Smoke and Mirrors: How the Import-Export Bank Mirrors the Business Model of Securitization Schemes. “Holographic image of an empty paper bag.”

The condition precedent to enforcement of a mortgage is payment of value for the underlying debt. Homeowners have not and do not waive that provision. Allowing the foreclosure to proceed is rubber stamping a Ponzi scheme. 

see I Study Corporate Welfare. Even I Was Shocked by This Cronyism.

One more example of how the major banks are able to generate revenue without doing anything or taking any risks. The model described in this article is exactly the same as securitization. The human inclination is to believe that something real is happening when in fact it is not. 

The loans described in the above-cited article are actually a transaction between taxpayers and the end users who are buying goods and services. It is taxpayers who are funding these purchases with cash and credit. But the taxpayers neither know nor get any compensation or offset for being drafted into these contracts for purchase and sale above.

The don’t get the goods, they don’t get the services and they don’t get the benefit of any bargain. The benefit all goes to intermediaries who pretend to be bankers when in fact they are at best brokers and more likely just conduits. Ordinarily such players get paid a tiny fraction of the amount of the transaction. In our new modern world of pretend banking, the intermediaries get all of it. And then because the public believes the spin, the banks go after still more money stifling and exhausting an economy that is running at full tilt just to stay in place.

The problem is not just cronyism which is what the author is talking about. The problem is that people who make something out of nothing essentially all use the same model in a world dominated by moral hazard. They create the illusion of transactions that have no substance. The transactions don’t exist. but the method of creating the illusion creates what appears to be facially documents that are recognized and enforced in the legal world. This requires courts to presume facts that do not exist in the real world. It is both a legal fiction and factual fiction.

In the example presented here, Chase receives money which it characterizes as interest income. It is allowed to do that because of current rules and standards promulgated under generally accepted accounting principles (GAAP). But as pointed out in the 1960s book “Unaccountable Accounting” such reports of interest income are not a reflection of the substance or truth of the transaction. 

Interest is, as it has always been known, is income derived from the use of money by another person. It is due to the person who gave them that money. What you have here is the tail wagging the dog. By allowing Chase to pose as a lender strictly for the purpose of receiving interest and then selling the loan as though it owned it, we are allowing contortion of facts instead of a simple rendition of facts. 

What Chase is receiving should be labelled a fee, not interest. But if that happened, people would question why Chase is receiving  such exorbitant income when it’s normal fee as conduit or broker for a transaction would be a small fraction of the market pricing based upon the principal amount of transactions with borrowers and end users. 

In securitization, you see the same model at play. You see payments to homeowners or made on their behalf in purchasing or “refinancing” their home. The simple reality is that lending money is the least relevant part of the transaction for investment banks. The investment banks have no lending intent and to them it is not a loan. That is why there is no loan account at the end of each securitization cycle. 

It is the existence of an illusion of a loan account that serves the complete basis for every loan in which the investment banks are the silent principal. As I said in 2008, “Tt is a holographic image of an empty paper bag.”

The banker’s intent is not to make money on the loan, but to make money on the securitization of data about the loan. And that is why they can never come up with “proof of purchase” of the loan. Since they don’t want to own the loan — or any liability that might attach to them as a lender — they don’t buy the debt. note or mortgage from anyone, directly or indirectly. 

The investment Banks pursue foreclosures (through sham intermediaries) for two reasons. The main reason is that without enforcement, the transactions that are labeled as loans might not appear to be loans. That might cause people to look at the adequacy or even existence of consideration paid to homeowners who are drafted into a securitization cycle in which they are absorbing most of the risk, just like the taxpayers in the above example. The banker’s risk is nearly zero. If the homeowner transactions were revealed as unenforceable — or to be more specific, non-existent — the entire securitization infrastructure would collapse because of the collapse of the illusion of an existing loan account.

The basis of loans originated within the securitization context is a waiver of essential civil rights and protections for homeowners — namely that only a party who has paid value for the underlying debt can enforce the security instrument. Florida statutes 679.203 is meant to bar actions like this situation. 

Non-creditors can enforce notes — but not unless they have  authority that ultimately derives from the owner of the debt. But non-creditors were never meant to be allowed to enforce a mortgage unless they were enforcing the debt — i.e., seeking repayment to pay down their debt account which they own (not “hold”) as a receivable. 

In these cases we see no loan account, no use of proceeds from payments of sales of property used to pay down any loan account because it does not exist and everyone is getting paid what they expected regardless of whether a homeowner makes a payment or not. Nobody is injured by any action or inaction of a homeowner who is falsely labelled as “borrower” but in reality is an issuer in a scheme that knew nothing about. 

Yes they received money. But in a deal where they not only had to give it back, they also had to pay “interest” and fees. The borrower never gets compensated for the critical role of being the issuer of the note and mortgage without which the securitization cycle could not have existed. 

The second reason for the pursuit of foreclosures is that they want the money and they think they can get it — a proposition not supported by law but which has been nonetheless correct. But that money (and all prior payments received from the homeowner) has never been used to pay anyone who owned the loan account or who used to reduce the amount due to the owner of such account. The entire premise of the foreclosure is a living lie. No investor ever sees a penny of that money as a pass-through because by its own terms the certificates (unsecured mortgage bonds) don’t entitle them to receive it. 

The bulk of all revenue though, comes from the creation, issuance, sale, trading and hedging of securities issued whose value is derived not from ownership of the loan or entitlement to payments but from bets on performance data that is announced from time to time in the sole discretion of the investment bank. This revenue, like the above example with the Import-Export bank, soars above market rates to the extent that the entire transaction with the homeowner is literally obliterated (according to the books and records of the investment bank). 

Foreclosure then is substantively an effort to reform the contract to include an involuntary waiver of UCC 679-§203. It replaces the requirement of an actual creditor with a designee — meaning a designated or nominee (like MERS) intermediary with no interest in the loan, debt, note or mortgage — or outcome of litigation — but who nonetheless is allowed through a legal fiction to recreate or temporarily resurrect the loan account strictly for the purpose of enforcement. 

This waiver by the homeowner is the unintended consequence of court doctrine that seeks to find ways to “protect the loan contract” but at the same time ignores the securitization contract which is present but unaccounted for in a court of equity.

The homeowner does not receive any opportunity to bargain for incentives, compensation or payment for acting in such a role where there is no risk to the investment bank and huge risks to the homeowner — who in many cases is overpaying for the home based upon an lender generated appraisal that is inflated to increase the amount of dollars in motion. 

The homeowner, in legal and equitable reliance upon the duties imposed on lenders, is deprived of commonplace protections that even include normal market forces. The lender, whether real or imagined, no longer has an incentive to make actual loans or viable loans. Instead the incentive is to get the homeowner’s signature and then use it on documents that form the foundation of the illusion of the creation of a loan account.

In this context the risks that the investment banks and their affiliates are trying to force the homeowner to accept run far beyond anything that would or even could have been acceptable to homeowners if they had known about the operation and effect of the concealed securitization cycle.

While I accept that rescission is nearly impossible because of the dozens of contracts relating to the illusion of the loan account, I do not accept the proposition that therefore all homeowners should be the sole bearer of risk in this scenario.

What the investment banks did was promulgate actions that were directly in conflict with the intent and content of lending and servicing laws. The proposition that “servicers” were even servicing or that they are serving the interests of any entity that owned the loan or debt account is merely an arrogant, greedy attempt at profit for the investment bank and all affiliates involved in the illusion of foreclosure to pay off a nonexistent loan account. 

I think the action is for reformation, declaratory, injunctive and supplemental relief. Allege the principles of quasi contract and quantum meruit to force the investment bank or their agents to pay up the amount that any reasonable person would have received for being forced into a waiver of protections and forced into transactions that were sure to undermine their net worth, their lives and their livelihood.

In short, if the homeowner is being forced to accept a designee (nominee) creditor instead of a real one, the homeowner must receive cash, credit or set off as reasonable compensation for his/her role in the securitization cycle. 

Otherwise the court must simply deny enforcement and let that lead to whatever conclusions happen in the marketplace covering the existence or enforceability of selected aspects of the homeowner transaction.

The condition precedent to enforcement of a mortgage is payment of value for the underlying debt. Homeowners have not and do not waive that provision. Allowing the foreclosure to proceed is rubber stamping a Ponzi scheme. 

Also see Bill Paatalo’s article on proving Chase fraud claims.

*Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.*


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4 Responses

  1. Thank you Summer!!!

  2. Revisit and re-read Wells Fargo Foreclosure manual, published in 2014 (!) , in details, as many times as you need to figure out HOW this scam works.

    It is ALL done via Black Knight /LPS/DocX/Fidelity) software and VendorScape owned by CoreLogic, Black Knight’s partner.

    VendorScape and MSP/BK give lawyers instructions via their system whom they need to foreclose.

    VedorScape/MSP demand all documents be uploan via Word format, not PDF, so they can be forged easily.

    Lawyers have no idea for whom they work – it all comes from VendorScape /MSP.

    And its all covered by US Government and Judges.

    On March 1, 2011 (one month before fake Cease and Desist Order) MPS/VendorScape informed lawyers that they must not foreclose on behalf of MERS.

  3. And not attorney but:

    Fraud in the Factum is a type of fraud where misrepresentation causes one to enter a transaction without accurately realizing the risks, duties, or obligations incurred. This can be when the maker or drawer of a negotiable instrument, such as a promissory note or check, is induced to sign the instrument without a reasonable opportunity to learn of its fraudulent character or essential terms. Determination of whether an act constitutes fraud in the factum depends upon consideration of “all relevant factors.” Fraud in the factum usually voids the instrument under state law and is a real defense against even an holder in due course.

    There is also fraud in the inducement.

  4. This is all (not) fine and good, but not the issue for “crisis” loans. It lessens what was actually done to these victims.

    Quote – “In securitization, you see the same model at play. You see payments to homeowners or made on their behalf in purchasing or “refinancing” their home.”

    There were no payments to homeowners or payments made on their behalf for any transaction related to any “crisis” loan whether by refinance or assumption from prior homeowner. It was simply a transfer of debt collection rights for DEBT already recorded as in default. Charged-off.

    I agree – there is no accounting, but the real reason is the transaction was never an actual transaction with money exchanged.

    There is no requirement for consideration with debt collection rights. Could purchase those rights for one dollar. There is also no negotiable “note” when debt has been charged off or liquidated. You may owe something to the debt collector “buyer”, but there is no valid note. Think of this in IRS and charge-off rules.

    Once the real reason for no consideration is put forth, the scheme becomes much more transparent.

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