What Accountants Say About the REMIC Trusts

“Because securitization entities are typically insufficiently capitalized, with little or no true “equity” for accounting purposes, and are rarely designed to have a voting equity class possessing the power to direct the activities of the entity, they are generally VIEs. [Variable Interest Entities]. The investments or other interests that will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns are called variable interests.”

Editor’s Note: There are two main takeaways from the attached book from Deloitte, one of the largest accounting firms in the world. One is their lead question — “In accounting for securitizations… Do I have to consolidate the special purpose entity(its) involved.” The other is a flat out statement that the trust does not own the loans except in rare circumstances.

The question about consolidation comes up because the “REMIC Trust” is in actuality a part of the underwriter (Master Servicer) and is not an independent issuing entity. It is not an IPO in any sense of the word. The question about the “assets” of the Trust comes up because there are no assets of a REMIC Trust. And THAT means that the “Trust” (really a subdivision of the underwriting brokerage firm) does not own any loans nor any other assets that have any meaningful value.

This corroborates my repeated statements here that the Trust is a non-entity, a “pass-through” entity used to obscure the actual path of money and transactions. If it actually owned debts, notes or mortgages, it would need to be consolidated onto the balance sheet of the brokerage firm that issued mortgage backed securities under the name of the trust. This never happens. There is no business activity in the trust. The designation of the trust as a “holder” is smoke and mirrors. Someone else owns the loans.

And THAT corroborates my attack on the style of the cases in foreclosure wherein a bank is named by attorneys as the trustee not for the trust but for the holders of the certificates. Since the certificates were issued by an entity that has no business or assets, they are worthless. Since the certificate holders are only holding a note or bond owed by the trust they have nothing to do with any specific loan documents.

Whether the foreclosing party is designated by attorneys as trustee for a trust (rare) or trustee for the certificate holders it is a misrepresentation. The ownership of the loan lies not with any trustee but in the equitable right of the”certificate holders” to be repaid.

Read the complaint and summons carefully. You will see that in most instances there is no reference to a trust “organized and existing under the laws of the State of New York.” Instead there is language that means nothing. The Plaintiff or “beneficiary” does not legally exist.

This means that the right party to sue for wrongful foreclosure etc is the underwriter (master servicer) and perhaps the individuals who directed operations in connection with foreclosures, even if it was through layers.

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12 Responses

  1. Neil, can you give me the page of this Deloitte-Touche report which says that the Trust does not own the mortgages? I’d like to use it as evidence in my case against Deutsche Bank as Trustee for the Residential Asset Securitization Trust which is foreclosing on me in New York. Thanks

  2. I’ve been plowing through the 125 or more pages of this report and I need help in locating exactly where the report says that the trust does not own the mortgages. I’d like to submit that as evidence in my case against Deutsche Bank as trustee for the residential asset securitization trust. Neil, can you get back to me with the page I can find this on?

  3. Neil is correct. In order for any loans to be securitized, the loans must first be on some bank/ entity’s balance sheet. After the crisis, it was mandated that the loans in claimed off-balance sheet REMIC trusts be put back to the balance sheet, This did not occur because the securitization was not true a securization meaning — the loans themselves were never on any entity’s balance sheet. All that was claimed to be in REMIC trusts were securities purchased by the underwriters backing “loans” that were never on any banks balance sheet. What occurred, therefore, were insurance demands to AIG. AIG did not have the money. So the government set up Maiden Lane, to purchase the “toxic” securities for AIG, and then sold the toxic securities to distressed debt buyers – such as Wilbur, in a program called Public Private Investment Program. Government claims to have made money on the program. Bottom line— the :loans” were never “mortgages” but rather distressed debt to begin with — and what they wound up as.

    So — who is your distressed debt buyer? .

  4. Shoot! in par. 9 – meant to say “unperfected, UNsecured transaction” (not secured transaction)

  5. here is something to think about – not legal advice – just an unfinished idea i’m floating in an upcoming pleading/petition to vacate…

    A. No Such REMIC Trust – NEW CENTURY Package Not Acquired
    1. Deft. CementBoots (“Investor CementBoots”), an Illinois citizen, resident and funder by way of fees, taxes or other remunerations to the State of Illinois general and investment funds, asserts his standing to make the following claims as a third party Beneficiary/ Holder under the Illinois State Board of Investments (“ISBI”) for his investments through the ISBI in ASSET BACKED SECURITIES CORPORATION HOME EQUITY LOAN TRUST 2004-HE8 (herein “ABSC-TRUST”) through the Government Sponsored Enterprise (“GSE”) FEDERAL NATIONAL MORTGAGE ASSN. (“Fannie Mae”) (see Exhibit O, “ISBI Investment Reports 2005-2014 Excerpts”), Note to Court – full PDF files for this Exhibit exceed 500 pages (16+ Megabytes) – so excerpts are submitted in Exhibit O but are hereby digitally entered into the court record in their entirety, found at this secured third party digital storage location by way of this hyperlink: https://drive.google.com/open?id=0B2y3lrI44JZtNXNudlFEUnNYaGM;
    2. Petitioner claims ABSC-TRUST, a purported Real Estate Mortgage Investment Conduit (“REMIC”) Trust , is an empty shell, has no “res”, nothing is legally held in said Trust (citation);
    3. “The Emperor’s New Clothes” – ABSC-TRUST, if it exists in theory, on paper, or if its proposed framework was recorded with the Securities and Exchange Commission (“SEC”), or even if other parties believe it exists, never established any bank accounts or funding by its creators/grantors or it’s purported Trustee, Plaintiff USBANK, to acquire any Qualified Mortgages in compliance with its proposed Pooling and Servicing Agreement (“PSA”) as the body of its “res” or to lawfully accept investments from Investor CementBoots through ISBI for an MBS/REMIC resulting in fraud upon Investor CementBoots and Deft. CementBoots;
    4. No assets of any kind, especially Qualified Residential Mortgages, were ever purchased by ABSC-TRUST or purchased by any grantor, trustee or third party and transferred into said purported Trust to comprise a “res”;
    5. ABSC-TRUST, having never established a “res” under U.S.A. laws regarding MBS/REMIC Pass-Through Trusts never became an active Trust under the laws of the U.S.A. or Illinois, or any State;
    6. Plaintiff USBANK has not and cannot identify any party who may be considered a ”Holder of Certificates” (Investor/Beneficiary) of said purported Trust;
    7. At no time did NEW CENTURY sell the specific NEW CENTURY Package described in this instant case to ABSC-TRUST nor any did other party with the ability to purchase and transfer said Package into said Trust do so;
    8. At the time of NEW CENTURY’S Bankruptcy filing in 2007, the original Package was either lost, stolen, destroyed or remained with NEW CENTURY, has not materialized and has not been administered or assigned by Mr. Jacobs, the court appointed bankruptcy Trustee for NEW CENTURY LIQUIDATION TRUST (citation);
    9. Further, lacking a valid bona fide’ mortgage security as described above indorsed by the Legal and Equitable Title Holder of Record, the Package in the instant case was at best an unperfected, secured transaction and did not qualify as a Qualified Residential Mortgage to be converted or bundled into a Mortgage Backed Security (“MBS”) available to be sold into or transferred into the purported ABSC-TRUST under the strict federal rules governing MBS/REMIC Trusts as well as the stated terms within the proposed PSA;
    10. Any attempt to sell or assign said Package into the purported ABSC-TRUST, whether timely within or untimely without the rules or deadlines of the PSA, was/is a violation of federal law as pertains REMICs, null and void, and most likely fraudulent;
    11. There is no record that ABSC-TRUST Certificate Holder ISBI, to which Investor CementBoots is a third party beneficiary, ever considered or voted to approve the assignment of any unqualified Mortgages or Mortgage Backed Securities (including the instant NEW CENTURY Package) in violation of the PSA, Internal Revenue Code (“IRC”) and other federal laws, to be incorporated into the ABSC-TRUST, at a tax penalty of 100% to the Certificate Holders;
    13. Thus, as pertains to the NEW CENTURY Package, Plaintiff USBANK, as purported Trustee of said purported REMIC Trust, alleging to represent the interests of said purported Holders, has nothing to protect or enforce on behalf of the purported REGISTERED HOLDERS;
    14. Wherefore, in consideration of the facts and sworn affidavit statements by Investor CementBoots and Deft. CementBoots in the foregoing paragraphs, Plaintiff USBANK has never had the capacity or standing to sue Defendants under the IMFL for foreclosure of said Package as a purported Trustee of ABSC-TRUST;

  6. Kali – I humbly ask all to study the article and pitch in with analysis – esp. those w/accounting backgrounds

  7. @ CementBoots

    As you have, please continue with the stream of analysis on the breakdown(s) of the UNDISCLOSED SEPARATIONS of the ORIGINATION TRANSACTION that resulted in CONDUIT BIFURCATIONS:

    THUS slicing into pieces (maybe TRANCHES) the homeowner’s mortgage/deed-of-trust away from the ORIGINAL PURPOSE & INTENT of the MAKER’s promissory note, which the MAKER OWNS to present.

  8. and here is another interesting passage…

    What is a mortgage servicing right?
    The coupon paid by the borrower on an originated mortgage loan includes BOTH compensation for servicing the loan and a reasonable investment return to the lender.

    [get that – your mortgage loan is a “coupon” with multiple components which initially start out together – this was not disclosed]

    If a loan is held for investment by the originator, there is generally no contractual separation of the investment return from the servicing component.

    However, if the originator decides to sell the loan to another party, that sale can be structured with the servicing either retained or released.

    [so which was it?]

    If the loan is sold servicing released, then the originator will receive a price to compensate them for the full market-based value of the
    whole loan, including servicing.

    Conversely, if the loan is sold and servicing is retained, there is a contractual separation of the mortgage loan coupon into the servicing component and the interest rate paid to the purchaser or new investor
    of the loan.

    This results in the potential recognition of a mortgage servicing right (MSR) asset or liability by the originator retaining the servicing component.

    [Note – that this does not have to happen only upon the original sale of the loan from the originator, but can happen anywhere down-the-lane with subsequent transfers… so I ask,

    Where is the proof that the foreclosing entity is foreclosing on merely their servicing rights or on the principal and interest or both?

    Will this foreclosure leave me liable for a remainder of the initial contract amount stated in the loan?

    What are my assurances and protections that the bifurcation of P&I and Servicing Right (MSRs) elements of my (once consolidated) loan will not allow some other party to sue me again, or claim a deficiency against me and whack my credit report ?]

  9. Here is an interesting quote from the article that might illuminate…

    So how about some examples?
    In commercial mortgage-backed securities (CMBS), and potentially other asset classes, it is common that upon delinquency or default by the borrower or when default is reasonably foreseeable, the responsibility for servicing of the loan is transferred from the primary servicer to a special servicer. In such cases, the activities that the primary servicer has the power to direct are typically administrative in nature and do not significantly impact the entity’s economic performance. Thus, the primary servicer would not typically have power.

    But can the special servicer have power even at the outset of the
    transaction given that there were no loans in special servicing? Yes.

    Since the activities performed by the primary servicer are not considered significant to the economic performance of the securitization entity and it is considered likely that the special servicer will be performing services during the life of the securitization entity, the special servicer is considered from the outset to have the power to direct the relevant activities. Another important consideration is whether the special servicer can be replaced and by whom. If the primary servicer or another party can unilaterally remove the special servicer, then that party may have power instead.

  10. I’m pretty sure Neil is referring to whatever complaint YOU (or others) have received from the foreclosing lawyers… He is saying that the language of the complaint against you side-steps naming the actual party on whose behalf the lawsuit has been filed…

    You will see that in most instances there is no reference to a trust “organized and existing under the laws of the State of New York.” (or anywhere else) Instead there is language that means nothing. The Plaintiff or “beneficiary” does not legally exist.

    This means that the right party to sue for wrongful foreclosure etc is the underwriter (master servicer) and perhaps the individuals who directed operations in connection with foreclosures, even if it was through layers…


  11. Where is the “Summons and Complaint,” referenced herein?

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