Livinglies's Weblog

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After some 50 years of experience in dealing with securities and investment banking issues, as a trained security analyst and having close ties with those who play on Wall Street, I can state unequivocally that no investment bank has ever wanted to loan money to any consumer — and no investment bank has ever done so. In fact, no investment bank goes into any deal without passing the risk on to someone else.

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In the current iteration of securitization, Wall Street found and launched the holy grail of investment banking: what if you could underwrite the sale of securities and keep all of the proceeds? This notion throws out the role of every securities firm that ever existed and inserts a new role.

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No longer acting as a broker, it is creating, issuing, and selling “certificates” that were redefined in 1998-1999 as “Not Securities” and therefore not subject to regulation, but which could nonetheless be offered for sale and trading in wide distribution.

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By simply indexing on the prima data of a transaction with a homeowner, the investment firm can attribute a value of the certificate as a “secured” instrument despite no collateral guarantee for payments as set forth under the certificate indenture.

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By simply indexing the present value of various investment grade products, the investment firms were able to price the certificates far higher than the value of any transaction with a homeowner or a group of homeowners.

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By commingling funds and data with other securitization infrastructures, re-underwriting the same payment to homeowners into new certificates, the investment firm was able to sell the same transaction in dollars as though it was a new transaction without limit — or any accountability.

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So the bottom line is that the securitization plan was created to multiply the dollars originally paid to start the first level of what was in actuality a pyramid scheme. The money paid to the homeowner was in exchange for the issuance of the primary or base certificate or securities — the note and mortgage. The revenue generated for the investment firms skyrocketed from and been underwriting fees of at most 15% to underwriting profits of 1200%.

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Underwriting standards were ignored in terms of lending but followed with respect to creating the foundation for sale of securities. This created the added benefit of knowing that many “loans” would “fail” and that the investment firm could then take even more money from the sale of the property while at the same time giving apparent substance to the illusion that the transaction was a loan.

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In addition, knowing that the homeowners would eventually en masse stop making scheduled payments, the investment firms tricked and deceived insurance carriers and hedge funds into “swap” contracts and other hedge products and insurance policies that were strictly paid to the investment firm and not to the investor who bought certificates.

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And finally, the people at the top of the pyramid knew that the market would collapse from the weight of foreclosure cases, creating another opportunity to underwrite more certificates that were sold to investors who thought that the “buyers” were third party investors, thus starting a whole new round of continuing securitization.

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So given all that, let’s look at the above attributes of a loan again. The inescapable conclusion is that the homeowner believes it to be a loan but that is not enough to make it a loan.

1. There is no other reason or intent to give the consumer any money. Now we know that there was no reason to make a loan but there were plenty of reasons to sell securities. 
2. The transaction is legal — i.e., it complies with all federal and state laws, rules and regulations. Now we know that the disclosure requirements and underwriting requirements contained in lending and servicing laws were regularly violated to cover up what the securities firms were doing. 
3. The transaction creates a loan account reflected on the general ledger of the lender as an asset receivable. Now we know that there is no loan account and there is no accounting ledger that reflects a loan account receivable. Nobody wanted that risk of loss. 
4. The lender has an actual risk of loss if scheduled payments are not received. Now we know that there was no risk of loss to the originator because the transaction was structured as a warehouse loan but in substance, the transaction was a fee for service. I argue that was the nature of the transaction with the homeowner — fee for service — and so far, not one person from the industry has corrected me. 
   1. There also was no risk of loss to the investment firm (bank( because they were borrowing money to fund payments to sellers of the property but repaying those loans with the much greater amount of money proceeds from the sale of certificates. 
   2. And there was no risk of loss to the investors, at least initially, because they were not the owners of the homeowners’ promises to make scheduled payments. They were the owners of a conditional, discretionary promise to make scheduled payments made by the underwriting investment firm. Unknown to the investors (or perhaps they didn’t care) the investment firm would continue making payments from a reserve fund created by withholding from the gross profit of the sale of certificates for that particular securitization structure plus the proceeds of sales of other certificates. 
      1. In fact, this was yet another opportunity to sell yet another round of certificates. The payments made to investors were designated as “Servicer advances” even though the funds came from the investors. Under the indenture, the “servicer” could recoup the “advance” upon liquidation of the property — which is why most foreclosure threats become reality rather than a “workout” that preserves the property and the transaction. 
      2. Servicer advances became receivable. This resulted in the securitization of servicer advances which was realized through the forced sale of the property.
5. The lender has funded the transaction by using its own assets or its own credit, wherein the lender is liable for repayment of the funds loaned to the lender. Now we know this was never true. 
6. The lender owns the loan account receivable when the transaction cycle is complete. Now we know that this never happens even if a brand name bank did the “loan” underwriting.”
7. The lender’s business plan is to earn a profit through repayment of the loan together with interest and other fees or, as is frequently asserted, the profit is earned through sale of the loan. Now we know that rather than earning profit from payments of interest, the goal was to create revenue and profits on an unprecedented level from the sale of certificates dubbed “MBS” (even though they were neither securities nor backed by any obligation, note or mortgage from any homeowner) — giving rise to the “factor of 10” payment scale that was used to compensate anyone who participated in this scheme — all except the homeowner who received literally less than nothing once you deduct the principal and “interest” that is “owed” on a nonexistent loan account. 
8. If the loan originated with the intent to sell it in the secondary market, the intent is to receive payment in exchange for a conveyance of the underlying obligation. Now we know that with very few exceptions no originator ever received payment from a buyer of any alleged obligation due from the homeowner. And we also know that means that anyone claiming rights to administer, collect or enforce based upon such purchase and sale is committing an act of deception. This explains why there was fraud bloom — the sudden appearance of hundreds of thousands of fabricated documents containing false information and forged signatures to make it appear that such a sale occurred.

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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.
CLICK TO DONATENeil 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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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.

But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).

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