How the Banks Literally “Made” Money Out of Nothing

For the last few weeks I have been harping on the concepts of holder in due course, holder with rights of enforcement, and holder. They are all different. The challenge in court is to get them treated as different in Court as they are in the statutes.

The Banks knew through their attorneys that the worst paper in the world could be turned into real value if they could dress up junk paper and sell it to an unsuspecting innocent third party. They did it with junk bonds, and then they did it again when they created a strategy of creating junk bonds that looked like investment grade securities, got the Triple A rating from the agencies and even got them insured as though they were the highest quality and lowest risk investment — thus enabling stable managed funds to buy them despite restrictions on what such fund managers could buy as investments for their pension fund, retirement fund etc.

The reason they were able to do it is that regardless of the defective nature of the loan closing, including the lack of any loan of money by the “lender”, the law protects and presumes the validity of the paper, subject to defenses of the borrower that might defeat that value. The one exception that the Banks saw as an opportunity to commit fraud and get away with it is if they could manage to sell the unenforceable mortgage documents to an innocent third party who was acting in good faith, paid real value for the loan, and knew nothing about the predatory nature of the loans, lack of consideration, and other defenses of the borrower, then the paper, no matter how bad, could still be enforced against the person who signed it. It doesn’t matter if there was a real contract, or if the transaction violated Federal and state laws or anything else like that.

Such an innocent third party is called a holder in due course. And the reason, like it or not, is that the legislatures around the country and the Federal statutes, favor the free flow of “negotiable instruments” if they qualify as negotiable instruments. If you sign a note in exchange for a loan you never received (and especially if you didn’t realize you didn’t received a loan from someone other than the “lender”) you are taking a risk that the loan documents will be enforced against you successfully even though you could have defeated the original lender easily.

The normal process, which the Banks knew because they invented the process, was for a “closing” to take place in which the loan documents, settlements statements, note, mortgage and other papers are signed by the borrower, and then the loan is funded usually after final review by the underwriters at the lender. But in the mortgage meltdown there was no real underwriting but there was someone called an aggregator (e.g. Countrywide, ABn AMRO et al) who was approving loans that qualified to be approved for sale into investment pools. And in the mortgage meltdown you signed papers but never received a loan of actual money from the party in whose favor you signed the papers. They were unenforceable, illegal and possibly criminal, but those signed papers existed.

All the Banks had to do was to claim temporary ownership over the loans and they were able to sell the “innocent” pension fund managers on buying bonds whose value was derived from these worthless loan papers. If they didn’t know what was going on, they had no knowledge of the borrower’s defenses. If they were not getting kickbacks for buying the bonds, they were proceeding in good faith. That is the classic definition of a Holder in Due Course who can enforce the loan documents despite any real defenses the the homeowner might possess. The homeowner is the maker of the note and should have had a lawyer at closing who would insist on seeing the wire transfer receipt and wire transfer instructions to the escrow agent.

No lawyer worth his salt would allow his client to sign papers, nor would he allow the escrow agent to retain such signed papers, much less record them, if he knew or suspected that the documents signed by his client were going to create a problem later. The delivery of the note to a party who had NOT made the loan created two debts — one to the source of the loan money which arises by operation of law, and the other to whoever ended up with the paper even though there was a complete lack of consideration at closing and no money exchanged hands in the assignment or transfer of the loan, debt, note or mortgage.

Since the paperwork went into the equivalent of a food processor, the banks were able to change various data points on each loan, and create sales and disguised sales over and over again on the same loan, the same loan pool, the same mortgage bonds, the same tranche, or the same hedges. Now they even the the technology to deliver  what appears to be an “original” note to as many people as they want. Indeed we have seen court cases where both foreclosing parties tendered the “original” note to the court as part of the foreclosure process, as is required in Florida.

Thus borrowers are stuck arguing that it is not the debt that cannot be enforced, it is the paper. The actual debt was never documented making it appear as though the allegation of 4th party funding seem ludicrous — until you ask for the wire transfer receipt and instructions, until you ask for the way the participating parties booked the transaction on their own financial statements, and until you ask for the date, amount and people involved in the transfer or assignment of the worthless paper. The reason why clerical people were allowed to sign away note and mortgages that appeared to be worth billions and trillions of dollars, is that what they were signing was toxic waste — worse than unenforceable it carried huge liabilities to both the borrower and all the people who were scammed into buying the same worthless paper over and over again.

The reason the records custodian of the Bank or servicer doesn’t come into court or at least certify the “business records” as an exception to hearsay as permitted under Florida statutes and the laws of other states, is that no records custodian is going to risk perjury. The records custodian knows the documents were faked, never delivered, and not in the possession of the foreclosing party. So they get a professional witness who testifies he or she is “familiar with the record keeping” at one servicer, but upon voir dire and cross examination they know nothing in their personal knowledge and are therefore only giving voice to what is contained on the reports he brought to trial — classic hearsay to be excluded from evidence every time.

Like the robo-signors and “assistant secretaries”, “signing officer,” (and other made up names) these people who serve as professional witnesses at trial have no actual access to any of the raw data contained in any record keeping system. They don’t know what came in, they don’t know what went out, they don’t know who paid any money into the pool because there are so many channels of money being paid on these loans (directly or indirectly), they don’t even know if the servicer paid the creditors the amount that was due under the creditors’ part of the loan contract — the prospectus and PSA.

In fact, there is no production of any information to show that the REMIC trust was ever funded with the investor’s money. If there was such evidence, we never would have seen forgery, fabrication and robo-signing. It wouldn’t have been necessary. These witnesses might suspect they are lying, but since they don’t know for sure they feel insulated from prosecutions for perjury. But those witnesses are the first people to be thrown under the bus if somehow the truth comes out.

Thus the banks literally created money out of thin air by taking worthless, fraudulently obtained paper (junk) and then treating it at some point as though it was negotiable paper that was sold to an Innocent holder in due course. Under the law if they claimed status as Holder in Due Course (or confused a court into believing that is what they were alleging), the paper suddenly was enforceable even though the borrowers’ defenses were absolute.

BUT THAT TRANSACTION NEVER OCCURRED EITHER. Numbers don’t lie. If you take $100 million from an investor and put it on the closing tables for the origination or acquisition of loans, then you can’t ALSO put the money in the REMIC trust. Thus the unfunded trust has no money to transaction ANY business. But once again, in the illusion of securitization, it looks real to judges, lawyers and even borrowers who feel guilty that fighting the bank is breaking some moral code.

Amazingly, it is the victims who feel guilty and shamed and who are willing to pay even more money to intermediary banks whose fees and profits passed unconscionable 10 years ago. I’m not sure what word would apply as we look at the point of unconscionability in our rear view mirror.

And they sold it over and over again. The reason why there was no underwriting standards applied was that it didn’t matter whether the borrower paid or not. What mattered is that the Banks were able to sell the junk paper multiple times. Getting 100 cents on the dollar for an investment you never made is very lucrative — especially when you do it over and over again on each loan. It sure beats getting 5%. The reason the servicer made advances was that they were not using their own money to make payments to the investors. It is the perfect game. A PONZI scheme where the investors continue to get paid because the reserve fund and incoming investors are contributing to that reserve fund, such that the servicer has access to transmit funds to the investors as though the trust owned the loan and the loans were all performing. Yet as “servicers” they declared a default because the borrower had stopped paying (sometimes even if the borrower was paying).

And the Banks sprung into action claiming that the failure of the borrower to make a payment is the only thing that mattered. The Courts bought it, despite the proffer of proof or the demand for discovery to show that the creditor — the investors — were actually showing a default. I didn’t make this up. This is what the investors are alleging each time they present a claim or file suit for fraud against the broker dealer who did the underwriting on the mortgage bonds issued by the REMIC trust who should have received the money from the sale of the bonds. In all cases the investors, insurers, government guarantors, and other parties have alleged the same thing — fraud and mismanagement of funds.

The settlements of fines and buy backs and damages to this growing list of claimants on Wall Street is growing close to $1,000,000,000,000 (one trillion dollars). In all the cases where I have submitted an expert witness declaration or have given testimony the argument was not whether what I was saying was right, but were there ways they could block my testimony. They never offered a competing declaration or any expert who would contradict me in over 7 years in thousands of cases. They have never offered an explanation of how I am wrong.

The Banks knew that if they could fool the fund managers into buying junk bonds because they looked like they were high rated bonds, they could convince Judges, lawyers and even borrowers that their case was hopeless because the foreclosing party would be treated as a Holder in Due Course — even if they never said it — and even if they were the holders of junk paper subject to all of the borrower’s defenses. So far they have pillaged our economy with 6 million foreclosures displacing 15 million  families on loans that were paid in full long before the origination or acquisition of the loan.

And here is their problem: if they start filing suit against homeowners for the money advanced on behalf of the homeowners (in order to keep the investments coming), then they will be admitting that most foreclosures are being filed for the sake of the intermediaries without any tangible benefit to the investors who put up the money in the first place. The result is like an old ribald joke, the Wolf of wall Street screws the investors, screws the borrowers, screws the third party obligors (including the government) takes the pot of gold and leaves. Only to add insult to injury they claimed non existent losses that were actually suffered by the investors who trusted the banks when the junk mortgage bonds were sold. And they were paid again.

18 Responses

  1. Dwight in NJ- remember three things;
    1. There are no trusts. They were never funded. The notes ( not one of them) e ver made it into the trust. Testimony from any 4 or 5 attorneys who have defended homeowners (thousands of cases) wherein not one loan has gone thru the A>B>c>d>E transfers required under NY trust law to be viable.
    – if there is no trust, there is no ability for theater servicer or the subservicer to carry out their duties, as the trust duties are all void due to nonperformance.
    It’s all a crock- hang tight and carry on

  2. Ian … Thank you , yes I remember reading about it here, NG said it should be a reason for deeper discovery to be allowed (?) .. and the Attorney General from New York was saying it should be the basis for filing charges against them for “failure to comply with the Consent Orders” that they had agreed to (he said the date of the manual was after the Consent Order agreements, proving that they are completely out of control and in non-compliance, and they disregard their own criminal behavior that led to the 49 states attorneys general about to bring charges against them in the first place) . I forgot to mention that in my “Answer to the Foreclosure Complaint”. I did allege that they fabricated the documents in my case, reverse engineered them to fit the complaint, including both the alleged “original note” that had mysteriously changed and suddenly had a stamp in blank from WaMu added to it and differed from the copy they showed in their reply briefs and certification of exhibits. Maybe I can introduce it into the record, even though I did not mention the manual in my affirmative defenses?
    But I did affirmatively allege the fabrication of documents, so maybe that opens the door for me to bring the manual in and onto the record?
    I’m still very confused over the “Holder” status, people keep saying the bank will have no proof of consideration or being the owner of the debt, but I don’t think they are saying they are the owners, just Holders of a note stamped in blank, which gives them the right to enforce the mortgage.. from what I understand so far, them being Holders of course opens them up to my defenses about the origination of the table funded loan, but I think the other main thing to attack is “how they came into possession of the note and mortgage…these two things seem to be critical and can be attacked if the servicer has problems showing how and when, and by whom the note was transferred. Only because the Holder is trying to enforce the mortgage and take property without having actually purchased the debt. But many courts are ok with a Holder enforcing a mortgage, they treat the issue like a check that’s been endorsed and the holder can cash it regardless of whether its named him or not, a check endorsed is like a bearer check. So the only weakness in their status as Holder would be to (1) attack the origination .. and to (2) attack the authentication of the transfer .. the fraudulent assignment of mortgage is one of my defenses because a Holder should have to appear with clean, legal, authentic documents in order to be granted the right to foreclose. But the problem lately is how many courts are attempting to disregard the importance of the AOM , saying the Note alone is enough to foreclose. But I thought some courts said that a fraudulent Assignment should nullify a Holder from being able to foreclose .. they can place a judgment against the note possibly, but a fraudulent assignment document should be fatal and deemed a void .. destroying their ability to foreclose. Maybe I’m wrong, but this is why I need to be crystal clear on these arguments, the UCC is crazy and confusing, bending over backwards to allow holders of notes authority … but I need to know if the UCC says anything about faulty assignments in regards to Holders .. I thought is said that no fraud can be present, etc. etc .. but it may have been talking about the original note. But I will find the WF Manual and print it out and try to submit it into the record whenever I see an opportunity unless the Judge says that I’m raising issues that were not included in my initial answer.

  3. DwightNJ- you may not be aware that a copy of WF 150 page atty manual for fabricating documents is in circulation. It was introduced Into evidence by a NY atty in a foreclosure case this past spring. May have some Info to help you. Google it or something.

  4. @Charles Reed … Thank you … so just to clearly understand, you are saying that Wells Fargo , who is claiming “Holder” status as they are in possession of a Note stamped in blank , CANNOT FORECLOSE ? Because UCC 9 says that they must show how they purchased it? Are they allowed to foreclose without purchasing the debt? By just saying that they are Holder of the Note and wish to enforce it as a Holder?
    Is UCC 3 the section that deals with Holders who wish to enforce but have not purchased debt ? Or are you saying that nobody has a right to foreclose unless they first purchase the debt?

  5. So glad to see Neil tackling money out of thin air. The thing is, it’s not even as convoluted as he’s saying here. It’s very simple: promissory notes ARE the “loans.” In other words, banks can “lend” out as much “money” as they can get promissory notes for. That’s the whole scam–there is no “money” other than what we the people create and then have to pretend has been created by a bank and therefore have to pay back with interest. It’s the most egregious theft ever.

    And none of that is a secret–never has been. The Bank of England copped to it recently:

  6. @ DwightNJ there should have probably could have been a copy of the Note prior to the blank endorse that was in the file or the could have cut and pasted the Note. But what you have explained is that now there is a blank Note being present which is good because it does not show it being endorsed to Wells Fargo and that they are only in possession of.

    UCC 9 says that if the originator is not in possession of the blank Note the current holder must provide proof of purchase. Wells Fargo cannot come into court with a blank endorsed Note claiming that the own the debt.

    Your only problem is you are currently not damaged because they not foreclosed, so until the title is cleared up your going to have to keep on fighting. You could have a Fannie Mae loan with out Fannie Mae being the investor as Fannie Mae loans are a product, and Fannie does not purchase all those loan, but if Fannie did purchase the loan but because they are not on title, sound like the actual problem. So Fannie if there is a money trail at best has an unsecured loan, but Fannie is still under possession of the Federal Government!

  7. @ Charles Reed .. When Wells Fargo attempted to foreclose the first time it went along “Un-contested” because I did not answer the complaint .. finally I woke up and filed a motion to vacate and dismiss based on fraud and lack of standing. When it finally ended up in court on my motion to vacate and dismiss , the WF law firm had shown a copy of the note in their certifications as “the true and accurate copy” of the note in their possession .. well it was an exact duplicate of the original note from the day of closing , only one stamped endorsement from Commerce to WaMu .. signed by Commerce Bank VP. .. So I point this out in my reply to their certification and object saying “its only a computer generated copy of the original” and is not the real note, and it has no stamp or endorsement from WaMu .. So the Judge tells me that we should all chill out for a couple of months and give WF a chance to “locate the note so they can bring it to court” … this was obviously code for “we need to allow them to fabricate a note and add the stamp in blank from WaMu” … because 2 months later we resumed the case and “Ta Daa” they magically had a note which now had the fresh stamp in blank from WaMu on it .. I tried to object and argue that it had now changed from the note in their certification that was certified as the true and accurate copy .. I wanted to know how this happened , who added the stamp and on what date ?? WaMu was now out of business , yada yada yada … the Judge played along with me and wanted to know those things too, and he wanted WF to bring witnesses in to testify under oath .. that’s when they folded and asked that he sign an order to vacate and dismiss. Now that happened in November of 2011 … after they had filed the complaint in 2007 … now we are in 2014 and they are attempting again with the same documents

    2007 – 2014 = 7 years they have been trying to foreclose

    normal statute of limitations = 6 years?

    But in 2008 New Jersey passed a new statute of limitations on foreclosures … stretching it to 20 years.

    But since they had already filed against me in 2007 , and the new law passed in 2008 , is that fair that my statute of limitations be changed after the litigation process already started and the clock began?
    The new law should only apply to cases going forward from when the law was changed in my opinion.

    But the note now has a stamp added in blank from WaMu ..

    How do I attack it ?? demand dates and authentication of who and when these things happened? They will probably just fabricate business records to match the dates right? how do you beat these bastards?

  8. @ DwightNJ sound as if Commerce Bank was a correspondent bank with WaMu and the loan was originated by the Commerce and sold to WaMu.

    Now as WaMu was declared a “fail bank” on Sept 25, 2008 this loan was placed into a Fannie Mae pool but now that WaMu is dead, and Wells Fargo was servicing the loan, they needed to act as if Commerce sold the loan to Wells Fargo because I am sure that Note either has a blank endorsement or it was not endorsed from WaMu to blank or anyone.

    The Note in it current state is what you need a copy of and it tell the entire story. I am sure Wells Fargo does not have a single receipt were they purchase your loan.

    You got to attack the actual documents because they will not add up, and is why they needed to create forgeries to foreclose on WaMu originated or purchased loans!

  9. I filed my answer and denied the servicers facts. I had a total of 33 affirmative defenses in my answer and leveled 5 counter claims.

    Now as I await the slow wheels of justice to turn .. I’m wondering if I should file a motion of some sort like John G had suggested .. or some motion to pre-emptively strike against Wells Fargo before they make their next move .. should I push for the court to address the fact that this is not the true party in interest based on the failed origination of the table funded loan? or go after the forged notary assignment of mortgage … or just wait until we get called to court? File a lawsuit against everyone involved ??

  10. So Charles Reed , use my case as an example of how you would argue in court …

    1) 30 yr Re-Finance table-funded by Commerce Bank (pretender)

    2) Commerce stamped and endorsed note to Washington Mutual at closing .. in fact the note was already stamped pay to the order of WaMu before the closing and before Commerce Bank signed note as the “Lender” … yet Commerce is still referred to as “lender” and “originator” and named MERS as nominee to transfer mortgage

    3) Paid mortgage to WaMu for years .. but was always told that it was “Fannie Mae” owns the loan and is considered the investor.

    4) we have never been told what trust or securitization took place with our note .. but it undoubtedly was securitized, they just never told us what happened to it.

    5) As WaMu was about to collapse and be seized, the servicer rights were moved to Wells Fargo .

    6) Wells Fargo files foreclosure complaint

    7) a year after complaint is filed they record MERS assignment using LPS robo signers , etc .. mortgage assignment says Commerce gives the mortgage to Wells Fargo

    8) Assignment has a blatant forged notary scribble line in addition to the other 2 known robo-signers from LPS

    Do I argue that at my origination, Commerce acting as pretender lender was not the true lender. Furthermore, the note was already stamped in favor of WaMu before we closed on this loan, prior to either us or Commerce signing the note … Fannie Mae orchestrating everything from behind the scenes making sure it goes immediately to WaMu ?

    What points would you attack and how would you argue this Charles Reed ??

    Wells Fargo claims they are the Holders and entitled to enforce.

    anyone can join in.

    Thank you.

  11. I believe it about showing the judge that the alleged lender in the cases of pooled loan with blank Notes relinquished without a sell could not use the state court office (land recording offices) as they got no proof of purchase.

    I believe that with Ginnie Mae cases their regulation lays out that they don’t originate, buy or sell home mortgage loans at all, so there not a situation where a VA or FHA loan that was pooled to be foreclosed or modified as the separation occurred when the loans were first pooled.

    The allege lenders must bring in Notes, proof of exchange of monies and titles. The Notes are blank, and Ginnie Mae does not purchase the loans so there is a gap of the chain of ownership that cannot be repaired if a name of the purchaser is not placed on the face of the Notes.

    On the “holder in due course” can bring action! The servicer can act for but is acting for those employing them and not as owner of the debt themselves!

  12. The fraud is breathtaking and continues on and on. When will somebody get arrested and tried? INMHO, the fraud is EVEN WORSE than we think. I would love to know how many times my note was sold.

  13. SCOTUS CONFIRMED TODAY. Corporations are no longer just individuals, they are individuals with religious beliefs. I am incorporating my name tomorrow, and I am stopping all withholding on my pay check, I am no longer an employee – i am a corporate entity trapped in an individuals body.

    My corporate alter-ego also believes it is against God’s will to pay individual income tax – I will file on Form 1099.

  14. Charles Reed .. what is your opinion of a good winning strategy to argue in court? Please share .. thank you.

  15. Incentivised to suicide, basically.

  16. Pension fund managers had been bribed since day-1 to pour in money into wordless junk papers from banks & financials.
    Here is just one example:

    AG: Ex-CalPERS Officials Engaged In Fraud

  17. Neil not getting it and that is the fact that the “hold in due course” is the holder of the Note, debt and is or can legally be put into title. This is the only one that can call the loans due. If the bank is represented by a servicer, then that servicer is providing documentation for the owner and not themselves!

    When one go to court and you have law firm X representing you it not listed in court X vs. Wells Fargo, but its Reed vs. Wells Fargo. There is never a need to not list the owner because the owner is the owner and not the servicer!

    How long have I talked about the “holder in due course here” and now Neil just now bringing it up? You wonder why this crisis continues, because the attorneys victims have to select are years behind and are unable to fully understand what in front of them!

    BOA is working out a $17 billion settlement while Neil and others are working on modifications! So 2009!

  18. I don’t feel guilty paying the banksters. I feel if I don’t pay the banksters, the judges will allow them to fraudclose on children who need a roof over their head and a secure and stable home. Guilt has nothing to do with it !!!!
    Let me ask NG. Are you still paying a mortgage ??

    The judges are the reason, this country is close to fascism.

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