Hiring an Expert: What Are you Looking For in Foreclosure Litigation?

I have spent the last 7 years developing the narrative for an expert opinion that could be presented, believed and sustained in court. In writing to a probable new expert we will offer through the livinglies.store.com I summarized what attorneys should be looking for when they consult with an expert in structured finance (i.e., derivatives, securitization etc.).

Here  are some of the issues you want covered by the expert declaration and testimony in court. The basic rule of thumb is that the expert must have both the qualifications to testify as an expert and a persuasive narrative of why his conclusions are right. Without both, the testimony of the expert simply doesn’t matter and will be rejected.

If you are a proposed expert in structured finance, then here is what I would want to know, and what I think lawyers should ask, depending upon what fact pattern is present in each case.

One thing I need to know is whether you feel comfortable in talking about the ownership and balance of the loan.

In one example American Brokers Conduit was the payee on the note and mortgage. We alleged that they didn’t loan the money. Our narrative ran something like this: if you ask me for a loan, and I respond “Yes just sign this note and mortgage” AND THEN you sign the note and mortgage AND THEN I don’t give you a loan, ARE YOU PREPARED TO SAY THAT THE NOTE AND MORTGAGE WERE DEFECTIVE IN A BASIC WAY, TO WIT: THAT THE SIGNATURE ON THE NOTE AND MORTGAGE WAS PROCURED BY FRAUD OR MISTAKE AND THAT WITHOUT THE IDENTIFICATION OF THE REAL CREDITOR BOTH INSTRUMENTS ARE DEFECTIVE.

Would you, as a reasonable business person accept a note purporting to be a negotiable instrument under the UCC if you knew that the transferor neither funded the loan nor (if they purport to be a successor) paid for the assignment?

What is your opinion of your position if you found out after acceptance of the note and mortgage that there was doubt as to whether the obligation was funded or purchased for value? What would you do or suggest to a client in either of those positions — (1) knowledge [or “must have known] or (2) no knowledge [and later finding out that there is doubt as to funding and purchasing for value]?

Are you prepared to say that the fact that the borrower actually did receive money as a loan from another different party does not create a circumstance where the borrower is construed to convey any rights to anyone other than the source of funds or someone in actual privity with the lender — and that both note and mortgage are defective under normal recording statutes — and certainly not a commitment by the debtor to BOTH the source of the funds and the receiver of the signed promissory note and mortgage?

In the one case referred to above, the corporate representative conceded that ABC didn’t loan the money. He was unable to explain what was transferred by ABC to Regents and from Regents to 1st Nationwide and thence to CitiCorp by merger. He admitted that “Fannie Mae was the investor from the start.” You and I understand that neither Fannie and Freddie are lenders. They are guarantors and they serve as Master Trustee for hidden REMIC trusts. (Do you know or agree with that assertion?)

But the question is whether the note is actual “evidence of the debt” (the black letter definition of a promissory note when it contains a promise to pay) when the creditor is identified as a party who was not a lender. In the absence of disclosures of some representative capacity for an actual lender, are you prepared to testify that the note is unenforceable even if the debt is otherwise enforceable in relation to the actual source of funds?

Or would you say that it is not enforceable by the stated payee but it might still be evidence of the debt and evidence of the terms of repayment to the third party source? How does the marketplace treat such questions in valuing a note and mortgage?

The question is whether the expert actually believes and is willing to argue that these conclusions are true and correct.  The expert must earnestly believe these assertions to be true, logically and legally.
Is it acceptable to the prospective expert to see a result where the application of law and facts results in the homeowner getting his home free and clear — on the basis that the wrong party sued him or initiated foreclosure (in non judicial states), or that the notice of default, notice of acceleration, and statements of money due were wrong.
The approach is an attack on ownership and balance. The balance would be wrong, even if the ownership was established, if the payments were not applied properly. The payments include all payments received by the creditor.  That includes all servicer advances directly to trust beneficiaries, as well as insurance and loss sharing payments (i.e., from FDIC and others) paid and received on behalf of the investors directly or the trust beneficiaries.
Part of the reasoning here is that you really have an interesting problem. The Trust beneficiaries agreed to “loan” money to a REMIC trust in exchange for a complex formula of repayment under the indenture of the mortgage bond (contained in the Prospectus and Pooling and Servicing Agreement). Those terms are different than the terms signed by the homeowner.
So there are two agreements — the mortgage bond and the mortgage note. Different parties, new parties are in the PSA as insurers, servicers,servicer advances etc. all resulting in a DIFFERENT payment from an assortment of parties expected by the creditor —different than the one promised by the debtor whether you refer to the note as evidence of the debt or not.Add the complicating factor that without evidence that the Trust was ever funded (i.e., without evidence that the broker dealer sent the proceeds from the offering prospectus to the trust) how do we answer the basic contract question: was there a meeting of the minds? The expectations of the lender (investors) and the borrower (homeowner) are entirely different and the documents used are completely different.

How could the Trust have entered into any transaction for the origination or acquisition of loans without evidence of funding?

On what basis can the Trustee or servicer claim any authority if the Trust was not funded and was essentially ignored? Does the expert agree that avoiding or ignoring the trust means avoiding and  ignoring the prospectus AND the PSA, which contains the authority for ANYONE to act on behalf of the investors, who are no longer “trust beneficiaries” but just a group of investors without a vehicle for their investment?

ESSENTIAL QUESTION: Is the expert prepared to testify about this aspect of structured finance — i.e., how do you connect up the debtor and the creditor? As an expert you would be expected to be able to testify on exactly that question.

And finally there is testimony about the mortgage. If the mortgage secures the note (not the debt, necessarily), which is what is stated in the mortgage, then is the expert willing to testify that the mortgage was defective and should never have been recorded?

Would it not be true, in your estimation, that if a homeowner executes a mortgage in favor of a party posing as a lender, and that party is not a lender to the homeowner, that you could testify that the moment such a mortgage is recorded it probably clouds title?

Would you be willing to testify that based upon those facts, you would say that it is an unknown variable as to who to pay?

Would you be wiling to testify that if you don’t know who to pay, you have no basis for trusting a satisfaction of mortgage from any party including the the original mortgagee?

And lastly that if there is no basis on the face of the instruments or in recorded instruments to presume a valid creditor has been named, that no better presumptions would attach to any assignment, endorsement or other instrument of transfer?

For information concerning expert declarations, consultations and testimony from experts with appropriate credentials to be qualified as an expert, or for litigation support, please call 954-495-9867 or 520-405-1688.


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This Topic Will Be Covered More Extensively

at the 7/26 seminar in Chandler, Az

Editor’s Note: A declaration of an expert is only as good as it is credible. In my opinion it should be used sparingly as a device to survive motions to dismiss, motions to lift stay and Motions for summary judgment. And then it should be used as the basis for submitting requests for discovery —- interrogatories, requests for admission and requests for production. The more it is used to “prove” the homeowners’ case, the more likely it is that the homeowner will be assuming the burden of proof of the entire case when it is the other side that has all the actual facts, documents, wire transfers and other indicia of actual financial transactions in which money exchanged hands.

Under the rules of evidence the rules are lax as to admission of a witness as a supposed “expert” but it is common for the court to ignore the declaration for any one of several reasons:

  1. The “expert” lacks credentials to carry the weight of the testimony and opinion evidence. This involves academic degrees and actual experience in a complex field in which the expert can and does describe clearly what is not apparent from the face of the documents.
  2. The expert advocates rather than reports. Bias and a lack of objectivity is often presumed.
  3. The expert fails to show the court the methods by which he or she reached conclusions and opinions in a way that is understandable to the Court.
  4. The expert is unprepared for cross examination.
  5. Th expert is unprepared to assist in cross examination of an opposing expert.



Affidavit of counsel: At most an affidavit of counsel is only a representation to the Court that counsel has performed some due diligence and that this served as a colorable basis for advocating a position on behalf of his client. It is not evidence in either the auditing or legal sense.
There is no supporting documentation showing that Woodall in fact represents Wells Fargo. Several cases across the country including Wells Fargo and U.S. Bank in particular have demonstrated that at the end of the case, the attorney admits he was not retained by the purported “client” and in fact never even spoke with anyone at the Bank.
Wells Fargo asserts itself as servicing agent but fails to provide any supporting documentation supporting that assertion. Here again, Wells Fargo has been sanctioned, fined and punished for misrepresenting itself as authorized owner or servicer of a particular loan.

The supporting documentation should be a copy of the documentation showing that Wells Fargo was hired by the creditor to serve as servicer. In claims, such as this one, that the loan was securitized, that authority would ordinarily come from a pooling and servicing agreement (PSA). Such authority in the PSA would only be valid if there was a valid financial transaction in which the investor-lender agreed that Wells Fargo would be the subservicer, a fact that can only be established by Foundation documents and testimony from the Master Servicer
A valid purchase of the loan by the investor through the conduit named in the affidavit. In most cases, the presence of a valid financial transaction in which actual money exchanged hands is fabricated and the use of it in court is fraudulent.
In my opinion, this document is fraudulent, fabricated and potentially forged as well.
The attorney asserts that he has the “wet ink” original documents in his possession but fails to state how he came into possession of those documents. In many, if not most cases, the “wet ink” documents are in fact fabrication using technology to duplicate what appears to be original documents. With respect to Wells Fargo I was an actual witness testifying under oath when the Wells Fargo attorney attempted to get the “original” documents into evidence. A cursory examination of the document (I am not a forensic document examiner) revealed obvious defects in a heavy signature that did not create any raised markings on the reverse side. I testified that the document as shown would most likely be a fabrication printed that same morning considering the condition of the paper handed to me. The lawyer ceased that line of questioning and never entered the original documents into evidence. Therefore it is my opinion that the assertion in the affidavit is at least suspect in that it lacks foundation from a competent witness who could substantiate the manner in which the document was produced, maintained and “delivered” to the affidavit.

Without first discovery to trace the chain of custody it is impossible in my opinion, to accept the proffer of these documents as “original” as carrying any presumption.

My presumption is that the documents were fabricated and that the affiant has no personal knowledge as to the origination of the documents or the chain of custody nor whether the documents were or could have been fabricated.
Reference to Note dated August 15, 2005 by and between Union Federal bank as Lender and Borrower.  See above as to whether the attachment is true and correct as a copy of the the note.
I see no foundation for establishing the authenticity of the “original note.” Therefore without proper foundation from a competent witness and other corroboration, it cannot be said that the note is genuine.
The reference to the note raises issues as well. It recites that Union Federal bank was the lender, but the other references in the same affidavit indicate that the funding source were the investors who at least believed they were advancing funds for mortgage originations using one of two conduits:

  • Either the current information and data reports brought to my attention by the Press and analysts are correct — that the finding source was a Bear Stearns escrow account in which the money from investors was undifferentiated and co-mingled without regard to any conduit vehicle that was referred to in the MAster Service Agreement or Pooling and servicing agreement, OR
  • The terms of the prospectus and PSA given to the investor-lenders conformed to the actual financial transaction. Based upon review of this and other transactions like it, it is my opinion that the source of funds was an undifferentiated group of investors whose money was pooled in an escrow account unknown and undisclosed to the investors who thought their money was being pooled into a special purpose vehicle qualifying under the REMIC provisions of the Internal Revenue Code.

In my opinion Union Federal was a nominee for an undisclosed principal controlled by Bear Stearns or an affiliate of Bear Stearns and the terms of repayment to the investor lender promised to the investor lender were different in the prospectus and representations and PSA than those set forth in the purported “note” that established co-obligors who expressly waived subrogation in insurance contracts and as counter-parties to credit default swaps in which Bear Stearns as apparent agent for the investor lender had made payable to Bear Stearns because the REMIC entity was ignored.

The reference to U.S Bank, as trustee has been the subject of litigation all over the country. In most cases, their claim to being a trustee or a trust has been unsupported by appropriate trust language in any document establishing a trustor, trustee, beneficiaries and terms and authority of the trustee. In fact, each case shows that U.S. Bank, which maintains a trust department, did NOT administrate any such entity or funds as trustee but rather as an asset manager outside the of its own trust department. While some trust language appears in the PSA, it is clear that the powers of the trustee or cut back more and more and one reads the securitization documents.

At the end end one is left with a nominee who acts as manager but is subject to the direction of the Master Servicer (Bear Stearns or its affiliate) or under certain restricted circumstances the holders of Mortgage Bonds.

But those “holders” of mortgage bonds were the recipients of a security that was “sold forward” — i.e., in which Bear Stearns as underwriter admitted it did not have the loans yet, but indicated that when they did have the loans, they would be allocated to the REMIC. This allocation was was never done, because Bear Stearns was claiming ownership of the loans when it obtained insurance and the benefits of credit default swaps.

In my opinion U.S. Bank is neither the manager nor trustee of the interests of the investor lenders in the case at bar, and there lacks any corroborative evidence to suggest otherwise. U.S. Bank has been fined and sanctioned numerous times for misrepresentations of this kind in several parts of the country, most notably in Florida.

Reference to Bear Stearns Asset Securities, 2005-AC7. This shows that the loan with the homeowner in this case was already pledged at the time of the loan origination and that it was funded through sources other than the named lender, who was a naked nominee, having neither funded nor purchased the loan — a status that is, in my opinion beyond any reasonable doubt true for each of the parties attempting to support the foreclosure of the subject property.

While the funding came from the investor lenders based upon the representations, prospectus and PSA, the requirements or conditions precedent to said funding did not conform to the actual actions undertaken by the Investment Bank. The REMIC did not fund or purchase the subject loan. The actual lenders would be properly described as an amalgam of investors whose money was commingled in a large commingled escrow account without any documentation supporting such a financial transaction. Hence the investors were duped into funding loans without documentation and in the expectation of repayment terms that differed from the terms expressed in the note allegedly signed by the borrower. Since the alleged note recited a transaction that never occurred and named a party other than those who actually provided the note, it is void. Since the note is void, the ancillary mortgage to guarantee performance under the terms of the note was also void. And since the third party payments were received and unallocated in part to the account of the creditor (the group of investor-lenders whose money was used to fund the loan), the corresponding balance of the borrower was not adjusted.

Thus it is my opinion that the mortgage did not secure the actual loan transaction between the investor-lenders and that an action at law for contribution may exist by the third parties who made payments to the creditor, but these claims have not been pursued because they made such payments with the express agreement with the investment bank that they would not pursue remedies against the homeowner (in order to prevent the obvious double foreclosure that would ensue since the banks and servicers were claiming the right to foreclose as the owners of the loan). Such is the case in the subject transaction.

In my opinion, the REMIC referred to in the affidavit entered into no financial transaction in which money exchanged hands, received no assignment that conformed to the requirements of the PSA.
If a foreclosure is ordered, it would be an adjudication of the real parties in interest who have no notice of these proceedings. They would be required to accept a loan that has already been declared in default and which should have been assigned into the Pool (REMIC) within 90 days after the creation of the REMIC, which by the naming convention used for the REMIC was established in 2005 and which as governed by the assignment and assumption agreement that actually inured to the benefit of Bear Stearns instead of either the REMIC or the investor Lenders.
Insurance payments, proceeds of credit default swaps from co-obligors should have been allocated to the investor lenders and reduced the balance due them accordingly by payment received from the co-obligors, whose entitlement to contribution is barred by their express waiver of contribution.
Without a full accounting from Both the Master Servicer and the subservicer (allegedly Wells Fargo) it is not possible to determine either the status of the loan nor its balance. Thus the homeowner is barred from submitting any meaningful modification proposal with HAMP and is being subjected to incorrect demands that affect the homeowner’s right to reinstatement if the note were to be found valid (which in my opinion it is not). The mortgage, in my opinion also invovles naked nominess for undisclsoed principals and asserts that the property is pledged tos ecure the faithful performance under the terms of the note.
However, the note does not recite the actual elements of any financial transaction between the payee and the alleged borrower. The financial transaction was between the investor lenders through an undifferentiated escrow account and the homeowner, a transaction that is largely undocumented but traceable i the wire and ACH instructions given to the closing agent and which was withheld from the homeowner.
Each and every finding herein is based upon overwhelming statistical evidence of fact and an examination of the actual documents involved in this closing.
The substitution of trustee referred to in the affidavit (indirectly by reference) was false, fabricated and fraudulent. None of the parties had the right, power or financial interest to announce themselves as the new beneficiary nor to appoint a new “trustee” that was owned and/or controlled by the new beneficiary. In my opinion, beyond any reasonable doubt, the actions undertaken by the “substitute trustee” were without any right, justification and excuse and in the absence of dude diligence.
Knowing the conflict between the parties, the old trustee and the new trustee were under a duty to file an interpleader action as an innocent party against the purported stakeholders and a request for fees and costs. The failure to do that is a breach of fiduciary duty to the homeowner and to the beneficiary.
MERS was also a naked beneficiary a fact well established by their own website and findings in trial courts across the country. At not time did MERS ever claim or actually perform any tasks in funding, purchasing, processing, or servicing the loan nor were they in a position to do so inasmuch as they agreed to never pursue that course of action in their agreements with members. MERS is an unsecured data base that was used as as substitute for the recording  requirements in the state of Utah.



Consultation With Neil


GMAC v Visicaro Case No 07013084CI: florida judge reverses himself: applies basic rules of evidence and overturns his own order granting motion for summary judgment

Having just received the transcript on this case, I find that what the Judge said could be very persuasive to other Judges. I am renewing the post because there are several quotes you should be using from the transcript. Note the intimidation tactic that Plaintiff’s Counsel tried on the Judge. A word to the wise, if you are going to use that tactic you better have the goods hands down and you better have a good reason for doing it that way.

Fla Judge rehearing of summary judgement 4 04 10

5035SCAN4838_000 vesicaro Briefs

Vesicaro transcript

Posted originally in April, 2010


I appeared as expert witness in a case yesterday where the Judge had trouble getting off the idea that it was an accepted fact that the note was in default and that ANY of the participants in the securitization chain should be considered collectively “creditors” or a creditor. Despite the fact that the only witness was a person who admitted she had no knowledge except what was on the documents given to her, the Judge let them in as evidence.

The witness was and is incompetent because she lacked personal knowledge and could not provide any foundation for any records or document. This is the predominant error of Judges today in most cases. Thus the prima facie case is considered “assumed” and the burden to prove a negative falls unfairly on the homeowner.

The Judge, in a familiar refrain, had trouble with the idea of giving the homeowner a free house when the only issue before him was whether the motion to lift stay should be granted. Besides the fact that the effect of granting the motion to lift stay was the gift of a free house to ASC who admits in their promotional website that they have in interest nor involvement in the origination of the loans, and despite the obviously fabricated assignment a few days before the hearing which violated the terms of the securitization document cutoff date, the Judge seems to completely missed the point of the issue before him: whether there was a reason to believe that the movant lacked standing or that the foreclosure would prejudice the debtor or other creditors (since the house would become an important asset of the bankruptcy estate if it was unencumbered).

If you carry over the arguments here, the motion for lift stay is the equivalent motion for summary judgment.

This transcript, citing cases, shows that the prima facie burden of the Movant is even higher than beyond a reasonable doubt. It also shows that the way the movants are using business records violates all standards of hearsay evidence and due process. Read the transcript carefully. You might want to use it for a motion for rehearing or motion for reconsideration to get your arguments on record, clear up the issue of whether you objected on the basis of competence of the witness, and then take it up on appeal with a cleaned up record.




WHO CAN BE AN EXPERT WITNESS? Virtually anyone including a party to the litigation in most cases.The issue is really credibility, which comes down to credentials, knowledge, demeanor and knowing what to expect when your opinion or credibility is attacked. The side issue of course is the credibility of the party or attorney who is presenting the expert witness and whether he/she knows how to elicit credible testimony on direct examination such that the Judge is truly enlightened rather than baffled with bulls–t.

I would caution TILA auditors and forensic reviewers about considering their position as either third party fact finder or as expert witness. I think you cannot credibly be both. The expert should be someone who can say they have reviewed the audit or review or analysis and they have done some research on their own and and have come to the following conclusions based upon a reasonable degree of certainty within the context of the finance markets, housing market and mortgage origination and processing industries. Thus the attack on the audit becomes a matter for another day. If you are stuck defending the audit you will never get to the point where you are expressing fresh, independent expert facts and opinions about the industry and about the loan in question.

WHY BE AN EXPERT WITNESS? First, because the usual expert in complex litigation (i.e., mortgage litigation cases involving securitization) will charge an average of $350-$600 per hour with a five hour minimum and an additional $2500 per travel day plus all out of pocket expenses. Such experts will charge $1500-$2500 for an Expert Declaration (which I offer, but don’t have the time to meet all the demand, hence the workshop to increase the number of people who can sign such a document and defend it under cross examination or deposition). Even with a comparatively light caseload, the income is significantly higher than other areas of service for distressed homeowners. Another reason is there are pitifully few of us who can serve as true experts that can defend our positions under questioning. So the market is wide open for a lot of experts to enter the fray.

WHAT IS EVIDENCE? While there are many fancy definitions, for the purposes of this post and most actual situations in the courtroom, evidence is anything the Judge states that he/she is allowing in as evidence or anything that is presented in an evidential hearing without challenge from the other side. This one point accounts for nearly every situation in which the lawyer or litigant lost. Lawyers for pretender lenders take control of the courtroom dialogue but “laying the foundation” when they are neither a witness nor even knowledgeable about the loan. So when the lawyer comes in and introduces himself and says he represents Wells Fargo, you might want to challenge that and say you want proof that he does in fact represent Wells Fargo, or executive Trustee Services or whoever they say they represent. If he says his client is the lender, you want to challenge that and ask the Judge if this is an evidentiary hearing so you can cross examine the attorney under oath as his testimony, changing him from lawyer to material witness. Most lawyers and litigants walk out open-mouthed not knowing what hit them. Well here is the answer: representations were made in court by an unsworn witness without any personal knowledge (go look up competency of witnesses) of the facts WITHOUT CHALLENGE — so the Judge took the representations as true (as though you were stipulating to them). A quick look would reveal to anyone that you lost as soon as those representations were made and not challenged. If instead, you said “Judge, I object. I have an expert report that concludes that the facts are different than what counsel is representing,” then you give the Judge an opportunity to inquire and to allow discovery and an evidentiary hearing. And from what we have seen so far, the pretender lenders cannot survive discovery much less an evidentiary hearing UNLESS YOU LET THEM.

Oh yeah, you better be right.  I should mention that in order to be an expert witness, you have to really know what you are talking about, be able to explain it in simple terms, and be strong enough to stay on message when challenged. That’s why you need the other seminars and boot camps that are being offered around the Country.

Wall Street Banks Don’t Own Toxic Loans: ABC


This is why it is critically important that (a) you get help in organizing your information (b) getting a forensic analysis, review or even a TILA Audit (c) that you secure a third party expert declaration that puts the the facts in issue and (d) that you aggressively pursue discovery without trying to convince the Judge that the mortgage, note or obligation is invalid.

see how-to-be-an-expert-witness

Everyone seems to be getting it right — including the New York Times lead editorial this morning — except the main point. It’s been said that there are two kinds of truth — reality and the collective perception of reality whether it is wrong or right. see self-dealing-part-ii-investigations-started
REALITY: The main point missed by nearly everyone is that in the securitization of real estate loans — residential and commercial — the Wall Street Banks do not own the toxic loans and never did. The simple ABC is that the loans were executed by homeowners and then trafficked like illegal drugs through middlemen until they ended up in the hands of investors (pension funds, sovereign wealth funds etc.).
The actual amount and movement of money was kept carefully hidden from investors and homeowners, violating Federal, State, and common law. Much of this money actually belongs in the hands of homeowners, investors, and taxing authorities from Federal State and Local governments.

CONSENSUS FALSEHOOD: The banks made loans that were too risky and “relaxed” their underwriting standards. A slew of defaults occurred causing a danger of a run on the banks. [The truth is that risk never entered the picture: there is no risk in arranging a loan (with investor funds) that you know for sure is guaranteed to fail because it will reset to a payment level that the homeowner could never be able to pay under any conceivable circumstances.]

THE INCONVENIENT TRUTH: Profits piled up off-shore that are being repatriated on a gradual basis showing incredible gains at the Wall Street Banks that supposedly lost hundreds of billions of dollars. The truth is they never lost a dime. The truth is the loan was sold multiple times through multiple intermediaries each of whom in each “sale” were paid fees and profits vastly exceeding any prior compensation to those who arranged or made loans prior to securitization.
Second Hidden Yield Spread Premium: As I have pointed out before the hidden yield spread premium was jaw-dropping (when the loans were packaged by the aggregator and then sold to the Special Purpose Vehicle that issued and sold the mortgage-backed securities. This second YSP was sent off-shore to the Bahamas or the Caymans to Structured Investment Vehicles with their own trustees, who scattered the actual depository accounts all around the world. The beneficiaries were the 100 Club — the main players in the creation, promotions and protection of the scheme through government contacts, plausible deniability, and simple non-disclosure sometimes achieved through the sheer complexity of the arrangements.

Nobody wants to acknowledge this fact because it would be admission that the con game is still on and that government is still part of it. They took many trillions of dollars to “bail out” banks that had arranged the bad loans but never underwrote them.

After centuries of lending in which banks made loans and were the obvious source of funds and the obvious losers if the loans went bad, it seems that there is hardly a soul in media, government, or the judiciary that is willing to come right out and say the banks are by nature intermediaries and that they carried their business of intermediation too far (removing the risk for bad loans).

In the old model, prior to Glass Steagel being repealed, the use of money held on deposit (i.e, your checking, savings or CD account) at a depository institution was the source of funds for the loans, thus putting the bank at risk. A bad loan meant that the payback had to be covered by the bank’s capital reserves that were regulated to make sure there was always enough money on hand to satisfy the demands of depositors who needed the use of the money they had deposited into the bank, for safe-keeping.

In fact, the scheme was built upon the premise that by not actually having any risk and by entering into “hedge (insurance) contracts, they could make far more money arranging bad loans than good loans. Logistically they guaranteed their profit by inserting terms into mortgage backed bond indentures that cut the investor out of the bounty.
The result, as always, was that Wall Street won and everyone else lost. 1 in 50 people now are living strictly on food stamps in this country. And the number is rising. Leading the pack are white-haired white people whose numbers are growing exponentially, followed by blacks and Hispanics. Fifty percent of the securitized loans were refi’s. Yet the misconception is that this crisis only affects people who bought houses they could not afford.
January 3, 2010
New York Times Editorial

Avoiding a Japanese Decade

Thankfully, 2009 ended better than it began. Economists talk about green shoots of recovery taking hold. Consumer confidence has improved. Equity markets have soared. But for all the progress, the American economy remains extremely vulnerable.

To understand those economic risks, it is worth considering Japan’s experience in the 1990s. A bursting housing bubble there sparked a banking crisis that was followed by a decade of economic stagnation.

The Japanese government lacked the resolve to do what was necessary. It failed to fix its banks and stopped its early fiscal stimulus before recovery had taken hold, leaving the economy all too vulnerable to outside shocks, including the Asian currency crisis and the dot-com collapse in 2001. Japan’s annual growth rate — which had averaged 4 percent since 1973 — slowed to less than 1 percent, on average, from 1992 to 2003.

President Obama’s economic advisers have learned from Japan’s experience. But they may not have learned enough. (Certainly Congress has not been paying attention.) If they are not careful, they could end up repeating some of the big mistakes that condemned Japan’s economy to a lost decade.

The green shoots are barely out of the ground and Republicans and conservative Democrats in Congress are already demanding that the administration “do something” to cut the budget gap. We worry that the political drumbeat may be too hard to resist. In 1997, after three years of tepid growth, the Japanese government stopped its stimulus: it raised a consumption tax, ended a temporary income tax cut, increased social security premiums and nipped recovery in the bud.

Japan’s other blunder was its unwillingness to fix its banks. Regulators did not force banks and indebted firms to recognize trillions of yen worth of bad loans. Banks trundled along like zombies, squandering credit to keep insolvent firms on their feet. When the Asian currency crisis hit, many undercapitalized banks toppled over.

The Obama administration has not been quite as forgiving with the banks, but it still has been nowhere near aggressive enough. The regulatory reform meant to curb bankers’ destructive risk-taking is moving at a snail’s pace through Congress. While the Treasury has forced banks to raise capital, many — including some of the largest — remain thinly capitalized and weak.

Banks have been unwilling to sell bad assets and take a loss. They remain stuffed with risky commercial and residential mortgages and consumer debt. Bankers, meanwhile, have made things worse by insisting on paying themselves huge bonuses after profiting so handsomely from the taxpayers’ tolerance and largess.

There are two big problems with that. The bankers’ taste for risk has not been in any way quenched. And the American public is, justifiably, fed up. That means if there is another bank crisis — say when the Federal Reserve takes away the punch bowl of low interest rates — it will be a lot harder to get Congress to approve another bailout, no matter how necessary.

The Obama administration has still done a far better job — up to now — in addressing the crisis than Japan’s governments did. As dismal as 2009 was, it pales when compared with what would have happened without the fiscal stimulus and the Fed’s enormous monetary boost.

The White House is now pushing another mini-stimulus plan for next year. Chances are it will need to do a lot more to push reform and boost the economy. If there is an overarching lesson from Japan’s lost decade, it is that half measures don’t pay.



MERS and Countrywide v Agin Trustee D Ct Mass Aff’d B Ct on Avoidance Mtg 20091117

NOTE FROM EDITOR SEEKING HELP: Rumor has it San Diego has stopped all foreclosures. I need this corroborated or debunked quickly. Can I get a little help here?

The case in this POST comes out of Massachusetts where the cases are not quite stopped, but almost so — AND where property title insurance companies are NOT underwriting ANY policy that covers a home whose mortgage was securitized.

Many thanks to MAX GARDNER for this case and best wishes for his speedy recovery. He’s one of the titans of this movement. we want him around!

The primary point that needs emphasis here is that as you read this case you will see that if you give the Court something SOLID to hang its hat on, you can get the results you want.

The mistake being made repeatedly out there is simple: either the homeowner or the lawyer goes in with a legal argument addressing the conclusions of the case instead of directing the Judge’s attention to the beginning of the case — discovery, motions to compel, TRO etc. based upon discovery requirements.

The obvious requirement that you need to know in your mind what you are talking about it so you know the significance of the issue legally seems to  have escaped all but a few lawyers. Many lawyers are taking half baked “audits” going to court and making legal arguments about a report they have not read, do not understand and which does not contains all the elements needed anyway.

You must educate the Judge not lecture him. You must NOT rely on securitization in your preliminary arguments because it sounds like legal maneuvering to get out of a legitimate debt.

Unfortunately these mistakes are being made even by people who have attended our survey courses. So we are expanding our offering by adding DVDs, Boot Camps and home study.

Our own efforts at providing forensic review and expert support to lawyers has been challenged by the growing demand vs manpower limitations. Consequently, we will embark on efforts to increase the bandwith or resources in terms of people through educational programs. We will then start to refer cases to forensic analysts and lawyers.

We  are starting courses to train, and certify forensic analysts who pick up even the most minute flaw in a document — like a document you you know in your heart is fabricated and forged but feel intimidated by the process of proving it.

In conjunction with specific courses on training forensic analysts we will also offer addtional courses on how to be expert witnesses, how to prepare expert declarations and affidavits and how to defend your expert declarations in deposition or in an evidentiary hearing. The course is also for lawyers who feel they could use a little support on direct and cross examination of experts.

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