The Mystery of Servicer Non Stop Advances

Since I entered the fray as the actual attorney for clients, we are getting down to the nitty gritty. Judges are surprised to learn that the foreclosure case in front of them was filed despite the payments actually received by the alleged creditor through third parties. In other words the case in front of them does not actually present a default from the creditor’s point of view even tough the borrower stopped paying.

The primary payment we are focusing on today is servicer advances which come in different flavors — non-stop, limited and none. Most loans (96%) are subject to claims of securitization regardless of what the current servicer or trustee is telling you. And most of those (my guess is around 75%-90%) come with third party obligors, which is why there is so much confusion. Besides servicer advances, the agents for the trust beneficiaries at the investment bank who sold them the bonds received on behalf of the bond holders, insurance payments and other funds from other contracts designed to limit the risk associated with the terms of the bond repayment of interest and principal.

When you do the math, you can easily see how the “lender” could be overpaid by a multiple that averages 3-5 times, even while the borrower is being pursued for yet another payment or else losing a home. The dirty little secret, the mystery behind these payments is that under common law and statutory law there are potential causes of action against the borrower for such payments, but the actual creditor on the loan has been fully satisfied.

Worse yet, those third parties have waived subrogation or any right of action against the borrower to prevent multiple parties from suing the same defendant on the same debt. The insurers are mad as hell. But the servicers are curiously silent — possibly because they are not really paying the servicer advances which are instead coming from the pool of funds held by the investment banker from the original investment of the trust beneficiaries and the receipt of insurance, credit default swaps, guarantors and even sales to the Federal Reserve.

The lender (Trust beneficiaries) have agreed to lend money on the basis of interest only payments at a particular rate that rarely coincides with any of the loans alleged to be in the pool. Since they were sold the bonds first before the loan was made (see “selling forward”), you can assume fairly safely that the actual lender is the trust or trust beneficiaries, regardless of what was put on the loan documents — which is why I say that none of the loan documents are valid enforceable documents and why the investors have sued the real culprits (investment banks) stating the exact same thing.

In one case I have currently pending in Dade County, Florida, US Bank is putting itself through a ringer because servicer advances have been paid in full to the creditor that they acknowledge is the creditor. The Judge instantly recognized that this defeats the allegation of default, if the creditor has received and accepted payment. The attorney for US Bank allegedly as trustee for the trust beneficiaries is pursuing a strategy of getting the assignment of rents enforced. The statutory requirement is that there be a written demand for rents, which nobody ever made. And it turns out that the Trustee was unwilling to go on record demanding assignment of rents because the beneficiaries were paid in full exactly as set forth in the prospectus and pooling and servicing agreement. A call to the servicer confirmed they were not interested in the rents, but curiously, despite PSA restrictions to the contrary, the new “Trustee” US BANK is pursuing the foreclosure.

The Judge, who wants more proof of the advances which we are only too happy to provide, instantly recognized that if the trust beneficiaries were receiving their expected payment, then there can be no default on the principal, which is prerequisite to BOTH foreclosure and the assignment of rents. In this case there were 52 payments received and accepted by the trust beneficiaries after the alleged borrower default. We were able to get this information through drilling down to loan level accounting in our title and securitization reports. If there is money owed it is not owed to the plaintiff in foreclosure and it is not secured by a mortgage. see www.livingliesstore.com

We have since done the reports on other properties owned by the same client and found out that the same pattern holds true. In the one case we have already argued, more than $70,000 has been received by the trust beneficiaries from servicer non stop advances. Payment is the ultimate defense for an action to recover money. The fun part comes when the Judge starts asking why these payments were not disclosed by the attorney or his client.

There are other sources of third party payments from co-obligors at the inception of the loan. The mystery comes from the fact that the homeowner who signs loan papers has no idea, because it was never disclosed to him/her/them that the lender is not the payee on the note, not the mortgagee on the mortgage, not the beneficiary on the trust deed, but rather the trust beneficiaries who own bonds issued from the REMIC trust (which as I have already reported was never actually funded and never actually received title to the loan).

In other words, the lender has agreed to one set of terms that were never disclosed to the borrower in violation of the truth in lending act, and the borrower has agreed to an entirely different deal — which means that there is no “meeting of the minds.” Both the lender and borrower wanted a completed contract that would be enforceable and where title was clear, but neither of them got it. The solution is to get rid of the servicer and get rid of the investment banker, get an accounting of all funds, repay the investors and work out a reasonable deal with borrowers, most of whom would be willing to sign a mortgage that was enforceable based upon economic reality.

OCC: 13 Questions to Answer Before Foreclosure and Eviction

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.

SEE ALSO: http://WWW.LIVINGLIES-STORE.COM

The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Note: Some banks are slowing foreclosures and evictions. The reason is that the OCC issued a directive or letter of guidance that lays out in brief simplistic language what a party must do before they can foreclose. There can be little doubt that none of the banks are in compliance with this directive although Bank of America is clearly taking the position that they are in compliance or that it doesn’t matter whether they are in compliance or not.

In April the OCC, responding to pressure from virtually everyone, issued a guidance letter to financial institutions who are part of the foreclosure process. While not a rule a regulation, it is an interpretation of the Agency’s own rules and regulation and therefore, in my opinion, is both persuasive and authoritative.

These 13 questions published by OCC should be used defensively if you suspect violation and they are rightfully the subject of discovery. Use the wording from the letter rather than your own — since the attorneys for the banks will pounce on any nuance that appears to be different than this guidance issued to the banks.

The first question relates to whether there is a real default and what steps the foreclosing party has taken to assure itself and the court that the default is real. Remember that the fact that the borrower stopped paying is not a default if no payment was due. And there is no default if it is cured by payment from ANYONE after the declaration of default. Thus when the subservicer continues making payments to the “Creditor” the borrower’s default is cured although a new liability could arise (unsecured) as a result of the sub servicer making those payments without receiving payment from the borrower.

The point here is the money. Either there is a balance or there is not. Either the balance is as stated by the forecloser or it is not. Either there is money due from the borrower to the servicer and the real creditor or there is not. This takes an accounting that goes much further than merely a printout of the borrower’s payment history.

It takes an in depth accounting to determine where the money came from continue the payments when the borrower was not making payments. It takes an in depth accounting to determine if the creditor still exists or whether there is an successor. And it takes an in depth accounting to determine how much money was received from insurance and credit default swaps that should have been applied properly thus reducing both the loan receivable and loan payable.

This means getting all the information from the “trustee” of the REMIC, copies of the trust account and distribution reports, copies of canceled checks and wire transfer receipts to determine payment, risk of loss and the reality of whether there was a loss.

It also means getting the same information from the investment banker who did the underwriting of the bogus mortgage bonds, the Master Servicer, and anyone else in the securitization chain that might have disbursed or received funds in connection with the subject loan or the asset pool claiming an interest in the subject loan, or the owners of mortgage bonds issued by that asset pool.

If the OCC wants it then you should want it for your clients. Get the answers and don’t assume that because the borrower stopped making payments that any default occurred or that it wasn’t cured. Then go on to the other questions with the same careful analysis.

http://www.businessweek.com/news/2013-05-17/wells-fargo-postpones-some-foreclosure-sales-after-occ-guidance

/http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/correcting-foreclosure-practices.html

Insurance, Credit Default Swaps, Guarantees: Third Party Payments Mitigate Damages to “Lender”

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Analysis: The topic of conversation (argument) in court is changing to an inquiry of what is the real transaction, who were the parties and did they pay anything that gives them the right to claim they suffered financial damages as a result of the “breach” by the borrower. And the corollary to that is what constitutes mitigation of those damages.

If the mortgage bond derives its value solely from underlying mortgage loans, then the risk of loss derives solely from those same underlying mortgages. And if those losses are mitigated through third party payments, then the benefit should flow to both the investors who were the source of funds and the borrowers balance must be correspondingly and proportionately adjusted. Otherwise the creditor ends up in a position better than if the debtor had paid off the debt.

If your Aunt Sally pays off your mortgage loan and the bank sues you anyway  claiming they didn’t get any payment from YOU, the case will be a loser for the bank and a clear winner for you because of the defense of PAYMENT. The rules regarding damages and mitigation of damages boil down to this — the alleged injured party should not be placed in a position where he/she/it is better off than if the contract (promissory) note had been fully performed.

If the “creditor” is the investor lender, and the only way the borrower received the money was through intermediaries, then those intermediaries are not entitled to claim part of the money that the investor advanced, nor part of the money that was intended for the “creditor” to offset a financial loss. Those intermediaries are agents. And the transaction,  while involving numerous intermediaries and their affiliates, is a single contemporaneous transaction between the investor lender and the homeowner borrower.

This is the essence of the “Single transaction doctrine” and the “step transaction doctrine.” What the banks have been successful at doing, thus far, is to focus the court’s attention on the individual steps of the transaction in which a borrower eventually received money or value in exchange for his promise to pay (promissory note) and the collateral he used to guarantee payment (mortgage or deed of trust). This is evasive logic. As soon as you have penetrated the fog with the single transaction rule where the investor lenders are identified as the creditor and the homeowner borrower is identified as the debtor, the argument of the would-be forecloser collapses under its own weight.

Having established a straight line between the investor lenders and the homeowner borrowers, and identified all the other parties as intermediary agents of the the real parties in interest, the case for  damages become much clearer. The intermediary agents cannot foreclose or enforce the debt except for the benefit of an identified creditor which we know is the group of investor lenders whose money was used to fund the tier 2 yield spread premium, other dubious fees and profits, and then applied to funding loans by wire transfer to closing agents.

The intermediaries cannot claim the house because they are not part of that transaction as a real party in interest. They may have duties to each other as it relates to handling of the money as it passes through various conduits, but their principal duty is to make sure the transaction between the creditor and debtor is completed.

The intermediaries who supported the sale of fake mortgage bonds from an empty REMIC trust cannot claim the benefits of insurance, guarantees or the proceeds of hedge contracts like credit default swaps. For the first time since the mess began, judges are starting to ask whether the payments from the third parties has relevance to the debt of the borrower. To use the example above, are the third parties who made the payments the equivalent of Aunt Sally or are they somehow going to be allowed to claim those proceeds themselves?

The difference is huge. If the third parties who made those payments are the equivalent of Aunt Sally, then the mortgage is paid off to the extent that actual cash payments were received by the intermediary agents. Aunt Sally might have a claim against the borrower or it might have been a gift, but in all events the original basis for the transaction has been reduced or eliminated by the receipt of those payments.

If Aunt Sally sues the borrower, it would  be for contribution or restitution, unsecured, unless Aunt sally actually bought the loan and received an assignment along with a receipt for her funds. If there was another basis on which Aunt Sally made the payment besides a gift, then the money should still be credited to the benefit of the investor lenders who have received what they thought was a bond payable but in reality was still the note payable.

In no event are the intermediary agents to receive those loss mitigation payments when they had no loss. And to the extent that payments were received, they should be used to reduce the receivable of the investor lender and of course that would reduce the payable owed from the homeowner borrower to the investor lender. To do otherwise would be to allow the “creditor” to end up in a much better position than if the homeowner had simply paid off the loan as per the promissory note or faked mortgage bond.

None of this takes away from the fact that the REMIC trust was not source the funds used to pay for the mortgage origination or transfer. That goes to the issue of the perfection of the mortgage lien and not to the issue of how much is owed.

Now Judges are starting to ask the right question: what authority exists for application of the third party payments to mitigate damages? If such authority exists and the would-be foreclosures used a false formula to determine the principal balance due, and the interest payable on that false balance then the notice of delinquency, notice of default, and foreclosure proceedings, including the sale and redemption period would all be incorrect and probably void because they demanded too much from the borrower after having received the third party payments.

If such authority does not exist, then the windfall to the banks will continue unabated — they get the fees and tier 2 yield spread premium profits upfront, they get the payment servicing fees, they get to sell the loan multiple times without any credit to the investor lender, but most of all they get the loss mitigation payments from insurance, hedge, guarantee and bailouts for a third party loss — the investor lenders. This is highly inequitable. The party with the loss gets nothing while a party who already has made a profit on the transaction, makes more profit.

If we start with the proposition that the creditor should not be better off than if the contract had been performed, and we recognize that the intermediary investment bank, master servicer, trustee of the empty REMIC trust, subservicer, aggregator, and others did in fact receive money to mitigate the loss on those certificates and thus on the loans supposedly backing the mortgage bonds, then the only equitable and sensible conclusion would be to credit or allocate those payments to the investor lender up to the amount they advanced.

With the creditor satisfied or partially satisfied the mortgage loan, regardless of whether it is secured or not, is also satisfied or partially satisfied.

So the question is whether mitigation payments are part of the transaction between the investor lender and the homeowners borrower. While this specific application of insurance payments etc has never been addressed we find plenty of support in the case law, statutes and even the notes and bonds themselves that show that such third party mitigation payments are part of the transaction and the expectancy of the investor lender and therefore will affect the borrower’s balance owed on the debt, regardless of whether it is secured or unsecured.

Starting with the DUTY TO MITIGATE DAMAGES, we can assume that if there is such a duty, and there is, then successfully doing so must be applicable to the loan or contract and is so treated in awarding damages without abridgement. Keep in mind that the third party contract for mitigation payments actually refer to the borrowers. Those contracts expressly waive any right of the payor of the mitigation loss coverage to go after the homeowner borrower.

To allow all these undisclosed parties to receive compensation arising out of the initial loan transaction and not owe it to someone is absurd. TILA says they owe all the money they made to the borrower. Contract law says the payments should first be applied to the investor lender and then as a natural consequence, the amount owed to the lender is reduced and so is the amount due from the homeowner borrower.

See the following:

Pricing and Mitigation of Counterparty Credit Exposures, Agostino Capponi. Purdue University – School of Industrial Engineering. January 31, 2013. Handbook of Systemic Risk, edited by J.-P. Fouque and J.Langsam. Cambridge University Press, 2012

  • “We analyze the market price of counterparty risk and develop an arbitrage-free pricing valuation framework, inclusive of collateral mitigation. We show that the adjustment is given by the sum of option payoff terms, depending on the netted exposure, i.e. the difference between the on-default exposure and the pre-default collateral account. We specialize our analysis to Interest Rates Swaps (IRS) and Credit Default Swaps (CDS) as underlying portfolio, and perform a numerical study to illustrate the impact of default correlation, collateral margining frequency, and collateral re-hypothecation on the resulting adjustment. We also discuss problems of current research interest in the counterparty risk community.” pdf4article631

Whether this language  makes sense to you or not, it is English and it does say something clearly — it is all about risk. And the risk of the investor lender was to have protected by Triple A rating, insurance, and credit default swaps, as well as guarantees and provisions of the pooling and servicing agreement, for the REMIC trust. Now here is the tricky part — the banks must not be allowed to say on the one hand that the securitization documents are real even if there was no money trail or consideration to support them on the one hand then say that they are not real for purposes of receiving loss mitigation payments, which they want to keep even if it leaves the real creditor with a net loss.

To put it simply — either the parties to the underwriting of the bond to investors and the loan to homeowners were part of the the transaction (loan from investor to homeowner) or they were not. I fail to see any logic or support that they were not.

And the simple rule of measure of how these parties fit together is found under the single transaction doctrine. If the step transaction under scrutiny would not have occurred but for the principal transaction alleged, then it is a single transaction.

The banks would argue they were trading in credit default swaps and other exotic securities regardless of what lender fit with which borrower. But that is defeated by the fact that it was the banks who sold to mortgage bonds, it was the banks who set up the Master Servicer, it was the banks who purchased the insurance and credit default swaps and it was the underwriting investment bank that promised that insurance and credit default swaps would be used to counter the risk. And it is inescapable that the only risk applicable to the principal transaction between investor lender and homeowner borrower was the risk of non payment by the borrower. These third party payments represent the proceeds of protection from that risk.

Would the insurers have entered into the contract without the underlying loans? No. Would the counterparties have entered into the contract without the underlying loans? No.

So the answer, Judge is that it is an inescapable conclusion that third party loss mitigation payments must be applied, by definition, to the loss. The loss was suffered not by the banks but by the investors whose money they took. The loss mitigation payments must then be applied against the risk of loss on the money advanced by those investors. And the benefit of that payment or allocation is that the real creditor is satisfied and the real borrower receives some benefit from those payments in the way of a reduction of the his payable to the investor.

It is either as I have outlined above or the money — all of it — goes to the borrower, to the exclusion of the investor under the requirements of TILA and RESPA. While the shadow banking system is said to be over $1.2 quadrillion,  we must apply the same standards to ourselves and our cases as we do to the opposing side. Only actual payments received by the participants in the overall obscured investor lender transaction with the homeowner borrower.

Hence discovery must include those third parties and review of their contracts for the court to determine the applicability of third party payments that were actually received in relation to either the subject loan, the subject mortgage bond, or the subject REMIC pool claiming ownership of the subject loan.

The inequality between the rich and not-so-rich comes not from policy but bad arithmetic.

As the subprime mortgage market fell apart in late 2007 and early 2008, many financial products, particularly mortgage-backed securities, were downgraded.  The price of credit default swaps on these products increased.  Pursuant to their collateral agreements, many protection buyers were able to insist on additional collateral protection.  In some cases, the collateral demanded represented a significant portion of the counterparty’s assets.  Unsurprisingly, counterparties have carefully evaluated, and in some cases challenged, protection buyers’ right to such additional collateral amounts.  This tension has generated several recent lawsuits:

• CDO Plus Master Fund Ltd. v. Wachovia Bank, N.A., 07-11078 (S.D.N.Y. Dec. 7, 2007) (dispute over demand     for collateral on $10,000,000 protection on collateralized debt obligations).

• VCG Special Opportunities Master Fund Ltd. v. Citibank, N.A., 08 1563 (S.D.N.Y. Feb. 14, 2008) (same).

• UBS AG v. Paramax Capital Int’l, No. 07604233 (N.Y. Sup. Ct. Dec. 26, 2007) (dispute over demand for $33 million additional capital from hedge fund for protection on collateralized debt obligations).

Given that the collateral disputes erupting in the courts so far likely represent only a small fraction of the stressed counterparties, and given recent developments, an increase in counterparty bankruptcy appears probable.

http://www.capdale.com/credit-default-swaps-the-bankrupt-counterparty-entering-the-undiscovered-country

HAMP-PRA Program Explained

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Note: The PRA (Principal reduction Alternative) portion of HAMP has not been utilized with efficiency by homeowners. First of all  it is a good idea to have several copies —digital and on paper — when you submit your modification proposal. The pattern that is clear. They claim to have not received it, they destroy the file because one thing was missing, etc. So be prepared to submit multiple times and get in writing that the foreclosure will not go forward while this process is underway. A demand letter from an attorney referencing the Dodd-Frank Act and its prohibition against dual tracking, will probably produce some results, especially if it is sent to every known party at every known address including the tiny letters in a font so light you can barely see it on the bank of the end of month statement.

Remember you are in all probability communicating with people who never owned nor funded the loan nor the purchase of the loan and that in order to clear the title on your client’s home you will need a “Guarantee of Title” from the title company and I think it is a good idea to get a judge’s order (a) approving the settlement and (b) declaring that these are the only stakeholders. That Order probably will require notice by publication for a period of weeks, but it is the only sure way of ending the corruption of your title. If you are not in court yet, then see if you can work into the agreement that you can file a quiet title action and that the party approving the modification will not contest it.

As you know, if you have been reading this blog for any length of time, I do not consider the lowering of the principal due as a reduction or a forgiveness. This raises tax issues but also raises your chances of getting a very good settlement.

Don’t limit yourself to the documents requested by the bank. The package you submit should contain a spreadsheet of calculations and the formulas used by an expert to determine a reasonable value for the property and a reasonable rate of interest and term. In your submission letter, you should demand that the party receiving it (which I think should include the subservicer, Master Servicer, Investment Banker and “trustee” of the investment pool) must respond in kind unless they accept the modification as proposed.

Realize also that modification is a sham PR stunt, but it can have teeth if you use it properly. The current pattern is the “servicer” or “pretender lender” tells you that in order to get relief you must stop paying on your mortgage. Their excuse is that if you are paying, there is nothing wrong. My position is that if you are paying, you are undoubtedly paying the wrong amount of interest and principal because of the receipts and disbursements that occurred off balance sheet and off the income statements of the intermediaries who claimed the insurance and bailout money as their own.

Thus your expert should provide a formula and estimate of the amount of money that should have been paid to investors but which is sitting in  custodial or operating accounts in the name of the investment banker or its affiliate. If that doesn’t bring down the principal then move on to the hardship stuff mentioned in the article below. But remember that if the expert is able to estimate the amount of principal that was mitigated by the subservicer (continuing to make payments after the loan was declared in default) and When the receipts occurred, this would reduce not only the principal demanded by demonstrate the extra interest paid on a principal balance that was misstated in the EOM statements and the notice of default and notice of sale (or service of process in the  judicial states). In such cases, which is by far the majority of all loans out there including those paid off and refinanced, the overpayment of interest and perhaps even an overpayment of principal.

This is tricky stuff. You need an expert who understands this article and has some ideas of his/her own. AND you need a lawyer who wants more than to simply justify his/her fee. You want a lawyer, obsessed with winning, and who won’t let go until the other side gives in. Remember these cases rarely if ever go to trial. Once the pretender lender takes you as a credible threat they cannot afford to posture any longer lest they end up in trial where it comes out they never owned or purchased the loan, the investor’s agents were prepaid by insurance, CDS and federal bailouts. Millions of foreclosures preceded you in which title was corrupted by the submission of a credit bid by a stranger (non-creditor to the transaction. The tide is turning — be part of the solution!

The Home Affordable Modification Program (HAMP) was established a few years ago by the Departments of the Treasury and Housing and Urban Development to help homeowners who are underwater avoid foreclosure.

Since 2010, one of HAMP’s programs has been the Principal Reduction Alternative (HAMP-PRA). Borrowers who qualify for the program have their mortgage principal reduced by a predetermined amount (called the PRA forbearance amount).

A borrower qualifies for the HAMP-PRA program only if:

  • the mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac
  • the borrower owes more than the home is worth
  • the house is the borrower’s primary residence
  • the borrower obtained the mortgage before January 1, 2009
  • the borrower’s mortgage payment is more than 31 percent of gross (pre-tax) monthly income.
  • up to $729,750 is owed on the 1st mortgage.
  • the borrower has a financial hardship and is either delinquent or in danger of falling behind
  • the borrower has sufficient, documented income to support the modified payment, and
  • the borrower has not been convicted of a real estate related fraud or felony in the last ten years.

The end goal of the HAMP-PRA program is to reduce the borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines.

Banks Restarting Private Label “Securitizations”

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Comment: As we travel down the road of misguided policy and judicial decisions, the banks are starting up a major effort to sell more mortgage securities under private label, which means that (a) they are not required to register them with the SEC and (b) they will continue to veil the secret movement of money making it more difficult for any borrower to know the identity of the lender in a residential loan transaction, contrary to the requirements of Federal and State laws.

The whole purpose of the Truth in Lending Act was to give the consumer an opportunity to choose between one vendor of loans and another. The banks obliterated that choice in the first round of the mortgage meltdown and you can be sure that the only reason they are doing it again is because they intend to make the same gargantuan “profits” in this second round, so far, at $25 Billion.

One of the reasons why they feel emboldened to do this is because the basic laws have not been changed regarding the definition of a security, which excludes mortgage bonds and the hedges like insurance and credit default swaps, courtesy of laws passed in 1998. Another reason is that the Wall Street club still has enough strength to sell the mortgage bonds through intermediaries who trumpet higher returns for stable funds, which we have all seen went from stable in the layman sense to completely unstable and underfunded. The pension funds that got hit the hardest will be the first ones to announce that the pensioners are not going to get the full amount of their payments because of losses in the fund, vested or not.

The “qualified mortgage” regulations passed by the Federal Agency, which might lose its head literally if Cordray’s appointment remains rejected by the Courts, still have plenty of daylight in them to push through false appraisals and false data on the ability of the borrower to pay, and the viability of the loan over its entire term. The easily projected fall in prices to the values charted by Case-Schiller together with reset provisions on adjustable mortgages and “teaser” rates that could be paid only if the majority of the required payment was added on to the principal due on the mortgage, made the crash inevitable and remains unaddressed by law or regulations.

So despite the 0.1% contraction of the economy in the last quarter of 2012, we have the banks again ramping up to make trillions more while the economy stagnates from lack of oxygen — the money diverted from the economy by the banks whose officers have escaped prosecution and whose antics in corrupting the title system of the all the states, have created massive uncertainty over the end result.

Wall Street is allowed to exist as the engine of growth, stability and confidence in our economy. As intermediaries, they are required to meet the needs of the times in terms of providing capital in a capitalist society. Instead, they have become principals without anyone noticing. And their motive is not to intermediate but to make a profit, taking advantage of every loophole in laws, rules or the enforcement thereof. A receding economy won’t stop the banks from making money as long as they are permitted to lie.

If the economy is contracting, Wall Street activity should be expected to drop as the need for capital declines. Instead we see that over the last 4 years and we will see over the coming four years and beyond, an increase in profits for Wall Street firms which are owned by shareholders and directed by officers whose main goal is to create and enlarge their own wealth.

A lot of this has been made possible by the average citizen who can’t be expected to understand the complexities of finance or the law. Of paramount importance in the process is the shame heaped upon borrowers who are all seen as deadbeats despite all evidence to the contrary. And lastly, all this is possible because of the general assumption, often mistakenly used as a conclusive presumption in court, that the borrower received a loan, didn’t pay it back, therefore is in default and based upon the terms of their contract, their homes are sold at auction to satisfy as much of the debt as possible.

The idea that the money demanded as the balance of principal and interest due might be totally misstated, and that the repayment provisions loan is NOT represented by the note and mortgage (or deed of trust), seems impossible to both borrowers and judicial participants alike. The banks laid a trap in setting up bad paperwork because there was no real paperwork that would actually track the movement of money in bona fide transactions with money exchanging hands. Lawyers and pro se litigants cried foul and yet the foreclosures kept proceeding because the judge figured that the bad behavior of the banks was a separate matter from the “obvious” fact that the borrower took a loan and didn’t repay it.

It’s true that the money arrived at the closing table, but beyond that, there is nothing but misdirection, lies and fraud. The money arrived at the closing table from a source that was never disclosed to the borrower, preventing the borrower from any choice in the matter.

The nominee used to play the part of “lender” was not even allowed to touch the money — Wall Street having determined that some “originators” might find it too tempting to let the tens of millions going through their own account go by without skimming some of it or even taking all of it. Wall Street thought this way because it was what they were doing when they sold the original mortgage bonds.

The money was never put in a trust, as specifically provided for  in the enabling documents which might or might not have legally created a common law trust. The bankers took out as much as 1/2 of the investor money as trading profits when they arranged fictitious sales of actual and fictitious loans to the unfunded trust without consideration. The consideration was passed from investors directly to the investment bank that underwrote the sale of the mortgage bonds.

The balance of the investor money was used for fees and costs that were problematic at their best and then finally the balance was used to fund loans (and bets against the loans) that were completely undocumented in terms of the actual financial transactions that took place. None of the paperwork upon which the banks rely in reporting their assets or enforcing invalid notes and mortgages is supported by any transaction in which the named parties exchanged actual money. Thus none of the paperwork could be considered valid or enforceable (lack of consideration). They can sue but they can’t win if the borrower denies the transaction, the note, the debt, the mortgage and lays claim to false disclosures.

The banks understood this fatal error and thus created massive efforts at robo-signing, surrogate signing, fabrication, forgery, and fraud in supporting the alleged transfer of the loan from a nominee who originated the loan but who never funded the loan, up the false securitization chain. In simple words the mountain of paperwork produced by the banks covers a cup that is empty. There was no money involved in ANY of the transactions from origination through assignments that were offered but could not be accepted because they were specifically prohibited by the PSA and Prospectus.

Lawyers and pro se litigants went down the rabbit hole after the false paperwork leaving the judge with the simple proposition that there was a loan, it wasn’t paid back, and therefore the enforcement provisions apply. Nobody asked WHY there was need for false paperwork. What was the false paperwork hiding?

It was hiding an empty cup in which the borrower signed loan documents and never received a loan pursuant to those documents. The borrower received a loan from other parties whose identity was intentionally concealed, and if the various compensation and profit and fees had been disclosed as required by TILA the borrower would have been alerted tot he fact that half or all of his loan was generating fees, profits and costs either equal to or even more than the loan itself. Even an unsophisticated borrower confronted with these facts would get nervous about a transaction where he knew that the real parties were making excessive profits had this been disclosed as required by law.

Hence our strategy of DENY and DISCOVER, which will be the subject of tonight’s discussion on the member teleconference. If you go after the money first, demanding proof of payment and proof of loss you stand a good chance of knocking out both the filing of the foreclosure and the ability of the forecloser to submit a credit bid — simply because they are not the creditor. By going after the money first, the attack on the paperwork becomes both relevant and corroborative of the principal attack over consideration between the borrower and nominee lender who seemed to be the lender at the closing of the loan.

If you assume all of the above is correct, then it is malpractice for any lawyer to admit the debt, the security, the balance due, the note, the mortgage and the enforceability of the note and mortgage. And it is malpractice for a lawyer doing real estate closings to fail to question title and demand a guarantee of title from a qualified source.

As seen in California this will cause even a non-judicial state to  go judicial in practice because the forecloser has a case to prove and in most cases it can’t because it can never show that it ever took the loan in as a loan receivable — which in accounting, is inevitable because there is no place for an entry debiting a cash or other asset account to make the loan.

The entire loan is off balance sheet and solely appears on the income statement as a fee for service transaction in which the apparent lender was really a nominee for undisclosed parties who promised the real lenders one set of terms in the bogus mortgage bonds and an entirely different set of terms in the note signed by the borrower which was unsupported by consideration.

The bottom line is that the discovery should be directed at all parties who have knowledge of the actual transfer of money and documents, including internal documents. The Master servicer, the investment banker, the Trustee of the so-called trust should all be subpoenaed if necessary to determine what records they have and who handled them. And the principal record you want to see is a copy of a canceled check or wire transfer receipt (and wire transfer instructions).

‘Private Label’ Gains Appeal in Mortgage Market
http://blogs.wsj.com/developments/2013/01/29/private-label-gains-appeal-in-mortgage-market/

Bankers Using Foreclosure Judges to Force Investors into Bad Deals

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“Foreclosure judges don’t realize that they are entering orders and judgments on cases that are not in front of them or in which they have any jurisdiction. Foreclosure Judges are forcing bad loans down the throat of investors when the investor signed an agreement (PSA and prospectus) excluding that from happening. The problem is that most lawyers and pro se litigants don’t know enough to make that argument. The investor bought exclusively “good” loans. Foreclosure judges are shoving bad loans down their throats without notice or an opportunity to be heard. This is a classic case of necessary and indispensable parties being ignored.”

— Neil F Garfield, www.livinglies.me

Editor’s Comment:  About three times per week, something occurs to me about what is going on here and then I figure it out or get the information from someone else. The layers of the onion are endless. But this one is a showstopper. When I started blogging in October 2007 I thought the issue of necessary and indispensable parties John Does 1-1000 and Jane Roes 1-100 were important enough that it would slow if not stop foreclosures. The Does are the pension funds and other investors who thought that they were buying mortgage bonds and the Roes were the dozens of intermediaries in the securitization chain.

Of course we know that the Does never got their bond in most cases, and even if they did they received it issued from a “REMIC” vehicle that wasn’t a REMIC and which did not have any money or bonds before, during or after the transaction. Instead of following the requirements of the Prospectus and Pooling and Servicing Agreement, the investment banker ignored the securitization documents (i.e., the agreement that induced the investor to advance the funds on a forward sale — i.e., sale of something the investment bank didn’t have yet). The money went from the investor into a Superfund escrow account. It is unclear as to whether the gigantic fees were taken out before or after the money went into the Superfund (my guess is that it was before). But one thing is clear — the partnership with other investors far larger than anything disclosed to the investors because the escrow account was from all investors and not for investors in each REMIC, which existed only in the imagination of the CDO manager at the investment bank that cooked this up.

We now know that in all but a scant few cases, the loan was (1) not documented properly in that it identified not the REMIC or the investor as the lender and creditor, but rather a naked straw-man that was a thinly capitalized or bankruptcy remote relationship and (2) the loan that was described in the documentation that the homeowner signed never occurred. The third thing, and the one I wish to elaborate on today, is that even if the note and mortgage were valid (i.e., referred to any actual transaction in which money exchanged hands between the parties to the agreements and documents that borrower signed) they never made it into the “pools” a/k/a REMICs, a/k/a Special Purpose Vehicle (SPV), a/k/a/ Trust (of which there were none according to my research).

The fact that the loan never made it into the pool is what caused all the robo-signing, fabrication of documents, fraudulent documents, forgeries, misrepresentations and corruption of both the title system and the court system. Because if the loan never made it into the pool, the investment banker and all the intermediaries that were used were depending upon a transaction that never took place at the level of the investor, to wit: the loan was not in the pool, the originator didn’t lend the money and therefore was not the lender, and the “mortgage” or “Deed of trust” was useless because it was the tail of a tiger that did not exist — an enforceable note. This left the pools empty and the loan from the Superfund of thousands of investors who thought they were in separate REMICS (b) subject to nothing more than a huge general partnership agreement.

But that left the note and mortgage unenforceable because it should have (a) disclosed the lender and (b) disclosed the terms of the loan known to the lender and the terms of the loan known to the borrower. They didn’t match. The answer was that those loans HAD to be in those pools and Judges HAD to be convinced that this was the case, so we ended up with all those assignments, allonges, endorsements, forgeries, improper notarizations etc. Most Judges were astute enough to understand that the documents were fabricated. But they felt that since the loan was valid, the note was real, the mortgage was enforceable, the issues of where the loan was amounted to internal bookkeeping and they were not about to deliver to borrowers a “free house.”  In a nutshell, most Judges feel that they are not going to let the borrower off scott free just because a document was created or executed improperly.

What Judges did not realize is that they were adjudicating the rights of persons who were not in the room, not in the building, and in fact did not even know the city in which these proceedings were being prosecuted much less the fact that the proceedings even existed. The entry of an order presuming or stating that the loan was in fact in the pool was the Judge’s stamp of approval on a major breach of the Prospectus and pooling and servicing agreement. It forced bad loans down the throat of the investors when their agreement with the investment banker was quite the contrary. In the agreements the cut-off was 90 days after closing and required a fully performing mortgage that was originated utilizing industry standards for due diligence and underwriting. None of those things happened. And each time a Judge enters an order in favor of for example U.S. Bank, as trustee for JP Morgan Chase Bank Trust 1234, the Judge is adjudicating the essential deal between the investor and the investment banker, forcing the investor to accept bad loans at the wrong time.

Forcing the investors to accept bad loans into their pools, probably to the exclusion of the good loans, created a pot of s–t instead of a pot of gold. It isn’t that the investor was not owed money from the investment banker and that the money from the investment banker was supposed to come from borrowers. It is that the pool of actual money sidestepped the REMIC document structure and created a huge general partnership, the governance of which is unknown.

By sidestepping the securitization document structure and the agreements, terms, conditions and provisions therein, the investment banker was able, for his own purposes, to claim ownership of the loans for as long as it took to buy insurance making the investment banker the insured and payee. But the fact is that the investment banker was at all times in an agent/fiduciary relationship with the investor and ALL the proceeds of ALL insurance, Credit Default Swaps, guarantees, and credit enhancements were required to be applied FIRST to the obligation to the investor. In turn the investor, as the real creditor, would have reduced the amount due from the borrower on each residential loan. This means that the accounting from the Master Servicer is essential to knowing the actual amount due, if any, under the original transaction between the borrower and the investors.

Maybe “management” would now be construed as a committee of “trustees” for the REMICs each of whom was given the right to manage at the beginning of the PSA and prospectus and then saw it taken away as one reads further and further into the securitization documents. But regardless of who or what controls the management of the pool or general partnership (majority of partners is my guess) they must be disclosed and they must be represented in each and every foreclosure and Trustees on deeds of trust are creating huge liability for themselves by accepting assignments of bad loans after the cut-off date as evidence of ownership fo the loan. The REMIC lacked the authority to accept the bad loan and it lacked the authority to accept a loan that was assigned after the cutoff date.

Based upon the above, if this isn’t a case where necessary and indispensable parties is the key issue, I do not know of one — and I won the book award in procedure when I was in law school besides practicing trial law for over 30 years.

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Garfield Continuum White Paper Explains Economics of Securitization of Residential Mortgages

SEE The Economics and Incentives of Yield Spread Premiums and Credit Default Swaps

March 23, 2010: Editor’s Note: The YSP/CDS paper is intentionally oversimplified in order to demonstrate the underlying economics of securitization as it was employed in the last decade.

To be clear, there are several things I was required to do in order to simplify the financial structure for presentation that would be understandable. Even so, it takes careful study and putting pencil to paper in order to “get it.”

In any reasonable analysis the securitization scheme was designed to cheat investors and borrowers in their respective positions as creditors and debtors. The method used was deceit, producing (a) an asymmetry of information and (b) a trust relationship wherein the trust was abused by the sellers of the financial instruments being promoted.

So before I get any more comments about it, here are some clarifying comments about my method.

1. The effects of amortization. The future values of the interest paid are overstated in the example and the premiums or commissions are over-stated in real dollars, but correct as they are expressed in percentages.

2. The effects of present values: As stated in the report, the future value of interest paid and the future value of principal received are both over-statements as they would be expressed in dollars today. Accordingly, the premium, commission or profit is correspondingly higher in the example than it would be in real life.

3. The effects of isolating a single loan versus the reality of a pool of loans. The examples used are not meant to convey the impression that any single loan was securitized by itself. Thus the example of the investment and the loan are hypothetical wherein an average jumbo loan is isolated from the pool from one of the lower tranches and an average bond is isolated from a pool of investors, and the isolated the loan is allocated to in part to only one of the many investors who in real life, would actually own it.

The following is the conclusion extracted directly from the white paper:

Based upon the foregoing facts and circumstances, it is apparent that the securitization of mortgages over the last decade has been conducted on false premises, false representations, resulting in intentional and inevitable negative outcomes for the debtors and creditors in virtually every transaction. The clear provisions for damages and other remedies provided under the Truth in Lending Act and Real Estate Settlement Procedures Act are sufficient to make most homeowners whole if they are applied. Since the level 2 yield spread premium (resulting from the difference in money advanced by the creditor (investor) and the money funded for mortgages) also give rise to claim from investors, it will be up to the courts how to apportion the the actual money damages. Examination of most loans that were securitized indicates that they are more than offset by undisclosed profits, kickbacks, fees, premiums, and rebates. The balance of “damages” due under applicable federal lending and securities laws will require judicial intervention to determine apportionment between debtors and creditors.

Liability of Participants in Securitization Chain

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

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

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

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

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

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

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

February 27, 2010

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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