US Bank Antics versus Their Own Website

Editor’s Note: In answer to the many inquiries we get, I am ONLY licensed in the State of Florida. The reason you see my name pop up in other states is that I am frequently an expert witness and trial consultant on cases, working for the lawyer who is licensed in that state. My law firm, Garfield, Kelley and White provides direct representation in most parts of Florida and litigation support to lawyers in Florida and other states.

Many lawyers are now well versed enough to proceed with only a little help from us. But some need our templates, drafting and scripts for oral argument of motions and other court appearances. I have not appeared pro hac vice in any case thus far and I doubt that I will be able to to do so. So if you want litigation support for your cases, the lawyer should contact my office at 850-765-1236. If you are unrepresented it will be much more challenging to provide such support as it might be construed as the unauthroized practice of law.

 

US Bank is popping up all over the place as the Plaintiff in judicial actions and the initiator of foreclosures in non- judicial states. It is one of the leading parties in the shell game that is mistaken for securitization of loans. But on its own website it admits against the interests that it has advanced in courts across the country, that it has NO POWER TO FORECLOSE or to pursue any other remedies.

US Bank pops up as the foreclosing party as trustee for some supposedly securitized asset pool masquerading as a REMIC trust ( which we all know now was breached in virtually every way, which is why the IRS granted a one year amnesty for the trusts to get their acts together — an action of dubious legality).

Both US Bank and the the Pooling and Servicing Agreement will usually state flat out that the servicer makes all decisions and takes all actions relating to the borrower and the borrower’s payments. There are several reasons for this one of which is the obvious conflict that could occur if the the servicer and the trustee were both bringing foreclosure actions.

But the other reason, the hidden one, is that the banks want to keep the court’s attention on the borrower’s contract and keep it away from the lender’s contract which is quite different than the borrower’s contract. And THAT will invite inquiry as to how or even if the two contracts are related or connected such that the mortgage encumbrance gives rights to the trust beneficiaries such that the collection and foreclosure efforts will inure to the benefit of the trust beneficiaries in the REMIC trust.

So why is US Bank violating both the content and intent of the PSA and its own website? In my own law firm I have two entirely different foreclosure cases — one in which US Bank is the foreclosing party and the other where the servicer started the foreclosure action. Both loans are claimed to be in the same trust although one is in California and the other is in Florida. Why would Chase bank as servicer started an action? Even worse, why did Chase bank start the action as though it was the creditor and claim that there was no securitization? [In the Florida case I am lead counsel whereas in the California case I am only an expert witness and consultant].

I am not sure about the answers to these questions but I have some conjectures.

In the Florida case, US Bank is bringing the case because the servicer can’t — it knows and its records show non-stop servicer advances to the trust beneficiaries of the REMIC trust that supposedly was funded and who purchased or originated the loans in the trust. In the California case, even though the servicer advances are still present it is non-judicial so it is easier for Chase to slip by without even pausing because unless the homeowner brings a legal action to stop the foreclosure sale it just happens. And then it is over.

But Chase is treading on thin ice here which is why it is now transferring the servicing rights —- and therefore the rights to litigate — to SPS who did not make the servicer advances. Of course the servicer advances are probably actually paid by the broker dealer who is holding the money of the trust beneficiaries without THEM knowing that the broker dealer has not used their money entirely for mortgage loans — and instead took a large chunk out as a “trading profit” when it was a tier 2 yield spread premium that should have been disclosed at closing.

One of the more interesting questions is whether the modification or refi of the loan renews the effect of TILA violations thus enabling the borrower to claim the undisclosed compensation, treble damages, interest and attorney fees. A suggestion here about that — most lawyers are ignoring the damage aspect of these cases and seeing the TILA has a defined statute of limitations that appears to have run. I would take issue as to whether it has in fact run, but even more importantly there is still an action for common law fraud unless blocked by a separate statute of limitations. The extra profits collected by those entities in the cloud of parties who served in various roles in the securitization process are all fair game for recovery or set-off against the amount claimed as due as principal of the loan. It can also be used to cause severe collateral damage — literally — because it would probably reveal that the mortgage encumbrance was never perfected by completion of the loan contract.

Both Chase and US Bank are going into bankruptcy courts in Chapter 11 proceedings and demanding adequate protection payments while the bankruptcy is proceeding, knowing and withholding the fact that the creditor is being paid every month and there is no default from the creditor’s point of view. This would be important information for the debtor in possession and the his attorney and the Judge to know. But it is withheld in the hope that the borrower/debtor will never discover the truth — and in most cases they don’t, unless they get a loan level account report based upon a solid securitization report which is based upon a good title report. see www.livingliesstore.com.

Both US Bank and Chase are wiling to endure awards of sanctions for misleading the court as a cost of doing business because the volume of complaints about their illegal and fraudulent activities is nearly zero when compared with the total of all state court, federal court and bankruptcy actions. But now they are treading on even thinner ice — they are seeking to get turnover of rents with people who own multiple properties. Their arrogance apparently overcame their judgment. The owners of multiple properties frequently have substantial resources to litigate against the US Bank and Chase and now SPS. The truth is coming out in those cases.

Other Banks who say they are trustees simply direct the borrower or other inquirers to the servicer. But where US Bank is involved it is seeking profit at the expense of the trust beneficiaries and the owners of the real property involved. It seems to me that US Bank has gotten too cute by half and is now exposed to multiple actions for fraud. And I question whether the current revelations about US Bank BUYING the position of trustee has any legal support. I don’t think it does — not in the PSA, not in the statutes nor under common law.

SEE US Bank Role-of-Trustee-Sept2013

OCC: 13 Questions to Answer Before Foreclosure and Eviction

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. 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.

SEE ALSO: http://WWW.LIVINGLIES-STORE.COM

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 Note: Some banks are slowing foreclosures and evictions. The reason is that the OCC issued a directive or letter of guidance that lays out in brief simplistic language what a party must do before they can foreclose. There can be little doubt that none of the banks are in compliance with this directive although Bank of America is clearly taking the position that they are in compliance or that it doesn’t matter whether they are in compliance or not.

In April the OCC, responding to pressure from virtually everyone, issued a guidance letter to financial institutions who are part of the foreclosure process. While not a rule a regulation, it is an interpretation of the Agency’s own rules and regulation and therefore, in my opinion, is both persuasive and authoritative.

These 13 questions published by OCC should be used defensively if you suspect violation and they are rightfully the subject of discovery. Use the wording from the letter rather than your own — since the attorneys for the banks will pounce on any nuance that appears to be different than this guidance issued to the banks.

The first question relates to whether there is a real default and what steps the foreclosing party has taken to assure itself and the court that the default is real. Remember that the fact that the borrower stopped paying is not a default if no payment was due. And there is no default if it is cured by payment from ANYONE after the declaration of default. Thus when the subservicer continues making payments to the “Creditor” the borrower’s default is cured although a new liability could arise (unsecured) as a result of the sub servicer making those payments without receiving payment from the borrower.

The point here is the money. Either there is a balance or there is not. Either the balance is as stated by the forecloser or it is not. Either there is money due from the borrower to the servicer and the real creditor or there is not. This takes an accounting that goes much further than merely a printout of the borrower’s payment history.

It takes an in depth accounting to determine where the money came from continue the payments when the borrower was not making payments. It takes an in depth accounting to determine if the creditor still exists or whether there is an successor. And it takes an in depth accounting to determine how much money was received from insurance and credit default swaps that should have been applied properly thus reducing both the loan receivable and loan payable.

This means getting all the information from the “trustee” of the REMIC, copies of the trust account and distribution reports, copies of canceled checks and wire transfer receipts to determine payment, risk of loss and the reality of whether there was a loss.

It also means getting the same information from the investment banker who did the underwriting of the bogus mortgage bonds, the Master Servicer, and anyone else in the securitization chain that might have disbursed or received funds in connection with the subject loan or the asset pool claiming an interest in the subject loan, or the owners of mortgage bonds issued by that asset pool.

If the OCC wants it then you should want it for your clients. Get the answers and don’t assume that because the borrower stopped making payments that any default occurred or that it wasn’t cured. Then go on to the other questions with the same careful analysis.

http://www.businessweek.com/news/2013-05-17/wells-fargo-postpones-some-foreclosure-sales-after-occ-guidance

/http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/correcting-foreclosure-practices.html

Foreclosure Review Process Handed Over to the Banks

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What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Comment: Along with members of Congress and millions of homeowners I remain deeply disappointed in the failure of the Obama administration to grapple with the mortgage meltdown. The current path will lead to more of the same and it never does anything but escalate when somebody gets away with theft, fraud and PONZI schemes.

The prior so-called “review” process involved people who were neither independent nor skilled nor trained to find wrongful practices and the damage caused by those wrongful practices. They were given inadequate information by the banks who continue to hide the fake securitization scheme and PONZI scheme.

The agencies are complaining that it takes too long to process the review. Let’s see. If John Jones was foreclosed by somebody who had no right to do so on a loan that was unsecured and paid down to zero, and then he was evicted, just how long is too long for the agency to slam the offending bank? Are you kidding? What kind of double-standard are we setting up here? If I do it, I go to jail. But if a bank does it then it is an error and here is $2,000 for your trouble. Now under the new settlement agreement, if I do it, the agency is telling me to determine whether I committed a crime or civil theft. Yeah, I’ll get right back to you on that.

Obama and his administration continue to buy into the bank myth that these were bad lending practices instead of being intentional acts of fraud, theft, forgery and fabrication. They still think the loan receivables are “out there” somewhere but they have no evidence to substantiate that belief because there isn’t any. Those loan balances were paid down long ago.

The plain truth is right in front of them and there is no good reason to say that this task is too onerous for the regulators so we are just going to turn it over to the banks that were guilty of the wrong-doing. Does ANYONE really think that a bank is going to review its files and declare that a terrible injustice has been done?

Everything is tied to this mortgage mess. Consumers have been slammed with most of their wealth siphoned off by banks who were acting intentionally to screw the pension funds and the people who rely on those pension funds. The loan balances, if adjusted to reflect payments by insurance, credit default swaps and bailouts — all promised to the investors — are far less than anything demanded and in many cases are zero.

Nobody wants to give a windfall to the homeowner and nobody wants to give a windfall to the banks. But our government has decided that between the two, the banks ought to get it in order to preserve stability in the financial system. The stability of the financial system is, in my opinion, secondary to the stability of our economy. Our debt and deficits collectively and individually are all tied to the wrongdoing of about 2 dozen banks.

And I strongly disagree with the notion that the break-up of the mega banks will destabilize the financial system. When the dust clears, we simply won’t have banks that are too big to regulate, as shown in this review process. There is no evidence that clawing back the money for the pension funds that invested in fake mortgage bonds issued by fake investment pools will destabilize anything except the lives of some people who really need to go to jail.

Quite the contrary, putting the money back where it belongs with the pension funds and doing an accounting for the money in and the money out related to these mortgages will produce mortgage balances, without “forgiveness” that are far lower than demanded in foreclosure or end of month statements. Underwater homes will be a thing of the past, and mortgage payments can be adjusted to the real balances enabling the consumers in a consumer driven economy to spend.

Justice is more in this case than simply doing the right thing. It is a fiscal stimulus that does not cost one dime. If we can spend a trillion dollars on a war for the security interests of our country, then why can’t we spend 1/10 of 1% of that amount on following the money trail and determining the identity of the stakeholders, the amount of their stake and the terms of repayment?

The precedent here is dangerous. If “I am too important to go to jail” actually works as a defense, then we have changed the rule of law in ways that will haunt us for hundreds of years.

Agencies Give Up and hand the Mortgage Mess Over to the Banks to Resolve

BULK SALES OF MORTGAGE LOANS: WHAT ARE THEY BUYING?

Wall Street is gearing up to buy properties en masse from Fannie, Freddie and other holders (including the Federal Reserve. The question for these investors is what are they buying and what are they doing?

I think these sales represent an attempt to create a filler for an empty hole in the title chain. we already know that strangers to the transaction were submitting credit bids at rigged auctions of these properties. The auctions were based upon declarations of default and instructions from a “beneficiary” that popped up out of nowhere. The borrowers frequently contested the sale with a simple denial that they ever did business with the forecloser and that the chain of “assignments” were fabricated, forged, robo-signed, surrogate signed and executed by unauthroized people on behalf of unauthroized entities.

The reason the banks and servicers resorted to such illegal tactics was that they understood full well that the origination documents were fatally defective and they were papering over the defects that continually recited the validity of the preceding documents. That is putting lipstick on a pig. It is still a pig.

While apparently complex, the transaction in a mortgage loan is quite simple — money is loaned, a note is made payable to the lender and a separate agreement collateralizes the loan as guarantee for faithful performance of repayment in accordance with the terms of the note. An examination of the money trail shows that this procedure was not followed and that the practices followed and which have become institutionalized industry standards lead to grave moral hazard, fabrication, forgery and fraud. The entire matter can be easily resolved if the forecloser is required to produce original documentation and appropriate witnesses to lay the foundation of the introduction of documents starting with the funding of the loan through the present, including all receipts and disbursements relating to the loan.

Since the receipts and disbursements clearly involve third parties whose existence was not contemplated or known at the time of origination of the loan, it would probably be wise to appoint an independent receiver with subpoena powers to obtain full records from the subservicer, Master Servicer, trustee, other co-obligors or co-venturers including the investment bank that sold mortgage bonds and investors with the sole restriction that it relate to the accounting and correspondence, agreements and other media relating to the subject loan and the subject pool claiming to own the loan.

Starting from that point, (knowing all receipts and disbursements, sources and recipients, the rest is relatively uncomplicated. Either the documents follow the money trail or they don’t. If they do, then the foreclosure should proceed. If they don’t then there are discretionary decisions of the court as well as mandatory applications of law that are required to determine whether or not the discrepancies are material.

The chain of documents relied upon by the foreclosing party is neither supported by consideration nor do the origination documents recite the terms of the transaction authorized by the lender. Hence there was no meeting of the minds. At a minimum, the recorded lien is a wild deed or should otherwise be subject to invalidation or removal from county records, and the note should be excluded as evidence of the obligation. The actual obligation runs through a different chain the terms of which were never documented between the lenders and the borrower. Hence at common law, it is a demand loan, unsecured.

But the sale from a GSE or other entity creates yet another layer of paper giving the appearance that the origination documented were valid, even though the evidence strongly points in the opposite direction. The purchase of such loans or properties would thus lead to the inevitable wrongful foreclosure suits in which the property is sought to be returned to its rightful owner, and/or compensatory and punitive damages including damages for emotional distress in California.

So my answer is that these buyers did not buy property or loans. They bought themselves into lawsuits that they will lose once discovery is opened up on the underlying transactions, all of which were faked. Is the government colluding with these “buyers” to fix an fixable title problem?

It’s the title, Stupid!

“What is surprising is the fresh evidence these cases are turning up of cockeyed mortgage practices, during both the boom and the bust. As these matters are adjudicated, perhaps we will finally learn whether these practices were intended or accidental.” — Gretchen Morgenson, NY Times

Editor’s Analysis: Gretchen Morgenson has latched onto the key element of the “securitization” of home loans that was faked to cover a Ponzi scheme in which the largest financial players in the world were pulling all the strings.

While the propaganda would have us believe that the situation is improving, the looming number of decisions from now alerted Judges may well produce a tidal change in the outcome of foreclosure litigation, the value of the bogus mortgage bonds which appear to be worthless from start to finish, and the balance owed on any of the debt issued under the guise of securitization.

Romney and the Republicans, taking their talking points from Wall Street are saying let’s wait until the market “bottoms out.” What people want and could have is a market where prices are going up, not “bottoming out.” Voters do not want to hear that because each year the predictions are the same: the market is finally hit bottom and is recovering, only to be bashed by news of ever-decreasing prices on homes.

The judicial system is where it all happening, albeit at the usual frustrating snails pace that the courts are known for, some of which is caused by the sheer volume through which the banks and servicers, masquerading as note holders push good-looking documents with not a single word of truth recited.

Judges are starting to realize that the issue of the identity of the creditor is important if any of these cases are going to settle or where a modification is the final result.

Under HAMP the servicers and “owners” of the mortgages are required to consider the mortgage modification proposal from borrowers. But they are not doing that, complaining that it is straining their resources and infrastructure since they are not set up for that. Whose fault is that? They took the TARP money and they agreed to modify where appropriate and even get paid for it.

The borrower is left in purgatory with no knowledge of the proper party to whom they can submit a proper proposal for modification, with principal loan r eduction or actually principal loan correction since the original appraisal was false and procured by the bank. Judges like settlements. But they can’t get it if they keep siding with the banks that the identity of the lender and the actual accounting for all money paid in or paid out of the loan receivable account is irrelevant.

The problem is MERS and the entire origination process where the rented name of a payee on the note, the rented name of the lender described in the note and mortgage, and the rented name of the mortgagee or beneficiary was used instead of the actual source of funds.

The second problem is the balance due, on which the servicers and attorneys have piled illegal fees.

The answer is the strategy of deny and discover which is being pursued by alliance partners of livinglies and the garfieldfirm.com. By the way, we are especially ready in South Florida. Call our customer service number 520-405-1688 for details on getting legal representation.

The banks and servicers are pretending that the report from the most recent sub-servicer is sufficient for the foreclosure. That has never been the case. Historically, if a lender felt it needed to foreclose it came to court with the entire loan receivable account starting with the funding and origination of the loan and continuing without breaks, up to and including the date of filing.

The banks and servicers have been steadfast in their stonewalling to prevent the homeowner from knowing the true status of their account, the true identity of the creditor, all of which can be gleaned not from the the records of the subservicer but from the records of the Master Servicer and the “Trustee” of the supposed common law trust which was “qualified” as a REMIC for tax purposes.

An accounting from the Master Servicer and Trustee would lead to the discovery of admissible evidence as to what the real creditor was owed after receipt of all payments, and who the current real creditor might be. After all, they looking for foreclosure and they are taking these properties by “credit bids” instead of paying cash at the auction. Only a creditor whose debt was secured by the mortgage or deed of trust can submit a credit bid.

The truth is that virtually all credit bids that have been submitted are invalid because they were not submitted by a secured creditor. And that leads to an even larger problem for the banks. Those “assets” they are holding on their balance sheet are not just fake, worth zero, they are also offset by a liability to those whose money was taken by the same investment banks that sold bogus mortgage bonds to the investors.

Since those sales were made through elaborate CDOs, CDS and other devices, we have known since 2007, that the reported “leverage” (using investor money) was as much as 42 times the amount of the average loan in the portfolio.

So that loan for $300,000 resulted in a 100 cents on the dollar payoff to banks who had neither funded nor purchased the loans but were representing themselves as the legal holder of the note and thus the obligation.

If the mortgage was invalid, the note was unenforceable because it wasn’t funded by the parties named on the note, and the “assignment,” or other transfer or sale of the “note” were all equally null and void, then the bank that has picked one end of the stick saying the assets on their balance sheet are real, should also have put a contingent liability on their balance sheet for as much as $12 million on the $300,000 loan.

Each time foreclosure is completed, or appears to be completed, that huge liability is wiped out arguably. Then the banks keep the $12 million, and dump the loss on the individual loan on the investors, which is usually some 50%-65% of the loan amount.

THAT is why the banks and servicers are in the business of foreclosure, not modification or settlement. They have no choice. They could owe back all that money they received. It isn’t the loss of $300,000 or some part thereof  they are worried about, it is the liability of $12 million on that loan that they are avoiding.

The political impact of this will be devastating to incumbents not in 2012 but in 2014 when the pension funds, who have already reported they are “underfunded” start slashing pension benefits, thus requiring another round of Federal Bailouts because the government so far has refused to claw back all of the money that was made by the banks and distribute it to the investors and reduce the borrowers balance owed on the “loan.”

Given the above scenario and the widespread use of nominees in lieu of real lenders and real sources of funding, it is highly probable that the title to potentially tens of millions of properties have clouds either because the foreclosure was wrongful or because the wrong party executed the satisfaction of mortgage or both.

And as stated in the previous post, this is not a gift to homeowners. They will owe tax on the elimination of the mortgages and loans because the loans were paid, not forgiven.

It is left-handed way of providing huge principal reductions because of PAYMENT (not forgiveness). With the balance paid, the borrowers must report the claim as a gain paid by co-obligors they never knew existed. With a top tax rate of 35% currently, soon to be 38%, the homeowner will have a tax obligation for no more than the tax rate applied against the balance due on the loan — the equivalent of a loan reduction of 65%-75%, which would satisfy anyone.

Modification proposals from homeowners are much higher than that. The only reason they are rejected is because each modification would transform each loan into the class of “performing” and would materially change the balance sheet of each of the mega banks with adverse consequences for the mega banks and a bonanza for the 7,000 community banks sand credit unions in this country.

But in order to determine the balance due, the accounting must be a total accounting starting from the original funding of the loan right up to the present. When Judges realize that the would-be foreclosers can’t or won’t provide that they will start making the opposite presumption — that it is the banks and servicers that are the deadbeats.

No Loan Receivable Account Exists

Everyone seems to be having trouble with winning these cases outright. I think I have discovered the problem.

Most attorneys start in the middle of things because that is how it comes to them. Basic Contracts Law, first day of law school. For an agreement to be enforceable it must have all three of the these components: offer, acceptance and consideration. You can’t have just an offer, you can’t have just an acceptance, there must be some act that the law recognizes as consideration if the offer is accepted. Absent all three there is no way for a party to enforce an agreement for which there was either no acceptance nor any consideration.

If I loan you $100, you owe me $100 whether you sign a piece of paper or not. I offered to make the loan, you agreed to accept it and pay it back. That is true and presumed to be the reasonable interpretation of any exchange of money or property — that it isn’t a gift. And ALL of that is true whether there is documentation or not.

It is equally true that if I induce you to sign the note under the promise that I will loan you the $100, we have offer and acceptance and evidence of both the offer and the acceptance. But if I don’t give you the $100, there is no consideration and the agreement is not enforceable regardless of whether it is in writing or not. In the real world, I might survive a motion to dismiss or even a motion for summary judgment, but I could never win at trial because I don’t have any evidence that the money was delivered to you in cash, check or wire transfer.

But you are still going to lose and have a judgment entered against you for the $100 if you don’t deny that you ever got the money and you probably should add for good measure that you were fraudulently induced to sign a note when I knew I wasn’t going to give you the money.

The deal signed by most borrowers lacked consideration because the money did NOT come from the party representing itself to be the lender. The offer to the borrower was not the deal that the investor-lender or even the nonexistent trust pool was promised so if could not have been offered that way — with all the securitization parties involved and all their compensation contrary to the requirements of TILA for disclosure, whose purpose is to give the borrower an opportunity to exercise choice and seek a better competing deal in the marketplace. The borrower accepted an offer that was not backed by consideration nor the intent to provide it.

Hence there was no meeting of the minds in the first instance.

If you reverse the analysis and say that it was the borrower who made the offer it gets even worse. 99% of the real applications if they contained the true facts would never have been accepted by any investor or even a bank looking for subprime profits.

Hence the basics of contracts law have not been met – — you might have the argument to say there was an offer, but there are not grounds to say there was or even would have been acceptance if the true facts were known, and the documents signed do not reflect either the offer or the acceptance by the actual investor-lender or even the pool, whose documents were routinely ignored.

The real problem of Wall Street lies in the facts not in theory. They took the money in with complete disregard to the wishes and intent and agreement of the investor lenders and then funded loans from their own accounts that were based upon false premises made both to the investor-lenders and the borrowers. It is the fact that the money came from a Wall Street account rather than an investor account that causes the confusion.

That funding was the consideration — but that was separate from the documentary chain used by the securitizers. You can’t point to consideration “over there” and say that was the consideration you gave in exchange for the note and mortgage unless you can show that “over there” was connected to the documents that were presented to the borrower and signed under false pretenses, creating fraud in the inducement and even fraud in the execution of those documents.

They were “borrowing” the consideration from “over there” and borrowing the identity of the investor-lenders and borrowers to create a monumental shrine to Ponzi schemes in which the total nominal value of the scheme exceed world fiat money by 12 times the actual supply of money. The ONLY was to combat this is to dismantle the fraudulent scheme so that the threat posed by “shadow banking” no longer exists, seizure of the assets illegally obtained, and making whatever restitution is possible to investor-lenders and homeowners, past, present and future.

They did the illegal deals and then had their own people “approve”them and even accept them into non-existing pools without bank accounts. They claimed the loans as their own when it was convenient for them to do so — getting the money for plunging values of the mortgage bonds at 100 cents on the dollar.

Then they dumped what was left of the paperwork over the fence and told the investor NOW the loan is yours and you have a loss. But at all times these banks were merely depository institutions and they were accepting deposits from investor-lenders more or less in the same form as a CD. Their balance sheet did not show a loan receivable. It would have shown a liability for the deposit that was due back to the investor-lender but for them inserting fictitious entities that would take the liability and the loss borrower. In other words a shell game supporting the usual Ponzi scheme scenario.

In a word, they merely substituted the mortgage bond owed by a non-existent entity with no assets for a normal loan receivable account. Thus no loan receivable accounts exists.

Sen. Merkley (Ore) Proposes Principal Correction for 75% of Underwater Homeowners

CREDITORS CAN ONLY GET PAID ONCE

Editor’s Note: If you are news junkie like I am and watch and read everything about the financial markets it is absolutely amazing how everyone seem to be in agreement that we are headed for a financial cliff and nobody wants to do anything about it.

Sen Merkley, with help from local organizers, is proposing a new bill that will require reductions in the principal due on residential loans. This isn’t hard folks, it just takes the guts to say the banks lied and they are still lying to us about the status of the loans, the origination of the loans and the money that has come and gone relating to these loans.

There are two basic reasons  why loan balances should be corrected: (1) simple arithmetic in an accounting and (2) the reality that people are simply not going to make a decision to keep their families enslaved to a mortgage (real or void) that will never justify itself in the marketplace because the original appraisal was artificially and fraudulently inflated.

In the first instance, the banks and servicers must be virtually removed from the equation because they never funded or bought any of these loans but they engaged in selling them as if they were owned by the banks. By taking out insurance, receiving bailouts, receiving proceeds from credit default swaps, just for a few examples, the banks were acting as agents for the investor lenders who were the only actual people to put up cash dollars. All the rest was paper pretending to be worth something.

An accounting from BOTH the Master Servicer and all subservicers will clear up all the money that came in from investors, borrowers and other parties and all the money that went out. We can then determine how much was paid or should have been paid by the banks as fiduciaries or agents of the investors. My analysis of hundreds of loans indicates that the total payments received on behalf of the real creditors was actually more than the obligation owed to that creditor which means that for that creditor, the loan proceeds should be corresponding reduced. That means the notice of default, notice of sale, foreclosure lawsuit are all based upon fake figures that at the very least should be reduced.

Under our laws, if a borrower has been defrauded under these facts, he is entitled to restitution under civil or criminal proceedings, which means that payments of actual money to actual recipients who may or may not have turned the money over to actual investors should be credited to the investor and therefore correspondingly reduce the principal due on loans funded by that creditor. They can only get paid once. If there are excesses that are legal, then I agree that it is an entirely separate matter as to whom that money should go, but to foreclose on a homeowner where the creditor has been entirely or mostly paid is absurd.

The second reason is equally simple as the mere adding and subtraction of a proper accounting. Nobody expects a businessman to languish without income in a failing business. He will walk from it, declaring bankruptcy or otherwise making arrangements with creditors. Somehow this basic principle has been warped, most recently by the renegade DeMarco in a moral hazard if a homeowner reaches the same conclusion. Whether you agree with the moral hazard argument or not, it is a simple fact that people WILL walk from the homes or stay as long as possible without paying a dime to get some of their equity back, if they find themselves in a failed investment that can never recover. It’s going to happen whether you like the idea or not. Better to manage the situation than have homes go without ANY bidding because the value is just too low but the people were kicked out anyway without accepting a loan modification. Those homes are the ones being bulldozed by the tens of thousands across the country.
If any of this makes sense to you, then you work for a bank and you are getting paid very well and expect bonuses despite an economy that is driving toward an economic cliff. You want as much money as possible before catastrophe hits, which is driven almost solely by the financial crisis caused by the use of deriviaties, especially in the mortgage markets — false and faked derivatives that are every bit as fraudulent as the robo-signed, forged and fabricated documents used in foreclosure.

Se. Merkley has cleverly gone the route of securitization to accomplish it so that it might incite the banks to agree and see this as a way of getting out of millions of lawsuits and criminal investigations. But perhaps we give the banks too much credit.

Merkley refi plan could reach 75% of private underwater mortgages

by John Prior, www.housingwire.com

Roughly 75% of underwater mortgages securitized into private-label bonds could be eligible for a refinance under the new plan from Sen. Jeff Merkley, D-Ore., according to analysts at JPMorgan Chase ($35.05 -0.95%).

The proposal would allow a Rebuilding American Homeownership Trust buy underwater mortgages with revenue from government bonds. The trust would be assembled either in the Federal Housing Administration, the Federal Home Loan Banks system or the Federal Reserve.

Principal would be reduced, and the loans would be refinanced into FHA-backed mortgages. The trust would profit off the difference between the interest earned on the new loan and the cost of borrowing money through the bonds, according to the plan.

While Merkley said the program would target roughly 8 million borrowers, bank analysts anticipate less participation.

Roughly 1.2 million nonagency mortgages with loan-to-value ratios above 100% could benefit from the program, according to Chase analysts.

Borrowers would be able to refinance into either a 15-year 4% mortgage, a 30-year fixed-rate mortgage at 5%. Borrowers could also split the new loan into a 30-year fixed on 95% of the property’s value and a “soft second” on the remaining balance, which the borrower wouldn’t have to pay on for five years.

More than three-fourths of these borrowers would choose to split the refinanced loan into a “soft second,” according to analysts.

“Of course there are a lot of details that would need to be ironed out. After all, this is effectively forming (or building upon) another GSE,” Chase analysts said. “While we can see clear benefits for both borrowers and investors, the devil is in the details.”

Banks with large amounts of underwater mortgages would be unlikely to participate. Refinances aren’t like modifications. They must be offered to all borrowers who qualify, and many banks and servicers have been reluctant to write down principal for delinquent underwater borrowers, let alone current ones.

Borrowers with severely underwater mortgages would likely be shut out. Servicers must reduce principal to at least 140% LTV. In the analysts’ example, a borrower with a $340,000 mortgage at 170 LTV (owes 70% more on the loan than the house is worth) would need $60,000 reduced. Along with an $18,000 risk-transfer fee, the lender would likely lose $78,000 on the deal, and the risk of default would still remain.

Treasury Department Secretary Timothy Geithner testified before the Senate Banking Committee last week that he thought the Merkley plan was a good one and would work with the senator on possibly producing a pilot program, maybe even using unspent Hardest Hit Funds.

Chase analysts estimated that more than 525,000 borrowers with private-label loans could refinance into full 30-year fixed mortgages and save an average $207 per month or $1.3 billion total every year.

Celia Chen, senior director at Moody’s Analytics, said the program would also help borrowers rebuild equity faster and significantly reduce the risk of default.

“Moreover, it would benefit the broader economy, as refinancing frees up cash for consumer spending and generates business for mortgage originators and servicers,” Chen said.

But other questions remain such as selecting a servicer for the RAH Trust loans. It also remains unclear if trusts could participate in the program.

“Clearly, bonds with the highest concentration of current borrowers will benefit the most if this program will reach nonagency trusts,” Chase analysts said. “We expect any pilot program to target bank loans first.”

jprior@housingwire.com

@JonAPrior

THE NEXT MOVE: ACCOUNTING AND RECEIVERSHIP

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SERVICE 520-405-1688

TWO SETS OF CLOSING DOCUMENTS REQUIRES A TOTAL ACCOUNTING FROM INVESTOR DOWN TO BORROWER

The next step is preventing the pretenders from limiting the inquiry to the servicer report which only reflects a small part of the securitization chain. Let’s see ALL the money.
Let’s take a step back and get out of the forest so we can see the trees. As I draw back my perspective into a wider scope, several things become apparent, all of which are documented in one case or another. See today’s Post on the Grossman decision from a year ago for examples.

Zooming out back to 100,000 feet, we see that there were two actual closings and a series of fictitious ones. You should mark each item as relating to one closing or the other, like

  • 1 Deed of Trust  — executed by borrower at closing with homeowner on August 26, 2006, but relates to undisclosed credit/lender in closing with investors that occurred on or about October, 17, 2006 and which was authorized by an general assignment and assumption agreement included in the investor’s closing and prospectus.
  • 2- Substitution of Trustee. Purports to relate to deed of trust (see above) but derives all claimed authority from provisions and actions taken pursuant to provisions of documents that were used at closing with investors.

The point being here that you want the Judge’s head turning left to see the homeowner’s closing documents and right to see the investor closing. Do it a few times until he gets the fact that you have to look at both in order to know the terms of the transaction in which the investors loaned the borrower money. Then you have all the arguments about how the other side failed to attach pertinent documents etc. But more than that —

These cases are about money. And so the Judge is saying to the parties in court—

“Did you borrow the money?” Your answer will be that you’ll be more than happy to answer the question in an evidentiary hearing at which point the same corollary question will be addressed to your opposition: “Did you lend the money?” Neither one is entitled to any presumption other than that an issue of fact arises. If the putative creditor neither loaned the money nor purchased the loan in a real transaction in which they paid for the loan, then the putative creditor is merely a stranger to the transaction as the audit found in the records of San Francisco County.

And for theoretical purposes supposing the answer from the borrower is yes, he did borrow the money but he now knows he never was told (a) the identity of the creditor nor (b) the rest of the terms of repayment contained in the closing with the investor.

“Did you make the payments?” Your answer should be that I made all payments that were due. The parties here owe both me and the lender credits and refunds.

Which brings us to the issue of a cause of action for an accounting and appointment of receiver. The accounting would be for all money received and all monies disbursed including all bookkeeping and accounting entries relating to this loan, directly or indirectly.

The pretenders here would have you believe that they, not this court, have the right to determine, in their sole discretion, how payments are applied. We think that is not the law and never has been the law. If the investor has been credited properly, the debt from the homeowner is correspondingly reduced, which is an express provision contained in the promissory note which, as we have stated, does not describe the actual transaction because it excludes the name of the real lender and it excludes references to the pooling and services agreement which contain many more terms that relate to payment of the investor, credits to the homeowner, and expenses of third parties whose fees are paid by diverting payments from the investor to the vendors.

Since it is apparent that no effort has been made to even create an internal accounting of payments received on behalf of the investors, and there is no desire to do so, it is necessary to appoint  a receiver to collect all information  from all parties that in the closing with the lender and all parties in the closing with the homeowner and render a report as to the current status of the parties, the current status of the debt, when and if the debt was in default, when and if the default was cured and the balance currently due to the creditor after all appropriate debits and credits have been applied — not just payments from the borrower.

Specific questions the receiver should answer are as follows:

  1. Did the homeowner accept a loan?
  2. What was the principal amount of the loan due and what were the main financial provisions regarding repayment of the loan.
  3. What accounting and bookkeeping records, correspondence and instructions were used at closing with the homeowner borrower and how were these records or the data on those records transmitted to any receiver?
  4. What entities received the records and data regarding the closing of this loan and why did they receive it?
  5. Did the named lender on the promissory note actually make the loan — i.e., was a loan receivable created on the books and records of the loan originator? Or, did the originator book the transaction as a fee for standing in as the lender when in fact it was not?
  6. What was the identity of the actual creditor that advanced funds?
  7. Did the party that advanced funds (aggregator) post bookkeeping or accounting entries for the loan as a loan receivable? Or, did the aggregator book the transaction as a fee for standing in as the lender when in fact it was not?
  8. What is the name of the party who booked the subject loan transaction as a loan receivable? What is the current status on the books of that lender as to the loan receivable? What is the date of the entry on the books of the party identified as the lender in the subject transaction who booked the transaction as a loan receivable or any such similar entry indicating that they were owed money to be paid directly or indirectly by the homeowner borrower in this transaction?
  9. At any time since the closing with the borrower has the loan been sold for value received to any other party?

10. At any time since the closing of the transaction with the borrower has the loan been settled with the investors who advanced funds for the subject loan? Who were the parties to that settlement and what were the terms?

11. As to the party who actually loaned the money to the borrower and who claimed it as a loan receivable or equivalent, is there a claim pending upon behalf of that party? If yes, what is the nature of the claim and against which parties does the investor(s) wish to pursue that claim.  How much is the claim relating to the subject loan in this case, as it would be allocated under generally accepted accounting principles as promulgated under the Financial Accounting Standards Board.

12. Does the actual lender in the subject transaction actually exist currently and if not, who are the successors?

13.  What parties in the putative securitization chain or otherwise received any money relating to the pool that claims ownership of the subject loan? How was that money allocated? Was the money paid or allocated to the investors and if not, why not? If the money was paid or allocated to investors, was the balance of the debts due from homeowners borrowers, including the homeowner borrower in the case at bar correspondingly reduced for receipt of those actual or allocated payments? If not, why not?

14. As presented to the investors, was there any part of the investment plan that contemplated holding the money taken from the investors for a use other than funding mortgages and standard industry fees for servicing and brokering the transactions? If there were no loans made or expected to be closed and considered included in the investment pool claiming ownership of the subject loan, do the documents with the investors call for a refund to the investors of all of their money?

15. As presented to the borrowers, was there any part of the loan program that contemplated funding of the loan from any source other than an investor or group of investors?

16.  What is the date that the obligation arose between the borrower and the investor pool?

17. What is the date that the note was transferred to the investor pool? Was the note sold to the investment pool? If so, for how much?  Where are the documents verifying payment and sale of the subject documents.?

18. What was the date that the mortgage was transferred to the investor pool claiming ownership of the subject loan? Was the mortgage sold to the investor pool? If so, for how much?  Where are the documents verifying payment and sale of the subject documents.?

Deutsch Bank Inquiry Reveals Insider Influence by Paulson

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Editor’s Comment: At the end of the day, everyone knows everything. The billions that Paulson made are directly attributable to his ability to instruct Deutsch and others as to what should be put into the Credit Default Swaps and other hedge products that comprised his portfolio. He did this because they let him — and then he traded on what he not only knew, he was trading on what he had done — all to the detriment of the investors who had purchased mortgage bonds and other exotic instruments.
The singular question that comes out of all this is what happened to the money? Judges are fond of saying that there was a loan, it wasn’t paid and the borrower is the one who didn’t pay it. Everything else is just window dressing that can be addressed through lawsuits amongst the securitization participants so why should a lowly Judge sitting in on a foreclosure case mess with any of that?
The reason is that the debt, contrary to the Judges assumption (with considerable encouragement from the banks and servicers) was never owed to the originator or the intermediaries who were conduits in the funding of the loan. The debt was owed to the investor-lender. And those who are attempting to foreclose are illegally inserting themselves into mortgage documentation in which they have no interest directly or indirectly.
If they are owed money, which many of them are not because they waived the right of recovery from the homeowner, it is through an action for restitution or unjust enrichment, not mortgage foreclosure. Banks and servicers are intentionally blurring the distinction between the actual creditor-lender and those other parties who were co-obligees on the mortgage bond in order to get the benefit of of foreclosure on a loan they did not fund or purchase.
So how does that figure in to what happened here. Paulson an outside to the transaction with investors and an outside to the investors in the bogus loan products sold to homeowners, arranges a bet that the mortgages were fail. He is essentially selling the loans short with delivery later after they fail and are worth pennies. But the Swap doesn’t require delivery, so he just gets the money. The fees he paid for the SWAP are buried into the income statement of Deutsch in this case. So it looks like a transaction like a horse-race where you place a bet — win or lose you don’t get the horse and you don’t have to feed him either.
But in order for this transaction to occur, the money received by Deutsch and the money paid to Paulson must be the subject of a detailed accounting. Without a COMBO Title and Securitization search and Loan Level Accounting, you won’t see the whole picture — you only see the picture that the servicer presents in foreclosure which is snapshot of only the borrower payments, not the payments and receipts relating to the mortgage loan, which as we all know were never owned by Deutsch or anyone else because the transfer papers were never executed, delivered or recorded without fabrication and forgery.
Paulson is an extreme case where claw-back of that money will be fought tooth and nail. But that money was ill-gotten gains arranged by Paulson based upon insider information, that directly injured the investor-lenders who were still buying this stuff and directly injured the borrowers who were never credited with the money that either was received by the investor creditors, or should have been received or credited tot hem because the money was received on their behalf.
Once you factor in the third party obligee payments as set forth in the PSA and Prospectus, you will find that we have a choice: either the banks get to keep the money they stole from investors and borrowers, or the money must be returned. If it must be returned, then a portion of that should go to reducing the debt, as per the requirements of the note, for payment received by the creditor, whether or not it was paid by the borrower.
BOTTOM LINE: Securitization never happened. And the money that was passed around like a whiskey bottle (see Mike Stuckey’s article in 2009) has never been subject to an accounting. Your job, counselor, is not to prove that all this true, but to prove that you have a reasonable belief that the debt has been paid in whole or in part to the creditor and that the default doesn’t exist. This creates the issue of fact that allows you to proceed the next stage of litigation, including discovery where most of these cases settle. They settle because the intermediaries who are bringing these actions are doing so without authority or even interest from the investor-creditors.
What is needed, is a direct path between investor creditors and homeowners debtors to settle up and compare notes. This is what the banks and servicers are terrified about. When the books are compared, everyone will know how much is missing, that the investors should be paid in full and that the therefore  the debt does not exist as set forth in the closing papers with the borrower. Watch this Blog for an announcement for a program that provides just such a path — where investors and borrowers can get together, compare notes, settle up, modify or mediate their claims, leaving the investors in MUCH better position and a content homeowner who no longer needs to fear that his world, already turned upside down, will get worse.
It may still be that the homeowner borrower has on obligation, but it isn’t to the creditor that loaned the money that funded the mortgage loan. Any such debt is with a third party obligee whose cause of action has been intentionally blurred so that the pretenders can pretend that they have rights under a mortgage or deed of trust in which they have no interest on a deal where they was no transfer or sale.

SEC looks into Deutsche Bank CDO shorted by Paulson

Tuesday, January 31, 2012
Deutsche Bank is facing an SEC investigation for its role in structuring a synthetic CDO, according to a report by Der Spiegel. The German publication states that the bank’s actions in raising a CDO under its Start programme will come under question after it allegedly allowed hedge fund Paulson to select assets to go into the fund. The bank is then said to have neglected to have told investors about Paulson’s role in the transaction as well as concealing the fact that the hedge fund had taken a short position on the assets, allowing it to profit as the deal collapsed.
According to the article, Goldman Sachs settled a similar case with the SEC for $500 million regarding Goldman’s role in arranging an Abacus CDO.

 

Schack bangs HSBC for False Paperwork

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EDITOR’S NOTE: Plausible deniability went out the window as HSBC tried to get out of the consequences for submitting false, fabricated papers to the court in support of a fraudulent foreclosure. They tried to say they didn’t know. Schack didn’t buy it and slapped them with a $10,000 fine.

But the real story is yet to be told. We are getting closer to the real question, yet the inquiry into WHY false papers are being submitted on such a widespread basis has not occurred. This is the industry that practically invented dotted i’s and crossed t’s. They processed tens of millions of mortgages just the way they wanted them without error. Now they are claiming that they messed up the paperwork because of the same volume that they processed without a problem. And they are layering the responsibility by outsourcing the fabrication, forgery and fraud.

THE REAL ANSWER: When we get to the point where the question is asked and answered, it will unravel the entire securitization scam and it will be obvious that although the MONEY was treated as though the loans were securitized, the DOCUMENTS were not. Why would they do that? To cover up the money they were skimming from the investor dollars that were advanced for funding mortgages but instead were used to pay fees to the investment bankers and their cohorts.

In order to give the appearance of selling the loan over and over again, and in order to create “trading” activity that would  justify the profits and fees they were taking without the knowledge of either the investor or the borrower, they needed a gap — a vacuum that they would fill with bogus transactions which gave them the lions share of the pot created by the sale of bogus mortgage backed securities that were in fact, not backed by mortgages and were in fact not transferred into the pools.

But none of those extra transactions fit in with the documentary scheme required by law for mortgages and none of them conform to the documentary requirements in the pooling and servicing agreement. So they filled the gap, for purposes of foreclosure with fabricated, forged, fraudulent documents that refer to transactions and payments that never occurred.

A FULL accounting will easily show that the alleged transfers of the loan obligation were never the basis for payment between the transferor and transferee. A FULL accounting will show that the most of the loans have been paid down further than any required principal reduction. It will show that the past foreclosures were fraudulent, the sale of bonds to investors were fraudulent, and that the new ones coming up are equally baseless and without merit.

HSBC like ‘know nothing’ Sgt. Schultz from ‘Hogan’s Heroes,’ Brooklyn judge says Blames bank in foreclosure errors

Blames bank for foreclosure errors

BY John Marzulli
NEW YORK DAILY NEWS

Originally Published: Wednesday, December 28 2011, 3:12 PM
Updated: Wednesday, December 28 2011, 7:16 PM

John Banner in his role as the dim  Sgt. Schultz on ‘Hogan’s Heroes.’

Courtesy Everett Collection

John Banner in his role as the dim Sgt. Schultz on ‘Hogan’s Heroes.’

A Brooklyn judge ridiculed HSBC’s “know nothing” defense for filing a false document in a foreclosure case and slapped the bank with the maximum $10,000 penalty.

“HSBC sounds like … Sgt. Schultz in the classic 1960s television comedy, ‘Hogan’s Heroes,'” Supreme Court Justice Arthur Schack wrote in a Dec. 22 decision made public Wednesday.

“The inept Sgt. Hans Schultz … would feign ignorance about the escapades of his Allied prisoners by telling his commandant, Col. Klink, ‘I know nothing! Nothing!'”

HSBC had incurred Schack’s wrath earlier this year when he caught its lawyers submitting documents filed by “robo-signers” purporting to work for the bank who were were actually employed by a loan servicing firm.

Bank officials and their lawyers are required to review and verify the accuracy of filings in foreclosure cases under regulations issued by state Chief Judge Jonathan Lippman.

Later, a bank senior vice president submitted a sworn affidavit claiming HSBC had no knowledge of the mortgage in question and blamed the fiasco on the loan servicer.

But Schack, whose blistering and colorful opinions from the bench have made him a folk hero for financially troubled homeowners — said HSBC is responsible for the actions of its agents.

The ticked-off judge also docked the bank’s Rochester-based law firm $5,000 for its conduct in the matter, according to court papers.

The judge had ordered HSBC President and CEO Irene Dorner to appear at a hearing last July, but she blew it off.

“She was missing in action, demonstrating her personal contempt for the Supreme Court of the State of New York,” Schack fumed.

A representative for the law firm Shapiro DiCaro & Barak said it is appealing Schack’s decision.

Bank spokesman Neil Brazil said HSBC neither serviced the loan nor “prepared nor filed any of the underlying legal documents presented to the court.”

The tumult stemmed from homeowner Ellen Taher‘s delinquent mortgage on her Bedford-Stuyvesant, Brooklyn, residence.

jmarzulli@nydailynews.com


Read more:
http://www.nydailynews.com/news/national/hsbc-sgt-schultz-hogan-heroes-brooklyn-judge-article-1.997923#ixzz1hwNKkgj2

 

Bank Auditors on Hot Seat Over Mortgage Accounting

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EDITOR’S ANALYSIS: Seems boring, doesn’t it. All those numbers and columns. But here is actually where the rubber meets the road because the difference between what the banks  SAID they were doing and what ACTUALLY happened with the money is the like night and day. And the auditors should have caught it. But they didn’t because like the ratings firms they were paid not to see what was right in front of them.

Like the ratings firms, if they had REALLY done their job there would have been no money from investors, there would have been no crazy guaranteed to fail loans to hapless homeowners who didn’t understand the traditional loan papers, much less ones designed for use in securitization. The absence of loans receivable would have been one clue that the banks were not taking losses on defaulted loans. It would have also alerted the auditors that a pile of liability was mounting because the the profits and fees for “selling” (“trading”) on investor money were outsized by any standards compared to prior deals. They would have questioned whether those were indeed profits and fees, or just money owed to the investors.

I could give a long list. The point is that the actual financial health of the Banks was misrepresented to shareholders, to the public, to people trading in the stocks of these Banks, to investors buying the bogus mortgage bonds and other ‘bonds” “securing” other types of consumer debt. It also is the final nail in the coffin as to disclosures that should have been made to borrowers as to who they were doing business with and whether the firm was acceptable to them.

For one thing, borrowers, in a transparent world, would have been told, pursuant to the requirements of the Federal Truth in Lending Act, something like “we have no interest in whether or not you pay on this obligation. In fact, we are being paid a fee and making profits based upon your signature and we are using your identity to sell securities to investors all over the world. The amount we are making on your particular loan is 300% of the actual loan amount. Your loan is $200,000.

“The fees, commissions and trading profits that are assured upon your signature are $600,000 and if you do not make payments, we will get even more from insurance, credit default swaps, over-collateralization, cross collateralization, and other credit enhancements.

“No underwriting committee and thus no underwriting procedures exist for granting loans. The sole basis for granting and funding a loan is whether the initial payment conforms with standards set by Goldman Sachs. The value of your property has not been determined. The appraiser has been given instructions as to the contract amount and is further instructed to certify a value $20,000 higher than the amount needed to close the transaction.

“No confirmation of property values, income or viability of the loan has been undertaken by anyone. The party to whom you have promised to pay this obligation did not loan you the money, and is not empowered to issue a satisfaction of mortgage since the obligation is actually owned by a third party, whose name is Goldman Sachs. The investors who advanced funds from which your loan was funded have already taken a substantial loss because Goldman Sachs has diverted money that was intended to fund loans and instead re-categorized them as trading profits. Please sign below to acknowledge that you have received full disclosure, and you may have your loan.”

Ok, we all know THAT didn’t happen. So what does that mean for borrowers? Besides the obvious question mark it puts after the words “amount due” it also raises the issue of whether the auditing firms, in addition to facing liability to investors and shareholders, might have liability to borrowers who were mislead by the financial practices of the investment banks and therefore about the viability of their loan, and the accounting for payments made on account of the obligation owed to the creditors (investors).

Proper accounting would have required that payments received and passed around like a whiskey bottle should have been credited to the borrowers’ obligations and correspondingly reduced those obligations as well as reducing the obligation owed to the investors because — they received PAYMENT.

The Banks take the position that since they stole the money fair and square from the investors that the investors obligation should not be reduced by the amount the banks received for the investors but not distributed to them. I disagree. And if the auditors had done their job, the borrowers would have learned the true balance due, if any, under the obligation that arose when their obligation began (and possibly ended) at their closing.

Audit Flaws Revealed, at Long Last

By

With hindsight, we now know that auditors in 2007 should have been looking carefully at bank books.

They should have drilled into allowances for loan losses, and they should have been especially alert for signs that the banks were playing games when they sold loans. Auditors should have carefully reviewed how the banks were valuing their mortgage-backed securities and loans that they planned to sell.

It won’t surprise you to learn that in at least one case, the auditor seems to have done a pretty poor job.

What may be surprising is that the Public Company Accounting Oversight Board figured that out at the time, and was harshly critical of Deloitte & Touche, one of the Big Four audit firms, for not doing the work to check assumptions in those areas and for being overly reliant on whatever the bank’s management said was proper.

Those comments were made after the board’s inspectors reviewed Deloitte’s audit of a bank’s 2006 results, as part of the annual inspection of the firm. The inspection of 61 Deloitte audits concluded in November 2007.

Had the auditor taken the criticism to heart, it might have gone back in and checked more thoroughly.

But it did not.

The bank was not named in the report, even in the previously confidential part released this week.

I thought it might have been Washington Mutual, a Deloitte client that collapsed in September 2008, but Deloitte says that was not the case.

Deloitte, in its response to the board, stated that at the bank, “the audit procedures performed, the conclusions reached and the related documentation were appropriate in the circumstances.”

In other words, Deloitte concluded the board simply did not understand what it was talking about.

All that became public in early 2008, when the censored version of the board’s report became public. But it was little remarked on at the time. Now we have seen the rest of the report, and it is even more critical.

The report said its inspections indicated “a firm culture that allows, or tolerates, audit approaches that do not consistently emphasize the need for an appropriate level of critical analysis and collection of objective evidence, and that rely largely on management representations.”

Deloitte responded by denying almost everything. It did not like the “second guessing” shown by the regulators. It said “we strongly take exception” to the observation about its culture, which it said was simply wrong.

In any case, the firm concluded, “there were only a limited number of instances,” not nearly enough to justify questioning Deloitte’s quality controls.

The board inspectors found problems in 27 of the 61 Deloitte audits.

The Sarbanes-Oxley law that established the board included provisions to protect the public images of audit firms. If a board inspection found problems with the quality control systems, that was to be kept confidential unless the firm did not move to fix the problems over the following year. Then the release could be delayed while the firm tried to persuade the board to keep the information private. If that effort failed, the firm could appeal to the Securities and Exchange Commission.

Only then could the report be made public. So in this case, it took 41 months from the issuance of the report — more than three years — for Deloitte’s clients to learn of the problem.

The board also has the authority to file enforcement actions against auditors, but those, too, are private until the S.E.C. rules on an appeal. It is as if charges of robbery had to be kept confidential until all appeals had been completed. There is no way to know if the accounting board has taken action against anyone. An auditor that the board deems to be in violation of rules may keep working for years while secret proceedings continue.

Firms have every incentive to stall, and then to say that whatever is being criticized happened years ago.

Deloitte’s current chief executive, Joe Echevarria, tried to sound cooperative in his response this week, and was careful to point out he was new on the job. A Deloitte spokesman said that Barry Salzberg, the chief executive when Deloitte sent the response letter in 2008, was traveling in Asia and unavailable for comment.

Mr. Echevarria emphasized in an interview that the firm was investing in training, and spoke of a desire to be the leader in audit quality.

Until 2002, audit firms were basically unregulated. The board was established in response to the WorldCom and Enron scandals, but all the secrecy has made it hard for outside observers to know how well it is doing. The fact that its inspectors zeroed in on mortgage issues when they did is impressive.

In theory, the board can put a firm out of business, but since the demise of Arthur Andersen reduced the Big Five to what some call the Final Four, there is general agreement that going to three would be unacceptable. So while the board can credibly threaten to close down a small firm that does a dozen or two audits each year, no such threat would be credible for Deloitte or one of the other three major accounting firms.

Contempt for regulators is nothing new in the auditing world. Back in 1999 and 2000, Arthur Levitt, then the chairman of the S.E.C., tried to impose some limited rules to increase the independence of the auditors from the companies whose books they audit. The firms fought back, arguing the S.E.C. had no such authority, and in the end Mr. Levitt got only part of what he was seeking.

In private conversations I had then, chief executives of some firms were resentful of any effort to regulate them. How dare some government bureaucrats question their judgment?

By protesting that it was unfair to criticize Deloitte’s culture, the firm may have spoken volumes about that culture.

In a culture that investors might prefer, a Deloitte partner whose audit failed to pass muster with the board might find that his career prospects had worsened, as others who did better audits were promoted. Imagine if the partner responsible for the audit of that bank had seen his career suffer, or even end.

But the letter makes it appear that Deloitte’s culture was one that pulled together and provided backing for a partner criticized by a picky regulator. Would the culture provide similar backing for a partner who angered a client’s management by forcing changes in financial statements that the company did not like?The secrecy mandated by Congress preserved Deloitte’s reputation for years. Now it may be unfairly raising doubts about other firms. Did others have audit failure rates approaching Deloitte’s 44 percent? Is Deloitte the only one of the Big Four to have failed to fix problems? We don’t know. The accounting oversight board last week said it might require that audit firms disclose the names of partners in charge of each audit. The firms hate the idea, warning it could unfairly damage the reputation of individual auditors who would suffer “guilt by association” if their clients got into trouble. Secrecy about who does the work seems to be a way of life at the Big Four. Deloitte’s letters to the board dismissing its concerns were not signed by anyone other than the firm as a whole. I’d love to know which executives signed off on assuring the board there was no need to look again at that bank’s books, and to ask them if they still held that opinion.Only Congress could change the law to require that full inspection reports be released and to make enforcement actions public when formal charges are filed. But the board could at least require that letters responding to board inspections be signed by real people, and that they carry statements saying the firm’s chief executive had approved the response.

NEW BOA SERVICING DEAL IGNORES LAW AND REALITY

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EDITOR’S ANALYSIS: The latest deal announced by BOA is between the bank and investors because they can’t announce a deal with regulators. Regulators are getting wise to the fact that BOA’s hold on the mortgages that are to be “modified” or “foreclosed” is tenuous at best. As case after case rolls in showing that the would-be forecloser lacks any semblance of ownership or even a financial interest in the mortgages, BOA seeks to enhance the illusion that those mortgages and mortgage bonds are their balance sheet are real. They are not, and the federal government is working hard to ignore the requirements of law and the realities of the money trail, while the states seem to be gearing up for indictments and voiding the so-called transfers of the loans supposedly subject to securitization documents that were routinely ignored.

No deal by BOA, except with homeowners, can ratify the invalid, unenforceable notes and mortgages that memorialized a deal that never took place. No deal can transfer non-performing loans into a pool for investors and no deal can transfer the loans after the cut-off date. There might be money due on the loan, but no deal will establish the amount without a full accounting. There might be money due on the loan, but only to the actual creditor, whose definition is crystal clear but completely ignored by BOA and its partners in crime. There might be money due on the loan but no deal, except with the homeowners, can perfect a lien in favor of anyone. The loan, if it exists, is unsecured. And the loan, if there is any balance due after accounting for all payments to the creditor with waiver of subrogation, is subject to set-off and counterclaims for fraudulent and predatory lending.

Just as the banks seek to further the lie of securitization by increasing the number of transfers of loans that were never transferred in the first place, BOA now seeks to validate its balance sheet with an investor deal that puts lipstick on a rock. Using the rock in lieu of a real live person who can give evidence according to the laws and rules of evidence, BOA seeks to have us embrace the rock as someone whom we accept as the savior. BOA can make all the deals it wants. Unless it addresses the fatal defects in the title chain, the fatal defects in the liens and transfers, and the fatal defects in the lending process, there is no deal with homeowners and thus NO DEAL at all.

Bank’s Deal Means More Will Lose Their Homes

By

Tens of thousands of Bank of America’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.

For struggling borrowers in better financial shape, the outcome could be more positive: the deal would include incentives for mortgage servicers to help homeowners who have fallen behind on their payments and whose homes are worth less than they borrowed.

“The goal is to reinstate as many borrowers in a modification that performs well,” said Tony Meola, a servicing executive with Bank of America. “It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.”

While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.

While no exact income qualification has been set as part of the agreement, which was announced last month, many servicers use a formula in which borrowers can qualify for a modification as long as the new monthly payment does not exceed 31 percent of their monthly gross income. For borrowers who are unemployed or lack the income to cover even reduced mortgage payments, foreclosure and eviction could be much more immediate.

With 1.3 million borrowers at risk of foreclosure, Bank of America has been overwhelmed by the surge in defaults, and the accord has raised hopes that this logjam will finally begin to ease. But skeptics say that previous arrangements, like another multibillion-dollar settlement by Bank of America in 2008, have barely made a dent in the problem.

“The mortgage servicers have repeatedly promised to do things and then not done them,” said Michael S. Barr, a former assistant Treasury secretary who now teaches law at the University of Michigan. “I think it’s positive in general, but I don’t expect it to be transformative of what we’ve witnessed from the mortgage servicers over the last four years.”

Matthew Weidner, a Florida lawyer who represents borrowers facing foreclosure, said he was skeptical of promises by the deal’s architects that lower monthly payments would be easier to obtain.

“It’s like giving aspirin to someone with cancer,” he said of the proposed assistance. “You had all the big players at the top of the pyramid negotiating but nobody was speaking for the homeowners who have far more at stake at the ground level.”

Still, for some of the homeowners now facing foreclosure who took out loans with Countrywide, the subprime specialist bought by Bank of America in 2008, the deal could bring a few quick improvements.

Under the terms of the agreement, Bank of America must now start transferring these borrowers to 10 smaller outside servicers, even without the deal being approved in court, which is not expected before November. The architects of the settlement say these subservicers will be far more efficient than Bank of America’s giant payment processing operation.

For example, an analysis of data by RBS prepared as part of the settlement found that Bank of America provided fewer modifications as a percentage of unpaid principal than JPMorgan Chase, Wells Fargo, Litton and other servicers. In addition, borrowers defaulted again within six months in nearly one in five cases when modifications were made by Bank of America, a higher rate than other servicers that were studied.

Officials at Bank of America contend the company has made nearly 875,000 modifications since 2008, more than any other servicer.

Under the new proposal, subservicers will have to provide an answer to homeowner modification requests within 60 days of receiving paperwork, and will get up to 1.5 percent of the unpaid principal balance as an incentive fee for each successful permanent modification.

“We wanted smaller, high-touch servicers who would consider every modification option at once, not try this and that,” said Kathy D. Patrick, a Houston lawyer who represented the 22 private investors in the settlement. “Servicers get more in fees for successful modifications than for any other kind of workout, including foreclosure.”

The first homeowners should be transferred out of Bank of America by early fall, with each of the 10 subservicers taking up to 30,000 cases. Borrowers with mortgages 60 days past due who have been delinquent more than once in the last 12 months will receive priority in the switch, followed by homeowners who are 90 days past due but not in foreclosure.

Homeowners already in foreclosure or who have been declared bankrupt will go to the back of the line, although they will also eventually be transferred, Ms. Patrick said. More than 75 percent of the nearly 275,000 delinquent homeowners have not made a payment in more than 120 days or are already in foreclosure.

One unintended consequence of the problems at Bank of America and other large servicers is that many borrowers have managed to remain in their homes despite being in default, and without the income to qualify for a modification. At the time of foreclosure, the typical Bank of America borrower has not made a payment in 18 months.

What is more, according to the analysis of RBS data, it takes 30 months on average for a subprime borrower’s property to move from foreclosure to a final sale with Bank of America, nearly a year longer than Wells Fargo, and 10 months longer than SPS, a smaller subservicer likely to be among the 10 selected to take over the former Countrywide loans.

“Countrywide made a lot of bad loans and borrowers with no money can’t afford a modification,” said Peter Swire, a former special assistant for housing policy in the Obama administration who helped oversee earlier federal efforts to promote modifications. He is now a professor at Ohio State University. “One discouraging problem is that only a small fraction of Countrywide borrowers will likely qualify,” Professor Swire said.

Delores Gosha hopes she will be one of the lucky ones.

It has been more than a year since she last made a mortgage payment to Bank of America, raising the risk that her bungalow in the Cleveland suburbs will end up in foreclosure. The bank, she says, has given varying answers as to whether she qualifies for a modification, telling her she did not at one point last week only to reverse course days later and say it was still under consideration. Ms. Gosha said she had had to deal with a multitude of representatives and submit the same documents over and over.

While a new servicer might not give her the answer she has been praying for, she said, at least she will get an answer.

“I’ve been up and down,” said Ms. Gosha, who is a clerk at a Cleveland hospital. “Can’t somebody tell me something?”

MEGABANKS LOSE THEIR LUSTER AS INVESTIGATIONS AND LAWSUITS PERSIST

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BANK STOCKS HEADING LOWER AS BALANCE SHEETS DON’T ADD UP

EDITOR’S NOTE: At the end of the day, everybody knows everything. Goldman is losing its grip on the narrative. You can’t fool all the people all the time. If the pools were empty and the mortgage bonds were bogus, then any balance sheet carrying loans or securities based upon the illusion of securitization will need a major adjustment. If the loans were bad to begin with, if the appraisals and ratings were false, if the documentation of the loans described a fictitious transaction, then the real transaction remains undocumented, unsecured and probably unenforceable. Reports of income and assets by the banks would be greatly exaggerated while reports of their demise may still be wishful thinking, it is looking more and more likely every day.

Goldman No Longer Laps the Field

By JEFFREY GOLDFARB, ROB COX and LISA LEE

Goldman Sachs has lost its luster. The firm earned a best-in-class reputation for its history of profitability and navigating upheaval. But it seems less assured lately. In fact, Goldman is in danger of looking downright average.

It’s not the first time. Goldman has been sent reeling by shocks, from Penn Central’s bankruptcy in 1970 to Russia’s default in 1998. But the Goldman advantage comes from an ability not only to climb off the canvas but to thrive in the face of adversity.

Today’s investors are expressing doubt, or at least not giving the firm led by Lloyd C. Blankfein the benefit of it. Over the last decade, Goldman’s shares have outperformed those of the biggest American banks, including JPMorgan Chase and Morgan Stanley, as well as the Standard & Poor’s 500-stock index. But they have tumbled 16 percent this year, lagging rivals and the broader market.

One reason is Goldman’s struggle to get out of the headlines and clear its name in Washington even after last year’s record $550 million settlement with the Securities and Exchange Commission. The bank still faces the possibility the Justice Department will come after it or some of its people. Two analysts cut their ratings on Goldman’s stock last week for that reason.

Goldman’s gold-plated advisory business has been disappointing, too. For example, instead of its normal perch atop the United States merger rankings, nearly halfway through the year it ranks a dismal sixth, according to Thomson Reuters. That may help explain Monday’s reshuffle at the firm’s investment bank.

The company is not even so sure of itself anymore. Top executives told Barclays Capital last week that uncertainty about financial reform meant it could not stand by its long-term high-teens target for return on equity.

And while Goldman still commands a valuation premium to its largest rivals, it is trading at just 1.1 times book value. That implies it will barely cover its cost of capital. Five years ago, around the peak of the boom, Goldman fetched 2.6 times book, nearly twice JPMorgan’s multiple.

The advantage has shrunk to just 10 percent, only part of which can be put down to the compression associated with an industrywide bad patch.

Goldman and its supporters can argue the naysayers merely see the glass half empty. But to truly shine again, Goldman’s glass needs to be more than just half full.

Beware of Bubbles

It’s easy to make the parallel between today’s Internet stock frenzy and the bubble that popped a decade ago. But a comparison to the more damaging credit boom may be appropriate too. As they did amid dot-com mania, investors are taking big risks without clear rewards and signing their rights away.

The latest illustration comes courtesy of LinkedIn, the social network with a big following among those out of a job or looking for a new one. The company supersized the price of its initial public offering by 30 percent, giving the firm a potential value of as much as $4.3 billion when the I.P.O. prices, probably late on Wednesday.

At the top of the range, LinkedIn would fetch a valuation of 15 times trailing 12-month sales, or about 82 times earnings before interest, taxes, depreciation and amortization. Even assuming its growth trajectory continues over the next year, the I.P.O. would value LinkedIn at nine times future sales and nearly 70 times estimated Ebitda.

If LinkedIn’s chief executive, Jeff Weiner, can keep the company expanding at a similar pace for a few years, the company might grow into the value investors seem willing to accord it now. But that does not offer much upside and takes little account of LinkedIn’s risks, which are amply laid out in its prospectus.

LinkedIn’s debut also brings an extra frisson of danger that recalls the credit bubble that burst in 2008. Back then bondholders, in their headlong drive for yield, surrendered many of their covenants, the rules that determine what borrowers must or must not do. LinkedIn is asking investors to abdicate similar rights.

The shares the company is selling carry only a sliver of the voting power of Class B shares that LinkedIn founders, managers and staff own. This group will hold approximately 99.1 percent of the voting power after the I.P.O.

True, the mighty Google did a similar thing when it began to trade a few years after the dot-com bust. But LinkedIn is no Google. It may turn into another reminder that in bubbles investors give up too much today for the lure of riches tomorrow. 

For more independent financial commentary and analysis, visit www.breakingviews.com.

Cochrane: How Deutsche Bank as a Trustee will attempt to harm you in bankruptcy court.

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EDITOR’S NOTE: When you actually READ the securitization documents, you will find, as I did, that all of them are quite disingenuous. They mislead the casual reader and even some careful readers who don’t understand what is actually being said. The prospectus says the investor is buying into a pool, but as you continue to read, you find the pool has not been formed, much less filled with loans to satisfy the definition of “asset-backed mortgage bond.” So the investor is buying into a non-existent pool, which may or may not have been formed at a later date, with nothing in it except the income received from selling credit default swaps on the most toxic tranches of a CDO, usually in the same Special Purpose vehicle (Trust).

The so-called “Trustee” seems at first to be an intended fiduciary of a bona fide trust, but as you read the PSA and other securitization documents you find that with each passing page the powers of the Trustee are stripped away until they are at best the contingent agent of a dubious trust that has nothing in it except the income from credit default swaps and whose principal asset, as represented, is neither present nor was there ever any intent to make any legal transfers of legally constituted documents that would fill the pool with assets and thus create the “res” over which the Trustee has power.

With each passing page of each document it is obvious that the powers of the “Trustee” are actually in the hands of the master servicer, who in turn hires a subservicer who actually does the work, but without “knowledge” (plausible deniability). The subservicer in turn has multiple sets of books which it uses for reporting purposes — one for the borrower, one for the investor and one for the securitizers, to start with. Like MERS, the subservicer never lays hands on any document evidencing ownership of the borrower’s obligation which of course is at variance with the undelivered note and undelivered mortgage or deed of trust.

And since the subservicer does not handle or control the payments to securitizers and the investors, it has no way of knowing or accounting for payments that were made — except its own payments to the securitizers, despite the declaration of default against the borrower. The borrower, not knowing the payments are continuing, accepts the allegation that the obligation is in de fault even though it is being paid. UNTIL THE COURT IS MADE AWARE OF THE MULTIPLE SETS OF BOOKS, IT HAS NO WAY OF KNOWING ABOUT THE FRAUD. AND IF IT ISN’T EVEN ALLEGED, THEN THE ISSUE IS NOT BEFORE THE COURT.

The Trustee meanwhile has no idea what is going on in the courts (plausible deniability) and neither do the investor-lenders. Payments of principal and interest made to the securitizers, who are agents of the investor-lenders are neither reported to nor paid to the investors in many cases. While often named as the foreclosing party, the Trustee has no attorney client relationship with the attorney who is representing to the court that he represents the “lender” or “Holder” of the note, which of course does not describe the transaction that was disclosed to the borrower in the loan documents, note and mortgage. Hence the borrower-debtor, is led to believe that the loan documents are the written instruments governing the transaction when in fact they are a lie — but without putting together the securitization documents, the loan level accounting, the title and securitization analysis and the forensic analysis, the borrower and his/her attorney is in the dark about the truth of the matter. Hence the representation in court by the pretender lender appears true because the borrower does not deny them.

How Deutsche Bank as a Trustee will attempt to harm you in bankruptcy court BY MARY COCHRANE

See Case No 07-077227-PB7 (Bankr.S.D.Cal 6/9/2008)
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for WaMu Series 2007-HE1 Trust, its
assignees and/or successors

The TRUSTEE will argue against you if you claim Deutsche Bank may not foreclose on the property because the Assignment was not recorded.

US Bankruptcy denied relief as to: CC 2932.5 if DBNTC could not provide ownership documents it could not….

An Assignment of the Note amounts to an Assignment of the Deed of Trust.

Deutsche Bank has provided no convincing evidence that the Note was ever assigned to Deutsche Bank. Furthermore, even if the Note was assigned to Deutsche Bank, Deutsche Bank is not the party asserting a security interest in the Property. Rather the motion is brought by Deutsche Bank as TRUSTEE for HE1 Trust. The record is devoid of any further assignment to HE1 Trust.

In summary, the only question before the Court is whether Deutsche Bank and/or HE1 Trust has an interest in the Proeprty. The Court holds that Deutsche Bank has failed to provide evidence that it, let alone HE1 Trust has a security interest in the Property. Accordingly, the motion is denied. Deutsche Bank’s motion for relief from stay is dened without prejudice.

WaMu retains possession of Note and Deed of Trust as Agent for Deutsche Bank.

The Trustee, Deutsche Bank, argues that based upon “…..” may not foreclose on the Property because the Assignment was not recorded. That may be. However, that is an issue the TRUSTEE can raise with the state court if relief from stay is ultimately granted.

Both parties allotted much ink and paper to issue of whether Deutsche Bank has a perfected security interest in the Note. The Court finds this discussion beyond the scope of the motion before it. Deutsche Bank has moved for relief from stay to proceed against the Property. Whether or not it holds a security interest in the Note is irrelevant. Since we are not concerned with a security interest in the Note, all talk of a ‘perfected lien’ on the Note is beside the point.

http://www.scribd.com/doc/28277345/US-BANKRUPTCY-DEUTSCHE-BANK-NTC-AS-TRUSTEE-DENIED-RELIEF-AS-TO-OWNERSHIP-VIA-TRUST-2932-5

Regarding Asset Backed Securities, could be Depositor, Underwriter, even one of its Special-Purpose Vehicles SPV’s could be a national banking association or sent in during a foreclosure or bankruptcy as a substitute trustee:.

Deutsche Bank National Trust Co.
Formerly Bankers Trust Co of California NA 8/1/96
3 Park Plaza 16th Floor, Irvine CA 92614
Maiing: 1761 East St. Andrew Pl, 2nd FLoor Santa Ana CA 9270a
IRS 13-3347003
7,443 SEC Filings 5/6/97 – 2/14/11
As ‘Filer’ ‘Owner’ ‘Filing Agent’

Deutsche Bank National Trust Company (Deutsche Bank), as Trustee for

In MERSONLINE.Org registry
DB Structured Products Inc.
60 Wall St. NY NY 10005
212-250-9340 Fax 212-797-516
Primary Contact: MERS Dept c/o Deutsche Bank NA
MEMBER ORG ID: 1002829
Lines of Business: Servicer, Subservicer, Interim Funder, Investor, Document Custodian
eRegistry Participant: NO
eDelivery Participant: NO

Business Entity: New York State
Jurisdiction: Delaware
Active – Initial DOS Filing: 4/30/1970
1/11/2002 changed name to DB Structured Products Inc.

Mary reveals below information on Deutsche Corporate Trust Services and imagine name change in line with DB Structured Products Inc. name change. Was Deutsche Bank Shapres Pixley Inc. 1/7/1994 – 1/10/2002
And was 1/6/1994 thru 4/30/1970 Deutsche Bank Sharps Pixley Inc. former name Sharps Pixley Inc established 4/30/1970.

During foreclosure or bankruptcfy in CA for example, the Deed of Trust may list ‘WaMu’ as the beneficiary and “California Reconveyance Company’ as the Trustee. On the SEC, you’ll find Deutsche Bank Trust Company/National Association to be a ‘Filing Agent’ of Deutsche Bank AG and 1 SEC File as ISSUER SEC File 028-12000 13F-NT/A and 13F-NT. First Filing 8/15/06 – Last Filing 2/15/11.

Don’t be frustrated if you are not understanding these facts. The more you read them and try to understand them you’ll realize you are smarter than the average bear. I could not spell ‘SEC’ when I started October 2008.

Deutsche Bank Trust Co National Association
280 Park Avenue
New York NY 10017

How does Deutsche Bank have a perfected lien against the Property and Chain of Title?

Deutsche Bank will assert to the court it is the ‘current beneficiary of a primissory note and deet of trust by way of Assignment’

What is the ‘Trustee’ I mean ‘are’ the TRUSTEE’s in SEC Reconstituted and/or their Reconstituion Servicing Agreements going to do now? regarding

Assignments in CA for example:

MERS Fatal Flaw in Ca, on May 12, 2011 at 10:19 am said:
In California it’s coming down to one key issue, MERS NOT having an assignment of the Note from the Original Lender to MERS, legally recorded.
“The assignment of the lien without a transfer of the debt was a nullity in law.”
“A lien is not assignable unless by the express language of the statute.”
CALIFORNIA SUPREME COURT, DAVIS, BELAU & CO. V. NATIONAL SUR. CO., 139 CAL 223, 224 (1903)
“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”
CARPENTER V. LONGAN, 83 U. S. 271 (1872), U.S. Supreme Court
More info at https://sites.google.com/site/mersfatalflawsincalifornia

Well in the USA Deutsche promoted itself 2002 forward Trust & Securities Services

Deutsche Bank`s Trust & Securities Services provides an extensive range of trust, agency, depositary, custody, fund administration and related services on over EUR 7 trillion in debt and equity securities worldwide. Its six globally integrated product groups ensure that every service is provided by expert, specialist staff.
Debt Services offers a range of products for bonds, CP and MTN programs, project financings, escrows, restructurings, syndicated loans, auction rate securities and Islamic financings
Structured Finance Services specializes in asset and mortgage backed securities, collateralized debt obligations and asset backed CP conduits
Corporate Services provides management and administration for a variety of tax-neutral and tax-advantaged structures
Alternative Fund Services provides administration for hedge funds, fund of hedge funds, private equity and other alternative investment vehicles
Equity Services covers ADRs, global shares, German shares and German capital transactions
Direct Securities Services provides safekeeping and clearing services for securities in more than 32 markets worldwide.
For information about Deutsche Bank residential property foreclosure and REO (real estate owned) inquiries please click here
NOTICE OF CHANGES IN TEMPORARY FDIC INSURANCE COVERAGE FOR TRANSACTION ACCOUNTS
All funds in a “noninterest-bearing transaction account” are insured in full by the Federal Deposit Insurance Corporation from December 31, 2010, through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least USD 250,000 available to depositors under the FDIC’s general deposit insurance rules.

The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts, and money-market deposit accounts.

For more information go to http://www.fdic.gov

2/06/2002 Deutsche Bank wins Trustee Awards in Securitization Markets

2003 – Deutsche Bank Corporate Trust Chicago Office Opens

Deusche Bank expands Municipal Trustee Services

Deutsche Bank Coporate Trust wins EURO CP Award

2004 Deutsche Bank opening new Corporate Trust Office San Francisco

Deutsche Bank also has regional corporate trust offices in Charlotte, NC; New York; Chicago; Olive
Branch, MS; and Santa Ana, CA.

NEW YORK, JANUARY 20, 2004 – Deutsche Bank’s Trust & Securities Services today announced
the opening of a regional corporate trust office in San Francisco, California. The new office is the
latest in the continuing regional expansion of traditional corporate trust services launched by
Deutsche Bank in June 2002 in the US.

Raafat Albert Sarkis heading Unit in CA was a Vice President in US Bank’s corporate trust unit. Head of Global Debt Services within Deutsche Bank’s Trust & Securities Services. “Raafat’s wealth of industry knowledge, his client relationships and his proven track record will help ensure that our clients in the Western states benefit from localized expertise and a commitment to exceptional customer service.

Deutsche Bank ranks among the global leaders in corporate banking and securities, transaction
banking, asset management, and private wealth management, and has a significant private &
business banking franchise in Germany and other selected countries in Continental Europe.

Deutsche Bank’s Trust & Securities Services is one of the leading global providers of trust and
securities administration services.

Through a fully integrated network of specialist offices worldwide, the group provides domestic custody in 23 securities markets as well as trustee, agency, registrar, depositary, SPV management and related services for a wide range of financings. Products serviced include bonds, auction rate securities, medium term note and commercial paper programs, asset backed and mortgage backed securities, CDOs, SIVs, project financings, escrows, syndicated loans, American Depositary Receipts and German equities.
——————–
FDIC Chairman Shelia Blair sure looked uncomfortable in her ‘skin’ on 60 Minutes. What do you think?

Regarding Deutsche Bank… The first chart depicts the mortgage transaction as many (most?) of us still understand it:

Here’s Chairman Bair’s second chart, “Borrowing Under a Securitization Structure”, depicting the typical mortgage transaction in 2007 (click to enlarge):

The County Auditor’s database says the owner of this house is Deutsche Bank National Trust Company. It says Deutsche Bank NTC paid $50,000 for the house in a sheriff’s sale in March 2007. The sheriff’s sale was the outcome of Case CV-05-554639, an action for foreclosure against the previous owners, filed in Common Pleas Court in February 2005 by Deutsche Bank NTC “as Trustee”.

But Deutsche Bank never held a mortgage on 4111 Archwood. And Deutsche Bank doesn’t really own 4111 Archwood now.

We’ll get back to Case CV-05-554639 and that magic word “Trustee” in a minute. But first, a short tour of the New Mortgage Industry, courtesy of the Chairman of the Federal Deposit Insurance Corporation, Sheila Bair.

Chairman Bair testified before the U.S. House Committee on Financial Services last April. Her entire testimony is well worth reading, but it’s modestly famous for two charts.

The first chart depicts the mortgage transaction as many (most?) of us still understand it

As Chairman Bair explained to the Committee:

Securitization takes the role of the lender and breaks it into separate components. Unlike the more traditional relationship between a borrower and a lender, securitization involves the sale of the loan by the lender to a new owner–the issuer–who then sells securities to investors. The investors are buying “bonds” that entitle them to a share of the cash paid by the borrowers on their mortgages. Once the lender has sold the mortgage to the issuer, the lender no longer has the power to restructure the loan or make other accommodations for its borrower. That becomes the responsibility of a servicer, who collects the mortgage payments, distributes them to the issuer for payment to investors, and, if the borrower cannot pay, takes action to recover cash for the investors.

And she listed some of the roles in this modern mortgage transaction:

o Issuer – A bankruptcy-remote special purpose entity (SPE) formed to facilitate a securitization and to issue securities to investors.
o Lender – An entity that underwrites and funds loans that are eventually sold to the SPE for inclusion in the securitization. Lenders are compensated by cash for the purchase of the loan and by fees. In some cases, the lender might contract with mortgage brokers. Lenders can be banks or non-banks.
o Mortgage Broker – Acts as a facilitator between a borrower and the lender.The mortgage broker receives fee income upon the loan’s closing.
o Servicer – The entity responsible for collecting loan payments from borrowers and for remitting these payments to the issuer for distribution to the investors. The servicer is typically compensated with fees based on the volume of loans serviced. The servicer is generally obligated to maximize the payments from the borrowers to the issuer, and is responsible for handling delinquent loans and foreclosures.
o Investors – The purchasers of the various securities issued by a securitization. Investors provide funding for the loans and assume varying degrees of credit risk, based on the terms of the securities they purchase…
o Trustee – A third party appointed to represent the investors’ interests in a securitization. The trustee ensures that the securitization operates as set forth in the securitization documents, which may include determinations about the servicer’s compliance with established servicing criteria.
“Bankruptcy-remote”. What a great adjective.

So what does this all have to do with 4111 Archwood? While I explain, you might want to keep that second chart handy.

In August 2003, the couple that had owned 4111 Archwood since 1996 refinanced it for $93,500. Their lender was Argent Mortgage Company, LLC, a division of ACC Holdings of Orange, CA, which also owned Ameriquest Mortgage and AMC Mortgage Services. Argent was the biggest single subprime lender in Cuyahoga County between 2003 and 2005, going from no originations in 2002 to nearly 2,400 in 2003, 4,900 in 2004, and 3,800 in 2005. (Following several years of lawsuits and other problems, ACC recently closed Ameriquest’s doors and sold Argent, AMC and Ameriquest’s servicing contracts to Citigroup. Argent is now doing business as Citi Residential Lending.)

Less than two months after the mortgage on 4111 Archwood was signed, Argent Mortgage Co. LLC transferred it to Argent Securities, Inc., which “deposited” it, along with thousands of other Argent mortgages into something called “Argent Securities, Inc. Asset-Backed Pass-Through Certificates Series 2003-W5″.

Let’s just call it “ASIABPTCS2003W5″ for short.

As you may have guessed, ASIABPTCS2003W5 is one of those “bankruptcy-remote special purpose entities” Chairman Bair mentioned. It was set up by Argent to be the vehicle by which all that mortgage paper, with a face value of $1.5 billion, would be sold to investors. Once that was accomplished, the mortgage on 4111 Archwood became a tiny piece of the paper assets owned by ASIABPTCS2003W5, a corporate entity owned not by Argent but by its investors.

The “Pooling and Service Agreement” that created ASIABPTCS2003W5 named Argent’s sister company, Ameriquest Mortgage, as “Master Servicer” for all those mortgages.

And it named Deutsche Bank National Trust Company as the “Trustee” of ASIABPTCS2003W5 — the party paid to represent the interests of the investors and oversee the Master Servicer’s performance.

This all happened at the beginning of October, 2003.

Sixteen months later, in February 2005, the borrower was in default and Deutsche Bank — as the Trustee for ASIABPTCS2003W5 — filed an action for foreclosure in Common Pleas Court.

But — funny thing — nobody had bothered to tell the County Recorder, who’s legally in charge of keeping track of these things, that Argent Mortgage had sold the mortgage to ASIABPTCS2003W5. Ten months into the foreclosure proceeding, the magistrate somehow figured out that Argent was still the mortgagee of record and that Deutsche Bank lacked standing to foreclose on the property. (As the case summary, entry for 12/21/05, puts it: “PLAINTIFF’S MOTION TO VACATE CASE AND PLACE ON THE ACTIVE LIST IS DENIED. THE PARTY PURPORTEDLY GRANTED RELIEF FROM STAY IS NOT THE PLAINTIFF IN THIS ACTION.”)

The lawyer for Deutsche Bank quickly filed a motion to make Argent the “substitute plaintiff” in the case. The magistrate agreed to this, putting the foreclosure back on track. Then Argent’s lawyer got it together to file the correct document — it’s called a “Release Assignment” — with the Recorder’s Office in February, confirming the sale of the mortgage on 4111 Archwood to, ahem…

“DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE OF ARGENT SECURITIES INC., ASSET BACKED PASS THROUGH CERTIFICATES SERIES 2003-W5 UNDER THE POOLING AND SERVICING AGREEMENT DATED AS OF OCTOBER 1, 2003″

Finally, seven months later — after the foreclosure was granted to substitute plaintiff Argent, which had sold off its interest in the mortgage three years earlier — the magistrate granted a second plaintiff substitution, swapping Argent out and “Deutsche Bank National Trust Company as Trustee of ASIABPTCS2003W5″ back in.

So it was “Deutsche Bank National Trust Company as Trustee of ASIABPTCS2003W5″ listed as plaintiff on the sheriff’s sale notice, and as the grantee (buyer) on the sheriff’s deed. And now it’s “Deutsche Bank National Trust Company” listed as the owner on County records — with a tax mailing address at 505 City Parkway Suite # 100, Orange, CA, which just happens to be the last-listed address of Ameriquest Mortgage. (Remember them? Master Servicer for ASIABPTCS2003W5. Now defunct. Mortgage servicing contracts bought by Citigroup.)

But of course Deutsche Bank NTC doesn’t actually own 4111 Archwood, any more than it actually ever owned the mortgage.

ASIABPTCS2003W5 — that “bankruptcy-remote special purpose entity”, a paper creation owned by nobody in particular — owns 4111 Archwood.

Deutsche Bank, as Trustee, just represents ASIABPTCS2003W5 for certain purposes. Ameriquest Mortgage was supposed to take care of ASIABPTCS2003W5′s properties, but Ameriquest is out of business; this job may have passed to Citi Residential.

So who’s actually responsible for 4111 Archwood? Good question.

That’s just one house. Deutsche Bank currently “owns” over 900 houses in Cuyahoga County through foreclosures in which it acted as Trustee for some “special purpose entity”, commonly an entity created by Argent. Argent alone organized at least thirty-one of these billion-dollar mortgage-backed investment pools from 2003 through 2006.

So maybe you can see why Judges Boyko, O’Malley, Rose, et al are making a big deal about checking Deutsche Bank’s paperwork.

This entry was posted on Wednesday, November 21st, 2007 at 2:46 pm and is filed under Deutsche Bank. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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Lehman retrieves $60bn for creditors

SERVICES YOU NEED

EDITOR’S NOTE: We are seeing more and more of these “recoveries.” The question we pose and that should be posed IN COURT is to whom this money is paid and more importantly, how is it going to be credited? Why is that important?

ANSWER: If that recovery means that the investors or investor pools recovered money then the obligations to those investors have been mitigated or reduced. Those obligations derived from liabilities that were represented to be principally from borrowers who had taken loans on their homes. If the obligations are reduced, then there should be a credit. That credit should be reported to the borrower but it isn’t. We continue this charade everyday with past, present and future foreclosures claiming amounts due that are overstated. In fact, many if not most of these foreclosures are relying upon the existence of a default that either never happened or was cured by these “recoveries.”

The simple fact is that a default does NOT occur because the named borrower fails to make a payment. The default actually occurs ONLY if the creditor fails to receive payment from ANY source. Think about it.

In commercial transactions, if the creditor has successfully mitigated the obligation without payment from the borrower, the obligation is still obviously reduced since the creditor is not entitled to recover more than the amount that is due. So why are we allowing the creditors and pretender lenders to recover multiples of the amount due in residential home foreclosures?

Note that this effects all Lehman entities which include notably Aurora Loan Servicing, BNC and dozens of other entities.

Lehman retrieves $60bn for creditors

By Telis Demos in New York

Published: September 22 2010 20:58 | Last updated: September 22 2010 20:58

The bankrupt estate of Lehman Brothers has recovered nearly $60bn in value for creditors since September 2008, but a decision on how to distribute the funds will not be finalised until next year at the earliest.

Bryan Marsal, a partner with restructuring firm Alvarez & Marsal and serving as Lehman’s chief executive, presented the bank’s “state of the estate” report in a Manhattan bankruptcy court on Wednesday.

REMIC EVASION of TAXES AND FRAUD

I like this post from a reader in Colorado. Besides knowing what he is talking about, he raises some good issues. For example the original issue discount. Normally it is the fee for the underwriter. But this is a cover for a fee on steroids. They took money from the investor and then “bought” (without any paperwork conveying legal title) a bunch of loans that would produce the receivable income that the investor was looking for.

So let’s look at receivable income for a second and you’ll understand where the real money was made and why I call it an undisclosed tier 2 Yield Spread Premium due back to the borrower, or apportionable between the borrower and the investor. Receivable income consists or a complex maze designed to keep prying eyes from understanding what theya re looking at. But it isn’t really that hard if you take a few hours (or months) to really analyze it.

Under some twisted theory, most foreclosures are proceeding under the assumption that the receivable issue doesn’t matter. The fact that the principal balance of most loans were, if properly accounted for, paid off 10 times over, seems not to matter to Judges or even lawyers. “You borrowed the money didn’t you. How can you expect to get away with this?” A loaded question if I ever heard one. The borrower was a vehicle for the commission of a simple common law and statutory fraud. They lied to him and now they are trying to steal his house — the same way they lied to the investor and stole all the money.

  1. Receivable income is the income the investor expects. So for example if the deal is 7% and the investor puts up $1 million the investor is expecting $70,000 per year in receivable income PLUS of course the principal investment (which we all know never happened).

  2. Receivable income from loans is nominal — i.e., in name only. So if you have a $500,000 loan to a borrower who has an income of $12,000 per year, and the interest rate is stated as 16%, then the nominal receivable income is $80,000 per year, which everyone knows is a lie.

  3. The Yield Spread premium is achieved exactly that way. The investment banker takes $1,000,000 from an investor and then buys a mortgage with a nominal income of $80,000 which would be enough to pay the investor the annual receivable income the investor expects, plus fees for servicing the loan. So in our little example here, the investment banker only had to commit $500,000 to the borrower even though he took $1 million from the investor. His yield spread premium fee is therefore the same amount as the loan itself.  Would the investor have parted with the money if the investor was told the truth? Certainly not. Would the borrower sign up for a deal where he was sure to be thrown out on the street? Certainly not. In legal lingo, we call that fraud. And it never could have happened without defrauding BOTH the investor and the borrower.

  4. Then you have the actual receivable income which is the sum of all payments made on the pool, reduced by fees for servicing and other forms of chicanery. As more and more people default, the ACTUAL receivables go down, but the servicing fees stay the same or even increase, since the servicer is entitled to a higher fee for servicing a non-performing loan. You might ask where the servicer gets its money if the borrower isn’t paying. The answer is that the servicer is getting paid out of the proceeds of payments made by OTHER borrowers. In the end most of the ACTUAL income was eaten up by these service fees from the various securitization participants.

  5. Then you have a “credit event.” In these nutty deals a credit event is declared by investment banker who then makes a claim against insurance or counter-parties in credit default swaps, or buys (through the Master Servicer) the good loans (for repackaging and sale). The beauty of this is that upon declaration of a decrease in value of the pool, the underwriter gets to collect money on a bet that the underwriter would, acting in its own self interest, declare a write down of the pool and collect the money. Where did the money come from to pay for all these credit enhancements, insurance, credit default swaps, etc? ANSWER: From the original transaction wherein the investor put up $1 million and the investment banker only funded $500,000 (i.e., the undisclosed tier 2 yield spread premium).

  6. Under the terms of the securitization documents it might appear that the investor is entitled to be paid from third party payments. Both equitably, since the investors put up the money and legally, since that was the deal, they should have been paid. But they were not. So the third party payments are another expected receivable that materialized but was not paid to the creditor of the mortgage loan by the agents for the creditor. In other words, his bookkeepers stole the money.

Very good info on the securitization structure and thought provoking for sure. Could you explain the significance of the Original Issue Discount reporting for REMICs and how it applies to securitization?

It seems to me that the REMIC exemptions were to evade billions in taxes for the gain on sale of the loans to the static pool which never actually happened per the requirements for true sales. Such reporting was handled in the yearly publication 938 from the IRS. A review of this reporting history reveals some very interesting aspects that raise some questions.

Here are the years 2007, 2008 and 2009:

2009 reported in 2010
http://www.irs.gov/pub/irs-pdf/p938.pdf

2008? is missing and reverts to the 2009 file?? Don’t believe me. try it.
http://www.irs.gov/pub/irs-prior/p938–2009.pdf

2007 reported in 2008
http://www.irs.gov/pub/irs-prior/p938–2007.pdf

A review of 2007 shows reporting of numerous securitization trusts owned by varying entities, 08 is obviously missing and concealed, and 2009 shows that most reporting is now by Fannie/Freddie/Ginnie, JP Morgan, CIti, BofA and a few new entities like the Jeffries trusts etc.

Would this be simply reporting that no discount is now being applied and all the losses or discount is credited to the GSEs and big banks, or does it mean the trusts no longer exist and the ones not paid with swaps are being resecuritized?

Some of the tell tale signs of some issues with the REMIC status especially in the WAMU loans is a 10.3 Billion dollar tax claim by the IRS in the BK. It is further that the balance of the entire loan portfolio of WAMU transferred to JPM for zero consideration. A total of 191 Billion of loans transferred proven by an FDIC accounting should be enough to challenge legal standing in any event.

I believe that all of the securitized loans were charged back to WAMU’s balance sheet prior to the sale of the assets and transferred to JPM along with the derivative contracts for each and every one of them. [EDITOR’S NOTE: PRECISELY CORRECT]

The derivatives seem to be accounted for in a separate mention in the balance sheet implying that the zeroing of the loans is a separate act from the derivatives. Add to that the IRS claim which can be attributed to the gain on sale clawback from the voiding of the REMIC status and things seem to fit.

I would agree the free house claim is a tough river to row but the unjust enrichment by allowing 191 billion in loans to be collected with no Article III standing not only should trump that but additionally forever strip them of standing to ever enforce the contract.

The collection is Federal Racketeering at the highest level, money laundering and antitrust. Where are the tobacco litigators that want to handle this issue for the homeowners? How about an attorney with political aspirations that would surely gain support for saving millions of homes for this one simple case?

Documents and more info on the FDIC litigation fund extended to JPM to fight consumers can be found here:

http://www.wamuloanfraud.com

You can also find my open letter to Sheila Bair asking her to personally respond to my request here:

http://4closurefraud.org/2010/06/09/an-open-letter-to-sheila-bair-of-the-federal-deposit-insurance-corporation-fdic-re-foreclosures/

Any insight into the REMIC and Pub. 938 info is certainly appreciated

TBW Taylor Bean Chairman Arrested On Fraud Charges

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

Editor’s Note: TBW has been high on my list of incompetent fraudsters. I always thought it was a stupid risk to “sell” mortgages and “sell” the servicing rights (probably to their own entity), and then take the servicing back. Stupid maybe, but they had no choice. The entire Taylor Bean operation wreaks of fraud and inconsistencies.

Bottom Line: If you have a TBW as the originating “lender” this article indicates, as we have known all along, that they were using OPM (Other People’s Money) and they were NOT the lender even though they said they were. It is highly likely that few, if any, of the loans were actually “securitized” because the loans were either nonexistent as described, never accepted by any pool (even though there might be a pool out there that claims ownership) and that none of the assignments were ever completed.

Thus your claims against TBW (including appraisal fraud, predatory loan practices, deceptive loan practices, fraud etc.) are properly directed, to wit: TBW still owns the paper, although the obligation is subject to an equitable unsecured claim from investors who funded the loan.

June 16, 2010

Executive Charged in TARP Scheme

By ERIC DASH

Federal prosecutors on Wednesday accused the former chairman of Taylor, Bean & Whitaker, once one of the nation’s largest mortgage lenders, of masterminding a fraud scheme that cheated investors and the federal government out of billions of dollars and led to last year’s sudden failure of Colonial Bank.

The executive, Lee B. Farkas, was arrested late Tuesday in Ocala, Fla., after a federal grand jury in Virginia indicted him on 16 counts of conspiracy, bank fraud, wire fraud and securities fraud. Separately, the Securities and Exchange Commission brought civil fraud charges against Mr. Farkas in a lawsuit filed on Wednesday.

Prosecutors said the fraud would be one of the biggest and most complex to come out of the housing collapse and the government’s huge bailout of the banking industry. In essence, they described an elaborate shell game that involved covering up the lender’s losses by creating fake mortgages and passing them along to private investors and government agencies.

Federal officials became suspicious after Colonial BancGroup, the main source of financing for Mr. Farkas’s company, tried to obtain $553 million in bailout money from the Troubled Asset Relief Program. The TARP application, filed in early 2009, was contingent on the bank first raising $300 million from private investors.

According to the S.E.C. complaint, Mr. Farkas and his partners said they would contribute $150 million, two private equity firms would each contribute $50 million, and a “friends and family” investor group would contribute another $50 million. “In truth, neither of the $50 million investors were private equity investors and neither ever agreed to participate,” the complaint said.

Mr. Farkas pocketed at least $20 million from the fraud, which he used to finance a private jet and a lavish lifestyle that included five homes and a collection of vintage cars, prosecutors said.

But the case is likely to expand beyond Mr. Farkas. The complaints cite the involvement of an unnamed Colonial Bank executive and other co-conspirators in the suspected fraud, and prosecutors said they might hold others accountable down the road.

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Officials said the many layers of the scheme resulted in more than $1.9 billion of losses to investors; a $3 billion loss to the Department of Housing and Urban Development, which guaranteed many of the loans that Mr. Farkas’s company sold; and a $3.6 billion hit to the Federal Deposit Insurance Corporation, which had to take over Colonial Bank and pay its depositors after many of the bank’s assets were found to be worthless.

The complaints also list BNP Paribas and Deutsche Bank, which provided financing to Mr. Farkas’s company, as victims of the suspected fraud. Together, they lost $1.5 billion.

According to the complaints, the fraud started as early as 2002 with an effort to conceal rising operating losses at Taylor, Bean & Whitaker, a mortgage lender founded by Mr. Farkas. The first stage involved an attempt to hide overdrafts on a credit line the company had with Colonial Bank. As those overdrafts grew, prosecutors contend, Mr. Farkas and his associates started selling fake mortgage assets to Colonial Bank in exchange for tens of millions of dollars.

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

The transactions were “designed to give the false appearance that the loans were being sold into the secondary mortgage market,” Mr. Breuer said. “In fact, they were not.”

By 2008, prosecutors contend, the scheme had entangled the federal government. Investigators in the Office of the Special Inspector General for TARP took notice of the size of Colonial Bank’s bailout application and became suspicious of the accuracy of the bank’s statements.

That led investigators to alert other federal officials and draw a connection between Colonial Bank and Taylor, Bean & Whitaker, whose offices were raided by federal agents in August 2009. Both companies would soon stop operating.

“We knew it was a longstanding and close relationship between Colonial and T.B.W., and we decided that we needed to take a much closer look,” Neil M. Barofsky, the TARP special inspector general, said at a news conference on Wednesday. Investigators also discussed the situation with Treasury officials to “make sure the money would not go out the door.”

Federal officials have conducted nearly 80 criminal and civil investigations into companies that accepted TARP money, but so far they have filed charges in only one other case. In March, the head of Park Avenue Bank in Manhattan was accused of trying to defraud the government bailout program.

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

SUBMITTED BY M SOLIMAN

EDITOR’S NOTE: Soliman brings out some interesting and important issues in his dialogue with Raja.

  • The gist of what he is saying about sales accounting runs to the core of how you disprove the allegations of your opposition. In a nutshell and somewhat oversimplified: If they were the lender then their balance sheet should show it. If they are not the lender then it shows up on their income statement. Now of course companies don’t report individual loans on their financial statements, so you need to force discovery and ask for the ledger entries that were made at the time of the origination of the loan.
  • If you put it another way the accounting and bookkeeping amounts to an admission of the real facts of the case. If they refuse to give you the ledger entries, then you are entitled to a presumption that they would have shown that they were not acting as a lender, holder, or holder in due course. If they show it to you, then it will either show the admission or you should inquire about who prepared the response to your discovery request and go after them on examination at deposition.
  • Once you show that they were not a lender, holder or holder in due course because their own accounting shows they simply booked the transaction as a fee for acting as a conduit, broker or finder, you have accomplished several things: one is that they have no standing, two is that they are not a real party in interest, three is that they lied at closing and all the way up the securitization chain, and four is that you focus the court’s attention on who actually advanced the money for the loan and who stands to suffer a loss, if there is one.
  • But it doesn’t end there. Your discovery net should be thrown out over the investment banking firm that underwrote the mortgage backed security, and anyone else who might have received third party insurance payments or any other payments (credit default swaps, bailout etc.) on account of the failure of the pool in which your loan is claimed to be an “asset.”
  • Remember that it is my opinion that many of these pools don’t actually have the loans that are advertised to be in there. They never completed or perfected the transfer of the obligation and the reason they didn’t was precisely because they wanted to snatch the third party payments away from the investors.
  • But those people were agents of the investors and any payment they received on account of loss through default or write-down should be credited and paid to the investor.
  • Why should you care what the investor received? Because those are payments that should have been booked by the investors as repayment of their investment. In turn, the percentage part of the pool that your loan represents should be credited proportionately by the credit and payment to the investor.
  • Those payments, according to your note should be allocated first to payments due and outstanding (which probably eliminates any default), second to fees outstanding attributable to the borrower (not the investor) and third to the borrower which normally would be done as a credit against principal, which would reduce the amount of principal outstanding and thus reduce the number of people who think they are under water and are not.

———————————————————————–

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

I am really loving this upon closer inspection Raja! The issues of simple accounting rules violations appear narrow, yet the example you cite here could mean A DIFFERENCE AND SWAY IN ADVANTAGE.

Many more cases can potentially address broader issues of pleading sufficiency with repsect to securities and accounting rules violations prohibiting foreclosures.

Sale accounting is the alternative to debt or financing arrangements which is what the lender seeks to avoid in this economic downturn. Both approaches to accounting are clearly described and determinable by GAAP. In sales accounting there is no foreclsure. In debt for GAAP accounting your entitled to foreclose.

Its when you mix the two you r going to have problems. Big problems.

Pleading sufficiency is (by this layperson) the need for addressing a subject matter in light of the incurable defects in proper jurisdiction. The subject can be convoluted and difficult, I realize that.

Where the matter is heard should allow ample time to amend as a plaintiff. This is given to the fact the lender can move quicklly and seek dismissal.

The question is how far must a consumer plaintiff reach to allege that serverity of the claims, based on adverse event information, as in foreclosure.

This is significant in order to establish that the lender or a lender defendants’ alleged failure to disclose information. Therein will the court find the claim to be sufficently material.

In possession hearings the civil courts have granted the plaintiffs summary judgment and in actions brought against the consumer. The courts are often times granting the defendants’ motion to dismiss, finding that these complaints fail to adequately suffice or address the judicial fundamental element of materiality.

I can tell you the accounting rules omissions from the commencement of the loan origination through a foreclosure is one continual material breach. Counsel is lost to go to court without pleading this fact.

The next question is will the pleading adequately allege the significance of the vast number of consumer homeowner complaints. One would think yes considering the lower court level is so backlogged and a t a time when budget cuts require one less day of operations.

These lower courts however are hearing post foreclosure matters of possession. there is the further possibility that the higher Court in deciding matters while failing to see any scienter. Its what my law cohorts often refer to as accountability for their actions. That is what the “Fill in the Dots” letter tells me at first glance.

I believe it’s only in a rare case or two that a securities matter is heard in the Ninth Circuit. Recently however, there the conclusion was in fact that scienter allegations raised by the opposition were sufficient based on plaintiff’s allegations that the “high level executives …would know the company was being sued in a product liability action,” and in line with the many, customer complaints (I assume that were communicated to the company’s directors…)

The FASB is where the counterproductive rule changes always seem to take place and where lobbyist and other pro life and pro bank enthusiasts seem to spend their days. No need to fret however as gain on sale accounting is specific and requires the lender to have SOLD your loan in order to securitize it as part of a larger bulk pool.

The document I am reading, submitted by Raja tells me something is very concerning to the “lender parties” that they believe is downstream and headed their way. I’ll try and analyze each line item for you as to what it says and what they really are trying to do. I think for now though its value is for determining the letter as an admission of “we screwed up!”

M.Soliman

Re-Orienting the Parties to Clarify Who is the Real Plaintiff

The procedural motion missed by most lawyers is re-orienting the parties. Just because you are initially the plaintiff doesn’t mean you should stay that way. Once it is determined that the party seeking affirmative relief is seeking to sell your personal residence and that all you are doing is defending, they must become the plaintiff and file a lawsuit against you which you have an opportunity to defend. A Judge who refuses to see that procedural point is in my opinion committing clear reversible error.

If the would-be forecloser could not establish standing and/or could not prove their case in a judicial foreclosure action, there is no doubt in my mind that the ELECTION to use the power of sale is UNAVAILABLE to them. They must show the court that they have a prima face case and the homeowners must present a defense. But that can only be done if the parties are allowed to conduct discovery. Otherwise the proceedings are a sham, and the Judge is committing error by giving the would-be forecloser the benefit of the doubt (which means that the Judge is creating an improper presumption at law).

If the Judge says otherwise, then he/she is putting the burden on the homeowner. But the result is the same. Any contest by the would-be forecloser should be considered under the same rules as a motion to dismiss, which means that all allegations made by the homeowner are taken as true for purposes of the preliminary motions.

Some people have experienced the victory of a default final judgment for quiet title only to have it reversed on some technical grounds. While this certainly isn’t the best case scenario, don’t let the fight go out of you and don’t let your lawyer talk you into accepting defeat. Reversal of the default doesn’t mean anyone won or lost. It just means that instead of getting the ultimate victory by default, you are going to fight for it. The cards are even more stacked in your favor with the court decisions reported over the last 6 months and especially over the last two weeks. See recent blog entries and articles.

All that has happened is that instead of a default you will fight the fight. People don’t think you can get the house for free. Their thinking is based upon the fact that there IS an obligation that WAS created.

The question now is whether the Judge will act properly and require THEM to have the burden of proof to plead and prove a case in foreclosure. THEY are the party seeking affirmative relief so they should have the burden of pleading and proving a case. Your case is a simple denial of default, denial of their right to foreclose and a counterclaim with several counts for damages and of course a count for Quiet Title. As a guideline I offer the following which your lawyer can use as he/she sees fit.

The fact that you brought the claim doesn’t mean you have to plead and prove their case. Your case is simple: they did a fraudulent and wrongful foreclosure because you told them you denied the claim and their right to pursue it. That means they should have proceeded judicially which of course they don’t want to do because they can’t make allegations they know are not true (the note is NOT payable to them, the recorded documentation prior to sale doesn’t show them as the creditor etc.).

I don’t remember if MERS was involved in your deal but if it was the law is getting pretty well settled that MERS possesses nothing, is just a straw man for an undisclosed creditor (table funded predatory loan under TILA) and therefore can neither assign nor make any claim against the obligation, note or mortgage.

Things are getting much better. Follow the blog — in the last two weeks alone there have been decisions, some from appellate courts, that run in your favor. There is even one from California. So if they want to plead a case now in foreclosure they must first show that they actually contacted you and tried to work it out. Your answer is the same as before. I assume you sent a qualified written request. Under the NC appellate decision it is pretty obvious that you do have a right of action for enforcement of RESPA. They can’t just say ANYONE contacted you they must show the creditor contacted you directly or through an authorized representative which means they must produce ALL the documentation showing the transfers of the note, the PSA the assignment and assumption agreement etc.

They can’t produce an assignment dated after the cutoff date in the PSA. They can’t produce an assignment for a non-performing loan. Both are barred by the PSA. So there may have been an OFFER of assignment  but there was no authority to accept it and no reasonable person would do so knowing the loan was already in default. And they must show that the loan either was or was not replaced by cash or a substitute loan in the pool, with your loan reverting back to the original assignor. Your loan probably is vested in the original assignor who was the loan aggregator. If it’s in the pool it is owned by the investors, collectively. There is no trust nor any assets in the trust since the ownership of the loans were actually conveyed when the investors bought the mortgage backed securities. They don’t want you going near the investors because when you compare notes, the investors are going to realize that the investment banker did not invest all the money that the investor gave the investment banker — they kept about a third of it for themselves which is ANOTHER undisclosed yield spread premium entitling you to damages, interest and probably treble damages.

The point of all this is that it is an undeniable duty for you to receive disclosure of the identity of the creditor, proof thereof, and a full accounting for all receipts and disbursements by the creditor and not just by the servicer who does not track third party payments through insurance, credit default swaps and other credit enhancements. It’s in federal and state statutes, federal regulations, state regulations and common law.

The question is not just what YOU paid but what ANYONE paid on your account. And even if those payments were fraudulently received and kept by the investment banker and even if the loan never made it through proper assignment, indorsement, and delivery, those payments still should have been allocated to your account, according to your note first to any past due payments (i.e., no default automatically, then to fees and then to the borrower). That is a simple breach of contract action under the terms of the note.

Again they don’t want to let you near those issues in discovery or otherwise because the fraud of the intermediaries would be instantly exposed. So while you have no automatic right to getting your house free and clear, that is often the result because they would rather lose the case than let you have the information required to prove or disprove their case in foreclosure. The bottom line is that you don’t want to let them or have the judge let them (Take an immediate interlocutory appeal if necessary) use the power of sale which is already frowned upon by the courts and use it as an end run around the requirements of due process, to wit: if you think you have a claim you must plead and prove it and give the opposition an opportunity to defend.

The procedural motion missed by most lawyers is re-orienting the parties. Just because you are initially the plaintiff doesn’t mean you should stay that way. Once it is determined that the party seeking affirmative relief is seeking to sell your personal residence and that all you are doing is defending, they must become the plaintiff and file a lawsuit against you which you have an opportunity to defend. A Judge who refuses to see that procedural point is in my opinion committing clear reversible error.

The worst case scenario if everything is done PROPERLY is that you get the full accounting, you are not in default (unless there really were no third party payments which is extremely unlikely) and they must negotiate new terms based upon all the money that is owed back to you, which might just exceed the current principal due on the loan — especially once you get rid of the fabricated fees and costs they attach to the account (see Countrywide settlement with FTC on the blog).

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