EDITOR’S NOTE: This is not just a paper crash, which old-timers like myself will remember from the Wall Street paper-crash of the late 1960’s. Simple logic leads to the inevitable conclusion that property rights and contracts, mortgages, notes and obligation are all about paperwork and recording. The trail is defective because it reflected the desire of the “securitization” intermediaries to have full control over every aspect of the MONEY. It reflected their total lack of concern with the actual documents. And in the end, the hedge transactions and exotic instruments they created were proof of fraud and negligence.

It was the money they were moving, not the paper. They avoided those pesky recording fees, and didn’t bother to report or pay taxes, fees or file returns on transactions in which trillions of dollars changed hands. Those deficits we are all worried about on the Federal and state level? They are all curable by simple enforcement of and collection of taxes that are due from these hidden transactions that can now be traced easily. Collection is easy and can be tied to settling the foreclosure mess and the title mess. It’s easier than you think.

Those insurance, credit default swap, and other credit enhancement techniques that were used destroyed the the nexus between the lending by the investor and the borrowing by the homeowner. They continue to try to stay in the middle keeping the investors away from direct collaboration with homeowners — because when the two sides of these transactions meet up, the numbers won’t add up and some very arrogant people whose names are well-known are going to face charges that were inconceivable as late as a month ago.

But don’t go celebrating just yet. You still need a lawyer and you still must plead and prove your claim. One thing is certain regardless of what they do, the pace of foreclosures is going to either cease or slow to a crawl.

October 8, 2010

Largest U.S. Bank Halts Foreclosures in All States


Bank of America, the nation’s largest bank, said Friday that it was extending its suspension of foreclosures to all 50 states.

The plan swept states with some of the highest foreclosure levels, including California, Nevada and Arizona, into a swelling crisis over lenders’ flawed paperwork that had been mostly confined to 23 other states that require judicial review of foreclosures.

Bank of America instituted a partial freeze last week in those 23 states, and three other major mortgage lenders have done the same. The bank’s decision on Friday increased pressure on other lenders to extend their moratoriums nationwide as well.

An immediate effect of the action will be a temporary stay of execution for hundreds of thousands of borrowers in default. The bank said it would be brief, a mere pause while it made sure its methods were in order.

But as the furor grows over lenders’ attempts to bypass legal rules in their haste to reclaim houses from delinquent owners, there is a growing expectation that foreclosures will dwindle for months as the foreclosure system is reworked.

Stan Humphries, an economist with the housing site, said what was initially cast as a problem of sloppy record-keeping is rapidly evolving into one that suggests the banks’ procedures for recording loans might not have followed the law.

“The former scenario represents a hiccup for the market, maybe a 30- to 90-day slowdown in foreclosure initiations,” Mr. Humphries said. “The latter scenario is more like hitting a wall.”

The uncertainty is putting the housing market in turmoil and causing vast confusion. Bank of America, for example, said it was not halting sales of foreclosed properties to new owners, but Fannie Mae, the giant mortgage holding company, is doing exactly that with properties it bought from Bank of America.

One real estate agent in Florida said Friday that he had six deals involving former Bank of America properties that had been at least temporarily scuttled. Representatives for Fannie, which was taken over by federal regulators after it failed two years ago, did not return calls.

Real estate agents said the extent of any disruption depended on how long the moratorium lasted, how many lenders ultimately participated — and what people in default decided to do.

“If it’s still January, February, March, and they’re not foreclosing, you’ll see a big effect,” said Jim Klinge, an agent in San Diego. “It’ll be a banker’s holiday, free rent for everybody and a lawyers’ gold mine.”

As soon as Bank of America announced its freeze in a terse press release, Senate Majority Leader Harry Reid and Edolphus Towns, the New York Democrat who leads the House Committee on Oversight and Government Reform, both pointedly asked other lenders to follow suit.

Increased pressure also came from Christopher J. Dodd, the chairman of the Senate Banking Committee, who announced a Nov. 16 hearing on foreclosures.

The other lenders, however, did not seem to be swayed.

JPMorgan Chase, which has halted foreclosures in the 23 states where they need a judge’s permission, says it is putting hundreds of lawyers and executives to work addressing what it characterizes as a “technical” paperwork problem with 56,000 mortgages with improper documentation. Officials have no plans to halt foreclosures nationwide, and believe they can fix the problems within weeks, they said.

Chase officials acknowledge they had a flawed process, but they say they have not mistakenly foreclosed on any homeowners, because the underlying information is accurate. People close to the bank say that about one-third of the properties tied to mortgages under scrutiny are vacant, in line with their assessment of the overall industry.

The average borrower that Chase has foreclosed on, these people added, has not made a payment on the mortgage for about one and a half years — a figure that they say is also consistent with the industry.

Inside Citigroup, which has not suspended foreclosures, officials said they were breathing a sigh of relief. Sanjiv Das, the head of CitiMortgage, began a review of loan servicing processes about 18 months ago in anticipation of a groundswell of foreclosures.

At that time, Citi stepped up its employee training and tightened its documentation processes, giving officials there confidence that they have sidestepped the document issue. But given the huge number of mortgages it processed and its sprawling operations, Citi — which has faced one embarrassment after another — is not publicly declaring victory.

On Friday, Wells Fargo, another big lender that has not halted foreclosures, continued to maintain that its foreclosure processes were accurate and said it was not planning to initiate a nationwide moratorium.

“As a standard business practice, we continually review and reinforce our policies and procedures,” said Vickee Adams, a Wells Fargo spokeswoman. “If we find an error or if an improvement is needed, we take action.”

Bank of America’s chief executive, Brian T. Moynihan, speaking at the National Press Club in Washington, said he did not believe the bank’s action would disrupt the housing market.

“We haven’t found any problems with the foreclosure process and what we’re saying is that we’ll go back and check our work one more time,” he said.

Not only is Bank of America watched more closely as the nation’s largest bank, it also finds itself deeper in the subprime mortgage mess. It holds $102 billion in subprime loans on its balance sheet from the period when lending standards were most lax — 2005 to 2007 — more than JPMorgan Chase, Citigroup or Wells Fargo, according to a report by Christopher Kotowski, an analyst with Oppenheimer.

Bank of America’s troubled mortgage portfolio is a legacy of its July 2009 acquisition of Countrywide, a subprime specialist that was among the financial institutions with the most troubled loans, as well as its January 2009 merger with Merrill Lynch, which was a major player in the business of taking mortgages and transforming them into securities to be sold to investors.

In addition, as the beneficiary of two capital infusions by Washington under the federal bailout, Bank of America was among the banks most dependent on Washington to help survive the financial crisis, receiving $45 billion from taxpayers. Of that, $20 billion came in emergency aid after Merrill’s losses were revealed.

That money has been paid back, but several analysts said the company was eager to maintain good relations with the government, and emphasized that restoring the bank’s public image was a crucial factor in the action on Friday.

“What prompted Bank of America is they see the political writing on the wall, and this has clearly become a political issue,” said Guy D. Cecala, the editor of Inside Mortgage Finance. “Almost every lawmaker is calling for a national mortgage foreclosure moratorium, and given the momentum out there, they wanted to deal with it on their own terms.”

In fact, earlier this year, with a government ban on automatic overdraft fees for debit cards looming, Bank of America actually went further than its rivals and pre-emptively eliminated the overdraft option entirely. Other banks allow customers to now opt in to the program, which can result in huge charges for small overdrafts.

Another reason for Bank of America’s broader action, suggested Richard X. Bove, an analyst with Rochdale Securities, is that the attorney general of the state where it is based, North Carolina, has called on the bank to halt foreclosures there.

“It’s a pre-emptive strike,” he said. “The smartest thing to do is to get ahead of the attorneys general around the country on this.”

Eric Dash and Binyamin Appelbaum contributed reporting.

Bank of America to Pay $108 Million in Countrywide Case


FTC v Countrywide Home Loans Incand BAC Home Loans ServicingConsent Judgment Order 20100607

Editor’s Comment: This “tip of the iceberg”  is important for a number of reasons. You should be alerted to the fact that this was an industry-wide practice. The fees tacked on illegally during delinquency or foreclosure make the notice of default, notice of sale, foreclosure all predicated upon fatally defective information. It also shows one of the many ways the investors in MBS are being routinely ripped off, penny by penny, so that there “investment” is reduced to zero.
There also were many “feeder” loan originators that were really fronts for Countrywide. I think Quicken Loans for example was one of them. Quicken is very difficult to trace down on securitization information although we have some info on it. In this context, what is important, is that Quicken, like other feeder originators was following the template and methods of procedure given to them by CW.Of course Countrywide was a feeder to many securities underwriters including Merrill Lynch which is also now Bank of America.

Sometimes they got a little creative on their own. Quicken for example adds an appraisal fee to a SECOND APPRAISAL COMPANY which just happens to be owned by them. Besides the probability of a TILA violation, this specifically makes the named lender at closing responsible for the bad appraisal. It’s not a matter for legal argument. It is factual. So if you bought a house for $650,000, the appraisal which you relied upon was $670,000 and the house was really worth under $500,000 they could be liable for not only fraudulent appraisal but also for the “benefit of the bargain” in contract.

Among the excessive fees that were charged were the points and interest rates charged for “no-doc” loans. The premise is that they had a greater risk for a no-doc loan but that they were still using underwriting procedures that conformed to industry standards. In fact, the loans were being automatically set up for approval in accordance with the requirements of the underwriter of Mortgage Backed Securities which had already been sold to investors. So there was no underwriting process and they would have approved the same loan with a full doc loan (the contents of which would have been ignored). Thus thee extra points and higher interest rate paid were exorbitant because you were being charged for something that didn’t exist, to wit: underwriting.
June 7, 2010

Bank of America to Pay $108 Million in Countrywide Case


WASHINGTON (AP) — Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corporation, which it acquired nearly two years ago, collected outsized fees from about 200,000 borrowers facing foreclosure.

The Federal Trade Commission announced the settlement Monday and said the money would be used to reimburse borrowers.

Bank of America purchased Countrywide in July 2008. FTC officials emphasized the actions in the case took place before the acquisition.

The bank said it agreed to the settlement “to avoid the expense and distraction associated with litigating the case,” which also resolves litigation by bankruptcy trustees. “The settlement allows us to put all of these matters behind us,” the company said.

Countrywide hit the borrowers who were behind on their mortgages with fees of several thousand dollars at times, the agency said. The fees were for services like property inspections and landscaping.

Countrywide created subsidiaries to hire vendors, which marked up the price for such services, the agency said. The company “earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue,” the agency said in a news release.

The agency also alleged that Countrywide made false claims to borrowers in bankruptcy about the amount owed or the size of their loans and failed to tell those borrowers about fees or other charges.


APPRAISAL FRAUD IS THE ACT OF GIVING A RATING OR VALUE TO A HOME THAT IS WRONG — AND THE APPRAISER KNOWS IT IS WRONG. This can’t be performed in a vacuum because there are so many players who are involved. They ALL must be complicit in the deceit leading to the homeowner signing on the the bottom line and advancing his home as collateral on a loan which at the very beginning is theft of most of the value of the home. It’s like those credit cards they send to people who are financially challenged. $300 credit, no questions asked. And then you get a bill for $297 including fees and insurance. So you end up not with a credit line of $300, but a liability of $300 just for signing your name. It’s a game to the “lenders” because they are not using their own money.

And remember, the legal responsibility for the appraisal is directly with the appraiser, the appraisal company (which usually has errors and omissions insurance) and the named lender in your closing documents. The named “lender” is, according to Federal Law, required to verify the value of the property.

How many of them , if they were using their own money, would blithely accept a $300,000 appraisal on a home that was worth $200,000 last month and will be worth $200,000 next month? You are entitled to rely on the appraisal and the “verification” by the “lender” (see Truth in Lending Act and Reg Z). The whole reason the law is structured that way is because THEY know and YOU don’t. THEY have access to the information and YOU don’t. This is a complex transaction that THEY understand and YOU don’t.

A false appraisal steals money from you because you rely on it to make the deal for refinancing or for the purchase. You think the home is worth $300,000 and so you agree to buy a loan product that puts you in debt for $290,000. But the house is worth $200,000. You just lost $90,000 plus closing costs and a variety of other expenses, especially if you are moving into anew home that requires all kinds of additions like window treatments etc. But the “lender” who is really just a front for the Wall Street and the investor pool that funded the loan, made out like bandits. Yield spread premiums, extra fees, profits, rebates, kickbacks to the developer, the appraiser, the mortgage broker, the title agency, the closing agent, the real estate broker, trustee(s) the investment banking entities that were used in the securitization of your loan, amount in some cases to MORE THAN YOUR LOAN. No wonder they are so anxious to get your signature.

“Comparable” means reference to time, nearby geography, and physical attributes of the home and lot. Here are SOME of the more obvious indicators of appraisal fraud:

  1. Your home is worth 40% of the appraisal amount.
  2. The appraisal used add-ons from the developer that were marked up for the home buyer but which nobody in the secondary market will pay. That kitchen you paid an extra $10,000 for “extras” is included in your appraisal but has no value to anyone else. That’s not an appraisal and it isn’t collateral or fair market value.
  3. The homes in the immediate vicinity of your home were selling for less than your home appraisal when they had the same attributes.
  4. The homes in the immediate vicinity of your home were selling for less than your home appraisal just a few weeks or months before.
  5. The value of your home was significantly less just a  few weeks or months after the closing.
  6. You are underwater: this means you owe more on your obligation than your house is worth. Current estimates are that it might take 20 years or more for home prices to reach the level of mortgages, and that is WITH inflation.
  7. Negative amortization loans usually allow the principal to rise even above the falsely inflated appraisal amount. If that happened, then they knew at the time of the loan that even if the appraisal was not inflated, it still would not be worth the amount of the principal due on the obligation. For example, if your loan is $290,000 and the interest is $25,000 per year, but you were only required to pay $1,000 per month for the first three years, then your Principal was going up by $13,000 per year compounded. So that $300,000 appraisal doesn’t cover the $39,000+ that would be added to your principal balance. The balance at the end of 3 years will be over $330,000 on property APPRAISED at $300,000. No honest appraiser, mortgage broker, or lender, would be complicit in such an arrangement unless they were paid handsomely to do it and they had no risk because they were not using their own money for the loan.

Liability of Participants in Securitization Chain

The reason for this requirement of transparency and the cutting edge of claiming or clawing back the illicit profits is simple: in a true fair and free market, the lender would know his risk and the borrower would understand the terms. Both would be on alert if unusual fees, profits and kickbacks were known to be present and would seek other arrangements. So TILA is really meant to protect both the borrower (primarily) and any would be investor advancing the real money.Here is a project for someone out there and a rich topic for forensic analysis for those who are not timid about securitization. I know Brad is planning to address this in the forensic workshop along with other speakers (including me). Research the AIG liabilities, who is making claims and who is getting paid. As I have stated numerous times on these pages, the hapless investors advanced money under the mistaken notion that their risk was insured. They were not mistaken about the presence of insurance and hedge products, but they were easily misled as to who received the benefit of the insurance — middlemen (investment bankers included) who sold them the mortgage backed securities. And they were easily misled into thinking that their money was being used to fund mortgages. Much of the money investors advanced went to pay fees, profits and premiums for insurance that paid off handsomely to the investment banker or some other party in the securitization chain.

You might ask “what difference does this make to the homeowner/ borrower?” The answer lies in TILA and other lending laws, rules and regulations. Long ago laws were enacted to protect homeowners from unseen unscrupulous and unregulated lenders posing through sham relationships with shell corporations or through financial institutions that would be paid a fee to pose as the lender. The transactions were called “table-funded” because of the image of an unknown lender reaching around the “lender” at closing and putting the money on the table for the homeowner to borrow.

Reg Z and other interpretations of TILA have made it clear that any pattern of conduct involving table-funded loans is by definition presumed to be predatory. And to stop this practice of hiding undisclosed parties and undisclosed fees, the law provides for payment to the borrower of all such undisclosed fees, profits, kickbacks etc. that were associated with the loan transaction but not revealed to the borrower. And there are provisions for receiving treble damages, interest, and attorney fees.

So now we get to the point. The payment of proceeds to any party in the securitization chain on contracts or policies paid for from the proceeds of the loan transaction would therefore be due to the borrower.

If another party gets and tries to keep the money (or title or property) they are, in the eyes of the law, usually held to be holding such money in constructive trust for the beneficiary (the homeowner borrower). Obviously the amount of that payment must be calculated by some professional with the information at hand as to the amount paid to participants in the securitization chain where your loan was used as the basis (along with many others) for the entire transaction.

But never lose sight of the fact that the basic transaction was simply a loan from the investor to the homeowner. None of the investment bankers, servicers, aggregators, trustees etc were parties in interest to your transaction with the investor. Thus none of them has the right or power to retain any proceeds, property, title, fees, profits, kickbacks or anything else unless it was disclosed to you and you agreed to it.

The reason for this requirement of transparency and the cutting edge of claiming or clawing back the illicit profits is simple: in a true fair and free market, the lender would know his risk and the borrower would understand the terms. Both would be on alert if unusual fees, profits and kickbacks were known to be present and would seek other arrangements. So TILA is really meant to protect both the borrower (primarily) and any would be investor advancing the real money. The glitch here is that I think the investors have claims against the same money paid to Goldman et al and that a court determination needs to be made as to how to allocate those proceeds. One thing is sure — the answer must not and cannot be that it is the intermediaries who never had any risk in the game and who were getting paid every time the money or “asset” was presumed to move, whether that was actual or just an illusion.

February 27, 2010

A.I.G. Posts Loss of $11 Billion on Higher Claims

The American International Group said on Friday that it lost about $11 billion last year, surprising analysts and showing the long-term risks inherent in the types of large, complex insurance coverage that the company once pioneered.

To increase its reserves to pay future claims, the company set aside $2.7 billion on a pretax basis, accounting for a big portion of its loss. This indicates that A.I.G. is experiencing significantly larger claims than it expected when it sold the insurance, most of it more than seven years ago, long before its government rescue in late 2008.

Fitch Ratings responded by putting the company’s property and casualty subsidiaries on a negative watch for their financial strength ratings. Financial strength ratings are indicators of an insurer’s ability to pay claims, and are separate from credit ratings.

Shares of A.I.G. fell nearly 10 percent Friday, or $2.74, to close at $24.77.

Officials of A.I.G. said claims were growing faster than reserves in just two lines of insurance and emphasized that it still had ample resources over all to pay claims.

A.I.G.’s chief executive, Robert H. Benmosche, said in a statement that despite the losses, “Our team has made great progress during the year in executing our strategic restructuring plan.” The plan involves shrinking the sprawling company to a more manageable size, and generating money to repay the federal government.

As a bright spot, Mr. Benmosche cited a rebound in the annuities sold by its life insurance companies.

The insurer’s 2009 result was just a small fraction of the record-breaking loss of $100 billion that it reported for 2008, when its large derivatives portfolio nearly toppled the company, leading to the government bailout.

Much of last year’s loss came from a fourth-quarter charge taken to reflect a restructuring of its bailout — a one-time charge that A.I.G. has been warning about for months. As part of a debt-for-equity swap with the Federal Reserve Bank of New York, the company removed part of its Fed loan as an asset on its balance sheet, producing a pretax charge of $5.2 billion. That charge was not connected with the company’s core insurance operations.

But the increase in reserves shifts attention to the insurance business. When insurance companies find that the reserves that they have set aside to pay future claims are inadequate, they take money from earnings to add to their reserves.

A.I.G. said it was advised to do so by its own actuaries and outside consultants after a thorough year-end review. The step seemed to vindicate, at least in part, a study last November by the Sanford C. Bernstein & Company research firm, which found a big shortfall in A.I.G.’s reserves for its property and casualty businesses.

Those businesses have been renamed Chartis and are expected to be the backbone of the company after its revamping. The company said the additional reserves were all for Chartis.

The Bernstein analyst, Todd R. Bault, had predicted that A.I.G. would have to “take some kind of a reserve charge” before it could offer shares of Chartis to investors, as it has said it would do to help raise money to pay back the government. He said the shortfall appeared to be in lines of insurance where claims develop slowly, over many years, like workers’ compensation.

Two lines of business accounted for about 90 percent of the addition to reserves, according to Robert S. Schimek, Chartis’s chief financial officer. They are excess workers’ compensation and excess casualty insurance.

When a company writes excess insurance, it offers to stand behind a primary insurer, and pay claims if something so serious happens that the primary insurance is exhausted. Such events are notoriously hard to predict, and Mr. Schimek called it “among the most complex lines of business to reserve for.”

Mr. Schimek said that the company significantly reduced selling excess workers’ compensation in the early 2000s. But the claims from business already on its books will take years to reveal their true cost, he said.

The company’s best estimate of the reserves needed for all property and casualty business is now about $63 billion, he said.

The addition to the reserves and the restructuring of its federal rescue package caused A.I.G.’s fourth-quarter results to be well off those earlier in the year, when the company had even swung to quarterly profits. For the fourth quarter, A.I.G. lost $8.87 billion, or $65.71 a share. That compared with a loss of $61.66 billion, or $459 a share, in the period a year earlier. Analysts surveyed by Thomson Reuters had forecast a loss of just under $4 a share.

In his statement, Mr. Benmosche said his team was “increasingly confident” over the long term and the sale of its other businesses was still on track.

A.I.G. plans to sell shares in its biggest international life insurance company, the American International Assurance Company, on the Hong Kong stock exchange this year. It has also been negotiating the sale of another international life insurance company, known as Alico, to MetLife. The talks have proceeded slowly because of questions about a possible tax liability and who would pay it, according to people briefed on the negotiations.

The first $25 billion in proceeds from those sales will be directed to repay the New York Fed.

What to Ask Your Prospective Attorney


So you have decided to challenge your servicer as to whether they really have the right to collect anything from you and whether they have been turning over payments to the “proper party” (the real lender) and whether they have any information regarding the securitization of your loan, and an accounting for ALL money exchanged or paid in connection with your loan.

You’ve decided to challenge the pretender lender on whether they really own your loan and whether they “represent” any other entity that might be the REAL LENDER. You want to know who the real lender is and whether they have any enforceable right to collect money, enforce the note or obligation, or enforce the mortgage or deed of trust.

You have decided to hire an attorney, but like all fields, there are attorneys that are good at one thing and not so much on others. You want an attorney who is a crusader, who is not looking for a single silver bullet like “produce the note.” You want someone who believes in you and believes in your case. You want someone you can trust and whom you like. Big retainers mean big bills generally speaking unless they charge you a project fee that is all inclusive.

Yes this is a lot of work to do, but hiring an attorney who is only halfheartedly representing you with the notion that you owe the money and anything he does for you is enough, even if it is a minor delay. Keep looking. Don’t expect the first one you meet to be THE ONE.

And remember it is YOUR case, they didn’t screw you (the securitization players did that) and they don’t owe you anything. They spent a lot of time getting educated and trained to practice law and they are entitled to substantial fees compared with other jobs.

Here are the the things you should want to know and to get CLEAR answers that are verifiable from any attorney you interview:

  1. What type of practice do they have?
  2. Have they litigated property matters before? How many times? With what results?
  3. Have they litigated mortgage issues including foreclosures? How many times? with what results?
  4. Do they have any specialization, certification or degrees in real property law, securities, contract law, Uniform Commercial Code, appraisals, real estate closings? What are those and when did they get it?
  5. Do they have a working knowledge and experience litigating in Federal Court (bankruptcy preferred), State Court, jury trials, non-jury trials. How many trials have they been lead counsel? What is their record of success?
  6. How would they rate themselves in proficiency in motion practice, discovery, trial, cross examination?
  7. Can you get references from other clients?
  8. Will they litigate to win or just delay the proceedings?
  9. What are their personal views regarding the foreclosure crisis? Is their attitude one of outrage as to what has been done to homeowners, the national and world economy or complacency with a wink at the Judge that this is a real obligation that the “borrower” owes but wants to get out of because of some procedural sleight of hand?
  10. What do they think of the financial bailout to Wall Street?
  11. Do they agree that the homeowners were targeted victims of a vast scheme to drain homeowners and investors of as much wealth as possible or do they think borrowers were the greedy ones trying to buy houses they couldn’t afford?
  12. What do they propose to do for you? Do they have experts with whom they maintain relationships? who are those experts? can you speak with them?
  13. How much do they charge and how do they charge (by the hour, monthly, contingency fee, costs, expenses).
  14. What is the total amount they expect that you will be charged for this litigation? (Ignorance would indicate they haven’t been doing this much or with much success).
  15. Will you be provided with copies of all correspondence and notes to file?
  16. Will you have telephone access tot he attorney? How often? For how long?
  17. Will this attorney be representing you and working your file or an associate? If an associate, you want to ask the same questions regarding the above.

Listen carefully to the answers. Take notes. Go home and think it over even if it only for an hour. Don’t let “emergency” conditions dictate settling for an attorney who doesn’t understand securitized residential mortgages. It will only get worse that way.

Challenge To Lawyers to Make Money — or do you like stress?

I’m sure many clients have had some conversation or asked for advice concerning their financial situation and in particular their homes. I am the author of this blog site — — that seeks to aid people who are the victims of illegal lending practices. Most attorneys are passing up an unparalleled opportunity to earn high fees and high satisfaction from their clients by failing to research and understand the current environment of mortgages, notes, securitization, foreclosure and eviction.

I have seen emails regarding the case against appraisal companies and it is understandable that someone would issue the comment that it was negligence and not a pattern of conduct falling under TILA, RICO and other statutes and laws, but nonetheless it is wrong.  My research clearly shows that the three main rating companies — Fitch, Moody’s, and Standard and Poors — got into a turf war over market share and profitability. The investment banking community stoked the fires as much as possible and ended up negotiating ratings instead of issuing ratings based upon due diligence and industry standard analysis. My blog site will demonstrate that it was a pattern of conduct that existed, evolved and grew over many years, ending up with fishing trips and other perks given to the ‘analyst’ who was issuing the rating. The threat was that they would take their business elsewhere to get a rating if the issuer did not get what they wanted. This is all documented in writing in articles (Wall Street Journal, NY Times) and testimony. This was not negligence — it was an effort at plausible deniability.

On the other end of the spectrum there was the same fraudulent activity. The appraisals were of real property. And the appraisers who came in with the high appraisers got the business and were paid bonuses, whereas the honest appraisers were left in the dust with no business because they would not lie. In 2005 8,000 appraisers petitioned congress warning of the impending crisis and the fact that they were being financially damaged because they wouldn’t ‘play the game.’ Just last month, a class action of appraisers against the mortgage originators was filed for exactly that reason. 10,000 convicted felons in Florida were recruited and licensed as mortgage brokers, most of whom had been convicted of economic crimes. I’m sure the same figures hold true in most states that were hard hit by this scheme.

On the one hand, no investor would have purchased a AAA-rated MBS (cash equivalent) if they had known that the rating was based only on the top tier of a pile of junk, which is exactly what happened and is no longer disputed.  On the other hand, no borrower would have signed a deal that used his personal identity, credit rating and personal information in an elaborate scheme for selling unregulated securities to defraud investors, based upon a fraudulent appraisal of his property — an appraisal that he relied upon along with his reasonable reliance (according to black letter law) on the lender’s underwriting, due diligence and appraisal review procedures.

All of these people, committees and procedures were condensed into one desk with one person and rubber stamp that approved any loan application including the now infamous NINJA loan -no income, no job, no assets, no problem.  A Dog with a note in his mouth could get a $300,000 loan, because they were all table-funded loans for which the chartered financial institution was not at any risk, where the ‘lender’ on the note and mortgage had been paid in full in most case BEFORE the loan closing or contemporaneously with the loan closing, AND they had received a 2.5% fee for lending the use of their charter to an unregulated, unregistered entity that was in the home loan business by virtue of an illegal undisclosed pooling and services agreement and an assignment and assumption agreement, most of which violated the express terms of the note, the express terms of the Truth in Lending Act, and banking regulations.

The economics were flipped in the mortgage meltdown period of 2001-2008. The worse the loan, the higher the stated rate of interest on the note, even if the borrower was actually paying a tiny fraction of the interest, was not amortizing the note, and was not paying into escrow for taxes and insurance. Thus some loans had a stated interest rate of 16.5% which was thrown into a pool to lift the overall apparent yield, even though the borrower was paying 1% interest only on an option ARM.

Since the MBS certificates were being sold at 8% or lower return the total “value” of the mortgage doubled or tripled when thrown into the pool and that is what it was ultimately sold for — a $300,000 NINJA loan could be sold for $600,000 whereas a $300,000 conventional fixed rate mortgage to a borrower with an 800 FICO could only be sold for par value ($300,000).

The result was that Wall Street was bottle-necked with around $10 trillion from the sale of ‘mortgage backed securities’ for which they had no mortgages, no notes, no backing. So the pressure and rewards, bonuses, rebates, kickbacks and graft was intense as demands were made for loan documents of the highest dollar amounts possible. The sales effort was the most intense the world of financial services has ever seen with armies of mortgage originators (bird dogs) literally sent out to knock on doors, or cold call people from boiler rooms.

FACT: More than half the loans in trouble were refi’s NOT requested or solicited by borrowers. This was not a case of shady borrowers pushing the market looking for money. This was a case of money pushing the market looking for anyone who would sign loan documents. As long as the money was pushing the market the appraisals grew for entire neighborhoods and cities by virtue of the sheer enormity of the scheme.

The only way to satisfy Wall Street’s insatiable appetite for signatures was to either forge them, which they did, fake them, which they did, or lie about them, which they did. The best way to satisfy a demand for another $100 million in mortgage loans was to inflate a $50 million portfolio into $100 million. And that is what they did — on both ends of the spectrum, from the investor who put up the actual originating funds, to the borrower who thought he was simply financing his house.

The clients you can receive in your office are a complete cross section of society from retired nuns, to police chiefs, to professionals and workers of every type who under pressure and clever scripts (some of which Attorney General Gerry Brown in California actually has) they fooled even some pretty sophisticated, educated and experienced people. The reverse red lined area of low income, low education and no sophistication were red meat and easy prey. People who had owned their houses free and clear were convinced to go into deals where they are now homeless.

Despite clear Federal and State laws to the contrary none of these facts were disclosed to borrower or investor. Incredibly the standard answer we are getting now when we ask for the real holder in due course of the note and mortgage, is that this is ‘confidential’ information and cannot be revealed to the borrower or any of his representatives.

I could go on of course. The point here is that nearly all the foreclosures are fraudulent, nearly all the sales of mortgage backed securities were fraudulent, nearly all the credit default swaps were leveraged out of any sphere of being honored, and the same holds true with insurance products from AIG, AMBAC etc. In addition, most of the players have errors and omissions policies that cover the losses. The reason the credit markets are in paralysis is not because home values went down, it is because TRUST was destroyed in the financial system. Only $13 trillion in MBS derivatives out of a total derivative nominal value in the credit markets of $600 trillion. Even a 40% drop in home values would not account for 1% of the total credit market. The problem is that they all know now that this was outright fraud — like writing NSF checks or checks on a closed account. It cast doubt on all $600 trillion in credit derivatives. Auctions stopped, exchanges ceased operations, and normal credit liquidity was gone. The only difference is that the numbers are larger than the normal paper hanger writing bad checks.

Now add to this mix that 40% of the notes were intentionally destroyed, there is no chain of title recorded, and the proceeds of payments on each note were retained and not passed on to the appropriate holder in due course. Add also that contrary to the express terms of the note, parties with whom the borrower did not know he was in privity had secretly agreed to divert his payments to pay off a stranger’s loan.

Now I write to you to invite you to consider the following premise: that a firm that litigates securities issues is the most likely to gain credibility in front of a Judge in state, Federal or bankruptcy court in explaining these factors. Nearly 4,000 pro se litigants have had the lender tossed out of the foreclosure process and there are some lawyers who have dropped everything else because representing homeowners has turned the graph of their law practice into a hockey stick, making them more money than they ever saw in their lives. And yet…. most lawyers won’t listen. I have over 300 cases in Arizona alone to refer without a referral fee expected. I have given seminars in California and Arizona without CLE credits and I got a pretty good turnout both times, but no Arizona-licensed lawyer showed up even to the seminar in Phoenix. So far, I have no Arizona lawyer to refer cases to even though in the surrounding states I have many.

So here is my challenge or request or whatever you want to call it. I respectfully request an audience with the supreme leaders of your firm to present the business case for representing homeowners who  have obtained mortgages from 2001-2008 whether they are in foreclosure or not.

Mission Statement and Introduction to Blog

This is a developing resource for attorneys and borrowers to assist them in creating strategies and tactics in foreclosure defense and offense. Assistance and comments regarding bankruptcy jurisdiction is also covered. Bottom Line: The procedure invoked by the mortgage meltdown scheme defrauded investors (false ratings and insurance) in asset backed derivative securities, who were the source of funding for the fraudulent loans on residential real property (false appraisals, undisclosed parties, undisclosed fees, abandonment of underwriting standards etc.). 


We are finding that the notice of sale or filing of foreclosure starts with the wrong people using information that cannot be verified based upon authorization that is assumed rather than provable. we also find that there are good legal grounds for challenging any loan, whether in default or not, that was originated between 2001-2008, and in particular any such transaction in which the borrower is now “upside down” (negative equity, despite the down payment of as much as 20%-35%).


The central theme here is a SINGLE TRANSACTION consisting of many new players in the mortgage loan transaction, new roles for old players, and shifting of the risk of loss, right to receive payment, ownership of the note and ownership of the security instrument, all of which are usually vested in different entities or individuals, trustees, or divisions of had been conventional lending institutions and investment banking institutions. 


In a great many cases, if not the majority of cases, we find that the “lender”, while possessing all the attributes of a bank or Lending Institution is actually a mortgage broker or front for an investment banking firm. 


A summary of the starts with the source of funds (an investor in an asset backed security -ABS) who buys a share of an entity that possesses certain rights by assignment and certain guarantees by indemnification and indenture. This entity, like all capitalist structures is broken up into smaller shares that investors buy. 


The shares are sold to qualified investors through an exemption in SEC laws that allows limited disclosure and virtually no prospectus. The investors appear to have most of the rights to the stream of revenue generated by borrower payments along with guarantees, indemnifications and sue of proceeds allowances from the investment banker, the lender, or other third party insurer or guarantor. Thus the total revenue to the investor is partially from his own funds, partially from third parties and the rest from the payments made by the various borrowers whose mortgages and notes are the center piece of the overall transaction.


The shares are rated by conventional rating agencies who were corrupted by the mortgage meltdown scheme and the flow of funds is insured by one of a variety of insurers of revenue, default risk etc. 


The securitized entity appears to have the most rights (but apparently not the exclusive rights) to the mortgage notes that make up the portfolio of assets within the securitized entity. 


The investment banker that created the entity whose shares were sold to investors appears to have formed subsidiary of affiliated entities that (a) hold most of the rights to the  security instrument (mortgage) and (b) other entities that act as mortgage aggregators, lenders, mortgage brokers etc.


A perusal of the blog site will reveal that our opinion is that in all cases the “lender” should at best be identified as contingent, the mortgage and note should at best be identified as contingent, and that “John Doe” should be added to the list of Defendants and/or schedule of creditors, being the unknown person(s) or entity (ies) that own shares or bonds that are backed by the mortgages and notes of hundreds or thousands of people. 


Each party received a fee that could be called a transaction fee arising out of the real estate closing which included the loan closing in which the signature of the borrower on the loan documents on one end, and the signature and funding of the investor in the ABS on the other end. 


The point that needs to be made immediately to any sitting Judge is that the foreclosure process has changed from simple to complex litigation by virtue of the fact that securitization of loans introduced many new parties into the transaction, many of whom were not disclosed, each of whom received compensation that was not disclosed, each of whom violated Truth in lending laws, Unfair and Deceptive Trade Practices Acts, and Securities laws and rules, with multiple rights of rescission accruing to the borrower from a variety of applicable laws. 


Foreclosure has become far more complex and complicated that it was before the securitization of mortgages and other loans began, and before that financial model spawned a surge of predatory lending practices that changed the landscape of foreclosure litigation.


We have seen several cases around the country where the lender was found to have decoupled the security interest from the note, where the note was satisfied by Truth in Lending violations (TILA), and where the Trustee, Lender and/or mortgage servicer is unable to produce the original note and mortgage, unable to produce the actual assignment of the mortgage and note to a mortgage aggregator and unable to to trace a particular asset backed security that was sold somewhere in the world to dozens, hundreds or thousands of investors to a particular piece of property (in this case — YOUR property).


Our purpose here is to provide a beginning point for lawyers and non-lawyers in their quest to save their property and recover refunds, points, closing expenses, compensatory damages and punitive, exemplary or statutory treble damages. Secondarily we provide information generally on economic data and other stories of interest.


Many apologies for the typos. We now have the able hand of Tiffany Goldwater as proof reader and grammarian assisting us in keeping the verbiage correct and within the bounds of the English language. Many thanks to Tiffany.

Bank Errors Abound and they all cost you money

Besides the obvious fraud, breach of duty and illegal disclosure of fees and interest that every lender made by participating in the mortgage meltdown, they continue to make conventional “errors” that can result in extra fees for them and compounding losses for you.

Whether it happens in your account or someone else’s account the costs are going to be paid, at least in part, by you. Many so-called errors are timing issues decided by policy makers at the bank. By not posting a deposit that they know is good, they can create an NSF situation, charge you an NSF fee for each incoming check and thus cause a deficit in an account that you thought you had in money in and where you should have had the money posted.

The bank creates an artificial NSF situation and then charges you. The burden shifts to you to fight with them. This compounds to more NSF fees and in some cases, we have seen those fees go into thousands of dollars. 


Bank on mistakes

When banks make errors, consumers often pay — and costs can be steep

By Gail Liberman and Alan Lavine

Last update: 7:25 p.m. EDT April 28, 2008


PALM BEACH GARDENS, Fla. — The price tag of one recent bank error: At least $2 million. The bank mixed up the account of 49-year-old Benjamin Lovell with the account of a different person with the same name.

Lovell, accused of spending the money without notifying the bank of the mistake, faces a hearing Thursday in Brooklyn’s Kings County criminal court. The charge against him: Grand larceny. Lovell’s attorney argues that Lovell didn’t intend to steal, but believed he was entitled to the funds.

The case is just one example of the growing problem of bank errors. While most consumers likely won’t face charges of grand larceny, there may be other financial pitfalls in store for those who don’t carefully monitor the accuracy of bank transactions, including:

Steep, ricocheting bounced check fees — not only charged by your bank, but also by merchants — if a bank error leads to an overdrawn checking account.

Late fees and default interest rates on credit cards if credit card payments aren’t properly credited.

Undetected fraud.

The Office of the Comptroller of the Currency, regulator of national banks, said complaints of bank errors rose to 2,217 in 2007, a 10% rise from 2006. By contrast, total complaints rose 7% to 28,362. Of course, the data likely are limited to those customers who detected banks’ mistakes.

But how many errors go undetected by those who are too busy to check every detail of their account transactions? After careful scrutiny of her own accounts, one reader says she caught thousands of dollars in bank errors, including:

A check debit for $400 should have been a deposit.

A $3,000 credit card payment was applied to someone else’s account.

Despite an ATM withdrawal of $40, no cash actually was provided.

“These items were entirely in my responsibility to fix,” the reader complains. “The financial organizations provided little, if any, help, though it was their mistake and if I hadn’t pursued it, would not have recovered the money.”

More errors, or is it fraud?

Tomas Norton, a Princeton, N.J.-based fraud consultant, says the problem may not necessarily be more bank errors. (One sign that bank errors have been around for years lies in a comical “Beverly Hillbillies” video, dubbed “Before identity theft there were bank errors,” at

Rather, more of those errors may be due to fraud, Norton says. That problem is compounded by the fact that it’s increasingly difficult to get bank errors fixed.

“The problem with the errors is that no matter how it occurs, whether it’s an error or deliberate, the bank is always protected,” Norton says.

“If your payment doesn’t get to the bank on time, even though there’s a plausible delay in the mail, they don’t take those excuses,” he says. With a credit card, not only could you lose your attractive 7.99% rate, but your account balance retroactively can be charged 31%!

Also, banks have come to view checking and savings account operations as ways to generate income, Norton says, so fees for customer missteps have escalated dramatically, and your bank may be less willing to quickly fix errors that trigger those fees. In addition, customers often must deal with frustratingly bureaucratic call centers.

Meanwhile, the time period for you to notify your bank of an error — often overlooked in deposit agreements — has been slashed. The latest deposit agreements give you only 60 days to notify your bank of an account error, Norton says. Fail to meet this deadline, and even though an error is your bank’s fault, the price tag for the mistake, including accompanying fees, could be yours.

“Billing disputes and error resolution” represented the top consumer complaint among the 4,451 filed with the FDIC in 2007. The same problem also led the 2007 roster of complaints at the Office of Thrift Supervision.

Protect your accounts

What can you do to avoid being a victim of bank-account errors?

Immediately reconcile your bank accounts when statements arrive. Check for all errors, including any unauthorized transactions. Monitor check endorsements, credit card transactions and electronic debits.

Consider checking your accounts between cycles, either online or by telephone.

If you detect fraud, immediately file a police report.

For all errors, including fraud, immediately notify your bank in writing by certified mail. Keep copies of your notice. For debit card or deposit account errors, call immediately. But also send the certified letter to a top officer of your bank. For credit cards, mail your notice to the “billing inquiries” address on your statement. Record times, dates, and names of all those with whom you speak.

Use special care depositing checks or money orders. If they may be counterfeit, don’t deposit them until you call the issuing bank to verify authenticity.

Beware that if a deposit is erroneously credited to your account, the bank may freeze your account until it’s corrected. For more information on dealing with bank errors, visit this OCC page.

Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is “Quick Steps to Financial Stability” (Que/Penguin). You can contact them at 

Mortgage Meltdown: Freezing Home Equity Lines —Remedies




It seems that the lenders who were involved in the second tier of home mortgage finance (home equity loans) reserved to themselves some protections that nobody else received. They are sending letters out to everyone telling them the balance of their home equity line has been frozen and that no more money is available from the “equity” in their house. Of course this is because the equity never was there, only the illusion.

  • These lenders collected fees, points, costs and interest for  the full amount.
  • They now are using their “legal” right to freeze the equity line, without any refund of the fees, points, costs or interest paid by the borrower.
  • This amounts to an undisclosed increase in the cost of the loan under the Truth in Lending Act (TILA)  entitling the borrower to challenge the freeze, demand a refund of the fees, points, costs, and/or interest, and perhaps demand rescission of the home equity loan.
  • The borrower might be able to force the lender to complete its commitment on the home equity loan because of violations of TILA.
  • Borrowers who were planning to use this available source of cash are now damaged because in reliance on the appraisal and underwriting of the lender, they bought or refinanced a house under terms that were all based upon a false presumption: the fair market value of the house, which was inflated under a tacit agreement (conspiracy to defraud) the American public in general and you, the borrower in particular. 
  • This adds to the the potential causes of action against the primary lender as well: all the lenders and closing participants, including the auditor of the lenders, knew full well that you were relying on the appraisal, relying on the underwriting of the first and second mortgage lenders (i.e., the fact that they were taking a risk) only to realize, sometimes in as little as a few days, that market conditions did not support the value placed on the home.
  • Nor did actual market conditions support the false premises of closing and signing on your mortgages and notes.
  • Of many undisclosed facts, there was no risk to either lender because they knew when you closed that they were selling or had sold the the risk to an investment banking aggregator who was in turn selling derivative securities (collateralized mortgage obligations) to unsuspecting investors, thus deceiving and defrauding both the borrowers at one end and the buyers of the securities on the other hand, with all the middle men collecting fees and costs without risk.
  • Had you known that everyone at the closing had a direct financial incentive for you to sign the documents and that none of them were taking any risk or had performed any independent analysis of fair market value, and that appraisers were given either tacit or overt encouragement to appraise slightly higher than the deal, regardless of the fundamentals of fair market value is doubtful that you or anyone else would have signed such a deal. 
  • The entire scheme, taken collectively, was a fraud upon the entire economy which resulted in a systemic increase in apparent money supply forcing the legitimate sources of money supply to “make good” on these ornate methods of money creation. 
  • All that means the value of the dollar was decreased at the same time that the housing prices were falsely and deceptively increased thus putting you the borrower, your city, your county and your state behind an 8-ball that none of you knew existed until it was too late. 
  • Like all Ponzi schemes, the system collapsed causing widespread losses which have negatively impacted you economically.
  • You in turn relied upon the availability of the home equity line that was promised, and shortly after securing it, you are told, in classic bait and switch, deceptive practice that the value used in your closing which you thought was accurate is too low to support the continued funding of your home equity loan. 
Go Get ‘im , Boy/Girl!

Bank Fee Disclosures Deficient — same as Mortgages

By Gail Liberman and Alan Lavine

Last update: 7:33 p.m. EST March 5, 2008

PALM BEACH GARDENS, Fla. (MarketWatch) — Get out an extra-powerful magnifying glass if you’re trying to learn what fees you’ll be charged once you open a checking or savings account.

A U.S. Government Accountability Office report released this week says getting this information could prove tough. Reason: Consumers are not consistently getting required disclosures on fees and account terms and conditions prior to opening an account. GAO reps, posing as customers, visited 185 branches of 154 depository institutions.


They were unable to obtain detailed fee information at more than one-fifth of branches visited. Nor could the GAO find the information on the Web sites of many institutions. Bank regulators, the GAO says, need to do a better job getting depository institutions to give consumers these mandated disclosures.

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