Bankers Using Foreclosure Judges to Force Investors into Bad Deals

Posted on June 19, 2012 by Neil Garfield

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“Foreclosure judges don’t realize that they are entering orders and judgments on cases that are not in front of them or in which they have any jurisdiction. Foreclosure Judges are forcing bad loans down the throat of investors when the investor signed an agreement (PSA and prospectus) excluding that from happening. The problem is that most lawyers and pro se litigants don’t know enough to make that argument. The investor bought exclusively “good” loans. Foreclosure judges are shoving bad loans down their throats without notice or an opportunity to be heard. This is a classic case of necessary and indispensable parties being ignored.”

— Neil F Garfield, www.livinglies.me

Editor’s Comment: About three times per week, something occurs to me about what is going on here and then I figure it out or get the information from someone else. The layers of the onion are endless. But this one is a showstopper. When I started blogging in October 2007 I thought the issue of necessary and indispensable parties John Does 1-1000 and Jane Roes 1-100 were important enough that it would slow if not stop foreclosures. The Does are the pension funds and other investors who thought that they were buying mortgage bonds and the Roes were the dozens of intermediaries in the securitization chain.

Of course we know that the Does never got their bond in most cases, and even if they did they received it issued from a “REMIC” vehicle that wasn’t a REMIC and which did not have any money or bonds before, during or after the transaction. Instead of following the requirements of the Prospectus and Pooling and Servicing Agreement, the investment banker ignored the securitization documents (i.e., the agreement that induced the investor to advance the funds on a forward sale — i.e., sale of something the investment bank didn’t have yet). The money went from the investor into a Superfund escrow account. It is unclear as to whether the gigantic fees were taken out before or after the money went into the Superfund (my guess is that it was before). But one thing is clear — the partnership with other investors far larger than anything disclosed to the investors because the escrow account was from all investors and not for investors in each REMIC, which existed only in the imagination of the CDO manager at the investment bank that cooked this up.

We now know that in all but a scant few cases, the loan was (1) not documented properly in that it identified not the REMIC or the investor as the lender and creditor, but rather a naked straw-man that was a thinly capitalized or bankruptcy remote relationship and (2) the loan that was described in the documentation that the homeowner signed never occurred. The third thing, and the one I wish to elaborate on today, is that even if the note and mortgage were valid (i.e., referred to any actual transaction in which money exchanged hands between the parties to the agreements and documents that borrower signed) they never made it into the “pools” a/k/a REMICs, a/k/a Special Purpose Vehicle (SPV), a/k/a/ Trust (of which there were none according to my research).

The fact that the loan never made it into the pool is what caused all the robo-signing, fabrication of documents, fraudulent documents, forgeries, misrepresentations and corruption of both the title system and the court system. Because if the loan never made it into the pool, the investment banker and all the intermediaries that were used were depending upon a transaction that never took place at the level of the investor, to wit: the loan was not in the pool, the originator didn’t lend the money and therefore was not the lender, and the “mortgage” or “Deed of trust” was useless because it was the tail of a tiger that did not exist — an enforceable note. This left the pools empty and the loan from the Superfund of thousands of investors who thought they were in separate REMICS (b) subject to nothing more than a huge general partnership agreement.

But that left the note and mortgage unenforceable because it should have (a) disclosed the lender and (b) disclosed the terms of the loan known to the lender and the terms of the loan known to the borrower. They didn’t match. The answer was that those loans HAD to be in those pools and Judges HAD to be convinced that this was the case, so we ended up with all those assignments, allonges, endorsements, forgeries, improper notarizations etc. Most Judges were astute enough to understand that the documents were fabricated. But they felt that since the loan was valid, the note was real, the mortgage was enforceable, the issues of where the loan was amounted to internal bookkeeping and they were not about to deliver to borrowers a “free house.” In a nutshell, most Judges feel that they are not going to let the borrower off scott free just because a document was created or executed improperly.

What Judges did not realize is that they were adjudicating the rights of persons who were not in the room, not in the building, and in fact did not even know the city in which these proceedings were being prosecuted much less the fact that the proceedings even existed. The entry of an order presuming or stating that the loan was in fact in the pool was the Judge’s stamp of approval on a major breach of the Prospectus and pooling and servicing agreement. It forced bad loans down the throat of the investors when their agreement with the investment banker was quite the contrary. In the agreements the cut-off was 90 days after closing and required a fully performing mortgage that was originated utilizing industry standards for due diligence and underwriting. None of those things happened. And each time a Judge enters an order in favor of for example U.S. Bank, as trustee for JP Morgan Chase Bank Trust 1234, the Judge is adjudicating the essential deal between the investor and the investment banker, forcing the investor to accept bad loans at the wrong time.

Forcing the investors to accept bad loans into their pools, probably to the exclusion of the good loans, created a pot of s–t instead of a pot of gold. It isn’t that the investor was not owed money from the investment banker and that the money from the investment banker was supposed to come from borrowers. It is that the pool of actual money sidestepped the REMIC document structure and created a huge general partnership, the governance of which is unknown.

By sidestepping the securitization document structure and the agreements, terms, conditions and provisions therein, the investment banker was able, for his own purposes, to claim ownership of the loans for as long as it took to buy insurance making the investment banker the insured and payee. But the fact is that the investment banker was at all times in an agent/fiduciary relationship with the investor and ALL the proceeds of ALL insurance, Credit Default Swaps, guarantees, and credit enhancements were required to be applied FIRST to the obligation to the investor. In turn the investor, as the real creditor, would have reduced the amount due from the borrower on each residential loan. This means that the accounting from the Master Servicer is essential to knowing the actual amount due, if any, under the original transaction between the borrower and the investors.

Maybe “management” would now be construed as a committee of “trustees” for the REMICs each of whom was given the right to manage at the beginning of the PSA and prospectus and then saw it taken away as one reads further and further into the securitization documents. But regardless of who or what controls the management of the pool or general partnership (majority of partners is my guess) they must be disclosed and they must be represented in each and every foreclosure and Trustees on deeds of trust are creating huge liability for themselves by accepting assignments of bad loans after the cut-off date as evidence of ownership fo the loan. The REMIC lacked the authority to accept the bad loan and it lacked the authority to accept a loan that was assigned after the cutoff date.

Based upon the above, if this isn’t a case where necessary and indispensable parties is the key issue, I do not know of one — and I won the book award in procedure when I was in law school besides practicing trial law for over 30 years.

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: CDO, credit default swaps, credit enhancements, creditor, escrow, Foreclosure judges, general partnership, homeowner, investment banker, JP Morgan Chase, lender, Master Servicer, pool, Pooling and Servicing Agreement, Prospectus, PSA, REMIC, straw-man, Superfund, U.S. Bank | 29 Comments »

REGISTER OF DEEDS JEFF THIGPEN (NC) AND JOHN O’BRIEN (MA): REQUIRE ALL PAST AND PRESENT MERS ASSIGNMENTS TO BE FILED

Posted on April 7, 2011 by Neil Garfield

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EDITORIAL COMMENT: Every day we take a little more lipstick off the pig and discover, of all things, A PIG! This is a basic challenge to Wall Street that is so simple and so right that there is nothing to do but obey — but they won’t. If all the MERS transactions are recorded, it would not only recover billions in unpaid recording and registration fees, but trigger other tax liabilities on Federal, State and Local levels. The whole REMIC exemption is based upon the REMIC vehicle being closed within 90 days.

Oops! Nearly all REMIC (SPV, TRUST) vehicles are still open (i.e., empty) after many years. And Wall Street’s fees taken under the cover of the REMIC transactions and hidden from all, would be painfully obvious resulting not only in monumental income tax liability but liability for fraudulent sale of securities, appraisal fraud on the property, RICO and many other causes of action too numerous to mention (see Causes of Action on left side of this Blog).

But that is just a dream. There is no way they can record all 80 million MERS transactions because many of them don’t actually exist. In the end, the issue is simple — are we going to sacrifice a system of title recordation in place for centuries with an exemption (get out of jail free) card for Wall Street and thus create commercial chaos for decades or centuries to come? Or are we going to let the chips fall where they will? If the chips fall naturally, some people will make money and some people will lose money. Some people will be satisfied and some people will be mad as hell. That’s what happens in a free market, isn’t it?

All we are offered is POLICY argument that says POLICY is more important than the law. That has never been true in theory. But now the only way out for Wall Street is to make it true in theory as well as in practice. Abandoning the separate but equal powers of the judiciary and thus removing one leg of the three legged stool the founders created when they launched the USA would be the single most important element in the destruction of the country as it is presently constituted — causing a secession battle and the same problems that Russia had when stopped being the Soviet Union.

Basically Wall Street is saying “we went to all this trouble and expense to cheat and deceive you and we ought to be able to keep it. Screw you if you think you are getting any of it back.” The government is nodding its head like a head on a spring in the back seat of the car. The people are saying we want governance not pie-splitting. How this will all end up is going to be interesting and profound. Unless we apply the rule of law suggested simply by applying the requirement of recording transactions in a public registry, we will have about as much confidence in the stability of U.S. commerce as there is in any of the third world countries.

Every PONZI scheme fails. All efforts by Wall Street and the government controlled by Wall Street have failed to find an alternative way around the rule of law that doesn’t strike at the heart of our constitutional system. All the people who lose money in a PONZI scheme wish the scheme had gone on just long enough for THEM to get their money back and someone else to lose THEIR money. That’s where we are, folks, and the time to end every PONZI scheme is immediately before another person gets hurt.

These foreclosures are virtually all based on factually false and fraudulent representations, documentation, and premises. Practically none of the “mortgages” are legal and if any one of them was singularly the subject of a quiet title action, the homeowner would win on the merits, based upon the facts. It is only because of the volume of transactions that legislators and bureaucrats are scurrying around looking for a novel way out of this scam, because they are getting “benefits” from Wall Street. The requirement of recording, will expose the truth: (1) that the only real parties to the transaction are not present in any existing documents and (2) that the existing documents describe transactions that never actually took place. They can’t record these documents because most states make it a criminal offense to record, execute, witness or notarize fraudulent documents.

FOR IMMEDIATE RELEASE:

Greensboro, NC

April 7, 2011

Contact:

Jeff Thigpen, Guilford County Register of Deeds

Ph. 336-451-5300

Ph. 336-641-3239

jthigpe@co.guilford.nc.us

REGISTER OF DEEDS JEFF THIGPEN (NC) AND JOHN O’BRIEN (MA) ASK 50 STATE ATTORNEY GENERAL FORECLOSURE WORK GROUP TO REQUIRE ALL PAST AND PRESENT MERS ASSIGNMENTS TO BE FILED!

JOHN L. O’BRIEN, JR. JEFF L. THIGPEN
Register of Deeds Register of Deeds

Commonwealth of Massachucetts                                                                            Guilford County, North Carolina
Phone: 978-542-1704                                                                                                           Phone: 336-451-5300
Fax: 978-542-1706                                                                                                                  Fax: 336-641-5778
website: www.salemdeeds.com website: www.guilforddeeds.com

April 6, 2011

The Honorable Tom Miller
Iowa Attorney General
1305 E. Walnut Street
Des Moines IA 50319

Dear Attorney General Miller,

We appreciate your leadership in the mortgage foreclosure working group, as part of a coordinated national effort by states, to review the practice of “robo-signing” within the mortgage servicing industry. We understand this investigation is nearing conclusion, but we want to implore you to act on a very important issue to homeowners across the country.

As County Land Record Recorders in Massachusetts and North Carolina, we have been gravely concerned about the role of the Mortgage Electronic Registration Systems (MERS) in not only foreclosure proceedings, but as it undermines the legislative intent of our offices as stewards of land records. MERS tracks more than 60 million mortgages across the United States and we believe it has assumed a role that has put constructive notice and the property rights system at risk. We believe MERS undermines the historic purpose of land record recording offices and the “chain of title” that assures ownership rights in land records.

As a result, we are asking as part of your probe, that this task force and the National Association of Attorney Generals require that all past and present MERS assignments of deeds of trust/mortgages be filed in local recording offices throughout the United States immediately. Assignments are required by statute to be filed in Massachusetts, however they are not currently required to be recorded in North Carolina. We feel, that it is important that the Registers of Deeds should have representatives at the table before any settlement is discussed or agreed to as it relates to MERS failure to record assignments and pay the proper fees.

This action would serve three specific purposes. First, the filing of all assignments would help recover the chain of title that determines property ownership rights that has been lost and clouded over during the past 13 years because of the scheme that MERS has set in place. Second, transparency and confidence in ownership rights would be restored and this would prevent the infringement upon those rights by others. Third, this action would support a return to sound fundamentals in our economy between the financial services industry and public recording offices.

MERS has defended their practices by saying that they were helping the registries of deeds by reducing the amount of paperwork that needed to be recorded. This claim is outrageous. This is help we did not ask for, nor was it help that we needed. It is very clear that the only ones that they were helping were themselves. Over the past 10-12 years, recording offices across the United States have upgraded their internal and external technology to meet the demands of lenders, title underwriters, title searchers and citizens. In fact, in 1998 the Southern Essex District Registry of Deeds in Massachusetts became the first registry of deeds to provide both document images and indices available to the public, 24 hours a day, free of charge on the world-wide-web. In doing so, the Registry received a Computerworld Smithsonian Award which recognized the innovative use of technology to benefit society. In 2009, the Guilford County Register of Deeds was given a Local Government Federal Credit Union Productivity Award by the North Carolina Association of County Commissioners for their technological innovations. Nationally, over 93% of the public land records are up to date and current, according to Ernest Publishing.

As of today, there are over 600 recording jurisdictions, covering 43% of the US population that have incorporated an eRecording model into their document recording operations. We believe these jurisdictions cover nearly 80% of the volume of assignments that should be recorded. The remaining areas could be covered quickly, with legislation requiring such action by state legislatures.

Quite frankly, we believe this can and should be done. It’s the right thing to do.

In the coming weeks, we will be working with our national organizations, the National Association of County Recorders, Election Officials and Clerks (NACRC) and the International Association of Clerks, Recorders, Election Officials, and Treasurers (IACREOT) to take the same position. We are also sending a copy of this letter to the National Conference on State Legislatures (NCSL) and the National Association of Counties (NACO).

Thank you for your immediate attention.

Sincerely,

Jeff L.Thigpen
Guilford County Register of Deeds, NC

John O’Brien
Southern Essex District Registry of Deeds, MA

###

SOURCE: Jeff Thigpen

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, CDO, CDS, CORRUPTION, Fannie MAe, foreclosure, foreclosure fraud, Foreclosuregate, Freddie Mac, Greensboro, Guilford County, Jeff Thigpen, JOHN L. O’BRIEN, MERS, Mortgage Electronic Registration System, mortgage fraud, North Carolina, recording, Register of Deeds, securities fraud, Tom Miller | 34 Comments »

Mortgage Securities It Holds Pose Sticky Problem for Fed

Posted on July 23, 2010 by Neil Garfield

STICKIER THAN THEY THINK: These are not the only mortgage securities they hold and they all amount to ownership of the risk on every loan they purchased. The purchase of course was accomplished in one of many ways — direct and indirect.

But when you come down to it, between the GSE’s (which are now departments of the Federal Government), TARP, and the outright purchase by the Fed, SOMEONE received 100 cents on the dollar for every loan, whether in default or otherwise.

Add in insurance, credit default swaps and credit “enhancements” (i.e., commingling of money contrary to the explicit terms of the borrowers’ promissory notes) like over-collateralization and cross collateralization, it would be a fair statement to say that everyone of the mortgages CLAIMED to be in pools that were subject to various securitization instruments, have been paid in whole or in part.

THAT IS WHAT I MEAN BY THIRD PARTY PAYMENTS. The legal issue is who got the money and why? The practical impact is that if those payments were related to individual mortgages, which indeed they must have been, then they were received into what should have been an escrow account and allocated to each loan.

Now add the fact that very nearly NONE of the loans were in fact the subject of an actual assignment, recorded instrument, endorsement or delivery while they were performing and before the cutoff date in the securitization enabling documentation, and you really have an interesting conclusion: the loans never made it into the pool, which makes securitization a giant Ponzi scheme that paid investors long enough out of their own money to lend credibility to the scheme.

But it is also true that borrowers made payments and where those went, and in what amounts is a clouded mystery because every lawsuit I know of that has asked for the accounting is stalled. So with nothing in the pools, nothing in the mortgage bonds, and the CDO’s based upon the mortgage bonds, and the credit default swaps referencing the mortgage bonds, and the synthetic CDOs consisting of CDS instruments referring to the mortgage bonds, they were all worthless from beginning to end. In short, the government bought nothing from bankers who had already made a ton of money, most of it parked off-shore.

The real reason the government can’t sell these securities is that nobody will pay for them. Any due diligence down to the loan level will reveal that the loans were never subject to legally required execution, delivery and recording of transfer or assignment documents, together with indorsements etc. In some cases, this is correctable — at considerable legal expense. In most cases, they are not correctable. The bottom line is really simple: the obligation was created, the note was extinguished, and the security instrument became unenforceable, and separated from the note. The illusion that it is otherwise is what is keeping us in stagnation, preventing a solution.

July 22, 2010

Mortgage Securities It Holds Pose Sticky Problem for Fed

By BINYAMIN APPELBAUM

WASHINGTON — The Federal Reserve provided most of the money for new mortgages in the United States last year, effectively lending more than $1 trillion to American homeowners.

Now the legacy of that extraordinary intervention is hanging over the central bank as it faces growing demands for an encore to help revive the flagging economy.

While officials and economists generally regard the program as successful in supporting the housing market, it has left the Fed holding a vast pile of mortgage securities — basically i.o.u.’s from homeowners — that it does not want and cannot sell.

Holding the securities could cost the Fed a lot of money and hamper its ability to fight inflation, while selling the securities could drain needed money from the still-weak economy.

Fed officials have expressed confidence that they can finesse the dilemma by gradually selling the securities as the economy starts to recover. But they are not eager to expand the challenge they face by beginning a new round of asset-buying, one tool the Fed could use to try to stimulate growth.

“In my view, any judgment to expand the balance sheet further should be subject to strict scrutiny,” Kevin M. Warsh, a Fed governor, said in a speech last month in Atlanta. He warned that new purchases could undermine the Fed’s “most valuable asset”: its credibility.

Some Democrats want the Fed to pump more money into the economy to help reduce unemployment, one of the central bank’s basic responsibilities. In testimony before Congress this week, Chairman Ben S. Bernanke said that the Fed retained that option, but did not now plan to expand on the steps it had already taken.

In part, Bernanke and other Fed officials say they believe that new asset purchases would be less effective now that private investors have returned to the market.

The Fed became one of the world’s largest mortgage investors because no one else was interested. During the fall 2008 financial crisis, investors stopped buying the mortgage securities issued by the housing finance companies Fannie Mae and Freddie Mac. The two companies buy mortgages made by banks and other lenders, providing money for new rounds of lending, then package those loans into securities for sale to investors, replenishing their own coffers.

Two days before Thanksgiving 2008, the Fed announced that it would buy $500 billion in securities issued by the two companies. By the time the program wound down in March 2010, it had spent more than twice that amount. The central bank now owns mortgage securities with a face value of $1.1 trillion.

A wide range of economists say the Fed’s program — so big that purchases outstripped the issuance of new securities in some months — helped to preserve the availability of mortgage loans and helped to hold interest rates near record lows. Rates that exceeded 6 percent in late 2008 remain below 5 percent today.

But the Fed now must deal with the cleanup.

The central bank could hold the securities until the borrowers repaid or refinanced their loans. Brian P. Sack, an executive at the Federal Reserve Bank of New York, estimated in March that borrowers would repay $200 billion by the end of 2011. And in the meantime, the Fed is collecting regular interest payments.

HOW IS THIS MONEY REACHING THE FED? WHO IS GETTING PAID FOR HANDLING IT?

WHY IS NOT THE FED’S INTEREST RECORDED IN THE PROPERTY RECORDS OF THE COUNTY IN WHICH THE PROPERTY IS LOCATED (ANSWER — BECAUSE THEY DON’T HOLD THE SECURITY, JUST THE RECEIVABLE, CALLED “SPLITTING NOTE FROM MORTGAGE”).

IF THE FED OWNS THESE LOANS WHY DON’T THEY SHOW UP AS A PARTY IN FORECLOSURES?

WHO IS THE TRUSTEE ON DEEDS OF TRUST?

WHO ARE THE BENEFICIARIES?

WHO ARE THE MORTGAGEES ON MORTGAGE DEEDS?

“We’ve been earning a fairly high income from our holdings and remitting that to the Treasury,” Mr. Bernanke told Congress on Wednesday.

But holding the securities could make it harder to control inflation as the economic recovery gains strength, said Vincent Reinhart, the former head of the Fed’s monetary policy division, now a resident scholar at the American Enterprise Institute.

The Fed bought the securities by pumping new money into the economy, stimulating growth. It could be difficult to reverse that effect without draining the money from the economy by selling the securities, Mr. Reinhart said.

“They created reserves, and those reserves ultimately can be inflationary,” Mr. Reinhart said. “The chief risk of keeping the balance sheet big and raising rates is that you might not be able to raise rates successfully” because the impact would be mitigated by the effect of the extra money still sloshing around the system.

Holding the securities also could cost the Fed a lot of money.

The Fed paid some of the highest prices on record for mortgage securities, basically accepting very low rates of interest on its investments. As the economy recovers and interest rates rise, the Fed will need to accept increasingly large discounts to make the securities attractive to other investors.

David Zervos, head of global fixed-income strategy at the investment bank Jefferies & Company, estimates that the value of the portfolio will drop almost $50 billion each time interest rates increase by one percentage point.

Selling the securities at a loss would reduce the Fed’s ability to transfer profits to the Treasury Department. Large enough losses could reduce the amount of capital held by the Fed, although it can always create more money.

But perhaps the greatest risk is that investors will begin to doubt the Fed’s willingness to raise interest rates, knowing that each increase will damage its own balance sheet.

“It compromises their integrity and their inflation-fighting mandate, because fighting inflation would be a direct detriment to their portfolio,” Mr. Zervos said.

The Fed could avoid these problems by selling the securities now, before interest rates start to rise. But doing so would reverse the benefits of the original program, draining money from the economy while it still is weak. It would also fly in the face of the demands for the Fed to do more for the economy.

A fire sale also could damage the banking industry by driving down the value of the comparable mortgage securities that banks hold in large quantities.

So far the Federal Open Market Committee, comprising the board of governors and a rotating selection of presidents from the regional reserve banks, has chosen to wait.

The approach favored by most of the committee, according to the minutes of its June meeting, is to start raising interest rates before beginning to sell the securities. By waiting “until the economic recovery was well established,” the minutes said, the Fed would limit the impact of the asset sales on the broader market.

Filed under: bubble, CASES, CDO, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee | Tagged: BINYAMIN APPELBAUM, CDO, CDS, Federal reserve, loans, mortgage bonds, mortgage securities, SPLITTING NOTE FROM MORTGAGE | 22 Comments »

“KING” DEUTSCH CITED FOR DESTRUCTION OF CITIES

Posted on July 2, 2010 by Neil Garfield

The article below was purloined from www.foreclosureblues.wordpress.com — the comments are mine. Neil Garfield

“According to the Federal Deposit Insurance Corporation (FDIC), Deutsche Bank now holds loans for American single-family and multi-family houses worth about $3.7 billion (€3.1 billion). The bank, however, claims that much of this debt consists of loans to wealthy private customers. (EDITOR’S NOTE: THUS ALL THE OTHER LOANS IT CLAIMS TO OWN, IT DOESN’T OWN)

The bank did not issue the mortgages for the many properties it now manages, and yet it accepted, on behalf of investors, the fiduciary function for its own and third-party CDOs. In past years, says mortgage expert Steve Dibert, real estate loans were “traded like football cards” in the United States. (Editor’s Note: This is why we say that the loan never makes it into the pool until litigation starts AND even if it was ever in the pool there is no guarantee it remained in the pool for more than a nanosecond). Sworn testimony from Deutsch employees corroborate that no assignments are done until “needed,” which means that in the mean time they are still legally owned by the loan originator. The loan originator therefore created an obligation that was satisfied simultaneously with the closing on the loan. The note is therefore evidence of an obligation that does not legally exist. Thus there are possible equitable theories under which investors could assert claims against the borrower, but the note and deed of trust or mortgage are only PART of the evidence and ONLY the investor has standing to bring that claim. Recent cases have rejected claims of “equitable transfer.”)

How many houses was he responsible for, Co was asked? “Two thousand,” he replied. But then he corrected himself, saying that 2,000 wasn’t the number of individual properties, but the number of securities packages being managed by Deutsche Bank. Each package contains hundreds of mortgages. So how many houses are there, all told, he was asked again? Co could only guess. “Millions,” he said.

The exotic financial vehicles are sometimes managed by an equally exotic firm: Deutsche Bank (Cayman) Limited, Boundary Hall, Cricket Square, Grand Cayman. In an e-mail dated Feb. 26, 2010, a Deutsche Bank employee from the Cayman Islands lists 84 CDOs and similar products, for which she identifies herself as the relevant contact person.

However, C-BASS didn’t just manage abstract securities. It also had a subsidiary to bring in all the loans that were subsequently securitized. By the end of 2005 the subsidiary, Litton Loan, had processed 313,938 loans, most of them low-value mortgages, for a total value of $43 billion.

EDITOR’S NOTE: Whether it is Milwaukee which is going the the way of Cleveland or thousands of other towns and cities, Deutsch Bank as a central player in more than 2,000 Special Purpose Vehicles, involving thousands more pools and sub-pools, is far and away the largest protagonist in the foreclosure crisis. This article, originally written in German, details just how deep they are into this mess, while at the same time disclaiming any part in it. It corroborates the article I wrote about the Deutsch Bank executive who said ON TAPE, which I have, that even though Deutsch is named as Trustee it knows nothing and does nothing.

SPIEGEL ONLINE
06/10/2010 07:42 AM
‘America’s Foreclosure King’
How the United States Became a PR Disaster for Deutsche Bank
By Christoph Pauly and Thomas Schulz

Deutsche Bank is deeply involved in the American real estate crisis. After initially profiting from subprime mortgages, it is now arranging to have many of these homes sold at foreclosure auctions. The damage to the bank’s image in the United States is growing.

The small city of New Haven, on the Atlantic coast and home to elite Yale University, is only two hours northeast of New York City. It is a particularly beautiful place in the fall, during the warm days of Indian summer.

But this idyllic image has turned cloudy of late, with a growing number of houses in New Haven looking like the one at 130 Peck Street: vacant for months, the doors nailed shut, the yard derelict and overgrown and the last residents ejected after having lost the house in a foreclosure auction. And like 130 Peck Street, many of these homes are owned by Germany’s Deutsche Bank.

“In the last few years, Deutsche Bank has been responsible for far and away the most foreclosures here,” says Eva Heintzelman. She is the director of the ROOF Project, which addresses the consequences of the foreclosure crisis in New Haven in collaboration with the city administration. According to Heintzelman, Frankfurt-based Deutsche Bank plays such a significant role in New Haven that the city’s mayor requested a meeting with bank officials last spring.

The bank complied with his request, to some degree, when, in April 2009, a Deutsche Bank executive flew to New Haven for a question-and-answer session with politicians and aid organizations. But the executive, David Co, came from California, not from Germany. Co manages the Frankfurt bank’s US real estate business at a relatively unknown branch of a relatively unknown subsidiary in Santa Ana.

How many houses was he responsible for, Co was asked? “Two thousand,” he replied. But then he corrected himself, saying that 2,000 wasn’t the number of individual properties, but the number of securities packages being managed by Deutsche Bank. Each package contains hundreds of mortgages. So how many houses are there, all told, he was asked again? Co could only guess. “Millions,” he said.

Deutsche Bank Is Considered ‘America’s Foreclosure King’

Deutsche Bank’s tracks lead through the entire American real estate market. In Chicago, the bank foreclosed upon close to 600 large apartment buildings in 2009, more than any other bank in the city. In Cleveland, almost 5,000 houses foreclosed upon by Deutsche Bank were reported to authorities between 2002 and 2006. In many US cities, the complaints are beginning to pile up from homeowners who lost their properties as a result of a foreclosure action filed by Deutsche Bank. The German bank is berated on the Internet as “America’s Foreclosure King.”

American homeowners are among the main casualties of the financial crisis that began with the collapse of the US real estate market. For years, banks issued mortgages to homebuyers without paying much attention to whether they could even afford the loans. Then they packaged the mortgage loans into complicated financial products, earning billions in the process — that is, until the bubble burst and the government had to bail out the banks.

Deutsche Bank has always acted as if it had had very little to do with the whole affair. It survived the crisis relatively unharmed and without government help. Its experts recognized early on that things could not continue as they had been going. This prompted the bank to get out of many deals in time, so that in the end it was not faced with nearly as much toxic debt as other lenders.

But it is now becoming clear just how deeply involved the institution is in the US real estate market and in the subprime mortgage business. It is quite possible that the bank will not suffer any significant financial losses, but the damage to its image is growing by the day.

‘Deutsche Bank Is Now in the Process of Destroying Milwaukee’

According to the Federal Deposit Insurance Corporation (FDIC), Deutsche Bank now holds loans for American single-family and multi-family houses worth about $3.7 billion (€3.1 billion). The bank, however, claims that much of this debt consists of loans to wealthy private customers.

More damaging to its image are the roughly 1 million US properties that the bank says it is managing as trustee. “Some 85 to 90 percent of all outstanding mortgages in the USA are ultimately controlled by four banks, either as trustees or owners of a trust company,” says real estate expert Steve Dibert, whose company conducts nationwide investigations into cases of mortgage fraud. “Deutsche Bank is one of the four.”

In addition, the bank put together more than 25 highly complex real estate securities deals, known as collateralized debt obligations, or CDOs, with a value of about $20 billion, most of which collapsed. These securities were partly responsible for triggering the crisis.

Last Thursday, Deutsche Bank CEO Josef Ackermann was publicly confronted with the turmoil in US cities. Speaking at the bank’s shareholders’ meeting, political science professor Susan Giaimo said that while Germans were mainly responsible for building the city of Milwaukee, Wisconsin, “Deutsche Bank is now in the process of destroying Milwaukee.”

As Soon as the Houses Are Vacant, They Quickly Become Derelict

Then Giaimo, a petite woman with dark curls who has German forefathers, got to the point. Not a single bank, she said, owns more real estate affected by foreclosure in Milwaukee, a city the size of Frankfurt. Many of the houses, she added, have been taken over by drug dealers, while others were burned down by arsonists after it became clear that no one was taking care of them.

Besides, said Giaimo, who represents the Common Ground action group, homeowners living in the neighborhoods of these properties are forced to accept substantial declines in the value of their property. “In addition, foreclosed houses are sold to speculators for substantially less than the market value of houses in the same neighborhood,” Giaimo said. The speculators, according to Giaimo, have no interest in the individual properties and are merely betting that prices will go up in the future.

Common Ground has posted photos of many foreclosed properties on the Internet, and some of the signs in front of these houses identify Deutsche Bank as the owner. As soon as the houses are vacant, they quickly become derelict.

A Victorian house on State Street, painted green with red trim, is now partially burned down. Because it can no longer be sold, Deutsche Bank has “donated” it to the City of Milwaukee, one of the Common Ground activists reports. As a result, the city incurs the costs of demolition, which amount to “at least $25,000.”

‘We Can’t Give Away Money that Isn’t Ours’

During a recent meeting with US Treasury Secretary Timothy Geithner, representatives of the City of Milwaukee complained about the problems that the more than 15,000 foreclosures have caused for the city since the crisis began. In a letter to the US Treasury Department, they wrote that Deutsche Bank is the only bank that has refused to meet with the city’s elected representatives.

Minneapolis-based US Bank and San Francisco-based Wells Fargo apparently took the complaints more seriously and met with the people from Common Ground. The activists’ demands sound plausible enough. They want Deutsche Bank to at least tear down those houses that can no longer be repaired at a reasonable cost. Besides, Giaimo said at the shareholders’ meeting, Deutsche Bank should contribute a portion of US government subsidies to a renovation fund. According to Giaimo, the bank collected $6 billion from the US government when it used taxpayer money to bail out credit insurer AIG.

“It’s painful to look at these houses,” Ackermann told the professor. Nevertheless, the CEO refused to accept any responsibility. Deutsche Bank, he said, is “merely a sort of depository for the mortgage documents, and our options to help out are limited.” According to Ackermann, the bank, as a trustee for other investors, is not even the actual owner of the properties, and therefore can do nothing. Besides, Ackermann said, his bank didn’t promote mortgage loans with terms that have now made the payments unaffordable for many families.

The activists from Wisconsin did, however, manage to take home a small victory. Ackermann instructed members of his staff to meet with Common Ground. He apparently envisions a relatively informal and noncommittal meeting. “We can’t give away money that isn’t ours,” he added.

Deutsche Bank’s Role in the High-Risk Loans Boom

Apparently Ackermann also has no intention to part with even a small portion of the profits the bank earned in the real estate business. Deutsche Bank didn’t just act as a trustee that — coincidentally, it seems — manages countless pieces of real estate on behalf of other investors. In the wild years between 2005 and 2007, the bank also played a central role in the profitable boom in high-risk mortgages that were marketed to people in ways that were downright negligent.

Of course, its bankers didn’t get their hands dirty by going door-to-door to convince people to apply for mortgages they couldn’t afford. But they did provide the distribution organizations with the necessary capital.

The Countrywide Financial Corporation, which approved risky mortgages for $97.2 billion from 2005 to 2007, was the biggest provider of these mortgages in the United States. According to the study by the Center for Public Integrity, a nonprofit investigative journalism organization, Deutsche Bank was one of Countrywide’s biggest financiers.

Ameriquest — which, with $80.7 billion in high-risk loans on its books in the three boom years before the crash, was the second-largest subprime specialist — also had strong ties to Deutsche Bank. The investment bankers placed the mortgages on the international capital market by bundling and structuring them into securities. This enabled them to distribute the risks around the entire globe, some of which ended up with Germany’s state-owned banks.

‘Deutsche Bank Has a Real PR Problem Here’

After the crisis erupted, there were so many mortgages in default in 25 CDOs that most of the investors could no longer be serviced. Some CDOs went bankrupt right away, while others were gradually liquidated, either in full or in part. The securities that had been placed on the market were underwritten by loans worth $20 billion.

At the end of 2006, for example, Deutsche Bank constructed a particularly complex security known as a hybrid CDO. It was named Barramundi, after the Indo-Pacific hermaphrodite fish that lives in muddy water. And the composition of the deal, which was worth $800 million, was muddy indeed. Many securities that were already arcane enough, like credit default swaps (CDSs) and CDOs, were packaged into an even more complex entity in Barramundi.

Deutsche Bank’s partner for the Barramundi deal was the New York investment firm C-BASS, which referred to itself as “a leader in purchasing and servicing residential mortgage loans primarily in the Subprime and Alt-A categories.” In plain language, C-BASS specialized in drumming up and marketing subprime mortgages for complex financial vehicles.

One of the First Victims of the Financial Crisis

Barramundi was already the 19th CDO C-BASS had issued. But the investment firm faltered only a few months after the deal with Deutsche Bank, in the summer of 2007. C-BASS was one of the first casualties of the financial crisis.

Deutsche Bank’s CDO, Barramundi, suffered a similar fate. Originally given the highest possible rating by the rating agencies, the financial vehicle stuffed with subprime mortgages quickly fell apart. In the spring of 2008, Barramundi was first downgraded to “highly risky” and then, in December, to junk status. Finally, in March 2009, Barramundi failed and had to be liquidated. (EDITOR’S NOTE: WHAT HAPPENED TO THE LOANS?)

While many investors lost their money and many Americans their houses, Deutsche Bank and Litton Loan remained largely unscathed. Apparently, the Frankfurt bank still has a healthy business relationship with the subprime mortgage manager, because Deutsche Bank does not play a direct role in any of the countless pieces of real estate it holds in trust. Other service providers, including Litton Loan, handle tasks like collecting mortgage payments and evicting delinquent borrowers.

The exotic financial vehicles are sometimes managed by an equally exotic firm: Deutsche Bank (Cayman) Limited, Boundary Hall, Cricket Square, Grand Cayman. In an e-mail dated Feb. 26, 2010, a Deutsche Bank employee from the Cayman Islands lists 84 CDOs and similar products, for which she identifies herself as the relevant contact person.

Trouble with US Regulatory Authorities and Many Property Owners

The US Securities and Exchange Commission (SEC) is now investigating Deutsche Bank and a few other investment banks that constructed similar CDOs. The financial regulator is looking into whether investors in these obscure products were deceived. The SEC has been particularly critical of US investment bank Goldman Sachs, which is apparently willing to pay a record fine of $1 billion to avoid criminal prosecution.

Deutsche Bank has also run into problems with the many property owners. The bank did not issue the mortgages for the many properties it now manages, and yet it accepted, on behalf of investors, the fiduciary function for its own and third-party CDOs. In past years, says mortgage expert Steve Dibert, real estate loans were “traded like football cards” in the United States.

Amid all the deal-making, the deeds for the actual properties were often lost. In Cleveland and New Jersey, for example, judges invalidated foreclosures ordered by Deutsche Bank, because the bank was unable to come up with the relevant deeds.

Nevertheless, Deutsche Bank’s service providers repeatedly try to have houses vacated, even when they are already occupied by new owners who are paying their mortgages. This practice has led to nationwide lawsuits against the Frankfurt-based bank. On the Internet, angry Americans fighting to keep their houses have taken to using foul language to berate the German bank.

“Deutsche Bank now has a real PR problem here in the United States,” says Dibert. “They want to bury their head in the sand, but this is something they are going to have to deal with.”

Translated from the German by Christopher Sultan

Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, foreign relations, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee | Tagged: ALT-A, Boundary Hall, C-BASS, CDO, Christoph Pauly, Cleveland, Common Ground, Countrywide Financial Corporation, Cricket Square, Deutsche Bank (Cayman) Limited, Deutsche Bank AG, exotic financial vehicles, FDIC, fiduciary function, foreclosureblues, foreclosures, Giaimo, Grand Cayman, HERS, Josef Ackermann, Litton Loan, Milwaukee, New Haven, ROOF Project, subprime, third-party CDO, Thomas Schulz | 8 Comments »

Discovery Hints: Goldman Sachs may not be the only firm in SEC cross hairs

Posted on April 24, 2010 by Neil Garfield

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP 5/23-24

Editor’s Notes: These lawsuits from the SEC, the Class Action lawyers etc., are already producing fall-out — dozens of articles and production of secret emails etc. that can only help your case. Follow them closely as they will inevitably lead to admissible evidence of what you can only argue generally now.Use Google and other search engines and subscribe to securitization sites.

In motion practice your credibility will be enhanced if you can refer to other cases where government agencies, attorneys general, U.S. Attorneys etc. have filed cases alleging the same thing you are alleging. To the extent that it is truthful to say so, you can point to various elements of proof that are coming out of those cases. This will vastly enhance your ability to gain the Judge’s attention — but don’t try to prove YOUR case simply on the basis that it appears to be true in OTHER cases. Use these other cases to establish your foundation for discovery requests and why they MUST come up with all the documents, ledgers, accounting and bookkeeping data, distribution reports, emails etc. related to the pool in which your particular loan is located.

Goldman Sachs may not be the only firm in SEC cross hairs

The agency’s fraud suit against the Wall Street giant may foreshadow similar cases against other financial firms and trigger a wave of private litigation.

Related
Obama makes a pitch for stronger bank regulations

By E. Scott Reckard, Los Angeles Times

April 22, 2010 | 3:32 p.m.

The government’s fraud lawsuit against Goldman, Sachs & Co. could portend cases against other financial giants that turned subprime mortgages into complex securities while also accelerating a surge in private litigation against Wall Street.

In announcing the Goldman case, Securities and Exchange Commission enforcement chief Robert Khuzami said the agency was looking into similar transactions at other firms. As the SEC struggles to shed its image as the snoozing securities cop that missed Bernard L. Madoff’s vast Ponzi scheme, the agency is likely to bring additional cases, said Alan Bromberg, a securities law professor at Southern Methodist University.

“The SEC has become pretty aggressive, so it’s a good bet,” Bromberg said. Goldman, he said, was probably chosen as the first target because of its prominence. “It is the biggest and by most estimates the best firm on Wall Street.”

Goldman Sachs is accused of failing to disclose that a hedge fund that helped it create complex securities had actually placed a bet that the investment would fail. Goldman has said it provided full disclosure to sophisticated investors who knew that some other knowledgeable party was betting against them.

The suit against Goldman will undoubtedly encourage similar claims by investors, said Boston University securities law expert Elizabeth Nowicki.

Private lawyers “are going to start filing these suits like they’re going out of style,” she said.

It’s not unusual for SEC cases to pave the way for private lawsuits. For example, the SEC’s announcement that it was investigating conflicts of interest by securities analysts in 2001 triggered a wave of private litigation making the same allegation.

In the case of the mortgage-linked investments known as collateralized debt obligations, a variation of which is at the heart of the Goldman Sachs case, lawyers for investors had already begun their assault.

UBS, Morgan Stanley, Merrill Lynch and Deutsche Bank face private lawsuits alleging they misled investors in CDOs or similar investments. The firms, like Goldman, have denied any wrongdoing.

“The question is whether the SEC has uncovered the tip of the iceberg,” Nowicki said.

The issue is especially important, she said, because the high-risk investments caused such huge losses for financial firms and investors around the world, magnifying the effect of the collapse of the housing and mortgage markets.

“Without these devastating transactions we would have had a regular downturn in the housing markets and not a near depression,” said Nowicki, a former SEC attorney who practiced securities law on Wall Street and has testified as an expert witness in disclosure cases.

The financial crisis has spawned hundreds of lawsuits, with the targets shifting from the lenders that made dubious home loans to the Wall Street firms that transformed mortgage bonds backed by subprime loans into supposedly solid investments, Jonathan Pickhardt, a securities-law attorney, wrote in a recent legal journal article.

The suits that deal with CDOs include allegations that some of the firms creating and marketing CDOs stuffed troubled assets into them without disclosure, especially as mortgage defaults surged in 2007; improperly influenced CDO management firms that were hired to pick assets independently; and withheld key information from credit-rating firms.

The bar of proof appears higher in CDO cases than in the SEC’s suits last year against former executives of Countrywide Financial Corp. of Calabasas and New Century Financial Corp. of Irvine, two major companies brought down by the mortgage meltdown.

That’s because the suits against the executives, including Countrywide co-founder Angelo Mozilo, accuse them of misleading individual shareholders and other members of the investing public. Mozilo and the other defendants in these cases have denied the allegations.

In contrast, the participants in the CDO transactions were, as UBS put it in statements responding to two CDO-related lawsuits, “professional and knowledgeable” banks and sophisticated investors who knew what they were buying.

Making it tougher still to prove fraud, the transactions in the SEC action against Goldman and a private suit targeting Merrill Lynch involved so-called synthetic CDOs. Such creations don’t contain actual mortgage bonds. Instead they hold insurance-like instruments tied to a portfolio of mortgage bonds. The CDOs essentially sold insurance on the bonds. Other investors bought that insurance, betting that home-loan defaults would lower the value of both the bonds and the CDOs themselves.

As a result, the structure of synthetic CDOs required outside investors to bet that the CDOs would incur losses.

For example, in a case brought by Rabobank, a large Dutch financial firm, against Merrill Lynch, now part of Bank of America Corp., the Wall Street firm said the CDO contract contained standard language obliging investors to conduct their own research on the deal and not rely on information provided by Merrill.

scott.reckard@latimes.com

Filed under: bubble, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, Mortgage, Motion Practice and Discovery, securities fraud, Servicer, STATUTES, trustee, workshop | Tagged: Abacus, accounting bookkeping, Alan Bromberg, Angelo Mozilo, Bank of America, CDO, collateralized debt obligation, correspondence, countrywide, discovery, distribution reports, E. Scott Reckard, emails, Goldman Sachs, HERS, ledgers, Los Angeles Times, Merrill Lynch, Motion Practice, Nowicki, Ponzi scheme, press releases, Prospectus, Rababank, ratings, Robert Khuzami, SEC, securitization documentation | 9 Comments »

SEC Charges Goldman Sachs With Fraud: Complaint Reveals Discovery Tips

Posted on April 16, 2010 by Neil Garfield

see comp-pr2010-59 SEC Complaint V GS Fraud

“The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.” Editor’s Note: Here is where the rubber meets the road. This same pool of illegal fraudulent profit is also subject to being defined as an undisclosed yield spread premium due to the borrowers. Some enterprising class action lawyer has some low hanging fruit here — the class is already defined for you by the SEC — all those homeowners subject to loan documents that were pledged or transferred into a pool which was received or incorporated by reference into this Abacus vehicle)

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21489 / April 16, 2010

Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)

The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO

The Securities and Exchange Commission today filed securities fraud charges against Goldman, Sachs & Co. (“GS&Co”) and a GS&Co employee, Fabrice Tourre (“Tourre”), for making material misstatements and omissions in connection with a synthetic collateralized debt obligation (“CDO”) GS&Co structured and marketed to investors. This synthetic CDO, ABACUS 2007-AC1, was tied to the performance of subprime residential mortgage-backed securities (“RMBS”) and was structured and marketed in early 2007 when the United States housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.

According to the Commission’s complaint, the marketing materials for ABACUS 2007-AC1 — including the term sheet, flip book and offering memorandum for the CDO — all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”) [Editor’s Note: Brad Keiser in his forensic analyses has reported that Paulson may have been a principal in OneWest which took over Indymac and may have ties with former Secretary of Treasury Henry Paulson, former GS CEO], with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials.
The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission’s complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson’s undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion.

The Commission’s complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.

The Commission’s investigation is continuing into the practices of investment banks and others that purchased and securitized pools of subprime mortgages and the resecuritized CDO market with a focus on products structured and marketed in late 2006 and early 2007 as the U.S. housing market was beginning to show signs of distress.

Filed under: brad keiser, CASES, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop | Tagged: 10b-5, 15 U.S.C. §77q(a), 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5, ABACUS 2007-AC1, ACA, ACA Management LLC ("ACA"), CDO, discovery, Exchange Act Rule 10b-5, Fabrice Tourre, flip book, fraud, Goldman Sachs, HERS, investment banks, marketing material, material misstatements and omissions, offering memorandum, Paulson & Co. Inc. ("Paulson"), portfolio, resecuritized CDO market, residential mortgage-backed securities ("RMBS"), RMBS, SEC, Section 10(b) of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933, subprime, term sheet, Tourre | 36 Comments »

NPR Interview with Author Lewis Reveals Profits in Bad Loans.

Posted on March 22, 2010 by Neil Garfield

Bear in mind now, that underneath this all are subprime mortgage loans and pool of subprime mortgage loans in which only eight percent have to go bad for the whole CDO to be worth zero.

NPR Interveiw with Lewis Author

Submitted by Ron Ryan, Esq. (Tucson) with the following comment:

The story broke on 60 minutes last week and on NPR Tuesday about people getting filthy rich from buying multiple CDS, which was a large cause of the economy almost sending the world into Apocalypse. While so far they got that part right, they are selling it like there were just some smart people that noticed that the the pools were doomed to “fail,” meaning there would be a moment when the trigger defining failure would surely hit (8% default rate), what they are missing is that this was pre-planned as part of a grand scheme.

Editor’s Note: I agree with Ron. These people were obviously not stupid. They walked away with trillions. The task of homeowners, litigators, forensic analysts, and experts is to explain the counter-intuitive nature of this scheme — to engineer as large a pool of cash or cash equivalents in exchange for zero value; that means by definition creating inherently defective loan products and selling them to unsophisticated homeowners who were not in a position to know the difference.

In economics it is called asymmetric access to information. On the other end, the investors were led to purchase inherently defective bonds thinking they were backed by mortgage loans, which collectively created a low-risk pool.

Only the middle-men knew the truth. So only the middlemen purchased credit default swaps betting against the very loans they created and against the securities they sold. And only the middlemen presented claims that were satisfied by the Federal bailout under the false representation that THEY were holding toxic assets when in fact it was the the homeowners and investors that were holding toxic assets.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: asymmetric access to information, CDO, credit default swaps, inherently defective loan products, Lewis, NPR, pool, subprime mortgage loans, TARP, toxic assets | 3 Comments »

Bankruptcy Judge Invalidates Securitization Payment Structure

Posted on February 1, 2010 by Neil Garfield

Editor’s Note: 180787_86_opinion Lehman My reading of this report is that the underlying principle of the ADDITION of conditions and co-obligors changed the homeowner’s note from being negotiable to non-negotiable. This decision doesn’t say that but the underlying reasoning leads me to believe that we are on the precipice of a paradigm shift in the way that derivatives are perceived in court and the marketplace. It appears a large number of other writers agree.

The relevance is that if the derivatives are construed as part of a single transaction in which the homeowner loan was funded, and that there are conditions under which the derivative operates that add or change the original contract as set forth in the note, then the original note was REPLACED with a new deal that did not include the homeowner.

This means the original obligation was replaced with a new obligation in which parties inserted themselves into that contract without disclosure to either the investor who funded the transaction or the homeowner who secured the transaction with the home. In my opinion (check with your own lawyer) the legal effect is that the note was a nullity the moment it was signed or assigned. This eviscerated the security rights of the creditor — although the creditor (if he/she/they can be found) might have some right to sue in equity to create a constructive trust over the property — subject to the various defenses and counterclaims available to the homeowner.

This does NOT mean that the obligation ceases to exist. But it DOES mean that the note is no longer the evidence of the obligation. It is for other reasons (third party payment by Federal agencies, insurers, or counter-parties) that the obligation has been reduced or eliminated. And it is for still other reasons that the off-set to the obligation (payment of several layers of undisclosed yield spread premiums among them), that the obligation could be eliminated or reduced.

The reaction from the financial community clearly shows they are concerned about far-reaching implications of this seemingly minor and esoteric decision. They couldn’t be so concerned and inflamed unless they saw the whole securitization scheme unraveling.

Bloomberg Friday, January 29th, 2010, 10:59 am

A federal bankruptcy court judge in New York ruled earlier this week that long-held assumptions about payments owed to a counterparty in securitization deals cannot be enforced under US Bankruptcy Code, in a decision set to upend the securitization market.

The decision was handed down by Judge James Peck, the judge overseeing the Lehman Brothers bankruptcy proceedings, who said that certain contractual provisions in a Lehman collateralized default obligation (CDO) are unenforceable under Chapter 11.

The CDO, called Dante, was also hedged by a credit default swap (CDS) provided by Lehman Brothers Special Financing (LBSF). Lehman Brothers Holding Inc. (LBHI) provided credit support to LBSF before both units filed bankruptcy in fall 2008.

After Lehman went bankrupt, trustees for the bondholders initially laid claim to the Dante obligations. When they did not receive compensation under the agreements of the CDO, they took Lehman to court. Peck dismissed the trustees’ claim under ipso facto clauses, and by doing so, threw off previously accepted principles of securitization.

“From a credit perspective, [the] ruling has important implications because it contravenes what have been longstanding market assumptions as to the enforceability of the documents as agreed to by the parties at the beginning of the transaction, and more specifically, the priority of payment provisions,” according to commentary on the ruling from credit rating agency Moody’s Investors Service.

Structured finance transactions often contain swaps – interest rate swaps, basis swaps, foreign exchange swaps, total return swaps and credit default swaps (CDS). Moody’s said the presence of this derivative contract can sometimes introduce additional risk of counter-party default. At the time of default, a counterparty could fail to meet its obligations to the issuer and/or be owed a swap termination payment if it is “in the money” at the default event.

In the case of Dante, the bankruptcy triggered early redemption of notes and required distribution of collateral proceeds that secured the notes. The United Kingdom law governing the program documentation provides that payments to the swap counter-party precede payment to noteholders. A default by the counterparty due to bankruptcy would require that payments be made to the swap counterparty only after noteholders are paid in full.

Peck decided these subordination provisions constitute “ipso facto” clauses — those that seek to modify the relationship of contracting parties due to bankruptcy filing — that are void under bankruptcy law.

The ruling contradicts previous decisions on the same case within United Kingdom courts. Additionally, Moody’s said the ruling may bear “profound” and far-reaching implications for structured finance transactions.

“[The ruling] challenges long-held assumptions relating to the subordination of swap termination payments to a swap counterparty following a swap counterparty bankruptcy,” Moody’s said in an e-mailed statement, adding that determining the impact on individual securities will require case-specific analysis.

Write to Diana Golobay.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, CDO, constructive trust, counterparty, credit default swaps, Dante, derivative, Diana Golobay, Judge James Peck, Lehman, Lehman Brothers Holding, Lehman Brothers Special Financing, negotiable instrument, Obligation, securitization, subordination | 11 Comments »

SELF-DEALING Part 1: Goldman Scheme Revealed

Posted on December 24, 2009 by Neil Garfield

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

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

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

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

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

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

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

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

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

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

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

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

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

Wednesday, December 23, 2009

“Body Count From Goldman Actions Crosses Into Criminal Territory”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So here we have the pattern:

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

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

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

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

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

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

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

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: AIG, AMbac, CDO, default, delinquency, FGIC, Goldmn Sachs, Janet tavakoli, John Paulson, Paykin Krieg and Adams LLP, Thomas Adams | 13 Comments »

SEC JUST NOW SEEKING KEY INFORMATION ON MELTDOWN

Posted on December 18, 2009 by Neil Garfield

THANK YOU ALLAN AGAIN!!!

Submitted on 2009/12/17 at 2:00am

Editor’s Note: Allan is right about his frustration with a government that is so slow on the draw. Yet if history teaches us anything it is that government, especially our govenment, tends tomove very slowly except for “emergency” situations, when most of the actions are flawed.

It would be a good idea to contact the SEC, ask for their form and give them as much information a you can. Remember, every homeowner involved with a securitized mortgage was a “CDO Player.” Hearing from you will balance the scales a little. The SEC will soon take notice that homeowners were sold security the same way that pension funds were sold securities at the other end of the securitization chain. THAT is where the scheme unravels. And smart securities class action lawyers will finally see that there is more money in this unravelling than anything they have ever worked on in their lives.

Business
SEC JUST NOW SEEKING KEY INFORMATION ON MELTDOWN

by Jake Bernstein and Jesse Eisinger, ProPublica
– December 16, 2009 3:30 pm EST

This story is part of an ongoing investigation with NPR’s Planet Money [1].

Former SEC chairman Christopher Cox, right. (Chip Somodevilla/Getty Images)
Former SEC chairman Christopher Cox, right. (Chip Somodevilla/Getty Images)

Almost three years since banks started taking losses that led to the worst financial crisis since the Great Depression, the Securities and Exchange Commission is still asking basic questions about what happened.

Were you there?

If you were involved in the CDO business during the end days of the boom, please contact us.

(917) 512-0258 cdos@propublica.org [2]

The SEC is conducting an information-gathering sweep of the key players in the market for collateralized debt obligations, the bundles of mortgage securities whose sudden collapse in price was at the center of the meltdown of the global banking system.

In a letter dated Oct. 22, the SEC sent what amounts to a questionnaire to a number of collateral managers, the middlemen between the investment banks that created the complex financial products and the investors who bought them.

Collateralized debt obligations are made up of dozens if not hundreds of securities, which in turn are backed by underlying loans, such as mortgages. Investment banks underwrite the structures and recruit their investors. Collateral managers, brought in by the investment banks but paid by fees from the assets, select the securities and manage the structures on behalf of the investors. CDO managers have a fiduciary duty to manage the investments fairly for investors.

Since 2005, $1.3 trillion worth of CDOs have been issued, with a record $521 billion in 2006, according to the securities industry lobbying group SIFMA. The collapse in value of mortgage CDOs triggered the 2008 financial collapse.

ProPublica and NPR have confirmed that the SEC letter was sent to several managers, although the distribution list was likely industrywide. At the height of the boom in 2006, only 28 managers controlled about half of all CDOs, according to Standard and Poor’s.

Banks began disclosing the first big losses on CDOs in early 2007. The infamous Bear Stearns hedge funds ran into problems [3] beginning that summer. By that August, the credit markets began seizing up. Merrill Lynch and Citigroup were among the hardest hit by losses on bad investments in mortgage-based securities and CDOs.

The SEC’s letter focuses on information regarding “trading, allocation and valuations and advisers’ disclosure,” though it also asks for other details on how the managers ran their businesses. The letter requests information on CDOs issued since Jan. 1, 2006.

The letter asks collateral managers for information about what investments they made on their own behalf and how they valued these investments. Securities experts say the letter indicates that the agency is still gathering basic information about the CDO market, despite its centrality to the banking crisis.

“One wonders why this letter, especially given the general nature of it, is just now being sent. And why wasn’t it sent several years ago, as the CDO market was exploding?” says Lynn Turner, who was the SEC’s chief accountant in the late 1990s. “It makes it look like the SEC is several years behind the markets.”

Even Wall Street executives and securities lawyers who were involved in the CDO business at its height have privately expressed surprise that the SEC was only now contacting them for such rudimentary information.

The SEC declined to comment on the letter. As a policy, a spokesman said, the agency doesn’t comment on its regulatory actions. The SEC has jurisdiction over CDO managers,and enforces rules against securities manipulation, among other violations. The letter does not use the words “inquiry” or “investigation.”

Interviews with market participants and former regulators point to several areas that the SEC might be investigating. Some managers had their own in-house investment funds and may have taken positions that were in conflict with those of the investors in the structures that they managed. In some cases, their hedge funds may have bet against the very slices of the securities they were managing on behalf of the investors in the structure.

Underwriting investment banks often had influence over the investment choices some CDO managers made, giving rise to another possible conflict of interest. The agency may be looking at whether that influence was proper or not.

“The possibility for conflicts and self-dealing is huge,” says Turner, the former SEC chief accountant.

To date, the agency has little to show for its probes into the causes of the crisis that engulfed global financial markets just over a year ago. In June 2007, Christopher Cox, then the SEC chairman, testified before Congress that the agency had “about 12 investigations” [4] under way concerning CDOs and collateralized loan obligations and similar products. A little more than a year later, Cox told Congress that the number of investigations into the financial industry, including the subprime mortgage origination business, had ballooned to over 50 separate inquiries. [5]

There could be multiple reasons why investigations are proceeding slowly. Such cases are complex and require enormous resources and expertise. Regulators also face the hurdle of proving intent to defraud.

Under Cox’s stewardship, the SEC fell into disarray [6], and it was harshly criticized by Congress and its own inspector general, particularly for its failure to catch [7] the Ponzi scheme of Bernie Madoff. The turnover of the new administration, which ushered in new leadership at the much-criticized agency, has also likely slowed efforts. In recent months, under new Chairman Mary Schapiro, the SEC has made insider-trading inquiries a high priority.

So far, there have been few indictments or civil complaints. In a sign of how long these cases can take, the mortgage company New Century Financial Corporation disclosed in March 2007 that it was the subject of an SEC investigation [8] into possible insider stock sales and accounting irregularities. It wasn’t until last week — Dec. 7 — that the SEC filed a formal complaint against former executives of the company. The government’s highest-profile prosecution involving the financial collapse – the case against two managers of the Bear Stearns hedge fund for alleged securities and wire fraud – failed to gain a conviction when a jury decided [9] that the men were simply bad businessmen rather than criminals.

Were you involved in the CDO business in the latter stages of the boom? We want to talk to you. E-mail us at CDOS@propublica.org [10] or call us at (917) 512-0258 (917) 512-0258.

Write to Jesse Eisinger at Jesse.Eisinger@propublica.org [11].

Write to Jake Bernstein at Jake.Bernstein@propublica.org [12].

Want to know more? Follow ProPublica on Facebook [13] and Twitter [14], and get ProPublica headlines delivered by e-mail every day [15].

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

FINALLY somebody’s paying George Santayana heed. “Those who cannot learn from history are doomed to repeat it.” My bet’s on repeating it, given how our political system works like a pendulum. How many bubbles did we experience in the last 10 years? What happens to regulation and resolve when there is a political changeover?

ALLAN
B e M o v e d @ A O L . c o m

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: CDO, Chairman Cox, Chairman Mary Schapiro, collateral managers, collateralized debt obligations, investment banks, meltdown, NPR, Propublica, questionaire, SEC, securities, SIFMA | 6 Comments »

Pursuit v UBS: Investor Case Proves Homeowners’ Cases

Posted on November 30, 2009 by Neil Garfield

NOW AVAILABLE ON AMAZON KINDLE!!

Pursuit vs. UBS Drills Down to Real Benefits to Intermediaries While Real PARTIES — Investors and Homeowners — get the shaft UBS090909

This is a case of an investor suing the underwriter of the mortgage backed bonds purchased as “investment grade securities.” As we have pointed out on these pages for two years, the underwriter wears so many hats that it is impossible to track them without nailing them down in discovery and motions to compel. It is only when the real flow of documents and the real flow of money is analyzed that you can see the pattern of deception designed to screw the investors, screw the homeowners and run with the money and now, through illegal and improper foreclosures, they run with the property too. Here is an excerpt from the attached Opinion dated September, 2009.

“Based on the above-mentioned evidence, the court finds that the Plaintiffs’ have presented sufficient evidence to satisfy the probable cause standard with respect to their claim that UBS was in possession of superior knowledge that was not readily available to the Plaintiffs. This material nonpublic information related to rating agency downgrades that would significantly decrease, if not render worthless, the CDO Notes it was selling Pursuit. Further, UBS was aware the Pursuit was only seeking to invest in CDO Notes rated “investment grade,” and UBS knew that byinvesting in the subject CDO Notes, Pursuitwas acting on the basis of misleading information. Moreover, because UBS was in the position of “Super-senior Noteholder” in the structure of these CDOs, such ratings downgrades, while working to the detriment of buyers like the Plaintiffs, could work to the benefit of sellers like UBS in the super-senior position, because super-seniors have first dibs on whatever payments are made on a CDO. A UBS Securities LLC credit analyst explained it in an October 16, 2007 email sent to Morelli and others. Writing about the billions of dollars in Moody’s downgrades, downgrades that were now public knowledge,
the UBS analyst wrote, “These bonds [subject to downgrades] appear in countless CDOs.

The downgrades were more severe than what the market seemed to anticipate !!! And !!! The downgrades could constitute a triggering event that would be an Event of Default for various for various CDOs. . . If this occurs, then it may prove salutary for the Super-senior holders [like UBS] as more cash flow would be preserved for their protection.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: CDO, disclosure, discovery, flow of documents, follow the money, foreclosure defense, foreclosure offense, fraud, homeowner, investment grade securities, Investor, Lender Liability, Morelli, motions to compel, pattern of deception, predatory lending, Pursuit, Pursuit v UBS, securitization, Stamford Court, TILA audit, trustee, UBS | 1 Comment »

Foreclosure Offense: Quiet Title and Rescission (TILA and otherwise)

Posted on June 2, 2008 by Neil Garfield

HERE IS AN OUT-OF-THE BOX OFFENSIVE PROCEDURE WE PROPOSE. YOUR COMMENTS APPRECIATED. IT IS BASED UPON THE ASSUMPTION THAT THE LENDER ASSIGNED OR TRANSFERRED OR SOLD THE MORTGAGE AND NOTE RIGHT AFTER THE CLOSING ON YOUR TRANSACTION. LOGICALLY THEN THE PERSON TO WHOM YOU WOULD ADDRESS YOUR TILA, FRAUD, AND DECEPTIVE AND UNFAIR PRACTICES CLAIMS WOULD BE ADDRESSED TO THE NEW OWNER OF THE MORTGAGE AND NOTE. BUT YOU DON’T KNOW WHO THAT IS. AND IN THE TILA AUDIT, IF IT IS DOEN PROPERLY, THE DOCUMENTS ARE REQUESTED AND USUALLY IGNORED. SOOOOOO……

QUIET TITLE:

In essence the reverse of a traditional foreclosure where the owner of the property forecloses the claim of the people against whom he he has filed suit claiming the property free and clear of all encumbrances.

The significance in foreclosure OFFENSE is that the loan has been assigned, sold and transferred multiple times and broken up into thousands of pieces along with many others that were intermingled in portfolios, sometimes with cross guarantees from one portfolio to another.

This process started before the first payment was due on the mortgage loan and before the victim/borrower came to know the real facts of the loan withheld from him in an asymmetric information environment (see asymmetric information) in an inter-temporal transaction (see inter-temporal transaction).

Thus the true owner, against whom rescission could be claimed became unknown to the victim/borrower. The quiet title action sues “John Doe” identified as all persons having an ownership interest in the mortgage lien on the subject property. The allegation is made that while the victim/borrower has been notified of a transaction, the victim/borrower, petitioner has not been advised of who the entities or people are who own this interest. And since there are TILA and other fraudulent violations, the victim/ borrower/petitioner wishes to rescind. Efforts to determine the true owners have led the Petitioner to determine that there may be thousands of entities or owners, none of whom have been disclosed to Petitioner despite attempts to secure said information (contained in the TILA report and demand).

SERVICE OF PROCESS IS BY PUBLICATION.

If the court demands that the mortgage servicing company be named as nominal Defendant or Respondent, the mortgage servicing company has only one job: to produce information and proof of ownership of the loan. It is doubtful that anyone, least of all the mortgage servicing entity will be able to fulfill this condition.

Thus the default judgment will be entered, the victim stops paying the mortgage, and has a recorded judgment relieving his property of any mortgage lien and offsetting the note with the refunds and damages payable to the victim, thus satisfying the entire principal of the note and awarding attorney fees to the victim/petitioner.

RESCISSION:

The right to reverse the transaction. Ordinarily rescission involves giving back everything you received in exchange for getting back everything you gave. In this setting it means the right to get back ALL the interest, points, closing costs and attorney fees and other costs at or after closing that you incurred as a result of the transaction. Rescission rights exist under Federal Statutory Law (Truth in Lending Act – TILA, State Deceptive Business practice Acts, and at common law. Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have to give back the money to the lender against whom you are rescinding — THAT obligation commences AFTER the lender admits to the rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus damages and attorney fees you suffered as a result of the issues raised in this post. Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. It could convert a secured debt, non-dischargeable in bankruptcy to an unsecured debt wholly dischargeable in bankruptcy. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else.

companion tranche

A specific tier or segment of REMIC security. A REMIC tranche that is structured to absorb a disproportionate amount of the volatility caused by variations in the prepayments of the underlying collateral. Companion tranches are created to be more volatile so that other tranches in the same REMIC, called PAC or TAC tranches, may have more stable cash flows. Hence the name companion. Also called support tranches. The significance in Foreclosure defense is that this is one of the devices used in the covenants or indentures of ASBs that assures payment to the holder of the security. Since the holder of the security is the “owner” of the mortgage and note, it is reasonable to assume that either the holder of the mortgage has been paid by a third party or that a third party assumed the liability.

compliance risk

One of nine risks defined by the Office of the Comptroller of the Currency (OCC). The risk to earnings or capital arising from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards. This risk is incorporated in the Federal Reserve definition of legal risk. Participants in the Mortgage Meltdown of 2001-2008 were virtually all out of compliance and upon filing of an administrative complaint to the OCC, could be prosecuted for violations.

conventional mortgage

A mortgage loan based solely upon the value of the mortgaged real estate and the creditworthiness of the borrower. A mortgage loan without insurance or guarantees from a government agency. The significance is that with securitization of the loans there is (a) insurance to the holder of the CLO (b) guarantees of payment from third parties and (c) in practice, guarantees from the Federal Government (witness the Federal Reserve bailout of Bear Stearns and the Federal Reserve policy of allowing investment bankers who are holding CLOs to use those CLOs for loans at the Fed window). The securitized transactions thus converted the original transaction from a conventional loan to a complex consumer credit, insured, guaranteed, pooled security transaction falling far outside of the TILA exemption regarding residential home mortgages eligibility for rescission.

INTER-TEMPORAL TRANSACTIONS:

Transactions in which the commencement of the terms at the execution of the deal contains terms, risks or provisions that differ from a later time. The significance of this insider term in the MORTGAGE MELTDOWN is a classic real story: the victim is a black man with a perfect (800) FICO score has lived in his house many years and has only 5% left to pay off on his mortgage. He is approached by carefully trained predatory salesman for subprime lender — a lender that the victim had no need for because his credit, finances and personal reputation were excellent. Victim could therefore have qualified for any conventional loan on conventional terms. Victim does not know because it is not disclosed to him that he is being approached with a subprime lending program and that he qualifies for much better terms that are being offered to him — nor that he would be better off NOT refinancing since he is so close to paying off his house. He is convinced to get a new mortgage for interest only payments set at 1% while another 9% accrues. $20,000 in mortgage broker and yield spread premium rebates (kickbacks) are paid up front along with the mortgage proceeds. Within a few months he starts getting notices of increases in his payments which eventually are larger than his entire income. Qualification of the loan by the “lender” was at the payment rate at 1% interest, not at the future rates that would be applied, for which his income would NOT qualify. Victim ends up with risk of foreclosure and blemished credit score. Happy ending. Legal aid stepped in and unwrapped the deal. Many borrowers are seduced into accepting these deals believing that the extra money they are getting out of the mortgage proceeds will help them indefinitely to make future payments. It is the lender’s obligation to disclose that this is not the case, that the borrower’s income does not cover the amount of future payments which the lender understands and the borrower does not (see asymmetric information).

MORTGAGE MELTDOWN:

An series of events (stemming from the 1983 introduction of derivative securities) created by a tacit cartel of investment bankers and other financial institutions in which borrowers were (approved) “loaned” money on purchase money mortgages based upon false appraisals in the context of contemporaneous securitized transactions where the investment capital was procured by fraud in unregulated security offerings to “qualified” investors, based upon false assurance, false ratings, false insurance backing, and false appraisals of underlying property, income of borrowers and many other factors. The logistics of this scam were revealed in pieces and have threatened the very existence of many financial institutions and the financial markets themselves. Indexes, such as LIBOR, were indirectly manipulated by U.S. financial institutions to hide the true facts. Despite a brief period in which certain arcane “auction markets” froze up (in places and events unknown to the public, business has resumed as usual. The lack of regulation from a responsible, accountable agency or group of agencies has spawned hundreds of lawsuits and millions of foreclosures, many producing counterclaims for far more than the original mortgage and note. No immediate fundamental change is in process in the regulatory scheme, hence it may be expected that the mortgage meltdown will replay in one form or another shortly.

NINJA LOAN

NO INCOME, NO JOB, NO ASSETS: NO DOCUMENTS, NO VERIFICATION, NO REVIEW BY RISK ANALYSIS COMMITTEE.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: ABS, CDO, civil procedure, CLO, CMO, foreclosure defense, foreclosure offense, fraud, quiet title, tranche | 10 Comments »

Foreclosure Defense: Stated Income Loans, Income Overstated and TILA Rescission

Posted on June 1, 2008 by Neil Garfield

Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have to give back the money to the lender against whom you are rescinding — THAT obligation commences AFTER the lender admits to the rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus damages and attorney fees you suffered as a result of the issues raised in this post.

Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else.

Most lawyers have a knee jerk reaction in advising clients about challenging foreclosure when the stated income application contains mistatements or outright fraud. They tell their clients that they better not open this box because of all the criminal and civil liability issues that will arise from the deceptive information stating the income of the borrower. WRONG! Fear tactics and unimaginative and uninformed lawyers are allowing people to lose their homes when they should be keeping their homes and getting paid damages for what was done tot hem. This advice they are giving is in most cases completely incorrect.

The lender has an obligation to verify the income. As such, when it failed to verify the income it waived it’s right to complain that the income was wrong because the courts say that the lender did not reasonably rely on the stated income, as set forth in the mortgage application. And when they failed to verify the true value of the property, as they were supposed to do to protect your interest as their “client”, they knowingly assisted in defrauding you out of the benefit of the bargain you thought you were getting. In fact, you got a home worth less than the mortgage indebtedness you signed at closing and you didn’t know it because they didn’t want you to know it.

This might seem overly lenient or liberal” to some, but it isn’t. In all cases but a few, the application is filed out by someone other than borrower and the person filing out the application puts down the income necessary to justify the the amount of the loan sought without even asking what the real income is. If the subject comes up most borrowers tell the mortgage broker or representative that their income is not what is stated on the application, and they are told they must submit the application “as is” in order to get the loan.

The old “don’t worry, everybody is doing it” is true — that is exactly what was happening. And the responsibilities of the “lender” who was in actuality a mortgage broker which was not disclosed (as required by law) to the borrower is unchanged: they have a fiducuiary duty to the borrower to present the borrower with a loan program (with everybody’s role and compensation and risk fully disclosed) that will work given the economic, income and liability circumstances of the borrower. We have many stories where people were given mortgage loans in the millions based upon zero actual income or close to zero.

Investment speculation was promoted through encouragement of speculators to take ARM financing and then flip the homes in the ever growing housing market and explosion of housing prices. Advertising for refinancing, first home financing, HELOCs (which are now often dischargeable in bankruptcy and are fully within the right to rescind the transction stated in Truth in lending Act, encouraged every man, woman and child to become further and further in debt, diverting capital from the economy, the marketplace and main street to a select few on Wall Street, which is why some salaries now for the same job require greater qualifications at less pay than they were getting with fewer qualifications and far more pay 20-30 years ago.

See the following article from the Bakruptcy Law Network for more information. BLN is a very good source on a wide variety of issues but the old expression that “he works with a hammer tends to look at everything as a nail” comes to mind. Most people petitioning for bankruptcy are not protecting their interests in the best possible way, in my opinion, but of course your own attorney is supposed to know what is best.

First of all if you are going to file for bankruptcy, given the fact that the mortgage and note have been transferred many times more than once, there is a question about who the creditor is and WHETHER THE CREDITOR HAS BEEN PAID ALL OR PART OF THE “MISSING” PAYMENTS.

If some investor bought your loan and the investMent banking house paid some of the payments to the investor to whom was sold a CDO or CMO, then the loan servicing company that is posting notice of sale or suing you for foreclosure has no idea whether the payments have been made on YOUR note or not.

FRANKLY YOU DON’T EVEN KNOW IF A THIRD PARTY MADE YOUR PAYMENTS TO THE REAL CREDITOR ON YOUR MORTGAGE AND NOTE AND IN ALL PROBABILITY SOMEONE DID PAY SOME PORTION OF THE RETURN DUE TO THE OWNER OF THE CDO THAT HAS AN INTEREST IN THE MORTGAGE ON YOUR PROPERTY.

Thus the creditor you name IN A BANKRUPTCY PETITION OR LAWSUIT OR PETITION FOR EMERGENCY INJUNCTION TO STOP THE SALE OR EVICTION should be a contingent creditor, the amount due on the note should be a contingent liability, and the so-called security aspect is also contingent.

Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have togive back the money to the ldner aginst whom you are rescinding — THAT obllgation commences AFTER the lender admits tot he rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus dmages you suffered as a result of the issues raised in this post.

Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else.

CURRENT ARTICLE

“Liar Loans”—Who’s the Real Liar?

By Brett Weiss, Maryland Bankruptcy Attorney on May 31, 2008 in Bankruptcy Cases of Interest, Chapter 11 Bankruptcy, Chapter 12 Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Collection Issues, Discharge, What Can and Cannot Be Forgiven, Foreclosure Issues, Maryland, Mortgages, Predatory Lending, Surrendering Property

A recent article in The Wall Street Journal, Are Borrowers Free to Lie?, talks about a recent Bankruptcy Court decision in the Northern District of California.In re Hill dealt with an attempt by National City Bank to hold the Hills’ mortgage loan non-dischargeable, meaning that, despite the loss of their home due to foreclosure and their subsequent bankruptcy, they would have to pay it back. How did the Hills get in this situation? They did what many borrowers were urged to do over the past several years: take out a “stated income” loan.

Stated Income loans, also called “liar loans” or NINJA (No Income, No Job, No Assets) loans, were mortgage loans in which no proof of income, employment or assets was required. Rather, the borrower simply “states” on the loan application what his or her income is, and the bank does no checking. No pay stubs, no tax returns, nothing. Ask for a mortgage, in virtually any amount, and get it without any investigation of ability to pay, examination, or common sense. Common sense would have disclosed that something was very wrong in the Hills’ case.

The Hills were 54 years old, and worked as delivery drivers and employee for an auto-parts distributor. They signed a loan application falsely stating they earned about a combined $191,000 a year. They claimed that their independent broker and the bank put the income figures into the applications without their knowledge and that they didn’t read them before signing.

Based on the obviously false figures in the application, following the foreclosure on their home and the Hills filing for bankruptcy, National City Bank, the lender on the loan, asked the Bankruptcy Court to find that their debt to the bank should not be discharged because they lied on their mortgage application. While agreeing that the income statement was false, the Bankruptcy Court disagreed that the Hills should lose their discharge.

The Court stated:

While the Court finds and concludes that the debtors made a material false representation concerning their financial condition to the Bank in October 2006, with knowledge of its falsity and the intent to deceive the Bank, the Court finds and concludes that the Bank’s nondischargeability claim under § 523(a)(2)(B) must fail. The Bank failed to prove that it reasonably relied on the Debtors’ false representation concerning their income, as set forth in the October Loan Application. As a result, the Bank’s claim has been discharged. Judgment will be ordered accordingly.

In other words, because National City knew or should have known that the Hills misrepresented their income and didn’t check it out, it didn’t meet one of the criteria for nondischargeability: it didn’t rely on the Hills’ false statements in making the loan. The Hills’ loan was found to be dischargeable.

The Hill decision is an important one. It makes clear that banks cannot place sole responsibility for their poor lending practices and decisions on the shoulders of the borrowers. Mr. and Mrs. Hill aren’t without fault, but the fault was on both sides. The Hills lost their home of 20 years and had to file for bankruptcy. The bank lost its money.

Sounds to me as if the Court restored a bit of balance to the equation.

Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, inflation, Mortgage, politics | Tagged: bankruptcy, CDO, CMO, EMERGENCY INJUNCTION, fiduciary duty, HELOC, legal standing, over-stated income, rescission, stated income loans, STOP FORECLOSURE, STOP SALE, TILA rescission, verification of income | 7 Comments »

Mortgage Meltdown: Fueled by Fraud

Posted on November 25, 2007 by Neil Garfield

Most stories about the mortgage crisis begin with the idea that people were induced to buy homes they could not afford. This is mostly incorrect. The reason for the meltdown is that people were induced to “buy” mortgages they could not afford — when in fact they qualified for mortgages they could afford and would still be paying but for the deceit of mortgage brokers and even real estate brokers who were skimming from the transaction. The lenders and investment bankers who are claiming “plausible deniability” on this are not telling the truth. We know that because they paid the kickback either directly or by financing it. This is not a story about buyers who went into a frenzy buying things they couldn’t afford.This is largely a story of conversion of equity of innocent people into fees for well-heeld, well connected scam artists — i.e., the transfer of wealth from those who have money and whose intent to buy something they could in fact afford, was switched into a scheme to take away their money, convert it to fees, take away their houses and all the improvements they made on those houses, and take away the savings of investors who were duped into buying shares in managed funds and institutions that were buying “high rated” CDO’s. On the buying end of the game, here is how it works.

Joe Jones and his wife Mary go house shopping. They are well-employed, with reliable jobs, and good credit ratings. They have a well-analyzed budget as to what they can afford and what they can’t but hey lack one thing — sophistication in financial instruments and legal knowledge of complex mortgages. This presented an opportunity to the scam artists out there who are claiming protection under the law, because they say what they did was legal. It wasn’t and it isn’t. They lied, took money for lying, and intentionally used their position of trust for their own benefit instead of delivering the services and Joe and Mary thought they were hiring when they went to a mortgage broker.
The real estate broker steers them to a mortgage broker that (a) will assure that the deal closes because they will do anything to get the borrowers to sign papers that misrepresent their financial position and that misrepresent the value of the home and (b) more importantly, will give the real estate broker a kickback for the referral because the mortgage broker is about to pick up a huge fee called a “yield spread premium.”
The Mortgage broker is presented in one of two alternatives in this market: (a) give the customer the best mortgage they qualify for and collect a reasonable fee or (b) convince the customer to take a mortgage that appears cheaper but is in fact much more expensive, for which the mortgage broker will get a kickback representing a fee which is a percentage of the the difference between the value of the mortgage the customer should have received and the higher value of the mortgage they were convinced into signing. If the mortgage broker goes for the the dishonest option, he/she might earn as much as $10,000 EXTRA.
Since the application process is both complex and expensive in time and money the customer is not free to shop around as one might think from the advertisements. And the nuances of one mortgage proposal versus another, are not clear except to experts who conceived them — people who knew they were going to transfer the risk to investors up stream. Thus none of the downstream participants — the “lender”, the “underwriter,” the “appraiser,” the real estate broker, the title company, the lawyers, the mortgage broker or the seller/developer have any interest in keeping the transaction honest because they are all going to make money whether the deal fails or not. The risk is going to Wall Street where it is being parceled out in “derivative securities” in nothing less that clear securities fraud on MANY levels.
Thus we have fraud going on at both ends of the line — starting at the home purchase and ending with the securities purchase. The amazing part of this is that while they were all committing fraud with full knowledge of the damage to the buyers and securities investors, the giddy greed factor became so great that even the scam operators themselves took positions in the CDO’s (which might as well be called junk bonds or junk securities) so that they could sell them at a premium to multiply the fees they were earning from this scheme into capital gains many times the fees they were “earning.”
So Joe and Mary can afford a mortgage where the total payments are $2350 per month but are steered into a mortgage where the payments appear to be lower. The deal is “explained” to them until their minds are numb with too much information and too little understanding. They listen to their mortgage broker who after all is the person they hired to advise them and who clearly does understand the complexities of these obscure documents and instruments of conveyance.
Joe and Mary are also encouraged to put down less money than they can afford because that makes the mortgage debt higher and increases the bonus kickback to the mortgage broker for converting them from a conventional mortgage that they can afford to a sub-prime mortgage (in sheep’s clothing) that they cannot afford.
Now it is 2 years alter and Joe and Mary are in shock. Their income is stable, their credit rating is great, they have a great family and they have fixed up the new house nicely to their liking. But they have a growing problem. The 6% mortgage they could afford for a conventional mortgage was never presented. They could have paid that off easily. Instead they have a sub-prime, negative amortization mortgage, adjustable in its rates and they are now up to 11% with payments more than twice what their budget will allow them to pay.
So Joe and Mary are either not making payments, offering partial payments that are being rejected by a mortgage service provider who does not have the authority to adjust anything, or about to stop making payments. They are considering bankruptcy to save them but there while relief might be available, all of their payments under a Chapter 13 plan, are subject to an additional 10% fee for the bankruptcy trustee to process it. So in fact they are facing worse trouble if they go that route.
In short, they are screwed and nobody cares.
But here is what ought to happen:
1. They should get legal help because all sorts of laws were violated — including truth in lending, breach of contract with the mortgage broker, and fraud — civil if not criminal.
2. Lawyers should step up tot he plate and take these cases on contingency, forcing the lenders and investors to settle the claims by giving the Jones family a mortgage they should have received in the first place and paying them damages for the fraud that was committed. Fees would be paid by the scam artists instead of the lenders.
3. The Sheriff should convene his economic crimes unit to investigate and prosecute people for this fraud.
4. The Sheriff should also call a moratorium on evictions.
5. The State and Federal Attorney General should do the same and should join with the attorney generals of other states much the same as was done when Big Tobacco was taken on.
6. The state legislature should pass remedial legislation changing the procedures for foreclosure so that the victims have more time to get their defenses up.
7. The Congress should do the same and initiate regulation of interstate lenders and the mortgage brokers that enter the transactions with felony penalties for violation of the duty to disclose.
8. The Governor should issue an order stopping eviction on all foreclosures until there is a hearing before a judge where it is determined that there is not at least probably cause to believe that a fraud was committed.
9. Class action suits should be initiated against the mortgage banking, investment banking and retail securities firms that created this scheme, with full restitution, fines and loss of licenses — people should not be put out of their houses, Wall Street scammers should be put out of business.

Filed under: CDO, CORRUPTION, Eviction, foreclosure, Investor, politics, securities fraud | Tagged: CDO, fraud, meltdown, Mortgage, securities fraud, yield spread premium | 1 Comment »

Find your outrage and abandon your despair !!!

Posted on November 12, 2007 by Neil Garfield

Yes it is true that you didn’t read the fine print. But how much would you have understood in the mountain of paperwork you signed. I am NOT an attorney licensed to practice in Arizona which gives me some leeway in what I can say and do for you. On the other hand I am an Attorney licensed to practice in Florida, in Federal Courts, Federal Trial Bar, and Federal bankruptcy Bar. So it isn’t like I don’t know what I am talking about. I am 60 years old and would be retired except for one thing — I am outraged at what happened to the two million (minimum) other people who will fall victim to foreclosure and eviction if you don’t fight back.

Not only were you suckered into signing papers you didn’t understand, not only did you invest every last nickel you had in furnishing the house, but you were double slammed if you own any securities of any mutual fund, financial institution or company that bought the “CDO” (collateralized debt obligation) that your signature was used as proof of security. Bet you didn’t know that. In other words through the investments of you and your neighbors and friends and relatives you were twice suckered into creating “free money” which enabled investment banks, lenders, mortgage brokers and even real estate brokers, and mortgage servicing companies are all making money even now! They basically got you, as a group, to lend money to yourselves and then charged for the privilege of doing it.

And they are still making money on your mortgage even though you are not paying anything. You see they are hitting your account even now just to drive by and make sure the house is occupied and for dozens of other fees you know nothing about — fees they know you will never pay as borrower but they are sticking it to the person (like you or your neighbor that has a 401k, Roth IRA, pension or other investment) who pout up the money in the first place. Despite the declining home values there is still value to these homes, and these middlemen are going to clean out the pockets of both the homeowner/borrower and the investors before they give up a nickel.

Stop the raping of the middle class by these predators. I worry not only about you but about my children and grandchildren. So I want you to fight back, with or without my help. And I want you to do it through COLLECTIVE ACTION. Make your comment here. It is merely and expression of support to everyone who has fallen into this predicament through the actions of unscrupulous predators from Wall Street and beyond.

There are proven methods (referred to by Donald Trump on Larry King Live) by which you can recover or prevent the stealing of your home through “legal” means and to maintain the one investment you made in good faith without knowing you were the victim of a huge worldwide scam in which more than $3.5 trillion dollars was generated and kept in the pocket of a select few at the top of the monetary food chain. This is going to be a political battle as well as a legal one. There is no guarantee of success and there is no free ride.

We can game the system too by a variety of means including the slogan “just say no!”. Make them go all the way to get you out. The Sheriff charges them for that. Make it as expensive for them to process these foreclosures as possible and make each case unique. Stop them from mass producing the foreclosure suits, the auctions and the evictions using intimidation and slight of hand (same way they got you into this mess) to get you to cooperate through despair and giving up the last rights you have. You have more power than you think!

Consider that it is you who should be outraged, that nobody is going to help you unless you help yourself, and that through individual and collective action, anything is possible no matter what the law currently says. The sheriff only has a few people who can deal with the eviction process. We can make that very difficult for them and more expensive for the lenders. State Senators and Legislators want to be re-elected. Nothing is going to hit harder than this house of cards falling on our cities.

Get mad and get even.

Filed under: CDO, Eviction, foreclosure, Investor | Tagged: borrowers, CDO, Eviction, foreclosure, investors, money | 1 Comment »

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GETTING CLOSER TO THE TRUTH

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Mortgage Securities It Holds Pose Sticky Problem for Fed

By BINYAMIN APPELBAUM

HOW IS THIS MONEY REACHING THE FED? WHO IS GETTING PAID FOR HANDLING IT?

WHY IS NOT THE FED’S INTEREST RECORDED IN THE PROPERTY RECORDS OF THE COUNTY IN WHICH THE PROPERTY IS LOCATED (ANSWER — BECAUSE THEY DON’T HOLD THE SECURITY, JUST THE RECEIVABLE, CALLED “SPLITTING NOTE FROM MORTGAGE”).

IF THE FED OWNS THESE LOANS WHY DON’T THEY SHOW UP AS A PARTY IN FORECLOSURES?

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WHO ARE THE MORTGAGEES ON MORTGAGE DEEDS?

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Deutsche Bank Is Considered ‘America’s Foreclosure King’

According to the Federal Deposit Insurance Corporation (FDIC), Deutsche Bank now holds loans for American single-family and multi-family houses worth about $3.7 billion (€3.1 billion). The bank, however, claims that much of this debt consists of loans to wealthy private customers.

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Goldman Sachs may not be the only firm in SEC cross hairs

The agency’s fraud suit against the Wall Street giant may foreshadow similar cases against other financial firms and trigger a wave of private litigation.

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SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21489 / April 16, 2010

Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)

The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO

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

Wednesday, December 23, 2009

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