BOA Deathwatch: $2.43 Billion Settlement — Tip of the Iceberg

“If we know with certainty that misrepresentation to investors lies at the heart of the so-called securitization scheme, why is it so hard for Judges and lawyers to believe that misrepresentation to homeowners lies at the heart of the origination of the loans that were the most important part of the securitization scheme? In fact, why is it so hard for Judges and Lawmakers and Regulators to conceive and believe that Wall Street didn’t securitize the loans at all and only pretended to do so?” — Neil F Garfield,

EDITOR’S ANALYSIS: The settlement sounds big, but Bank of America has already announced that it had “put aside” another $42 billion for the defective acquisitions of Merrill Lynch, an underwriter in the fake securitization scheme, and Countrywide, a sham aggregator of residential mortgage loans.

The facts keep getting reported, but nobody seems to question the meaning of those facts or their consequences. The Wall Street Journal reports that dozens of lawsuits are still pending against BOA from insurers, credit default swap counter-parties and investor-lenders, each alleging that “countrywide wasn’t honest about the quality of mortgage backed securities it issued before the financial crisis. While it is true that pressure was exerted from Hank Paulson to make sure that BOA acquired Merrill and Countrywide to prevent a general financial collapse (you won’t have an economy by Monday if we don’t step in” (quote from Paulson and Bernanke to President George W Bush, it is equally true that BOA management pronounced the deals as the “deal of a lifetime.”

The very fact that BOA failed to peak under the hood before buying the car is ample corroboration of the handshake mentality being leveraged against each other as Banks scrambled to the top of the heap without concern for either their own companies or the country. Their lack of concern for their companies comes from the fact that they were receiving cash bonuses of pornographic size while those acquisitions went sour. Back in the days when management of the investment banks required general partnerships in which the partners could be personally liable, none of this could have happened. If the Bank fell, management didn’t care because they would still be rich whereas in the old days they would have been wiped out.

The settlement announced on Friday gives a very small percentage of money back to investor lenders and shareholders in the bank, both of which consist of groups of people who were largely investing for retirement. Next year, the writing on the wall is clear as a bell: either pension benefits are going to be slashed or there will be another major government bailout of the pension funds, some of which is already provided by law in government guarantees.

Either way, the people are going to be screaming at a continuation of an endless financial crisis that could be stopped on a dime by one simple magic bullet: admitting that the mortgage bonds were pure trash backed by no loans, and thus paving the way for the removal of the “mortgages” or Deeds of trust” that were recorded to secure the loans. But nobody wants to do that because ideology is still controlling the policies and the practical consequences of those policies is that more undeserving banks will be getting free homes for which they neither funded the origination nor the acquisition of the loans because the “originator” was never the lender.

Politically, the Banks are losing traction as representatives of both major political parties step away from the Banks, even while accepting huge donations from them. It is clear that the candidates who are receiving huge donations are probably bound by promises to back the banking industry as they desperate try to avoid the correct legal conclusion that virtually none of the loans were made payable to the lender, and none of the mortgages or deeds of trust were secured by a perfected lien.

It isn’t just that the the loan losses will fall on the Banks that were pulling the strings on the puppets at closings with the investors and closings with the homeowners; their real problems stem from the false claim that they were are holding valuable paper (mortgage backed bonds) whose value would not survive the worksheet of a first year auditor.

With only nominees on the note and mortgage and the obligation being owed to an as yet undefined group of investors whose money was used, contrary to written agreement and oral assurances, to be place bets at the window of the banks and hedge funds around the world and fund managers who were supposedly investing in triple A rated “Stable” securities that were “insured”, the investor lawsuits corroborate what we have been saying for 6 years: if the existing laws of property and contract are applied, neither the promissory note (at least 40% of which were intentionally destroyed) nor the mortgages (deeds of trust) are enforceable for collection or foreclosure.

The homeowner owes money to an undefined group of creditors, the balance of which is unknown because the Banks control the accounting and the accounting leaves out significant insurance proceeds, payments from credit default swap counter-parties, and federal buyouts and bailouts. The Banks are fighting to retain control of that accounting because if some third party starts auditing the money trail they are going to find that the “assets”  claimed by the banks are actually liabilities owed back to the parties that paid 100 cents on the dollar for the entire pool of mortgage bonds, none of which were actually backed by a legal obligation or an enforceable lien.

In short, if borrowers litigate they are fighting to get to the point where the banks and servicers are over a barrel and must settle — but only after making it as difficult as possible. Hence the strategy described in my seminars called “Deny and Discover”.

Because at the end of the day when  the number of cases won by borrowers exceeds the number of successful foreclosures (or perhaps far before that time) the assets are going to disappear and the liabilities are going to pop up in the banks. The consequence is that these banks will either have greatly diminished equity or negative equity — i.e., the BANKS will be Underwater! The FDIC and Federal reserve will thus be required to step in an “resolve these behemoth banks selling off the salable parts to smaller, manageable banks that are not so big they can’t be regulated.

As I survey the landscape, I see no hope for BOA, Citi, Chase or even Wells Fargo to survive the bloodbath that is coming, nor should they. The value of their stock will drop to worthless, which it is now anyway but not recognized, and the value of those regional or community banks and credit unions that pick up the pieces will correspondingly rise. The loans will vanish because the investors have no practical way of determining whose money went into any particular loan; the reason for that is that the money trail avoids the document trail like the plague. There were not trust accounts or other financial accounts in the name of the empty pools that issued the worthless mortgage bonds.

This is where ideology, law and practicality clash because of a lack of understanding of the consequences. The homeowners are getting a house not “free” but unencumbered by the originators who faked them out with false payees, false lenders and false secured parties. But the tax code already takes care of that. This isn’t forgiveness of debt. This reduction, in fact possibly overpayment of the debt was caused by the banks trading with investor money as though the money and the loans were the property of the banks, which they were not.

The effect on homeowners is that they will be required to recognize “income” from the elimination of the obligation, which is taxable and subject to Federal tax liens. The amount of that lien or obligation will be far less than the amount of the original loan, but the government will receive a portion of the savings through taxes, the investor-lenders will be compensated as the megabanks are resolved, and the crisis caused by a disappearing middle class will be over.

That will give us time to devote our attention to student loans and those “Defaults” which were also subject to false claims of securitization and in which the government guarantee was supposedly divided up without government consent as the originator, not caring about loan repayment, pushed students into larger and larger loans. What the participants in THAT fake securitization chain don’t realize is that under existing applicable law, it is my opinion that an election was made: either they had a loan receivable on the books for which there could be government guarantee, or they could reduce the risk by splitting the loans up into pieces and get paid handsomely for simply originating the loan. Simple logic says that the banks could not have both the guarantee from the government PLUS the elimination for risk through securitization in table funded loans that most probably also ignored the closing documents with investor lenders who advanced money for pools in which student loans were supposedly “assigned.”

Banks Trying to Get Bill Through Congress Protecting MERS

Editor’s Comment: It is no small wonder that the banks are scared. After all they created MERS and they control MERS and many of them own MERS. The Washington Supreme Court ruling leaves little doubt that MERS is a sham, leaving even less doubt that an industry is sprouting up for wrongful foreclosure in which trillions of dollars are at stake.

The mortgages that were used for foreclosure are, in my opinion, and in the opinion of a growing number of courts and lawyers and regulatory agencies around the country, State and Federal, were fatally defective and that leads to the conclusion that (1) the foreclosures can be overturned and (2) millions of dollars in damages might be payable to those homeowners who were foreclosed and evicted from homes they legally owned.

But the problem for the megabanks is even worse than that. If the mortgages were defective (deeds of trust in some states), then the money collected by the banks from insurance, credit default swaps, federal bailouts and buyouts and other hedge instruments pose an enormous liability to the large banks that promulgated this scam known as securitization where the last thing they had in mind was securitization. In many cases, the loans were effectively sold multiple times thus creating a liability not only to the borrower that illegally had his home seized but a geometrically higher liability to other financial institutions and governments and investors for selling them toxic waste.

There is a reason that that the bailout is measured at $17 trillion and it isn’t because those are losses caused by defaults in mortgages which appear to total less than 10% of that amount. The total of ALL mortgages during that period that are subject to claims of securitization (false claims, in my opinion) was only $13 trillion. So why was the $17 trillion bailout $4 trillion more than all the mortgages put together, most of which are current on their payments?

The reason is that some bets went well, in which case the banks kept the profits and didn’t tell the investors about it even though it was investor with which money they were betting.

If the loan went sour, or the Master Servicer, in its own interest, declared that the value of the pool had been diminished by a higher than expected default rate, then the insurance contract and credit default contract REQUIRED payment even though most of the loans were intact. Of course we now know that the loans were probably never in the pools anyway.

The bets that ended up in losses were tossed over the fence at the Federal Government and the bets that were “good” ended up with the insurers (AIG, AMBAC) having to pay out more money than they were worth. Enter the Federal Government again to make up the difference where the banks collected 100 cents on the dollar, didn’t tell the investors and declared the loans in default anyway and then proceeded to foreclose.

The banks’ answer to this knotty problem is predictable. Overturn the Washington Supreme Court case and others like it appellate and trial courts around the country by having Congress declare that the MERS transactions were valid. The biggest hurdle they must overcome is not a paperwork problem —- it is a money problem.

In many if not most cases, neither MERS nor the named payee on the note nor the “lender” identified on the note and mortgage had loaned any money at all. Even the banks are saying that the loans are owned by the “Trusts” but it now appears as though the trusts were never funded by either money or loans and that there were no bank accounts or any other accounts for those pools.

That leaves nothing but nominees for unidentified parties in all the blank spaces on the note and mortgage, whose terms were different than the payback provisions promised to the investor lenders. And THAT means that much of the assets carried on the books of the banks are simply worthless and non-existent AND that there is a liability associated with those transactions that is geometrically higher than the false assets that the banks are reporting.

So the question comes down to this: will Congress try to save MERS? (I.e., will they try to save the banks again with a legal bailout?). Will the effort even be constitutional since it deals with property required to be governed under States’ rights under the constitution or are we going to forget the Constitution and save the banks at all costs?

When you cast your ballot in November, remember to look at the candidates you are considering. If they are aligned with the banks, we can expect slashed pension benefits next year along with a whole new round of housing and economic decline.


FRAUD: The Significance of the Game Changing FHFA Lawsuits


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“FHFA has refrained from sugar coating the banks’ alleged conduct as mere inadvertence, negligence, or recklessness, as many plaintiffs have done thus far.  Instead, it has come right out and accused certain banks of out-and-out fraud.  In particular, FHFA has levied fraud claims against Countrywide (and BofA as successor-in-interest), Deutsche Bank, J.P. Morgan (including EMC, WaMu and Long Beach), Goldman Sachs, Merrill Lynch (including First Franklin as sponsor), and Morgan Stanley (including Credit Suisse as co-lead underwriter).  Besides showing that FHFA means business, these claims demonstrate that the agency has carefully reviewed the evidence before it and only wielded the sword of fraud against those banks that it felt actually were aware of their misrepresentations.”

It is no stretch to say that Friday, September 2 was the most significant day for mortgage crisis litigation since the onset of the crisis in 2007.  That Friday, the Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac, sued almost all of the world’s largest banks in 17 separate lawsuits, covering mortgage backed securities with original principal balances of roughly $200 billion.  Unless you’ve been hiking in the Andes over the last two weeks, you have probably heard about these suits in the mainstream media.  But here at the Subprime Shakeout, I like to dig a bit deeper.  The following is my take on the most interesting aspects of these voluminous complaints (all available here) from a mortgage litigation perspective.

Throwing the Book at U.S. Banks

The first thing that jumps out to me is the tenacity and aggressiveness with which FHFA presents its cases.  In my last post (Number 1 development), I noted that FHFA had just sued UBS over $4.5 billion in MBS.  While I noted that this signaled a shift in Washington’s “too-big-to-fail” attitude towards banks, my biggest question was whether the agency would show the same tenacity in going after major U.S. banks.  Well, it’s safe to say the agency has shown the same tenacity and then some.

FHFA has refrained from sugar coating the banks’ alleged conduct as mere inadvertence, negligence, or recklessness, as many plaintiffs have done thus far.  Instead, it has come right out and accused certain banks of out-and-out fraud.  In particular, FHFA has levied fraud claims against Countrywide (and BofA as successor-in-interest), Deutsche Bank, J.P. Morgan (including EMC, WaMu and Long Beach), Goldman Sachs, Merrill Lynch (including First Franklin as sponsor), and Morgan Stanley (including Credit Suisse as co-lead underwriter).  Besides showing that FHFA means business, these claims demonstrate that the agency has carefully reviewed the evidence before it and only wielded the sword of fraud against those banks that it felt actually were aware of their misrepresentations.

Further, FHFA has essentially used every bit of evidence at its disposal to paint an exhaustive picture of reckless lending and misleading conduct by the banks.  To support its claims, FHFA has drawn from such diverse sources as its own loan reviews, investigations by the SEC, congressional testimony, and the evidence presented in other lawsuits (including the bond insurer suits that were also brought by Quinn Emanuel).  Finally, where appropriate, FHFA has included successor-in-interest claims against banks such as Bank of America (as successor to Countrywide but, interestingly, not to Merrill Lynch) and J.P. Morgan (as successor to Bear Stearns and WaMu), which acquired potential liability based on its acquisition of other lenders or issuers and which have tried and may in the future try to avoid accepting those liabilities.    In short, FHFA has thrown the book at many of the nation’s largest banks.

FHFA has also taken the virtually unprecedented step of issuing a second press release after the filing of its lawsuits, in which it responds to the “media coverage” the suits have garnered.  In particular, FHFA seeks to dispel the notion that the sophistication of the investor has any bearing on the outcome of securities law claims – something that spokespersons for defendant banks have frequently argued in public statements about MBS lawsuits.  I tend to agree that this factor is not something that courts should or will take into account under the express language of the securities laws.

The agency’s press release also responds to suggestions that these suits will destabilize banks and disrupt economic recovery.  To this, FHFA responds, “the long-term stability and resilience of the nation’s financial system depends on investors being able to trust that the securities sold in this country adhere to applicable laws. We cannot overlook compliance with such requirements during periods of economic difficulty as they form the foundation for our nation’s financial system.”  Amen.

This response to the destabilization argument mirrors statements made by Rep. Brad Miller (D-N.C.), both in a letter urging these suits before they were filed and in a conference call praising the suits after their filing.  In particular, Miller has said that failing to pursue these claims would be “tantamount to another bailout” and akin to an “indirect subsidy” to the banking industry.  I agree with these statements – of paramount importance in restarting the U.S. housing market is restoring investor confidence, and this means respecting contract rights and the rule of law.   If investors are stuck with a bill for which they did not bargain, they will be reluctant to invest in U.S. housing securities in the future, increasing the costs of homeownership for prospective homeowners and/or taxpayers.

You can find my recent analysis of Rep. Miller’s initial letter to FHFA here under Challenge No. 3.  The letter, which was sent in response to the proposed BofA/BoNY settlement of Countrywide put-back claims, appears to have had some influence.

Are Securities Claims the New Put-Backs?

The second thing that jumps out to me about these suits is that FHFA has entirely eschewed put-backs, or contractual claims, in favor of securities law, blue sky law, and tort claims.  This continues a trend that began with the FHLB lawsuits and continued through the recent filing by AIG of its $10 billion lawsuit against BofA/Countrywide of plaintiffs focusing on securities law claims when available.  Why are plaintiffs such as FHFA increasingly turning to securities law claims when put-backs would seem to benefit from more concrete evidence of liability?

One reason may be the procedural hurdles that investors face when pursuing rep and warranty put-backs or repurchases.  In general, they must have 25% of the voting rights for each deal on which they want to take action.  If they don’t have those rights on their own, they must band together with other bondholders to reach critical mass.  They must then petition the Trustee to take action.  If the Trustee refuses to help, the investor may then present repurchase demands on individual loans to the originator or issuer, but must provide that party with sufficient time to cure the defect or repurchase each loan before taking action.  Only if the investor overcomes these steps and the breaching party fails to cure or repurchase will the investor finally have standing to sue.

All of those steps notwithstanding, I have long argued that put-back claims are strong and valuable because once you overcome the initial procedural hurdles, it is a fairly straightforward task to prove whether an individual loan met or breached the proper underwriting guidelines and representations.  Recent statistical sampling rulings have also provided investors with a shortcut to establishing liability – instead of having to go loan-by-loan to prove that each challenged loan breached reps and warranties, investors may now use a statistically significant sample to establish the breach rate in an entire pool.

So, what led FHFA to abandon the put-back route in favor of filing securities law claims?  For one, the agency may not have 25% of the voting rights in all or even a majority of the deals in which it holds an interest.  And due to the unique status of the agency as conservator and the complex politics surrounding these lawsuits, it may not have wanted to band together with private investors to pursue its claims.

Another reason may be that the FHFA has had trouble obtaining loan files, as has been the case for many investors.  These files are usually necessary before even starting down the procedural path outlined above, and servicers have thus far been reluctant to turn these files over to investors.  But this is even less likely to be the limiting factor for FHFA.  With subpoena power that extends above and beyond that of the ordinary investor, the government agency may go directly to the servicers and demand these critical documents.  This they’ve already done, having sent 64 subpoenas to various market participants over a year ago.  While it’s not clear how much cooperation FHFA has received in this regard, the numerous references in its complaints to loan level reviews suggest that the agency has obtained a large number of loan files.  In fact, FHFA has stated that these lawsuits were the product of the subpoenas, so they must have uncovered a fair amount of valuable information.

Thus, the most likely reason for this shift in strategy is the advantage offered by the federal securities laws in terms of the available remedies.  With the put-back remedy, monetary damages are not available.  Instead, most Pooling and Servicing Agreements (PSAs) stipulate that the sole remedy for an incurable breach of reps and warranties is the repurchase or substitution of that defective loan.  Thus, any money shelled out by offending banks would flow into the Trust waterfall, to be divided amongst the bondholders based on seniority, rather than directly into the coffers of FHFA (and taxpayers).  Further, a plaintiff can only receive this remedy on the portion of loans it proves to be defective.  Thus, it cannot recover its losses on defaulted loans for which no defect can be shown.

In contrast, the securities law remedy provides the opportunity for a much broader recovery – and one that goes exclusively to the plaintiff (thus removing any potential freerider problems).  Should FHFA be able to prove that there was a material misrepresentation in a particular oral statement, offering document, or registration statement issued in connection with a Trust, it may be able to recover all of its losses on securities from that Trust.  Since a misrepresentation as to one Trust was likely repeated as to all of an issuers’ MBS offerings, that one misrepresentation can entitle FHFA to recover all of its losses on all certificates issued by that particular issuer.

The defendant may, however, reduce those damages by the amount of any loss that it can prove was caused by some factor other than its misrepresentation, but the burden of proof for this loss causation defense is on the defendant.  It is much more difficult for the defendant to prove that a loss was caused by some factor apart from its misrepresentation than to argue that the plaintiff hasn’t adequately proved causation, as it can with most tort claims.

Finally, any recovery is paid directly to the bondholder and not into the credit waterfall, meaning that it is not shared with other investors and not impacted by the class of certificate held by that bondholder.  This aspect alone makes these claims far more attractive for the party funding the litigation.  Though FHFA has not said exactly how much of the $200 billion in original principal balance of these notes it is seeking in its suits, one broker-dealer’s analysis has reached a best case scenario for FHFA of $60 billion flowing directly into its pockets.

There are other reasons, of course, that FHFA may have chosen this strategy.  Though the remedy appears to be the most important factor, securities law claims are also attractive because they may not require the plaintiff to present an in-depth review of loan-level information.  Such evidence would certainly bolster FHFA’s claims of misrepresentations with respect to loan-level representations in the offering materials (for example, as to LTV, owner occupancy or underwriting guidelines), but other claims may not require such proof.  For example, FHFA may be able to make out its claim that the ratings provided in the prospectus were misrepresented simply by showing that the issuer provided rating agencies with false data or did not provide rating agencies with its due diligence reports showing problems with the loans.  One state law judge has already bought this argument in an early securities law suit by the FHLB of Pittsburgh.  Being able to make out these claims without loan-level data reduces the plaintiff’s burden significantly.

Finally, keep in mind that simply because FHFA did not allege put-back claims does not foreclose it from doing so down the road.  Much as Ambac amended its complaint to include fraud claims against JP Morgan and EMC, FHFA could amend its claims later to include causes of action for contractual breach.  FHFA’s initial complaints were apparently filed at this time to ensure that they fell within the shorter statute of limitations for securities law and tort claims.  Contractual claims tend to have a longer statute of limitations and can be brought down the road without fear of them being time-barred (see interesting Subprime Shakeout guest post on statute of limitations concerns.


Since everyone is eager to hear how all this will play out, I will leave you with a few predictions.  First, as I’ve predicted in the past, the involvement of the U.S. Government in mortgage litigation will certainly embolden other private litigants to file suit, both by providing political cover and by providing plaintiffs with a roadmap to recovery.  It also may spark shareholder suits based on the drop in stock prices suffered by many of these banks after statements in the media downplaying their mortgage exposure.

Second, as to these particular suits, many of the defendants likely will seek to escape the harsh glare of the litigation spotlight by settling quickly, especially if they have relatively little at stake (the one exception may be GE, which has stated that it will vigorously oppose the suit, though this may be little more than posturing).  The FHFA, in turn, is likely also eager to get some of these suits settled quickly, both so that it can show that the suits have merit with benchmark settlements and also so that it does not have to fight legal battles on 18 fronts simultaneously.  It will likely be willing to offer defendants a substantial discount against potential damages if they come to the table in short order.

Meanwhile, the banks with larger liability and a more precarious capital situation will be forced to fight these suits and hope to win some early battles to reduce the cost of settlement.  Due to the plaintiff-friendly nature of these claims, I doubt many will succeed in winning motions to dismiss that dispose entirely of any case, but they may obtain favorable evidentiary rulings or dismissals on successor-in-interest claims.  Still, they may not be able to settle quickly because the price tag, even with a substantial discount, will be too high.

On the other hand, trial on these cases would be a publicity nightmare for the big banks, not to mention putting them at risk a massive financial wallop from the jury (fraud claims carry with them the potential for punitive damages).  Thus, these cases will likely end up settling at some point down the road.  Whether that’s one year or four years from now is hard to say, but from what I’ve seen in mortgage litigation, I’d err on the side of assuming a longer time horizon for the largest banks with the most at stake.

Article taken from The Subprime Shakeout –
URL to article: the-government-giveth-and-it-taketh-away-the-significance-of-the-game-changing-fhfa-lawsuits.html



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  1. Using the exhibits filed by the respondents the confusion created by the respondents, the on-record conduct of the Respondents in arrogant defiance and contempt of the this Court’s discharge injunction, and the breaks in chain of title that are self-evident (and clearly shown below), leads to the inescapable conclusion that the application for relief from stay was faked, the foreclosure sale was faked, the deed issued was improper, and the eviction was wrongful even without the issues of forgery and fabrication.
  1. The entire series of events caused by the respondents is based upon the substitution of an illegal notary clause for an actual affidavit with sworn testimony from an actual person with actual knowledge verifying the authority of the signatories and the authenticity of the documents. California notaries are expressly forbidden to attest to the authority of an individual for use in another state. Respondents nevertheless regularly use this device to create the appearance of authority when none exists. They did so when they used the name of Chevy Chase Bank, a defunct bank to apply for relief from stay, and they did so in connection with several key documents without which they would have no color of title to property or loans for which it is clear that had no actual authority or title.
  1. But for this sleight of hand trick by the Respondents, none of the actions to seek relief from stay in Petitioner’s bankruptcy and to collect on a debt that was not due to them, none of the actions for foreclosures, sale or possession would have or could have occurred. The following chain of title report is taken from the Respondents’ own exhibits with reference thereto.

4. Careful scrutiny of the chain disclosed below reveals the unlawful intermediation of parties that were at best conduits but who masqueraded as real parties in interest for the express purpose and intent of stealing from the Petitioner and the undisclosed creditor-investor, who probably still does not know what transpired in these actions. The result was a substantial loss to both the Petitioner and the other creditors of the Petitioner who could have otherwise been paid.

  1. When Chevy Chase applied for relief from stay, it was at best a bookkeeper.  It provided no proof of its own authority as to the decision to foreclose or even to establish the status of the debt. It was presumably receiving instructions from the “creditor.” The “creditor” from whom it was receiving such instructions may be presumed from the actions of the respondents to have been the Respondents themselves, who inserted themselves into the process without any right, justification, excuse or authority. Hence the application for relief from stay was fraudulently filed and procured.







7.2.                  CHEVY CHASE BANK, F.S.B.



8.1.1. Signed (allegedly) by Pamela Campbell as “Assistant Secretary” of MERS while she was employed by Cal-Western Reconveyance who is not and was not a member of MERS.

8.1.2. Campbell’s name has been widely cited as a known robo-signed signature affixed by numerous different people, as can be seen by the different signatures on sets of documents discovered in Maricopa County, corroborated similar reports from California and other states.

8.1.3. Petitioner has learned that whoever signed Pamela Campbell’s name must have used the user ID and password of someone other than Pamela Campbell — Probably someone from US Bank, who was by pretense asserting itself as the creditor.

8.1.4. Based upon Published information in cases, media and the MERS website, these facts would strongly indicate that the substitution of trustee document was neither prepared nor executed by anyone employed by Cal-Western and was probably prepared and executed by one of the many servicer providers that were in the business of fabrication and execution of false documents.



8.3.1.     THUS EITHER FIRST MAGNUS WAS MERELY A NOMINEE FOR AN UNDISCLOSED LENDER AT ORIGINATION OF THE LOAN OR FIRST MAGNUS ASSIGNED THE LOAN TO A THIRD PARTY BEFORE THE FIRST MAGNUS BANKRUPTCY         If First Magnus was a nominee, then it follows that there were two nominees on the Deed of Trust — First Magnus and MERS. Since no other institution was named, that leaves two nominees acting for an undisclosed principal. UNDER ARIZONA LAW NO LIEN COULD BE PERFECTED AGAINST THE LAND WITHOUT DISCLOSURE OF THE CREDITOR.         If First Magnus assigned the loan to a third party before the First Magnus Bankruptcy, the documents submitted by Chevy Chase and the other “successors” are fabrications and forgeries by definition.         EITHER WAY, APPLICATION FOR RELIEF FROM STAY, THE SUBSTITUTION OF TRUSTEE, THE NOTICE OF SALE, THE SALE, THE JUDGMENTS, AND THE EVICTION WERE ALL WITHOUT ANY COLOR OF AUTHORITY.         EITHER WAY, THE ACTS UNDERTAKEN TO OBTAIN THOSE JUDGMENTS WERE CONTRARY TO THE DISCHARGE INJUNCTION ISSUED IN PETITIONER’S CASE.         EITHER WAY THE DEMAND FOR RELIEF FROM STAY BY CHEVY CHASE IN PETITIONER’S BANKRUPTCY WAS WITHOUT COLOR OF AUTHORITY TO ACT ON BEHALF OF A CREDITOR THAT WAS NOT DISCLOSED DESPITE PETITIONER’S REPEATED ATTEMPTS TO REVEAL THE CREDITOR (ALSO CONTAINED IN THE PUTATIVE “SUCCESSORS” EXHIBITS)              Petitioner has determined that the pooling and servicing agreement for the referenced pool contains language that requires the servicer to continue payments to the undisclosed creditor even if the homeowner fails to make payments. Said document also contains numerous references to insurance and credit enhancements that require payments and credits to the undisclosed creditor that were never revealed despite Petitioner’s numerous attempts to obtain said information. See Respondents Exhibits.              Even if Chevy Chase was the authorized servicer at the time it applied for relief from stay, it failed to identify, contrary to OCC requirements, the status of the debt (and of course the identity of the creditor), taking into account all payments made. If the servicer complied with the pooling and servicing agreement then the creditor was receiving payments and reports that the loan was fully performing while at the same time other parties entered the picture out of the chain of title claiming a default. Hence the representation that Petitioner was in default was made either without knowledge or with reckless disregard for the truth.              NO CREDITOR ON RECORD: The record is devoid of any representation from the true creditor that it is the creditor and the current status of the obligation, the amount due and what payments have been received from the servicer or other parties.

8.4.                  ASSIGNEE OF SUBSTITUTION OF TRUSTEE: CAL-WESTERN RECONVEYANCE CORPORATION (alleged by Petitioner robo-signed, forged and fabricated by Cal-Western using signature of Pamela E Campbell as “campbell,” reciting she is Assistant secretary of MERS, using notary clause in violation of California law attesting to Campbell’s authority). In short, Cal-Western appointed itself using an outsource provider to claim deniability as to the source of the document.

8.5.                  ABSENT FROM SUBSTITUTION OF TRUSTEE: AUTHORITY OF PAMELA CAMPBELL, WHO WAS EMPLOYEE OF CAL-WESTERN, NOT MERS. No document has ever been produced showing a corporate resolution from First Magnus, MERS, or even Cal-Western to indicate that Campbell had any authority whatsoever. Instead the “successors” used a faked notary clause that violated California law to attest to Campbell’s authority. These “successors” thought it important to create some attestation of Campbell’s authority so they cannot now take the position that it was unnecessary.  In order to satisfy the requirements of title examination, the authority of Campbell would need to be established as these same “successors” have done in other cases where they filed a false Power of Attorney or Limited Power of Attorney.


9.1.                  TRUSTOR: XXXXXXXXXXXXXX


9.3.                  CURRENT BENEFICIARY: MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (NOT AS NOMINEE), C/O CHEVY CHASE BANK . This is another indication that if MERS contact information for this loan was in care of Chevy Chase Bank FSB, then the document allegedly signed on behalf of MERS would not have been executed at the offices of Cal-Western, where Pamela Campbell worked as Assistant Vice President.

9.4.                CLEAR BREAK IN TITLE: NO MENTION OF FIRST MAGNUS FINANCIAL CORPORATION, “LENDER” IDENTIFIED IN DOT AS SECURED PARTY. Hence, the Notice of Sale was not on behalf of First Magnus, AMBAC, who shows on its website that it administers the pool identified by Respondent US Bank as supposedly owning the loan, nor even US Bank as successor to Assignee of First Magnus. Thus the Notice of Sale clearly states it is for MERS as the creditor, which is universally accepted as factually untrue, and contrary to the application to this Court for relief from stay obtained by Chevy Chase. Note that US BANK remains out of the picture — it is not mentioned on any document, recorded or otherwise.









10.2.5.  AMBAC, ADMINISTERS MORTGAGE BACKED SECURITIES SERIES 2006-4 NEVER MADE A PARTY. AMBAC’s role is not yet known to Petitioner except that it claims ownership or rights to the same pool claimed by US Bank, “as Trustee, relating to” that pool. The presence of AMBAC and its known role in insurance and credit enhancement products for mortgage backed bonds indicates that it may have paid off the balance due to the investor-creditors who were the source of funds on Petitioner’s loan.

10.2.6.  NO CONSIDERATION FOR ISSUANCE OF TRUSTEE DEED: NO TENDER OF CASH OR DEBT OBLIGATION BY NOTE, AFFIDAVIT OR ANY OTHER DOCUMENTATION. NO CONSIDERATION FOR SALE. Thus the deed was issued in derogation of the rights of the true creditor, who remains undisclosed, as well as the rights of any other party who might have rights to the property or could have bid on the property. The result is that US BANK received title to property on which it had never made a loan, never purchased the obligation, and never had any authority to represent the true creditor, whether disclosed or not.

10.2.7.  SIGNED (PURPORTEDLY) BY RHONDA RORIE, WHO WAS UNAUTHORIZED EMPLOYEE NOTARIZING ROBO-SGINED DOCUMENTS FOR CAL-WESTERN, AGAIN alleged by Petitioner robo-signed, forged and fabricated by Cal-Western using signature of RHONDA RORIE as reciting she is A.V.P. of CALWESTERN, using notary clause in violation of California law attesting to RORIE’S authority).










  1. 12.           LETTER FROM QUARLES AND BRADY 2/11/2011: (EXHIBIT (B)


12.2.               Does not assert representation of Specialized Loan Services, Chevy Chase Funding LLC, First Magnus Financial Corporation, Mortgage Electronic registration Systems, or Cal-Western.




COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

New Questions Raised in Mortgage Financing

EDITOR’S COMMENT: I worked on Wall Street and I was an investment banker. I know the mentality. If money is sitting there, they will take it and worry about it later. This article is the tip of the iceberg and it belongs on Page 1. I agree with the NY Times editorial staff about how important this article is. It didn’t get blocked because it was about Bear Stearns, which is defunct. But the story is the same for all the mega banks. They screwed the investors, stole the money, then screwed the investors again, along with the homeowners, and stole the house. And it is still going on.

The “secret pocketing of money” is no secret amongst those who work on Wall Street. To them it was a game and they won and each time a news article comes out missing the point again they have another laugh. Unfortunately the regulators and legislators are buying the spin in the media instead of investigating the facts.

Fictitious “Bonds” (i.e., non-existent) were sold by fictitious “trusts” or “SPV’s” (i.e. non-existent) on the CLAIM that each SPV or Trust consisted of a fictitious pool (i.e., non-existent) each pool containing fictitious “assets” consisting of the fictitious (i.e. non-existent) obligations of homeowners who had been “loaned money” from a fictitious company pretending to be a bank or lender. The practice on Wall Street was called “selling forward” which means you are selling something you don’t have, like selling short, which is selling a stock before you buy it.

THEN a fictitious transaction (i.e., non-existent) was recorded and reported between the party pretending to be a lender but who was acting, at most, as a mortgage broker (unregistered and unregulated). This was the promissory note and mortgage deed or deed of trust. The transaction described in the note and mortgage never happened and was never meant to happen. All the “securitized”loans were table funded, so none of the “lenders” were creditors. They were fee based servicers. The REAL transaction was never committed to writing or recorded or reported.


The pretender at the closing merely transmitted a flat data file like a spread sheet with various pieces of data that the originator inserted manually. If they changed the date of the loan from the closing date tot eh recording date, they now had a second loan to sell to a second loan aggregator, who knew what was going on because they were giving the orders on what to write, when to write it and who to send it to.

The ACTUAL TRANSACTION between the homeowner and the ACTUAL source of funds was never disclosed to either the lender nor the borrower nor ever committed to writing. Hence the representation that there ever was a secured loan was false, and through no fault of the borrower. The documentation from the closing was neither lost nor destroyed but often described as one or both. The sole reason they didn’t want to produce the original documentation was that it would not conform to the deal proposed to the investor and did not conform to the deal made with the borrower. Better to say you lost it or accidentally destroyed it than to admit criminal fraud.

The effect was obvious. The investment bank took the money from the investors and the money paid by borrowers and the money paid by third parties through insurance, credit default swaps, and under cover of cross collateralization and over-collateralization kept the money, obscuring the fact that they were neither paying nor allocating money received to the investor who was the payee of the money nor the borrower who was the obligee.

Thus neither one knew the true status of the loan. The investor was kept in the dark about the continuing receipt of money by the investment firm, and the borrower was kept in the dark (a) about the real lender not being paid money that came in and which was required to be paid against the borrower’s obligation and (b) about the ALLOCATION or ACCOUNTING for the money that the investment bank was receiving and disbursing in the name of the payor (borrower) and payee (lender/investor).

On an arbitrary basis, computations were made an strategies employed to give the appearance of a normal mortgage market but in fact that was all a fiction. The end result is that the investors and insurers were defrauded out of billions fo dollars on losses that never occurred and paid to parties who had no insurable or ownership interest. The very existence of Notice of Default, Acceleration and Notices of Sale, Complaints for foreclosure was and remains a fiction that cannot be supported by the facts. The strategy employed by the pretender lenders is to use the documents describing fictitious transactions as a substitute for alleging real facts and THEN introducing the documents as proof of those facts alleged.

Judges relying on their law school days or when they practiced law before this historical scheme was developed, are ruling on the basis of presumed facts that do not exist. They are presuming those facts based upon documents that describe transactions that do not exist. The sole hook on which they hang their hat is whether the borrower received the benefit of the loan. But Judges to themselves, the judicial system and most importantly the title recording system a disservice when they presume that the documents are anything more than ink on paper without any value, derived or otherwise.



Banks have been fighting with disgruntled bond investors and insurers for months, arguing that they do not need to buy back soured mortgages they placed inside securities before the financial crisis.

Now, it turns out, some of those banks may have secretly collected partial payments on those same mortgages several years ago and pocketed that money.

At least that is a theory being pursued by plaintiffs’ lawyers in some of the largest mortgage bond lawsuits, in which banks are accused of filling mortgage bonds with loans that did not belong there.

The theory surfaced in a recently unsealed lawsuit against a mortgage unit at Bear Stearns, the failed investment bank that is now part of JPMorgan Chase.

In the suit, the Ambac Assurance Corporation, which insured some mortgage bonds created by Bear Stearns, contends that the bank was partly compensated by loan originators for mortgages that became delinquent shortly after they were packaged into securities. Bear Stearns’s mortgage desk kept the payments, according to the suit, rather than apply them to the bonds that contained the delinquent loans.

Interviews with more than a dozen former workers at several big banks, including Lehman Brothers and Deutsche Bank, suggest that several banks received millions of dollars at a time in such payments, known as early-payment-default settlements.

But the money trail of these settlements is murky. It is unclear how much of the money was added to bankers’ profits — and bonuses — and how much was forwarded to buy out bad loans from mortgage bonds.

Whether or not the settlement payments were shared with mortgage investors, they are likely to be used in court to show that Wall Street banks knew about the growing stream of mortgages that had missed payments within their first 90 days, a common sign of mortgage fraud. That sort of evidence may matter to government investigators at places like the Securities and Exchange Commission, which is looking into whether banks misrepresented the sorts of mortgages placed in bonds.

At Bear Stearns, there seems to have been some knowledge of the failing loans, according to the Ambac case. Ambac says there is evidence of more than 100 early-default settlements for batches of loans that soured quickly. An example in that case describes an $11 million payment for one batch of loans. For another batch of “at least 12 loans,” there was a $2.6 million payment.

Ambac’s case was filed in federal court, but a judge there ruled this week that the case belonged in a different jurisdiction. Erik Haas, a lawyer for Ambac, said the company planned to refile in state court.

JPMorgan Chase, which bought Bear Stearns three years ago, said Ambac was a sophisticated investor that knowingly took risks in its deals.

“We do not believe Ambac’s claims are meritorious and intend to defend Bear vigorously,” said Jennifer Zuccarelli, a JPMorgan spokeswoman. Ms. Zuccarelli would not comment on Bear Stearns’s use of settlement payments.

Banks like JPMorgan face lawsuits brought by insurance companies and large asset managers that had purchased mortgage bonds when housing was booming. These investors want to return the bonds to the banks and get their money back. The banks disagree, saying the buyers of these securities were sophisticated investors who bought the bonds with open eyes and should have understood the risks.

Some lawyers in those cases said the accusation against Bear Stearns, if true, would be a stunning instance of wrongdoing, because it would indicate that its mortgage operation essentially double-dipped: selling a mortgage into a mortgage bond at full price and also pocketing a settlement for that same mortgage when it went sour.

“If they knew the loans were defaulting, the money should have been passed on to investors,” said Jerry Silk, a lawyer with Bernstein Litowitz who is representing numerous mortgage investors in suits against banks. “We’ve heard this a lot, and we’re trying to prove it. It would be a home run for us.”

The search for a home run has compelled mortgage bond investors to look back to when they first bought their investments. Around 2005, the number of mortgages that went bad began rising. Bankers were in the middle, between the firms that originated the loans and the investors who bought bonds with them.

Mortgage originators at that time did not have enough cash to buy back the loans in full. So banks offered a deal: if the originators gave them a partial cash payment, or a discount on future loan purchases, the banks would drop their requests that originators repurchase the delinquent loans.

This helped the mortgage companies preserve cash, and it appeased the bankers. But, in many cases, it is unclear if the partial payments benefited holders of the mortgage trusts that held the relevant mortgages.

It seems there was no standard accounting of the payments among the various banks, particularly in cases where banks received future discounts or other benefits instead of cash.

At the mortgage company New Century, for instance, banks agreed to reduce the number of souring loans they returned to the originator in exchange for the right to buy some of the originator’s next batch of loans, according to testimony given to Michael Missal, a lawyer with K&L Gates who prepared New Century’s bankruptcy report.

That deal with New Century was valuable to banks because they needed more mortgages to keep their lucrative mortgage bond machines going.

It is also unclear whether the banks had a legal obligation to pass the benefits from early-default settlements to the mortgage investors.

Workers who negotiated some of these settlements at Bear Stearns or at other Wall Street firms said last week that they did not know where the payments ended up. “The further and further I get from that business, the more I realized how siloed we were,” said one former mortgage salesman at Lehman Brothers who spoke only on the condition of anonymity. “No one knew what anyone else was doing.”

A former Bear Stearns worker, who negotiated such settlements between it and originators, said: “I was the messenger of the bad news. I was going back to these originators to say ‘Listen, we purchased some of these and they’re having problems.’ ”

“But,” this worker said, after he received the settlements, “I had no visibility into where the money went when I sent it up the food chain.”

Even Ambac’s lawyers at first did not know the extent of the payments at issue, but the company filed an amended complaint describing them after learning some new information from the producer of a coming documentary about Bear Stearns, “Confidence Game.”

Tracing such payments is tricky because of the large number of players in the mortgage machine: mortgage originators sold loans to banks, and then the banks packaged them into mortgage bonds to sell to mortgage investors. The originators did not generally communicate with mortgage investors, so neither side knows exactly what Wall Street’s middlemen did with the money or side agreements.

Tom Capasse, a principal at Waterfall Asset Management in New York, ran models to spot early signs of trouble in the bonds he purchased. He said that about 75 percent of the time that he found a problem, the bank that created the deal came forward without prompting and repurchased the bonds.

But a quarter of the time, Mr. Capasse said, he had to report a missed payment and raise questions about the loans for them to be repurchased by the bank. Banks, he said, might not have minded if other investors did not report such problems. “Banks were facing a death spiral in terms of early mortgage defaults,” he said, “so they just didn’t buy them back.”


“The securitization of debt was in reality a distribution of cash unsupported by any rightful claim to it.”

EDITOR’S NOTE: Another unthinkable “counter-intuitive” part of the process of disintegration on Wall Street. AMBAC, whose business was insuring those alleged mortgage bonds that turned out to have nothing in them, is going broke. Like its competitor, AIG, it paid out billions of dollars on non-existent losses declared by deviant investment bankers on pools of assets that were entirely empty.

Neither AMBAC nor AIG should have any financial trouble at all. They accepted premiums and issued contracts with terms and conditions that were not met. Not only did the pools not contain conforming loans (using industry standard underwriting), the pools never contained anything at all. In short, the insurers, like the investors and the homeowners and then the taxpayers have been defrauded.

Neither AMBAC nor AIG have or did they ever have any liability on those contracts because the underwriters who created the securities that were insured did not fulfill the conditions of the contract for insurance. Not only did they and do they have no liability, they have an asset — a receivables from all the payments that were made under false pretenses and should be recovered. This holds true for all the insurers. It is also true for the counterparties on credit default swaps. The paperwork “mess” is nothing of the kind. It is a failure of conditions precedent for liability. If it was the homeowner making a claim on an insurance policy, coverage would be denied. The most the homeowner could hope for, and probably not get, is rescission, wherein his premiums would be returned.

The claimed “waivers” in the contracts did not waive claims based on fraud.

All of this goes to show that both Wall Street and the government is in Neverland. They steadfastly refuse to see what is right in front of them. The securitization of debt was in reality a distribution of cash unsupported by any rightful claim to it. The “lender” is an empty shell whether or not it remains in existence: it is the loan originator whose name appears on the settlement papers executed with the homeowner, which papers were recorded in the county records, unsupported by any financial transaction between the borrower and that loan originator. Thus the mortgage or deed of trust is a nullity and those who had improper access to the cash have no rights to enforce the obligation.

The transfer of the alleged loan obligations never took place because it was not documented correctly in the first place. It could not be transferred until that was done. The subsequent documents of transfer are fabrications and forgeries created long after the transaction with the borrower and long after the the “pools” had been closed out with nothing in them. Besides the cutoff date in the securitization documents, and the cutoff date in the REMIC Statute, the transfer of an obligation in default is a clear fraud on the investors who advanced the money for GOOD mortgages not BAD ones.

BOTTOM LINE: The insurance contract was purchased under contractual terms that were never fulfilled and were procured under false pretenses. The business model for bond insurance need not be in danger, unless we are willing to accept Peter Pan as the emperor of Wall Street, clothed or not. My unsolicited advice to bankers is that they reverse position, lest that haircut they rejected turn into a decapitation.

Ambac warns over prospect of bankruptcy

By Aline van Duyn in New York, FINANCIAL TIMES

Published: November 1 2010 20:14 | Last updated: November 1 2010 23:26

Ambac, the US bond insurer that once provided triple A guarantees on hundreds of billions of dollars worth of debt, said on Monday it may have to file for bankruptcy this year.

The move is a further blow to the bond insurance model, in which thousands of US municipalities bought insurance to get higher credit ratings on their debt. That structure now looks increasingly unlikely to survive the financial crisis.

“The fact that Ambac is close to declaring bankruptcy is significant because bond insurers were not supposed to ever go bankrupt at all,” said Matt Fabian, senior analyst at Municipal Market Advisors, an independent research company. “It is very likely that bond insurance is not going to return for municipal finance, or at least not in the model that we have known.”

Ambac’s board of directors said in a regulatory filing on Monday that it had decided not to pay interest on bonds after it was un­able to raise capital “as an alternative to seeking bankruptcy protection”.

The holding company is working with bondholders to restructure debt through a “prepackaged bankruptcy”, but may file for Chapter 11 bankruptcy before the end of the year, the statement said.

Shares in Ambac fell 50 per cent to close at $0.41.

The bond insurer has been under financial pressure since the collapse of the US housing market. Defaults on risky mortgages forced it to pay out more than anticipated on bonds linked to those mortgages. Ambac and other bond insurers had branched out into structured finance in search of higher profits than were available in their traditional business of insuring municipal debts.

Regulators in Wisconsin, the state where Ambac is registered, seized part of the bond insurer’s business in March, forcing it to suspend payments on policies linked to soured mortgages. It was done in part to protect the public finance market guarantees from the fallout of the ill-fated mortgage business.

The regulators’ plan, which relates to the operating company and would therefore not be directly affected by the holding company’s bankruptcy filing, is expected to come before a court later this month for approval. The move has been challenged by some of the policyholders of guarantees on structured bonds, such as hedge funds. The regulators declined to comment.

Assured Guaranty, backed by billionaire Wilbur Ross, remains the only active bond insurer, reflecting its limited exposure to mortgage bonds. However, it lost its last triple A rating last month.

Standard & Poor’s linked the downgrade to the lack of demand for bond insurance, which could limit “the potential for the re-emergence of a strong and vital bond insurance sector”.

Allocating Bailout to YOUR LOAN

Editor’s Note: Here is the problem. As I explained to a Judge last week, if Aunt Alice pays off my obligation then the fact that someone still has the note is irrelevant. The note is unenforceable and should be returned as paid. That is because the note is EVIDENCE of the obligation, it isn’t THE obligation. And by the way the note is only one portion of the evidence of the obligation in a securitized loan. Using the note as the only evidence in a securitized loan is like paying for groceries with sea shells. They were once currency in some places, but they don’t go very far anymore.

The obligation rises when the money is funded to the borrower and extinguished when the creditor receives payment — regardless of who they receive the payment from (pardon the grammar).

The Judge agreed. (He had no choice, it is basic black letter law that is irrefutable). But his answer was that Aunt Alice wasn’t in the room saying she had paid the obligation. Yes, I said, that is right. And the reason is that we don’t know the name of Aunt Alice, but only that she exists and that she paid. And the reason that we don’t know is that the opposing side who DOES know Aunt Alice, won’t give us the information, even though the attorney for the borrower has been asking for it formally and informally through discovery for 9 months.

I should mention here that it was a motion for lift stay which is the equivalent of a motion for summary judgment. While Judges have discretion about evidence, they can’t make it up. And while legal presumptions apply the burden on the moving party in a motion to lift stay is to remove any conceivable doubt that they are the creditor, that the obligation is correctly stated and to do so through competent witnesses and authenticated business records, documents, recorded and otherwise. All motions for lift stay should be denied frankly because of thee existence of multiple stakeholders and the existence of multiple claims. Unless the motion for lift stay is predicated on proceeding with a judicial foreclosure, the motion for lift stay is the equivalent of circumventing due process and the right to be heard on the merits.

But I was able to say that the the PSA called for credit default swaps to be completed by the cutoff date and that obviously they have been paid in whole or in part. And I was able to say that AMBAC definitely made payments on this pool, but that the opposing side refused to allocate them to this loan. Now we have the FED hiding the payments it made on these pools enabling the opposing side (pretender lenders) to claim that they would like to give us the information but the Federal reserve won’t let them because there is an agreement not to disclose for 10 years notwithstanding the freedom of information act.

So we have Aunt Alice, Uncle Fred, Mom and Dad all paying the creditor thus reducing the obligation to nothing but the servicer, who has no knowledge of those payments, won’t credit them against the obligation because the servicer is only counting the payments from the debtor. And so the pretender lenders come in and foreclose on properties where they know third party payments have been made but not allocated and claim the loan is in default when some or all of the loan has been repaid.

Thus the loan is not in default, but borrowers and their lawyers are conceding the default. DON’T CONCEDE ANYTHING. ALLEGE PAYMENT EVEN THOUGH IT DIDN’T COME FROM THE DEBTOR.

This is why you need to demand an accounting and perhaps the appointment of a receiver. Because if the servicer says they can’t get the information then the servicer is admitting they can’t do the job. So appoint an accountant or some other receiver to do the job with subpoena power from the court.

Practice Hint: If you let them take control of the narrative and talk about the note, you have already lost. The note is not the obligation. Your position is that part or all of the obligation has been paid, that you have an expert declaration computing those payments as close as  possible using what information has been released, published or otherwise available, and that the pretender lenders either refuse or failed to credit the debtor with payments from third party sources —- credit default swaps, insurance and other guarantees paid for out of the proceeds of the loan transaction, PLUS the federal bailout from TARP, TALF, Maiden Lane deals, and the Federal reserve.

The Judge may get stuck on the idea of giving a free house, but how many times is he going to require the obligation to be paid off before the homeowner gets credit for the issuance that was was paid for out of the proceeds of the borrowers transaction with the creditor?

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court

By Bob Ivry

April 14 (Bloomberg) — The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Regardless of whether the Fed appeals, the Clearing House will take the next legal step by asking for a review by the full appellate court, Saltzman, 49, said at his office in New York. If the ruling is unfavorable, the bank group will petition the Supreme Court, he said.

Joined Lawsuit

The 157-year-old, New York-based Clearing House Payments Co., which processes transactions among banks, is owned by its 20 members. They include Citigroup Inc., Bank of New York Mellon Corp., Deutsche Bank AG, HSBC Holdings Plc, PNC Financial Services Group Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

The Clearing House Association, a lobbying group with the same members, joined the lawsuit in September 2009, after an initial ruling against the central bank in federal court in Manhattan.

The Fed is “reviewing the decision and considering our options,” said Fed spokesman David Skidmore in Washington. He had no comment on Saltzman’s plans.

Attorneys face a May 3 deadline to file their appeals.

“We’ll wait to see the motion papers,” said Thomas Golden, attorney for Bloomberg who is a partner at New York- based Willkie Farr & Gallagher LLP. “The judges’ decision was well-reasoned, and we doubt further appeals will yield a different result.”

Bloomberg sued in November 2008 under the U.S. Freedom of Information Act, after the Fed denied access to records of four Fed lending programs and a loan the central bank made in connection with New York-based JPMorgan Chase’s acquisition of Bear Stearns Cos. in March 2008.

231 Pages

The central bank contends that 231 pages of daily reports summarizing lending activity, which were prepared by the Federal Reserve Bank of New York for the Fed Board of Governors in Washington, aren’t covered by the FOIA. The statute obliges federal agencies to make government documents available to the press and the public. The suit doesn’t seek money damages.

The Fed released lists on March 31 of assets it acquired in the 2008 bailout of Bear Stearns.

The New York Times Co., the Associated Press and Dow Jones & Co., publisher of the Wall Street Journal, are among media companies that have signed up as friends of the court in support of Bloomberg.

The Fed Board of Governors’ “refusal to disclose the names of borrowers renders public oversight of its actions impossible — it prevents any assessment of the effectiveness of the Board’s actions and conceals any collusion, corruption, fraud or abuse that might have occurred,” the news organizations said in a letter to the appeals panel.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporter on this story: Bob Ivry in New York at

Last Updated: April 14, 2010 00:01 EDT

Profits Surge as Declared Losses Vanish: Are the defaults real?

And THAT is why you are entitled to compel discovery, compel answers to your QWR, DVL and other requests. If the losses were not real, if the pools were marked down solely on the say-so of the financial institutions that created them, if the default rate was really much lower than the declared defaults, if AMBAC, AIG and others made payments on those pools, and if the investors, as the creditors in the loan transactions received payments directly or indirectly (through their agents) then some part of those payments were allocatable and should be allocated to your loan. Thus all loans in the pool should be credited pro rata with the amounts received from third party payments. Homeowner obligations declared in default would then be either premature or incorrectly stated in the amount due. Other loans that were not delinquent should have had the principal reduced — none of which was accounted for because the intermediary pretender lenders kept the money for themselves.

Editor’s Note: Ambac’s Profit Surge is the result of illusory losses that are now being recaptured. The “game” was to declare huge losses, take in taxpayer dollars and then gradually filter the money back into the company thus creating guaranteed earnings rising steadily and thus providing an increase in the price-earnings ratio. The investment houses are doing the same thing. They made trillions of dollars is cash profits, declared trillions in paper losses and scared the public and government into giving them money to prevent the collapse of the financial system.

Since trust and confidence in the system is the foundation, it didn’t matter whether they were telling the truth as long as most people believed the lie. The taxpayer bailout was necessary as a symbolic gesture to assure the world that there was always backing by the U.S. Federal government.

The question for these institutions is whether the defaults in home loans were declared prematurely (or falsely) or even caused by policies designed to give credence to the big lie and to provide them with yet another source of windfall profits by picking up homes that are sold in foreclosure at a fraction of the original loan amount. As stated in numerous articles before on this blog, the ONLY people who actually lost money are the investors who advanced the real money into a pool that was used to fund mortgage closings (and also used to fund absurd profits on fees, yield spread premiums etc.) and the homeowners who advanced their homes as collateral on loan products that were sold to them under false pretenses. Both the mortgage backed securities and the loans were sham financial transactions.

And THAT is why you are entitled to compel discovery, compel answers to your QWR, DVL and other requests. If the losses were not real, if the pools were marked down solely on the say-so of the financial institutions that created them, if the default rate was really much lower than the declared defaults, if AMBAC, AIG and others made payments on those pools, and if the investors, as the creditors in the loan transactions received payments directly or indirectly (through their agents) then some part of those payments were allocatable and should be allocated to your loan. Thus all loans in the pool should be credited pro rata with the amounts received from third party payments. Homeowner obligations declared in default would then be either premature or incorrectly stated in the amount due. Other loans that were not delinquent should have had the principal reduced — none of which was accounted for because the intermediary pretender lenders kept the money for themselves.

By Alistair Barr & John Spence, MarketWatch

SAN FRANCISCO (MarketWatch) — Ambac Financial Group Inc. shares surged 71% on heavy volume Friday, after the bond insurer said it swung to a fourth-quarter net profit.

Ambac (ABK 1.10, +0.46, +71.47%) said late Thursday that quarterly net income was $558.1 million, or $1.93 a share. That compares with a net loss of $2.34 billion or $8.14 a share in the same period a year earlier.

The improvement was mainly driven by a $472 million tax benefit, the company said, as well as by lower expenses from losses in its main financial-guarantee business.

Total net loss and loss expenses were $385.4 million in the fourth quarter of 2009, down from $916.4 million in the final quarter of 2008, Ambac reported.

Ambac, one of the world’s largest bond insurers, has been hit hard by losses from mortgage-related guarantees it sold during the housing-market boom of the last decade. When the real-estate market collapsed, Ambac was left paying big claims on those guarantees.

Last month, the regulator of Ambac’s main bond-insurance subsidiary, Wisconsin’s Office of the Commissioner of Insurance, seized a big chunk of its business to protect hundreds of billions of dollars in guarantees on municipal bonds. See Read about Ambac “amputation.”

Ambac also has been settling some of its obligations at large discounts, partly because counterparties worry that the bond insurer is too financially precarious to pay anywhere near 100 cents on the dollar on its guarantees.


“The transfer of structured finance obligations to the state regulator and the subsequent payment at a discounted rate is a de-facto default,” said Egan-Jones Ratings, a rating agency that’s paid by investors rather than issuers, on Friday. “However, credit quality of the remaining corpus is enhanced.”

Egan-Jones affirmed its rating on Ambac at BB+, but noted this rating only applies to the business units that aren’t seized by the Wisconsin regulator.

Shares of Ambac dropped after the seizure was announced, and recently traded near 50 cents. The company’s stock traded close to $100 before the financial crisis.

On Friday, the stock surged 71% to close at $1.10 as almost 200 million shares changed hands. The average weekly trading volume is 72 million shares, according to FactSet data.

Still, Jim Ryan, an equity analyst at Morningstar, said Ambac’s quarterly results weren’t as strong as suggested by the company’s reported net income of $1.93 a share.

“For all the favorable accounting benefits, the fact remains that Ambac has not written any new business in more than a year and continues to exist in runoff mode,” Ryan wrote in a note to investors on Friday.

When analyzing insurers in “runoff,” investors should try to work out whether there are enough reserves to settle claims on existing policies, Ryan explained.

Ambac’s qualified statutory capital fell almost 70% in 2009 while total claims paying resources dropped 20% for the year, he noted.

“With little improvement in the housing market (Ambac’s primary source of claims) and the potential for a double dip in housing prices on the horizon, which could contribute to the growing inventory of potential foreclosures, we think the future remains opaque, to say the least,” Ryan wrote.

Alistair Barr is a reporter for MarketWatch in San Francisco. John Spence is a reporter for MarketWatch in Boston.

SELF-DEALING Part 1: Goldman Scheme Revealed

The problem is not that the mortgages are in default. The problem is that the investment banks are in default of their obligations to investors and homeowners. Until Government and the Courts realize this simple fact, they will never untangle the debris caused by the illusion of a crash. If that day ever comes, more than 80% of our problems will vanish.”

“Legally, the ONLY way these mortgages could be viewed as being delinquent or in default is if we add a SECOND or THIRD party to the transaction each of whom is entitled to FULL payment. Sound impossible? That is exactly how millions of foreclosures have already been done and ratified by courts and judges over whose eyes the wool is so thick they err on the side of “blind” and forget about “justice.”

Editor’s Note: The article below shortens the analysis required to follow what really was going on. In simple terms, Goldman created toxic waste and sold it as gold. Goldman then bet that it was toxic waste, which was no “bet” since they knew for sure. When it turned out to be toxic waste, they collected on the bet. So they collected twice — first when they sold it to investors, and second when they collected on the “insurance.”

The investors were hung out to dry, along with the borrowers. Both lost the full value of their investment (measured in cash and/or property or liability), and both were left with potential greater liability than their investment if they pursued legal relief.

The point now being raised in the media is the realization of what we said 2 years ago — they had to CREATE toxic waste that would not suddenly convert to a performing loan.

Like the Broadway production or the movie, The Producers, if the loans started performing, then the accounting would show that the investment banks had only used a small percentage of the proceeds of sale from mortgage backed bonds to actually fund mortgages.

So, as we point out in the articles coming out today, Goldman and others inserted a provision that we pointed out 2 years ago wherein Goldman would declare the toxicity of the asset, thus forcing the market into a downward spiral. This gave them double the security and peace of mind they needed to know that the market would definitely crash. (It was actually Bear Stearns and Lehman who first invoked this provision).

The significance of this for homeowners is that in order to accomplish the goal of creating toxic loans that could not perform under any circumstances, a chain of securitization had to evolve in which homeowners would be induced to purchase the loan product under the mistaken impression it was a safe investment based upon representations of the “underwriter,” “appraiser” etc. This was a mirror of what was done to the pension funds who bought the pools of loan product under the mistaken impression that it was a safe investment based upon the representations of the underwriter, ratings agency etc.

This means that the securitization chain was created with the deliberate intent to create bad loans that would end up in “default” and in foreclosure. The only two real parties in interest — pension fund and homeowner were the only ones that actually lost money. Some investment banks also lost money if they were not in on the game.

The taxpayers bailed out the only parties who did NOT lose money, which explains the large bonuses while the economy is in “crisis.”

The mortgages and notes of “borrowers” were paid off several times over, as were the investments of the pension funds. The problem is not that the mortgages are in default. The problem is that the investment banks are in default of their obligations to investors and homeowners. Until Government and the Courts realize this simple fact, they will never untangle the debris caused by the illusion of a crash. If that day ever comes, more than 80% of our problems will vanish.

“Legally, the ONLY way these mortgages could be viewed as being delinquent or in default is if we add a SECOND or THIRD party to the transaction each of whom is entitled to FULL payment. Sound impossible? That is exactly how millions of foreclosures have already been done and ratified by courts and judges over whose yes the wool is so thick they err on the side of “blind” and forget about “justice.”

The ONLY way to peel away the layers over the eyes of government and the courts is to attack through discovery, contested factual issues and the requirements of proof.

Wednesday, December 23, 2009

“Body Count From Goldman Actions Crosses Into Criminal Territory”

By Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC.

Readers may have noticed Janet Tavakoli’s recent article at Huffington Post on Goldman Sachs and AIG. While much of it covers territory that Yves and I already wrote about previously, Ms. Tavakoli stops short of telling the whole story. While she is very knowledgeable of this market, perhaps she is unaware of the full extent of the wrongdoings Goldman committed by getting themselves paid on the AIG bailout. The Federal Reserve and the Treasury aided and abetted Goldman Sachs in committing financial and ethical crimes at an astounding level.

She notes, accurately, that Goldman used AIG to hedge its bet on CDO’s, either for itself with the Abacus deals, or for its clients, with the Davis Square deal. Had AIG failed, Goldman would have been on the hook for the losses: to execute the CDO with synthetic mortgage bonds, Goldman went “long” the CDS and then turned around and went “short” with AIG, effectively taking the risk of the mortgage bonds defaulting and then transferring it to AIG.

But Ms. Tavakoli fails to note that the collapse of the CDO bonds and the collapse of AIG were a deliberate strategy by Goldman.

To realize on their bet against the housing market, Goldman needed the CDO bonds to collapse in value, which would cause AIG to be downgraded and lead to AIG posting collateral and Goldman getting paid for their bet. I am confident that Goldman Sachs did not reveal to AIG that they were betting on the housing market collapse.

To help hasten the housing market collapse, Goldman ran a huge mortgage lending and issuance program with low quality loans virtually designed to fail, including dozens of deals backed by completely toxic non-prime second lien loans (these loans help pump up the housing bubble and let borrower’s suck the equity out of their homes).

In soliciting AIG’s insurance for the CDOs, Goldman was not disclosing that the transaction was highly speculative. Goldman was offering AAA, or even super AAA bonds. Goldman designed and sold these bonds and purchased a rating from the rating agencies that represented the risk to be AAA. In fact, the bonds did not provide real protection, despite their AAA rating, and when the housing market turned down, the AAA CDO bonds collapsed in value exactly as they were designed to do.

Goldman never wanted these CDOs to succeed – their bet depended on them failing. This is why they used AIG as their insurer – AIG posted collateral, which enabled Goldman to still get paid even when AIG inevitably got downgraded for taking on such toxic deals.

Goldman needed AIG’s insurance to complete this bet and get them off risk for the CDO they created

Hedge fund manager John Paulson and others used the same strategy. Goldman’s bet was risky because they depended on AIG being solvent in order to get paid. Other parties who made similar betters, but relied on the other bond insurers to pay them off ended up getting hurt when the bond insurers got downgraded and the trade did not pay off, as well.

Months before AIG received its bailout, Goldman was well aware of the risk that insurers would pay less the full amount of the CDOs – Goldman was advising FGIC in its restructuring efforts and FGIC negotiated a CDO commutation for ten cents on the dollar. Goldman mitigated the risk of downgrade by dealing exclusively with AIG, which was required to post collateral in the event of a downgrade.

Goldman also misled shareholders and investors by proclaiming that they were not exposed to toxic CDOs because they were hedged with AIG, even as the bond insurers (AIG’s direct competitors in the CDO market), were getting downgraded.

It is bad enough that the creators and sellers of the CDOs, such as Goldman, BlackRock and TCW, have not been held to account for selling worthless bonds while representing them to be of AAA quality. Most of these influential power brokers have succeeded in blaming the victim (investors and insurers who believed their lies about the quality of the bonds) for the financial crisis to distract from their own questionable activities.

Goldman goes quite a few steps further into despicable territory with their other actions and the body count from Goldman’s actions is so enormous that it crosses over into criminal territory, morally and legally, by getting taxpayer money for their predation.

Goldman made a huge bet that the housing market would collapse. They profited, on paper, from the tremendous pain suffered by homeowners, investors and taxpayers across the country, they helped make it worse. Their bet only succeeded because they were able to force the government into bailing out AIG.

In addition, the Federal Reserve and the Treasury, by helping Goldman Sachs to profit from homeowner and investor losses, conceal their misrepresentations to shareholders, destroy insurers by stuffing them with toxic bonds that they marketed as AAA, and escape from the consequences of making a risky bet, committed a grave injustice and, very likely, financial crimes. Since the bailout, they have actively concealed their actions and mislead the public. Goldman, the Fed and the Treasury should be investigated for fraud, securities law violations and misappropriation of taxpayer funds. Based on what I have laid out here, I am confident that they will find ample evidence.

Update 12/23, 1:00 PM: Yves here. Some readers in comments are dismissing this post as mere Goldman bashing, when its behavior was far more pernicious. I was remiss in not adding a critical bit of Tom’s argument, which he provided in a separate post:

While the sub-prime deals and CDOs were obviously going bad, an argument was made by many people at the time that the aggressive mark downs by AIG accelerated the death spiral for the market.

It is pretty clear, here and elsewhere, that Goldman was the one that initiated the mark downs of collateral value. It would be interesting to explore this all the way through. Though not discussed in this article, Goldman shorted subprime through the Abacus deals, and perhaps elsewhere. this gave them an incentive to force mark downs. the intermediation deals described in the article, combined with AIG’s collateral posting, gave them another incentive to be aggressive with mark downs. they were acting like they wanted to grab the money before anyone else could get their hands on it. this would have raised some issues in an AIGFP bankruptcy. (note – Hank Greenberg suggested that this was going on in his October 2008 testimony but there was a chorus of attacks on him for being a crook and unreliable, thanks to his problems with Spitzer.)

So here we have the pattern:

1. Goldman creates or sells $23 billion (or more) of CDOs and stuffs them into AIG.

2. Goldman proclaims to the world they have no exposure to CDOs and warns that banks and insurers with CDO exposure will get downgraded.

3. Goldman initiates the mark downs of CDOs with AIG and others, accelerating the market’s downward spiral.

4. Huge mark to market losses lead insurer and bank credit to freeze, short term markets to lock up, ABCP to collapse.

5. AIG posts as much collateral as it has to Goldman, who has more aggressively marked down the exposure.

6. Bond insurers are downgraded, banks begin commutations with them.

7. AIG fails, Fed steps in, Goldman gets bailed out at par.

Let them fall: AIG, AMBAC, Investment Banks

While my editorial opinion has been fairly obvious in these articles, I feel the need to express them directly.

The fundamental truth that is missed in the media and those in government and finance close to the microphones is that this did not start with the borrowers — it started with the investors who bought securities backed by non-existent mortgages and non-existent and/or non-negotiable notes.

The world credit market froze up not because of a some bad loans in the United States or a decline in property values, but because the paper — nearly all of it — was bad paper. It wasn’t bad risk management or even lack of regulation that caused the meltdown, it was the investment banking community’s boldness in violating every law, rule and regulation known to State and Federal regulators.

They forged documents, destroyed documents and “lost” documents, because to produce them would have been an admission of criminal fraud. The reason the credit markets have frozen up is that bankers, who will tolerate stupidity and bad judgment in each other, will not tolerate outright dishonesty and lying.

Investors will not come to the table to buy securities from the thieves who stole from them so recently. Paulson’s “bailout” package was ridiculous. He has no idea how to apply the money and rightfully so — the package was designed to help the thieves instead of the victims. The statement intended was that the U.S. government will not let the infrastructure fall. The statement was heard as a government that was owned and controlled by the thieves dipping into taxpayer money under cover of scare tactics. IT WAS A MESSAGE THAT SAYS THIS BEHAVIOR WILL BE TOLERATED IF IT IS BIG ENOUGH, AND THAT IT COULD HAPPEN AGAIN.

Free markets are free only when there is a referee who blows the whistles, issues penalties, and otherwise disciplines the players. Imagine a basketball, football or baseball game without any referees. Here the regulators were part of the scheme, as were all the participants, because they were creating money and keeping most of it. The fear that letting the big players go down will destroy the infrastructure is a myth and is causing policy decisions to be made that are just plain nonsense.

Like it or not, this was a case of selling securities under false pretenses, intentional misrepresentations, and cover-ups that were worthy of the arrogant Watergate and other scandals. There are thousands of banks, investment banks, and insurers who can step in to fill the void created by the collapse of the major players here who caused this and only by letting them fall can we send the signal to the world that the United States doesn’t tolerate such bad behavior and will let the consequences fall where they may.

There are tens of thousands of insurance policies covering errors and omission, title, and fiduciary responsibilities for the appraisers, mortgage brokers, and lenders that were party to this gigantic fraud. It’s a lawyer’s dream.

The selling of these securities defrauded millions of people, government entities, pension funds, hedge funds, mutual funds and companies who thought they were buying cash equivalent securities when in fact they were buying garbage.

Like it or not, millions of people were solicited into signing up for mortgages they didn’t need or want and where the terms frequently changed at closing. There was no precedent for banks not caring whether the loan worked or not. Everyone assumed that the underwriting departments would reject toxic waste loans. That they effectively closed their underwriting departments because they were not at risk and were paid a fee of around 2.5% to look the other way as they “rented” their charter to unscrupulous unregulated, unregistered players.

In addition to the investors, the victims here are the borrowers, cities and states who were fooled by the apparent increase in prices caused not by demand for homes or mortgages, but by supply of money that was illegally created.

The plain fact is that nearly ALL the paper is worthless, there are no mortgages, there are no notes, and there are no obligations. Nearly every homeowner who took a mortgage between 2001 and 2008 is entitled to have their home declared free and clear of any mortgage encumbrance or debt. That is why the paper is worthless. And in world finance the knowledge of that awesome fact has created doubt and suspicion about the rest of the credit market which is 100 times the size of the mortgage credit market. Nobody trusts anybody in risk management, rating of securities, appraisals, or representations. THAT CAN ONLY BE RESTORED BY COMPLETE TRANSPARENCY AND EASY WAYS TO CHECK THE VALUE AND QUALITY OF SECURITIES.

Over a year ago and several times since I have proposed a “bailout” that required no money from the Federal government, demonstrated our good intentions to make amends, and to restore the investors and borrowers, as much as possible, to their position before the Great Fraud of 2001-2008 took place.

All that is required is an equity appreciation clause or instrument that writes down the mortgages back to real value (i.e., real proceeds from sale if the property were sold) and shares the increase in value that time always provides between the the investors and the borrowers — not the banks and investment banks. The latter already got paid several times over. The “notes” were evidence of obligations that had been satisfied several times over and unilaterally changed at the whim of thieves after the loan closing took place.




The government’s attempt to paper over this crisis is dangerous and wrong. It floods the market with even more new money when most of the money out there is declining in value daily. It creates the environment for hyperinflation that could go on for years. If you really want to stop the crisis the answer is to tell the truth and correct the REAL problems. Settling with homeowners with reasonable mortgage terms that they can afford and with equity appreciation clauses of secondary mortgages can restore some if not all of the value of the securities the investors bought and takes the U.S. government out of the business of being the investor of last resort.

Of course this is just my opinion and I can’t offer legal advice to anyone outside of Florida, so check with your local counsel, who probably knows nothing about securitization. My advice is legally without value in any other state so you must seel local lciensed counsel in order to comply with the laws of your state which prevent you from having access to lawyers who really could help.

Foreclosure Offense: You’re Up to Date — But Paying the Wrong Party?

You could be up to date in all your payments. Your billing proves it. And yet, the person (Mr. Investor) who loaned you the money for your mortgage is not getting the payments. This person steps forward and says you owe all the payments from the date of the loan, including interest, late payments, late fees, attorney fees and costs.He’s saying you owe the money all over again. Ridiculous, right? Not so fast…..

So you say well, here is the notice I received as to where to make payments and you produce a copy. Here are my canceled checks and you produce a copy. You even took the time to write in the memo section the loan number and the month to be credited. In fact, you sent extra checks to prepay the mortgage.

So the true lender says he never received the money. And he says that the mortgage servicer you have been paying had no authority to collect those payments. And he mentions that if you made a prepayment, there is a penalty for doing that and so you owe still more money. And you say, how was I supposed to know that?

Good question, but the scenario might just play out that way. An investor might come forward and you might be able to successfully defend against prior payments that you made but which were not forwarded to him because you had no notice of the change in title of the loan — in legal language of the real holder in due course. But now here he is and produces all the proof necessary to show that he put up the money for the loan on your house.

So as to future payments, you definitely owe him, if the mortgage is valid. As to past payments he might have a claim against people who intercepted your payments and diverted them to the wrong SPV or asset backed security or maybe they just pocketed it for “fees.”

Now you get a lawyer who has read this blog or my upcoming book, Homeowner’s War, and says that you have valid defenses and can rescind the loan for fraudulent and deceptive lending practices, disclosure violations and common law fraud among other things. If the investor was unaware of the actions giving rise to your claims then you only have set off up to the amount due on the loan. The rest of your claim would be against the other people in the chain of securitization. If the investor DID know of the actions giving rise to your claims at the time he made his investment, then he is not a holder in due course either. Then there is the question of what happens if you know the investor is out there but he doesn’t step forward.

And this is the answer to the rhetoric about a windfall to borrowers. Your claim alleges no such thing. It just might end up that way because in the chaos and flood of money and documents during 2001-2008 nobody can find Mr. Investor, but that is not your fault and that doesn’t mean you owe the money to the current mortgage servicer.

Every payment you make might well be the subject of liability to the investor for the same payment. And every payment you don’t make might be completely covered by AMBAC, swap options, other insurance, or the reserve pool established in the SPV. If the holder in due course received the payments, there is no default. If there is no default, there is no basis for the foreclosure.

And if the Trustee posted a notice of sale knowing about the securitization of the loan, he breached his fiduciary duty to you. In fact, you ought to be writing to the Trustee asking who owns your note, mortgage or Deed of Trust, where you can in touch with him, it, or them, and where he is getting his instructions from and maybe ask for a copy of his authority so you can determine if he is answering to the correct party.

Then you might want to add that if the Trustee knew about all this and failed to share his knowledge with you, his knowledge might be attributed to you as your trustee or your agent, and that your payments to the mortgage servicer were therefore knowingly made (by legal definition) to the wrong party. Thus you would get no credit for them. So you would want to tell this Trustee that he should forward a copy of your letter to his errors and omissions insurance carrier because you are going to make a claim for any payments that were made to the wrong party. You might also want to mention that this is an obvious cloud on your title and that it is up to him to clear it up or pay for the entire costs of clearing your title.

Foreclosure Defense: Ankle Biting from Lenders to Investment Bankers Benefits Borrowers


It might not seem like you should care about the woes of investors who were defrauded in much the same way as borrowers. Think Again. Our team has been assiduously researching the resources for borrowers and their attorneys to use. This site, we hope and we are told, is very helpful to attorneys and borrowers alike and lately bank executives and investors have been visiting. But remember, whether you are a borrower or an investor, you need a professional audit (See TILA AUDIT and Mortgage Audit under Foreclosure Defense links on right side of this page) done so you are not shooting blanks when you write your first demand letter or file your lawsuit. 

I have been contacted by a number of “auditing” companies that wish for us to recommend them. I would be more than happy to recommend more than the two we have here. (see links on right side of the page). But a review of the work by everyone else reveals serious deficiencies in their work and in their objectives. We also find that the fees charged by most of these start-ups or loss mitigators are too high — i.e., they are disproportionate to the relief or remedy they might achieve. In most cases all they offer, like bankruptcy attorneys is a very temporary deferral of the inevitable.

The total audit, report and recoemmnedation should consist of advising you on TILA, RESPA, RICO and the “little FTC” acts of each state. You should be seeking not merely relief on monthly payments, but refunds, damages and attorney fees if an attorney is used. You should be seeking to stop foreclosure, sale or eviction because proceedings up to this point have been procured by fraud, with the trustee or the lender misrepresenting the real parties in interest. (In legal parlance failure to include necessary and indispensable parties and lack of standing).

In most cases, the real parties in interest are multiple owners of perhaps multiple securitized instruments backed by your mortgage. And in most cases the lenders have no way of tracing the actual owners of the mortgage and note to the specific property which is encumbered by your mortgage. It is a realistic goal, even if improbable, to seek removal of the mortgage lien, release from liability on the note and to walk away with the house free and clear. 

Read carefully. These are lawsuits from investors who, as part of the deal when they bought the CDO, CMO, CLO etc., were entitled to sell the security back at full price to the lender if there was fraud, misrepresentation etc. The fraud and misrepresentation they are alleging is basically the same as the fraud and misrepresentation you, the borrower, were subjected to. Deceit and cheating were the name fo the game. Even Moody’s announced in today’s Wall Street Journal that they are cleaning house where ratings were improperly stated through “neogitation” rather than analysis. This is good stuff and you ought to get to know about it.

These are also the lawsuits of shareholders of lenders who allege that the lenders failed to disclose to the public and shareholders in particular what they were doing, what exposure they had to liabilities arising from almost certain buy-back of most of the loans they sold, many of which are averaging default rates of 30% or more.

This is all inside stuff that tells your story only from the point of view of the investor. By showing that the lenders were defrauding everyone up an down the line, you can demonstrate to a court that there was a pattern of corruption and fraud. The lenders know it and so do the investment bankers without whose help the scheme would not have worked. Settlements are the most likely way out for all concernerd. 

These lawsuits consist of allegations by INSIDERS who know the truth. The allegations verify what we have been saying in this blog for many months — that the scheme depended upon a consistent pattern of fraud, misrepresentation and plausible deniability from one end (the investor who provided the money under false pretenses, false ratings and false assurances of insurance) to the other end (the borrower who signed the mortgage documents under false pretenses, false appraisals, undisclosed lender practices, rebates to mortgage borkers, high fees — bribes — to appraisers, and title agents who turned ablind eye toward the obvious inequities of the closing).


Investors Press Lenders on Bad Loans

Buyers Seek to Force Repurchase by Banks; 
Potential Liability Could Reach Billions
May 28, 2008; Page C1

Already burned by bad mortgages on their books, lenders now are feeling rising heat from loans they sold to investors.

Unhappy buyers of subprime mortgages, home-equity loans and other real-estate loans are trying to force banks and mortgage companies to repurchase a growing pile of troubled loans. The pressure is the result of provisions in many loan sales that require lenders to take back loans that default unusually fast or contained mistakes or fraud.


The potential liability from the growing number of disputed loans could reach billions of dollars, says Paul J. Miller Jr., an analyst with Friedman, Billings, Ramsey & Co. Some major lenders are setting aside large reserves to cover potential repurchases.

Countrywide Financial Corp., the largest mortgage lender in the U.S., said in a securities filing this month that its estimated liability for such claims climbed to $935 million as of March 31 from $365 million a year earlier. Countrywide also took a first-quarter charge of $133 million for claims that already have been paid.

The fight over mortgages that lenders thought they had largely offloaded is another reminder of the deterioration of lending standards that helped contribute to the worst housing bust in decades.

Such disputes began to emerge publicly in 2006 as large numbers of subprime mortgages began going bad shortly after origination. In recent months, these skirmishes have expanded to include home-equity loans and mortgages made to borrowers with relatively good credit, as well as subprime loans that went bad after borrowers made several payments.

Many recent loan disputes involve allegations of bogus appraisals, inflated borrower incomes and other misrepresentations made at the time the loans were originated. Some of the disputes are spilling into the courtroom, and the potential liability is likely to hang over lenders for years.

Repurchase demands are coming from a wide variety of loan buyers. In a recent conference call with analysts, Fannie Mae said it is reviewing every loan that defaults — and seeking to force lenders to buy back loans that failed to meet promised quality standards. Freddie Mac also has seen an increase in such claims, a spokeswoman says, adding that most are resolved easily.

Many of the repurchase requests involve errors in judgment or underwriting rather than outright fraud, says Morgan Snyder, a consultant in Fairfax, Va., who works with lenders.

Additional pressure is coming from bond insurers such as Ambac Financial Group Inc. and MBIAInc., which guaranteed investment-grade securities backed by pools of home-equity loans and lines of credit. In January, Armonk, N.Y.-based MBIA began working with forensic experts to scrutinize pools it insured that contained home-equity loans and credit lines to borrowers with good credit. “There are a significant number of loans that should not have been in these pools to begin with,” says Mitch Sonkin, MBIA’s head of insured portfolio management.

Ambac is analyzing 17 home-equity-loan deals to see whether it has grounds to demand that banks repurchase loans in those pools, according to an Ambac spokeswoman.

Redwood Trust Inc., a mortgage real-estate investment trust in Mill Valley, Calif., said in a recent securities filing that it plans to pursue mortgage originators and others “to the extent it is appropriate to do so” in an effort to reduce credit losses.

Repurchase claims often are resolved by negotiation or through arbitration, but a growing number of disputes are ending up in court. Since the start of 2007, roughly 20 such lawsuits involving repurchase requests of $4 million or more have been filed in federal courts, according to Navigant Consulting, a management and litigation consulting firm. The figures don’t include claims filed in state courts and smaller disputes involving a single loan or a handful of mortgages.

In a lawsuit filed in December in Superior Court in Los Angeles, units of PMI Group Inc. alleged that WMC Mortgage Corp. breached the “representations and warranties” it made for a pool of subprime loans that were insured by PMI in 2007. Within eight months, the delinquency rate for the pool of loans had climbed to 30%, according to the suit. The suit also alleges that detailed scrutiny of 120 loans that PMI asked WMC to repurchase found evidence of “fraud, errors [and] misrepresentations.”

PMI wants WMC, which was General Electric Co.’s subprime-mortgage unit, to buy back the loans or pay damages. Both companies declined to comment on the pending suit.

Lenders may feel pressure to boost reserves for such claims because of the fear they could be sued for not properly accounting for potential repurchases, says Laurence Platt, an attorney in Washington. At least three lawsuits have been filed by investors who allege that New Century Financial Corp. and other mortgage lenders understated their repurchase reserves, according to Navigant.

–James R. Hagerty contributed to this article.

Write to Ruth Simon at

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