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Connecting the dots... As third round of “quantitative easing” gets under way. When will the media, the Courts and frankly the BORROWERS finally get it? The Federal Reserve Bank has been buying Mortgage bonds using trillions of dollars, soon to be around $3.5 trillion, as reluctantly reported by the the FED (only after intense efforts by Bloomberg).

Think about it. The total amount on promissory notes signed by homeowners that the Banks say have gone into default is less than $3 trillion. So the FED is now the proud owner of mortgage bonds that at best represent ownership of failed mortgage loans and at worst —- nothing because the loans were never transferred to anyone, let alone the FED. The probability is that the FED is buying nothing at all – because it is the Banks that are “selling” the bonds. How could the Banks be selling the bonds when they already sold them to investors?
Think about it. If the Banks receive $3.5 trillion — that covers ALL of the notes that went into default. Yet those notes were “secured” by mortgage “liens” on what is now around $1.5 trillion worth of real property. So the “loss” is really only $2 trillion. NOTE: I do NOT concede that the “liens” were perfected nor do I concede that these were even mortgage transactions — as opposed to part of the issuance of securities in which the homeowners may have been unwitting “Issuers.”
Think about it. If the loss was $2 trillion, who lost that money? If the loss comes from ownership of mortgage bonds, then the loss belongs to pension fund and other institutional investors who “bought” the “mortgage-backed” bonds — unless there is some secret pact wherein the investors had purchased an OPTION rather than the mortgage bond itself. Either way it is not a loss for the Bank and it is a loss for investors.
Think about it. If the Banks did not lose money from the decline in value of mortgage bonds and if the banks did not lose money from so-called defaults on mortgage loans, and if the payment from the FED pays off the loss with 150 cents on the dollar, then the FED now has the loss and the Banks have a profit, by keeping the money rather than distributing it to investors. And the homeowner is left none the wiser that some allocable portion of that money should have reduced the amount due to his real creditor — the investor. And the taxpayer is left none the wiser that they have just given a subsidy to Banks who don’t deserve or need it, leaving future generations to figure it out.
Think about it. If the FED is taking the loss with no right of subrogation then the debts are retired. That means there is no payment due. If no payment is due one can hardly be forced to make the payment anyway. In fact, there can be no default on a payment that is not due. And THAT is why the Banks fight tooth and nail against discovery requests from homeowners in the form of qualified written requests, debt validation, or civil discovery procedures in court. The FULL accounting would trace ALL the money and reveal objects behind the curtain.
And THAT is why you need the FULL accounting of all financial transactions in which money exchanged before accepting the notion the mortgage is or ever was in default.
  • When it suits them, the Banks tell the investors “it’s your loss.”
  • When it suits them they tell the government or Federal Reserve “it’s your loss.”
  • When it suits them they tell the homeowner “it’s your loss.”
  • When it comes to taking losses on wild bets they tell their own shareholders “it’s your loss.”
  • But when it comes to taking proceeds of bailout, quantitative easing, insurance, credit default swaps they are perfectly willing to say anything to get that money — “it’s our loss.”
Think about it. The FED is paying the one party (intermediary Banks and brokers) that had no losses who are now getting the money on the sale of assets they don’t own based on defective mortgage loans that are probably worse than worthless because of exposure to liability for predatory and deceptive lending.

Dealers See Fed Buying $545 Billion Mortgage Bonds in QE3

Nov. 28 (Bloomberg) — The biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the firms that provided estimates.

While mortgage rates are already at about record lows, housing continues to constrain the economy, with the National Association of Realtors saying in Washington last week that the median price of U.S. existing homes dropped 4.7 percent in October from a year ago. Borrowers with a 30-year conventional mortgage would save $40 billion to $50 billion annually in aggregate if they could all refinance into a new loan with a 3.75 percent rate, according to JPMorgan Chase & Co.

“We need to see a bottom in home prices,” said Shyam Rajan, an interest-rate strategist in New York at Bank of America Corp., a primary dealer, in a Nov. 22 telephone interview. “These are not numbers that are going to get down your unemployment rate,” which has held at or above 9 percent every month except two since May 2009, he said.

New Urgency

The company forecasts the Fed will buy $800 billion of securities, which may include Treasuries.

Efforts to bolster the economy are taking on new urgency with $1.2 trillion in automatic government spending cuts slated to begin in 2013. The Commerce Department said last week that gross domestic product expanded at a 2 percent annual rate in the third quarter, less than the 2.5 percent it originally projected, and Europe’s worsening debt crisis threatens to further curb global growth.

The Fed is taking the view that “even if U.S. fundamentals look to be relatively OK, we’ve got to keep our eye on any contagion from the European stresses,” Dominic Konstam, head of interest-rate strategy at the primary dealer Deutsche Bank AG in New York, said in a Nov. 22 telephone interview. “It’s in that context that they’re willing to do more.”

Treasuries rose last week on those concerns, with the 10-year yield dropping five basis points, or 0.05 percentage point, to 1.97 percent, according to Bloomberg Bond Trader prices. The yield rose 10 basis points to 2.06 percent today at 9:23 a.m. in New York. The 2 percent security due in November 2021 fell 7/8, or $8.75 per $1,000 face amount, to 99 13/32.

Inflation Outlook

Policy makers have scope to print more money to buy bonds in a third round of quantitative easing, or QE, as the outlook for inflation eases.

A measure of traders’ inflation expectations that the Fed uses to help determine monetary policy ended last week at 2.25 percent, down from this year’s high 3.23 percent on Aug. 1. The so-called five-year, five-year forward break-even rate, which projects what the pace of consumer-price increases will be for the five-year period starting in 2016, is below the 2.83 percent average since August 2007, the start of the credit crisis.

“There is a significant chance that QE3 will be deployed, especially in the form of MBS purchases, if inflation expectations fall enough,” Srini Ramaswamy and other debt strategists at JPMorgan in New York wrote in a Nov. 25 report.

Relative Growth

JPMorgan is one of the five dealers that don’t forecast the Fed will begin a third round of asset purchases to stimulate the economy. The others are UBS AG, Barclays Plc, Citigroup Inc. and Deutsche Bank.

After cutting its target interest rate for overnight loans between banks to a range of zero to 0.25 percent, the Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2.

The moves have helped. At 2.2 percent, U.S. GDP will expand more next year than any other Group of Seven nation except Japan, separate surveys of economists by Bloomberg show.

“Monetary policy is in part a confidence game,” said Chris Ahrens, head interest-rate strategist at UBS Securities LLC in Stamford, Connecticut. “At this point in time we don’t see the need for it, but if the situation were to evolve in a negative fashion they’re telling us they can come out and respond in a proactive fashion.”

‘Frustratingly Slow’

Minutes from the Nov. 1-2 meeting of the Fed’s Federal Open Market Committee showed some policy makers aren’t convinced the recovery will strengthen, saying the central bank should consider easing policy further.

“A few members indicated that they believed the economic outlook might warrant additional policy accommodation,” the Fed said in the minutes released Nov. 22 in Washington.

Bernanke, at a press conference after the meeting, said the “pace of progress is likely to be frustratingly slow,” while on Nov. 17 Fed Bank of New York President William C. Dudley said if the central bank opted to buy more bonds, “it might make sense” for much of those to consist of mortgage-backed securities to boost the housing market.

Mortgages were at the epicenter of the financial crisis that began in 2007 and resulted in more than $2 trillion in writedowns and losses at the world’s largest financial institutions based on data compiled by Bloomberg.

Sales of existing homes have averaged 4.97 million a month this year, little changed since 2008 and down from 6.52 million in 2007, according to the National Association of Realtors. The median price decreased to $162,500 in October from $170,600 a year earlier and from the record $230,300 in July 2006.

Housing Glut

At the current pace of sales it would take eight months to clear the inventory of available properties, compared with the average of 4.8 before 2007.

Fed purchases of mortgage bonds would dovetail with efforts by President Barack Obama, who has been promoting an initiative by the Federal Housing Finance Agency to let qualified homeowners refinance mortgages regardless of how much their houses have lost in value. The Home Affordable Refinance Program, or HARP, will eliminate some fees, trim others and waive some risk for lenders.

The difference between yields on Fannie Mae’s current-coupon 30-year fixed-rate securities, which influence loan rates, and 10-year Treasuries climbed to 121 basis points last week, from 84 basis points on Dec. 31, Bloomberg data show. The spread widened to 129 basis points in August, the most since March 2009.

‘Powerful Wildcard’

“The prospect of the Fed buying MBS under a QE3 program is a powerful wild card, and should limit the downside in the asset class,” the JPMorgan strategists wrote in their report last week. “Given attractive spreads currently, we recommend heading into 2012 with an overweight,” they said in reference to a strategy where investors own a greater percentage of a security or asset class than is contained in benchmark indexes.

Mortgage securities guaranteed by government-supported Fannie Mae and Freddie Mac or the federal agency Ginnie Mae have financed more than 90 percent of new home lending following the collapse of the non-agency market in 2007 and a retreat by banks. The agency mortgage-bond market accounts for $5.4 trillion of the $9.9 trillion in housing debt outstanding.

The Fed, which owns about $900 billion of the securities, said in September it will reinvest maturing housing debt into mortgage-backed bonds instead of Treasuries. MBS holdings represent about 40 percent of the Fed’s balance sheet, down from a peak of about 66 percent.

“If the Fed’s position in MBS grew under QE3 to half of its balance sheet, this would imply that they would have to purchase on the order of $500 billion,” the JPMorgan strategists wrote in their report. The Fed’s “decision to reinvest paydowns back into the mortgage market suggests a comfort level with owning mortgages that seems to have grown,” they wrote.

–With assistance from Jody Shenn and Susanne Walker in New York. Editors: Philip Revzin, Robert Burgess, Dennis Fitzgerald

To contact the reporters on this story: Daniel Kruger in New York at; Cordell Eddings in New York at

To contact the editor responsible for this story: Dave Liedtka at

18 Responses

  1. Thanks for the post – I appreciate them!

  2. @JeninGA

    If the loan was written off, your credit report should reflect it. Also, keep in mind that Equifax, Transunion and the 3rd one (forgot its name… Oops, as Perry would say) are MERS members. They were supposed to automatically update the credit reports but, oftentimes, they didn’t. If Ocwen doesn’t appear or if anyone who was, at some time, involved in your file doesn’t appear, you know that their claim is bogus.

    Do you have the complete records from your state’s/county’s recorder’s office? If not, retrieve them immediately. See what has been recorded and what hasn’t. In some states, recording is optional but that may work to your advantage.

    I don’t know anything about GA laws but yes, it is time to get an attorney. Do that BEFORE you ask anything further from any servicer. Your attorney may very well advise you to go on the attack and you don’t want to compromise anything by tipping off anyone.

  3. To,
    Oh, but they do! -(then Ocwen who is servicing for HSBC would have no reason to service this loan?)
    And?- they have a reason FOR everything!- They, and the judge make this one reason and one reason only…. . CAUSE we started making payments to them so,,,,WE owe them!-and they THINK that answer is good enough.

  4. @jen in ga: This month a GA case was referenced here (Philips v U.S. Bank) The homeowner’s attorney seems knowledgeable. His name is Peter Ensign. He’s in Carollton, GA I think. Maybe he can help you. Worth a call? Or you might try writing him?

  5. Question – please respond – slightly off topic (sorry)!

    Can a loan that has been Charged off by Litton on 4/2010 still remain in Fremont Home Loan Trust 2005-E?

    New servicer Ocwen sent a response letter to my QWR and they state the loan was charged off by Litton on 4/2010 but, I am still liable for the repayment of the debt.
    I have reviewed the PSA and this loan was in default durring the first two years of the trust and many years after too. Is it possible for such a loan to remain in the trust?
    I am directed to ask my servicer who holds my deed but is it possible my servicer is WRONG?

    In the same response letter Ocwen states – (because I requested this information in my QWR) – “the beneficial holder of the loan is HSBC Bank USA NA as Trustee under the pooling and servicing agreement dated as of Dec. 1, 2005, Fremont Home Loan 2005-E”.

    I have a loan mod from Fremont dated 2007 on the loan mod, it is Fremont and not HSBC listed as the “Lender” so this would mean the loan was not in the trust by 2007 – RIGHT?

    Is it at all possible a loan discharged by the servicer could still remain in the trust?

    Is it time to get a lawyer? I have the loan numbers assigned to both of my loans in the trust – I think the first has been removed at some point too – I live in GA and get foreclosure sale notices published and then cancled and have been delinquent for 10 months at times.

    If not in the trust – then Ocwen who is servicing for HSBC would have no reason to service this loan?

    PS the loan was in default when transfered to Litton and also when transfered to Ocwen – so per FDCPA rules the mortgage servicers are acting as a debt collector and can be fined if they have no claim to foreclose on my property – right?

    Any insight would be greatly appreciated!!!

    Thanks to all and I enjoy reading the post and comments!!! VERY INFORMATIVE!

    Jen in GA!

  6. @Anonymous,

    “I try to be brief and to point. Maybe some do not get my point. Nevertheless, I am brief.”

    I can appreciate this, however being brief does not place the point in the proper perspective…..”maybe I missed the point”! 🙂


    Re: Rockwell, thanks for posting this…..”something more to chew on”.

  7. @Carie

    Don’t forget NAFTA. That did us a lot of good…

  8. Well now $545 billion —great just in time for declaration of XMAS bonuses and dividends —–refill the hole –save the world by sending money to Italy and the investment bankers. and the next dot is……. URGENT –year end order book opportunities for your super-dooper mega-yachts —get em now before the roaring inflation kicks in…..and Ben and Tim send a Happy Hanuka to all–or at least some–or a few anyway.

  9. Thank you, Pres Clinton…we will forever be indebted to you for the repeal of Glass-Steagall.

    What a guy…what a legacy.

  10. I try to be brief and to point. Maybe some do not get my point. Nevertheless, I am brief.

  11. Deregulation. Allows courts to bypass identity of current creditor who remains undisclosed as to claims to your home.

    This means — you will forever owe debt — even if foreclosed upon. Finished.

    And, those who are profiting??? Undisclosed creditors who claim rights via non-parties. All by fraud, and fraud upon the court.

    But, hey!!! These guys need to make a living!! They do not care how those means are achieved.

    The name of the game.


  12. YOU get to buy the MBS at Par LOL!! and then be foreclosed upon…

    Did we vote for this? LOL

  13. see:

    U.S. Foreclosure Fraud in a Nutshell, How Average Joe’s Home Was Stolen
    Politics / US Housing Nov 28, 2011 – 02:11 AM
    By: LewRockwell

    Bill Butler writes: The untold story in the foreclosure crisis unfolding across America is that, following a foreclosure perpetrated by one of the October 2008 Bailout Banks (e.g. Bank of America, Citibank, JPMorgan, Wells Fargo) Fannie Mae or Freddie Mac suddenly appear as the record owner of Average Joe’s home. These federal government sponsored entities then go into local housing court and get a court order authorizing them to evict Joe. If Joe resists, these supposedly charitable institutions obtain a writ ordering the local sheriff to forcibly remove Joe from his home.

    Newt Gingrich recently admitted to accepting $1.8 million from Freddie Mac ($25,0000 to $30,000 a month during one span of time) for advising this proto-fascist entity. Gingrich claims that he supports Fannie and Freddie because he believes the federal government “should have programs to help low income people acquire the ability to buy homes.” But Fannie and Freddie don’t do this and never have. When government “helps” someone by subsidizing the purchase of something (through easy credit or lower-than-market rates), it makes that something more expensive. Helping someone buy something that is overpriced because of your help is not help. Fannie/Freddie subsidies not only hurt the low income people they intend to help, they hurt everyone by subsidizing, and therefore distorting, the entire housing market. Fannie/Freddie’s charity has now taken a dark turn. Like their Depression-era New Deal predecessor the Regional Agricultural Credit Corp., Fannie/Freddie are now repossessing homes at an increasing and alarming rate.

    Mr. Gingrich either does not understand economics – government subsidies make things more expensive, not less expensive, and therefore hurt their intended beneficiaries – or he is a vain, selfish, and cynical man with no interest in actually helping his neighbor.

    You decide.


    The facts indicate that the Federal Reserve “printed” at least 16 trillion dollars as part of the 2008 bailouts. The bigger questions, however, who got it, why and what did the Fed get in return? The Fed doesn’t just print money. It prints money to buy stuff. Most often this is U.S. Treasuries. That changed in October of 2008. In and after October 2008 the Fed printed new money to buy mortgage-backed securities (MBS) that were defaulting at a rapid rate. Want proof? Here is a link to the Federal Reserve balance sheet which shows that the Fed is holding over a trillion dollars in mortgage backed securities that it began acquiring in 2008.

    Why is the Federal Reserve holding all these MBS? Because when “the market” collapsed in September of 2008, what really collapsed is the Fannie/Freddie/Wall Street mortgage “daisy chain” securitization scheme. As increasing numbers of MBS went into default, the purchasers of derivatives (naked insurance contracts betting on MBS default) began filing claims against the insurance writers (e.g. AIG) demanding payment. This started in February 2007 when HSBC Bank announced billions in MBS losses, gained momentum in June of 2007 when Bear Stearns announced $3.8 billion in MBS exposure in just one Bear Stearns fund, and further momentum with the actual collapse of Bear Stears in July and August of 2007. By September of 2008, the Bear Stearns collapse proved to be the canary in the coal mine as the claims on off-balance sheet derivatives became the cascading cross defaults that Alan Greenspan warned could collapse the entire Western financial system.

    Part of what happened in October 2008 is that the Federal Reserve paid AIG’s and others’ derivative obligations to the insureds (pension funds, hedge funds, major banks, foreign banks) who held the naked insurance contracts guaranteeing Average Joe’s payments. To understand this, imagine that a cataclysmic event occurred in the U.S. that destroyed nearly every car in the U.S. and further that Allstate insured all of these cars. That is what happened to AIG. When the housing market collapsed and borrowers began defaulting on their securitized loans, AIG’s derivative obligations exceeded its ability (or willingness) to pay. So the Fed stepped in as the insurer of last resort and bailed out AIG (and probably others). When an insurer pays on a personal property claim, it has “subrogation” rights. This means when it pays it has the right to demand possession of the personal property it insured or seek recovery from those responsible for the loss. In Allstate’s case this is wrecked cars. In the case of AIG and the Fed, it is MBS. That is what the trillions of MBS on the Fed’s balance sheet represent: wrecked cars that Fannie and Freddie are now liquidating for scrap value.

    Thank you Mr. Gingrich. Great advice.


    To understand how it came to be that the Fed has paid Average Joe’s original actual lender (the MBS purchaser) and now Fannie and Freddie are trying to take Joe’s home, you first have to understand some mortgage law and securitization basics.

    The Difference Between Notes and Mortgages

    When you close on the purchase of your home, you sign two important documents. You sign a promissory note that represents your legal obligation to pay. You sign ONE promissory note. You sign ONE promissory note because it is a negotiable instrument, payable “to the order of” the “lender” identified in the promissory note. If you signed two promissory notes on a $300,000 loan from Countrywide, you could end up paying Countrywide (or one of its successors) $600,000.

    At closing you also sign a Mortgage (or a Deed of Trust in Deed of Trust States). You may sign more than one Mortgage. You may sign more than one Mortgage because it does not represent a legal obligation to pay anything. You could sign 50 Mortgages relating to your $300,000 Countrywide loan and it would not change your obligation. A Mortgage is a security instrument. It is security and security only. Without a promissory note, a mortgage is nothing. Nothing.

    You “give” or “grant” a mortgage to your original lender as security for the promise to pay as represented by the promissory note. In real estate law parlance, you “give/grant” the “mortgage” to the “holder” of your “promissory note.”

    If you question my bona fides in commenting on the important distinction between notes and mortgages, I know what I am talking about. I tried and won perhaps the first securitized mortgage lawsuit ever in the country in First National Bank of Elk River v. Independent Mortgage Services, 1996 WL 229236 (Minn. Ct. App. No. DX-95-1919).

    In FNBER v. IMS a mortgage assignee (IMS) claimed the ownership of two mortgages relating to loans (promissory notes) held by my client, the First National Bank of Elk River (FNBER). After a three-day trial where IMS was capably represented by a former partner of the international law firm Dorsey & Whitney, my client prevailed and the Court voided the recorded mortgage assignments to IMS. My client prevailed not because of my great skill but because it had actual, physical custody of the original promissory notes (payable to the order of my client) and had been “servicing” (receiving payments on) the loans for years notwithstanding the recorded assignment of mortgage. The facts at trial showed that IMS rejected the loans because they did not conform to their securitization parameters. In short, IMS, as the “record owner” of the mortgages without any provable connection to the underlying notes, had nothing. FNBER, on the other hand, had promissory notes payable to the order of FNBER but did not have “record title” to the mortgages. FNBER was the winner because its possession of and entitlement to enforce the notes made it the “legal owner” of the mortgages.

    The lesson: if you have record title to a mortgage but cannot show that you have possession of and/or entitlement to enforce the promissory notes that the mortgage secures, you lose.

    This is true for 62 million securitized loans.

    Securitization – The Car That Doesn’t Go In Reverse

    There is nothing per se illegitimate about securitization. The law has for a long time recognized the rights of a noteholder to sell off pro-rata interests in the note. So long as the noteholder remains the noteholder he has the right to exercise rights in a mortgage (take the house) when there is a default on the note. Securitization does not run afoul of traditional real estate and foreclosure law when the mortgage holder can prove his connection to the noteholder.

    But modern securitization doesn’t work this way.

    The “securitization” of a “mortgage loan” today involves multiple parties but the most important parties and documents necessary for evaluating whether a bank has a right to foreclose on a mortgage are:

    (1) the Borrower (Average Joe);

    (2) the Original Lender (Mike’s Baitshop and Mortgages or Bailey Savings & Loan – whoever is across the closing table from Joe);

    (3) the Original Mortgagee (could be Mike’s B&M, but could be anyone, including Fannie’s Creature From the Black Lagoon, the mortgagee “nominee” MERS);

    (4) the “Servicer” of the loan as identified in the PSA (usually a Bank or anyone with “servicer” in its name, the entity to whom Joe makes his payments);

    (5) the mortgage loan “pooling and servicing agreement” (PSA) and the PSA Trust created by the PSA;

    (6) the “PSA Trust” is the “special purpose entity” created by the PSA. The PSA Trust is the heart of the PSA. It holds all securitized notes and mortgages and also sells MBS securities to investors; and

    (7) the “Trustee” of the PSA Trust is the entity responsible for safekeeping of Joe’s promissory note and mortgage and the issuer of MBS.

    The PSA Servicer is essentially the Chief Operating Officer and driver of the PSA. Without the Servicer, the securitization car does not go. The Servicer is the entity to which Joe pays his “mortgage” (really his note, but you get it) every month. When Joe’s loan gets “sold” multiple times, the loan is not actually being sold, the servicing rights are. The Servicer has no right, title or interest in either the promissory note or the mortgage. Any right that the Servicer has to receive money is derived from the PSA. The PSA, not Joe’s Note or Joe’s Mortgage, gives the Servicer the right to take droplets of cash out of Joe’s monthly payments before distributing the remainder to MBS purchasers.

    The PSA Trustee and the sanctity of the PSA Trust are vitally important to the validity of the PSA. The PSA promoters (the usual suspects, Goldman Sachs, Lehman Bros., Merrill, Deutchebank, Barclays, etc.) persuaded MBS purchasers to part with trillions of dollars based on the idea that they would ensure that Joe’s Note would be properly endorsed by every person or entity that touched it after Joe signed it, that they would place Joe’s Note and Joe’s Mortgage in the vault-like PSA Trust and the note and mortgage would remain in the PSA Trust with a green-eyeshade, PSA Trustee diligently safekeeping them for 30 years. Further, the PSA promoters hired law firms to persuade the MBS purchasers that the PSA Trust, which is more than100 percent funded (that is, oversold) by the MBS purchasers, was the real owner of Joe’s Note and Joe’s Mortgage and that the PSA Trust, using other people’s money, had purchased or soon would purchase thousands of similar notes and mortgages in a “true sale” in accordance with FASB 140.

    The PSA does not distribute pool proceeds that can be tracked pro rata to identifiable loans. In this respect, in the wrong hands (e.g. Countrywide’s Angelo Mozilo) PSAs have the potential to operate like a modern “daisy chain” fraud whereby the PSA oversells the loans in the PSA Trust, thus defrauding the MBS investors. The PSA organizers also do not inform Joe at the other end of the chain that they have sold his $300,000 loan for $600,000 and that the payout to the MBS purchasers (and other derivative side-bettors) when Joe defaults is potentially multiples of $300,000.

    The PSA organizers can cover the PSA’s obligations to MBS purchasers through derivatives. Derivatives are like homeowners’ fire insurance that anyone can buy. If everyone in the world can bet that Joe’s home is going to burn down and has no interest in preventing it, odds are that Joe’s home will burn down. This is part of the reason Warren Buffet called derivatives a “financial weapon of mass destruction.” They are an off-balance sheet fiat money multiplier (the Fed stopped reporting the explosive expansion of M3 in 2006 most likely because of derivatives and mortgage loan securitization fraud), and create incentive for fraud. On the other end of the chain, Joe has no idea that the “Lender” across the table from him has no skin in the game and is more than likely receiving a commission for dragging Joe to the table.

    A serious problem with modern securitization is that it destroys “privity.” Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B’s rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his “bank” (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious “investor” will not approve. He can’t do this because they don’t exist, have been paid or don’t have the authority to negotiate Joe’s loan.

    Joe’s ultimate “investor” is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now “own” 80 percent of all U.S. “mortgage loans,” Fannie/Freddie are really just the Fed’s repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process – the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a “record title” right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe’s home) to Fannie and Freddie.

    Record Title and Legal Title

    Virtually all 62 million securitized notes define the “Noteholder” as “anyone who takes this Note by transfer and who is entitled to receive payment under this Note…” Very few of the holders of securitized mortgages can establish that they both hold (have physical possession of) the note AND are entitled to receive payments on the notes. For whatever reason, if a Bailout Bank has possession of an original note, it is usually endorsed payable to the order of some other (often bankrupt) entity.

    If you are a Bailout Bank and you have physical possession of an original securitized note, proving that you are “entitled to receive payment” on the note is nearly impossible. First, you have to explain how you obtained the note when it should be in the hands of a PSA Trustee and it is not endorsed by the PSA Trustee. Second, even if you can show how you obtained the note, explaining why you are entitled to receive payments when you paid nothing for it and when the Fed may have satisfied your original creditors is a very difficult proposition. Third, because a mortgage is security for payments due to the noteholder and only the noteholder, if you cannot establish legal right to receive payments on the note but have a recorded mortgage all you have is “record” title to the mortgage. You have the “power” to foreclose (because courts trust recorded documents) but not necessarily the legal “right” to foreclose. Think FNBER v. IMS.

    The “robosigner” controversy, reported by 60 Minutes months ago, is a symptom of the banks’ problem with “legal title” versus “record title.” The 60 Minutes reports shows that Bailout Banks are hiring 16 year old, independent contractors from Backwater, Georgia to pose as vice presidents and sign mortgage assignments which they “record” with local county recorders. This is effective in establishing the Bailout Banks’ “record title” to the “mortgage.” Unlike real bank vice presidents subject to Sarbanes-Oxley, Backwater 16-year olds have no reason to ask: “Where is the note?”; “Is my bank the noteholder?”; or “Is my Bank entitled to receive payments on the note?”

    The Federal Office of the Comptroller of the Currency and the Office of Thrift Supervision agree with this analysis. In April of 2011 the OCC and OTS reprimanded the Bailout Banks for fraudulently foreclosing on millions of Average Joe’s:

    …without always ensuring that the either the promissory note or the mortgage document were properly endorsed or assigned and, if necessary, in the possession of the appropriate party at the appropriate time…

    The OCC and OTS further found that the Bailout Banks “failed to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services.”

    Finally, Bailout Banks consented to the OCC and OTS spanking by admitting that they have engaged in “unsafe and unsound banking practices.”

    In these “Order and Consent Decrees,” the OCC and the OTS reprimanded all of the usual suspects: Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, MERSCorp, PNC Bank, US Bank, Wells Fargo, Aurora Bank, Everbank, OneWest Bank, IMB HoldCo LLC, and Sovereign Bank.

    Although the OCC and OTS Orders are essentially wrist slaps for what is a massive fraud, these orders at least expose some truth. In response to the OCC Order, the Fannie/Freddie-created Mortgage Electronic Registration Systems (MERS), changed its rules (see Rule 8) to demand that foreclosing lawyers identify the “noteowner” prior to initiating foreclosure proceedings.


    Those of us fighting the banks began to see a disturbing trend starting about a year ago. Fannie and Freddie began showing up claiming title and seeking to evict homeowners from their homes.

    The process works like this, using Bank of America as an example. Average Joe had a securitized loan with Countrywide. Countrywide, which might as well have been run by the Gambino family with expertise in “daisy chain” fraud, never followed the PSA, did not care for the original notes and almost never deposited the original notes in the PSA Trust. Countrywide goes belly up. Bank of America (BOA) takes over Countrywide in perhaps the worst deal in the history of corporate America, acquiring more liabilities than assets. Bank of America realizes that it has acquired a big bag of dung (no notes = no mortgages = big problem) and so sets up an entity called “BAC Home Loans LLP” whose general partner is another BOA entity.

    The purpose of these BOA entities is to execute the liquidation the Countrywide portfolio as quickly as possible and, at the same time, isolate the liability to two small BOA subsidiaries. BOA uses BAC Home Loans LLP to conduct the foreclosure on Joe’s home. BAC Home Loans LLP feeds local foreclosure lawyers phony, robosigned documents that establish an “of record” transfer of the Countrywide mortgage to BAC Home Loans LLP. BAC Home Loans LLP, “purchases” Joe’s home at a Sheriff’s sale by bidding Joe’s debt owed to Countrywide. BAC Home Loans LLP does not have and cannot prove any connection to Joe’s note so BAC Home Loans LLP quickly deeds Joe’s property to Fannie and Freddie.

    When it is time to kick Joe out of his home, Fannie Mae shows up in the eviction action. When compelled to show its cards, Fannie will claim title to Joe’s house via a “quit claim deed” or an assignment of the Sheriff’s Certificate of sale. Adding insult to injury, while Joe may have spent years trying to get BOA to “modify” his loan, and may have begged BOA for the right to pay BOA $1000 a month if only BOA will stop the foreclosure, Fannie now claims that BOA deeded Joe’s property to Fannie for nothing. That right, nothing. All county recorders require that a real estate purchaser claim how much they paid for the property to determine the tax value. Fannie claims on these recorded documents that it paid nothing for Joe’s home and, further, falsely claims that it is exempt because it is a US government agency. It isn’t. It is a government sponsored entity that is currently in conservatorship and run by the US government.

    Great advice Newt.


    It is apparent that the US government is so broke that it will do anything to pay its bills, including stealing Average Joe’s home.

    That’s change that both Barack Obama and Newt Gingrich can believe in.


    More and more courts are agreeing that the banks “inside” the PSA do not have legal standing (they have no skin in the game and so cannot show the necessary “injury in fact”), are not “real parties in interest” (they cannot show that they followed the terms of the PSA or are otherwise “entitled to enforce” the note) and that there are real questions of whether any securitized mortgage can ever be properly perfected.

    The banks’ weakness is exposed most often in bankruptcy courts because it is there that they have to show their cards and explain how they claim a legal right, rather than the “of record” right, to foreclose the mortgage. More and more courts are recognizing that, without proof of ownership of the underlying note, holding a mortgage means nothing.

    The most recent crack in the Banks’s position is evidenced by the federal Eight Circuit Court of Appeals’ decision in In Re Banks, No. 11-6025 (8th Cir., Sept. 13, 2011). In Banks, a bank attempted to execute a foreclosure within a bankruptcy case. The bank had a note payable to the order of another entity; that is, the foreclosing bank was “Bank C” but had a note payable to the order of “Bank B” and endorsed in blank by Bank B. The bank, Bank C, alleged that, because the note was endorsed in blank and “without recourse,” that it had the right to foreclose. The Court held that this was insufficient to show a sufficient chain of title to the note, reversed the lower court’s decision and remanded for findings regarding when and how Bank C acquired the note.

    See also, In Re Aagard, No. 810-77338-reg (Bankr. E.D.N.Y., Feb. 10, 2011) (Judge Grossman slams MERS as lacking standing, working as both principal and agent in same transaction, and exposes MERS’ alleged principal US Bank as unable to produce or provide evidence that it is in fact the holder of the note); In Re Vargas, No. 08-17036SB (Bankr. C.D. Cal., Sept. 30, 2008) (Judge Bufford correctly applied rules of evidence and held that MERS could not establish right to possession of the 83-year old Mr. Vargas’ home through the testimony of a low-level employee who had no foundation to testify about the legal title to the original note); In Re Walker, Bankr. E.D. Cal. No. 10-21656-E-11 (May 20, 2010) (holding that neither MERS nor its alleged principal could show that they were “real parties in interest” because neither could provide any evidence of the whereabouts of, much less legal title to, the original note); Landmark v.Kesler, 216 P.2d 158 (Kan. 2009) (in this case the Kansas Supreme Court provides the most cogent state court analysis of the problem created by securitization – the “splitting” of the note and the mortgage and the real party in interest and standing problems that the holder of the mortgage has when it cannot also show that it has clean and clear legal title to the note); U.S. Bank Nat’l Ass’n v. Ibanez, 941 NE 40 (Mass. 2011), (the Massachusetts Supreme Court denied two banks’ attempts to “quiet title” following foreclosure because the banks’ proffered evidence did not show ownership of the mortgages – or for that matter, the notes – prior to the Sheriff’s sale); and Jackson v. MERS, 770 N.W.2d 489 (Minn. 2009) (this federal-gun-to-the-head – certified question from federal court asking for state court blessing of its already decided ruling – to the Minnesota Supreme Court is most notable for the courageous dissent of NFL Hall of Fame player and only popularly elected Justice Alan Page who opined that MERS should pound sand and obey state recording standards).

    Bill Butler [send him mail] is a Minneapolis attorney and the owner of Butler Liberty Law.

    Tortfeasor – Wikipedia, the free encyclopedia Wikipedia, the free encyclopedia. Jump to: navigation, search. Tortfeasor – A wrong-doer, one who does wrong; one who commits a trespass or is guilty of …

  14. I really don’t like how the Feds are consistently mismanaging my money. I am going to seriously slow down on paying my taxes. I will do a return on 4/15/12, I know I will owe but to remain legal while not enabling the feds addiction to my dollars, I plan on trickling my taxes payments to $5.00 or maybe $10.00/mo. The rest will be stashed away where they can’t get it.

    As long as I pay a minimum, nothing bad can happen to me… And I won’t feel like an enabler any longer.

  15. More quantitative easing, eh? Last bate sure worked, boy-howdy. I’ve become leary of anything the Fed suggests, because we’re talking on water while they fiddle a tune, and they engineered the crisis so how can they be trusted to correct it? I’d like to beat them over the head with their “powerful wildcard”. What a load of horseshit.

  16. Is there any manner of moral and ecomomic horror not currently being
    visited on the American people whether as a result of greed, incompetence, ignorance, cronyism, or all these?
    Someone, Carie I think, posted a reference to MBIA v FDIC, which I read. Long and short: MBIA entered into a contract with
    IndyMac to insure its loans sold to end users (or so they thought), the investors, in what the investors believed were interests in mbs’s. And maybe they were interests in mbs’s, but that doesn’t seem to have benefitted the investors, even in the absence of the real estate being majorly underwater.
    IndyMac Bank ended up being taken over by the FDIC (and subsequently operated as IndyMac Federal) but even before that, IM refused to grant MBIA access to the loan files about which it had been sold a bill of goods regarding such little details as underwritng standards.

    Because it was hemoraging money in payouts
    on loans made to anyone with a pulse, loans made in the first place imo for the singular purpose of obtaining unprecedented profits on default swaps (etc) by WS, MBIA again sought a (contractual) review of the files from the FDIC, which request was met again with a ‘forget it’. I’m no authority on receivorship, but apparently it works like a bk, with creditors having a priority pecking order. MBIA got thrown into the general creditor
    category, and taking issue apparently based on breach of contract and unjust enrichment, sued. Now, one might say tough cookies for the MBIA’s of the world – they should have done more (?) stinking diligence.
    In their defense, I’d surmise the same gold-plated-but-toxic carrot was dangled before them, just as it was to homeowners from a different angle.
    It’s probably even fair to say MBIA thought “Score!” That or they operated like FNMA and made rules and entered deals, with production bonuses being the only real consideration. (Why aren’t those FNMA people in jail?)

    What torked me about the case was that the FDIC sold what was reported as billions in assets for pennies on the dollar to One West Bank (which is why there was no dough for general creditors). One West didn’t fork over 1.5 billion dollars unless it were a sweetheart deal. Did the 1.5 billion cover anything at all that HAD to be paid (like a lot of deposits), or did we the people eat it? MBIA wasn’t the only business that got the short end of it. I don’t know why IM’s other creditors didn’t pitch a fit about that fire-sale price, but I’d like to.
    Thousands if not millions of qualified Americans out of work, but our government thought another bank should get the profit? Unless I’m missing something here, these FDIC rubes involved should be outed and fired. Do not pass go, do not collect 200.00. Go straight to jail. It smacks and stinks of the same bs as giving HAMP funds to the very entities which caused our economic demise.
    Unfortunately, the pleading I read did not answer the querry: WHO was receiving the gazillions MBIA had forked over on claims for three IM trusts, although it appears to have been IndyMac, not the investors.

  17. YEP MARCH 2012!

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