Servicer Advances: More Smoke and Mirrors

Several people are issuing statements about servicer advances, now that they are known. They fall into the category of payments made to the creditor-investors, which means that the creditor on the original loan, or its successor is getting paid regardless of whether the borrower has paid or not. The Steinberger decision in Arizona and other decisions around the country clearly state that if the creditor has been paid, the amount of the payment must be deducted from the amount allegedly owed by the “borrower” (even if the the borrower doesn’t know the identity of the creditor).

The significance of servicer advances has not escaped Judges and lawyers. If the payment has been made and continues to be made, how can anyone declare a default on the part of the creditor? They can’t. And if the payment has been made, then the notice of default, the end of month statements, the notice of acceleration and the amount demanded in foreclosure are all wrong by definition. The tricky part is that the banks are once again lying to everyone about this.

One writer opined either innocently or at the behest of the banks that the servicers were incentivized to modify the loans to get out of the requirement of making servicer advances. He ignores the fact that the provision in the pooling and servicing agreement is voluntary. And he ignores the fact that even if there is a claim for having made the payment instead of the borrower, it is the servicer’s claim not the lender’s claim. That means the servicer must bring a claim for contribution or unjust enrichment or some other legal theory in its own name. But they can’t because they didn’t really advance the money. Anyone who has experience with modification knows that the servicers make it very difficult even to apply for a modification.

Once again the propaganda is presumed to be true. What the author is missing is that there is no incentive for the Servicer to agree to make the payments in the first place. And they don’t. You can call them Servicer advances but that does not mean the money came from the Servicer. The prospectus clearly states that a reserve pool will be established. Usually they ignore the existence of the REMIC trust on this provision like they do with everything else. The broker dealer (investment banker) is always the one party who directly or indirectly is in complete control over the funds of investors.
Like the loan closing the source of funds is concealed. The Servicer issues a distribution report with disclaimers as to authenticity, accuracy etc. That report gets to the investor probably through an investment bank. The actual payment of money comes from the reserve pool made out of investor’s funds. The prospectus says that the investor can be paid out of his own funds. And that is exactly what they do. If the Servicer was actually taking its own money to make payments under the category of Servicer advances, the author would be correct.
The Servicer is incentivized by two factors — its allegiance to the broker dealer and the receipt of fees. They get paid for everything they do, including their role of deception as to Servicer advances.
When you are dealing with smoke and mirrors, look away from the mirror and walk through the smoke. There, in all its glory, is the truth. The only reason Servicer advances are phrased as voluntary is because the broker dealer wants to make the payments every month in order to convince the fund manager that they should buy more mortgage bonds. They want to be able to stop when the house of cards falls down.

Who Has the Power to Execute a Satisfaction and Release of Mortgage?

 The answer to that question is that probably nobody has the right to execute a satisfaction of mortgage. That is why the mortgage deed needs to be nullified. In the typical situation the money was taken from investors and instead of using it to fund the REMIC trust, the broker-dealer used it as their own money and funded the origination or acquisition of loans that did not qualify under the terms proposed in the prospectus given to investors. Since the money came from investors either way (regardless of whether their money was put into the trust) the creditor is that group of investors. Instead, neither the investors or even the originator received the original note at the “closing” because neither one had any legal interest in the note. Thus neither one had any interest in the mortgage despite the fact that the nominee at closing was named as “lender.”

This is why so many cases get settled after the borrower aggressively seeks discovery.

The name of the lender on the note and the mortgage was often some other entity used as a bankruptcy remote vehicle for the broker-dealer, who for purposes of trading and insurance represented themselves to be the owner of the loans and mortgage bonds that purportedly derive their value from the loans. Neither representation was true. And the execution of fabricated, forged and unauthorized assignments or endorsements does not mean that there is any underlying business transaction with offer, acceptance and consideration. Hence, when a Court order is entered requiring that the parties claiming rights under the note and mortgage prove their claim by showing the money trail, the case is dropped or settled under seal of confidentiality.

The essential problem for enforcement of a note and mortgage in this scenario is that there are two deals, not one. In the first deal the investors agreed to lend money based upon a promise to pay from a trust that was never funded, has no assets and has no income. In the second deal the borrower promises to pay an entity that never loaned any money, which means that they were not the lender and should not have been put on the mortgage or note.

Since the originator is an agent of the broker-dealer who was not acting within the course and scope of their relationship with the investors, it cannot be said that the originator was a nominee for the investors. It isn’t legal either. TILA requires disclosure of all parties to the deal and all compensation. The two deals were never combined at either level. The investor/lenders were never made privy to the real terms of the mortgages that violated the terms of the prospectus and the borrower was not privy to the terms of repayment from the Trust to the investors and all the fees that went with the creation of multiple co-obligors where there had only been one in the borrower’s “closing.”.

The identity of the lender was intentionally obfuscated. The identity of the borrower was also intentionally obfuscated. Neither party would have completed the deal in most cases if they had actually known what was going on. The lender would have objected not only to the underwriting standards but also because their interest was not protected by a note and mortgage. The borrower  would have been alerted to the fact that huge fees were being taken along the false securitization trail. The purpose of TILA is to avoid that scenario, to wit: borrower should have a choice as to the parties with whom he does business. Those high feelings would have alerted the borrower to seek an alternative loan elsewhere with less interest and greater security of title —  or not do the deal at all because the loan should never have been underwritten or approved.

Glaski Court refuses to “depublish” decision, two judges recuse themselves.

Corroborating what I have been saying for years on this blog, the Supreme Court of the state of California is reasserting its position that if entity ABC wants to collect on a debt in California, then that particular entity must own the debt. This is basic common sense and simply follows article 9 of the Uniform Commercial Code. If a court were to adopt the position of the banks, then a new industry would be born, to wit: spying on people to determine whether or not they are behind on any payment to anyone and then beating the real creditor to court, filing a complaint and getting a judgment without the real creditor even knowing about it. The Supreme Court of the state of California obviously understands this.

This is not really complicated although the words used are complicated. If you find out that your neighbor is behind in payments on their credit cards, it is obvious that you cannot serve your neighbor and collect. You don’t own the debt because you never loaned any money and because you never purchased the debt. If you are allowed to sue and collect on the credit card debt, you and the court would be committing a fraud on the actual creditor. This is why it is absurd for lawyers or judges to say “what difference does it make who they owe the debt to?  They stopped making payments and they are clearly in default.”  Any lawyer or judge makes that statement is wrong. It lacks the foundation of the factual determinations required to establish the existence of the debt, the current balance of the debt after deductions for all payments received from all parties on this account, and the ownership of the debt.

In the first year of law school, we learned that the note is not the debt.  The note is evidence of the debt and the terms of repayment but it is not a substitute for the actual transaction documents. Those transaction documents would have to include proof of transfer of consideration, which in this case would mean wire transfer receipts and wire transfer instructions. The banks don’t want to show the court this because it will show that the originator in most cases never made any loan at all and was merely serving as a sham nominee for an undisclosed lender. The banks are attempting to use this confusion to make themselves real parties in interest when in fact they were never more than intermediaries. And as intermediaries that misused their positions of trust to misrepresent and create fraudulent “mortgage bond” transactions with investors that led to fraudulent loans being made to borrowers.

The banks diverted or stole money from investors on several different levels through multiple channels of conduit sham entities that they called “bankruptcy remote vehicles.” The argument of “too big to fail” is now being rejected by the courts. That is a policy argument for the legislative branch of government. While the bank succeeded in scaring the executive and legislative branches into believing the risk of “too big to fail” most of the people in the legislative and executive branches of government on the federal and state level no longer subscribe to this myth.

There are dozens of other courts on the trial and appellate level across the country that are also grasping this issue. The position of the banks, which is been rejected by Congress and the state legislatures for good reason, would mean  the end of negotiable paper. The banks are desperate because they know they are not the owner of the debt, they are not the creditor, they have no authority to represent the creditor, and their actions are contrary to the interests of the creditor. They are pushing millions of homeowners into foreclosure, or luring them into an apparent default and foreclosure with false promises of modification and settlement.

The reason is simple. Without a foreclosure sale at auction, the banks are exposed to an enormous liability for all the money they collected on the alleged defaulted loans. The amount of the liability is vastly in excess of the entire principal of the loans, which is why I say that the major banks are publishing financial statements that are based on fictitious assets and fictitious income. Nobody can ignore the fact that the broker-dealers (investment banks) are getting sued by investors, insurers, counterparties on credit default swaps, government agencies who have already paid for alleged “losses”, and government agencies that have paid on guarantees for mortgages that did not conform to the required industry-standard underwriting practice.

This latest decision in which the Glaski court, at the request of the banks, revisited its prior decision and then reaffirmed it as a law of the land in the state of California, is evidence that the courts are turning the corner in favor of the real creditors and the real debtors. The recusal by two judges on the California Supreme Court is interesting but at this point there are no conclusions that can be drawn from that.

This opens the door in the state of California for people to regain title to their property or damages for the loss of title. It also serves to open the door to discovery of the actual money trail in order to trace real transactions as opposed to fictitious ones based upon fabricated documentation which often contain forgery, backdating, and are signed by people without authority or people claiming authority through a fictitious power of attorney.

Glaski Court Reaffirms Law of the Land In California: If you don’t own the debt, you cannot collect on it.

Theory vs Fact and What to do About It in Court

NOTICE: The information contained on this blog is based upon fact when stated as fact and theory when stated as theory. We are well aware that the facts presented on this blog are contrary to the facts as presented by mainstream media,  the executive branch of government and even the judicial branch of government.  We do not consider anything to be fact unless it is corroborated in at least three ways.  Some of the information is based upon extensive interviews with industry insiders who have shared information based upon a promise of anonymity. Some of the information is based upon intensive research into specific companies and specific people including the hiring of investigative services. Some of the information is based upon personal knowledge of Neil Garfield during his tenure on Wall Street and in his investment banking activities related to the trading of commercial and residential real estate. All fact patterns presented as true in this blog are additionally subjected to the test of logic and the presence or absence of a contrary explanation.

THE TRUE NARRATIVE OF SECURITIZATION

Think about it. When the bond sells or is repurchased, what happens to the loans. The bond “derives” its value from the loans (hence “derivative”). So if you sell the bond you have sold a share of the underlying loans, right? Wrong — but only wrong if you believe the spin from Wall Street, and the Federal Reserve cover for quantitative easing (expansion of the money supply not required by demand caused by increased economic activity). Otherwise you would be entirely correct.

If you buy a share of General Motors you can’t claim direct ownership over the cars and equipment. That is because GM is a corporation. A corporation is a valid “legal fiction”. When you create a corporation you are creating a legal person. Now let’s suppose you give your broker the money to buy a share of General Motors, does that give the broker to claim ownership over your investment? Of course not — with one major glaring exception. The exception is that securities are often held in”street name” rather than titled to you as the buyer. You can always demand that the stock certificate be issued in your name, but if you don’t then it will be held in the name of the brokerage house that executed the transaction for you. So on paper it looks like the share of GM is titled to the brokerage house and not you. It is standard practice and there is nothing wrong with it in theory until you take away accountability for malfeasance.

Before brokers were allowed to incorporate, the owners or partners were individually liable for everything that happened in the brokerage company. So they were not likely to claim your security held in street name as their own. In fact, the paper crash in the late 19060’s was directly related to the fact that the securities held in street name did not match up with the statements of investors who had accounts with the brokerage houses who screwed up the paperwork so badly, that some firms crashed and to this day there are unresolved certificates in which the identity of the actual owner is unknown.

And if they sold your share of GM, the proceeds were supposed to be yours. In the yesteryear of Wall Street rules they would only execute a sell of your share of GM if you ordered it. It can be fairly stated that the reason why the financial system broke down is that brokers had nothing stopping them from claiming ownership over the investors money (thus stealing both the money and the identity of the investor) and nothing stopping them from claiming ownership over a loan that was issued by a borrower and used by the broker to sell, trade and profit from exotic securities using the investors’ money without accounting to either the investor or the borrower (or the regulators) of the details of such trades.

Today it is still supposed to be true that the brokers are “honest” intermediaries just like your commercial bank that handles your checking account, but as it turns out neither the investment banks nor the commercial bank have a culture of caring for or about their customers or depositors. The system has broken down.

And so the moral hazard of having corporations managed by officers who are not likely to go to jail or go bankrupt when the system of gambling with customer money goes bad, they suffer nothing. They get paid bonuses for any upside event but they never feel the pain when things go bad. Back “in the day” there were three things stopping bankers from defrauding the public: personal responsibility, agency regulation and industry pressure from peers who feared the public would stop doing business with them if it became known that their deposits were being “managed” in ways most people could not be true.

Now we can return to the question of what is the legal result of a transfer of a mortgage backed bond. You have given the brokerage house the money to buy the bond (let’s say you are a pension fund). The brokerage house should have given your money to the “legal person” that issues or owns the bond. So if you are the first buyer of the bond, then the money should go to the trustee of the New York common law trust (REMIC) that issues the bond to you — except that it is in reality issued in “street name” — I.e., in the name of the brokerage house. This is contrary to the intent of the prospectus and PSA given to investors but it is left intentionally vague as to  whether this path is legally mandated. The courts are all caught up in the paperwork instead of looking at the actual transactions and matching those transactions with common law principles that have been presumptively true for centuries.

The 1998 law exempts mortgage back bonds from being called securities so it could be argued that they should not be issued in street name, a process applicable to securities trading. Without the devices of “Selling Forward” (selling what you don’t have — yet) and issuing ownership in “Street name” it would have been very difficult for any of this mayhem to have grown to such pornographic proportions.

NOW HERE IS WHERE THE CRIME STARTED: No trust agreement was ever created, so this gave the bankers wiggle room in case they wanted to avoid trust law. The creation of the trust is said to be in the PSA and prospectus and one could be implied from the wording, but it is difficult in plain language to confirm the intent to create a trust. Nonetheless it became part of Wall Street parlance to refer tot he special purpose vehicles qualifying for special tax treatment under REMIC statutes as “trusts.”

No bond was issued in most cases. The bond issued by the “trust” in reality was merely notated on the books of the investment banking brokerage. Nearly all bonds therefore have no paper certificate even available (called non certificated). The “private label” bonds are so full of legal holes that they could not hold air, much less water.

No money was given to the trustee or the trust. No assets were deposited into the trust. The trust never acquired or originated any loans because it didn’t pay for them. It didn’t pay for them because it had no money to pay for them. The money you gave to purchase a bond never went to the trustee or the trust. In fact the trustee failed to start a file on your “trust” and therefore never assigned it to their trust department. The trustee also never started a depository account for the trust. It would have been named “XYZ Bank in trust for ABC trust”. That never happened except when they were piloting the scheme that become the largest Economic crime in human history.

Banks diverted your money from the trust into their own pockets. Without telling you, they put the money into a commingled undifferentiated account. The notation was made that the investor was credited with the purchase of one bond but the bond was never issued and the trust didn’t get the money so there was no deal or transaction between you and the trust. You gave the brokerage firm your money for the bond but you never got the bond. The issuance of the bond from the trust was a fiction perpetrated by the brokerage house. Since neither the trustee nor the trust had any records nor an account where your money could be deposited, it never came into legal existence, but more importantly it lacked the funds to buy or originate residential mortgage loans.

Money was controlled by the investment banks, not the trusts or the trustees. That money was sitting in the the brokerage account along with thousands of investors who thought they were buying millions of bonds in thousands of trusts. Having voluntarily ignored the existence of the allegedly existing trust, it doesn’t matter whether the trust did or did not exist because it was never funded and therefore was a nullity. In reality, the investors were not owners of a trust or beneficiaries of a trust, they were common law general partners in a scheme that rocked the world.

From the start the money chain never matched the paperwork. The brokerage house wired money to the depository account (checking account) of the closing agent (usually a title agent) “on the ground” who also received closing papers from Great Loans, Inc. (not a real name, but represents the “originators” as they came to be called whose name showed up on all the settlement papers and disclosures required for a real estate closing with a “lender). The payee on the note and the mortgagee on the mortgage was named “lender” even though they had never made a loan.

Donald Duck was your lender. The entire lender side of the closing was fictitious. The originators were not just naked nominees, they were fictitious nominees for a fictitious lender who was never disclosed. Under Reg Z and TILA this is a “table funded loan” and it is illegal because the borrower, by law, is required to be given information about the identity of his lender and all the fees, commissions and other compensation paid to various parties.

The investment bank owes the borrower all of its compensation, plus treble damages, attorney fees and costs. A table funded loan is one in which the borrower is deprived of the choice guaranteed by the Federal Truth in Lending Act. It is defined as “predatory per se” which means that all you need to show is that the closing parties, including the closing agent, engaged in a pattern of conduct in which the identity of the real lender was withheld.

Terms of payment and repayment were never disclosed to the lenders and never disclosed to the borrowers. The borrower is also supposed to know, as part of the disclosures of compensation, the terms of repayment. In this case the prospectus and PSA disclose a repayment scheme that makes you, the investor, a co-obligor on repaying your own investment. This is because the terms of the “bond” clearly state that the brokerage house can pay the interest or principal on your investment out of your own funds. That provision is used by the FBI in thousands of PONZI scheme investigations as a red flag for the presence of fraud.

The Terms of the loan were never disclosed to the investor or the buyer. The behavior of the banks can only be considered as legal or excusable if the enabling language existed to allow trading using your money as an investor/depositor/lender. The behavior of the banks does not match up with either the paper trail or the money trail of actual transactions.

AND HERE IS WHERE IT GETS INTERESTING. The closing agent knows they got money not from the originator and not even from the party that later claims to have made the loan. But they go ahead anyway, issue worthless title insurance, and they close the loan, distributing money as stated in the closing settlement papers; but what is not disclosed in the closing settlement papers is that the terms of repayment for the bond are different from the terms of repayment on the note. And another thing not disclosed is what happened to your money that was supposedly invested in the purchase of a bond payable by a “trust” that didn’t have the money to originate or acquire loans because the brokerage house never tendered it to the trust. The trustee knew it was playing a part in a fictional play and the only thing they were interested in was getting their paycheck for pretending to be the trustee, when in fact there was no trust account, no trust assets, and no bond actually issued by the trust.

The Secret Yield Spread Premium in which the banks stole part of your money when you gave them money to buy into mortgage bundles immediately reduced the amount invested to a level that guaranteed that you would never be repaid. Many different types of loans were made this way. In fact, 96% of all loans made during the mortgage meltdown period were initiated this way. The brokerage house had an affiliated company that was called an aggregator. The aggregator would collect up all the loans that were REPORTEDLY closed, whether they really closed or not. This information came from the loan originator who in effect was billing for services rendered: pretending to be a lender at a closing I which it had no interest. The collection of loans included as many toxic loans as could be found because on average, the collection of loans would have a higher expected interest rate than without the toxic loans. Toxic loans (loans that are known will die in default) carry a very high rate of interest even if the first payment is a teaser payment of one-tenth the amount of the actual augment of principal and interest that would ordinarily apply, and which was applied later when the loans were foreclosed.

The undisclosed yield spread premium is certainly due back to the borrower with treble damages under current law. An investment carrying a higher rate of return usually is worth more on the open market than one with a lower rate of return — assuming the risk on both is comparable. The brokerage house managed to use its influence and money to get the rating agencies to say that these collections of mortgages (bundles) were “investment grade” securities (forgetting that the 1998 law exempted these bonds as “securities”). So for example, let’s take your investment and see what happened. The brokerage house pretended to report that your money had gone into the trust which we already know did not happen. The interest rate of return you were expecting from the highest grade “investment securities” was lower than the average rate of return on investments on average. After all you knew the risk was zero, so the return is lower.

PLAIN LANGUAGE: Brokers took a part of your investment money and created a fictitious transaction in which they always made a large profit (15%-30%). The brokerage house took the bundle of loans created by the aggregator with an inflated rate of return caused by including toxic mortgages with 15% interest rates, and SOLD those loans to itself in “street name” for fair market value which was inflated because of the toxic loans being part of the package. Yes, that is right. The brokerage house created a fictional transaction in which it pretended the bonds were issued and then sold the bundle of mortgages at a fictions profit. They sold the mortgages to themselves and then booked the transaction as a “proprietary trading” profit which is one of many pieces of compensation that was never disclosed to the borrower.

Under law that compensation is due back to the borrower along with treble damages, interest, and all other payments plus attorney fees and costs. The proprietary trading profit reported by the banks was fictional just as all the other elements of the transaction were fictional. It is called a yield spread premium which is the difference in the fair market value of the same loan at two different interest rates. YSPs are common at ground level with the borrower and his mortgage broker etc., but never before present in any large scale operation up at the lender level, where you are, since you have given the brokerage house money to execute a transaction, to wit: purchase mortgage backed bond from a particular trust.

WHAT HAPPENED TO TITLE? It was defective from the start. Neither the originator nor MERS or anyone else had an actual interest in the proceeds of payments on that mortgage. They were just play-acting. But here in the real world they got away with playing with real money (so far). If your money had gone into the trust with the trustee managing the trust assets (because there were trust assets), then the name of the trust should have been placed on the note as payee because the trust made the loan. And the name of the trust should have been on the mortgage as mortgagee or beneficiary under a deed of trust because the trust made the loan. Instead, the brokerage firms set up an elaborate maze of companies under cover or sponsorship from the big banks all pretending to be trading a loan for which both the note and mortgage were known to be defective.

And then the banks claimed to have taken a loss on the bonds (never issued to begin with) for which they were richly rewarded by receiving payments of insurance and credit default swaps, bailout and of course the Federal Reserve program of buying $85 billion PER MONTH in bonds that the Board of Governors knows were never issued from a trust that never existed. And instead of giving you your money back with interest they said “see, there is the huge loss on these bonds and the underlying loans” and they to,d you to eat the loss. But you responded with “Hey. I gave you money to buy those bonds. You were my agent. I don’t care how complex the exotic maze, if you were the agent who took my money then you were the agent who diverted my money and then said it is all the same thing. You brokers owe me my money back.

Meanwhile the aggregators who are really the same brokerage companies are being sued by Fannie, Freddie, investors and other state and federal agencies for selling worthless paper whose value dropped to pennies on the dollar despite the value of the underlying mortgages. And the aggregators are being forced to buy back the crap they sold. So we have the trust, the trustee and you, the investor who never had any investment of value, and the instrument you were supposed to get (mortgage backed bonds) paid off in a dozen different ways.

Which leaves you with the question of every investor in these bogus bonds. What is the value or even the utility of a worthless bond which even if it had been real, has already been aid off? How can the note provisions survive to be enforced on a debt that has been paid off several times over? Why are courts allowing lawsuits, including Foreclosures, on bogus claims where the creditor, the alleged lender, and the alleged trustee of the issuer have no interest in the outcome of litigation and have given warning to all Servicers NOT to use their names in the foreclosure suits — because they have no trust account, they have no account receivable, they have no bond receivable and they have no note receivable?

And why are the courts ignoring the fact that even if the bonds were real, the Federal Reserve now owns most of them. The short answer is that nothing happens to the bond or the loan because they were never connected the way they were supposed to be. The signature of the borrower did not give rise to any debt. The loan from the brokerage house did not give rise to any debt because the broker got paid. And if the principal debt was extinguished at the loan closing (most cases) or after the loan closing, there is no amount due. And even if the insurance and other payments were not enough to any off the loans, the receipt of even one nickel should have reduced the amount due to you the investor and you would have expected a nickel less from the borrower.

HBC,FNMA.OB,FMCC.OB,BAC,JPM,

RBS | Tue, Aug 6

HSBC faces $1.6B payout over mortgage bonds    • HSBC (HBC) faces having to pay $1.6B in a lawsuit from the Federal Housing Finance Agency over soured mortgage bonds that the bank sold to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB). The bank made the disclosure yesterday.    • The figure is well above the $900M that analysts at Credit Suisse had estimated.    • In total the FHFA has sued 18 banks over mortgage bonds; should HSBC’s calculations for its liabilities be applied to some of the defendants with the largest exposure, including Bank of America (BAC), JPMorgan (JPM) and RBS (RBS), they would have to pay over $7B each. Should these banks make payments in proportion with a recent UBS deal, the bill would above $4B.

Full Story: http://seekingalpha.com/currents/post/1194872?source=ipadportfolioapp

Prommis Holdings LLC Files for Bankruptcy Protection

I have not followed Prommis Holdings closely but I can recall that some people have sent in reports that Prommis was the named creditor in some foreclosure proceedings. The reason I am posting this is because the bankruptcy filings including the statement of affairs will probably give some important clues to the real money story on those mortgages where Prommis was involved. I’m sure you will not find the loan receivables account that are mysteriously absent from virtually all such filings and FDIC resolutions.

And remember that when the petition for bankruptcy is filed it must include a look-back period during which any assignments or transfers must be disclosed. So there is a very narrow window in which the petitioner could even claim ownership of the loan with or without any fabricated evidence.

US Trustees in bankruptcy are making a mistake when they do not pay attention to alleged assignments executed AFTER the petition was filed and sometimes AFTER the plan is confirmed or the company is liquidated. Such an assignment would indicate that either the petitioner lied about its assets or was committing fraud in executing the assignment — particularly without the US Trustee’s consent and joinder.

The Courts are making the same mistake if they accept such an assignment that does not have US Trustees consent and joinder, besides the usual mistake of not recognizing that the petitioner never had a stake in the loan to begin with. The same logic applies to receivership created by court order, the FDIC or any other “estate” created.

That would indicate, as I have been saying all along, that the origination and transfer paperwork is nothing more than paper and tells the story of fictitious transactions, to wit: that someone “bought” the loan. Upon examination of the money trail and demanding wire transfer receipts or canceled checks it is doubtful that you find any consideration paid for any transfer and in most cases you won’t find any consideration for even the origination of the loan.

Think of it this way: if you were the investor who advanced money to the underwriter (investment bank) who then sent the investor’s funds down to a closing agent to pay for the loan, whose name would you want to be on the note and mortgage? Who is the creditor? YOU! But that isn’t what happened and there is nothing the banks can do and no amount of paperwork can cover up the fact that there was consideration transferred exactly once in the origination and transfer of the loans — when the investors put up the money which the investment bank acting as intermediary sent to the closing agent.

The fact that the closing documents and transfer documents do not show the investors as the creditors is incompatible with the realities of the money trail. Thus the documents were fabricated and any signature procured by the parties from the alleged borrower was procured by fraud and deceit — causing an immediate cloud on title.

At the end of the day, the intermediaries must answer one simple question: why didn’t you put the investors’ name or the trust name on the note and mortgage or a “valid” assignment when the loan was made and within the 90 day window prescribed by the REMIC statutes of the Internal Revenue Code and the Pooling and Servicing Agreement? Nobody would want or allow someone else’s name on the note or mortgage that they funded. So why did it happen? The answer must be that the intermediaries were all breaching every conceivable duty to the investors and the borrowers in their quest for higher profits by claiming the loans to be owned by the intermediaries, most of whom were not even handling the money as a conduit.

By creating the illusion of ownership, these intermediaries diverted insurance mitigation payments from investors and diverted credit default swap mitigation payments from the investors. These intermediaries owe the investors AND the borrowers the money they took as undisclosed compensation that was unjustly diverted, with the risk of loss being left solely on the investors and the borrowers.

That is an account payable to the investor which means that the accounts receivables they have are off-set and should be off-set by actual payment of those fees. If they fail to get that money it is not any fault of the borrower. The off-set to the receivables from the borrowers caused by the receivables from the intermediaries for loss mitigation payments reduces the balance due from the borrower by simple arithmetic. No “forgiveness” is necessary. And THAT is why it is so important to focus almost exclusively on the actual trail of money — who paid what to whom and when and how much.

And all of that means that the notice of default, notice of sale, foreclosure lawsuit, and demand for payments are all wrong. This is not just a technical issue — it runs to the heart of the false securitization scheme that covered over the PONZI scheme cooked up on Wall Street. The consensus on this has been skewed by the failure of the Justice department to act; but Holder explained that saying that it was a conscious decision not to prosecute because of the damaging effects on the economy if the country’s main banks were all found guilty of criminal fraud.

You can’t do anything about the Holder’s decision to prosecute but that doesn’t mean that the facts, strategy and logic presented here cannot be used to gain traction. Just keep your eye on the ball and start with the money trail and show what documents SHOULD have been produced and what they SHOULD have said and then compare it with what WAS produced and you’ll have defeated the foreclosure. This is done through discovery and the presumptions that arise when a party refuses to comply. They are not going to admit anytime soon that what I have said in this article is true. But the Judges are not stupid. If you show a clear path to the Judge that supports your discovery demands, coupled with your denial of all essential elements of the foreclosure, and you persist relentlessly, you are going to get traction.

Screw the Pooch!!??

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Editor’s Comment:

Do some research, think about what you know and what you need to know. Come to my seminar or any seminar on securitization and you will understand the significance. Naked short-selling is the same as selling forward. In both cases you sell to an “investor” something where you have no asset and no money to back it up. You take the money from the investor and use it pretty much any way you like and account for it as “trading profits.” Then you take what is left and you create the illusion of transactions when in fact the documents refer to a virtual transaction in which the parties were different than those described on the closing documents and the terms of repayment of the loan are different than the terms disclosed to either the  investor or the borrower.

This sort of thing is unfathomable to most people, except those who spent a lot of time on Wall Street or doing Wall Street-type things, which is an adequate description of my background. If you sold a car to someone when you didn’t have the car or the money to buy it and then you took the money and put part of it in your pocket as your fee and then went out and bought a junker, you might be charged with civil or criminal fraud. Don’t you think? But on Wall Street these behaviors are permitted in the name of increasing liquidity.

What a country!

Joe Floren Screws the Pooch

by Patrick Byrne

The first time I heard Joe Floren speak I was standing behind him in an elevator in his law firm’s San Francisco office tower  as another lawyer informed him that the subpoena Joe Floren had served the previous day on a colleague of mine had reached her in the hospital, after a difficult delivery of her first child, while she was breastfeeding for the first time.

“Really? That’s beautiful. I love it!” He replied with glee.

Joseph E. Floren, Esq., is a lawyer at Morgan Lewis, the white shoe law firm defending Goldman Sachs against Overstock’s prime broker litigation, and tonight I celebrate the mistake Joe Floren made yesterday.  In filing Goldman’s response to Overstock’s motion to vacate the trial court judge’s decision to stay his own decision to unseal various documents related to this litigation (in more straightforward English: the trial court judge decided to unseal some documents while also deciding to delay acting on his decision, but we objected to this delay, and Goldman responded to our objections), Joe Floren screwed the pooch. He filed something containing an attachment he forgot to redact. That attachment is a previous filing of Overstock’s, a filing which contains but a sample of the shenanigans at Goldman and Merrill that has turned up over the course of five years and millions of pages of discovery, but which filing we had redacted when we made it (as good litigants do).

Fortunately for the cause of all that is good and right about America, Joe Floren’s goof came to the attention of a diligent 1st amendment attorney in California named Karl Olson, who represents the Economist, Bloomberg, the New York Times and Wener Publications (owners of Rolling Stone magazine) in their efforts to obtain the documents.  Karl Olson provided Joe Floren’s sloppy filing to his clients. Tonight these stories appeared:

Rolling Stone: Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling’

Bloomberg: Goldman, Merrill E-Mails Show Naked Shorting, Filing Says

Economist: An enlightening mistake

Really, Joe Floren?  That’s beautiful.  I love it.

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Tax Preparer Slammed with $24 Million in Fines on Toxic Mortgages

Editor’s Comment:  You really have to think about some of these stories and what they mean. 

1. Where is the synergy in a merger between Option One and H&R Block? The answers that they were both performing services for fees and neither one was ever a banker, lender or even investor sourcing the funds that were used to lure borrowers into deals that were so convoluted that even Alan Greenspan admits he didn’t understand them.

2. The charge is that they didn’t reveal that they could not buy back all the bad mortgages — meaning they did buy back some of them. which ones? And were some of those mortgages foreclosed in the name of a stranger to the transaction? WORSE YET — how many satisfactions of mortgages were executed by Ocwen, which was not the creditor, never the lender, and never the successor to any creditor. Follow the money trail. The only trail that exists is the trail leading from the investor’s banks accounts into the escrow agent’s trust account with instructions to refund any excess to parties who were complete strangers to the transaction disclosed to the borrower. The intermediary account in which the investor money was deposited was used to pay pornographic fees and profits to the investment banker and close affiliates as “participants” in a scheme of ” securitization” that never took place.

3. Under what terms were the loans purchased? Was it the note, the mortgage or the obligation? There are differences between all three.

4. Since they didn’t have the money to buy back the loans it might be inferred that they never had that money. In other words, they appeared on the “closing papers” as lender when in fact they never had the money to loan and they merely had performed a fee for service — I.e., acting as though they were the lender when they were not.

5. Who was the lender? If the money came from investors, then we know how to identify the creditor. but if we assume that the loan might have been paid or purchased by Option One, then isn’t the lender’s obligation paid? let’s see those actual repurchase transactions.

6. If that isn’t right then Option One must be correctly identified as the lender on the note and mortgage even though they never loaned any money and may or may not have purchased the entire loan, just the receivable, the right to sell the property — but how does anyone purchase the right to submit a credit bid at the foreclosure auction when everyone knows they were not the creditor?

7. How could any of these entities have any loans on their books when they were never the source of funds and why are they being allowed to claim losses obviously fell on the investors who put up the money on toxic mortgages believing them to be triple A rated. 

8. Why would anyone underwrite a bad deal unless they knew they would not lose any money? These mortgages were bad mortgages that under normal circumstances would never have been  offered by any bank loaning its own money or the it’s depositors. 

9. The terms of the deal MUST have been that nobody except the investors loses money on this deal and the kickers is that the investors appear to have waived their right to foreclose. 

10. So the thieves who cooked up this deal get paid for creating it and then end up with the house because the befuddled borrower doesn’t realise that either the debts are paid (at least the one secured by the mortgage) or that the debt has been paid down under terms of the loan (see PSA et al) that were never disclosed to the borrower — contrary to TILA.

11. The Courts must understand that there is a difference between paying a debt and buying the debt. The Courts must require any “assignment” to be tested b discovery where the money trail can be examined. What they will discover is that there is no money trail and that the assignment was a sham.  

12. And if the origination documents show the wrong creditor and fail disclose the true fees and profits of all parties identified with the transaction, the documents — note, mortgage and settlement statements are fatally defective and cannot create a perfected lien without overturning centuries of common law, statutory law and regulations governing the banking and lending industries.

H&R Block Unit Pays $28.2M to Settle SEC Claims Regarding Sale of Subprime Mortgages

By Kansas City Business Journal

H&R Block Inc. subsidiary Option One Mortgage Corp. agreed to pay $28.2 million to settle Securities and Exchange Commission    charges that it had misled investors, federal officials announced Tuesday.

The SEC alleged that Option One promised to repurchase or replace residential mortgage-backed securities it sold in 2007 that breached representations and warranties. The subsidiary did not disclose that its financial situation had degraded such that it could not fulfill its repurchase promises.

Robert Khuzami, director of the SEC’s Division of Enforcement, said in a release that Option One’s subprime mortgage business was hit hard by the collapse of the housing market.

“The company nonetheless concealed from investors that its perilous finances created risk that it would not be able to fulfill its duties to repurchase or replace faulty mortgages in its (residential mortgage-backed securities) portfolios,” Khuzami said in the release.

The SEC said Option One was one of the nation’s largest subprime mortgage lenders, with originations of $40 billion in its 2006 fiscal year. When the housing market began to decline in 2006, the unit was faced with falling revenue and hundreds of millions of dollars’ worth of margin calls from creditors.

Parent company H&R Block (NYSE: HRB) provided financing for Option One to meet margin calls and repurchase obligations, but Block was not obligated to do so. Option One did not disclose this reliance to investors.

Option One, now Sand Canyon Corp., did not admit or deny the allegations. It agreed to pay disgorgement of $14.25 million, prejudgment interest of nearly $4 million and a penalty of $10 million.

Kansas City-based H&R Block reported that it still had $430.19 million of mortgage loans on its books from Option One as of Jan. 31. That’s down 16.2 percent from the same period the previous year.

TITLE AND SECURITIZATION ANALYSIS

I HAD A QUESTION FROM ONE OF OUR BLOG READER-CUSTOMERS AND I REALIZED EVERYONE SHOULD SEE THE ANSWER.

Chris: Your question is a smart one. Here is the deal. We provide the search capacity and if you want a complete analysis and accounting you’ll need to retain someone for that. we have that available if you want us to do it.

But the main point I want to stress hear is that the subject of securitization was the receivables and not the obligation, note or mortgage from the borrower.

  • The receivables consist of the proceeds of payment from MULTIPLE sources as you have no doubt seen on the blog.

    The borrower signs a note that is never actually given to the investor.

  • The investor receives a mortgage bond or actually evidence of a mortgage bond that was never disclosed, seen or signed by the borrower.

  • In practice, the obligation, note and mortgage (Deed of Trust) are never actually transmitted, transferred, assigned or indorsed to the lender.

  • It is all an illusion. Any transfer is from one intermediary pretender lender to another intermediary pretender lender. The actual loan transaction never actually reaches the loan pool — but in every foreclosure it is claimed to be there.

  • The legal issue that ensues is whether the originating lender still is the only lender of record without any money owed to it (which means the loan is unsecured but does NOT mean there is no obligation) OR whether the pretender lender can convince the Judge that despite the lack of legal proof and legal requirements, the loan should be treated as equitably in the pool even if it is not legally in the pool.
  • The problem is of course there is no such thing. And in Missouri when they tried to make the legal argument, it was soundly rejected and they never tried it again.
  • But they don’t have to try again because Judges are still confused by the legal effect of securitization. In their confusion they are treating the loan as part of the pool even though they have no actual evidence (because none exists) that the loan ever made it into the pool through normal assignments, indorsements etc..
  • As far as they are concerned, the borrower signed a note, owes the money, didn’t pay it and the case is closed.
  • The idea that that there are MULTIPLE channels of payment between the borrower and the real lender and that therefore the documents in the middle tell the real story is not one they really want to hear — it raises a complexity they don’t wish to deal with.

    It also raises a political hot potato. Any one of these cases if they were considered alone and not in the context of millions of others would be decided in favor of the borrower (in my opinion). Judges are loathe to issue an order that in essence turns the entire mortgage mess on its head in favor of borrowers — which really only means that the real parties in interest must come forward and the real parties in interests must strike a deal in light of the obvious defects in the securitization and title process.

  • So we are presently stuck between a majority of Judges who don’t want to apply the normal rules of evidence, pleadings and substantive law and the minority of Judges who see all too clearly the coming title cliff we are heading toward.
  • What this means for you is that you must realize that the title part of your search is the ground level search which shows the breaks in the chain and the securitization portion of your search shows the REST of the terms that were not contained in the note, describes but does not name the real lender, and adds co-obligors who are providing cover for the bond the the investor thinks he bought with virtually no risk.
  • Without the liability of third parties, the investor would not have entered the deal. Just as with knowledge that the home appraisal was falsely inflated neither the borrower nor the lender would have entered the deal and all that money, billions in bonuses and billions in “profits” would never have been recorded.
  • THIS IS WHY YOU MUST POUND AND POUND AND POUND ON THE FACT THAT THIS WAS A SINGLE TRANSACTION BETWEEN BORROWER AND ACTUAL LENDER AND THAT THE ORIGINATING LENDER AND EVERYONE ELSE WERE INTERMEDIARIES IN THE DEAL. THE REQUIREMENTS OF LAW IN PERFECTING A LIEN WERE NOT PRESENT.

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EDITOR’s comment: Everyone seems to agree that nobody really knows the identity of the creditor in the millions of mortgage transactions that were created from 2001 to 2008. Yet the general consensus from the administration and the media is that these transactions should be enforced anyway. The idea of enforcing a transaction in which only one of the parties is known is enough to  make the authors of any of the major legal treatises turn over in their graves. It is so obviously ridiculous that one need not consult the United States Constitution on due process, nor any statute or case in common law. Nevertheless this elephant continues to sit in our living rooms claiming ownership of our home. Thus a fictional character is prevailing over the rights of real people owning real homes who were tricked into fraudulent loan products based inflated appraisals that created the reasonable assumption on the part of the borrower that the “experts” had verified the fair market value and validated the viability of the loan product.


Most people understand that these homeowners were victims of fraud more than they were borrowers of money for a legitimate transaction. These title twisting transactions continue to become increasingly convoluted as the “ownership” of the “loans” becomes increasingly blurred by a continuing process of transfers,  “sales,” auctions without creditors or bona fide bidders, and the continuation of the strategy of moving the goal post every time anyone wants to examine it.


In the article below the Obama administration is described as having exhausted all possible remedies and is now faced with the untenable choice of future homeowners versus current homeowners. This is delusional thinking based on business dogma. The “experts” are now all raising their voices in a growing chorus of “let the market collapse.” It is only natural for these so-called experts to suggest such a dark scenario.

Under the business dogma currently driving the limp choices being made by the administration and by Congress, a crash in home housing prices from current levels would produce the foundation for a bull market in housing prices that would be reduced to oversold levels. This so-called bull market could only be fueled by speculators who are sitting on piles of money. It certainly won’t be fueled by the average consumer whose median income is dropping, whose wealth has been drained through Wall Street speculation, whose savings do not exist, and whose credit has been exhausted. In short, this brilliant strategy of giving up on the housing market can only result in a further widening between those who have money and wealth and those who do not and now have no prospects.


I know that most people do not have the time to be students of history. But a little time spent on Google or Wikipedia will show you that no society in human history has ever been sustained on a status quo that excluded  an expanding and vibrant middle class, with abundant opportunities for improvement in the financial condition of anyone in any class of that society. There is an answer to this problem but it is being ignored for political reasons. We cannot instantly raise median income for tens of millions of people. We can and we should lay the foundation for abundant opportunities for improvement in their economic and social condition, but this will not solve the current situation.


The current situation is that we are sitting on the abyss. And it seems that the general consensus is to see no evil, hear no evil and therefore ignore the only realities that must be addressed. We cannot escape the fact that in our current situation our economy is driven by consumer spending. We cannot escape the fact that consumer spending cannot rise in the short term by an increase in median income. We cannot escape the fact that consumer spending can only rise by presenting the consumer with a proposition that is acceptable––one in which both real and apparent consumer wealth is increased. Unless the deal is real, the current lack of confidence in the economy, our society and our government will prevent any increase in consumer spending and therefore prevent any improvement in our current economic decline.


Consumers have made it clear that they do not trust the housing market, they will not accept a continuation of credit driven spending, and that they are alone in fending for themselves and future generations. Therefore the savings rates on what little money consumers are receiving as income are increasing at unprecedented rates. This money is not going to come out of savings and into the marketplace and a general rush towards spending that will revive the old consumer driven economy unless the basic and real concerns of consumers are directly addressed with reality and conviction. The perception (delusion) is that consumers are a bottomless well from which  infinite sums of money can be withdrawn by way of taxes, insurance, subsidies to big business, and a government that is primarily concerned with the appearance of stability on Wall Street rather than the reality of amends that need to be offered.


I am not a pundit. I am only seeking to apply common sense to a situation that seems to be wallowing in dogma, and political maneuvering. In my view they are arranging the deck chairs on the Titanic. In my view the worst is yet to come. In my view under the worst-case scenarios our way of life, our society, our economy and our government will be destabilized unless we open our eyes. It’s true that we don’t have a lot of tools left in the box. But then again we never did have a lot of tools in the box.

A great fraud has been committed on American and foreign taxpayers and investors as well as American and foreign buyers of real estate, commercial and residential. The perpetrators of this great fraud were intermediaries between the people who had money and the people who didn’t. If an honest attempt was made to do the right thing, we would do more to improve the confidence of our own consumers as well as foreign investors than any of these of exotic and creative plans to shore up an economy based on illusion and delusion.


If we already know that the identity of the creditor is in doubt, then we already have a perfectly legitimate legal reason to stop foreclosures. If we already know that the prices that were used in many fraudulent loan transactions were not equal to any sustainable measure of fair market value and that neither the borrower nor the actual lender (investor) was aware of this misrepresentation, then we already have a perfectly legitimate and legal reason to restructure all the affected loans, especially since most of them are controlled through guarantees of federal agencies if not outright ownership by those federal agencies. If we already know that somebody probably exists who has actually lost money on these transactions, or some of them, then it shouldn’t be hard for them to come forward, provide the necessary accounting and proof of ownership, and be included in the restructuring of these mortgage loans.


What is stopping the use of common sense is that we are relying on the very intermediaries who caused the problem in the first place and who have everything to gain by a continuation of the foreclosures, by a continuation of the free fall in housing prices, by a continuation of the charade of modifications, and by the speculative bull market that is currently being constructed right under the nose of this administration. That bull market may have a temporary effect on the economy (or at least the indexes that  measure economic results) and of course the stock market, but in reality it is easy to see that such a bull market will only be another bubble which will cause more devastation and further undermine confidence in the American economy and the American government.

HERE IS WHAT A FAIR RESOLUTION WOULD LOOK LIKE:

  1. ALL HOMES ELIGIBLE (INCLUDING REO). Forget the blame game
  2. ALL MORTGAGE BONDS ELIGIBLE. Forget the blame game
  3. REGULATE SERVICING COMPANIES LIKE UTILITIES OR REPLACE THEM WITH COMPANIES THAT WILL DO THE JOB
  4. SUSPEND ALL FORECLOSURES, SALES, JUDICIAL AND NON-JUDICIAL. SUSPEND MORTGAGE PAYMENTS, ALL MORTGAGES 90 DAYS.
  5. OFFER INTEREST RATE ONLY RE-STRUCTURE TO HOMEOWNERS THAT REDUCES FIXED INTEREST RATE TO 2%
  6. OFFER PRINCIPAL REDUCTION TO 110% OF FAIR MARKET VALUE WITH 5% FIXED INTEREST RATE, TOGETHER WITH AN EQUITY APPRECIATION CLAUSE OF 20% FROM REDUCED PRINCIPAL.
  7. OFFER CERTIFICATION OF OWNERSHIP FROM FEDERAL AGENCY TO THE HOMEOWNER.
  8. CREATE FAST TRACK QUIET TITLE ACTIONS TO RESOLVE ALL TWISTED TITLE ISSUES RESULTING FROM SECURITIZED LOANS
  9. OFFER TO SERVICE THE NEW LOANS FOR INVESTORS WHO PROVE OWNERSHIP.
  10. CREATE CUT-OFF DATE: HOMEOWNERS WHO DON’T TAKE THE DEAL  EITHER STAY WITH EXISTING TITLE AND MORTGAGE SITUATION OR GO THROUGH FORECLOSURE. INVESTORS WHO DON’T TAKE THE DEAL EITHER STAY WITH EXISTING TITLE AND RECEIVABLE SITUATION OR SUE THEIR INVESTMENT BANKERS.

I KNOW. WHO HAS THE POWER TO DO THIS? OBAMA, THAT’S WHO. NO NEW REGULATIONS ARE REQUIRED. STATE AND FEDERAL LEGISLATION TO PUT A “CAP”ON THIS IS UNNECESSARY, BUT IF THEY WANT TO DO IT THEY COULD DO IT AFTERWARD. The immediate result is that the downward pressure on housing would vanish. The upward mobility of consumers would instantly appear. The confidence by consumers that the government cares more about them than the oligopoly of banks who appear to be running the country would soar, as would their spending. World-wide confidence in the American financial system would soar because they would see the end of illusion and delusion.

And let’s not forget that the American moral high-ground would be restored, which is the only real basis for the consent of the governed here and around the world.
—————–

Housing Woes Bring New Cry: Let Market Fall

By DAVID STREITFELD

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.

The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.

Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”

That was clear last week, when the secretary of housing and urban development, Shaun Donovan, appeared to side with current homeowners, telling CNN the administration would “go everywhere we can” to make sure the slumping market recovers.

Mr. Donovan even opened the door to another housing tax credit like the one that expired last spring, which paid first-time buyers as much as $8,000 and buyers who were moving up $6,500. The cost to taxpayers was in the neighborhood of $30 billion, much of which went to people who would have bought anyway.

Administration press officers quickly backpedaled from Mr. Donovan’s comment, saying a revived credit was either highly unlikely or flat-out impossible. Mr. Donovan declined to be interviewed for this article. In a statement, a White House spokeswoman responded to questions about possible new stimulus measures by pointing to those already in the works.

“In the weeks ahead, we will focus on successfully getting off the ground programs we have recently announced,” the spokeswoman, Amy Brundage, said.

Among those initiatives are $3 billion to keep the unemployed from losing their homes and a refinancing program that will try to cut the mortgage balances of owners who owe more than their property is worth. A previous program with similar goals had limited success.

If last year’s tax credit was supposed to be a bridge over a rough patch, it ended with a glimpse of the abyss. The average home now takes more than a year to sell. Add in the homes that are foreclosed but not yet for sale and the total is greater still.

Builders are in even worse shape. Sales of new homes are lower than in the depths of the recession of the early 1980s, when mortgage rates were double what they are now, unemployment was pervasive and the gloom was at least as thick.

The deteriorating circumstances have given a new voice to the “do nothing” chorus, whose members think the era of trying to buy stability while hoping the market will catch fire — called “extend and pretend” or “delay and pray” — has run its course.

“We have had enough artificial support and need to let the free market do its thing,” said the housing analyst Ivy Zelman.

Michael L. Moskowitz, president of Equity Now, a direct mortgage lender that operates in New York and seven other states, also advocates letting the market fall. “Prices are still artificially high,” he said. “The government is discriminating against the renters who are able to buy at $200,000 but can’t at $250,000.”

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

The government is on the hook for many of these mortgages, another reason policy makers have been aggressively seeking stability. What helped support the market last year could now cause it to crumble.

Since 2006, the Federal Housing Administration has insured millions of low down payment loans. During the first two years, officials concede, the credit quality of the borrowers was too low.

With little at stake and a queasy economy, buyers bailed: nearly 12 percent were delinquent after a year. Last fall, F.H.A. cash reserves fell below the Congressionally mandated minimum, and the agency had to shore up its finances.

Government-backed loans in 2009 went to buyers with higher credit scores. Yet the percentage of first-year defaults was still 5 percent, according to data from the research firm CoreLogic.

“These are at-risk buyers,” said Sam Khater, a CoreLogic economist. “They have very little equity, and that’s the largest predictor of default.”

This is the risk policy makers face. “If home prices begin to fall again with any serious velocity, borrowers may stay away in such numbers that the market never recovers,” said Mr. Glaser, a consultant whose clients include the National Association of Realtors.

Those sorts of worries have a few people from the world of finance suggesting that the administration should do much more, not less.

William H. Gross, managing director at Pimco, a giant manager of bond funds, has proposed the government refinance at lower rates millions of mortgages it owns or insures. Such a bold action, Mr. Gross said in a recent speech, would “provide a crucial stimulus of $50 to $60 billion in consumption,” as well as increase housing prices.

The idea has gained little traction. Instead, there is a sense that, even with much more modest notions, government intervention is not the answer. The National Association of Realtors, the driving force behind the credit last year, is not calling for a new round of stimulus.

Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.

“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” said David Crowe, the chief economist for the home builders.

That might give the Obama administration permission to take the risk of doing nothing.

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

SUBMITTED BY M SOLIMAN

EDITOR’S NOTE: Soliman brings out some interesting and important issues in his dialogue with Raja.

  • The gist of what he is saying about sales accounting runs to the core of how you disprove the allegations of your opposition. In a nutshell and somewhat oversimplified: If they were the lender then their balance sheet should show it. If they are not the lender then it shows up on their income statement. Now of course companies don’t report individual loans on their financial statements, so you need to force discovery and ask for the ledger entries that were made at the time of the origination of the loan.
  • If you put it another way the accounting and bookkeeping amounts to an admission of the real facts of the case. If they refuse to give you the ledger entries, then you are entitled to a presumption that they would have shown that they were not acting as a lender, holder, or holder in due course. If they show it to you, then it will either show the admission or you should inquire about who prepared the response to your discovery request and go after them on examination at deposition.
  • Once you show that they were not a lender, holder or holder in due course because their own accounting shows they simply booked the transaction as a fee for acting as a conduit, broker or finder, you have accomplished several things: one is that they have no standing, two is that they are not a real party in interest, three is that they lied at closing and all the way up the securitization chain, and four is that you focus the court’s attention on who actually advanced the money for the loan and who stands to suffer a loss, if there is one.
  • But it doesn’t end there. Your discovery net should be thrown out over the investment banking firm that underwrote the mortgage backed security, and anyone else who might have received third party insurance payments or any other payments (credit default swaps, bailout etc.) on account of the failure of the pool in which your loan is claimed to be an “asset.”
  • Remember that it is my opinion that many of these pools don’t actually have the loans that are advertised to be in there. They never completed or perfected the transfer of the obligation and the reason they didn’t was precisely because they wanted to snatch the third party payments away from the investors.
  • But those people were agents of the investors and any payment they received on account of loss through default or write-down should be credited and paid to the investor.
  • Why should you care what the investor received? Because those are payments that should have been booked by the investors as repayment of their investment. In turn, the percentage part of the pool that your loan represents should be credited proportionately by the credit and payment to the investor.
  • Those payments, according to your note should be allocated first to payments due and outstanding (which probably eliminates any default), second to fees outstanding attributable to the borrower (not the investor) and third to the borrower which normally would be done as a credit against principal, which would reduce the amount of principal outstanding and thus reduce the number of people who think they are under water and are not.

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MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

I am really loving this upon closer inspection Raja! The issues of simple accounting rules violations appear narrow, yet the example you cite here could mean A DIFFERENCE AND SWAY IN ADVANTAGE.

Many more cases can potentially address broader issues of pleading sufficiency with repsect to securities and accounting rules violations prohibiting foreclosures.

Sale accounting is the alternative to debt or financing arrangements which is what the lender seeks to avoid in this economic downturn. Both approaches to accounting are clearly described and determinable by GAAP. In sales accounting there is no foreclsure. In debt for GAAP accounting your entitled to foreclose.

Its when you mix the two you r going to have problems. Big problems.

Pleading sufficiency is (by this layperson) the need for addressing a subject matter in light of the incurable defects in proper jurisdiction. The subject can be convoluted and difficult, I realize that.

Where the matter is heard should allow ample time to amend as a plaintiff. This is given to the fact the lender can move quicklly and seek dismissal.

The question is how far must a consumer plaintiff reach to allege that serverity of the claims, based on adverse event information, as in foreclosure.

This is significant in order to establish that the lender or a lender defendants’ alleged failure to disclose information. Therein will the court find the claim to be sufficently material.

In possession hearings the civil courts have granted the plaintiffs summary judgment and in actions brought against the consumer. The courts are often times granting the defendants’ motion to dismiss, finding that these complaints fail to adequately suffice or address the judicial fundamental element of materiality.

I can tell you the accounting rules omissions from the commencement of the loan origination through a foreclosure is one continual material breach. Counsel is lost to go to court without pleading this fact.

The next question is will the pleading adequately allege the significance of the vast number of consumer homeowner complaints. One would think yes considering the lower court level is so backlogged and a t a time when budget cuts require one less day of operations.

These lower courts however are hearing post foreclosure matters of possession. there is the further possibility that the higher Court in deciding matters while failing to see any scienter. Its what my law cohorts often refer to as accountability for their actions. That is what the “Fill in the Dots” letter tells me at first glance.

I believe it’s only in a rare case or two that a securities matter is heard in the Ninth Circuit. Recently however, there the conclusion was in fact that scienter allegations raised by the opposition were sufficient based on plaintiff’s allegations that the “high level executives …would know the company was being sued in a product liability action,” and in line with the many, customer complaints (I assume that were communicated to the company’s directors…)

The FASB is where the counterproductive rule changes always seem to take place and where lobbyist and other pro life and pro bank enthusiasts seem to spend their days. No need to fret however as gain on sale accounting is specific and requires the lender to have SOLD your loan in order to securitize it as part of a larger bulk pool.

The document I am reading, submitted by Raja tells me something is very concerning to the “lender parties” that they believe is downstream and headed their way. I’ll try and analyze each line item for you as to what it says and what they really are trying to do. I think for now though its value is for determining the letter as an admission of “we screwed up!”

M.Soliman

Deutsch Bank: Peeling back the layers

submitted by Raja

Investor /Trustee on MERS Record

Please use this small sentence for these thieves who have multi roles,
“”You cannot be a Trustee or investor or own the note, lest it become a partnership with the certificate holders”

FOR ALL THOSE WHO HAVE DEUTSCHE BANK.
a). Investor and Trustee as per MERS member Org. ID # 1001425. Deutsche Bank cannot be a trustee and investor. If it has both then it has a partnership with the Certificate holders.
b).. Interim Funder and Trustee as per MERS member Org, ID # 1002959
c). Document Custodian, Trustee and Collateral Agent as per MERS member Org. ID # 1000649
d). Investor and Trustee as per MERS member ORG. ID # 1001426
e). Servicer, Subservicers, Investor, Document Custodian, Trustee, Collateral Agent as per MERS member Org. ID # 1000648

The address of Deutsche Bank from “ a-e” above is the same 1761 East St. Andrew Pl. Santa Ana CA 92705-4934

Deutsche Bank is also acting under the various layers 424(b) (5) Prospectus, Pooling & Servicing Agreement (PSA) filed by the THIEVES with the SEC.of Trustees, without any specific description, where One Trustee ends and other Trustee Begins. It is classic obfuscation and musical chairs Note that Deutsche Bank is identified “as trustee” but the usual language of “under the terms of that certain trust dated….etc” are absent. This is because there usually is NO TRUST AGREEMENT designated as such and NO TRUST. In fact, as stated here it is merely an agreement between the co-issuers and Deutsche Bank, which it means that far from being a trust it is more like the operating agreement of an LLC)

DEUTSCHE BANK cannot be a Trustee or investor or own the note, less, it becomes a partnership with the certificate holders(Who bought the certificates and invested money).

Specialized Loan Services: “MISTAKE” Costs Elderly Couple Their Home

Editor’s Note: Besides the obvious, there are a number of not-so-obvious things to keep in mind.

  • The reason why they made the “mistake” is probably related to errors in procedure because they receive information from multiple sources. It is possible but unlikely that this was a normal error in posting. In Motion Practice and Discovery you would want to exploit such weaknesses to s how that there are too many “stakeholders” in the pie and that the procedures used to keep track of payments and status are intentionally obtuse to create plausible deniability when something like this happens with such horrendous results.
  • Ask yourself: why are all these players in the marketplace supposedly servicing different aspects of the loan? One for payments from borrower, another for payments from third party credit enhancements, another for federal bailouts, another to “substitute” for the original nominal party named at closing as the lender, another”Substitute” for the trustee, another to handle the delinquency, another to handle the default, another to handle the foreclosure sale etc.
  • Pretender lenders want the courts to handle foreclosures like “business as usual.” But business isn’t usual. When business was usual the bank that loaned the money was the bank that foreclosed on the mortgage or otherwise enforced the note. They should not be allowed to proclaim “business as usual” or standard operating procedure, or business records and affidavits, when business is far from usual.
  • Fabricated documents executed by people with dubious titles and even more dubious authority are being used to foreclose on property. The reason is simple: they don’t own the loan and they are successfully using the courts to steal from both the investors who advanced the money, the taxpayers to covered the money and the homeowners who advanced their home as collateral — all for a debt or obligation that no longer exists in the same form as the one presented at the borrower’s closing.
  • From www.themortgageinsider.net we find:

Specialized Loan Servicing LLC (SLS) is a mortgage servicer of residential mortgage loans primarily for other mortgage lenders. We uncovered three phone numbers, their website, and some pretty ugly customer complaints. We found an additional DBA name of The Terwin Group for SLS too.

Specialized Loan Servicing LLC Website and Phone Contacts

Specialized Loan Servicing LLC Website: https://www.sls.net/
Specialized Loan Servicing LLC Phone:
(800) 315-4757
(720) 241-7385
(720) 241-7364
Fax: (720) 241-7218
Address: 8742 Lucent Blvd. #300, Littleton, CO 80129

Specialized Loan Servicing LLC Review

Specialized Loan Servicing LLC services mortgage loans for other lenders and according to past customers, they have an ugly customer service track record.

When I search for complaints against Specialized Loan Servicing LLC, I found the worst complaints a mortgage service can get levied against them. Click here to see all the Specialized Loan Servicing LLC complaints listed in Google.

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Senior Couple Being Screwed Royally By Mortgage Servicer – Specialized Loan Servicers

H. Vincent and Theresa Price have lived in their home in Alameda for 32 years.  It’s where they raised their children.  They had always planned to leave it as their legacy.  They’ve NEVER been late on a mortgage payment… to this day! And they never wanted or asked for a loan modification.

Yes, everything was just fine at the Price home… until last September… when their mortgage servicer, Specialized Loan Services, made a mistake in their accounting department.  A simple mistake… they didn’t credit the Prices for having made their August and September mortgage payments, even though they most certainly did, just like they always had, and on time too.  Incredibly, less than five months later they had lost their home to foreclosure.

And today, although Mr. Price lies in a hospital bed with his wife at his side, they are scheduled to be LOCKED OUT by the Pasadena Sheriff’s Department pursuant to an order by the court.  If everything goes as planned by the mortgage servicer, when his doctors discharge him, the couple will be homeless.

How is such a thing possible?  Well, stay with me, because I promise you… this is not a story you’ve heard before.

According to the complaint filed in Los Angeles Superior Court, on August 1, 2008, Mrs. Price made the couple’s mortgage payment as she’s been doing for 32 years.  Certainly nothing remarkable about that.  A month later, when their September statement arrived showing that they owed their September payment, she made their mortgage payment again.  So far, so good, right?

It was right around September 29th that the Prices were notified that Specialized Loan Serivces had not received their August or September payments.  Mrs. Price assured the servicer’s representative that she had made the payments, and on time as always, thank you very much.

The servicer requested proof, so Mrs. Price sent in her bank statement showing that the payments had been made to Specialized Loan Services, and the amounts were deducted from her account on August 3rd and September 4th, respectively.  The Specialized representative called back to say they needed more proof, so she sent them a more detailed transaction report showing the payments having been made.  Still, not enough according to Specialized.  So, Mrs. Price went to her bank and had them print out her account’s record of the payment being made to Specialized and sent that document to the mortgage servicer.

The next call from Specialized came from a different representative of the servicer.  He informed Mrs. Price that they had not yet located her payments, but that her proof was acceptable and that they expected to soon. Meanwhile, he assured her, the servicer was placing a waiver on the October and November payments, a show of good faith, if you will, until the missing payments were found.  After a couple of weeks passed with no further word from Specialized, the Prices called to inquire as to the status of the situation.

They spoke with a woman who said her name was Lynette.  She told the Prices that their account was showing “CURRENT” for August, September, October and November, that they should make their next payment on the first of December, and that a new accounting statement would be sent out.

When no new statement had arrived two weeks later, the Prices called Specialized yet again.  It was November 23, 2008 and this time they spoke with another representative of the mortgage servicer, “Ben”.

They asked Ben about the new statement that was to have been sent out, but Ben had no idea what they were talking about.  He stated that he wasn’t aware of any sort of arrangement regarding the couple’s August and September payments, and further, now that they were four months late, if they did not make the delinquent payments and associated late charges within the next 24 HOURS… Specialized Loan Services WOULD FORECLOSE ON THE PROPERTY.

You can just imagine what happened next.  The Prices began calling the servicer asking to speak with the three representatives that had been speaking with over the last several months… the ones that had told them about the waiver and had been trying to find the missing payments.  They called… and called… and no one answered or returned their calls.  They then called the servicer’s Vice President of Customer Service… and… nothing.  No return call… nothing.

It was January when the Prices received their first piece of written communication from Specialized… it was a Notice of Default and Election to Sell.  Understandably, the couple was speechless.  How could this happen?  How was this possible?

The Prices were referred to a lawyer who said he was also a minister; a man identifying himself as a Mr. Reginald Jones.  Mr. Jones told the Prices that he was highly experienced in these matters and that he would file a lawsuit as soon as possible.  The couple would later learn that Mr. Jones was not an attorney.  What he had done was go into court, appearing as a plaintiff by claiming that he had an interest in the property, and file a frivolous lawsuit, which was later dismissed by the court…. as it might go without saying.

Now, having been defrauded by the so-called lawyer-minister, the Prices were forced to defend an unlawful detainer action in pro per, meaning without an attorney.  Unfortunately, they were not successful as they were told that they could not “litigate title in a summary proceeding,” which as I’m quite sure everyone would agree, they clearly should have known. They were advised that they should file an injunction, which they did, but unfortunately they mistakenly filed their injunction in the “wrong court,” and don’t we all hate it when that happens.

(I’m sorry for the sarcasm, but this is the most outrageous travesty of justice to which I’ve ever been exposed.)

The Prices searched and finally found an attorney they could trust, Zshonette Reed of the firm Lorden Reed in Chatsworth, California, but now it was only days before the Pasadena Sheriff would be locking the Prices out of their home potentially forever.  As quickly as was possible, Ms. Reed prepared the legal documents required for the filing of a Temporary Restraining Order, or TRO, and with her clients at her side, and confident that this horrendous injustice would not be allowed to prevail, she appeared in Superior Court yesterday, September 15, 2009.

The Price home is to be locked up by the Pasadena Sheriff today, although because that office is closed for a special training day today, the event has been moved to tomorrow.

Astonishingly, the judge denied her motion for a TRO, ruling that he had no jurisdiction over the judgment that had been entered against the Prices in the unlawful detainer court.  So, immediately she and her clients proceeded to the unlawful detainer court to ask that judge, in layman’s terms, to put a stop to the madness.

It may be hard for a reader to believe, but that judge also refused to provide the Prices any relief, because he said that the attorney could not litigate title in that court.  It was a classic Catch-22.  Ms. Reed couldn’t get relief from the Superior Court because that court said that it had no jurisdiction over the unlawful detainer court, and the unlawful detainer court wouldn’t provide relief because you can’t litigate title anywhere but in the Superior Court.  Ms. Reed begged the judge, explaining that her client’s home was to be locked up by the sheriff the very next day.  She needed time to prepare to present her client’s case to the appellate court.  The answer was still no.

Ms. Reed and her clients left the courthouse shocked and scared.  Mr. Price was clearly distressed as was his wife, and he was having a hard time breathing so he went to sit down on a stoop.  He went into cardiac arrest right there in front of the courthouse and was rushed to the hospital where he is today with his wife by his side.

Meanwhile, the Pasadena Sheriff is scheduled to lock the couple out of their home today, although that looks like it won’t be until tomorrow due to the department taking today off for special training.

Can you even imagine the horror?  After 32 years living in your home, raising your family, never being late on a mortgage payment… and then this?  It’s unthinkable.

And it cannot be allowed to happen to the Prices or anyone else.

The worst part is that, although this is certainly an extreme case, it is far from being the only example of mortgage servicers and banks disregarding the law, and abusing homeowners.  Why do they do it?  I don’t know… because they can, comes to mind.

How can a homeowner hope to go up against a bank or mortgage servicer?  They can’t.  It would seem that even the President of the United States and the United States Treasury is having trouble getting these companies to behave like human beings.

It’s time that the people of this country come to understand what’s happening here.  Past time.

Magnetar Echoes Livinglies call for Alignment of Investors, Servicers and Borrowers

see Magnetar%20Mortage%20Recovery%20Backstop%20Whitepaper%20Jun09.pdf

Magnetar Mortage Recovery Backstop Whitepaper Jun09

Two things jump out at me with this paper from June, 2009.

First it is obvious that the “real money” investors are defined as those seeking low risk and willing to take lower yield. The fact that they are called “Real Money Investors” underscores my point about the identity of the creditor. Those “traditional” investors are no longer available to buy the mortgage backed securities or any other resecuritized derivative package based upon mortgage backed securities. Legal restrictions requiring the securities to be investment grade would prevent them from jumping back in even if they wanted to do so, which they obviously don’t.

Thus the inevitable conclusion drawn almost a year ago and borne out by history, is that the fair market value of the securities, trading as pennies on the dollar, is reflective of a lack of demand for mortgage backed securities no matter how high the yield (i.e., no matter how low the price).

Second there is a growing realization that the interests of the investor and the borrowers are actually aligned in many ways and that the solution to mortgage modification, principal reduction, and other aspects of the mortgage mess and the foreclosure crisis lies in recognizing certain realities and then dealing with them in an equitable manner. The properties were never worth the amount of the appraisal in most instances and now they are worth even less than they were when the loan deals were closed. The securities were also “appraised” far too high thus creating a giant yield spread premium for the investment bank-created seller of mortgage backed securities.

In my opinion, based upon a sampling of the data available, it is entirely possible that the “true” fair market value of those securities in the best of circumstances is probably less than 40% of the initial offering price. It is this well-hidden analysis that is not getting the attention of the Obama administration and which completely explains why servicers are obstructing modifications under instruction from investment banking intermediaries like the “Trustee”.

Leaving the servicers and other parties as the middlemen “in the middle” to sort this out is another license to steal creating another mark-up applied against both borrowers and investors as the “real money” parties. The status quo is what is causing the stagnation in lieu of recovery. Until everyone accepts basic notions of “real party in interest” and eliminates those who don’t fit that description, the moral hazards will remain and escalate.

As concluded in this paper, either judicial or executive intervention is required to kick the middlemen out of the way and let the light in. When investors and borrowers are able to compare notes and work with each other the figures for both will be enhanced, foreclosures will decline, losses will be taken, and yes it is highly probable that the number of investor lawsuits will proliferate against those who defrauded them.

The lender is identified as the investor in this paper (indirectly) and the party who defrauded them is not some greedy borrower with stars in his eyes, it was the usual suspect — a financial wizard making a sales pitch that was so complex, the buyer basically was forced to rely upon the integrity of the investment banking house for appropriate pricing. That is where the system fell apart. Moral hazard escalated to moral mess.

Yield Spread Premiums Revealed as Interest Rates Rise

Editor’s Note: This article might help you understand the workings of a yield spread premium. For every 1% difference in interest rate the “cost” of the loan to you goes up 19%. Now if you look at it from the point of view of the “lender” that means the “value” goes up by 19%. That means, on a $100,000 loan an increase of $19,000.

So if you have a $100,000 loan and you qualified for a 5% loan, then a smooth-talking mortgage broker or mortgage originator might get you confused enough to get into a loan that looks better but ends being worse.

The result might be that you pay a 10% rate when the loan re-sets. This increases the “cost” of the loan (oversimplifying here for the purpose of education) to the borrower and the “value” of the loan to the “lender.” How much? 19% for every 1% increase, so in our example here, to keep it simple, the cost to you on a $100,000 loan is increased by 19%x5=95%. So you will pay $95,000 more for that increase. And the lender will get $95,000 more for their “investment.”

The mortgage broker gets a “share” of that increase as a reward for having talked you into a worse loan product even if it means that the viability of the loan (the likelihood that you will pay it off) has been diminished. This “share” is called a premium and it is caused by the spread between the original 5% that you could have had and the 10% loan they you bought. Hence yield spread premium, and I call that “tier 1.”

Tier 2 occurs because the source of funds is not the bank, it is an investor who is kept in the dark much as you are. They think they are getting 5% on a $200,000 loan. But what Wall Street did was they actually funded your $100,000 loan, valued it at 10%, and then kept the balance of the $200,000 investment for themselves. To the investor the numbers look the same — they expected 5% on their $200,000 purchase of mortgage backed securities which is $10,000 per year. Wall Street gave them what looked like an investment that yielded $10,000 per year simply by creating toxic loans and used it against the borrowers who would have otherwise paid on the loans because they could.

It is the same yield spread between 5% and 10%, but used in reverse against the investor.
In my opinion this gives rise to recovery of the undisclosed tier 2 yield spread premium payable to the borrower. It might also give rise to a cause of action for securities fraud that the investor could claim. At the moment, few people are pursuing this. Eventually as the mystery unravels, there will be competing claims for this money, and the first one to the finish line is probably going to be the winner.
April 10, 2010

Interest Rates Have Nowhere to Go but Up

By NELSON D. SCHWARTZ

Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.

“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.

With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.

“The banks don’t have a lot of pricing options,” Mr. Moroney said. “They’re targeting people who carry a balance from month to month.”

Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve.

Washington, too, is expecting to have to pay more to borrow the money it needs for programs. The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.

The run-up in rates is quickening as investors steer more of their money away from bonds and as Washington unplugs the economic life support programs that kept rates low through the financial crisis. Mortgage rates and car loans are linked to the yield on long-term bonds.

Besides the inflation fears set off by the strengthening economy, Mr. Gross said he was also wary of Treasury bonds because he feared the burgeoning supply of new debt issued to finance the government’s huge budget deficits would overwhelm demand, driving interest rates higher.

Nine months ago, United States government debt accounted for half of the assets in Mr. Gross’s flagship fund, Pimco Total Return. That has shrunk to 30 percent now — the lowest ever in the fund’s 23-year history — as Mr. Gross has sold American bonds in favor of debt from Europe, particularly Germany, as well as from developing countries like Brazil.

Last week, the yield on the benchmark 10-year Treasury note briefly crossed the psychologically important threshold of 4 percent, as the Treasury auctioned off $82 billion in new debt. That is nearly twice as much as the government paid in the fall of 2008, when investors sought out ultrasafe assets like Treasury securities after the collapse of Lehman Brothers and the beginning of the credit crisis.

Though still very low by historical standards, the rise of bond yields since then is reversing a decline that began in 1981, when 10-year note yields reached nearly 16 percent.

From that peak, steadily dropping interest rates have fed a three-decade lending boom, during which American consumers borrowed more and more but managed to hold down the portion of their income devoted to paying off loans.

Indeed, total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income over the same period — yet the portion of disposable income that goes toward covering that debt has budged only slightly, increasing to 12.6 percent from 10.7 percent.

Household debt has been dropping for the last two years as recession-battered consumers cut back on borrowing, but at $13.5 trillion, it still exceeds disposable income by $2.5 trillion.

The long decline in rates also helped prop up the stock market; lower rates for investments like bonds make stocks more attractive.

That tailwind, which prevented even worse economic pain during the recession, has ceased, according to interviews with economists, analysts and money managers.

“We’ve had almost a 30-year rally,” said David Wyss, chief economist for Standard & Poor’s. “That’s come to an end.”

Just as significant as the bottom-line impact will be the psychological fallout from not being able to buy more while paying less — an unusual state of affairs that made consumer spending the most important measure of economic health.

“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.

But the consensus is clear, according to Terrence M. Belton, global head of fixed-income strategy for J. P. Morgan Securities. “Everyone knows that rates will eventually go higher,” he said.

MERS Discovery Items

From Eric Mesi

MERs has a manual and I included some of it below regarding foreclosures. But who would know if their manual is correct? Of course they will write it to protect their selves.
Section 2: (a) If a Member chooses to conduct foreclosures in the name of Mortgage Electronic Registration Systems, Inc., the note must be endorsed in blank and in possession of one of the Member’s MERS certifying officers. If the investor so allows, then MERS can be designated as the note-holder.
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Section 1. MERS shall within two (2) business days forward to the appropriate
Member or Members, in the form prescribed by and otherwise in accordance with the
Procedures, all properly identified notices, payments, and other correspondence received by MERS with respect to mortgage loans registered on the MERS® System for which Mortgage Electronic Registration Systems, Inc. serves as mortgagee of record.
—————————————————————————–
Section 2. MERS shall provide to Members certain standard reports concerning
information contained on the MERS® System, as specified in the Procedures, and such other reports as MERS may determine from time to time.
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(b) In non-judicial foreclosure states, if the Member chooses to foreclose in MERS name under the power of sale provision in the security instrument and is not seeking a deficiency judgment, then the note does not need to be in the possession of the Member’s MERS Certifying Officer when commencing the foreclosure action; provided, however, that under no circumstances may the Member allege that the note is in their possession unless it so possesses.

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.

Verifying that the ‘Substitute Trustee’ is indeed a TRUST

BTW, I ask about verifying that the ‘Substitute Trustee’ is indeed a TRUST since I saw a post that made a point that any named ‘TRUSTEE’ must really be a TRUST.

Quality Loan Servicing was nominated by Litton Loan Service’s employee (via MERS) as the Substitute Trustee in place of ReconTrust.

I may have a case where BofA was in too many of the ‘roles’. The servicing was transferred on the very day the modified payments were to start per a signed and notarized mortgage modification agreement. The transfer was an attempt to justify the ‘mod’ not ‘happening’. RESPA does not agree with that. They ignored me. They never contacted me about any reason the mod was not occurring. I had been assured it was ‘my mod’. The BofA employees have stated that ‘all AG Mods’ were canceled. Well, they think that is the word. Actually the correct term is ‘BREACHED’.

So now I have some funny-looking documents being filed and what appears to be a bogus attempt to foreclose. Who knows who really has the note. Litton has filed documents saying that the ‘investor’ is CWABS with BoNY-MELLON as the trustee. Strangely BofA claims to be the beneficiary in more-recently filed documents in my court case. If BofA is ACTING for the investor, what the hell is Litton doing? The beneficiary LITTON should be ‘working for’ would seem to be the CWABS trustee. Certainly, I question whether BofA would have bought the mortgage back from the pooling (CWABS) once it was in litigation without advising the court at least. I do not understand how I can have BofA make the claim that they ARE the ’successor beneficiary’ when CWABS was otherwise identified as the ‘investor’.

Also, how would they deal with the original ‘Lender’ being a fictitious business name and the only beneficiary named is MERS as ‘nominal beneficiary’? Will I have more fictitious assignments to be looking for?

TRUE SALE and ASSIGNMENTS: The Nature of REMIC

From “Anonymous”

Editor’s Post: It’s always a pleasure to read something where someone actually knows what they are talking about. The following post was picked up from the comments. The key points that are relevant to the Qualified Written Request and Discovery are

1. In the shuffling of paperwork, where was a “true sale” of the pool , a portion of the pool or any of the alleged loan obligations?

2. This material doesn’t come from someone’s head. It comes from established rules from the Financial Accounting Standards Board, statutes and administrative rules.

3. If the “loan” doesn’t show up on the balance sheet of the entity making a claim it is an admission that they are not a creditor. This takes some digging. Individual loans are a rarely shown on any balance sheet. They are shown on the worksheets or the equivalent of the bookkeeping department and the accountant who prepared the financial statements. Deposing the accountant for the company in question might get you the information you need and make the other side pretty nervous that you are zeroing in on their game. Deposing the Treasurer or CFO might get you even more. In many cases these entities NEVER booked any loans. They ONLY showed fees on their income statement which means that they admit they only provided a service (to whom?) in passing the “loan” through as a conduit.

4. Timing of the “assignments.” Besides the obvious fabrications that have been discussed in these pages, if you actually demand and get the enabling documents you will find, most of the time, that the requirements have NOT been met for acceptance of the assignment. The author points out that there is usually a 90-day rule, after which the the assignment is by definition not accepted. But there are other requirements as well, especially the one that says that the assignment must be recorded or in recordable form, which generally speaking it is not.

5. The sale, according to the paperwork, is to the underwriter, not the “Trust” (SPV). So you have a right to challenge the assertion that the “Trustee” is a Trustee, that the “Trust” is a trust and that there is anything in the trust. But I would add that the PRACTICE here was the selling forward of the mortgage backed security which means they were selling something they didn’t have. So the LEGAL title to the paper MIGHT not inure to the benefit of the holder of the mortgage backed bond; but it is equally true that they already “promised” the investor that they WOULD own the “loans”, and the investor is the only one who advanced money (and thus the only one meeting the definition of creditor). Hence there MUST be an equitable right by MBS holders to make a claim — the question being against whom — the homeowner, the investment banker or someone else? Your point in Court should NOT be to try to cover this abstractly with the Judge but only to have an expert witness that would make the assertion backing up your allegations. Your strategy is simply to say that according to the information you have there is a question of fact before the court as to what entity, if any, has this loan on their balance sheet? That is a question for discovery. And once that entity has been identified then you would want to discover the claims of third parties who could or would make a claim on that “asset.”

6. The author’s statement that the investor does not show the loan on its balance sheet is therefore both right and wrong. The investor bought a bond that is payable by an entity that issued the bond. That entity is not the homeowner and therefore it could be argued that the homeowner, who was not party to that transaction, does not have any obligation to the investor and that therefore the entry on the balance sheet of the pension fund investor would not account for the “loan.” BUT, the bond contains a conveyance of a percentage interest in a pool (which as we have seen might not exist), which purportedly includes “loans” of which the Homeowner’s deal was one. Thus effectively the ONLY party who could make an accounting entry for the loan in compliance with generally accepted accounting practices, is the investor. It comes down to the most basic of double entry bookkeeping practice. A debit from cash and a credit to receivables.

——————————————————————-

The “true sale” concept was the focus of FASB 166 and 167. Once the market crisis hit, intervention to support the SPVs rendered any “true sale” negated because there can be no intervention under a true sale.

Also, Mike H. is right regarding REMICs and ninety-day rule. A REMIC is a static fund and no mortgages can be added after 90 days (very limited exception). Many assignments are long after the 90 days and some are not even effectuated to the cutoff date (or 90 day rule) of the REMIC. Even if effectuated, and due to the dissolution of REMIC (violation of “true sale” by intervention), assignments are not valid. The problem is that if the loan is in default, it is no longer a pass-through security held by any trust. It has been removed.

As a result, assignments presented by foreclosure attorneys in court is probably not the LAST assignment. As discussed, collection rights are sold after the swap is paid.

Although courts view assignment and sale as the same thing for collection rights. It is not the same thing. In the process of securitization the mortgage loans are SOLD to security underwriters (we never see this sale in the chain), and the cash flows passed-through are assigned. The security underwriter still has the loan on their books (even if concealed by off-balance sheet conduit). Once in default, the loan is charged-off, and is no longer an asset, and the assignment of cash flows is also extinguished..

Again, the Federal Reserve, in Interim Opinion for TILA Amendment, has emphasized that the creditor is the one who must account for the loan on their balance sheet. It is not investors that have beneficial interests in REMICS, Pass-throughs, or any other security. Question is – who now is accounting for collection rights on it’s balance sheet. Who was accounting for rights at time of foreclosure initiation. How much did they pay for those rights??

There seems to be much confusion regarding the word “investor.” For beneficial interest in securities one may be called an “investor”. But this investor does not account for mortgage loan on its books. In terms of mortgage loan ownership, “investor” may also be used instead of “creditor.” But this investor accounts for mortgage loan (or collection rights) on its books – that is the investor you want to know.

Any last assignment recorded is likely NOT the actual last assignment executed. Foreclosure attorneys ignore this because they reason that the default derivatives attach the current owner/investor to the original trust. This is false – as derivatives are not certificates and not securities – and not part of the trust. The default loan is gone from the trust – gone from banks books – and in the hands of some “investor” who saw profit potential in the collection rights to the default loan. This what the government not only concealed, but also promoted to help the banks “clear” their off/on balance sheets of “toxic assets.”

Finally, Neil is right about sentiment in courts. Going in and asking for a “free house” will harm you. Sentiment in country in not on our side due to media propaganda. I have a long time friend in a prestigious private equity firm. Sentiment is that if anyone gets a principal reduction it is unfair because everyone should then get a principal reduction. People not affected by foreclosure fraud just do not get it. It is always all about “me” – even if they have not been harmed. I do not know how we are going to change this thinking – but if we do not – we will continue to get no help from government and lose in courts. Need a big case, with a judge that grants and enforces full discovery, in order to change the sentiment.

Pursuit v UBS: Investor Case Proves Homeowners’ Cases

NOW AVAILABLE ON AMAZON KINDLE!!

Pursuit vs. UBS Drills Down to Real Benefits to Intermediaries While Real PARTIES — Investors and Homeowners — get the shaft UBS090909

This is a case of an investor suing the underwriter of the mortgage backed bonds purchased as “investment grade securities.” As we have pointed out on these pages for two years, the underwriter wears so many hats that it is impossible to track them without nailing them down in discovery and motions to compel. It is only when the real flow of documents and the real flow of money is analyzed that you can see the pattern of deception designed to screw the investors, screw the homeowners and run with the money and now, through illegal and improper foreclosures, they run with the property too. Here is an excerpt from the attached Opinion dated September, 2009.

“Based on the above-mentioned evidence, the court finds that the Plaintiffs’ have presented sufficient evidence to satisfy the probable cause standard with respect to their claim that UBS was in possession of superior knowledge that was not readily available to the Plaintiffs. This material nonpublic information related to rating agency downgrades that would significantly decrease, if not render worthless, the CDO Notes it was selling Pursuit. Further, UBS was aware the Pursuit was only seeking to invest in CDO Notes rated “investment grade,” and UBS knew that byinvesting in the subject CDO Notes, Pursuitwas acting on the basis of misleading information. Moreover, because UBS was in the position of “Super-senior Noteholder” in the structure of these CDOs, such ratings downgrades, while working to the detriment of buyers like the Plaintiffs, could work to the benefit of sellers like UBS in the super-senior position, because super-seniors have first dibs on whatever payments are made on a CDO. A UBS Securities LLC credit analyst explained it in an October 16, 2007 email sent to Morelli and others. Writing about the billions of dollars in Moody’s downgrades, downgrades that were now public knowledge,
the UBS analyst wrote, “These bonds [subject to downgrades] appear in countless CDOs.

The downgrades were more severe than what the market seemed to anticipate !!! And !!! The downgrades could constitute a triggering event that would be an Event of Default for various for various CDOs. . . If this occurs, then it may prove salutary for the Super-senior holders [like UBS] as more cash flow would be preserved for their protection.”

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