“My mortgage was $124,000…property was titled to the lender after foreclosure and conveyed to Fannie Mae for $132,000…property was then transferred to new purchaser for $156,000…all my equity was lost because lender would not work with me…am I entitled to any portion of Fannie Mae’s profit in selling my house?”

ANSWER: The answer is a qualified YES, but there is a wrinkle here. The scenario you have described is being reported by other readers as well. It is rare that any profit occurs in the forced sale of a home in foreclosure. At least it WAS rare. But the work done by Charles Koppa has shown that this is happening all over the country in one form or another. First of all the only party that can bid without money (called a “credit bid”) is the the party to whom the money is owed. THAT is not happening. The “credit bid” is submitted by a party who has no financial stake in the loan. And then the property is titled to yet another entity and frequently transferred to still another entity or person, rewarding them for playing in this scheme.

So the first thing is that the “credit bid” was invalid and that under the applicable state law, the bid was completely ineffective to cause title to be issued. Check with a local licensed attorney who is very well versed in property law before you take any action, since this is general information and opinion and not an opinion on your case.

The second thing you want to do is check and see if the foreclosure was fraudulent to begin with — see the recent posts and comments on that. It is entirely possible that not only was the paperwork fabricated, forged and wrong, it was based based upon a presumed default that never occurred or was cured by third party payments that mitigated the loss.

The third thing you want to do is consider an action (lawsuit) to recover the excess. Every note and mortgage and state law I have ever seen states quite clearly that if the proceeds of sale exceed the obligation, the homeowner gets the rest. In that case you might also be entitled to recover attorney fees and costs.

What I worry about is lawyers and pro se litigants making it tougher for those who actually have done their homework. If you are going to attack these events and get your house back in a quiet title action and/or recover damages, punitive damages, treble damages, attorney fees, for rescission, fraud, predatory loan practices, violations of TILA or whatever cause of action you pursue you MUST NOT ASSUME that because of news stories you are a winner and the other side is the loser. You must prove your case. THAT is why people are getting title searches, securitization searches, title reports, securitization reports and analyses of there loan and foreclosure by competent experts.

If you don’t have the facts in the form that can be admitted into evidence, you have nothing. If you do have the facts in the form that can be admitted into evidence your chances of winning or settling on favorable terms are immeasurably improved.

The Myth of the Credit Bid – Red-Handed

COMBO TITLE and SECURITIZATION Search, Report, Documents and Comprehensive Analysis


Credit Charles Koppa (Poppa Koppa) with putting me onto this. He does GREAT work. He’s not lawyer but I trust him more than I do most lawyers to get to the bottom of things. He’s kind like one of those dogs that gets a bite of something and then NEVER lets go as the teeth go in deeper and deeper. I like that approach. The pretenders deserve it.

Credit Dan Edstrom with compiling everyone’s work including my own into securitization commentaries that work the material they way it should be done. Besides doing the Subscriber Members COMBO TITLE and Securitization Analysis, and the component parts, he also does a magnificent job of drilling down even further proving two points: (1) that while the borrower is dealing with a “Notice of Default” the Trust and investors are getting reports specifically stating that the same loan is performing — and they a re getting paid! and (2) that the distribution reports at the pool level are either on-going (Meaning the pool still exists) or they are no longer being sent (meaning the pool has been dissolved).

There are so many chairs and shells moving around I know it is difficult to keep them straight. That is exactly the point. The pretender lenders are going to keep them moving as long as they can because they are getting thousands of free houses every week through intimidation, fraud and deception of borrowers, court clerks, and Judges. But there are a few points in time at which the the chairs and shells stop moving or at least slow down. One of them is at the sale on the courthouse steps.

Charles Koppa pointed out the chicanery when he shared an ongoing study with me that showed changes in the bid price just hours before the sale and the resulting windfall to the new “buyer.” With pretenders swarming like flies around you-know-what it is no wonder that they find it easy to slip different entities in and out of the foreclosure process. But here is a simple proposition with far reaching implications regarding tracking the money, tracking the title and tracking the real obligation and the real creditor. ONLY THE CREDITOR CAN MAKE THE CREDIT BID. Anyone else must actually pay money.

Oops. It turns out that virtually no money is exchanging hands at these sales. And the Trustee is accepting a credit bid from an entity that wasn’t even named in the Notice of Default or the Trustee is issuing the deed to an entity that never made the credit bid or any bid at all. THAT TRANSACTION IS VOID ACCORDING TO MY READING OF THE STATUTES, WHETHER YOU ARE IN A JUDICIAL OR NON-JUDICIAL STATE. Maybe in some states it would be considered voidable but either way there is no “clear title” transferred and there is no successor in interest, which means that the homeowner still owns the home after the sale and can file a quiet title action against the originating lender and the party who received the title from the Trustee or Clerk, depending upon the procedure used. There is no defense as far as I can see and there might not even be an attempt at defending. Easier to let one slip by than risk a ruling that says these sales are all void.

But there is the rub. You can kick the can down the road for only so long. It doesn’t change the facts. NONE of the creditors filed foreclosure actions or sales in any of the securitized loan transactions. NONE of the creditors even knew the loan was not performing because they were being told quite the contrary by the very same group that declared the loan in default. ALL of the loans had co-obligors who in fact did pay but were not disclosed to either the borrower or the actual lender (investor). NONE of the notes were assigned at or near the time of the closing of the loans. NONE of the security interests were assigned at or near the time of the loan closing. NONE of the notes or security interests were endorsed or even transmitted to anyone after the loan closed unless the case went into litigation in which case they either “found” or re-created the documentation without admitting what they had done.

NONE OF THE OBLIGATIONS WERE COMPLETELY DESCRIBED IN THE NOTE, MORTGAGE OR DEED OF TRUST. AS PAUL  HARVEY LIKED TO SAY, THE “REST OF THE STORY” WAS IN THE MORTGAGE BOND, PROSPECTUS, PSA, ASSIGNMENT AND ASSUMPTION, INSURANCE CONTRACTS, CREDIT DEFAULT SWAPS, TRANCHE STRUCTURING THAT THE LENDER RECEIVED. As I said at the beginning of this blog, this is all going to come down to two doctrines that are inescapably in favor of the homeowners and borrowers, including the ones who THINK they lost their homes: the single transaction doctrine and the step transaction doctrine. NONE of the actions of the securitization intermediaries would have any business reason to occur without the investment by the lender (investor) and the acceptance of the obligation by the borrower. That makes it ONE transaction between the the investor and the borrower no matter how complicated you WANT to describe it.



So they wait until nobody is looking, for that moment that appears clerical (ministerial) in nature and then they slip in new entities again, thus cheating the lender (again), but leaving the homeowner with legal title. The homeowner walks from the deal thinking it is over. But in truth, it is only just beginning. Now we enter the NEXT chapter of the mortgage meltdown.

Ratings Arbitrage a/k/a Fraud

Investment banks bundled mortgage loans into securities and then often rebundled those securities one or two more times. Those securities were given high ratings and sold to investors, who have since lost billions of dollars on them.

Editor’s Note: The significance of this report cannot be overstated. Not only did the investment bankers LOOK for and CREATE loans guaranteed to fail, which they did, they sold them in increasingly complex packages more than once. So for example if the yield spread profit or premium was $100,000 on a given loan, that wasn’t enough for the investment bankers. Without loaning or investing any additional money they sold the same loans, or at least parts of those loans, to additional investors one, two three times or more. In the additional sales, there was no cost so whatever they received was entirely profit. I would call that a yield spread profit or premium, and certainly undisclosed. If the principal of the loan was $300,000 and they resold it three times, then the investment bank received $900,000 from those additional sales, in addition to the initial $100,000 yield spread profit on sale of the loan to the “trust” or special purpose vehicle.

So the investment bank kept $1 million dollars in fees, profits or compensation on a $300,000 loan. Anyone who has seen “The Producers” knows that if this “show” succeeds, i.e., if most of the loans perform as scheduled and borrowers are making their payments, then the investment bank has a problem — receiving a total of $1.3 million on a $300,000 loan. But if the loans fails, then nobody asks for an accounting. As long as it is in foreclosure, no accounting is required except for when the property is sold (see other blog posts on bid rigging at the courthouse steps documented by Charles Koppa).

If they modify the loan or approve the short sale then an accounting is required. That is a bad thing for the investment bank. But if they don’t modify any loans and don’t approve any short-sales, then questions are going to be asked which will be difficult to answer.

You make plans and then life happens, my wife says. All these brilliant schemes were fraudulent and probably criminal. All such schemes eventually get the spotlight on them. Now, with criminal investigations ongoing in a dozen states and the federal government, the accounting and the questions are coming anyway—despite the efforts of the titans of the universe to avoid that result.

All those Judges that sarcastically threw homeowners out of court questioning the veracity of accusations against pretender lenders, can get out the salt and pepper as they eat their words.

“Why are they not in jail if they did these things” asked practically everyone on both sides of the issue. The answer is simply that criminal investigations do not take place overnight, they move slowly and if the prosecutor has any intention of winning a conviction he must have sufficient evidence to prove criminal acts beyond a reasonable doubt.

But remember the threshold for most civil litigation is merely a preponderance of the evidence, which means if you think there is more than a 50-50  probability the party did something, the prima facie case is satisfied and damages or injunction are stated in a final judgment. Some causes of action, like fraud, frequently require clear and convincing evidence, which is more than 50-50 and less than beyond a reaonsable doubt.

From the NY Times: ————————

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.


Andrew Cuomo, the attorney general of New York, sent subpoenas to eight Wall Street banks late Wednesday.

The investigation parallels federal inquiries into the business practices of a broad range of financial companies in the years before the collapse of the housing market.

Where those investigations have focused on interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.

The agencies themselves have been widely criticized for overstating the quality of many mortgage securities that ended up losing money once the housing market collapsed. The inquiry by the attorney general of New York, Andrew M. Cuomo, suggests that he thinks the agencies may have been duped by one or more of the targets of his investigation.

Those targets are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is now owned by Bank of America.

The companies that rated the mortgage deals are Standard & Poor’s, Fitch Ratings and Moody’s Investors Service. Investors used their ratings to decide whether to buy mortgage securities.

Mr. Cuomo’s investigation follows an article in The New York Times that described some of the techniques bankers used to get more positive evaluations from the rating agencies.

Mr. Cuomo is also interested in the revolving door of employees of the rating agencies who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, said the people with knowledge of the investigation, who were not authorized to discuss it publicly.

Contacted after subpoenas were issued by Mr. Cuomo’s office late Wednesday night notifying the banks of his investigation, spokespeople for Morgan Stanley, Credit Suisse and Deutsche Bank declined to comment. Other banks did not immediately respond to requests for comment.

In response to questions for the Times article in April, a Goldman Sachs spokesman, Samuel Robinson, said: “Any suggestion that Goldman Sachs improperly influenced rating agencies is without foundation. We relied on the independence of the ratings agencies’ processes and the ratings they assigned.”

Goldman, which is already under investigation by federal prosecutors, has been defending itself against civil fraud accusations made in a complaint last month by the Securities and Exchange Commission. The deal at the heart of that complaint — called Abacus 2007-AC1 — was devised in part by a former Fitch Ratings employee named Shin Yukawa, whom Goldman recruited in 2005.

At the height of the mortgage boom, companies like Goldman offered million-dollar pay packages to workers like Mr. Yukawa who had been working at much lower pay at the rating agencies, according to several former workers at the agencies.

Around the same time that Mr. Yukawa left Fitch, three other analysts in his unit also joined financial companies like Deutsche Bank.

In some cases, once these workers were at the banks, they had dealings with their former colleagues at the agencies. In the fall of 2007, when banks were hard-pressed to get mortgage deals done, the Fitch analyst on a Goldman deal was a friend of Mr. Yukawa, according to two people with knowledge of the situation.

Mr. Yukawa did not respond to requests for comment.

Wall Street played a crucial role in the mortgage market’s path to collapse. Investment banks bundled mortgage loans into securities and then often rebundled those securities one or two more times. Those securities were given high ratings and sold to investors, who have since lost billions of dollars on them.

Banks were put on notice last summer that investigators of all sorts were looking into their mortgage operations, when requests for information were sent out to all of the big Wall Street firms. The topics of interest included the way mortgage securities were created, marketed and rated and some banks’ own trading against the mortgage market.

The S.E.C.’s civil case against Goldman is the most prominent action so far. But other actions could be taken by the Justice Department, the F.B.I. or the Financial Crisis Inquiry Commission — all of which are looking into the financial crisis. Criminal cases carry a higher burden of proof than civil cases. Under a New York state law, Mr. Cuomo can bring a criminal or civil case.

His office scrutinized the rating agencies back in 2008, just as the financial crisis was beginning. In a settlement, the agencies agreed to demand more information on mortgage bonds from banks.

Mr. Cuomo was also concerned about the agencies’ fee arrangements, which allowed banks to shop their deals among the agencies for the best rating. To end that inquiry, the agencies agreed to change their models so they would be paid for any work they did for banks, even if those banks did not select them to rate a given deal.

Mr. Cuomo’s current focus is on information the investment banks provided to the rating agencies and whether the bankers knew the ratings were overly positive, the people who know of the investigation said.

A Senate subcommittee found last month that Wall Street workers had been intimately involved in the rating process. In one series of e-mail messages the committee released, for instance, a Goldman worker tried to persuade Standard & Poor’s to allow Goldman to handle a deal in a way that the analyst found questionable.

The S.& P. employee, Chris Meyer, expressed his frustration in an e-mail message to a colleague in which he wrote, “I can’t tell you how upset I have been in reviewing these trades.”

“They’ve done something like 15 of these trades, all without a hitch. You can understand why they’d be upset,” Mr. Meyer added, “to have me come along and say they will need to make fundamental adjustments to the program.”

At Goldman, there was even a phrase for the way bankers put together mortgage securities. The practice was known as “ratings arbitrage,” according to former workers. The idea was to find ways to put the very worst bonds into a deal for a given rating. The cheaper the bonds, the greater the profit to the bank.

The rating agencies may have facilitated the banks’ actions by publishing their rating models on their corporate Web sites. The agencies argued that being open about their models offered transparency to investors.

But several former agency workers said the practice put too much power in the bankers’ hands. “The models were posted for bankers who develop C.D.O.’s to be able to reverse engineer C.D.O.’s to a certain rating,” one former rating agency employee said in an interview, referring to collateralized debt obligations.

A central concern of investors in these securities was the diversification of the deals’ loans. If a C.D.O. was based on mostly similar bonds — like those holding mortgages from one region — investors would view it as riskier than an instrument made up of more diversified assets. Mr. Cuomo’s office plans to investigate whether the bankers accurately portrayed the diversification of the mortgage loans to the rating agencies.

Gretchen Morgenson contributed reporting

Death by Foreclosure: BofA Seeks Eviction of Dead man Killed by Swat Team

Charles Koppa (Poppa Kappa) has done some investigative reporting on this case and we find numerous discrepancies between the police and media version of the event from actual facts. The case was typical until it ended in the homeowner’s untimely death in what police reported was a gun battle. Current reports indicate that the property is “investor hold.”

Kurt Aho was a 64 year old man with cancer. His illness made him walk awkwardly but he was completely lucid according to his daughter. Police swat team members shot him dead outside his home apparently under the mistaken belief that he was drunk (by observing his uneven gait when he walked) and that this was a case of Suicide by Cop.

Aho was in modification negotiations with Bank of America, who took over Countrywide loan servicing in the merger of those companies. His daughter reports that he thought the modification was done and that the matter was settled. But that didn’t stop a paneled truck from driving up with two occupants claiming they owned the house as a result of a foreclosure sale that day which Aho had been told was canceled due to the modification. Koppa reports that when he recently called the servicing agent they reported that the property was “on beneficiary hold.”

The title record is unclear, but it seems that the men who said they own the property were told they were “given” the property in exchange for fees worth $105,000. The fair market value of the home was $220,000 even at distressed prices.

According to Aho’s daughter he challenged the men on their right to be on his property, asking them for proof of the sale. They admitted they had no such proof since the “paperwork” had not been completed. He ordered them off the property and they refused to leave. He called his daughter to report what was going on and then grabbed his weapon and told the men if they didn’t get off his property he would shoot the tires on their van. They apparently remained, and he fulfilled his promise — he shot the tires on the van.

At this time, without a police report, we are unsure who called the police. Six squad cars including a SWAT team showed up and Aho and his house were under siege. He was calm, sitting on his air conditioning compressor when a rubber bullet hit him, obviously fired by police. He fired back with neighbors saying he obviously was aiming at the top of the police van. Police returned fire and he was dead.

Now Tiffany and Bosco, the law firm that handles the largest number of foreclosures in the area, is attempting to evict Kurt Aho, even though he is dead. His daughter has moved into the house and is attempting to fend off the attempt but needs help. From what we have seen the loan was securitized and the entire foreclosure procedure was improper even if there had been no negotiations on modification.

So to Recap, we have an improper foreclosure based upon the usual array of fabricated assignments in a securitized loan where the real creditors (investors) were neither identified nor even notified. Aho’s daughter wishes to pursue a wrongful death claim against BofA, Tiffany and Bosco, and law enforcement.

Man killed after shooting at police, neighbors ask why

Reported by: Mitch Truswell
Reported by: Katie Fisher
Last Update: 10/01/2009 5:46 am

PHOENIX – The day after the shooting of a 64-year-old man, neighbors are asking if it had to happen.

Kurt Aho was shot and killed Tuesday night near 31st Avenue and Bell Road.

He had been living in his home for nearly 30 years, but the home had recently fallen into foreclosure and was sold at a public auction on Tuesday.

When the new owners arrived at the property, they told 64-year-old Aho they were the new owners, and asked if he needed help moving out.

Police say Aho became distraught about losing his home and began to open fire, firing four rounds at the two men’s cars. The two men, a 49-year-old and a 42-year-old, then called police.

Officers arrived at the scene, near Bell Road and 35th Avenue, around 4:30 p.m. and said they saw Aho standing in the cul de sac with a gun in his hand.

Police tried talking to Aho for over an hour and reportedly asked him to put the weapon down as he walked in and out of the house before approaching the police department’s “Bearcat”, a specialty vehicle for officer protection, in a threatening manner.

Police said Aho began shooting at officers’ vehicles, so police shot at the man using rubber bullets.

According to officials, the rubber bullets were ineffective, and Aho raised his handgun and began firing at the vehicle and officers. That is when police reportedly shot and killed him.

Aho was pronounced dead at the scene.

Neighbors told ABC 15 that Aho had been trying to work with the mortgage company to keep his house.

Denise Montesquiou says, “He knew he was in trouble and he was trying to work it out. I don’t have a bad word to say about Kurt, right or wrong.”

Another neighbor, Yair Lavi, heard that Aho was dealing with cancer, for the second time.

Lavi says there was no reason to kill Aho.

“They had a sharpshooter on top of this house, on top of that house, and three of them behind a tree. Just shoot him in the hand and he’s no longer a threat.”

Police say the investigation is continuing.

Trusts, Trustees and Beneficiaries


These statutes provide numerous regulations and requirements that entities engaging in trust activities should comply with, but the regulations are largely being ignored by the entities engaging in trust activities and both courts and the enforcing agency, the Florida Department of Financial Services,

Editor’s Note: Matt Weidner is onto something here that has been pointed out by many lawyers across the country. His central point is that if you want to call yourself a Trustee in foreclosures then there had better be a trust. If there is a trust the state laws, rules and regulations govern them and the trustees. Most of these laws are being ignored by the pretender lenders with impunity — Judges routinely ignore arguments concerning the authority of the Trust to do business in the state, the right of the Trustee to proceed with foreclosure, and the accountability to both the borrower and the investor, both of whom might be beneficiaries under the Trust. Greenwich Financial filed suit against Countrywide and BOA to underscore the point that the investors are the creditors and that if there is a trust, it is the investor who is the beneficiary. Yet, as Charles Koppa has pointed out numerous times, the prices on the courthouse steps are routinely manipulated against the interests of any beneficiaries.

But the real question in my mind is whether these “trusts” actually meet the definition of that term. for there to be a working trust and an authorized trustee, there must be a trustor (the one who creates the trust), a beneficiary (the one who receives the benefits from the trust) and a “res” which is something of value that is put into the trust and which is owned, rather than passed through the t rust.

The trustor must have some property interest (tangible or intangible) that is being conveyed to the trustee to hold in trust for the beneficiaries. I’ve looked at the pooling and services agreements, prospectuses, assignments and assumption agreement and individual assignments, alleged powers of attorney and the promotional literature of the Special Purpose vehicles that issued mortgage backed securities (bonds) to investors who end up holding a piece of paper called a “certificate.”

In my opinion, there is no trust, even though one is named. In my opinion there is no trustee, even though one is named. Beneficiaries are not named and the res of the trust which supposedly is a pool of loans has been conveyed in percentage slices to the investors who bought the certificates.

There is no Trustor identified in most cases although there have been arguments of the pretender lenders that the investors are the trustors and the beneficiaries. There is also the argument that the pooling and service agreement allocating a “pool” which more often than not initially contains fictitious assets contains a  Trustor somewhere in the document.

In my opinion the party designated as a Trustee is merely a candidate for an agency relationship that might arise if several conditions are met, as defined in the prospectus. The agent has no liability or obligations of any kind until those conditions happen at some time in the future.

And since the res of the trust allegedly includes a pool of loans that was owned by some vaguely defined pool aggregator or “trustee” and since the percentage interests in that pool was conveyed to the investors, it is my opinion that there is no res in the so-called trust (i.e., there is nothing being held in trust). If there is nothing held in trust, then even if the trust technically exists, the trustee has no powers. This is congruent with the REMIC provisions of the Internal Revenue Code that allow the SPVs to be formed as pass through entities in which no tax event occurs and therefore no tax applies.

So back to Weidner’s point, if the trust is real, it isn’t following the laws governing their creation and use, OR, to my point, the trust isn’t real anyway. It is for these reasons, among others, that you MUST identify the investors, get in touch with them, compare notes and get an accounting from them. If the Courts ever force the pretender lenders to disclose the identity of these creditors and allow you to pursue interaction with them, then, and only then, will the alleged default be validated, the demand on the note verified, and the possibility of financial double jeopardy eliminated.

Florida Statutes Chapters 658 which regulates Banks and Trust Companies and can be found at and chapter 660, the section of Florida Statutes which specifically regulates trust business in Florida and which can be found at are two important consumer protection statutes that are being widely ignored by regulators and courts across the state.

The definition of trust activities provided in statute is very broad and specifically includes many of the activities national banks and foreign corporations engage in related to mortgage foreclosure activities. An analysis of foreclosure cases filed in counties across the state will reveal that a recognizable percentage of the cases are filed “as trustee” for some other party or entity. ignoring the laws and the application of these laws to entities that are violating them. These statutes provide numerous regulations and requirements that entities engaging in trust activities should comply with, but the regulations are largely being ignored by the entities engaging in trust activities and both courts and the enforcing agency, the Florida Department of Financial Services,

Homeowners who are subject to foreclosure and foreclosure defense attorneys are encouraged to carefully review the cited statutes and consider the application of the statutes to each individual case. Lenders who are engaging in trust activities but who are not properly licensed or registered to do business in the state should be prevented from prevailing in foreclosure actions on equitable grounds based on their failure to comply with these important consumer protection and state interest laws.

Bank Accuses Investment Houses of Lying About Mortgage Backed Bonds

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

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

‘About That $19 Billion …’


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

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