Livinglies's Weblog

The securitization scheme invented back in early 1970,s and gradually introduced into the lending marketplace starting in 1983, is so complex, convoluted, and misleading that it is easy to miss the focus of the plan and, therefore easy to miss the opportunities presented to homeowners and other consumers when they challenge claims.

Summer Chic asked the question about suing the investors. After all, they knew the money they paid for certificates was being used to pay off loans taken by the investment bank, and those loans were the source of money paid to or on behalf of homeowners.

Here is my answer:

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You have zeroed in on the primary question: how do investors get paid?

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You’re presuming they get paid from collections from homeowners, which is partially true. The shortfall is paid from proceeds of sales of certificates, including but not limited to new sales of new certificates and derivatives from other securitization schemes.

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But the real questions remain unasked and, therefore, unanswered.

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First is the legal liability to investors owed by homeowners or someone else? A quick review of the text of every indenture reveals that it is a liability of the securities brokerage firm that sold them the certificates —and it is neither secured nor is it definite.

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Litigation initiated by investors has consistently resulted in the wholesale rejection of their contention that they had any right, title, or interest in the payments, obligation, legal debt, note, or mortgage issued by any homeowner.

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Thus while part of the payments received by investors undoubtedly is derived from the collections from homeowners, they are getting paid by the “investment banks” that are in control of those collections —- even though they have no right to receive those collections.

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The investment banks will continue paying, like any Ponzi scheme, to sell more certificates, the proceeds of which are used to pay prior investors.

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The second question is whether the unpaid “loan account” exists, and the corollary question is whether it was intended to exist. Again it is now obvious and subject to corroboration that the point of securitization is neither the apparent “loan account” nor the ownership of the illusion of an underlying obligation.

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The absence of a loan account acknowledged and affirmed by the business entity that is designated as a creditor reveals the true nature of every scheme that is advertised as securitization of debt, to wit: no debt is sold, and therefore it is legally and logically impossible for the debt to have been securitized.

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The alchemy of the current illusion of “Securitization” eliminates any loan account even while the illusion is being created. That being the case, the investors are victims as much as homeowners, neither of whom are getting the deal they thought they were getting.

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But you are right that the investment fund managers most likely had access to all the necessary information to decide as to whether to buy the certificates. But their negligence, if it exists, only mitigated the damages that they could receive if they were able to prove misrepresentation by the investment banks. That is not a liability of the investors owed to the homeowners.

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Indeed many investors did receive compensation in settlements worth a total of nearly $1 trillion for exactly that reason. It was masked as “bad underwriting” because the fund managers did not want to state the obvious: that the certificates were either worthless or worth less because they represented discretionary IOUs that (a) could go on paying forever or (b) terminate at any time.

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If the fund managers admitted that they would be causing the write-down of the assets held by the fund, it would result in the termination of their employment contracts.

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Filed under: foreclosure |