NYTimes Gretchen Morgenson: Wells Fargo accused of making improper changes to Mortgages

Editor’s Note: Wells Fargo is a lawless operation that exploits unsuspecting consumers by opening accounts in their name without permission, and modifying and foreclosing on homes it doesn’t own with fabricated notes and fraudulent documents.   Not to mention participating in identity theft and accessing credit reports without authorization.

Meanwhile, for the most part, Wells Fargo operates above the law and receives pathetically inconsequential penalties and fines for its illegal conduct.   If you continue to bank with Wells Fargo we implore you to look at its track-record and move your accounts to a local credit union or small bank.

Gretchen Morgensen: A Whistle was Blown, but Who was Listening?

The Securities and Exchange Commission calls itself the whistle-blower’s advocate. But one participant in the agency’s lauded whistle-blower program isn’t so sure.

He is Michael J. Lutz, an accounting specialist who raised his hand in early 2013 when he was at Radian Group, the giant mortgage insurer. At the time, Radian was still weathering the subprime crisis; it had insured loads of soured mortgages, and Mr. Lutz believed the company was lowballing the amount it might have to pay in claims on the loans.

Mr. Lutz, 31, worked at Radian’s headquarters in Philadelphia verifying that the company’s internal accounting controls were effective. This task is also known as Sarbanes-Oxley testing, named for the Enron-era legislation that bolstered the penalties for accounting fraud.

Radian was required to set aside reserves against potential losses on bad loans, and Mr. Lutz reckoned that his employer was materially understating those amounts. The company was looking to raise capital through a stock offering, and the lower the reserves, the better the company’s earnings would appear.

For the story continue to:https://www.nytimes.com/2017/04/28/business/30gretchen-morgenson-whistleblowers-radian.html

NewYorkTimes: Gretchen Morgenson-Score One for the Bank Whistle-Blowers Fair Game

CHAIN OF NOTHING: Wells Fargo Fraud Is Causing the Curtain to Fall Revealing Fraud in Foreclosures and Ultimately Mortgage Bonds

“Defendant Wells Fargo’s deceptive and intentional conduct displayed a complete and total disregard for the rights” of the couple, wrote Judge Elliott, a circuit judge in the 43rd Judicial District of Missouri. “Wells Fargo took its money and moved on, with complete disregard to the human damage left in its wake.”

see http://www.nytimes.com/2016/09/22/business/in-wells-fargos-bogus-accounts-echoes-of-foreclosure-abuses.html?_r=0

Gretchen Morgenson of the New York times has revived the issues of fraudulent foreclosures in mainstream media by publishing a sharply critical attack on Wells Fargo. Like Elizabeth Warren has done, Morgenson brings attention to two connected policies of the TBTF banks: (1) the the recent revelation that Wells Fargo forced 8 accounts upon each customer of the commercial banking side of the bank — regardless of whether the customer even knew those accounts existed and (2) the obvious similarity with the fraudulent sales of MBS and the fraudulent foreclosures initiated by Wells Fargo.

Senator Elizabeth Warren, who always knows more than she says, made a statement on one of the network news shows that the Banks decided that the best way to make more money was to cheat their customers. She went on to say that the latest Wells Fargo scandal was revealing something that has always been the case with the large banks since the early 1990’s, to wit: that there is a commonality between this one Wells Fargo abuse that occurred over many years and the conduct of the same bank and the other major banks in the global economic crisis of 2008 caused by those banks.

Warren chooses her words carefully. So her use of the word “customers” instead of consumers might be an indication that she was thinking about the “investors” in mortgage bonds as customers of the same bank. Pension Funds and other managed funds were customers of the banks when they gave those banks money for the purchase of mortgage bonds issued by a new business – a REMIC Trust that would use the money to acquire residential mortgage loans. The banks called it securitization. But the rest of us who have analyzed it are quite sure that it was a fraudulent scheme from the very beginning. — And it was not a securitization scheme.

The “new business” did not exist. In most cases the illusion of its existence was created by partially complete written documents that were never used or followed. The new business never had a bank account and never received the proceeds from the sale of the mortgage bonds. This was no ordinary IPO. The “new business” was actually just a proprietary arm of the investment bank that used the false documents to claim a position as Master Servicer — over a Trust that was empty.

Pretending that the “new business” was real, Wells Fargo and other participants in the scheme pocketed the money from the managed funds except for that part that was used to fund the origination of mostly toxic loans. They needed the loans to be toxic so they could foreclose. When they foreclosed they received the first legal document in the entire chain — either a foreclosure judgment or a Trustee’s deed.

CHAIN OF NOTHING: The banks treated the deposits of money from the managed funds as if it were their own. They broke every promise they made to the “investors”, commingled the money and acquired no loans because the loans were already funded at origination by the illegal use of investor (bank customer) money. In all the assignments ever represented over the last ten years, at least, there is zero evidence that any transaction occurred in which the assignee paid anything for the loans said to have been transferred by the words in the assignment. Why would the assignor not insist on receiving money in exchange for the assignment? The answer is obvious — they didn’t own the loan. And following all that back to origination you find that the originator was, in nearly all cases, never paid for the assignment of the loan because the originator did not make the loan. In fact, you find that there was no loan contract between the “borrower” and anyone who advanced money to or on behalf of the homeowner. The investors were left out in the cold while the supposed “intermediary” banks played as though they were the lenders.

 

 

 

Gretchen Morgenson: In Wells Fargo’s Bogus Accounts, Echoes of Foreclosure Abuses

John Stumpf, the chairman and chief executive of Wells Fargo, won a dubious achievement award from one of his interrogators during Tuesday’s scorching hearings on Capitol Hill. The bank’s yearslong practice of opening bogus accounts for customers and charging fees to do so, said Senator Jon Tester, Democrat of Montana, had united the Senate Banking Committee on a major topic for the first time in a decade. “And not in a good way,” he added.

But this was not the first time problematic and pervasive activities at Wells Fargo succeeded in uniting a disparate group. After observing years of abusive mortgage loan servicing practices at the bank, an increasing number of judges hearing foreclosure cases after the financial crisis grew to understand that banks could not always be trusted in their pleadings.

This was a major shift: For decades, the nation’s courts had been largely pro-bank when hearing foreclosure cases, accepting what big financial institutions produced in documentation and amounts owed by borrowers.

“Wells didn’t intentionally educate judges. They didn’t raise their hand and say, ‘Judge, we’re sorry,’” said O. Max Gardner III, a prominent foreclosure defense lawyer who teaches consumer counsel how to represent troubled borrowers. “It was people really digging in and having the resources and the time to ask the right questions about what they were doing with the money.” Those practices included levying improper fees and incorrectly foreclosing on homes.

Tom Goyda, a Wells Fargo spokesman, said: “The housing downturn was a challenging time for our nation, and Wells Fargo has acknowledged that we made mistakes in the handling of mortgage foreclosures along the way. Lenders, investors, along with policy makers and regulators — all sides — learned foreclosure processes had to be addressed, and Wells Fargo made significant improvements to the way we work with customers when they fall behind in their payments and during the foreclosure process.”

During the financial crisis, Wells Fargo was at a remove from Wall Street and was not a big player in creating toxic and complex mortgage securities that were engineered to fail. But the bank’s ability to emerge from the crisis with a relatively good reputation is something of a mystery to anyone who paid attention to its aggressive foreclosure activities.

There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank’s dubious practices seemed as pervasive then as the questionable account-opening scheme does now. And some of the elements of both scandals — improper fees and forgeries — are the same.

  The only difference: Mr. Stumpf, who was named Wells’s chief executive in 2007, has apologized to the customers his bank harmed with its account opening charade. Lawyers who represented troubled borrowers say no such apology came from Mr. Stumpf during the foreclosure mess.

“I sure as heck haven’t seen it,” said Linda Tirelli, a longtime foreclosure defense lawyer at Garvey Tirelli & Cushner in White Plains, who has often battled Wells Fargo. “I don’t remember ever hearing him apologize, because that would admit wrongdoing, and that’s not part of Wells Fargo’s corporate culture. Their culture is about not holding anybody at the top accountable.”

Some judges tried to hold Wells Fargo to account for its foreclosure practices. One was Elizabeth W. Magner, a federal bankruptcy judge in the Eastern District of Louisiana. She was among the first judges to identify problematic patterns in Wells Fargo’s foreclosure practice and to respond with vigor.

In an early 2008 case, she assessed damages and sanctions against Wells Fargo after concluding that the bank had levied fees on Dorothy Chase Stewart, a widowed borrower, without notifying her. This had the effect of pushing Ms. Stewart deeper into default and increasing the amounts she owed.

Judge Magner highlighted Wells’s “abusive imposition of unwarranted fees and charges” and its improper calculation of escrow payments. And, she added, Wells Fargo’s practice of not telling borrowers about the fees they were being charged “is not peculiar to loans involved in a bankruptcy.” Wells had also failed to credit Ms. Stewart with $1,800 that it had charged her for an eviction that did not occur.

An especially egregious aspect of the case involved Wells Fargo’s regular appraisals of the Stewart property. Banks conduct such appraisals when a property is in default to ensure that it is being maintained properly.

But in the Stewart case, the court cast doubt on two of the appraisals Wells Fargo charged Ms. Stewart for in 2005, noting that they were said to have been completed on the same day that Jefferson Parish, the location of the Stewart home, was under an evacuation order because of Hurricane Katrina. In addition, the court found that a unit of Wells had done the appraisals, charging double its costs for them.

In a 2013 Massachusetts case, William G. Young, a Federal District Court judge overseeing a foreclosure, was so distressed by Wells Fargo’s litigation tactics that he required the bank to provide him with a corporate resolution signed by its president and a majority of its board stating that they stood behind the conduct of the bank’s lawyers in the case.

“The disconnect between Wells Fargo’s publicly advertised face and its actual litigation conduct here could not be more extreme,” Judge Young wrote. “A quick visit to Wells Fargo’s website confirms that it vigorously promotes itself as consumer-friendly,” he continued, “a far cry from the hard-nosed win-at-any-cost stance it has adopted here.”

In Tuesday’s Senate hearing, Elizabeth Warren, Democrat of Massachusetts, made a similar observation, comparing Wells Fargo’s stated rules of the road — respecting its customers — with its improper account-opening activities.

When judges criticized Wells Fargo in foreclosure cases, bank officials either maintained that the situation was unusual or that the judge was being unreasonable. Only occasionally did the bank concede that it had handled a case badly.

Responses like these also ring a bell today.

One remarkable foreclosure ruling against Wells Fargo came in January 2015, in a Missouri state court. Judge R. Brent Elliott ordered Wells to pay more than $3 million in punitive damages and other costs for harming David and Crystal Holm, borrowers in Holt, Mo., who fought the bank’s improper foreclosure of their home for more than six years.

“Defendant Wells Fargo’s deceptive and intentional conduct displayed a complete and total disregard for the rights” of the couple, wrote Judge Elliott, a circuit judge in the 43rd Judicial District of Missouri. “Wells Fargo took its money and moved on, with complete disregard to the human damage left in its wake.”

Punctuating his view, Judge Elliott cited the testimony of a bank employee who told the court: “I’m not here as a human being. I’m here as a representative of Wells Fargo.”

Wells Fargo said it was appealing the case.

Finally, there was the scathing 2010 contempt ruling in a Wells Fargo foreclosure case by Jeff Bohm, a federal bankruptcy judge in Houston. To the bank’s argument that unintentional errors, including a computer malfunction, had caused Wells to demand money from two borrowers who had previously settled with the lender, Judge Bohm conceded that mistakes could happen.

“However, when mistakes happen not once, not twice, but repeatedly,” he continued, “and when actions are not taken to correct these mistakes within a reasonable period of time, the failure to right the wrong — particularly when the basis for the problem is a monthslong violation of an agreed judgment — the excuse of ‘mistakes happen’ has no credence.”

Seems as though Judge Bohm was onto something.

Twitter: @gmorgenson


People Who Were Wrong Are the Winners — SO FAR

First of all I don’t think Geithner caused the financial crisis. He certainly contributed to it but it probably would have happened even if he had not undercut Sheila Bair at every opportunity; and yes he should have listened to other people who were saying that the corruption on Wall Street had reached epic proportions.

Second, I think that neither Geithner nor his predecessor, Hank Paulson, as Treasury secretaries, had a real understanding of the crisis at any time up through today. And their bosses, Presidents Bush and Obama were even more clueless. And while they are probably culpable for their negligence and mismanagement of the crisis, the foreclosure madness would have occurred anyway.

Third, it is my belief that the culprits on Wall Street with all their tentacles stretched out across the globe were unstoppable by anyone except a good government with the resources to actually get to the bottom of it. What was missing was the desire to get rid of the problem and the naivete of the leaders in government in failing to notice that the entire banking industry was engaged in faking transactions and documents — and failing to ask why that was necessary.

Fourth my opinion is that the fault lies with the failure of anyone in government to learn anything relevant about the industries they were supposed to be regulating. If they had done so, starting in 1983 when derivatives became adolescent, the adult would have been far more tame and the crises would have been averted entirely.

Homeowners did not create the crisis. Tens of millions of homeowners did not congregate in a room thinking up 450 loan products when there were only 4 or 5. And saying they had bad judgment would absolve almost any perpetrator of economic crime because his victim was too stupid.

The laws were already in place. It was knowledgeable people that were missing. We needed and had faithful servants of the people — but as a society and as a nation each country contributed to the enormous problem that has now been created. And we will keep paying for it as banks take over all commodities we hold dear and “legally” corner the markets with stolen cash and property.

In Nocera’s article on Bankrupt Housing Policy, he points out that ” in the course of perusing another new book about the financial crisis, “Other People’s Houses,” by Jennifer Taub, an associate professor at Vermont Law School, I was reminded of an effort that took place in the spring of 2009 that could have made an enormous difference to homeowners, one that would have required no taxpayer money and might well have become law with a little energetic lobbying from the likes of, well, Tim Geithner. That was an attempt, led by Dick Durbin, the Illinois senator, to change the bankruptcy code so that homeowners who were underwater could modify their mortgages during the bankruptcy process. The moment has been largely forgotten; Taub has done us a favor by putting it back on the table.”

He goes on to say that he had correspondence with Sheila Bair who was undermined and stomped on by the Obama administration for even thinking about relief to homeowners. She was head of the FDIC and prevented from doing her job by a bankrupt policy of save the banks and damn the homeowners. “Because, as Bair told me in an email, “It would have been a powerful bargaining chip for borrowers.” Without the ability to file for bankruptcy, underwater homeowners unable to pay their mortgages were helpless to prevent foreclosures. With it, however, servicers and banks were far more likely to negotiate the debt load. And if they weren’t, a bankruptcy judge would rule on the appropriate debt to be repaid. For all the talk about the need for principal reduction, this change would have been the easiest way to get it.”

According to Adam Levitin, in the same article by Nocera, this should have been a “no-brainer.” I take that too mean that as I have explained above, brains were in short supply during the worst of what we have yet seen of the economic crisis that most of us think is not even half over. Obama may be leaving the crisis as his legacy not because he caused it but because he didn’t do anything about it — or at least anything right.

And I obviously agree with Nocera’s ending comment — “Why is it that the fear of moral hazard only applies to homeowners, and not to the banks?”

Gretchen Morgenson says Geithner admitted he was inept at times. ““We were human.” But this fails to address head-on the possibility that he was a captured regulator, a man locked into the mind-set of the very bankers he was supposed to oversee.”

Gretchen reports without objection from Geithner — “Last week, I asked Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, for her recollection of these events. She replied with an email recalling that in 2006, she attended her first Basel Committee meeting, the international negotiations that Mr. Geithner was referring to. While there, she pushed unsuccessfully to raise bank capital levels.

Why was she unsuccessful? “I was actively undermined by the Fed, the New York Fed and the comptroller of the currency,” she said. “I later complained to Tim about the way his representative on the Basel Committee had undermined me. He was unapologetic.”

Gretchen has not been given the resources to prove the corruption on Wall Street, but she knows it is there and as the fourth estate the NY Times should have provided her with a blank check for what would have been a Pulitzer or even a Nobel prize. for now we can only agree with her — “We were the lenders of last resort and should have been paid an enormous premium for the use of our money. We were not.”

There are suddenly a spate of articles on what went wrong because Geithner wrote a book and is selling it enhancing his own fortunes while he presided over the worst hit the middle class has had in our history.

Here is what investigators should have been looking for:

Behind door number 1 were the fools. These are the money managers who for reasons the defy explanation did no due diligence and bought empty mortgage bonds issued by a trust that was never going to receive the money, the loans or the property.

Behind door number 2 were the wolves of Wall Street including all the different brokers, dealers, banks, rating agencies and insurers, all the mortgage brokers, real estate brokers, and closing agents and title companies all in league to take as much money as they could out of the system and the hide it behind shadow money equivalent to ten times all the actual money in the world.

Behind door number 3 are the victims. These are the people who knew nothing about mortgages, derivatives or anything else. In the end they were convinced by super salespeople that they could never understand how they could afford the loan nor could they even understand why they must do it anyway. In Florida alone 10,000 such sales people were convicted felons. And yet when we talk of moral hazard we speak of people, and not banks. Why is that?

More Lawsuits, Still No Real Progress and No Coverage by Media

Jon Stewart committed his entire show to the mortgage crisis last Wednesday night. Go watch it. It wasn’t funny although they added some comedic aspects. The bottom line is the question “why aren’t these people in jail?” And the media was scorched with the fact that despite a constant culture of continuing corruption and absurd “transactions” in which paper goes back and forth, and calling that economic activity with”profit,” and stories of the human tragedy of Foreclosures all based on what are now obviously fraudulent schemes, the media is silent. The number of stories on the illegal Foreclosures, the charges of FRAUD by everyone involved from lenders (investors) to insurers to guarantors to borrowers, the verdicts and judgments decided against the banks, and the analysis that the assets of the banks are fictional, the total is ZERO.

My question is why the displacement of more than 15 million people in a single scheme is not the main question in American discourse, media and politics — especially since the banks have admitted by conduct or expressly their wrongdoing? We already know it was a total fraudulent scheme. The banks are settling their ill gotten gains for pennies on the dollar while the victims absorb most of the loss. We already know that the requirements of Federal law were routinely ignored in disclosing the real terms and lenders to borrowers. And if they had made the disclosure, the deals would not have occurred, because if they were disclosed neither the lenders (investors) nor the borrowers (homeowners) would have done the deal.

One particular story was singled out by Jon Stewart to provide an example of what Gretchen Morgenson called “just another day on Wall Street” was the recent transaction between Blackrock and Corere. Blackrock loaned Corere $100 million. Blackrock purchased a credit default swap worth $15 million if there was any default for any reason. Blackrock made a deal with Corere for Corere to default. So Corere defaulted. Blackrock collected the $15 million on the credit default swap PLUS the full repayment from Corere of $100 million, plus interest. Somehow this is considered legal. I call it FRAUD.

When applied to the mortgage market you can easily see how the agent banks (investment banks or broker dealers) made a fortune by creating deals that failed on paper when in fact the loan was already covered in multiple ways. Only in the mortgage situation the lenders got screwed out of repayment and the borrowers got screwed on their deal by either losing their home or getting a deal where they would be underwater for the rest of their lives. As I have been detailing over the last week, I have a currently pending case in which the “successor” trustee with a new aggressive law firm is pursuing foreclosure and collection of rents on loans that they know have been paid, they admit have been paid, but they say it doesn’t matter. Using this theory, if the payment doesn’t come from the named Payor on the note to the now unnamed payee on exhibit note, anyone can collect multiple times on a single debt. This is crazy.

The bastion of our security — judiciary — is succumbing to expediency over truth and justice. Instead of applying the requirements of law and procedure strictly against the same entities that are repeatedly cited for FRAUD AND NON COMPLIANCE by government and lawsuits from investors, insurers and guarantors, the judiciary is ignoring the requirements or applying liberal standards to allow the foreclosure to proceed. What Judges don’t understand yet is that they can clear their docket more quickly if they demand proof of payment by the party seeking foreclosure and proof of authority to represent the real creditors, who must be identified.

If the party pursuing foreclosure has no skin in the game and doesn’t represent anyone who does, the foreclosure fails jurisdictionally. If we apply any other standard, then the courts are opening the door for uninjured people to sue for a slip and fall that happened to someone else.

These Foreclosures would disappear entirely if judges applied the law with or without a proper presentation by defense counsel. In the old days, Judges carefully reviewed the basic documents. If they found a gap, they refused to apply the most extreme remedy of foreclosure until the the creditor could comply. That is all I ask. Instead most lawyers are told to stop arguing because the Judge is uncomfortable with what he is hearing and most lawyers do not have the guts to say to the judge that the purpose of having a lawyer is to “argue” cases. Is the Judge throwing out the right to be heard altogether? That violation of undue process is something that should be taken to task.

At the end of the day, it will be accepted fact that the mortgages were fraudulent unenforceable devices that never should have been recorded, much less used for foreclosure or collection of rents, the note is a fraudulent unenforceable paper designed to mislead the borrower, the lenders, the insurers, the government guarantors, credit default counterparties, and the courts as to the lender’s identity, and the debt was always between the investors who received no documentation for their investment that was real, and the homeowners who were duped into signing papers that made them unwitting participants in a fraudulent scheme.

In the end the intermediary agent banks got paid but the lenders only get their money if they sue the investment banker because the lenders were denied the right to appear on closing paperwork as the lender or on assignments. In other words, the parties who loaned the money got pennies on the dollar. The Banks got paid multiple times on the same debt by selling it multiple times, insuring it multiple times and getting it guaranteed multiple times, and then foreclosing as if they were the lender.

My final question is this: “if we know the mortgage mess was a fraudulent scheme, why are we allowing its continuation in the courts?”

—————————————————–

DOJ plans more MBS fraud cases in New Year

The Department of Justice intends to bring cases against several financial institutions next year for what it says is mortgage-bond fraud, Attorney General Eric Holder told Reuters yesterday.
While Holder said that the DOJ would use JPMorgan’s $13B agreement as a template, he didn’t provide details about which banks are in his crosshairs.
Firms that have acknowledged that they are under investigation include Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS).

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Gretchen Morgenson: Tide Turning as Judges Get Irritated by Bank and Lawyer Behavior

“Two recent rulings — one in New York involving Bank of America and one in Massachusetts involving Wells Fargo — serve as examples. In the Wells Fargo case, a ruling on Sept. 17 by Judge William G. Young of Federal District Court was especially stinging. In it, he required Wells Fargo to provide him with a corporate resolution signed by its president and a majority of its board stating that they stand behind the conduct of the bank’s lawyers in the case.”

Editor’s Comment: As I am litigating directly now I see evidence of the same trends discussed in the New York Times article. I adopted a different stance than most foreclosure defense attorneys whose strategies are not less valid than my own. They just don’t suit me. I am accustomed to being the aggressor. So I enter a cases in which the bank has been delaying prosecution of the foreclosure case and step up the pace. The Judges here in Tallahassee and elsewhere are taking note — that the banks are curiously opposing our attempts to move the case along. The resulting shift in perception is palpable. Judges are looking at the files and realizing that it is not because of borrowers who frankly did nothing in the file, but because of the banks who never prosecuted the case.

We ask for expedited discovery and a trial order. The bank attorneys inevitably back pedal and state they cannot agree to expediting the case — which has led the Judges to muse aloud about who is the Plaintiff and who is the defendant.

You would think that the bank would be anxious to produce its witnesses and exhibits for discovery. They are not. In one case the bank has been thwarting the deposition of the person who verified the complaint for over three months.  We only asked for the documents upon which the witness relied when she verified the complaint — something that obviously had to exist before they could file the complaint. So far, no witness nor documents.

When I was representing banks in foreclosures, if someone raised any kind of defense or objection I went out of my way to produce the records custodian,and all the records and proof of the receipt of the money including canceled checks and the bookkeeping records of the banks so there would be no mistake about the existence of the default. I would carefully confirm the figures and history of the borrower before I sent the notice of default, acceleration and right to reinstate because all my figures had to be correct — or else the notice was defective and I would have had to start all over again (something I learned the hard way).

Judges are sensing a disconnect between the banks and their alleged lawyers, and they are right to question that. The assignment usually comes from LPS and the Plaintiff bank usually has no direct knowledge of the action because LPS fabricates most of the documents. That is why Judge Young said that if you want to proceed, I want to see a resolution of the Board of Directors of Wells Fargo bank that they ratify and accept the actions taken by the the attorneys supposedly representing them.

You can almost feel the vibrations of a ship groaning as it makes a turn. The banks are in for a rude awakening.

Fair Game

Why Judges Are Scowling at Banks

By GRETCHEN MORGENSON

District court judges are not generally known as flamethrowers, but some seem to be losing patience with banks in cases involving lending practices.

Trustees on REMICs Face a World of Hurt

DID YOU EVER WONDER WHY TRUSTEES INSTRUCTED THE INVESTMENT BANKS TO NOT USE THEIR NAME IN FORECLOSURES?

Editor’s Comment: Finally the questions are spreading over the entire map of the false securitization of loans and the diversion of money, securities and property from investors and homeowners. Read the article below, and see if you smell the stink rising from the financial sector. It is time for the government to come clean and tell us that they were defrauded by TARP, the bank bailouts, and the privileges extended to the major banks. They didn’t save the financial sector they crowned it king over all the world.

Nowhere is that more evident than when you drill down on the so-called “trustees” of the so-called “trusts” that were “backed” by mortgage loans that didn’t exist or that were already owned by someone else. The failure of trustees to exercise any power or control over securitization or to even ask a question about the mortgage bonds and the underlying loans was no accident. When the whistle blowers come out on this one it will clarify the situation. Deutsch, US Bank, Bank of New York accepted fees for the sole purpose of being named as trustees with the understanding that they would do nothing. They were happy to receive the fees and they knew their names were being used to create the illusion of authenticity when the bonds were “Sold” to investors.

One of the next big revelations is going to be how the money from investors was quickly spirited away from the trustee and directly into the pockets of the investment bankers who sold them. The Trustee didn’t need a trust account because no money was paid to any “trust” on which it was named the trustee. Not having any money they obviously were not called upon to sign a check or issue a wire transfer from any account because there was no account. This was key to the PONZI scheme.

If the Trustees received money for the “trust” then they would be required under all kinds of laws and regulations to act like a trustee. With no assets in a named trustee they could hardly be required to do anything since it was an unfunded trust and everyone knows that an unfunded trust is no trust at all even if it exists on paper.

Of course if they had received the money as trustee, they would have wanted more money to act like a trustee. But that is just the tip of the iceberg. If they had received the money from investors then they would have spent it on acquiring mortgages. And if they were acquiring mortgages as trustee they would have peeked under the hood to see if there was any loan there. to the extent that the loans were non-confirming loans for stable funds (heavily regulated pension funds) they would rejected many of the loans.

The real interesting pattern here is what would have happened if they did purchase the loans. Well then — and follow this because your house depends upon it — if they HAD purchased the loans for the “trust” there would have no need for MERS, no trading in the mortgages, and no trading on the mortgage bonds except that the insurance would have been paid to the investors like they thought it would. The Federal Reserve would not be buying billions of dollars in “mortgage bonds” per month because there would be no need — because there would be no emergency.

If they HAD purchased the loans, then they would have a recorded interest, under the direction as trustees, for the REMIC trusts. And they would have had all original documents or proof that the original documents had been deposited somewhere that could be audited,  because they would not have purchased it without that. Show me the note never would have gotten off the ground or even occurred to anyone. But most importantly, they would clearly have mitigated damages by receipt of insurance and credit default swaps, payable to the trust and to the investment banker, which is what happened.

No, Reynaldo Reyes (Deutsch bank asset manager in control of the trustee program), it is not “Counter-intuitive.” It was a lie from start to finish to cover up a PONZI scheme that failed like all PONZI schemes fail as soon as the “investors” stop buying the crap you are peddling. THAT is what happened in the financial crisis which would have been no crisis. Most of the loans would never have been approved for purchase by the trusts. Most of the defaults would have been real, most of the debts would have been real, and most importantly the note would be properly owned by the trust giving it an insurable interest and therefore the proceeds of insurance and credit default swaps would have been paid to investors leaving the number of defaults and foreclosures nearly zero.

And as we have seen in recent days, there would not have been a Bank of America driving as many foreclosures through the system as possible because the trustee would have entered into modification and mitigation agreements with borrowers. Oh wait, that might not have been necessary because the amount of money flooding the world would have been far less and the shadow banking system would be a tiny fraction of the size it is now — last count it looks like something approaching or exceeding one quadrillion dollars — or about 20 times all the real money in the world.

At some point the dam will break and the trustees will turn on the investment banks and those who are using the trustee’s name in vain. The foreclosures will stop and the government will need to fess up tot he fact that it entered into tacit understandings with scoundrels. When you sleep with dogs you get fleas — unless the dog is actually clean.

Stay Tuned for more whistle blowing.

In Countrywide Case, Trustees Failed to Provide Oversight on Mortgage Pools

Appraisal Fraud: Triaxx Inching Toward the Truth

Editor’s Comment: At the heart of the entire scam called securitization was the abandonment — in fact the avoidance of repayment of the loans. The idea was to make bigger and bigger loans without due any evidence of due diligence, so that the “lender” could claim plausible deniability and more importantly, make a claim for losses that were insured many times over. It was the perfect storm. Banks were using investor money to make bad loans on which the banks were raking in huge profits through multiple sales or insurance of the same loan portfolio. The only way the plan could fail was if the loans performed and the loan was in fact repaid.

For years, I have been pounding on the fact that the root of the method used was appraisal fraud, which as far as I can tell was present in nearly 100% of all loans subject to securitization, where loans were NOT bundled, and the securitization documents were ignored.

Now ICP Capital managing a vehicle called Triaxx, has countered the mountain of documents with real data sifted through algorithms on computers and they have come to the conclusion that loans were far outside the 80% LTV ratio that was presented to investors, that loans were never paid from the start (not even the first payment) and that probability of repayment was about zero on many loans. Soon, with some tweaking and investigation they will discover that repayment was never in the equation.

Thanks again to the learning curve of Gretchen Morgenson of the New York Times and her excellent investigations and articulation of her findings, we are all catching up with the BIG LIE. Banks made loans to lose money because they the money they were losing was the money of investors — pension funds etc. And at the same time they bet against the loans that were guaranteed to fail and put the money in their own pockets.

In classic PONZI scheme methodology, they used the continuing sales of false mortgage bonds to pay investors until the inevitable collapse.

Once this is established 2 things are inevitable — the investors will prove their case that they the mortgage bonds were fabricated and based upon lies, deceit and cheating.

And the other inevitable conclusion is that the money came from the investors and not from the named payee, lender or secured party on the notes and mortgages that were executed in the tens of millions during the mortgage meltdown decade.

But did the investor money come to the closing through the REMIC? The answer appears to be a big fat “NO” based upon a big fat LIE. And THAT is where the problem is that caused the banks and servicer to fabricate, forge, robo-sign, lie, cheat and steal in court the same way they did when they sold the investors and sold the borrowers on a deal doomed from inception.

Legally and practically all that means that the borrowers were equally defrauded by the false appraisals that are legally the representation of the “lender” not the borrower. But even more importantly it means that Wall Street cannot show that the money for funding or purchase of the loans ever actually came from the investment pools.

It turns out that the Wall Street was telling the truth when it denied the existence of the pools and the switched to a lie which we forced on them because it never occurred to us that they would blatantly cheat huge institutions that could do their own digging and litigating. 

The legal and accounting effect of all this is enormous. The Payees, Lenders and Secured Parties named in the closing were not the source of funding and therefore the documents that were signed must be construed as referring to a transaction that has never been completed because it was never funded.

The deception was complete when Wall Street investment bankers sent money down to closing agents without regard to any pool, REMIC, SPV or other specific collection of investors. The funding arrived from Wall Street a the same time as the papers were signed.

But in order to prevent allegations of false appraisals and predatory and deceptive lending from moving up the ladder, Wall Street made sure that there was NO CONNECTION between the PAYEE, LENDER or SECURED PARTY and either the investment bank or the so-called unfunded pool into which no assets were placed other than the occasional purchase or sale of a credit default swap.

FREE HOUSE?: As Arthur Meyer is fond of pointing out in his history of banking every 5 years, bankers always manage to step on a rake. The banks had severed the connection between the funding and the documents.

If the court follows the documents a windfall goes to someone in the alleged securitization documents WHO HAS ALREADY BEEN PAID.

If he follows the money, the loan is not secured by a perfected mortgage lien, which means that (1) the unsecured debt can be wiped out in its entirety by bankruptcy AND/or (2) with investors slow on the uptake, there might not be a creditor left to make a claim.

THE ULTIMATE AND RIGHT APPROACH TO PRINCIPAL REDUCTION: But as pointed out previously, there is a Tax liability that would put the federal, state and local budgets back in balance due from homeowners who got their “free house.” It would be a small fraction of the balance claimed on the original loan, but it would reflect the real valuation of the house, the real terms that should have applied, and a deduction for the predatory and deceptive lending practices employed.

BOA ET AL DEATHWATCH: The political third rail here is that 5-6 million homeowners might well have a right to return to their old homes with no mortgage — an event that would put our economy on steroids, end joblessness and crush the mega banks whose accounting and reporting to the SEC and shareholders has omitted the huge contingent liability to pay back the ill-gotten funds from reselling the same portfolio AS THEIR OWN  loans dozens of times.

Too Big to Fail may well be amended to “Too Fat to Jail”, a notion with historical traction even in our own society corrupted by money, influence peddling and lying politicians.

See Gretchen Morgenson’s Article at How to Find the Weeds in the Mortgage Pool

How to Find Weeds in a Mortgage Pool
By GRETCHEN MORGENSON, NY Times

IT sounds like the Domesday Book of the housing bust. In fact, it is a computerized compendium of millions of housing transactions — a decade’s worth from across the country — that could finally help us get to the bottom of troubled mortgage investments.

The system is an outgrowth of work done by a New York investment manager, Thomas Priore. In the boom years, his investment firm, ICP Capital, navigated the dangerous waters of collateralized debt obligations via an investment vehicle called Triaxx. Buyers of Triaxx C.D.O.’s did better than most, but Triaxx still incurred losses when the bottom fell out.

Now Triaxx’s database could help its managers and other investors identify bad mortgages and, perhaps, learn who snookered whom when questionable home loans were bundled into investments that later went bad.

Triaxx’s technology came to light only last month, in court documents filed in connection with the bankruptcy of Residential Capital. ResCap was the mortgage lending unit of GMAC, now known as Ally Financial. As an investor in mortgage securities, Triaxx gained access to a lot of information about loans that were pooled, including when those loans were made, where the properties are and how big the mortgage was, relative to the property’s value. After Triaxx fed such details into its system, dubious loans popped out.

Granted, Mr. Priore is no stranger to controversy. He and ICP spent two years defending themselves against a lawsuit by the Securities and Exchange Commission, which accused them of improperly generating “tens of millions of dollars in fees and undisclosed profits at the expense of clients and investors.” On Friday, ICP and Mr. Priore settled the matter. As is typical in such cases, they neither admitted nor denied the accusations. Mr. Priore paid $1.5 million. He declined to discuss the settlement.

But he did say that, looking ahead, he believed that Triaxx’s technology would help its investors recover money they deserved. Many other investors, unable or unwilling to dig through such data, have settled for pennies on the dollar.

“Our hope is that the technology will level the playing field for mortgage-backed investors and provide a superior method to manage residential mortgage risk in the future,” Mr. Priore said.

A step in that direction is Triaxx’s recent objection to a proposed settlement struck last May between ResCap and a group of large mortgage investors. Triaxx, which invested in mortgage loans originated by ResCap, criticized that settlement because it was based in part on estimated losses. Triaxx said the estimates had assumed that all the trusts that invested in ResCap paper were the same. Triaxx argued that a settlement based on estimated losses, rather than one based on an analysis of actual misrepresentations, unfairly rewards investors who bought ResCap’s riskier mortgages.

ResCap replied that it would be a herculean task to examine the loans in the trusts to determine the validity of each investor’s claims. But Triaxx noted that it took only seven weeks or so to do a forensic analysis of the roughly 20,000 loans held by the trusts in which it is an investor. Of its investments in loans with an original balance of $12.8 billion, Triaxx has identified approximately $2.17 billion with likely breaches. A lawyer for ResCap did not return a phone call on Friday seeking comment about problem loans.

John G. Moon, a lawyer at Miller & Wrubel who represents Mr. Priore’s firm, said: “Large institutions have been able to hide behind the expense of loan file review to evade responsibility for this very important national problem that we now have. Using years of data and cross-referencing it, Triaxx has figured out where the bad loans are.”

Triaxx, for example, said it had found loans that probably involved inflated appraisals. Those appraisals led to mortgages far exceeding the values of the underlying properties. As a result, investors who thought they were buying mortgages that didn’t exceed 80 percent of the properties’ value were instead buying highly risky loans that totaled well over 100 percent of the value.

Triaxx identifies these loans by analyzing 50 property sales in the same vicinity during the same period that the original mortgage was given. Then it compares the specific mortgage to 10 others that are most similar. The comparable transactions must involve the same type of property — a single-family home, for example — of roughly the same size. They must also be within a 5.5-mile radius. If the appraisal appears excessive, the system flags it.

Phony appraisals in its ResCap loans likely resulted in $1.29 billion in breaches, Triaxx told the court. Triaxx cited 50 possible cases; one involved a mortgage written in November 2006 on a home in Miami. It was a 1,036-square-foot single-family residence, and was appraised at $495,000. That appraisal supported a $396,000 mortgage, reflecting a relatively conservative 80 percent loan-to-value ratio.

But an analysis of 10 similar sales around that time suggested that the property was actually worth about $279,000. If that was indeed the case, that $396,000 mortgage represented a 142 percent loan-to-value ratio.

Perhaps the home had gold-plated bathroom fixtures and diamond-encrusted appliances. Probably not.

Triaxx’s system also points to loans on properties that were not owner-occupied, a breach of what investors were told would be in the pool when they bought it, Triaxx’s filing said. Such misrepresentations in loans underwritten by ResCap amounted to $352 million, Triaxx said.

The technology also kicks out mortgages on which borrowers failed to make even their first payments, loans that should never have wound up in the pools to begin with.

Although Triaxx is using its technology to try to recover losses, that system could also help investors looking to buy privately issued mortgage securities. After all, investors’ inability to analyze the loans in these pools during the mania led to enormous losses in the collapse. Now, deeply mistrustful of such securities, investors have pretty much abandoned the market.

Lenders and packagers of mortgage securities will undoubtedly fight the use of any technology like Triaxx’s to identify questionable loans. That battle will be interesting to watch. But investors should certainly welcome anything that brings transparency to this dysfunctional market.

DELAY Is the Name of the Game

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Editor’s Notes:  

It comes as no surprise that BofA, now the unproud owner of Countrywide, would repeatedly appeal a judgment in which a moral man tried to avoid moral hazard at Countrywide and was fired for it. Corporations do that all the time to gain the advantage of achieving a smaller settlement or to dissuade others from doing the same thing. I feel appalled that this guy in Gretchen’s story is still waiting for his compensation and that if BofA has its way, he will be deprived of it altogether. BofA of coruse says that when they acquired CW there just wasn’t a job left for him. Bullcrap:

“But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.” (e.s., see full article below and link).

“These folks went in the other direction” is an understatement. And while most of the media is stepping back from foreclosure stories except for reporting the numbers, this story brings back the raw, mean, lawless intent of Countrywide and other leaders of the securitization scam. Let me first remind you that for the most part, the “securitization” never occurred. Any loan declared to be part of a pool that was “securitized” or otherwise transferred into the pool is a damn lie. Very few people understand how that even COULD be true, much less believe that it is an accurate statement. But it is true. There was no securitization in most cases.

If a loan was securitized it would have been underwritten by a bona fide lender and then sold to an aggregator, and from there sold to a REMIC “trust” or special purpose vehicle. Certificates of ownership of the loan together with a promise to pay the owner of the loan a sum of money with interest would have been issued to qualified investors like pension funds and other institutional investors upon which our society depends for social services and a safety net (which in the case of pension funds is largely funded by the workers themselves). Of course the investors would have paid the investment banker for those loans including a small fee for brokering the transaction. And everyone lives happily ever after because Tinker Bell certified the transactions.

So if the loan was securitized, then both the document trail and the money trail would show that the loan was properly owned and funded by the “lender,”, the lender assigned the loan in exchange for payment from the aggregator and the aggregator assigned the loan in exchange for payment into the pool (REMIC, trust, or whatever you want to call it). The problem for the banks is that none of that happened in most cases. And their solution to that problem, instead of acting like trustworthy banks, is to delay and fabricate and forge and intimidate. (PRACTICE NOTE: THESE ARE THE DOCUMENTS AND PROOF OF PAYMENT YOU WANT IN DISCOVERY)

The real story is that the loan was not underwritten by a bona fide lender whose role involved any risk of loss on the loan. In fact, in most cases there was no financial transaction between the lender named on the note and mortgage and the borrower. The financial transaction actually occurred between the borrower and an undifferentiated commingled group of investors who THOUGHT they were buying into REMICs but whose money was used for anything BUT the REMICs. Their money was in an account far from the securitization chain described above controlled by an investment bank who was taking “trading profits” and fees out of the money as though it was their own private piggy bank.

The “assignment” (sometimes erroneously referred to as an allonge or endorsement) was offered and accepted between the named lender (who was not the real lender) and the mortgage aggregator WITHOUT PAYMENT. The assignment says “for value received” but the value was received by the borrower and the investment bank and so there was no payment by the aggregator for an assignment from a “lender” that wasn’t the lender anyway and who never had one penny in the deal, nor any legal right to declare that they were the owner of the loan.

The “aggregator” was a fictitious entity meant to deceive any inquiring eyes. My eyes were inquiring and for a long while I believed in the existence of the aggregator — but then I was late on getting the real scoop on Santa and tooth fairy too. But it misdirects the attention of the audience like any illusionist. Meanwhile various “affiliates of the investment bank are busy creating “exotic instruments” that make believe that the bank owns the loan and thus has the power to sell it, when in fact we all know that the investors own the note but even they don’t quite understand how they own the note — a fact complicated by the fact that the “aggregator” was a fiction and the money came from a Superfund escrow account in which ALL the money from ALL the investors was commingled and the moment of funding of each loan was a different moment in the SuperFund account because money was coming and going and so were investors. This is what enabled the banks to (a) sell something they didn’t own (they called it selling forward, but it wasn’t selling forward, it was fraud) (b) sell it over and over again, by calling the “exotic instrument” something else, changing a few pieces of information about the loan data and presto!, Bear Stearns had “leveraged” the loan 42 times.

Translation: They sold something they didn’t have 42 times. And the risk of loss was that if someone in the chain of sales ever demanded delivery, they needed to go out and buy the loans which they figured was a sure thing because in all probability the loans were not worth the paper they were written on and in the open market, they could be purchased for pennies while Bear Stearns et al was selling the loans 42 times over at 100 cents on the dollar.

The last “assignment” for “value received” into the “pool” also had similar problems. First, the aggregator was a fictitious entity, second there was no value paid, and third they had already sold the loan 42 times. Add to that the assignment simply never took place to either the aggregator or the pool unless there was litigation and you have a real mess on your hands, which is where distraction and delay and illusion and raw intimidation come into play — all present in the case of one Michael Winston, a former executive at Countrywide Financial.

The repeated sales of the loans, the repeated collection of insurance for losses that never occurred, and repeated collection of proceeds of credit default swaps (a/k/a sales with a different name) means quite simply that the loan was paid in full from the start and that there is no balance due and probably never was any balance due and even if there was a balance due it was never due to the people who are now foreclosing. So why are they foreclosing? Because if they get to complete a foreclosure it completes the illusion that the investors were owed the money from the borrower instead of the bank that stole their money in the first place. So they pursue foreclosures while their PR machines grind out the illusion of modifications and mediation and short-sales. Nobody is getting good title or a title policy worth the paper it is written upon, but who cares?

He Felled a Giant, but He Can’t Collect

By GRETCHEN MORGENSON

“TAKING on corporate Goliaths for their wrongdoing should not be so daunting.”

That’s the view of Michael Winston, a former executive at Countrywide Financial, the subprime lending machine that was swallowed up by Bank of America in 2008. Mr. Winston won a wrongful-dismissal and retaliation case against the company in February 2011, but is still waiting to receive his $3.8 million award. Bank of America is fighting back and has appealed the jury verdict twice.

After hearing a month of testimony from a parade of top Countrywide officials, including the company’s founder, Angelo Mozilo, a California state jury sided with Mr. Winston. An executive with decades of expertise in management strategy, he contended that he was pushed out for, among other things, refusing to follow questionable orders from his superiors.

But for the last year and a quarter, Mr. Winston, 61, has been in legal limbo. Bank of America lost one appeal in the court that heard the case and has filed another that is pending in state appellate court.

Mr. Winston, meanwhile, has been unable to find work that is commensurate with his experience. “The devastation caused by Countrywide to me, my family, my team, the work force, customers, shareholders, taxpayers and citizens around the world is incalculable,” he said.

Before joining Countrywide, Mr. Winston held high-powered strategy posts at Motorola, McDonnell Douglas and Lockheed. He was global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that post in 2003 to care for his parents, who were terminally ill.

At Countrywide, he said, one of his problems was his refusal in fall 2006 to misrepresent the company’s corporate governance practices to analysts at Moody’s Investors Service. The ratings agency had expressed concerns about succession planning at Countrywide and other governance issues that the company hoped to allay.

Mr. Winston says a Countrywide executive asked him to write a report outlining Countrywide’s extensive succession planning for use by Moody’s. He refused, noting that he had no knowledge of any such plan. The company began to diminish his duties and department shortly thereafter. He was dismissed after Bank of America took over Countrywide.

Of course, it is not unusual for big corporate defendants to appeal jury awards. Bank of America argues in its court filings that the jury erred because Mr. Winston’s battles with his Countrywide superiors had nothing to do with his dismissal. Bank officials testified that he was let go because there was no job for him at the acquiring company.

“We believe that the jury’s finding of liability on the single claim of wrongful termination in retaliation is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” a Bank of America spokesman said.

In court filings, the bank also said that the jury appeared to be “swayed by emotion and prejudice, focusing on unsubstantiated and unsupported statements by plaintiff and his counsel slandering Countrywide and its executives.”

But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.”

The credibility of all testimony in the case was central to jurors’ deliberations, Mr. Usher said. Instructions to the jury went into great detail on this point, advising them that they were “the sole and exclusive judges of the believability of the witnesses and the weight to be given the testimony of each witness.” The instructions added: “A witness, who is willfully false in one material part of his or her testimony, is to be distrusted in others.”

Mr. Usher said that those who testified against Mr. Winston “didn’t have a lot of credibility.”

That’s putting it mildly, said Charles T. Mathews, a former prosecutor in the Los Angeles County district attorney’s office who represented Mr. Winston. He said he was so disturbed by what he characterized as persistent perjury by various Countrywide officials that he forwarded annotated copies of court transcripts to Steve Cooley, the Los Angeles district attorney, for possible investigation.

“We won a multimillion-dollar verdict against Countrywide, but it sticks in my guts that they lied through their teeth and continue to escape accountability,” Mr. Mathews wrote to Mr. Cooley, urging him to investigate.

Whether perjury or not, the testimony ran into withering challenges.

Countrywide’s top human resources executive testified that Mr. Winston was a problematic employee and not a team player. But a performance evaluation she had written shortly before the company started to reduce his duties was produced in the case. It said Mr. Winston had “done well to build relationships with key members of senior management and continues to do so.”

The evaluation went on: “Michael strives to be a team player,” and “is absolutely focused on process improvement in his areas and has been working tirelessly to do so since he’s been on board.”

Mr. Mathews also contends that Mr. Mozilo, in a rare courtroom appearance, misrepresented his views of Mr. Winston. First, Mr. Mozilo testified that he did not know Mr. Winston, even though testimony and documents showed that he had attended presentations with him, personally given Mr. Winston a pair of Countrywide cuff links and told another employee that Mr. Winston’s leadership programs were “exactly what Countrywide needs.”

Mr. Mozilo’s testimony that he was unimpressed with Mr. Winston and his work was also refuted by another Countrywide executive who said that Mr. Mozilo was enthusiastic enough about Mr. Winston’s programs to suggest that he present them to the company’s board.

Asked about Mr. Mozilo’s testimony, David Siegel, a lawyer who represents him, said in an e-mail that there was no merit to the accusation that Mr. Mozilo was not truthful.

A spokeswoman for Mr. Cooley’s office confirmed last week that it had received the court transcripts and said that one of its prosecutors was reviewing them. She declined to comment further.

“God forbid our system continues to ignore these people and their acts,” Mr. Mathews said in an interview last week. “I am optimistic but the price of justice can be different depending on what your wallet says.”


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GRETCHEN MORGENSON ON CNN TONIGHT WITH SPITZER

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Her new book “Reckless Endangerment” is a good read. Gretchen was amongst the first to drill down on the mortgage meltdown and expose numerous illegal practices of lenders and foreclosers (different parties, as we know). In many ways she has led the way for other journalists who bothered to take the time and really look at the crisis instead of carrying Wall Street’s spin. Buy her book — it’s available on Amazon and Kindle.

That said, Gretchen has not fully embraced the entire picture — probably because she is not a lawyer and lawyers she might have interviewed would have been reluctant to state outright what we already know: that the mortgages were defective, fabricated instruments that the homeowners were tricked into signing without all the terms being disclosed anywhere at the closing or before it. She hasn’t done much yet to dispel the myth that the homeowners have a moral duty to repay a valid debt.

It isn’t a valid debt and the moral decision of whether to pay is an individual one based upon the circumstances of each homeowner, most of whom were tricked mostly by the lender’s endorsement of a false appraisal on the home leading the homeowner-borrower and the investor-lender to believe that the property was worth more than the debt. The moral duty myth has been flipped on its head.

Nobody would say that the investors have a moral duty to take the loss from this scheme, so why say that the homeowners have a moral duty to accept the loss? It wasn’t their idea.

Slowly but surely though Gretchen has been evolving into a full understanding of the issues, so give her time. She is persistent and thorough. Her analysis and commentary is precise and well-reasoned.

ANATOMY OF INTENT: WHY MORE THAN 800 PEOPLE COULD BE CHARGED WITH CRIMINAL INTENT

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In the S&L scandals more than 800 bankers went to jail, why not now?

EDITOR’S ANALYSIS: As you read the article below regarding NovaStar Financial, think about buying the book it came from. Gretchen and Joshua have spent a lot of time not just taking notes and reporting in catchy terms, they have been analyzing, pouring over the details to see WHY the mortgage meltdown occurred. One of the reasons, as pointed out in this article is that wherever there was leverage, there was Wall Street taken advantage of it. Wall Street has always been morally neutral at best. But the last 10 years+ with deregulation tried at a virtual evangelical level, morality, legality and even common sense went out the window.

The kind of leverage discussed here basically revolves around the concept of a term known as “price-earnings ratio” which once had a meaning and now is used as spuriously as the AAA rating Moody’s Fitch and S&P gave to bogus mortgage bonds. The “price” suggests a value that is independently determined by market forces based upon symmetry of knowledge. NO such thing exists anymore. The “earnings” suggest that the company actually had any real earnings as you and I would think of it. Accounting rules have been changed such that a company on the verge of bankruptcy or which already is bankrupt in the lay sense, can be portrayed as a healthy vibrant company with great prospects. The “ratio” is the relationship between “price” and “earnings” which is to say that it is a scientific sounding term meant to mislead anyone who hears it.

ENTER LEVERAGE: “Leverage” is a term to describe a way of controlling more assets than you can afford. Using leverage on Wall Street is considered to be proper and even good. But if the average Joe tries to use it in the marketplace, say, in buying a house, it is an immoral unjustified act for which he must bear the full weight of all responsibility even if he did it in reliance on lies that Wall Street told.

Thus the average Joe is a dumbbell and morally bankrupt because he is an average Joe. Meanwhile on Wall Street not only are leveraged companies deemed good from a moral standpoint, they are considered sophisticated and contributing to the liquidity of capital and the prosperity of our nation.

In truth, the average Joe is on a morally higher ground than the Wall Street banker. The average Joe is both a player and one of the victims whereas on Wall Street the investment banker is the player and the investors and all the pension-holders depending upon the the funds manager for the investors, are the victims. Wall Street makes money by lying with complete  disregard for their own reputation. For reasons that defy explanation, investors go back to buy the same crap that they did before even thouhg they know the last group of “pooled assets” never existed and the consequences of that fraud are working their way through the courts.

Witness NovaStar. Or any other company on Wall Street. Their stock value is seen as a function, in large part, of their price earnings ratio. The fact that they have no assets to support the figures reported on their balance sheet and therefore have only the prospect of being broken up and “resolved” as the FDIC puts it when it closes a bank, seems to have escaped most people who invest in such stocks. But the important thing to remember in all of this is that the motivation, the intent, the plan behind Nova Star was the same as the megabanks — increase the wealth of management at thee expense of shareholders, and inflate the apparent value of the stock to keep the shareholders quiet.

They did this by overstating results turning losses into earnings. Since the price earnings ratio supposedly bears some relationship to the return one might get on a CD or other income investment, the stock sells at a multiple of the earnings reported. How the SEC qualified auditors could ever have issued an opinion letter without exceptions defies explanation as well. They should have said that the attached financial statements represent a fair and accurate representation of the financial condition of the company as of the date they were prepared IF YOU BELIEVE MANAGEMENT WHOSE BELIEFS ARE NOT SUPPORTED BY ANY OTHER INDEX OR VALUE OUTSIDE THE COMPANY ITSELF.

This is important to homeowners and borrowers because (1) they are also investors, directly or indirectly both in the bank stocks and the bogus mortgage bonds and (2) if they are alleging fraud for which there was reckless disregard of the consequences or even intentional acts with full knowledge of the consequences, you should know that this is not a blind accusation: it comes from the fact that by reporting fictitious earnings, the stock would rise by multiples of anywhere from 12-30 times the amount reported as earnings in expectation of ever rising earnings from a company that in truth never turned a profit. They accomplished this feat by cheating and lying to homeowners who bought financial products that were difficult to understand and which failed to describe the transaction as it was represented to the homeowner — in short, the exact same thing now alleged by investors in their suits against the investment banks — which brings me to my final point —- why isn’t the  victim (homeowner) suing the investment bank, same as the investor? They were both screwed by the same parties using the same general fraudulent scheme using the same exact pot of money that involved both the homeowners and the investors.

.

May 21, 2011

It Teetered, It Tottered, It Was Bound to Fall Down

By GRETCHEN MORGENSON and JOSHUA ROSNER

This article was adapted from “Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon,” by Gretchen Morgenson, a business reporter and columnist for The New York Times, and Joshua Rosner, a managing director at the independent research consultant Graham Fisher. The book is to be published on Tuesday by Times Books.

MARC COHODES had heard the stories.

Heard how these guys would give a mortgage to anyone — even to a corpse, the joke went. How the place was run like a frat house.

You wouldn’t believe the things that go on there, his brother-in-law had told him.

So Mr. Cohodes, a money manager in Marin County, Calif., decided to bet against one of the big names of the subprime age: NovaStar Financial.

NovaStar was part of a crop of new lenders that had sprung up in the 1990s. It had been founded by two hard-charging entrepreneurs, Scott F. Hartman and W. Lance Anderson.

The two men had complementary skills. Handling the financial operations, working with Wall Street — that was Mr. Hartman’s job. Mr. Anderson, a born salesman, was the glad-hander. From the start, the pair was paid handsomely. Each man received almost $700,000 in 1997, even though their company was losing money.

Like others in the subprime industry, NovaStar used aggressive accounting that obscured its increasingly precarious finances. As far back as the 1990s, it had to underwrite loads of new loans to offset losses on older mortgages.

But unlike many of its peers, NovaStar had already survived at least one brush with death. Now, in 2003, Mr. Cohodes was betting that it would not be so lucky again.

Although NovaStar was not a household name in lending, in 2003 the company boasted 430 offices in 39 states. With headquarters on the third floor of an office building in Kansas City, Mo., it was fast becoming one of the top 20 home lenders in the country.

NovaStar was also becoming a Wall Street darling, its shares trading at $30, up from $9.50 in late 2002. Typing NovaStar’s stock symbol into his Bloomberg machine, Mr. Cohodes did a double take. Thirty dollars? Must have used the wrong stock symbol, he thought.

He hadn’t. NovaStar was on a trajectory that would take the shares above $70. Thanks to aggressive management, unscrupulous brokers, inert regulators and a crowd of Wall Street stock promoters, NovaStar’s stock market value would soon reach $1.6 billion.

A beefy, street-smart man fond of sports and sports metaphors, Mr. Cohodes knows every trick executives use to make their companies look better than they are. He prides himself on being able to spot trouble.

Most investors are optimists and believe that companies will increase in value. Short-sellers are the opposite.

And because they challenge company spin, short-sellers are often criticized and refused access to management.

RARE is the corporate executive with an appreciation for naysayers, and NovaStar’s founders were no different. Mr. Anderson and Mr. Hartman had contempt for short-sellers. A Web site sponsored by NovaStar backers, called NFI-info.net, published a picture of a cockroach next to a discussion about investors who had bet against the company’s stock.

But Mr. Cohodes was relentless, and he often shared his research with regulators at the Securities and Exchange Commission.

He figured that if he was right about NovaStar, and he was certain he was, investors everywhere would be better off if he shared his findings with investigators. The sooner the S.E.C. put a stop to improprieties, the better.

The short-sellers would benefit too, of course, if an S.E.C. investigation and civil suit confirmed what Mr. Cohodes and others had found. Even the simple disclosure that an investigation into a company’s practices had been started could crush its stock.

So in February 2003, Mr. Cohodes started corresponding with the S.E.C. about NovaStar. He began “throwing things over the wall,” as he put it, to Amy Miller, a lawyer in the division of enforcement. By this time, loan production at NovaStar was clocking $600 million a month, up from $48 million a month five years earlier.

Among the questionable practices that are the easiest to find are those that appear in a company’s own financial statements. With a little determination and expertise, accounting practices that burnish financial results or make earnings appear out of nowhere can often be spotted in these documents.

Taking his pencil to NovaStar’s statements, Mr. Cohodes found a raft of red flags. “They made their numbers look however they wanted to,” he recalls. “Not even remotely realistic.”

One tactic gave the company lots of leeway in how it valued the loans held on its books. Another allowed it to record immediately all the income that a loan would generate over its life, even if that was decades. This accounting method ignored the possibility that some of the company’s loans might default. NovaStar assumed that losses on all of its loans would be nonexistent.

This was the same stratagem that killed off almost all subprime lenders when the Russian debt crisis rocked the world’s financial markets in 1998.

NovaStar’s rosy assumption not only padded its profitability but also encouraged the company to make more mortgages, regardless of quality. The more loans it made, the more fees and income the company could record.

After some digging, Mr. Cohodes found that NovaStar’s lending practices were lax and rife with hidden fees.

Promotional memos NovaStar sent to its 16,400 unsupervised mortgage brokers across the country told the tale of easy credit terms. “Did You Know NovaStar Offers to Completely Ignore Consumer Credit!” one screamed. “Ignore the Rules and Qualify More Borrowers with Our Credit Score Override Program!” boasted another.

Mr. Cohodes and other NovaStar critics believed that they had found a company whose success was built on deceptive practices. What they did not recognize was that NovaStar was a microcosm of the nationwide home-lending assembly line that would lead directly to the credit crisis of 2008.

IN Atlanta, Patricia and Ricardo Jordan learned the hard way how NovaStar’s freewheeling lending practices imperiled unsuspecting borrowers.

The Jordans had bought their three-bedroom home in a middle-class section of southwestern Atlanta in 1983 for $30,000. Ms. Jordan had made many improvements on the property, putting up a fence and installing an attic fan and air-conditioning. The sole breadwinner in the family, she supported her husband, a physically and mentally disabled Vietnam veteran. In 2000, she retired and they lived on Social Security and veteran benefits.

In 2004, she had a 9 percent adjustable-rate mortgage that she wanted to change to a fixed-rate loan. She received an offer in the mail from NovaStar and called the toll-free number.

“I told them I wanted to come out of the adjustable and they said they would give me the fixed rate if I would accept it at 10 percent,” Patricia said. “I could have stayed where I was but I told them definitely a 30-year fixed rate.”

The Jordans were more or less perfect targets for a lender like NovaStar. They were financially unsophisticated, and they were trusting.

Unbeknownst to the Jordans, their NovaStar loan was one of the most punitive out there: an adjustable-rate mortgage with an initial interest rate of 10.45 percent that would soon explode to 17.25 percent. Even the initial monthly housing payment, including taxes and insurance, was barely affordable: $1,215.33. As documented in their loan file, the Jordans’ total monthly net income was only $2,697. Their monthly housing and other debt costs totaled $1,642, so after they paid their debts each month, the Jordans had only $1,055 to live on.

And that was just the beginning. Two years after signing up for the loan, its interest rate was set to ratchet up. Only then did Ms. Jordan learn that NovaStar had put her into an adjustable loan, not the fixed rate she had been promised.

“I got duped,” she contended.

The Jordans sued NovaStar in 2007. As part of the lawsuit, their lawyer found that their loan had been placed in a mortgage securitization trust assembled by NovaStar and sold to investors in November 2004. More than half of the loans in the pool were provided with no documentation or limited documentation of borrowers’ financial standing.

But the Jordans had given NovaStar bank statements and other documentation of their income. The lawsuit would show that NovaStar had inflated their monthly income by $500 to make the loan work. The lender had given the Jordans a loan that went against its own underwriting guidelines and that overrode federal lending standards.

The Jordans’ was just one loan. There were literally thousands more like it. (NovaStar settled with the Jordans in 2010. The terms were undisclosed.)

Because NovaStar was not a bank, its lending practices were largely lost on state and federal regulators. Traditional banks operate under the scrutiny of financial regulators like the Federal Deposit Insurance Corporation, which was set up to protect depositors after the huge bank failures of the Great Depression. But for companies like NovaStar, the closest thing to an overseer was an occasional state regulator who took action when it discovered that the company’s independent salespeople were unlicensed.

Massachusetts was one state whose regulators recognized the threats posed by the likes of NovaStar. In October 2003, the state’s commissioner of banks filed a cease-and-desist order against NovaStar, concluding that the company engaged in “acts or practices which warrant the belief that the corporation is not operating honestly, fairly, soundly and efficiently in the public interest.”

Nevada followed with its own order in early 2004. NovaStar started closing operations in Massachusetts and Nevada, but only belatedly told the public about its regulatory reprimands.

As the housing bubble inflated, NovaStar was able to convince many of its shareholders that its mistakes were honest ones and were immaterial to its growing business. The company hired Lanny Davis, a well-connected lobbyist and public relations operative, to run interference. Mr. Davis was used to operating in a crucible; he had been special counsel to President Bill Clinton during the Monica Lewinsky scandal.

But NovaStar’s problems were not limited to a few aggressive state regulators. In the summer of 2004, the inspector general for the Department of Housing and Urban Development produced a damning report on NovaStar’s practices. HUD’s inspector general determined that the company’s branch system did not comply with federal regulations; among the deficiencies HUD cited was the company’s practice of hiring independent contractors as loan officers. NovaStar’s branch system, HUD said, was designed to shift risk from the company to the federal government. HUD recommended that NovaStar pay penalties in the case.

NovaStar did not disclose the HUD report to investors. All the while, Mr. Cohodes was continuing to talk to Ms. Miller and others at the S.E.C. about NovaStar. He sent them information about the company, including the NovaStar fliers indicating its anything-goes lending practices. He annotated the transcript of one of NovaStar’s conference calls with analysts and investors, pointing out to the investigators the many inaccurate statements made by the company’s executives.

Although some of the S.E.C. people he spoke with seemed to recognize the problems in NovaStar’s operations, their investigation did not appear to be gaining traction.

The phone calls with the regulators went over the same material repeatedly, Mr. Cohodes recalls, leading him to conclude that Ms. Miller and her colleagues did not understand what was happening at NovaStar.

“Whenever they seemed to get it, they would either call up or make contact frantically saying, ‘Can you please go over this again?’ ” Mr. Cohodes said. “It was almost like someone was presenting a case to the higher-ups and they would say, ‘Are you sure? Go back and make sure.’ ”

One matter whose importance the agency would surely recognize, Mr. Cohodes thought, was a lawsuit showing that NovaStar’s leading mortgage insurer, the PMI Group, had stopped insuring the lender’s loans. He passed his information along to the S.E.C., including names and phone numbers of people to talk to at PMI.

Mr. Cohodes also gave the agency information about some NovaStar branches that were either nonexistent or questionable. Opening new offices helped the company persuade investors that business was booming. But some strange stuff turned up when Mr. Cohodes and some colleagues took a road trip to see NovaStar’s offices.

“A posse of us went to Vegas, which was their growth market,” he recalls. “We found one branch in a massage parlor, another in a guy’s house,” he says. “After that, I wrote to the S.E.C. again and basically said, ‘Someone should go in here and make sure these numbers are right.’ ”

To most outsiders, NovaStar’s operations seemed to be running on all cylinders. During 2004, the company wrote $8.4 billion in mortgages; that September, the amount of loans held on its books had reached $10 billion. NovaStar ended that year with 600 offices.

It was time for Mr. Hartman and Mr. Anderson to take a victory lap. “The $10 billion mark is a tribute to NovaStar associates and our many partners in the mortgage community,” Mr. Hartman told a reporter at Origination News, an industry publication. But while NovaStar executives high-fived each other, a unit of Lehman Brothers, Wall Street’s largest packager of residential mortgage loans sold to investors, was discovering serious problems in a review of NovaStar mortgages. The findings were so troubling to the Lehman executives overseeing the firm’s purchases of NovaStar loans that they ended their relationship with NovaStar in 2004.

According to documents filed in a borrower lawsuit against NovaStar, Aurora Loan Services, a Lehman subsidiary, studied 16 NovaStar loans for quality-control purposes. What the analysis found: more than half of the loans — 56.25 percent, to be exact — raised red flags. “It is recommended that this broker be terminated,” the report concluded.

Among the problems turned up by the Aurora audit were misrepresentations of employment by the borrower, inflated property values, transactions among parties that were related but not disclosed, and unexplained payoffs to individuals when loans closed.

The details uncovered by Aurora were alarming. One NovaStar loan on a property in Ohio totaled $77,500 even though the average sales price for the neighborhood was $31,685, and the same house had been purchased two months earlier for $20,000.

S.E.C. rules require the disclosure by company management of information considered material to the company’s prospects or an investor’s analysis. In a 1999 S.E.C. bulletin, the commission defined materiality this way: “A matter is ‘material’ if there is a substantial likelihood that a reasonable person would consider it important.” Two Supreme Court cases use the same standard.

Surely, Aurora’s findings that more than half of the sampled NovaStar loans were questionable would have been an important consideration for the S.E.C.’s “reasonable person.”

Still, NovaStar failed to alert investors or the public at large to the Aurora analysis. Nor did NovaStar publicize the fact that Lehman Brothers had stopped buying its loans.

Increasingly frustrated, Mr. Cohodes and the other NovaStar short-sellers kept throwing information over the wall at the S.E.C. But the inquiry soon seemed moribund.

“We kept going to the government from the time the company had a $300 million market cap, a $600 million market cap until it had a $1 billion market cap,” Mr. Cohodes said, referring to NovaStar’s rising stock price.

To keep its money machine running, NovaStar regularly issued new shares to the public. Between 2004 and 2007, for instance, the company raised more than $400 million from investors. To those critical of NovaStar’s practices, this was money the company should never have been allowed to raise from investors who were kept in the dark by the company’s disclosure failings.

Mr. Cohodes reckons that over roughly four years, he conducted hundreds of phone calls with the S.E.C. about NovaStar. Each time, he would walk them through his points. Sometimes, a higher-up would get on the phone and contend that while NovaStar’s practices were indeed aggressive, the company did not appear to be breaking the law. NovaStar’s selective disclosures — it was quick to report good news but failed to own up to problems on many occasions — seemed to be infractions that the S.E.C. should have dealt with. But its investigation went nowhere.

In any case, by 2006, the wheels had started to come off the NovaStar cart. The company’s net income that year was less than half what it earned in 2005. The company faced a number of lawsuits, including a class action filed in Washington State in December 2005 alleging that NovaStar failed to disclose to borrowers the fees earned by brokers. Plaintiffs contended that NovaStar had violated consumer protection laws. In 2007, NovaStar agreed to pay $5.1 million to resolve the claims of about 1,600 Washington borrowers.

Its stock was falling, too. By late 2006, NovaStar was trading at around $30; but in the first few months of 2007, as the money for subprime lenders began drying up and these companies started closing their doors, it plummeted to $5. The company halted mortgage lending and stopped paying its dividend.

In March 2007, Mr. Anderson dismissed as insignificant the HUD report and the lawsuits the company had attracted. “Clearly we’re going through a tough time right now,” he told a reporter. “But we think the loans we are originating today will perform very well. We were surprised by the speed and severity of the downturn, but I think NovaStar will be a survivor.”

He was wrong. NovaStar’s shares collapsed, wiping out roughly $1 billion in market value from the peak of the stock price. Despite the implosion, between 2003 and 2008, Mr. Anderson and Mr. Hartman each made about $8 million in salary, bonuses and stock grants.

Neither man was ever sued by the S.E.C. or any other regulator. As is its custom, the S.E.C. declined to comment on the NovaStar inquiry or the agency’s discussions with short-sellers. But documents supplied by the S.E.C. under the Freedom of Information Act show the extensive communications between Mr. Cohodes and the agency. Ms. Miller, still at the S.E.C., declined to comment.

“It would be interesting to see who exactly dropped the ball, and why,” Mr. Cohodes said. “It would be interesting why nothing was ever brought. The S.E.C. should have sent a plane for us to come to D.C. and say: ‘How do we make sure this doesn’t happen again?’ ”

NOVASTAR no longer underwrites mortgages. Its shares were delisted by the New York Stock Exchange and now trade for about 41 cents a share. The company, a shadow of its former self, runs a property appraiser and a financial services unit that provides banking services “to meet the needs of low- and moderate-income-level individuals.”

In a 2010 report to shareholders, Mr. Anderson reported that the company had “several interesting initiatives under way.” Mr. Hartman has left the company. At the end of 2009, NovaStar management concluded that the company’s financial reporting was “not effective.”

NovaStar had, in essence, confirmed what Mr. Cohodes had been telling the S.E.C. all along. The company’s financial reports just couldn’t be trusted.

GRETCHEN MORGENSON: BORROWERS ARE NOT TO BLAME

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LOUISIANA BKR JUDGE STOPS FORECLOSURE ON BORROWERS CURRENT IN PAYMENTS

EDITOR’S NOTE: The tide keeps turning in the direction of borrowers’ rights yet the scam continues. All three branches of government — executive, legislative and judicial are rapidly coming to the same conclusion. This foreclosure mess was not caused by borrowers. The mortgage deficiencies were not caused by borrowers. It isn’t borrowers who are seeking to steal homes for no payment, it is the financial industry seeking a windfall that keeps compounding. And the damage isn’t just to homeowners. It is causing troubles now and for decades to come with the corruption of our title registry systems, uncertainty in the marketplace, and the virtual enslavement of the vital middle class through procedures that side-stepped common sense, decency and due process of law.

NOTABLE QUOTES:

” because her judicial duties seem to have made her an expert on mortgage servicing, Ms. Magner’s views could not be more timely and important. This is especially true, given that state attorneys general seem intent on striking a settlement with servicers before they have conducted a comprehensive and thorough examination of industry practices.”

For those who argue that servicing errors encountered by troubled borrowers are rare mistakes, Ms. Magner’s rulings should be required reading. “The deference afforded the lending community has resulted in an abuse of trust,” she wrote in the Wilson ruling.”

Homework Regulators Aren’t Doing

By GRETCHEN MORGENSON

“ONE too many times, this court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality.”

This trenchant take comes courtesy of Elizabeth W. Magner, a bankruptcy court judge in the Eastern District of Louisiana. In an April 7 opinion involving a couple whose bank tried to foreclose on them even though they were current on their mortgage, you can sense Ms. Magner’s frustration with financial institutions that administer home loan payments and records.

Ms. Magner is just one of many judges overseeing cases involving troubled borrowers, of course. But because her judicial duties seem to have made her an expert on mortgage servicing, Ms. Magner’s views could not be more timely and important. This is especially true, given that state attorneys general seem intent on striking a settlement with servicers before they have conducted a comprehensive and thorough examination of industry practices.

By presiding over a variety of cases involving borrower abuse, Ms. Magner has probably done more investigating than some of the attorneys general who are so eager to cut a deal with the banks.

Her April 7 ruling involved two borrowers, Ron and LaRhonda Wilson, who tried to save their home by filing for bankruptcy in 2007. Having come up with a payment plan the court approved, they began submitting their monthly mortgage checks as agreed. Soon, however, a misstep at Lender Processing Services, an administrative company whose software system was used by the Wilsons’ lender, sucked them into the foreclosure machine.

The United States Trustee for the region got involved in the case and asked Ms. Magner to impose sanctions against Lender Processing. She did so in the recent ruling; the amount has not yet been determined.

You may recall Lender Processing Services — it’s the company whose Georgia-based document processing unit, DocX, was ground zero for the robo-signing scandal. DocX was acquired by Fidelity National Information Services in 2005, and was later spun off with Lender Processing. DocX was the rubber-stamp operation where employees signed hundreds of foreclosure documents a day attesting to facts and figures that they rarely bothered to check. Some of the signatures on DocX papers were so different they appeared to be forged.

Lender Processing shut down DocX in February 2010. But the parent company is still under scrutiny for its much larger business of providing payment processing software systems to a vast majority of mortgage servicers. Indeed, Lender Processing was among the 12 financial institutions that consented to change their mortgage processing and foreclosure practices last week after receiving cease and desist orders from federal banking regulators.

Lender Processing’s two biggest bank customers are Wells Fargo and JPMorgan Chase. Neither bank would comment.

Ms. Kersch, the spokeswoman for Lender Processing, said: “The consent order does not make any findings of fact or conclusions of wrongdoing, nor does L.P.S. admit any fault or liability.”

Returning to the Wilson case: Their mortgage servicing woes began in the fall of 2007, after they filed for bankruptcy protection. The court had approved their mortgage payment plan and they began submitting monthly checks as instructed.

The first problem arose when the Lender Processing software was not updated to reflect that the Wilsons were operating under a payment plan approved by a bankruptcy court. Then, the couple’s checks were not posted to their account by a lawyer for their lender, who inexplicably held onto the checks.

So Lender Processing’s automated system started the foreclosure process on behalf of the Wilsons’ lender, even though the couple had made all their necessary payments. A robo-signer from DocX arrived on the scene, legally attesting to the Wilsons’ purported delinquency, because Lender Processing’s system did not reflect that the Wilsons’ checks were sitting, uncashed, with their bank’s lawyer.

Luckily, a lawyer for the Wilsons battled back, documenting to the bankruptcy court that the couple were in fact current on their mortgage. Ms. Magner was the judge overseeing this messy chain of events.

Officials at Lender Processing say that the Wilson case is an anomaly and that the document execution process that occurred in the case “is no longer provided” by the company, a reference to the robo-signing practices at DocX. In a statement, Ms. Kersch, the Lender Processing spokeswoman, said that mortgage servicers and their lawyers were using Lender Processing’s systems in foreclosures and bankruptcies they were overseeing. “Neither L.P.S.’s staff nor its technology make decisions regarding the foreclosure process,” she added.

Ms. Kersch is right. The company’s systems let banks servicing home loans dictate when fees are automatically charged, for example, how payments are applied to borrowers’ accounts and when actions, like foreclosure appraisals, are prompted.

But how some banks have deployed the Lender Processing systems disturbs Ms. Magner, according to opinions she has written in other cases. In the Wilson ruling, she cites other problematic cases she has overseen where banks servicing borrowers’ loans used Lender Processing systems improperly.

In one case, Ms. Magner said, she discovered “a highly automated software package owned by L.P.S.” to administer loans that “was programmed to apply payments contrary to the terms of the notes and mortgages.” Such terms typically require that a loan administrator apply payments first to real estate taxes, principle and interest, then to other things like late fees or default charges. But in one case before Ms. Magner, the bank applied payments first to late fees and property inspection charges.

In another case, Ms. Magner concluded that Wells Fargo had made “errors in the methodology for fees and costs posted to a debtor’s account” using a Lender Processing system.

The L.P.S. spokeswoman said that because the company was not a named party in the other cases cited by the judge, it was unable to comment on Ms. Magner’s references to the other cases.

THE use of a robo-signer in the Wilson matter seemed to be the last straw for Ms. Magner. In sanctioning Lender Processing, she wrote: “The fraud perpetrated on the court, debtors and trustee would be shocking if this court had less experience concerning the conduct of mortgage services.”

She added: “Serious problems persist in mortgage loan administration. But for the dogged determination of the United States Trustee’s office and debtors’ counsel, these issues would not come to light and countless debtors would suffer.”

For those who argue that servicing errors encountered by troubled borrowers are rare mistakes, Ms. Magner’s rulings should be required reading. “The deference afforded the lending community has resulted in an abuse of trust,” she wrote in the Wilson ruling.

Truer words were never spoken.

THE NEW NINJA: NO INDICTMENT, NO JAIL, AMNESTY FOR TOP WALL STREET FIGURES

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…several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr., of Lincoln Savings and Loan in Arizona, and David Paul, of Centrust Bank in Florida.”

EDITOR’S COMMENT: In a continuation of the NINJA Loan policy (No income, no job, no assets, no problem) prosecutors seem to be standing in deference to the threat “expressed as fear”) that the entire financial system, the economy, our society and our country will fold into nothing if Jamie Diamond, Lloyd Blankfein et al are not investigated and indicted, tried and convicted for crimes committed. As the story below points out, Cuomo and others like homo are under heavy pressure not to do anything that rocks the boat.

MY OPINION: The failure to acknowledge crimes, felonies and misdemeanors of everyone from the top Wall Street figures participating in fraud, corruption of our legal system, corruption of our title registry system, all the way down to fictional notaries, is a failure we will pay for — and the cost will be more than anything Geithner “fears.” The world already knows the truth. Our failure to acknowledge the obvious tells the world that we are forcing a myth down their throats. They might take it for a while because they think they must — but that is going to come back and bite us, as history has repeatedly taught.

The fact that misdeeds (all puns intended) occurred is not the fault of anyone but the people on Wall Street and the securitizers and pretender lenders who conspired with them to corrupt property title across the country. Our continuing failure to acknowledge the problem and do something about it introduces an incurable uncertainty into the marketplace. How will anyone know they are getting clear title to property if there are securitization claims involved? And it doesn’t stop there. Virtually all consumer debt and a lot of corporate debt was also securitized. It doesn’t take a rocket scientist to figure out that if Wall Street refused to abide by law in the transfer of interests in receivables and security instruments on real property, that they probably did the same thing with auto loans, student loans, credit cards, and  all other forms of consumer loans.

By leaving Wall Street villains to police themselves and make “corrections” we are assuring the mutual destruction of both the country and Wall Street interests. But the people responsible for this don’t care because they have no reason to care. They are in no danger of criminal prosecution, they are being paid hundreds of millions of dollars, and they will be rich beyond the wildest dreams of most people regardless of whether the country or its financial system survives — or not.

 

In Financial Crisis, No Prosecutions of Top Figures

By GRETCHEN MORGENSON and LOUISE STORY

It is a question asked repeatedly across America: why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?

Answering such a question — the equivalent of determining why a dog did not bark — is anything but simple. But a private meeting in mid-October 2008 between Timothy F. Geithner, then-president of the Federal Reserve Bank of New York, and Andrew M. Cuomo, New York’s attorney general at the time, illustrates the complexities of pursuing legal cases in a time of panic.

At the Fed, which oversees the nation’s largest banks, Mr. Geithner worked with the Treasury Department on a large bailout fund for the banks and led efforts to shore up the American International Group, the giant insurer. His focus: stabilizing world financial markets.

Mr. Cuomo, as a Wall Street enforcer, had been questioning banks and rating agencies aggressively for more than a year about their roles in the growing debacle, and also looking into bonuses at A.I.G.

Friendly since their days in the Clinton administration, the two met in Mr. Cuomo’s office in Lower Manhattan, steps from Wall Street and the New York Fed. According to three people briefed at the time about the meeting, Mr. Geithner expressed concern about the fragility of the financial system.

His worry, according to these people, sprang from a desire to calm markets, a goal that could be complicated by a hard-charging attorney general.

Asked whether the unusual meeting had altered his approach, a spokesman for Mr. Cuomo, now New York’s governor, said Wednesday evening that “Mr. Geithner never suggested that there be any lack of diligence or any slowdown.” Mr. Geithner, now the Treasury secretary, said through a spokesman that he had been focused on A.I.G. “to protect taxpayers.”

Whether prosecutors and regulators have been aggressive enough in pursuing wrongdoing is likely to long be a subject of debate. All say they have done the best they could under difficult circumstances.

But several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr., of Lincoln Savings and Loan in Arizona, and David Paul, of Centrust Bank in Florida.

Former prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.

As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud. That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.

Leading up to the financial crisis, many officials said in interviews, regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis — weak regulation — also made it harder to pursue fraud in its aftermath.

A more aggressive mind-set could have spurred far more prosecutions this time, officials involved in the S.&L. cleanup said.

“This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity,” said William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government’s director of litigation during the savings and loan crisis. “But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.”

Even civil actions by the government have been limited. The Securities and Exchange Commission adopted a broad guideline in 2009 — distributed within the agency but never made public — to be cautious about pushing for hefty penalties from banks that had received bailout money. The agency was concerned about taxpayer money in effect being used to pay for settlements, according to four people briefed on the policy but who were not authorized to speak publicly about it.

To be sure, Wall Street’s role in the crisis is complex, and cases related to mortgage securities are immensely technical. Criminal intent in particular is difficult to prove, and banks defend their actions with documents they say show they operated properly.

But legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could.

Investigators, they argue, could look more deeply at the failure of executives to fully disclose the scope of the risks on their books during the mortgage mania, or the amounts of questionable loans they bundled into securities sold to investors that soured.

Prosecutors also could pursue evidence that executives knowingly awarded bonuses to themselves and colleagues based on overly optimistic valuations of mortgage assets — in effect, creating illusory profits that were wiped out by subsequent losses on the same assets. And they might also investigate whether executives cashed in shares based on inside information, or misled regulators and their own boards about looming problems.

Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. And public comments made by Angelo R. Mozilo, the chief executive of Countrywide Financial, praising his mortgage company’s practices were at odds with derisive statements he made privately in e-mails as he sold shares; the stock subsequently fell sharply as the company’s losses became known.

Executives at Lehman Brothers assured investors in the summer of 2008 that the company’s financial position was sound, even though they appeared to have counted as assets certain holdings pledged by Lehman to other companies, according to a person briefed on that case. At Bear Stearns, the first major Wall Street player to collapse, a private litigant says evidence shows that the firm’s executives may have pocketed revenues that should have gone to investors to offset losses when complex mortgage securities soured.

But the Justice Department has decided not to pursue some of these matters — including possible criminal cases against Mr. Mozilo of Countrywide and Joseph J. Cassano, head of Financial Products at A.I.G., the business at the epicenter of that company’s collapse. Mr. Cassano’s lawyers said that documents they had given to prosecutors refuted accusations that he had misled investors or the company’s board. Mr. Mozilo’s lawyers have said he denies any wrongdoing.

Among the few exceptions so far in civil action against senior bankers is a lawsuit filed last month against top executives of Washington Mutual, the failed bank now owned by JPMorgan Chase. The Federal Deposit Insurance Corporation sued Kerry K. Killinger, the company’s former chief executive, and two other officials, accusing them of piling on risky loans to grow faster and increase their compensation. The S.E.C. also extracted a $550 million settlement from Goldman Sachs for a mortgage security the bank built, though the S.E.C. did not name executives in that case.

Representatives at the Justice Department and the S.E.C. say they are still pursuing financial crisis cases, but legal experts warn that they become more difficult as time passes.

“If you look at the last couple of years and say, ‘This is the big-ticket prosecution that came out of the crisis,’ you realize we haven’t gotten very much,” said David A. Skeel, a law professor at the University of Pennsylvania. “It’s consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not.”

The Countrywide Puzzle

As nonprosecutions go, perhaps none is more puzzling to legal experts than the case of Countrywide, the nation’s largest mortgage lender. Last month, the office of the United States attorney for Los Angeles dropped its investigation of Mr. Mozilo after the S.E.C. extracted a settlement from him in a civil fraud case. Mr. Mozilo paid $22.5 million in penalties, without admitting or denying the accusations.

White-collar crime lawyers contend that Countrywide exemplifies the difficulties of mounting a criminal case without assistance and documentation from regulators — the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Fed, in Countrywide’s case.

“When regulators don’t believe in regulation and don’t get what is going on at the companies they oversee, there can be no major white-collar crime prosecutions,” said Henry N. Pontell, professor of criminology, law and society in the School of Social Ecology at the University of California, Irvine. “If they don’t understand what we call collective embezzlement, where people are literally looting their own firms, then it’s impossible to bring cases.”

Financial crisis cases can be brought by many parties. Since the big banks’ mortgage machinery involved loans on properties across the country, attorneys general in most states have broad criminal authority over most of these institutions. The Justice Department can bring civil or criminal cases, while the S.E.C. can file only civil lawsuits.

All of these enforcement agencies traditionally depend heavily on referrals from bank regulators, who are more savvy on complex financial matters.

But data supplied by the Justice Department and compiled by a group at Syracuse University show that over the last decade, regulators have referred substantially fewer cases to criminal investigators than previously.

The university’s ’Transactional Records Access Clearinghouse indicates that in 1995, bank regulators referred 1,837 cases to the Justice Department. In 2006, that number had fallen to 75. In the four subsequent years, a period encompassing the worst of the crisis, an average of only 72 a year have been referred for criminal prosecution.

Law enforcement officials say financial case referrals began declining under President Clinton as his administration shifted its focus to health care fraud. The trend continued in the Bush administration, except for a spike in prosecutions for Enron, WorldCom, Tyco and others for accounting fraud.

The Office of Thrift Supervision was in a particularly good position to help guide possible prosecutions. From the summer of 2007 to the end of 2008, O.T.S.-overseen banks with $355 billion in assets failed.

The thrift supervisor, however, has not referred a single case to the Justice Department since 2000, the Syracuse data show. The Office of the Comptroller of the Currency, a unit of the Treasury Department, has referred only three in the last decade.

The comptroller’s office declined to comment on its referrals. But a spokesman, Kevin Mukri, noted that bank regulators can and do bring their own civil enforcement actions. But most are against small banks and do not involve the stiff penalties that accompany criminal charges.

Historically, Countrywide’s bank subsidiary was overseen by the comptroller, while the Federal Reserve supervised its home loans unit. But in March 2007, Countrywide switched oversight of both units to the thrift supervisor. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush.

Robert Gnaizda, former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Mr. Reich about Countrywide’s reckless lending.

“We saw that people were getting bad loans,” Mr. Gnaizda recalled. “We focused on Countrywide because they were the largest originator in California and they were the ones with the most exotic mortgages.”

Mr. Gnaizda suggested many times that the thrift supervisor tighten its oversight of the company, he said. He said he advised Mr. Reich to set up a hot line for whistle-blowers inside Countrywide to communicate with regulators.

“I told John, ‘This is what any police chief does if he wants to solve a crime,’ ” Mr. Gnaizda said in an interview. “John was uninterested. He told me he was a good friend of Mozilo’s.”

In an e-mail message, Mr. Reich said he did not recall the conversation with Mr. Gnaizda, and his relationships with the chief executives of banks overseen by his agency were strictly professional. “I met with Mr. Mozilo only a few times, always in a business environment, and any insinuation of a personal friendship is simply false,” he wrote.

After the crisis had subsided, another opportunity to investigate Countrywide and its executives yielded little. The Financial Crisis Inquiry Commission, created by Congress to investigate the origins of the disaster, decided not to make an in-depth examination of the company — though some staff members felt strongly that it should.

In a January 2010 memo, Brad Bondi and Martin Biegelman, two assistant directors of the commission, outlined their recommendations for investigative targets and hearings, according to Tom Krebs, another assistant director of the commission. Countrywide and Mr. Mozilo were specifically named; the memo noted that subprime mortgage executives like Mr. Mozilo received hundreds of millions of dollars in compensation even though their companies collapsed.

However, the two soon received a startling message: Countrywide was off limits. In a staff meeting, deputies to Phil Angelides, the commission’s chairman, said he had told them Countrywide should not be a target or featured at any hearing, said Mr. Krebs, who said he was briefed on that meeting by Mr. Bondi and Mr. Biegelman shortly after it occurred. His account has been confirmed by two other people with direct knowledge of the situation.

Mr. Angelides denied that he had said Countrywide or Mr. Mozilo were off limits. Chris Seefer, the F.C.I.C. official responsible for the Countrywide investigation, also said Countrywide had not been given a pass. Mr. Angelides said a full investigation was done on the company, including 40 interviews, and that a hearing was planned for the fall of 2010 to feature Mr. Mozilo. It was canceled because Republican members of the commission did not want any more hearings, he said.

“It got as full a scrub as A.I.G., Citi, anyone,” Mr. Angelides said of Countrywide. “If you look at the report, it’s extraordinarily condemnatory.”

An F.B.I. Investigation Fizzles

The Justice Department in Washington was abuzz in the spring of 2008. Bear Stearns had collapsed, and some law enforcement insiders were suggesting an in-depth search for fraud throughout the mortgage pipeline.

The F.B.I. had expressed concerns about mortgage improprieties as early as 2004. But it was not until four years later that its officials recommended closing several investigative programs to free agents for financial fraud cases, according to two people briefed on a study by the bureau.

The study identified about two dozen regions where mortgage fraud was believed rampant, and the bureau’s criminal division created a plan to investigate major banks and lenders. Robert S. Mueller III, the director of the F.B.I., approved the plan, which was described in a memo sent in spring 2008 to the bureau’s field offices.

“We were focused on the whole gamut: the individuals, the mortgage brokers and the top of the industry,” said Kenneth W. Kaiser, the former assistant director of the criminal investigations unit. “We were looking at the corporate level.”

Days after the memo was sent, however, prosecutors at some Justice Department offices began to complain that shifting agents to mortgage cases would hurt other investigations, he recalled. “We got told by the D.O.J. not to shift those resources,” he said. About a week later, he said, he was told to send another memo undoing many of the changes. Some of the extra agents were not deployed.

A spokesman for the F.B.I., Michael Kortan, said that a second memo was sent out that allowed field offices to try to opt out of some of the changes in the first memo. Mr. Kaiser’s account of pushback from the Justice Department was confirmed by two other people who were at the F.B.I. in 2008.

Around the same time, the Justice Department also considered setting up a financial fraud task force specifically to scrutinize the mortgage industry. Such task forces had been crucial to winning cases against Enron executives and those who looted savings and loans in the early 1990s.

Michael B. Mukasey, a former federal judge in New York who had been the head of the Justice Department less than a year when Bear Stearns fell, discussed the matter with deputies, three people briefed on the talks said. He decided against a task force and announced his decision in June 2008.

Last year, officials of the Financial Crisis Inquiry Commission interviewed Mr. Mukasey. Asked if he was aware of requests for more resources to be dedicated to mortgage fraud, Mr. Mukasey said he did not recall internal requests.

A spokesman for Mr. Mukasey, who is now at the law firm Debevoise & Plimpton in New York, said he would not comment beyond his F.C.I.C. testimony. He had no knowledge of the F.B.I. memo, his spokesman added.

A year later — with precious time lost — several lawmakers decided that the government needed more people tracking financial crimes. Congress passed a bill, providing a $165 million budget increase to the F.B.I. and Justice Department for investigations in this area. But when lawmakers got around to allocating the budget, only about $30 million in new money was provided.

Subsequently, in late 2009, the Justice Department announced a task force to focus broadly on financial crimes. But it received no additional resources.

A Break for 8 Banks

In July 2008, the staff of the S.E.C. received a phone call from Scott G. Alvarez, general counsel at the Federal Reserve in Washington.

The purpose: to discuss an S.E.C. investigation into improprieties by several of the nation’s largest brokerage firms. Their actions had hammered thousands of investors holding the short-term investments known as auction-rate securities.

These investments carry interest rates that reset regularly, usually weekly, in auctions overseen by the brokerage firms that sell them. They were popular among investors because the interest rates they received were slightly higher than what they could earn elsewhere.

For years, companies like UBS and Goldman Sachs operated auctions of these securities, promoting them as highly liquid investments. But by mid-February 2008, as the subprime mortgage crisis began to spread, investors holding hundreds of billions of dollars of these securities could no longer cash them in.

As the S.E.C. investigated these events, several of its officials argued that the banks should make all investors whole on the securities, according to three people with knowledge of the negotiations but who were not authorized to speak publicly, because banks had marketed them as safe investments.

But Mr. Alvarez suggested that the S.E.C. soften the proposed terms of the auction-rate settlements. His staff followed up with more calls to the S.E.C., cautioning that banks might run short on capital if they had to pay the many billions of dollars needed to make all auction-rate clients whole, the people briefed on the conversations said. The S.E.C. wound up requiring eight banks to pay back only individual investors. For institutional investors — like pension funds — that bought the securities, the S.E.C. told the banks to make only their “best efforts.”

This shift eased the pain significantly at some of the nation’s biggest banks. For Citigroup, the new terms meant it had to redeem $7 billion in the securities for individual investors — but it was off the hook for about $12 billion owned by institutions. These institutions have subsequently recouped some but not all of their investments. Mr. Alvarez declined to comment, through a spokeswoman.

An S.E.C. spokesman said: “The primary consideration was remedying the alleged wrongdoing and in fashioning that remedy, the emphasis was placed on retail investors because they were suffering the greatest hardship and had the fewest avenues for redress.”

A similar caution emerged in other civil cases after the bank bailouts in the autumn of 2008. The S.E.C.’s investigations of financial institutions began to be questioned by its staff and the agency’s commissioners, who worried that the settlements might be paid using federal bailout money.

Four people briefed on the discussions, who spoke anonymously because they were not authorized to speak publicly, said that in early 2009, the S.E.C. created a broad policy involving settlements with companies that had received taxpayer assistance. In discussions with the Treasury Department, the agency’s division of enforcement devised a guideline stating that the financial health of those banks should be taken into account when the agency negotiated settlements with them.

“This wasn’t a political thing so much as, ‘We don’t know if it makes sense to bring a big penalty against a bank that just got a check from the government,’ ” said one of the people briefed on the discussions.

The people briefed on the S.E.C.’s settlement policy said that, while it did not directly affect many settlements, it slowed down the investigative work on other cases. A spokesman for the S.E.C. declined to comment.

Attorney General Moves On

The final chapter still hasn’t been written about the financial crisis and its aftermath. One thing has been especially challenging for regulators and law enforcement officials: balancing concerns for the state of the financial system even as they pursued immensely complicated cases.

The conundrum was especially clear back in the fall of 2008 when Mr. Geithner visited Mr. Cuomo and discussed A.I.G. Asked for details about the meeting, a spokesman for Mr. Geithner said: “As A.I.G.’s largest creditor, the New York Federal Reserve installed new management at A.I.G. in the fall of 2008 and directed the new C.E.O. to take steps to end wasteful spending by the company in order to protect taxpayers.”

Mr. Cuomo’s office said, “The attorney general went on to lead the most aggressive investigation of A.I.G. and other financial institutions in the nation.” After that meeting, and until he left to become governor, Mr. Cuomo focused on the financial crisis, with mixed success. In late 2010, Mr. Cuomo sued the accounting firm Ernst & Young, accusing it of helping its client Lehman Brothers “engage in massive accounting fraud.”

To date, however, no arm of government has sued Lehman or any of its executives on the same accounting tactic.

Other targets have also avoided legal action. Mr. Cuomo investigated the 2008 bonuses that were paid out by giant banks just after the bailout, and he considered bringing a case to try to claw back some of that money, two people familiar with the matter said. But ultimately he chose to publicly shame the companies by releasing their bonus figures.

Mr. Cuomo took a tough stance on Bank of America. While the S.E.C. settled its case with Bank of America without charging any executives with wrongdoing, Mr. Cuomo filed a civil fraud lawsuit against Kenneth D. Lewis, the former chief executive, and the bank’s former chief financial officer. The suit accuses them of understating the losses of Merrill Lynch to shareholders before the deal was approved; the case is still pending.

Last spring, Mr. Cuomo issued new mortgage-related subpoenas to eight large banks. He was interested in whether the banks had misled the ratings agencies about the quality of the loans they were bundling and asked how many workers they had hired from the ratings agencies. But Mr. Cuomo did not bring a case on this matter before leaving office.


NY Issues More Subpoenas on Foreclosures

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“Raymond H. Brescia, assistant professor of law at Albany Law School, said: “We’re seeing a disproportionate number of cases in the foreclosure context where questionable filings have been made. I think it’s easy to say this is the largest and most wide-ranging fraud against the courts in the United States. Lawyers have to have a good-faith basis for the factual assertions they make to the court; they are responsible if they file pleadings that are baseless.”

So what we have here is THREE DIFFERENT DEALS — THE REAL ONE REFLECTED BY THE EXCHANGE OF MONEY, THE COVER DEAL WHICH WAS THE ORIGINAL SECURITIZATION SCHEME THAT NOBODY FOLLOWED, AND THE FABRICATED AND FORGED DOCUMENT SCHEME IN WHICH WOULD-BE FORECLOSERS ATTEMPTED TO CONFORM THE DOCUMENTS TO THE EVIDENCE THEY EITHER CREATED OR COULD NOT AVOID. – Neil Garfield

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EDITOR’S COMMENT: The answer is obvious. But who will ask the question? HOW AND WHY DID THESE NEWLY CREATED FORECLOSURE MILLS GET STARTED, AND WHY DID THEY RESORT TO FRAUD TO PUSH THROUGH FORECLOSURES WHERE THE BORROWER WAS OBVIOUSLY IN DEFAULT?

  1. NO DEFAULT: First, we know that the mortgagee or beneficiary stated on the note and security instrument is NOT the party seeking foreclosure nearly all the time. Since this new party neither loaned any money nor did they purchase the receivable, there is no default as to THEM. And since these parties have no actual rights of agency or representation, neither the attorney nor the client belong in court. So they needed to create a default, even if the servicer was continuing to make payments to the creditor. That was untrue, so it follows that any documents declaring otherwise would also be untrue. They depended upon the obvious fact that the borrower had ceased making payments to carry the day, and it worked. Judges granted foreclosure and denied borrower defenses in an overwhelming majority of cases. It just didn’t seem credible that the banks would come in foreclosing on loans that didn’t exist, that the bank didn’t own, and that the lawyer and a foreclosure mill had cooked up fabricated and forged documents. Why would they do that? THERE WAS NO DEFAULT BECAUSE THE REAL CREDITOR CONTINUED TO GET PAID. AND THERE COULDN’T BE A DEFAULT, AS PER THE NOTE, BECAUSE THE NOTE WAS A FICTION DESCRIBING A TRANSACTION THAT NEVER TOOK PLACE.
  2. NO CREDITOR: It turns out that virtually none of the mortgages were funded by the party to whom the promissory note was made payable and that often MERS or some other entity was named as the holder of a security interest, thus splitting the note and security instrument. It also turns out that the lender was parting with his funds under a set of assumptions and representations that were never communicated to the borrower, not the least of which was the identity of the real lender or even that a real lender existed at all. Thus the original transaction in which the investor’s money was put to use, in part, to fund mortgages, some of which was to fund a specific loan was subject to documents (PSA, mortgage bond indenture, etc.) containing many provisions relating directly to the trail money, none of which were communicated to the borrower, or even that such documentation existed at all. The real creditor — the ONLY party that parted with money — is neither present in the courtroom nor do they want to be. They have chosen to sue the investment banking firms for selling them mortgage bonds that were fake — i.e., with nothing in the pool or some awkward argument for saying the loans should be “considered” to be in the pool even if they were not. Thus the foreclosures are initiated by disinterested parties out of greed — not to redress a loss that THEY had. Wall Street went along with the continuing PONZI scheme because it has given them more cover to scapegoat the foreclosure mills as being the cause of the mortgage mess.
  3. NO DOCUMENTS: “NO DOC” loans became “NO-DOC Foreclosures. The mortgage documents signed at “closing” recited a transaction that never occurred, while the real transaction and the real parties neither knew nor accepted the terms, much less in writing. The note and mortgage (deed of trust) are invalid, fatally defective from a title perspective without a new signature from the borrower on documents that reflect an actual agreement between borrower and lender.
  4. NO MONEY: The money for funding the mortgage was wired in to the closing agent bypassing the supposed “lender” at closing or using them as merely a fee-based service, conduit ( like a messenger). Any money paid by the borrower was paid not to the party named as payee on the note but to third parties who used the mere fact that a receivable existed to create exotic instruments that multiplied the apparent value of the receivables to nose bleed levels that could never be sustained. THEN they divided up the new proceeds after having already bilked the investors out of money to fund the non-existent loans, they bilked more investors and speculators on the viability of the exotic derivative instruments, whose value was entirely dependent on the value and enforceability of the note and security instrument named a “mortgage loan.”
  5. NO DEAL: There being no deal, no documentation and no money trail that the would-be foreclosers can or would disclose, they made up a whole set of “facts” (fabrication of documents) by describing a scheme that was different from the actual money transaction between borrower and lender, different from the securitization infrastructure that was originally laid out in the PSA, Assignment and Assumption Agreement, Prospectus etc. Naturally since these documents never existed before and did not reflect the the terms originally understood by borrower and lender, they needed forgery by $10 per hour robo-signers. So what we have here is THREE DIFFERENT DEALS — THE REAL ONE REFLECTED BY THE EXCHANGE OF MONEY, THE COVER DEAL WHICH WAS THE ORIGINAL SECURITIZATION SCHEME THAT NOBODY FOLLOWED, AND THE FABRICATED AND FORGED DOCUMENT SCHEME IN WHICH WOULD-BE FORECLOSERS ATTEMPTED TO CONFORM THE DOCUMENTS TO THE EVIDENCE THEY EITHER CREATED OR COULD NOT AVOID.

New York Subpoenas 2 Foreclosure-Related Firms

By GRETCHEN MORGENSON

Eric T. Schneiderman, the New York attorney general, has issued subpoenas to the state’s largest foreclosure law firm and a related company, indicating that his office has some doubts about the effort by state attorneys general to resolve questionable foreclosure practices among the nation’s top banks.

The New York investigation appears to center on two of the state’s foreclosure industry giants: the Steven J. Baum firm, headquartered in Amherst, N.Y., and Pillar Processing, a default servicing firm set up by Mr. Baum that was spun off in 2007. Representing JPMorgan Chase, Wells Fargo and other large banks, the Baum firm has handled an estimated 40 percent of foreclosure cases in the state. Pillar Processing provides extensive services to the firm.

A spokesman for Mr. Schneiderman declined to comment. Mr. Baum said in an e-mail: “The firm will cooperate with the attorney general in this matter. We are confident that after a full review by the attorney general they will find no wrongdoing.”

Attorneys general across the country have been working on ways to rectify foreclosure improprieties by the nation’s biggest banks and have entered into negotiations in recent weeks with these institutions about a national settlement. Tom Miller of Iowa is leading that effort. While Mr. Schneiderman has been participating, his new investigation points to the possibility that he will take a different path.

Large foreclosure law firms have come under scrutiny in states outside New York. Last year, the Florida attorney general began investigating the David J. Stern firm, the largest in that state. That investigation is continuing, but the law firm stopped bringing foreclosure cases last month.

Like the Stern firm, Mr. Baum’s operation flourished as the mortgage crisis deepened. Since the end of 2007, it has filed more than 50,000 new foreclosure cases in New York, according to data compiled by the New York State Unified Court System. The firm employs approximately 70 lawyers.

Along with the attorney general, federal prosecutors in Manhattan have requested information about the Baum firm’s practices, according to a lawyer who has represented borrowers against the firm. The lawyer spoke on condition of anonymity because the communications with the prosecutors were private. A spokesman for the Department of Justice declined to comment.

Scrutiny of the Baum firm has increased in recent months after significant errors surfaced nationwide in legal paperwork used by banks to seize delinquent borrowers’ homes. For example, documents detailing how much borrowers owe have been signed by bank representatives who say they have not verified the information. Other problems involve the questionable notarization of documents, or paperwork indicating that the foreclosure process was begun without providing proof that the entities involved had the legal right to foreclose.

The Baum firm has drawn rebukes on its legal practices from judges in several New York jurisdictions. Judges in courts across the state have rejected scores of cases filed by the Baum firm, saying it has failed to provide the documentation necessary to commence foreclosure.

Last November, Judge Scott Fairgrieve in Nassau County district court imposed sanctions of $5,000 on the Baum firm in a foreclosure case and required it to pay more than $14,000 in fees to the borrower’s lawyers. When awarding the sanctions, the judge wrote: “Bringing legal proceedings when there is no legal right to do so, due to lack of standing, stalls the efficient administration of justice in the system.”

Paul D. Stone, a lawyer in Tarrytown, N.Y., has been defending a foreclosure case against the Baum firm since 2009. “I’ve never seen any firm file such ill-conceived, ill-researched, nonfactual materials with a court,” Mr. Stone said. The judge overseeing his case recently ordered Mr. Baum’s firm to pay some of the borrower’s legal costs.

Hoping to eliminate defective filings, last fall New York courts began requiring lawyers bringing foreclosure cases to attest to the accuracy of their papers.

The Baum firm was founded in 1972 by Marvin R. Baum and has been overseen by Steven J. Baum, his son, since the elder man died in 1999.

Steven Baum created Pillar Processing in 2007, a provider of real estate default services, and it is located in the same office complex in Amherst as the law firm. Pillar was purchased in 2007 by Tailwind Capital, a New York hedge fund; some of Pillar’s debt and equity is also held by Ares Capital, a publicly traded investment company in New York City. Representatives of Tailwind did not respond to an e-mail seeking comment. An Ares spokesman declined to comment.

Pillar Processing’s default servicing practices have attracted criticism from Cecelia G. Morris, bankruptcy judge in the Southern District of New York. In a court hearing on Feb. 5, 2008, Judge Morris said she would no longer accept any material from Pillar Processing in her court and added that if more paperwork from Pillar came in, she would deny the motions associated with it.

Linda M. Tirelli, a lawyer in White Plains who represents homeowners, discussed three current foreclosure cases in which she faces the Baum firm. “The documents don’t make sense in any of them,” she said. In another foreclosure being defended by Ms. Tirelli, a lawyer for the bank told the court that the Baum firm had filed inaccurate documents as it sought to take over a borrower’s property. After trying unsuccessfully to find every link in the chain of title on the property, the Baum firm prepared inaccurate papers to fill in what was missing, according to court documents.

Speaking generally and not specifically about the Baum firm, Raymond H. Brescia, assistant professor of law at Albany Law School, said: “We’re seeing a disproportionate number of cases in the foreclosure context where questionable filings have been made. I think it’s easy to say this is the largest and most wide-ranging fraud against the courts in the United States. Lawyers have to have a good-faith basis for the factual assertions they make to the court; they are responsible if they file pleadings that are baseless.”

WALL STREET EXECS: NOTHING TO LOSE, EVERYTHING TO GAIN, WIN OR LOSE

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LAWYERS CONSIDER NAMING INDIVIDUAL EXECUTIVES

AS DEFENDANTS IN DAMAGE SUITS FOR HOMEOWNERS

“the Federal Reserve purchased almost all the mortgage securities issued by Fannie and Freddie in 2009.”

EDITORIAL COMMENT: Has anybody asked exactly what Fannie, Freddie and Ginny do? I have. From what I see, read and hear, they are essentially the same as the REMICS that Wall Street created — in fact, it is highly probably that they were created at the instigation of Wall Street. They were never capitalized with an investment, they have no status as a depository or lending institution, they don’t lend money and they don’t actually buy mortgages although supposedly they are buying mortgage bonds.

On the one hand we are told that buying mortgage bonds is the same as buying the mortgages and on the other, we are confronted in court with the argument, that the owner of the mortgage bonds have nothing to do with the foreclosure. Which is it?

Meanwhile we are told that the U.S. treasury and/or the Federal Reserve own or have as collateral nearly all the mortgage bonds whose value is, on paper solely derived from receivables expected from payments on loans given to homeowners. The problem is that the homeowners signed papers that were prepared by and executed in favor of an entity that even if it was bank, was NOT using its own money to fund the mortgage. In fact, many times the  funds for the loan were wired in to the closing agent from a remote entity that is mentioned in neither the closing papers with the homeowner or the securitization papers with the investor.

Back to F&F. What do they do? As far as I can tell they have one function in their charter — to put the stamp of approval on a mortgage so that it qualifies to be guaranteed by the U.S. taxpayer. What happens when the mortgage is declared in default? Who makes that declaration? Is it true? who is the creditor? IS the creditor or the creditor’s agent still getting payments? If they are getting payments, from whom are they receiving these payments and why? If they are still receiving payments, how could the loan be in default? If the loan is not in default, how can anyone, with or without standing, initiate a foreclosure sale?

So basically F&F are merely “bookkeepers” without any accountability and nothing really at stake, but they receive fees for processing the loans, which is to say they get paid for allowing their stamp and their standard documents, rigged with changes, to be passed around, sold into the secondary market and then supposedly securitized — all without a single piece of paper ever being written, executed or delivered. Using that logic we would be giving up evidence of title and if you agreed to pay  for a car, you might get the car but the evidence of title would be “private” (like MERS) and there would be no way for anyone to be sure if you had conveyed title to the car to 10 people.

Many of the mortgages didn’t go bad. Many of them are still performing. And yet they are part of the group of failed mortgage bonds whose terms were rigged to be able to declare a “default” on the mortgage bond even though most of the loans were performing. Those seem to be what the Federal Reserve bought 100 cents on the dollar. It was kind of NO DOC purchase by the Federal Reserve based upon the credibility and good faith of the thieves who got us into this mess. That there was nothing in the bond, nothing in the pool, no trust, no trust assets, and no trustee doesn’t seem to matter.

And for all of this the executives of F&F were paid millions of dollars in executive compensation. And somehow people are mildly surprised to find out that the executives came from hedge funds and other places on Wall Street. So we have this guy from Putnam making millions for doing nothing while somebody else is counted amongst the “employed, breaking his or her back, for a wage that won’t even put enough food on the table to feed the family. AND now we have the inspector general saying everything that I just did, but do you think it will make any difference? I don’t — not unless as a nation we rise up and start exercising the power we have in the constitution. These people ought to be afraid of us, not the other way around.

I’m talking to lawyers who have investigators and research people working round the clock on this. It looks like the only people who really made out well are the few people in management through whose hands the tens of trillions of dollars passed. There is a growing recognition that the off-shore money trail leads all over the world and may just be controlled by literally a handful of people. So they are thinking that they might name the executives of the various entities involved in securitization as defendants and state that those defendants were actually acting outside the scope of their employment, diverting corporate opportunity from the stockholders, who so far have been too stupid to bring derivative actions, and piercing through into the personal finances of these people — and we all know their names.

Report Criticizes High Pay at Fannie and Freddie

By GRETCHEN MORGENSON

Regulators have approved generous executive compensation at Fannie Mae and Freddie Mac, the taxpayer-backed mortgage finance giants, with little scrutiny or analysis, according to a report published Thursday by the inspector general of the Federal Housing Finance Agency.

The companies, whose fates are to be decided by Congress this year, paid a combined $17 million to their chief executives in 2009 and 2010, the two full years when Fannie Mae and Freddie Mac were wards of the state, the report found. The top six executives at the companies received $35.4 million over the two years. Since Fannie Mae and Freddie Mac were taken over in September 2008, the companies’ mounting mortgage losses have required a $153 billion infusion from taxpayers. Total losses may reach $363 billion through 2013, according to government estimates.

Charles E. Haldeman Jr., a former head of Putnam Investments, the giant fund management concern, joined Freddie Mac as its chief executive in 2009. He made $7.8 million for 2009 and 2010. Fannie Mae’s chief is Michael J. Williams, who has worked at the company since 1991. He received $9.3 million for the two years. Company officials declined to comment.

With hundreds of billions in government support necessary to keep the companies running, questions are arising about the nature of the pay packages and how performance goals are determined. The pay was approved by the housing finance agency, which is charged with conserving the assets of Fannie and Freddie on behalf of taxpayers.

“F.H.F.A. has a responsibility to Congress and taxpayers to efficiently, consistently, and reliably ensure that the compensation paid to Fannie Mae’s and Freddie Mac’s senior executives is reasonable,” ’said Steve A. Linick, the newly appointed inspector general of the agency, in a statement.  “This is especially true when you realize that the U.S. Treasury has invested close to $154 billion to stabilize Fannie Mae and Freddie Mac,” and they “are spending tens of millions of dollars for executive compensation.”

The report cited a “lack of standardized evaluation criteria, documentation of management procedures and internal controls” at the oversight agency, missing steps that may have led to overpayments.

For example, the inspector general said that taxpayer support of the companies may have made performance benchmarks easier to meet for executives. In 2009, Fannie Mae issued 47 percent of new mortgage-backed securities, far exceeding its goal of 37.5 percent. But, as the report noted, this hurdle was almost certainly cleared because the Federal Reserve purchased almost all the mortgage securities issued by Fannie and Freddie in 2009.

In response to the report, the housing agency said that it would “institute a more formal and systematic approach” to its review of the performance benchmarks and the assessment of whether they were reached by the companies’ executives. A spokeswoman for the agency said its officials declined to comment.

Lavish executive pay that does not track a company’s performance has led to anger among shareholders in recent years. When the government stepped in to support some of the nation’s biggest financial institutions in 2008, compensation became an issue of concern to taxpayers. Executive pay at institutions receiving support under the Troubled Asset Relief Program, for example, was subject to approval by an overseer, the special master for TARP. Fannie and Freddie were not required to submit to this process because their assistance did not come from TARP.

As the primary regulator and conservator of both companies, the housing agency has broad powers to direct the companies’ activities; it has replaced board members and senior officers, for example. And it can bar the companies from making golden parachute payments to executives. It consulted with the TARP special master on executive pay at Fannie and Freddie after they were rescued by the government.

Nevertheless, the agency delegates pay decisions to the companies’ boards, accepting their recommendations “unless there is an observed reason to do otherwise,” according to the inspector general’s report. The F.H.F.A. receives advice from its own compensation consultant as well as the work of those hired by Fannie and Freddie.

The inspector general’s report noted that the executives at Fannie and Freddie received far more than their counterparts at other federal housing agencies. The top executive at Ginnie Mae, for example, received an annual salary of less than $200,000. The inspector general suggested that the agency review the discrepancy and account for it to taxpayers.

Agency officials say the salaries and deferred compensation awarded to executives at Fannie and Freddie are necessary if they are to attract and keep talent required to run those operations effectively. They say that current pay at Fannie and Freddie is roughly 40 percent less than it was before the bailout and maintain that the compensation plans are based on the companies’ ability to meet financial and performance targets, like providing liquidity and affordability to the mortgage market.

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, testified before Congress on Thursday about proposals to overhaul Fannie and Freddie. “I am concerned that legislation to overhaul the compensation levels and programs in place today with the application of a federal pay system to nonfederal employees carries great risk for the conservatorships and hence the taxpayer,” he said.

Last year, Mr. DeMarco testified that the executive compensation plans at Fannie and Freddie were designed to achieve the goals of the conservatorship and “align executive decision-making with the long-term financial prospects of the enterprises, and minimize costs to the taxpayer.”

Because shares of both Fannie and Freddie have little value, the companies’ executive compensation consists solely of cash paid out in base salary, deferred salary and long-term incentive pay.

But Brian Foley, a compensation consultant in White Plains questioned the characterization of the companies’ incentive pay as long term, given that it is paid entirely within two years. “One hundred percent of the compensation is paid for two-year performance and a fair portion of that is without regard to performance,” he said. “I understand the stock is worthless, but that doesn’t mean you can’t have cash on the table for a long period. If anybody needs to have good long-term performance, isn’t it Fannie Mae and Freddie Mac?”

NYT: American Real Estate Market an Engrossing Piece of Fiction

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see 10-lies-we-live-by-and-should-stop-believing-if-we-want-this-to-stop

NOTABLE QUOTES:

“Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain.

“The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership. They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”

EDITOR’S COMMENT: ONLY THE TRUTH WILL SAVE THE HOUSING INDUSTRY AND THE US ECONOMY. The lie that speeding foreclosures will put this behind us is totally without any factual basis. The exact reverse is true. Stopping foreclosures and compensating victims of the securitization scam is the ONLY path back to trust and integrity of our marketplace and our financial system. As it stands now, the use of MERS and similar devices puts more than 80 million, probably closer to 100 million real estate transactions in title purgatory.

The foundation of public record for birth certificates and death certificates, title ownership and other records and documentation of transactions we have taken for granted for hundreds of years has been completely undermined with no way out except to return to that system. You can’t announce that dog poop is more valuable than gold and expect people to believe it. You can force them to act on it but they will never believe it.

MERS? It May Have Swallowed Your Loan

By MICHAEL POWELL and GRETCHEN MORGENSON

FOR more than a decade, the American real estate market resembled an overstuffed novel, which is to say, it was an engrossing piece of fiction.

Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes. Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods.

That world largely collapsed under the weight of its improbabilities in 2008.

But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.

Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.

Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:

How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan?

And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?

The answers have implications for all American homeowners, but particularly the millions struggling to save their homes from foreclosure. How the MERS story plays out could deal another blow to an ailing real estate market, even as the spring buying season gets under way.

MERS has distanced itself from the dubious behavior of some of its members, and the company itself has not been accused of wrongdoing. But the legal challenges to MERS, its practices and its records are mounting.

The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.

“The state court is attracted like a moth to the flame to the legal owner, and that isn’t MERS,” says Walter T. Keane, the Salt Lake City lawyer who represented the homeowner in that case.

And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.

But this, Judge Robert E Grossman said, was not his fault.

“This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country,” he wrote, “that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”

With MERS under scrutiny, its chief executive, R. K. Arnold, who had been with the company since its founding in 1995, resigned earlier this year.

A BIRTH certificate, a marriage license, a death certificate: these public documents note many life milestones.

For generations of Americans, public mortgage documents, often logged in longhand down at the county records office, provided a clear indication of homeownership.

But by the 1990s, the centuries-old system of land records was showing its age. Many county clerk’s offices looked like something out of Dickens, with mortgage papers stacked high. Some clerks had fallen two years behind in recording mortgages.

For a mortgage banking industry in a hurry, this represented money lost. Most banks no longer hold onto mortgages until loans are paid off. Instead, they sell the loans to Wall Street, which bundles them into investments through a process known as securitization.

MERS, industry executives hoped, would pull record-keeping into the Internet age, even as it privatized it. Streamlining record-keeping, the banks argued, would make mortgages more affordable.

But for the mortgage industry, MERS was mostly about speed — and profits. MERS, founded 16 years ago by Fannie Mae, Freddie Mac and big banks like Bank of America and JPMorgan Chase, cut out the county clerks and became the owner of record, no matter how many times loans were transferred. MERS appears to sell loans to MERS ad infinitum.

This high-speed system made securitization easier and cheaper. But critics say the MERS system made it far more difficult for homeowners to contest foreclosures, as ownership was harder to ascertain.

MERS was flawed at conception, those critics say. The bankers who midwifed its birth hired Covington & Burling, a prominent Washington law firm, to research their proposal. Covington produced a memo that offered assurances that MERS could operate legally nationwide. No one, however, conducted a state-by-state study of real estate laws.

“They didn’t do the deep homework,” said an official involved in those discussions who spoke on condition of anonymity because he has clients involved with MERS. “So as far as anyone can tell their real theory was: ‘If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.’ ”

County officials appealed to Congress, arguing that MERS was of dubious legality. But this was the 1990s, an era of deregulation, and the mortgage industry won.

“We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property,” said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.

And so MERS took off. Its board gave its senior vice president, William Hultman, the rather extraordinary power to deputize an unlimited number of “vice presidents” and “assistant secretaries” drawn from the ranks of the mortgage industry.

The “nomination” process was near instantaneous. A bank entered a name into MERS’s Web site, and, in a blink, MERS produced a “certifying resolution,” signed by Mr. Hultman. The corporate seal was available to those deputies for $25.

As personnel policies go, this was a touch loose. Precisely how loose became clear when a lawyer questioned Mr. Hultman in April 2010 in a lawsuit related to its foreclosure against an Atlantic City cab driver.

How many vice presidents and assistant secretaries have you appointed? the lawyer asked.

“I don’t know that number,” Mr. Hultman replied.

Approximately?

“I wouldn’t even be able to tell you, right now.”

In the thousands?

“Yes.”

Each of those deputies could file loan transfers and foreclosures in MERS’s name. The goal, as with almost everything about the mortgage business at that time, was speed. Speed meant money.

ALAN GRAYSON has seen MERS’s record-keeping up close. From 2009 until this year, he served as the United States representative for Florida’s Eighth Congressional District — in the Orlando area, which was ravaged by foreclosures. Thousands of constituents poured through his office, hoping to fend off foreclosures. Almost all had papers bearing the MERS name.

“In many foreclosures, the MERS paperwork was squirrelly,” Mr. Grayson said. With no real legal authority, he says, Fannie and the banks eliminated the old system and replaced it with a privatized one that was unreliable.

A spokeswoman for MERS declined interview requests. In an e-mail, she noted that several state courts have ruled in MERS’s favor of late. She expressed confidence that MERS’s policies complied with state laws, even if MERS’s members occasionally strayed.

“At times, some MERS members have failed to follow those procedures and/or established state foreclosure rules,” the spokeswoman, Karmela Lejarde, wrote, “or to properly explain MERS and document MERS relationships in legal pleadings.”

Such cases, she said, “are outliers, reflecting case-specific problems in process, and did not repudiate the MERS business model.”

MERS’s legal troubles, however, aren’t going away. In August, the Ohio secretary of state referred to federal prosecutors in Cleveland accusations that notaries deputized by MERS were signing hundreds of documents without any personal knowledge of them. The attorney general of Massachusetts is examining a complaint by a county registrar that MERS owes the state tens of millions of dollars in unpaid fees.

As far back as 2001, Ed Romaine, the clerk for Suffolk County, on eastern Long Island, refused to register mortgages in MERS’s name, partly because of complaints that the company’s records didn’t square with public ones. The state Court of Appeals later ruled that he had overstepped his powers.

But Judith S. Kaye, the state’s chief judge at the time, filed a partial dissent. She worried that MERS, by speeding up property transfers, was pouring oil on the subprime fires. The MERS system, she wrote, ill serves “innocent purchasers.”

“I was trying to say something didn’t smell right, feel right or look right,” Ms. Kaye said in a recent interview.

Little about MERS was transparent. Asked as part of a lawsuit against MERS in September 2009 to produce minutes about the formation of the corporation, Mr. Arnold, the former C.E.O., testified that “writing was not one of the characteristics of our meetings.”

MERS officials say they conduct audits, but in testimony could not say how often or what these measured. In 2006, Mr. Arnold stated that original mortgage notes were held in a secure “custodial facility” with “stainless steel vaults.” MERS, he testified, could quickly produce every one of those files.

As for homeowners, Mr. Arnold said they could log on to the MERS system to identify their loan servicer, who, in turn, could identify the true owner of their mortgage note. “The servicer is really the best source for all that information,” Mr. Arnold said.

The reality turns out to be a lot messier. Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents.

The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.

Some experts in corporate governance say the legal furor over MERS is overstated. Others describe it as a useful corporation nearly drowning in a flood tide of mortgage foreclosures. But not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.

“We would never rely on it to find ownership,” says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.

Apparently with good reason. Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain.

The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership. They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”

THE Sarmientos are one of thousands of American families who have tried to pierce the MERS veil.

Several years back, they bought a two-family home in the Greenpoint section of Brooklyn for $723,000. They financed the purchase with two mortgages from Lend America, a subprime lender that is now defunct.

But when the recession blew in, Jose Sarmiento, a chef, saw his work hours get cut in half. He fell behind on his mortgages, and MERS later assigned the loans to U.S. Bank as a prelude to filing a foreclosure motion.

Then, with the help of a lawyer from South Brooklyn Legal Services, Mr. Sarmiento began turning over some stones. He found that MERS might have violated tax laws by waiting too long before transferring his mortgage. He also found that MERS could not prove that it had transferred both note and mortgage, as required by law.

One might argue that these are just legal nits. But Mr. Sarmiento, 59, shakes his head. He is trying to work out a payment plan through the federal government, but the roadblocks are many. “I’m tired; I’ve been fighting for two years already to save my house,” he says. “I feel like I never know who really owns this home.”

Officials at MERS appear to recognize that they are swimming in dangerous waters. Several federal agencies are investigating MERS, and, in response, the company recently sent a note laying out a raft of reforms. It advised members not to foreclose in MERS’s name. It also told them to record mortgage transfers in county records, even if state law does not require it.

MERS will no longer accept unverified new officers. If members ignore these rules, MERS says, it will revoke memberships.

That hasn’t stopped judges from asking questions of MERS. And few are doing so with more puckish vigor than Arthur M. Schack, a State Supreme Court judge in Brooklyn.

Judge Schack has twice rejected a foreclosure case brought by Countrywide Home Loans, now part of Bank of America. He had particular sport with Keri Selman, who in Countrywide’s court filings claimed to hold three jobs: as a foreclosure specialist for Countrywide Home Loans, as a servicing agent for Bank of New York and as an assistant vice president of MERS. Ms. Selman, the judge said, is a “milliner’s delight by virtue of the number of hats that she wears.”

At heart, Judge Schack is scratching at the notion that MERS is a legal fiction. If MERS owned nothing, how could it bounce mortgages around for more than a decade? And how could it file millions of foreclosure motions?

These cases, Judge Schack wrote in February 2009, “force the court to determine if MERS, as nominee, acted with the utmost good faith and loyalty in the performance of its duties.”

The answer, he strongly suggested, was no.

PAYBACK TIME: $5.1 IN PUNITIVE DAMAGES AGAINST SERVICER ON A $79K CASE

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“In short, loan servicing is a perfect setup for administrators who want to take advantage of both borrowers and lenders.” (Editor’s Note: Notice that the investors are referred to as lenders, hence the term “pretender lender” as to all others pretending to be lenders.)

“The investors also said that when borrowers tried to pay off or otherwise resolve defaulted loans, Compass/Silar refused to negotiate. In other cases when Compass/Silar urged the investors to modify troubled mortgages, the servicer reaped undisclosed fees in the deals.

The jury affirmed every claim the plaintiffs had brought against Compass/Silar, including conspiracy, as well as breach of contract, of fiduciary duty, and of good faith and fair dealing. The jury found improper actions by Compass/Silar on eight loans.”

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EDITOR’S ANALYSIS: For those slow learners out there practicing law, this might get your attention. The compensatory damages were $79,000. Punitive damages: $5,100,000. If the lawyers were on contingency, they just made over $2 million.

Besides the obvious importance of this case for investors and what is about to happen, you’ll notice that all the things we have been saying about the borrowers were alleged and proven against the servicer with respect to the investors. Thus you can understand why I have been saying that the interests of the investors and the interests of the borrowers are very similar and the factual basis of their claims are the same. The jury said GUILTY on breach of contract, of fiduciary duty, and of good faith and fair dealing. Sound familiar?

Borrowers take hope. The investors are doing some of your work for you. So is the SEC now and the attorney generals of all 50 states. But you have to take a stand if you want to play in this high stakes game. You can’t just wait for lightening to strike. Nobody is going to come knocking on the door handing you the deed to a home you thought you already lost and moved out of or satisfaction of mortgage or a check. It’s time for ALL homeowners who EVER had a loan (especially if originated after 1999) to go back to their paperwork and have it examined for potential claims. There’s probably gold in those mounds of paper.

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Opening the Bag of Mortgage Tricks

By GRETCHEN MORGENSON

ALL the revelations this year about dubious practices in the mortgage servicing arena — think robo-signers and forged signatures — have rightly raised borrowers’ fears that companies handling their loans may not be operating on the up and up.

But borrowers aren’t the only ones concerned about potential mischief. Investors who hold mortgage securities are increasingly worried that servicers may be putting their interests ahead of those who own the loans.

A servicer might, for example, deny a loan modification to a borrower because it also owns a second mortgage on the same property and doesn’t want to write down that asset, as required in a modification. Levying outsize default fees is another tactic — the fees typically go to the servicer, not the lender, but they can still propel a property into foreclosure more quickly. And foreclosures aren’t a good outcome for investors.

Last week, a jury in federal district court in Reno, Nev., awarded a group of 50 mortgage investors $5.1 million in punitive damages against defendants in a loan servicing case. Although the numbers in the case aren’t large, its facts are fascinating. Indeed, the case exposed some of the tricks of the servicers’ trade.

The case is also notable because the main defendant, Silar Advisors, was one of the institutions that struck a deal in 2009 with the Federal Deposit Insurance Corporation to buy the assets of a notorious failed bank, IndyMac. Of the $5.1 million in damages awarded in the case, Silar must pay $3 million.

John W. Bickel II, a co-founder of Bickel & Brewer in Dallas, represented the investors in the case. Because he represents an additional 1,450 investors whose loans were serviced by Silar, he said more suits like this one would follow soon.

Loan servicers act as intermediaries between borrowers and their lenders, collecting monthly payments and real estate taxes and forwarding them to the appropriate parties. As long as borrowers meet their payments, such operations typically run smoothly.

Defaults and foreclosures, however, complicate servicers’ duties. As the Silar matter shows, borrower difficulties also open the door to improprieties.

Because loan servicers operate behind the scenes, it’s hard for investors who own these mortgages to monitor fee-gouging. In addition, the servicing contracts make it difficult to fire administrators — under a typical arrangement, investors holding at least 51 percent of the loans must agree on termination.

In short, loan servicing is a perfect setup for administrators who want to take advantage of both borrowers and lenders.

Troubles for investors in the Silar matter began back in 2006 when the USA Commercial Mortgage Company went bankrupt. Founded in 1989, the company had underwritten and serviced short-term commercial real estate loans. It sold them to private investors, typically older people who hoped to live off the income generated by the loans. At the time of its bankruptcy, USA Commercial serviced 115 loans worth almost $1 billion.

After the company collapsed, a small firm called Compass Partners bought the servicing rights to these assets for $8 million. A short time later, Silar Advisors, a company overseen by Robert Leeds, a former Goldman Sachs executive, got involved by financing Compass. Compass/Silar began servicing the loans for the investors.

Almost immediately, the plaintiffs in the suit contended, Compass/Silar started siphoning off money owed to investors holding the loans. Among the servicer’s tactics, the plaintiffs said, were improperly charging default interest, late fees and loan origination fees that reduced amounts due to investors.

The investors also said that when borrowers tried to pay off or otherwise resolve defaulted loans, Compass/Silar refused to negotiate. In other cases when Compass/Silar urged the investors to modify troubled mortgages, the servicer reaped undisclosed fees in the deals.

THE jury affirmed every claim the plaintiffs had brought against Compass/Silar, including conspiracy, as well as breach of contract, of fiduciary duty, and of good faith and fair dealing. The jury found improper actions by Compass/Silar on eight loans.

A Silar spokesman said the firm was pleased that the jury awarded only $79,000 in compensatory damages to the plaintiffs but was disappointed by the punitive-damages assessment. “The jurors are to be commended for their careful consideration of the facts in a very lengthy trial,” the spokesman said. He declined to comment as to whether Silar was currently servicing any loans.

One loan history, on a defaulted asset known as Standard Property, indicates what these investors were up against with their servicer.

In March 2007, immediately after Compass/Silar took over administration of the investors’ loans, the Standard Property mortgage had a principal value of $9.64 million. The borrower wanted to repay the loan at that time, but instead of directing it to pay principal and the accrued interest to the holder of the loan, as required by the servicing agreement, Compass/Silar arranged for the borrower to refund only the principal.

At the same time, court papers show, Compass/Silar quietly took in almost $860,000 in late fees, default interest and other costs from the Standard Property borrower. This ran afoul of the servicing agreement governing the Standard Property mortgage. The agreement stated that such fees could go to the servicer only after investors had been paid principal and accrued interest on a loan.

“No one really knows what is in the black box known as loan servicing, and most investors don’t even think of their servicer taking advantage of them,” Mr. Bickel said in an interview. “There’s not a lot of transparency, and I think this case is going to bring to the forefront the potential for abuse.”

It is obvious that we are in the litigation stage of the financial debacle of 2008. That usually means shining the light on dark corners and watching what scurries away. The view may not be pretty, but at least in this case, investors got some recompense in addition to an education.

FRONT PAGE FORGERY — NY TIMES

SERVICES YOU NEED

“Linda M. Tirelli, a lawyer in White Plains who represents Ms. Nuer in the case against Chase. “This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me.”

“Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.”

EDITORS note: you will have to obtain the paper version of the New York Times to see the three examples of obvious forgeries. The fact that it is on the front page of the newspaper is significant in itself. Gretchen Morgenson has done an excellent job of summing up the examples of fabrication, improper purposes, improper procedures and the probability that actual crimes have been committed.

Although it appears that we are rapidly approaching the reality of this situation, the absence of the “fundamentals” is conspicuous. It is true that the industry practice involved conduct by attorneys, servicers, banks, trustees and others that should probably result in disciplinary actions by the agencies that purport to regulate these entities. But the underlying theme of this article as well as the rest of mainstream media is an assumption that the “defaults” actually exist and therefore that the foreclosures are virtually inevitable but for technical violations on the part of the lenders.

This article also highlights the instances where multiple entities attempted to foreclose on the same property using the same alleged mortgage documents, each making the claim that they are the holder of the note, the real party in interest and possessed of standing to initiate foreclosure proceedings. But the article attributes this to the inability of the “lenders” to deal with the volume of defaults in mortgages.

  • The concept that the mortgages themselves may be fatally defective is completely absent from any reporting on the subject.

  • The concept that the default may not actually exist because the actual creditors have mitigated their losses through receipt of third party payments is completely absent from any reporting on this subject.

  • The concept that the encumbrance on the property may never have been perfected or that it is unenforceable now is completely absent from any reporting on the subject.

Don’t make the mistake of confusing information with evidence. The article in the New York Times as well as this article is merely information. Evidence has a legal definition and if you want to prove something you must meet that definition in order to have some fact or document admitted into the court record and considered in a decision. What is good for the goose is good for the gander. The courts have improperly admitted representations of counsel and improper affidavits as evidence, under the presumption that the underlying facts were undoubtedly true. It would be equally improper of the court to lend the same presumption to you. And this is why I have reversed myself and now discourage homeowners representing themselves in court.  A licensed experienced attorney hopefully will know how important it is to raise properly framed objections as early as possible in the proceedings in order to take control of the narrative.

In fact, all of the representations of counsel and the proffer of information contained in affidavits, assignments, endorsements, powers of attorney, substitutions of trustee, notices of default, notices of sale, or any of the other documents used to initiate foreclosure proceedings contains nothing more than false allegations that should have been subject to a simple denial by the borrower, thus requiring the party seeking affirmative relief to properly plead and prove their case. This they cannot do because of the absence of any fact or witness that would actually support their case.

These cases are not simply flawed. They are complete shams, a fraud upon the court, the homeowner, and any subsequent party  who believes that they received clear title resulting from a foreclosure or short sale. The current conduct of the pretender lenders and their attorneys and foreclosure mills is only a continuation of the Ponzi scheme that started with the first sale of an alleged mortgage bond to an investor who believed that the proceeds were being used primarily to fund loans that were properly valued and subjected to rigorous industry-standard underwriting procedures. The lies told to the investors who were the actual lenders in these transactions were identical to the lies told to the homeowners who were the borrowers in these transactions. Separating these parties–the lender and the borrower–was the core tactic and requirement of those who originated this fraudulent scheme.

The reason for the stonewalling on answers to qualified written requests, on answers to debt validation letters, and on responses to demands for discovery is not just that the fabrication and forgery of documents will be revealed–a fact well known to attorneys whose employees created and executed the fabrications and forgeries. The greater reason is to maintain the separation between the lender and the borrower. At some point in the evolution of this epic drama the lenders and the borrowers will get together and compare notes. At that time, the revelation of fraudulent and perhaps criminal conduct throughout this fraudulent scheme extending over a decade will be unavoidable. Stonewalling kicks the can down the road while the perpetrators explore their options to avoid liability and prosecution.

Here is a contribution from Ann:

For full Deposition transcripts of Robot Signers, go to
http://www.scribd.com
and put their name on the search.

Many interesting foreclosure legal pleadings and info
at
http://www.scribd.com/83jjmack
http://www.scribd.com/winston2311
http://www.scribd.com/foreclosure
fraud

October 3, 2010

Flawed Paperwork Aggravates a Foreclosure Crisis

04mortgage.html?_r=1&hp

By GRETCHEN MORGENSON

As some of the nation’s largest lenders have conceded that their foreclosure procedures might have been improperly handled, lawsuits have revealed myriad missteps in crucial documents.

The flawed practices that GMAC Mortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.

Problems emerging in courts across the nation are varied but all involve documents that must be submitted before foreclosures can proceed legally. Homeowners, lawyers and analysts have been citing such problems for the last few years, but it appears to have reached such intensity recently that banks are beginning to re-examine whether all of the foreclosure papers were prepared properly.

In some cases, documents have been signed by employees who say they have not verified crucial information like amounts owed by borrowers. Other problems involve questionable legal notarization of documents, in which, for example, the notarizations predate the actual preparation of documents — suggesting that signatures were never actually reviewed by a notary.

Other problems occurred when notarizations took place so far from where the documents were signed that it was highly unlikely that the notaries witnessed the signings, as the law requires.

On still other important documents, a single official’s name is signed in such radically different ways that some appear to be forgeries. Additional problems have emerged when multiple banks have all argued that they have the right to foreclose on the same property, a result of a murky trail of documentation and ownership.

There is no doubt that the enormous increase in foreclosures in recent years has strained the resources of lenders and their legal representatives, creating challenges that any institution might find overwhelming. According to the Mortgage Bankers Association, the percentage of loans that were delinquent by 90 days or more stood at 9.5 percent in the first quarter of 2010, up from 4 percent in the same period of 2008.

But analysts say that the wave of defaults still does not excuse lenders’ failures to meet their legal obligations before trying to remove defaulting borrowers from their homes.

“It reflects the hubris that as long as the money was going through the pipeline, these companies didn’t really have to make sure the documents were in order,” said Kathleen C. Engel, dean for intellectual life at Suffolk University Law School and an expert in mortgage law. “Suddenly they have a lot at stake, and playing fast and loose is going to be more costly than it was in the past.”

Attorneys general in at least six states, including Massachusetts, Iowa, Florida and Illinois, are investigating improper foreclosure practices. Last week, Jennifer Brunner, the secretary of state of Ohio, referred examples of what her office considers possible notary abuse by Chase Home Mortgage to federal prosecutors for investigation.

The implications are not yet clear for borrowers who have been evicted from their homes as a result of improper filings. But legal experts say that courts may impose sanctions on lenders or their representatives or may force banks to pay borrowers’ legal costs in these cases.

Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.

In Florida, problems with foreclosure cases are especially acute. A recent sample of foreclosure cases in the 12th Judicial Circuit of Florida showed that 20 percent of those set for summary judgment involved deficient documents, according to chief judge Lee E. Haworth.

“We have sent repeated notices to law firms saying, ‘You are not following the rules, and if you don’t clean up your act, we are going to impose sanctions on you,’ ” Mr. Haworth said in an interview. “They say, ‘We’ll fix it, we’ll fix it, we’ll fix it.’ But they don’t.”

As a result, Mr. Haworth said, on Sept. 17, Harry Rapkin, a judge overseeing foreclosures in the district, dismissed 61 foreclosure cases. The plaintiffs can refile but they need to pay new filing fees, Mr. Haworth said.

The byzantine mortgage securitization process that helped inflate the housing bubble allowed home loans to change hands so many times before they were eventually pooled and sold to investors that it is now extremely difficult to track exactly which lenders have claims to a home.

Many lenders or loan servicers that begin the foreclosure process after a borrower defaults do not produce documentation proving that they have the legal right to foreclosure, known as standing.

As a substitute, the banks usually present affidavits attesting to ownership of the note signed by an employee of a legal services firm acting as an agent for the lender or loan servicer. Such affidavits allow foreclosures to proceed, but because they are often dubiously prepared, many questions have arisen about their validity.

Although lawyers for troubled borrowers have contended for years that banks in many cases have not properly documented their rights to foreclose, the issue erupted in mid-September when GMAC said it was halting foreclosure proceedings in 23 states because of problems with its legal practices. The move by GMAC followed testimony by an employee who signed affidavits for the lender; he said that he executed 400 of them each day without reading them or verifying that the information in them was correct.

JPMorgan Chase and Bank of America followed with similar announcements.

But these three large lenders are not the only companies employing people who have failed to verify crucial aspects of a foreclosure case, court documents show.

Last May, Herman John Kennerty, a loan administration manager in the default document group of Wells Fargo Mortgage, testified to lawyers representing a troubled borrower that he typically signed 50 to 150 foreclosure documents a day. In that case, in King County Superior Court in Seattle, he also stated that he did not independently verify the information to which he was attesting.

Wells Fargo did not respond to requests for comment.

In other cases, judges are finding that banks’ claims of standing in a foreclosure case can conflict with other evidence.

Last Thursday, Paul F. Isaacs, a judge in Bourbon County Circuit Court in Kentucky, reversed a ruling he had made in August giving Bank of New York Mellon the right to foreclose on a couple’s home. According to court filings, Mr. Isaacs had relied on the bank’s documentation that it said showed it held the note underlying the property in a trust. But after the borrowers supplied evidence indicating that the note may in fact reside in a different trust, the judge reversed himself. The court will revisit the matter soon.

Bank of New York said it was reviewing the ruling and could not comment.

Another problematic case involves a foreclosure action taken by Deutsche Bank against a borrower in the Bronx in New York. The bank says it has the right to foreclose because the mortgage was assigned to it on Oct. 15, 2009.

But according to court filings made by David B. Shaev, a lawyer at Shaev & Fleischman who represents the borrower, the assignment to Deutsche Bank is riddled with problems. First, the company that Deutsche said had assigned it the mortgage, the Sand Canyon Corporation, no longer had any rights to the underlying property when the transfer was supposed to have occurred.

Additional questions have arisen over the signature verifying an assignment of the mortgage. Court documents show that Tywanna Thomas, assistant vice president of American Home Mortgage Servicing, assigned the mortgage from Sand Canyon to Deutsche Bank in October 2009. On assignments of mortgages in other cases, Ms. Thomas’s signatures differ so wildly that it appears that three people signed the documents using Ms. Thomas’s name.

Given the differences in the signatures, Mr. Shaev filed court papers last July contending that the assignment is a sham, “prepared to create an appearance of a creditor as a real party in interest/standing, when in fact it is likely that the chain of title required in these matters was not performed, lost or both.”

Mr. Shaev also asked the judge overseeing the case, Shelley C. Chapman, to order Ms. Thomas to appear to answer questions the lawyer has raised.

John Gallagher, a spokesman for Deutsche Bank, which is trustee for the securitization that holds the note in this case, said companies servicing mortgage loans engaged the law firms that oversee foreclosure proceedings. “Loan servicers are obligated to adhere to all legal requirements,” he said, “and Deutsche Bank, as trustee, has consistently informed servicers that they are required to execute these actions in a proper and timely manner.”

Reached by phone on Saturday, Ms. Thomas declined to comment.

The United States Trustee, a unit of the Justice Department, is also weighing in on dubious court documents filed by lenders. Last January, it supported a request by Silvia Nuer, a borrower in foreclosure in the Bronx, for sanctions against JPMorgan Chase.

In testimony, a lawyer for Chase conceded that a law firm that had previously represented the bank, the Steven J. Baum firm of Buffalo, had filed inaccurate documents as it sought to take over the property from Ms. Nuer.

The Chase lawyer told a judge last January that his predecessors had combed through the chain of title on the property and could not find a proper assignment. The firm found “something didn’t happen that needed to be fixed,” he explained, and then, according to court documents, it prepared inaccurate documents to fill in the gaps.

The Baum firm did not return calls to comment.

A lawyer for the United States Trustee said that the Nuer case “does not represent an isolated example of misconduct by Chase in the Southern District of New York.”

Chase declined to comment.

“The servicers have it in their control to get the right documents and do this properly, but it is so much cheaper to run it through a foreclosure mill,” said Linda M. Tirelli, a lawyer in White Plains who represents Ms. Nuer in the case against Chase. “This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me.”

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