Anonymous Tipster Points Out Resource Info in Support of My Articles

Without compromising my journalist credentials, I will simply say that the source is 100% reliable and the information is 100% confirmable. The person is well versed in the accounting and auditing of securitization transactions — and as far back as January 2006, the accounting profession was deeply aware of the inherent problems in the way that securitization was claimed to occur. BUT the accounting profession also saw the opportunity to collect exorbitant fees.

In a seminar produced by Deloitte, the following presentation was made to inform practitioners of the great dangers that were being presented — not by the theory of securitization and not even the way the securitization documents were drafted, but more the way that it was conducted in practice.

The accountants in early 2006 knew that the October 2008 crash was coming, and they wanted to retain the bank business while not being held accountable for the misrepresentations by management to investors and to homeowners.

You have heard me say that “attributes” of the transaction were parceled off and sold by reference instead of being sold, and you probably didn’t know what I was talking about.

The primary thrust of the Deloitte presentation was to distinguish between an accounting sale and a legal sale of assets that could be considered securitized.

The clear and undisputed assumption was that in order for an asset (e.g., a loan account) to be securitized it had to meet a single condition precedent — sale of the asset. And sale of the asset meant someone paid for it, and the receiver of payment sold the asset because they owned it.

My investigation revealed in 2006 what the accountants already knew. No sale had ever occurred. And THAT meant that all the paperwork that was generated after the “closing” of the “loan transaction” was fabricated, containing false recitals, and forged.

I tested this hypothesis in late 2006 when I did a survey by sending out about 100 requests for information under RESPA and FDCPA for homeowners that were considered “current” (assuming the loan account existed. Contemporaneously I sent out about 100 requests for such information for homeowners who were threatened with or already in a “foreclosure process.”

The result was exactly what I had feared. Nobody could give me endorsements, notes, or assignments of mortgage liens for any homeowners who were considered “Current,” as reflected on statements produced on behalf of companies posing as servicers. All requests for homeowners in distress resulted in the transmittal of copies of documents purporting to transfer the note, to transfer the mortgage but not transferring the underlying obligation.

I arrived at several conclusions after interviews with friends and contacts on Wall Street. First, no such documents existed until the homeowner received a notice of default. This was crazy because in my decades of law practice, if you asked for a copy of the loan account, you got it—  if for no other reason than that they had to produce it in court to get a foreclosure judgment or justify a nonjudicial sale. These “servicers” could not produce even a copy of the promissory note.

I later learned that the note could not be produced because it was destroyed as part of the transaction cycle so that the data attributes of the transaction could be misrepresented and used as reference indexes for the sale of securities that did not convey any right, title or interest to any payment, note, debt, obligation, or mortgage issued by the homeowner — which obviously as signed under false pretenses.

In a loan transaction, the homeowner is establishing a loan account into which the “lender” deposits money that is then distributed to the homeowner or on behalf of the homeowner. If the transaction is securitized, that means, by definition, that the loan account was sold for value to a bona fide purchaser for value. The note and mortgage lien are transferred as an incident to that sale of the loan account, also known as the underlying obligation or debt.

If no such sale occurred, then the paperwork is void, also known as a legal nullity. And all the paperwork in the world, fabricated or not, won’t change the fact that no sale occurred. But Wall Street banks have bamboozled homeowners, lawyers and judges with fabricated documents in multiple layers of faux transactions, in which nothing ever really occurred.

With all those documents of “transfer” and all those company names involved, the natural inference is that they just have been dealing with some asset. The only asset was the expectation of receiving a fee for the use of their names.

Here is a quote from the Deloitte website providing the text of FAS 140 as it existed in the mortgage meltdown  period:

This Statement replaces FASB Statement No. 125,Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities. It revises the standards for accounting for securitizations and othertransfers of financial assets and collateral and requires certain disclosures, but it carries over most of State-ment 125’s provisions without reconsideration.This Statement provides accounting and reporting standards for transfers and servicing of financial assetsand extinguishments of liabilities.

Those standards are based on consistent application of a financial-components approach that focuses on control. [e.s.]

Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished.

This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings.

A transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. [e.s.]

The transferor has surrendered control over transferred assets if and only if all of the following conditions are met:

a. The transferred assets have been isolated from the transferor—put presumptively beyond the reach of thetransferor and its creditors, even in bankruptcy or other receivership.

b. Each transferee (or, if the transferee is a qualifying special-purpose entity (SPE), each holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received, and no con-dition both constrains the transferee (or holder) from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the transferor. [e.s.]

c. The transferor does not maintain effective control over the transferred assets through either (1) an agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity or(2) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call

See Securitization Accounting Sec 101_Ann Kenyon 1pm

See 1FAS140AccountingforTransfersandServicingofFinancialAssetsandExtinguishmentsofLiabilities


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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 14 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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3 Responses

  1. Yes Java.

  2. UNSECURED Debt. All of it …… No Fraudclosures !!!!!!

  3. This is correct. What is not addressed is why the homeowners were blamed for the fraud. That was the consensus to do by those in control. That is – it was decided – “homeowners bought too much house. Homeowners used house like an ATM (which, btw – all promote to do now). No. It was not homeowners fault. It was not “bad loans” by homeowners. It was bad SECURITIZATION. I don’t always agree here. But this post by Neil is right on. And who remains holding the loose fake bag? The homeowners. Thanks for this post. Best seen in awhile.

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