Anyone who watches the Madoff Ponzi documentaries knows that people deluded themselves out of greed. The basis of the Madoff scheme was a huge pile of documentation that was all fake. The “business” was taking money from investors and investing it. Madoff never made a single transction.
There was no such business. This is what happened and what is still happening with “loans” that are originated by investment banks though multiple layers of intermediaries. There is no loan business. Tehre is only the business of selling securities. And in doing that, there is no balance due.
Millions of homeowners and thousands of lawyers have become lost in the weeds as they overlook the most obvious question: did this transction ever produce an unpaid obligation from the homeowner? Was that obligation ever purchased and sold in a transction between any assignor and assignee or endorser and endorsee?
The answer is simply NO! So why do homeowners and their lawyers inisist on paying it?
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I recommend you all see the Madoff documentary on Netflix. The parallels with the mortgage crisis are unavoidable. Let me remind you how easy it is to slip into the traps set up by Wall Street investment banks and their lawyers.
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While an unauthorized endorsement is invalid, an authorized endorsement IS valid. And if the check or note payee consents to the endorsement, it is presumed valid. The issue is not whether the endorsement was valid. The real issue is whether the named payee was a valid payee.
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This is the part that is extremely difficult for people to understand because it rubs against established thought patterns that the consensus takes as true. Harry Markopolis had the same problem when he repeatedly warned about the Madoff business being entirely a Ponzi scheme. Nobody would listen to him. It was “impossible” for Madoff — an icon of Wall Street — to be a common criminal.
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So let’s take an example that is representative of most homeowner transactions. John and Jane Smith are the homeowners, and they are responding to advertisements and calls begging them to refinance.
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The push to refinance is because each new refinance represents a new round of securities to be sold. John and Jane think that somehow the “lender” is making money through the payment of interest in addition to payments of principal in a loan.
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Over the phone or on the internet, they are steered to a company that is described as a lender, has a license for lending, and is acting as a broker or salesman. The job of the company is nothing more than securing the signature of the homeowner whose issuance of the note and mortgage is the start of the issuance and sale of s securities to investors. This company will not lend any money, touch any money or receive any money other than a fee for securing the signature of John and Jane.
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Let’s call the company Joe’s Lending LLC. John and Jane submitted a completed application and some very private documents to a site that is designated as Joe’s Lending LLC. The site is managed by a financial technology company that forwards the application and documents to an undisclosed underwriter who makes sure that the statements by John and Jane fit the legally required attributes of a borrower.
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Joe’s Lending LLC is operating under an assignment and assumption agreement in which it has delegated and granted all ownership and control of all of its activities to a third party. It is doing nothing. It is not allowed to do anything. It can’t receive or disburse money to anyone in connection with the transaction with John and Jane.
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The undisclosed third-party “aggregator”/underwriter is merely a sham conduit representing the interests of an undisclosed major investment bank. Frequently (in the years before 2008 crash), this party showed up as Countrywide Home Loans. In reality, it was not doing anything either. Financial technology companies were doing the work of underwriting.
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Take note that underwriting did NOT mean compliance with Lending Laws. It meant only that the facial validity of the transaction was intact for advancing it as a loan to the GSEs (Fannie, Freddie etc).
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Jane and John are given a date for the “closing” at the office of a “closing agent.” the closing agent thinks he/she is processing a loan closing. The transaction will enable Jane and John to receive $50,000 in cash. The amount of the transaction, though, is stated to be $450,000. The additional $400,000 is labeled as “payoff” of the “old loan.”
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The “old loan” is the same transaction with the same investment bank as the controlling entity — although the investment bank never asserts ownership of the debt, note, or mortgage. Contractually it has arranged to control all payments and all receipts.
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The “old loan” named Joan’s Lending LLC as the payee on the note despite the fact that no debt was due to Joan’s Lending. Joan’s lending was also bound by an assignment and assumption agreement giving the same investment bank all control over the transaction and ownership claims to the undisclosed intermediary aggregator/underwriter.
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John and Jane attend the closing with the closing agent, who knows nothing about the transaction and does whatever is included in instructions from the presumed “lender.” In reality, those instructions come not from any “lender” but rather from a financial technology company working for the investment bank.
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In our example here, we will assume that no money is paid to Joan’s Lending because no money was due to them, and they are probably out of business. The closing agent gets instructions affirming that Joan’s Lending will be paid as soon as the transaction is confirmed and that he should disburse the $50,000 wire transfer to John and Jane.
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John and Jane take the $50,000 and assume that they just signed up for a loan, including paying off the old loan. The new “loan” names Joe’s Lending as Payee, but Joe’s Lending has no claim to receive payments. So Joe’s Lending was an improper party to be named as payee on the promissory note and mortgage unless it was acting as an agent for a party to whom the money was owed.
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The ONLY party to whom money can be owed is a party who has paid for the transaction and therefore has something to lose if the homeowners do not meet the conditions. There is no such party, and there is no company or person whose general ledger will show that it paid for the alleged debt owed by John and Jane. And there was no such party in the “old loan.”
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All revenue from the sale of securities is used to pay off the actors and participants in the scheme. Nobody is left with a balance due. But the paper signed by John and Jane preserves the claim for money even though no money is due.
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Nonetheless, as the named Payee on the note, Joe’s Lending could theoretically authorize or consent to the endorsement simply because it is the named payee. Even though the consent is fictitious and part of a fraudulent scheme, they do so under “color of title.”
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The general practice I have established through interviews with closing agents was to allow the mortgage broker for the mortgage broker to come into the office of the closing agent and execute and endorse the note before the ink was dry from the signature of John and Jane, who had just left the office.
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Who gave that person authority? The answer is anyone who was appointed to do so by the investment bank, who always acts through layers of intermediaries. And who gave the investment bank the authority to do anything with the homeowner? The answer is nobody.
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Kathy pertew — great way to put it!!!
Does anyone think that the government did not know all this when they settled with the big banks who, like Madoff, orchestrated a massive scheme? The government went after Madoff. Madoff went to jail. The government told us — “you can litigate for yourselves.”
No cash at closing. Lender quickly exits the crime scene