Banks Cover Up Their Actual Losses and Insolvency


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT


Editor’s Note: It isn’t just the Banks that are covering up the fact that those “assets” on their balance sheet are not assets and never were owned by the Banks. The underlying threat here is that the loss is going to hit pension funds and other “investors” in RMBS whose money was used to fund mortgages (after the investment banks took a huge bite out of the pool of funds as “trading profits”). Pensioners are already getting notices of cutbacks and even elimination of the pension benefits.

This is all brought to you by the makers of such accounting tricks like “off balance sheet transactions.” Try telling your boss that the money you stole was an off balance sheet transaction and see if that covers it — or if you end up a guest of the state or federal government in prison.

RMBS Losses in Limbo: As Bad As They Seem, The Reality May Be Much Worse

By Ann Rutledge | Published: January 25, 2012

Since the financial crisis in 2007, residential mortgage-backed securities have been hit with high levels of borrower defaults, realized losses and credit rating downgrades.  Realized losses declared on private residential mortgage-backed securities (RMBS), already much higher than original rating agency and investor estimates, are projected to rise substantially in the coming months, according to a recent analysis by R&R Consulting, a credit rating and valuation firm in New York.

On the securities performing at December 2011, a universe of approximately $1.42 trillion, R&R estimate the amount of additional losses likely to materialize is $300 billion, with one-third concentrated in ten arranger names, including Countrywide, Morgan Stanley and JP Morgan. About 17,000 tranches, or 34% of the universe analyzed by R&R, may lose up to 83% of their remaining principal.

In addition, R&R estimates that approximately $175 billion of losses already incurred on the loans have not yet been allocated to the bonds in the related transactions. Failure to allocate realized loan losses could distort the valuation of related RMBS tranches.

“The light at the end of the tunnel is still a long way off for RMBS,” said Iuliia Palamar, head of ABS research for R&R.  “We are now drilling down into the analysis to identify the individual transactions by vintage, servicer and other important issues with respect to these losses.”

Unallocated Losses by Security VintageUnallocated Losses by Security Vintage

In the course of conducting valuations on RMBS, the R&R analytics team discovered widespread, serious, repeated data discrepancies. Ann Rutledge, a founding principal, asked the team to measure the magnitude of the discrepancy on the RMBS universe. To do this, R&R subtracted cumulative losses allocated to the tranches from unallocated, expected losses, calculated as the sum of defaults, bankruptcies, foreclosures and REOs minus recoveries. “The results were very disturbing: $175 billion of unallocated current losses and $300 billion of imminent losses,” Rutledge said.

Rutledge commented that she was not clear why these losses are being held in limbo instead of being properly allocated, since the data used by R&R in the calculations were included in the servicer reports. She cautioned, “Investors should be concerned about receiving inaccurate bond performance information and paying unnecessary fees.”

The implication for bond holders in RMBS is significant with respect to both estimates.  Subordinated securities in the RMBS with probable future losses ought to be written down by such losses but instead may be continuing to receive interest owed to more senior tranches. It could also mean that servicers are earning fees against loans that have already been liquidated, which also reduces the amount of cash to pay senior bond holders.  For example, in one month, servicers could generate $75 million or more in inappropriate fees against the $175 billion in unallocated losses.

Rutledge also noted that R&R has observed a steady increase in amount of limbo losses, raising the prospect that a significant amount of funds are still being misallocated for bond investors.

“The system for MBS is still fundamentally broken,” she said. “All the loose ends need to be identified and knit together into a well-functioning system before investors can feel comfortable investing in RMBS once more.”

R&R Consulting is a credit rating and valuation boutique. Founded in 2000, R&R has a patented process for obtaining current intrinsic valuations on structured securities in the secondary market.

Inquiries should contact Iuliia Palamar at +12128675693 or






COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


At first blush this story seems like a standard scam story and an unfortunate couple who bought the house, spent money on upgrades, paid all their mortgage payments and are now told they are faced with eviction from a home this is not theirs. But where is the title insurance protection that should be present? It is exactly where I told you it would be. The title companies, this one is First American, are denying coverage. The thief in this case is not a securitization party but the effect is the same. BOA is telling the couple that if they don’t pay the mortgage their credit will be ruined.

So they have a mortgage without a house. How is that possible? I’ll tell you how. The old owner abandoned the house allowing a scam artist to pretend to be the owner because the old owner was not around and didn’t care. Hmmmm. Wait that sounds familiar.

In the securitized mortgages, the investor has abandoned their claim against the “borrowers” and they are suing the investment bankers instead. That creates the same void as this scam. Only in “securitized” loans the scam artist that pretends to own the loan is a bank or some “bankruptcy-remote entity” that was created to serve the bank. Did you even wonder why the Banks went to all the trouble of inserting “bankruptcy remote” straw-men at loan closings? I think it is because they knew from the start this was eventually going to blow up and collapse.

The title company didn’t give a damn as long as they got their fee for the closing so they never did the work they were supposed to do. BOA didn’t care because they were not using their own money or had changed their habits because they usually don’t use their own money or credit. So these people got screwed by the title company and the “lender” who by the way does not have a perfected lien on the property (just like the “securitized” crap they sold to borrowers and investors).

Isn’t this interesting? Now BOA must figure out a way to resolve this without conceding that if the documentation was not in the chain of title as recorded in the title registry, there is no mortgage and thus nothing to foreclose. If this goes to court, BOA has a real problem, doesn’t it. They want to say that the borrower still owes them the money that was in fact funded AND they want to have a lien, but they can’t so they can’t foreclose. Thus this is exactly the same as ALL securitized loans.

The defects in the chain of title and the obvious shell game of names is not merely a technicality — it is the bedrock of a stable marketplace where if you buy something you should be getting clear title to it. The title company now says they are not liable for misrepresenting title. That the contract for insurance merely represents the risks they were willing to take and that if there was fraud in the title chain they are not liable. So what we have here is that no matter how many precautions the buyer-borrower takes he can still get screwed by the big guys. This isn’t caveat emptor (buyer beware) this is buyer be screwed.

And THAT is why the corrupted title mess extending to more than 80 million real estate transactions involving residential swellings cannot be solved — the players don’t want to solve it.





COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


Do you know what ‘xxx’ your loan is inside of? Do you know who really is in court as Plaintiff? Did you get a name affidavit signed?

Read Special Servicing Agreement.

Special Servicer “REO Broker’ c/o Special Servicer ‘Corporation as Lender’ of real Servicer (Note Holder in Due Course) as Lender (real lender) holding unsecured note transaction between seller and purchaser ‘registered in an electronic database’ is all MERS is.

Securities & Exchange Commission’s Regulation of Asset-Backed Securities: … function such as Master Servicer, administrator, primary Servicer, Special Servicer, affiliated Servicer and unaffiliated Servicer. The SEC noted there is ……/WhitePaper-_Final_REGAB.pdf – Similar

PDF] MEMORANDUM The company is one of the nation’s largest commercial loan servicers with over $294 billion in outstanding balances. As special servicer …

Investment Company Act of 1940 — Section 3(c)(5)(C )
Capital Trust, Inc
February 3, 2009
Our Ref. No. 2007-121113
File No. 132-3

In your letter, dated January 29, 2009, you request that we concur with your view that certain subordinate participations in commercial real estate first mortgage loans, as described below, that are held by Capital Trust, Inc., a public company incorporated in the state of Maryland that has elected treatment as a real estate investment trust for federal tax law purposes (the “Company”), would be considered qualifying interests, as defined below, for purposes of the exclusion from the definition of investment company in Section 3(c)(5)(C) of the Investment Company Act of 1940 (“Act”).

You state that the Company engages primarily in commercial real estate financing by originating and purchasing commercial real estate debt and related instruments for its own accounts as well as the accounts of investment vehicles that the Company manages. You state that among the types of investments the Company makes are investments in A/B commercial mortgage loan financing arrangements (“A/B financings”). You explain that in an A/B financing, the principal balance of a single commercial mortgage loan is divided between two or more mortgage lenders as a means of spreading the credit risk associated with the mortgage loan between the lenders. You state that unlike a mortgage loan participation where each loan participant has a pari passu interest in the mortgage loan, an A/B financing is a senior/subordinated structure. The senior participation, called the “A-Note,” has priority over the junior participation, called the “B-Note,” with respect to the allocation of payments made on the mortgage loan.1 You explain that all periodic payments made by the borrower on the underlying mortgage loan are allocated first to the A-Note holder, as senior lender, in accordance with the terms of the A/B financing and then to the B-Note holder, as junior lender. Similarly, you explain that in the event of a default on the mortgage loan, all collections or recoveries on the loan are allocated first to the A-Note holder until the A-Note holder has been fully paid before any payments are made to the B-Note holder. You further state that any losses incurred with respect to the loan are allocated first to the B-Note holder and then to the A-Note holder. You state that the loan is fully secured by a mortgage on the underlying commercial property and the value of the underlying commercial property at the time of the A/B financing always exceeds the combined principal balance of the B-Note and the A-Note.

You state that in the typical A/B financing in which the Company invests, a lender enters into a mortgage arrangement with a borrower and then participates the mortgage loan to form an A/B financing structure. The lender, who holds legal title to the mortgage loan and is listed as the lender of record, retains the A-Note but sells the B-Note to the Company. You state that the Company as B-Note holder obtains the right to receive from the A-Note holder the Company’s proportionate share of the interest and the principal payments made on the mortgage loan by the borrower at the time such payments are made, and the Company’s returns on its B-Note investment are based on the principal and interest payments made by the borrower.

You state that in some A/B financings, the B-Note holder’s participation interest is evidenced by a separate note issued by the borrower to the B-Note holder and which is directly secured by the mortgage.2 You explain that in these types of A/B financings, the Company as B-Note holder is in contractual privity with the borrower with respect to the underlying mortgage loan and thus payment on the B-Note should not be affected in the event of the bankruptcy of the A-Note holder.3 You state that in other A/B financings in which the Company invests, the B-Note holder holds a participating beneficial ownership interest in the mortgage loan and mortgage loan proceeds. The participation interest, however, is not evidenced by a separate note from the borrower and thus the Company as B-Note holder is not in contractual privity with the borrower.4 You note that the Company arguably could have difficulty obtaining payment in the event that the A-Note holder files for bankruptcy.5 You state that, with the exception of the bankruptcy issue, the two types of A/B financings are similar in all other material respects.

You state that the Company as B-Note holder enters into an agreement with the A-Note holder that sets forth the rights and obligations of the parties (“Agreement”). You explain that under the Agreement, the A-Note holder is afforded the sole and exclusive authority to administer and service the mortgage loan so long as the mortgage loan is a performing loan. The Agreement, however, provides the Company as B-Note holder with approval rights with respect to any decisions relating to material modifications to the loan agreements, or in connection with any material decisions pertaining to the administration and servicing of the mortgage loan.

You state that the Agreement also grants the Company as B-Note holder the right to control the administration and servicing of the loan in the event that the loan becomes a non-performing loan (“control rights”).6 You state that these control rights include the right to appoint a special servicer to manage the resolution of the non-performing loan, including any proposed foreclosure or workout of the loan.7 You state that the Company generally will have the right to advise, direct, or approve certain actions to be taken by the special servicer, including those with respect to any modification or forgiveness of principal or interest in connection with the defaulted loan, any proposed foreclosure of the mortgage loan or acquisition of the underlying property by deed-in-lieu of foreclosure or any proposed sale of a defaulted mortgage loan. You state that the special servicer is generally obligated to follow the Company’s decisions unless the special servicer believes that doing so would violate any applicable law or provisions of any agreement applicable to the financing arrangement. In addition, you state that the special servicer is subject to the limitations prescribed by a “servicing standard,” which requires the special servicer to act in the best interests of both the A-Note holder and the Company as B-Note holder and in a commercially reasonable manner. The Company, however, for any reason has the right to terminate and replace the special servicer.

You also state that the Company as B-Note holder has the right to receive written notice with respect to the performance of the mortgage loan and all reasonably requested information in connection with the exercise of the B-Note holder’s rights. You further state that the Company also has the right to cure any monetary and non-monetary defaults on the mortgage loan. Finally, you state that the Company may purchase the A-Note at a price of par plus interest in the event that the loan becomes non-performing.

Section 3(c)(5)(C) of the Act
Section 3(a)(1) of the Act, in relevant part, defines an investment company as any issuer that is, or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of Government securities and cash) on an unconsolidated basis.8 Section 3(c)(5)(C) of the Act, in relevant part, provides an exclusion from the definition of investment company for any issuer that is “primarily engaged in … purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” We previously have taken the position that an issuer may not rely on the exclusion provided by Section 3(c)(5)(C) unless at least 55% of its assets consist of “mortgages and other liens on and interests in real estate” (called “qualifying interests”) and the remaining 45% of its assets consist primarily of real estate-type interests.9 To meet the 45% real estate-type interests test, an issuer must invest at least 25% of its total assets in real estate-type interests (subject to reduction to the extent that the issuer invests more than 55% of its total assets in qualifying interests) and may invest no more than 20% of its total assets in miscellaneous investments.10

We generally take the position that a qualifying interest is an asset that represents an actual interest in real estate or is a loan or lien fully secured by real estate. Thus, for example, we have not objected if an issuer treats as qualifying interests, among other things, fee interests in real estate,11 mortgage loans fully secured by real property,12 notes secured by a pool of whole mortgage loans,13 second mortgages secured by real property,14 and leasehold interests secured solely by real property.15 We also take the position that an asset that can be viewed as being the functional equivalent of, and provide its holder with the same economic experience as, a direct investment in real estate or in a loan or lien fully secured by real estate, may be considered to be a qualifying interest for purposes of Section 3(c)(5)(C).16

We take the position, however, that an asset is not a qualifying interest for purposes of Section 3(c)(5)(C) if it is an interest in the nature of a security in another person engaged in the real estate business.17 For this reason, we generally take the position that an issuer that is engaged primarily in purchasing or otherwise acquiring participations or fractionalized interests in individual or pooled mortgages or deeds of trust is not entitled to rely on Section 3(c)(5)(C).18 We have, however, taken the position that an issuer that holds mortgage participation interests may nevertheless rely on Section 3(c)(5)(C) if the mortgage participation interests have attributes that would classify them as being interests in real estate rather than as being interests in the nature of a security in another person engaged in the real estate business. For example, in several instances we have taken the position that a trust that held participation interests in construction period mortgage loans acquired from mortgage lenders may rely on Section 3(c)(5)(C).19 We explained that each mortgage participation interest held by the trust was an interest in real estate because the participation interest was in a mortgage loan that was fully secured by real property and the trustee had the right by itself to foreclose on the mortgage securing the loan in the event of default.20

B-Notes as Qualifying Interests
You argue that the B-Notes that you describe in your letter should be considered to be qualifying interests for purposes of Section 3(c)(5)(C). You argue that each B-Note has attributes that, when taken together, would allow it to be classified as an interest in real estate rather than an interest in the nature of a security issued by a person that is engaged in the real estate business (i.e., the A-Note holder), notwithstanding that the B-Note holder does not have the right by itself to foreclose on the mortgage loan, which was a condition to the granting of relief in prior letters.21

In support of your position, you argue first that a B-Note is a participation interest in a mortgage loan that is fully secured by real property, and is not a loan extended to the A-Note holder. You state that the B-Note is not an interest in the A-Note holder with payment depending on the profits generated by the A-Note holder’s operations. Rather, you explain that payment on the B-Note is based on the interest and principal payments made by the borrower on the underlying mortgage loan.22 As such, you state that the Company invests in a B-Note only after performing the same type of due diligence and credit underwriting procedures that it would perform if it were underwriting the entire mortgage loan.23 You state that the A-Note holder does not guarantee payment of the B-Note holder’s share of interest and principal payments received from the borrower on the underlying mortgage loan.24 Accordingly, you argue that the B-Note holder looks to the borrower for payment on its B-Note and not to the A-Note holder.

You also state that the Company as B-Note holder has rights with respect to the administration and servicing of the mortgage loan that further suggest that the B-Note is an interest in real estate. Although the A-Note holder has the exclusive authority to administer and service the mortgage loan as long as the loan is a performing loan, you represent that the Company as B-Note holder has approval rights in connection with any material decisions pertaining to the administration and servicing of the loan, including decisions relating to leasing and budget requests from the borrower. You also represent that the B-Note holder has approval rights with respect to any material modification to the loan agreements.

Finally, you argue that that the Company as B-Note holder has effective control over the remedies relating to the enforcement of the mortgage loan, including ultimate control of the foreclosure process, in the event that the loan becomes non-performing. You state that the Company has such rights notwithstanding the fact that the Company does not have the unilateral right to foreclose on the mortgage loan, or that the special servicer is required to act in the best interests of both the A-Note holder and the B-Note holder under the special servicing standard. In particular, you represent that the Company as B-Note holder has the right to select the special servicer, and often appoints its wholly owned subsidiary to act in that role. You state that in the event that the mortgage loan becomes non-performing, the Company is able to pursue the remedies it desires by advising, directing or approving the actions of the special servicer. If the Company is dissatisfied with the remedy selected by the special servicer, you represent that the Company may: (1) terminate and replace the special servicer at any time with or without cause; (2) cure the default so that the mortgage loan is no longer non-performing; or (3) purchase the A-Note at par plus accrued interest, thereby acquiring the entire mortgage loan.

Based on the facts and representations in your letter, we agree that the B-Notes which you describe in your letter are interests in real estate and not interests in the nature of a security in another person engaged in the real estate business.25 In taking this position we note in particular your representations that: (1) a B-Note is a participation interest in a mortgage loan that is fully secured by real property; (2) the Company as B-Note holder has the right to receive its proportionate share of the interest and the principal payments made on the mortgage loan by the borrower, and that the Company’s returns on the B-Note are based on such payments;26 (3) the Company invests in B-Notes only after performing the same type of due diligence and credit underwriting procedures that it would perform if it were underwriting the underlying mortgage loan; (4) the Company as B-Note holder has approval rights in connection with any material decisions pertaining to the administration and servicing of the loan and with respect to any material modification to the loan agreements; and (5) in the event that the loan becomes non-performing, the Company as B-Note holder has effective control over the remedies relating to the enforcement of the mortgage loan, including ultimate control of the foreclosure process, by having the right to: (a) appoint the special servicer to manage the resolution of the loan; (b) advise, direct or approve the actions of the special servicer; (c) terminate the special servicer at any time with or without cause; (d) cure the default so that the mortgage loan is no longer non-performing; and (e) purchase the A-Note at par plus accrued interest, thereby acquiring the entire mortgage loan.27

We therefore concur with your view that the B-Notes described in your letter may be considered qualifying interests for purposes of the exclusion from the definition of investment company provided by Section 3(c)(5)(C). Please note that our views are based upon the facts and representations contained in your letter and that any different facts or representations may require a different conclusion.

Rochelle Kauffman Plesset
Senior Counsel



1 You state that when a commercial mortgage loan is divided into more than two participations, the participation may be designated as an A-Note, a B-1 Note, a B-2 Note, a B-3 Note, etc. For purposes of this letter, in cases in which there are more than two participations, the term “B-Note” is used to refer to the most junior participation.

2 You explain, however, that the B-Note is different from a second mortgage loan because the B-Note represents a participation interest in a single mortgage loan, whereas a second mortgage loan represents the issuance and administration of a separate loan. You also explain that the separate note issued by the borrower evidences a participation in a mortgage loan and not an interest in a whole, unparticipated mortgage loan held by a single mortgagee.

3 You explain that since a B-Note evidenced by a separate note is an actual note conveying to the B-Note holder a portion of the mortgage that is secured by the recorded mortgage, the B-Note holder’s right to receive its share of the interest and principal payments made by the borrower on the underlying mortgage loan should not be part of the A-Note holder’s estate in the event that the A-Note holder becomes bankrupt.

4 You state that in these cases the original lending transaction already may have been structured as a single note mortgage financing at the time the Company is given the opportunity to acquire a participating interest in the mortgage loan. You explain that it would be difficult to later provide for the issuance of two separate notes because it would require that the borrower and the mortgage lender modify the documentation of the original lending transaction.

5 You suggest that in the event of the A-Note holder’s bankruptcy, the status of the B-Note holder is unclear under the United States Bankruptcy Code if the B-Note holder does not hold a separate note. You explain that it is possible that in such an event, the B-Note holder could be treated as an unsecured creditor of the A-Note holder, notwithstanding your view that the B-Note holder is holding a participation interest in a mortgage loan and not a loan from the A-Note holder. See infra notes 22, 24.

6 You state that the B-Note holder may exercise its control rights under the terms of the Agreement either directly or indirectly by appointing a third party (called an operating advisor) to administer its rights. You also state that generally the B-Note holder retains these control rights only so long as its position in the mortgage loan is deemed to have “value,” based upon an appraisal. You state that the B-Note has “value,” for this purpose, if the initial principal amount of the B-Note (adjusted for prepayments, debt write-downs and appraisal reduction amounts applied to the B-Note) exceeds 25% of the initial principal amount of the B-Note (adjusted for prepayments). You state that an “appraisal reduction amount,” for this purpose, generally is the amount by which the full outstanding mortgage indebtedness exceeds 90% of the appraised value of the underlying real property. If the appraisal indicates that the B-Note does not have “value,” the B-Note holder’s control rights are forfeited to the A-Note holder.

7 You state that the Company’s wholly owned subsidiary, CT Investment Management Co., often serves as special servicer for many of the Company’s real estate debt financing investments.

8 Section 3(a)(2) defines “investment securities” to include all securities except (A) Government securities, (B) securities issued by employees’ securities companies, and (C) securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exclusion from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Act.

9 See, e.g., Citytrust, SEC Staff No-Action Letter (Dec. 19, 1990); Greenwich Capital Acceptance Inc., SEC Staff No-Action Letter (Aug. 8, 1991).

10 See, e.g., id.

11 See, e.g., United Bankers, SEC Staff No-Action Letter (Mar. 23, 1988).

12 See, e.g., United States Property Investment N.V., SEC Staff No-Action Letter (May 1, 1989).

13 See, e.g., Premier Mortgage Corp., SEC Staff No-Action Letter (Mar. 14, 1983).

14 See, e.g., Prudential Mortgage Bankers & Investment Corp., SEC Staff No-Action Letter (Dec. 4, 1977); The State Street Mortgage Co., SEC Staff No-Action Letter (July 17, 1986).

15 See, e.g., Health Facility Credit Corp., SEC Staff No-Action Letter (Feb. 6, 1985).

16 See Capital Trust Inc., SEC Staff No-Action Letter (May 24, 2007) (a Tier 1 mezzanine loan under certain conditions may be considered to be a qualifying interest where the loan can be viewed as being the functional equivalent of, and provide its holder with the same economic experience as, a second mortgage which is a qualifying interest for purposes of Section 3(c)(5)(C)).

17 See, e.g., The Realex Capital, SEC Staff No-Action Letter (Mar. 19, 1984) (Section 3(c)(5)(C) is not available to an issuer that invests solely in limited partnership interests in an underlying limited partnership that would own and operate a building).

18 MGIC Mortgage Corp., SEC Staff No-Action Letters (Oct. 6, 1972 and Aug. 1, 1974).

19 See Northwestern Ohio Building and Construction Trades Foundation, SEC Staff No-Action Letter (Apr. 20, 1984); Baton Rouge Building and Construction Industry Foundation, SEC Staff No-Action Letter (Aug. 31, 1984); Dayton Area Building and Construction, SEC Staff No-Action Letter (May 7, 1987).

20 Id. We have also granted no-action relief to an issuer that acquired whole mortgage loans or pools of whole mortgage loans and then sold participation interests in such assets. Relief was conditioned on the issuer retaining a continuing percentage ownership interest of at least 10% in each of the whole mortgage loans or pools of mortgage loans which it had fractionalized; the issuer alone was the formal record owner; and the issuer throughout the life of the participation had complete supervisory responsibility with respect to the servicing of the mortgage loans and had sole discretion regarding the enforcement of collections and the institution and prosecution of foreclosure or similar proceedings in the event of default. We stated that these conditions were intended to ensure that the issuer would “have a substantial continuing ownership interest in … [the underlying whole mortgages and pools of such mortgages] and [the] unrestricted control over the enforcement of the lien and other matters with respect to such mortgage loans so that the interest retained by the [issuer] would be an interest in real estate within the meaning of Section 3(c)(5)(C) of the Act rather than an interest in the nature of a security in another person engaged in the real estate business.” MGIC Mortgage Corp., SEC Staff No-Action Letter (Aug. 1, 1974).

21 See, e.g., id.

22 You suggest, however, that in the event that the A-Note holder becomes bankrupt and the B-Note holder is treated as an unsecured creditor of the A-Note holder, the B-Note holder may not receive its full payment on the B-Note notwithstanding the fact that the borrower has been making full and timely payments on the underlying mortgage loan. See supra note 5. You state that in the event that this will occur, the B-Note will no longer be considered an interest in real estate and thus will no longer be treated as a qualifying interest for purposes of Section 3(c)(5)(C).

23 You explain that, like the procedures for investing in whole mortgages, the procedures that the Company performs prior to investing in B-Notes include hands-on analysis of the underlying collateral for the loan, market analysis, tenant analysis, financial analysis, visits to the property, borrower background checks, and lease and contract review. You also note that the Company performs its own independent analysis and does not rely on the A-Note holder’s analysis or conclusion on the creditworthiness of the mortgage loan borrower.

24 In addition, you state that the following additional factors indicate that the B-Note is a mortgage loan participation interest and not a loan extended to the A-Note holder: (1) there is no difference in term to maturity contained in the B-Note and the underlying mortgage loan; (2) the total payments made by the borrower on the underlying mortgage loan do not exceed the aggregate payments made on the A-Note and the B-Note; and (3) there is no difference in scheduled payment terms between the borrower and the A-Note holder, and between the A-Note holder and the Company, except for the priority in the allocation of interest and principal payments granted to the A-Note holder by virtue of its position as senior participant. Furthermore, you state that, although there is a difference in the interest rate due on the underlying mortgage loan and the B-Note, the difference is due to the legitimate risk premium that the B-Note holder receives on assuming first loss. You state that your view that the B-Notes described in your letter are true participations and not loans extended to the A-Note holder is based on an evaluation of the factors that the courts have considered in similar cases. See, e.g., In re Churchill Mortgage Investment Corp., 233 B.R. 61 (Bankr. S.D.N.Y. 1999); In re Sprint Mortgage Bankers Corp., 164 B.R. 224 (Bankr. E.D.N.Y. 1994).

25 You have not asked for, and we are not expressing, a view on whether an A-Note, as you describe in your letter, is a qualifying interest for purposes of Section 3(c)(5)(C) notwithstanding the fact that, as you represent, the B-Note holder has effective control over the remedies relating to the enforcement of the mortgage loan, including ultimate control of the foreclosure process, in the event that the loan becomes non-performing.

26 See supra note 22.

27 As indicated above, while the right to foreclose is an important attribute to consider when determining whether an asset should be considered a qualifying interest, we believe that, in addition to this attribute, other attributes of an asset need also be considered when making such a determination. We note, however, that at this time we are not withdrawing any previous no-action positions that have not addressed this point.

Incoming Letter


The Incoming Letter is in Acrobat format.

NY and DE Examine Trust Documentation: Pandora’s Box Open


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE — EVIDENCE COUNTS!!!




If you don’t understand why the bundling of mortgages at the level of the investment banks is important to your case(s) involving securitized mortgages, then you don’t “get it” yet. It isn’t that you need to be an expert in securitization to win cases at the loan level and foreclosures, it is that you need to know key factors that affect the title, liability and ownership of the home, the obligation, note and mortgage. The inquiry referred to below runs to the heart of this issue.

WRONG QUESTION: People are asking where is my loan? What is the name of the Trust in which my loan is located? They should be asking what trust(s) or pools CLAIM to have an interest in your loan and do they really have it. That’s why the COMBO Title and Securitization Analysis, the Forensic Analysis and the Loan Level Accounting is so important. People ask “how do I prove which trust owns the pool?” Wrong question. The party seeking foreclosure needs to prove up ownership, not you. The real question is how do you turn the Judges head to see that your denial of the default, your denial of the mortgage, note and obligation is anything more than a delay tactic?

The banks and many “experts” are busy explaining securitization as though the loans were actually securitized. They were not. And THAT is of key relevance as to who can declare a default, whether they even know if there is a default, and the identity of the party(ies) who can enforce the obligation. It isn’t that you are required to prove THEIR case, it is all about knowing when to raise objections, what evidence to demand (knowing what the result will be) and creating insurmountable obstacles to the pretender lenders who don’t have a dime in the deal but want to foreclose anyway.

If you know the securitization scheme, because you have a report and analysis in your had, and you know how to use it because you have attended our seminar, you are standing in a much stronger position than simply quoting the blog. Knowing the truth is one thing, knowing what to do with the truth is another.

Here was have a story about how the only two states under whose laws these so-called trusts were created, are investigating to see if the trusts exists, and if so, what is in them. What they are going to find is that there is no trust because there is nothing in them. Your loan, although claimed by the trust, never made it into the pool. It never made it into the pool because (a) the mortgages, notes and closing documentation were defective in the first instance and (b) they never even made the attempt to cover their mess up with paperwork until they were challenged in court — years after the deadlines when they might have claimed any such right.

But they are also going to find that the money trail tells a a whole different story. The loan transaction wasn’t between the homeowner and the payee on the note. It was between the homeowner and the investor-lender. But the investor lender got an entirely different set of paperwork than the paperwork given to the homeowner at the closing of the loan. And the paperwork given to the investor-lender was rife with errors, lies and misleading statements. These offices of Attorney general in New York and Delaware are going to find that the entire chain is corrupted, that the only document in the registry of title in the County in which the property is located is a mortgage securing an obligation that does not exist — because it secures an obligation as described on a note signed by the homeowner containing the wrong parties and the wrong terms.

And so they are going to find out that there could be some type of enforcement of the undocumented obligation (not the note), but there won’t be because the investor-lenders are not interested in getting into pitched battle with homeowners, nor do they want to take a position in court that would be construed as an admission against their own interest. The admission would be that the mortgage documents were legal, valid and enforceable. The investors are saying that the mortgages were garbage and unenforceable when they sue the investment bankers for 100 cents on the dollar. The pretenders are trying to bootstrap their own intentional scrambling of the documentation into a right to claim property and take the homeowner out from his dwelling on the strength of defective documents — not on the strength of a case where the homeowner borrower money from them, owes them any money or even knew of their existence when the loan was closed.

Two States Ask if Paperwork in Mortgage Bundling Was Complete


Opening a new line of inquiry into the problems that have beset the mortgage loan process, two state attorneys general are investigating Wall Street’s bundling of these loans into securities to determine whether they were properly documented and valid.

The investigation is being led by Eric T. Schneiderman, the attorney general of New York, who has teamed with Joseph R. Biden III, his counterpart from Delaware. Their effort centers on the back end of the mortgage assembly lines — where big banks serve as trustees overseeing the securities for investors — according to two people briefed on the inquiry but who were not authorized to speak publicly about it.

The attorneys general have requested information from Bank of New York Mellon and Deutsche Bank, the two largest firms acting as trustees. Trustee banks have not been a focus of other investigations because they are administrators of the securities and did not originate the loans or service them. But as administrators they were required to ensure that the documentation was proper and complete.

Both attorneys general are investigating other practices that fueled the mortgage boom and subsequent bust. The latest inquiry represents another avenue of scrutiny of the inner workings of Wall Street’s mortgage securitization machine, which transformed individual home loans into bundles of loans that were then sold to investors.

It follows months of sharp criticism of the mortgage foreclosure process, which produced an uproar last year over shoddy paperwork and possible forgeries of legal documents by banks, other lenders or their representatives.

The slipshod practices in foreclosures led to further questions about whether all the necessary documents were delivered to the trusts and properly administered by them.

Some of the nation’s biggest mortgage servicers are currently in negotiations with a group of state attorneys general to settle an investigation into foreclosure abuses. The new inquiry by New York and Delaware indicates the big banks’ troubles may not end even if a settlement is reached in the foreclosure matter.

The stakes are potentially high. If the trustees did not follow the rules set out in the prospectus, they may be liable for breaching their duties to investors who bought the securities. That could expose the banks to costly civil litigation.

Spokesmen from Bank of New York and Deutsche Bank declined to comment about the investigation, as did representatives from the offices of both attorneys general.

A complex process that produced hundreds of billions of dollars in securities during the lending boom, the issuance of mortgage securities began with home loans, which were then bundled into investments and sold to pension funds, mutual funds, big banks and other investors. The bundles were created as trusts overseen by institutions such as Bank of New York and Deutsche Bank; they were supposed to make sure the complete mortgage files for each loan were delivered within a specified time and with the proper documentation.

After the securities were sold, the trustees disbursed interest and principal payments to investors over the life of the trusts.

The trusts were governed by the laws of the states in which they were set up. Roughly 80 percent of the trusts are governed by New York law with the rest by Delaware law.

The rules governing the securitization process are labyrinthine, and there are steps required if the investment is to comply with tax laws and promises made by the issuer in its offering document. If the trusts did not comply with tax laws, for example, the beneficial treatment given to investors could be rescinded, causing taxes to be levied on the transactions.

The terms of these mortgage deals varied, but many of them required that the trustee examine each of the loan files as soon as they came in from the Wall Street firm or bank issuing the security. For a file to be complete, it would typically have to include all of the information necessary to establish a chain of ownership through the various steps of the bundling process, as when the originator transferred it to the issuer of the security who then moved it to the trustee.

Complete loan files were supposed to be delivered to the trusts within 90 days in most cases. If the trustee found any missing or defective documents, it was supposed to notify the loan originator so that it could either cure the deficiency or replace the loan. Such substitutions are typically allowed only in the early years of the trust.

By asking for documents relating to this process, investigators are trying to determine if the trustees fulfilled their obligations to the investors who bought the mortgage deals, according to the people briefed on the inquiry.



COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE




EDITOR’S NOTE: 4 years ago, I spoke with some people in the big SEC auditing firms that give “clean” letters to public companies stating that the financial statements are a fair representation of the financial condition and operations during the period covered by the statements. Those of us who studied auditing, or like me who have taught auditing, know that those clean statements have not been true for decades, including most notably the absence of a caveat regarding the viability of the companies that were engaged in questionable and in some cases unfathomable transactions involving exotic financial instruments. If Alan Greenspan couldn’t understand it, then how could the auditor write a letter like that for JPM, Citi, BOA, Wells Fargo, Chase, et al?

Like the false appraisals by a rating agencies for these exotic instruments, and like the false appraisals coming from lenders who hired appraisers to “come in” at the necessary fair market value of the underlying property in order to close the deal so they could quickly take their fees and toss the risk onto investors and homeowners, the absence of the auditors screams out for justice. What would have happened if the auditors said flat out that the viability of these megabanks was in question in the event these exotic instruments imploded,, and that there was no way for them to accurately confirm the value that management had placed on them nor anyway to confirm that they were tier 1, 2 or 3 assets?

The question answers itself. Without a clean letter, the companies would have been forced into a policy of reporting that was transparent which, after all, is the reason for the audit — so the investors, prospective investors and customers and vendors of the company can accurately assess their risk in doing business with these megabanks. What would have happened? We all know. If the statements showed what we know today to have been the truth all along, the entire securitization illusion would have collapsed even as it began, and the Great Recession would never have occurred, the housing market would never have gone thorough the gyration that now effect virtually 100% of all Americans, directly or indirectly, and the life-styles and in some cases the lives of depressed people who took the lives of their families and then themselves would never have in the history books or on the media — because they would have been non-existent.


Troubled Audit Opinions


On one side is an assessment of a company with a clean audit opinion from the Toronto office of Ernst & Young, and with bonds rated just below investment grade by Standard & Poor’s and Moody’s. It has raised billions in capital markets.

On the other is an investment research firm using the name Muddy Waters Research. It says the company, the Sino-Forest Corporation, is a fraud, and that its shares are worthless.

As this is written, there is no definitive answer as to who is right. But the initial reaction of the markets seemed to be that they had more trust in the short-seller — a company whose Web site gives no address — than in the auditor’s opinion.

The shares, traded in Toronto, lost more than 70 percent of their value in two days, shaving $3 billion off its valuation. Bond prices also plunged. Prices had to fall sharply before speculators could be found who were willing to bet that the financial statements really did, in the boilerplate words of the auditor’s letter, “present fairly, in all material respects, the financial position of Sino-Forest Corporation.”

If there was a fraud, there is no doubt that Ernst & Young will be sued, and there is even less doubt that it will deny responsibility. After all, its letter did make clear that management was responsible for the internal controls needed to assure the statements are “free from material misstatement, whether due to fraud or error.”

To the auditing industry, the fact that investors tend to blame auditors when frauds go undetected reflects unrealistic expectations, not bad work by the auditors. The rules say auditors are supposed to have a “healthy degree of skepticism,” but not to detect all frauds.

“There is a significant expectations gap between what various stakeholders believe auditors do or should do in detecting fraud, and what audit networks are actually capable of doing, at the prices that companies or investors are willing to pay for audits,” stated a position paper issued in 2006 by the chief executives of the six largest audit networks.

Note that last part. They suggested that if investors were really worried about fraud, they should consider paying more for a “forensic audit” that would have a better — but not guaranteed — chance of spotting fraud. Don’t like our work? Pay us more.

There is no doubt that some companies are easier to audit than others, and that Sino-Forest falls on the harder side. While it has headquarters in Toronto and Hong Kong, its operations are — or at least are claimed to be — spread out over much of China. The company says it manages nearly two million acres in forest plantations across China. Muddy Waters says that is a lie, and that its actual operations are much smaller.

Investors trying to decide whether to believe the Muddy Waters report, with its detailed assertion that the company’s claims are contradicted by Chinese records, would love to know just what Ernst did to check. What records did it inspect? Which tree plantations did it visit? Who did the work? Was it people from Ernst’s Toronto office, which signed the report, or people from a Chinese affiliate? How many auditors did the work, over what period of time?

Ernst’s audit opinion does not say, which is no surprise. Virtually every audit opinion in the world says almost the same thing, with no details about the company being audited. Auditors are paid millions of dollars to produce a report that no one thinks is worth reading.

On June 21, the Public Company Accounting Oversight Board, which regulates auditors in the United States, plans to ask for public comments on whether to require auditors to do more and say more.

One idea the board is expected to consider is requiring auditors to disclose more about what they did, and did not, do. Ideally, auditors would point to things that they could not audit. There are a lot of them now, and sometimes they are crucial.

“The foundation” of the Sino-Forest fraud, stated the Muddy Waters report, “is its convoluted structure whereby it runs much of its revenues through ‘authorized intermediaries.’ ” Those organizations supposedly process tax payments owed to China on wood production, the report said, thereby assuring the company “leaves its auditors far less of a paper trail.”

Auditors could be called upon to specify where they thought fraud was most likely in a given company or industry, and what they did to confront the risk. Investors could have a chance then of comparing the work of differing audit firms, as one firm disclosed it had checked something other auditors did not mention.

If an audit was expected to call attention to possibly critical information that was not available to the auditors, perhaps there might be pressure from investors on companies to make that information available. In any case, investors could better understand what the auditors knew — and did not know — in reaching their conclusions.

The problems with audits now go well beyond questions of fraud. A critical element for many banks is the valuation of securities that trade infrequently, if at all. There may be a wide range of possible estimates, and the auditor now must simply conclude the estimates are within that range. If so, it signs off.

To make things worse, the estimates may have come not from the company being audited, whose work the auditor can examine, but from a pricing service that views its models as proprietary, making them virtually impossible to audit. That fact is something investors should know, but now do not.

Nor do auditors disclose information about how reasonable an estimate is. In some cases, a wide range might be defensible, and investors have no way to know whether a company was particularly conservative or aggressive in its estimates. The oversight board may consider asking that companies disclose what they deem to be the range of reasonable estimates, and why they chose the one they did. Then the auditors could comment on that.

If auditors enforced some consistency on ranges, then financial statements of different companies might be more comparable, even though they chose different estimates.

The accounting oversight board is also expected to ask if it is time to end the “one grade fits all” audit model, in which every company is deemed to “fairly” present its results. Perhaps a second grade could be added, like “presents adequately,” for companies that push the envelope but do not violate the rules.

In addition, auditors could be called upon to discuss the risks the company was taking. They could also be asked to call attention to some of the most critical disclosures in the footnotes, something that French auditors already do.

If much of that happened, audit opinions could become a lot more interesting to read. Investors might actually learn something, and they might be able to form opinions about differences in audit firms.

Another long-overdue change would be to have the lead partner on an audit sign the opinion in the annual report. Now, the firm signs, and investors have no way of knowing who was responsible. If an audit signed by a certain partner later blew up, that could be devastating to his or her career if investors shied away from any companies whose audits he later signed. Would that make auditors more careful? Perhaps.

This week, as the controversy over Sino-Forest raged, Canadian regulators began an investigation and the company indignantly defended itself. “I have spent 17 years building Sino-Forest and I can promise investors we are not guilty of the charges levied against us,” said Allen Chan, the chairman. “Our financial statements have been audited by Ernst & Young a leading international audit firm….”

Its board appointed a special committee of three directors, all Canadians who served on the company’s audit committee and including a former Ernst partner, to investigate. The committee hired PricewaterhouseCoopers, another member of the Big Four.

Investors seemed confused. After the plunge of last week, the shares bounced around on extremely heavy volume this week. They rose a bit on Thursday to 5.15 Canadian dollars ($5.26), but were still down 72 percent from the price of 18.21 Canadian dollars just before the charges were aired last week.

Moody’s said it will review its ratings and “seek to assess the veracity of the claims” made by Muddy Waters. It gave details of what it would check.

But Ernst was mute, unwilling to either defend its work or discuss how it had reached its now-questioned conclusion that the financial statements “present fairly” the company’s condition. Investors who relied on the audit will just have to wait.

“It would be inappropriate to make any comment while the work of the special committee is ongoing,” said Amanda Olliver, a spokeswoman for the audit firm in Toronto. “In any event,” she added, “our professional obligations prevent us from speaking about client matters.”

Economy is Still Choking on Housing — When Will Obama Act?

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

EDITOR’S NOTE: I am tired of reading about how economists express surprise at the sluggish economy. The same goes for when they express hope at slightest uptick in any index that is followed, none of which are real representations of economic activity. As the recent new York Times Editorial stated, as housing goes, so goes the economy. Housing is corrupted by the ongoing fraud being perpetrated by Wall Street. We have fraudulent loans compounded by fraudulent foreclosures, covered over with the appearance of having modification and short-sale programs that fall short of any reasonable expectations. We have a synthetic inventory of homes for sale or in the pipeline that are said to be owned by the banks but legally are still owned by the homeowners who were victims of fraudulent lending, fraudulent foreclosures, fraudulent auctions and other violations of statutory and common law.

The solution lies in housing and being honest about it, going on the facts and getting rid of ideology that creates the myth of a false moral dilemma. Pull back the curtain, let the facts roll in and apply existing law. Stop assuming that the obligation is in default just because some third party comes in and says so. Stop assuming that the obligation still exists.

  • Stop assuming that the payments weren’t being made to the investor -lender even as the forecloser declared a default.
  • Just because the homeowner-borrower didn’t make a payment doesn’t mean the payment was due and doesn’t mean that the payment was not received by the creditor.
  • Stop assuming that the foreclosure paperwork is just a snafu and take it for what it is — intentional fabrication and forgery in support of a fraudulent scheme for the banks to get a free house damaging both the investors who put up money and the borrowers who put up their homes.
  • And stop assuming that just because a bank shows up through counsel that they are entitled to buy the property at auction without paying any money and without being the actual creditor; their credit bid is a nullity.

Stop throwing people out of their homes without any evidence that it is legally right and proper to do so. And restore people to their homes with whatever equity is left in the home after Wall Street has trashed the housing market and took down the economy with it. You want an economic recovery? Give the homes back to their real owners and make any would-be forecloser prove their case with real evidence. You’ll end up with virtually no foreclosures and an economy in which the middle class wealth has been restored to the tune of trillions of dollars, without a penny coming out of the treasury from taxpayer money. Now that is a stimulus I can live with.

The Economy Is Wavering. Does Washington Notice?


The latest economic numbers have not been good. Jobless claims rose last week, the Labor Department said on Thursday. Another report showed that economic growth at the start of the year was no faster than the Commerce Department initially reported — “a real surprise,” said Ian Shepherdson of High Frequency Economics.

Perhaps the most worrisome number was the one Macroeconomic Advisers released on Wednesday. That firm tries to estimate the growth rate of the current quarter in real time, and it now says annualized second-quarter growth is running at only 2.8 percent, up from 1.8 percent in the first quarter. Not so long ago, the firm’s economists thought second-quarter growth would be almost 4 percent.

An economy that is growing this slowly will not add jobs quickly. For the next couple of months, employment growth could slow from about 230,000 recently to something like 150,000 jobs a month, only slightly faster than normal population growth. That is certainly not fast enough to make a big dent in the still huge number of unemployed people.

Are any policy makers paying attention?

When the economy weakened in the first quarter, Ben S. Bernanke, the Federal Reserve chairman, and Obama administration officials said the slowdown was just a blip and growth would soon pick up. Today, many Wall Street economists are saying much the same thing: any day now, things will improve.

Maybe they will. But the history of financial crises shows that they produce weak, uneven recoveries, with unemployment remaining high for years. That history also shows that aggressive government action — the kind of action Washington took in 2008 and 2009, but not for most of 2010 — can make the situation much better than it otherwise would be.

The latest signs of weakness suggest that policy makers remain too sanguine. It is easy to see how the rest of 2011 could end up disappointing, much as 2010 did.

For one thing, there are specific forces holding back growth. Oil prices, though down in the last few weeks, are still 40 percent higher than a year ago and continue to siphon money away from the American economy to overseas economies. When I filled my gas tank last weekend, it cost $74, more than I think I have ever paid.

The housing market also remains in terrible shape. Europe is still struggling with its debt troubles. State and local governments continue to cut jobs.

These specific problems worsen the broader insecurity of both households and business executives — insecurity that is typical in the wake of a financial crisis. Long after the crisis itself is over, businesses are slow to hire and quick to fire. Thursday’s report on new jobless claims showed that they rose by 10,000, to 424,000, which is not a number associated with a solid recovery.

“Labor market gains may be faltering somewhat,” Joshua Shapiro, chief United States economist at MFR, a New York research firm, wrote to clients after the report’s release.

For households, already coping with miserly wage growth, that is another reason not to spend. The Commerce Department’s updated gross domestic product figures showed that consumer spending grew at an annual inflation-adjusted rate of only 2.2 percent in the first quarter, not the 2.7 percent rate the department initially reported.

The economy does still have some bright spots, and they could grow in coming months, just as policy makers and private forecasters are, once again, predicting. If North Africa and the Middle East do not become more chaotic, oil prices may continue falling. Vehicle production will probably pick up as the parts shortages caused by the Japanese earthquake end. The falling dollar will continue to help American exporters, as well as any domestic businesses that compete with foreign importers.

But there is no doubt that the economy has performed considerably worse in the last few months than most policy makers expected. The situation is now uncomfortably similar to last year’s, when the economy sped up in the first few months only to stall in the spring and summer.

The most sensible response for Washington would be to begin thinking more seriously about taking out an insurance policy on the recovery. The Fed could stop worrying so much about inflation, which remains historically low, and look at how else it might encourage spending. As Mr. Bernanke has said before, the Fed “retains considerable power” to lift growth.

The White House and Congress, meanwhile, could begin talking about extending last year’s temporary extension of business tax credits, household tax cuts and jobless benefits beyond Dec. 31. It would be easy enough to pair such an extension with longer-term deficit reduction.

Any temporary measures will eventually need to lapse, of course. But the current moment remains a textbook time to use them — when the economy is struggling to emerge from the aftermath of a terrible recession. The one thing not to do is to turn to deficit reduction too quickly after a crisis, as Europe is painfully learning.

Almost four years after the mortgage market first began to quiver and unemployment began to rise, Americans are understandably eager for good economic news. But wishing for it doesn’t make it so. You have to wonder whether the people in Washington have learned that lesson yet.


NY Times Editorial: As Housing Goes, So Goes the Economy

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

EDITOR’S NOTE: Where were they three years ago? Well it is still a good thing that the lead editorial connects the dots. The housing market is continuing to decline and it will continue as long as we regard the foreclosures as having any color of legitimacy. For decades housing has been the bell-weather of our economy, the driving force for jobs and innovation. This farce, wherein the banks are pretending to have securitized loans to cover up simple theft of historically huge sums of money draining the life out of the economy, must end or we are condemned to servitude with the Banks as our Masters.

NY Times editorial May 25, 2011:

The Great Recession began with the bursting of the housing bubble. Today, nearly two years after the recession officially ended, the housing market is still in trouble.

At times, it has looked as if things were improving, like last year’s jump in sales because of a temporary homebuyer’s tax credit or the recent rise in new-home sales from near-record lows. But, over all, sales and construction have been flat for two years, while prices, driven down by foreclosures, are plumbing new depths.

Even a recent drop in foreclosure filings isn’t a reason for optimism. April was the seventh straight decline in monthly filings — which include notices of default, auction and bank repossessions — according to RealtyTrac, a real estate data provider. But the decline appears to be largely the result of banks slowing the foreclosure process in order to keep properties off the market until prices recover. The catch is that prices are unlikely to recover as long as millions of foreclosures are imminent.

This isn’t just bad news for homeowners. Selling and building of houses are one of the economy’s most powerful engines. Until the market recovers, the entire recovery is imperiled. Falling home equity dents consumer confidence, making things even worse.

Since the problems in housing are not self-curing, a government fix is in order. But the Obama administration’s main antiforeclosure effort has fallen far short of its goal to modify three million to four million troubled loans.

Its basic flaw is that participation by the banks is voluntary. Most have joined the program but face no real pressure to meet its goals. Another big problem is that banks often do not own the troubled loans; rather, they service the loans for investors who own them. As servicers — in charge of collecting payments and managing defaults — banks can make more from fees and charges on defaulted loans than on modifications. Not surprisingly, defaults proceed and modifications lag. Banks win. Homeowners and investors lose. The economy suffers.

That does not have to be the end of the story. In a recent hearing in a Senate banking subcommittee, witnesses proposed new laws and regulations to change loan-servicing standards in ways that would prevent banks from putting their interests above those of everyone else.

For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.

National servicing standards could succeed where antiforeclosure programs have failed, namely, in compelling banks to help clean up the mess they did so much to create.

In the Senate, Democrats Jack Reed and Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio have introduced bills to establish standards. The new Consumer Financial Protection Bureau can also impose servicing rules. The Obama administration should champion national standards, and Congress and regulators should act — soon.

Cal AG Forms Special Task Force on Bankers’ Fraud — Says Fraud Cost the State $640 Billion

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity. “There is a direct connection” between mortgage fraud “and the issue that we are challenged with in terms of our state budget crisis.”

Editor’s Note: It’s about time someone actually said it. Maybe some other AG’s will take notice that a knowledgeable person who has been investigating the pretender lenders thinks that the budget deficits are directly traceable to illegal activities by the banks.

As I have said repeatedly on this blog, the deficit only exists because we let it exist. If the AG’s do their job, if the homeowners fight for their homes ON THE FACTS as well as existing law, the entire paradigm changes and the wealth that has been stolen from investors, homeowners and taxpayers in every state can be brought back where it belongs. Why are we letting the banks hold onto trillions of dollars that belongs in our economy, not in their pockets?

California creating mortgage fraud task force

From LA Times

The team of 17 lawyers and eight special agents from the state Department of Justice will pursue corporate fraud, scams and fraudulent lending practices, Atty. Gen. Kamala Harris says.

California sets up mortgage fraud task forceCalifornia Atty. Gen. Kamala Harris says the state’s Mortgage Fraud Strike Force will go after all aspects of the mortgage-lending business. (Associated Press / March 16, 2011)
By Alejandro Lazo, Los Angeles TimesMay 23, 2011, 12:02 a.m.

California Atty. Gen. Kamala Harris, saying that years of unscrupulous lending still haunts the state, is creating a 25-person task force to target mortgage fraud of any size — from small operations that preyed on troubled borrowers to corporations that sold risky loans as safe investments.

The team of 17 lawyers and eight special agents from the state Department of Justice will pursue three major areas, Harris said in an interview:

Corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. Harris said her office plans to prosecute some cases under California’s False Claims Act, which she described as “one of those very powerful tools that California uniquely has … to pursue, in essence, what are false claims that are submitted to the state.”

•Scams, including instances in which consultants, lawyers and others took fees from people in foreclosure, saying they would help the homeowners get loan modifications or other remedies, but delivered nothing.

•Fraudulent lending practices, including deceptive marketing, failure to fully disclose loan terms and qualifying people for loans who couldn’t afford the terms.

Harris said the mortgage fraud that ultimately led to the housing crash continues to be a drag on the state, causing huge losses in jobs, property values and state revenues.

“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity. “There is a direct connection” between mortgage fraud “and the issue that we are challenged with in terms of our state budget crisis.”

Creation of the state’s Mortgage Fraud Strike Force, which Harris will announce at a news conference Monday in Los Angeles with Mayor Antonio Villaraigosa, comes as other states turn up the heat on the lending industry.

New York Atty. Gen. Eric Schneiderman is seeking records from three major Wall Street banks as part of a broad investigation into the mortgage crisis. Also, a months-long investigation by all 50 state attorneys general into the foreclosure practices of the nation’s five largest mortgage servicers is continuing.

Harris said her initiative was distinct from the multistate investigation because it would go after all aspects of the mortgage-lending business. Harris, formerly San Francisco’s district attorney, made a campaign promise last year when running for attorney general that she would crack down on mortgage fraud.

Many Wall Street financial institutions — private equity firms, hedge funds and banks — bundled often poor-quality mortgage loans into securities during the boom years and sold them to major investors, including pension funds. That resulted in billions of dollars in losses when borrowers defaulted on the loans, triggering the financial crisis.

Harris said that although successful prosecutions of major players in the mortgage meltdown have been difficult, the severity of the crisis called for a tough-minded approach to mortgage fraud, one that could target executives of major financial institutions.

“If the evidence leads us there, no case will be too big or too small to pursue,” Harris said. “There remain millions of people affected by the mortgage crisis.”

Angelo R. Mozilo, whose Calabasas-based Countrywide Financial Corp. was a major underwriter of risky subprime loans, agreed to a $67.5-million civil settlement with federal regulators but was not prosecuted criminally, despite a nearly three-year investigation by the Justice Department. Countrywide was acquired by Bank of America Corp. in 2008.

Harris’ office reached a $6.5-million settlement this year with Mozilo and another former executive of Countrywide who the state had accused of predatory lending. Consumer advocates decried that settlement as far too small to be meaningful.

“The burden of proof in a criminal case is very high,” Los Angeles defense attorney Jan Handzlik said. “It would be necessary for the AG to prove beyond a reasonable doubt that the mortgage executives had knowledge of the fraud and acted with a criminal intent.”

Handzlik added that such proof is difficult “when those executives are relying on the representation of numerous other institutions such as the ratings agencies, the lenders who gave out the mortgages in the first place, the insurance companies that backed these securities and so forth.”

William K. Black, a University of Missouri-Kansas City law professor and an aggressive regulator of the savings and loan industry after its crisis in the 1980s, said the state prosecutors could be successful if they carefully chose their targets.

Black asserted that the federal government has the means to pursue these cases but hasn’t shown the will.

“The success rate in the savings and loan cases, despite the fact that they were more complex … was 90%, and this was against the best criminal defense attorneys in America,” Black said.


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


EDITOR’S COMMENT: DICK DURBIN said it when the democratically controlled senate and house refused to even inquire about the real nature of the securitization illusion — “The Banks own the place.” He was of course referring to the incredible amount of influence of the banking lobby fueled by hundreds of millions of dollars in campaign cash and other benefits. Now SISA — Stated Income, Stated Assets — has acquired new meaning, this time for the banks, who are using it as fraudulently as the mortgage brokers who “corrected” homeowner applications for loans to reflect the amount of income and assets needed to justify the underwriting of the loan. Now it means to justify the stock prices, management jobs, and business viability of broken banks.

And with nearly 1 million homes “owned” by the banks, the housing market looks weaker indefinitely. How could these prices and the prospect of lower prices be possible? It’s easy. The whole thing is based upon a false premise that nobody wants to face — the banks do NOT own those properties. They are legally owned by the homeowners who were the subject of false and fabricated foreclosures initiated by non-creditors with no skin in the game except the desire to get a “free house.” They never loaned the money, they never bought the “loans,” the loans were defective from the start, and they never had the right to purchase those homes with a non-cash (credit) bid at auction because the auction was fraudulently obtained and the credit bid was devoid of any reality.


Ask any real estate professional and they won’t be able to come up with a fundamental reason why the housing market went down this far nor why the prospects for the housing market are still lower. Ask them or any economist, and the answer slowly emerges by process of elimination — there is no fundamental reason for this situation because it isn’t real. You want the economy to recover? Remove the illusion of securitization of loans, unless they are proven under existing laws and existing rules of evidence, and then the unthinkable happens — the wealth that was stolen from the American middle class turns out not to have been stolen after all — the victim is simply giving up what was stolen because the victim is convinced the scam was real.

Let’s see what happens as the Title Companies start to tackle this issue because they have potential liability in the trillions, which is money they don’t have. The simplest way out for them is to state that there is no claim against the title policy because the loss never occurred. If the homeowner still owns the house then who is to be paid. If the “lender” at closing (pretender lender” never loaned any money, there is no loss. If any other named payee on the insurance policy lost no money, then the title policy does not come into play.

If you want a stimulus to the economy, the just tell the truth. The mortgages are fatally defective, they were never transferred, they were never intended to be transferred, and borrowers’ undocumented obligations have long since been extinguished by the feeding frenzy on Wall Street from the money advanced by investors and paid by borrowers, federal bailouts, insurance, credit default swaps, guarantees and settlements. Check it out yourself. This sounds crazy because it is — it is crazy-making by the world’s largest financial institutions (on paper) when in fact they are not large and not even viable if their auditors would just do their job and tell the truth.

How far will this go, dragging housing prices and the the prospects of recovery down with them? It looks like the answer is it will go as far as we let them.

May 22, 2011

As Lenders Hold Homes in Foreclosure, Sales Are Hurt


EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.

The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.

“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”

A drive through the sprawling subdivisions outside Phoenix shows the ravages of the real estate collapse. Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors. About 116 lender-owned homes are on the market or under contract in El Mirage, according to local real estate listings.

But that’s just a small fraction of what is to come. An additional 491 houses are either sitting in the lenders’ inventory or are in the foreclosure process. On average, homes in El Mirage sell for $65,300, down 75 percent from the height of the boom in July 2006, according to the Cromford Report, a Phoenix-area real estate data provider. Real estate agents and market analysts say those ultra-cheap prices have recently started attracting first-time buyers as well as investors looking for several properties at once.

Lenders have also been more willing to let distressed borrowers sidestep foreclosure by selling homes for a loss. That has accelerated the pace of sales in the area and even caused prices to slowly rise in the last two months, but realty agents worry about all the distressed homes that are coming down the pike.

“My biggest fear right now is that the supply has been artificially restricted,” said Jayson Meyerovitz, a local broker. “They can’t just sit there forever. If so many houses hit the market, what is going to happen then?”

The major lenders say they are not deliberately holding back any foreclosed homes. They say that a long sales process can stigmatize a property and ratchet up maintenance and other costs. But they also do not want to unload properties in a fire sale.

“If we are out there undercutting prices, we are contributing to the downward spiral in market values,” said Eric Will, who oversees distressed home sales for Freddie Mac. “We want to make sure we are helping stabilize communities.”

The biggest reason for the backlog is that it takes longer to sell foreclosed homes, currently an average of 176 days — and that’s after the 400 days it takes for lenders to foreclose. After drawing government scrutiny over improper foreclosures practices last fall, many big lenders have slowed their operations in order to check the paperwork, and in two dozen or so states they halted them for months.

Conscious of their image, many lenders have recently started telling real estate agents to be more lenient to renters who happen to live in a foreclosed home and give them extra time to move out before changing the locks.

“Wells Fargo has sent me back knocking on doors two or three times, offering to give renters money if they cooperate with us,” said Claude A. Worrell, a longtime real estate agent from Minneapolis who specializes in selling bank-owned property. “It’s a lot different than it used to be.”

Realty agents and buyers say the lenders are simply overwhelmed. Just as lenders were ill-prepared to handle the flood of foreclosures, they do not have the staff and infrastructure to manage and sell this much property.

Most of the major lenders outsourced almost every part of the process, be it sales or repairs. Some agents complain that lender-owned home listings are routinely out of date, that properties are overpriced by as much as 10 percent, and that lenders take days or longer to accept an offer.

The silver lining for home lenders, however, is that the number of new foreclosures and recent borrowers falling behind on their payments by three months or longer is shrinking.

“If they are able to manage through the next 12 to 18 months,” said Mr. Zandi, the Moody’s Analytics economist, “they will be in really good shape.”


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


EDITOR’S NOTE: Maybe this will wipe that arrogant smirk off their faces. Again the investigations are renewed after it seemed they were giving up. Just as the financial regulatory agencies followed up an SEC settlement with Goldman, they all, including the SEC, started another barrage of subpoenas. Now the NY Attorney General is going the same thing, starting up anew after Andrew Cuomo, his predecessor, had dealt with the banks up to point that was good step in the right direction but fell far short of the relief needed and the restitution required.

The language of the world of prosecution has changed from “derivatives” to questionable securitization practices” signaling a large shift in the depth of their understanding of what happened and even whether the securitization of loans was and remains an illusion, leaving the homes free from encumbrance and the debts largely paid by bailout, insurance, guarantees and other hedge contracts.


BOTTOM LINE: The housing crisis could be over in twelve minutes and the budget deficit could be over in a year with a full economic recovery underway if we just stop listening to the spin of the megabanks, about how if we put them in jail the financial system will be crushed — and we start looking at real evidence about what really happened.

May 16, 2011

New York Investigates Banks’ Role in Fiscal Crisis


The New York attorney general has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.

Officials in Eric T. Schneiderman’s, office have also requested meetings with representatives from Bank of America, Goldman Sachs and Morgan Stanley, according to people briefed on the matter who were not authorized to speak publicly. The inquiry appears to be quite broad, with the attorney general’s requests for information covering many aspects of the banks’ loan pooling operations. They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies.

It is unclear which parts of the byzantine securitization process Mr. Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages.

Several civil suits have been filed by federal and state regulators since the financial crisis erupted in 2008, some of which have generated settlements and fines, most prominently a $550 million deal between Goldman Sachs and the Securities and Exchange Commission.

But even more questions have been raised in private lawsuits filed against the banks by investors and others who say they were victimized by questionable securitization practices. Some litigants have contended, for example, that the banks dumped loans they knew to be troubled into securities and then misled investors about the quality of those underlying mortgages when selling the investments.

The possibility has also been raised that the banks did not disclose to mortgage insurers the risks in the instruments they were agreeing to insure against default. Another potential area of inquiry — the billions of dollars in credit extended by Wall Street to aggressive mortgage lenders that allowed them to continue making questionable loans far longer than they otherwise could have done.

“Part of what prosecutors have the advantage of doing right now, here as elsewhere, is watching the civil suits play out as different parties fight over who bears the loss,” said Daniel C. Richman, a professor of law at Columbia. “That’s a very productive source of information.”

Officials at Bank of America and Goldman Sachs declined to comment about the investigation; Morgan Stanley did not respond to a request for comment.

During the mortgage boom, Wall Street firms bundled hundreds of billions of dollars in home loans into securities that they sold profitably to investors. After the real estate bubble burst, the perception took hold that the securitization process as performed by the major investment banks contributed to the losses generated in the crisis.

Critics contend that Wall Street’s securitization machine masked the existence of risky home loans and encouraged reckless lending because pooling the loans and selling them off allowed many participants to avoid responsibility for the losses that followed.

The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.

By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions — that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis. Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.

It is unclear whether Mr. Schneiderman’s investigation will be pursued as a criminal or civil matter. In the last few months, the office’s staff has been expanding. In March, Marc B. Minor, former head of the securities division for the New Jersey attorney general, was named bureau chief of the investor protection unit in the New York attorney general’s office.

Early in the financial crisis, Andrew M. Cuomo, the governor of New York who preceded Mr. Schneiderman as attorney general, began investigating Wall Street’s role in the debacle. But those inquiries did not result in any cases filed against the major banks. Nevertheless, some material turned over to Mr. Cuomo’s investigators may turn out to be helpful to Mr. Schneiderman’s inquiry.


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


EDITORIAL NOTE: Following up on my article yesterday about who owns the debt, some clarity is introduced by the filing of what will be a series of lawsuits against the underwriting Wall Street brokerage houses that sold mortgage bonds,  violated the provisions of the documents that created the mortgage bonds, and then declared fictitious losses for themselves alleging that the mortgage pools had failed because the mortgagors (homeowners) weren’t paying their mortgages.

These Wall Street firms were not in the business of lending money, nor have they purchased any homeowner obligation, yet they are the very same source of sham entities that are initiating foreclosure process all over the country and submitting credit bids to acquire bids from hapless homeowners who don’t realize that their debt was paid by AIG and others, courtesy of of the U.S. government.

The payoff of these loan obligations was accomplished by the payoff of the mortgage bond that was sold to unsuspecting investor lenders who thought they were buying into a lending pool wherein virtually all the money they were advancing was going to fund mortgages or buy mortgages. They sure did provide the capital that funded the mortgage, but they were never even given the courtesy of a nod, much disclosure at the table where the homeowner signed papers allegedly describing his loan transaction, but which referred to a transaction with a third party entity that wasn’t lending anything and was simply pretending to be the lender.

Using the money of the investor-lenders these third party firms created by a securitization team, pretended to  be the source of funds and did not disclose to the borrower the true identity of the creditor nor the true terms of the transaction with the investor-lender. And using the promise of non-existent mortgages, these firms managed to convince the institutional investors (pension funds, etc.) to advance trillions of dollars, only part of which was used to fund loans, the rest being used to accrue completely unconscionable fees and yield spread premiums that were caused by violating industry standard underwriting standards for home mortgage loans.

The Wall Street firms managed to obtain insurance contracts from AIG and others in which they paid a very small fee for a very large payoff. In the securitization documents and the contracts with the insurers, they had reserved to themselves the right to declare a pool to have failed or be devalued thus triggering payments on insurance, credit default swaps and other third party sources payable tot he brokerage firm and not the client that had advanced the funds. These contracts specifically excluded subrogation, which means that the insurer or counter-party on the credit default swap was entitled to payment on these obligations but that the insurer or counter-party would not have any right to pursue the homeowner or anyone else to recover on their losses. Thus the obligation was paid to the brokerage firm who is telling investors that they they were NOT the agents of the investors when they received those payments, but telling the courts that they ARE the agents of the investors for purposes of foreclosure.

But in fact, those payments satisfied the underlying obligations and in many cases extinguished them, regardless of whether the homeowner was paying the mortgage payment (to a party or servicer that was in turn not turning over over the proper amount to the loan pool). The AIG suit shows that AIG is seeking damages for fraud, because now they realize that the mortgage bonds were cooked well done and all the way through and were the instruments of fraud against the investors and insurers. And THAT in turn means they are conceding that they neither have nor want subrogation rights and like the investors, they are disclaiming any interest in the underlying loan obligations of homeowners, regardless of whether they are paying SOMEONE a mortgage payment or not.

The bottom line is that Wall Street stepped on a rake in its run for greed. Now the tide is turning and they are moving into the wrong position – one of potential liability in the trillions for the bogus mortgage bonds sold and the trillions they took in “bailout” when they had not lost any money in any mortgage loan transaction. The answer to the question of who owns the debt, while not completely solved is partially solved thus far: it is nobody because the payments made did not include subrogation.

A.I.G. to Sue 2 Firms to Recover Some Losses


The American International Group, the giant insurer rescued by the federal government during the financial crisis, on Thursday will file the first of what could be a series of lawsuits against Wall Street firms, contending that it was the victim of fraud.

The initial suit, against ICP Asset Management and Moore Capital, will claim that A.I.G. suffered losses insuring mortgage securities created by ICP. The suit says ICP manipulated those securities in a way that benefited itself and Moore Capital, which is not accused of fraud, but harmed A.I.G.

Though the insurer received a hefty bailout, much of that money ultimately flowed to banks. Now, A.I.G. is trying to “recoup potentially billions of dollars from the fraudulent conduct of these defendants and other parties,” according to a copy of the suit obtained by The New York Times.

Because A.I.G. is still largely owned by the government, taxpayers would share in any recovery. A.I.G. informed the Treasury Department of the suit on Wednesday but made the decision to sue on its own, according to a person with knowledge of the litigation. A.I.G. did not notify the Federal Reserve Bank of New York, which orchestrated its $182 billion bailout in 2008, because the company has repaid the Fed and is no longer tightly overseen by that regulator.

As part of the bailout, A.I.G. waived its right to sue banks over most of the mortgage securities that it had insured through complex financial contracts known as derivatives. But the company did not give up its right to sue the managers of those deals — like ICP — nor did it cede rights to sue over $40 billion of mortgage bonds that it had purchased outright from banks. These bonds were responsible for a substantial portion of the company’s losses and were held in a unit that handled securities lending, separate from the derivatives unit.

A.I.G. is preparing several suits against banks, like Bank of America and Goldman Sachs, that created the $40 billion in mortgage bonds, according to the person with knowledge of the litigation, who was not authorized to talk about it publicly. The company says it believes the banks issued misleading statements about the quality of the mortgages within those bonds, the person said.

Mark Herr, a spokesman for A.I.G., declined to comment on the company’s planned cases against big banks — which could be settled before going to court — or the ICP case to be filed on Thursday.

A.I.G.’s suit against ICP mirrors a lawsuit filed by the Securities and Exchange Commission last summer. The commission cited four mortgage securities, including two deals known as Triaxx, that were insured by A.I.G. ICP caused Triaxx to overpay for mortgage bonds to benefit itself and a favored client, the commission said.

ICP has denied the S.E.C.’s allegations in court filings and said that the company acted in good faith, did not make misleading statements and did not intend to defraud its investors. Margaret Keeley, a lawyer for ICP, declined to comment on the S.E.C.’s allegations on Wednesday. Ms. Keeley and ICP have not seen the A.I.G. suit.

The S.E.C. did not identify Moore, a large hedge fund in New York run by Louis Bacon, or accuse it of wrongdoing. Moore benefited from some actions of ICP, however, and should give up its gains, the insurer argues. Two spokesmen for Moore, which was also unaware of A.I.G.’s complaint, declined to comment.

A.I.G. believes other investors made similar profits and plans to sue them as well, once it learns their identities, the person briefed on the litigation said.

ICP may be one of few lawsuits brought by A.I.G. involving its derivatives unit called A.I.G. Financial Products, based in Wilton, Conn. Another derivatives case could be brought against Goldman involving seven of its deals known as Abacus. A.I.G. will have trouble suing over most of its other derivatives deals, because when it canceled those contracts, it signed a legal waiver agreeing to release the banks on the other side of the contracts from any future legal claims related to those contracts.

A.I.G. is said to believe it will be far easier to pursue lawsuits related to the unit that ran its securities lending operation because that unit had bought the bonds outright and did not renegotiate them as part of its 2008 bailout. The unit sought to make profits for A.I.G. by using shares of stock and bonds owned by its life insurance subsidiaries. To do so, A.I.G. lent shares to banks and hedge funds in exchange for cash. Then A.I.G. reinvested much of that cash in mortgage bonds that it believed were safe bets. Like many investors, A.I.G. was surprised when the bonds — called residential-mortgage-backed securities — plummeted in value in 2008.

These future lawsuits will focus on misrepresentations that A.I.G. claims banks made when selling the mortgage bonds. Bank of America has the largest exposure because it acquired Countrywide and Merrill Lynch. Other banks that underwrote bonds in A.I.G.’s securities lending unit and may be sued are Goldman, Morgan Stanley and Bear Stearns, which is now owned by JPMorgan Chase. The banks may try to reach settlements with A.I.G. to avoid going to court.

The law firm representing A.I.G., Quinn Emanuel, has filed other suits involving mortgage bonds on behalf of other insurers. A.I.G.’s suits against banks are likely to mimic those cases, which allege misrepresentations to investors over the quality of loans inside the bonds, the person with knowledge of the matter said.

In an unusual twist, A.I.G. no longer owns the mortgage bonds that will be the subject of the suits. The company sold them to the New York Federal Reserve in 2008 in a deal called “Maiden Lane II.” At the time of that sale, A.I.G. was paid about half of the bonds’ face value — locking in a large loss.

The road map for A.I.G.’s lawsuit against ICP was outlined by the S.E.C. Each case involves two collateralized debt obligations — bundles of mortgage bonds — called Triaxx that were worth $7.7 billion. When ICP created the deals in 2006, it partnered with A.I.G. to insure the performance of the deal. That allowed banks like UBS and Goldman — the largest participants — to buy both positive bets on Triaxx and insurance from A.I.G. in case it failed.

ICP managed lots of funds and other deals. A.I.G. says in its suit that those deals presented conflicts. ICP was supposed to ask A.I.G. for permission before it put new bonds inside Triaxx, the suit says. But as the mortgage market worsened, the suit says, ICP failed to do so on several occasions. In addition, A.I.G. says that ICP used Triaxx to help another one of its funds meet a demand for cash. Furthermore, ICP earned money from Triaxx longer than it should have because it overcharged Triaxx for certain assets, A.I.G. says.

A.I.G. is seeking $350 million in damages from ICP as well as what it calls a “windfall” made by Moore.

Mary Cochrane: Wells Fargo Asset Securities Corp [ formerly Norwest Asset Securities Corp ]

submitted by Mary Cochrane

Let’s see Bet Belfield Officer 655 Registrants for Wells Fargo Bank NA, Sioux Falls SD
part of Wells Fargo & Co/MN formerly known as Norwest Corporation (you know prior to 11/2/98)

Filed by the most interesting Filing Agent of them all on all of the dirty deeds 10K’s where Wells FArgo Bank NA is TRUTSEE moving currency to the window:
Norwest Asset Sec Corp Mort Ps Thr Cert Ser 1998-1 Trust – with 25,837 FILINGS!!!!
Office Address Map… Mail Address Map…
C/O Norwest Bank Minnesota N A
1100 Broken Land Parkway
Columbai, Maryland 21703
U.S.A. Norwest Bank Minnesota N A
1100 Broken Land Parkway
Columbai, Maryland 21703

Phone Number Incorporated In IRS Number Fiscal-Year End SEC CIK #
1-301-696-7900 New York, U.S.A. – 12/31 1056404

SIC Code Industry Source As Of
6189 Asset-Backed Securities (ABSs) SEC 12/20/99

Remember I’ve shared and will continue to share until someone hears me… Hello CONGRESS ANYONE HOME?

Anytime Congressman Scott Garrett you say No and I say Why and you say I don’t know…. Ohhhhh but I do and would that be a problem for you? Word on the streets is that Congressman Scott Garrett wants to be Barney Frank.

3/10/11 Wells Fargo Asset Securities Corp [ formerly Norwest Asset Securities Corp ]

OK in 1996, Norwest Corporation announced their newly acquired affiliate (largest producer of non-conforming mortgage products) … Norwest Asset Securities Corp was renamed to Wells Fargo Asset Securities Corp.

All of the UNIQUE consumer transactions where money pushed ot the window filings are not public rather private thru this uniqe Norwest Asset Sec….Trust. Unless you click on the name you’d never know and unless you click on Registrant you’d never know. And unless you studied Wells Fargo & Co. on the SEC and FFIEC you’d never know. Am I showing off. You bet. Am I in stranger danger you bet!

Formerly Assigned On
Norwest Asset Securities Corp 7/17/96
Norwest Asset Securties Corp 6/11/96

Office Address Map… Mail Address Map…
7485 New Horizon Way
Frederick, Maryland 21703
U.S.A. 7485 New Horizon Way
Frederidk, Maryland 21703

Phone Number Incorporated In IRS Number Fiscal-Year End SEC CIK #
1-301-846-8881 Delaware, U.S.A. 52-1972128 12/31 1011663

SIC Code Industry Source As Of
6189 Asset-Backed Securities (ABSs) SEC 3/10/11

Registration to sell securities offering.
For those who may be interested in Article of Incorporation / Organization By-Laws filed 4/3/96
Filing Agent Merril Corp.

(Exact name of registrant as specified in governing instruments)

(410) 884-2000
(Address of principal executive offices)

(515) 221-7520
(Name and address of agent for service)

(212) 504-6000
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/

Prospectus Supplement
Title of Securities: Mortgage Pass-Through Certificates, Series 199-Certificates (the “Series 199- Certificates” or the “Certificates”).

Seller: Norwest Asset Securities Corporation
Participant: Norwest Mortgage, Inc.
Servicing Servicers – Norwest Mortgage and
Master Servicer- Norwest Bank Minnesota, National Association “Norwest Bank” is a direct, wholly owned subsidiary of Norwest Corporation and is an affiliate of the SELLER.

Master Servicer will
(a) monitor certain aspects of the servicing of the mortgagre loans
(b) cause the mortgage loans to be servied in the event that a Servicer is terminated and a successor Servicer is not appointed,
(c) provide administrative services with respect to the Certificates,
(d) provide certain reports to the Trustee regarding the Mortgage Loans and the Certificates
(e) made advances, to th eextent described herein with respect ot the Mortgage Loans if a SERVICER other than Norwest Mortgage fails to make a required advance. The Master Servicer will be entitled to
(i) a monthly Master Servicing FEE with respect to each Mortgage Loan, payable on each Distribution Date, in an amount equal to one-twelfth of a fixed percentage per annum multiplied by the Scheduled principal balance of such Mortgage Loan…

Trustee: A National Banking Assocaition

In addition to performing the normal duties of trusee with respect to the Certificates, make advances to the extent described herin, with respect to the Mortgage Loans if Norwest Mortgage is Servicer, as Servicer, fails to make a required adevance.

It is a condition to the issuance that the Rating of the Certificates offered by this Prospectus Supplement and the Prospectus that they shall ‘have been’ rated (Aaa by Moody’s Investors Service, ind
“AAA” by Fitch Investors Service, LP
Duff & Phelps Credit Rating Co
and AAA and AAAr by Standard and Poors and Aa by Moody’s…..

Important sorry copied entire DTC section for this is how the 1996 joint ventures creating the largest producer of non-conforming mortgage products happenstanced:

The Offered Certificates, other than the Class A-R, Class AP and Class M Certificates, will be issued in book-entry form, through the facilities of The Depository Trust Company (“DTC”).

These Certificates are referred to collectively in this Prospectus Supplement as the “Book-Entry Certificates.”

An investor in a Subclass of Book-Entry Certificates will not receive a physical certificate representing its ownership interest in such Book-Entry Certificates, except under extraordinary circumstances which are discussed in “Description of the Certificates — Book-Entry Form” in the Prospectus.

Instead, DTC will effect payments and transfers by means of its electronic recordkeeping services, acting through certain participating organizations. This may result in certain delays in receipt of distributions by an investor and
may restrict an investor’s ability to pledge its

The rights of investors in the Book-Entry Certificates may generally only be exercised through DTC and its participating organizations. See “Description of the Certificates — Denominations” and “– Book-Entry
Form” in this Prospectus Supplement and “Description of the Certificates — Book-Entry Form” in the Prospectus.

DEFINITIVE FORM. The Class A-R, Class AP and Class M Certificates will each be issued as Definitive Certificates. See “Description of the Certificates — Denominations” and “– Definitive Form” in this Prospectus Supplement and “Description of the
Certificates — Definitive Form” in the Prospectus.

The Mortgage Loans, which are the
source of distributions to holders of the Series 199 -Certificates, will consist of conventional, …,
residential first mortgage loans, having
original terms to stated maturity of approximately
years, which may include loans secured by shares issued by cooperative housing corporations.

The Mortgage Loans are expected to have the further specifications set
forth in the following table and under the heading “Description of the Mortgage Loans” in this Prospectus Supplement.

Underwriting Standards: Norwest Mortgage Underwritten Loans were generally originated in conformity with Norwest Mortgage’s underwriting standards applied either by Norwest Mortgage or Correspondents to whom Norwest Mortgage had delegated all underwriting functions.

Norwest mortgage’s underwriting standards may have been granted by:
Norwest Mortgage … in the Prospectus.

The Mortgage Loans will have been reviewed by
General Electric Mortgage Insurance Corporation (“GEMICO”) and
United Guarranty Residential Insurance Co (“UGRIC”) respectifely, to ensure compliance with their respective credit, appraisal and underwriting standards.

Neither the Series 199-Certificates nor the Mortgage Loans are insured or guaranteed under a mortgage pool insurance policy issued by GEMICO or UGRIC.

The Pool Certification Underwritten Loans were evaluated by Norwest Mortgage using credit scoring ….rewritten by Norwest Mortgage….re-underwritten.

The BULK PURCHASE UNDERWRITTEN LOANS were purchased by Norwest Mortgage from one or more Correspondents and were underwritten ….

Credit Enhancements:
Shifting-Interest Subordination
In general, the protection afforded the holders of the Senior Certificates by means of this subordination will be effected in two ways: (i) by the preferential right of the holders of the Senior Certificates to receive, prior to any distribution being

Trust Estate as a real estate mortgage investment conduit (the “REMIC”) for federal income tax purposes.

The Regular Certificates (as defined herein) generally will be treated as newly originated debt instruments for federal income tax purposes. Beneficial owners of the Regular Certificates will be required to report income thereon in accordance with the accrual method of

Legal Investment…………….
[The Offered Certificates will constitute “mortgage related securities” for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the “Enhancement Act”) so
long as they are rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization.

As such, the Offered Certificates are legal investments for certain entities to
the extent provided in such act.

However, there are regulatory requirements and considerations applicable to
regulated financial institutions and restrictions on the ability of such institutions to invest in certain types of mortgage rated securities.]

[The Offered Certificates will
not constitute “mortgage related securities” under the Secondary Mortgage Market Enhancement Act of 1984 (the “Enhancement Act”).
Each Subclass of the Book-Entry Certificates initially will be represented
by one physical certificate registered in the name of Cede & Co. (“Cede”), as
nominee of DTC, which will be the “holder” or “Certificateholder” of such
Certificates, as such terms are used herein. No person acquiring an interest in
the Book-Entry Certificates (a “Beneficial Owner”) will be entitled to receive a
Definitive Certificate representing such person’s interest in the Book-Entry
Certificates, except as set forth under “Description of the Certificates —
Book-Entry Form” in the Prospectus.


The net proceeds from the sale of each Series of Certificates will be used
by the Seller for the purchase of the Mortgage Loans represented by the
Certificates of such Series from Norwest Mortgage. It is expected that Norwest
Mortgage will use the proceeds from the sale of the Mortgage Loans to the Seller
for its general business purposes, including, without limitation, the
origination or acquisition of new mortgage loans and the repayment of borrowings
incurred to finance the origination or acquisition of mortgage loans, including
the Mortgage Loans underlying the Certificates of such Series.


Norwest Integrated Structured Assets Inc [ formerly Norwest Structured Assets Inc ]
Wells Fargo Asset Securities Corp [ formerly Norwest Asset Securities Corp ]

Alta Jones

15 Registrants:
IsoRay/Inc [ formerly Century Park Pictures Corp ]
Morgan Stanley Capital I Inc Mort Pass Thro Cert Ser 1996-1
Norwest Asset Sec Corp Mort Pass Thr Cert Ser 1996-06 Trust
Norwest Asset Sec Corp Mort Pass Thro Cert Ser 1996-01 Tr
Norwest Asset Securities Corp Mort Pass Thr Cert Ser 1996-2
Norwest Asset Securities Corp Mort Pass Thr Cert Ser 1996-3
Norwest Asset Securities Corp Mort Pass Thr Cert Ser 1996-4
Norwest Asset Securities Corp Mort Pass Thr Cert Ser 1996-5
Norwest Asset Securities Corp Mort Pass Thr Cert Ser 1996-7
Norwest Asset Securties Corp Mort Pass Thr Cert Ser 1996-08
Norwest Integrated Structured Assets Inc [ formerly Norwest Structured Assets Inc ]
Norwest Mortgage Pass Through Certificates Ser 1996-09 Trust
Structured Asset Securities Corp [ formerly Structured Asset Sec Corp Series 1998-2 ]
Structured Asset Securities Corp Series 1996-5
Wells Fargo Asset Securities Corp [ formerly Norwest Asset Securities Corp ]

Mark Faris
EVP & Director
Sri Surgical Express Inc [ formerly Sterile Recoveries Inc ]
Verecloud/Inc [ formerly Network Cadence/Inc ]
Wells Fargo Asset Securities Corp [ formerly Norwest Asset Securities Corp ]

Senior Vice President and Chief

March 29, 1996
Robert Gorsche
Norwest Integrated Structured Assets Inc [ formerly Norwest Structured Assets Inc ]

Wells Fargo Asset Securities Corp [ formerly Norwest Asset Securities Corp ]

ILLEGAL PARKING: Housing Prices Sinking, Wall Street Stays Rich and Investors Head for Gold for Safety


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

EDITORIAL COMMENT: Practically everyone seems to know that housing prices are going down, the dollar is getting trashed, and our position in world finance is tenuous at best and that the problems are all related. We also know that as the value of the dollar goes down, foreign imports become “cheaper”. Yet the MYTH persists that we must live a lie: that the foreclosures must continue, the volume of stolen houses on the market must be preserved, and that the wealth drained from the middle class and the poor must be sustained — meaning that the money that would otherwise be coming into the economy as consumer spending that would stimulate business spending and hiring will continue to be parked on Wall Street. And of course money that would otherwise constitute taxable commerce will continue to be withheld from Federal, State and local government.

The idea that there can be a bottom to the housing market without resolving the foreclosure mess and the underlying mortgage mess that has corrupted our title system is absurd. This is very simple: if fewer and fewer people have less and less and money and no prospects for improving their condition, and a bleak future buried under a mountain of fictitious debt created by appraisal fraud and predatory lending mixed in with the rest of the ingredients in the fraudulent and illusory securitization scheme, THEN IT FOLLOWS THAT THEY WON’T AND CAN’T BUY ANYTHING, THAT BUSINESSES WILL HOLD BACK SPENDING AND HIRING AND THE SITUATION WILL CONTINUE TO GET WORSE. A few apparent spikes of activity do not constitute a recovery. The foundation is rotting and it won’t stop until we stop lying and tell the truth. LET’S STOP LIVING LIES!!!

HERE’S THE TRUTH: The illusion of securitization and all the compounding fractures caused by fraudulent documentation, misrepresentation, invalid documents has enabled Wall Street to distract us from the very real transaction that took place between the investor and the borrower. Our title and financial system is corrupted and like a crack in the window will continue to spider crack out indefinitely unless we acknowledge that the MONEY transaction was between investor and homeowner, and that those are the people who need to be accorded relief like any victim of fraud. As soon as we do that and forget the Wall Street myth, we will be back on firm footing, the foreclosures will stop, the pension funds will recover far more than they are going to in the current status quo, and the economy will be stimulated to new heights.

Prices Surge as Investors Rush to Safety of Gold


The price of gold rose above $1,500 an ounce on Wednesday for the first time, pushed higher by investor concerns about global inflation, government debt and turmoil in the Arab world.

The prices of other precious metals, like silver and platinum, have also surged recently on what analysts call a flight to quality, when uncertainty about the economic and political outlook sends investors into assets that are perceived to be safest.

“We’re seeing a perfect storm for gold and silver prices,” said Robin Bhar, a senior metals analyst in London for the French bank Crédit Agricole.

The list of factors that have supported the price of precious metals in recent weeks is long. It includes worries about the sustainability of European debt levels and whether countries like Greece will soon default; the weaker dollar; rising inflation in many parts of the world; continued unrest in North Africa and the Middle East, which has also pushed up oil prices; and concern over the United States budget, which also stirred fear in world stock markets earlier in the week.

Stocks recovered somewhat Wednesday after strong earnings reports restored investor confidence, analysts said.

Other factors that are helping precious metals include the buildup to the early autumn wedding season in India, during which families lavish gifts of gold on brides; the longstanding shortage of skilled labor and equipment at certain mines; and the increase in the number of mutual funds investing in gold.

The recent popularity of gold-based exchange-traded funds has also propelled prices of the underlying metal by making it easier for more investors to trade in gold.

Each share in a gold exchange-traded fund represents part of an ounce of bullion, but it comes without the inconvenience of holding the metal or the risk of buying futures and options. Before such funds became popular in the middle of the last decade, individuals who wanted to invest in gold had to buy gold jewelry, coins or bullion — and pay the high security and transaction costs. They could also invest in the shares of gold mining companies — more of an arm’s-length exercise — although the cost of investing in those companies has also risen recently.

In addition to benefiting from increased demand for the underlying metal, gold and silver futures contracts are seen as attractive substitutes for paper investments, given that they can be redeemed for a physical commodity.

“Gold is sometimes a currency, sometimes a commodity and sometimes a store of value,” analysts at Merrill Lynch wrote recently.

Gold for June delivery rose as high as $1,506.50 a troy ounce during trading in New York on Wednesday before settling at $1,498.90, a gain of $3.80 on the day. It was the first time that gold had breached the $1,500 level.

While that represented the highest level in nominal terms, the inflation-adjusted price was higher during the early 1980s, when it was well above $2,000 in current dollars.

Silver prices also climbed on Wednesday. Silver for May delivery climbed 1.2 percent, to $44.46 a troy ounce in New York, after rising as high as $45.40, the highest price since 1980. A troy ounce is 31.1 grams, or 1.1 ounces.

Although gold prices are likely to remain volatile and are vulnerable to retreat as investors take profits on their gains, few analysts are willing to bet on a sharp reversal in the near term. “As the purchasing power of workers in emerging markets increases, we see demand for gold as a commodity increasing over the next few years,” the Merrill Lynch report said.

In a research note published Friday, Goldman Sachs forecast a gold futures price of $1,690 an ounce in 12 months’ time, driven primarily by the assumption that the Federal Reserve’s continued stimulus policy, known as quantitative easing, would keep interest rates low in the United States, bolstering demand for the metal as an investment.

The market for silver, which Mr. Bhar of Crédit Agricole described as a “poor man’s gold,” is far more illiquid than gold. Mr. Bhar said several hedge funds appeared to have been “bullying” the price higher in recent sessions. Prices of palladium and platinum have also climbed.

Less valuable base metals like copper, tin, aluminum and zinc, which are used in large quantities in construction and heavy industries, have also climbed since last year, after plummeting during the financial crisis.

But among these commodities, there have been more divergences, according to Jim Lennon, head of commodity research in London for Macquarie Securities.

Markets for commodities like coking coal, used to make steel, iron ore and copper have been tight, he said, driven by inventory accumulation from producers and concerns about output bottlenecks at mines in Africa, Australia, Brazil, Chile and China.

For other base metals like aluminum, zinc and nickel, supply and demand appear better matched, he added.

Overhanging many of these markets remained the question of China, and whether its roaring economy might soon cool down. Many metals’ traders and analysts have had to become China watchers, poring over the economic data issued by that country and studying accumulations of stocks in Chinese warehouses. During the first quarter, China’s economy expanded 9.7 percent from a year earlier.

Investment and consumer spending in China have remained robust despite the government’s effort to temper growth through interest rate increases and curbs on bank lending.



COMBO Title and Securitization Search, Report, Documents, Analysis 

EDITOR’S COMMENT: When regulators refer to the banks as “clients” you know you have a problem. The mess (chaos) left in the wake of invalid mortgages and notes, fraudulent foreclosures, fraudulent credit bids and resales is going to stay with us regardless of what efforts are made to paper over the stupid PONZI scheme based upon the illusion of securitization of residential mortgages. Title is still going to be a problem that won’t go away and pretending otherwise doesn’t help

Taking houses away from people that supposedly have not paid their mortgage payments may sound like normal business procedure. But giving those houses to parties who were not and are not the lenders is a gift to the banking interests that runs contrary to the interests of the nation and the fragile economic recovery.

It’s not as simple as it looks. It’s been said to me that when you boil it down, the foreclosure problem stems from people not paying their mortgage payments, with the hidden presumption behind that being the mortgage debt is valid. The fact that the lien was not and could not be perfected is too technical for most people to consider.

And the big fact that the deal was a fraud on both the lender-investor and the borrowers through deception as to the value of the property, the viability of the loan transaction and the value of the mortgage bonds is something that nobody wants to think through — because it would mean turning 80 million real estate transactions on their head.

In one way it is very simple. Nearly none of those 80 million transactions would have been completed but for the grand deception and grand illusion. The investors would not have advanced the money and the borrowers wouldn’t have taken it. No investor or borrower would have done a $300,000 loan transaction on property worth half that amount, but they did because they believed the inflated appraisals and ratings. If the proper disclosures were made, the mortgage bubble would not be part of our history and the recession might not either.

So for those people who want to “boil it down” and get it simple, here you go: the investors and homeowners were defrauded. They are the losers here, not the banks. But it is the banks that are getting the benefit of payments on loans that run from inflated to non-existent and the willingness of our system to give them the houses too — while the real parties in interest —- the investor-lenders and the homeowners — lose their money and their homes. And let’s remember that when “investors” lose money that includes pension funds that now won’t be able to come up with promised retirement benefits that were part of the deal when employees worked for those companies.

Letting the Banks Off the Hook


Judging by last week’s performance, it sure looks as though the country’s top bank regulator is back to its old tricks.

Though, to be honest, calling the Office of the Comptroller of the Currency a “regulator” is almost laughable. The Environmental Protection Agency is a regulator. The O.C.C. is a coddler, a protector, an outright enabler of the institutions it oversees.

Back during the subprime bubble, for instance, it was so eager to please its “clients” — yes, that’s how O.C.C. executives used to describe the banks — that it steamrolled anyone who tried to stop lending abuses. States and cities around the country would pass laws requiring consumer-friendly measures such as mandatory counseling for subprime borrowers, or the listing of the fees the banks were going to charge for the loan. The O.C.C. would then use its power to either block or roll back the legislation.

It relied on the doctrine of pre-emption, which holds, in essence, that federal rules pre-empt state laws. More than 20 times, states and municipalities passed laws aimed at making subprime loans less predatory; every time, the O.C.C. ruled that national banks were exempt. Which, of course, rendered the new laws moot.

You’d think the financial crisis would have knocked some sense into the agency, exposing the awful consequences of its regulatory negligence. But you would be wrong. Like the banks themselves, the O.C.C. seems to have forgotten that the financial crisis ever took place.

It has consistently defended the Too Big to Fail banks. It opposes lowering hidden interchange fees for debit cards, even though such a move is mandated by law, because the banks don’t want to take the financial hit. Its foot-dragging in implementing the new Dodd-Frank laws stands in sharp contrast to, say, the Commodity Futures Trading Commission, which is working diligently to create a regulatory framework for derivatives, despite Republican opposition. Like the banks, it views the new Consumer Financial Protection Bureau as the enemy.

And, as we learned last week, it is doing its darndest to make sure the banks escape the foreclosure crisis — a crisis they created with their sloppy, callous and often illegal practices — with no serious consequences. There is really no other way to explain the “settlement” it announced last week with 14 of the biggest mortgage servicers (which includes all the big banks).

The proposed terms call on servicers to have a single point of contact for homeowners with troubled mortgages. They would have to stop the odious practice of secretly beginning foreclosure proceedings while supposedly working on a mortgage modification. They would have to hire consultants to do spot-checks to see if people were foreclosed on improperly. (Gee, I wonder how that’s going to turn out?)

If you’re thinking: that’s what they should have done in the first place, you’re right. If you’re wondering what the consequences will be if the banks don’t abide by the terms, the answer is: there aren’t any. And although the O.C.C. says that it might add a financial penalty, I’ll believe it when I see it. While John Walsh, the acting comptroller, called the terms “tough,” they’re anything but.

No, the real reason the O.C.C. raced to come up with its weak settlement proposal is that last month, a document surfaced that contained a rather different set of terms with the banks. These were settlement ideas being batted around by the states’ attorneys general, who have been investigating the foreclosure crisis since late October. The document suggested that the attorneys general were not only trying to fix the foreclosure process but also wanted to penalize the banks for their illegal actions.

Their ideas included all the terms (and then some) included in the O.C.C. proposal, though with more specificity. Unlike the O.C.C., the attorneys general had devised a way to actually enforce their settlement, by deputizing the new consumer bureau, which opens in July. And they wanted to impose a stiff fine — possibly $20 billion — which would be used to modify mortgages. In other words, the attorneys general were trying to help homeowners rather than banks.

By jumping out in front of the attorneys general, the O.C.C. has made the likelihood of a 50-state master settlement much less likely. Any such settlement needs bipartisan support; now, thanks to the O.C.C., there’s a good chance that Republican attorneys general will walk away. The banks will be able to say that they’ve already settled with the federal government, so why should they have to settle a second time? If they wind up being sued by the states, the federal settlement will help them in court.

“It’s a vintage O.C.C. move,” said Prentiss Cox, a law professor at the University of Minnesota who was formerly an assistant attorney general. “It is clearly an attempt to undercut the A.G.’s”

Old habits die hard in Washington. The O.C.C.’s historical reliance on pre-emption should have died after the financial crisis. Instead, it’s merely been disguised to look like a settlement.



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

I have been involved with all three branches of government for a long time. The sudden release or barrage, if you like, of the MERS cease and Desist, the Senate Report, and the decisions by several courts reported in recent days is no coincidence. It’s all about politics and the 2012 election. It’s a lot of words on paper, spoken in grand speeches and agency actions that COULD  mean nothing. That said, I think that the banks have had their 15 minutes and that the Obama DOJ and Federal Agencies are getting ready for a variety of options — all of which amount to showdown with the Banks.

In the meanwhile, the facts coming out in support of the actions taken in the last few days and what will still come out will be very damaging to the megabanks. It is even possible that they will reach a tipping point, particularly if the administration reverses itself on criminal prosecutions. In the 1980’s 800 people went to jail in the savings and loan Lincoln Savings (Arizona) crisis and I mean to tell you I knew some of them, and the ones that didn’t go to jail were well aware that there but for the grace of the almighty, went someone else.

Whether intended or not, each step escalates the position of the megabanks from being adversarial to being in a pitched battle for survival.. In the end it is hard to imagine a scenario in which they will survive. The question is not whether they will last, but how much damage will they be allowed to cause before they either collapse of their own weight or are brought down by regulators. Every day the corruption of our title registry in all 50 states is compounded by false and fraudulent foreclosures. Every day increased pressure is put on housing prices because of the illusion that the foreclosures were valid and real.

Whether anyone realizes it or not, Obama has an advantage that nobody but a few inner circle could have been thinking about — the slingshot effect of a sudden shift in the housing market wherein the middle class suddenly reappears, banks become competitive, and the control of government by a few Wall Street individuals abruptly ends. Of course this is wishful thinking — but it also a pretty good estimate of things to come. The balance sheets of the megabanks continue to be so far over the line of, as reported, as to be a mere continuation of the process of attaching AAA ratings to mortgage bonds representing interests in asset backed pools that either didn’t exist, or had no assets, or both. Their assets are based upon old appraisals of property and securities that are so far over-stated, any officer of a public company signing those representations and any auditing firm certifying them, is not only risking their business existence, but their liberty as well.

BOTTOM LINE: We have slowly moved from a position where the legal defenses and strategies recommended or proposed on this blog have gone from preposterous to dangerous. Every prediction and description here of fabrication, fraud and forgery on a wide scale, every assumption made on following the money has been right on the money. Go back and look for yourself. So here goes. It has been my opinion since June, 2007 and remains my opinion, that there is no way out of this jam for the megabanks. The entire securitization scheme was an illusion and the 31 million mortgages active on MERS as well as 50 million or more other mortgages are NOT legally secured, and will be stated as such within 2 years.

It is further my opinion, as stated in early articles 3 years ago (Why You Don’t Owe the Money) that in most cases there is no liability running from the homeowner to anyone on Wall Street. Lastly, it is my opinion that there is very likely little or no liability running from the homeowner to anyone else because of the PAYMENT of monthly payments by servicers, and the PAYMENT of amounts that should have been allocated to the Principal obligation by third parties who, for reasons of their own, expressly waived any right to subrogation, which means they expressly in writing waived the right to collect.

Sounds counter-intuitive, fantasy based, a load of crap as one judge put it in Florida? That Judge characterized what I have said into a statement that all securitization is illegal. That is absurd. Virtually everything that happens on Wall Street is a form of securitization and it has been happening for hundreds of years and will continue for hundreds more. From that mischaracterization, the Judge went on to say that I was wrong. But I have not been wrong. It is the failure of the pretenders to follow their own securitization documents, the failure of the pretenders to follow state and federal law, and the failure of the pretenders to properly document and disclose the transactions to the investors and borrowers that will bury them — not some far out theory that securities are illegal.

The “can” will be kicked down the road s long as it is politically expedient to do so. President Obama has a pattern of waiting and biding his time and instead of leading the charge, letting the charge build and then leading it. Like Lincoln, he figured out that if you do something that the people already want, the opposition will have very little to say about it. That is what I predict will happen in 2011 and 2012. More people will be relieved from this foreclosure mess than currently meets the eye.


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

SEE jpm-makes-2-billion-while-investors-lose-500-million

EDITOR’S NOTE: If the press can ask the questions leading right up to the top of the megabanks, why can’t the government? You have to remember that these people practically invented the term “due diligence” and before the securitization scam, it was very challenging to get a deal through where all the i’s were not dotted. The point here is not whether Jamie Dimon belongs in jail. The point is that the securitization scam was intentional and there are civil remedies for everyone who was hurt by it.

JPM set up an investment that they knew at the highest levels was going to fail, didn’t tell their investor (of course) because they were going to  make a lot of money BECAUSE the investor was going to lose money. This is what was done to investors in mortgage-backed bonds and what was done to homeowners who put up their house for an “investment” that was already doomed. Facts like these help make the case for appraisal fraud and other deceptive lending practices. And it shows how the megabanks were pulling the strings through remote vehicles and then defending with plausible deniability.

My answer is that their denial is not plausible and not even possible. Nobody accidentally makes $2 billion on a client’s loss of $500 million. We’re not talking the lottery here. We are talking high finance where the controls and command centers are limited to a few rooms with very few people in those rooms.

Investing in the Dark

NY Times Editorial

So what did Jamie Dimon know and when did he know it?

New documents unsealed recently in a class-action lawsuit against JPMorgan Chase — some of which name Mr. Dimon, the chief executive — paint yet another picture of a bank profiting while its clients suffer. At issue is a precrash investment vehicle, named Sigma, in which the bank had invested $500 million in assets from pension funds and other clients, nearly all of which the clients say was lost when the investment tanked in 2008.

The clients were blindsided because they believed that Sigma was a safe way to invest. JPMorgan was not taken by surprise. As Louise Story reported in The Times on Monday, court documents show that warnings by top bank officials about Sigma and similar investments went all the way up to Mr. Dimon’s office.

The gist of the warnings was not how to protect clients, but how the ailing Sigma presented the bank with what one e-mail described as “very big moneymaking opportunities as the market deteriorates.”

When Sigma did indeed collapse, JPMorgan collected nearly $1.9 billion, according to the suit, a figure the bank disputes, without providing any alternative figure.

It is possible that JPMorgan did nothing wrong legally — and that is precisely the problem. It clearly stinks to withhold information that may well have caused clients to change their minds — in effect, for the bank to treat clients’ money with less care than it treats its own. As long as banks operate that way, there is no restoring trust in the financial system, or, by extension, in the political system that props it up.

But is it illegal? JPMorgan has said that the unit of the bank that handled the clients’ investments in Sigma was not, by law, allowed to confer with the unit of the bank that benefited from Sigma’s demise. That may be true, but as Ms. Story pointed out, in this case, the information rose to executives who oversee the entire company and were in a position to intervene. That they did not is a failure to do the right thing, even if the court decides that the bank did not break the law.

In the meantime, efforts to write new rules to try to curb such conflicts is hamstrung by a Republican backlash against the Dodd-Frank financial reform law that was passed last year. There is proposed legislation to repeal provisions of the law, and the agencies that have to implement the law are in danger of not getting enough money to do the job. As the pension funds in the class-action suit against JPMorgan can certainly attest, only the banks will benefit from business as usual.

JPM Makes $2 BILLION While Investors Lose $500 MILLION

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


“The investment bank through a myriad of bankruptcy-remote controlled vehicles steps in and says WE ARE THE AGENT FOR THE LENDER AND WE WANT TO FORECLOSE. And then in the suit with investors says WE ARE NOT YOUR AGENT OR FIDUCIARY AND THIS MONEY WE COLLECTED IS OURS. In plain language the investment banks are claiming the full value of the original investment, the profit they made from the “failure of the investment,” and the house from the borrower. Somehow this has been translated into a free house for the borrower if the borrower successfully challenges this scenario. Considering that the investment bank and its remote vehicles never loaned a dime of their own money and never bought the receivable from the homeowner, it is an inescapable conclusion that under current conditions IT IS THE BANK THAT IS GETTING A FREE HOUSE.” — NEIL GARFIELD


EDITORIAL NOTE: The idea that the banks could take $500 million from investors, turn the investment into a loss, and than make $2 Billion for themselves leaving the investors empty handed has been openly dismissed as ridiculous conspiracy theorizing. Nonetheless, I have consistently maintained on these pages that this is exactly what was done, that there were no losses to WALL STREET on mortgages, and that the bailout increased their profits instead of decreasing their alleged losses. It seems, as Renaldo Reyes of Deutsch Bank put it, “counter-intuitive.” If you put $500 into an investment how can anyone make any more than the $500 you invested. Enter the magic of Wall Street.

The unfairness of this turn of events is obvious and the subject of the lawsuit against JPM described below in the article from the NY Times. And the fact that JPM had direct knowledge of every part of this all the way up to Jamie Dimon doesn’t come as any surprise either. What is important here is that Wall Street found a way to create lousy investments in which investors would lose all their money and to multiply that loss into a grand windfall for the Wall Street firm that created or sold the investment in the first place.

It doesn’t take a rocket scientist to see where the incentive is. If you were the broker and you sold $500 million worth of securities to an investor you would get a fee. Fair enough. And you wouldn’t see another fee until the investor sold it, hopefully using your services. Fair enough. That is how Wall Street is supposed to work — putting buyers and sellers of various types of securities together and taking a fee for their services. This is the purpose of Wall Street which enables the marketplace to have liquidity — i.e., people can get money when they need it and can get a return on their investment when they have extra money.

Wall Street shifted the paradigm starting around 10 years ago when they essentially decided that neither their clients nor the people who were affected by investments made through Wall Street should get to keep any of the money or wealth they had at stake. They wanted it all and they set out to get it, quite successfully as it turned out. The current paradigm is to get investors to put their money into failures, create vehicles that essentially bet on the failure, put provisions in the documents that guarantees that you can call it a failure even if it isn’t, and then collect all the money back that SHOULD go to the investors, because that’s what it says in the fine print of what the investors bought.

Once you have a sure thing — a failure even if nothing failed — you can now place a bet, comfortably knowing that it will pay off because control over the “failure” is completely in your hands. I am of course referring to Credit Default Swaps and other more ornate synthetic collateralized debt obligation derivative instruments.

Back to the broker. If you were that broker, would you (a) wait until the investor decided to sell the investment and take a fee of 1% or (b) pull the plug on the client’s investment and earn 400% of the client’s money without any of your own money at risk? You might think that JPM would have at least offered the money back on the investment, but no, like I said, they want it all. You might say that the investment bank’s receipt of $2 Billion on the client’s $500 million investment was as a fiduciary for the client and not for themselves and you’d be wrong under the current rules. You might say this stupid — because it is. But I can’t see a scenario in which pension fund managers are going to keep buying failed investments, even if they are bribed. This is like any other PONZI scheme or house cards. They all come to an end and people get hurt.

Now move over to the homeowner who “borrower” money from a fund that came from many investors like the pension fund above. He borrowed $100,000 and owes it to somebody, but who? The investor has written off the investment and expects to get their money back from the investment bank because the loan was not what they were told they would be getting. The investor wants no part of the homeowner’s house of obligation and doesn’t care if the homeowner has any obligation.

The investment bank through a myriad of bankruptcy-remote controlled vehicles steps in and says WE ARE THE AGENT FOR THE LENDER AND WE WANT TO FORECLOSE. And then in the suit with investors says WE ARE NOT YOUR AGENT OR FIDUCIARY AND THIS MONEY WE COLLECTED IS OURS. In plain language the investment banks are claiming the full value of the original investment, the profit they made from the “failure of the investment,” and the house from the borrower. Somehow this has been translated into a free house for the borrower if the borrower successfully challenges this scenario. Considering that the investment bank and its remote vehicles never loaned a dime of their own money and never bought the receivable from the homeowner, it is an inescapable conclusion that under current conditions IT IS THE BANK THAT IS GETTING A FREE HOUSE.

JPMorgan Accused of Breaking Its Duty to Clients


In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.

Sigma collapsed a year later. Now, new documents unsealed late last month as part of a lawsuit by bank clients against JPMorgan show for the first time just how high the warnings about Sigma went — all the way to the office of the bank’s chief executive, Jamie Dimon.

While the clients lost nearly all their money, JPMorgan collected nearly $1.9 billion from Sigma’s demise, according to the suit. That’s because as Sigma’s troubles worsened, JPMorgan lent the vehicle billions of dollars and received valuable assets in the form of a security deposit.

After Sigma came undone in September 2008, many of those assets ultimately became JPMorgan’s and eventually appreciated in value, giving the bank a large profit, the suit says.

The case, which is filed as a class action and includes several pension funds as named plaintiffs, accuses JPMorgan of breaching its responsibility to keep its clients in safe investments, and it sheds new light on one of Wall Street’s oldest problems — whether banks treat their clients’ money with the same care that they treat their own.

Joseph Evangelisti, a spokesman for JPMorgan, called some of the suit’s accusations “ludicrous” and said the bank lent more than $8 billion to Sigma to try to help the vehicle survive, not to profit from its failure. He said the bank did its best to protect its clients’ money and that its dealings with Sigma were to the clients’ benefit.

The suit, however, asserts that JPMorgan workers developed a “grand scheme” to profit from Sigma in the event of a collapse, even though employees at another part of the bank left client money invested in the vehicle.

One internal e-mail between top executives, for instance, states that the firm needed to protect its own interests in its dealings with Sigma, without taking into account the clients’ position. The suit also contends that the bank’s loans to Sigma gave it access to the vehicle’s best assets, at a discount, which proved to be a profitable trade for the bank.

JPMorgan has said in a court filing that no such scheme existed and that it acted properly in the way it managed client money.

The bank argues that by law, different units of the company that dealt with Sigma could not share information, because of so-called Chinese walls, which are meant to prevent the spread of nonpublic information within the firm. According to this argument, the unit that invested client money in Sigma could not confer with the arm that lent the vehicle money.

But because the information rose to executives who oversee the entire company and were in a position to intervene, analysts say the issue is trickier.

“In one sense, I don’t think it’s good enough to say, ‘We’re a large organization, we can’t relay information.’ That, in many respects, is a cop-out,” said William Fitzpatrick, a banking analyst at Manulife Asset Management, a Canadian insurance company that is not party to the case. “Does Jamie Dimon have some sort of veto power where he can overrule it? That gets very gray.”

But he added, “I can see where the banks would come back and say, ‘The Chinese walls are there for a reason. We don’t want to put in manual overrides.’ ”

In many cases, the rules and practices banks follow are based on nonpublic information they receive.

It’s not as clear what a bank’s obligations are with insights that are based on public information, like some of the information related to Sigma.

Within the financial services industry, the case is being closely watched. A victory by JPMorgan’s clients may mean that banks will have to be more careful about deciding whether to share — or silo — information that affects their clients’ investments. The Securities Industry and Financial Markets Association, a prominent trade group, wrote a brief in support of JPMorgan last month saying that the pension funds that are suing had an “unprecedented and novel theory” that “contradicts decades of Congressional and regulatory guidance.” The trade group said that if the plaintiffs won, it would impose greater costs on banks.

Whatever the legal outcome, the new documents paint a picture of how one of Wall Street’s strongest players profited in its deals with the weak.

The events described in the suit, which was filed in Federal District Court for the Southern District in New York, began in the summer of 2007. That June, JPMorgan’s unit put about $500 million from pension funds and other clients into notes issued by Sigma, meaning those clients would be repaid based on how Sigma’s financial bets performed.

The investments were made by the bank’s securities lending unit, which stood to share in profits if the bet was successful but would not share in losses if it wasn’t.

According to the new documents, by that August, JPMorgan executives elsewhere in the bank began to worry about Sigma and other similar entities called structured investment vehicles, or SIVs.

Mr. Dimon is named in several documents related to these vehicles.

One e-mail in August 2007 said Mr. Dimon was interested in hearing about “the systemic risk of a complete unwind of all SIVs,” according to the suit. Another e-mail told a bank worker to prepare “a very real picture of the assets that will be unwound with particular focus on Sigma.” At the end of August, Mr. Dimon received a memo on the SIV market, with a note about Sigma in the cover sheet, according to the lawsuit.

That same month, a fixed-income executive, John Kodweis, wrote in an e-mail that he believed it was probable the entire sector would run into trouble.

If that were to happen, the SIVs might have to unload $400 billion in valuable assets at fire-sale prices, he wrote. He suggested the bank create a team, which the suit says it did, to take advantage of the forced selling.

In the same e-mail, Mr. Kodweis noted that the block of SIV investments that JPMorgan had made on behalf of its clients was among the top 12 investors in all SIVs.

Other top officials at the bank were also aware of the conflict. In September that year, as the bank’s top brass considered lending money to Sigma, the bank’s chief credit officer, Andrew Cox, wrote that “I have heard JPM Asset Mgmt are large buyers of SIV and Sigma CP,” referring to short-term debt called commercial paper. “Do we need to consider the firmwide position?”

The bank’s chief risk officer, John Hogan, wrote back that JPMorgan needed to protect its own position and not worry about what its clients were invested in.

By February 2008, credit continued to tighten, and Sigma was desperate for cash to finance its operations. An executive in JPMorgan’s London office, Mark Crawley, wrote that it was “unlikely” that Sigma would survive. He also said there could be risks to the bank’s reputation if it went ahead with the loan. Still, JPMorgan proceeded.

As time passed in 2008, bank executives did more trades with Sigma.

Mr. Crawley e-mailed Mr. Cox to say that the bank was treating its loans to Sigma as a “trade,” rather than as support for Sigma and that there were “very big moneymaking opportunities as the market deteriorates” because Sigma had what he called high-quality assets.

Mr. Cox described Sigma’s health as “a race against time” in a note to Bill Winters, then co-head of the investment bank, and Mr. Crawley.

By September 2008, when Sigma defaulted, JPMorgan had lent it a total of $8.4 billion and had received $9.3 billion of assets as a security deposit, according to the suit. The value of the collateral was dubious at that point, given the panic of the financial crisis, and it was unknown if the assets would decrease in value.

But a year later, many investments had risen in value, the suit says. JPMorgan made over $470 million in profit within a year of the default by selling off some of the collateral and had recorded a paper gain of $1.2 billion on assets it still held, according to the suit. The bank had also made $228 million in fees from Sigma in exchange for the loans. The total gain was nearly $1.9 billion, the suit says.

The pension funds whose money JPMorgan had put into Sigma lost nearly all of their investment. The suit said their $500 million became worth 6 cents on the dollar.

Mr. Evangelisti, the JPMorgan spokesman, said the bank disputed the profit figures but he would not say how much the bank believed it made on the Sigma transactions.

He also said the unit that put the client money in Sigma “closely monitored” the investment and did its best to decide whether to sell it early. He said a different client investment in Sigma was repaid in full to JPMorgan clients just weeks before Sigma collapsed.

The bank also said in a court filing that it would have been irrational for its executives and traders to try to obtain Sigma’s assets by lending money to the vehicle. The bank could have instead just purchased some of those assets, though they might have come at a higher price.

In addition, Mr. Evangelisti said it was Sigma that approached JPMorgan about the loans, and Sigma executives told the bank the loans would help the JPMorgan clients who were Sigma investors.

He added that in the fall of 2008, when it came time for the bank to auction off some of the assets JPMorgan had received from the failed vehicles, “in many cases there were no takers.”


GET COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ aka Lisa Epstein’s Response to Nationwide Title Clearing Cease and Desist Letter

Posted by Foreclosure Fraud on March 31, 2011 · Leave a Comment

TEL:  954-677-8888; FAX: 954-677-8881

March 30, 2011

Michael B. Colgan
100 South Ashley Drive
Suite 1300
Tampa, Florida 33607

RE:  Cease and Desist Demand Letter to Lisa Epstein dated March 14, 2011

Dear Attorney Colgan:

Please be advised that this Law Firm has been retained to represent Lisa Epstein regarding your Cease and Desist Letter to Lisa Epstein dated March 14, 2011 seeking to silence Lisa Epstein regarding matters of great public interest in order to discourage debate on these important issues of public concern directly impacting and complicating the foreclosure crisis in Florida.

My first concern with regard to your letter is that you state that your Office is counsel to Nationwide Title Clearing, Inc. (“NTC”) but your Office seems to be seeking redress concerning individuals who are employees of NTC but who are not represented by your law firm.  For instance, the first example involving Crystal Moore does not even mention your client, NTC, yet your Office insist that Lisa Epstein remove this very old posting (September 20, 2010) directing her attention to an Order by Sarasota Circuit Judge Rick DeFuria enjoining Christopher Forrest and The Forrest Law Firm, implying that the Judge’s Temporary Injunction somehow applies to her and her blog, Not only is the Judge’s Order not directed at her or her blog, but you failed to inform her that on or about December 10, 2010 that Order was appealed by the ACLU, who is representing Christopher Forrest and The Forrest Law Firm, to the Second District Court, which places its viability in question.

I would note that these videotaped depositions can be found in a number of places on the internet including some State Governmental sites.  Furthermore, posting a third party article directing people to a YouTube site is not defamation nor can it be considered “posting, publishing, disseminating, or maintaining materials” related to those depositions.  All of which is done on YouTube.

In fact, in a letter to the Florida Supreme Court Chief Justice Canady, Howard Simon, ACLU of Florida, Executive Direct said, “Putting the videotaped depositions of ‘Robosigners’ on YouTube give the world an opportunity to see how the practices of Banks and Title Companies are affecting homeowners facing financial problems.  This is a public service that shouldn’t be subject to a court imposed gag order.”  This Letter was co-signed by the Florida Association of Broadcasters, Florida Society of News Editors, Florida Press Association, Florida Times-Union Newspaper, and the First Amendment Foundation.  More information can be found at a site that my Office sponsors,, authored by Michael Redman.

Example two in your letter is an objection to Attorney Lynn Szymoniak’s summary of Brian Bly’s deposition.  Now if summarizing the sworn testimony or statements of an individual is actionable then every newspaper and newsroom needs to be shut down immediately.  The public would instantly be cast into the dark ages – a time when a few powerful individuals attempted to control the people by keeping the masses in ignorance.  As with Example one, NTC is not even mentioned, with the exception that example two indicates that Brian Bly is employed by Nationwide Title Clearing.   However, your letter adds the additional information that, in your legal opinion, it is not legally improper for NTC to direct Brian Bly to sign documents as an officer of over 20 banks although Mr. Bly has no knowledge of what he is signing or the contents of the assignments.   In other words, your letter admits that he just “robo signs” documents put in front of him because NTC directs him to do it.

Since your are being so open an honest, I will also be open and honest.  I have in my office sworn Affidavits – not assignments – signed by both Crystal Moore and Brian Bly.  Based on your candid statement, I can surmise that Crystal Moore and Brian Bly sign these affidavits without any knowledge of the contents because they are directed by NTC to sign these documents as an officer of over 20 banks.  Does your Law Firm find this policy regarding sworn Affidavits also legally permissible?

It may be your legal opinion that your clients do not need to read the documents that they sign but, in my legal opinion, I inform all my clients to read and understand everything that they sign; especially, if that document is going to be recorded in the county records and used in a court of law as evidence.  Moreover, if – as you state – “the signer is not required to read them before signing” – then how do you, as the attorney for NTC, know that Crystal Moore and Brian Bly only signed Assignments since “not reading” a document means, by definition, that neither of them knows what kind of document they signed – whether it be an Assignment, Lost Note Affidavit, Affidavit in Support of Summary Judgment, Satisfaction of Mortgage or any other document – because neither of them had any knowledge of the contents of the documents that they signed.  To use your phrase, “I am sure you know” that both Crystal Moore and Brian Bly signed sworn Affidavits of all kinds.

By Mr Bly’s own admission, he signed 5000 documents a day in batches of 200.  Assuming an 8 hour day, Mr. Bly  would have had to sign over 600 documents every hour or 10 documents every minute.  Mr. Bly accomplished this feat by not reading the documents, which prevents him from having any knowledge of the content of the document or what type of document he was signing.  I am sure he did not even care what he was signing as his job was signing – not reading, understanding, or knowing.   As pointed out in Example 3, the document signed is a Satisfaction of Mortgage – not an Assignment of Mortgage.  To sign a Satisfaction of Mortgage, Mr. Bly would have to have some knowledge of whether or not the mortgage was in fact paid off.  However, he was not reading the documents he signed, which, of course, begs the questions – Was the mortgage really satisfied?

Example 4, relates to Crystal Moore and Brian Bly signing Affidavits and Example 5 relates to a question posted by a reader of regarding another employee of NTC, Mary Jo McGowan.   Although you state that these statements are false and materially misleading, you don’t explain your statement.  In my legal opinion, a person who signs an Affidavit swearing to facts set forth therein without any personal knowledge of those facts is making a false statement.  It is fraud on the Court to utilize such fraudulent affidavits as evidence in a court of law.  One law firm has, this very week, agreed to pay a paltry $2 Million in fines to Florida regarding the filing of such false affidavits and paper work.  I guess that the Attorney General’s Office in Florida is seeking to hold someone “accountable” for these “sworn false statements.”

Twice you make the rather amazing statement that my client “knows” that NTC has duly executed resolutions or power of attorney for the financial institutions for which its employees executed assignments.  Need I point out that my client does NOT “know” anything of the sort.  I have been practicing in this area of the law (Mortgage Defense Law) since early 2008 and I have never seen such a resolution or power of attorney.  So not even I know anything about “resolutions” or “power of attorneys” authorizing Mr. Bly, Ms. Moore, or anybody else to sign for any bank, lender or financial institution.  Since these resolutions you mention deal only with “assignments”, can I assume that there are not resolutions authorizing the signing of Affidavits, Satisfactions of Mortgages, or other sworn statements, which have been filed in courts throughout Florida?

Your statement that such confidential resolutions or power of attorneys exists secretly, hidden from view, is meaningless, pointless, and not trustworthy.  For example, you provide a copy of a three year old, November 20, 2008 “Unanimous Written Consent of the Executive Committee of the Board of Directors of Citi Residential Lending Inc.” which is neither “unanimous”, as it is signed by only two out of three people, nor does it authorize the signing of any and all assignments no matter what State or legal case the assignments relates.  Half the resolution seems to be missing. (See, Page 2).  Its not authenticated – but just a copy.  Its old.  I have no idea if Sanjiv Das and Paul R. Ince have really signed this alleged resolution or are authorized to sign this resolution.  The resolution “specifically” relates to something happening in Colorado, not Florida.  The resolution is not even valid until NTC executes an Indemnity Agreement.  Who knows if NTC executed this Indemnity Agreement.  Since this alleged resolution is no longer confidential, can I assume that your Law Office will be making all these “confidential” resolutions or power of attorneys available for discovery should your Client decide to sue my Client?

Again your letter states that these duly-executed corporate resolutions or powers of attorney allows the employees of NTC to execute assignments only. Again, can I assume that there are no secret, confidential resolutions or power of attorneys granting the employees of NTC the right to sign sworn affidavits, satisfactions of mortgages, or other sworn statements? If that is true, as you imply, then any Affidavit, Satisfaction of Mortgage, or sworn statements signed by Mr. Bly, Ms. Moore or other employees of NTC are, consequently, legally invalid.

Now let me tell you a little bit about Lisa Epstein and her blog,  The blog specifically states that it is for “Supporting, Informing, & Connecting People in Foreclosure.”  The blog posts every day the latest news in this very important public interest subject of foreclosure and foreclosure fraud.  This area is of such importance that the ACLU has become involved in Florida due to the blatant violations of Floridian’s constitutional due process rights.  The Florida Attorney General is actively investigating several law firms for filing false affidavits and false documents in the courts.  A paralegal at the now defunct law firm of David Sterns gave a deposition to the Florida Attorney General Bill McCollum’s Office indicating that virtually every affidavit, assignment, or other sworn document coming out of the firm was faked.  All these issues and many, many more are tracked on Lisa Epstein’s blog,

On a daily basis, Lisa Epstein’s blog provides its readers with up to date information and news regarding events surrounding Foreclosures; including, but not limited to changes in the court administrative rules and recent rulings from Judges throughout Florida.  The Blog receives over 3,000 hits every day from people seeking information on this vitally important area of public importance in Florida.  In short, receives approximately 100,000 hits per month.  Every day the number of hits increase.

Lisa Epstein’s name is known even in Tallahassee.  Recently she was one of the leaders in the Rally to Tally where she traveled with two bus loads of fellow advocates to Tallahassee to protest the new attempts to cut short the due process rights of homeowners in Florida.  There in Tallahassee, she met with representatives of the Attorney General’s Office as well as members of the State Legislator regarding bills presently pending before the House of Representatives and State Senate.

Lisa Epstein has been named the Homeowners Advocate by the Palm Beach Post.  In December, 2010, Florida Trend named Lisa Epstein and Michael Redman the Florida News-makers of the Year for 2010.

Lisa Epstein and Michael Redman have assisted the Florida Attorney General’s Office in investigating and providing evidence of the the fraudulent documents that have been filed in the county records and in different courts throughout the States.  Both Lisa Epstein’s,, and Michael Redman’s,, investigative journalism have been responsible for exposing how different signatures appear for the same robosigners, how the banks have filed two blue ink notes, and exposed all the different kinds of fraudulent affidavits, assignments of mortgages, and other fraudulent documents have been filed in the courts and in the county records.  Lisa Epstein and Michael Redman have investigated and reported on many issues that are now in the forefront of newspapers and the nightly news.  In addition, both web blogs are considered the two most important sites for seeking information in this most critical area for Floridians who are losing their homes and their finances.  Without a doubt, Lisa Epstein’s blog,, concentrates on gathering, selecting, and preparing, for purposes of publication to a mass audience, information about current events of interest and concern to her audience  — specifically, “Supporting, Informing & Connecting People in Foreclosure.”

It is well settled law that Lisa Epstein is entitled to the protections provided by the First Amendment with respect to the freedom of free speech.  In addition to her investigative work, Lisa Epstein’s  republishes articles picked up from other new sources, blogs or internet news sites.  In the Pentagon Papers case, New York Times Co. v. United States, 403 U.S. 713, 714 (1971), the federal government sought to enjoin The New York Times and The Washington Post from publishing a stolen classified documents on United State decision-making policy in Vietnam.  The documents contained highly classified information that presumably threatened national security.  Nevertheless, the Supreme Court held that even those threats to important governmental interests could not overcome the established presumption against prior restraint on speech.  It is a “hallowed First Amendment principle that the press shall not be subjected to prior restraints.”

Moreover, the activities of Brian Bly and Crystal Moore have made them infamous throughout the United States.  These two names are well-known.  Whether Brian Bly or Crystal Moore intended the notoriety, these two people – along with many others – have become famous and will be forever linked to the name “robosigner”.  Consequently, any defamation action will need to meet a higher standard to state a cause of action.

My client will not waive her First Amendment Rights which protect and guarantees the full and uninhibited discussion of the vitally important public issues surrounding foreclosure litigation in Florida; especially since there has been no statements that can be reasonably interpreted as stating false and defamatory facts about Mr. Bly or Crystal Moore or NTC reputations, which may warrant stifling the First Amendment rights to public debate.  The First Amendment guarantees a full and uninhibited discussion of public issues.  In the arena of public discussion, differing views may be voiced within the established limits of verbal discord or rhetorical hyperbole’, and even offensive utterance, without violating the law of defamation; especially, where such statements cannot reasonably be interpreted as stating actual facts about an individual’s reputation.   The public has a right to weigh all the facts in arriving at conclusions related to any individual who signs for companies he or she is not employed with or who swears to facts in affidavits where the individual admittedly has no personal knowledge.    Fifty States are now investigating these activities.  The Florida Bar has now stated that lawyers may loose their Florida Bar licenses over filing such false and fraudulent paper work in the courts.

To the extent that your Law Firm does not represent the individuals you seek redress for, my client declines to comply with your demand letter to abridge her Constitutional Right guaranteed under the First Amendment in favor of demands your Law Firm has no legal right to make.  With regard to NTC, you letter simply refers to “implications” you have drawn from statements your Law Firm have interpreted as being defamatory to the reputation of NTC.  My client declines to accept those interpretations; therefore, she will continue to exercise her Constitutional Rights of free speech.

As far as Matthew Weidner’s actions with regard to NTC’s law suit, he has chosen the higher ground and the better fight.  His energy is better served in the court room and not being drawn off into some legal battle that draws his attention away from the real battle.  On the other hand, my client, Lisa Epstein, is an advocate for the People of Florida and her arena is the public.  Her strengths are in her First Amendment rights as a journalist and an Advocate.  That is why your letter and this response will be posted on her Blog,, as well as,


Carol C Asbury
Senior Attorney


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


EDITORIAL COMMENT: Conservatives don’t conserve anything and liberals are not liberating anyone. Regulators don’t regulate, and congress isn’t passing laws that make any sense. Policy makers are getting their orders from Wall Street instead of originating the policy decisions. 216,000 jobs were added last month to our ailing economy, but most of those jobs were in sectors where the going wage won’t pay for even basic living expenses.

They say the unemployment rate has dropped to 8.8% — which is SPIN ON STEROIDS. First you have another 8%-10% who have become so discouraged they have stopped looking for a job. Then you have the underemployed at around 10%-15%. And now, courtesy of the Wall Street spin cycle which the government is parroting, we have something I would call “soft unemployment” — which consists of people who are technically employed but not making a living wage, which looks like it is right around 7%-8%.

So altogether we have an unemployment problem of around 36%+. AND THEY CALL THAT PROGRESS. One third of our labor force is not employed when we need them employed working on an infrastructure that is seriously going to collapse with increasing frequency. Why do we need to wait until the bridges fall, the tunnels collapse, and the electricity and water get turned off?

We all know that no matter how they spin things, the housing market is still falling into an abyss, homelessness is on the rise, and employment, if you want to call it that, is at an all-time low. Half of our economy as the government reports consists of financial services, which means that half of our economy consists of trading meaningless pieces of paper as though this was actually commerce. I thought commerce was like buying a toaster or hiring someone to clean your yard. If you take away the Wall Street vapor asset levels are a small fraction of what is reported, and the level of commerce is around 52%-55% of reported GDP, which means that our debt ratio as a country is much higher because the reported $14 trillion dollar economy is really an $8 trillion economy — and going down.

There is no possibility of true economic recovery unless we get practical and face reality. One of the realities is that we can’t rely on our politicians to do anything that makes any sense. That is quite a challenge. If we don’t stop the sale of homes in fraudulent foreclosures we will be setting the stage for more of the same, and setting the example that crime pays. As the wealth of the nation goes down the toilet, Wall Street strangely is coming up with more and more assets and income —- hmmm.

Just where is all that “money” coming from — or was it there all along, was the bailout a scam rewarding Wall Street for creating the illusion of securitizing debt and thus enabling the largest PONZI scheme in the history of the world?

The Mellon Doctrine


NY Times

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into depression. To be fair, there’s some question about whether Mellon actually said that; all we have is Hoover’s version, written many years later.

But one thing is clear: Mellon-style liquidationism is now the official doctrine of the G.O.P.

Two weeks ago, Republican staff at the Congressional Joint Economic Committee released a report, “Spend Less, Owe Less, Grow the Economy,” that argued that slashing government spending and employment in the face of a deeply depressed economy would actually create jobs. In part, they invoked the aid of the confidence fairy; more on that in a minute. But the leading argument was pure Mellon.

Here’s the report’s explanation of how layoffs would create jobs: “A smaller government work force increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.” Dropping the euphemisms, what this says is that by increasing unemployment, particularly of “educated, skilled workers” — in case you’re wondering, that mainly means schoolteachers — we can drive down wages, which would encourage hiring.

There is, if you think about it, an immediate logical problem here: Republicans are saying that job destruction leads to lower wages, which leads to job creation. But won’t this job creation lead to higher wages, which leads to job destruction, which leads to …? I need some aspirin.

Beyond that, why would lower wages promote higher employment?

There’s a fallacy of composition here: since workers at any individual company may be able to save their jobs by accepting a pay cut, you might think that we can increase overall employment by cutting everyone’s wages. But pay cuts at, say, General Motors have helped save some workers’ jobs by making G.M. more competitive with other companies whose wage costs haven’t fallen. There’s no comparable benefit when you cut everyone’s wages at the same time.

In fact, across-the-board wage cuts would almost certainly reduce, not increase, employment. Why? Because while earnings would fall, debts would not, so a general fall in wages would worsen the debt problems that are, at this point, the principal obstacle to recovery.

In short, Mellonism is as wrong now as it was fourscore years ago.

Now, liquidationism isn’t the only argument the G.O.P. report advances to support the claim that reducing employment actually creates jobs. It also invokes the confidence fairy; that is, it suggests that cuts in public spending will stimulate private spending by raising consumer and business confidence, leading to economic expansion.

Or maybe “suggests” isn’t the right word; “insinuates” may be closer to the mark. For a funny thing has happened lately to the doctrine of “expansionary austerity,” the notion that cutting government spending, even in a slump, leads to faster economic growth.

A year ago, conservatives gleefully trumpeted statistical studies supposedly showing many successful examples of expansionary austerity. Since then, however, those studies have been more or less thoroughly debunked by careful researchers, notably at the International Monetary Fund.

To their credit, the staffers who wrote that G.O.P. report were clearly aware that the evidence no longer supports their position. To their discredit, their response was to make the same old arguments, while adding weasel words to cover themselves: instead of asserting outright that spending cuts are expansionary, the report says that confidence effects of austerity “can boost G.D.P. growth.” Can under what circumstances? Boost relative to what? It doesn’t say.

Did I mention that in Britain, where the government that took power last May bought completely into the doctrine of expansionary austerity, the economy has stalled and business confidence has fallen to a two-year low? And even the government’s new, more pessimistic projections are based on the assumption that highly indebted British households will take on even more debt in the years ahead.

But never mind the lessons of history, or events unfolding across the Atlantic: Republicans are now fully committed to the doctrine that we must destroy employment in order to save it.

And Democrats are offering little pushback. The White House, in particular, has effectively surrendered in the war of ideas; it no longer even tries to make the case against sharp spending cuts in the face of high unemployment.

So that’s the state of policy debate in the world’s greatest nation: one party has embraced 80-year-old economic fallacies, while the other has lost the will to fight. And American families will pay the price.


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


“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

EDITOR’S ANALYSIS: It’s really simple. Wall Street banks got away with financial equivalent of murder and the administration either doesn’t get it or doesn’t want to get it. The deal with AG offices around the country is going to split apart into meaningless drivel just like the HAMP or any other modification process. The banks want the houses, pure and simple. It is the only way they make money for the 4th time in this merry-go-round of financial farce. They know how to pretend to offer modifications, lose the paperwork and otherwise stall, delay and obfuscate and now they are doing the same thing with the AG offices.

SO HERE IS THE QUESTION: WHICH ATTORNEY GENERAL WILL HAVE THE COURAGE AND BACKING TO ACTUALLY TAKE ON WALL STREET? Because the only way out of this is by litigating or negotiating with the actual people who are owed money from these mortgages. Right now they are not at the table nor anywhere to be seen, and frankly unknown in many instances. Present circumstances indicate the that the U.S. Government is the largest owner of mortgages, or the party with a claim to the largest number of mortgages (which probably is a false claim based upon bogus mortgage bonds). The award for honesty and effectiveness will go to the Attorney General who publicly says “we are talking to the wrong people — these servicers didn’t make the loans, didn’t purchase the receivables, and don’t have any authority to make a deal.”

In Foreclosure Settlement Talks With Banks, Predictions of a Long Process


Little was settled in the first round of foreclosure settlement talks.

The nation’s top mortgage servicers met Wednesday in Washington with the attorneys general from five states as well as Obama administration officials, beginning negotiations in earnest over new rules for homeowners who are in default.

The one thing everyone seemed to agree on was that an agreement was going to take time.

“We have a long way to go,” Iowa Attorney General Tom Miller, who is leading the effort from the states’ side, said after the afternoon session broke up.

“Obviously this is a very large set of issues, and it’s going to take some time to work through,” Thomas J. Perrelli, associate United States attorney general, said.

The quest to secure new foreclosure rules, which began last fall after the banks were shown to be breaking the rules as they pursued evictions, may be slow but it is playing out in public. When the effort was started, every attorney general signed on, but the coalition has begun to fracture.

Several Republican attorney generals are accusing their colleagues of overreaching in their attempt to bring the banks under control, while at least one Democrat, Eric T. Schneiderman, the New York attorney general, has expressed concern that any deal would immunize the banks from future legal action.

After Wednesday’s meeting, Mr. Schneiderman said through a spokesman that he remained worried about “providing broad amnesty to servicers.”

The banks at the meeting were Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and GMAC. A spokeswoman for GMAC, which is partly owned by taxpayers as a result of failing during the recession, called the session “productive and useful” but added it was “an extremely complex topic.” The other banks declined to comment.

Lengthy negotiations work to the banks’ advantage, critics say.

“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

The government negotiators may receive some support from the imminent release of a report by banking regulators. The report, based on investigations conducted over the winter, is expected to establish what many households in default knew long ago: that banks cared little for the legal niceties governing foreclosure, exacerbating the troubles of millions at a particularly vulnerable point of their lives.

In addition, the report is expected to show that bank employees were poorly trained, that they let law firms and other third party contractors run wild, and that they had little interest in keeping people in their houses.

Lenders say they have fixed these problems, and that few if any homeowners were evicted who did not deserve it. But as recently as a few weeks ago, a major bank, HSBC, which is based in London, was forced to suspend foreclosures when regulators found a number of deficiencies.

Enforcement action is expected to follow the release of the report by the Federal Reserve, the Office of the Comptroller of the Currency and other banking regulators. Those fines and penalties would be separate from any monetary settlement that results from talks with the state attorneys general.

The banking regulators were not present at Wednesday’s all-day meeting.

About two million households are in foreclosure, and another two million are in severe default. Data released this week by an analytics firm, LPS Applied Analytics, showed that banks were making some progress with modifications but that foreclosure was becoming, for better or worse, a permanent state for many families.

The government proposals require homeowners in foreclosure to be treated on an individual basis and would put in place a variety of measures that would encourage banks to modify mortgages rather than evict.

“I’m really hopeful something comes out of this,” said Jay Speer of the Virginia Poverty Law Center. “It’s starting to look like the last chance for real reform. The Virginia legislature still has this amazing allegiance to the big banks.”

If the negotiations are being conducted behind the scenes, the banks and their supporters are openly waging a battle for popular sentiment. The banks are presenting themselves as champions of those homeowners who might be hostile to the idea of someone in default getting an undeserved break.

Banks say cutting the mortgage debt of foreclosed families into something more bearable creates issues of moral hazard — that people will default to get a better deal.

Even as JPMorgan Chase representatives were meeting with the task force, the bank’s chief executive, Jamie Dimon, was rejecting the idea of writing down delinquent balances.

“Yeah, that’s off the table,” Mr. Dimon told reporters after a United States Chamber of Commerce forum in Washington.

His comments echoed previous remarks by other bankers, including the Wells Fargo chief executive John G. Stumpf, who said “it makes no sense” to entice people not to pay their debts.

Four Republican attorneys general wrote a letter last week to Mr. Miller of Iowa, expressing concern with the “scope, regulatory nature and unintended consequences,” of the settlement proposals, particularly with the question of principal reductions. The attorney general of Virginia, Kenneth T. Cuccinelli, one of the signatories, was invited to Wednesday’s session to allay his concerns.

Critics of the banks say the entire issue is a red herring, and that principal writedowns are not such a gift that people would default to get them. [EDITOR’S NOTE: IT’S NO GIFT IF IT IS RESTITUTION FOR FRAUD]

“Moral hazard is being invoked by the banks and their defenders as an excuse to do nothing, rather than out of any real concern for fairness,” Mr. Levitin said.

%d bloggers like this: