There is no sale of the obligation, note or mortgage and so there is no securitization of debt. By splitting the attributes of behavior from the provisions of the executed documents and changing the description of the behavior, an investment bank could, in essence, sell the apparent debt an unlimited number of times without ever recording the sale of the debt, note or mortgage.
- In most instances, the “closing” of a transaction with a homeowner results in the issuance of a note and mortgage promising payment that is not supported by any reciprocal consideration. In most of the other cases, the “closing” results in very little money paid by or on behalf of the homeowner despite what is stated on the settlement statement, which is a lie.
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Like everything in the world of securitization, you need to split the hairs. “Title” to the mortgage does not mean “ownership” of the mortgage, but the two terms are generally conflated as meaning the same thing. Any party that is the last party to receive an assignment of mortgage is the “owner” of “title” to that lien. There is no reasonable debate that can occur with respect to that black letter statement.
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And any owner of “title” to the mortgage (note the difference between title to the mortgage and title to the property) has the right to enforce that lien according to the terms of the instrument that was properly executed and recorded. But that right to enforce is subject to several statutory and common law restrictions.
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First common law for centuries holds that no transfer of a mortgage is valid, even if it is properly executed and recorded, if there is no concurrent transfer of ownership of the underlying obligation. This distinguishes the legal treatment of mortgages from other instruments like promissory notes.
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This is further reflected in the statutes of all U.S. jurisdictions that require the would-be enforcer to have paid value for the underlying obligation. Adoption of 9-203 UCC. And please note that, as the investment banks figured out, it is possible to pay value without paying the value for the underlying obligation and it is possible to have paid value for the mortgage lien without paying for and receiving ownership of the underlying obligation — especially if the parties intended it. (See “splitting”).
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In fact, splitting hairs further, it is possible to pay value for future behavior of humans relative to the provisions of written instruments without ever buying the obligation, note or mortgage. This is exactly what occurred in the current iteration of “securitization” of debt. There is no sale of the obligation, note or mortgage and so there is no securitization of debt.
- By splitting the attributes of behavior from the provisions of the executed documents and changing the description of the behavior, an investment bank could, in essence, sell the apparent debt an unlimited number of times without ever recording the sale of the debt, note, or mortgage on any accounting ledger —even while such “sales” are reported and recorded in the public domain.
- In so doing the investment banks turned accounting on its head. And the big accounting firms let them do it — along with Federal agencies who knew better.
- No legal document is valid unless it relates to something that actually occurred or is expected to occur in the real world.
- The absence of any accounting ledger containing any unpaid loan account receivable due from the homeowner is proof of the absence of the debt — at least without court reformation of the entire transaction.
- The single biggest mistake of homeowners and lawyers is the failure to recognize these basic facts. As a result, even judges who are skeptical of the claim MUST conclude that the unpaid loan account receivable exists and that it is owed to the claimant who has experienced a default (financial loss) because they either said it or implied it through counsel who is protected by litigation immunity.
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In terms of selling securities, regulated or unregulated, this was the holy grail of investment banking. Selling securities without ever having to turn over the proceeds of securities sales to a genuine issuer. They merely had to invent a name under which the securities were issued and then sell them. This could be done indefinitely with the same homeowner transaction or group of homeowner transactions. The group would be called a “pool” implying ownership but that label was misleading since nobody owned the underlying obligation — thus undermining the right to enforce the terms of the mortgage.
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The problem with this Wall Street strategy is that none of the securities issued by them are enforceable against or even currently relevant to the homeowner (according to the investment banks and their lawyers). The benefit is obvious. they can sell the transaction multiple times, calling it a “loan,” without ever recording the sale of the debt. But enforcement of the debt is entirely dependent upon the existence of an unpaid loan account receivable under current law. Since no such account exists under the current iteration of “securitization” the investment banks were required to fake it.
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They needed to manage to convince judges that a designee or nominee had the right to enforce even though it had no such right. They needed to do that because without enforcement, the label of “loan” would be exposed as fake. And the sales pitch to investors regarding the apparent (but never promised) ownership of a pool of loans would also be revealed as fake, thus undermining the principal goal of the entire scheme — the same of more securities (“certificates”). If transactions with homeowners were revealed to be something other than “standard loans” then the certificates would become unmarketable.
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As a consequence, events occurred on an epic scale that were incomprehensible to the casual observer. The investment banks did not have an unpaid loan account receivable to point to as a reference so they created the presumption of one. By inserting a “servicer” who appeared to be processing the receipts and disbursements, they used the printed reports allegedly from the”servicer” to constitute a “payment history”.
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They then, through counsel, convinced judges to accept the “payment history” as a legal substitute for evidence of the loan account receivable. The absence of any evidence of actual receipt of payments or disbursement to a “creditor” has been overlooked by courts for twenty years.
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Thus far nearly all homeowners and most of the lawyers who are rarely employed to investigate the matter to render an opinion, have failed to understand this process precisely because there is no analog in their lives or education or experience.
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But for the few homeowners who challenge the premise that there is any outstanding unpaid loan account receivable, they usually succeed at trial or they are paid off in confidential settlements. The challenge to homeowners and their attorneys is to start at the first premise at the earliest possible time because the investment banks, acting through lawyers who have litigation immunity, are building a track record of correspondence and notices starting with the origination of the homeowner transaction.
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Thus by the time the matter gets to court, most homeowners have done nothing and their defenses look like last-minute hail Mary passes to avoid the “inevitable” foreclosures. 96% of all homeowners faced with false claims of rights to administer, collect or enforce the nonexistent loan account receivable simply leave or even clean up the property before leaving peaceably. In so doing they are leaving behind the extremely valuable property that has no effective lien on it other than the recording of a mortgage that was either invalid, to begin with, or became ineffective because there was no debt.
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In addition, homeowners are leaving a claim behind that also has high value and which the investment banks are always concerned about. The original transaction was in most cases without any fundamental element of a loan transaction other than the homeowners’ desire to obtain a loan. Except in the earliest transactions in the late 1990s and early 2000s, nearly all such transactions were steered toward a feeder of a common investment bank.
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Thus the appearance of payments made on behalf of the homeowner at “closing” was an illusion. The investment bank simply used two different originators. Other than cash-out refi’s no money at all was required except to pay all the intermediaries who played the parts of lenders, servicers, closing agents, real estate agents, mortgage brokers, title companies, etc. But each new “transaction” was the base or foundation for a new round of creation, issuance, sale, and trading of new certificates. The investment banks were literally printing money — or cash equivalents.
- In most instances, the “closing” of a transaction with a homeowner results in the issuance of a note and mortgage promising payment that is not supported by any reciprocal consideration. In most of the other cases, the “closing” results in very little money paid by or on behalf of the homeowner despite what is stated on the settlement statement, which is a lie.
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By all standards and statutes, the fact that the transaction with the homeowner would not have taken place but for the sale of securities was required to be disclosed to the homeowner. And the claim that the transaction was a loan required the investment bank, acting through its many intermediaries and conduits, to disclose the true nature of the transactions and the compensation, bonuses, commissions, and profits that would be generated from securities sales. (TILA).
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The entire securities scheme was entirely dependent upon the homeowner signing papers that would be used to create an extra-legal virtual creditor (illegal) with an extra-legal (illegal) virtual loan account receivable rather than the legally required real creditor with a real loan account receivable. Homeowners never received the loan product they were requesting and they were never told about the valuable service they were performing for the investment banks. And therefore they never had an opportunity to bargain for a share of the venture into which they were being lured as the principal issuer of instruments that made the scheme possible.
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Thus each day, homeowners, believing that they received what they requested, are walking away from property that is legally owned by them free from the enforcement of the mortgage lien that is being used to chase them out. Each foreclosure results in new financial proceeds that are used to pay various intermediaries and conduits (including law firms and “Servicers”) with the investment banks retaining the balance. Although this cash flow should be categorized as revenue it is untaxed inasmuch as it is reported (or unreported) as the return of capital.
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There is nothing in this piece that is unknown to the Federal Reserve, the FDIC, the FTC, the SEC, or the Department of the Treasury. In the words of Timothy Geithner, attempting to justify the payment to banks rather than the bailout of homeowners, “The plane was on fire. We had to land the plane somewhere.”
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For proof of this narrative look no further than The TARP program and the many cases that have been won by homeowners. In all cases where the homeowner won, it was based upon a finding by the trial judge that the claimant had not produced sufficient evidence to back up its claim—- i.e., that it had an unpaid loan account receivable.
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But TARP is more instructive. First, it was announced that it was intended to cover losses from defaulting “loans.” Then Federal officials came to realize that the banks were not holding any loans. That produced some head-scratching. If there were no losses on “loans” then why did the banks need a bailout? Then Wall Street came up with a different scenario closer to the truth but still a lie — the “losses” were from the certificates (RMBS) that were issued. The same problem emerged. Investment banks were not buying certificates, they were selling them.
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But Wall Street was banging the drums for a bailout anyway. They had no losses but they wanted a vehicle by which they could stiff investors and settle for pennies on the dollar. And they wanted the proceeds of hedge bets and insurance they had purchased gambling on the collapse of the “market” (completely controlled by the investment banks) for the certificates.
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And so was born the Maiden Lane entities and the payments to AIG etc that resulted in companies like Goldman Sachs receiving tens of billions of dollars on a bet that they had made that the certificates they were creating would fail — a bet that was guaranteed by the tranche system. This could only work if “loans” were closed that could not possibly survive more than a few months or years. Wall Street banks thus encouraged the NINJA “loans” with “no documents” etc. It was a bid for a crash.
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The data on the highest quality “loans” were placed in the highest tranche but that tranche (under the control of the investment bank) bought “credit default swaps” that were disguised purchases of the data relating to the lowest tranche that contained data on the “loans” that were virtually guaranteed to fail.
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Insurers would not insure the lowest tranche. It was too obvious that the loan data would be reported as non-performing in the near or middle term. So the investment banks asked for insurance on the highest tranche and then created the scenario in which when the lowest tranche failed it took down the highest one thus triggering tens of billions in profits payable not to investors but to the investment banks. And such payments were not credited to the unpaid loan accounts receivable for any homeowner because no such account existed.
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And to think that all this occurred on the backs of homeowners who failed to receive a single disclosure for the existence of the securities scheme that completely changed the character of the transaction that they requested and that they reasonably believed they had received.
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So here is the remedy— from the law books — that ought to apply if you stop believing in the threats of armageddon regularly issued by the investment banks. Like Iceland and others, use court process to force the reformation of the homeowner contract to include the securitization portion of the deal, compensating the homeowner reasonably for the share of revenue that the homeowner should have received and compensation for the additional risks in dealing with counterparties who had no stake in the outcome of the transaction or who even had a negative stake in the outcome (If it failed, they win).
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Filed under: CORRUPTION, discovery, Discovery -Subpoena, Fabrication of documents, foreclosure defenses, foreclosure mill, forensic investigation, investment banking, Investor, legal standing, Pleading, prima facie case, Servicer, sham transactions | 5 Comments »
