Warehouse lending is a legitimate method of financing. I borrow money from you in order to lend money to Jane Smith. In effect, it is arbitrage of interest rates since the interest rate on my loan is less than what I charged to Jane. I am Jane’s lender and I establish on loan account receivable on my books with a reserve for bad debt. I credit payments from Jane and I debit disbursement to that account. If Jane fails to make a payment to me, I lose money. This is NOT a description of what is happening with originators regardless of whether their source of funds is a “warehouse lending” agreement or is more aptly entitled a “purchase and assumption” agreement.
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Nearly all warehouse loan agreements in the current era are merely Purchase and Assumption Agreements which is very different. At the beginning of the securitization era, they called it a Purchase and Assumption Agreement — just like they initially (2001-2006) denied the existence of trusts and falsely stated that either MERS of the designated company pretending to be a servicer could initiate foreclosure. That was all shot down. And if you want to see the reason that was shot down and shut down, see the article by Tom Ice in the Florida Bar Journal where he nails the issue on all fours.
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So then they concocted the use of filing foreclosures in the name of REMIC trusts until the REMIC trustees forbade everyone from doing that. But when you look closely they don’t say they are filing for the trust because they always assert or allege that the Plaintiff or beneficiary is a bank, not a trust. By doing that they need not make normal essential allegations in order to survive litigation, to wit: that the trust is a trust under the laws of some specific jurisdiction and the trust is the owner of at least the note and mortgage (which should be an allegation that the trust owns the underlying obligation). This sleight of hand enables the foreclosure mill to move forward on a nonexistent claim with a nonexistent client.
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It was only after a new agreement giving the REMIC trustees more money in monthly or quarterly payments that Deutsch and US Bank et al agreed to let them bring actions for foreclosure in the name of the REMIC Trustee — along with heavy indemnification and hold harmless protection for filing fraudulent actions. BONY is paid through “Corridor Administration Agreements” in which there is no corridor and there is no administration by BONY. The reason is simple: a judge will look more closely at allegations and exhibits for a trust that he or she would look at the allegations or exhibits submitted on behalf of a large bank. It’s called “window dressing.”
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If we can get those hold harmless and indemnification agreements they will certainly expressly state that the named Trustee has absolutely no responsibility, power or control over any administration, collection or enforcement of any contract. While I have access to the corridor agreements I have not found the indemnification agreements that are probably locked in an offline server or vault.
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But in virtually all cases any agreement in which residential transactions are involved that says it is a warehouse lending agreement does NOT bear the characteristics of a warehouse lending agreement. It is, as it has always been, an Assignment and Assumption Agreement. That agreement exists between virtually all originators and an aggregator for the investment bank that is selling securities.
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The Purchase and Assumption Agreement is simple — the originator agrees to originate solely for the benefit of the aggregator who does not disclose its principal (investment bank). The duties of the originator are restricted to sales — not underwriting and no lending. The originator agrees to be named as a lender, as Payee on the note but in the agreement, it releases all claims to administer, collect or enforce any payment, claim, note or mortgage (deed of trust). As a practical matter, the mortgage broker is usually the person who actually stamps or writes an endorsement of the note contemporaneously with the closing. The “assignment of mortgage” is fabricated by other entities and forged.
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The originator does not create a loan account receivable on its books nor any reserve for bad debt because it is not a balance sheet transaction. It is an income statement transaction in which it receives a fee for services, which is not disguised in the original Purchase and Assumption Agreement. Now it is disguised in “warehouse lending” agreements that are in substance only Purchase and Assumption Agreements.
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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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Filed under: foreclosure |
Purchase and Assumption? Only the assumption is correct (assumption of prior transaction). Trustee cannot legally disavow their status – under the law — they are the legal holder. But foreclosure mills do not represent the legal holder — they just tack the name on to make it look like the trustee is there (note trustee is only a division of a bank – the bank itself should be there). Nothing was lent by warehouse lender (other than cash out) In theory, the role of a warehouse lender “bank” was to provide funding to a non-bank “lender,” and when that non-bank sold to secondary market — it would go to the secondary market trustee, and funds would be paid to non-bank lender to pay their warehouse loan. The warehouse lender would then send the documents they held to the “Trustee.” None of that occurred — so the warehouse lender continued to hold the property as collateral. When the accounting “FLAW” was discovered – one by one the non-banks shut down as warehouse lending ceased. It is not easy to find out, if you have a non-bank transaction — who was the warehouse lender. But it should be able to be obtained in discovery. Then you ask them — what did you do with documents you held? Likely they will not answer. But, they know. And, warehouse lender would only be one of the big banks — WHO — were also servicers to GSEs, and WHO became security underwriters. Banks wore many hats. This is the only reason the crisis exploded.