You might not know VendorScape but it sure knows you

In a somewhat startling admission by CoreLogic, we now have an admission of many facts that might not have otherwise surfaced but for intensive and aggressive, persistent Discovery. I am not publishing the entire letter from them for privacy reasons. But it is worth mentioning that the letter was sent, after careful legal analysis, as a response to a complaint to the Federal Consumer Financial Protection Board — organized by Elizabeth Warren under the Obama administration. The response was (a) mandatory and (b) subject to charges of lying to a Federal agency.

The problem faced by CoreLogic was that on the one hand it IS and was the central repository of all data and electronic records for most residential loans in the United States. The main IT platform running several systems is called VendorScape which is owned, maintained and operated by CoreLogic pursuant to instructions from Black Knight (and perhaps others) who are serving the interests of investment banks who have no legally recognized interest in any of the alleged “loan accounts”.

But they don’t want the government or the public to know any of that because they are designating nominees to serve or pose as “servicers” who can be thrown under the bus at any that that foul play is actually addressed instead of settled (see 50 state settlement).

So here is what they said

Interesting.

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And here is how it breaks down (legal analysis):
  1. VendorScape exists although they deny it is currently accessed through CoreLogic
  2. VendorScape is an “electronic case management system.” Taken in context with customs and practices in the industry in addition to simple logic, it is THE case management system and it is electronic which means that anyone with login credentials can get into it.
  3. VendorScape output consists of the following:
    1. centralized electronic workplace
    2. storage of “documents” — i.e., images not the original documents because they are not a records custodian for anyone. As the centralized place for “storage” it is VendorScape that is the source server from which all records are produced in printed reports that are merely generated from what is in VendorScape regardless of who added or deleted or changed anything.
    3. initiate workflows “defined by our clients”. This is odd wording.
      1. They appear to be saying that clients access the system and are simply using it as an IT platform to conduct business of the client.
      2. But VendorScape initiates workflows, which means that they have admitted that whoever is actually running VendorScape is making the decisions on when and how to initiate any action.
      3. Since the entire purpose of this system is preparation for foreclosure, the only logical conclusion is that it is a system to initiate foreclosures, notices of default, notice of delinquency etc. based upon human decision-making or automated decision making initiated by humans that control VendorScape.
      4. They will of course say otherwise and that seems to be what they are trying to say — that the client determines the definitions and circumstances of workflows.
      5. But dig a little deeper and you will find that the “client” has no right to make such decisions and that the decision is labelled as the decision of a client (e.g. Ocwen) by permission from Ocwen, who is not actually allowed to make such decisions and does not make such decisions. 
      6. So the reference to the  Client making such decisions is circular allowing anyone to say that it was CoreLogic or  VendorScape who made the decision (thus avoiding liability for Ocwen et al) OR to say that it was Ocwen, as they do in this letter.
  4. They admit that CoreLogic is the party who owns and maintains the storage and functions of the VendorScape system while at the same time implying that they have no connection with VendorScape.
  5. They assert that the data is owned by the clients. This is a common trick.
    1. The data is not owned by the clients because it doesn’t consist of any entries or proprietary information placed in the system by the client.
    2. The information or data is placed there mostly through automated systems controlled by Black Knight but operated by CoreLogic.
    3. Nominal “Servicers” (Ocwen e.g.), who are the “clients” actually have no way of knowing anything about a homeowner account until after it is placed in the system by third parties.
    4. This is why servicer records should not be admitted into evidence as exceptions (business records) to the hearsay rule.
    5. The deadly mistake by many lawyers in court is the failure to timely object to lack of foundation, best evidence and hearsay.
      1. A timely objection is one that is raised at the same time the admission of evidence is being considered by the court.
      2. Waiting until the end of questioning is spitting in the wind. It is already in evidence by that point.
      3. And the second mistake is that after the objection is sustained, the failure to move the court to strike the offending testimony and exhibits. That failure is equivalent to a waiver of the objection, thus leaving the offending testimony or exhibits in evidence.
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Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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CoreLogic: “Mortgage Performance Is Beginning to Deteriorate”

By K.K. MacKinstry/LendingLies

Today I listened to a webinar about housing trends hosted by website Housingwire.  Ten-minutes after logging in, I logged off.  Chief Economists from Fannie Mae and the Mortgage Bankers Association discussed economic indicators that were little more than banker’s spin.  They stated that Federal Reserve rate hikes would preserve the wealth effect of home equity among the middle class and that tax cuts would help stimulate the economy.  The economic indicators I have reviewed paint a much different scenario emerging.

Contrarians predict that rate hikes will further slow an already slowing real estate market, and that tax cuts will average less than $1,000 dollars per family and will not have a stimulus effect on the housing market. They also discussed the benefits of the Fed selling off 8 trillion dollars of Mortgage-backed Securities and doubted that selling-off these empty trusts would create market volatility. At that point I couldn’t listen to any more housing propaganda and logged off.

Economic expansion and recession are influenced by loan performance. When the economy is good, lenders increase sub-prime lending but when loan defaults increase, lenders become more conservative, which often exacerbates an economic downturn. The economy appears to be at the point where lenders are giving out riskier loans in an attempt to maintain market momentum with the knowledge that housing markets are cooling from 2016 peaks.

From 2012 to 2016 loan performance improved during the post-recession expansion.  However, over the last year there has been a deterioration in auto, credit card, installment loans and student loans. Only in the last six months has mortgage loan performance started to deteriorate.

Since 2010 loan underwriting has remained relatively even and is a good starting point for the analysis in the post recession economy.

The real estate market thrived in 2015-16 and showed the highest economic growth since the Great Recession.  The labor market was near full employment and steady home price growth were maintained.

However, during 2016, economic growth slowed by a full percentage point and the delinquency rate worsened to 0.17 percent at the 10-month mark.

While performance for the 2017 market is still very good relative to the last two decades, the market shows signs of worsening. Historically, once the mortgage credit cycle begins to deteriorate it continues to do so until the economy bottoms out and the credit cycle begins to improve again.  It appears we may be at the top of the newly created bubble and that we can look forward to a market correction.

Turning points happen quickly.  Speaking to Neil Garfield today on when he expects the market might rapidly decline he replied, “any day now.”  Garfield believes that the more the media feels the need to announce how wonderful things are, that is when consumers should be more cautious.  During April alone, CoreLogic reported that 5.3% of homeowners were late while housing prices continue to rise.
 

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Editor’s Notes:  

As we predicted more and more County recorder offices are suing to collect transfer fees on loans that have gone to foreclosure under the allegation that a valid loan and lien was transferred.  Expect other revenue collectors in the states to start doing the same for registration fees, taxes, interest, penalties and fines. This battle is just beginning. We are now about to enter the phase of finger pointing in which each type of defendant — bank, servicer, MERS, Fannie, Freddie etc. defends with varying exotic defenses that more or less point the finger at some other part of the securitization chain. 
The real story is that title chains have been irretrievably corrupted — which means that title cannot be established by using the documents alone. Parole evidence from witnesses and production of back-up documents must show the path of the loan and the proof that the transaction was real. Defenders of these lawsuits may be forced to admit that there was no actual financial transaction and that the assignments were assignments of “convenience” negating the reality of the transfer or of any transaction at all. 
Either way they are going to have a problem that can’t be fixed. They can’t prove up the documents because the documents are contrary to the path of monetary transactions and recite facts that are untrue —- in addition to the fact that the documents themselves were fabricated, forged, robo-signed and fraudulently presented. This is why I say that regardless of how hard anyone tries to do the wrong thing, the only right way to correct these problems is to negate the foreclosures that have already been concluded, stop the ones that are being conducted in the same way as the old way, and make them prove up their right to foreclose. They either must admit that there were not valid transactions — including the original note and mortgage — or they won’t be able to prove a valid transaction because the money came from sources other than those shown on the closing documents. 
The actual sources of the money loaned the money to borrowers without documentation believing they had the documentation. But the mere fact that borrowers signed documents is not an invitation for any stranger to imply that it was for their benefit. For these reasons the mortgage in most cases was never perfected into a valid lien and cannot be perfected without corrective instruments signed by the borrower or upon some order by a court. But the courts are going to be far more careful about the proof here. Most Judges are going to take the position that they could be fooled once when the foreclosure originally went through on the premise of valid documents and an actual financial transaction attached to THOSE documents, but that they won’t be fooled a a second time. They will demand proof. And proof according to the normal rules of evidence is completely lacking because the entire securitization chain was a lie from one end to the other.
The borrower will end up owing the money less offsets for payments received by the real creditor, once the identity of the real creditor is revealed, but the absence of a mortgage or deed of trust naming that actual creditor will void the mortgage and negate the credit bid at the auction.

Ohio lawsuit accuses Freddie Mac of fraud

by Tara Steele

The battle between Fannie Mae, Freddie Mac, and various government entities continues, each taking a different approach on the battlefield.

Freddie Mac sued by county in Ohio

Last year, Mortgage Electronic Registration Systems Inc. (MERS) became the subject of lawsuits from counties across the nation as District Attorneys allege the company never owned the loans they were facilitating foreclosures for, and in most cases, judges agree, and their authority to facilitate has been denied in several counties. Dallas County alleges the mortgage-tracking system violates Texas laws and shorted the county anywhere from $58 million to over $100 million in uncollected filing fees due to the MERS system, dating back to 1997.

Others sued MERS as well; in February, in the U.S. Court for the Western District of Kentucky, Chief Judge Joseph McKinley Jr. dismissed a lawsuit filed by the Christian County Clerk, denying relief to the County for the same relief sought by Dallas County and others.

Rampant mortgage fraud, continued robosigning

Studies have shown that MERS destroyed the chain of title in America, and other studies reveal that illegal robosigning is still in play, and that foreclosure fraud has occurred in themajority of loans.

As the courts have not yet rewarded cities, counties, or states pursuing action against MERS, other tactics are being taken by these entities, for example, Louisiana is using RICO laws to sue MERS.

Summit County, Ohio taking a different approach

Summit County, Ohio filed a lawsuit1 Tuesday against Freddie Mac, alleging a failure to pay fees on transfer taxes on over 3,500 real estate transactions over six years. Court documents show that the Federal Home Loan Mortgage Corporation is accused of committing fraud by claiming it was a government entity, thereby exempt from transfer taxes. The County has not released a final assessment of the amount they believe is due, but they will also be seeking interest and penalties.

This approach is far different than going after MERS (which coincidentally was established by Fannie Mae and Freddie Mac over 15 years ago), rather going directly after the still-functioning Freddie Mac.

“The reality is Freddie Mac is a federally chartered, private corporation and they should have been paying these fees and taxes,” Assistant Prosecutor Joe Fantozzi told the Akron Beacon Journal.

Freddie Mac and Fannie Mae began paying transfer taxes in 2009, so the lawsuit is only seeking transfer taxes due from 2002 through 2008, which in Summit County are $4 per $1,000 on all real estate transactions. Additionally, the county also charges a 50-cent lot fee and recording fees, which are $28 for the first two pages and $8 for each additional page.

Fannie Mae not named, FHFA already fighting back

Although Geauga County in Ohio sued MERS, Chase Bank, and CoreLogic, the Akron Beacon Journal reports that Summit County is believed to be the first county in the state to file legal action against Freddie Mac. Fannie Mae was not named in the suit due to the low volume of mortgages in the county it handled during the time period.

The Federal Housing Finance Agency (FHFA), the conservator of Fannie and Freddie, is fighting back on these same battle lines, suing in Illinois to validate the two mortgage giants’ tax-exempt status, the Chicago Tribune reported. This move is likely an effort to circumvent more lawsuits like the one currently being filed in Summit County.

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Editor’s Comment:

From Nancy Drewe:

Consider ‘Wells Fargo Home Mortgage, Inc.’ was approved May 2003 to be merged out of existence into ‘Wells Fargo Home Mortgage Insurance’ and RELS LLC, Rels Title Settlement Services, Des Moines IA, RELS Title dba ATI Title – American Title Insurance – partnership 50/50 with First American Real Estate Solutions dba CORELOGIC in 1997 … allowed for sale of notes to Wall St. in Iowa as INVESTOR who holds ‘REO’ title so in event of default RELS – Wells Fargo Home Mortgage Insurance transfers new real estate loan to be created with more suitable borrower – execute transfer of debt settlement using a new real estate loan …Interesting ‘novel’ method ‘patent’ for nationwide telesales preapproved offers ‘mortgage’ real estate receivables recorded just before Wells Fargo Home Mortgage, Inc. was a general purpose business entity, oversight FFIEC ‘Domestic Entity Other’ none of the purported transactions – consider this – are created in accordance with each states insurance regulations!NOVEL METHOD
WELLS FARGO HOME MORTGAGE
BRIAN J. LAURENZO
DORESEY & WHITNEY LLP
801 GRAND AVE
DES MOINES IA 50309MARK C. OMAN WEST DES MOINES IA
MICHAEL J. HEID URBANDALE IA
PRE-APPROVAL MARKETING OFFERS
04/01/2004
PUB NO: US 2004/0064402 A1

REVEALS HOW NATIONWIDE TELESALES BYPASS BROKERAGES AND GOES DIRECT TO INDEPENDENT TITLE ABSTRACTORS WHO TRADE AND EXCHANGE IN SECONDARY MARKET PROMISSORY NOTES

http: // http://www.scribd.com/doc/76730044/WFHM-PATENT-NovelMethodFundingMortgageLoanpat20040064402

FDIC SUES LPS AND CORELOGIC ON APPRAISAL FRAUD

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LINK BETWEEN APPRAISAL FRAUD AND HIDDEN 2D TIER YIELD SPREAD PREMIUM

EDITOR’S NOTE: Now the FDIC gets it too. THE WORSE THE LOAN THE MORE MONEY THEY MADE. In the convoluted logic of the mortgage mess the investment banks profits skyrocketed as they increased the likelihood that the the loan would fail. Going into the subprime market was only one way it was done. The same facts apply across the board. A loan destined to fail was far more likely to carry an inflated nominal rate of interest, albeit knowing that the payments would not be made at earliest time possible. Since these loans could not be closed with borrowers unless the initial payment (teaser etc.) was low enough that the borrower could be convinced they could afford it, and the borrowers were relying on the mortgage broker and the fact that a lender would not take the risk unless there was merit to the deal, they relied upon the lender’s appraisal and apparent confirmation of appraisal of the property. By increasing the “value”of the property they were able to close larger loans. By closing larger loans, they were able to move more money faster.

The higher nominal rate of interest was something everyone except the borrower and investor knew would never be paid. The principal was also skewed based upon a higher rate of principal payments based upon an unsustainable appraisal (which of course also increased the size of the loan and therefore the principal and interest payments). The life of the loan and the effect on the actual rate of interest moved many loans into usury territory. And before you tell me that banks are exempt in many states from usury laws, let me say that in many states they are not and even if they banks ARE exempt the originators of nearly all securitized loans either were not banks at all or were banks acting as mortgage brokers — i.e., not actually underwriting the loan nor funding it.

The net effect of this, from a TILA standpoint, is that the APR was misstated in the Good Faith Estimate (GFE) given to each borrower which did not reflect the reality of the actual loan life (obviously ending when the payments reset to a level that exceeded the borrower’s income), the inflated appraisal and the actual terms of compensation being received by intermediaries who were not disclosed to the borrower or the investors. RESCISSION is therefore most probably an available remedy even in old loans as a result of this. ANd the amount that would be required for tender back to the “Lender” (originator) would be reduced by the amount of the appraisal fraud and other causes of action attendant to this fraud.

The plot thickens: by using crappy loans and getting what on paper looked like high interest rates (nominal rates), the banks were able to create the illusion that the DOLLAR amount of return that the investor was expecting was satisfied by the loans “in the portfolio” which we now know never made into the “portfolio” or “pool.” Thus by jacking up at least part of the portfolio nominal rates the banks were able to REDUCE THE PRINCIPAL of the so-called “loan,” which we now know was a sham. This reduction in the amount of principal actually funded produced a spread between the amount of money advanced by the investors and the amount of money actually funded, which the investors knew nothing about.

This spread was caused by the difference between the rates that the investors were expecting (yield) and the rates that the borrowers were supposed to pay (yield), which is why I identified a second yield spread premium (YSP2) years ago. This premium taken by the banks was in the form of profit on sale of loans that were neither sold nor even transferred but nobody knew that back then, although I suspected it based upon the inability of the banks to produce documentation on any performing loan. The only time they came up with documentation was when the loan was in foreclosure and it was in litigation and it was close a hearing in which they had to either putup or shut up. Many simply shut up and moved on to more low hanging fruit. 

FDIC Sues LPS and CoreLogic Over Appraisal Fraud; Shows Investors Leaving Money on the Table

Posted By igradman On May 30, 2011 (10:43 pm)

In another sign that the Federal Government is turning its focus towards prosecuting the securitization players who may have contributed to the Mortgage Crisis, the FDIC filed separate lawsuits against LSI Appraisal (available here) and CoreLogic (available here) earlier this month.  In the suits, both filed in the Central District of California, the FDIC, as Receiver for Washington Mutual Bank (“WAMU”), accuses vendors with whom WAMU contracted to provide appraisal services with gross negligence, breach of reps and warranties, and other breaches of contract for providing defective and/or inflated appraisals.  The FDIC seeks at least $154 million from LSI (and its parent companies, including Lender Processing Services and Fidelity, based on alter ego liability) and at least $129 million from CoreLogic (and its parent companies, including First American Financial, based on alter ego liability).

As we’ve been discussing on The Subprime Shakeout this past month, the U.S. Government has stepped up its efforts to pursue claims against originators, underwriters and other participants in mortgage securitization over irresponsible lending and underwriting practices that led to the largest financial crisis since the Great Depression.  This has included the DOJ suing Deutsche Bank over reckless lending and submitting improper loans to the FHA and the SEC subpoenaing records from Credit Suisse and JPMorgan Chase over so-called “double dipping” schemes.  The FDIC’s lawsuit is just the latest sign that much more litigation is on the horizon, as it focuses on yet another aspect of the Crisis that is ripe for investigation–appraisal fraud.

Granted, those familiar with the loan repurchase or putback process have long recognized that inflated or otherwise improper appraisals are a major category of rep and warranty violations that are found in subprime and Alt-A loans originated between 2005 and 2007.  In fact, David Grais, in his lawsuits on behalf of the Federal Home Loan Banks of San Francisco and Seattle, focused the majority of his allegations against mortgage securitizers on inflated appraisals (ironically, the data Grais used in his complaints was compiled by CoreLogic, which is now one of the subjects of the FDIC’s suits).

Grais likely zeroed in on appraisals in those cases because he was able to evaluate their propriety after the fact using publicly available data, as he had not yet acquired access to the underlying loan files that would have provided more concrete evidence of underwriting deficiences.  But, appraisals have been historically a bit squishy and subjective–even using retroactive appraisal tools–and absent evidence of a scheme to inflate a series of comparable properties, it can be difficult to convince a judge or jury that an appraisal that’s, say, 10% higher than you would expect was actually a negligent or defective assessment of value.

The reason that the FDIC/WAMU is likely focusing on this aspect of the underwriting process is because it’s one of the few avenues available to WAMU to recover its losses.  Namely, the FDIC is suing over losses associated with loans that it holds on its books, not loans that it sold into securitization.  Though the latter would be a much larger set of loans, WAMU no longer holds any ownership interest in those loans, and would not suffer losses on that pool unless and until it (or its new owner, JPMorgan) were forced to repurchase a significant portion of those loans (read: a basis for more lawsuits down the road).

Which brings me to the most interesting aspect of these cases.  As I mentioned, the FDIC is only suing these appraisal vendors over the limited number of loans that WAMU still holds on its books.  In the case against LSI, the FDIC only reviewed 292 appraisals and is seeking damages with respect to 220 of those (75.3%), for which it claims it found “multiple egregious violations of USPAP and applicable industry standards” (LSI Complaint p. 12).   Only 10 out of 292 (3.4%) were found to be fully compliant.  Yet, the FDIC notes earlier in that complaint that LSI “provided or approved more than 386,000 appraisals for residential loans that WaMu originated or purchased” (LSI Complaint p. 11).

In the case against CoreLogic, the FDIC says that it reviewed 259 appraisals out of the more than 260,000 that had been provided (CoreLogic Complaint pp. 11-12).  Out of those, it found only seven that were fully compliant (2.7%), while 194 (74.9%) contained multiple egregious violations (CoreLogic Complaint p. 12).  And it was the 194 egregiously defective appraisals that the FDIC alleges caused over $129 million in damages.

Can you see where I’m going with this?  If you assume that the rest of the appraisals looked very similar to those sampled by the FDIC, there’s a ton of potential liability left on the table.

Just for fun, let’s just do some rough, back-of-the-envelope calculations to provide a framework for estimating that potential liability.  I will warn you that these numbers are going to be eye-popping, but before you get too excited or jump down my throat, please recognize that, as statisticians will no doubt tell you, there are many reasons why the samples cited in the FDIC’s complaints may not be representative of the overall population.  For example, the FDIC may have taken an adverse sample or the average size of the loans WAMU held on its balance sheet may have been significantly greater than the average size of the loans WAMU securitized, meaning they produced higher than average loss severities (and were also more prone to material appraisal inflation). Thus, do not take these numbers as gospel, but merely as an indication of the ballpark size of this potential problem.

With that proviso, let’s project out some of the numbers in the complaints.  In the LSI/LPS case, the FDIC alleges that 75% of the appraisals it sampled contained multiple egregious violations of appraisal standards.  If we project that number to the total population of 386,000 loans for which LSI/LPS provided appraisal services, that’s 289,500 faulty appraisals.  The FDIC also claims it suffered $154 million in losses on the 220 loans with egregiously deficient appraisals, for an average loss severity of $700,000.  Multiply 289,500 faulty appraisals by $700,000 in losses per loan and you get a potential liability to LSI/LPS (on just the loans it handled for WAMU) of $202 billion.  Even if we cut the percentage of deficient appraisals in half to account for the FDIC’s potential adverse sampling and cut the loss severity in half to account for the fact that the average loss severity was likely much smaller (WAMU may have retained the biggest loans that it could not sell into securitizations), that’s still an outstanding liability of over $50 billion for LSI/LPS.

Do the same math for the CoreLogic case and you get similar results.  The FDIC found 74.9% of the loans sampled had egregious appraisal violations, meaning that at least 194,740 of the loans that CoreLogic handled for WAMU may contain similar violations.  Since the 194 egregious loans accounted for $129 million in losses according to the Complaint, that’s an average loss severity of $664,948.  Using these numbers, CoreLogic thus faces potential liabilities of $129 billion.  Even using our very conservative discounting methodology, that’s still over $32 billion in potential liability.

This means that somewhere out there, there are pension funds, mutual funds, insurance funds and other institutional investors who collectively have claims of anywhere from $82 billion to $331 billion against these two vendors of appraisal services with respect to WAMU-originated or securitized loans.  For how many other banks did LSI and CoreLogic provide similar services?  And how many other appraisal service vendors provided similar services during this time and likely conformed to what appear to have been industry practices of inflating appraisals?  The potential liability floating out there on just this appraisal issue alone is astounding, if the FDIC’s numbers are to be believed.

The point of this exercise is not to say that the FDIC necessarily got its numbers right, or even to say that WAMU wasn’t complicit in the industry practice of inflating appraisals.  My point is that these suits reveal additional evidence that investors are sitting on massive amounts of potential claims, about which they’re doing next to nothing.  Where are the men and women of action amongst institutional money managers (and for that matter, who is John Galt?)?  Are they simply passive by nature, and too afraid of getting sued to even peek out from behind the rock? Maybe this is why investors don’t want to reveal their holdings in MBS – they’re afraid that if unions or other organized groups of pensioners realized that their institutional money managers held WAMU MBS and were doing nothing about it, they would sue these managers and/or never run their money through them again.

The better choice, of course, would be to join the Investor Syndicate or one of the other bondholder groups that are primed for action, and then actually support their efforts to go after the participants in the largest Ponzi scheme in history (an upcoming article on TSS will focus on the challenges that these groups have faced in getting their members actually motivated to do something).  It seems that these managers should be focused on trying to recover the funds their investments lost for their constituents, rather than just acting to protect their own anonymity and their jobs.  If suits like those brought by the FDIC don’t cause institutional money managers to sit up and take notice, we have no other choice but to believe these individuals are highly conflicted and incapable of acting as the fiduciaries they’re supposed to be.  Of all the conflicts of interest that have been revealed in the fallout of the Mortgage Crisis, this last conflict would be the most devastating, because it would mean that the securitization participants who were instrumental in causing this crisis, and who were themselves wildly conflicted, will largely be let off the hook by those they harmed the most.

Article taken from The Subprime Shakeout – http://www.subprimeshakeout.com
URL to article: http://www.subprimeshakeout.com/2011/05/fdic-sues-lps-and-corelogic-over-appraisal-fraud-shows-investors-leaving-money-on-the-table.html


Jake Naumer
Resolution Advisors
3187 Morgan Ford
St Louis Missouri 63116
314 961 7600
Fax Voice Mail 314 754 9086

Underwater Homes Officially Reported at 25% of ALL HOMES

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EDITOR’S QUESTION: Just what do they expect these people to do? The actual number of underwater homes  is now approaching 20 million or 40% of all homes — again because of the way they measure it, leaving out things that directly affect the actual price paid and the proceeds of sale. If they think that people are going to sign modifications (i.e., new mortgages waiving all defensive rights against the fraud perpetrated upon them) they better think in terms of reality — who would agree to owe $400,000 on property that is worth $150,000?

I don’t care what you do to the interest rate. The principal MUST be corrected to reflect the reality of the transaction when it first occurred — but that would mean acknowledging appraisal fraud, which would allow people to sue for punitive damages, compensatory damages etc. The only alternative is to use present fair market value which is even lower.

In order for the megabanks to prevail they need your house with you out of it.  In order for the economy to recover, you need to stay in your house, recover any home taken from you so far, and recover at least part of the meager wealth you had before this giant fraud began. No modification plan publicly discussed allows for that to happen. They say that is the goal but it isn’t — not without principal correction to true market value when the loan transaction occurred.

Number Of Underwater Mortgages Rises As More Homeowners Fall Behind

DEREK KRAVITZ 03/ 8/11 01:40 PM AP

Underwater Mortagages
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WASHINGTON — The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.

About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That’s up from 22.5 percent, or 10.8 million households, in the July-September quarter.

The number of underwater mortgages had fallen in the previous three quarters. But that was mostly because more homes had fallen into foreclosure.

Underwater mortgages typically rise when home prices fall. Home prices in December hit their lowest point since the housing bust in 11 of 20 major U.S. metro areas. In a healthy housing market, about 5 percent of homeowners are underwater.

Roughly two-thirds of homeowners in Nevada with a mortgage had negative home equity, the worst in the country. Arizona, Florida, Michigan and California were next, with up to 50 percent of homeowners with mortgages in those states underwater.

Oklahoma had the smallest percentage of underwater homeowners in the October-December quarter, at 5.8 percent. Only nine states recorded percentages less than 10 percent.

In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point.

When a mortgage is underwater, the homeowner often can’t qualify for mortgage refinancing and has little recourse but to continue making payments in hopes the property eventually regains its value.

The slide in home prices began stabilizing last year. But prices are expected to continue falling in many markets due to still-high levels of foreclosure and unemployment.

INVESTORS SUE FOR INFLATED HOME APPRAISALS, WHY DON’T YOU?

The model concluded that roughly one-third of the loans were for amounts that were 105 percent or more of the underlying property’s value. Roughly 5.5 percent of the loans in the pools had appraisals that were lower than they should have been.

In one pool with 3,543 loans, for example, the CoreLogic model had enough information to evaluate 2,097 loans. Of those, it determined that 1,114 mortgages — or more than half — had loan-to-value ratios of 105 percent or more. The valuations on those properties exceeded their true market value by $65 million,

EDITOR’S NOTE:  POINTS TO BE MADE:

  • Investors’ are proving the case for appraisal fraud, aligning themselves with borrowers. They are doing the borrower’s work. Get yourself copies of these complaints, discovery etc., send them to me and use them in your own case.
  • The little guy is starting to get attention. The court’s are getting the point that these loans were fraudulent. In my surveys I have found that appraisal fraud accounts for nearly all the loans 2003-2008, and that the amount of the fraud was a s much as 150% in some cases with an average of around 35%. The moment you closed, whatever down payment you made was lost and you were underwater.
  • The obligation to present a proper appraisal is on the lender not the borrower.
  • Just like the investors, borrowers were deprived of vital information about their loan that would have prevented any reasonable person from closing. Thus whether the Court’s like it or not, rescission, is a proper remedy, if not under TILA then under fraud statues and common law doctrines of fraud. Combine that with damages available, and the prospect of getting loan reduction and adjustment of loan terms comes into clearer view.
  • THE CONNECTION BETWEEN THE INVESTOR’S ADVANCE OF FUNDS AND THE HOME APPRAISAL IS PRESUMED AND ALLEGED. THUS THE ARGUMENT THAT THE INVESTOR WAS THE CREDITOR AND THE BORROWER IS THE DEBTOR IS CORROBORATED BY THE PLEADINGS OF THE INVESTORS.
June 18, 2010

The Inflatable Loan Pool

By GRETCHEN MORGENSON

AMID the legal battles between investors who lost money in mortgage securities and the investment banks that sold the stuff, one thing seems clear: the investment banks appear to be winning a good many of the early skirmishes.

But some cases are faring better for individual plaintiffs, with judges allowing them to proceed even as banks ask that they be dismissed. Still, these matters are hard to litigate because investors must persuade the judges overseeing them that their losses were not simply a result of a market crash. Investors must argue, convincingly, that the banks misrepresented the quality of the loans in the pools and made material misstatements about them in prospectuses provided to buyers.

Recent filings by two Federal Home Loan Banks — in San Francisco and Seattle — offer an intriguing way to clear this high hurdle. Lawyers representing the banks, which bought mortgage securities, combed through the loan pools looking for discrepancies between actual loan characteristics and how they were pitched to investors.

You may not be shocked to learn that the analysis found significant differences between what the Home Loan Banks were told about these securities and what they were sold.

The rate of discrepancies in these pools is surprising. The lawsuits contend that half the loans were inaccurately described in disclosure materials filed with the Securities and Exchange Commission.

These findings are compelling because they involve some 525,000 mortgage loans in 156 pools sold by 10 investment banks from 2005 through 2007. And because the research was conducted using a valuation model devised by CoreLogic, an information analytics company that is a trusted source for mortgage loan data, the conclusions are even more credible.

The analysis used CoreLogic’s valuation model, called VP4, which is used by many in the mortgage industry to verify accuracy of property appraisals. It homed in on loan-to-value ratios, a crucial measure in predicting defaults.

An overwhelming majority of the loan-to-value ratios stated in the securities’ prospectuses used appraisals, court documents say. Investors rely on the ratios because it is well known that the higher the loan relative to an underlying property’s appraised value, the more likely the borrower will walk away when financial troubles arise.

By back-testing the loans using the CoreLogic model from the time the mortgage securities were originated, the analysis compared those values with the loans’ appraised values as stated in prospectuses. Then the analysts reassessed the weighted average loan-to-value ratios of the pools’ mortgages.

The model concluded that roughly one-third of the loans were for amounts that were 105 percent or more of the underlying property’s value. Roughly 5.5 percent of the loans in the pools had appraisals that were lower than they should have been.

That means inflated appraisals were involved in six times as many loans as were understated appraisals.

David J. Grais, a lawyer at Grais & Ellsworth in New York, represents the Home Loan Banks in the lawsuits. “The information in these complaints shows that the disclosure documents for these securities did not describe the collateral accurately,” Mr. Grais said last week. “Courts have shown great interest in loan-by-loan and trust-by-trust information in cases like these. We think these complaints will satisfy that interest.”

The banks are requesting that the firms that sold the securities repurchase them. The San Francisco Home Loan Bank paid $19 billion for the mortgage securities covered by the lawsuit, and the Seattle Home Loan Bank paid $4 billion. It is unclear how much the banks would get if they won their suits.

Among the 10 defendants in the cases are Deutsche Bank, Credit Suisse, Merrill Lynch, Countrywide and UBS. None of these banks would comment.

As outlined in the San Francisco Bank’s amended complaint, it did not receive detailed data about the loans in the securities it purchased. Instead, the complaint says, the banks used the loan data to compile statistics about the loans, which were then presented to potential investors. These disclosures were misleading, the San Francisco Bank contends.

In one pool with 3,543 loans, for example, the CoreLogic model had enough information to evaluate 2,097 loans. Of those, it determined that 1,114 mortgages — or more than half — had loan-to-value ratios of 105 percent or more. The valuations on those properties exceeded their true market value by $65 million, the complaint contends.

The selling document for that pool said that all of the mortgages had loan-to-value ratios of 100 percent or less, the complaint said. But the CoreLogic analysis identified 169 loans with ratios over 100 percent. The pool prospectus also stated that the weighted average loan-to-value ratio of mortgages in the portion of the security purchased by Home Loan Bank was 69.5 percent. But the loans the CoreLogic model valued had an average ratio of almost 77 percent.

IT is unclear, of course, how these court cases will turn out. But it certainly is true that the more investors dig, the more they learn how freewheeling the Wall Street mortgage machine was back in the day. Each bit of evidence clearly points to the same lesson: investors must have access to loan details, and the time to analyze them, before they are likely to want to invest in these kinds of securities again.

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