FED is Selling Loans: Does it Own Them?

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Editor’s Analysis: I am watching these stories about the Federal Reserve Selling Loans — including subprime loans that they can’t get much traction on. But what troubles me is that the Federal Reserve is never mentioned as the foreclosing party.

So do they own the loans or not? Based upon published reports, the inescapable conclusion (or at least question of fact in litigation) is whether some or all of the foreclosures are being prosecuting on behalf of entities (trusts) that no longer exist and which are not owed anything because they have been bought out by the Federal Reserve, which in turns probably has no rights to pursue homeowners, and therefore should not be claiming ownership over loans that it has no authority, legal or otherwise, to enforce.

  • If the Fed is selling they must think they own them. But the Fed is never mentioned in foreclosures and nobody seems to be arguing in court that the Federal Reserve owns these loans, probably because the Federal Reserve doesn’t make it easy to find out which loans they are claiming to own, and thus which loans they could sell.
  • If what they are really selling are the complex derivatives that are often used interchangeable with owning the loans, then they are stuck with the problem of whether those loans actually made it into the REMIC pools, a fact very much in contention in litigation started by both sides of the transaction — borrowers and the original investors.
  • If the Fed is saying that they own all of the loans in the pool, that means they bought out the entire REMIC — a consequence of insurance contracts and credit default swaps bailed out by the Fed.
  • How many of those pools, bought out by the Fed still exist? Many of the REMICS have filed papers with the SEC stating that they have no further reporting requirements which would imply that they have no assets, income or liabilities. 
  • Does the Federal Reserve even know what it owns or is it just taking the word of the insurance companies, investment banks and intermediaries as to what was in those packages that were delivered to the Fed for 100 cents on the dollar?
  • And who is foreclosing in the name of those pools when the pool investors have been paid off?
  • And here is the kicker — if the pool investors were paid off (directly or indirectly) they were paid on contracts that expressly waived the right to subrogation; i.e., they waived the right to pursue homeowners on their mortgage debt.
  • If the loans were not transferred into the pools, then these transactions are a sham.
  • But they are a sham even if there was a transfer into the pools if the Fed acquired the loans via insurance and CDS contracts that waived subrogation. Remember the Fed bailed out AIG and other insurers so they could make good on insurance policies covering mortgage backed securities.
  • They bailed out the investment Banks, not the investors. So if the Federal reserve gave out 100 cents on the dollar for the actual mortgage bonds that would mean that the investment banks were still holding the mortgage bonds for sale when the market collapsed. But that isn’t what happened. The bonds were sold forward, which means that the investors bought the bonds before there were any loans to put in the pool. So if the Federal reserve gave investment banks money, what were they buying?
  • It seems more likely that the Federal Reserve was giving the investment banks money to make good on their counterparty liability in credit default swaps, which also have a provision that prevents the counterparty from exercising any right of subrogation or claims against homeowners.
  • But if the Federal Reserve was funding insurance contracts and CDS then they didn’t have any ownership interest in the loans, so what are they selling?
  • All these things and more raise the questions of fact that should allow homeowners to probe through discovery into the ornate securitization process that looks more and more like a sham itself. but the questions in foreclosure or quiet title look the same — whom did you pay, what did you pay, why did you pay, and when did you pay.
  • Follow the money and it will literally take you home. Start with the COMBO Title and Securitization, then the Loan Level Accounting Analysis and then launch into discovery. What you find in discovery may well cast doubt on the origination of the loan transaction, the viability of the note and the viability of the mortgage.

Alluring subprime debt can still poison investors

By Agnes T. Crane

See Full Story on Reuters

Subprime mortgage debt has got its mojo back. A growing number of investors reckon there’s life yet in the mortgage market’s toxic sludge from the crisis – and that now’s the time to buy. But buyers should tread carefully.

Yields are certainly enticing. Last year’s battering lopped up to a third off the value of subprime mortgage bonds, leaving some fetching 10 to 12 percent, according to Barclays estimates. U.S. junk bonds, by contrast, offer less than 8 percent. Moreover, while the U.S. housing market is hardly in a recovery, few think home prices will fall by more than a few percentage points from here.

Investment banks in particular look eager to scoop up the mortgage sludge. Credit Suisse has just bested Goldman Sachs and two other broker-dealers to a $7 billion slice of the subprime holdings the Federal Reserve took from American International Group in 2008 – though the central bank will not disclose the price until April. It’s not the first time this year the Swiss bank has been involved in the market: the bank’s senior managers are getting in on the act, too, voluntarily buying $450 million-worth of securities and putting them into a fund of mostly subprime bonds that the bank set up in 2008 to pay staff bonuses.

Less swift investors may be focusing on the chance of a good deal of supply coming onto the market. All in, some $1.2 trillion is walled up in U.S. banks, insurers, hedge funds and European firms, according to Barclays. Banks, especially, may be big sellers as Basel III capital rules are onerous for securitized debt. Europe’s lenders hold some $70 billion, with up to $20 billion potentially for sale, while U.S. banks are sitting on around $200 billion, according to Barclays’ tally.

But subprime mortgage bonds have long been an illiquid asset. The analysis required to price such complex securities makes trading them incredibly difficult. And any attempt to sell more than a small amount can quickly whack prices. That happened last year when the Fed used public auctions to get rid of some of its AIG waste and ended up offloading less than it hoped.

Buyers with a longer-term investment horizon of a couple of years or more can usually stomach some short-term volatility, especially if they don’t need to mark to market. But those who are looking for a quick fix risk getting slimed.

26 Responses

  1. There is a letter Wellcome to the Freddie, Fannie’s Mortgage Shell Game, by Shawn Newman and it states by Freddie, &Fannies guide lines the Servicing bank may never identify themselves as the owner of the loan. Look it up. The servicers are the only ones identified to be the owner of the loan.

  2. Johnsgault, I am days late answering this went on to other things and did not check this sight out again until now. The OCC letter dated January 14, 2005, national bank law does not preempt state law. The banksters all have to be in compliance with state law when doing business in that state. None of them are. They are all in non compliance and doing unlawful foreclosures and sales and claiming to be beneficiaries. See
    http://www.foreclosureprose.com/storage/case_study/Brief-MERS-v-Nebraska-Dept-of-Banking.pdf where MERS claims ii is not a beneficiary, when in every county register in every state in the U.S. MERS claims to be the beneficiary, and having agents foreclose in their name up until mid last year in 2010. MERS, Deutsche Bank Nat’;l Bank and RECONTRUST and so many others are not registered to be doing business in any state and are unlawful for one more reason. See the McDonnel executive summary, scope of registry audit and the Office of the Assessor-Recorder San Francisco, Foreclosure in California, A Crisis of Compliance, and Phil Ting county assessors report “The System is Broke”, stating massive unlawful foreclosures have happened.

  3. @shelley – there is a good deal of info which might be helpful to homeowners about corporate presence, dispositive anyway to ward them off for a spell til they get it together. I swear I read a corporation without one in Iowa, for instance, may not sue or be sued in Iowa. My memory is going, tho, along with the rest of me. Then you have to of course find the definition of corporate presence – foreign corp must domesticate and have registered agent in this state?
    Someone else mentioned sueing MERS’ officers personally. Maybe that person will do the research which might be extensive under
    “piercing the corporate veil”. It would only be a thorn tho if we did name officers – real ones – personally because a dollar to a donut, those guys are bullet-proof. Probably got their funds down in the bahamas with whn for prez and all the Wallbangers. Still, a lot of thorns would be a major pain in the heiny.

  4. No. Does not own, only owns security investments and derivatives. Not the creditor. Fed will be first to tell you this. No one asks.

  5. buying and selling debt should be illegal or once bought should be unenforceable.

  6. The people need to get rid of the FED!

  7. Johngault, I try to give every piece of info to everyone I can as i find it. I actually found that a long time ago,and used it in my original case against the banksters. I had been trying to dig it up, when my father walked it in the door to me, at the right moment. I have been trying to find it again. I am not sure what you are asking of me. I know a local paralegal helping homeowners said it is a great find. We need to push all our AG’s to do their duty and use this law to seize the banks and throw the parasites out of every state in the U.S. It is standing law in WA State! This bunch of crock the banks are feeding the public about people being jealous of people that should never have taken out a loan they could not afford, is getting as old as the mimicked to big to fail banks. It is simply not true for most people I meet. The public is aware of the fraud and appalled by it. And yes they would like a reduction on their houses and I think the government and the banks should be fair and give all homeowners their houses. The have screwed the majority of mortgages up. Or at least the larger percentage, then the banksters and government officials can not claim they can not give principal reductions or free houses due to being unfair to the people whom still have been able to keep up with their payments, at least for now, whom may still be in danger they are unaware of. Especially when since the 1920’s probably most Americans have been cheated of the wealth their anchestors lost to these unconscionable banks. If they can give 122 billion out in bonuses (probably more like by their silencing benefits) they can afford to be fair to the people they have screwed since 1920’s, and even as far back as before America. Since the banks are so concerned about being fair, let them be fair. They are full of shit they are worried about being fair. Now Obama wants the investors and retirement funds to pay for the bankster crimes. Give me a break! Does anyone else see the writing on the wall? The government wants to seize the accounts of innocent people to pay the bank crimes. They really want what is fair. I think we all need to go to the beach for at least a day. One of my hairstylist husbands came in and asked me how I was doing and I said “I wont know until tomorrow after the President gives his speech, if you see my head blown off my shoulders you will not it did not go well”. Obama is not winning any votes If he does what he says he wants to do, he will only be president again if he takes us over in a dictatorship. There is good news on the web Mortgage servicing fraud. An article shows there is greater resistance to this push to screw Americans than is being told on the news right now. We have hope! Dont jump over a cliff yet. We always have hope. I know of a man whom was walked out of his home by sheriffs. I had told him to watch what was happening and gave him info to help him. He went to an attorney and asked the attorney to file wrongful foreclosure and wrongful sale at auction, and loss of equity. His payments were over twenty thousand a month a month that is no mistake. More like $2,2,000.00 a month. A three million dollar home. His simi large business is in the toilet due to these criminals. In six weeks his foreclosure was rescinded his sale was rescinded and he is still in his house, wondering what is next. The parasites asked him to sign he acknowledged they owned his mortgage and they would put the house back in his name. His attorney told him to sign it . He told his attorney to go to hell. He keeps up with sending objections of transfer of assignments. They did eventually put the house back in his name and did a satisfaction of mortgage to try to set the house up for a clean title I think, but I dont think that really works for them (the predators). He has not made payments on it for three years. He will be eligible in this state for unsecured debt three year statutes of limitations. and there is an estopple representation law, and a six year promissory note uncollectable debt by state statutes here in Washington state from the time you signed the contract. All the contracts were breached at inception so that rule applies if they try to use it . The law says six years from the signing of a contract and the written contract in cludes promissory notes. We have an adverse possession law and a castle law in Wa state also. I have several cases I am fighting cause of an corrupt attorney that threw me under the bus for the city mayor here and against the city mayor and my mortgage. I have a full plate. I am pro se (propria persona) so I help when I can but I dont have a lot of time for research outside what I find to help myself, which usually helps a lot of others out.

  8. @johngault

    Thanks for that. We’re okay. It’s a huge lesson in detachment…I was naive about a lot of things, I guess…the servicers kept up with their lies no matter what—cited “privacy laws” when I would demand proof of real creditor…but I ultimately decided the house just wasn’t worth fighting in BK court—where we ultimately may or may not have won anyway…being that I’m in lovely non-judicial California…
    We are working with a “delay eviction” company, and I found a charming affordable house to rent (with a very kind owner), that is close to my kid’s schools, which is a huge blessing and relief. They can have the damn house…it’s falling apart, anyway! I did what I could—and finally decided the most frugal and best thing for my family was to move on and get a fresh start.
    I do have some consolation in that “they” didn’t get almost 2 years of my money…and the third party “investor” who bought at the Trustee’s sale has an “as is” house that has a tiny one car garage, tiny closets, tiny kitchen, termites, a faulty gas line, and a whole bunch of other things that need fixing…the house we are renting is much nicer—so THERE!! 😉 Anyway, thank God we have an income—that seems to be the hardest thing to have these days…

  9. Selling what you don’t own is called shorting. In essence, the Fed is shorting the housing market by doing this….Everyone along the food chain (title chain) is selling what they don’t own…Everyone is shorting housing….

  10. @shelley – that info regarding corporate presence in a state (for any fraudclosers) may prove to be very valuable. Any chance you would become our authority or at least do some more research and tell, tell? thanks

  11. @carie – did I get it the other day that your home was finally taken in foreclosure? If so, I want to tell you how sorry I am and I’m sure that would go for a lot of people here. Wish we had a million bucks to hire some A-list talent to take that gang on. I think if we did, they’d get their long-overdue lunch.

  12. Always wondered why we never saw the sub prime market take a dump like everything else .It’s a little hard to do when it’s financing our next downfall.Wow I don’t even know what to say anymore.Incredible!!!

  13. I’m having a jealousy day. It’s not all that unusual, but today it’s accented. I’m jealous of the people in this country who go about their daily routines as if the rule of law in this country is being followed, as if the fact that it isn’t will never touch let alone destroy their lives. In fact, many of them don’t see anything other than some higher prices at gas pumps and markets which is probably chalked up to mol par for the (old) course inflation. I wish those people no ill-will whatsoever. My jealousy doesn’t spill into uglier feelings toward those people who on normal jealous days, I consider lucky, along the lines of ignorance is bliss. We check our email for LL posts and information from any of our other sources lest we miss the one thing which might make a difference in our own lives and those of others who share our indignation and anger. The anger and indignation eats at us and is impossible for us to ignore. “They” sign on to social media sites like facebook, looking for greetings and tales from friends and family and share their own events, music, pictures, life’s bright side.

    It’s never occurred to me to resent those people. Until today. On a jealous day like today when I am also exhausted and all the news is bad (like which of these lame ducks who will change nothing should we vote for?), it feels like the handful, in the big picture, of us trying to unravel and make some sense of this labyrinth (abyss?) and return the rule of law to our country can never overcome the obstacles we face. We are routinley apprised of yet another pass to another criminal enterprise, mastermind, or participant by the people whose job it is to see to it those passes aren’t given. It’s unavoidable that these passes have the effect of legitimizing those criminal acts. Monetary settlement is a remedy for civil breach, not criminal acts.
    And MERS, the supreme enabler if not mastermind itself, is still alive and kicking to my utmost dismay.
    We’re grossly outnumbered, out-financed, and oppressed. We are in fact the 99%, yet we remain the minority.
    Today my jealousy is eyeing resentment for those in the 99% who themselves have the luxury of blinders in regard to the rampant criminality and injustice which have become our rule. Imo, that was a long fall. But what’s to do for it? Hold up a sign? Start intruding on the social medias with the facts? Grin and bear it and keep plugging away?
    I would hazard a guess I don’t express anything a lot of people in this battle haven’t felt (?) It’s a wonder, truly, that more of us haven’t just gone to the beach.

  14. The judges in California don’t care if the “foreclosure criminals” are lying…they let them take the the house no matter what.

  15. Shelley Erickson:

    “Deutsche claims the PSA’s are void and worthless right in their briefs by their own hands.”

    Thanks! This argument by Deutsche would hold true for other trustee banks for WAMU trusts as well. (ie LaSalle/BofA now US Bank NA).
    I am still interested in the the Federal Home Loan Banks enters the picture as in pledged loans – assets.

  16. DEVELOPMENTS IN THE DEUTSCHE BANK V. JPM AND FDIC …
    foreclosuredefensenationwide.com/?p=393Oct 10, 2011 – As most of you know, Deutsche Bank National Trust Company sued JPMorgan Chase and the FDIC back in 2009 over claimed breaches of contract as to WaMu initiated mortgage loans which were made part of securitized …
    WSR Court News – WaMu Shareholders Resources
    http://www.wamu-shareholders-resources.com/courtnews.htmlDec 6, 2011 – Not affiliated with WaMu, or JPMorgan Chase, not an organization, just a …. •1:09-cv-01656 – Deutsche Bank National Trust Company v. FDIC …
    DEUTSCHE BANK’S AMENDED COMPLAINT AGAINST WAMU …
    http://www.foreclosurehamlet.org/…/deutsche-bank-s-amended-complaint-…Aug 25, 2011 – DEUTSCHE BANK’S AMENDED COMPLAINT AGAINST WAMU, CHASE AND THE FDIC. Posted by … KABOOOOM | Plaintiff’s Petition – American Home Mortgage Servicing vs Lender Processing Services (LPS) · More…

  17. [PDF]
    Wells Fargo Bank One MBS Trustee Letter
    http://www.occ.treas.gov/…/laws-regulations/wells-fargo-bank-one-mbs-tru…File Format: PDF/Adobe Acrobat – Quick View
    January 14, 2005. Anthony J. … preempts application of the state laws at issue here to loans simply because they were purchased and held by national banks acting as trustees in connection with issuance of the mortgage-backed securities … Federally authorized real estate lending powers do not apply to national banks.
    OCC: Archived News Articles
    http://www.occ.gov › TopicsComptroller of the Currency, Administrator of National Banks …. Branching, 08/10/2005, This letter (PDF) explains that a remote check scanning …. that became public during the period of December 15, 2009 through January 14, 2010. …… and the National Bank Act do not preempt certain state laws when national banks …

  18. On top of this read The Remics have failed The Remics have failed-deadly clear and the Oppenheim Report you find within The Remics have failed. And add the OCC letter dated January 14, 2005 that states National bank law does not preempt State Bank law and Deutsche and Chase, RECONTRUST, BOA AND MOST BANKS ARE NOT REGISTERED TO DO BUSINESS OR HAVE LOCAL AGENTS IN YOUR STATE and are not in compliance with State CPA law nor State Deed of Trust law to have a local location, not by a third party like CT Corp. and to have an office and phone number where the owner of the loans can be reached and negotiations can be done in person to save a mortgage. They have to be registered to do business in the state or they are foreclosing illegally.

  19. Chase may not REALLY own WaMu yet [Archive] – BEING MIDDLE CLASS
    beingmiddleclass.org/archive/index.php/t-697.html
    6 posts – 3 authors – Sep 24, 2010
    Turns out that Chase may not still hold full ownership of WaMu until August … agreed to sell WaMu to JPMorgan Chase for $1.9 billion on Sept. 25, 2008. … purchase and assumption agreement allows the FDIC to extend the …
    Get more discussion results

    Objection to Motion For Relief from Automatic Stay Filed by Attorney ..

    .
    http://www.scribd.com › Business/Law › Real EstateMar 27, 2011 – As a result, on September 25, 2008, OTS closed WaMu, finding the bank to have … Upon its appointment, FDIC Receiver succeeded to all the rights, titles, … 4.8 of the P&A Agreement to elect not to assume existing agreements “which … ARGUMENT JP MORGAN CHASE DOES NOT HAVE STANDING TO …
    [PDF]
    FEDERAL DEPOSIT – Ghost of WAMU Home Page
    http://www.ghostofwamu.com/documents/09-01656/09-01656-0017.pdfFile Format: PDF/Adobe Acrobat – Quick View
    Also on September. 25, 2008, the FDIC Receiver transferred certain WaMu assets and certain WaMu liabilities to. JPMorgan Chase Bank, N.A. (“Chase”) in a Purchase & Assumption Agreement entered into by the FDIC in its … asked for three short extensions in this case, most recently on February 3, 2010. On February 12, …
    The Hail Mary Plan to Get J.P. Morgan to Pay More for WaMu – Deal …
    blogs.wsj.com/…/the-hail-mary-plan-to-get-jp-morgan-to-pay-more-f…Aug 18, 2010 – During the depths of the financial crisis in 2008, J.P. Morgan Chase … the $1.88 billion was delivered to the FDIC after Washington Mutual’s Sept. 25, 2008, seizure. … The most recent extension of a final settlement expires Aug. … The original purchase and assumption agreement gave FDIC the right to …
    Sedgwick – Law Firm Publications & Presentations

  20. Chase stated in the “Memorandum of Points And Authorities In Support of JPMorgan Chase Bank, N.A. and Washington Mutual Mortgage Securities Corporation’s Motion to Dismiss and Motion for Partial Summary Judgment” on page 33:

    “Under the plain terms of that agreement, JPMC did not become WMB’s successor in interest. Since its closure, the FDIC as receiver has controlled WMB. While JPMC purchased all of the assets of WMB, it assumed only specified liabilities: those that had been reduced to a dollar amount on WMB’s “general ledger and subsidiary ledgers and supporting schedules which support the general ledger balances.”

    The Court has ordered discovery, to be completed by May 11, 2012, “as to the meaning of the Purchase and Assumption Agreement”, which is the agreement Chase uses to foreclose and assign mortgages nationwide. This production is under a “Confidentiality Order”.

  21. [PDF]
    PURCHASE AND ASSUMPTION AGREEMENT FEDERAL – FDIC
    http://www.fdic.gov/about/freedom/Washington_Mutual_P_and_A.pdfFile Format: PDF/Adobe Acrobat – Quick View
    RECEIVER OF WASHINGTON MUTUAL BANK, … and. JPMORGAN CHASE BANK, NATIONAL ASSOCIATION. DATED. AS. OF. SEPTEMBER 25, 2008 …

  22. Only read the Assumption agreement between FDIC/WAMU and CHASE. It reads Chase only assumed the servicing rights and did not assume the liabilities and the loan. Chase specifically states on a reply to the Duetsche Bank Nat’ Trust V FDIC & Chase/WAMU that Chase did not purchase and assume the loans they only assumed the servicing rights. Deutsche Bank Claims in the complaint that Chase and the FDIC did not transfer the PSA’s in time, look at the Extention agreement to the September 25, assumption agreement, it was extended and not transferred in time. Deutsche claims the PSA’s are void and worthless right in their briefs by their own hands. .This was on the web sites I pulled it off for my mortgage mod fraud case. Chase did not purchase the loans.

  23. “Federal Home Loan Bank System Lending and Collateral Q&A November 14, 201:

    “….12) Under what circumstances would an FHLBank take possession of collateral? What happens if a member fails? If a member fails, are the FHLBanks prepared to manage collateral in the event the receiver of the failed institution does not pay off the advance?
    An FHLBank would typically take physical possession because of the deteriorating financial condition of a member, but there could be other situations such as regulatory actions by a member’s primary regulator that would indicate inadequate controls or other conditions that would cause an FHLBank to take physical possession of collateral. Historically, when an insured depository institution member has failed, the FHLBanks have been repaid in full because the value of the collateral, including any FHLBank stock owned by the member, has far exceeded the outstanding advances and other credit obligations to the FHLBank. However, every FHLBank has a collateral liquidation plan in place in case the FHLBank would have to liquidate the collateral to satisfy the failed member’s outstanding advances and other credit obligations to the FHLBank.”

    ????

  24. I seemed to have seen something about ‘pledged loan’ in my closing instructions to title agency. I need to review it.

    Did the title agent via originator pledge the note ASAP and pull funds from the Fed right after settlement?

  25. Neil, a very good post which should be forwarded to AGs, legislators,etc. I have a question along these lines: in a note to investors in xxxxTrust, there was a distribution made from ‘overcollateralization proceeds’, with no further explanations. From what source would I deduce these proceeds to have come from? thanks for any light you can shed.

  26. Related to this:

    I wish someone would explain “pledged assets”. Don’t understand this. See the article below about the Federal Home Loan Bank. It says the Federal Home Loan Bank receives the original deeds and notes (custodian?).

    When is an asset pledged? Asset as in security or assest as in mortgage? At origination? – as in the Federal Home Loan Bank loans the money to the “lender” on the Deed of Trust and the Note? Is this a line of credit issued from the Federal Home Loan Bank?

    How does the sale to the trust enter the picture when there is a pledged asset? Who is the holder in due course? Who has the power of sale? Who is the beneficiary? Who can make a decision about a mod? Who can satisfy a lien”. Who can assign a secured interest to another or sell the mortgage to another? Why is the Federal Home Loan Bank not on foreclosure notices?

    http://victoryoverchase.blogspot.com/2012/01/what-about-wamu-pledged-loans-federal.html

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