Banks Cover Up Their Actual Losses and Insolvency


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Editor’s Note: It isn’t just the Banks that are covering up the fact that those “assets” on their balance sheet are not assets and never were owned by the Banks. The underlying threat here is that the loss is going to hit pension funds and other “investors” in RMBS whose money was used to fund mortgages (after the investment banks took a huge bite out of the pool of funds as “trading profits”). Pensioners are already getting notices of cutbacks and even elimination of the pension benefits.

This is all brought to you by the makers of such accounting tricks like “off balance sheet transactions.” Try telling your boss that the money you stole was an off balance sheet transaction and see if that covers it — or if you end up a guest of the state or federal government in prison.

RMBS Losses in Limbo: As Bad As They Seem, The Reality May Be Much Worse

By Ann Rutledge | Published: January 25, 2012

Since the financial crisis in 2007, residential mortgage-backed securities have been hit with high levels of borrower defaults, realized losses and credit rating downgrades.  Realized losses declared on private residential mortgage-backed securities (RMBS), already much higher than original rating agency and investor estimates, are projected to rise substantially in the coming months, according to a recent analysis by R&R Consulting, a credit rating and valuation firm in New York.

On the securities performing at December 2011, a universe of approximately $1.42 trillion, R&R estimate the amount of additional losses likely to materialize is $300 billion, with one-third concentrated in ten arranger names, including Countrywide, Morgan Stanley and JP Morgan. About 17,000 tranches, or 34% of the universe analyzed by R&R, may lose up to 83% of their remaining principal.

In addition, R&R estimates that approximately $175 billion of losses already incurred on the loans have not yet been allocated to the bonds in the related transactions. Failure to allocate realized loan losses could distort the valuation of related RMBS tranches.

“The light at the end of the tunnel is still a long way off for RMBS,” said Iuliia Palamar, head of ABS research for R&R.  “We are now drilling down into the analysis to identify the individual transactions by vintage, servicer and other important issues with respect to these losses.”

Unallocated Losses by Security VintageUnallocated Losses by Security Vintage

In the course of conducting valuations on RMBS, the R&R analytics team discovered widespread, serious, repeated data discrepancies. Ann Rutledge, a founding principal, asked the team to measure the magnitude of the discrepancy on the RMBS universe. To do this, R&R subtracted cumulative losses allocated to the tranches from unallocated, expected losses, calculated as the sum of defaults, bankruptcies, foreclosures and REOs minus recoveries. “The results were very disturbing: $175 billion of unallocated current losses and $300 billion of imminent losses,” Rutledge said.

Rutledge commented that she was not clear why these losses are being held in limbo instead of being properly allocated, since the data used by R&R in the calculations were included in the servicer reports. She cautioned, “Investors should be concerned about receiving inaccurate bond performance information and paying unnecessary fees.”

The implication for bond holders in RMBS is significant with respect to both estimates.  Subordinated securities in the RMBS with probable future losses ought to be written down by such losses but instead may be continuing to receive interest owed to more senior tranches. It could also mean that servicers are earning fees against loans that have already been liquidated, which also reduces the amount of cash to pay senior bond holders.  For example, in one month, servicers could generate $75 million or more in inappropriate fees against the $175 billion in unallocated losses.

Rutledge also noted that R&R has observed a steady increase in amount of limbo losses, raising the prospect that a significant amount of funds are still being misallocated for bond investors.

“The system for MBS is still fundamentally broken,” she said. “All the loose ends need to be identified and knit together into a well-functioning system before investors can feel comfortable investing in RMBS once more.”

R&R Consulting is a credit rating and valuation boutique. Founded in 2000, R&R has a patented process for obtaining current intrinsic valuations on structured securities in the secondary market.

Inquiries should contact Iuliia Palamar at +12128675693 or


31 Responses


    Any final agreement will be narrowly focused to release banks from claims related only to documentation errors and other so-called robo-signing conduct, said the person, who declined to be identified because the talks are ongoing.

  2. Please anybody —explain how the settlement would unravel these case decisions–how are the AGs going to interrupt judicial civil processes? not?

  3. I am sure just like all their criminal steps to profit, the servicers are hiding their crime, doing a coverup, while extracting fees they dont have coming and when the ball bounces into their court and they have to expose the losses all hell is going to break through on them. The servicers are concealing everything to gain profits while they are aware it is all false. Sophisticated fraud! Is there anywhere they can hide when it all comes back in their face. Profits hidden in off shore accounts? Hope this heavy ball bounces on their heads.

  4. When the servicers forceplace fllood insurance at $13,000 to replace the $1800 policy (my real numbers) and kick themselves back the difference (aka Wells Fargo/ Bank of America/ Balboa insurance) there is no incentive to foreclose quickly.

    I read an interesting Fannie Mae memo that mentions that servicer must remit to FM the “refund” for insurance before FM will reimburse servicer. Not sure if this means “refund” from cancelled old policy or “refund” meaning kickback in the forceplaced insurance.

    I think we as homeowners need to keep arguing that the servicers/FM’s actions are hurting the end investor as well as us. Foreclosure costs the end investor the most and the homeowner the most. Then again if they wrote it off long ago there is no investor (but nobody wants to believe that).

    I am not certain the servicers every even kick back the proceeds to the trust. I saw a website that proved that in a few cases the funds never made it back to the trust after sale of the home.

    Have a good weekend.

  5. Non-bankrupt servicers under PSAs are supposed to pay the amounts to the trust investors until the debt is deemed uncollectible–the servicer is building up its claim for advances –add insurance –re taxes and late fees etc—–then it seizes your house and sells it–and seizes 100% of the proceeds of sale—they are getting all lined up to seize the home–w/o pmt to investors–could plan a related party purchase–given your house value/debt anyway and 20% —downpmt–they need to build up a good sized advance balance to do a clean 100% seizure

  6. look like amounts coming due to me–with no payment credited–if its accruing added interest at time of final resolution, the servicer will add all the underpayments to principal and send a 1099 forgiveness of [accrued interest] debt

  7. yes did receive a NOD…. but just to make the story even more twisting it had the wrong account # , as the servicer (refuse to call them banks)switched the account number in the first year for no apparent reason (although i am sure this was a sinister reason)… really cannot make this stuff up !

  8. @Java,

    Have you ever received a NOD from anyone? If not, I think it’s pretty cool. Keep it that way and don’t say a word! Put together a solid file, make sure to get all your recordations, all your assignments and transfers, everything and sit tight. Put a maximum on the side for defense costs, just in case. Even if you don’t use it for that, you’ll have it!

    Might take a very, very long time for “them” to realize it.

  9. @ DCB
    the mortgage is a regular old boring fixed rate with 20% down (and stolen equity)……the 2350 is the monthly payment of P+I

    @ Enraged
    absolutely have no idea who it could be, but as you can see there are dates payment received (although no payments on our end have been sent for over a year as we do not pay collection agents/servicers who do not own our note)……its probably not a big deal but YOU NEVER KNOW and its showing on our report as paid ??????

  10. @Java,

    I hadn’t read right!

    Looks like it’s being paid alright. Any idea who?

  11. […] Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: Ann Rutledge, bailout, bankruptcy, banks, borrower, countrywide, credit crisis, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, Iuliia Palamar, LOAN MODIFICATION, modification, press releases, quiet title, rescission, RESPA, Risk Measurement, securitization, Structured Finance/Securitization, TILA audit, trustee, WEISBAND Livinglies’s Weblog […]

  12. What does the 2350 monthly amount—principal and interest? is it interest only–is this a 4 option ARM

  13. if he understands it, everybody else does too.

    RU kidding–he doesnt understand it—he relies on Geithner etc to condense it to 6 bullet points—and they are mostly focused on political impact–then impact on banks–barely on the periphery is impact on borrowers–they are not necssary to raising the billion bucks needed for reelection—-jamie dimon is–case closed

  14. @java


  15. its for a mortgage (not owed to the servicer…LOL)

    the 424,000 is the account balance (which hasnt gone down)

    the dates are the date payment received (but no payments have been to the servicer !!!!)

    the 2350 is the monthly payment paid

    the actual amount paid is listed as N/A (but they didnt put ZERO)

    those dates for payment received, while admittedly could be for something else , but they SURE LOOK STRANGE TO BE ON THERE (as there were no payments sent by me to the servicer but perhaps someone did ?????)

  16. @Java,

    Was $2,350 the original balance and $424 the monthly payment to be made? Reading what you posted, the caption you refer to doesn’t correspon with the actual numbers and dates.

    What I read is that, indeed, $2,350 was the actual amount balance owed. A $424 payment should have been made month after month, at a specific date, but wasn’t, hence the “n/a” next to it.

    What is that for? A credit card?

  17. wow i just ran a credit report and i cant say for sure but it looks like payments are being made or being reported as being paid under date payment received (3 payments at a time ????)……does anyone read this the same way i am ?

    Balance History – The following data will appear in the following format:
    account balance / date payment received / scheduled payment amount / actual amount paid
    Nov 2011: $424,000 / October 10, 2011 / $2,350 / na
    Oct 2011: $424,000 / October 10, 2011 / $2,350 / na
    Sep 2011: $424,000 / August 12, 2011 / $2,350 / na
    Aug 2011: $424,000 / August 12, 2011 / $2,350 / na
    Jul 2011: $424,000 / June 10, 2011 / $2,350 / na
    Jun 2011: $424,000 / June 10, 2011 / $2,350 / na
    May 2011: $424,000 / April 1, 2011 / $2,350 / na
    Apr 2011: $424,000 / April 1, 2011 / $2,350 / na
    Mar 2011: $424,000 / January 12, 2011 / $2,350 / na
    Feb 2011: $424,000 / January 12, 2011 / $2,350 / na
    Jan 2011: $424,000 / January 12, 2011 / $2,350 / na
    Dec 2010: $424,000 / October 10, 2010 / $2,350 / na
    Nov 2010: $424,000 / October 10, 2010 / $2,350 / na
    Oct 2010: $424,000 / October 10, 2010 / $2,350 / na
    Sep 2010: $424,000 / August 11, 2010 / $2,350 / na
    Aug 2010: $424,000 / August 11, 2010 / $2,350 / na

  18. @Carie,

    “The new unit, however, could jeopardize the negotiations now taking place between five of the country’s largest banks, the states’ attorneys general and the Obama administration over mortgage fraud and wrongful foreclosures, some observers say.”

    I sure as hell hope it does. We’ve waited 7 years for those atrocities to be discovered. A couple of years more wouldn’t hurt… were Obama to declare a national moratorium in the meantime, pending the result of the investigations. It hasn’t happened yet. I was hoping for an announcement on Tuesday. No such luck. One has to wonder why…

    “This [unit] is addressing a very different problem than the servicing settlement,” said one official.”

    Bingo! The investigations will exclusively be directed at the losses sustained by the investors. Obama still believes that homeowners caused (in large part) their own demise. He keeps harping on the lenders and homeowners’ irresponsible behavior. In fact, it has been his refrain from the get go: “irresponsible borrowers”. He completely overlooks (intentionally or not, I don’t know) the fact that most borrowers were sold something they were not educated enough to understand. Borrowers are mechanics, supermarket employees, haridressers, people with a trade they’re good at but no understanding of laws. Obama sees things from the standpoint of a lawyer: if he understands it, everybody else does too.

    In Obama’s optics, there exists only one kind of victims in this crisis: the investors! Never mind that investing comes with its fair share of risks and speculation assumes acceptance of said risks.

    Under the circumstances, we can’t expect meaningful help from Obama and certainly not a moratorium.

  19. The banks just might have higher losses to cover up in Oklahoma. Two Supreme Court decisions handed down this month, both great decisions with this same, or very similar, conclusion about lack of standing:


    ¶12 It is a fundamental precept of the law to expect a foreclosing party to actually be in possession of its claimed interest in the note, and have the proper supporting documentation in hand when filing suit, showing the history of the note, so the defendant is duly apprised of the rights of the plaintiff. This is accomplished by establishing that the party is a holder of the instrument or a nonholder in possession of the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to 12A O.S. 2001, § 3-309 or 12A O.S. 2001, § 3-418. 12A O.S. 2001, § 3-301. Likewise, for the homeowners, absent adjudication on the underlying indebtedness, the dismissal cannot cancel their obligation arising from an authenticated note, or loan modification, or insulate them from foreclosure proceedings based on proven delinquency. See, U.S. Bank National Association v. Kimball 27 A.3d 1087, 75 UCC Rep.Serv.2d 100, 2011 VT 81 (VT 2011); and Indymac Bank, F.S.B. v. Yano-Horoski, 78 A.D.3d 895, 912 N.Y.S.2d 239 (2010).


    Just imagine. These few words might send shock waves up the banks’ spine:

    Fundamental precept of the law to EXPECT…

    …actually be in possession of its claimed interest in the note…AND

    …proper supporting documentation IN HAND when filing suit…

    …showing HISTORY of the note…

    At least Oklahoma followed RULE OF LAW.

  20. Shuster & Saben obtains $46,878 fee judgment against U.S. Bank

    J.R. Ewing of TV drama Dallas was fond of saying “revenge is a dish best served cold.” In January of 2012, our firm obtained a judgment for attorney’s fees and costs against US Bank for in excess of $46,000.00. Our client’s revenge was served cold, approximately six months after a judge dismissed US Bank’s foreclosure case. In a foreclosure case when the bank loses the bank has to pay the prevailing homeowner’s attorney’s fees and costs. In this case, firm attorney Richard Shuster, spent 101 hours defending the case, and the Court, found that 95 of the hours were reasonable. The Court ordered U.S. Bank to pay the firm 95 hours at $450.00 per hour ($42.500.00) together with $3,562.50 of expert witness fees, $500.00 of interest, and $65.00 of costs.

    This was the largest attorney fee judgment against a bank or loan servicer the firm has ever obtained and is one of the largest fee awards awarded in Brevard County in a foreclosure case. In this case U.S. Bank went to the mat. At mediation the lender offered our client a token interest rate reduction of less than 1% that would have cut the clients mortgage by less than $50.00 a month. Our client, a county employee, had lost most of his overtime compensation in the wake of government cutbacks that were widespread in the Space Coast, after the housing bubble burst causing property tax revenues to fall off a cliff. Our client owed nearly double what his home was worth. At mediation, we tried to convince U.S. Bank that their case was not a slam dunk but the attorney for U.S. Bank was a “coverage” attorney brought in just for mediation because he had an office in Melbourne. The banks coverage attorney saw the file for the first time the day of mediation. For more than two hours, attorney Shuster pointed out to bank several of the serious obstacles they would face if they proceeded and some of the wholes in their case. US Bank was cocky and complacent. Their position was that they would win and that the homeowner’s choice was to either take the banks crappy offer or lose their house. Our client made another choice. He choose to stay the course and fight.

    Prior to the mediation, the client was on hand when Richard Shuster won the first motion to dismiss in the case. The Court’s first order of dismissal was made upon a finding that the documents filed with the complaint ( the note and the mortgage) were inconsistent with the allegations in the complaint. The first dismissal was made with leave to amend within twenty days. Before the twenty days expired U.S. Bank served an amended complaint with a different version of the note and resumed the prosecution of the case. When the firm asked U.S. Bank to admit that the copy of the promissory note attached to the complaint was a true and correct copy of the note their lawyers objected. Shuster & Saben then moved to compel. When U.S. Bank refused to respond to interrogatories ( written questions under oath ) the firm served a motion for sanctions. Then U.S. Bank served a response that was full of objections and our firm filed a motion to compel better answers. At every turn U.S. Bank fought our discovery efforts but we would not back down against the billion dollar bank and their army of lawyers. This was personal.

    Both U.S. Bank’s lawyers and Shuster & Saben filed motions for summary judgment. Prior to the hearings on both sides’ motions for summary judgment U.S. Bank’s lawyers filed their time sheet under the presumption that for them it was a foregone conclusion that they would win the hearing. U.S. Banks lawyers were complacent. At the hearing on both sides motions for summary judgment and the homeowners second motion to dismiss the Court dismissed the US Bank’s case over improper verification. The court did not grant leave to amend and with this dismissal U.S. Banks case was over. When our firm sought attorney’s fees U.S. Bank kept fighting and denied that the prevailing homeowner was entitled to attorney’s fees. U.S. Bank lost again on the entitlement issue in October of 2011. This January the Court adjudicated the amount of the firm’s fees. If the judgment is not paid the firm will foreclosure (levy) on U.S. Bank’s assets. Once payment is received from U.S. Bank a substantial portion of the recovery will be used to reimburse our client’ legal expenses.

    To view the three page judgment with our client’s personal information redacted please click the link below:

    Link to Redacted Judgment

    About Shuster & Saben: Shuster & Saben aspires to provide the best foreclosure defense services available in each of the markets we serve. We want to level the playing field to allow individual homeowners to hire lawyers that are more experienced, better trained, and better prepared than the bank’s lawyers at a price that is fair, predictable, affordable, and an outstanding value. We seek justice for homeowners.

  21. “This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans,” Obama said on Tuesday…””

    how will this unit affect homeowner pain if it not only cant derail the settlements—and it is limited to old-time securitization—-in fact it virtually disconnects all the standing issues–and pardons servicers–already feds are pardoning services through the statements the last 2 days–only state investigations now of servicing abuses—and apparently according to justice is disconnected from todays issues–how else can you interpret these comments

  22. MUST READ—This kind of thing is EXACTLY what ANONYMOUS has been talking about:

    Foreclosure From Old Mortgages ‘Most Egregious Manifestation’ Of Broken Housing Market

  23. Details Emerge of New Financial Fraud Unit

    “…The new Financial Crimes Unit announced by President Barack Obama during Tuesday’s State of the Union address will have the power to investigate mortgage fraud going back at least 10 years, according to senior officials at the Department of Justice.

    The new unit, however, could jeopardize the negotiations now taking place between five of the country’s largest banks, the states’ attorneys general and the Obama administration over mortgage fraud and wrongful foreclosures, some observers say.

    In a conference call with reporters on Thursday afternoon, senior officials at the Department of Justice fleshed out details of the new unit. The new unit will focus on both the origination and securitization (or packaging) of mortgage loans. The unit will also investigate loans that were sold to, and insured by, government agencies, said Justice Department officials.

    The new unit “has a pretty good chance of derailing it,” JPMorgan Chase CEO Jamie Dimon told CNBC on Thursday, referring to the settlement. JPMorgan is one of the five banks involved in those negotiations. It is likely that under the settlement investigators could pursue cases only from as early as January 2008, said a source close to the negotiations who is prohibited from speaking on the record.

    The banks are interested in the settlement because it will protect them from future liability, according to one industry insider who agreed to speak on the condition of anonymity. If they agree to spend $25 billion to guarantee such protection, then find themselves facing the exact same cases with the new investigative unit, they no longer have an incentive to bother with the settlement.

    Senior officials at the Department of Justice were quick to emphasize that the fate of the settlement talks is unrelated to the new unit. “We have certainly heard criticisms that the settlement would give immunity for all [the mortgage-related misconduct], but that’s simply not true …This [unit] is addressing a very different problem than the servicing settlement,” said one official.

    Some view the new unit as a response to the growing criticism that the Obama administration has yet to seriously pursue the big banks and high-level executives responsible for the housing crash that led to the worst financial crisis since the Depression. “This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans,” Obama said on Tuesday…”

    Really, Mr. President? “Speed assistance”? What about the Americans that are dead because of this? Or have had heart attacks, strokes, divorces, total loss of businesses and/or income, homelessness—or the worst of all—so distraught that they totally lose it and kill their families and themselves?

    Too little, too late.

  24. Hey NPV, they re-securitized the modification of $202,000 on my $100,000 house. And I haven’t made a payment since MAY. Still shows current. Hmmmmm…….

  25. This all goes back to enforcement. AB1122, FASB140-3, GAAP. They (the banks) are running a scam on the investors and the homeowners, and there is no one enforcing the securities laws.

  26. Should I Default on my Mortgage?

    Posted on January 25th, 2012 by Mark Stopa

    I get all sorts of comments on this blog, not to mention inquiries from prospective clients via email. This one, which I’ll paraphrase, really caught my attention, as it presents a situation I suspect a lot of Florida homeowners are facing. Here’s the question, and my response:

    Question: My wife and I have always paid our mortgage, but with the economy as it is we’ve struggled to do so recently. Our house is about $150,000 underwater, and for the past year or so, we’ve borrowed money from my parents to make the mortgage payments. Unfortunately, my parents can no longer afford to lend us any more money, so we’re trying to decide what to do.

    I’ve been asking the bank for a loan modification for many months. They keep telling me “we’ll get back to you,” but then I never hear anything. Most recently, the bank began insisting that my wife disclose her financial information as well. I argued with them about this, since my wife wasn’t a borrower and did not sign the Note, but they insisted that the only way I would be considered for a loan modification was if my wife submitted her financial information as well.

    What should I do? My wife doesn’t want to disclose anything, but if she doesn’t, and we don’t get a modification, then we can’t continue to keep making our mortgage payments for much longer.

    Answer: First off, this might sound backwards to you, but I’m glad your parents are no longer giving/lending you money for your monthly mortgage payments. I can understand the logic behind their doing so, don’t get me wrong, and I’m certainly not trying to criticize you or them. However, as I’ve explained on many occasions, including here and here, depleting a 401(k), IRA, or savings account to make monthly mortgage payments on a house you just can’t afford is almost never a good idea.

    Please read this post, which I wrote in July, 2010. As I explained there in detail, it’s almost never a good idea to deplete your savings to make monthly mortgage payments, as all that will happen is you’ll run out of savings and then still be facing foreclosure anyway. If you realize you can’t afford to continue making monthly mortgage payments indefinitely into the future, isn’t it better to stop making those payments now, keep whatever money you have in your own pocket, and brace yourself for the impending foreclosure lawsuit, rather than spend all of your savings, then face foreclosure with no money left in your pocket?

    The fact that your parents were lending to you, as opposed to you depleting your own savings, doesn’t change my view. In fact, it might make it worse. Your parents are obviously older than you, so they’ll have fewer years in the work force (if any) to recover, and I suspect from your email that you’ve depleted your own savings, too. Nonetheless, you’re still in the same situation you would have been in had you and your parents kept those monies in your own pockets – facing foreclosure.

    It’s critical for you, your parents, and all homeowners to realize that any money in your 401(k) or IRA can never be taken by the bank (i.e. to collect on a deficiency judgment) – the only way you’ll ever lose that money is if you take it out voluntarily. Even if you get foreclosed, you’ll still get to keep your 401(k) and IRA monies. Even if you have to file bankruptcy, you’ll still get to keep your 401(k) and IRA monies. Hence, I can hardly imagine a circumstance where it makes sense to dip into these accounts to make mortgage payments. I suppose a temporary reduction in income could justify doing so for a short period of time, but that’s the catch – lots of people think/hope their reduction in income is temporary, but before they know it, they’ve made a year of mortgage payments from their IRA or 401(k) with no end in sight.

    More at

    Mark Stopa Esq.

  27. […] Read the article: Banks Cover Up Their Actual Losses and Insolvency […]

  28. Morgan Stanley is the worst offender followed by Wells. Right now over 5 million homes should be in the foreclosure pipeline, or have already had the terms accelerated. The servicer intentionally delays these actions under special servicing features and they are bleeding the pool cash flow out before it gets there with insane fees.

    Neil hits the mark with pension funds. For many years in an appreciating market municipalities and even the feds could point to paper holdings just like Fortune 500 companies and say we are vested because we meet ERISA standards of 80% funding. That is why they were able to meet budgets, because they collected the pension monies and never conveyed it to the fund.

    That is why the FRC really stepped in back in 2009 to support equity markets as well. These folks would have had to come up with billions for the pensions. Either way, nothing has changed and folks need to put up the good fight.

  29. Seen apparent cases of duplicated collection accounts —-repetitive instances of loan resolution—-and the loans so “closed” etc –continue to be carried on the trustee’s books as performing loans—year or more after vacate–and purported release??????

    would this not inflate the value of the MBS???

  30. Death by Thousand Revelations… That is the word by Max Keiser.

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