Bank Losses Due to Mortgage Related Claims Increase As More Borrowers, Investors, Insurers Win Claims

If you have been following the news you must have noticed a few things in connection with what the press euphemistically refers to as “mortgage related claims.” The first is that estimates of losses from those claims (which by the way are claims of FRAUD) are growing monthly. Standard and Poor’s now has estimated over $100 billion in future payouts for settlements and judgments plus of course the cost of defending suits from all the people, companies, institutions and government agencies who claim that the investment banks committed fraud — not just some breach of contract or breach of fiduciary duties. The current estimates are double the payouts that have already occurred, and using past history as the best indicator of future events, both the payouts and the estimates will continue to rise.

The reason is simple — claimants are filing meritorious claims that result in jury verdicts of fraud (Countrywide) and settlements that keep rising. The fact that the claims are based in fraud is especially dangerous for the banks’ position because of exposure to punitive, treble, or exemplary damages. I can easily see myself or some other lawyer in closing argument to a jury. The argument would be that tens of billions in payouts did not stop the investment bank from continuing their illicit behavior; thus the jury must come up with a figure that will put a stop to the fraud. When homeowners start suing investment banks for fraud, instead of merely defending Foreclosures, the risk to investment banks increases exponentially.

So far the FRAUD claims against investment banks (broker-dealers) has come from pension funds and other investors, insurers like AIG and AMBAC, agencies like Fannie, Freddie and NHMA and others at the top levels of the world of finance. THEY ALLEGE FRAUD. The details of the fraud break down into two categories.

The first category is that the investors money was used for the benefit of the investment bank instead of the investors who bought mortgage bonds. The allegations here are that the mortgage loans created under the false representations of securitizations are unenforceable by the investors. What they are saying is that the banks executed a plan different from the one they promised investors who were at all times the real lenders. Specifically, the Banks left the investors, insurers and others sitting with empty pieces of paper (mortgage bonds etc) with fictional paper that was unenforceable against the borrowers. THINK ABOUT THAT. The lenders are claiming the loan papers are unenforceable. That leaves the intermediaries pushing ahead with foreclosure on unenforceable paper as though the investment banks had done the lending instead of the investors.

The second category is related to the first. The allegation is that the investors’ money was “mismanaged” FRAUDULENTLY (not negligently, or in breach of contract or breach of fiduciary duties). Specifically, the investment banks diverted the money from the intended use (funding trusts of asset pools consisting of mortgage loans) ; and that even more specifically that the trusts were never funded with the investor money. The investors thought they were buying mortgage bonds issued by the trust but in fact they were depositing money with the investment bank selling the mortgage bonds. The trust was ignored. The trust was never funded, the so-called trustee never had a trust account and the trust never had the capital to originate or buy loans. THINK ABOUT THAT.

So the conclusion that is inescapable, which is why we are seeing huge settlements and a verdict from a jury, is that the lenders themselves are saying the loan documents are fabricated unenforceable documents, notwithstanding the fact that so many Foreclosures have occurred. It seems that the judiciary and lawyers representing homeowners have not caught up with investors and insurers who have performed their own forensic audits, and arrived at the conclusion that although they gave money for loans, they didn’t get any account receivable from anyone who could pay, or anyone who would pay. The investor lenders received promises from the investment banks, but the investors’ agents, the investment banks, intentionally diverted the loan papers to themselves rather than the investor lenders.

The simple way of saying this is that the investors or the trusts should have been on the note and mortgage either at origination or acquisition in a real transaction. The fictitious claims of the trusts’ ownership of loans is a hoax based upon the fact that the trust never received the investor money with which it could fund the origination or acquisition of loans — and even if it had, the loan paperwork was diverted from naming the trust on the note and mortgage to some strawman for the investment banks’ own “proprietary trading account.”

The result was a huge infusion of capital into the market that produced a market inversion that had never been seen before. The prices of homes, as reported by pretender lender (strawman) appraisals, rocketed up in a spike that dwarfed any previous move in home prices since records started (in the 1880’s). The Case Schiller graph looks like someone’s hand slipped. While prices of homes and prices of loans were rocketing higher and higher, the VALUE of the homes were DECREASING both because of loss in median income and because the crash was building — the house of cards depicted on 60 Minutes had to fall. Borrowers were defrauded by the representation that they had a contract in which the values used were reliable when in fact appraisals were knowingly inflated to seduce borrowers into signing loan documents that failed to name the actual lender and whose terms differed from the terms that the lender was offering — or thought it was lending.

It is axiomatic in the law that a wrongdoer should not be permitted to profit from their wrongdoing. The benefit of the bargain in the contract the homeowners thought they agreed to, was never present and the investment banks knew it — they were betting on the failure of the deals at the same time they were selling bogus mortgage bonds to investors and bogus loan documents to borrowers.

So I predict that the largest claims are yet to come —- only this time with borrowers joining in the claims against the investment banks and doing what I suggested dozens of times since 2007 — joining forces with the investors and comparing notes, pardon the pun. The ultimate number of payouts is impossible to predict but the potential liability is obviously in the trillions of dollars.

Top U.S. banks face further mortgage payouts of up to $104B • Eight leading U.S. banks could have to pay a further $56.5-104B to settle mortgage-related claims, S&P reckons. • However, the largest banks have estimated capital buffers of $155B combined, which would be enough to absorb the losses. • S&P doesn’t expect the legal liabilities to hurt the banks’ ratings. • Banks: JPM, BAC, C, MS, WFC, GS • ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, PFI, KBWB, RWW, FINU, RYF, PSCF, FNCL, FINZ

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22 Responses

  1. Masterservicer….

    I am pretty much unable to decipher anything that you write here. Can you put your thoughts in plain, simple English for us? What relevance does SEC 1122AB or ACS 310 etc. have to anything going on here?



    RE IRC 1031…What are you talking about? You can’t do a deferred tax exchange of notes or indebtedness. Can you explain where you got that from?

  3. We have an INSURANCE PROCCEDS check worth of $10,000 which Bank of America doesn’t want to endorse as they want to apply this money to the backed up mortgage payments. Because of this hostage taking on repairs and asking for ransom, our house still remains damaged. No help from the department which regulates insurance industry in the State I live. Any advise how to deal this situation.

  4. Flyer left at my door from the local real estate guys:

    Selling A Home “In Trust”?

    Selling a home “In Trust” entails more than legal forms…


    Many of the homes we sell are held “In Trust”. We have many years of successfully navigating through the challenges of dealing with attorneys, trustee(s), beneficiaries, and often times, the emotions tied up with preparing a beloved family home for sale…

  5. A loan originated in 2006 was charged off in 2008. The title was open to claims for a release of lien by the title holder. The beneficiary is the unsatisfied liens of record. This begs the question of where did the purported wire into settlement really end up. The wire was rerouted into an offshore account as a Cayman Islands or Bermuda tax payer safe haven. The wire is the consideration placed on deposit into a depositors account. The depositors account is the paid in capital for the issuance of the private placement shares the member bank financed under the lead bank believed to be the Bank of Mellon.The financing is the obligation of the private placement members who fall under the jurisdiction of a Delaware registration. The amount owed by the member bank directors and officers is a receivable owed to the Bank of Mellon. The Bank of Mellon sold the member banks off shore investments it financed as bank receivables at 80 percent of the principle balance for the wire outstanding. The 20 percent discount is paid at the time of the borrowers refinance or homes sale in year five.

    The member bank owes the Fed the 80 percent that was charged off under the pressure of having to debt servicing the preferred stock issued at 10:1 the vales of the wire .

    The trust preferred shares were issued from trust common shares issued from a depositors account that was capitalized from a wire rerouted from the finding of a 30 year mortgage.The 30 year mortgage is presumed to have a prepay speed of 60 months. And the five year CPR is used to trade 30 days commercial paper under a purported IRS annuity fund investment using a 1031. tax deferred exchange . The “Starkers” revolved every 180 days from member bank to member bank…..the absurdity and rising economic chaos caused the banks to push higher values and larger loan balances tempting borrowers with NINJA loans through the end of the Bush Administration.

    The sham broke down and caused the TARP charges as of the end of the markets implode in October of 2008

    The only thing left to foreclose on is the existing lien of record that was never paid at settlement as shown on the final HUD 1 statement

    The prior lien of record that was never satisfied is the obligation of the bank and originator who formed the LP and created the series of bank note debt offerings at the expense of the households ignorance .

    The aforementioned belief for claim is that I will aver to in a State and or Federal Court ….if asked to testify and …where properly engaged to do so in all wrongful foreclosure ….
    Claims are for securites fraud , Dual tracking contra assets accounts, restraint on alienation, conspiracy to commit mail and wire fraud accounting manipulation under GAAP FASB IASB 1120 AB,…


    Foreclosure is not permitted if the claim is for a lost wire charged to the LP and private placement title unless the foreclosing parties can succeed in orchestrating an abandonment claim or adverse possession and then shorting the value of the tile using derivatives .


  6. Glad I can be a part of those “bank losses”.
    Happy Thanksgiving everyone!

    I think that’s the 5th year now I’m wishing Happy Thanksgiving around here…………

  7. Prepare for the next round of foreclosures.

    Insight: A new wave of U.S. mortgage trouble threatens
    By Peter Rudegeair

    Tue Nov 26, 2013 6:29am EST

    (Reuters) – U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country’s biggest banks.

    … Borrowers are delinquent on about 5.6 percent of loans made in 2003 that have hit their 10-year mark, Equifax data show, a figure that the agency estimates could rise to around 6 percent this year. That’s a big jump from 2012, when delinquencies for loans from 2003 were closer to 3 percent.

    This scenario will be increasingly common in the coming years: in 2014, borrowers on $29 billion of these loans at the biggest banks will see their monthly payment jump, followed by $53 billion in 2015, $66 billion in 2016, and $73 billion in 2017.

    … In terms of loan losses, “What we’ve seen so far is the tip of the iceberg. It’s relatively low in relation to what’s coming,” Equifax’s Crews Cuts said.

  8. MS is the only Non Attorney I know who knows the Code. And I know many attorneys … they do not speak the Code … they use it to get quiet settlements.

    Just Thinking with My Outside Voice.


  9. You know, MS and Neil…if the few here know what it takes to win, why do they not have their own site and pledge “freely” their services? Just saying…

    There are some here who take so much shit from these same few people and not one of them, and you know who you are, have been successful and/or have already been foreclosed on and are lying to many here! Jeez.

  10. masterservicer, I disagreed with the Robo signing agreement because its already worked for Szymoniak v. Ace and I am sure she getting paid in these last settlements because she lead them to the fact that these securities were bad in the ownership of the loans.

    This is what the investor are also claiming and the is who owns what. Bank are not selling to themselves and if your talking about a Bank Holding Company your talking about separate entities.

    The investors was the Fannie & Freddie or the Federal Reserve Bank in a lot of the cases as with Ginnie Mae it was the Fed. However yes there are warehouse line, but that separate from the broker and separate from correspondent bank doing business.

    However many banks are large enough to float monies if they needed, and I would agree that the money was coming from these investors as the loans are originated to sell to be sold to larger player who are pooling them together to sell to be in these securities. I see a point if your trying to prove that the loans were never made meant to be held by the originator, but I don’t see the deception there as the borrower knew that the loan was locked with A-Z bank and that it was A-Z that was going to be there lender. However it after that fact were this thing takes a turn of being illegal.

    Look a $1 billion dollar bank should have enough funds that they can produce 50 loans a month and being refunded those loans within a 2 or 3 week time frame to have the loan purchase. Everyone including the borrowers knew this was being done, the part the borrowers did not know is the loan was going to be pooled.

    So with the argument that the monies are coming from here are there, seem to be fight a needless battle for most because you already got them on releasing the debts by relinquishing the Notes in a blank endorsed form1

  11. will scan and email to you right after THANKSGIVING ….look forward to your anaylsis of it……willing to pay for your time if needed/helpful….HAPPY THANKSGIVING !

  12. Javagold, on November 27, 2013 at 3:41 pm said:
    master service I have two of my 2009 invoices that you asked me to get…..where is the code , so I can give to you to decipher…..every time I ask you here, you strangely go away or silent.
    First, the analysis is something you need to email to me …DO YOU SEE A EMAIL ADDRESS (thanks Neil ) scan etc …

    Am I asking you for a fee .


    Did you email the information …Do it again

    ….lets see what you got. Its going to cost the time to email the statement so…..


  13. US Bank, BAC IMB and CitiFinanacial dba FFFC are commercial lenders who provided warehouse lines to lenders for the origination of whole loan assets. The blank assignments and blank endorsements were good for only 180 days

    Wells Fargo Bank represents the consortium of banks as a cashier of clearing house for these obligations of member banks directors to themselves among each tax payer corporation under a IRS 1.1031 exchange

    JP Morgan Chase represents the liens of record for the wire that was never received in settlement

    Want proof …..GAAP FAS 140 and ASC 310 320 380 and SEC 1122 AB

    Free your mind and the house will follow ….

  14. master service I have two of my 2009 invoices that you asked me to get…..where is the code , so I can give to you to decipher…..every time I ask you here, you strangely go away or silent

  15. Ignorance is NOT bliss

    Editor : The second category is related to the first. The allegation is that the investors’ money was “mismanaged” FRAUDULENTLY (not negligently, or in breach of contract or breach of fiduciary duties).

    Investors are the Directors and officers of the member bank involved in the origination and subsequent foreclosure. For God’s sake how can a fraud exist among the banks directors who are the sponsors , the shareholders, the issuers and the depositors ?

    Its the shareholders formation of a series of bonds or corporate debentures that were gobbled up by greedy foreign national central banks investors as pledged assets that created the obligations of the tax payer entity – a member bank LLC or LP.

    The initial tax payer private placement has nothing to do with a breach as you describe . The criminal act there is the diversion of the ABA wire into the HUD 1 settlement as shown on the HUD statement

    And please , look at your 2009 statements – there is a code that can be deciphered and therein is prima fascia for your release of lien.

    Neil , the time you wasted on the Robo BS is a sin ….

    Happy Thanksgrieving

  16. I personally. will not be happy until some of the perps go to jail.

  17. What happening here is it keeps getting mention that the investor or trust should have been on the Notes, but it is legally impossible for these entities to be listed on the Notes if they are not lender who are registered by some body to lend.

    Here is were the GSE are in trouble is the fact that they are not lenders, but what occurred is that it was always assumed that they were lender and that not the case.

    These county land recorder have assumed that FHA & VA were lender and once the loan program is invoked the county thinks that they are overridden by Federal powers that actually don’t exist. It the best laid scam I every seen, as it the assumption by everybody and not directives from the GSEs but they allow the servicers to invoke their name into the proceeding and the county have gone along with the scam because of ignorance to the facts.

    The major problem with all of this mess is the counties don’t require a copy of the Notes to be on file.

    Some one mention yesterday that that the government insured loans are re-purchase from the pools, which is an impossibility is for the lender/issuer to re-purchase something it could not sale to a non lender of home mortgages, plus the fact that Ginnie Mae cannot and did not purchase the loans in the Ginnie Mae pools. Ginnie Mae has let the world know that they do not originate, buy or sell home mortgage loans Period!

    This is a done deal and is only a matter of time!

  18. President Barack Obama took time out of his busy schedule today to pardon two overweight turkeys named Carmel and Popcorn during a ceremony at the White House. Also pardoned were CEO’s Lloyd Blankfein, Richard Davis, Jamie Dimon, along with several thousand other assorted Wall Street heavyweights. “We give great thanks indeed this day before Thanksgiving,” said a relieved Brian Moynihan. “It’s wonderful to have such a death grip on the globe as to be forever innocent. I know I speak for all on Wall Street when I say thank you Mr. President and Attorney General Holder.”

    The event was considered simply a ceremonial affair, as the administration has long let it be known that the world’s largest financial institutions can do no wrong. “It’s a great day for America,” said a triumphant president. “It gives me great pleasure to bestow these pardons. My presidential library will flourish as a result.”

  19. They pay settlements with stolen money and still no one goes to jail.


    Banks may pay $105B more to settle mortgage tab

    Kevin McCoy, USA TODAY 10:28 a.m. EST November 27, 2013

    Bank costs are still piling up from legal actions involving mortgages and mortgage securities issued during the years just before the U.S. financial crisis.

    (Photo: Rich Pedroncelli, AP)

    Story Highlights
    New mortgage settlements could cost banks $55 billion to $105 billion, S&P estimates
    Most banks have sufficient reserves to pay settlements
    No downgrade in banks’ financial ratings predicted


    Major U.S. banks may have to pay an additional $105 billion to settle mortgage-related issues on top of the billions in earlier settlements, according to a new estimate by ratings agency Standard & Poor’s.

    The costs are expected to stem from continuing legal actions against banks for their involvement with soured residential mortgages they originated or repackaged into securities and sold during the 2005-2008 run-up to the nation’s financial crisis, S&P’s analysis showed.

    “We estimate that the U.S. banking industry may need to pay out an additional $55 billion to $105 billion to settle mortgage-related issues, some of which is already accounted for in (banks’ legal) reserves,” the report estimated.

    The analysis was based on S&P’s review of previous settlements and unresolved mortgage-related legal actions against Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and other major banks.

    Earlier story: JPMorgan, Justice reach $13B settlement

    Despite the high price tag, the analysis estimates banks faced with the largest legal exposure should be able to fund the settlements because they have “significant earnings power” and have remained profitable while paying earlier mortgage-related costs.

    The major banks collectively have an estimated $155 billion buffer composed of a capital cushion, representation and warranty reserves and funds set aside for litigation, S&P said.

    The anticipated costs have already been factored into S&P’s bank ratings and currently are not expected “to result in negative rating actions for U.S. banks,” the analysis said.

    However, S&P added that any immediate and unexpected major legal expense related to mortgage issues could weaken a given bank’s business model and capital position through potential loss of key clients and employees.

  20. Thanks Neil , you’re right on target. This is a keeper.

  21. Not One West?

    Sent from my HTC

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