“Lost notes” and the Sudden Appearance of “Original Notes.”

Posted on March 27, 2019 by Neil Garfield

Think of it this way: If someone wrote you a check for $100, which would you do? (1) make a digital copy of the check and then shred it or (2) take it to the bank? Starting with the era in which banks made what is abundantly clear as false claims of securitization the banks all chose option #1. And they collected incredible sums of money far exceeding the Madoff scam or anything like it.

Back in 2008 Katie Porter was a law professor and is now a member of the US House of  Representatives. For those of who don’t know her, you should follow her, even on C-Span. She nails it every time. She knows and other congressmen and women are following her lead. Back in 2008 she uncovered the fact that in her study of 1700 filings in US Bankruptcy court, 41% were missing even a copy of the note, much less the original note.

Around the same time, the Florida Bankers Association, dominated by the mega banks and who absorbed the Florida Community Bank Association, told the Florida Supreme Court that, after the purported “loan closing,” digital copies of the notes were made — and then the original notes were destroyed. FBA said it was “industry practice.” It wasn’t and it still isn’t — at least not for actual creditors who loan money. Out in the state of Washington on appeal, lawyers for the claimant in foreclosure admitted they had no clue as to the identity of the creditor. The state banned MERS foreclosures, along with Maine.

That admission, with full consent of the mega banks, raised the stakes from 41% to around 95% — a figure later confirmed in Senate Hearings by Elizabeth Warren. The other 5% are loans that were truly traditional — funded by the “lender” (no pretender lender) and still owned by the lender who had the original documents in their vault.

The law didn’t change. In order to enforce a note you needed the original. And in order to plead you “lost” the note, you had to allege and prove very specific things starting with the fact that it was lost and not destroyed. Then of course you had to prove that the original was delivered to you, which nobody could because the original was destroyed immediately after closing and a fax copy was the only thing used after that.

Typically destruction of the note means that the debt is discharged or forgiven — something that is actually a natural outgrowth of the same debt being sold dozens of times in varying pieces under various contracts, none of which give the buyer any direct right, title or interest in the “underlying” debt, note or mortgage. In short, neither the debt nor the note exist in most cases shortly after the alleged loan closing.

The representatives of the mega banks who started the illusion of securitization of mortgage debts could neither produce the original note (because it was destroyed) nor tell a credible story to explain its absence. So they did the next best thing. They recreated the note to make it appear like an original using advanced technology that could even mimic the use of a pen to sign it.

Some of us saw this early on when they failed to account for the color of the ink that was used at closing. Those were among the first cases involving a complete satisfaction of the alleged encumbrance, plus payment of damages and attorney fees, all papered over by a settlement agreement that was under seal of confidentiality.

While obviously presenting moral hazard, the process of recreation could have been legal if they had simply followed the protocols of the UCC and state law to reestablish a lost note. But they didn’t. The reason they didn’t is that they still had to prove that the note was a legal representation of a debt owed by the borrower to a creditor that they had to identify. But they couldn’t do that.

If they identified the creditor(s) they would admitting that they had no claim because a person or entity possessing a right, title or interest in the debt did not include the named claimant in the foreclosure. Naming a claimant does not create a claim. A real claim must be owned by a real claimant. That is the very essence of legal standing.

If they had no claim they would be admitting that the securitization certificates, swaps and other contracts were all bogus. That would tank the $1 quadrillion shadow banking market. That is where we see the evidence that for every $1 loaned more than $20 in revenue was produced and never allocated to either the debt of the borrower or the investment of the investors. The banks took it all. $45 trillion in loans and refi’s turned into $1 quadrillion in “nominal” value. Nice work if you can get it.

So then they did the next next best best thing thing. They simply presented the recreation of the note as the actual original and hoped that they could push it through and that has worked in many, probably most cases.

It works because most borrowers and their lawyers fail to heed my advice: admit nothing — make them prove everything. By giving testimony regarding the “original” note the borrower provides the foundation and the rest of the foreclosure is preordained.

For some reason, lawyers who are usually suspicious, refuse to acknowledge the basic fact that the entire process is a lie designed to take property, sell it and apply or allocate the sale proceeds to anyone except the owner(s) of the debt. They hear “free house” and get scared they will look foolish.

A free house to those persistent and enduring souls who finance the great fight is a small price to pay for the mountains of windfall profit of the banks and related parties. As for the banks, adding the proceeds of a house that should never have been sold is adding insult to injury not only to the homeowner but to the entire society.

If anyone wants to know why so many Americans are angry, look no further than the 40 million people were directly displaced by illegal foreclosure and the additional 70 million people who were affected by those dislocations. Voters know that if the many $trillions spent on bailouts had been used to level the playing field, 110 million Americans and millions more worldwide would have never faced the worst effects of the great recession.

And we will continue voting for disruptors until a level playing field re-emerges.

see Lost notes and Bad Servicing Practices and Incentives SSRN-id1027961

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
A few hundred dollars well spent is worth a lifetime of financial ruin.
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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Filed under: bankruptcy, boarding process, burden of pleading, BURDEN OF PROOF, CORRUPTION, discovery, escrow agent, evidence, Fabrication of documents, foreclosure, foreclosure defenses, investment banking, Investor, legal standing, MODIFICATION, Mortgage, originator, Pleading, prima facie case, Servicer, sham transactions, standing, STATUTES, TRIAL OBJECTIONS | Tagged: , , , , , , | 6 Comments »

New “Original Notes” from Visionet Systems: How False Original Signatures Are Created

Posted on December 15, 2016 by Neil Garfield

“reapplying the “signature images” upon stored copies.”

I have obtained confirmation from a large bank vendor (Visionet Systems, Inc.) that it rectifies “lost notes” by reapplying the “signature images” upon stored copies. —- Bill Paatalo, December 10, 2016

Kudos to Bill Paatalo who has quantified and identified what I have been talking about for years — the production of “original” notes that were previously destroyed. The sarcasm from the bench has dripped ridicule on anyone even suggesting that the “blue ink” signature is merely a reproduction on a fabricated document. The revelations in this article might be a step toward changing that attitude. — Neil Garfield

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-
see

http://bpinvestigativeagency.com/automated-affidavit-verifications-and-lost-note-reproductions-for-bank-vendors-its-standard-business-practice/

This is something that everyone ought to read because it not only reveals the details of how consumers are being screwed by illegal actions taken by the banks, but also shows how we have now institutionalized illegal behavior.

Perhaps most important is the take-away question from this revelation: Why is the fabrication and forging and robosigning documents necessary if these were all bona fide loans? Answer: They were not bona fide loans and the loan documents were fabrications that the borrower was fraudulently induced to sign.

The money given to “borrowers” was not a loan, but it was a liability.  The liability arose because the homeowner received the benefit of the money advanced somewhere near the time of the fictitious closing. But because of the larger scheme of stealing money from pension funds et al, the use of their money at the so-called closing was hidden from BOTH the investors and the “borrowers.” No loan contract was ever formed. Hence the need for repeated fabrications to cover up the illegal behavior and to create the illusion of literally “the greater weight of the evidence.”

In virtually every foreclosure case the money trail (i.e., reality) does not in any way dovetail or reconcile with the false paper trail created by the world’s largest banks.

Excerpts from Bill’s Article:

I have obtained confirmation from a large bank vendor (Visionet Systems, Inc.) that it rectifies “lost notes” by reapplying the “signature images” upon stored copies. 

Astonishingly enough, this is not the only business practice that appears to violate the $25B National Consent Judgment. Visionet advertises that it prepares “OCR Legal Packages” which involves the use of a sophisticated computer software program to create and verify foreclosure affidavits. Apparently, humans are too slow, as Visionet points out, “Servicers routinely lag behind on completing the legal package reviews in a timely manne[r.”]

[For reference, here is a copy of the “Consent Judgement” (CJ) signed on April 11, 2012 (consent_judgment_boa-4-11-12)]

This investigation begins with yet another “surrogate signed” mortgage assignment “Prepared By: Visionet Systems, Inc.,” executed and recorded December 2015 in Collier County Florida (see: collier-county-florida-assignment). The assignment is executed by “Stacy Pierce – Vice President – MERS as nominee for Greenpoint Mortgage Funding, Inc.” Of course, this mortgagee went out of business on August 20, 2007.

I looked up “Stacy Pierce” and found her LinkedIn resume which shows “VP of Operations” for Visionet Systems, Inc. (see: https://www.linkedin.com/in/stacy-pierce-53047162)

I visited Visionet’s website (https://www.visionetsystems.com/about) and found this marketing brochure describing a product called “Visirelease.” (see: visirelease-marketing-brochure) I was curious as to the following language located on page 2:

“A database driven Business Engine enables the users to define complex business conditions. These business conditions are associated with the relevant tasks to ensure verification at completion of each task. A powerful and flexible print engine is implemented for printing of release, assignments and lost notes, with or without signature images.”

The persons signing the eventual automated affidavits are simply relying on the auto-produced document, and do little if any human verification. The prime example is the above assignment on behalf of defunct Greenpoint! Still, if the witness was doing the actual verification, then why the need for OARS? In all the cases I have been involved, having read and heard countless servicer witnesses’ testimony, I have yet to hear any of these bank witnesses divulge that the affidavits relied upon in the proceedings were prepared and “verified” by a third-party automated computer program. How’s that for hearsay?

Here is the laundry list of potential violations to the Consent Judgment. Nowhere do I see room for “automated affidavit verification solutions” by undisclosed third-party vendors such as Visionet Systems, Inc.

[(CJ – A1-A3):

2. Servicer shall ensure that affidavits, sworn statements, and Declarations are based on personal knowledge, which may be based on the affiant’s review of Servicer’s books and records, in accordance with the evidentiary requirements of applicable state or federal law.

3. Servicer shall ensure that affidavits, sworn statements and Declarations executed by Servicer’s affiants are based on the affiant’s review and personal knowledge of the accuracy and completeness of the assertions in the affidavit, sworn statement or Declaration, set out facts that Servicer reasonably believes would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. Affiants shall confirm that they have reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and required loan ownership information. If an affiant relies on a review of business records for the basis of its affidavit, the referenced business record shall be attached if required by applicable state or federal law or court rule. This provision does not apply to affidavits, sworn statements and Declarations signed by counsel based solely on counsel’s personal knowledge (such as affidavits of counsel relating to service of process, extensions of time, or fee petitions) that are not based on a review of Servicer’s books and records. Separate affidavits, sworn statements or Declarations shall be used when one affiant does not have requisite personal knowledge of all required information.

5. Servicer shall review and approve standardized forms of affidavits, standardized forms of sworn statements, and standardized forms of Declarations prepared by or signed by an employee or officer of Servicer, or executed by a third party using a power of attorney on behalf of Servicer, to ensure compliance with applicable law, rules, court procedure, and the terms of this Agreement (“the Agreement”).

6. Affidavits, sworn statements and Declarations shall accurately identify the name of the affiant, the entity of which the affiant is an employee, and the affiant’s title.

7. Servicer shall assess and ensure that it has an adequate number of employees and that employees have reasonable time to prepare, verify, and execute pleadings, POCs, motions for relief from stay (“MRS”), affidavits, sworn statements and Declarations.

10. Servicer shall not pay volume-based or other incentives to employees or third-party providers or trustees that encourage undue haste or lack of due diligence over quality.

11. Affiants shall be individuals, not entities, and affidavits, sworn statements and Declarations shall be signed by hand signature of the affiant (except for permitted electronic filings). For such documents, except for permitted electronic filings, signature stamps and any other means of electronic or mechanical signature are prohibited.

 

Filed under: foreclosure | Tagged: , , , , , , , , | 4 Comments »

How to Use Lost Documents and Destroyed or Withheld Documents

Posted on December 7, 2009 by Neil Garfield

Floyd Norris - Notions on High and Low Finance

EDITOR’S NOTE: Earth,the final frontier. Somewhere there are people who grasp the concept of reality. But to give credit where credit is due Floyd gives primary print space to contrary points of view. Even better, he shows his professionalism by asking the two questions (1) why would banks lose the note and (2) “what am I missing here?”

So here is my response and I invite you all to forward the article toFloyd and see what he says in response.

A note is cash equivalent. So why would anyone rip up cash? His question is not so far-fetched. It turns everything on its head to think of banks ripping up money. You have a $10 bill in your hand. Later when things are looking litigious, you rip it up. Why?

The answer Floyd — the only possible answer — is that there is greater risk in having the $10 bill than in keeping it. What circumstances would make the banks believe there wass more risk in cash equivalents than in throwing them out and pretending they had them?

Well, here’s a simple example. Suppose you took a Loan for $1000 after certifying through third parties (whom you control) and your own warraqnty that you had a $1,000 bill in your pocket. Yes, that would be the $10 bill in our example. Now the loan goes bad or the lender wants to actually see the bill. Which would you rather do (1) show the $10 bill and go to jail or (2) say you lost it or it was accidentally destroyed?

The THIING you are missing Floyd is that this was all based upon representations and not the real thing. Fraud was committed on BOTH the investors and the borowers who both purchased financial products predicated on the same assets which were intentionally   viability (investment grade, remember?) at an unsustainable value and which were represented to be of the highest quality when in fact the securitization chain all the way from investor to borrower was predominantly toxic.

What you are missing is that there were two HUGE financial incentives to perform in what appears to you and others as erratic: (1) the huge yield spread premium between the aggregating pool and the SPV pool (that’s right there are ALWAYS TWO POOLS NOT ONE) and (2) the geometric steroidal profit rained on the investment banks who created these pools by leveraging insurance 30-70 times over. In simple terms the investment banks (NOT THE INVESTORS) received $30-$70 for each $1 in the promissory note that was funded for the benefit of the homeowner.

In other words, it was ONLY through failure of the pool that a $300,000 note could (a) be paid off with over $9 million (even if it wasn’t in default) through credit default swaps that are insusrance but specifically excluded from official definitions of insurance or securities.

Borrowers are right when they demand the documents becuase it will lead to collapse of the “lender” side (actually pretender lender” because they simply steal the identity of the investor the same way the stole the identity of many borrowers in order to make the pool look good. They are looking for low-hanging fruit not cases where the deceit will be exposed. Or it will lead to a reasonable settlement that reflects true value and affordability wth normal underwriting standards applied.

Floyd this is not legalmumbo jumbo or some technical sleight of hand trick. NONE of these foreclosures are initiated by the creditor. All of these foreclosures are blatent in that they seek to steal the home wihtout having advanced ONE PENNY to anyone for funding or buying the obligation. 

December 4, 2009, 3:59 pm <!– — Updated: 5:42 pm –>Are Banks Losing Lots of Documents?

My column today has provoked a number of e-mail messages from readers saying — some politely, some not — that I failed to discover that the big problem is that banks are losing documents, over and over again.

“I have faxed/mailed every document requested, for a year now,” complained one troubled homeowner.

Another, who thinks I asked foxes to tell me about chickens, adds:

My employer came under S.E.C. investigation, early this year, resulting in multiple rounds of layoffs. As a result, I was forced — through no fault of my own — to reach out to Bank of America, phoning regularly since MAY, at least twice monthly and faxing copies after each call (the only delivery method they allow — for EACH and every earnings document this year). Between regular assertions that they “lost the copies” and outright, documented LIES that I did not call or fax, I am still struggling with them in DECEMBER!! I can assure you that I have complied promptly and completely with their every request — and I am certain I am not a limited statistic — as your column strongly implies.

Jean Braucher, a law professor at the University of Arizona, points me to a paper she wrote: “Fixing the Home Affordable Modification Program to Mitigate the Foreclosure Crisis.” She thinks the banks are far more culpable than I made it sound:

I think the major reason we are seeing so few permanent modifications may turn out to be that many servicers are losing documents or perhaps refusing to admit that they have documents. There have been many accounts of borrowers getting the runaround at the stage of trying to get a trial modification, and now I believe there is reason to suspect that pattern may be continuing at the stage of conversion from trial to permanent modification.

After reading your column, I posted a query on a listserv this morning to a group of bankruptcy lawyers, some of whom have had experience helping clients try to get HAMP modifications. I got back reports that lenders deny getting documents that have been sent 3 or 4 times. In short, I don’t think you had the full story in your column.

I think that the first thing that the administration needs to do is make sure that Freddie Mac, the compliance agency for HAMP, does a searching audit of the procedures servicers are using, including by talking to borrowers and housing counselors and lawyers for borrowers. I think this will turn up a lot of evidence, some of it concerning continuing lack of capacity to handle modifications but some of it also indicating unfair and deceptive practices and even fraud are occurring. Then the Federal Trade Commission needs to make an example of the worst offenders with some enforcement actions.

I have a couple of reactions.

First, I see no reason for the banks to purposefully lose the papers. What am I missing?

Second, a theory that banks can be clumsy and even incompetent deserves respect.

I am not sure to what extent lost documents are a major part of the problem, but I am now sure that many people think a lot of documents are vanishing.

Perhaps each bank should appoint someone to receive documents from people who think their documents have previously been lost, hand out receipts, and then be available to intervene if that bank’s bureaucracy claims the documents are lost. That person should be willing to take the documents in person, as well as by fax. (The banks have scanners to put the documents into their systems.)

If that solves a big part of the problem, great. But I suspect there are many other reasons that modifications are not becoming permanent.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , | 32 Comments »

Foreclosure Defense: Losts/Destroyed Note is No Accident

Posted on June 24, 2008 by Neil Garfield

AS YOU CAN SEE FROM THE NEWEST ENTRIES TO GARFIELD’S GLOSSARY, WE HAVE PIECED TOGETHER THE REASONS FOR THE METEORIC RISE IN LOST NOTES. WE ARE FAST ARRIVING AT THE CONCLUSION THAT FATAL DEFECTS IN THE LOAN UNDERWRITING AND SECURITIZATION PROCESS HAVE EVISCERATED THE SECURITY PROVISIONS OF THE MORTGAGE AND THE OBLIGATIONS UNDER THE NOTE.

See GARFIELD’S GLOSSARY

LOST NOTE, DESTROYED NOTE: SEE EARLY AMORTIZATION EVENT, TOXIC WASTE, SECURITIZATION

In prior times, the possibility of a note being accidentally lost or destroyed was protected by statutes providing for proving the note and mortgage without the original. These statutes and rules of procedure are now being invoked by nominal lenders and assignees of nominal lenders to escape or navigate around a much deeper problem for them.

It is the opinion of this editor that the original notes were not accidentally destroyed or lost. There either intentionally destroyed or hidden in some trustee’s vault in an off shore structured investment vehicle. The reason is simple: the terms of the note and mortgage do not match the narrative or representations of the parties in the securitization process culminating in the sale of ABS instruments.

The nominal lender or assignee will claim that they did not lose or destroy the note and that might be true. That is why the SINGLE TRANSACTION theory must be invoked in foreclosure defense. Someone in the securitization process was responsible for the fact that between 40%-90% of the notes have vanished, whereas prior to the Mortgage Meltdown era the percentage of lost notes was less than 1/2 of one percent.

Since the promissory note is a thing of value and in fact is considered “money” in many economic models, it is a challenge to come up with reasons why anyone would “rip up a ten dollar bill.” The only reasonable answer is that if someone actually saw the $10 bill they would know it wasn’t a $100 bill, which is what they thought it was when they bought a piece of paper that referred back to the fictional “$100” bill.

The effect of this destruction and the reasons for it add considerable weight to the argument that there is no longer any enforceable mortgage, that the rescission rights of the borrower have been deflected into an abyss for lack of a real party in interest, and that the SINGLE TRANSACTION theory is the only one that accounts for everything that went bad in the Mortgage Meltdown era. In the context of multiple assignments and parsing of the notes and mortgage in the securitization, the lost or destroyed note takes on a whole new meaning.

NOMINAL LENDER: SEE LENDER, ASSET BACKED SECURITY (ABS), CDO, Early Amortization Event

A conduit or party acting as Mortgage Broker under false pretenses to the borrower giving the impression that it is has performed ordinary due diligence and applied ordinary underwriting standards to the approval of the loan, the appraisal, the borrower’s qualifications and ability to pay and the fees at closing.

The Nominal Lender is the party named on the mortgage as the mortgagee and named on the note secured by the mortgage as the payee. It is usually a front for some larger entity or financial institution. In virtually all cases from 2001-2008 the party so named on the closing documents was a Nominal Lender. The nominal lender abandoned virtually all underwriting standards and assessment of risk of loss or default because the nominal lender was not assuming those risks. In all cases, the nominal lender had already pre-sold the or assigned rights under the mortgage and note before execution of the underlying documents (mortgage and note) or immediately after under the expectation and agreement, tacit or written, that the nominal lender would receive a fee or profit from closing the loan and that the actual funds would come from third parties involved in the securitization process eventually culminating in the issuance of ABS instruments.

Thus the nominal lender lacks legal standing to pursue enforcement of the note or mortgage because the nominal lender has no financial interest in the note or the mortgage. It is equally true, however, that the claim under TILA, RESPA, RICO etc. might not be addressed to the correct party when the mortgage audit is completed and rendered with a proper request under RESPA for resolution.

The nominal lender lacks legal authority to settle anything since it is no longer a holder in due course of the note or mortgage. In addition, the removal of the nominal lender from the actual underwriting and funding process probably extends the time for rescission indefinitely because the real parties in interest are never disclosed to the borrower. similarly it is unlikely that the nominal lender has the authority to negotiate a settlement or even execute a satisfaction of mortgage, since it cannot return the original note (see Lost, Destroyed Note).

Early Amortization Event (EAE) — SEE LOST OR DESTROYED NOTE

A type of credit “enhancement” used in asset backed securities. One or more triggers, defined in the asset backed security’s documentation require the termination of revolving periods, controlled amortization periods and/or accumulation periods.

Once triggered, the early amortization provision requires that the monthly principal payments be distributed to investors as they are received. This “enhancement” was in actuality a massive risk factor and contributed greatly to the Mortgage Meltdown period of 2001-2008. It also may have caused certain parties to be motivated to “lose” or “destroy” the original note.

The most common trigger is a measure of how the portfolio yield net of charge-offs exceeds the base rate of servicing plus the investor coupon rate. Also called a pay-out event. Another event potentially within this category is the actual payoff of the mortgage. An analysis of the the concept of an EAE demonstrates several peculiarities and a possible explanation of the promissory note being lost or destroyed:

Given that an ABS is a derivative instrument and that traders in derivatives are comfortable with the value of these securities being “derived” by “reference” to something else, the traders are accustomed to examining not the actual “asset” or evidence of the asset (e.g. the note and mortgage) but rather a narrative describing the note and mortgage (which from 2003-2008 was, for the most part, at variance with the actual terms expressed in the note — the the existence of the original physical note put the CDO a manager at risk of discovery of having misled, lied or withheld vital information (like actual cash flow based upon negative amortization versus the stated rate on the note or the elimination of escrow for taxes and insurance which degrades the safety of the an investment based upon that mortgage and note).
Hence, the traders in derivatives relied upon summaries or narratives that were not scrutinized by any securities agencies for compliance with disclosure requirements, the most important of which were the risks of the investment in an ABS.

THEY RELIED INSTEAD ON THE RATING “AGENCIES” (ACTUALLY PRIVATE COMPANIES THAT WERE THEMSELVES UNREGULATED BUT ASSUMING THE MANTLE OF PSEUDO-GOVERNMENTAL OBJECTIVITY). And of course the rating agencies, by relying upon narratives prepared by CDO managers rather than examining the underlying documentation (the notes and mortgages) didn’t see the original note or mortgage either, much less analyze, examine or otherwise perform the due diligence that constituted the condition precedent to issuing a rating of “investment grade” on any security. This failure was prompted by monetary incentives and negotiation between the “client” (the issuer of the securities being rated and the rating company (Moody’s, Fitch etc.)
The actual projected charge-off rate was known to anyone who actually saw the loan application of the borrower, and the original note and mortgage. The narrated charge-off rate upon which the ABS derived its value was based upon the opinion of the CDO manager at the investment banking firm who had no expertise in appraising or underwriting loans. Nonetheless it is certainly an arguable position that the CDO manager knew or should have known that underwriting standards at the level of the nominal lender at closing had collapsed into a rubber stamp, since the nominal lender was in actuality playing the role of a conduit or mortgage broker.  See Nominal Lender.
The structure of the SPV (see Special Purpose Vehicle) was a more formal replay of the pattern of misrepresenting the terms, risks and attributes of the note and mortgage. “Tranches” (see TRANCHE) were created within each SPV, wherein each tranche behaved more or less as separate entities providing protection to the tranche above and moving the brunt of the risk of total loss down lower and lower to the lowest tranche which in the parlance of the finance world is called “toxic waste.” (see Toxic Waste). ABS instruments were issued not on the entire SPV “portfolio” but on selected groupings of tranches within the SPV and further complicated by the trading of credit default swaps, the cross guarantees, assurances and liability of other SPVs, other individual SPV tranches, and other third parties, insurers and assurers.
Thus the EAE represented in reality an astonishing array and number of variables that could not be quantified or analyzed by purchasers of ABS instruments except on faith and confidence of the issuers, rating agencies and other parties or by performing their own due diligence (which is now proposed under new SEC rules as of the the date of this entry, June 24, 2008).
At the root of the EAE phenomenon was the conflict between the truth of what was actually presented to the borrower at closing of the loan transaction and what was represented up-line (in the securitization process) eventually to the purchasers of the ABS instruments that provided the capital to fund the alleged “loans” which are editorialized in these pages as securities in actuality that were issued by the nominal lender under false pretenses and without compliance with banking and securities laws, rules and regulations that applied.

TOXIC WASTE: SEE SPV, ABS, SINGLE TRANSACTION

The lower tranche levels of an SPV (see Special Purpose Vehicle) whose main characteristic is to take whatever revenue or principal is paid on the high-risk debt obligations contained within that tranche and pay for any short-fall in higher tranches within the same SPV or through credit default swaps effecting other SPVs. It is difficult if not impossible to trace any specific mortgage or note to any specific one or more SPVs, tranches or other cross collateralization agreements and other instruments that distributed and parsed interests in individual loans in multiple parts to multiple parties and joined co-obligors at various levels before and during the securitization process (based upon the clearance procedures and record keeping of those involved in the SINGLE TRANSACTION).

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , , , , , , | 5 Comments »

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