How Could This Not Be a Loan?

if the investment bank paid the homeowner as an incentive payment rather than as a loan, then there is no debt any more than salary or wages can later be called a loan. The fact that the consumer/homeowner thought or even wished it were otherwise makes no diffeerence. If I pay you money and you think it is a loan but I paid you for services you rendered, the substance of the transction is “fee for services” — not a loan — and there is no legal or ethical or moral obligation to pay it back. 

I think the one idea that sticks in the throat of nearly everyone is the idea that no money was loaned. That idea seems impossible and to many skeptics, it sounds like a snake-oil salesman trying to peddle what people want to hear. People know that they did really buy their home, and the majority of these transactions are refinancing, which means that the old “lender” got paid off, right?

*
First of all, let’s agree on at least one thing. Virtually all installment payment agreements are now subject to claims of “securitization.” This means that behind every transaction is an investment bank that is arranging payments, only where necessary, and who is receiving the proceeds of consumer payments plus all of the revenue and profits from the sale and training of unregulated securities.
*

If there is one thing missing from most articles analyzing consumer debt, it is the failure to recognize that a handful of investment banks are the center of all of those transactions and they all have reciprocal agreements. Those agreements are mostly in writing but difficult to obtain, and sometimes tacit. You don’t need to look any further than any pooling and servicing agreement to see the world’s largest banks all participating in the same venture. In prior years, this fact alone would’ve been sufficient for antitrust action.

*
So here is my effort at explaining it. There are several categories of transactions that occur with homeowners.
*
  1.  The homeowner is buying a new home from a developer or contractor.
  2.  The homeowner is buying a home from the existing homeowner.
  3.  The homeowner is buying a home from a party or business entity that asserts ownership after foreclosure on the previous homeowner.
  4. The homeowner is refinancing the new home they purchased from a developer or contractor.
  5. The homeowner is refinancing a home they bought from a prior homeowner.
  6. The homeowner is refinancing a home they bought from a foreclosure buyer.
  7. The homeowner refinances by entering into a forbearance agreement.
  8. The homeowner refinances by entering into a modification agreement.
  9.  Securitization of data and attributes of homeowner’s promise to make scheduled payments — no relevant transaction because there was no sale of the underlying obligation, legal debt, note or mortgage (or deed of trust). Since law requires that sale for enforcement by successors, the foreclosure players fake the documents.
*
Let’s define our terms.
*
“Homeowner” means in this case someone who is looking to buy a home or who is looking to change their transaction.
*
“Refinance” means that the homeowner is a party to some transaction and/or documentation that changes the terms of the homeowner’s prior promise to make scheduled payments.
*
“Money source” means the investment bank that (a) borrowed money from a third party bank like Credit Suisse, (b) used the borrowed funds to make payments to or on behalf of the homeowner. (It pays back the loan to its lender (and co-underwriter of certificates) through sales of certificates to investors promising scheduled payments, without maturity, collateral, or a guarantee of payment.)
*
1. PURCHASE OF NEW HOME FROM DEVELOPER: generally speaking, this is the only transaction that is in substance but it appears to be in form. Money is actually paid to the developer.
*
  • The money trail for this transaction looks something like this: LENDER—>MONEY SOURCE/INVESTMENT BANK—>SUBSIDIARY OR CONTROLLED AFFILIATE OF MONEY SOURCE—>CLOSING AGENT—>DEVELOPER.
  • The paper trail (i.e. contracts) for this transaction looks something like this: MONEY SOURCE/INVESTMENT BANK—>AGGREGATOR (like Countrywide Home Loans)—>(a) Assignment and Assumption Agreement with Originators (like Quicken Loans) and (b) Indemnification Agreement with title insurers—>Mortgage Broker—>Mortgage salesman—>Homeowner execution of promise to pay and collateral for making scheduled payments to Originators.
  • Bottom Line: The homeowner is getting money, courtesy of an investment bank that is NOT intending to make a loan or be governed by any lending laws.
    • The homeowner is making a promise to pay the originator who did not lend any money or make any payments to or on behalf of the homeowner.
    • The only party identified as a lender is the originator who did not make a loan.
    • The only party that arranged for payment disclaims any role of being a lender.
    • The payment made on the homeowner’s behalf was an incentive payment designed to procure the signature of the homeowner on a note and mortgage (or deed of trust).
      • Legally since there was no lending intent by either the named “lender” or the Money Source, there is either no contract at all or no loan, since there was no meeting of the minds.
      • If the transaction is not rescinded the deal needs to be reformed with a court determining what incentive payment the homeowner should have received from the scheme to issue, sell and trade unregulated securities.
      • But if the homeowner tacitly or expressly asserts or agrees or admits it was a loan, then for all purposes in court, it will be treated as a loan not subject to reformation.
*
2. PURCHASE OF NEW HOME FROM PRIOR HOMEOWNER: generally speaking most of these transactions do not result in the payment of money to any prior lender. But the excess due to the seller is paid in the same way that money is paid where the homeowner purchases a home from a developer.
*
  • Most of such transactions are steered to originators and aggregators who represent the money source (investment bank) who was involved in the financial transaction with the prior homeowner.
  • Because the proceeds of the “new financing” or “purchase money mortgage” would be paid to the same investment bank, no money exchanges hands with respect to the “pay off” of the prior note and mortgage.
  • The confusing point for most lawyers and homeowners is that there is nothing illegal about a bank holding a prior mortgage lien. There is nothing illegal about the same bank doing business with the next owner. And there is nothing illegal about the bank not issuing a check to itself when the owners change.
    • But that is not what is happening. “The bank” does not exist. The money source (investment bank) is not carrying the homeowner’s promise to pay scheduled payments as an asset and therefore is not “the bank.”
    • For legal purposes, the test is simply whether or not the investment bank has suffered a loss as a result of the refusal or failure of the homeowner to make a scheduled payment.
    • Or, phrased differently, the question from the beginning is whether or not the investment bank has the source of money ever excepted any risk of loss arising from the value of a loan account receivable.
    • The answer to both questions is in the negative. In dozens of cases across the country, lawyers have been asked to identify the creditor and have admitted that they cannot do so.
    • The only logical conclusion is that the transaction was never intended to be a loan (with the exception of the homeowner who did intend to get a loan, but did not receive it).
    • The investment banks wanted the homeowner to believe they were getting a loan instead of an incentive payment to execute a promise to make scheduled payments. They did not want the homeowner to know that they were receiving an incentive payment. Disclosure of that fact is an absolute requirement under the law. If they had disclosed the true nature of the transaction, they would have been subject to bargaining and competition.
*
3. PURCHASE OF NEW HOME FROM FORECLOSURE BUYER: generally speaking, relative to any current financing arrangement, no money exchanges hands on these deals because and substance, the foreclosure buyer generally is receiving some sort of protection or indemnification from a title company that has been to issue insurance on a transaction that cannot pass the test of marketability or clear title — mostly because of the above factors. The anecdotal evidence on thousands of cases reviewed by me strongly indicates that nearly every foreclosure buyer is in substance a placeholder or nominee for the investment bank. By flipping the paper title, the foreclosure buyer receives a “profit” that is in substance a fee for legitimizing the foreclosure. That profit or fee is funded by the investment bank.
*
4. REFINANCING: generally speaking, all transactions that carry the label of “refinancing” are false transactions. Because securitization does not involve the purchase and sale of any underlying obligation, legal debt, note, or mortgage, each such transaction represents a new opportunity to create a new securitization infrastructure using the same transaction. Investment banks use every means of their disposal to encourage “refinancing” since it is the source of most of their new sales of certificates. The only money paid out is the excess, after fees, over the amount previously declared as “principal.” But this “principal” is not carried on the accounting ledger of any company or any person as an asset, nor is there any reserve for bad debt (simply because there is no risk of loss).
  • Forbearance is a form of “refinancing” because it accomplishes a number of things for the investment bank. First, obtain a signature from the homeowner that ratified or admits that the previous paperwork and financial transactions were all valid. Second, it essentially removes the placeholder originator from the paper trail. Third, it installs a new placeholder name and obtains consent from the homeowner. Fourth, it establishes a company claimed to be the servicer as the legitimate recipient of funds or proceeds from homeowner payments or the sale or foreclosure of the collateral (i.e., the home).
  • Modification is the same as forbearance: It introduces new parties under coercion. Homeowners sign these documents with total strangers mostly out of sheer panic. What they’re doing is waiving rights and creating tracks in the sand that are opposite to their financial interest and well-being.
Given all of that, many people ask me why I have consented or approved of a homeowner entering into a new agreement with players who are conducting an illegal scheme. The answer is simple and the investment bankers know the answer: they have the money to make a homeowner’s life miserable and they are not subjected to vigorous enforcement by regulators and law enforcement.
*
The entire burden of resisting this massive scheme of “Financial weapons of mass destruction” Falls on each homeowner, one at a time. It takes considerable time, money, and resources to resist.
So when the opportunity comes to settle the matter on favorable terms that reduce the payment, interest rate, and principal, and the homeowner lacks the will or the resources to resist, the only choice left is to settle with the perpetrators who put them in a bad position and who are cheating each homeowner out of their rightful share of the securitizations scheme.
*
DID YOU LIKE THIS ARTICLE?

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 DONATE

Click

Neil F Garfield, MBA, JD, 74, 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.
*

FREE REVIEW: Don’t wait, Act NOW!

CLICK HERE FOR REGISTRATION FORM. It is free, with no obligation and we keep all information private. The information you provide is not used for any purpose except for providing services you order or request from us. In  the meanwhile you can order any of the following:
CLICK HERE TO ORDER ADMINISTRATIVE STRATEGY, ANALYSIS AND NARRATIVE. This could be all you need to preserve your objections and defenses to administration, collection or enforcement of your obligation. Suggestions for discovery demands are included.
*
CLICK HERE TO ORDER TERA – not necessary if you order PDR PREMIUM.
*
CLICK HERE TO ORDER CONSULT (not necessary if you order PDR)
*
*
CLICK HERE TO ORDER PRELIMINARY DOCUMENT REVIEW (PDR) (PDR PLUS or BASIC includes 30 minute recorded CONSULT)
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.
  • Yes you DO need a lawyer.
  • If you wish to retain me as a legal consultant please write to me at neilfgarfield@hotmail.com.
Please visit www.lendinglies.com for more information.

Deja Vu for Homeowners: 5 Flaws That Kill Student Loan Collection Lawsuits

With the same false claims of securitization of student debt as purported mortgage loans it is apparent that the courts are treating students differently from homeowners. Although the defenses are identical students are gaining much more traction in collection suits than their counterparts who are battling foreclosure.

The article cited below appeared in the New York Times. It spells out the defenses that work for students defending collection suits on their student loans. Each one is the same as the proper defense of a foreclosure:

  1. The “creditor” cannot prove that it owns the debt. (Quote marks added)
  2. The “creditor’s” business records are not admissible.(Quote marks added)
  3. The debt is beyond the statute of limitations for collection.
  4. The “creditor” is not licensed to do business in the jurisdiction.
  5. The “creditor” failed to comply with court requests for additional information.

And all that means is that the “creditor” is not a creditor. It is a party claiming to be a creditor when they are not. And just to be even more specific, the salesman of the loan and any purport successors does NOT have any contractual relationship or duty owed to the investors whose money is being spent for the sole purpose of creating paper than can be sold dozens of times.

DEATH OF A SALESMAN: Most of these issues dovetail into the subject covered in my upcoming mini-seminar at livinglies.wordpress.com/2017/11/24/register-now-the-garfield-continuum-mini-seminar-for-licensed-attorneys-and-pro-se-litigants-leveraging-the-death-of-an-originator-in-foreclosure-defense-december-11-2017-at-4pm-eastern/

We can help evaluate your options!
Get a LendingLies Consult and a LendingLies Chain of Ownership/Title Analysis! 202-838-6345 or info@lendinglies.com. Prices reduced for students contesting student loans.
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave a message or make payments.
OR fill out our registration form FREE and we will contact you!
https://fs20.formsite.com/ngarfield/form271773666/index.html?1502204714426
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

see https://www.nytimes.com/2017/11/14/business/dealbook/student-loan-collection-flaws.html?_r=0

As I have pointed out before, the issue of wrongful foreclosures is closely linked with the issue of wrongful collection of student loans. The interesting point of all this is that the courts seem to have a schizoid view of the application of the law.

If you are student contesting the right to collect in a private student loan situation, and you raise the defense or objection that the so-called “collector” has no ownership or agency right over the disputed debt, the court is likely to allow you to press the point — requiring the “collector” to first prove that they have ownership of the debt.

BUT if you are homeowner contesting the right to collect on a putative mortgage loan situation, and you raise the defense or objection that the so-called “collector” has no ownership or agency right over the disputed debt, the court is likely to resist thus inventing a legal presumption that the paper is enough to raise the presumption that the holder of the paper is the owner of the debt.

Worse, the courts continue to confuse the paper over the reality or unreality of any transaction by fuzzy thinking about the very real distinctions between a debt, a promissory note and a mortgage or deed of trust.

But if you start following the case law concerning defense of student loan collection suits, you will find a treasure trove of case decisions that strongly support the student, and by extension, the homeowner.

See https://www.nytimes.com/2017/11/13/business/dealbook/student-debt-lawsuits.html

see https://www.nytimes.com/2017/07/17/business/dealbook/student-loan-debt-collection.html

see https://www.nytimes.com/2017/09/18/business/dealbook/student-loan-national-collegiate-trusts.html

 

 

Levitin and Yves Smith – TRUST=EMPTY PAPER BAG

Living Lies Narrative Corroborated by Increasing Number of Respected Economists

It has taken over 7 years, but finally my description of the securitization process has taken hold. Levitin calls it “securitization fail.” Yves Smith agrees.

Bottom line: there was no securitization, the trusts were merely empty sham nominees for the investment banks and the “assignments,” transfers, and endorsements of the fabricated paper from illegal closings were worthless, fraudulent and caused incomprehensible damage to everyone except the perpetrators of the crime. They call it “infinite rehypothecation” on Wall Street. That makes it seem infinitely complex. Call it what you want, it was civil and perhaps criminal theft. Courts enforcing this fraudulent worthless paper will be left with egg on their faces as the truth unravels now.

There cannot be a valid foreclosure because there is no valid mortgage. I know. This makes no sense when you approach it from a conventional point of view. But if you watch closely you can see that the “loan closing” was a shell game. Money from a non disclosed third party (the investors) was sent through conduits to hide the origination of the funds for the loan. The closing agent used that money not for the originator of the funds (the investors) but for a sham nominee entity with no rights to the loan — all as specified in the assignment and assumption agreement. The note and and mortgage were a sham. And the reason the foreclosing parties do not allege they are holders in due course, is that they must prove purchase and delivery for value, as set forth in the PSA within the 90 day period during which the Trust could operate. None of the loans made it.

But on Main street it was at its root a combination pyramid scheme and PONZI scheme. All branches of government are complicit in continuing the fraud and allowing these merchants of “death” to continue selling what they call bonds deriving their value from homeowner or student loans. Having made a “deal with the devil” both the Bush and Obama administrations conscripted themselves into the servitude of the banks and actively assisted in the coverup. — Neil F Garfield, livinglies.me

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

————————————

John Lindeman in Miami asked me years ago when he first starting out in foreclosure defense, how I would describe the REMIC Trust. My reply was “a holographic image of an empty paper bag.” Using that as the basis of his defense of homeowners, he went on to do very well in foreclosure defense. He did well because he kept asking questions in discovery about the actual transactions, he demanded the PSA, he cornered the opposition into admitting that their authority had to come from the PSA when they didn’t want to admit that. They didn’t want to admit it because they knew the Trust had no ownership interest in the loan and would never have it.

While the narrative regarding “securitization fail” (see Adam Levitin) seems esoteric and even pointless from the homeowner’s point of view, I assure you that it is the direct answer to the alleged complaint that the borrower breached a duty to the foreclosing party. That is because the foreclosing party has no interest in the loan and has no legal authority to even represent the owner of the debt.

And THAT is because the owner of the debt is a group of investors and NOT the REMIC Trust that funded the loan. Thus the Trust, unfunded had no resources to buy or fund the origination of loans. So they didn’t buy it and it wasn’t delivered. Hence they can’t claim Holder in Due Course status because “purchase for value” is one of the elements of the prima facie case for a Holder in Due Course. There was no purchase and there was no transaction. Hence the suing parties could not possibly be authorized to represent the owner of the debt unless they got it from the investors who do own it, not from the Trust that doesn’t own it.

This of course raises many questions about the sudden arrival of “assignments” when the wave of foreclosures began. If you asked for the assignment on any loan that was NOT in foreclosure you couldn’t get it because their fabrication system was not geared to produce it. Why would anyone assign a valuable loan with security to a trust or anyone else without getting paid for it? Only one answer is possible — the party making the assignment was acting out a part and made money in fees pretending to convey an interest the assignor did not have. And so it goes all the way down the chain. The emptiness of the REMIC Trust is merely a mirror reflection of the empty closing with homeowners. The investors and the homeowners were screwed the same way.

BOTTOM LINE: The investors are stuck with ownership of a debt or claim against the borrowers for what was loaned to the borrower (which is only a fraction of the money given to the broker for lending to homeowners). They also have claims against the brokers who took their money and instead of delivering the proceeds of the sale of bonds to the Trust, they used it for their own benefit. Those claims are unsecured and virtually undocumented (except for wire transfer receipts and wire transfer instructions). The closing agent was probably duped the same way as the borrower at the loan closing which was the same as the way the investors were duped in settlement of the IPO of RMBS from the Trust.

In short, neither the note nor the mortgage are valid documents even though they appear facially valid. They are not valid because they are subject to borrower’s defenses. And the main borrower defense is that (a) the originator did not loan them money and (b) all the parties that took payments from the homeowner owe that money back to the homeowner plus interest, attorney fees and perhaps punitive damages. Suing on a fictitious transaction can only be successful if the homeowner defaults (fails to defend) or the suing party is a holder in due course.

Trusts Are Empty Paper Bags — Naked Capitalism

student-loan-debt-home-buying

Just as with homeowner loans, student loans have a series of defenses created by the same chicanery as the false “securitization” of homeowner loans. LivingLies is opening a new division to assist people with student loan problems if they are prepared to fight the enforcement on the merits. Student loan debt, now over $1 Trillion is dragging down housing, and the economy. Call 520-405-1688 and 954-495-9867)

The Banks Are Leveraged: Too Big Not to Fail

When I was working with Brad Keiser (formerly a top executive at Fifth Third Bank), he formulated, based upon my narrative, a way to measure the risk of bank collapse. Using a “leverage” ration he and I were able to accurately define the exact order of the collapse of the investment banks before it happened. In September, 2008 based upon the leverage ratios we published our findings and used them at a seminar in California. The power Point presentation is still available for purchase. (Call 520-405-1688 or 954-495-9867). You can see it yourself. The only thing Brad got wrong was the timing. He said 6 months. It turned out to be 6 weeks.

First on his list was Bear Stearns with leverage at 42:1. With the “shadow banking market” sitting at close to $1 quadrillion (about 17 times the total amount of all money authorized by all governments of the world) it is easy to see how there are 5 major banks that are leveraged in excess of the ratio at Bear Stearns, Lehman, Merrill Lynch et al.

The point of the article that I don’t agree with at all is the presumption that if these banks fail the economy will collapse. There is no reason for it to collapse and the dependence the author cites is an illusion. The fall of these banks will be a psychological shock world wide, and I agree it will obviously happen soon. We have 7,000 community banks and credit unions that use the exact same electronic funds transfer backbone as the major banks. There are multiple regional associations of these institutions who can easily enter into the same agreements with government, giving access at the Fed window and other benefits given to the big 5, and who will purchase the bonds of government to keep federal and state governments running. Credit markets will momentarily freeze but then relax.

Broward County Court Delays Are Actually A PR Program to Assure Investors Buying RMBS

The truth is that the banks don’t want to manage the properties, they don’t need the house and in tens of thousands of cases (probably in the hundreds of thousands since the last report), they simply walk away from the house and let it be foreclosed for non payment of taxes, HOA assessments etc. In some of the largest cities in the nation, tens of thousands of abandoned homes (where the homeowner applied for modification and was denied because the servicer had no intention or authority to give it them) were BULL-DOZED  and the neighborhoods converted into parks.

The banks don’t want the money and they don’t want the house. If you offer them the money they back peddle and use every trick in the book to get to foreclosure. This is clearly not your usual loan situation. Why would anyone not accept payment in full?

What they DO want is a judgment that transfers ownership of the debt from the true owners (the investors) to the banks. This creates the illusion of ratification of prior transactions where the same loan was effectively sold for 100 cents on the dollar not by the investors who made the loan, but by the banks who sold the investors on the illusion that they were buying secured loans, Triple AAA rated, and insured. None of it was true because the intended beneficiary of the paper, the insurance money, the multiple sales, and proceeds of hedge products and guarantees were all pocketed by the banks who had sold worthless bogus mortgage bonds without expending a dime or assuming one cent of risk.

Delaying the prosecution of foreclosures is simply an opportunity to spread out the pain over time and thus keep investors buying these bonds. And they ARE buying the new bonds even though the people they are buying from already defrauded them by NOT delivering the proceeds fro the sale of the bonds to the Trust that issued them.

Why make “bad” loans? Because they make money for the bank especially when they fail

The brokers are back at it, as though they haven’t caused enough damage. The bigger the “risk” on the loan the higher the interest rate to compensate for that risk of loss. The higher interest rates result in less money being loaned out to achieve the dollar return promised to investors who think they are buying RMBS issued by a REMIC Trust. So the investor pays out $100 Million, expects $5 million per year return, and the broker sells them a complex multi-tranche web of worthless paper. In that basket of “loans” (that were never made by the originator) are 10% and higher loans being sold as though they were conventional 5% loans. So the actual loan is $50 Million, with the broker pocketing the difference. It is called a yield spread premium. It is achieved through identity theft of the borrower’s reputation and credit.

Banks don’t want the house or the money. They want the Foreclosure Judgment for “protection”

 

New Mexico Supreme Court Wipes Out Bank of New York

bony-v-romero_nm-sup.ct.-reverses-with-instruction_2-14

There are a lot of things that could be analyzed in this case that was very recently decided (February 13, 2014). The main take away is that the New Mexico Supreme Court is demonstrating that the judicial system is turning a corner in approaching the credibility of the intermediaries who are pretending to be real parties in interest. I suggest that this case be studied carefully because their reasoning is extremely good and their wording is clear. Here are some of the salient quotes that I think it be used in motions and pleadings:

We hold that the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action. We also hold that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act, NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through 2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not preempted by federal law. We reverse the Court of Appeals and district court and remand to the district court with instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s foreclosure action for lack of standing.

The Romeros soon became delinquent on their increased loan payments. On April 1, 2008, a third party—the Bank of New York, identifying itself as a trustee for Popular Financial Services Mortgage—filed a complaint in the First Judicial District Court seeking foreclosure on the Romeros’ home and claiming to be the holder of the Romeros’ note and mortgage with the right of enforcement.

The Romeros also raised several counterclaims, only one of which is relevant to this appeal: that the loan violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).[They were lured into refinancing into a loan with worse provisions than the one they had].

Litton Loan Servicing did not begin servicing the Romeros’ loan until November 1, 2008, seven months after the foreclosure complaint was filed in district court.

At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies of the note and mortgage admitted as trial evidence by the Bank of New York were copies of the originals and also testified that the Bank of New York had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan’s testimony, arguing that he lacked personal knowledge to make these claims given that Litton Loan Servicing was not a servicer for the Bank of New York until after the foreclosure complaint was filed and the MERS assignment occurred. The district court allowed the testimony based on the business records exception because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the “original” note Flannigan purportedly authenticated was different from the “original” note attached to the Bank of New York’s foreclosure complaint. While the note attached to the complaint as a true copy was not indorsed, the “original” admitted at trial was indorsed twice: first, with a blank indorsement by Equity One and second, with a special indorsement made payable to JPMorgan Chase.

the Court of Appeals affirmed the district court’s rulings that the Bank of New York had standing to foreclose and that the HLPA had not been violated but determined as a result of the latter ruling that it was not necessary to address whether federal law preempted the HLPA. See Bank of N.Y. v. Romero, 2011-NMCA-110, ¶ 6, 150 N.M. 769, 266 P.3d 638 (“Because we conclude that substantial evidence exists for each of the district court’s findings and conclusions, and we affirm on those grounds, we do not addressthe Romeros’ preemption argument.”).

We have recognized that “the lack of [standing] is a potential jurisdictional defect which ‘may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.’” Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734, 31 P.3d 1008 (citation omitted). While we disagree that the Romeros waived their standing claim, because their challenge has been and remains largely based on the note’s indorsement to JPMorgan Chase, whether the Romeros failed to fully develop their standing argument before the Court of Appeals is immaterial. This Court may reach the issue of standing based on prudential concerns. See New Energy Economy, Inc. v. Shoobridge, 2010-NMSC-049, ¶ 16, 149 N.M. 42, 243 P.3d 746 (“Indeed, ‘prudential rules’ of judicial self-governance, like standing, ripeness, and mootness, are ‘founded in concern about the proper—and properly limited—role of courts in a democratic society’ and are always relevant concerns.” (citation omitted)). Accordingly, we address the merits of the standing challenge.[e.s.]

the Romeros argue that none of the Bank’s evidence demonstrates standing because (1) possession alone is insufficient, (2) the “original” note introduced by the Bank of New York at trial with the two undated indorsements includes a special indorsement to JPMorgan Chase, which cannot be ignored in favor of the blank indorsement, (3) the June 25, 2008, assignment letter from MERS occurred after the Bank of New York filed its complaint, and as a mere assignment

of the mortgage does not act as a lawful transfer of the note, and (4) the statements by Ann Kelley and Kevin Flannigan are inadmissible because both lack personal knowledge given that Litton Loan Servicing did not begin servicing loans for the Bank of New York until seven months after the foreclosure complaint was filed and after the purported transfer of the loan occurred. 
[NOTE BURDEN OF PROOF]

(“[S]tanding is to be determined as of the commencement of suit.”); accord 55 Am. Jur. 2d Mortgages § 584 (2009) (“A plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest.”). One reason for such a requirement is simple: “One who is not a party to a contract cannot maintain a suit upon it. If [the entity] was a successor in interest to a party on the [contract], it was incumbent upon it to prove this to the court.” L.R. Prop. Mgmt., Inc. v. Grebe, 1981-NMSC-035, ¶ 7, 96 N.M. 22, 627 P.2d 864 (citation omitted). The Bank of New York had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action. See Gonzales v. Tama, 1988-NMSC- 016, ¶ 7, 106 N.M. 737, 749 P.2d 1116

[THE DIFFERENCE BETWEEN REMEDIES ON THE NOTE AND REMEDIES ON THE MORTGAGE]

(“One who holds a note secured by a mortgage has two separate and independent remedies, which he may pursue successively or concurrently; one is on the note against the person and property of the debtor, and the other is by foreclosure to enforce the mortgage lien upon his real estate.” (internal quotation marks and citation omitted)).

3. None of the Bank’s Evidence Demonstrates Standing to Foreclose

{19} The Bank of New York argues that in order to demonstrate standing, it was required to prove that before it filed suit, it either (1) had physical possession of the Romeros’ note indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as required by the UCC. See § 55-3-301 (defining “[p]erson entitled to enforce” a negotiable instrument). While we agree with the Bank that our state’s UCC governs how a party becomes legally entitled to enforce a negotiable instrument such as the note for a home loan, we disagree that the Bank put forth such evidence.

a. Possession of a Note Specially Indorsed to JPMorgan Chase Does Not Establish the Bank of New York as a Holder

{20} Section 55-3-301 of the UCC provides three ways in which a third party can enforce a negotiable instrument such as a note. Id. (“‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the [lost, destroyed, stolen, or mistakenly transferred] instrument pursuant to [certain UCC enforcement provisions].”); see also § 55-3-104(a)(1), (b), (e) (defining “negotiable instrument” as including a “note” made “payable to bearer or to order”). Because the Bank’s arguments rest on the fact that it was in physical possession of the Romeros’ note, we need to consider only the first two categories of eligibility to enforce under Section 55-3-301.

{21} The UCC defines the first type of “person entitled to enforce” a note—the “holder” of the instrument—as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” NMSA 1978, § 55-1-201(b)(21)(A) (2005); see also Frederick M. Hart & William F. Willier, Negotiable Instruments Under the Uniform Commercial Code, § 12.02(1) at 12-13 to 12-15 (2012) (“The first requirement of being a holder is possession of the instrument. However, possession is not necessarily sufficient to make one a holder. . . . The payee is always a holder if the payee has possession. Whether other persons qualify as a holder depends upon whether the instrument initially is payable to order or payable to bearer, and whether the instrument has been indorsed.” (footnotes omitted)). Accordingly, a third party must prove both physical possession and the right to enforcement through either a proper indorsement or a transfer by negotiation. See NMSA 1978, § 55-3-201(a) (1992) (“‘Negotiation’ means a transfer of possession . . . of an instrument by a person other than the issuer to a person who thereby becomes its holder.”). [E.S.] Because in this case the Romeros’ note was clearly made payable to the order of Equity One, we must determine whether the Bank provided sufficient evidence of how it became a “holder” by either an indorsement or transfer.

Without explanation, the note introduced at trial differed significantly from the original note attached to the foreclosure complaint, despite testimony at trial that the Bank of New York had physical possession of the Romeros’ note from the time the foreclosure complaint was filed on April 1, 2008. Neither the unindorsed note nor the twice-indorsed

7

note establishes the Bank as a holder.

{23} Possession of an unindorsed note made payable to a third party does not establish the right of enforcement, just as finding a lost check made payable to a particular party does not allow the finder to cash it. [E.S.]See NMSA 1978, § 55-3-109 cmt. 1 (1992) (“An instrument that is payable to an identified person cannot be negotiated without the indorsement of the identified person.”). The Bank’s possession of the Romeros’ unindorsed note made payable to Equity One does not establish the Bank’s entitlement to enforcement.

We are not persuaded. The Bank provides no authority and we know of none that exists to support its argument that the payment restrictions created by a special indorsement can be ignored contrary to our long-held rules on indorsements and the rights they create. See, e.g., id. (rejecting each of two entities as a holder because a note lacked the requisite indorsement following a special indorsement); accord NMSA 1978, § 55-3-204(c) (1992) (“For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.”).

[COMPETENCY OF WITNESS]

the Bank of New York relies on the testimony of Kevin Flannigan, an employee of Litton Loan Servicing who maintained that his review of loan servicing records indicated that the Bank of New York was the transferee of the note. The Romeros objected to Flannigan’s testimony at trial, an objection that the district court overruled under the business records exception. We agree with the Romeros that Flannigan’s testimony was inadmissible and does not establish a proper transfer.

Litton Loan Servicing, did not begin working for the Bank of New York as its servicing agent until November 1, 2008—seven months after the April 1, 2008, foreclosure complaint was filed. Prior to this date, Popular Mortgage Servicing, Inc. serviced the Bank of New York’s loans. Flannigan had no personal knowledge to support his testimony that transfer of the Romeros’ note to the Bank of New York prior to the filing of the foreclosure complaint was proper because Flannigan did not yet work for the Bank of New York. See Rule 11-602 NMRA (“A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the

9

witness has personal knowledge of the matter. [E.S.] Evidence to prove personal knowledge may consist of the witness’s own testimony.”). We make a similar conclusion about the affidavit of Ann Kelley, who also testified about the status of the Romeros’ loan based on her work for Litton Loan Servicing. As with Flannigan’s testimony, such statements by Kelley were inadmissible because they lacked personal knowledge.

[OBJECTION TO HEARSAY BUSINESS RECORDS REVERSED AND SUSTAINED]

When pressed about Flannigan’s basis of knowledge on cross-examination, Flannigan merely stated that “our records do indicate” the Bank of New York as the holder of the note based on “a pooling and servicing agreement.” No such business record itself was offered or admitted as a business records hearsay exception. See Rule 11-803(F) NMRA (2007) (naming this category of hearsay exceptions as “records of regularly conducted activity”).

The district court erred in admitting the testimony of Flannigan as a custodian of records under the exception to the inadmissibility of hearsay for “business records” that are made in the regular course of business and are generally admissible at trial under certain conditions. See Rule 11-803(F) (2007) (citing the version of the rule in effect at the time of trial). The business records exception allows the records themselves to be admissible but not simply statements about the purported contents of the records. [E.S.] See State v. Cofer, 2011-NMCA-085, ¶ 17, 150 N.M. 483, 261 P.3d 1115 (holding that, based on the plain language of Rule 11-803(F) (2007), “it is clear that the business records exception requires some form of document that satisfies the rule’s foundational elements to be offered and admitted into evidence and that testimony alone does not qualify under this exception to the hearsay rule” and concluding that “‘testimony regarding the contents of business records, unsupported by the records themselves, by one without personal knowledge of the facts constitutes inadmissible hearsay.’” (citation omitted)). Neither Flannigan’s testimony nor Kelley’s affidavit can substantiate the existence of documents evidencing a transfer if those documents are not entered into evidence. Accordingly, Flannigan’s trial testimony cannot establish that the Romeros’ note was transferred to the Bank of New York.[E.S.]

[REJECTION OF MERS ASSIGNMENT]

We also reject the Bank’s argument that it can enforce the Romeros’ note because it was assigned the mortgage by MERS. An assignment of a mortgage vests only those rights to the mortgage that were vested in the assigning entity and nothing more. See § 55-3-203(b) (“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.”); accord Hart & Willier, supra, § 12.03(2) at 12-27 (“Th[is] shelter rule puts the transferee in the shoes of the transferor.”).

[MERS CAN NEVER ASSIGN THE NOTE]

As a nominee for Equity One on the mortgage contract, MERS could assign the mortgage but lacked any authority to assign the Romeros’ note. Although this Court has never explicitly ruled on the issue of whether the assignment of a mortgage could carry with it the transfer of a note, we have long recognized the separate functions that note and mortgage contracts perform in foreclosure actions. See First Nat’l Bank of Belen v. Luce, 1974-NMSC-098, ¶ 8, 87 N.M. 94, 529 P.2d 760 (holding that because the assignment of a mortgage to a bank did not convey an interest in the loan contract, the bank was not entitled to foreclose on the mortgage); Simson v. Bilderbeck, Inc., 1966-NMSC-170, ¶¶ 13-14, 76 N.M. 667, 417 P.2d 803 (explaining that “[t]he right of the assignee to enforce the mortgage is dependent upon his right to enforce the note” and noting that “[b]oth the note and mortgage were assigned to plaintiff.

[SPLITTING THE NOTE AND MORTGAGE]

(“A mortgage securing the repayment of a promissory note follows the note, and thus, only the rightful owner of the note has the right to enforce the mortgage.”); Dunaway, supra, § 24:18 (“The mortgage only secures the payment of the debt, has no life independent of the debt, and cannot be separately transferred. If the intent of the lender is to transfer only the security interest (the mortgage), this cannot legally be done and the transfer of the mortgage without the debt would be a nullity.”). These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.

[THE NOBODY ELSE IS CLAIMING ARGUMENT IS EXPLICITLY REJECTED]

Failure of Another Entity to Claim Ownership of the Romeros’ Note Does Not Make the Bank of New York a Holder

{37} Finally, the Bank of New York urges this Court to adopt the district court’s inference that if the Bank was not the proper holder of the Romeros’ note, then third-party-defendant Equity One would have claimed to be the rightful holder, and Equity One made no such claim.

11

{38} The simple fact that Equity One does not claim ownership of the Romeros’ note does not establish that the note was properly transferred to the Bank of New York. In fact, the evidence in the record indicates that JPMorgan Chase may be the lawful holder of the Romeros’ note, as reflected in the note’s special indorsement.

[HOLDER MUST PROVE ENTITLEMENT TO ENFORCE — NO PRESUMPTION ALLOWED]

Because the transferee is not a holder, there is no presumption under Section [55-]3-308 [(1992) (entitling a holder in due course to payment by production and upon signature)] that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it.

[LENDER’S OBLIGATION TO ASSURE THAT THE LOAN IS VIABLE]

B. A Lender Must Consider a Borrower’s Ability to Repay a Home Mortgage Loan in Determining Whether the Loan Provides a Reasonable, Tangible Net Benefit, as Required by the New Mexico HLPA

{39} For reasons that are not clear in the record, the Romeros did not appeal the district court’s judgment in favor of the original lender, Equity One, on the Romeros’ claims that Equity One violated the HLPA. The Court of Appeals addressed the HLPA violation issue in the context of the Romeros’ contentions that the alleged violation constituted a defense to the foreclosure complaint of the Bank of New York by affirming the district court’s favorable ruling on the Bank of New York’s complaint. As a result of our holding that the Bank of New York has not established standing to bring a foreclosure action, the issue of HLPA violation is now moot in this case. But because it is an issue that is likely to be addressed again in future attempts by whichever institution may be able to establish standing to foreclose on the Romero home and because it involves a statutory interpretation issue of substantial public importance in many other cases, we address the conclusion of both the

12

Court of Appeals and the district court that a homeowner’s inability to repay is not among “all of the circumstances” that the 2003 HLPA, applicable to the Romeros’ loan, requires a lender to consider under its “flipping” provisions:

No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, “flipping a home loan” means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan and the borrower’s circumstances.

Section 58-21A-4(B) (2003); see also Bank of N.Y., 2011-NMCA-110, ¶ 17 (holding that “while the ability to repay a loan is an important consideration when otherwise assessing a borrower’s financial situation, we will not read such meaning into the statute’s ‘reasonable, tangible net benefit’ language”).

[DOOMED LOANS — WHO HAS THE RISK?]

We have been presented with no conceivable reason why the Legislature in 2003 would consciously exclude consideration of a borrower’s ability to repay the loan as a factor of the borrower’s circumstances, and we can think of none. Without an express legislative direction to that effect, we will not conclude that the Legislature meant to approve mortgage loans that were doomed to end in failure and foreclosure. Apart from the plain language of the statute and its express statutory purpose, it is difficult to comprehend how an unrepayable home mortgage loan that will result in a foreclosure on one’s home and a deficiency judgment to pay after the borrower is rendered homeless could provide “a reasonable, tangible net benefit to the borrower.”

[LENDER’S OBLIGATION TO MAKE SURE IT IS A VIABLE TRANSACTION] a lender cannot avoid its own obligation to consider real facts and circumstances [E.S.] that might clarify the inaccuracy of a borrower’s income claim. Id. (“Lenders cannot, however, disregard known facts and circumstances that may place in question the accuracy of information contained in the application.”) A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.

if the inclusion of such boilerplate language in the mass of documents a borrower must sign at closing would substitute for a lender’s conscientious compliance with the obligations imposed by the HLPA, its protections would be no more than empty words on paper that could be summarily swept aside by the addition of yet one more document for the borrower to sign at the closing.

[THE BLAME GAME]

Borrowers are certainly not blameless if they try to refinance their homes through loans they cannot afford. But they do not have a mortgage lender’s expertise, and the combination of the relative unsophistication of many borrowers and the potential motives of unscrupulous lenders seeking profits from making loans without regard for the consequences to homeowners led to the need for statutory reform. See § 58-21A-2 (discussing (A) “abusive mortgage lending” practices, including (B) “making . . . loans that are equity-based, rather than income based,” (C) “repeatedly refinanc[ing] home loans,” rewarding lenders with “immediate income” from “points and fees” and (D) victimizing homeowners with the unnecessary “costs and terms” of “overreaching creditors”).

[FEDERAL PREEMPTION CLAIM FROM OCC STATEMENT DOES NOT PROVIDE BANK OF NEW YORK ANY PROTECTION]

 

While the Bank is correct in asserting that the OCC issued a blanket rule in January 2004, see 12 C.F.R. § 34.4(a) (2004) (preempting state laws that impact “a national bank’s ability to fully exercise its Federally authorized real estate lending powers”), and that the New Mexico Administrative Code recognizes this OCC rule, neither the Bank nor our administrative code addresses several actions taken by Congress and the courts since 2004 to disavow the OCC’s broad preemption statement.

 

Applying the Dodd-Frank standard to the HLPA, we conclude that federal law does not preempt the HLPA. First, our review of the NBA reveals no express preemption of state consumer protection laws such as the HLPA. Second, the Bank provides no evidence that conforming to the dictates of the HLPA prevents or significantly interferes with a national bank’s operations. Third, the HLPA does not create a discriminatory effect; rather, the HLPA applies to any “creditor,” which the 2003 statute defines as “a person who regularly [offers or] makes a home loan.” Section 58-21A-3(G) (2003). Any entity that makes home loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or nationally chartered bank. See § 58-21A-2 (providing legislative findings on abusive mortgage lending practices that the HLPA is meant to discourage).

THE NEIL GARFIELD SHOW STARTS THIS THURSDAY AND EVERY THURSDAY AT 6PM

Thanks to the folks at Blog Talk Radio, we are finally going back on the air on a weekly basis every Thursday at 6PM Eastern Time, 3PM Pacific Time, and if there is no operator error (that would be me), the shows will be saved as Podcasts and you can listen to them anytime you want. IT’S FREE! (Except for the sponsors).

Our intended audience includes, investors who were duped out of their money to buy bogus mortgage bonds, investors or buyers of resales or foreclosures who think they have clear title but don’t, and homeowners as investors who stand to lose not only their investment but their entire lifestyle. We all know what the banks did was wrong. We all know that what they are still doing is wrong.

Let’s get together and do some work on how to convince a judge or prosecutor that Wall Street corruption does make a difference and should never be allowed.

Click in to tune in at The Neil Garfield Show

Or call in at (347) 850-1260, 6pm Thursdays

You know the subject — the biggest economic crime in human history and the price investors and homeowners are paying for it. You know the goal — claiming your rights, defending your home and recover damages from wrongful foreclosure and predatory loan practices. The format of the 30 minute show will be news, analysis (or guest interview), and question and answer. It is just like the old teleconferences we had, only better. You can start a chat with me on the side, call in for a question, or write in comments.

Come learn the new system with me and don’t laugh at me when I screw it up. I’m very sensitive 🙂 Come learn something you didn’t know. We will be covering the latest info on what works and what doesn’t and why.

The show is sponsored by Livinglies, GTC Honors, and the law firm of Garfield, Kelley and White, LLC with main offices in Tallahassee and additional offices in Broward County and Dade County.

Additional sponsors are invited. Not all offers of sponsorship will be accepted, in the sole discretion of the Show’s Host.

This show is for general information only and not to be used as a substitute for real advice from a licensed lawyer who practices in the geographical area in which your property is located or transaction occurred. The show is not a solicitation or offer of services.

Those VA Loans and Ginny Mae Loans Were ALso Securitized

Probably the most misunderstood aspect of the securitization process is that the banks are able to claim there was no securitization when in fact there was. This is especially true in GSE’s like Fannie, Freddie, Ginny and the VA. When you are researching loans you hit a brick wall when you get to the GSE. And there are terms thrown around like smoke and mirrors that this was or this is a Fannie loan and that therefore the loan was not securitized. This is wrong.

None of the GSE’s are lenders. They don’t loan money to anyone. So if the allegation is made that this was a Fannie or Freddie or VA loan from the start, then the originator was not the lender and neither was Fannie or Freddie or any other GSE. These are strictly guarantee agencies who don’t part with a nickle until the loan is foreclosed and the home is sold. THEN they guarantee up a certain amount and pay it out, drawing from the US Treasury as necessary.

All the loans that were considered GSE loans from the start constitute an admission that the loan was securitized or subjected to claims of securitization. Fannie and Freddie for example have a Master Trustee agreement in which they do nothing but they serve as the Master Trustee for asset-backed pools that have a regular trustee (who also does nothing). These pools are REMIC trusts.

As you can see from the attached files,if you will read them carefully, you will see that the custom and practice of the GSE was, if it guaranteed the loan, to serve as either the conduit or the Master trustee for an asset backed pool where the trust beneficiaries funded the origination or acquisition of the loan. This is a factor that did not get adequately covered in Shack’s excellent opinion recently in New York where he chastised Chase and others for playing with the ownership of the loan to suit the need for foreclosure instead of presenting facts that would protect the people who are actually taking a loss.

see Pooled_Loans_and_Securitizations_032309 and VA-FinancialPolicyVolumeVIChapter06

 

Why Do Subservicers Continue to Pay Investors After Borrower Stops Paying?

It is now common knowledge that subservicers are continuing to pay investors and reporting the loan as “performing” after they have sent a default and right to reinstate notice as required by the mortgage (usually paragraph 22) and by the uniform debt collection laws. The first problem about this is that the actual creditor does not show a default whereas the bookkeeper Servicer is declaring the default. With the investor receiving his regular payments, how can a default exist? This appears to apply to securitized student loans as well.

Bottom line is that the subservicer is reporting to the borrower that the loan is in default but reporting to the investor (the creditor) that it isn’t in default. These payments have gone on for as long as 18 months that I have seen. Which brings us back to the first articles ever written on this blog.

The borrower is only required to make payments that are DUE. The payment isn’t due if it is already been made and there is nothing to reinstate if the creditor has already received his expected payment. The payments are NOT DUE TO THE SERVICER. They are due to the creditor. If the creditor received the payment on that loan as shown in the distribution report to the creditor, then the conditions necessary to declare that the loan is in default are not present. Remember that the presence of a table funded loan, an aggregator, the securitization, the trust was withheld from the borrower. The banks could have covered themselves by adding to the mortgage and note that third party payments to the creditor will not reduce the payments, principal or interest. But if they had done that, they would have required to answer so e uncomfortable questions.

The second issue is the constant question “Why would they continue making payments to the ‘creditor’ when they are not receiving payments from the borrower?” And “Where are they getting the money to pay the creditor?”

After talking with sources from deep inside the industry the answer to why they are paying is primarily to sell more bonds and hide the default issues. The secondary reason is to make the investor complacent about the accounting for what was really received on account of the loans and from whom. That inquiry could lead to a demand from the investor for payment in full and if the REMIC doesn’t pay, then the investors sue the investment banker who was the one playing with OPM (other people’s money).

The answer to the second question is that the money comes from the investment banker. Whether the investment banker is merely using the investor’s money (allowed under prospectus) or using insurance proceeds or payments on CDS (credit default swaps) or even sale proceeds to the Federal Reserve varies. Either way it is an effort to keep money that should go to the investor and reduce the amount payable to the investor and which would reduce or eliminate the debt owed by the homeowner to the investor. It is fraud, theft and probably a bunch of other things.

LAST CHANCE FOR JUSTICE

“We are still in the death grip of the banks as they attempt to portray themselves as the bulwarks of society even as they continue to rob us of homes, lives, jobs and vitally needed capital which is being channeled into natural resources so that when we commence the gargantuan task of repairing our infrastructure we can no longer afford it and must borrow the money from the thieves who created the gaping hole in our economy threatening the soul of our democracy.” Neil Garfield, livinglies.me

We all know that dozens of people rose to power in Europe and Asia in the 1930’s and 1940’s who turned the world on its head and were responsible for the extermination of tens of millions of people. World War II still haunts us as it projected us into an arms race in which we were the first and only country to kill all the people who lived in two cities in Japan. The losses on both sides of the war were horrendous.
Some of us remember the revelations in 1982 that the United States actively recruited unrepentant Nazi officers and scientists for intelligence and technological advantages in the coming showdown with what was known as the Soviet Union. Amongst the things done for the worst war criminals was safe passage (no prosecution for war crimes) and even new identities created by the United States Department of Justice. Policy was created that diverted richly deserved consequences into rich rewards for knowledge. With WWII in the rear view mirror policy-makers decided to look ahead and prepare for new challenges.

Some of us remember the savings and loans scandals where banks nearly destroyed everything in the U.S. marketplace in the 1970’s and 1980’s. Law enforcement went into high gear, investigated, and pieced together the methods and complex transactions meant to hide the guilt of the main perpetrators in and out of government and the business world. More than 800 people went to jail. Of course, none of the banks had achieved the size that now exists in our financial marketplace.

Increasing the mass of individual financial institutions produced a corresponding capacity for destruction that eclipsed anything imagined by anyone outside of Wall Street. The exponentially increasing threat was ignored as the knowledge of Einstein’s famous equation faded into obscurity. The possibilities for mass destruction of our societies was increasing exponentially as the mass of giant financial service companies grew and the accountability dropped off when they were allowed to incorporate and even sell their shares publicly, replacing a system, hundreds of years old in which partners were ultimately liable for losses they created.

The next generation of world dominators would be able to bring the world to its knees without firing a shot or gassing anyone. Institutions grew as malignancies on steroids and created the illusion of contributing half our gross domestic product while real work, real production and real inventions were constrained to function in a marketplace that had been reduced by 1/3 of its capacity — leaving the banks in control of  $7 trillion per year in what was counted as gross domestic product. Our primary output by far was trading paper based upon dubious and fictitious underlying transactions; if those transactions had existed, the share of GDP attributed to financial services would have remained at a constant 16%. Instead it grew to half of GDP.  The “paradox” of financial services becoming increasingly powerful and generating more revenues than any other sector while the rest of the economy was stagnating was noted by many, but nothing was done. The truth of this “paradox” is that it was a lie — a grand illusion created by the greatest salesmen on Wall Street.

So even minimum wage lost 1/3 of its value adjusted for inflation while salaries, profits and bonuses were conferred upon people deemed as financial geniuses as a natural consequence of believing the myths promulgated by Wall Street with its control over all forms of information, including information from the government.

But calling out Wall Street would mean admitting that the United States had made a wrong turn with horrendous results. No longer the supreme leader in education, medical care, crime, safety, happiness and most of all prospects for social and economic mobility, the United States had become supreme only through its military strength and the appearance of strength in the world of high finance, its currency being the world’s reserve despite the reality of the ailing economy and widening inequality of wealth and opportunity — the attributes of a banana republic.

All of us remember the great crash of 2008-2009. It was as close as could be imagined to a world wide nuclear attack, resulting in the apparent collapse of economies, tens of millions of people being reduced to poverty, tossed out of their homes, sleeping in cars, divorces, murder, riots, suicide and the loss of millions of jobs on a rising scale (over 700,000 per month when Obama took office) that did not stop rising until 2010 and which has yet to be corrected to figures that economists say would mean that our economy is functioning at proper levels. Month after month more than 700,000 people lost their jobs instead of a net gain of 300,000 jobs. It was a reversal of 1 million jobs per month that could clean out the country and every myth about us in less than a year.

The cause lay with misbehavior of the banks — again. This time the destruction was so wide and so deep that all conditions necessary for the collapse of our society and our government were present. Policy makers, law enforcement and regulators decided that it was better to maintain the illusion of business as usual in a last ditch effort to maintain the fabric of our society even if it meant that guilty people would go free and even be rewarded. It was a decision that was probably correct at the time given the available information, but it was a policy based upon an inaccurate description of the disaster written and produced by the banks themselves. Once the true information was discovered the government made another wrong turn — staying the course when the threat of collapse was over. In a sense it was worse than giving Nazi war criminals asylum because at the time they were protected by the Department of Justice their crimes were complete and there existed little opportunity for them to repeat those crimes. It could be fairly stated that they posed no existing threat to safety of the country. Not so for the banks.

Now as all the theft, deceit and arrogance are revealed, the original premise of the DOJ in granting the immunity from prosecution was based upon fraudulent information from the very people to whom they were granting safe passage. We have lost 5 million homes in foreclosure from their past crimes, but we remain in the midst of the commission of crimes — another 5 million illegal, wrongful foreclosures is continuing to wind its way through the courts.

Not one person has been prosecuted, not one statement has been made acknowledging the crimes, the continuing deceit in sworn filings with regulators, and the continuing drain on the economy and our ability to finance and capitalize on innovation to replace the lost productivity in real goods and services.

We are still in the death grip of the banks as they attempt to portray themselves as the bulwarks of society even as they continue to rob us of homes, lives, jobs and vitally needed capital which is being channeled into natural resources so that when we commence the gargantuan task of repairing our infrastructure we can no longer afford it and must borrow the money from the thieves who created the gaping hole in our economy threatening the soul of our democracy. If the crimes were in the rear view mirror one could argue that the policy makers could make decisions to protect our future. But the crimes are not just in the rear view mirror. More crimes lie ahead with the theft of an equal number of millions of homes based on false and wrongful foreclosures deriving their legitimacy from an illusion of debt — an illusion so artfully created that most people still believe the debts exist. Without a very sophisticated knowledge of exotic finance it seems inconceivable that a homeowner could receive the benefits of a loan and at the same time or shortly thereafter have the debt extinguished by third parties who were paid richly for doing so.

Job creation would be unleashed if we had the courage to stop the continuing fraud. It is time for the government to step forward and call them out, stop the virtual genocide and let the chips fall where they might when the paper giants collapse. It’s complicated, but that is your job. Few people lack the understanding that the bankers behind this mess belong in jail. This includes regulators, law enforcement and even judges. but the “secret” tacit message is not to mess with the status quo until we are sure it won’t topple our whole society and economy.

The time is now. If we leave the bankers alone they are highly likely to cause another crash in both financial instruments and economically by hoarding natural resources until the prices are intolerably high and we all end up pleading for payment terms on basic raw materials for the rebuilding of infrastructure. If we leave them alone another 20 million people will be displaced as more than 5 million foreclosures get processed in the next 3-4 years. If we leave them alone, we are allowing a clear and present danger to the future of our society and the prospects for safety and world peace. Don’t blame Wall Street — they are just doing what they were sent to do — make money. You don’t hold the soldier responsible for firing a bullet when he was ordered to do so. But you do blame the policy makers that him or her there. And you stop them when the policy is threatening another crash.

Stop them now, jail the ones who can be prosecuted, and take apart the large banks. IMF economists and central bankers around the world are looking on in horror at the new order of things hoping that when the United States has exhausted all other options, they will finally do the right thing. (see Winston Churchill quote to that effect).

But forget not that the ultimate power of government is in the hands of the people at large and that the regulators and law enforcement and judges are working for us, on our nickle. Action like Occupy Wall Street is required and you can see the growing nature of that movement in a sweep that is entirely missed by those who arrogantly pull the levers of power now. OWS despite criticism is proving the point — it isn’t new leaders that will get us out of this — it is the withdrawal of consent of the governed one by one without political affiliation or worshiping sound sound biting, hate mongering politicians.

People have asked me why I have not until now endorsed the OWS movement. The reason was that I wanted to give them time to see if they could actually accomplish the counter-intuitive result of exercising power without direct involvement in a corrupt political process. They have proven the point and they are likely to be a major force undermining the demagogues and greedy bankers and businesses who care more about their bottom line than their society that gives them the opportunity to earn that bottom line.

New Fraud Evidence Shows Trillions Of Dollars In Mortgages Have No Owner
http://thinkprogress.org/economy/2013/08/13/2460891/new-fraud-evidence-shows-trillions-of-dollars-in-mortgages-have-no-owner/

Big Banks Headed For Break-Up

“What policy makers are starting to realize is that the absence of prosecutions and regulatory action against these banks has produced a profound loss of confidence not only in the financial markets but in the leader of the financial markets (the United States) to control itself and its own participants in finance. It’s not just fair to enforce existing laws and regulations against the banks who so flagrantly violated them and nearly destroyed all the economies of the world, it’s the only practical thing to do.” — Neil F Garfield, livinglies.me
If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 (East Coast) and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comment: There is an old expression that says “At the end of the day, everybody knows everything.” The question of course is how long is the “day.” In this case the day for the bank appears to be about 10-12 years. The foibles of their masters, the conduct of their policies, and the arrogance of their behavior has led them into the position where the once unthinkable break-up of the bank oligopoly and their control, over our government is coming to a close.

The titans of Wall Street have thus far avoided criminal prosecution because of the misguided assumption — promulgated by Wall Street itself — that such prosecutions would destroy the economic systems all over the world (remember when Detroit arrogance reached its peak with “what’s good for GM is good for the country?”). But the Dallas Fed are joining the ranks of of once lone voices like Simon Johnson stating that Too Big to Fail is not a sustainable model and that it distorts the markets, the marketplace and our society.

It is virtually certain now that the mega banks are going to literally be cut down to size and that some form of Glass-Steagel will be revived. As that day nears, the images and facts pouring out onto the public and the danger to the American taxpayer facing deficits caused by the banks in part because they siphoned out the life-blood of liquidity from the American marketplace will overwhelm the last vestiges of resistance and the same lobbyists who were the king makers will be the kiss of death for re-election of any public official.

As they are cut down, the accounting and auditing will start and it will take years to complete. What will emerge is a pattern of theft, deceit, fraud, forgery, perjury and other crimes that are most easily seen in the residential foreclosures that now appear to be mostly illusions that have caused nightmare scenarios for millions of Americans and people in other countries. Those illusions though are still with us and they are still taken as real by many in all branches of government. The thought that the borrower should never have been foreclosed and that the amount demanded of them was wrong is not accepted yet. But it will be because of arithmetic.

Investment banks sold worthless bonds issued by empty creatures that existed only on paper without any assets, money or value of any kind. The banks then funded mortgages of increasingly obvious toxicity to people who might have been able to afford a normal mortgage or who couldn’t afford a mortgage at all but were assured by the banks that the deal was solid. Both investors and homeowners were taken to the cleaners. Neither of them has been addressed in any bailout or restitution.

It is the bailout or restitution to the investors and homeowners that is the key to rejuvenating our economy. Trust in the system and wealth in the middle class is the only historical reference point for a successful society. All the rest crumbled. As the banks are taken apart, the privilege of using “off-balance sheet” transactions will be revealed as a free pass to steal money from investors. The banks took the money from investors and used a large part of it to gamble. Then they covered their tracks with lies about the quality of loans whose nominal rates of interest were skyrocketing through previous laws against usury.

For those who worry about the deficit while at the same time remain loyal to their largest banking contributors, they are standing with one foot upon the other. They can’t move and eventually they will fall. The American public may not be filled with PhD economists, but they know theft when it is revealed and they know what should happen to the thief and the compatriots of the thief.

For the moment we are still rocketing along the path of assuming the home loans, student loans, credit cards, auto loans, furniture loans et al were valid loans wherein the lenders had a risk of loss and actually suffered a loss resulting from the non payment by the borrower. As the information spreads about what really happened with all consumer debt, housing included, the people will understand that their debts were paid off by the investment banks, the insurance, companies and the counterparties on hedge products like credit default swaps.

A creditor is entitled to be repaid the money loaned. But if they have been repaid, the fact that the borrower didn’t pay it does not create a fact pattern under which the current law allows the creditor to seek additional payment from the borrower when their receivable account is zero. Yet it is possible that the parties who paid off the debt might be entitled to contribution from the borrower — if they didn’t waive that right when they entered into the insurance or hedge contract with the investment banks. Even so, the mortgage lien would be eviscerated. And the debt open to discussion because the insurers and counterparties did in fact agree not to pursue any remedies against the borrowers. It’s all part of the cover-up so the transactions look like civil matters instead of criminal matters.

Thus far, we have allowed windfall after windfall to the banks who never had any risk of loss and who received federal bailouts, insurance, and proceeds of credit default swaps and multiple sales of the same loan — all without crediting the investors who advanced all the money that was used in the mortgage maelstrom.

The practical significance of this is simple: the money given to the banks went into a black hole and may never be seen again. The money given BACK to (restitution) investors will result in fixing at least partly the imbalance caused by the bank theft. It will also decrease the loss suffered by the lenders in the loans marked as home loans, auto loans, student loans etc. This in turn reduces the amount owed by the borrower. Their is no “reduction” of principal there is merely a “deduction” or “correction” to reflect payments received by the investors or their agents.

The practical significance of this is that money, wealth and income will be  channeled back to the those who are in the middle class or who belong there but for the trickery of the banks and the economy starts to hum a little better than before.

It all starts with abandoning the Too Big To Fail hypothesis. What policy makers are starting to realize is that the absence of prosecutions and regulatory action against these banks has produced a profound loss of confidence not only in the financial markets but in the leader of the financial markets to control itself and its own participants in finance. It’s not just fair to enforce existing laws and regulations against the banks who so flagrantly violated them and nearly destroyed all the economies of the world, it’s the only practical thing to do.

Big Banks Have a Big Problem
http://economix.blogs.nytimes.com/2013/03/14/big-banks-have-a-big-problem/

We The Taxpayers Are On The Hook For Mortgages, Student Loans, Banks
http://lonelyconservative.com/2013/03/we-the-taxpayers-are-on-the-hook-for-mortgages-student-loans-banks/

Documentary Co-Produced by Broker Exposes Foreclosure Devastation, Housing System Flaws, in Low-Income Hispanic Neighborhood of Phoenix
http://rismedia.com/2013-03-13/documentary-co-produced-by-broker-exposes-foreclosure-devastation-housing-system-flaws-in-low-income-hispanic-neighborhood-of-phoenix/

Housing advocates accuse Wells Fargo of damaging communities through foreclosures
http://www.scpr.org/blogs/economy/2013/03/13/12908/housing-advocates-accuse-well-fargo-damaging-commu/

 

Student Loans Are The Next Major Crack in Our Finance

MOST POPULAR ARTICLES

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

CUSTOMER SERVICE 520-405-1688

Disclosure to Student Borrowers: www.nytimes.com/2012/04/08/opinion/sunday/disclosure-to-student-borrowers.html?_r=1&ref=todayspaper

Editor’s Comment: 

“We have created a world of finance in which it is more lucrative to lose money and get paid by the government, than to make money and contribute to society.  In the Soviet Union the government ostensibly owned everything; in America the government is a vehicle for the banks to own everything.”—Neil F Garfield LivingLies.me

While the story below is far too kind to both Dimon and JPMorgan, it hits the bulls-eye on the current trends. And if we think that it will stop at student loans we are kidding ourselves or worse. The entire student loan mess, totaling more than $1 trillion now, was again caused by the false use of Securitzation, the abuse of government guaranteed loans, and the misinterpretation of the rules governing discharge ability of debt in bankruptcy.

First we had student loans in which the government provided financing so that our population would maintain its superior position of education, innovation and the brains of the world in getting technological and mechanical things to work right, work well and create new opportunities.

Then the banks moved in and said we will provide the loans. But there was a catch. Instead of the “private student” loan being low interest, it became a vehicle for raising rates to credit card levels — meaning the chance of anyone being able to repay the loan principal was correspondingly diminished by the increase in the payments of interest.

So the banks made sure that they couldn’t lose money by (a) selling off the debt in securitization packages and (b) passing along the government guarantee of the debt.  This was combined with the nondischargability of the debt in bankruptcy to the investors who purchased these seemingly high value high yielding bonds from noncapitalized entities that had absolutely no capacity to pay off the bonds.  The only way these issuers of student debt bonds could even hope to pay the interest or the principal was by using the investors’ own money, or by receiving the money from one of several sources — only one of which was the student borrower.

The fact that the banks managed to buy congressional support to insert themselves into the student loan process is stupid enough. But things got worse than that for the students, their families and the taxpayers. It’s as though the courts got stupid when these exotic forms of finance hit the market.

Here is the bottom line: students who took private loans were encouraged and sold on an aggressive basis to borrow money not only for tuition and books, but for housing and living expenses that could have been covered in part by part-time work. So, like the housing mess, Wall Street was aggressively selling money based upon eventual taxpayer bailouts.

Next, the banks, disregarding the reason for government guaranteed loans or exemption from discharge ability of student loan debt, elected to change the risk through securitization. Not only were the banks not on the hook, but they were once again betting on what they already knew — there was no way these loans were going to get repaid because the amount of the loans far exceeded the value of the potential jobs. In short, the same story as appraisal fraud of the homes, where the prices of homes and loans were artificially inflated while the values were declining at precipitous rate.

Like the housing fraud, the securitization was merely trick accounting without any real documentation or justification.  There are two final results that should happen but can’t because Congress is virtually owned by the banks. First, the guarantee should not apply if the risk intended to be protected is no longer present or has significantly changed. And second, with the guarantee gone, there is no reason to maintain the exemption by which student loans cannot be discharged in bankruptcy. Based on current law and cases, these are obvious conclusions that will be probably never happen. Instead, the banks will claim losses that are not their own, collect taxpayer guarantees or bailouts, and receive proceeds of insurance, credit default swaps and other credit enhancements.

Congratulations. We have created a world of finance in which it is more lucrative to lose money and get paid by the government, than to make money and contribute to the society for which these banks are allowed to exist ostensibly for the purpose of providing capital to a growing economy. So the economy is in the toilet and the government keeps paying the banks to slap us.

Did JPMorgan Pop The Student Loan Bubble?

Back in 2006, contrary to conventional wisdom, many financial professionals were well aware of the subprime bubble, and that the trajectory of home prices was unsustainable. However, because there was no way to know just when it would pop, few if any dared to bet against the herd (those who did, and did so early despite all odds, made greater than 100-1 returns). Fast forward to today, when the most comparable to subprime, cheap credit-induced bubble, is that of student loans (for extended literature on why the non-dischargeable student loan bubble will “create a generation of wage slavery” read this and much of the easily accessible literature on the topic elsewhere) which have now surpassed $1 trillion in notional. Yet oddly enough, just like in the case of the subprime bubble, so in the ongoing expansion of the credit bubble manifested in this case by student loans, we have an early warning that the party is almost over, coming from the most unexpected of sources: JPMorgan.

Recall that in October 2006, 5 months before New Century started the March 2007 collapsing dominoes that ultimately translated to the bursting of both the housing and credit bubbles several short months later, culminating with the failure of Bear, Lehman, AIG, The Reserve Fund, and the near end of capitalism ‘we know it’, it was JPMorgan who sounded a red alert, and proceeded to pull entirely out of the Subprime space. From Fortune, two weeks before the Lehman failure: “It was the second week of October 2006. William King, then J.P. Morgan’s chief of securitized products, was vacationing in Rwanda. One evening CEO Jamie Dimon tracked him down to fire a red alert. “Billy, I really want you to watch out for subprime!” Dimon’s voice crackled over King’s hotel phone. “We need to sell a lot of our positions. I’ve seen it before. This stuff could go up in smoke!” Dimon was right (as was Goldman, but that’s another story), while most of his competitors piled on into this latest ponzi scheme of epic greed, whose only resolution would be a wholesale taxpayer bailout. We all know how that chapter ended (or hasn’t – after all everyone is still demanding another $1 trillion from the Fed at least to get their S&P limit up fix, and then another, and another). And now, over 5 years later, history repeats itself: JPM is officially getting out of student loans. If history serves, what happens next will not be pretty.

American Banker brings us the full story:

U.S. Bancorp (USB) is pulling out of the private student loans market and JPMorgan Chase (JPM) is sharply reducing its lending, as banking regulators step up their scrutiny of the products.

JPMorgan Chase will limit student lending to existing customers starting in July, a bank spokesman told American Banker on Friday. The bank laid off 24 employees who make sales calls to colleges as part of its decision.

The official reason:

“The private student loan market is continuing to decline, so we decided to focus on Chase customers,” spokesman Thomas Kelly says.

Ah yes, focusing on customers, and providing liquidity no doubt, courtesy of Blythe Masters. Joking aside, what JPMorgan is explicitly telling us is that it can’t make money lending out to the one group of the population where demand for credit money is virtually infinite (after all 46% of America’s 16-24 year olds are out of a job: what else are they going to?), and furthermore, with debt being non-dischargable, this is about as safe a carry trade as any, even when faced with the prospect of bankruptcy. What JPM is implicitly saying, is that the party is over, and all private sector originators are hunkering down, in anticipation of the hammer falling. Or if they aren’t, they should be.

JPM is not alone:

Minneapolis-based U.S. Bank sent a letter to participating colleges and universities saying that it would no longer be accepting student loan applications as of March 29, a spokesman told American Banker on Friday.

“We are in fact exiting the private student lending business,” U.S. Bank spokesman Thomas Joyce said, adding that the bank’s business was too small to be worthwhile.

“The reasoning is we’re a very small player, less than 1.5% of market share,” Joyce adds. “It’s a very small business for the bank, and we’ve decided to make a strategic shift and move resources.”

Which, however, is not to say that there will be no source of student loans. On Friday alone we found out that in February the US government added another $11 billion in student debt to the Federal tally, a run-rate which is now well over $10 billion a month an accelerating: a rate of change which is almost as great as the increase in Apple market cap. So who will be left picking up the pieces? Why the Consumer Financial Protection Bureau, funded by none other than Ben Bernanke, and headed by the same Richard Cordray that Obama shoved into his spot over Republican protests, when taking advantage of a recessed Congress.

“What we are likely to see over the next few months is a lot of private education lenders rethinking the product, particularly if it appears that the CFPB is going to become more activist,” says Kevin Petrasic, a partner with law firm Paul Hastings.

“Historically there’s been a patchwork of regulation towards private student lenders,” he adds. “The CFPB allows for a more uniform and consistent approach and identification of the issues. It also provides a network, effectively a data-gathering base that is going to enable the agency to get all the stories that are out there.”

The CFPB recently began accepting student loan complaints on its website.

“I think there’s going to be a lot of emphasis and focus … in terms of what is deemed to be fair and what is over the line with collections and marketing,” Petrasic says, warning that “the challenge for the CFPB in this area is going to be trying to figure out how to set consumer protection standards without essentially eviscerating availability of the product.”

And with all private players stepping out very actively, it only leaves the government, with its extensive system of ‘checks and balances’, to hand out loans to America’s ever more destitute students, with the reckless abandon of a Wells Fargo NINJA-specialized loan officer in 2005. What will be hilarious in 2014, when taxpayers are fuming at the latest multi-trillion bailout, now that we know that $270 billion in student loans are at least 30 days delinquent which can only have one very sad ending, is that the government will have no evil banker scapegoats to blame loose lending standards on. And why would they: after all it is this administration’s sworn Keynesian duty to make every student a debt slave in perpetuity, but only after they buy a lifetime supply of iPads. Then again by 2014 we will have far greater problems (and for most in the administration, it will be “someone else’s problem”).

For now, our advice – just do what Jamie Dimon is doing: duck and hide for cover.

Oh, and if there is a cheap student loan synthetic short out there, which has the same upside potential as the ABX did in late 2006, please advise.

Why Everyone Should Support Principal Corrections on Mortgages

First, let’s talk to the guy that says homeowners shouldn’t get a break because it would be unfair to him. After all he paid his mortgage and he is still paying his mortgage and nobody is helping him, right? Wrong. Everyone who has a mortgage is getting a federal subsidy. They get to pay less in taxes and the more they owe, the less taxes they pay. That is the interest deduction for home ownership. So the question is not whether homeowners should get help, because they all get help. And if the guy who still has his home doesn’t wake up to the fact that foreclosures mean fewer homeowners and fewer homeowners means that those who want to eliminate the home mortgage interest deduction will get more traction. They already have a number of people in high places who would like this federal subsidy eliminated because it does nothing for big business and big banking. Putting your support into whatever it takes for people to stay in their homes and pay on mortgages, even if they are lower, means more people that would join you in opposition to eliminating the interest deduction. Oppose them and it will cost you thousands of dollars in additional taxes.

Next, those who are ideologically opposed to any relief for someone who stops paying on a loan. They say that if we don’t hold the borrower’s feet to the fire, we will undermine the entire concept of credit because borrowers would think they could walk away from any debt and would do so. The evidence is in. Most borrowers don’t want to walk from their debt. They want the deal they were sold on by the banks — an affordable loan. They didn’t get it because the originators were not acting as banks. The originators were getting paid for signatures not good loans. What is undermining the credit industry is that nobody trusts the creditors and won’t take the deal on hedge products and swaps. It isn’t that the financial world trusts the borrower any more or any less. They don’t trust the banks because they corrupted the loan underwriting process and because it was the banks who screwed up real estate title and obscured the ownership of loans thus freezing the once liquid credit markets that were running very well on the Uniform Commercial Code. Now we are parsing words and splitting hairs — what is a possessor, holder, holder in due course, what is the effect of fabricated loans, assignments, substitutions, notices, auctions, credit bids, deeds and evictions? If you want confidence in the credit markets restored, we must show that we can control the banks so they can’t do this again.

The main reason everyone should support principal correction is that it is a correction. The values used were pure fabrication created to induce pension funds to throw money down a rabbit hole called a “REMIC POOL” and to induce the homeowner into thinking that he was getting the deal of a lifetime. That was fraud. And in this country when someone is defrauded we take the bounty away from the perpetrators and return it to the victims.

Student Loans Non-Dischargeable? — NOT SO FAST

If the government guarantee was waived in whole or in part, which I am sure is the case, then the rationale for non-dischargeability disappears. So I am suggesting that the assumption that the student loan is non-dischargeable should be challenged based upon the individual facts of your student loan. If it was securitized and it most likely was, then the party seeking to enforce the debt must prove that the government guarantee still applies. Otherwise it should be treated like any other unsecured debt.

—————————-

Editor’s comment: Fact: Nearly all finance was securitized and still is. Ron Lieber talks below about efforts to change the law so student loans could be dischargeable in bankruptcy. Good idea. But I’m not so sure it is necessary to change the law.

The entire student loan structure, as President Obama has pointed out, is just plain wrong. Somehow loans that were provided by government anyway became guaranteed by government and then actually “funded” by banks. The banks could charge whatever interest they wanted, which frequently rose to usurious levels and if the student didn’t pay, then the government did, which is the way it was before they let private banks into the mix.

The effect was to burden students with loans that were impossible to pay off given the economic context of unemployment, underemployment and stagnant median income. So the prospective students frequently put off the education or avoided it entirely because the economics did not make sense. Those that did take the plunge are “underwater” just like U.S. Homeowners all because of financial chicanery.

To top things off they made student loans —- private student loans — non-dischargeable in bankruptcy. The theory was that since the government was doing students the favor of providing a guarantee of the loans, the loans would be more available, thus increasing liquidity in the student loan market. Since the net effect was a gusher of money pouring into private banks from the pockets of students, marketing efforts (including payoffs in student adviser facilities on campus) did in fact  lure students into these ridiculous arrangements.

Enter securitization: Since the private bank was guaranteed against loss, this provided the rationale for this lock-up system enslaving students before their careers even begin. But virtually ALL private banks were simply paid a fee for fronting the marketing of the loan which was funded with investor money because the loans were securitized before they were ever granted and thus the money and the risk was already resolved before the “underwriting” of the loan.

Like the mortgage loans, underwriting standards were dropped completely in favor of parameters set by Wall Street. The appearance of underwriting was preserved, but like mortgages, not very well. Like the mortgages, credit enhancements were added to the mix adding co-obligors right in the pooling and servicing agreements and assignments and assumption agreements, including insurance, credit default swaps etc.

Thus the “lender” that originating the Loan was what? A pretender lender whoa advanced no funds or capital of their own. Since the originating lender made the election of laying off the risk into slices and pieces and credit enhancements, they, in my opinion, waived the government guarantee.

If the government guarantee was waived in whole or in part, which I am sure is the case, then the rationale for non-dischargeability disappears. So I am suggesting that the assumption that the student loan is non-dischargeable should be challenged based upon the individual facts of your student loan. If it was securitized and it most likely was, then the party seeking to enforce the debt must prove that the government guarantee still applies. Otherwise it should be treated like any other unsecured debt.

————————————————

June 4, 2010

Student Debt and a Push for Fairness

By RON LIEBER

If you run up big credit card bills buying a new home theater system and can’t pay it off after a few years, bankruptcy judges can get rid of the debt. They may even erase loans from a casino.

But if you borrow money to get an education and can’t afford the loan payments after a few years of underemployment, that’s another matter entirely. It’s nearly impossible to get rid of the debt in bankruptcy court, even if it’s a private loan from for-profit lenders like Citibank or the student loan specialist Sallie Mae.

This part of the bankruptcy law is little known outside education circles, but ever since it went into effect in 2005, it’s inspired shock and often rage among young adults who got in over their heads. Today, they find themselves in the same category as people who can’t discharge child support payments or criminal fines.

Now, even Sallie Mae, tired of being a punching bag for consumer advocates and hoping to avoid changes that would hurt its business too severely, has agreed that the law needs alteration. Bills in the Senate and House of Representatives would make the rules for private loans less strict, now that Congress has finished the job of getting banks out of the business of originating federal student loans.

With this latest initiative, however, lawmakers face a question that’s less about banking than it is about social policy or political calculation. At a time when voters are furious at their neighbors for getting themselves into mortgage trouble, do legislators really want to change the bankruptcy laws so that even more people can walk away from their debts?

There are two main types of student loans. Under the proposed changes, borrowers would remain on the hook for federal loans, like Stafford and Perkins loans, as they have been for many years. To most people, this seems fair because the federal government (and ultimately taxpayers) stand behind these loans. There are also many payment plans and even forgiveness programs for some borrowers.

In 2005, however, Congress made the bankruptcy rules the same for the second kind of debt, private loans underwritten by profit-making banks. These have no government guarantees and come with fewer repayment options. Undergraduates can also borrow much more than they can with federal loans, making trouble more likely.

Destitute borrowers can still discharge student loan debt if they experience “undue hardship.” But that condition is nearly impossible to prove, absent a severe disability.

Meanwhile, the volume of private loans, which are most popular among students attending profit-making schools, has grown rapidly in the last two decades as students have tried to close the gap between the rising price of tuition and what they can afford. In the 2007-8 school year, the latest period for which good data is available, about one third of all recipients of bachelor’s degrees had used a private loan at some point before they graduated, according to College Board research.

Tightening credit caused total private loan volume to fall by about half to roughly $11 billion in the 2008-9 school year, according to the College Board. Tim Ranzetta, founder of Student Lending Analytics, figures it fell an additional 24 percent this last academic year, though his estimate doesn’t include some state-based nonprofit lenders.

There is no strong evidence that young adults would line up at bankruptcy court in the event of a change. That gives Democrats and university groups hope that Congress could succeed in making the laws less strict.

In Congressional hearings on the efforts to change the rule, last year and then in April, no lender was present to make the case for the status quo. Instead, it fell to lawyers and financiers who work for them. They made the following points.

BANKRUPTCIES WOULD RISE At the April hearing, John Hupalo, managing director for student loans at Samuel A. Ramirez and Company, made the most obvious case against any change. “With no assets to lose, an education in hand, why not discharge the loan without ever making a payment to the lender?” he said.

Once you set aside this questionable presumption of mendacity among the young, there are actually plenty of practical reasons why not. “People don’t like to go through bankruptcy,” said Representative Steve Cohen, Democrat of Tennessee, who introduced the House bill that would change the rules. “It’s not like going to get a milkshake.”

Andy Winchell, a bankruptcy lawyer in Summit, N.J., likens student loan debt to tattoos: They’re easy to get, people tend to get them when they’re young, and they’re awfully hard to get rid of.

And he would remind clients of a couple of things. First, you generally can’t make another bankruptcy filing and discharge more debt for many years. So if you, in essence, cry wolf with a filing to erase your student loans, you’ll be in a real bind if you then face crushing medical debt two years later.

Then there’s the damage to your credit report. While it doesn’t remain there forever, the blemish can have an enormous impact on young people trying to establish themselves with an employer or buy a home.

Finally, you’re going to have to persuade a lawyer to take your case. And if it seems that you’re simply shirking your obligations, many lawyers will kick you out of their offices. “It’s not easy to find a dishonest bankruptcy attorney who is going to risk their license to practice law on a case they don’t believe in,” Mr. Winchell said.

Sallie Mae can live with a change, so long as there’s a waiting period before anyone can try to discharge the debts. “Sallie Mae continues to support reform that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay their student loans over a five-to-seven-year period and still experience financial difficulty,” the company said in a prepared statement.

While there is no waiting period in either of the current bills, Mr. Cohen said he could live with one if that’s what it took to get a bill through Congress. “Philosophy and policy can get you on the Rachel Maddow show, but what you want to do is pass legislation and affect people’s lives,” he said, referring to the host of an MSNBC news program.

BANKS WOULDN’T LEND ANYMORE Private student loans are an unusual line of business, given that lenders hand over money to students who might not finish their studies and have uncertain earning prospects even if they do get a degree. “Borrowers are not creditworthy to begin with, almost by definition,” Mr. Hupalo said in an interview this week.

But banks that have stayed in the business (and others, like credit unions, that have entered recently) have made adjustments that will probably protect them far more than any alteration in the bankruptcy laws will hurt. For instance, it’s become much harder to get many private loans without a co-signer. That means lenders have two adults on the hook for repayment instead of just one.

BORROWING COSTS WOULD RISE They probably would rise a bit, at least at first as lenders assume the worst (especially if Congress applies any change to outstanding loans instead of limiting it to future ones). But this might not be such a bad thing.

Private loans exist because the cost of college is often so much higher than what undergraduates can borrow through federal loans, which have annual limits. Some lenders may be predatory and many borrowers are irresponsible, but this debate would be much less loud if tuition were not rising so quickly.

So if loans cost more and lenders underwrite fewer of them, people will have less money to spend on their education. Some fly-by-night profit-making schools might cease to exist, and all but the most popular private nonprofit universities might finally be forced to reckon with their costs and course offerings.

Prices might come down. And young adults just getting started in life might be less likely to face a nasty choice between decades of oppressive debt payments and visiting a bankruptcy judge before starting an entry-level job.

%d bloggers like this: