Local Governments on Rampage Against Banks’ Manipulation of Credit Markets

Featured Products and Services by The Garfield Firm


LivingLies Membership – If you are not already a member, this is the time to do it, when things are changing.

For Customer Service call 1-520-405-1688

“When both government and the citizens start acting together, things are likely to change in a big way. There appears to be a unity of interests — the investors who thought they were buying bonds from a REMIC pool, the homeowners who thought they were buying a properly verified and underwritten loan from a pretender lender, and the local governments who were tricked into believing that their loans were viable and trustworthy based upon the gold standard of rate indexes. In many cases, the only reason for the municipal loan, was the illusion of growing demographics requiring greater infrastructure, instead of repairing the existing the infrastructure. As a result, the cities ended up with loans on unneeded products just like homeowners ended up with loans on houses that were always worth far less than the appraisal used.” — Neil F Garfield, www.livinglies.me

Editors Note: Hundreds of government agencies and local governments are on the rampage realizing that they were duped by Wall Street into buying into defective loan products. This puts them in the same class as homeowners who bought such loan products, investors who believed they were buying Mortgage Bonds to fund the loans, and dozens of other institutions who relied upon the lies told by the banks who were having a merry old time creating “trading profits” that were the direct result of stealing money and homes, and misleading the financial world on the status of the interest rates in the financial world. All loans tied to Libor (London Interbank Offered Rate), which was the gold standard,  are now in question as to whether the reset on those loans was true, correct or simply faked.

The repercussions of this will grow as the realization hits the victims of this gigantic fraud broadens into a general inquiry about most of the major practices in use — especially those in which claims of securitization were offered. It is now obvious that the deal proposed to pension funds and other investors was simply ignored by the banks who used the money to create faked trading profits, removing from the pool of investments money intended for funding loans that were properly originated and dutifully underwritten.

Cities, Counties, Homeowners and Investors are all victims of being tricked into loans that were simply unsustainable and were being manipulated to the advantage of the banks they trusted to act responsibly and who instead acted reprehensibly.

The ramifications for the mortgage and foreclosure markets could not be larger. If the banks were lying about the basics of the rate and the terms then what else did they do? As the Governor or of the Bank of England said, the business model of the banks appears to have been “lie More” rather than living up to the trust reposed in them by those who dealt with them as “customers.” Specifically, the evidence suggests that while the funding of the loan and the closing documents were coincidentally related in time, they specifically excluded any reference to each other, which means that the financial transaction as it actually occurred is undocumented and the document trail refers to financial transactions that did not involve money exchanging hands.

The natural conclusion created by the coincidence of the funding and the documents was to conclude that the two were related. But the actual instructions and wire transfers tell another story. This debunks the myth of securitization and more particularly the mortgage lien. How can the mortgage apply to a transaction described in the note that never took place and where the terms of the loan were different than what was expected by the creditors (investors, like pension and other managed funds) in the mortgage bond. The parties are different too. The wires funding the transaction are devoid of any reference to the supposed lender in the closing documents presented to borrowers. Thus you have different parties and different terms — one in the money trail, which was undocumented, and the other in the document trail which refers to transactions in which no money exchanged hands.

When the municipalities like Baltimore start digging they are going to find that manipulation of Libor was only one of several issues about which the Banks lied.

Rate Scandal Stirs Scramble for Damages


As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing. Libor, a measure of how much banks must pay to borrow money from one another in the short term, is set through a daily poll of the banks.

The rate influences what consumers, businesses and investors pay on a wide range of financial contracts, as varied as mortgages and interest rate swaps. Barclays has said it and other banks understated the rate during the financial crisis to make themselves look healthier to the public, rather than to make more money from clients. As regulators and lawmakers in Washington and Europe assess the depth of the Libor abuse and the failure to address it, economists and analysts are already predicting it could be one of the most expensive scandals to hit Wall Street since the financial crisis.

Governments and other investors may face many hurdles in proving damages. But Darrell Duffie, a professor of finance at Stanford, said he expected that their lawsuits alone could lead to the banks’ paying out tens of billions of dollars, echoing numbers from a recent report by analysts at Nomura Equity Research.

American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directly derive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on their use of these investments, said that “about 75 percent of major cities have contracts linked to this.”

If the banks submitted artificially low Libor rates during the financial crisis in 2008, as Barclays has admitted, it would have led cities and states to receive smaller payments from financial contracts they had entered with their banks, Mr. Shapiro said.

“Unambiguously, state and local government agencies lost money because of the manipulation of Libor,” said Mr. Shapiro, who is managing director of the Swap Financial Group and is not involved in any of the lawsuits. “The number is likely to be very, very big.”

The banks have declined to comment on the lawsuits, but their lawyers have asked for the cases to be dismissed in court filings, pointing to the many unusual factors that influenced Libor during the crisis.

The efforts to calculate potential losses are complicated by the fact that Libor is used to determine the cost of thousands of financial products around the globe each day. If Libor was artificially pushed down on a particular day, it would help people involved in some types of contracts and hurt people involved in others.

Securities lawyers say the lawsuits will not be easy to win because the investors will first have to prove that the banks successfully pushed down Libor for an extended period during the crisis, and then will have to demonstrate that it was down on the day when the bank calculated particular payments. In addition, investors may have to prove that the specific bank from which they were receiving their payment was involved in the manipulation. Before it even reaches the point of proving such subtleties, however, the banks could be compelled to settle the cases.

One of the major complaints was filed by several traders and hedge funds that entered into futures contracts that are traded through the Chicago Mercantile Exchange and that pay out based on Libor. These contracts were a popular way to protect against spikes in interest rates, but they would not have paid off as expected if Libor had been artificially lowered.

A 2010 study cited in the suit — conducted by professors at the University of California, Los Angeles and the University of Minnesota — indicated that Libor was significantly lower than it should have been throughout 2008 and was particularly skewed around the bankruptcy of Lehman Brothers.

A separate complaint filed in 2010 by the investment firm Charles Schwab asserts that some of its mutual funds, including popular ones like the Schwab Total Bond Market Fund, lost money on similar investments.

The complaints being voiced by municipalities are mostly related to their use of a popular financial contract known as an interest rate swap. States and cities generally enter into these swaps with specific banks so that they can borrow money in the bond market. They pay bondholders based on a floating interest rate — like an adjustable-rate mortgage — but end up paying their bankers a fixed rate through a swap. If Libor is artificially lowered, the municipality is stuck paying the same fixed rate, but it receives a smaller variable payment from its bank.

Even before the current controversy, some municipal activists have said that banks took advantage of the financial inexperience of municipal officials to sell them billions of dollars of interest rate swaps. Experts in municipal finance say that because of the particular way that cities and states borrow money, they are especially liable to lose out on their swaps if Libor drops.

Mr. Shapiro, who helps cities, states and companies negotiate these contracts, said that if a city had interest rate swaps on bonds worth $1 billion and Libor was artificially pushed down by 0.30 percent, which is what the lawsuits contend, that city would have lost $3 million a year. The lawsuit claims the manipulation occurred over three years. Barclays’ settlement with regulators did not specify how much the banks’ actions may have moved Libor.

In Nassau County, the comptroller, George Maragos, said in a statement that according to his own calculations, Libor manipulation may have cost the county $13 million on swaps related to $600 million of outstanding bonds.

A Massachusetts state official who spoke on the condition of anonymity because of potential future legal actions, said the state was calculating its potential losses.

“We are deeply concerned and we are carefully analyzing all of our options,” the official said.

Anne Simpson, a portfolio manager at the California Public Employees’ Retirement System — the nation’s largest pension fund — said that the fund’s officials “are sifting through the impact, but there certainly is an impact.”

In Baltimore, the city had Libor-based interest rate swaps on about $550 million of bonds, according to the city’s financial report from 2008, the central year discussed in the lawsuit. The city’s lawyers have declined to specify what they think Baltimore’s losses were.

The city solicitor, George Nilson, said that the rate manipulation claims meant that the city lost out on money when it needed it the most.

“The injury we suffered during the time we suffered it hurt more because we were challenged budgetarily,” Mr. Nilson said. “Every dollar we lost due to illegal conduct was a dollar we couldn’t pay to keep open recreation centers or to pay police officers.”





Wells Fargo to Pay up to $50,000 per person in bias case against blacks, Hispanics

Featured Products and Services by The Garfield Firm


LivingLies Membership – If you are not already a member, this is the time to do it, when things are changing.

For Customer Service call 1-520-405-1688

Editor’s Notes:  

The point here, besides the obvious bias, is that they were targeting people who were unsophisticated and if it all possible had language problems. Why would they go to so much trouble to find hapless people who are not going to be able to pay for the loans? ANSWER: Because every time a loan fails it gives them another opportunity to make even more money than they did before. Since they were playing with investor money, the risk of loss was not factored in making the loans.

Remember that in Florida alone it was discovered than more than 10,000 people were newly licensed mortgage brokers, each of whom was a convicted felon for economic crimes. They needed people who would say anything to close the deal, NOT people who were looking out for the bank or its depositors because there were no depositors in most cases and even when a depository institution initiated the loan origination, they were not using their own money or credit. Nobody after that EVER paid one cent for any of the transfers, assignments, indorsements, or allonges. All the transactions were fake descriptions of transactions that never occurred.

And they are STILL trading on the bad loans even if they were long ago “foreclosed” and even if there was an eviction. They are trading the synthetic derivatives that were based upon the derivatives whose value was derived from the mortgage bonds whose value was derived from the home. All the trades are bogus. While all Americans suffer, the banks continue to generate “profits” that don’t actually exist because they are more than offset by an unstated liability for selling “forward” an asset that they know they never had and which has been lost through the foreclosure.

Nobody in mainstream media has YET picked up on this because of its obvious complexity. But when they, do, all hell will break loose. It will be discovered that the original loan was paid in full at the moment of origination and that all trades after the fake transaction used as the basis of the contents of the “closing documents” were faked, which is why they couldn’t come up with real documents and were submitting fabricated, robo-signed, surrogate signed, forged documents and recording them.

And that is the tip of the iceberg on the degree of corruption of our title system. Because all those trades, foreclosures and evictions can and should be reversed. And the economic collapse should and would be restored to normal economic activity with the wealth back where it belongs — in the hands of people who were cheated, deceived and discriminated against by the banks.

Justice Dept: Wells Fargo to pay $175M to settle allegations of bias against blacks, Hispanics

WASHINGTON — Wells Fargo Bank will pay at least $175 million to settle accusations that it discriminated against African-American and Hispanic borrowers in violation of fair-lending laws, the Justice Department announced Thursday.

Wells Fargo, the nation’s largest residential home mortgage originator, allegedly engaged in a pattern or practice of discrimination against qualified African-American and Hispanic borrowers from 2004 through 2009.

At a news conference, Deputy Attorney General James Cole said the bank’s discriminatory lending practices resulted in more than 34,000 African-American and Hispanic borrowers in 36 states and the District of Columbia paying higher rates for loans solely because of the color of their skin.

Cole said that with the settlement, the second largest of its kind in history, the government will ensure that borrowers hit hard by the housing crisis will have an opportunity to access homeownership.

The bank will pay $125 million in compensation for borrowers who were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin rather than because of differences in credit-worthiness.

Wells Fargo also will pay $50 million in direct down payment assistance to borrowers in areas of the country where the Justice Department identified large number of discrimination victims. Those areas are Washington, D.C., Chicago, Philadelphia, Oakland and San Francisco, New York City, Cleveland, Riverside, Calif., and Baltimore.

“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” Cole said.

The settlement will bring “swift and meaningful relief” to African-American and Hispanic borrowers who received subprime loans when they should have received prime loans or who paid more for their loans, said Thomas Perez, assistant attorney general for the Justice Department’s civil rights division.

Perez said that because of the bank’s practices “an African-American wholesale customer in the Chicago area in 2007 seeking a $300,000 loan paid on average $2,937 more in fees than a similarly qualified white applicant. And these fees were not based on any objective factors relating to credit risk. These fees amounted to a racial surtax. A Latino borrower in the Miami area in 2007 seeking a $300,000 paid on average $2,538 more than a similarly qualified white applicant. The racial surtax for African Americans in Miami in 2007 was $3,657.”

Wells Fargo noted in a statement that it has denied the claims.

“Wells Fargo is settling this matter solely for the purpose of avoiding contested litigation with the DOJ,” it said, “and to instead devote its resources to continuing to provide fair credit services and choices to eligible customers and important and meaningful assistance to borrowers in distressed U.S. real estate markets.”

The part of the settlement for $125 million deals with mortgages that were priced and sold by independent mortgage brokers through Wells Fargo’s wholesale channel. The financial institution said that it is discontinuing financing mortgages that are originated, priced and sold by independent mortgage brokers through the mortgage wholesale channel.

“Through our separate decision to no longer fund mortgages through independent mortgage brokers, we can control how that commitment” to serving home ownership needs “is met on every mortgage that Wells Fargo makes,” said Mike Heid, president of Wells Fargo Home Mortgage.





Cities, Counties Realize They Have Common Interests With Homeowners

Featured Products and Services by The Garfield Firm


LivingLies Membership – If you are not already a member, this is the time to do it, when things are changing.

For Customer Service call 1-520-405-1688

One More Windfall for the Banks

Editor’s Comment:  

If it is any comfort, the chief financial officers and treasury management officers of cities and counties are starting to realize that they are victims of the banks and that most of these bankruptcies (Stockton CA for example) or near bankruptcy were completely avoidable. Their complaints are sounding more and more like the complaints of homeowners. And they are both right. Those debts should not be paid at all until the amount of the debt can be ascertained in real dollars and the identity of the actual losing party — whether they are defined as creditor or not —- can be ascertained. I don’t think any of the cities, counties or the homeowners and businesses whose debts were subject to false claims of securitization should pay anything to anyone until the governments and law enforcement figures it out. 

The federal government is the only one with the resources to go through all the data  and come up with at least an approximation of the truth of the path of the money. The Courts, Judges and Lawyers are woefully under-resourced to take this mess apart. The only reason that Too Big to Fail is believed by anyone is that nobody fully understands the consequences and actual money impact of the false cloud of derivatives created by the banks exceeding all the money in the word by a wide margin. We have let the Banks minimize the actual currency in favor of looking at a cloud of illusions created by the banks which they and only they want treated as real. We will find the same things operating on student loans where the intermediated banks actually never funded the loans but claim a guarantee from the Federal government. 

These debts should fall squarely on the banks, whether they fail or not, until we get a real accounting of the real transactions in which real money exchanged hands. And that is the mantra of my seminars for lawyers, paralegals, homeowners, city and county officials coming up at the end of this month as I travel through Phoenix, Stockton,  Anaheim etc. 

There is no possibility that  actual debt is $800 Trillion because all the money we have in the world amounts to only $70 trillion. So the loans were part of a chaotic, complex series of dots on a scatter diagram wherein all the data was an illusion except perhaps one of the hundreds of dots on each loan, bond or mortgage. And they certainly were not secured because the terms of repayment and the amount of the loan were off from the beginning as was the index from which they took data to change the so-called payments dude on loans that perhaps never existed but certainly do not exist now. 

The door that opened just a crack has been the Libor rate scandal in which the banks, led by Barclay’s, set interest rates based upon actual and perceived movement of interest rates in the markets. As in other things, these rates were as bogus, since 2008 as the Triple AAA ratings offered to investors in Mortgage-Backed Bonds and the appraisals offered to homeowners. 

City and County officials, once completely blind to the realities of the situation and skeptical of homeowner claims that the mortgages, foreclosures and auctions were rigged, are now realizing that their loans, interest rates, and terms were rigged just like homeowners’ were and that the trap they supposedly are in is an illusion just like the premises upon which Wall Street convinced them (city and County officials) that these loan products were viable and correct implementation of sound fiscal policy.

It wasn’t sound fiscal policy, they weren’t good loans and had the officials actually understood what Wall Street was doing —- creating false demands for services and infrastructure as well as complex financial products that were doomed from the start, they would never have gone ahead with these bonds or loans. Now the whole municipal market is as screwed up as the mortgage and housing markets and we know the banks are to blame because they have already admitted everything necessary to blame them. 

Besides prosecuting claims against the banks for civil and criminal penalties, everyone needs to contemplate the consequences of the status quo and whether they want to change it. One such game changer is eminent domain takeovers of  those toxic mortgages that “seemed right at the time.” But more than that, the cities and counties must look to experts who understand the derivative market (as well as anyone can) and realize that their debt, like everyone else’s debt is an illusion created in the cloud of credit derivatives now estimated at $800 trillion while the total amount of real credit and currency is only $70 trillion. 

Like Homeowners, they must realize that while they borrowed the money, the loan or liability created by the loan or bond was an illusion already paid in full at the time they incurred the obligation. That seems impossible but so does the news on these subjects as one digs deeper and deeper. The banks collected up all the money made under these circumstances and gave their people bonuses amounting to 50% of the profit of each financial institution. Inside that “profit”were trading profits claims by trading fake paper claimed to be owned by the banks while the paper was in the cloud of derivatives that is 10-12 times all the money in the world. 

That debt has long since been paid in full. The only question remaining is whether we can identify the actual people who have lost actual money and what we are going to do for them. But paying the banks on the loan or bonds is certainly not one of the alternatives that should be considered because, like the bailout, it just gives them one more windfall.

Rate Scandal Stirs Scramble for Damages

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.





Federal Judge Narrows Options: Baltimore vs. Wells Fargo

Editor’s Note: Baltimore decided to take on one of the worst “Club 100” players in the mortgage meltdown, Wells Fargo. The thrust of their argument is that Wells Fargo targeted poor people and made a bad situation worse, causing collateral damage all over the city. Baltimore will now file a narrower amended complaint, but the Judge is clearly not sympathetic. The Judge is obviously infected with the myth that this was mortgage business when it was all about securities sales. The County’s mistake and the State’s mistake is not going after billions in taxes resulting from “off-record” transfers of interests in real property and millions of dollars in fees that have been missed by failure of the real players to register that they were doing business in the state.
But this goes beyond that All cities, counties and states and even the nation have been directly damaged by a securities scheme that created vapor and called it money. This private creation of money supply has burgeoned from zero in 1983 to over $600 trillion, dwarfing the actual money supply of $50 trillion worldwide (1/4 attributable to the U.S.). For Baltimore readers or others in similar situations in their states you might want to forward a copy of this to your city and county attorney.
Here is what happened and what should be alleged:
  1. Wells Fargo was part of a chain of participants starting with the selling party of mortgage backed securities to investors under false pretenses, with misrepresentations as to the value, quality, viability and durability of the issuance of bonds that were backed with ownership of percentage interests in a group of mortgage loans and ending with the selling party of securities to homeowners under false pretenses, with misrepresentations as to value, quality, viability and durability of the issuance of notes that were backed by ownership in real property.
  2. These participants should be referred to as intermediaries acting in concert with named and unnamed, known and unknown conduits and co-conspirators in the securitization chain, each performing a function enabling the masterminds of the scheme to claim plausible deniability.
  3. All participants in the securitization chain had actual knowledge or sufficient information to know that the pools of loans would fail.
  4. All participants in the securitization chain were acting as part of a securitization scheme in which only the money of institutional investors and only the property of unsophisticated homeowners were put at risk.
  5. All participants in the securitization chain participated in the creation, promotion and solicitation of documents and, money and property that prevented or obscured the investors and homeowners from ever knowing or having access to the actual financial transactions, profits, fees, rebates, kickbacks and tax evasion or avoidance schemes sending a substantial portion of the investor’s funds to off-shore vehicles frequently located in the Bahamas or Cayman Islands, which were dubbed structured investment vehicles that were treated as trusts with an agent named as trustee for the beneficiaries that included all or most of the securitization participants.
  6. None of the transactions with investors or homeowners would ever have occurred if the securitization participants had disclosed the real nature of their activities.
  7. All of the transactions contemplated the failure of the pool of assets that was nominally transmitted or assigned to special purpose vehicles created by the investment banking participant in the securitization chain.
  8. A substantial portion of the entire aggregate of financial products created by the securitization were designed to fail. For example: if a homeowner was induced to issue an instrument that would be used as a negotiable instrument, the terms of the instrument contained provisions that would eventually require the homeowner to make payments that exceeded the homeowner’s gross annual income.
  9. The investment banking participants in the securitization scheme created sham weekly trading auctions to give the false impression of liquidity of the investor’s securities.
  10. The originators of the transaction with homeowners created sham ” rising market conditions” to give the false impression of liquidity of the financial loan product and underlying asset. In fact, the apparent rising prices were created by forcing money into a system, overpaying securitization participants compared with conventional generation of financial loan products, and creating procedures to emulate conventional underwriting procedures wherein none of the parties named in the transactions had any stake or risk in the transaction but were false and intentionally represented to be the true parties to the transactions with investors and homeowners.
  11. In all cases the securities, instruments and documents were obtained by fraud in the inducement and fraud in the execution.
  12. In all cases the value of “assets” described as security was either nonexistent or was substantially less than what was represented.
  13. In all cases the underwriting process was virtually abandoned except the retention of parts that would enhance the sham transactions.
  14. Investors, specifically, were duped by the subterfuge of including apparently high quality loans covering a sufficient number of “toxic” transactions that were guaranteed to fail — a goal of the securitization participants who had purchased insurance contracts “betting” against the pool thus indirectly betting in favor of multiple “defaults” by homeowners.
  15. The securitization participants also “rigged the system” by arranging for “foreclosures” on underlying assets wherein the intermediary participants would conduct said foreclosures, keep the title and keep the proceeds fo sale of foreclosed properties contrary to the interests of the investors or the homeowners.
  16. Specifically the securitization participants targeted audiences of homeowners that were neither highly educated nor highly sophisticated in real estate transactions, loans or mortgages. The securitization went though entire communities, block by block soliciting homeowners to purchase these faulty and fraudulent securities or financial loan products.
  17. Many of the communities selected by the securitization participants as targets for this scheme were older, established communities wherein a substantial number of homeowners had either paid in full for their homes or had substantial equity in their homes.
  18. Many of the targets were “new” communities wherein developers became part of the securitization scheme enhancing the appearance of rising prices by raising the purchase price while at the same time setting up on-site or off-site relationships where financial loan products would be offered in which the first payments were affordable but would eventually skyrocket past any capability of the homeowner to pay.
  19. The securitization knew or must have have known that when these communities were foreclosed en masse, the effect on the community, the city , the county and the state would be devastating as the demands on social services rose and revenues declined, forcing the respective government to reduce services when they were needed most.
  20. All efforts by Federal, State, County and local government and organizations at settling the issues failed because the plan of the securitization participants was to get title and possession to the target homes, and to retain the benefit of all the profits and fees diverted from the securitization chain, which included in most cases, insurance proceeds that vastly exceeded the value of the home or even the nominal value of the financial loan product purchased by the homeowner.
  21. In many if not most cases, proceeds from federal bailouts or purchases, together with insurance and other payments and credits allocable to the securitized loan products and pools were retained by the securitization participants but accepted them as payment for the “toxic assets.” The amount paid was 100 cents on the dollar which means that either no money is due under the obligations created or that they have been substantially reduced. In all cases, the claims of the intermediary securitization participants in foreclosure are false both as to their status as creditors and the amount claimed as due.
  22. The collateral damage to non-targeted homeowners included lower valuations of their own homes because of the artificially inflated of inventory of homes offered for sale arising from the foreclosures.
  23. As a direct and proximate result of the above scheme, the City of Baltimore has suffered lost revenues and increased obligations for social services, as well as deterioration of the good-will value of the city as a target place to live or work. All of these consequences were foreseeable, known or must have been known by the securitization participants.
January 9, 2010

Federal Judge Rejects Suit by Baltimore Against Bank

A federal judge this week tossed out a lawsuit by Baltimore against Wells Fargo, ruling that the city could not prove that the bank’s lending practices had resulted in broad damage to poor neighborhoods.

Baltimore officials have accused the bank of tipping hundreds of black homeowners into foreclosure by singling them out for high-interest subprime mortgages.

But the city’s claims are “even more implausible,” Judge J. Frederick Motz of Federal District Court wrote, “when considered against the background of other factors leading to the deterioration of the inner city, such as extensive unemployment, lack of educational opportunity and choice, irresponsible parenting, disrespect for the law, widespread drug use and violence.”

Officials with Wells Fargo, one of the nation’s largest banks, have declined to give interviews on the lawsuit. But Cara Heiden, co-president of Wells Fargo Home Mortgage, said in a statement after the ruling, “From the beginning, we have consistently maintained that Baltimore’s economic problems could not be attributed to the small numbers of foreclosures Wells Fargo has done in Baltimore.”

Judge Motz left the legal door ajar for Baltimore, saying city officials could file a more limited complaint detailing specific damages caused in specific neighborhoods. Lawyers for Baltimore said they would do so.

“We are not saying that Wells is responsible for a catastrophe in Baltimore and all the deterioration of the neighborhoods,” said John P. Relman, a lawyer representing the city. “We are simply saying that they are engaged in illegal conduct.”

Mr. Relman promised that the city would detail the costs it incurred, including boarding up foreclosed and abandoned properties, responding to fires and dispatching police officers to evict squatters. And he said the city would point to the damage to the home values for surrounding homeowners, about which there is extensive academic literature.

The Baltimore lawsuit included affidavits from former Wells Fargo loan officers who said the bank had systematically singled out black applicants for high-interest subprime mortgages.

The judge’s decision was a blow to a growing number of efforts by cities and states to hold banks accountable for some of the loose lending practices of the past decade.

In Memphis, city officials last week filed a lawsuit against Wells Fargo, saying the bank’s lending practices had wreaked havoc in predominantly black neighborhoods. In Illinois, the state attorney general filed a lawsuit accusing Wells Fargo of marketing high-cost mortgage loans to black and Latino customers while selling lower-cost loans to white borrowers with similar incomes.

Mortgage Meltdown: EMS Solution — Follow-Up to Wells Fargo Lawsuit

Program Approach to the Way Out: Send this to everyone you know

Baltimore suing Wells Fargo is a wonderful first step in setting the stage for softening the landing on the mortgage meltdown. They are completely correct, and the research behind the standing of governmental entities and agencies to sue the lenders is impeccable. This will turn into the same type of litigation as the tobacco litigation. The only difference is that we don’t really need an “insider” who will give us the straight scoop. It’s obvious. But we have been in touch with insiders who could confirm the intent and knowledge on the part of the lenders in the entire scheme, the plausible deniability strategy, and the complete understanding on the part of the lenders, the investment bankers and the institutional and retail sellers of derivative securities that this would have massive impact if successful. The only thing the perpetrators didn’t realize is that their perception of “massive impact” was a tiny fraction of what actually happened.

The next step is to set up a procedure to stop the foreclosures and force the lenders into an admixture of settlements that does not attempt to discriminate between borrowers. Attempting to find borrowers who knew that the price was inflated, or who should have known the payments would go up out of reach, etc., misses the point completely. It doesn’t matter even if the borrowers were co-conspirators (which they weren’t). What matters is that the foreclosures, sales, evictions and lowering of home prices all over the world will have a devastating impact that must be stopped. 

Any attempt to provide equitable relief based upon knowledge or other factors should be AFTER the settlement is put in place and that should be done by the appropriate legislative body. This plan can be done without legislation. In short, KEEP IT SIMPLE.

GTC | Honors is setting up procedures in Arizona, Nevada and Florida, thus far to provide a procedure for immediate relief to the court system and the various victims of this massive economic fraud. 

We are publishing the plan in the hope that others will emulate it and even compete with us. The idea here is to grease the skids of settlement, provide an incentive for lawyers and government to get involved, and to bring the foreclosure nightmare to a grinding halt. In our opinion this plan ought to apply not only to homes in which owners are in distress, but also to homes that have been foreclosed, and even where the the residents have been evicted (as long as the the place has not already been resold).

Here is the EMS Plan: 

Emergency Procedures are put into place within the office of the clerk of the court and the administrative judge to halt (Stay) all foreclosures and assign them to a special master who will mediate a settlement. Older cases that have already gone to judgment, sale or eviction would require a separate filing but would subject to to the same ESM procedures. 

The local government only needs to provide offices and communication and a watchdog person to observe, but not meddle, in the procedures set up by the Emergency Mediation System (EMS). Press access would be allowed provided privacy and the procedures are not impeded.

Easy filing forms are made available at the office of the clerk of the court having jurisdiction over foreclosures. Those forms are prepared by the sponsor of the Emergency Mediation System, in our case, GTC | Honors. (this is not rocket science. For those enterprising lawyers and business people who want to steal this idea and use it, expand it, alter it or amend it, we give full permission). 

EMS also provides the Special Masters, who must be approved by the Administrative Judge of the Court system having jurisdiction based upon criteria agreed between the sponsor (GTC | Honors) and the local court system (the administrative Judge). Out of state attorneys are allowed to participate if they meet the criteria, but the sponsor must agree to train local lawyers in EMS procedures so that they can become Special Masters.

EMS will also provide at its own expense an economist who will make independent recommendations on the suggested settlement. These recommendations will be regarded as a finding of probable cause that an illegal act has been committed, but that the parties are settling their differences. 

EMS provides settlement forms that are similar in style to local mediation rules. 

The execution of a settlement will not bar criminal investigation by the State but will constitute an opt-out of any class action lawsuit brought on behalf of borrowers. It will also constitute a covenant not to sue the lender, the appraiser, the title agent, the mortgage broker, or any other third party involved in the pricing, sale, valuing, or sale of the home, derivative securities backed by the lien on the home etc. As such it would constitute an opt-out or reduction of any governmental civil lawsuit against participating lender to the extent settled by each settlement agreement executed.

The settlement will result in  maintaining  or returning the owner/borrower to the home provided, at a minimum, that the borrower can and does pay all utilities, insurance and maintenance on the property, and that the borrower pays a monthly amount to be determined by the independent economist and the agreement of the parties. 

The settlement may result in the reduction of the value of the home at the time of purchase, in which case the right of the lender to pursue recompense from the seller would not be impaired.

The settlement will generally be for a term of ten (10) years and result in a reduction of payments from the amount set forth in the original mortgage and note, but will NOT contain any negative amortization features directly or indirectly, unless the residence is sold or refinanced at the option of the borrower/owner for an amount in excess of the original purchase price of the home, in which case the participation of the lender in the subsequent equity of the home shall be suggested by the independent economist and by agreement of the parties.

No settlement under these procedures shall be construed to alter, amend or otherwise change the required lending practices, securities sale practices or other disclosures or liabilities of any parties in any new purchase transactions that occurred after January 1, 2007.  

No settlement will be final until an order is entered by a Judge of competent jurisdiction. No such order will be entered unless it comes through the EMS system.

The lender shall pay a an initial fee to EMS of $5,000 payable in five semi-annual installments commencing with the day agreement is reached. The lender shall also pay a maintenance fee of $1,000 in annual installments commencing six months after the semi-annual installments are completed and continuing until the settlement is complete or the house is sold. The first installment of $1,000 shall be payable, regardless of whether settlement is reached on the day of mediation, which shall not proceed without such payment. Payment shall be made to the Clerk of the Court. In the event payment is not honored or cleared, the lender shall be subject to further prosecution and all waivers of prosecution of civil or criminal claims shall be automatically terminated. The settlement however shall remain completely enforceable and in full force and effect other than the exceptions stated in this paragraph. 

The clerk shall pay the divide the payments of $1,000 as follows: $75 to the Clerk’s Office as a special filing fee, $50 to the State General fund in which the property is located, $100 to the County in which the property is located, $75 to the Town or City in which the property is located, $75 to any local agency or entity that provides free legal services for those in need, and $625 to the EMS sponsor (GTC | Honors) generally to be divided as $325 to the Special Master, and $200 to the Independent economist and $100 for administrative overhead and profit, if any.

One-half of the fees paid by lender shall be added to the principle balance of the loan due and the value of the home when purchased for purposes of computations as set forth above. The lender shall pay for any recording fees required under the settlement agreement but shall not be required to pay documentary or value stamps or taxes as with a new loan.

This plan works! Try it.

Neil F. Garfield, Esq.


General Transfer Corporation

GTC | Honors

Customer Service 954-494-6000


%d bloggers like this: