Why the SEC Needs to Regulate Falsely Labeled “Mortgage Backed Securities”

The SEC should be regulating these transactions because the investment banks are evading regulation through claiming an exemption that defines their financial product as a private contract and not a security subject to regulation by the agency. But they still label the financial product as a “mortgage backed security.” It does not take a legal genius to know that they can’t have it both ways. Either it is a security or it is not.


Consumers and homeowners have been continually frustrated by the lack of any support from any federal or state agency whose charter requires them to protect the public. The reason for this lies and political reality and economic stupidity.


The stumbling block here is that the certificates have been subject to an administrative determination that they are not subject to regulation, pursuant to the exemptions that became law in 1998 and 1999. If you actually want to make some headway, you have to confront that administrative determination. And the way you do that, in my opinion, is by challenging the perception that the IOUs issued by the investment banks qualified for the exemption because they were “pass-through certificates.” This perception is perpetuated by the continual use of the phrase “mortgage-backed securities.” Even a casual reading of the indentures on the IOUs and prospectuses reveals that the holder of the IOU has no claim on any collection from homeowners, nor any contingent claim relating to the enforcement of any debt, nor a mortgage.

These IOUs are covered in window dressing that appear to satisfy the requirements of the 1998 exemption because a loan is a private contract and there’s not a security that could be regulated by the SEC. But established case law clearly shows that the SEC is charged with the responsibility of looking at the substance of the transaction and not just the form. In any case where the investment by the investor is based on a passive receipt of income, revenue or profits, it is a security.
The IOUs promise one thing, and even that promise is discretionary on the part of the investment bank. The promise is to make scheduled payments for an indefinite period of time with no principal due and no “interest” paid. That is not a loan and it is not a promissory note. It is a security with risk factors that are not disclosed to investors. It is a security whose sale is used to pay back other lenders to the investment bank that funded payments to homeowners in exchange for the issuance of written instruments that were a component of the IOU certificates that were securities.
The homeowners believe they’re buying a loan product when inf act they have been drafted into becoming co-issuers of a security that is sold to investors. They receive no benefit from that sale. While the sale of the falsely labeled loan documents appears to be a loan, it does not result in the existence of a lender or loan account receivable — even though homeowners are convinced, through false representations, that there is full compliance with lending laws.
The continued posture of the SEC in failing to address gross procedural and substantive irregularities and, illegal conduct based upon completely false premises and extra-legal business structures has produced a gross shift of wealth from Main Street to Wall Street. Wall Street firms are in the business of selling securities and collecting a commission for their services. Under the current scenario, these firms t have turned underwriting fees on their head. Instead of receiving 15% commission fees, they receive at least 1200% of the transaction. The transaction allows them to control the flow of money without any legal ownership, thus avoiding detection and prosecution for violations of many laws governing the sale of securities, loan products, and “servicing” without any underlying loan account receivable to enforce.
The SEC.gov website is used as a conduit to perpetuate the farce created by these firms. By filing a prospectus, they gain access to the SEC site. They then are allowed to upload virtually anything under that filing number. Then they download the document that has never been reviewed, affirmed or confirmed, and this produces a copy of the document with the sec.gov URL in the header of the document. Then the lawyers seeking enforcement of a nonexistent loan account receivable produce that copy in court along with a private certification affirming that it came from the SEC.gov website and ask for judicial notice — thus falsely claiming that the document came from a disinterested source.

The SEC has lost control of the largest Ponzi scheme in recorded history. It is time for this agency, which has the muscle and teeth to do something about this., to reconsider its current position, and to enforce the laws as they are written based upon substantive facts as they occurred.

Nobody paid me to write this. I am self-funded, supported only by donations. My mission is to stop foreclosures and other collection efforts against homeowners and consumers without proof of loss. If you want to support this effort please click on this link and donate as much as you feel you can afford.Please Donate to Support Neil Garfield’s Efforts to Stop Foreclosure Fraud.

Neil F Garfield, MBA, JD, 75, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more.

Yes you DO need a lawyer.
If you wish to retain me as a legal consultant please write to me at neilfgarfield@hotmail.com.

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4 Responses

  1. Leo — these false PLMBS have been repurchased and sold to distressed debt buyers via Public Private Investment Program. The problem is — the government Treasury believed all were in default – BECAUSE – as Neil says – nothing is on anyone’s balance sheet. So they thought legitimate default before transaction occurred. WRONG. It is false and because never on anyone’s balance sheet – UNSECURED. Barney Frank knew this and tried to fix this. Was voted down.

  2. The federal reserve is taking these unregulated securities as collateral for repo daily window liquidity for the banks.

  3. HA Java – yes no one cares. SEC job is protect investors – not homeowners. But by SEC not regulating – homeowners are destroyed. Politicians – both sides – allow this.

  4. Republicans Suck. Democrats Suck.

    Understand ???

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