Banks Keep Winning, But Borrowers Are Picking Up the Pace

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Editors’ Analysis: Based upon reports coming from around the country, and especially in Florida, Nevada, New York, and other states, it seems that while the tide hasn’t turned, borrowers are finally mounting a meaningful challenge to the improper, illegal and fraudulent practices used at loan originations , assignments and foreclosures. As I have discussed with dozens of attorneys now, the strategies I suggested 6 years ago, once thought of as “fringe” are now becoming mainstream and the banks are feeling the pinch if not the bite of homeowners’ wrath.

The expression I like to use is that “At the end of the day everyone knows everything.” By using DENY and Discover tactics or strategies like that, borrowers are shifting the urden of persuasion onto the would-be foreclosers who in most cases do not have “the goods.” They are not a creditor, they didn’t fund the loan, they didn’t buy the loan and they don’t have any legal authorization to pursue foreclosure, submit a credit bid or otherwise trade in houses that were never subject to a perfected lien, and never owned by them.

It is becoming perfectly clear that something wrong is happening when the foreclosure strategies of the Wall Street puppets results in tens of thousands of homes being abandoned, blighting entire neighborhoods, towns and even cities. The banks are not stupid, although arrogance is not far from stupidity.

In ordinary times in any ordinary recession, the banks would do almost anything to avoid foreclose. They simply don’t have the money or the desire to acquire a portfolio of properties and they certainly don’t want to foreclose where the the end result is that the value of the collateral is diminished BELOW ZERO. And they certainly would not pursue policies that they knew would tank housing prices because it would only decrease the value of the loan and the likelihood of getting repaid for the loans they made.

But these are not ordinary times. Banks DO want price declines, so they can create REITS and other vehicles to pick up cheap properties. They DO want foreclosures even where the value of a blighted neighborhood is not worth the taxes, maintenance and insurance to keep the properties.

The reason is simple: if the loan is a total failure and under applicable state law they are able to create the appearance of a valid foreclosure, then the case is closed. Investors have not questioned the foreclosure process, mostly because they think that the basic problem was in the low underwriting standards which  certainly did contribute to the mortgage meltdown. If you look at most of the mortgages they have fatal flaws which increase the likelihood that the loan will fail — especially with blacks and other minorities who have been deprived of decent education and couldn’t possibly understand the deals they were signing.

Disclosure was required — but never made in terms that the borrowers understood — that the loans were being priced too high for the income of the household, and priced higher that the rates for which the household qualified. Blacks were 3.5x more likelihood to be steered into subprime loans when they qualified for conventional loans. People of Latin decent were treated like trash too being presented with documents that not only went above their education or sophistication in real estate transactions but also used words they never learned in English.

But the real reason I learned in my interviews was unrelated to the defective foreclosures. It goes back to the study made by Katherine Ann Porter when she was at the University of Iowa. Her study of thousands of mortgages and foreclosures came to the inescapable conclusion that at least 40% of all the origination documents were intentionally destroyed or claimed as lost. Other studies have shown the figure to be higher than 65%.

In ordinary times the  promissory note executed by the borrower in a conventional residential loan is a negotiable document supported by consideration from the payee who loaned money to the borrower. These notes were given to a custodian of records whose job was to preserve and protect these papers because they were considered by all accounting standards as CASH EQUIVALENT.

So on the balance sheet of the lender the cash was added to cash equivalents as total liquidity of the lender or bank. [What you are looking for on the balance sheet of the “lenders” are “loans receivable” and corresponding entry on the liability side of a reserve for bad debt. You won’t find it in the “new mortgages” because they never had the real stake or risk of loss on that loan and therefore was excluded entirely from the balance sheet or placed in a category in loans held for sale along with a footnote or entry that zeroed out the asset of loans for sale because they were committed to third parties who had table funded the loan contrary to the express rules of TILA and Reg Z which state that the loans are presumptively predatory loans if the pattern of lending was  table funded loans.] See My workbooks on www.livinglies-store.com

The notes were considered liquid because there was always a secondary market in which to sell the notes and mortgages. And there, the proper chain of authorized signatures, resolutions, and endorsements was carefully followed, same as they would require from any borrower claiming an asset as proof of their credit-worthiness.

So why would any bank or any reasonable person intentionally destroy the original documents that constituted by definition the origination of the loan collateralize by a supposedly perfected lien? In my seminars and workbooks I answer this question with an example: “If you tell someone you have a hundred dollar bill and that they can have it if they buy to from you for $100, but that you will hold onto it because you will make some more money for them by lending it out, then the fraud is complete. And there you have the beginning of a PONZI scheme.

As long as you are paying them as though they had $100 invested, they are happy. But what if you were holding a $10 bill and not a $100 bill. What if they took your word for it that you were holding a $100 bill. AND what if now they want to see the $100 bill? Now you have a problem. You have no $100 bill to show them. You never did. For a while you could take incoming investor money and then show the original investor the money but when investors stop buying new deals, then you don’t have the $100 bills to show everyone you dealt with because all you ever had was a $10 bill.

So better to say that you destroyed it under the premise that the digitized copy would suffice or lost it because of the complexity of the securitization process than to admit that you never had it to begin with. If you admit it, you go to jail and you are ordered to pay restitution, your assets seized and marshaled to return as much money as possible to the victims of the PONZI scam.

If you don’t admit it, then there is the possibility that after probing why the investors didn’t get their money back, they start discovering how you were using their money, and what you were doing as business plan. The only way to shut that off and make it least likely that investors would ever question whether you had represented the deal correctly at the beginning, to avoid criminal prosecution, is to COMPLETE the FORECLOSURE Process which gives the further appearance that there is an official state government seal of approval on a perfectly illegal foreclosure and probably an economic crime.

See below for the suffering and light and lives lost because of this incredible crime that nobody seems to want to prosecute. A crime, by the way, they has corrupted title records that will haunt us for decades to come.

wall-street-kept-winning-on-mortgages-upending-homeowners.html

THE STORY CONTINUES: NO ORIGINAL DOCUMENTS, NO NOTES, NO ENDORSEMENTS — EVEN IN CASES WHERE THE FORECLOSURE WAS APPROVED

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EDITOR’S COMMENT: These documents are considered as “cash equivalent” by auditors and bankers and always have been considered that way. So we must think of the documents as cash. Why would cash go missing? Why would anyone allow them to be lost in such large numbers? Why would anyone destroy money?

It all comes down to what I have been saying in my seminars and conference calls: “why would destroy a ten dollar bill.” The only reason in this context is because the holder of the the ten dollar bill represented it to be a one hundred dollar bill and now someone wants to see it. So it is more convenient to say they lost it or destroyed it than to show proof they committed fraud in the first place, subjecting the holder to jail time and civil penalties.

Behind foreclosure corner-cutting, troves of missing documents

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By Scot J. Paltrow

NEW YORK | Mon Jul 18, 2011 9:27pm EDT

NEW YORK (Reuters) – Why have sketchy mortgage procedures been so difficult to root out? Some lawyers blame misguided efforts to cut costs. Most foreclosures are uncontested, they note. And so servicers save money by avoiding costly searches for missing original documents or hiring additional staff to deal with the surge in foreclosures.

There are signs, however, that servicers resort to doubtful documents because they have no choice if they are determined to foreclose: To a great extent, originals simply don’t exist.

It’s one of the overlooked legacies of the housing boom.

In the rush to make new home loans and sell them off as fast as possible to investors on Wall Street, the original lenders –big banks as well as now defunct makers of subprime loans –destroyed original documents, or never turned them over as required to the ownership pools that scooped them up. From 2004 through the end of the housing boom in 2006, more than half of all new mortgages were securitized and sold to such pools, known as mortgage-securitization trusts, according to the Securities Industry and Financial Markets Association.

So, banks and intermediaries in many cases never turned over the two essential documents underpinning a home loan — promissory notes and mortgages — that would convey ownership to the investor trusts. That means many pension funds, insurance companies and hedge funds that invested in the trusts never got formal title to mortgages they had paid for.

Sheila Bair, who recently stepped down as Federal Deposit Insurance Corp. chairman, in Congressional testimony has called for a wide-ranging audit of the problem. But other regulators so far haven’t backed the idea, possibly fearing that if the extent of the problem became known the housing market might worsen.

One example: Public records in foreclosure cases indicate that New Century Mortgage, the nation’s second-largest subprime lender until it collapsed in 2007, almost never endorsed promissory notes or assigned mortgages to trusts that bought its mortgages.

A Reuters sampling of 50 foreclosure cases filed in Duval County, Florida, involving New Century mortgages found that none of the promissory notes filed in the cases had any endorsements at all on them. Records show that similar large-scale lapses occurred with other big lenders.

The result is that trusts may be out many billions of dollars, says Matthew Weidner, a lawyer who specializes in mortgage litigation. If proper procedures are followed now, foreclosures could slow to a trickle. And a cloud would hang over title to millions of homes, potentially further depressing the housing market.

Sheila Bair, who recently stepped down as Federal Deposit Insurance Corp. chairman, in Congressional testimony has called for a wide-ranging audit of the problem. But other regulators so far haven’t backed the idea, possibly fearing the consequences if the extent of the problem became known.

(Editing by Michael Williams)

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