Pot Calls Kettle Black: Deutsch V BOA

See DEUTSCHEBANKv BANKOFAMERICA

This is an action for (1) damages for breach of contract resulting from BOA’s
failure to secure and safeguard over $1.25 billion worth of cash and mortgage loans that it was contractually obligated to secure on behalf of DB and (2) contractual indemnity for the losses caused by BOA’s negligent performance of its duties to DB.

Ocala was established for the sole purpose of providing funding for mortgage
loans originated by Taylor, Bean & Whitaker Mortgage Corp. (“TBW”). Mortgages purchased by Ocala were required to conform to the requirements of, and were intended to be sold to, the Federal Home Loan Mortgage Corporation (“Freddie Mac”), a government-sponsored entity that is implicitly backed by the full faith and credit of the United States government.

WET AND DRY MORTGAGES

One vital mechanism protecting DB against risk was the requirement that DB’s investment be at all times over-collateralized by a combination of cash and “dry” mortgages purchased by Ocala. “Dry” mortgages are mortgages that have been reviewed by the lender and are actually in the lender’s possession at the time the mortgage loan is acquired by the lender. By contrast, “wet” funding of mortgages is riskier from the lender’s perspective because financing is provided to a borrower before the mortgage note has been received and reviewed by the lender (i.e., when the ink on the mortgage note is still “wet”). The lender providing wet funding for TBW was Colonial Bank (“Colonial”). In making its investment in Ocala on June 30, 2008, DB insisted that its investment be used only for dry mortgages.

DB trusted that BOA, one of the nation’s largest and most well-known financial institutions, would perform the gatekeeper function reasonably and responsibly. DB’s confidence was echoed by Moody’s Investors Service, which, in assigning Ocala an investment grade rating, emphasized the importance of BOA’s role and stated that risk to DB and other noteholders was “mitigated by the resources, capability and credit strength of BOA as the trustee, collateral agent, depositary and custodian to provide critical program support services, including: certifying the borrowing base and checking the delinquency triggers before the issuance of Ocala’s ABCP; checking in the loan files and creating a collateral transmittal report; and managing the orderly wind-down of the program.” Moody’s ABCP Market Review (July 13, 2009). see Asset Backed Commercial Paper Review

As it turned out, the faith of DB and other investors was misplaced. In myriad ways, BOA failed to carry out its various duties designed to protect DB’s investment, and these failures substantially damaged Ocala and DB’s investment.


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People (including lawyers cross-examining me as an expert witness) ask “How do you know that?” Or sometimes they will ask “How do you know you’re right?” My answer is that it’s not just me, there has been plenty of material written, interviews broadcast on Radio, TV and Internet, books written, including some pretty highbrow stuff that told me chapter and verse what Wall Street was doing.

In a nutshell they were draining every penny they could out of homeowners and investors.And now they have increased their power by consolidating even more, this time with access to our depository bank accounts which were never intended to be piggy banks for speculation on Wall Street.

Since I began studying and analyzing the mortgage meltdown and the growth in the use of derivatives and hedges on derivatives, combining that information with legal research, litigation experience and business experience, it was pretty much black and white. And every bit of it was completely consistent with tactics dating back to before the 1929 crash. It was also completely consistent with my own exposure to Wall Street as a securities analyst, investment banker, and institutional salesman for retail brokerage houses.

Then there is the fact that nobody in more than 30 months has challenged my conclusions directly or indirectly with any analysis, facts, or interpretation that would give me pause. The only thing I see, somewhat sparsely I might add, is the occasional planted article, comment or interview where some shill is pushing ideological buttons in order to make this a matter of class or age warfare.

So bottom line — I will accept any challenge from a person who is knowledgeable in the details of securitization of residential mortgage loans, how Wall Street works, how loan underwriting is intended to work (and how it did work during the roaring 2000’s), the legal aspects of recordation of transfer of interests in real property, the industry standards for appraisal, underwriting, origination and transfer of loans and all the other topics raised on this blog.

There is plenty on the internet and in the bookstore about this subject. Give me a site and I’ll go read it. Right now, all I have seen even from some rotten decisions by ideologically motivated judges is that they will find any procedural gambit to hang their hat on to avoid the inescapable consequence of all this — the invalidation of all those mortgages and notes and the extinguishment of the obligation.

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