Wells Fargo and Chase Quietly Prepare to Take Over BOA and Citi as They Collapse

Major banks [WELLS AND CITI] have reportedly made proposals to the Fed on how to pay for the restructuring of large financial institutions that collapse, with the idea being to avoid the chaos that followed Lehman’s bankruptcy. Among the suggestions, the largest financial-services holding companies would maintain combined debt and equity equal to 14% of their risk-weighted assets, which would be used to support any failed bank unit seized by regulators. Full Story: http://seekingalpha.com/currents/post/1100632?source=ipadportfolioapp

Editor’s Analysis: This is why I keep insisting on following the money trail rather than the paper trail. The paper trail is full of lies. The money trail cannot be faked. Or to put it more succinctly anyone who tries to fake the money trail will probably end up in jail. Checks, wire transfers, ACH transfers leave footprints throughout the electronic funds transfer infrastructure.  In the paper trail there are documents that describe transactions as if they had occurred. It is the money trail that will tell you whether or not any transaction in fact did occur and if so,  when and under what terms.

PRACTICE HINT:  the money trail (Canceled checks, wire transfer receipts) is the main point. The paper trail should only be used to corroborate your allegations concerning the reality of the transactions after you have shown that the money trail reveals an entirely different story —  or that the banks are stonewalling access to the money trail because it will prove beyond a reasonable doubt that everything they have said in the creation of the mortgage, transfers of the mortgage, defaults and the mortgage, foreclosures, auction sales, credit bids and attempts for modification is a complete lie.

Bank of America has approximately $300 billion on its balance sheet which are composed mainly of mortgage bonds (unsupported by any transaction in which money exchanged hands or any other consideration; and not backed by any loans which never made it into the asset pools that issued the mortgage bonds). It is one thing when people like me saying that the bonds are worthless and that Bank of America is broke. It is quite another when investors and traders arrive at the same conclusion. Recent trading activity indicates that a number of investors and traders are betting that Bank of America will collapse. They have arrived at the conclusion that the mortgage bonds are either worthless or not worth anything near what is reported by Bank of America. As rates go up the treasury bonds bought by Bank of America in exchange for free money at the Federal Reserve window, will drop like stones. This will leave Bank of America with insufficient capital to operate at its current levels.

What is interesting is that two banks submitted a proposal for resolution of a bank that had been too big to fail. The two banks that submitted the proposal were Wells Fargo and Chase. Notably absent was Bank of America and Citibank. I take that to mean that the government and the financial community are expecting Bank of America and possibly Citibank to collapse and that it might be very soon. The timing of the Wells Fargo and Chase proposal might well be their assessment that the time is near and that if their proposal is the only one on the table it will be the one that is used by the government.

FALLING BOND PRICES AND RISING YIELDS ARE THREATENING THE RECOVERY IN THE BALANCE SHEETS OF GLOBAL BANKS: Falling bond prices and rising yields are threatening the recovery in the balance sheets of global banks, which have built up huge portfolios of liquid securities to comply with regulatory requirements and due to a lack of better investments. For example, 90% of Bank of America’s (BAC) $315B portfolio comprises mortgage bonds and Treasurys. Some analysts, though, believe that QE tapering should increase interest margins and offset the one-time hit to book values because of rising bond yields. Full Story: http://seekingalpha.com/currents/post/1105882?source=ipadportfolioapp

THE FUTILITY OF OF BANKS FIGHTING REPRESENTATION AND WARRANTIES LAWSUITS OVER MORTGAGE BACKED SECURITIES: Flagstar Bancorp’s (FBC +2.7%) weekend settlement with Assured Guaranty (AGO -3.3%) for $105M (vs. the $106.5M court verdict) shows the futility of banks fighting representation and warranties lawsuits over MBS, writes Mark Palmer. Next up is BofA (BAC) which has already settled with Assured and MBIA (MBI), but is still tussling with Ambac (AMBC). Credit Suisse (CS) and JPMorgan (JPM) have also been reluctant to settle with the monolines. Flagstar is sharply higher in a bright red market as the settlement removes a big overhang on the stock. Full Story: http://seekingalpha.com/currents/post/1101932?source=ipadportfolioapp

[Editor: If the loans were real and the bonds were real, why would this be necessary?) BOA Caught Gesturing to Witness Coaching Answers: Bank of America’s (BAC) Article 77 hearing is on hiatus until July 8 to allow the presiding judge time on other cases. Day 8 of the hearing was an uneventful one, reports Mark Palmer, notable mostly for the judge admonishing an attorney representing the supporters to quit coaching (through gestures) a witness on the stand. Full Story: http://seekingalpha.com/currents/post/1087682?source=ipadportfolioapp

One way to profit from the false values of loans and the false representations of ownership is to buy them up as though they were real. The buyers have real bargaining power with the mere threat of revealing the bonds to be worthless and the ownership unknown. [I propose to put together a fund that offers the payment if ownership can be proven beyond a reasonable doubt]: Deutsche Bank (DB) is leading a wave of big banks ramping up exposure to single-family housing by extending credit to Wall Street firms so they can buy up homes to turn them into rentals. The bank reportedly just lent another $1.5B to Blackstone (BX) after an earlier $2.1B line got used up. Wayne Hughes’ American Homes 4 Rent has as much as a $1B line from Wells Fargo (WFC), and SilverBay Realty (SBY) just inked a $200M facility from Bank of America (BAC) and JPMorgan (JPM) Full Story: http://seekingalpha.com/currents/post/1087962?source=ipadportfolioapp

Traders betting big on BOA collapse: The purchase of 50K January $11 puts on Bank of America (BAC) yesterday was indeed a the initiation of a position, writes Steven Sears, noting this morning’s open interest shows a 50K rise to 116,958 contracts. Rather than an outright bearish position, the purchase could just as easily be a BofA long hedging his/her bet (though the recent uptick in volatility has made this a more expensive move).
Full Story: http://seekingalpha.com/currents/post/1111972?source=ipadportfolioapp

JPMorgan Looks Like A Winner to Traders — probably because the U.S. government will look to Chase and Wells Fargo when BOA and Citi collapse: Full Story: http://seekingalpha.com/article/1526362?source=ipadportfolioapp

BOND MARKET LIQUIDATION: Bond Funds Hit With Biggest Outflows Ever This Week
http://www.businessinsider.com/weekly-epfr-fund-flows-data-june-26-2013-6

[Editor: When mortgage rates rise the price of older bonds with lower interest falls. Most people agree rate increases are inevitable which means that the value of Treasuries and other bonds offering tiny returns are going to fall like stones. The ripple effect is going to be on going for years] Mortgage rates jump to highest in 2 years [Some novices are trying to make the case that if rates double bond prices will fall by half. That is not true and never has been true. Despite the value of the bond on the market the face value remains the same so the GAIN between the purchase price and the Face Amount (Principal) of the Bond must be factored in by using the present value of the that gain over the remaining term of the loan]
http://www.bizjournals.com/dayton/blog/morning_call/2013/06/mortgage-rates-jump-highest-in-2-years.html

[Editor: This is a disaster waiting to happen for the banks. When those modifications are done they will face trillions in liability for insurance and credit default swap proceeds and probably claims from the Federal Reserve because the true value of the bonds will be marked down to market contrary to the representations of the banks when they sell the bonds to the FED] Regulations are now in effect that will prohibit Mass. foreclosures if loan modifications cost less
http://www.boston.com/businessupdates/2013/06/26/regulations-are-now-effect-that-will-prohibit-mass-foreclosures-loan-modifications-cost-less/4W2NEXiN7w9xvNruGBxpXL/story.html

Foreclosure documentation issues trap investors, creating litigation risk
http://www.housingwire.com/fastnews/2013/06/21/foreclosure-documentation-issues-trap-investors-creating-litigation-risk

Must See Video: Arizona Homeowners Losing their Homes to Foreclosure Through Forged Documents
http://4closurefraud.org/2013/06/21/must-see-video-arizona-homeowners-losing-their-homes-to-foreclosure-through-forged-documents/

Lawsuit: Bank of America Gave Employees Gift Cards for Hitting Foreclosure Quotas
http://www.breitbart.com/Big-Government/2013/06/24/Lawsuit-Bank-of-America-Gave-Employees-Gift-Cards-For-Foreclosures

[Editor: This is BOA putting distance between itself and policies and procedures that produce an illegal result] Bank of America Said to Send Property Reviews to India
http://www.bloomberg.com/news/2013-06-27/bank-of-america-said-to-send-property-reviews-to-india.html

[Editor: I doubt if this tactic applies to most people] Illinois Attorney Saves Homes from Foreclosure Using Reverse Mortgages
http://mandelman.ml-implode.com/2013/06/illinois-attorney-saves-homes-from-foreclosure-using-reverse-mortgages/

 

U.S. Starts Criminal Probe of Lender Processing Services Inc. Foreclosure-Data Provider

The case follows on the dismissal of numerous foreclosure cases in which judges across the U.S. have found that the materials banks had submitted to support their claims were wrong. Faulty bank paperwork has been an issue in foreclosure proceedings since the housing crisis took hold a few years ago. It is often difficult to pin down who the real owner of a mortgage is, thanks to the complexity of the mortgage market.

the majority of foreclosures go unchallenged, some homeowners have won the right to keep their homes by proving the bank couldn’t show, on paper, that it owned the mortgage.

[LPS a/k/a DOCX] produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe.

Editor’s Note: The executive branch is finally becoming involved. The foreclosure mills have been producing dubious and/or fraudulent, fabricated, forged documentation for 3 years or more. Some of these foreclosure mills are operating in the same office and owned by the law firms prosecuting foreclosures. Maybe sooner than later these unethical, illegal practices will stop and the people responsible will be prosecuted for criminal violations, civil fines, and administrative grievances in which their licenses will be revoked.

But in the end we still have millions of homes whose title is at least clouded, probably defective and will soon become unmarketable as title companies realize the issues presented by fraudulent foreclosures by entities other than the creditor.

Wall Street Journal

April 3, 2010

U.S. Probes Foreclosure-Data Provider

Lender Processing Services Unit Draws Inquiry Over the Steps That Led to Faulty Bank Paperwork

By AMIR EFRATI and CARRICK MOLLENKAMP

A subsidiary of a company that is a top provider of the documentation used by banks in the foreclosure process is under investigation by federal prosecutors.

The prosecutors are “reviewing the business processes” of the subsidiary of Lender Processing Services Inc., based in Jacksonville, Fla., according to the company’s annual securities filing released in February. People familiar with the matter say the probe is criminal in nature.

Michelle Kersch, an LPS spokeswoman, said the subsidiary being investigated is Docx LLC. Docx processes and sometimes produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe.

A spokesman for the U.S. attorney’s office for the middle district of Florida, which the annual report says is handling the matter, declined to comment.

The case follows on the dismissal of numerous foreclosure cases in which judges across the U.S. have found that the materials banks had submitted to support their claims were wrong. Faulty bank paperwork has been an issue in foreclosure proceedings since the housing crisis took hold a few years ago. It is often difficult to pin down who the real owner of a mortgage is, thanks to the complexity of the mortgage market.

During the housing boom, mortgages were originated by lenders, quickly sold to Wall Street firms that bundled them into debt pools and then sold to investors as securities. The loans were supposed to change hands but the documents and contracts between borrowers and lenders often weren’t altered to show changes in ownership, judges have ruled.

Related Documents

Documents processed by LPS that said an entity called “Bogus Assignee” owned the mortgage:

That has made it hard for banks, which act on behalf of mortgage-securities investors in most foreclosure cases, to prove they own the loans in some instances.

LPS has said its software is used by banks to track the majority of U.S. residential mortgages from the time they are originated until the debt is satisfied or a borrower defaults. When a borrower defaults and a bank needs to foreclose, LPS helps process paperwork the bank uses in court.

LPS was recently referenced in a bankruptcy case involving Sylvia Nuer, a Bronx, N.Y., homeowner who had filed for protection from creditors in 2008.

Diana Adams, a U.S. government lawyer who monitors bankruptcy courts, argued in a brief filed earlier this year in the Nuer case that an LPS employee signed a document that wrongly said J.P. Morgan Chase & Co. had owned Ms. Nuer’s loan.

Documents related to the loan were “patently false or misleading,” according to Ms. Adams’s court papers. J.P. Morgan Chase, which has withdrawn its request to foreclose, declined to comment.

Linda Tirelli, a lawyer for Ms. Nuer, declined to comment directly on the case.

Ms. Kersch said LPS didn’t actually create the document and that the company’s “sole connection to this case is that our technology and services were utilized by J.P. Morgan Chase and its counsel.”

While the majority of foreclosures go unchallenged, some homeowners have won the right to keep their homes by proving the bank couldn’t show, on paper, that it owned the mortgage.

Some lawyers representing homeowners have claimed that banks routinely file erroneous paperwork showing they have a right to foreclose when they don’t.

Firms that process the paperwork are either “producing so many documents per day that nobody is reviewing anything, even to make sure they have the names right, or you’ve got some massive software problem,” said O. Max Gardner, a consumer-bankruptcy attorney in Shelby N.C., who has defended clients against foreclosure actions.

The wave of foreclosures and housing crisis appears to have helped LPS. According to the annual securities filing, foreclosure-related revenue was $1.1 billion last year compared with $473 million in 2007.

LPS has acknowledged problems in its paperwork. In its annual securities filing, in which it disclosed the federal probe, the company said it had found “an error” in how Docx handled notarization of some documents. Docx also has processed documents used in courts that incorrectly claimed an entity called “Bogus Assignee” was the owner of the loan, according to documents reviewed by The Wall Street Journal.

Ms. Kersch said the “bogus” phrase was used as a placeholder. “Unfortunately, on a few occasions, the document was inadvertently recorded before the field was updated,” she said.

Write to Amir Efrati at amir.efrati@wsj.com and Carrick Mollenkamp at carrick.mollenkamp@wsj.com

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