Why Fabrications? Why Forgeries?

Posted on February 11, 2019 by Neil Garfield

In an increasing number of foreclosure cases, homeowners are going head to head with the lawyers who file claims on behalf of entities on the basis of fabricated and/or forged instruments that in many cases were also recorded in county records. Lawyers like Dan Khwaja in Illinois are getting clearer and clearer about it. They hire experts who understand exactly how the notes are mechanically created and the endorsements are not real signatures.

The key question is why would the notes have been fabricated and forged when there actually was a closing and a note was actually signed? We’re talking about the financial industry whose reputation depends upon safeguarding all signed documents. If they didn’t safeguard the documents and instead destroyed them or “lost” them, why was that allowed to happen?

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Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
A few hundred dollars well spent is worth a lifetime of financial ruin.
PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.
Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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So we have a case in Illinois where lawyers filed a judicial foreclosure on behalf of Bank of New York/Mellon (BONY) as trustee (i.e. representative of) “holders” of certificates. The lawyers attach a copy of a note and indorsements. Khwaja hired an expert who found quite definitively that the note and the endorsements were all fabricated (forged). Khwaja has filed a motion for summary judgment.

Here is my analysis:

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The lawyers who filed the claim have a serious problem. If they cannot convince the judge that they have no need to respond they are dead in the water. They must either pay someone to commit perjury or seek to amend with an actual original note. In view of prior studies that show that most (or at least half) of all notes were “lost or destroyed” immediately following the “closing” combined with your expert on hand, coming up with the original note is not an option.
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And that brings us to the question of “why?” If there really was a closing at which the borrower signed documents, why do they need fabricated documents? To me, the answer is simple. In order to sell the same loan multiple times they needed to convert from actual to imaged documents. The actual one had to disappear. And the handful of megabanks who had a virtual monopoly on tens of millions of mortgage transactions made it “custom and practice” to use images rather than actual documents. [This practice has spilled over to property sale contracts where neither party gets an original].
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And we have the additional issue which is presented by the foreclosure complaint. It says that BONY appears on behalf of the holders of certificates. The simple question is “so what?”
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Being holders of certificates means nothing. It leaves out any assertion that the holders of the certificates are owners of the certificates, or anything that might identify those “holders”. So the proceeds of foreclosure could then go to whoever was chosen by the parties actually pulling the strings.
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They are asking the court to fill in the blanks. They want the court to draw an inference without ever stating the fact to be inferred, to wit: the holders of the certificates are owners of the certificates who are therefore owners of the debt, note and mortgage. There simply is no such allegation nor any exhibit indicating that is true. The reason is that it is not true.
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So who is really the Plaintiff? Supposedly not BONY who is appearing in a representative capacity.
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If “sanctions” were applied against the “Plaintiff” BONY would claim it is not the actual party and that the unidentified “holders” of certificates are the proper party or perhaps an implied trust.
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So then is it the certificate holders, represented by BONY? But they don’t have any right, title or interest to the subject debt, note or mortgage. The prospectus and certificate indentures make that abundantly clear in most cases.
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Examining what happens after a foreclosure is “successful” provides clues. Neither BONY nor any certificate holder ever receives the actual money from the proceeds of the purported sale of the property.
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So who does?
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As the one party with actual control over the loan receivable, the investment bank that created the “securitization” scheme is the only party that comes close to being an actual creditor. But here is their problem: that loan receivable has been sold multiple times. This not only leaves them with no claim to the debt, but a surplus of funds over and above the amount due on what was the loan receivable. It’s basic accounting and bookkeeping. And if that were not true the banks would not be doing it.
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So in the real world it is the investment bank that gets the proceeds of a foreclosure sale. But they do it as the “Master Servicer” of an implied (and nonexistent) trust. The money simply disappears.
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In order to get away with selling the debt multiple times they had to make each sale a non recourse sale. And they did that. So the buyers of the debt, note and mortgage had no actual legal title to the debt, note and mortgage and no recourse to the borrower to collect on the unpaid debt.
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THAT leaves NOBODY as owner of a debt that has probably been extinguished and reveals the paper issued to buyers/investors as essentially the issuance of cash equivalent instruments (also known as currency). And THAT is the reason the banks, after  two decades of this nonsense, have yet to come to court and simply say “here is proof of our funding of the origination or purchase of the debt, note and mortgage.”
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If they did, they would be admitting to lying in millions of foreclosure cases over at least a 15 year period of time. Their scheme effectively concentrated the risk of loss on investors and borrowers while literally retaining all the benefits of supposed loan transactions for the sole benefit of the intermediaries, who then leveraged loans multiple times.
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This translates as follows: the money taken from investors is an unsecured liability of the investment bank. To be sure that has a value — but not a value derived from loans to homeowners. THAT value was taken by the investment bank who cashed in on it already.
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Note: For certain second tier investment bankers there were transition periods in which they were at actual risk. Examples include Lehman and Bear Stearns. But the top tier was able to sell forward on the certificates and never commit a single dime of their own money into the securitization scheme even in transition. But by pointing to Lehman and Bear Stearns they were able to convince policy makers that they were in the same position. This produced the “bailout” which was essentially the payment of even more money for losses that did not exist.
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In an odd twist of irony, Wells Fargo was the only party (2009) that admitted to no loss but was forced to take bailout money so that other “less fortunate” parties would not be singled out as weak institutions.
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In truth the AIG bailout and similar bailouts were merely payments of extra profits to Goldman Sachs and some other players, leaving investors and borrowers stranded with nearly worthless investments and collapsed markets for both homes, whose prices had been inflated by over 100% over value, and a nonexistent market for the bogus certificates that the Fed chose to revive by its purchasing program of “mortgage bonds” that were neither bonds nor backed by mortgages.
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Despite the complexity of all this, on a certain level most people understand that the banks caused the misery of the meltdown and profited from it.  They also understand that it is still happening. The failure of government to deal appropriately with the existential threat posed by the megabanks clearly played into and perhaps caused the social unrest around the world in the form of “populist” movements. And until governments deal with this issue head-on, people will be looking for political candidates who show that they are willing to take a wrecking ball to the banks and anyone who is protecting them.
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In the meanwhile, an increasing number of homeowners (again) are walking away from homes in the mistaken belief that they have an unpaid debt to the party named as the claimant against them.

Filed under: burden of persuasion, burden of pleading, BURDEN OF PROOF, CORRUPTION, discovery, evidence, expert witness, Fabrication of documents, foreclosure, foreclosure defenses, forensic investigation, forgery, investment banking, Investor, jurisdiction, legal standing, MBS TRUSTEE, Mortgage, Pleading, prima facie case, Servicer, sham transactions, standing, trustee | Tagged: , , , , , , , , | 16 Comments »

Facially Invalid Recorded Documents

Posted on January 30, 2019 by Neil Garfield

The view proffered by the banks would require them to accept declarations of fact from potential borrowers without any indicia of truth or reliability. It is opposite to the manner in which they do business. Currently they have it both ways, to wit: for purposes of borrowing you must submit documents that are facially valid without reference to external evidence and which can be easily confirmed but for purposes of foreclosure, none of those conditions apply. 

As part of the the scheme of “securitization fail” (see Adam Levitin) banks, servicers and third party vendors have been creating, fabricating and executing documents that are not facially valid nor do they comply with industry standards or even common sense. But once recorded judges take them “at face value” by assuming that somehow the document makes sense, when it clearly does not comport with law or logic. Defenders of foreclosure act at their peril when they fail to attack the facial validity of the documents upon which the foreclosure claims rely.

In a recent article written by Dale Whitman for the ABA he states the following “Conclusion. The recording system is archaic and fraught with the potential for yielding wrong conclusions. Conversion by many recording jurisdictions to computer-based electronic indexes has been helpful, but most of the legally problematic flaws continue to exist. Title insurance has been invaluable in making the weight of the recording system bearable, but it adds a further layer of complexity as buyers try to understand the limitations of their title policies. It seems unlikely that major changes will occur, so it is essential that real estate lawyers understand the peculiarities and limitations of our present system.” (e.s.)

As he points out recording is not required to make a document valid, but once it is recorded the document takes on a life of its own. It also presents numerous trapdoors and pitfalls that should be analyzed before answering the initiation of a foreclosure proceeding with any action on behalf of the homeowner including the motion to dismiss in judicial states, the answer, affirmative defenses and the Petition for TRO or lawsuit for wrongful foreclosure.

see what you didn_t know about recording acts_whitman (2).authcheckdam

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Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
A few hundred dollars well spent is worth a lifetime of financial ruin.
PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.
Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Common sense tells you that for a document to mean anything it must say enough that a reasonable person would be able to confidently draw meaning from it. Analyzing the facial validity of documents used in foreclosure reveals a pattern of misrepresenting the facial validity and misdirecting judges into NOT looking closely at the documents from which they are making assumptions and thence to legal conclusions that bind homeowners into proving matters beyond their control.

I proffer here an analysis that I just completed (our TERA report) as an example.

  1. We have already seen documentary proof that BONY Mellon does not receive the proceeds of the sale of property subject to the power of sale in a nonjudicial state or the forced sale in a judicial state. There are many reasons for this.
  2. Analysis of the facial validity of the use of various names and descriptions reveals the absence of an actual party, unless extrinsic “parole) evidence is added. Hence the documents upon which the above language relies does not support facial validity.
  3. BONY Mellon is said to be the “successor to JP Morgan Chase.” It is not and never has been a successor to JPMorgan Chase. There is nothing in the public domain to support that assertion. There is no instrument attached and no description of any transaction in which, as to this subject property and loan, we can ascertain how BONY Mellon became the successor to JPM Morgan Chase. Hence the documents in which BONY Mellon appears are not facially valid and are defective in terms of proof of title. This could be corrected by affidavit or any process that is allowed in the state where the property is located but it hasn’t been done on record, and there is no evidence to suggest that it has been done but is not recorded. The usual and acceptable manner of phrasing such a succession, if it were true, would be “as successor to JP Morgan Chase pursuant to that certain agreement of transfer by and between JPMorgan Chase (and /or other parties) and BONY Mellon dated July 6, 200X.” The absence of such description leaves the reader to pursue extrinsic or parole evidence to determine if the succession is documented and if so whether that documentation is facially valid. This is all absent.
  4. The succession suggests that it is in the role of trustee. There is no instrument attached and no description of any transaction in which, as to this subject property and loan, we can ascertain how BONY Mellon became the successor Trustee to JPM Morgan Chase. Hence the documents in which BONY Mellon appears as trustee are not facially valid and are defective in terms of proof of title. This could be corrected by affidavit or any process that is allowed in the state where the property is located but it hasn’t been done on record, and there is no evidence to suggest that it has been done but is not recorded. The usual and acceptable manner of phrasing such a succession, if it were true, would be “as successor to JP Morgan Chase, trustee pursuant to that certain agreement of transfer by and between JPMorgan Chase (and /or other parties) and BONY Mellon dated July 6, 200X.” The absence of such description leaves the reader to pursue extrinsic or parole evidence to determine if the succession is documented and if so whether the documentation is facially valid. This is all absent. The absence of a description of a specific trust and trust instrument is yet another factor that renders the instrument facially invalid, but theoretically correctible.
  5. This leads to a further question of extrinsic evidence being required. Other than by the use of parole evidence (outside the information contained on the document itself) the reader cannot ascertain the existence or description of a specific trust organized and existing under the laws of any jurisdiction. In addition, the issue of a transfer or change of trustees of a trust, if one can be found, is not supported by language such as “pursuant to the provisions of the trust agreement dated the 3rd day of May, 200Y in which the trust named ‘Structured Asset Mortgage Investment II, Inc. Bear Stearns ALT-A Trust’ was created under the laws of the State of New York”. Without such reference the facial validity of the instruments remains invalid although theoretically correctible. Without the knowledge of the legal existence of the trust being confirmable by public record, there is no support for the implied trust. Without support for the implied trust and the trust agreement creating it, there is no obvious support for how trustees could exist or be changed. Without support on the face of the instruments for how trustees of a trust could be changed, the description of the change of trustees is merely a declaration that is not supported by anything on the face of the document.
  6. JPMorgan is implied to have been the trustee of the potentially nonexistent trust. Once again the implied assertion leaves the reader to determine if the trust was created pursuant to the laws of any jurisdiction, and if JPMorgan was named as trustee for the trust.
  7. In either event both BONY Mellon and JPMorgan are described to be acting in a representative capacity on behalf of “holders… of pass through certificates” and not as “trustees” of any “trust.” The certificates are identified as Mortgage Pass Through Certificates Series 2004-12. The reference to being a “trustee” and the implied representation of the holders of certificates would be acceptable if the “holders” were described as beneficiaries. The extrinsic evidence often shows that such holders are not beneficiaries. This leads to the question of how and why there is representation of the holders, apart from the alleged trust, Is the representation implied from the trust agreement that is not described? Is the representation the result of some other trust or agency agreement? It is not possible to ascertain the answers to these vital questions without resort to extrinsic evidence, thus making the instruments relying upon such language, facially invalid.

Every state has statutory requirements for an instrument to be facially valid. A deed between Donald Duck and Mickey Mouse as Grantor and Grantee respectively would not be facially valid because both the grantor nor the grantee are fictitious names of cartoon characters and unless used as a egla fictitious name for an actual entity doing business under that name the document could not be corrected to become a valid document suitable for recording.

Yet county recorders are allowing the recordation of millions of documents across the country with exactly that defect. By allowing such documents to be recorded they are lending support to the legal presumption that Donald and Mickey are real people with rights to transfer interests in real property and even foreclose on real property. At the end of the chain of written documents someone holds paper that is recorded but based upon a chain of title with two large gaps in it — Donald and Mickey, and by the time the foreclosure occurs probably Minnie Mouse as well (or maybe Fannie or Freddie whose names are being used, just like the “REMIC trustees”, but who have no part in any transaction involving the subject loan).

Back to Real Property 101.

  1. Who is the grantor? If that cannot be readily determined from the face of the instrument the instrument is facially invalid.
  2. Who is the grantee? If that cannot be readily determined from the face of the instrument the instrument is facially invalid.
  3. What is the effective date of transfer? If that cannot be readily determined from the face of the instrument the instrument is facially invalid.
  4. What is being transferred? If that cannot be readily determined from the face of the instrument the instrument is facially invalid — or, in the case of a mortgage or beneficial interest in a deed of trust if the instrument declares a transfer but without the underlying debt, the instrument is facially invalid and unenforceable both because of state statutes regarding facial validity and the UCC Article 9 requiring value to be paid (see above linked article).
  5. What is the legal description of the property affected? If that cannot be readily determined from the face of the instrument the instrument is facially invalid.

An instrument that is not facially valid should be returned by the recording office with notes specifying what needs to be corrected. This vital step is being overlooked on all documents relating to foreclosures. If rules, laws and procedures were followed with regard to such documents there would not be any foreclosure or, if the corrections could actually be made, there would be no defense. It is in the valley between those two notions that all foreclosures based on “successors” are based.

By overlooking the obvious lack of clarity on the face of the documents county recorders keep creating a vacuum that the banks are only too happy to fill with MERS — an IT platform that is the opposite of tamper-proof allowing virtually anyone with a login and password to create the illusion of authority where none existed before. Hence the use of MERS and other systems to give depth to the illusion of facial validity.

The conclusion is that documents containing the language described above should not have been recorded.  The county recorder should have rejected such documents as being facially invalid, requiring additional documents to be attached, if they existed.

Such language is a substantial deviation from custom and practice as well as common sense and logic.  Custom and practice of the same banks that are listed in the language described above requires that they not accept such language without the additional documentation and confirmation of facts that are declared on the face of the instrument.  Common sense dictates that the reason why such custom and practice exists is that most fraudulent schemes involve written instruments in which various declarations are made that are untrue or lack support.  For purposes of recording, any declaration on the face of the instrument that requires the attachment or description of documents that are readily available in the public domain would be unacceptable, much as, for example, a deed without a signature.  The property must be described with precision (or later corrected by affidavit), the grantor must be described with precision (or later corrected) and the grantee must be described with precision (or later corrected).  Without the required corrections, the documents are facially invalid.

For purposes of case analysis, the absence of facially valid documents, even though they were improperly recorded, negates the potential use of legal presumptions arising from the facial validity of documents.  Therefore such documents should be rejected without proper foundation in connection with the use of such documents for any purpose, and the attempt to introduce such documents into evidence in any court or administrative proceeding.

In the case currently under analysis, this means that the proceedings in which the property was allegedly foreclosed, were themselves all improper and based upon invalid terms.  Whether this renders the proceedings void or voidable depends upon case law and interpretations of constitutional due process.

However it is safe to say that based upon the above analysis, it is obvious that all such documents including the deed upon foreclosure are defective in several material respects.  Therefore, our conclusion is that the current title chain in the county records regarding this property is at best clouded.  The procedures for correcting clouded title vary from state to state and are subject to both federal and state laws.  Individual research on each case in each state is required before taking any action.

The view proffered by the banks would require them to accept declarations of fact from potential borrowers without any indicia of truth or reliability. It is opposite to the manner in which they do business. Currently they have it both ways, to wit: for purposes of borrowing you must submit documents that are facially valid without reference to external evidence and which can be easily confirmed but for purposes of foreclosure, none of those conditions apply. 

 

Filed under: burden of persuasion, burden of pleading, BURDEN OF PROOF, CORRUPTION, discovery, Discovery -Subpoena, evidence, Fabrication of documents, foreclosure, foreclosure defenses, foreclosure mill, forensic investigation, forgery, investment banking, Investor, jurisdiction, legal standing, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, prima facie case, securities fraud, Servicer, sham transactions, standing, STATUTES, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , | 2 Comments »

The Truth Keeps Coming: When Will Courts Become Believers?

Posted on March 13, 2013 by Neil Garfield
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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comments and Practice Suggestions: On the heels of AG Eric Holder’s shocking admission that he withheld prosecution of the banks and their executives because of the perceived risk to the economy, we have confirmation and new data showing the incredible arrogance of the investment banks in breaking the law, deceiving clients and everyone around them, and covering it up with fabricated, forged paperwork. And they continue to do so because they perceive themselves as untouchable.

Practitioners should be wary of leading with defenses fueled by deceptions in the paperwork and instead rely first on the money trail. Once the money trail is established, each part of it can be described as part of a single transaction between the investors and the homeowners in which all other parties are intermediaries. Then and only then do you go to the documentation proffered by the opposition and show the obvious discrepancies between the named parties on the documents of record and the actual parties to the transaction, between the express repayment provisions of the promissory note and the express repayment provisions of the bond sold to investors.

Practitioners should make sure they are up to speed on the latest news in the public domain and the latest developments in lawsuits between the investment banks, investors and guarantors like the FHA who have rejected loans as not conforming to the requirements of the securitization documents and are demanding payment from Chase and others for lying about the loans in order to receive 100 cents on the dollar while the actual loss was incurred by the investors and the government sponsored guarantors.

Another case of the banks getting the money to cover losses they never had because at all times they were mostly dealing with third party money in funding or purchasing mortgages. It was never their own money at risk.

Three “deals” are now under close scrutiny by the government and by knowledgeable foreclosure defense lawyers. For years, Chase, OneWest and BofA have taken the position that they somehow became the owner of mortgage loans because they acquired a combo of WAMU and Bear Stearns (Chase), IndyMac (OneWest), and a combo of Countrywide and Merrill Lynch (BofA).

None of it was ever true. The deals are wrapped in secrecy and even sealed documents but the truth is coming out anyway and is plain to see on some records in the public domain as can be easily seen on the FDIC site under the Freedom of Information Act “library.”

The naked truth is that the “acquiring” firms have very complex deals on those mortgage loans that the acquiring firm chooses to assert ownership or authority. It is  a pick and choose type of scenario which is neither backed up by documentation nor consideration.

We have previously reported that the actual person who served as FDIC receiver in the WAMU case reported to me that there was no assignment of loans from WAMU, from the WAMU bankruptcy estate, or the FDIC. “if you are looking for an assignment of those loans, you are not going to find it because there was no assignment.” The same person had “accidentally” signed an affidavit that Chase used widely across the country stating that Chase was the owner of the loans by operation of law, which is the position that Chase took in litigation over wrongful foreclosures. Chase and the receiver now take the position that their prior position was unsupportable. So what happens to all those foreclosures where the assertions of Chase were presumed true?

Now Chase wants to disavow their assumption of all liabilities regarding WAMU and Bear Stearns because it sees what I see — huge liabilities emerging from those “portfolios” of foreclosed properties that were foreclosed and sold at auction to non-creditors who submitted credit bids.

You might also remember that we reported that in the Purchase and Assumption Agreement with the FDIC, wherein Chase was acquiring certain operations of WAMU, not including the loans, the consideration was expressly stated as zero and that the bid price from Chase happened to be a little lower than their share of the tax refund to WAMU, making the deal a “negative consideration” deal — i.e., Chase was being paid to acquire the depository assets of WAMU. Residential loans were not the only receivables on the books of WAMU and the FDIC receiver said that no accounting was ever done to figure out what was being sold to Chase.

Each of the deals above was complicated by the creation of entities (Maiden Lane LLCs) to create an “off balance sheet” liability for the toxic loans and bonds that had been traded around as if they were real.

Nobody ever thought to check whether the notes and mortgages recorded the correct facts in their content as to the cash transaction between the borrower and the originator. They didn’t, which is why the investors and the FDIC both now assert that not only were the loans not subject to underwriting rules compatible with industry standards, but that the documents themselves were not capable of enforcement because the wrong payee is named with different terms of repayment to the investors than what those lenders thought they were buying.

In other words, the investors and the the government sponsored guarantee organizations are both asserting the same theory, cause of action and facts that borrowers are asserting when they defend the foreclosure. This has been misinterpreted as an attempt by borrowers to get a free house. In point of fact, most borrowers simply don’t want to lose their homes and most of them are willing to enter into modifications and settlements with proceeds far superior to what the investor gets on foreclosure.

Borrowers admit receiving money, but not from the originator or any of the participants in what turned out to be a false chain of securitization which existed only on paper. The Borrowers had no knowledge nor even access to the knowledge that they were actually entering into a loan transaction with a stranger to the documents presented at the loan “closing.” This pattern of table funded loans is branded by the Truth in Lending Act and Reg Z as “predatory per se.” The coincidence of the money being received by the closing date was a reasonable basis for assuming that the originator was not play-acting, but rather actually acting as lender and underwriter of the loan, which they were certainly not.

The deals cut by Chase, OneWest and BofA are models of confusion and shared losses with the FDIC and other investors who participated in the Maiden Lane excursion. The actual creditor is definitely not Chase, OneWest nor BofA. Bank of America formed two corporations that merely served as distractions — Red Oak Merger Corp and BAC Home Loans and abandoned both after several foreclosures were successfully concluded by BAC, which owned nothing.

As we have previously shown, if the mortgage securitization scheme had been a real financial tool to reduce risk and increase lending, the REMIC trust would have ended up on the note and mortgage, on record in the office of the County Recorder. There would have been no need to establish MERS or any other private database in which trades were made and “trading profits” were booked in order to siphon off a large chunk of the money advanced by investors.

The transferring of paper does not create a transaction wherein a loan is proven or established in law or in fact. There must be an actual transaction in which money exchanged hands. In most cases (nearly all) the actual transaction in which money exchanged hands was between the borrower and an undisclosed third party entity.

This third party entity was inserted by the investment bankers so that the investment bank could claim ownership (when legally the loans already were owned by the investors) and an insurable interest in the loans and bonds that were supposedly backed by the loans. This way the banks could assert their right to proceeds of sale, insurance, and credit default swaps leaving their investor clients out in the cold and denying the borrowers the right to claim a reduction in the liability for their loan.

In litigation, every effort should be made to force the opposition to prove that the investor money was deposited into the a trust account for the REMIC trust and that the REMIC trust actually paid for the loans. Actually what you will be doing is forcing an accounting that shows that the REMIC was never funded and was never the buyer of the loans. Hence nobody in the false securitization chain had any ownership of the debt leading to the inevitable conclusion that for them the note was unenforceable and the mortgage was a nullity for lack of consideration and a lack of a meeting of the minds.

Once you get to the accounting from the Trustee of the Trust, the Master Servicer and the subservicer, you will uncover trades that involve representations of the investment bank that they owned the loans and in fact the mortgage bonds which were clearly pre-sold to investors before the first application for loan was ever received.

Thus persistent borrowers who litigate for the actual truth will track the money and then show that the cash transactions differ from the documented transactions and that the documented transactions lacked consideration. The only way out for the banks is to claim that they embraced this convoluted route as agents for the investors, but then that still means that money received in federal bailouts, insurance and credit default swaps would reduce the receivable of the actual creditors (investors) and thus reduce the amount payable by the actual borrowers (homeowners).

The unwillingness of the Department of Justice to enforce long standing laws regarding fraud and deceit, identity theft and other crimes, tends to create an atmosphere of impunity a round the banks and a presumption that the borrowers are merely technical objections of a certain number of documents not having all their T’s crossed and I’s dotted.

From a public policy perspective, one would have to concede that protecting the banks did nothing for liquidity in the marketplace and nothing for the credit markets in particular. Holder’s position, which I guess is also Obama’s position, is that it is better to allow average Americans to sink into poverty than to hold the banks and bankers accountable for their white collar crimes.

Legally, if the prosecutions ensued and the cases were proven, restitution would be ordered based not on some back-room deal but on approval of the Court. Restitution would clawback much of the capital of the mega banks who are holding that money by virtue of illegal transactions. And restitution would provide the only stimulus to the economy that would be fundamentally sound. Investors and borrowers would both share in the recovery of at least part of the wealth lost to the banks during the mortgage maelstrom.

I have no doubt that the same defects will appear in auto loans, student loans and other forms of consumer loans especially including credit card loans. The real objection of the banks is that after all this effort of stealing the money and the homes they might be forced to give it all back. The banks perceive that as a “loss.” I perceive it as simple justice applied every day in the courtrooms of America.

JPM: The Washington Mutual Story
http://www.ritholtz.com/blog/2013/03/jpm-wamu/

Bear Stearns, JPMorgan Chase, and Maiden Lane LLC
http://www.federalreserve.gov/newsevents/reform_bearstearns.htm

Mistakenly Released Documents Reveal Goldman Sachs Screwed IPO Clients
http://news.firedoglake.com/2013/03/12/mistakenly-released-documents-reveal-goldman-sachs-screwed-ipo-clients/

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DELAY Is the Name of the Game

Posted on July 2, 2012 by Neil Garfield

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Editor’s Notes:  

It comes as no surprise that BofA, now the unproud owner of Countrywide, would repeatedly appeal a judgment in which a moral man tried to avoid moral hazard at Countrywide and was fired for it. Corporations do that all the time to gain the advantage of achieving a smaller settlement or to dissuade others from doing the same thing. I feel appalled that this guy in Gretchen’s story is still waiting for his compensation and that if BofA has its way, he will be deprived of it altogether. BofA of coruse says that when they acquired CW there just wasn’t a job left for him. Bullcrap:

“But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.” (e.s., see full article below and link).

“These folks went in the other direction” is an understatement. And while most of the media is stepping back from foreclosure stories except for reporting the numbers, this story brings back the raw, mean, lawless intent of Countrywide and other leaders of the securitization scam. Let me first remind you that for the most part, the “securitization” never occurred. Any loan declared to be part of a pool that was “securitized” or otherwise transferred into the pool is a damn lie. Very few people understand how that even COULD be true, much less believe that it is an accurate statement. But it is true. There was no securitization in most cases.

If a loan was securitized it would have been underwritten by a bona fide lender and then sold to an aggregator, and from there sold to a REMIC “trust” or special purpose vehicle. Certificates of ownership of the loan together with a promise to pay the owner of the loan a sum of money with interest would have been issued to qualified investors like pension funds and other institutional investors upon which our society depends for social services and a safety net (which in the case of pension funds is largely funded by the workers themselves). Of course the investors would have paid the investment banker for those loans including a small fee for brokering the transaction. And everyone lives happily ever after because Tinker Bell certified the transactions.

So if the loan was securitized, then both the document trail and the money trail would show that the loan was properly owned and funded by the “lender,”, the lender assigned the loan in exchange for payment from the aggregator and the aggregator assigned the loan in exchange for payment into the pool (REMIC, trust, or whatever you want to call it). The problem for the banks is that none of that happened in most cases. And their solution to that problem, instead of acting like trustworthy banks, is to delay and fabricate and forge and intimidate. (PRACTICE NOTE: THESE ARE THE DOCUMENTS AND PROOF OF PAYMENT YOU WANT IN DISCOVERY)

The real story is that the loan was not underwritten by a bona fide lender whose role involved any risk of loss on the loan. In fact, in most cases there was no financial transaction between the lender named on the note and mortgage and the borrower. The financial transaction actually occurred between the borrower and an undifferentiated commingled group of investors who THOUGHT they were buying into REMICs but whose money was used for anything BUT the REMICs. Their money was in an account far from the securitization chain described above controlled by an investment bank who was taking “trading profits” and fees out of the money as though it was their own private piggy bank.

The “assignment” (sometimes erroneously referred to as an allonge or endorsement) was offered and accepted between the named lender (who was not the real lender) and the mortgage aggregator WITHOUT PAYMENT. The assignment says “for value received” but the value was received by the borrower and the investment bank and so there was no payment by the aggregator for an assignment from a “lender” that wasn’t the lender anyway and who never had one penny in the deal, nor any legal right to declare that they were the owner of the loan.

The “aggregator” was a fictitious entity meant to deceive any inquiring eyes. My eyes were inquiring and for a long while I believed in the existence of the aggregator — but then I was late on getting the real scoop on Santa and tooth fairy too. But it misdirects the attention of the audience like any illusionist. Meanwhile various “affiliates of the investment bank are busy creating “exotic instruments” that make believe that the bank owns the loan and thus has the power to sell it, when in fact we all know that the investors own the note but even they don’t quite understand how they own the note — a fact complicated by the fact that the “aggregator” was a fiction and the money came from a Superfund escrow account in which ALL the money from ALL the investors was commingled and the moment of funding of each loan was a different moment in the SuperFund account because money was coming and going and so were investors. This is what enabled the banks to (a) sell something they didn’t own (they called it selling forward, but it wasn’t selling forward, it was fraud) (b) sell it over and over again, by calling the “exotic instrument” something else, changing a few pieces of information about the loan data and presto!, Bear Stearns had “leveraged” the loan 42 times.

Translation: They sold something they didn’t have 42 times. And the risk of loss was that if someone in the chain of sales ever demanded delivery, they needed to go out and buy the loans which they figured was a sure thing because in all probability the loans were not worth the paper they were written on and in the open market, they could be purchased for pennies while Bear Stearns et al was selling the loans 42 times over at 100 cents on the dollar.

The last “assignment” for “value received” into the “pool” also had similar problems. First, the aggregator was a fictitious entity, second there was no value paid, and third they had already sold the loan 42 times. Add to that the assignment simply never took place to either the aggregator or the pool unless there was litigation and you have a real mess on your hands, which is where distraction and delay and illusion and raw intimidation come into play — all present in the case of one Michael Winston, a former executive at Countrywide Financial.

The repeated sales of the loans, the repeated collection of insurance for losses that never occurred, and repeated collection of proceeds of credit default swaps (a/k/a sales with a different name) means quite simply that the loan was paid in full from the start and that there is no balance due and probably never was any balance due and even if there was a balance due it was never due to the people who are now foreclosing. So why are they foreclosing? Because if they get to complete a foreclosure it completes the illusion that the investors were owed the money from the borrower instead of the bank that stole their money in the first place. So they pursue foreclosures while their PR machines grind out the illusion of modifications and mediation and short-sales. Nobody is getting good title or a title policy worth the paper it is written upon, but who cares?

He Felled a Giant, but He Can’t Collect

By GRETCHEN MORGENSON

“TAKING on corporate Goliaths for their wrongdoing should not be so daunting.”

That’s the view of Michael Winston, a former executive at Countrywide Financial, the subprime lending machine that was swallowed up by Bank of America in 2008. Mr. Winston won a wrongful-dismissal and retaliation case against the company in February 2011, but is still waiting to receive his $3.8 million award. Bank of America is fighting back and has appealed the jury verdict twice.

After hearing a month of testimony from a parade of top Countrywide officials, including the company’s founder, Angelo Mozilo, a California state jury sided with Mr. Winston. An executive with decades of expertise in management strategy, he contended that he was pushed out for, among other things, refusing to follow questionable orders from his superiors.

But for the last year and a quarter, Mr. Winston, 61, has been in legal limbo. Bank of America lost one appeal in the court that heard the case and has filed another that is pending in state appellate court.

Mr. Winston, meanwhile, has been unable to find work that is commensurate with his experience. “The devastation caused by Countrywide to me, my family, my team, the work force, customers, shareholders, taxpayers and citizens around the world is incalculable,” he said.

Before joining Countrywide, Mr. Winston held high-powered strategy posts at Motorola, McDonnell Douglas and Lockheed. He was global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that post in 2003 to care for his parents, who were terminally ill.

At Countrywide, he said, one of his problems was his refusal in fall 2006 to misrepresent the company’s corporate governance practices to analysts at Moody’s Investors Service. The ratings agency had expressed concerns about succession planning at Countrywide and other governance issues that the company hoped to allay.

Mr. Winston says a Countrywide executive asked him to write a report outlining Countrywide’s extensive succession planning for use by Moody’s. He refused, noting that he had no knowledge of any such plan. The company began to diminish his duties and department shortly thereafter. He was dismissed after Bank of America took over Countrywide.

Of course, it is not unusual for big corporate defendants to appeal jury awards. Bank of America argues in its court filings that the jury erred because Mr. Winston’s battles with his Countrywide superiors had nothing to do with his dismissal. Bank officials testified that he was let go because there was no job for him at the acquiring company.

“We believe that the jury’s finding of liability on the single claim of wrongful termination in retaliation is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” a Bank of America spokesman said.

In court filings, the bank also said that the jury appeared to be “swayed by emotion and prejudice, focusing on unsubstantiated and unsupported statements by plaintiff and his counsel slandering Countrywide and its executives.”

But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.”

The credibility of all testimony in the case was central to jurors’ deliberations, Mr. Usher said. Instructions to the jury went into great detail on this point, advising them that they were “the sole and exclusive judges of the believability of the witnesses and the weight to be given the testimony of each witness.” The instructions added: “A witness, who is willfully false in one material part of his or her testimony, is to be distrusted in others.”

Mr. Usher said that those who testified against Mr. Winston “didn’t have a lot of credibility.”

That’s putting it mildly, said Charles T. Mathews, a former prosecutor in the Los Angeles County district attorney’s office who represented Mr. Winston. He said he was so disturbed by what he characterized as persistent perjury by various Countrywide officials that he forwarded annotated copies of court transcripts to Steve Cooley, the Los Angeles district attorney, for possible investigation.

“We won a multimillion-dollar verdict against Countrywide, but it sticks in my guts that they lied through their teeth and continue to escape accountability,” Mr. Mathews wrote to Mr. Cooley, urging him to investigate.

Whether perjury or not, the testimony ran into withering challenges.

Countrywide’s top human resources executive testified that Mr. Winston was a problematic employee and not a team player. But a performance evaluation she had written shortly before the company started to reduce his duties was produced in the case. It said Mr. Winston had “done well to build relationships with key members of senior management and continues to do so.”

The evaluation went on: “Michael strives to be a team player,” and “is absolutely focused on process improvement in his areas and has been working tirelessly to do so since he’s been on board.”

Mr. Mathews also contends that Mr. Mozilo, in a rare courtroom appearance, misrepresented his views of Mr. Winston. First, Mr. Mozilo testified that he did not know Mr. Winston, even though testimony and documents showed that he had attended presentations with him, personally given Mr. Winston a pair of Countrywide cuff links and told another employee that Mr. Winston’s leadership programs were “exactly what Countrywide needs.”

Mr. Mozilo’s testimony that he was unimpressed with Mr. Winston and his work was also refuted by another Countrywide executive who said that Mr. Mozilo was enthusiastic enough about Mr. Winston’s programs to suggest that he present them to the company’s board.

Asked about Mr. Mozilo’s testimony, David Siegel, a lawyer who represents him, said in an e-mail that there was no merit to the accusation that Mr. Mozilo was not truthful.

A spokeswoman for Mr. Cooley’s office confirmed last week that it had received the court transcripts and said that one of its prosecutors was reviewing them. She declined to comment further.

“God forbid our system continues to ignore these people and their acts,” Mr. Mathews said in an interview last week. “I am optimistic but the price of justice can be different depending on what your wallet says.”


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Like I said, the loans never made into the “pools”

Posted on May 9, 2012 by Neil Garfield

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Editor’s Comment:

When I first suggested that securitization itself was a lie, my comments were greeted with disbelief and derision. No matter. When I see something I call it the way it is. The loans never left the launch pad, much less flew into a waiting pool of investor money. The whole thing was a scam and AG Biden of Đelaware and Schniedermann of New York are on to it.

The tip of the iceberg is that the note was not delivered to the investors. The gravitas of the situation is that the investors were never intended to get the note, the mortgage or any documentation except a check and a distribution report. The game was on.

First they (the investment banks) took money from the investors on the false pretenses that the bonds were real when anyone with 6 months experience on Wall street could tell you this was not a bond for lots of reasons, the most basic of which was that there was no borrower. The prospectus had no loans because there were no loans made yet. The banks certainly wouldn’ t take the risks posed by this toxic heap of loans, so they were waiting for the investors to get conned. Once they had the money then they figured out how to keep as much of it as possible before even looking for residential home borrowers. 

None of the requirements of the Internal Revenue Code on REMICS were followed, nor were the requirements of the pooling and servicing agreement. The facts are simple: the document trail as written never followed the actual trail of actual transactions in which money exchanged hands. And this was simply because the loan money came from the investors apart from the document trail. The actual transaction between homeowner borrower and investor lender was UNDOCUMENTED. And the actual trail of documents used in foreclosures all contain declarations of fact concerning transactions that never happened. 

The note is “evidence” of the debt, not the debt itself. If the investor lender loaned money to the homeowner borrower and neither one of them signed a single document acknowledging that transaction, there is still an obligation. The money from the investor lender is still a loan and even without documentation it is a loan that must be repaid. That bit of legal conclusion comes from common law. 

So if the note itself refers to a transaction in which ABC Lending loaned the money to the homeowner borrower it is referring to a transaction that does not now nor did it ever exist. That note is evidence of an obligation that does not exist. That note refers to a transaction that never happened. ABC Lending never loaned the homeowner borrower any money. And the terms of repayment intended by the securitization documents were never revealed to the homeowner buyer. Therefore the note with ABC Lending is evidence of a non-existent transaction that mistates the terms of repayment by leaving out the terms by which the investor lender would be repaid.

Thus the note is evidence of nothing and the mortgage securing the terms of the note is equally invalid. So the investors are suing the banks for leaving the lenders in the position of having an unsecured debt wherein even if they had collateral it would be declining in value like a stone dropping to the earth.

And as for why banks who knew better did it this way — follow the money. First they took an undisclosed yield spread premium out of the investor lender money. They squirreled most of that money through Bermuda which ” asserted” jurisdiction of the transaction for tax purposes and then waived the taxes. Then the bankers created false entities and “pools” that had nothing in them. Then the bankers took what was left of the investor lender money and funded loans upon request without any underwriting.

Then the bankers claimed they were losing money on defaults when the loss was that of the investor lenders. To add insult to injury the bankers had used some of the investor lender money to buy insurance, credit default swaps and create other credit enhancements where they — not the investor lender —- were the beneficiary of a payoff based on the default of mortgages or an “event” in which the nonexistent pool had to be marked down in value. When did that markdown occur? Only when the wholly owned wholly controlled subsidiary of the investment banker said so, speaking as the ” master servicer.”

So the truth is that the insurers and counterparties on CDS paid the bankers instead of the investor lenders. The same thing happened with the taxpayer bailout. The claims of bank losses were fake. Everyone lost money except, of course, the bankers.

So who owns the loan? The investor lenders. Who owns the note? Who cares, it was worth less when they started; but if anyone owns it it is most probably the originating “lender” ABC Lending. Who owns the mortgage? There is no mortgage. The mortgage agreement was written and executed by the borrower securing terms of payment that were neither disclosed nor real.

Bank Loan Bundling Investigated by Biden-Schneiderman: Mortgages

By David McLaughlin

New York Attorney General Eric Schneiderman and Delaware’s Beau Biden are investigating banks for failing to package mortgages into bonds as advertised to investors, three months after a group of lenders struck a nationwide $25 billion settlement over foreclosure practices.

The states are pursuing allegations that some home loans weren’t correctly transferred into securitizations, undermining investors’ stakes in the mortgages, according to two people with knowledge of the probes. They’re also concerned about improper foreclosures on homeowners as result, said the people, who declined to be identified because they weren’t authorized to speak publicly. The probes prolong the fallout from the six-year housing bust that’s cost Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders more than $72 billion because of poor underwriting and shoddy foreclosures. It may also give ammunition to bondholders suing banks, said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm.

“The attorneys general could create a lot of problems for the banks and for the trustees and for bondholders,” Gradman said. “I can’t imagine a better securities law claim than to say that you represented that these were mortgage-backed securities when in fact they were backed by nothing.”

Countrywide Faulted

Schneiderman said Bank of America Corp. (BAC)’s Countrywide Financial unit last year made errors in the way it packaged home loans into bonds, while investors have sued trustee banks, saying documentation lapses during mortgage securitizations can impair their ability to recover losses when homeowners default. Schneiderman didn’t sue Bank of America in connection with that criticism.

The Justice Department in January said it formed a group of federal officials and state attorneys general to investigate misconduct in the bundling of mortgage loans into securities. Schneiderman is co-chairman with officials from the Justice Department and the Securities and Exchange Commission.

The next month, five mortgage servicers — Bank of America Corp., Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. and Ally Financial Inc. (ALLY) — reached a $25 billion settlement with federal officials and 49 states. The deal pays for mortgage relief for homeowners while settling claims against the servicers over foreclosure abuses. It didn’t resolve all claims, leaving the lenders exposed to further investigations into their mortgage operations by state and federal officials.

Top Issuers

The New York and Delaware probes involve banks that assembled the securities and firms that act as trustees on behalf of investors in the debt, said one of the people and a third person familiar with the matter.

The top issuers of mortgage securities without government backing in 2005 included Bank of America’s Countrywide Financial unit, GMAC, Bear Stearns Cos. and Washington Mutual, according to trade publication Inside MBS & ABS. Total volume for the top 10 issuers was $672 billion. JPMorgan acquired Bear Stearns and Washington Mutual in 2008.

The sale of mortgages into the trusts that pool loans may be void if banks didn’t follow strict requirements for such transfers, Biden said in a lawsuit filed last year over a national mortgage database used by banks. The requirements for transferring documents were “frequently not complied with” and likely led to the failure to properly transfer loans “on a large scale,” Biden said in the complaint.

“Most of this was done under the cover of darkness and anything that shines a light on these practices is going to be good for investors,” Talcott Franklin, an attorney whose firm represents mortgage-bond investors, said about the state probes.

Critical to Investors

Proper document transfers are critical to investors because if there are defects, the trusts, which act on behalf of investors, can’t foreclose on borrowers when they default, leading to losses, said Beth Kaswan, an attorney whose firm, Scott + Scott LLP, represents pension funds that have sued Bank of New York Mellon Corp. (BK) and US Bancorp as bond trustees. The banks are accused of failing in their job to review loan files for missing and incomplete documents and ensure any problems were corrected, according to court filings.

“You have very significant losses in the trusts and very high delinquencies and foreclosures, and when you attempt to foreclose you can’t collect,” Kaswan said.

Laurence Platt, an attorney at K&L Gates LLP in Washington, disagreed that widespread problems exist with document transfers in securitization transactions that have impaired investors’ interests in mortgages.

“There may be loan-level issues but there aren’t massive pattern and practice problems,” he said. “And even when there are potential loan-level issues, you have to look at state law because not all states require the same documents.”

Fixing Defects

Missing documents don’t have to prevent trusts from foreclosing on homes because the paperwork may not be necessary, according to Platt. Defects in the required documents can be fixed in some circumstances, he said. For example, a missing promissory note, in which a borrower commits to repay a loan, may not derail the process because there are laws governing lost notes that allow a lender to proceed with a foreclosure, he said.

A review by federal bank regulators last year found that mortgage servicers “generally had sufficient documentation” to demonstrate authority to foreclose on homes.

Schneiderman said in court papers last year that Countrywide failed to transfer complete loan documentation to trusts. BNY Mellon, the trustee for bondholders, misled investors to believe Countrywide had delivered complete files, the attorney general said.

Hindered Foreclosures

Errors in the transfer of documents “hampered” the ability of the trusts to foreclose and impaired the value of the securities backed by the loans, Schneiderman said.

“The failure to properly transfer possession of complete mortgage files has hindered numerous foreclosure proceedings and resulted in fraudulent activities,” the attorney general said in court documents.

Bank of America faced similar claims from Nevada Attorney General Catherine Cortez Masto, who accused the Charlotte, North Carolina-based lender of conducting foreclosures without authority in its role as mortgage servicer due improper document transfers. In an amended complaint last year, Masto said Countrywide failed to deliver original mortgage notes to the trusts or provided notes with defects.

The lawsuit was settled as part of the national foreclosure settlement, Masto spokeswoman Jennifer Lopez said.

Bank of America spokesman Rick Simon declined to comment about the claims made by states and investors. BNY Mellon performed its duties as defined in the agreements governing the securitizations, spokesman Kevin Heine said.

“We believe that claims against the trustee are based on a misunderstanding of the limited role of the trustee in mortgage securitizations,” he said.

Biden, in his complaint over mortgage database MERS, cites a foreclosure by Deutsche Bank AG (DBK) as trustee in which the promissory note wasn’t delivered to the bank as required under an agreement governing the securitization. The office is concerned that such errors led to foreclosures by banks that lacked authority to seize homes, one of the people said.

Renee Calabro, spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.

Investors have raised similar claims against banks. The Oklahoma Police Pension and Retirement System last year sued U.S. Bancorp as trustee for mortgage bonds sold by Bear Stearns. The bank “regularly disregarded” its duty as trustee to review loan files to ensure there were no missing or defective documents transferred to the trusts. The bank’s actions caused millions of dollars in losses on securities “that were not, in fact, legally collateralized by mortgage loans,” according to an amended complaint.

“Bondholders could have serious claims on their hands,” said Gradman. “You’re going to suffer a loss as bondholder if you can’t foreclose, if you can’t liquidate that property and recoup.”

Teri Charest, a spokeswoman for Minneapolis-based U.S. Bancorp (USB), said the bank isn’t liable and doesn’t know if any party is at fault in the structuring or administration of the transactions.

“If there was fault, this unhappy investor is seeking recompense from the wrong party,” she said. “We were not the sponsor, underwriter, custodian, servicer or administrator of this transaction.”

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FRAUD: The Significance of the Game Changing FHFA Lawsuits

Posted on September 15, 2011 by Neil Garfield

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FHFA ACCUSES BANKS OF FRAUD: THEY KNEW THEY WERE LYING

“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.

Predictions

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 – www.subprimeshakeout.com
URL to article: the-government-giveth-and-it-taketh-away-the-significance-of-the-game-changing-fhfa-lawsuits.html

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Even the FED is Making Money Off Bogus Mortgage Loans

Posted on March 22, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

TRADING ACTIVITY CASTS DOUBT ON IDENTITY OF CREDITOR IN MORTGAGES

EDITOR’S NOTE: A “windfall for taxpayers” — REALLY? The hype doesn’t match the facts. While the Fed and large financial institutions trade paper instead of solving our problems they are giving credibility to the so-called mortgage bonds based upon bogus mortgages that would receive a grade of “F” in 1st year law school. They are substituting spin for law and PR for policy. This is no windfall for taxpayers, quite the opposite. They are REPORTING a profit on money they sent to Wall Street instead of injecting it into the economy where it was needed. Look around you. Do you see that money doing YOU or your community any good?

The reality is that as long as there is an incentive to pretend that the mortgages and mortgage bonds were truly valid instruments reflecting real transactions, our economy, our children, and our citizens will suffer for generations. The entire edifice was constructed on fraud and deceit. The mortgage documents did not recite the terms of the transaction nor identify the correct parties. The transaction was based upon false inflated appraisals that neither the investors nor the borrowers knew about. BOTH sides of the transaction lost big money and the taxpayers kicked in trillions of dollars on top of that.

Yes there is a windfall. Because the people who lost no money on bad mortgages collected huge fees in closing undocumented transactions and now they are ending up with the homes, while society, local, state and federal governments suffer the worst budget disaster since the Great Depression. And every time there is another “trade” and someone is jumping for joy over the profit they can report, the identity of the creditor becomes increasingly obscured. So in the courts, they pretend that the paperwork tells everything and the Judge should look only at what is proffered by the pretender lenders while the REAL action is happening behind the scene making everything represented in court a complete farce.

Fed Had Profit From Investments of $82 Billion Last Year

By BINYAMIN APPELBAUM

WASHINGTON — Profits at the Federal Reserve banks rose to a record $82 billion last year, a windfall for taxpayers that also underscores the depth of the Fed’s continued involvement in the nation’s financial markets.

The 12 regional banks that make up the Federal Reserve system held $2.4 trillion in government debt, mortgage-backed securities and other investments at the end of 2010, mostly amassed in an effort to backstop the financial system, according to a combined financial statement the Fed published Tuesday.

The banks transfer almost all of their profits to the Treasury Department. The $79 billion received by the government this year is a 66 percent increase over last year’s payment of $47.5 million, the previous high-water mark.

The Fed transferred an average of $25 billion a year in the decade before the crisis.

“It’s interest that the Treasury didn’t have to pay the Chinese,” the Federal Reserve chairman, Ben S. Bernanke, told Congress in January, after the central bank released a preliminary estimate of the annual transfer.

It is also the product of a series of unprecedented emergency aid programs initiated since the financial crisis in the fall of 2008.

The financial statements show that the Fed earned about $3.5 billion last year from the Maiden Lane subsidiaries it created to buy assets from the investment bank Bear Stearns and the insurance company, American International Group.

The Fed also made $45 billion from its portfolio of roughly $1 trillion in mortgage-backed securities, which it amassed to help maintain the availability of mortgage loans.

And it made $26 billion from its portfolio of $1.1 trillion in government debt, acquired as part of a continuing effort to stimulate economic growth.

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WELLS FARGO-NORWEST-CONDOR CONNECTIONS INFO — FOR SECURITIZATION RESEARCH

Posted on March 19, 2011 by Neil Garfield

submitted by MARY COCHRANE

Wells Fargo & Co. ‘a private label tradename’ purchased 11/2/98. Foothill & Norwest & UBS … do business using ‘private label brand’ and all of the existing agreements and former registrations stayed open. Already in business in 1994/1996 with Lehman Brothers, Structured Asset Securities Corp, Bear Stearns, former Wells Fargo, Norwest, GMAC-RFC, Chase Manhattan Mortgage Corp, Deutsche Bank Securities, Foothill Capital Corp a sub of Foothill Group, who all merged with Wells Fargo HSBC Trade Bank 11/2/98. All of the existing agreements as priviate members of the financial exchanges survived.

Restated Letter of Credit & Guaranty Agreement 8/1/94 among Foothill Capital Corp, Union Bank as agent and issuing bank

Subsidiaries Foothill Group Inc

Wells Fargo & Co. (Wells Fargo & Co/MN formerly known as Norwest Corp)

Norwest Corporation:

Condor Investments LP, Minnesota LTD
 (John Nickoll, Dennis Ascher, Jeffrey Nikora ‘Managing Partners filing persons, Foothill Capital is a wholly owned subsidiary.

Condor principal business address
Norwest Center, Sixth St & Marquette Ave
Minneapolis MN 55479

Principal Business engage in the business of investment in various financial assets.

4G-382
Condor Investment Company DC Mendota He MN XR
LP-7122
Condor Investments Limited Partnership LPI Mpls MN
Filing Number: LP-7122 Entity Type: Limited Partnership
Original Date of Filing: 2/22/1996 Entity Status: Inactive
Entity Date to Expire: 12/31/2025 Chapter: 322A

Name: Condor Investments Limited Partnership
Registered Office Address: 6th & Marquette 17th Flr %Norwest Corp
Mpls, MN, 55479-1026
Home State: MN

Registered Agent: Stanley S Stroup


8K 6/30/95

5/15/95 Norwest Corp signed a definitive agreement for the merger of the Foothill Group, Inc. with Norwest.

Foothill Group Inc is a specialized financial services company which operates two tightly linked businesses: commercial lending and money management.

Foothill Capital Corp, its wholly-owned subsidiary, provides asset-based financing to businesses throughout the USA.

Parent Co. money mgmt operation conducts business thru institutional lP’s seeking above avg returns by investing in debt instruments of companies in reorg or in process of restructuring.

Norwest Corp is a bank holding company formed under laws DE
 Foothill Capital Corp CA, &
 Norwest Corp (NORWEST) a bank holding corp laws of DE,
 the Company will be a wholly owned subsidiary of Norwest.

Amendment 2/1/95:
Revolving Credit Agreement
Foothill Capital Corp, CA Corp, subsidiary of The Foothill Group, Inc. Parent.

the banks
-Bank of America National Trust and Savings Association, as a bank and agent

Recitals:
-other than Long-Term Credit Bank of Japan, LTD (LTB)
NationsBank of Georgia, N.A. (Nations)
Bank of America National Trust & Savings Association (BOA) as Agent

Foothills Capital Corp, Inc. and BOA as Agent

LTB, NATIONS & NORWEST have each agreed to become new banks under the Agreement

BOA bank & agent & Foothills Capital Inc & Foothill Capital desire to amend agreement to reflect LTB, NATIONS, NORWEST become New Banks.

7/12/95 8K EX-28
Norwest and Foothill Group, Inc. signed definitive agreement for acquisition of Foothill Group by Norwest 4th Qtr 1995.

Wells Fargo & Co/MN [formerly Norwest] 6/7/95 SC 13D/A

Stanley S. Stroup
EVP & General Counsel
Norwest Corp
Norwest Center
Sixth and Marquette
Minneapolis MN 55479-1026
DE Citizen
CUSIP 345109-20-1
Tax ID 41-0449260
Bank Holding Co

Through Commercial bank subsidiaries general banking & trust business in
AZ, CO, IL, IN, IA, MN, MT, NB, NM, ND, OH, SD, TX, WI, WY.

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ALLSTATE FILES SUIT LAYING OUT ALL THE ALLEGATIONS YOU NEED

Posted on February 24, 2011 by Neil Garfield

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

REQUIRED READING

2.24.2011 Chase -Allstate-Complaint

JUST LOOKING AT THE TABLE OF CONTENT WILL TELL YOU WHAT YOU NEED TO KNOW

NATURE OF ACTION …………………………………………………………………………………………………….1
PARTIES ………………………………………………………………………………………………………………………..7
JURISDICTION AND VENUE ……………………………………………………………………………………….16
BACKGROUND ……………………………………………………………………………………………………………17
A.    THE MECHANICS OF MORTGAGE SECURITIZATION …………………………………….17
B.    SECURITIZATION OF MORTGAGE LOANS: THE TRADITIONAL MODEL ……..19
C.    THE SYSTEMIC VIOLATION OF UNDERWRITING AND APPRAISAL STANDARDS IN THE MORTGAGE SECURITIZATION INDUSTRY …………………..21
D.    DEFENDANTS WERE AN INTEGRATED VERTICAL OPERATION CONTROLLING EVERY ASPECT OF THE SECURITIZATION PROCESS…………..24
(1)    JPMorgan Defendants……………………………………………………………………..24 (2)

WaMu Defendants ………………………………………………………………………….26 (3)

Bear Stearns Defendants ………………………………………………………………….27
E.    DEFENDANTS’ OFFERING MATERIALS…………………………………………………………..29 (1)

The JPMorgan Offerings………………………………………………………………….29 (2)

The WaMu Offerings………………………………………………………………………30 (3)

The Long-Beach Offering………………………………………………………………..32 (4)

The Bear Stearns Offerings………………………………………………………………32
SUBSTANTIVE ALLEGATIONS …………………………………………………………………………………..34
I.    THE OFFERING MATERIALS CONTAINED UNTRUE STATEMENTS OF MATERIAL FACT AND OMISSIONS ABOUT THE MORTGAGE ORIGINATORS’ UNDERWRITING STANDARDS AND PRACTICES, AND MATERIAL CHARACTERISTICS OF THE MORTGAGE LOAN POOLS ……………..34
A.    Defendants’ Misrepresentations Regarding Underwriting Standards And Practices …………………………………………………………………………………………………..34
(1)    JPMorgan Defendants’ Misrepresentations Regarding Underwriting Standards And Practices………………………………………………35
i
(2)    WaMu Defendants’ Misrepresentations Regarding Underwriting Standards and Practices……………………………………………………………………35
(3)    Long Beach Defendants’ Misrepresentations Regarding Underwriting Standards and Practices……………………………………………….36
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Underwriting Standards and Practices……………………………………………….39
B.    Defendants’ Misrepresentations Regarding Owner-Occupancy Statistics …………40
(1)    JPMorgan Defendants’ Misrepresentations Regarding Owner- Occupancy Statistics ……………………………………………………………………….40
(2)    WaMu Defendants’ Misrepresentations Regarding Owner Occupancy Statistics ……………………………………………………………………….41
(3)    Bear Stearns Defendants’ Misrepresentations Regarding Owner Occupancy Statistics ……………………………………………………………………….41
C.    Defendants’ Misrepresentations Regarding Loan-to-Value and Combined Loan-to-Value Ratios…………………………………………………………………………………42
(1)    JPMorgan Defendants’ Misrepresentations Regarding LTV and CLTV Ratios………………………………………………………………………………….42
(2)    WaMu Defendants’ Misrepresentations Regarding LTV and CLTV Ratios ……………………………………………………………………………………………42
(3)    Bear Stearns Defendants’ Misrepresentations Regarding LTV and CLTV Ratios………………………………………………………………………………….43
D.    Defendants’ Misrepresentations Regarding Debt-to-Income Ratios …………………44
(1)    JPMorgan Defendants’ Misrepresentations Regarding Debt-to- Income Ratios ………………………………………………………………………………..44
(2)    WaMu Defendants’ Misrepresentations Regarding Debt-to-Income Ratios ……………………………………………………………………………………………44
(3)    Bear Stearns Defendants’ Misrepresentations Regarding Debt-to- Income Ratios ………………………………………………………………………………..45
E.    Defendants’ Misrepresentations Regarding Credit Ratings……………………………..46
(1)    JPMorgan Defendants’ Misrepresentations Regarding Credit Ratings ………………………………………………………………………………………….46
(2)    WaMu Defendants’ Misrepresentations Regarding Credit Ratings………..47 ii
(3)    Long Beach Defendants’ Misrepresentations Regarding Credit Ratings ………………………………………………………………………………………….48
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Credit Ratings ………………………………………………………………………………………….48
F.    Defendants’ Misrepresentations Regarding Credit Enhancements……………………49
(1)    JPMorgan Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..49
(2)    WaMu Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..50
(3)    Long Beach Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..50
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..51
G.    Defendants’ Misrepresentations Regarding Underwriting Exceptions………………51
(1)    JPMorgan Defendants’ Misrepresentations Regarding Underwriting Exceptions …………………………………………………………………51
(2)    WaMu Defendants’ Misrepresentations Regarding Underwriting Exceptions ……………………………………………………………………………………..52
(3)    Long Beach Defendants’ Misrepresentations Regarding Underwriting Exceptions …………………………………………………………………53
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Underwriting Exceptions …………………………………………………………………53
H.    Defendants’ Misrepresentations Regarding Alternative Documentation Loans ……………………………………………………………………………………………………….53
(1)    JPMorgan Defendants’ Misrepresentations Regarding Alternative Documentation Loans ……………………………………………………………………..54
(2)    WaMu Defendants’ Misrepresentations Regarding Alternative Documentation Loans ……………………………………………………………………..54
(3)    Bear Stearns Defendants’ Misrepresentations Regarding Alternative Documentation Loans …………………………………………………….55
I.    Defendants’ Misrepresentations Regarding Full-Documentation Loans……………55
iii
J.    Defendants’ Misrepresentations Regarding Adverse Selection of Mortgage Loans ……………………………………………………………………………………………………….56
K.    Defendants’ Failure to Disclose the Negative Results of Due Diligence …………..57
II.    ALL OF DEFENDANTS’ REPRESENTATIONS WERE UNTRUE AND MISLEADING BECAUSE DEFENDANTS SYSTEMATICALLY IGNORED THEIR OWN UNDERWRITING GUIDELINES ……………………………………………………58
A.    Evidence Demonstrates Defendants’ Underwriting Abandonment: High Default Rates And Plummeting Credit Ratings ……………………………………………..59
B.    Statistical Evidence of Faulty Underwriting: Borrowers Did Not Actually Occupy The Mortgaged Properties As Represented……………………………………….62
(1)    The JPMorgan Offerings………………………………………………………………….64 (2)

The WaMu Offerings………………………………………………………………………64 (3)

The Bear Stearns Offerings………………………………………………………………65
C.    Statistical Evidence of Faulty Underwriting: The Loan-to-Value Ratios In The Offering Materials Were Inaccurate ………………………………………………………65
(1)    The JPMorgan Offerings………………………………………………………………….66 (2)    T

he WaMu Offerings………………………………………………………………………68 (3)

The Bear Stearns Offerings………………………………………………………………71
D.    Other Statistical Evidence Demonstrates That The Problems In Defendants’ Loans Were Tied To Underwriting Guideline Abandonment………..72
E.    Evidence Demonstrates That Credit Ratings Were A Garbage-In, Garbage-Out Process …………………………………………………………………………………75
F.    Evidence From Defendants’ Own Documents And Former Employees Demonstrates That The Representations In Defendants’ Offering Materials Were False ……………………………………………………………………………………………….76
(1)    The JPMorgan Offerings………………………………………………………………….76 (2)

The WaMu Offerings………………………………………………………………………80 (3)

The Long Beach Offerings……………………………………………………………….87 (4)

The Bear Stearns Offerings………………………………………………………………92
iv
G.    Evidence From Defendants’ Third-Party Due Diligence Firm Demonstrates That Defendants Were Originating Defective Loans………………….94
H.    Evidence Of Other Investigations Demonstrates The Falsity Of Defendants’ Representations ………………………………………………………………………97
(1)    The WaMu and Long Beach Offerings………………………………………………97
(2)    The Bear Stearns Offerings………………………………………………………………99
III.    DEFENDANTS’ REPRESENTATIONS CONCERNING UNAFFILIATED ORIGINATORS’ UNDERWRITING GUIDELINES WERE ALSO FALSE ……………102
A.    Countrywide ……………………………………………………………………………………………104
(1)    Defendants’ Misrepresentations Concerning Countrywide’s Underwriting Practices…………………………………………………………………..104
(2)    These Representations Were Untrue And Misleading………………………..105 B.

GreenPoint ……………………………………………………………………………………………..109
(1)    Defendants’ Misrepresentations Concerning GreenPoint’s Underwriting Practices…………………………………………………………………..109
(2)    These Representations Were Untrue And Misleading………………………..111 C.    PHH……………………………………………………………………………………………………….115
(1)    Defendants’ Misrepresentations Concerning PHH’s Underwriting Practices ………………………………………………………………………………………115
(2)    These Representations Were Untrue And Misleading………………………..116 D.

Option One……………………………………………………………………………………………..118
(1)    Defendants’ Misrepresentations Concerning Option One’s Underwriting Practices…………………………………………………………………..118
(2)    These Representations Were Untrue and Misleading:………………………..120 E.    Fremont ………………………………………………………………………………………………….122
(1)    Defendants’ Misrepresentations Concerning Fremont’s Underwriting Practices…………………………………………………………………..122
(2)    These Representations Were Untrue and Misleading…………………………124 IV.

THE DEFENDANTS KNEW THEIR REPRESENTATIONS WERE FALSE ………….126
v
A.    The Statistical Evidence Is Itself Persuasive Evidence Defendants Knew Or Recklessly Disregarded The Falsity Of Their Representations………………….126
B.    Evidence From Third Party Due Diligence Firms Demonstrates That Defendants Knew Defective Loans Were Being Securitized …………………………127
C.    Evidence Of Defendants’ Influence Over The Appraisal Process Demonstrates That Defendants Knew The Appraisals Were Falsely Inflated …………………………………………………………………………………………………..130
D.    Evidence Of Internal Documents And Former Employee Testimony Demonstrates That Defendants Knew Their Representations Were False ……….131
(1) (2) (3) (4)
JPMorgan Defendants Knew Their Representations Were False…………131 WaMu Defendants Knew Their Representations Were False ……………..133 Long Beach Defendants Knew Their Representations Were False………138 Bear Stearns Defendants Knew Their Representations Were False ……..140
V.    ALLSTATE’S DETRIMENTAL RELIANCE AND DAMAGES ……………………………144

VI.    TOLLING OF THE SECURITIES ACT OF 1933 CLAIMS …………………………………..146

FIRST CAUSE OF ACTION …………………………………………………………………………………………149

SECOND CAUSE OF ACTION …………………………………………………………………………………….150

THIRD CAUSE OF ACTION………………………………………………………………………………………..152

FOURTH CAUSE OF ACTION …………………………………………………………………………………….155

FIFTH CAUSE OF ACTION …………………………………………………………………………………………157

PRAYER FOR RELIEF ………………………………………………………………………………………………..157

JURY TRIAL DEMANDED………………………………………………………………………………………….158

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , | 73 Comments »

Funds Seek Countrywide, Bear Stearns Home Mortgage Buybacks $11.6 billion

Posted on September 23, 2010 by Neil Garfield

SERVICES YOU NEED

Investors face an “obstacle course” of challenges in attempting to get banks to repurchase loans that failed to match their description in bond documents, Grais said

bondholders said they have the power to order the trustee for the securities to start probes because the investors own 25 percent of the debt in particular bond issues.

EDITOR’S NOTE ON DISCOVERY: FOLLOW THESE CASES — THEY ARE DOING OUR WORK FOR US!

Obviously the REAL LENDERS are getting pissed off. So the ankle biting is starting and there is an even playing field — both sides have the money to fight it out. The REAL issue for the real lenders (investors) is that the middlemen (investment banks et al) refuse to cooperate in accounting for the loans that were supposedly in the loan portfolios which were REPRESENTED to be in the pool. As stated numerous times on these pages, they are finding that the loans are non-existent, never made it into the pool or that the loans described by the pool managers are mis-characterizations of the actual loans.

That’s our point for the borrowers too. The REAL (SINGLE TRANSACTION) DEAL here was between these lenders and the homeowners with numerous intermediaries in between creating layers of “exotic” (fraudulent) documents, spreadsheets, the result of which was that the “borrower” was the special purpose vehicle – SPV (i.e., the pool, the trust or whatever you choose to call it which incidentally was never actually created in accordance with law) PLUS the co-obligors and guarantors PLUS the servicers PLUS the homeowners. Grais doesn’t want to go after the homeowners because he wants all the obligors to be liable, not just the homeowner who received part of the funds borrowed from investors. THAT is why investors are not kicking aside the intermediaries and going directly after the foreclosures.

These lenders could fire the trustee and fire the servicer and put in their own people to settle these foreclosures on far more favorable terms for both the lenders (investors) and the borrowers (homeowners) than the current process of foreclosures. But if they did that they would be letting deep pockets off the hook for the rest of the lost money. These lenders are getting VERY close to the truth of the matter — not only were the loans misrepresented, not only were the underwriting standards non-existent, not only were the loans never actually transferred legally into a legally organized pool, but there are two huge black holes into which a substantial portion of their money was poured, never to be seen again.

BLACK HOLES IN THE MONEY FLOW THAT ALL INVESTORS AND ALL HOMEOWNERS SHOULD PURSUE

The first black hole was the spread between the money received from the lenders for funding mortgage loans and the actual money used for that purpose. My estimate is that at least 30% of the money went off-shore into SIVs never to be seen again. That is the “Tier 2 Yield Spread Premium” I have been talking about which I believe both the homeowners and the investors have right to recover under different laws. How many investors would have parted with pension fund money if they were told “Thanks for the $100 million. We are going to take $30 million and put it in our pocket and then buy $30 million worth of mortgages, change their descriptions and sell them to you for $100 million when their nominal value is less than $70 million.” Somehow I think even the stupidest fund manager would have said “No” to that proposition, but that is exactly what they got.

The second black hole is the money received from insurance, guarantees and credit enhancements which was represented to be covering the investors’ money but in fact was payable to the intermediaries. It’s really simple. Taking the $30 million they never used to fund the mortgages described in the preceding paragraph, they took a portion of that money and made some wild bets — not like a stupid bet though, because they had total control over the outcome. It was like betting on a horse and then shooting all the others as the race begins. The Jockey could drag the horse over the finish line and still win. In the world of securitization, they created contracts in which the party receiving the insurance was the one who declared the loss and the loss could not be contested by the insurer. The terms of the contract were that if a certain percentage of the loans defaulted then the value of the entire portfolio would be written down to a level chosen by the insured — yes the party receiving the insurance money decides how much the claim is worth and the insurer can’t say a word. By loading the portfolio (pool) up with loans guaranteed to fail, where the payments would reset to twice the person’s income for example these intermediaries made a fortune on paper. But of course AIG and AMBAC couldn’t pay all that so the American Taxpayer did. So the investor took the loss, the intermediary took the money, took the hedge money that would have covered the loss, and is now in the process of taking the homes too.

Grais wants to recover that money and he will. The investors will be made whole or will settle the obligation. But despite these settlements, and despite the fact that in many cases the loan principal of a homeowner loan has been paid several times over the media and the government don’t see that the the reason the housing market is getting a hosing, the reason the taxpayer is getting a hosing and the reason the economy is getting a hosing along with the budgets of local, state and federal governments, is that the trillions paid by the American taxpayer and private companies actually went somewhere. And the homes were just pawns in the game. If you stop the foreclosures dead in their tracks right now, nobody would lose any money. All we want is a fair share of this money to be credited to the loan obligations — which automatically means a correction in the principal amount due and an opportunity to adjust the loan terms to the new reality of the real obligation due and real value of the property that was fraudulently appraised to begin with and fraudulently represented to the lenders and the homeowners.

The irony is that DISCOVERY is the least likely way of actually getting the information to prove the fraud but the most likely way of showing that the other side is uncooperative. The fact is that these “brilliant” intermediaries were so narrow in their perspective that they really don’t know the answers to the questions put to them in discovery, they don’t have the paperwork and they don’t know how to find it. The work being done on behalf of borrowers in the TITLE AND SECURITIZATION ANALYSES AND OTHER SERVICES here and elsewhere is what reveals essential facts that prove the fraud like: the Notice of Default when they were reporting to the investor that the loan was fully performing and actually paying the the investor thus decreasing the obligation due, or a foreclosure on behalf of a pool that had long since been dissolved unknown to either the homeowner or the investor.


Funds Seek Countrywide, Bear Stearns Home Mortgage Buybacks
By Jody Shenn – Sep 22, 2010 6:47 PM ET

Mortgage-bond trustees Bank of New York Mellon Corp., Bank of America Corp. and Wells Fargo & Co. should demand lenders buy back home loans underlying securities owned by two hedge funds, a lawyer for the investors said.

The funds sent separate requests to the three banks that serve as trustees for 14 securitizations at issue with $11.6 billion in outstanding debt, said David J. Grais, a partner in the law firm Grais & Ellsworth LLP. He declined to name the funds in a Sept. 20 interview at his New York offices.

An increasing number of investors are taking action after the worst housing recession since the 1930s sparked a record drop in the value of mortgage debt. Banks face as much as $51 billion in losses tied to loan repurchases from poorly performing securities, FBR Capital Markets Corp. analysts said in a Sept. 20 report.

“The loss of patience has taken longer than we expected,” said Grais, whose hedge-fund clients are using data from real estate researcher CoreLogic Inc. to press their cause with the trustees. Grais said he has “been endlessly surprised” that more investors haven’t moved faster to assert contract rights.

His hedge-fund clients are looking to recoup money on loans in bonds from issuers including Countrywide Financial Corp., now part of BofA, and a unit of Bear Stearns Co., which was bought by JPMorgan Chase & Co.

Grais also represents the Federal Home Loan Banks of San Francisco and Seattle and Charles Schwab Corp. in separate lawsuits against securities underwriters, as well as hedge funds Ellington Management Group LLC and Greenwich Financial Services LLC in suits involving the servicing of mortgages within bonds.

Can’t Sue Underwriters

The hedge funds he’s representing in the request sent about 45 days ago to bond trustees can’t sue the securities’ underwriters because the funds bought the mortgage bonds in the secondary market, Grais said.

Kevin Heine, a spokesman for Bank of New York Mellon, and Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment.

Elise Wilkinson, a spokeswoman for San Francisco-based Wells Fargo, and Tom Kelly, a spokesman for JPMorgan in Chicago, also declined to comment.

Investors face an “obstacle course” of challenges in attempting to get banks to repurchase loans that failed to match their description in bond documents, Grais said. The funds he represents that are seeking buybacks used data from Santa Ana, California-based CoreLogic to show the quality of specific loans didn’t meet sellers’ contractual promises, Grais said.

Scraping Data

CoreLogic’s data is culled from bond reports, tax records, property-valuation models and credit services, Grais said. Typically, only bond trustees can review actual mortgage files, seek loan repurchases and file lawsuits if the demands aren’t met.

Earlier this month, Houston-based law firm Gibbs & Bruns LLP said its clients had demanded Bank of New York investigate mortgages backing $26 billion of Countrywide-issued bonds, a request the bank denied because it said it failed to meet multiple requirements.

Kathy Patrick, a partner at Gibbs & Bruns, said her unnamed clients are evaluating the response.

Who Has Power

In that case, bondholders said they have the power to order the trustee for the securities to start probes because the investors own 25 percent of the debt in particular bond issues.

Grais’s clients are relying on a different approach, in part because they don’t own 25 percent in all the cases they are pursuing, he said. Some contracts require not only that investors demanding trustee action own 25 percent of the overall deal, but rather 25 percent of each class of securities in a given issuance, he said.

So far Grais’s clients are relying on CoreLogic’s data, which he said costs about $5 per loan, to make the case for them. Gibbs & Bruns’ Sept. 3 statement didn’t mention offering such research to the bank.

CoreLogic’s information on 48 securitizations showed about 28 percent of properties were valued at least 5 percent more than they should have been, Grais said. About 21 percent inaccurately described consumers as planning to live in homes rather than rent or flip them, which can be determined in part through where borrowers’ tax and other bills get sent, he said.

While Grais said he’s having a “constructive dialogue” with Wells Fargo, he expects the push will end in court as trustees either balk at the requests or complete probes and demand repurchases that the mortgage lenders then dispute.

The next step may be to file so-called derivative lawsuits on behalf of bondholders, which Grais said is an untested approach that would rely partly on court precedent involving family trust cases.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , | 15 Comments »

is it one of them or is it all of them? Mr. Cuomo, are you listening?

Posted on May 18, 2010 by Neil Garfield

According to two EMC analysts, they were encouraged to just make up data like FICO scores if the lenders they purchased loans in bulk from wouldn’t get back to them promptly

Editors’ Note: With Bear Stearns “underwater” it is difficult to come up with scenario where there won’t be criminal charges brought against the bankers and traders who worked there. They are low-hanging fruit, easily made the scape goat and easily subject to inquiry since nobody has any allegiance to them. They have no reason to stay silent except for self-incrimination. If some are offered immunity they will sing like birds in the meadow.

On the other hand Cuomo is aiming for the wrong target and could end up losing his cases unless he aims right. If this report is correct, then Cuomo is looking for the the real criminal culprit in the ratings fraud. What is wrong with that approach is that he is attempting to single out ONE defendant out of a group. They ALL knew, as the article goes on to say, what they were doing with ratings, just as they all knew what was going on with property appraisals just as they all knew that there was no underwriting of the loans.

Underwriting, which was the process of verifying the loan data from soup to nuts was abandoned because the party initiating the loan had no dog in the race. They were using investor dollars to fund the loan. Their income was based upon closing the loan without regard to risk. In fact, as has now been acknowledged after three years of me harping on the subject, the more likely it was that the loan would fail, the higher the profit and fees to everyone.

In the world of securities, underwriting was once the product of verifying the facts and risks of an investment through “due diligence”. Like the home loans there was no due diligence underwriting. The object was to sell something that LOOKED good even though they knew the loss was a sure thing — something the investment bankers needed and wanted.

They wanted the investments to fail because they were selling it (securitizing specific loans, parts of loan pools and entire loan pools) into multiple SPV packages, effectively selling the same loans over and over again.

They were taking the yield spread caused by the lower rate the investors were willing to accept because they perceived the investment as being little or no risk. The loan interest charged to borrowers was much higher, sometimes by multiples. This causes a SPREAD, which means that in order to give the investors the dollar income they we re expecting, they could promise, based upon exhibits that were fabricated in part, that the investor would get the desired revenue.  But the income was coming from loans to borrowers at much higher “nominal” rates. In plain language they were able to invest only a portion of the investors money into funding mortgages that were guaranteed to fail. The rest of the money they kept for themselves. Each time they re-sold the security as described above, the entire proceeds were kept by the ivnestment banking house. As long as the pools failed, nobody would demand an accounting.

The investors might make claims for the losses but they were stuck with being tagged as qualified investors who should have known better, even if they were some small credit union who had no person on staff capable of performing verification or due diligence on the investment in mortgage-backed securities.

But fund managers (especially those  who received bonuses due to the higher returns they reported) were highly unlikely candidates to demand an accounting since they either had no clue or cared less as to what was REALLY done with the proceeds of their investment. AND then of course there are the fund managers who may or may not have overlooked, through negligence of intentionally, the quality of these investments. They may have received some sort of perks or kickback for investing in these dog-eared securities. Since the manager is in charge, he or she would be required to ask for things that they really don’t want to hear about.

The ratings companies were put in the exact same position as the the appraisers of the homes subject to mortgage. Play or die. Here is what we assisted you in coming up with a human and computer algorithm to arrive at the value of this investment. In securities, the value was expressed as AAA down to BBB and below. Here are the securities which we reverse engineered to fit that algorithm. Now give us the triple ratings as we agreed, take our fees which are higher now for your cooperation and don’t ask any questions. If someone did ask questions or raised alarms at the ratings agency or appraisal companies they were blacklisted.

So you tell me — is it one of them or is it all of them? Mr. Cuomo, are you listening? Contrary to the report below, this is no grey area. It is really very simple. Just because you have a pile of documentation doesn’t make it theft. Look at the result to determine the intent. That’s what you are supposed to do in Court.

More Corruption: Bear Stearns Falsified Information as Raters Shrugged

MAY 14 2010, 2:25 PM ET |  Comment

Made up FICO scores? Twenty-minute speed ratings to AAA? If government prosecutors like New York Attorney General Andrew Cuomo want answers to why the mortgage-backed securities market was so screwed up, they should talk to Matt Van Leeuwen from Bear Stearn’s servicing arm EMC.

Reports indicated on Thursday that Cuomo is pursuing a criminal investigation surrounding banks supplying bad information to rating agencies about the quality of the mortgages they signed off on. But so far he hasn’t been able to prove where in the chain of blame the due diligence for the ratings broke down.

What Cuomo needs to establish is: whose shoulders does it fall on to verify the information lenders were selling to investment banks about the quality of their loans? And who was ultimately responsible for the due diligence on the loans that created toxic mortgage securities that were at heart of our financial crisis?

False Information and the Grey Area

Employed during the go-go years of 2004-2006, and speaking in an interview taped by BlueChip Films for a documentary in final production called Confidence Game, Van Leeuwen sheds some light onto the shenanigans going on during the mortgage boom that might surprise even Cuomo. As a former mortgage analyst at Dallas-based EMC mortgage, which was wholly owned by Bear Stearns, he had first-hand experience working with Bear’s mortgage-backed securitization factory. EMC was the “third-party” firm Bear was using to vet the quality of loans that would purchase from banks like Countrywide and Wells Fargo.

Van Leeuwen says Bear traders pushed EMC analysts to get loan analysis done in only one to three days. That way, Bear could sell them off fast to eager investors and didn’t have carry the cost of holding these loans on their books.

According to two EMC analysts, they were encouraged to just make up data like FICO scores if the lenders they purchased loans in bulk from wouldn’t get back to them promptly. Every mortgage security Bear Stearns sold emanated out of EMC. The EMC analysts had the nitty-gritty loan-level data and knew better than anyone that the quality of loans began falling off a cliff in 2006. But as the cracks in lending standards were coming more evident the Bear traders in New York were pushing them to just get the data ready for the raters by any means necessary.

In another case, as more exotic loans were being created by lenders, the EMC analyst didn’t even know how to classify the documentation associated with the loan. This was a data point really important to the bonds ratings. When Bear would buy individual loans from lenders the EMC analyst said they couldn’t tell if it should be labeled a no-doc or full doc loan. Van Leeuwen explains, “I wasn’t allowed to make the decision for how to classify the documentation level of the loans. We’d call analysts in Bear’s New York office to get guidance.” Time was of the essence here. “So, a snap decision would be made up there (in NY) to code a documentation type without in-depth research of the lender’s documentation standards,” says Van Leeuwen.

Two EMC analysts said instead of spending time to go back to the lender and demand clarification, like if verification of income actually backed these loans, the executives at Bear would just make the loan type fit. Why? One EMC analyst explains, “from Bear’s perspective, we didn’t want to overpay for the loans, but we don’t want to waste the resources on deep investigation: that’s not how the company makes money. That’s not our competitive advantage — it eats into profits.”

Twenty Minutes for AAA

It’s easy to paint Bear as the only villain here — but what were the rating agencies thinking?

Susan Barnes of Standards and Poor’s testified before Congress last month saying banks like Bear were responsible for due diligence in the transactions described above: “For the system to function properly, the market must rely on participants to fulfill their roles and obligations to verify and validate information before they pass it on to others, including S&P.”

Yet, was it reasonable for agencies to stand behind ratings when due diligence was done by an affiliate of Bear? That’s like buying a car from a guy whose mechanic brother said it was great, and then finding out it was a lemon.

Equally amazing was how responsive the raters were even on the big deals. Van Leeuwen says, “The raters would provide a rating on a $1 billion security in 20-30 minutes.” Describing it as “a rubber stamp,” Van Leeuwen said that the ratings agencies slavish devotion to their computer models “was vital” because it allowed Bear to “cram mortgages through the process.”

The greatest asset Bear had in its quest to squeeze every ounce of profit from the mortgage-backed securities market was the methodology of the big ratings agencies. The bankers knew what kind of loan detail was needed to get that coveted AAA rating. After they prepped the rating agencies for what they ‘thought’ they loans would look like, they would buy loans in bulk, and then spend a day scrubbing them.

Bear’s decision to cut corners and to fail to take the time to make sure the raters got correct information about the quality of loans was big no-no. But rating bonds based on fast reactions, instead of thoughtful analysis and reliable due diligence, also might place some responsibility on the agencies’ shoulders.

Filed under: foreclosure | Tagged: , , , , , , , , , , , , , , , | 26 Comments »

If the Bank of England wants this information, how can this court deem it irrelevant?

Posted on March 21, 2010 by Neil Garfield

SEE ALSO BOE PAPER ON ABS DISCLOSURE condocmar10

If the Bank of England wants this information, how can this court deem it irrelevant? NOTE: BOE defines investors as note-holders.
information on the remaining life, balance and prepayments on a loan; data on the current valuation and loan-to-value ratios on underlying property and collateral; and interest rate details, like the current rate and reset levels. In addition, the central bank said it wants to see loan performance information like the number and value of payments in arrears and details on bankruptcy, default or foreclosure actions.
Editor’s Note: As Gretchen Morgenstern points out in her NY Times article below, the Bank of England is paving the way to transparent disclosures in mortgage backed securities. This in turn is a guide to discovery in American litigation. It is also a guide for questions in a Qualified Written Request and the content of a forensic analysis.
What we are all dealing with here is asymmetry of information, which is another way of saying that one side has information and the other side doesn’t. The use of the phrase is generally confined to situations where the unequal access to information is intentional in order to force the party with less information to rely upon the party with greater information. The party with greater information is always the seller. The party with less information is the buyer. The phrase is most often used much like “moral hazard” is used as a substitute for lying and cheating.
Quoting from the Bank of England’s “consultative paper”: ” [NOTE THAT THE BANK OF ENGLAND ASSUMES ASYMMETRY OF INFORMATION AND, SEE BELOW, THAT THE INVESTORS ARE CONSIDERED “NOTE-HOLDERS” WITHOUT ANY CAVEATS.] THE BANK IS SEEKING TO ENFORCE RULES THAT WOULD REQUIRE DISCLOSURE OF
borrower details (unique loan identifiers); nominal loan amounts; accrued interest; loan maturity dates; loan interest rates; and other reporting line items that are relevant to the underlying loan portfolio (ie borrower location, loan to value ratios, payment rates, industry code). The initial loan portfolio information reporting requirements would be consistent with the ABS loan-level reporting requirements detailed in paragraph 42 in this consultative document. Data would need to be regularly updated, it is suggested on a weekly basis, given the possibility of unexpected loan repayments.
42 The Bank has considered the loan-level data fields which
it considers would be most relevant for residential mortgage- backed securities (RMBS) and covered bonds and sets out a high-level indication of some of those fields in the list below:
• Portfolio, subportfolio, loan and borrower unique identifiers.
• Loan information (remaining life, balance, prepayments).
• Property and collateral (current valuation, loan to value ratio
and type of valuation). Interest rate information (current reference rate, current rate/margin, reset interval).
• Performance information (performing/delinquent, number and value of payments in arrears, arrangement, litigation or
bankruptcy in process, default or foreclosure, date of default,
sale price, profit/loss on sale, total recoveries).
• Credit bureau score information (bankruptcy or IVA flags,
bureau scores and dates, other relevant indicators (eg in respect of fraudulent activity)).

The Bank is also considering making it an eligibility requirement that each issuer provides a summary of the key features of the transaction structure in a standardised format.
This summary would include:
• Clear diagrams of the deal structure.
• Description of which classes of notes hold the voting rights and what proportion of noteholders are required to pass a resolution.
• Description of all the triggers in the transaction and the consequences of them being breached.
• What defines an event of default.
• Diagramatic cash-flow waterfalls, making clear the priority
of payments of principal and interest, including how these
can change in consequence to any trigger breaches.
52 The Bank is also considering making it an eligibility
requirement that cash-flow models be made available that
accurately reflect the legal structure of an asset-backed security.
The Bank believes that for each transaction a cash-flow model
verified by the issuer/arranger should be available publicly.
Currently, it can be unclear as to how a transaction would
behave in different scenarios, including events of default or
other trigger events. The availability of cash-flow models, that
accurately reflect the underlying legal structure of the
transaction, would enable accurate modelling and stress
testing of securities under various assumptions.

March 19, 2010, NY Times

Pools That Need Some Sun

By GRETCHEN MORGENSON

LAST week, the Federal Home Loan Bank of San Francisco sued a throng of Wall Street companies that sold the agency $5.4 billion in residential mortgage-backed securities during the height of the mortgage melee. The suit, filed March 15 in state court in California, seeks the return of the $5.4 billion as well as broader financial damages.

The case also provides interesting details on what the Federal Home Loan Bank said were misrepresentations made by those companies about the loans underlying the securities it bought.

It is not surprising, given the complexity of the instruments at the heart of this credit crisis, that it will require court battles for us to learn how so many of these loans could have gone so bad. The recent examiner’s report on the Lehman Brothers failure is a fine example of the in-depth investigation required to get to the bottom of this debacle.

The defendants in the Federal Home Loan Bank case were among the biggest sellers of mortgage-backed securities back in the day; among those named are Deutsche Bank; Bear Stearns; Countrywide Securities, a division of Countrywide Financial; Credit Suisse Securities; and Merrill Lynch. The securities at the heart of the lawsuit were sold from mid-2004 into 2008 — a period that certainly encompasses those giddy, anything-goes years in the home loan business.

None of the banks would comment on the litigation.

In the complaint, the Federal Home Loan Bank recites a list of what it calls untrue or misleading statements about the mortgages in 33 securitization trusts it bought. The alleged inaccuracies involve disclosures of the mortgages’ loan-to-value ratios (a measure of a loan’s size compared with the underlying property’s value), as well as the occupancy status of the properties securing the loans. Mortgages are considered less risky if they are written against primary residences; loans on second homes or investment properties are deemed to be more of a gamble.

Finally, the complaint said, the sellers of the securities made inaccurate claims about how closely the loan originators adhered to their underwriting guidelines. For example, the Federal Home Loan Bank asserts that the companies selling these securities failed to disclose that the originators made frequent exceptions to their own lending standards.

DAVID J. GRAIS, a partner at Grais & Ellsworth, represents the plaintiff. He said the Federal Home Loan Bank is not alleging that the firms intended to mislead investors. Rather, the case is trying to determine if the firms conformed to state laws requiring accurate disclosure to investors.

“Did they or did they not correspond with the real world at the time of the sale of these securities? That is the question,” Mr. Grais said.

Time will tell which side will prevail in this suit. But in the meantime, the accusations illustrate a significant unsolved problem with securitization: a lack of transparency regarding the loans that are bundled into mortgage securities. Until sunlight shines on these loan pools, the securitization market, a hugely important financing mechanism that augments bank lending, will remain frozen and unworkable.

It goes without saying that after swallowing billions in losses in such securities, investors no longer trust what sellers say is inside them. Investors need detailed information about these loans, and that data needs to be publicly available and updated regularly.

“The goose that lays the golden eggs for Wall Street is in the information gaps created by financial innovation,” said Richard Field, managing director at TYI, which develops transparency, trading and risk management information systems. “Naturally, Wall Street opposes closing these gaps.”

But the elimination of such information gaps is necessary, Mr. Field said, if investors are to return to the securitization market and if global regulators can be expected to prevent future crises.

While United States policy makers have done little to resolve this problem, the Bank of England, Britain’s central bank, is forging ahead on it. In a “consultative paper” this month, the central bank argued for significantly increased disclosure in asset-backed securities, including mortgage pools.

The central bank is interested in this debate because it accepts such securities in exchange for providing liquidity to the banking system.

“It is the bank’s view that more comprehensive and consistent information, in a format which is easier to use, is required to allow the effective risk management of securities,” the report stated. One recommendation is to include far more data than available now.

Among the data on its wish list: information on the remaining life, balance and prepayments on a loan; data on the current valuation and loan-to-value ratios on underlying property and collateral; and interest rate details, like the current rate and reset levels. In addition, the central bank said it wants to see loan performance information like the number and value of payments in arrears and details on bankruptcy, default or foreclosure actions.

The Bank of England recommended that investor reports be provided on “at least a monthly basis” and said it was considering making such reports an eligibility requirement for securities it accepts in its transactions.

The American Securitization Forum, the advocacy group for the securitization industry, has been working for two years on disclosure recommendations it sees as necessary to restart this market. But its ideas do not go as far as the Bank of England’s.

A group of United States mortgage investors is also agitating for increased disclosures. In a soon-to-be-published working paper, the Association of Mortgage Investors outlined ways to increase transparency in these instruments.

Among its suggestions: reduce the reliance on credit rating agencies by providing detailed data on loans well before a deal is brought to market, perhaps two weeks in advance. That would allow investors to analyze the loans thoroughly, then decide whether they want to buy in.

THE investors are also urging that loan-level data offered by issuers, underwriters or loan servicers be “accompanied by an auditor attestation” verifying it has been properly aggregated and calculated. In other words, trust but verify.

Confidence in the securitization market has been crushed by the credit mess. Only greater transparency will lure investors back into these securities pools. The sooner that happens, the better.

Filed under: brad keiser, bubble, CDO, CORRUPTION, currency, Eviction, expert witness, foreclosure, Forensic Analysis Workshop, GTC | Honor, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 5 Comments »

Goldman and JPM Still Playing with Other People’s Money

Posted on March 20, 2010 by Neil Garfield

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry [$605 trillion], according to the Office of the Comptroller of the Currency.

Goldman Sachs Demands Collateral It Won’t Dish Out

By Michael J. Moore and Christine Harper

March 15 (Bloomberg) — Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.

Both New York-based banks are demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing. That’s money it can reinvest in higher-yielding assets.

“If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”

The collapse of American International Group Inc. in 2008 was hastened by the insurer’s inability to meet $20 billion in collateral demands after its credit-default swaps lost value and its credit rating was lowered, Treasury Secretary Timothy F. Geithner, president of the Federal Reserve Bank of New York at the time of the bailout, testified on Jan. 27. Goldman Sachs was among AIG’s biggest counterparties.

AIG Protection

Goldman Sachs Chief Financial Officer David Viniar has said that his firm’s stringent collateral agreements would have helped protect the firm against a default by AIG. Instead, a $182.3 billion taxpayer bailout of AIG ensured that Goldman Sachs and others were repaid in full.

Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC.

The firm led by Chief Executive Officer Lloyd C. Blankfein collected cash collateral that represented 57 percent of outstanding over-the-counter derivatives assets as of December 2009, while it posted just 16 percent on liabilities, the firm said in a filing this month. That gap has widened from rates of 45 percent versus 18 percent in 2008 and 32 percent versus 19 percent in 2007, company filings show.

“That’s classic collateral arbitrage,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who previously worked as treasurer at Morgan Stanley and chief financial officer at Lehman Brothers Holdings Inc. “You always want to enter into something where you’re getting more collateral in than what you’re putting out.”

Using the Cash

The banks get to use the cash collateral, said Robert Claassen, a Palo Alto, California-based partner in the corporate and capital markets practice at law firm Paul, Hastings, Janofsky & Walker LLP.

“They do have to pay interest on it, usually at the fed funds rate, but that’s a low rate,” Claassen said.

Goldman Sachs’s $110 billion net collateral balance in December was almost three times the amount it had attracted from depositors at its regulated bank subsidiaries. The collateral could earn the bank an annual return of $439 million, assuming it’s financed at the current fed funds effective rate of 0.15 percent and that half is reinvested at the same rate and half in two-year Treasury notes yielding 0.948 percent.

“We manage our collateral arrangements as part of our overall risk-management discipline and not as a driver of profits,” said Michael DuVally, a spokesman for Goldman Sachs. He said that Bloomberg’s estimates of the firm’s potential returns on collateral were “flawed” and declined to provide further explanation.

JPMorgan, Citigroup

JPMorgan received cash collateral equal to 57 percent of the fair value of its derivatives receivables after accounting for offsetting positions, according to data contained in the firm’s most recent annual filing. It posted collateral equal to 45 percent of the comparable payables, leaving it with a $37 billion net cash collateral balance, the filing shows.

In 2008 the cash collateral received by JPMorgan made up 47 percent of derivative assets, while the amount posted was 37 percent of liabilities. The percentages were 47 percent and 26 percent in 2007, according to data in company filings.

“JPMorgan now requires more collateral from its counterparties” on derivatives, David Trone, an analyst at Macquarie Group Ltd., wrote in a note to investors following a meeting with Jes Staley, chief executive officer of JPMorgan’s investment bank.

Citigroup Collateral

By contrast, New York-based Citigroup Inc., a bank that’s 27 percent owned by the U.S. government, paid out $11 billion more in collateral on over-the-counter derivatives than it collected at the end of 2009, a company filing shows.

Brian Marchiony, a spokesman for JPMorgan, and Alexander Samuelson, a spokesman for Citigroup, both declined to comment.

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry, according to the Office of the Comptroller of the Currency.

In credit-default swaps, the world’s five biggest dealers are JPMorgan, Goldman Sachs, Morgan Stanley, Frankfurt-based Deutsche Bank AG and London-based Barclays Plc, according to a report by Deutsche Bank Research that cited the European Central Bank and filings with the SEC.

Goldman Sachs

Goldman Sachs and JPMorgan had combined revenue of $29.1 billion from trading derivatives and cash securities in the first nine months of 2009, according to Federal Reserve reports.

The U.S. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin. A clearinghouse that includes both banks and hedge funds would erode the banks’ collateral balances, said Kevin McPartland, a senior analyst at research firm Tabb Group in New York.

When contracts are negotiated between two parties, collateral arrangements are determined by the relative credit ratings of the two companies and other factors in the relationship, such as how much trading a fund does with a bank, McPartland said. When trades are cleared, the requirements have “nothing to do with credit so much as the mark-to-market value of your current net position.”

“Once you’re able to use a clearinghouse, presumably everyone’s on a level playing field,” he said.

Dimon, Blankfein

Still, banks may maintain their advantage in parts of the market that aren’t standardized or liquid enough for clearing, McPartland said. JPMorgan CEO Jamie Dimon and Goldman Sachs’s Blankfein both told the Financial Crisis Inquiry Commission in January that they support central clearing for all standardized over-the-counter derivatives.

“The percentage of products that are suitable for central clearing is relatively small in comparison to the entire OTC derivatives market,” McPartland said.

A report this month by the New York-based International Swaps & Derivatives Association found that 84 percent of collateral agreements are bilateral, meaning collateral is exchanged in two directions.

Banks have an advantage in dealing with asset managers because they can require collateral when initiating a trade, sometimes amounting to as much as 20 percent of the notional value, said Craig Stein, a partner at law firm Schulte Roth & Zabel LLP in New York who represents hedge-fund clients.

JPMorgan Collateral

JPMorgan’s filing shows that these initiation amounts provided the firm with about $11 billion of its $37.4 billion net collateral balance at the end of December, down from about $22 billion a year earlier and $17 billion at the end of 2007. Goldman Sachs doesn’t break out that category.

A bank’s net collateral balance doesn’t get included in its capital calculations and has to be held in liquid products because it can change quickly, according to an executive at one of the biggest U.S. banks who declined to be identified because he wasn’t authorized to speak publicly.

Counterparties demanding collateral helped speed the collapse of Bear Stearns and Lehman Brothers, according to a New York Fed report published in January. Those that had posted collateral with Lehman were often in the same position as unsecured creditors when they tried to recover funds from the bankrupt firm, the report said.

“When the collateral is posted to a derivatives dealer like Goldman or any of the others, those funds are not segregated, which means that the dealer bank gets to use them to finance itself,” said Darrell Duffie, a professor of finance at Stanford University in Palo Alto. “That’s all fine until a crisis comes along and counterparties pull back and the money that dealer banks thought they had disappears.”

‘Greater Push Back’

While some hedge-fund firms have pushed for banks to put up more cash after the collapse of Lehman Brothers, Goldman Sachs and other survivors of the credit crisis have benefited from the drop in competition.

“When the crisis started developing, I definitely thought it was going to be an opportunity for our fund clients to make some headway in negotiating, and actually the exact opposite has happened,” said Schulte Roth’s Stein. “Post-financial crisis, I’ve definitely seen a greater push back on their side.”

Hedge-fund firms that don’t have the negotiating power to strike two-way collateral agreements with banks have more to gain from a clearinghouse than those that do, said Stein.

Regulators should encourage banks to post more collateral to their counterparties to lower the impact of a single bank’s failure, according to the January New York Fed report. Pressure from regulators and a move to greater use of clearinghouses may mean the banks’ advantage has peaked.

“Before the financial crisis, collateral was very unevenly demanded and somewhat insufficiently demanded,” Stanford’s Duffie said. A clearinghouse “should reduce the asymmetry and raise the total amount of collateral.”

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

Filed under: bubble, CDO, CORRUPTION, currency, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 6 Comments »

Bank Accuses Investment Houses of Lying About Mortgage Backed Bonds

Posted on March 18, 2010 by Neil Garfield

“(T)he differences between the values ascribed to these properties and the prices at which the properties were sold in foreclosure are significantly greater than the declines in house prices in the same geographical areas over the same periods,”

Editor’s Comment: BINGO! Use this complaint for both discovery and as a pleading guide. Send me a copy of al pleadings when you get them. There a bank that gets it. They are manipulating the home values on the back end the same as they did on the front end. First they lied to borrower (debtor) and investor (creditor) about the value of the property when the loan was funded and then they lied about the value when the house was sold in foreclosure. Charles Koppa is close to publishing a study that shows that the price of most homes sold on the courthouse steps is dropped the morning of the sale to a price far below the fair market value of even the most distressed property.

‘About That $19 Billion …’

By DAVE TARTRE

SAN FRANCISCO (CN) – The Federal Home Loan Bank of San Francisco demands $19 billion from major banks and investment houses it accuses of lying about the quality of the subprime mortgage-backed securities they created and sold. The FHLB sued Deutsche Bank, Credit Suisse, JPMorgan Stanley, UBS, Banc of America, Countrywide Financial and others in two Superior Court complaints.
The FHLB claims the lending giants, including now-defunct Bear Stearns, Greenwich Capital Markets, RBS Securities and others failed to disclose material facts about the mortgages, such as how much equity the borrowers had in their homes, and that the omissions and misrepresentation led to much greater rates of foreclosures than promised.
The firms used exaggerated property appraisals so the loan-to-value ratios of the mortgage loans in the securities’ collateral pools understated the risks, according to the complaint.
“(T)he differences between the values ascribed to these properties and the prices at which the properties were sold in foreclosure are significantly greater than the declines in house prices in the same geographical areas over the same periods,” the FHLB says.
In addition, the number of borrowers who actually lived in the houses was lower than the defendants represented, and the borrowers’ credit scores were lower too, the FHLB says.
The lending giants did not tell the FHLB that their loan “originators were making frequent … exceptions to underwriting guidelines when no compensating factor was present,” and the originators systematically failed to detect or prevent borrower fraud, according to the complaints.
According to one complaint, “the Defendants sold or issued to the Bank 98 certificates in 80 securitization trusts backed by residential mortgage loans. The Bank paid more than $13.7 billion for those certificates. When they offered and then sold these certificates to the Bank, the defendants made numerous statements to the bank about the certificates and the credit quality of the mortgage loans that backed them. On information and belief many of those statements were untrue. Moreover, on information and belief the defendants omitted to state many material facts that were necessary in order to make their statements not misleading.”
The other complaint states: “the defendants sold or issued to the bank 36 certificates in 33 securitization trusts backed by residential mortgage loans. The bank paid more than $5.4 billion for those certificates. When they offered and then sold these certificates to the bank, the defendants made numerous statements to the bank about the certificates and the credit quality of the mortgage loans that backed them. On information and belief, many of those statements were untrue.”
The FHLB would like its $19.1 billion back. Its lead counsel is Robert Goodin with Goodin, MacBride, Squeri, Day & Lamprey. 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, expert witness, foreclosure, Forensic Analysis Workshop, GTC | Honor, Investor, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop | Tagged: , , , , , , , , , , , , , , , , , , , , , , , | 9 Comments »

Assignments to Non MERS Members Further Cloud Title

Posted on March 15, 2010 by Neil Garfield

Your case should first be summarized by your securitization expert who relies upon the expert opinions of others as to underwriting, appraisal, mortgage brokers etc. Then those other experts come in. After that, the forensic analyst and homeowner come in to fill in the facts upon which the experts relied.

But you build your case in reverse of the order of presentation, starting with the homeowner, then the forensic analyst, then the sub-experts, and finally the securitization expert.

From: Tony Brown

Editor’s Note: I have not bothered to edit the following comment because for those of you who are attending the forensic workshop I wanted you to see how information is often presented. Here is clear evidence of (a) why a forensic analyst is essential and (b) why you need a method of presentation that gives the Judge a clear picture of the true nature of a securitized transaction.

The other lesson to be gleaned is that forensic analysts should stick to facts and expert witnesses should stick to opinions. Lawyers should stick to argument. Any overlap will result in a brutal cross examination that will, quite rightfully, draw blood.

I’m planning a workshop whose working name is Motion Practice and Discovery for late in May. You see there is method to our madness here notwithstanding our critics.

Your case should first be summarized by your securitization expert who relies upon the expert opinions of others as to underwriting, appraisal, mortgage brokers etc. Then those other experts come in. After that, the forensic analyst and homeowner come in to fill in the facts upon which the experts relied.

But you build your case in reverse of the order of presentation, starting with the homeowner, then the forensic analyst, then the sub-experts, and finally the securitization expert.

Mers was named nominee on the mortgage and filed at the Register Of Deeds in Greenville SC, supposedly according to a lost note affidavit the original lender RBMG sold the note and according to MERS servicer ID the loan was transferred off of the MERS system and MIN# deactivated because of a sale to a non-mers member in 2002. NO ASSIGNMENT WAS RECORDED.Now the new owner EMC sold the loan to Bear Stearns which deposited into the Asset Backed Securities which did an assignment/sell to JP MORGAN CHASE as trustee. Now there has been a foreclosure started on the loan in March 2009 by The Bank OF New York Mellon as successor trustee for JP MORGAN CHASE who claims to be the real party in interest and hold the note. By way Of an assignment which was recorded at the ROD after the LIS-PENDENS and after the filing of complaint.Here is more fraud because the assignment was from MERS on behalf of the original lender RBMG which is defunct and has been since 2005 to the THE BANK OF NEW YORK MELLON. MERS has no authority to do an assignment because the loan was transferred from them in 2002 and Mers was Longer the mortgagee as nominee of record.Now are you with me( no chain of title) the BANK OF NEW YORK MELLON produced in discovery to me an allonge RBMG to EMC along with the lost note affidavit. EMC showed an allonge to JP MORGAN CHASE which skipped BEAR STEARNS. BEAR STEARNS was the depositor into the securities. First let start with the allonges: according to the UCC an allonge is only used when there is NO ROOM ON THE ORIGINAL NOTE FOR ENDORSEMENT and must be firmly attached as to become a part of the note. AN ALLONGE cannot be used to transfer interest and is invalid if there is room on the note for endorsements and is invalid it not attached. A lost note and two allonges that were not signed and not dated and even skipped BEAR STEARNS that deposited it into the securities is the purported chain of title , now let’s look at the prospectus:Bear Stearns Asset Backed Securities Inc · 424B5 · Bear Stearns Asset Backed Certificates Series 2003-2 · On 6/30/03 Document 1 of 1 · 424B5 · Prospectus . Assignment of the Mortgage Loans; Repurchase At the time of issuance of the certificates, the depositor will cause the mortgage loans, together with all principal and interest due with respect to such mortgage loans after the cut-off date to be sold to the trust. The mortgage loans in each of the mortgage loan groups will be identified in a schedule appearing as an exhibit to the pooling and servicing agreement with each mortgage loan group separately identified. Such schedule will include information as to the principal balance of each mortgage loan as of the cut-off date, as well as information including, among other things, the mortgage rate,the borrower’s monthly payment and the maturity date of each mortgage note. In addition, the depositor will deposit with Wells Fargo Bank Minnesota, National Association, as custodian and agent for the trustee, the following documents with respect to each mortgage loan: (a) except with respect to a MOM loan, the original mortgage note, endorsed without recourse in the following form: “Pay to the order of JPMorgan Chase Bank, as S-40——————————————————————————– trustee for certificate-holders of Bear Stearns Asset Backed Securities, Inc., Asset-Backed Certificates, Series 2003-2 without recourse,” with all intervening endorsements, to the extent available, showing a complete chain of endorsement from the originator to the seller or, if the original mortgage note is unavailable to the depositor, a photocopy thereof, if available, together with a lost note affidavit; (b) the original recorded mortgage or a photocopy thereof, and if the related mortgage loan is a MOM loan, noting the applicable mortgage identification number for that mortgage loan; (c) except with respect to a mortgage loan that is registered on the MERS(R) System, a duly executed assignment of the mortgage to “JPMorgan Chase Bank, as trustee for certificate-holders of Bear Stearns Asset Backed Securities, Inc., Asset-Backed Certificates, Series 2003-2, without recourse;” in recordable form, as described in the pooling and servicing agreement; (d) originals or duplicates of all interim recorded assignments of such mortgage, if any and if available to the depositor; (e) the original or duplicate original lender’s title policy or, in the event such original title policy has not been received from the insurer, such original or duplicate original lender’s title policy shall be delivered within one year of the closing date or, in the event such original lender’s title policy is unavailable, a photocopy of such title policy or, in lieu thereof, a current lien search on the related property; and (f) the original or a copy of all available assumption, modification or substitution agreements, if any. In general, assignments of the mortgage loans provided to the custodian on behalf of the trustee will not be recorded in the appropriate public office for real property records, based upon an opinion of counsel to the effect that such recording is not required to protect the trustee’s interests in the mortgage loan against the claim of any subsequent transferee or any successor to or creditor of the depositor or the seller, or as to which the rating agencies advise that the omission to record therein will not affect their ratings of the offered certificates. In connection with the assignment of any mortgage loan that is registered on the MERS(R) System, the depositor will cause the MERS(R) System to indicate that those mortgage loans have been assigned by EMC to the depositor and by the depositor to the trustee by including (or deleting, in the case of repurchased mortgage loans) in the computer files (a) the code in the field which identifies the trustee and (b) the code in the field “Pool Field” which identifies the series of certificates issued. Neither the depositor nor the master servicer will alter these codes (except in the case of a repurchased mortgage loan). A “MOM loan” is any mortgage loan as to which, at origination, Mortgage Electronic Registration Systems, Inc. acts as mortgagee, solely as nominee for the originator of that mortgage loan and its successors and assigns. S-41——————————————————————————– The custodian on behalf of the trustee will perform a limited review of the mortgage loan documents on or prior to the closing date or in the case of any document permitted to be delivered after the closing date, promptly after the custodian’s receipt of such documents and will hold such documents in trust for the benefit of the holders of the certificates. In addition, the seller will make representations and warranties in the pooling and servicing agreement as of the cut-off date in respect of the mortgage loans. The depositor will file the pooling and servicing agreement containing such representations and warranties with the Securities and Exchange Commission in a report on Form 8-K following the closing date. After the closing date, if any document is found to be missing or defective in any material respect, or if a representation or warranty with respect to any mortgage loan is breached and such breach materially and adversely affects the interests of the holders of the certificates in such mortgage loan, the custodian, on behalf of the trustee, is required to notify the seller in writing. If the seller cannot or does not cure such omission,defect or breach within 90 days of its receipt of notice from the custodian, the seller is required to repurchase the related mortgage loan from the trust fund at a price equal to 100% of the stated principal balance thereof as of the date of repurchase plus accrued and unpaid interest thereon at the mortgage rate to the first day of the month following the month of repurchase. In addition, if the obligation to repurchase the related mortgage loan results from a breach of the seller’s representations regarding predatory lending, the seller will be obligated to pay any resulting costs and damages incurred by the trust. Rather than repurchase the mortgage loan as provided above, the seller may remove such mortgage loan from the trust fund and substitute in its place another mortgage loan of like characteristics; however, such substitution is only permitted within two years after the closing date. With respect to any repurchase or substitution of a mortgage loan that is not in default or as to which a default is not imminent, the trustee must have received a satisfactory opinion of counsel that such repurchase or substitution will not cause the trust fund to lose the status of its REMIC.

I’m not a MOM loan the loan transferred off of MERS, Mers no longer tracked the assignments and let’s not forget I HAVE IN MY POSSESSION THE ORIGINAL NOTE STAMPED FULLY PAID AND SATISFIED NEGOTIATED TO ME FROM RBMG. The note is date stamped MARCH 2002 and has been in my possession since 2004 along with a letter from the RBMG stating the loan is fully paid and satisfied address to me which is the declaratory letter.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , | 12 Comments »

Foreclosure Defense: “Lost Notes” Investigations

Posted on June 25, 2008 by Neil Garfield
From a mortgage auditor/contributor: CONTACT: mortgagefrauds@aol.com
In July 2005, I met with the FTC staff attorneys in Washington, D.C. who investigated and prosecuted Fairbanks Capital Corp.
In connection with the Fairbanks investigation, a former client [Michael Dillon, Manchester, NH] had supplied the FTC with an audit I had performed of his FCC-serviced loan which, I know, the FTC attorneys studied and found helpful.
I was asked to brief the FTC on my experience with other mortgage servicing companies who were the worst abusers.  Since EMC Mortgage was at the top of my list, I invited a consumer (Robert John Wright), his attorney, Rawle Andrews, Rawle’s partner, Leroy Jones (a consumer lobbyist), and Ralph Summerford, a CPA/Certified Fraud Examiner.
Jack Wright is an EMC victim and established ‘MSFraud.org’ to organize and provide access to information on Mortgage Servicing Fraud.  I meticulously audited Jack’s EMC-serviced loan and testified at his trial as his expert witness.
I left the FTC with the work product I had developed on the Wright case which showed that Jack was not in default when his loan was accelerated and placed in foreclosure.  In addition, my audit showed where EMC took $12,999 from Jack’s Suspense Account and moved it into its Corporate Account to fuel litigation against him.
Post-trial, I performed a detailed analysis of the purported chain of endorsements and assignments of the Note and Mortgage on Jack’s ‘scratch and dent’ loan which shows that the Note was lost on some date close to its origination; that subsequent lost note affidavits are false; and that the assignments refer to loan details that do not comport with Jack’s mortgage obligation.  In short, EMC never had standing to bring a foreclosure action though it repeatedly claimed to be the legal holder in numerous lawsuits over the years.
The two most important messages we attempted to convey to the FTC staff attorneys were: 1) EMC intentionally manufactures defaults in order to pile on fees, extract equity, and wrongfully foreclose; and 2) there is a very big problem with standing issues.
Five months after this meeting, the FTC officially opened its investigation of EMC.  In March of this year, EMC had to announce in its securities filings that it was being investigated by the FTC and that it expected to reach a consent agreement soon.
These ‘non-public’ investigations and negotiations are an attempt to keep the lid on the fact that billions of dollars in mortgages serviced by EMC are unsecured and otherwise vulnerable.  Now that the Federal Reserve owns that collateral, its position would be jeopardized if the word got out; hence, the back room deals.
If you have any EMC-serviced loans, challenge standing and put EMC to its proof.  Let me know if I can help.

EMC Okays ‘Consent Negotiations,’ FTC Says

The Federal Trade Commission’s multiyear investigation into the servicing practices of a Bear Stearns affiliate could lead to the filing of a complaint, but EMC Mortgage Corp. executives have agreed to resolve the matter through ‘consent negotiations,’ according to the FTC. Lydia Parnes, the FTC’s director of consumer protection, told a Senate panel that FTC staff ‘believes EMC and its parent Bear Stearns have violated a number of federal consumer protection statutes in connection with its servicing activities.’ The FTC director indicated that negotiations have not started yet. ‘The FTC cannot comment further on this ongoing law enforcement investigation,’ she testified. Ms. Parnes also revealed that the FTC has launched ‘several nonpublic investigations of mortgage originators for possible violations of fair lending laws.’ In addition, the consumer protection agency is investigating more than a dozen mortgage companies for deceptive advertising. The FTC can be found online at http://www.ftc.gov.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , , , | 8 Comments »

FORECLOSURE DEFENSE: VICTORY IN OHIO

Posted on June 22, 2008 by Neil Garfield

OHIO STATE COURT CANCELS FORECLOSURE SALE AND STAYS FORECLOSURE CASE FILED BY TRUSTEE FOR BEAR STEARNS ASSET-BACKED SECURITIES ON FILING OF FEDERAL ACTION AGAINST BEAR STEARNS AND ITS BROKERS AND OTHERS FOR VIOLATIONS OF FEDERAL TRUTH-IN-LENDING ACT, FEDERAL REAL ESTATE SETTLEMENT PROCEDURES ACT, CONSUMER PROTECTION STATUTE, CIVIL RICO, FRAUD, AND OTHER RELIEF

In another historic victory for borrower victims of predatory loan practices, the Court of Common Pleas of Mahoning County, Ohio has entered an Order today canceling a foreclosure sale set for June 24, 2008 and staying same pending the outcome of the borrower’s Federal lawsuit which has been filed against Bear Stearns Residential Mortgage Corporation, Encore Credit Corporation, Option One Mortgage Corporation, Motion Financial, and broker Ellyn Klein Grober (of Motion Financial) sounding in claims for violations of the Federal Home Ownership Equity Protection Act, the Federal Real Estate Settlement Procedures Act, the Federal Truth-In-Lending Act, the Federal Fair Credit Reporting Act, the Ohio Consumer Practices Act, and the Ohio Mortgage Broker’s Act; Fraudulent Misrepresentation; Breach of Fiduciary Duty; Unjust Enrichment; Civil Conspiracy to defraud; and Civil RICO. The case was filed in the United States District Court for the Northern District of Ohio, Eastern Division.

The ruling comes on the heels of the June 19, 2008 press release, from the Federal Bureau of Investigation’s National Press Office, as to the more than 400 Defendants charged for their roles in mortgage fraud schemes, including 60 arrests in 15 districts. Charges were brought in every region of the United States and in more than 50 judicial districts by U.S. Attorneys’ Offices. The indictments included two Senior Managers of Bear Stearns who were indicted in a mortgage-related securities fraud case.

The Ohio state court ruling paves the way for borrowers seeking relief from foreclosure by parties who have, in many instances, falsely represented to the Courts that they have the proper capacity to institute a foreclosure action when quite the opposite is true. Recent judicial decisions in California and other states have stated very clearly that the question of legal standing to institute a foreclosure is paramount, and absent satisfactory proof of this threshold element, foreclosure may not proceed. The Federal case filed in Ohio in connection with the ruling of the Judge in Mahoning County seeks various additional forms of relief, including money damages, refund of all monies paid by the borrower, rescission, punitive damages, costs, and attorneys’ fees against the Defendants Bear Stearns, Encore Credit, Option One, and Motion Financial.

Jeff Barnes, Esq.

Filed under: bubble, CDO, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: , , , , , , | 7 Comments »

Foreclosure Defense: Bear Stearns Story Exposed

Posted on May 29, 2008 by Neil Garfield

This ought to help you. It is a lot of reading but it has a lot of meat in it. bear-stearns-story

 

Filed under: bubble, CDO, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: , , | 21 Comments »

TELL ME YOUR MORTGAGE NIGHTMARE STORIES

Posted on May 6, 2008 by Neil Garfield
I WANT YOUR STORIES!!!
HERE IS WHAT I JUST RECEIVED FROM A LAWYER I KNOW —
This one who I have been corresponding with sent me an e-mail describing the events of her “closing” where she was told by the Countrywide loan officer that her dad’s life estate did not need to go on the mortgage, and the “closing” took place at a little table in a Barnes & Noble bookstore with a line of people waiting to “close” in a frantic fashion.
 
Jesus! Assembly-line closings in bookstores, forged signatures on loan documents, etc. all obviously railroaded through to get the “bundle” together for resale to Bear Stearns or whoever. This is beyond ugly.
I had a conversation with guy in California yesterday who had been forcibly evicted by the Sheriff after a “non-judicial” sale resulting from a mortgage financing that had more holes in it than the board in back of the paper target at the firing range.
I spoke to another fellow who did everything right in the State of Washington, made his payments, stayed in touch with the lender, and yet his house was also sold at “non-judicial sale” and he is about to evicted after his mortgage broker stole $5,000 from the closing (claiming the lender wanted a credit card paid off), after the lender took $7,000 from him to reinstate his mortgage, and after he sought relief in all the right ways from State and Federal Courts.  
I WANT YOUR STORIES WHICH YOU CAN EITHER PUT IN THE COMMENT SECTION BELOW OR EMAIL TO ME.
HELP ME SHINE A BRIGHT LIGHT ON THE RED-LINING THE TILA VIOLATIONS, THE HARD CORE PREDATORY PRACTICES OF LENDERS WHO HAVE UNDERMINED THEIR BORROWERS AND THE INNOCENT NEIGHBORS OF THESE BORROWERS. TELL ME YOUR NIGHTMARES.

Filed under: bubble, CDO, community banks, CORRUPTION, credit unions, currency, education, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics, securities fraud | Tagged: , , , , , , , | 3 Comments »

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