Corroboration of Basic Thread of Livinglies Blog: Banks are Claiming Assets That Really Belong to Investors

Corroboration of Basic Thread of Livinglies Blog: Banks are Claiming Assets That Really Belong to Investors

From complexity to simplicity: the banks diverted title to the loans from the investors to their puppets — bankruptcy remote vehicles whose sole purpose was to act as though they were lenders or acquirers or aggregators of the loans. If the loans were properly securitized, the investors or the REMIC trust would show up in property records and there really wouldn’t be any question about who owned the loans.

Similarly the banks controlled the issuance of the mortgage bonds. The investors advanced money to buy the bonds and the banks issued the bonds in “street name” which is to say that the banks issued the bonds in the name of the bank and then reported to the investor that the investor had successfully purchased the bond and issued monthly statements to that effect.

There is no dispute that the bonds are owned by the investors. But the banks diverted the money into their own pockets, failed to fund the REMIC trusts, insured the bonds with the banks declared as payee.

The Banks were also the payee on credit default swaps betting against the bonds. And the Banks were the seller and received the proceeds from sales of the bonds to the Federal Reserve — with nearly all of the so-called delinquent loans now owned by the Federal Reserve except for one thing — the Federal Reserve bought the bonds from the banks instead of paying the investors. So the balance sheets of the banks showing ownership of the bonds are wrong. They don’t own the bonds, which means they don’t have the required capital reported to regulators.

So the entire picture is wrong and this fact cannot have escaped regulators, law enforcement, the Federal Reserve. And the fact that it corrupts the legal effect of the notes and mortgages that were signed by homeowners in favor of bankruptcy remote vehicles or other third party intermediaries instead of the investors is just now being brought to the attention of the Courts by investors and homeowners as lawyers get more sophisticated and knowledgeable about securitization of debt.

Judges are getting exasperated by the stonewalling and scorched earth tactics of the allegedly “consumer friendly banks.” And questions are arising in Courts across the country as to whether the banks are throwing their own lawyers under the bus with the intention of disclaiming the positions and tactics employed by bank foreclosure lawyers.

And THAT is why Judge young in Massachusetts required counsel to produce an original signed resolution signed by the president and Majority of board members of Wells Fargo Bank.

Now the investors are challenging the so-called settlements by the banks where the ownership of the loans was presumed but not correct in fact. They are attacking the settlements with the intention of reclaiming the proceeds of settlements and reclaiming ownership of the bonds.

All of this means that the Banks who are filing suit for foreclosure or starting non judicial foreclosure actions (first assigning themselves as trustees) don’t have a dog in the race but they are getting the benefits of the Foreclosures and tossing the real losses over the fence at the investors by assigning non conforming loans in non conforming ways (directly violating the sole basis for assigning loans to REMIC trusts in the PSA).

With the investors claiming recovery from the banks for the money they received from investors, insurers, and other co-obligors on the bonds the primary question asked by this Blog is finally becoming front and center, the main issue in Courts who are hearing higher level issues: what is the real balance of the bond receivable in view of the money taken in by the banks as agents for the investor sand the investor vehicles (REMIC trusts).

Take a look at the profits reported by the banks which are out of this world and compare it with the losses being reported by the bond investors. Properly allocated, the receipts exceed the liability of the REMIC trusts that issued the bonds, which is to say the liability of the banks since the REMICs were their creatures and they failed to use the money as instructed.

And if the lenders have indeed established that the settlement proceeds and other payment proceeds from the banks should be allocated to investor losses then the balance due to the investors as lenders is reduced. As a consequence, the account receivable is posted as reduced by payment. The payments were under a strict waiver of subrogation or any right of contribution from the borrowers (homeowners).

Thus the account payable from the homeowner is correspondingly reduced, probably back down to levels that mark down the note payable to levels equivalent to the real value of the collateral or less instead of the inflated value pushed onto the homeowner in an inflated loan deal.

JPM | Tue, Oct 8

Mortgage investors urge Holder not to settle with JPM • In a letter to the Attorney General, the Association of Mortgage Investors ask him to consider the impacts any of legal settlements with banks over mortgages. Though not naming JPMorgan (JPM) by name, the group is clearly concerned with the rumored $11B settlement being talked about with the bank – only $7B of which would be in cash, and $4B in consumer relieft. • Last year’s $25B settlement over “robo-signing” allowed banks to get credit for settling abuses by writing down loans – yet those loans are often held by third-party investors. There was also this year’s $9.3B settlement which was similarly structured. “Parties sued by the government or third-parties should not be able to settle with assets that they do not own, namely other people’s money,” says the group’s Chris Katopis.

Full Story:

PRACTICE NOTE: I was startled when counsel for a bank revealed his complete ignorance of securitization in a recent oral argument at the trial level. The attorney was “explaining” to the court that my argument was absurd. What difference, he asked, does it make how much the investors paid when they bought the stock of the originators? Yes that would be absurd. I was forced to use up my time for argument on clearing that up — that the investors are the people who bought mortgage bonds and whose money was used to fund mortgages. The Judge understood that. The lawyer didn’t know what I was talking about. Hopefully we don’t have too many judges who are that confused about securitization or claims of securitization. But it does show that you should assume nothing and make sure you define your terms in short phrases like the buyers of mortgage bonds were the lenders and they are referred to in the industry as “the investor.”

10 Responses

  1. Neil—securities investors are not creditors.

    re-post (Anon):

    1) Focus on subprime refinance – can extend from there. Almost all of these REMICs were subprime. And, almost all the subprime were refinances (new purchases came later but not to extent of refinances). Subprime refinances were NOT valid mortgage refinances. Neil uses the word “debt” — that is a correct word.


    They were loans removed from qualified GSE pass-throughs. These charged-off loans could NOT– by accounting or law — be “refinanced” — BUT, that is what a “subprime refinance” did. IT REFINANCED CHARGED OFF DEBT. Wrongly presented to borrower as a refinance, when in fact —- there can be no “refinance” on charged-off GSE debt. That is what subprime refinance was all about. Modification/restructuring of DEFAULT DEBT. No receivables involved — there are no receivables for collection rights. This is income — not receivables — a different part of accounting statements. This is why the subprime REMICs did not have to be funded. Neil always looking for the funding. No funding necessary on collection rights. NONE (except for any cash-out).

    2) Correct to bring up the revocable trust. Someone OWNS the trust — for the benefit of pass-through recipients. But, ownership of trust itself — and any rights should they exist to legal documents are NOT passed through. Only CURRENT cash is passed through. The trust is/was owned by the Depositor — who is subsidiary of the bank that purchased the “loans” (actually collection rights). Sometimes this is not shown by a REMIC — but is evident in undisclosed “corridor” agreements.

    3) Comment as to PSA and who “holds the strings” (claims Master Servicer) — is only partly correct. Remember, VALID securitization is a removable of receivables from balance sheet. As discussed above, there are no receivables in COLLECTION RIGHTS (subprime refinances). So PSA is bogus to begin with. But, assume the PSA is valid, for arguments sake. Then, in that case, receivables had to be removed from a balance sheet — someone’s balance sheet. Need to examine the Prospectus along with the PSA. PSA alone is not sufficient. This is because the Prospectus explains that “receivables” are converted to securities (the REMIC trust) — and who are the security tranches sold to by removal of so-called receivables to off-balance sheet REMIC?? The security underwriters. Thus, all receivables, if they are assumed to exist, are first sold to the security underwriter parent corporation (only one with a balance sheet), and then converted to securities sold to parent corporation’s security underwriter subsidiary (parent corp also owns the Depositor — who owns the trust). The strings?? Parent company of the security underwriter and Depositor. Master Servicer does hold the strings once default occurs. A default has no current cash pass-through unless the Servicer advances all payments to the trust. Thus, either Master Servicer advances, or default loan is removed from the trust. At removal, Master Servicer continues to service for derivative contract holders (derivatives not securities but, rather, a contract — a contract for purchase of collection rights to the default).

    4) Who is servicer servicing for when default occurs? Of course, there was already default when the subprime “refinance” was originated. Except now there is no longer any current cash pass-through. So, what distressed debt buyer did the parent corporation (to security underwriter) sell the distressed debt collection rights to?? This is not a securities investor. 1) Derivatives are not securities 2) Collection rights are not securities. Is it an investor??? Yes , a distressed debt buyer investor. BIG difference between securities investor and distressed debt investor. Neil just never got this. VERY HARMFUL to not understand this. Master Servicer will not disclose distressed debt “investor” — they do not have to as by deregulation, there is no public disclosure. Have to make courts understand this. And, have to begin with the note is NOT a valid note. (also — government Private/Public Investment Program (PPIP) aided in disposal of collection rights to private entities in the program).

    5) Agree — trustees do not even know their name is being used in litigation. OCC has warned trustees of this. Trustees should be suing Master Servicers.

    6) We do not know who the creditor is — the distressed debt buyer is concealed by the Master Servicer. Some cases are now going forward with the distressed debt buyer disclosed. But, these cases claim the note is valid. Impossible to have a named distressed debt buyer with a valid note. Again, simple accounting – note is charged off — in fact, note was charged-off BEFORE the subprime refinance. All that transfers is assignment of collection rights. No different from credit card debt (footnote 35 to TARP Oversight Report).

    7) NO RECEIVABLES. There were never any receivables for subprime refinance. NO FUNDING necessary — which is why the bogus REMICs were not funded. NO FUNDING.

    This is all strictly related to subprime refinances. But, if you cannot understand what subprime refinances were — you cannot begin to understand the process.

  2. Eggs.

    Bingo !!!

  3. christine,
    Nailed it: “All the money funneled toward banks and government, shit for everybody else. The American way.”

    I like Max Keiser’s take on the same thing (

    Max Keiser (begins at 17:42): If we look at the recent history of these financial predators going back 5 or 6 years, they were making these no-income, no-asset loans–NINJA loans–to people, really in a way that was completely asymmetric, if you will, in terms of their risk. Because the banks were able to sell that risk on whereas the homeowners accepted all the risk. They got these homeowners into enormous debt. Then all the banks decided, “You know what, we’re going to go into debt, we’re gonna have a banking crisis because we inflated a huge bubble.” Then they went in and they illegally foreclosed on these properties—they stole the property from these people that they fraudulently sold the mortgages to to begin with, trading on inside information against their clients as Goldman Sachs did. Now what you’re saying is, 5 or 6 years later, after basically throwing these people out in the street, they end up buying them for all cash, with money that they get at 0% interest rate. They charge them rent on people that were living there to begin with, and now they’re in a crisis again, which will probably lead to another bailout of the hedge funds like we saw with Long Term Capital Management. Is that about it?”

  4. Justme,

    I did and I completely trust that you know better than anyone else when the time to start knocking on doors is ripe. What i hate to see is people getting caught with their pants down because they didn’t properly analyze timing. Because, as we know, timing IS everything.

    Now, about rehypothecation… this subject has been tossed around a few times here and, personally, i wasn’t completely sure how it applied to the subject matter. Since i found an explanation I can grasp, I’m simply sharing it.

    We need to understand, if not for the judges’ benefit, at least for ours. If anything, once we know, we won’t be fooled again. When we hear that the system was “rigged”, it really was. The ground principles upon which it has been built were flawed from the onset. Banks erected a monumental castle… on quick sand!

  5. Sure, I’ll just tell the Judge my mortgage was re-hypothesesied. ized.
    😀 lol.
    So simple. Fancy word for stealing!
    Christine might you read my recent post on ‘Don’t Fooled by Banks’ PR: Millions of Foreclosure in Pipeline’
    I’m gonna ask UKG later .A bit early to be ringing people.

  6. I’ve always suspected this and met with one banking commission attorney. They advised, until an investigations becomes “criminal”, not civil. The commissioner office cannot release the records to prove it. I rec’d call sheets but they did not have the detail, breakdown to individual mortgage loans. The bank was 53 Bank, tied to a RMBS that Wells is trustee. Of course, the big banks appear to report mainly to OCC and FDIC. Any suggestions on obtaining this data?

  7. Oops! “Nor should third-parties have the right…”

  8. “Parties sued by the government or third-parties should not be able to settle with assets that they do not own, namely other people’s money,”

    … not should third-parties should have the right to foreclose on a property they have no vested interest in. Why should investors be treated any better by banks and government than anyone else? Isn’t that the land of equality? All the money funneled toward banks and government, shit for everybody else. The American way.

Leave a Reply

%d bloggers like this: