance pro to understand that.  By applying securities laws that already exist, the pieces of the puzzle all fall together.

But I’m not sure I agree completely with Brent about the solution. Yes, I think that being able to purchase the notes at whatever the free market dictates would be a huge step forward toward reality and the rule of law. But I think that we need to include some measures that would enable the Borrower to bring claims against the parties that slandered the title or deceived the borrower in the execution of documents that were not loan closing documents, but actually securities. The fact that the prices were purposely inflated in order to inflate the fees and trading profits that the investment banks took gives rise to a number of causes of action under appropriate securities law.

When speaking with securities lawyers I have repeatedly received the same sort of answer — they agreed with me in theory but the path was too difficult to explore. My answer is another question: do we ignore the reality of the transaction simply because people don’t get it? Let the truth and the facts come out.

Brent’s insight that the loan as part of a pool was a security begs the question of whether the loan ever actually made into the pool. But for purposes of securities litigation, it might be treated that way because now the assumption is that it is as claimed by the parties to securitization. Would the Banks have the nerve to now argue what Borrowers are saying? — That the loans were never really transferred into the pool and therefore the securities aspect doesn’t apply.

That argument would leave the notes and mortgages in limbo. If we accept the argument that the loans never made it into the pool but the loan was treated as though it had made it into the pool, it means that the money was not applied as set forth in the note — payment to the payee on the note. But the payments couldn’t go to the Payee because they didn’t make the loan. 

In fact, the moment that the loan documents were signed by the homeowner, the payee was unknown and so was the mortgagee or beneficiary. Or the note and mortgage were intentionally split, meaning the obligation existed but there was no secured interest existing as an enforceable encumbrance upon the land. The named beneficiary and/or lender were different in most closing than the actual creditor. The named beneficiary was without authority to return the note upon payment because the named payee was not the party to whom the debt was owed in the real world.

by Brent Bertrim
I have read that many believe the only way out of this mortgage mess is principal reduction.  I am skeptical after the Bevilacqua decision.  I believe the solution is allowing homeowners to purchase their own promissory notes at market rates will clear the title.

From the view of a securities expert, I think attorneys are too wrapped up in real estate law to understand much of what you put on your site.  They fail to recognize (other than in belief in your blog) that payments may not be owed because they are unable to ask the most critical question – when did the promissory note become a security?  While inside the pool, it is a security so how can simultaneously it not be during foreclosure?

I would argue that MERS itself by definition and BlueSky Laws in all 50 states made promissory notes securities.  The reason – by definition a security is an investment that can be readily exchanged for value and involves risk.  The entire point of MERS was to make the notes ‘readily’ transferable.  I will bet you $100 that the defense of MERS in the Dallas case will argue that the intent was not to escape recording fees but instead to make the notes ‘readily’ transferable.

Therefore, homeowners should in theory be able to ‘purchase’ their own notes.  This is the only way to overcome the lost/destroyed note issue and something the banks should offer all homeowners because the pretender lender defense is over.

More importantly, when a mortgage is satisfied, the lender has to file the release as well as return the note or provide a lost note affidavit.  How can they do this?

What will be funny if posing the question, is the only reply based on securitization is that you cannot buy your note because we do not know who owns each piece of it.  Therefore even trustee cannot direct servicer to foreclose.

27 Responses

  1. I some what agree but still When did the US Supreme Court’s say that Notes can’t be securitized? If that were true then all the banksters need to be put behind bars. Martha Stewart went to jail for 6 months trading on an inside tip.

    When a transaction takes place across boarders it involves the SEC, UCC, but where the transaction took place (states rights) has precedent and the contract like mine may have more powers in it than statute. Thus requiring a judicial foreclosure in a non judicial state like CA.

  2. The issue is not whether an individual’s promissory note can be pooled and securitized but whether the individual notes themselves are defined as securities–is my sense without reviewing all the detail and hearsay. Look to the definition of “security”. I would imagine the implication is whether a person that sells homeowner promissory notes per se is subject to SEC regulation. Typically states also regulate “securities dealers” and the definition may be broader there. The problem is jurisdiction over out of state persons trading in homeowner notes.
    The MBS were securities nominally issued by originator-syndicates—-under instruction by investment bankers who then bought the “issuer-notes aka “securities” as underwriters –and then resold these supposed “trust” notes to pension funds etc. If you look at the offering securitization docx you will see that the securities are actually styled as “notes” —issued by phantom now bankrupt entities such as _______—–and if the securitization rules were not followed–these notes became mere unsecured general liabilities of the issuers. And the supposedly backing homeowner promissory notes are merely notes receivable of the entities. When the servicer-collection agencies persuade homeowners tro default on the homeowner notes, then the notes receivable are impaired and transferred to “accounts receivable”. That is why if you defaulted the loan number ceased to be used and the new account number assigned. The big issue that enables the purported OCC consultant reviewers today is whthe ability of the consultants to demand that the victimized homeowner provide the correct servicer name and the correct account or loan number–both facts are subject to questions–strings of servicers wre involved and different numbers used–it is violative of due process for these consultants to demand as a condition precedent to simply obtaining a claim form that the homeowner ascertain exactly the correct servicer/collection agency and that entity’s assigned number. It would be far more fair for the foreclosed victim to state the address of the home which supposedly is well-known through use of MERS. The address and claimant name should be what is provided to OCC —the consultants should then search the data bases to ascetain what the internal names and numbers are/were. The rule or lack of rules used today enable unrestrained denials of the basic access to forms to make claims–implictly this involves the consultants making an appealable adminstrative determination/order —–the claoims which should include all necessary information available to victims whose records also ttended to disappear with their homes should go directlyto OCC following existing complaint procedures against banks–a denial to provide a form should be treated as an appeal–but it is impossible –given lack of rules to determine what the OCC will do absent judicial iuntervention–which is what the consumer protection groups should be focusing upon. the current process requires even a homeowners atty to turn over confidential client info to an unknown online purported consultant in the hopes of obtaing a simple form. This is abusive and could constitute malpractice—-how do i know whether the attached links are really authorized reps engaged in this process or merely phishing operations?

  3. When did the US Supreme Court’s say that Notes can’t be securitized?

  4. @DyingTruth, on November 17, 2011 at 4:41 pm said:

    “So no comment on the US Supreme Court’s saying that Notes can’t be securitized”?

    DT, I missed the link, I will definatally look at it now that I found it.

    Since your in CA, we should talk…..provide me with some contact info, I’m pro-per in Superior Court at this time

  5. So no comment on the US Supreme Court’s saying that Notes can’t be securitized?

  6. And, as to this post, “loan” — what kind of loan??? What kind of loan backed a so-called security????

    Anything with a “cash flow” can be securitized. But, what is that “anything???” Unanswered question.

  7. Enraged,

    Used to do that — perfect punctuation —– now use dashes — as if in conversation with you.

    If you do not like it —- do not read it!!!!!

    If you think it is Morse code — as it may be —- learn to decipher it — or dump it. I do not worry about it. I have little time.

  8. The Europeans are solving their sovereign borrower ills by writing down to whats traded price–the germans refused to agree to a bailout that paid a dollar to vultures that paid 50 cents—dont need a phd in economics to understand that—why cant that work here–or put differently why did the govt [dfed pay $1 to peops that only paid 15 cents?——everybody says where did the money go–well you give a 85 % profit to a vulture and he has a bigger offshore private hedge fund—-to play with–to short euro bonds etc

    The US has become the Tortuga of the 21st century–pirate haven

  9. Mortgage Delivery to the Secondary Market When Interest Rates are Falling May 2011

    “Securitizer” and “Investor” interchangeable because the securitizer acts mainly as a bookkeeper, exchanging loans for MBS in return for a very small fee.

    The Federal National Mortgage Association, (Fannie Mae) Debtor for the Correspondent Lenders and the Federal Home Loan Mortgage Corporation (Freddie
    Mac) COLLATERAL for FEDERAL RESERVE Securred Party, are the most widely-quoted securitizers but a variety of private institutions also issue loan purchase
    commitments. Frame and White (2007) contains an excellent overview of the roles of the participants and the
    administrative structure of the secondary mortgage market.
    3 The lender collects two types of fees as part of the mortgage origination process. The commitment fee is a true
    “origination” fee paid by the borrower and retained by the lender. Lenders also collect a variety of third-party
    charges, such as appraisal and title search fees, which are passed on.

    Mortgage Delivery to the Secondary Market

    When Interest Rates are Falling
    Abstract
    A borrower whose loan is committed to the securitization process has the ability and
    incentive to switch lenders if market rates drop during the loan origination period, which creates
    significant exposure for primary lenders. A simple secondary market contract innovation we call
    a mortgage rate drop guarantee (MRDG) could shift this risk to the securitizers who represent
    portfolio investors. Our simulation results indicate this shifting would have improved the
    risk/return distribution faced by originators without damaging the risk/return position of
    securitizers during our 1977 to 2010 sample period. Assuming conservative loan lives and
    origination periods, and competitive lending markets, the risk reduction features of MRDGs
    could also have generated significant interest savings for borrowers

    1 Hancock and Passmore (2009) propose three innovations, a “buy your own” mortgage option, variable maturity
    debt and a government bond insurer that insures covered bonds, for promoting financial stability while enhancing
    the mortgage market. Nejadmalayeri (2010) argues for a mortgage whose payments are indexed to wage inflation to
    reduce default risk while Ambrose and Buttimer (2012) advocate a mortgage whose balance rises and falls with
    changes in a house price index to reduce the value of the borrower’s option to surrender the home to the lender.

    These transactions occur in what is known as the “TBA” (to-be-announced) market,
    which is a multi-billion dollar forward market that remained active even during the height of the
    mortgage crisis, (Freddie Mac, one of the two main government-sponsored enterprises charged
    with supporting the secondary mortgage market, securitized more than $300 billion in residential
    loans in 2008 and more than $400 billion in 2009). In a typical TBA transaction an originator
    sells an MBS to an investor and promises a package of loans to a securitizer as soon as the
    underlying borrower credit scores have been evaluated and approved, (usually through an
    automated “desktop” underwriting program), and the underlying property values have been
    verified via appraisals. It can then take up to two months for the legal documentation that
    accompanies the purchase of a home or the refinancing of a loan to be completed so originators
    must wait an uncertain amount of time to deliver loans to securitizers in return for the MBS used
    to settle their obligations to investors.

    Given the structure of the TBA market, originators earn a profit only if they are able to
    deliver closed loans to securitizers, who then return mortgage-backed securities for investors.
    The movement of market rates during the 30- to 60-day origination period creates interest rate
    exposure that must be borne by one or more of the parties to the transaction. Originators
    typically protect borrowers from loan rate increases by writing explicit rate-lock options paid for
    by non-refundable, up-front commitment fees.3 Exercise of these options by borrowers forces
    originators to create below-market rate loans if interest rates rise during the origination period
    but the TBA market has transferred this risk to investors when the loans-in-process are sold.

    2 The TBA market has very specific rules that govern the delivery process because originators have sold the MBS to
    investors before the underlying mortgages are closed. See the Securities Industry and Financial Markets Association
    website (www.sifma.org) for standardized rules of good delivery and Mortgage Market Note 08-03, “A Primer on
    the Secondary Mortgage Market”, published by the Office of Federal Housing Enterprise Oversight on July 21, 2008
    for an overview of the market structure. In this paper, we use the terms “securitizer” and “investor” interchangeably
    because the securitizer acts mainly as a bookkeeper, exchanging loans for MBS in return for a very small fee. The
    Federal National Mortgage Association, (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
    Mac), are the most widely-quoted securitizers but a variety of private institutions also issue loan purchase
    commitments. Frame and White (2007) contains an excellent overview of the roles of the participants and the
    administrative structure of the secondary mortgage market.
    3 The lender collects two types of fees as part of the mortgage origination process. The commitment fee is a true
    “origination” fee paid by the borrower and retained by the lender. Lenders also collect a variety of third-party
    charges, such as appraisal and title search fees, which are passed.

    Borrowers cannot be forced to close loans at previously locked quotes if market rates
    drop during the origination period, however. In this paper, we show that the right to refinance a
    loan-in-process at a lower interest rate is valuable to borrowers and creates significant risk for
    originators. We then propose the creation of a mortgage rate drop guarantee (MRDG), a contract
    innovation that would allow originators to mitigate the risk of an interest drop during the
    origination period by lowering loan rates for approved borrowers if market rates fall. We next
    show that insurance of this sort would have improved the risk/return distribution faced by
    originators during the 1977 to 2010 sample period without harming investors. Given this result,
    it should not be surprising that MRDGs could also benefit borrowers. Using conservative
    simulation assumptions and pre-crisis market data, the mortgage rate drop guarantees we propose
    could have lowered average loan yields by more than 1/8%, reducing interest paid by an average
    of almost $1,000 per loan for 60-day closings. While interest savings of $1,000 per loan may not
    seem substantial at first, it is worthwhile to remember that more than an estimated 90 million
    individual mortgage loans were created during the 32+ years of data we study. Thus, the
    mortgage market innovation we propose could have generated more than $90 billion in reduced
    interest payments if the benefit of the risk reduction properties of MRDGs were passed through
    to individual borrowers.
    The remainder of the paper is structured as follows: section 1 presents an overview of
    current academic thinking about the mortgage origination and investment market and a simple
    graphical model of the loan origination process with and without MRDGs. on.http://www.ccfr.org.cn/cicf2011/papers/20110608060311.pdf

  10. MORE PREJUDICE BY BANKRUPTCY TRUSTEE’S LAW FIRM–TELL ALL

    http://www.scribd.com/doc/72423859/BANKRUPTCY-TRUSTEE-S-LAW-FIRM-PREJUDICED-AGAINST-HOMEOWNERS

  11. @Anonymous

    Do you absolutely have to write in morse code? Ever heard of simple punctuation, such as: period, coma, semi-column, column, etc? What’s with the unreadable dashes? Did it occur to you that, just from the format you use, you might lose half your readers?

  12. No one in administration cares about heartache —

    It is the old cliche — told to me many years ago.

    Many in a boat — all are sinking — but, suddenly someone is there to save — but they can only save a couple of the people — who do they choose to save???? They choose to save those that they believe can help others in life. The others in the boat must die.

    Federal Reserve and administration chose to save the banks — believing that they could help the many others — the “country.” The others were left to die — in order to save the bank — who they really believed would save the rest of the county.

    Big problem with foreclosure/mortgage fraud is this — the “saving” in the boat was orchestrated under fraud — and the rest of the county is not being saved — either.

    Heartache continues — those who died in boat — remain dead —never to recover — and the false saving — will continue to pull the rest of the entire country down.

  13. Correction to my last post.
    I Said “to Gary” my mistake, I may have read another post and mistakenly responded “TO GARY”

    At the Bottom, The first person to have held “Principle Title not Equitable Title” was Catherine Walsingham. She picked it out of the (hat)” what ever they called it back then” and was granted “Title” to the “Forty Acre Plot” and the name was cut short, ( I did not intend to include it) her name is Catherine Walsingham as it appears on the original preserved Deed – Title with Wilson Lumpkin’s signature , Governor of the State of Georgia. 1931.

  14. I agree with Niel here. The fraudsters were running a pyramid scheme on the backs of imperfect ed liens knowing full well that they were doing it and then created a derivative insurance scheme to back up the fraud and collect on both ends once the homes foreclosed they bought back the properties and resell them. A practice against public policy ie collecting more than once on the principal insured.

  15. To Gary,
    That made me remember one thing that I now know for a fact and thought that it was strange, [it just dawned on me] they had me/us sign the [“Security’s’ we thought were mortgages] Mortgage papers with a black pen. I know this for a fact, because I knew a little bit of contract rules or laws and I had always signed loan papers for clients and other mortgages Documents with a blue ink pen, Dammit.
    Bingo the original Blue ink signatures, at least for me, I think and am pretty sure that black ink signed papers could be destroyed and with the AID OF A CAD-CAM COMPUTER AND THE RIGHT SOFT WARE THEY COULD DUPLICATE AND REPRODUCE THEM WITH THE SAME IMPRESSION LEFT JUST AS IF YOU WHERE TO RESIGN THEM TODAY. SORRY A BIT TO LATE MAYBE.
    I could be totally wrong, but it makes sense to me now. If I am wrong go ahead and criticize me, I can take it, as I sit in a rental house one mile from the home I raised my family in, and that my Attorney told me not to move out of, but I had to have a plan B just in the event that I loose the property.
    Well I am not the average kind of guy, I started selling my belongings, and my shop tools from the 1850 square foot 4 bay garage and a home filled with a life time of treasure’s at least to me. I am now living in two places and awaiting the ax from whomever it will be to pick a fight or continue the fight to defend my property rights that are so threatened now I may loose it anyways. I am prepared for what ever the out come is and I have reminded my self that if good people do nothing that is a crime and a sin that would be unforgivable and worse than death to me.
    These grave financial crimes cost me my marriage of 23 years but not my adult children. This has been hell for me and has been going on since she decided I had helped her along enough into her job, career, and master’s degree that she basically did not need me any more and by the way give me ‘my’ half of the inflated price of the Real Estate and value there of in 2005 and 2006 cost’s. So 175k latter, and O ya how about another stab, give me 300 dollars a month for my youngest daughter x 24 months just another 7,200.00 bucks, the worst part of the whole situation is I have had the luxury of having time for me to find out and research what happened to too many people, then I stumbled on the Case – Schiller “A History of Home Values” distributed and produced by facts, and it just so happens I don’t do things in a small way.
    Divorced June 2006, and as you will see in the report it begins in 1890 through 2010, it probably has changed a bit but it is worth the inquiry. more on this later as I have to go back to the house to turn the furnace on and change the lights around and move my van to a different location. This is a disgrace but I am not ashamed. I built my dream home and shop, helped and never hindered the advance of the X and my reward was the marriage penalty , the biggest challenge of my life and that millions of us face.
    More to come.
    If the spelling is bad or if I got off topic, please forgive me and as always comments welcome and
    respond to this post so I may help others in the same situation.

    Next edition and posting the history of my property dating back to 1831 when “Wilson Lumpkin was the Governor of the State of Georgia”, I have the original Deeds dating back to the “Golden Land Lottery” and “THE TRAIL OF TEARS” that Governor Wilson proclaimed was his greatest work in his career as a GOVERNOR, Lumpkins militia drove the Cherokee Indians out of their land and my home is on that same path.
    alsingham

  16. Brent said,
    the most critical question – when did the promissory note become a security? While inside the pool, it is a security so how can simultaneously it not be during foreclosure?

    The Federal Register says that a (mortgage) Note (a financial instrument/negotiable instrument) is “converted” into a Securitized Instrument (a bond or a certificate). I have yet to see any Regulation, Code, Act that says once the Note is converted that there is a process that reverses that process and makes it a Negotiable Instrument, again.

    Once the apple becomes juice, it is forever juice…..

    Mortgage Audit and Foreclosure Defense
    Student Loan Audits
    john

  17. @TMT

    That’s exactly what I was wondering. Finding out who the trustee is is one thing. Finding out how many are involved in one single “loan” and who they are is another thing altogether.

    Why should we invest that kind of time and energy reconstructing what was done behind our back? It shouldn’t be our job. Our job is to pay monthly to someone we know in exchange for the right to live in the house. All of us have spent months (if not years) doing their job. We dont get paid for our time.

    Let them pull out the information and reconstruct the puzzle in its entirety or entirely lose any claim to any part of it. I think it’s only fair.

  18. Interesting concepts. Just buy back the securities… But didn’t they dice and slice to securitize the debts by pieces? Making the entire picture from pieces of puzzle can complete the original note?

  19. READ THE QUOTED CASE CITATION BELOW, IT IS PRETTY RECENT “PRECEDENT” (AS IF THE CONSTITUTION ISN’T EVEN MORE PRECEDENTIAL) AND WOULD EFFECTIVELY NULLIFY ALL OF SAID TRANSACTIONS.

    ANON Would probably be interested in this part

    “[T]ypes of notes that are not “securities” include … notes secured by an assignment of accounts receivable”.

  20. ” See Exchange Nat. Bank, supra, at 1138 (types of notes that are not “securities” include “the note delivered in consumer financing, the note secured by a mortgage on a home, the short-term note secured by a lien on a small business or some of its assets, the note evidencing a `character’ loan to a bank customer, short-term notes secured by an assignment of accounts receivable”.

    Reves v. Ernst & Young, 494 US 56, at 65 (Supreme Court 1990)

    http://scholar.google.com/scholar_case?case=18068523124125938239

  21. Ahh… as is my problem with robo signed release and no note returned etc….. never mind the garbage with the current loan. I even went to the lawyer who did the closing on first loan, and he was doing alot of stammering.
    Where’s my cancelled note? Stammer Stammer Stammer…. yeah that’s what I thought.

  22. The idea of the note being meant as a security from the get go would be supported by the fact that, long before I purchased my own house, the previous owner had refinanced a few times and that one of those refinances did not give rise to the issuance of a satisfaction of mortgage. There still is an unpaid/unsatisfied loan from one bank in the MERS records concerning my house… and it just happens to be the one missing in the county’s records. How did the title insurer miss that, I have no idea. The thing is, though, that i paid for title insurance.

    O well! The way I see it, at worst I will get to rescind the entire deal from day one, get all my money back, get my legal expenses and a nice chunk of change for the Tila/Respa/Conversion hell I was put through for the past 4 years, enough to get a piece of land and build something no one will ever have a claim on but me and my heirs. Or I end up being such a haunt and a pest that it would cost more to the current servicer to investigate and answer all the unanswered questions (defense attorneys charge $800-1100/hr) ande bring in all the other parties to share the fun and they simply… walk away.

    Either way, it looks like is becoming a win-win-win for me. And come to realize, getting rid of that dead weight once and for all is also looking like a win-win-win…

  23. RE: homeowners should in theory be able to ‘purchase’ their own notes

    Legal title with owner of Indenture.

    Indenture Trustee contest allegations and dispute Standing. This act would be the same as ‘stranger’ in court alleging they have right to satify current debt and seek court to award Summary Judgment. Consumer would need to be member or affiliate of RELS to get good title

  24. UCC 3 Blue Ink ‘endorsement’ or ‘possession’ acceptable for court of equity

  25. Well, I hope you’re right ‘cuz it sure as hell is the one thing I intend to insist on court: show me the note, the “blue ink” paperwork.

  26. The presenence of this thought may be a bit “off the wall” and I cannot make conformation at this time to it, but I have heard that the “original note” was destroyed,or had to be destroyed, in the process of securitzation, to where only a “copy” of same was retained in said vaults of the Master Trustee.

    Input is appreciated.

  27. The presenence of this thought may be a bit “off the wall” and I cannot make conformation at this time to it, but I have heard that the “original note” was destroyed,or had to be destroyed, in the process of securitzation, to where only a “copy” of same was retained in said vaults of the Master Trustee.

    Input is appreciated.

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