Livinglies's Weblog

By T. Anderson

Abstract – US Residential-Mortgage Transfer Systems – A Data Management Crisis

Investigator Bill Paatalo won’t stop digging until he unearths the entire skeleton of the fraudulent securitization scheme.  He recently stumbled upon a golden nugget contained in a white paper on residential mortgage transfers.  Confirming what Paatalo has already discerned from his decade of research, ““The loans are literally impossible to track, have no verifiable accounting, AND the master servicers and trustees manipulate and expunge data with no oversight.”

In a May 16, 2012 white-paper entitled U.S. Residential-Mortgage Transfer Systems: A Data Management Crisis by John Hunty, et al., the paper examines the current state of residential-mortgage data structures and transfers from origination through the securitization supply chain and concludes that it is impossible to trace an individual mortgage loan.

“The data in mortgage loan securitizations was a mortgage-risk management disaster, lacking transparency, consistency and accountability- thus opening the door for wide-scale fraud and masked by plausible deniability.    The securitization system, by design, was engineered with the purpose of facilitating the largest financial hoist the world has never seen.

Current data-management practices make it impossible for homeowners, lenders, investors, government regulators, and law enforcement to perform any oversight, analysis or even access individual loan data to determine the status of the loan (balances, write-down, insurance payoffs, transfers, ownership).  Thus, the servicers create the information as they go along to create the appearance that they have access to this information, and that the information exists.

Any sense of order was shattered in the process, allowing data to be resold, repackaged and recreated with a keystroke.  With this being true, a proper boarding of a loan from servicer to servicer is impossible, and investors in mortgage-backed securities are buying only ink, paper and data backed by nothing.”

      On page 7 of the white paper, under section 2.2 Origination Data, the paper reveals that there is “no permanent, unique, and verifiable loan identifier attached to the loan at origination,” and “instead, loan identification numbers are re-created by the different owners and managers (such as servicers and pool trustees).” If a loan identification number is changed there is no way to trace the prior history back to the securitized pool.  From page 7:

“Mortgage-origination data comprise the set of static information related to the mortgage at the time of the loan origination. As shown at the top of Table 3, the loan record is identified by an internal loan identification number. Currently, in the U.S. there is no permanent, unique, and verifiable loan identifier (like the CUSIP number in the bond market) attached to each loan at origination. Instead, loan identification numbers are re-created by the different owners and managers (such as servicers and pool trustees) of the loan origination and performance data sets. Nearly always, the loan IDs are changed as the loans travel though the mortgage supply chain (which will be described in subsequent sections of this Chapter), making it all but impossible to track a unique loan through the supply chain from its originators, via its servicers, to its securitized pool.”

      To add further insult, the servicers and trustees are attempting to track loans by “common loan elements” like zip code, loan amount and contract features.

“Without unique and permanent identifiers, the only way to track loans is through complicated, and often erroneous, computer matching schemes that link the information by common loan elements such as zip code, loan amount, and contract features.”

     The paper states the data is available to the loan originator, but originators typically aren’t very concerned about contractual details like properly transferring the note by assignment, or maintaining payment details.  An originator is focused on collecting their FEE to fund the loan, not in the quality of data or file transfer.

The paper claims that the data is “fully available internally to the….GSEs and their regulator, the Federal Housing Finance Administration (FHFA)” but there is no way that is true and there is no way that the authors were permitted to audit the GSE or FHFA data.

The Federal Reserve receives incomplete “subsets of the data” that is available through private data vendors.  But according to the private data providers, the “trustees expunge nearly ALL of the borrower and co-borrower identification information.”  The data received by the Federal Reserve is deficient and inaccurate, as well.

When a loan goes into foreclosure, the servicer must create the illusion that the loan file exists- by fabricating a note, assignments, and the appearance of a legitimate loan file when none exists.  The servicer’s game plan in court is to defeat the homeowner by deceiving the courts with fabricated documents, filing a plethora of motions meant to exhaust and deplete the homeowner’s limited resources, and ensure the loan-level data never sees the light of day with the assistance of a biased court.

“The data reported in Table 3 are fully available internally to the analysts of the loan originator, the loan servicer, the GSEs, and their regulator, the Federal Housing Finance Administration (FHFA). However, only subsets of the data are available through the private data vendors who represent the primary data source to investors and analysts in the securitized mortgage bond market and to the regulatory institutions, such as the Federal Reserve. The private data providers and all of the trustees expunge nearly all of the borrower and co-borrower identification information reported in Table 3

        In section 3.2.2 REMIC Data Reporting, the paper states that prior to the financial crisis and in 2012 when the paper was written that there was no loan-level information for mortgage backed assets in the REMIC-SPVs at the “date of the issuance of the prospectus supplement or the date of the initial offering of the certificates.” Thus, the individual loan characteristics including payment of principal and interest are NOT available!  The investors and certificate holders were forced to rely on “summary statistics” of the sub-pool.  The investors and certificate holders are not aware that they bought shares of a “mortgage-data” smoothie where no individual loans could be identified.”

3.2.2 REMIC Data Reporting

“As previously discussed, both prior to the crisis and currently, there is no loan-level information available for the mortgage collateral held as assets in the REMIC-SPVs at the date of the issuance of the prospectus supplement or the date of the initial offering of the certificates.

Because many of the REMIC-SPVs were composed of more than one distinct pool of mortgages, often the summary statistics would be provided for each of the sub-pools rather than for the collateral aggregates. Of course, mortgage analytics based solely on this information would be challenging, because the full distributional effects of the loan characteristics on the payments of principal and interest could not be specified.”

        The servicers, who are the bottom-feeders of this entire fraudulent scheme, are tasked with being the ‘data providers’ that are supposed to comply with the pooling and servicing agreements but typically have no idea what the original loan number was or balance, let alone what PSA is controlling of a particular loan pool.  This is an unmitigated disaster the banks can’t fix and the government doesn’t want to touch.

Shockingly, the prospectus supplements don’t require monthly payment remittance statistics, loan balances, delinquencies, prepayment status or audits to the investors.  There is literally no oversight or accountability for trillions of dollars of mortgage backed securities.

“During the run-up to the crisis, the only data that were available to analyze the loan origination and loan performance data for securitized mortgages were the data generated as the result of the PSA data management and reporting requirements stipulated in the prospectus supplement. These activities were carried out by the servicers and trustees of the REMIC SPVs.

Interestingly, the prospectus supplements never require that the monthly remittance statistics for the principal and interest payouts on the loans, the loan balances, and current loan delinquency or prepayment status be subject to external verification by accountants.

Access to the remittance data are available through subscriptions to private vendors such as ABSNet Lewtan and Bloomberg, the servicers, such as LPS and LoanPerformance (now Corelogic), and the trustees, such as CTSlink. Since the vendors source their data differently, the data that they maintain and sell is in part unique from, and in part overlaps, data available from other sources. Because there was, and is, no unique loan identifier, and because only some of the sources include data on the securitization status of the loans, it was and remains nearly impossible to obtain a consistent aggregate of securitized-loan characteristics and performance in the U.S.

This is consistent with the CA Case that was unsealed in 2016 – United States v. Discovery Sales, Inc. – The originating lenders who made loans to purchase DSI properties, including Wells Fargo and J.P. Morgan Chase, generally would not keep the mortgages and thus did not end up losing money as a result of the DSI fraud scheme. Instead, they would sell the mortgages to other banks who would package them in securities that were sold to other investors. These securities failed when the underlying mortgages went into default. It was impossible to trace the majority of the mortgage loans on the over 300 homes sold by DSI that were the subject of the FBI investigation; it would have been harder yet to identify individual victims of the fraud given that the mortgages were securitized and traded.  (Emphasis added.)”

     Below is the information that is allegedly contained in the loan files at the GSEs.  The GSEs must be audited to determine if such files exist:

Filed under: foreclosure | Tagged: Bill Paatalo, data management crisis, loan level audit, mortgage transfer, mortgage transfer systems |