Stop Assuming You Know Investment Banking

The greatest challenge in unraveling the securitization mess is that that courts, judges, homeowners, and lawyers think they know what they are talking about. They do not. Without any statement on record, they assume things that are not even alleged much less be proved by a shred of competent evidence. They all rely on factual assumptions that are at best implied, and at worst unstated.
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The warehouse loans were not paid because they too were not loans. The use of the label “warehouse” loan was used to disguise the real agreement which had previously been called the “Purchase and Assumption Agreement” where it was clear that the originator had no right to take or touch any money other than what was paid to it as a fee. In all “warehouse” labeled deals the “borrower” is the thinly capitalized eternity that had no credit history and no credit rating. It was unnecessary because credit was not involved. The originator as “borrower” in agreements titled as “warehouse”, enters the typical transaction with the homeowner as merely a sales agent.

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This has a very substantial effect on the legal status, duties, rights, and obligations of the parties that are concealed from that point forward. Since the originator never received any money, it was neither a borrower nor a lender. The mask of advancing money on behalf of the originator is removed when the process of underwriting and accounting for the transaction is analyzed. And this is common sense.

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No Wall Street company (or anyone else!) is going to pump hundreds of billions of dollars into or on behalf of a company that can’t possibly answer for mistakes, errors, omissions, or malfeasance (see Taylor Bean and Whitaker). It may have occurred a couple of times, but on the whole, it would be just stupid to allow the temptation of skimming the money flow to the tune of hundreds of millions or even billions of dollars. And no Wall Street company has agreed to do that. There is no warehouse loan. This is a table-funded transaction that was not even a loan at all.

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It’s easy to get lost in the weeds. Courts do it all the time. I just read a case from December 2020 in which the court recited, as though it was already firmly established, that the certificates sold to investors were collateralized with loans (the underlying obligation, legal debt, note, and mortgage) of borrowers. It is recited as true, even axiomatic.
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And THAT is why the courts assume that even if the foreclosure documents are irregular, the proceeds from the forced sale of a homestead will eventually get to those investors. But they never see a penny.
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But it isn’t true and it never was true. And the courts (and others), filled with judges who know virtually nothing about investment banking, continue to analyze agreements between the various players as if they know something or understand it. I can guarantee you that no party ever told that court that the certificates were collateralized by homeowner transactions. Yet the court makes that leap every time.
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The lawyers for the investment banks consistently stay away from directly making those assertions in writing and even in argument they do not expressly state that the loans are linked to the securities at all much less as collateral for the IOU’s issued as “Certificates” or “Mortgage Bonds.” Those lawyers know that their task is merely to avoid disabusing the court of the notion that the loans were real, the ownership of them is real and that they are to be treated as real for all purposes that serve the investment bank.
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But when it comes down to liability for representations and warranties, it turns out that the “trustee” has absolutely no right, title, or interest in the certificates or any transaction with any homeowner.
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Neither the trustee nor the investment bank bookrunner accepts any liability for misrepresentations concerning the contents of a fictitious loan portfolio — nor improper underwriting (appraisal fraud etc.) of the transactions they wish the court to consider as “loans,” (but without any liability for violating laws, rules and regulations governing lending,s servicing, collection and administration of loan accounts).
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And lawyers for the investors (pension funds etc.) are stuck with the requirement of preserving the “investment” of their client while alleging or trying to allege (without effect) that the reasons for the investment did not exist. The truth is that it was not an investment at all. it was an unsecured loan for a completely discretionary promise to make scheduled payments to investors. the promise was made by the investment bank acting under the name of a fictitious trust and in many cases, the documents between the parties say exactly that.

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Without access to the accounting records of all the parties involved in a securitization scheme, no homeowner and no lawyer is going to be able to produce evidence supporting a claim that the entire scheme was fiction.
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But lawyers and homeowners can and must undermine claims that rely on securitization as real. This is easier to do than most might think. The reason is that the current statutory and common law supports two notions: (1) assignment of mortgage is a legal nullity without the transfer of the debt and (2) no foreclosure allowed unless value has been paid for the underlying obligation. In the context of securitization, the lawyers representing the named designated claimant cannot and will not respond to demands that such transaction(s) occurred.
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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate 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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20 Responses

  1. Charles — Ginnie is only a guarantor of securities that they do not form. The investment banks form these securities — and it is the servicers, and investment bank that repurchase the SECURITY – not the loan. The problem is it goes straight to security. Summer is correct — no loan is made, and Neil is correct, no loan is paid off.

  2. Anon what is miss is the mortgage loan is never purchased by Ginnie so it cannot be repurchased, it the draw loan that the lenders are advanced that being paid off that being been when this so-call repurchase happens. As I received a letter from Ginnie as I question this matter, they clearly stated that they do not buy or sell any Mortgage loans and don’t invest in Securities!

    Ginnie is just receiving the proceeds to release the Notes they collected to form the MBS however, no actual loan is owned by the MBS as the MBS is base solely on the performance of these loans and if they default the initial principal is covered up to 100% by the Fed Gov!

    The scam is to make people actually think that the loan needs to be repurchased when in fact it could not ever be purchased in the first place.

  3. Charles – yes — all seems to begin and end with securities and not an actual loan. I think Summer has been correct on this. It is the SERVICER/Issuer that repurchases out of the Ginnie pool which Issuer formed for Ginnie securities. One does not know who that Issuer is. Ultimately, exactly how Neil has stated it all falls upon the (Issuer) investment bank. Servicer term is contradictory and there is confusion on what a servicer really is – or if they even exist, Some say Servicer is the lender. But Servicer is not a successor to originator. And, Servicer does not lend money – so they are not the Lender. And “Pools” are not Lenders. And investment banks are not Lenders. And Pooling and Servicing Agreements are not lenders. But for many – “servicer” is the only name they have. I think this is a big TILA violation, but Supreme Court has never addressed. Then there are layers of so-called servicers. One does not know ever know who that Servicer/Issuer is. None of this could have happened if something was not wrongly done at claimed origination. If Servicer has any meaning at all – it is for the security investors, So borrowers are left with nothing.
    There is a high percentage of non-banks that claim to originate these Ginnie loans. These banks do not have the capital to originate.
    But, according to agreements, “Servicers” can repurchase so as not to have to advance principal and interest. Ginnie Mae’s advancement however could be perpetual. See link.

    https://www.brookings.edu/wp-content/uploads/2018/03/5_kimetal.pdf

  4. Anon it not the loan that being repurchased from Ginnie because Ginnie cannot make a loan, it is the money draws the lender/issuer takes out against the securities that is being paid back. It is a separate financial transaction that post home loan closing and has nothing legally attaching the borrowers to that debt, It like a construction loan that the issuer is getting from the investors of the MBS that insured 100% by the Fed Gov for the principal investment and is not base on any purchase of a mortgage loan.

    When asking Ginnie as they publish to borrowers that they don’t buy or sell mortgage loans and don’t invest in any MBS, they only insure the MBS.

  5. And Charles – check out Wells Fargo Bank, North America – and Ginnie Mae. No – not a typo.

  6. And Charles — see below. Now – are delinquencies manufactured? Absolutely. A servicer purchases loans out of pools backing Ginnie Mae securities for one of three reasons:
    1. It may elect to repurchase a loan that is unpaid for three consecutive months or is delinquent for four consecutive months (such as a loan that continues to be one month delinquent for four consecutive months). For this purpose, Ginnie Mae considers a loan in forbearance to be unpaid. Many servicers make this election if they have the funds to
    do so in order to cease the obligation to advance regularly scheduled mortgagor payments of principal and interest.
    2. Except with respect to trial modifications, Ginnie Mae prohibits the modification of pooled loans, and, thus, a servicer effectively is required to repurchase a delinquent loan to be modified.
    3. As a last resort after exhaustion of efforts to cure, Ginnie Mae requires the servicer to repurchase a loan that proves to be ineligible for mortgage insurance or guaranty, since such insurance or guaranty is a statutory requirement for Ginnie Mae to issue guaranteed securities backing a pool of mortgage loans.

  7. You make a good point Charles. But try to tell that to a court. Courts are accepting “security investors” as the “LENDER.” That is impossible under law. It is the transfer of those fake securities, and derivatives, that have caused the problem. I see no case law — anywhere – that states a “LENDER” is the “security trust.” Government clarified that quite some time ago. Guess judges missed it. The courts don’t get it. They think “investors” funded the loan. IMPOSSIBLE. Investor beefs, if any, are solely with security underwriters if they don’t get their MONEY. They cannot go against borrowers because 1) they never lent any money to borrower (prohibited by law) 2) there is no contract with borrower. 3) no title was conveyed to them. It is the security issues, and derivatives – that are the problem. But if you ask many attorneys — they were never good at math – that is why they chose a legal path – no math involved. Neil is different – he also has an MBA.
    Look — I pursued this issue years ago. And the answer was — the same as Bush said — “those damn derivatives – nothing we can do about it.” Is this ever disclosed? NO. Why? Unregulated – they don’t have to. FOIA? Will get nothing because GSE FOIA mandate stalled in Congress for 4 years. That would disclose the PROBLEM should it be made law. It is not the “Loan” transfer that is at issue – it is the securities TRANSFER issue at question – and the securities themselves are a problem. But it is BIG money, and it is international “investing,” and no one cares about Suzy and Joe. MONEY MONEY MONEY – it is what makes the world ????- put in your own word.

  8. Anon you make a good point if you seen them, but my problem is that what there to sell other the performance of the loans as MBS do. You got the loans debt owned by the lender that turns into the issuer, but in order to pool the loans into your Ginnie MBS you must per Ginnie regulation perform a UCC3 blank endorsement and relinquish to Ginnie the Notes, taking away any type ownership by some type of Trust.

    Once Ginnie takes physical possession of the Notes as when are handled by the custodian of records that is an extension of Ginnie at that point. So even if the MBS is sold it never does own the debt and is not in a position to place a valid lien because Ginnie owns the Notes.

    I believe at best as someone said the best are these unsecured loans except in the case of WAMU who stop having a claim on Sept 25, 2008 as they are defunct!

  9. Charles — I have seen Ginnie Mae securities in Freddie Mac REMICs — these entities also purchases securities — that is part of portfolio. Whether your is there not not – who knows. But if WAMU involved — there is a problem.

  10. Anon 95% of all FHA & VA loans are Ginnie Mae pooled and are not associated with Fannie & Freddie, as those two do purchase loans from the lenders and Ginnie never does. Back in 2010 I under the FOIA did receive my file from when Washington Mutual Bank (WAMU) submitted and get approval to attach my loan to it’s Ginnie MBS.

    You can refinance a FHA & VA loan just as any other loan, however I will admit that doing so raises the question of how a payoff is given since Ginnie does take ownership of the Notes. Both programs have a streamline refi that I am doing currently and will complete in a couple of days @ a 2.25% rate for 30yrs and several lenders offered the same rate.

    I believe my complaining about the pooling stopped FOIA request of Ginnie because I exposed the crime with the documents received from the request as in the lenders form that show the transferring of other ownership through the MERS system to Ginnie Mae as if Ginnie was actually a member of MERS as a lender which they are not.

    What Ginnie did not explain is once WAMU was declared a “failed bank” that Wells Fargo’s Ginnie Mae number is placed as the issuer for the loans that WAMU attached to it’s Ginnie Mae MBS. So it makes it look as if Wells Fargo originated or purchase these loans and created the MBS, however, as these MBS were created well before Jul 31, 2006, when Wells first entered as the servicer and custodian of records.

    What nails the fraud is the MERS Milestone report that in the Ginnie file on the loan and the Ginnie form GMM211B that part of the road map the Fed Gov does not want to see the light of day.

    Because I had some knowledge that was given to me in secret of one of the lawyers at HUD who told me about the pooling, and to request the information and used it against Ginnie who was made to respond, through this crook name Michael Drayne who writes me this BS letter about Ginnie and the pooling process where they allow the bank to act.

  11. Money never went to any homeowner except cash outs.

    Money went to home seller IF the house was free of liens; or to Seller’s mortgage company if they had mortgages.

    If home seller had “mortgage” with “Caliber Home Loan” and new home buyer has a “mortgage” with PennyMac Financial, then one of investment Banks who own both companies – Bank of America for example – simply adjusted their internal records replacing one slave’s name – the Seller- with another – The Buyer.

    Nobody paid to anyone.

    Ginnie does not buy any loans – they pretend that they “guarantee” non-exising “loan accounts”

    ANON is correct – check the property history – and see with whom the Seller had “mortgages”.

    This will be most likely the same Master of the pretender Lender

    No money were sent for “closing” to anyone.

  12. Charles- Ginnie securitizations are very old. I know that – was in the business. It has been decades since they securitized themselves. . Freddie/Fannie securitizes Ginnie loans. Sent to Freddie/Fannie. But is not about authorization. It is about the status of the loan when it is claimed to originate., and the accounting at origination. Need PRIOR records – what you see is not what you got. If nothing paid off by borrower — then “refi” or purchase – bogus. Asking — what is the status of note when transaction is bogus? No one can answer. But will tell you – that is why you can’t get a refi — can only a loan mod – if you are lucky – and that “mod” just covers the fraud. And, you won’t get info from anywhere. You need documents. Now – Jason Chavetz – former congressional representative introduced a bill to make GSE records mandated under FOIA. That was 2017. That bill has been stalled since 2017. Chavetz is gone as representative. So stalled for 4 years — passed by house and never went to senate. Hmmm. It just sits there. Imagine if those records were available under FOIA? IMAGINE. And, I put a lot of blame on Obama – but 2017 was Trump. And, I don’t discriminate. But this is 2021. And, what representative is even aware that bill is stalled in the Senate? Forever stalled? Last went to Judiciary Committee. Believe it is called HR 1694 — but check me. FOIA OPEN RECORDS. Thanks. .

  13. What I do agree with is whether loans are secured or unsecured. I believe that no Ginnie Mae pooled loan after the blank endorsed Notes are transferred to Ginnie are never secured because Ginnie is not authorized to purchase any loan debt! When Ginnie has the UCC3 procedure perform it and the physical transfer occurs never again act to transfer the loan back to the lender as no sell of the debt occurred in the initial transfer!

  14. Java is correct here. First, most of these crisis loans were so-called “refinances” – and not a purchase. However, bad purchases from prior owner “records” got mixed in the mess. I agree that stating no loan existed is not productive before a judge who is likely paying his own mortgage. Will get you nowhere. It is the “type” of loan that was executed that is the problem. And it was not a valid mortgage (or purchase) that refinanced or paid off the PRIOR loan as borrower was told. Thus, making all unsecured as Java states. If you have access to documents for warehouse lending, you will see that the entire collateral file, and claimed original “note” is send to the warehouse lender – this is critical. But, those warehouse lenders wore many hats – including as security underwriter, and direct servicer to the GSEs. Thus, they were well aware that these particular loans were already reported in (false) default to GSEs, and charged-off. All that all that occurred at so-called refinance/purchase was a “REINSTATEMENT” of unjustified default debt – that paid off NOTHING prior by the “NOTE.” Nothing more that a modification without the borrower agreeing. Therefore, unsecured, and subject to FDCPA short SOL – which is too late once borrower finds out. What was paid out was any cash-out received – which is then lumped together with the reinstated default debt, and (falsely) claimed securitized. Borrower was conned at refinance to believing it was a valid refi (or purchase) that paid off prior loan. NOT. Did NOT happen. I have asked many times if such fraud negates the negotiation of such a fabricated “note” – and no one can answer. How do I know all this? I lived it. And modification? Just more continuance of the fraud. And, why did the government allow this to occur? First, they were blind as regulators. Second, once exposed to them – they did not know how to handle – other than to blame the borrower for using house as an ATM. Third, they executed settlements that blocked investigation. Do authorities know this now? Yes – but it took them a long time to figure it out. And, they can’t fix it. What a scandal it would be if exposed..
    Any other claim is not going to be effective. Warehouse lender “Letters” – if you have one – state original “Note” and file sent to Warehouse lender. You have to understand valid warehouse lending. All documents go to them until the table funder pays up – by sale of loan to secondary RMBS market. But, the trustees to claimed PLBMS never got the original note or collateral file. The securitization was fake – because it was based on “unsecured” charged-off debt that was incapable of ever being accounted for for valid securitization. Hence — all was shut down by the government. This is not complicated. I do not understand the confusion. However, judges have put through numerous foreclosures on bogus records. If a judge goes against peers — or himself/herself – they are minced meat. So — first one has to get the details correct, and then understand why judges turn their own blind eye.
    REINSTATEMENT – UNSECURED — Java is correct.

  15. toomato – tomato if the ‘lender’ recited doesn’t exist the ‘transaction’ is never legally entered, bound or consummated – the question is not what it is called but who or what is behind ‘it’ that legally deserves to be credited for advancing funds to whoever the ‘seller’ was . . . no ‘lender’ means ‘no loan’ call it what you like – the underlying issue is who is/was permitted to be in privity with the homeowner. . . that may or may not have been the one advancing (wiring) funds to seller’s of the property – if the homeowner never sees any paperwork until a month later and no money – and the paperwork forming the alleged ‘contract’ is a complete bowl of BS – because it doesn’t recite truthful or accurate details of who or what exactly went on – behind the facade of a nonexistent so and so – how could a nonexistent whatever have any ‘money’ to ‘lend’ which is what constitutes a ‘loan’ – many of these cases are not about a ‘loan’ per se but who is legally entitled to cancel a note and release a mortgage upon full payoff??? If a philanthropists comes into Walmart at Christmas pays off someone’s layaway – he/she dealt directly with Walmart – gave them what they wanted – the money and the customer comes to pick up the ‘gift’ only to find out it was fully paid for by anonymous . . . how is this a ‘loan’ if the consumer has no idea who or what transpired – and why did the secret Santa pay and slip out without identifying himself – he may be a good person but wall street investment banks are not – so why did they wire money in secret but keep their names concealed from the homeowner? If it was a ‘true’ bona fide ‘loan’ elements of disclosure are fundamental otherwise the homeowner doesn’t know what he/she is involved with or with whom. . . there’s a reason these entities concealed their identities – if they wanted to be ‘paid back’ then why hide? Doesn’t make sense – these were not “loans” they were masquerade costumes.

  16. Legisman. You are Most likely correct. But it’s definitely UNSECURED Debt. And that should be more than enough to defend…,,

  17. Agree with Summer – excellent article except I think we need to stop referencing the ‘homeowner’ got any money – wire transfers were from A to B but never to homeowner unless they got a HELOC . . . we need to drop that notion along with references to ‘loans,’ etc. Thanks for article Neil!

  18. I agree with Charles Reed, claiming there’s no loan is utter nonsense; and anyone that would be dumb enough to make such an argument, would get laughed out of court!

    WILDER V. OGDEN RAGLAND MORTG., 2016 WL 4440487, at *4-*5 (N.D. Tex. July 29, 2016)(“plaintiff’s claim that the three years period to rescind the loan remains open, because defendants failed to identify the true lender and the loan was never consummated, is nonsensical.”);
    RAMOS V. U.S. BANK, No.12-CV-1820, 2012 WL 4062499, at *1 n.1 (S.D. Cal. Sept. 14, 2012) (where loan paperwork “plainly identified” a lender, “the loan was consummated regardless” of who the “true lender” was); MBAKU V. BANK OF AM., N.A., No. 12-CV-00190, 2013 WL 425981, at *5 (D. Colo. Feb. 1, 2013) (because the “deed of trust identifies [] the lender[,]” “plaintiffs were obligated on their mortgage to [that lender]” without regard to any third party involvement); SILAS V. ARGENT MORTG. CO., 2017 U.S. Dist. LEXIS 115324, *30 (E.D. Cal. July 24, 2017) (“the use of a third party lender to fund a loan does not preclude the consummation of a valid contract between the named lender and the borrower.”); MARQUEZ V. SELECT PORTFOLIO SERVICING, INC., 2017 U.S. Dist. LEXIS 38239, *7-*8 (N.D. Cal. Mar. 16, 2017) (“[C]courts that have considered arguments identical to Plaintiff’s — that a borrower’s mortgage loan documents allegedly fail to identify the borrower’s `true lender’ and therefore, pursuant to Jackson, the mortgage loan was never consummated — have unanimously rejected it.”); GHALEHTAK V. FNBN I, LLC, 2016 U.S. Dist. LEXIS 61347, *10 (N.D. Cal. May 6, 2016) (“[T]he contract is consummated so long as a lender is identified, even if it is not the ultimate funding source.”); MOHANNA V. BANK OF AM., N.A., 2016 U.S. Dist. LEXIS 58291, *14 (N.D. Cal. May 2, 2016) (“[D]istrict courts have unanimously found that a lender’s use of an undisclosed third party to complete a secured transaction is insufficient to preclude consummation under TILA.”); regarded as strictly limited and defined by the contract of the parties and the statutes.'”); SOTANSKI V. HSBC BANK USA, NAT’L ASS’N, No. 15-CV-01489-LHK, 2015 WL 4760506, at *6 (N.D. Cal. Aug. 12, 2015) (The use of a third party lender to fund a loan does not preclude the consummation of a valid contract between the named lender and the borrower.) (collecting cases and concluding that a lender’s use of a third party lender does not preclude contract formation), aff’d sub nom.).

    I could post hundreds more.

  19. Problem is two parties are entering a contract to use to purchase a property, and the borrowers need the capital to purchase something they don’t have the capital to pay outright and the entity providing the funds in expecting to be repaid for the monies they are providing.

    Now if the lender is not authorized to lend then that a problem that the government is responsible for regulating. Same as being a long shark.

    But they gave me money and its not a loan defense does not seem like it should work because no matter what the borrower applying for a loan with a loan application. It a loans and loans are meant to be paid back, unless it involves criminal activity!

  20. Neil is as brilliant as always. I am impressed that even these who are financially educated and look experienced in legal proceedings still continue to call this transaction as a “loan” even though nobody whom they ask can find any “loans” and locate any “sellers”.

    All these “wholesales” facilities are merely a vehicle to cover up a transfer of money from Wall Street Banks to homebuyers.

    It could be masqueraded as “credit line” or probably not even that, Wall Street Banks merely can open an account for anyone in their system and use this account to wire money – which would appear as they came from someone who does not have access to this account at all.

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