Has any homeowner transaction ever been sold to investors? No? Then why are we accepting the bank myth that it was securitized?

Bob gives me a mortgage and I sign a note for $300k. Bob assigns the mortgage and note to Steve in exchange for “certificates / securities.” Bob retains the note and pledges to Jim in a collateral assignment to raise money to fund more loans. (i.e. WaMu and the Federal Home Loan Banks). I stop paying and soon Steve declares a default and tries to foreclose. My defense is that Steve doesn’t have the note, never took the note, and the note was collaterally assigned elsewhere before Steve filed the foreclosure action. If so, we can make that same defensive argument in every case it would seem.

No that is not a good defense. Your defense should be centered on who owns the debt. And only someone who has paid value for the debt can own it. If someone pays value in exchange for ownership of either the note or mortgage, then it is presumed that they own the debt — and it would be very hard to rebut that presumption.

So if someone pays money without getting or being entitled to a document that transfers the ownership of the debt from the current owner to the new owner, they have not acquired the debt.

Similarly, if someone has not paid value for the debt or note and they do get such a conveyance of ownership of the debt, even from one who is the owner of the debt, they too don’t own the debt. And a non-owner of the debt cannot issue any rights or instructions regarding the debt without deriving authority from an owner of the debt who paid for it.


The transaction between Bob and Steve was a sale. Steve paid value unless the certificates or securities he used as payment were known to be worthless at the time of the sale. The fact that Bob retained possession of the note does not change the analysis. When Steve seeks to enforce the note he either has to get Bob to produce it or if he can’t, then he needs to plead a lost note. The transaction that you have used as an example does not convert the note to a security.

Steve also has the option of suing Bob in the event that Bob is reluctant to turn out for possession of the note. but in all events Steve can show that he bought the note, which means that he bought the debt, and therefore is probably a holder in due course or at least a holder with rights to enforce as the owner of the debt.
But the analysis does change if the example is changed slightly. If Bob was loaning you money because Steve was contemporaneously taking Bob out of the loan, then in substance the conduct of the parties shows that Steve was the actual lender and that Bob was simply an intermediary. This is the essence of a table funded loan which is against public policy as set forth in the Truth in Lending Act.
So if Steve did not take possession of the note because Steve did not want to be accountable or liable for violations of lending laws as a lender, there is a case to be made that the nature of the transaction shifted. And if Steve gave Bob the money to lend to you because Steve was contemporaneously divesting himself from any risk of loss on the loan, then the argument would go one of two ways.
Either the next person in the chain acquired ownership interest in the debt and note — or if Steve was merely selling derivatives whose value was indexed on the performance of your loan, then then the debt and note probably lost a creditor who could legally claim rights to enforce. As I see it, this would definitely be true if nobody in the chain was carrying the debt and note as an asset after Steve made his sale of derivatives.
But I don’t think that under Securities analysis, the latter example would result in finding that the note had been converted to a security. It’s hard to see any analysis that would support that conclusion. If nobody was paying for legal ownership of the note then how would the note be converted?
Of course that could be one possibility that would preserve the securitization infrastructure. And maybe if the courts catch the Wall Street banks with their hands in the cookie jar, the banks themselves might push that idea.
Given the political climate that allows Wall Street to make up its own rules, that might happen, leaving both investors and homeowners out in the cold. That is why I’m starting to push Reformation as the better alternative which takes all stakeholders into account.

3 Responses

  1. https://www.fool.com/investing/2020/06/26/why-jpmorgan-chase-bank-of-america-and-huntington.aspx

    The Fed has ordered flat out that “no share repurchases will be permitted” in the third quarter. The Fed is also “capping dividend payments to the amount paid in the second quarter,” and may even require that dividends be reduced “to an amount based on recent earnings” if a given bank’s earnings take a hit in Q3

  2. Albert most of the “Depositors” are gone, but you make a good point.

    Neil is right. And, TILA is too often ignored. One of few consumer protection laws. That law goes to origination. All those Warehouse lending agreements that no one ever sees.

    Also, derivatives are contracts, they are not securities. They are contracts “derived” from the fake shell trust “certificates/securities” – that were “derived” from no balance sheet asset for any claimed loan. Nevertheless, servicers who claim to service for (undisclosed) derivatives, almost always attach themselves to fake trust securities, and NOT the (fake) contract derivatives. This is a violation of FDCPA.. But the FDCPA has one short year of statute of limitations. So what law then protects the consumer? None. (RESPA only addresses the servicing of payments — not the “creditor”)

  3. I read your newsletter like it is the gospel and have heeded your advice in my case. We are entering the sixth year in our foreclosure case. In all of your emails, I rarely see you speak about the intervening parties, the aggregator and depositors. They are never mentioned in any foreclosure lawsuit, yet their participation is mandated in the securitization process by federal law. They too, should have paid value for the debt before “selling” it to the phony trust.

    How can we use the obvious absence of these two important entities in every mortgage that supposedly has been securitized?

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