Investors Settle for $600 million — so which loans get credit for that payment?

Editor’s Note: This is what we are hearing about. What about the settlements that go unreported? The number of settlements that are off-record (unreported) is unknown but suspected to be very high. [One of the reasons why it is SO important to get the true CURRENT status of the SPV and the true FULL accounting of payments to the investors because THEY are the creditors.] You might be sitting on a loan where the principal balance has been paid in whole or in part, which makes those monthly statements wrong, along with notices of delinquency, notices of default, notices of sale and foreclosure suits.

These lawsuits and settlements are DIRECTLY related to the balance due on homeowner loans. The investors were the ONLY source of capital. That capital was pooled and channeled through SPV’s. It was from the pool that loans were funded. Don’t get confused by mistakes in the media. The securities were FIRST sold to investors and THEN they went looking for people to loan the money.

So each time that a payment has been made on behalf of any pool from any source there should be an allocation to the borrower’s principal balance for each of the loans in that pool. Instead, the game is on: credit the investors but don’t tell the borrowers anything. That enables the PRETENDER LENDERS to grab houses for nothing and to collect monthly payments on loans that are already paid in full, unknown to the borrower. It’s the perfect crime: the borrower knows he has missed payments. What he/she doesn’t know is that someone made the payments already.  Worst case scenario for the pretender lenders is that they collect twice (collectively as a group).

By Jef Feeley and Edvard Pettersson

April 23 (Bloomberg) — Countrywide Financial Corp. investors, led by a group of New York retirement funds, have agreed to settle a class-action lawsuit for more than $600 million, a person familiar with the case said.

U.S. District Judge Mariana Pfaelzer in Los Angeles in December certified a class of investors who bought Countrywide shares or certain debt securities from March 12, 2004, to March 7, 2008. The U.S. appeals court in San Francisco on April 19 denied the defendants permission to appeal that ruling. No settlement papers have been filed.

Shirley Norton, a spokeswoman for Bank of America Corp., which acquired Countrywide in 2008, declined to comment. Jennifer Bankston, a spokeswoman for Labaton Sucharow LLP, the firm representing the pension funds, said mediation between the parties took place this month and declined to comment on the settlement.

The New York State Common Retirement Fund and five New York City pension funds claimed former Countrywide Chief Executive Officer Angelo Mozilo and other executives hid from them that the company was fueling its growth by letting underwriting standards deteriorate. Bank of America acquired Calabasas, California-based Countrywide, which was the biggest U.S. home lender, in July of 2008.

The Daily Journal, a Los Angeles legal newspaper, first reported the settlement.

SEC Lawsuit

Mozilo, 71, is also a defendant, together with two other former Countrywide executives, in a U.S. Securities and Exchange Commission lawsuit alleging he publicly reassured investors about the quality of the company’s home loans while he issued “dire” internal warnings and sold about $140 million of his own Countrywide shares.

He wrote in an e-mail in September 2006 that Countrywide was “flying blind” and had “no way” to determine the risks of some adjustable-rate mortgages, according to the SEC complaint filed in June.

David Siegel, a lawyer for Mozilo, didn’t immediately return a call seeking comment.

The class-action lawsuit names 50 defendants, including Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and 23 other Countrywide underwriters. It also named the auditing firm KPMG LLP. The underwriters and KPMG are accused of securities-law violations and not fraud.

Dean Kitchens, a lawyer representing the underwriters, and Todd Gordinier, a lawyer representing KPMG, didn’t immediately return calls seeking comment.

The case is In re Countrywide Financial Corp. Securities Litigation, 07-05295, U.S. District Court, Central District of California (Los Angeles).

–Editor: Michael Hytha, Peter Blumberg.

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at; Edvard Pettersson in Los Angeles at

To contact the editor responsible for this story: David E. Rovella at

Foreclosure Defense: The Defense of PAYMENT

Thus the fund is present for payment and controlled by the combined entities of the entire single transaction. A default by the borrower is actually therefore impossible under the scheme of securitization as it was implemented. 

The fact that the borrower has not made a payment to the mortgage service provider has typically been accepted as prima facie proof that the mortgage is at least technically in default. But what if payment HAS been made by the borrower or by a third party? PAYMENT is an absolute defense and completely removes the ability of anyone to take any action in collection of the debt because the debt is not due.

Consider this latest entry to Garfield’s Glossary:

THIRD PARTY PAYMENT: (Foreclosure Defense: “PAYMENT”)

A basic defense to any foreclosure action or any action on a debt, whether evidenced by a note, security agreement or otherwise is PAYMENT. It is entirely possible and in fact probable that the ultimate party to whom payment was to be made actually received the payment from a third party, or a portion of the payment, or has a claim for the payment from a third party.

This third party obligation, taking the entire transaction as one single transaction arises from the sale, assignment, aggregating, re-assignment, sale, or transfer to an investment banker or entity created by an investment banker and in turn sold to an investor in pieces as an asset backed security (ABS).

Presumably the investor who purchased an asset backed security which was backed in small part by YOUR mortgage and note and the balance backed by (a) other mortgages and notes, and possibly other portfolios of obligations which may or may not have been mortgages and notes, (b) insurance from the rating agency, (c) insurance from an insurer against the risk of default, (d) insurance from the investment banker, (e) insurance from the mortgage broker, (f) insurance from the appraiser of the house, (g) insurance from the “lender”, (h) lender liability for buy back or guarantee of payment and potentially other third party entities who did make payment or who will make payment curing the borrower’s alleged default or nullifying the alleged default altogether.

The transfer of risk allocation sought by securitization, cross indemnity agreements, guarantees, ratings, insurance and “buy-back arrangements, convert the payment allegedly due from borrower as part of a larger option Ponzi scheme.

Using the Countrywide model which can be seen buried deep within their filings with the SEC, one can see that the proceeds of the sale of the ABS can be used to make the payments.

Thus the fund is present for payment and controlled by the combined entities of the entire single transaction. A default by the borrower is actually therefore impossible under the scheme of securitization as it was implemented.

The reality is that the underwriting standards for loaning money were dropped, along with even the escrow account for insurance and taxes in some cases, so that the loan would qualify for for closing at closing, even if it would later NOT qualify knowing the inflated value of the home, and the likelihood of increases in payments beyond the financial capacity of the borrower.

The gap created between what the borrower could actually pay and what the loan terms demanded was made up by the “option” quality referred to above  through insurance and other terms between the multiple players in the chain of title for the mortgage, note, risk of loss and right to payment (all of which was separated out into different entities — none of whom qualified as a lender or as an entity with a right to do business in the state where the property was situated or the state where the loan was originated.) (see LENDER).


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