Nardolillo V. Chase – Northern District of California: Motion to Dismiss Denied

By J. Guggenheim/www.lendinglies.com

Note: Our ongoing gratitude to Investigator Bill Paatalo of BP Investigative Agency for keeping us updated with significant developments in nationwide foreclosure defense cases.  Paatalo is the preeminent investigator regarding WaMu/JPMorgan Chase “merger” issues.

See Nordolillo v. JPMorgan Chase Nardolillo v. Chase

Analysis by Neil Garfield:  Although Nardolillo’s case has merit, unfortunately he may lose because he already alleged that the loan was sold to a specific securitized trust.  We already know the loans weren’t transferred to the trusts, so Nardolillo has already compromised his own case by making erroneous presumptions.

Without an amendment to his pleadings, he will be forced to prove the trust bought the loan which is impossible because the trust didn’t buy the loan and therefore there is no evidence to support the allegation.

The flip-side is that if Nordolillo had not identified who the loan was sold to, the court would have likely gone the other way on the motion to dismiss.

If he amends to not be specific on the “sale” of the loan, there is a risk that the court will dismiss the action.  The real problem really is that not only did the trust NOT buy the loan, but NOBODY did.

That is because the only movement of money that actually occurred in the real world was to fund loans originated by WAMU. Thus he is right that WAMU didn’t own it but he is citing the wrong reason. WAMU never owned the loan in the first place. Thus there could be no sale.

Chase relies on the complexity of its scheme to confuse and overwhelm the bench. This is the principal reason that I have been hammering at the idea of using a CPA as an expert witness because the numbers don’t lie. Banks lie, servicers lie, and lawyers lie; but in the end, the numbers on the general ledger as audited by one of the big auditing firms tell the real story. You will likely never find a single one of these loans on the balance sheet of any of the players pretending to foreclose.

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Nardolillo v. JPMorgan Chase is scheduled for trial in April in California’s liberal North District Court.  This case includes illegal substitutions of trustees by Chase, if they were not the beneficiary per the Purchase and Assumption Agreement (PAA).  Nardolillo alleges wrongful foreclosure, violations of the California Homeowner’s Bill of Rights, and dual-tracking violations in regards to a pending loan modification.  Nardolillo is not the first to allege that JPMorgan Chase is playing an ownership shell-game (see Fox).

WaMu was taken under receivership by the FDIC in 2008 when it became insolvent.  JPMorgan Chase then entered into a Purchase and Assumption Agreement (PAA) with the FDIC to acquire “certain” WaMu assets.  Plaintiff Gary Nardolillo alleges his Note and Deed of Trust were not among the assets Chase acquired through the PAA and that they were “possibly” sold or securitized years earlier.

This is business as usual for JPMorgan Chase who typically has no note or assignment demonstrating ownership in regards to the WaMu loans it claimed to have acquired.  Therefore, without resorting to manufacturing the documents or having a ‘bank representative’ file a sworn affidavit they have personal knowledge of the loan (when they don’t), JPMorgan Chase simply relies on a substitute trustee to compensate for Chain of Assignment deficiencies.

On March 14, 2011, Chase claimed to be the beneficiary of the DOT and directed the California Reconveyance Corporation (CRC), as trustee, to record a Notice of Default against the subject property.  CRC recorded a Notice of Default, stating the amount due as of March 11, 2011, was $36,304.16.

On October 20, 2014, in a recorded “Corporate Assignment of Deed of Trust,” Chase purported to act as “attorney in fact” for the FDIC and transferred all beneficial interest in Nardolillo’s DOT to itself.   Nardolillo alleges this was a void assignment because: (1) Nardolillo’s DOT was never among the assets received by the FDIC from WaMu and transferred to Chase; and (2) Chase was not authorized to serve as the attorney in fact for the FDIC at the time it executed and recorded the Corporate Assignment.

Chase then began its usual game of what Investigator Paatalo refers to “whack-a-mole” and on April 17, 2015, it recorded a Substitution of Trustee, substituting former-defendant Trustee Corps in place of CRC as trustee under the DOT. Nardolillo alleges that this substitution is also void.

Chase directed Trustee Corps to record a Notice of Trustee’s Sale against the Subject Property on July 7, 2016. Around July 22, 2016, Nardolillo submitted his first loan modification application to Chase, but the defendants have continued to notice trustee’s sale dates on the Property.  He claims that chase violated California Civil Code when it conducted the July 2016 Notice of Trustee’s Sale recorded, as Chase had no right to foreclose because Chase never acquired rights to the DOT and Note from WaMu.

Assuming these allegations are true, the Notice of Trustee’s Sale would not be “accurate and complete and supported by competent and reliable evidence.” Cal. City Code§ 2924.17/a).   Chase argues Nardolillo’s argument isn’t sufficiently supported by facts, but only by insufficient bare conclusions.  Nardolillo is at the mercy of Chase who likely doesn’t have the necessary proof but relies on the complicity of the bank to get away with fraud.  The relevant allegations in the Complaint are:

—Plaintiff alleges on information and belief that WaMu sold Plaintiff’s DOT and Note to a mortgage – backed securitized trust.
—Plaintiff’s securitization audit indicated Plaintiff ‘ s loan was possibly sold to the WaMu Mortgage Pass-Through Certificates Series 2004-AR12 trust – a real estate mortgage investment conduit (“REMIC”) registered with the Securities and Exchange Commission (“SEC”).
—Plaintiff alleges on information and belief that his Note and DOT were not among the assets acquired by Chase through the PAA, having been sold and securitized to a trust pool a few years prior.

Chase relies on the PAA, that claims Chase acquired WaMu’s “assets” from the FDIC in 2008, as well as the recorded “Corporate Assignment,” showing that plaintiff’s DOT and Note were transferred to Chase by Chase (as the attorney in fact for the FDIC as receiver for WaMu).  Relying on JPMorgan Chase’s word is like believing Kevin Hart is a committed family man- despite the Vegas photos.

Chase claims these judicially noticeable documents and the absence of notices recorded by any other entity with respect to the Property establish that Chase “is of record with respect to the Property.”  Plaintiff has correctly objected to any attempt to take judicial notice of the facts contained in these public records as true. He argues that the “truth” of whether Chase was entitled to sign the Corporate Assignment and whether plaintiff’s Note and DOT were included with the scope of the PAA are contested and cannot be established through a request f0r judicial notice.  Neil Garfield writes about the perils of not objecting to judicial notice here.

Chase’s arguments are not well-taken on a motion to dismiss.  The PAA does not expressly cover plaintiff’s Note and DOT.  Chase fails to point to any portion of the PAA that demonstrates that WaMu-funded REMICs (like the one Nardolillo contends owns his Note and DOT) were “WaMu assets” transferred to Chase for servicing or for any other purpose.  The court noted that although Chase has been an entity causing notices to be recorded with respect to the Property, is significant, it does not by itself establish as an incontrovertible fact that Chase is “of interest” or otherwise entitled to enforce rights to the Note and DOT.

Investigator Bill Paatalo has proof that JPMorgan Chase did not purchase $615 billion in WaMu loans.  See article here:

http://bpinvestigativeagency.com/why-jpmorgan-chase-did-not-purchase-ownership-of-615b-worth-of-wamu-loans-in-three-simple-steps/

Paatalo has long discussed the questionable use of using “Substitution of Trustees” in order to create the illusion of ownership and to further complicate the ownership issue in a court of law.  Paatalo discovered that WaMu entities have never been dissolved and still exist.  The loans did not go through the FDIC, therefore Chase executes assignments from the FDIC in order to substitute trustees.  Paatalo demonstrates that JPMorgan Chase did not purchase ownership of $615 billion in Washington Mutal loans in three simple steps.

Paatalo presents a “3-step Analysis” to show that “ownership” of at least $615,000,000,000.00 (over half a TRILLION Dollars!) of WaMu loans were not purchased by JPMorgan Chase from the FDIC.

STEP 1:

The U.S. Senate Sub-Committee (Levin – Coburn Report) reveals in its findings of fact that WaMu sold and securitized at least $615B of residential mortgage loans through its subsidiaries “WaMu Asset Acceptance Corporation” and “Washington Mutual Mortgage Securities Corporation” who acted as “Depositors” in the securitization transactions.

See:

https://www.hsgac.senate.gov/subcommittees/investigations/media/senate-investigations-subcommittee-releases-levin-coburn-report-on-the-financial-crisis

 

Pg. 116 –

From 2000 to 2007, Washington Mutual and Long Beach securitized at least $77 billion in subprime and home equity loans. WaMu also sold or securitized at least $115 billion in Option ARM loans. Between 2000 and 2008, Washington Mutual sold over $500 billion in loans to Fannie Mae and Freddie Mac, accounting for more than a quarter of every dollar in loans WaMu originated.

 

Pg. 119 –

“WaMu Capital Corp. acted as an underwriter of securitization transactions generally involving Washington Mutual Mortgage Securities Corp. or WaMu Asset Acceptance Corp. Generally, one of the two entities would sell loans into a securitization trust in exchange for securities backed by the loans in question, and WaMu Capital Corp. would then underwrite the securities consistent with industry standards.

STEP 2:

See: Page 2. – PAA – (click here: FDIC-Chase – PAA)

“Assets” means all assets of the Failed Bank purchased pursuant to Section 3.1. Assets owned by Subsidiaries of the Failed Bank are not “Assets” within the meaning of this definition.”

STEP 3:

In the case of Fox v. JPMorgan Chase, a specific REMIC Trust is named in the action. To prevail on its argument that the loan was sold and transferred to the Trust, JPMorgan Chase and U.S. Bank, N.A. as Trustee, both admitted / “stipulated” that the loan contained both investor codes “AO1″ and “369” in the loan transfer history, which means the loan was sold by Washington Mutual Bank to the subsidiaries prior to those subsidiaries transferring the loan into the Trust. AND, it was stipulated that the loan was NOT PURCHASED FROM THE FDIC.

(Click here: Chase Stipulated Fact – AO1 – WMAAC)

Stipulated Facts:

“8. Investor Code AO1 in the Loan Transfer History File represents WaMu Asset Acceptance Corporation.”

“9. Investor Code 369 in the Loan Transfer History File represents Washington Mutual Mortgage Securities Corporation.”

“10.  JPMorgan Chase Bank, N.A. did not purchase the loan from the Federal Deposit Insurance Corporation.”

In the Fox case, “JPMorgan Chase” and “U.S. Bank as Trustee,” have taken a position that universally applies to all $615B of these securitized loans.

Each one of these loan transactions will show either the investor code “AO1,” “369,” or both somewhere in the “Loan Transfer History” screenshots within the servicing system, and as such, the loans were not purchased from the FDIC.

To date, Chase has relied upon presumptions in order to maintain its position in thousands of foreclosure proceedings that: (1) it acquired the loans through the PAA, and (2) the assignments of beneficial-ownership interests to the loans unto itself is valid.

Please visit Bill Paatalos’s informative blog at http://www.bpinvestigativeagency.com.  Paatalo has investigated and exposed the fraudulent WaMu/FDIC/JPMorgan Chase fraud and is one of the most talented foreclosure fraud investigators in the country.

 

 

 

 

Wall Street banks shifting “profits” from mortgage bonds into natural resources

Wall Street banks know all about leveraging. They need to bring back the huge quantity of money they stole from the U.S. economy that they have secreted around the world (without paying a dime in taxes). The strategy they adopted was to bring the money from the shadow banking sector into the real banking world by “investing” in natural resources. The reason for the choice is obvious — high demand for the raw materials, high liquidity in the marketplace for both the products and the futures and related contracts for “trading profits” (like the “trading profits they created with investor money in the mortgage bond market before any loans were made), and an opportunity for virtually unlimited “leverage” where they could control prices and bet against the very same investments they were selling to their customers.

The leverage comes from a primary investment in the warehousing and transport of raw materials and secondarily taking positions in the ownership of natural resources. This allows them to manipulate the cost of raw materials — like copper and aluminum (see articles below), manipulate the politics in our country so that infrastructure repairs and rebuilding is out off until there is a tragedy of a large collapsing bridge killing thousands, and manipulate the bidding process for natural resources (like the Iraq and Afghanistan wars) so that there is a level of panic that causes the nation to send ten times the price of rebuilding now. The natural resources market is basically the only game they can play because it is the only marketplace that is large enough to absorb trillions of dollars stolen from Americans and people all over the world in the securitization scam.

Just as securitization was an illusion, making the base investment (mortgage loans) non existent at the same moment they were created or acquired, so will be the exotic investment vehicles now being prepared for both institutional and ordinary investors that will cover the multiple sales of the same bundle of commodities. Here we go again! Another boom and bust.

Tue, Aug 13

CFTC subpoenas metal warehouse companies • The Commodity Futures Trading Commission has reportedly subpoenaed Goldman Sachs (GS), JPMorgan (JPM), Glencore Xstrata (GLCNF.PK) and their subsidiaries for documents relating to warehouses they operate for aluminum and other metals. • The agency has requested information dating back to January 2010; it also wants documents relevant to the companies’ relationships with the London Metals Exchange. • The CFTC’s investigation follows allegations that the activities of warehousing companies have artificially boosted the price of metals, particularly aluminum. • Earlier speculation said the CFTC had sent subpoenas to an unnamed metals warehousing firm.

Full Story: http://seekingalpha.com/currents/post/1216972?source=ipadportfolioapp

Perils of Pooling

We hold these truths to be self evident: that Chase never acquired any loans from Washington Mutual and that Bank of America never acquired any loans from Countrywide.  A review of the merger documents approved by the FDIC reveals that neither Chase nor Bank of America wanted to assume any liabilities in connection with the lending operations of Washington Mutual or Countrywide, respectively. The loans were expressly left out of the agreement which is available for everyone to see on the FDIC website in the reading room.

With the exception of a few instances in which the court pointed out that Chase only acquired servicing rights and that Bank of America may not have acquired any rights, judges have been rubber-stamping foreclosures initiated by Bank of America (or entities controlled by Bank of America like Recontrust) under the assumption that Bank of America must be the owner of the Countrywide mortgages. The same is true  for judges who have been rubber-stamping foreclosures initiated by Chase under the assumption that Chase must be the owner of the Washington Mutual mortgages. After all, if they don’t own the mortgages then who does? The answer is that in nearly all cases either BofA nor Countrywide and neither Chase nor WAMU owned the loans and their financial statements prove it.

Not only have the judges been rubber-stamping the foreclosures and participating in a scheme that is correcting our title records nationwide, the entry of judgment against the borrower and for Bank of America or for Chase completes the theft of the investors money that was used for exorbitant fees, profits and bonuses and then finally for the funding of the origination or acquisition of loans. The fact that the REMIC trust was ignored in both form and content has also been the subject of the defective rulings from the bench.  Not only have the courts ruled against the borrowers and for the banks, they have even ruled against the presentation of evidence that would have shown that the investors were being stripped of their expected lien rights and then stripped again on their expected return of principal and interest, and then barred by collateral estoppel from ever bringing it up.

Since most of the foreclosures have emanated from Bank of America and Chase it is a fair assumption that most of the foreclosure sales were void because no valid bid was received in exchange for the deed. The property is still owned by the original homeowner In any case where a credit bid was submitted by Bank of America or Chase on any loan in which either Countrywide Mortgage or Washington Mutual was involved. I might add that the Federal Reserve in New York is completely aware of these facts and is steadfastly refusing to reveal the truth to the public or even to the homeowners whose homes were illegally and wrongfully foreclosed by Bank of America and Chase for a loan where both Bank of America and Chase and their chain of affiliates had been paid multiple times on a loan receivable account owned by the source of the funds, to wit: the investors who thought they were buying mortgage bonds from a funded legally organized REMIC trust.

CAVEAT:  The courts are mainly concerned with finality. In many states there may be a statute of limitations to challenge a void deed from an auction sale. Check with an attorney who is licensed in the jurisdiction in which your property is located before you take any action or make any decision.

It seems crazy to think that someone could apply for a loan and get the benefits of funding without ever being required to pay it back to the lender.  But that is exactly what is happening as a result of defective court decisions.  The lender consists of a group of investors including pension funds that are now underfunded as a result of the civil and possibly criminal theft of funds by Bank of America and Chase or the investment firms acquired by them.

Homeowners are being forced to pay Bank of America and Chase rather than the investors who actually advanced the funds. Bank of America and Chase actively interfere and Stonewall whenever a borrower or an investor seeks to peek under the hood to see what is in the box. There is nothing in the box. The deal was always between the investors and homeowners. The bank’s lied. They pretended that they were the lenders when in fact there were only the intermediaries. The result was that all the payments received from borrowers, government, the federal reserve, insurers, guarantors, co-obligors, and counterparties on credit  default swaps went to the accounts of Bank of America and Chase rather than to the investors.

 By holding back the money, Bank of America and Chase, just like other banks created the illusion of a default and since they had created the illusion of ownership of the default they took the money instead of handing it over to the investors. You read the lawsuits that have been filed by  investors against the investment banks that sold them worthless mortgage bonds issued by an empty asset pool you will see that they allege affirmatively that the notes and mortgages are unenforceable.

That makes it unanimous! Both the lender and the borrower agree that the documentation is defective and unenforceable. Both the lender and the borrower agree that the lender should get paid.  And both the lender and the borrower agree that the lender is entitled to be paid only once for the money advanced by the lender.  And both the lender and the borrower agree that the banks are holding trillions of dollars in money that should have been used to pay off the account receivable owned by the investors.

With the lender paid off or where the account receivable has been reduced by payments to the banks who were acting as agents of the investors but breaching their duties to the investors, the amount payable by the homeowner as a borrower would be correspondingly reduced or eliminated. In fact, under the requirements of the federal truth in lending act, the overpayment is due to the borrower for failure to disclose the true facts of the transaction. In fact, under federal law, treble damages, legal interest, attorneys fees and costs probably also apply.

Nardi Deposition Reveals All about JPM-WAMU Slick Transactions

NOTE IF ANYTHING, THIS DEPOSITION PROVES THE NEED FOR AN EXPERT FORENSIC COMPUTER ANALYST TO ASSIST IN DISCOVERY AND PERHAPS EVEN PLEADING. THAT IS WHY MY LAW FIRMS AND OTHERS ARE CREATING ALLIANCES WITH LAWYERS WHO HAVE EXPERIENCE IN BOTH THE PRACTICE OF LAW, LITIGATION AND DETAILED KNOWLEDGE ABOUT WHAT TO LOOK FOR, HOW TO LOOK FOR FACTS LEADING TO THE DISCOVERY OF ADMISSIBLE EVIDENCE IN A COURT OF LAW.

I am going through the Nardi deposition a line by line. I have completed the first 50 pages. If you have a case where JPM is foreclosing even if it is doesn’t involve WAMU, you should read the whole thing. I have the link below. Below the link are my notes and comments on the first 50 pages of the deposition. IN the context of other things we know this is a picture of fraud in the making while at the same time keeping the people who are the boots on the ground actors unaware of the consequences of what they are doing.

http://www.scribd.com/doc/102949976/120509-JPMC-v-Waisome-FL-Lawrence-Nardi-Deposition

Garfield Notes on Nardi deposition JP Morgan Chase, as successor to Washington Mutual v. Waisome, 5th Judicial Circuit, Florida Case NUmber 2009-CA-005717, May 9 2012

1.  No prior banking experience. No education in banking or finance. No academic degree. No direct knowledge as to any of the events, documents, or transactions relating to the subject loan because her scope of employment was to assist in litigation or settlement of contested cases. Worked at Citibank dealing with credit cards and assisted in programming.
2. Worked with PHH on loan originations. Line 21, Page 9, I was the originations or preserve rare. I worked with the borrowers on collecting documents, getting them prepared for eventual closing of their loan, working with underwriting and making sure that the documents they needed to push the loan package forward were provided. Basically kind of the air traffic controller of the loan origination’s part of the business.
3. Line 12 page 10 I was not a supervisor. I had a support staff but they were pooled into groups that basically support in five or 10 other loan officers. So I was supervised. We were in a pool.
4. Worked with Merrill Lynch as a series 7 and series 66 broker.
5. Worked at Washington Mutual starting in September 2007.
6. My duties were to work with deceased borrowers estates at Washington Mutual
7.   line11 page 16 I didn’t have anything to do with loss mitigation. I was focusing on establishing that line of communication verifying that these people have the authority to act on behalf of of the deceased.
8. RECORDS SYSTEMS CHANGE:  line 18  page 16 I was actually going back and kind of redoing some of the filing systems that they had an kind of getting that more modernized. And that probably took me through the first 1 1/2 years or thereabouts.
9. SHELLY TREVIN BECAME MY SUPERVISOR
10. Worked with a guy named Vinnie and a lady named Laura.
11. Assigned different states. i was assigned Florida and some smaller states (line 20 page 24)
12. Line 5 page MSP: mortgage servicing platform. It’s a widely used system. In fact all of the major services I have ever worked for have used it. So Washington Mutual was using it. Chase was also using it so I had the benefit of that. So the training for that for me was kind of redundant.
13. LIne 6 page 27 (question was whether Fidelity LPS developed the software).  I am not an expert on everything at Fidelity. My understanding is that fidelity developed this software and licensed it to individual servicers. So that’s my understanding is that actually they own it. It’s their property. Where releasing it as a servicer.
14 line 3 page 28. IMAGE WEB: I believe it was called image web. Image web Wesley default software for any time you need to look up image documents, whether it be notes, mortgages, origination packages, applications. You know, whatever was deemed worthy of saving where necessary to save for servicing purposes.
15. line 13 page 28  a separate servicing system for the home-equity loans.  I think it was called ACLS.  And they had a customer service collection system called CACS  that was used for home equity collections.  those are example of systems they had that we would have used at Washington Mutual that weren’t used at the majors. The major system used being MSP.
16. LIne 21 Page 28 Outlook email was major server for communication within Chase.
17. Line 23, Page 28, MSP is really the central repository for all information related to a loan so most people work out of that anytime they’re coming in contact with, you know, servicing.
18. everyone has a unique identifying usually three digit code assigned to them and they have to set their own password.
19. I have the ability you know part of my duties were to document the things that I was doing. So yes I have the ability to enter data into certain areas. Not all areas can be manipulated. I could enter notes into the system. I could change stop code so that if I was dealing with alone that was in litigation and it needed to stop certain things like collection activities or foreclosure processing, I could put stops on the system. (line 13 Page 29)
20. Lin  se 9 page 31.   We had different client numbers that were assigned to different sets of loans. The Washington Mutual client was 156. The Chase client was like 465.
21. MAJOR PROJECT INTEGRATING CHASE AND WAMU LOANO PACKAGES: LINE 2 PAGE 33:  my understanding is that they drew resources from all areas of the business. I don’t think there was any one department that was involved in handling that transaction or that project.
22. Line 8 page 33: I don’t know if there was a specific person in charge of it. I can imagine based on my experience in some of the projects that I’ve seen in other places that there is probably a project manager and several business heads of business people that were running it but I wasn’t in charge I wasn’t part of the project specifically so I don’t really know.
23. LIne 6 page 39: CHASE LOANS VERSUS INVESTOR LOANS:    if you are looking for specific investor or owner information you would go into a screen called MAS1. And then there is a sub screen within that called INV1 which would tell you, if there is an investor, who it is. And if it’s Chase owned, it would say Chase owned.
24. line 17 page 40:  I believe that we keep records of these investor codes potentially outside the system. I’ve never accessed an investor list with an MSP, so it’s possible it’s there. I just don’t know.
25: NO NEED TO MEMORIZE THE USER ID: LINE 6 PAGE 41:  it’s not something you necessarily have to memorize because when you login using your password is going to tell you it’s going to memorialize everything. You don’t have to memorize it. I think mine was OY$.
26. IDENTIFICATION OF INVESTOR: line 17  page 41:   I believe there are also three digits for the investor codes. But when you go into MAS1 and INV1 it actually spells out the name of the investor,.    so if it’, for instance, a chase loan, it will say J.P. Morgan Chase. If it’s Bank of America, it will say Bank of America. It will spell out the name and the address of the investor or owner for you right there on the screen. So you don’t have to interpret a code it’s right there.
27. EXISTENCE OF PRIVATE INVESTOR KEPT HIDDEN FROM EMPLOYEES GIVEN THAT 96% OF ALL LOANS WERE SUBJECT TO CLAIMS OF SECURITIZATION. THIS SHOWS HOW THE BANKS TEMPORARILY CLAIMED OWNERSHIP OF THE LOANS FOR PURPOSES OF TRADING, HEDGING AND COLLECTING INSURANCE, FEDERAL BAILOUTS AND PROCEEDS OF CREDIT DEFAULT SWAPS LEAVING THE PRIVATE INVESTORS OUT IN THE COLD AND THEREFORE PREVENTING OR INTERFERING WITH THE PROCESS OF ALLOCATING SUCH PAYMENTS TO THE ACCOUNT RECEIVABLE FO THE INVESTOR AND DECREASING THE ACCOUNT PAYABLE OF THE BORROWER. LINE 11 PAGE 42:  I don’t remember a specific instance where I was dealing with a private investor loan.
28. COLLATERAL FILE SHIPPED OUT WITHIN 15 DAYS OF THE NOTICE OF CHANGE OF SERVICER — BUT HOW DOES SHE KNOW THAT ACTUALLY HAPPENED? AND WHAT DO WE KNOW ABOUT WHAT WAS IN THE COLLATERAL FILE? LINE 2 PAGE 45
29. HANDLING OF FILES AND SHIPPING OF FILES. WHO IS AUTHORIZED. collateral file and credit file: line 8. page 47:  you referenced a collateral file. There is also a credit file. Sometimes you need stuff from the credit file and sometimes you don’t. The collateral file you know sometimes you need it sometimes you don’t. So depending on what you need, there is an electronic request for each one. You send it to the customer service folks. The credit file and there is certain restrictions as to who can actually order it. You have to have certain authorization. You can only send it certain places. You have to either send it to someone if you are sending it to someone within the company they have to have it’s a very short list within the company who can get it. Generally we ship it only to counsel when it needs to go out of custody and services. So you would include your identifier to show you have the authority to order it. You need to identify where it’s going so the firm it’s being shipped to, custody services, will accept that. Basically it’s an email transmission, and that works constantly. So they will go in, pull up the work order, have a person that’s designated to be able to enter the file room, go in and pull the file, and then ship it off to the firm was requesting it. I’m almost 100% certain that they use FedEx almost exclusively for the shipping.
30.  Inside counsel is ANITA Smith or Kendall Forster LINE 3 PAGE 50.
31. NO PERSONAL KNOWLEDGE OF EXISTENCE OF THE PHYSICAL FILES. HEARSAY ON HEARSAY. LINE 10 PG 50. This would seem to indicate that all her testimony about the movement of the physical files is hearsay based upon computer entries by people she doesn’t know, or things she was told by counsel or someone else working for other departments, indicating multiple records custodians.

Truth Coming Home to Roost: JPM Knew the Loans Were Bad

In a statement shortly after he sued JPMorgan Chase, Mr. Schneiderman [Attorney general, New York state] said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

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

A PRIMER ON COOKING THE BOOKS

Editor’s Comment and Analysis: It’s been a long pull to get the real information about the misbehavior of the mega banks and their officers. But Schneiderman, Attorney general of the State of New York, is drilling down to where this really needs to go. And others, tired of receiving hollow assurances from the mega banks are suing — with specific knowledge and proof that is largely unavailable to borrowers — a good reason to watch these suits carefully.

Both internal emails and interviews have revealed that they repeatedly were warned by outside analysts of the perils of the mortgage lending process. The officers of JPM chose to change the reports to make them look more appealing to investors who gave up the pension money of their pensioners in exchange for what turns out to be bogus mortgage bonds issued by a non-existent or unfunded entity that never touched a dime of the investors’ money and never received ownership or backing from real loans with real security instruments (mortgages and deeds of trust).

A lawsuit filed by Dexia, a Belgian-French bank is being closely watched with justified trepidation as the onion gets pealed away. The fact that the officers of JPM and other mega banks were getting reports from outside analysts and took the trouble to change the reports and change the make-up of the bogus mortgage bonds leads inevitably to a single conclusion — the acts were intentional, they were not reckless mistakes, they weren’t gambling. They were committing fraud and stealing the pension money of investors and getting ready to become the largest landowners in the country through illegal, fraudulent, wrongful foreclosure actions that should have been fixed when TARP was first proposed.

The Dexia lawsuit focuses on JPM, WAMU and Bear Stearns, acquired by JPM with government help. The failure to provide bailout relief to homeowners at the same time sent the economy into a downward spiral. Had the Federal reserve and US Treasury department even ordered a spot check as to what was really happening, the “difficult” decisions in 2008 would have been averted completely.

Receivership and breakdown of the large banks would have produced a far more beneficial result to the financial system, and is still, in my opinion, inevitable. Ireland is doing it with their major bank as announced yesterday and other countries have done the same thing. Instead of the chaos and trouble that the banks have policy makers afraid of creating, those countries are coming out of the recession with much stronger numbers and a great deal more confidence in the marketplace.

The practice note here is that lawyers should look at the blatant lies the banks told to regulators, law enforcement and even each other. The question is obvious — if the banks were willing to lie to the big boys, what makes you think that ANYTHING at ground level for borrowers was anything but lies?  They went to their biggest customers and lied in their faces. They certainly did the same in creating the illusion of a real estate closing at ground level.

Lawyers should question everything and believe nothing. Normal presumptions and assumptions do not apply. Keep your eye on the money, who paid whom, and when and getting the proof of payment and proof of loss. You will find that no money exchanged hands except when the investors put up money for the bonds that were supposed to be mortgage backed, and the money that was sent down the pipe via wire transfer to the closing agent under circumstances where the “lender” was not even permitted to touch the money, much less use it in their own name for funding.

The diversion of money away from the REMICs and the diversion of title away from the REMICs leaves each DOCUMENTED loan as non-existent, with the note evidence of a transaction in which no value exchanged hands, and the mortgage securing the obligations of the invalid note.

The diversion of the documents away from the flow of money leaves the borrower and lenders with a real loan that, except for the wire transfer receipts, that was undocumented and therefore not secured. Yet nearly all borrowers would grant the mortgage if fair market value and fair terms were used. Millions of foreclosures would have been thwarted by settlements, modifications and agreements had the investors been directly involved.

Instead the subservicers rejected hundreds of thousands of perfectly good proposals for modification that would have saved the home, mitigated the damages to investors, and left the bank liable to investors for the rest of the money they took that never made it into the money chain and never made it into the REMIC.

Add to this mixture the rigging of LIBOR and EuroBOR, the receipt of trillions in mitigating payments kept by the banks that should have been paid and credited to the investors, and it is easy to see, conceptually, how the amount demanded in nearly all foreclosure cases is wrong.

Discovery requests should include, in addition to third party insurance and CDS payments, the method used to compute new interest rates and whether they were using LIBOR ( most of them did) and what adjustments they have made resulting from the revelation that LIBOR was rigged — especially since it was the same mega banks that were rigging the baseline rate of interbank lending.

Once you are in the door, THEN you can do not only your own computations on resetting payments, but you can demand to see all the transactions so that the applied interest rate was used against the alleged principal. At that point you will know if a loan receivable account even exists and if so, who owns it — and a fair guess is that it is not now nor was it ever any of the parties who have “successfully” completed foreclosure, thus creating a corruption of title in the marketplace for real estate that has never happened before.

E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad

By JESSICA SILVER-GREENBERG

When an outside analysis uncovered serious flaws with thousands of home loans, JPMorgan Chase executives found an easy fix.

Rather than disclosing the full extent of problems like fraudulent home appraisals and overextended borrowers, the bank adjusted the critical reviews, according to documents filed early Tuesday in federal court in Manhattan. As a result, the mortgages, which JPMorgan bundled into complex securities, appeared healthier, making the deals more appealing to investors.

The trove of internal e-mails and employee interviews, filed as part of a lawsuit by one of the investors in the securities, offers a fresh glimpse into Wall Street’s mortgage machine, which churned out billions of dollars of securities that later imploded. The documents reveal that JPMorgan, as well as two firms the bank acquired during the credit crisis, Washington Mutual and Bear Stearns, flouted quality controls and ignored problems, sometimes hiding them entirely, in a quest for profit.

The lawsuit, which was filed by Dexia, a Belgian-French bank, is being closely watched on Wall Street. After suffering significant losses, Dexia sued JPMorgan and its affiliates in 2012, claiming it had been duped into buying $1.6 billion of troubled mortgage-backed securities. The latest documents could provide a window into a $200 billion case that looms over the entire industry. In that lawsuit, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has accused 17 banks of selling dubious mortgage securities to the two housing giants. At least 20 of the securities are also highlighted in the Dexia case, according to an analysis of court records.

In court filings, JPMorgan has strongly denied wrongdoing and is contesting both cases in federal court. The bank declined to comment.

Dexia’s lawsuit is part of a broad assault on Wall Street for its role in the 2008 financial crisis, as prosecutors, regulators and private investors take aim at mortgage-related securities. New York’s attorney general, Eric T. Schneiderman, sued JPMorgan last year over investments created by Bear Stearns between 2005 and 2007.

Jamie Dimon, JPMorgan’s chief executive, has criticized prosecutors for attacking JPMorgan because of what Bear Stearns did. Speaking at the Council on Foreign Relations in October, Mr. Dimon said the bank did the federal government “a favor” by rescuing the flailing firm in 2008.

The legal onslaught has been costly. In November, JPMorgan, the nation’s largest bank, agreed to pay $296.9 million to settle claims by the Securities and Exchange Commission that Bear Stearns had misled mortgage investors by hiding some delinquent loans. JPMorgan did not admit or deny wrongdoing.

“The true price tag for the ongoing costs of the litigation is terrifying,” said Christopher Whalen, a senior managing director at Tangent Capital Partners.

The Dexia lawsuit centers on complex securities created by JPMorgan, Bear Stearns and Washington Mutual during the housing boom. As profits soared, the Wall Street firms scrambled to pump out more investments, even as questions emerged about their quality.

With a seemingly insatiable appetite, JPMorgan scooped up mortgages from lenders with troubled records, according to the court documents. In an internal “due diligence scorecard,” JPMorgan ranked large mortgage originators, assigning Washington Mutual and American Home Mortgage the lowest grade of “poor” for their documentation, the court filings show.

The loans were quickly sold to investors. Describing the investment assembly line, an executive at Bear Stearns told employees “we are a moving company not a storage company,” according to the court documents.

As they raced to produce mortgage-backed securities, Washington Mutual and Bear Stearns also scaled back their quality controls, the documents indicate.

In an initiative called Project Scarlett, Washington Mutual slashed its due diligence staff by 25 percent as part of an effort to bolster profit. Such steps “tore the heart out” of quality controls, according to a November 2007 e-mail from a Washington Mutual executive. Executives who pushed back endured “harassment” when they tried to “keep our discipline and controls in place,” the e-mail said.

Even when flaws were flagged, JPMorgan and the other firms sometimes overlooked the warnings.

JPMorgan routinely hired Clayton Holdings and other third-party firms to examine home loans before they were packed into investments. Combing through the mortgages, the firms searched for problems like borrowers who had vastly overstated their incomes or appraisals that inflated property values.

According to the court documents, an analysis for JPMorgan in September 2006 found that “nearly half of the sample pool” – or 214 loans – were “defective,” meaning they did not meet the underwriting standards. The borrowers’ incomes, the firms found, were dangerously low relative to the size of their mortgages. Another troubling report in 2006 discovered that thousands of borrowers had already fallen behind on their payments.

But JPMorgan at times dismissed the critical assessments or altered them, the documents show. Certain JPMorgan employees, including the bankers who assembled the mortgages and the due diligence managers, had the power to ignore or veto bad reviews.

In some instances, JPMorgan executives reduced the number of loans considered delinquent, the documents show. In others, the executives altered the assessments so that a smaller number of loans were considered “defective.”

In a 2007 e-mail, titled “Banking overrides,” a JPMorgan due diligence manager asks a banker: “How do you want to handle these loans?” At times, they whitewashed the findings, the documents indicate. In 2006, for example, a review of mortgages found that at least 1,154 loans were more than 30 days delinquent. The offering documents sent to investors showed only 25 loans as delinquent.

A person familiar with the bank’s portfolios said JPMorgan had reviewed the loans separately and determined that the number of delinquent loans was far less than the outside analysis had found.

At Bear Stearns and Washington Mutual, employees also had the power to sanitize bad assessments. Employees at Bear Stearns were told that they were responsible for “purging all of the older reports” that showed flaws, “leaving only the final reports,” according to the court documents.

Such actions were designed to bolster profit. In a deposition, a Washington Mutual employee said revealing loan defects would undermine the lucrative business, and that the bank would suffer “a couple-point hit in price.”

Ratings agencies also did not necessarily get a complete picture of the investments, according to the court filings. An assessment of the loans in one security revealed that 24 percent of the sample was “materially defective,” the filings show. After exercising override power, a JPMorgan employee sent a report in May 2006 to a ratings agency that showed only 5.3 percent of the mortgages were defective.

Such investments eventually collapsed, spreading losses across the financial system.

Dexia, which has been bailed out twice since the financial crisis, lost $774 million on mortgage-backed securities, according to court records.

Mr. Schneiderman, the New York attorney general, said that overall losses from flawed mortgage-backed securities from 2005 and 2007 were $22.5 billion.

In a statement shortly after he sued JPMorgan Chase, Mr. Schneiderman said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”

Local Governments on Rampage Against Banks’ Manipulation of Credit Markets

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“When both government and the citizens start acting together, things are likely to change in a big way. There appears to be a unity of interests — the investors who thought they were buying bonds from a REMIC pool, the homeowners who thought they were buying a properly verified and underwritten loan from a pretender lender, and the local governments who were tricked into believing that their loans were viable and trustworthy based upon the gold standard of rate indexes. In many cases, the only reason for the municipal loan, was the illusion of growing demographics requiring greater infrastructure, instead of repairing the existing the infrastructure. As a result, the cities ended up with loans on unneeded products just like homeowners ended up with loans on houses that were always worth far less than the appraisal used.” — Neil F Garfield, www.livinglies.me

Editors Note: Hundreds of government agencies and local governments are on the rampage realizing that they were duped by Wall Street into buying into defective loan products. This puts them in the same class as homeowners who bought such loan products, investors who believed they were buying Mortgage Bonds to fund the loans, and dozens of other institutions who relied upon the lies told by the banks who were having a merry old time creating “trading profits” that were the direct result of stealing money and homes, and misleading the financial world on the status of the interest rates in the financial world. All loans tied to Libor (London Interbank Offered Rate), which was the gold standard,  are now in question as to whether the reset on those loans was true, correct or simply faked.

The repercussions of this will grow as the realization hits the victims of this gigantic fraud broadens into a general inquiry about most of the major practices in use — especially those in which claims of securitization were offered. It is now obvious that the deal proposed to pension funds and other investors was simply ignored by the banks who used the money to create faked trading profits, removing from the pool of investments money intended for funding loans that were properly originated and dutifully underwritten.

Cities, Counties, Homeowners and Investors are all victims of being tricked into loans that were simply unsustainable and were being manipulated to the advantage of the banks they trusted to act responsibly and who instead acted reprehensibly.

The ramifications for the mortgage and foreclosure markets could not be larger. If the banks were lying about the basics of the rate and the terms then what else did they do? As the Governor or of the Bank of England said, the business model of the banks appears to have been “lie More” rather than living up to the trust reposed in them by those who dealt with them as “customers.” Specifically, the evidence suggests that while the funding of the loan and the closing documents were coincidentally related in time, they specifically excluded any reference to each other, which means that the financial transaction as it actually occurred is undocumented and the document trail refers to financial transactions that did not involve money exchanging hands.

The natural conclusion created by the coincidence of the funding and the documents was to conclude that the two were related. But the actual instructions and wire transfers tell another story. This debunks the myth of securitization and more particularly the mortgage lien. How can the mortgage apply to a transaction described in the note that never took place and where the terms of the loan were different than what was expected by the creditors (investors, like pension and other managed funds) in the mortgage bond. The parties are different too. The wires funding the transaction are devoid of any reference to the supposed lender in the closing documents presented to borrowers. Thus you have different parties and different terms — one in the money trail, which was undocumented, and the other in the document trail which refers to transactions in which no money exchanged hands.

When the municipalities like Baltimore start digging they are going to find that manipulation of Libor was only one of several issues about which the Banks lied.

Rate Scandal Stirs Scramble for Damages

BY NATHANIEL POPPER

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing. Libor, a measure of how much banks must pay to borrow money from one another in the short term, is set through a daily poll of the banks.

The rate influences what consumers, businesses and investors pay on a wide range of financial contracts, as varied as mortgages and interest rate swaps. Barclays has said it and other banks understated the rate during the financial crisis to make themselves look healthier to the public, rather than to make more money from clients. As regulators and lawmakers in Washington and Europe assess the depth of the Libor abuse and the failure to address it, economists and analysts are already predicting it could be one of the most expensive scandals to hit Wall Street since the financial crisis.

Governments and other investors may face many hurdles in proving damages. But Darrell Duffie, a professor of finance at Stanford, said he expected that their lawsuits alone could lead to the banks’ paying out tens of billions of dollars, echoing numbers from a recent report by analysts at Nomura Equity Research.

American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directly derive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on their use of these investments, said that “about 75 percent of major cities have contracts linked to this.”

If the banks submitted artificially low Libor rates during the financial crisis in 2008, as Barclays has admitted, it would have led cities and states to receive smaller payments from financial contracts they had entered with their banks, Mr. Shapiro said.

“Unambiguously, state and local government agencies lost money because of the manipulation of Libor,” said Mr. Shapiro, who is managing director of the Swap Financial Group and is not involved in any of the lawsuits. “The number is likely to be very, very big.”

The banks have declined to comment on the lawsuits, but their lawyers have asked for the cases to be dismissed in court filings, pointing to the many unusual factors that influenced Libor during the crisis.

The efforts to calculate potential losses are complicated by the fact that Libor is used to determine the cost of thousands of financial products around the globe each day. If Libor was artificially pushed down on a particular day, it would help people involved in some types of contracts and hurt people involved in others.

Securities lawyers say the lawsuits will not be easy to win because the investors will first have to prove that the banks successfully pushed down Libor for an extended period during the crisis, and then will have to demonstrate that it was down on the day when the bank calculated particular payments. In addition, investors may have to prove that the specific bank from which they were receiving their payment was involved in the manipulation. Before it even reaches the point of proving such subtleties, however, the banks could be compelled to settle the cases.

One of the major complaints was filed by several traders and hedge funds that entered into futures contracts that are traded through the Chicago Mercantile Exchange and that pay out based on Libor. These contracts were a popular way to protect against spikes in interest rates, but they would not have paid off as expected if Libor had been artificially lowered.

A 2010 study cited in the suit — conducted by professors at the University of California, Los Angeles and the University of Minnesota — indicated that Libor was significantly lower than it should have been throughout 2008 and was particularly skewed around the bankruptcy of Lehman Brothers.

A separate complaint filed in 2010 by the investment firm Charles Schwab asserts that some of its mutual funds, including popular ones like the Schwab Total Bond Market Fund, lost money on similar investments.

The complaints being voiced by municipalities are mostly related to their use of a popular financial contract known as an interest rate swap. States and cities generally enter into these swaps with specific banks so that they can borrow money in the bond market. They pay bondholders based on a floating interest rate — like an adjustable-rate mortgage — but end up paying their bankers a fixed rate through a swap. If Libor is artificially lowered, the municipality is stuck paying the same fixed rate, but it receives a smaller variable payment from its bank.

Even before the current controversy, some municipal activists have said that banks took advantage of the financial inexperience of municipal officials to sell them billions of dollars of interest rate swaps. Experts in municipal finance say that because of the particular way that cities and states borrow money, they are especially liable to lose out on their swaps if Libor drops.

Mr. Shapiro, who helps cities, states and companies negotiate these contracts, said that if a city had interest rate swaps on bonds worth $1 billion and Libor was artificially pushed down by 0.30 percent, which is what the lawsuits contend, that city would have lost $3 million a year. The lawsuit claims the manipulation occurred over three years. Barclays’ settlement with regulators did not specify how much the banks’ actions may have moved Libor.

In Nassau County, the comptroller, George Maragos, said in a statement that according to his own calculations, Libor manipulation may have cost the county $13 million on swaps related to $600 million of outstanding bonds.

A Massachusetts state official who spoke on the condition of anonymity because of potential future legal actions, said the state was calculating its potential losses.

“We are deeply concerned and we are carefully analyzing all of our options,” the official said.

Anne Simpson, a portfolio manager at the California Public Employees’ Retirement System — the nation’s largest pension fund — said that the fund’s officials “are sifting through the impact, but there certainly is an impact.”

In Baltimore, the city had Libor-based interest rate swaps on about $550 million of bonds, according to the city’s financial report from 2008, the central year discussed in the lawsuit. The city’s lawyers have declined to specify what they think Baltimore’s losses were.

The city solicitor, George Nilson, said that the rate manipulation claims meant that the city lost out on money when it needed it the most.

“The injury we suffered during the time we suffered it hurt more because we were challenged budgetarily,” Mr. Nilson said. “Every dollar we lost due to illegal conduct was a dollar we couldn’t pay to keep open recreation centers or to pay police officers.”


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Simon Johnson on Business Model of Lie More

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Editor’s Comment:  

Anyone who is curious why I named this blog LivingLies will have all their questions answered by this well-articulated article by Simon Johnson, Chief economist of the World Bank, author of 13 Bankers, and the main writer for www.baseline scenario.com. Johnson is first among the world of economists who instantly knew the severity of the culture of lying and deception at the TBTF banks. He is joined in these views by the Financial Times, normally rabidly pro-bank and no less than the Governor of the Bank of England who apparently coined the phrase “Lie More” to replace what was the only index that mattered in the world of finance and bond trading.

The consequences of this culture of lying will be laid bare in the weeks and months and years to come. But as Johnson points out, the days are over when anyone trusts a bank or bank statement. Representations of bank officials once considered as good as gold or what used to be called good as Libor, are now going to be subject of scrutiny and will no doubt reveal a pattern of deceit even deeper than thes we already know about the mortgage meltdown and the trading scam resulting from intentionally manipulating Libor — the gold standard of all indexes.

Lie-More As A Business Model

By Simon Johnson

On Monday, Bob Diamond – the CEO of Barclays, one of the largest banks in the world – was supposedly the indispensable man, with his supporters claiming he was the only person who could see that global megabank through a growing scandal.  On Tuesday morning Mr. Diamond resigned and the stock market barely blinked – in fact, Barclays’ stock was up 0.3 percent.  As Charles de Gaulle supposedly remarked, “the cemeteries are full of indispensable men.”

Mr. Diamond’s fall was spectacular and complete.  It was also entirely appropriate.

Dennis Kelleher of Better Markets – a financial reform advocacy group – summarized the situation nicely in an interview with the BBC World Service on Tuesday.  The controversy that brought down Mr. Diamond had to do with deliberate and now acknowledged deception by Barclays’ staff with regard to the data they reported for Libor – the London Interbank Offered Rate (with the abbreviation pronounced Lie-Bore).  Mr. Kelleher was blunt: the issue in question is “Lie More” not Libor.  (See also this post on his blog, making the point that this impacts credit transactions with a face value of at least $800 trillion.)

Mr. Kelleher’s words may seem harsh, but they are exactly in line with the recently articulated editorial position of the Financial Times (FT) – not a publication that is generally hostile to the banking sector.  In a scathing editorial last weekend (“Shaming the banks into better ways,” June 28th), the typically nuanced FT editorial writers blasted behavior at Barclays and nailed the broader issue in what it called “a long-running confidence trick”:

“The Barclays affair may lack the spice of some recent banking scandals, involving as it does the rather dry “crime” of misreporting interest rates.  But few have shone such an unsparing light on the rotten heart of the financial system.”

The editorial was exactly right with regard to the cultural problem – within that Barclays it had become acceptable or perhaps even encouraged to provide false information.  It underemphasized, however, the importance of incentives in creating that culture.  The employees of Barclays were doing what they were paid to do – and the latest indications from the company are that none of their bonuses will now be “clawed back”.

Martin Wolf, senior economics columnist at the FT and formerly a member of the UK’s Independent Banking Commission, sees to the core issue:

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

This matters because, “Trust is not an optional extra in banking, it is, as the salience of the word “credit” to this industry implies, of the essence.”

As the FT editorial put it, “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars”.

In the words of Mervyn King, governor of the Bank of England, “the idea that my word is my Libor is dead.”  Translation: No one will believe large banks again when their executives claim they could have borrowed at a particular interest rate – we will need to see actual transaction data, i.e., what they actually paid.  Presumably there should be similar skepticism about other claims made by global megabanks, including whenever they plead that this or that financial reform – limiting their ability to take excessive risk and impose inordinate costs on society – will bring the economy to its knees.  It is all special pleading of one or another, mostly intended to rip off customers or taxpayers or, ideally perhaps, both.

Mr. Kelleher has the economics exactly right.  Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations.  Their size confers both market power and the political power needed to conceal the extent to which they are engage in economic fraud.  The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates.

The rip-off is not just for retail investors; chief financial officers of major corporations who should be up in arms.  Boards of directors and shareholders of companies that buy services from big banks should be asking much harder questions about all kinds of derivatives transactions – and who exactly is served by the terms of such agreements.

As Mr. Kelleher puts it on his blog,

“They like to call themselves “banks,” but they aren’t banks in any traditional sense. They are global behemoths that are not just too-big-to-fail, but also too-big-to-regulate and too-big-to-manage. Take JP Morgan Chase for example. It has a $2.35 trillion balance sheet, more than 270,000 employees worldwide, thousands of legal entities, 554 subsidiaries and, as proved by the recent trading losses in London, a CEO, CFO and management team that has no idea what is going on in their own bank.”

“Let’s hope for the sake of the global financial system, the global economy and taxpayers worldwide that Mr. Diamond’s resignation is the first of many. What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis: do whatever they can get away with to get the biggest paychecks as possible. (Remember, CEO Diamond paid himself 20 million pounds last year and was the UK banking leader insisting that everyone stop picking on the banks.)

Lie-more is just the latest example of why that all has to change and the sooner the better”


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Cities, Counties Realize They Have Common Interests With Homeowners

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One More Windfall for the Banks

Editor’s Comment:  

If it is any comfort, the chief financial officers and treasury management officers of cities and counties are starting to realize that they are victims of the banks and that most of these bankruptcies (Stockton CA for example) or near bankruptcy were completely avoidable. Their complaints are sounding more and more like the complaints of homeowners. And they are both right. Those debts should not be paid at all until the amount of the debt can be ascertained in real dollars and the identity of the actual losing party — whether they are defined as creditor or not —- can be ascertained. I don’t think any of the cities, counties or the homeowners and businesses whose debts were subject to false claims of securitization should pay anything to anyone until the governments and law enforcement figures it out. 

The federal government is the only one with the resources to go through all the data  and come up with at least an approximation of the truth of the path of the money. The Courts, Judges and Lawyers are woefully under-resourced to take this mess apart. The only reason that Too Big to Fail is believed by anyone is that nobody fully understands the consequences and actual money impact of the false cloud of derivatives created by the banks exceeding all the money in the word by a wide margin. We have let the Banks minimize the actual currency in favor of looking at a cloud of illusions created by the banks which they and only they want treated as real. We will find the same things operating on student loans where the intermediated banks actually never funded the loans but claim a guarantee from the Federal government. 

These debts should fall squarely on the banks, whether they fail or not, until we get a real accounting of the real transactions in which real money exchanged hands. And that is the mantra of my seminars for lawyers, paralegals, homeowners, city and county officials coming up at the end of this month as I travel through Phoenix, Stockton,  Anaheim etc. 

There is no possibility that  actual debt is $800 Trillion because all the money we have in the world amounts to only $70 trillion. So the loans were part of a chaotic, complex series of dots on a scatter diagram wherein all the data was an illusion except perhaps one of the hundreds of dots on each loan, bond or mortgage. And they certainly were not secured because the terms of repayment and the amount of the loan were off from the beginning as was the index from which they took data to change the so-called payments dude on loans that perhaps never existed but certainly do not exist now. 

The door that opened just a crack has been the Libor rate scandal in which the banks, led by Barclay’s, set interest rates based upon actual and perceived movement of interest rates in the markets. As in other things, these rates were as bogus, since 2008 as the Triple AAA ratings offered to investors in Mortgage-Backed Bonds and the appraisals offered to homeowners. 

City and County officials, once completely blind to the realities of the situation and skeptical of homeowner claims that the mortgages, foreclosures and auctions were rigged, are now realizing that their loans, interest rates, and terms were rigged just like homeowners’ were and that the trap they supposedly are in is an illusion just like the premises upon which Wall Street convinced them (city and County officials) that these loan products were viable and correct implementation of sound fiscal policy.

It wasn’t sound fiscal policy, they weren’t good loans and had the officials actually understood what Wall Street was doing —- creating false demands for services and infrastructure as well as complex financial products that were doomed from the start, they would never have gone ahead with these bonds or loans. Now the whole municipal market is as screwed up as the mortgage and housing markets and we know the banks are to blame because they have already admitted everything necessary to blame them. 

Besides prosecuting claims against the banks for civil and criminal penalties, everyone needs to contemplate the consequences of the status quo and whether they want to change it. One such game changer is eminent domain takeovers of  those toxic mortgages that “seemed right at the time.” But more than that, the cities and counties must look to experts who understand the derivative market (as well as anyone can) and realize that their debt, like everyone else’s debt is an illusion created in the cloud of credit derivatives now estimated at $800 trillion while the total amount of real credit and currency is only $70 trillion. 

Like Homeowners, they must realize that while they borrowed the money, the loan or liability created by the loan or bond was an illusion already paid in full at the time they incurred the obligation. That seems impossible but so does the news on these subjects as one digs deeper and deeper. The banks collected up all the money made under these circumstances and gave their people bonuses amounting to 50% of the profit of each financial institution. Inside that “profit”were trading profits claims by trading fake paper claimed to be owned by the banks while the paper was in the cloud of derivatives that is 10-12 times all the money in the world. 

That debt has long since been paid in full. The only question remaining is whether we can identify the actual people who have lost actual money and what we are going to do for them. But paying the banks on the loan or bonds is certainly not one of the alternatives that should be considered because, like the bailout, it just gives them one more windfall.

Rate Scandal Stirs Scramble for Damages

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.

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Bankers Using Foreclosure Judges to Force Investors into Bad Deals

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

— Neil F Garfield, www.livinglies.me

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

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

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

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

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

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

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

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

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

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

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Bribery or Business as Usual?

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Editor’s Comment and Analysis:

There is only one way this isn’t an outright bribe that should land the senator in jail — and that is proving that he received nothing of value. Stories abound in the media about haircut rates given to members of government particularly by Countrywide, now owned by Bank of America. Now we see it on the way down where others go through hoops and ladders to get a modification of short-sale but members of Congress get special treatment.

The only way this could be considered nothing of value is if the banks that gave this favor knew that they didn’t lend the money, didn’t purchase the loan and didn’t have a dime in the deal. They can prove it but they won’t because the fallout would be that there are no loans in print and that there are no perfected mortgage loans. The consequence is that there can be no foreclosures. And it would mean that the values carried on the books of these banks are eihter overstated or entirely fictiouos. The general consensus is that capital requirments for the banks should be higher. But what if the capital they are reporting doesn’t exist?

We are seeing practically everyday how Congress is bought off by the Banks and yet we do nothing. How can you expect to be taken seriously by the executive branch and the judicial branch of goveornment charged with enforcing the laws? If you are doing nothing and complaining, it’s time to get off the couch and do something with the Occupy Movement or your own private war with the banks. If you are not complaining, you should be — because this tsunami is about to hit the front door of your house too whether you are making the payments or not.

The power of the new aristocracy in American and European politics is felt around the globe. People are suffering in the U.S., Ireland, France, Spain, Italy, Greece and other places because the smaller banks in all those countries got taken to the cleaners by huge conglomerate Wall Street Banks. Ireland is reporting foreclosures and defaults at record rates. It was fraud with an effect far greater than any other act of domestic or international terrorism. And it isn’t just about money either. Suicides, domestic violence ending in death and mental illness are pandemic. And nobody cares about the little guy because the little guy is just fuel for the endless appetite of Wall Street. 

If Obama rreally wants to galvanize the electorate, he must be proactive on the fierce urgency of NOW! Those were his words when he was a candidate and he owes us action because that urgency was felt in 2008 and is a vice around everyone’s neck now.

JPMorgan Chase & the Senator’s Short Sale:

It’s Hypocritical –But Is It Corrupt?

By Richard (RJ) Eskow

There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:

Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?

The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

People should be demanding those answers now.

When Jamie Met Mike

It’s not a pretty picture: In one corner is the Senator who wants to strike down Federal child labor laws and offer American residency to any non-citizen who buys a home with cash. In the other is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes.

“Giving debt relief to people that really need it,” said Dimon, “that’s what foreclosure is.” That comment is Dickensian in its insensitivity – and Dimon’s bank offered real relief to the Senator from Utah.

The story of the short sale on Sen. Mike Lee’s home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn’t believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation’s leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity – money owed to the banks for non-existent home value – is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were “underwater” (meaning they owe more than the home is now worth). That’s about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the “short sale,” in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike’s Deal

But Mike Lee didn’t have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn’t said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let’s see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You’d think a story like that would get a little more attention than it has so far.

The Right’s Outrageous Hypocrisy

We haven’t seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their “legal obligation” and the terrible “message they would send” by walking away from their mortgages.

Then he did a short sale on the MBA’s headquarters. It sold for a reported $41 million, just three years after the MBA – those captains of real estate – paid $74 million for it.

The MBA calls itself “the voice of the mortgage banking industry.”

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: “Losers! Losers! Losers!”

Mike Lee’s Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout of JPMorgan Chase after voting to end unemployment for jobless Americans. Lee also argued against Federal child labor laws, although he did acknowledge that child labor is “reprehensible.”

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes “the federal government’s out-of-control spending has evolved into a major threat to our economic prosperity and job creation” and that he came to Washington to, among other things, “properly manage our finances”. Lee’s website also scolds Congress because, he says, it “cannot live within its means.”

As Ed McMahon used to say, “Write your own joke.”

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy – and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like … well, like what JPMorgan Chase just did in London.

“Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap”

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from Wall Street New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 – as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks – banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads “Million Dollar Sellers’ Club.”

Mike Lee’s bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they’ve put into high-end homes, people like … well, like Mike Lee.

Jamie Dimon’s Outrageous Hypocrisy

Then there’s Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

“Yeah,” Dimon said of principal reductions for homeowners like Sen. Lee, “that’s off the table.”

Dimon’s been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a “loan by loan” basis.

The Rich Are Different – They Have More Mortgage Relief

“The rich are different,” wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that ” the only difference between the rich and other people is that the rich have more money.”

And they apparently find it a lot easier to walk away from their underwater homes.There’s been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don’t want to “reward the underserving,” since hedge fund traders who overestimated next year’s bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that’s where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that’s what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a “loan by loan” basis.

Immoral Logic

While this “loan by loan” approach lacks morality, there’s some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That’s why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they’re not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That’s where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

(“Sorry to interrupt, Mr. Dimon, but it’s London calling.”)

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here’s what the public deserves to know:

Could the writedown on the home’s value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don’t know enough to answer that question yet.

What are JPMorgan Chase’s procedures for deciding who receives mortgage relief and who doesn’t?

Dimon may prefer to handle these matters on a “loan by loan” basis, but there must be guidelines that bank officers can follow. And presumably they’ve been written down somewhere. Were they followed in Mike Lee’s case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, “a big elfin’ deal.” A mid-level bank officer isn’t likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee’s mortgage?

It wouldn’t be unheard of if a a sensitive matter like this one was escalated to all the way to the company’s most senior executive – especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM’s scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a “Friend of Jamie”?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide – even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called “Friends of Angelo,” named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a “Friends of Jamie” list at JPMorgan Chase – and is Mike Lee’s name on it?

Were there any discussions between the bank’s executives and the Senator regarding the foreign home buyer’s bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys – this doesn’t look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee’s home? 

JPMorgan Chase funded, and was an active participant, in the “MERS” program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

“Today’s Wall Street Corruption Fun Fact”: MERS was operated by the Mortgage Bankers Association – the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they’d been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by “average American” you mean “most homeowners,” then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee’s credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee’s mortgage write-off?

That gets tricky – but in a moral sense, you could certainly say that.

Short Selling Democracy

There’s no question that this deal is hypocritical and ugly, and that it reflects much of what’s still broken about both our politics and Wall Street. Is it a scandal? Without these answers we can’t know. This was either a case of the special treatment that is so often reserved for the wealthy, or it’s something even worse: influence peddling and political corruption.

it’s time for JPMorgan Chase and Sen. Mike Lee to come clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public’s entitled to some answers.


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Editor’s Comment:

The number of people passing up the administrative review process is appallingly low, considering the fact that many if not most homeowners are leaving money on the table — money that should rightfully be paid to them from wrongful foreclosure activity (from robo-signing to outright fraud by having non-creditors take title and possession).

The reason is simple: nobody understands the process including lawyers who have been notoriously deficient in their knowledge of administrative procedures, preferring to stick with the more common judicial context of the courtroom in which many lawyers have demonstrated an appalling lack of skill and preparation, resulting in huge losses to their clients.

The fact is, administrative procedures are easier than court procedures especially where you have mandates like this one. The forms of complaints and evidence are much more informal. It is much harder for the offending party to escape on a procedural technicality without the cause having been heard on the merits. 

The banks were betting on two thngs when they agreed to this review process — that people wouldn’t use it and that even if they used it they would fail to state the obvious: that the money wasn’t due or in default, that it was paid and that only a complete accounting from all parties in the securitization chain could determine whether the original debt was (a) ever secured and (b) still existence. They knew and understood that most people would assume the claim was valid because they knew that the loan was funded and that they had executed papers that called for payments that were not made by the borrower.

But what if the claim isn’t valid? What if the loan was funded entirely outside the papers they signed at closing? What if the payments were not due? What if the payments were not due to this creditor? And what if the payments actually were made on the account and the supposed creditor doesn’t exist any more? Why are you assuming that the paperwork at closing was any more real than the fraudulent paperwork they submitted during foreclosure?

People tend to think that if money exchanged hands that the new creditor would simply slip on the shoes of a secured creditor. Not so. If the secured debt is paid and not purchased then the new debt is unsecured even if the old was secured. But I repeat here that in my opinion the original debt was probably not secured which is to say there was no valid mortgage, note and could be no valid foreclosure without a valid mortgage and default.

Wrongful foreclosure activity includes by definition wrongful auctions and results. Here are some probable pointers about that part of the foreclosure process that were wrongful:

1. Use the fraudulent, forged robosigned documents as corroboration to your case, not the point of the case itself.

2. Deny that the debt was due, that there was any default, that the party iniating the foreclosure was the creditor, that the party iniating the foreclosure had no right to represent the creditor and didn’t represnet the creditor, etc.

3. State that the subsitution of trustee was an unauthorized document if you are in a nonjudicial state.

4. State that the substituted trustee, even if the substitution of trustee was deemed properly executed, named trustees that were not qualified to serve in that they were controlled or owned entities of the new stranger showing up on the scene as a purported “creditor.”

5. State that even if the state deemed that the right to intiate a foreclosure existed with obscure rights to enforce, the pretender lender failed to establish that it was either the lender or the creditor when it submitted the credit bid.

6. State that the credit bid was unsupported by consideration.

7. State that you still own the property legally.

8. State that if the only bid was a credit bid and the credit bid was invalid, accepted perhaps because the auctioneer was a controlled or paid or owned party of the pretender lender, then there was no bid and the house is still yours with full rights of possession.

9. The deed issued from the sale is a nullity known by both the auctioneer and the party submitting the “credit bid.”

10. Demand to see all proof submitted by the other side and all demands for proof by the agency, and whether the agency independently investigated the allegations you made. 

 If you lose, appeal to the lowest possible court with jurisdiction.

Many Eligible Borrowers Passing up Foreclosure Reviews

By Julie Schmit

Months after the first invitations were mailed, only a small percentage of eligible borrowers have accepted a chance to have their foreclosure cases checked for errors and maybe win restitution.

By April 30, fewer than 165,000 people had applied to have their foreclosures checked for mistakes — about 4% of the 4.1 million who received letters about the free reviews late last year, according to the Office of the Comptroller of the Currency. The reviews were agreed to by 14 major mortgage servicers and federal banking regulators in a settlement last year over alleged foreclosure abuses.

So few people have responded that another mailing to almost 4 million households will go out in early June, reminding them of the July 31 deadline to request a review, OCC spokesman Bryan Hubbard says.

If errors occurred, restitution could run from several hundred dollars to more than $100,000.

The reviews are separate from the $25 billion mortgage-servicing settlement that state and federal officials reached this year.

Anyone who requests a review will get one if they meet certain criteria. Mortgages had to be in the foreclosure process in 2009 or 2010, on a primary residence, and serviced by one of the 14 servicers or their affiliates, including Bank of America, JPMorgan Chase, Citibank and Wells Fargo.

More information is at independentforeclosurereview.com.

Even though letters went to more than 4 million households, consumer advocates say follow-up advertising has been ineffective, leading to the low response rate.

Many consumers have also grown wary of foreclosure scams and government foreclosure programs, says Deborah Goldberg of the National Fair Housing Alliance.

“The effort is being made” to reach people, says Paul Leonard, the mortgage servicers’ representative at the Financial Services Roundtable, a trade group. “It’s hard to say why people aren’t responding.”

With this settlement, foreclosure cases will be reviewed one by one by consultants hired by the servicers but monitored by regulators.

With the $25 billion mortgage settlement, borrowers who lost homes to foreclosure will be eligible for payouts from a $1.5 billion fund.

That could mean 750,000 borrowers getting about $2,000 each, federal officials have said.

For more information on that, go to nationalmortgagesettlement.com.

BAILOUT TO STATE BUDGETS: AZ Uses Housing Settlement Money for Prisons

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Editor’s Comment:

The general consensus is that the homeowner borrowers are simply at the bottom of the food chain, not worthy of dignity, respect or any assistance to recover from the harm caused by Wall Street. Now small as it is, the banks have partially settled the matter by an agreement that bars the states from pursuing certain types of claims conditioned on several terms, one of which was the payment of money from the banks that presumably would be used to fund programs for the beleaguered homeowners without whose purchasing power, the economy is simply not going to revive. Not only are many states taking the money and simply putting it into general funds, but Arizona, over the objection of its own Attorney General is taking the money and applying to pay for prison expenses.

Here is the sad punch line for Arizona. The prison system in that state and others is largely “privatized” which is to say that the state “hired” new private companies created for the sole purpose of earning a profit off the imprisonment of the state’s citizens. Rumors abound that the current governor has a financial interest in the largest private prison company.

The prison lobby has been hard at work ever since privatizing prisons became the new way to get rich using taxpayers dollars. Not only are we paying more to house more prisoners because the laws a restructured to make more behavior crimes, but now our part of the housing settlement is also going to the prisons. Another bailout that was never needed or wanted. Meanwhile the budget of  Arizona continues to rise from incarcerating its citizens and the profiteers (not entrepreneurs by any stretch of the imagination) are getting a gift of more money from the state out of the multistate settlement.

Needy States Use Housing Aid Cash to Plug Budgets

By SHAILA DEWAN

Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.

In Texas, $125 million went straight to the general fund. Missouri will use its $40 million to soften cuts to higher education. Indiana is spending more than half its allotment to pay energy bills for low-income families, while Virginia will use most of its $67 million to help revenue-starved local governments.

Like California, some other states with outsize problems from the housing bust are spending the money for something other than homeowner relief. Georgia, where home prices are still falling, will use its $99 million to lure companies to the state.

“The governor has decided to use the discretionary money for economic development,” said a spokesman for Nathan Deal, Georgia’s governor, a Republican. “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”

Andy Schneggenburger, the executive director of the Atlanta Housing Association of Neighborhood-Based Developers, said the decision showed “a real lack of comprehension of the depths of the foreclosure problem.”

The $2.5 billion was intended to be under the control of the state attorneys general, who negotiated the settlement with the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally. But there is enough wiggle room in the agreement, as well as in separate terms agreed to by each state, to give legislatures and governors wide latitude. The money can, for example, be counted as a “civil penalty” won by the state, and some leaders have argued that states are entitled to the money because the housing crash decimated tax collections.

Shaun Donovan, the federal housing secretary, has been privately urging state officials to spend the money as intended. “Other uses fail to capitalize on the opportunities presented by the settlement to bring real, concerted relief to homeowners and the communities in which they live,” he said Tuesday.

Some attorneys general have complied quietly with requests to repurpose the money, while others have protested. Lisa Madigan, the Democratic attorney general of Illinois, said she would oppose any effort to divert the funds. Tom Horne, the Republican attorney general of Arizona, said he disagreed with the state’s move to take about half its $97 million, which officials initially said was needed for prisons.

But Mr. Horne said he would not oppose the shift because the governor and the Legislature had authority over budgetary matters. The Arizona Center for Law in the Public Interest has said it will sue to stop Mr. Horne from transferring the money.


Short Sale No Protection Against Bank

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Editor’s Comment:

As if on queue this story appears. I have been warning buyers of short sales that they face strong headwinds in maintaining ownership of the house, keeping possession, and the general fact that buying a short sale probably is buying into litigation now or later.

This guy is a true innocent buyer without any real notice of the problems he was buying into. His realtor obviously didn’t tell him because the realtor’s compensation is based upon the sale closing. The title agent didn’t tell him for the same reason. And the bank selected as the ” designated hitter” to receive money and execute papers showing the old mortgage was satisfied and the foreclosure was over probably didn’t even know who to call or why because, like the originator at the original closing on the loan, was just a fee for service “satisfied” instead of a fee for service originator.

So the designated forecloser keeps proceeding — and in this case apparently foreclosed on the house without the new short sale buyer knowing a thing about it, evicted the tenants, which now included the shortsale buyer, and then broke in, removed all the personal belongings leaving this guy with a lawsuit for trespass and the loss of his furniture and personal belongings.

This will continue until we accept and act upon the fact that the foreclosures and the would-be originators of foreclosures have no right to even be at the table — same as when the old old loan was created.

KC Man Sues Bank Over Foreclosure Error

Claim: JPMorgan Chase Changed Locks, Seized New Owner’s Property

KANSAS CITY, Mo. — A Kansas City man is taking on banking giant JPMorgan Chase, accusing the company of something that he said would have landed anyone else in handcuffs.

Allan Danforth bought a house in a short sale in fall 2010. JPMorgan Chase held the previous owner’s mortgage. Danforth said two months later, without notice, the bank changed the locks and hauled away $25,000 worth of furniture, appliances and family heirlooms.

“I had to bust in through the basement window here,” Danforth said, pointing to the house that he was forced to break into more than 18 months ago.

He said JPMorgan Chase’s contractor, Safeguard Properties, ignored “No Trespassing” signs on the garage, changed the locks on his home and cleaned it out two months after he paid cash for the property.

“It was basically stuff that was 150 years of family history,” Danforth said. “I feel violated and I felt like the house wasn’t even safe to go into for a while.”

Danforth said Safeguard Properties could find his family heirlooms. He said JPMorgan Chase just gave him a runaround.

“They’re the big bank and they don’t care,” he said.

“It’s a wrong built upon wrongs,” said attorney Tony Stein.

He said it’s a wrongful foreclosure.

“We fully intend to go into court and have a Jackson County jury try to decide the eventual outcome of this case in the only language JPMorgan Chase understands,” Stein said. “The language of money.”

In his lawsuit, Stein accuses JPMorgan Chase of theft, trespassing and reckless indifference.

Jackson County court records show that on Sept. 9, the previous homeowners transferred the house to Danforth. The bank signed off 12 days later.

“For the very company to release their deed of trust and thereby release all their rights against this property, and then two months later, send in a company to clean this thing out? You’ll have to ask them why they’d do something like that,” Stein said. “It defies logic.”

Danforth and his attorney said the bank has ignored their letters. When KMBC investigated the case, a spokeswoman for JPMorgan Chase had a response.

“We made a paperwork mistake when the property was sold, which resulted in our service partner changing the locks and winterizing the property to ensure its security,” the statement said.

The company did not comment how it plans to settle the dispute.

“I’m not the first one. I will not be the last, unfortunately,” Danforth said.

He said he has installed a security system in case of another “paperwork mistake.”

“If it were you or I doing it, we’d be sitting in jail right now,” Danforth said. “Why isn’t JPMorgan in jail?”

Safeguard Properties deferred comment to the bank.

Danforth’s lawsuit is before the Jackson County Court and claims actual damages in excess of $25,000. Under law, Stein said members of Danforth’s family could be entitled to recover as much as $1.5 million in punitive damages.

Danforth’s copies of important documents were inside the house and were taken by Safeguard Properties. Experts said in case of a fire or burglary, it’s a good idea to have copies of important documents in a digital form or a safety deposit box.


Reuters: Top Justice Officials Linked With Pretender Lenders and MERS

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Covington Issued Legal Opinions that Started MERS

Editor’s Note: 4 years ago I interviewed lawyers that had detailed knowledge of the start of MERS and the entire mortgage mess. They told me, on promise of anonymity, and for use as background only, that some of the lawyers balked at the assignment to the tasks at Covington and other law firms that were drafting the initial documentation for what became known as “Securitization” of mortgage debt. At least two resigned, according to these sources, stating that what they were being asked to do was be complicit in criminal acts.
In a world dominated by financial services, it is hard to think of a scenario where the public officials and lawyers involved would not be associated in some way with the mega Banks, so the mere association with those firms might not indicate direct complicity on the part of Holder and Breurer — especially in large firms like Covington.
But the appearance of impropriety is present when the justice department refrains from prosecution despite wide scale published reports of forgery, fabrication and fraud reported by the officials who are charged with responsibility for maintaining an orderly system of records and a registry of title in each county.
Even if Holder and Breurer were not directly involved in the representation of MERS and the mega Banks, it certainly appears as though they are protecting their old employers from the consequences of committing the largest economic crimes in human history.
And taking President Obama at his word, he has been told that what the Banks did was legal. I have no doubt that is exactly what he has been told. The problem is that he believed what what he was told.
As far as the overall plan for securitization and even the use of MERS, there may well have been no law prohibiting the plan, although we can all agree there should have been such laws in place. The problem is that the plan was not followed — instead violations of the plan were used as a vehicle to commit theft and fraud upon investors and borrowers alike using the same tactics that departed from all legal requirements.
  • It was the departure from the plan that got the Banks into trouble and they should be in deep trouble.
  • The blue print for securitization required that the money and documents follow a certain path.
  • Instead the money followed whatever path those Banks wanted, despite clear requirements to the contrary in the securitization documents.
  • And the transfer documents for each loan, without which there would be no securitization, were not present, drafted or executed, much less delivered.
  • And this was because the Banks, even though they were merely intermediaries, asserted ownership over the loans in a grey are they created between the execution of the loan by the borrower and the supposed delivery of the loans into the pools that the investors had created with their money.
  • By asserting ownership, directly or indirectly, the banks were able to create fictitious “trades” which they used to create transaction profits, only some of which were reported, the rest being “off balance sheet” and channeled out of the country.
  • Those “profits” were merely the improper use of proceeds from borrowers’ money and property and investors’ money and that was advanced for the purchase of mortgage bonds, intended for funding mortgage loans.
There are crimes upon crimes in this story with plenty of low hanging fruit that would entice any prosecutor. That the prosecutions have not proceeded and that the investigations have been self-limiting, combined with the desire to settle with the Banks before the investigation is complete (or even started) leaves only questions of the worst kind. At this point though the administration’s press for settlement with the Banks and servicers can only be seen as disingenuous — since we know that forgery, fraud, and fabrication of documents that never existed can only be illegal.

Insight: Top Justice officials connected to mortgage banks

By Scot J. Paltrow
Fri Jan 20, 2012 9:31am EST

(Reuters) – U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at a Washington law firm that represented a Who’s Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.

The firm, Covington & Burling, is one of Washington’s biggest white shoe law firms. Law professors and other federal ethics experts said that federal conflict of interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.

Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients. Justice Department spokeswoman Tracy Schmaler said Holder and Breuer had complied fully with conflict of interest regulations, but she declined to say if they had recused themselves from any matters related to the former clients.

Reuters reported in December that under Holder and Breuer, the Justice Department hasn’t brought any criminal cases against big banks or other companies involved in mortgage servicing, even though copious evidence has surfaced of apparent criminal violations in foreclosure cases.

The evidence, including records from federal and state courts and local clerks’ offices around the country, shows widespread forgery, perjury, obstruction of justice, and illegal foreclosures on the homes of thousands of active-duty military personnel.

In recent weeks the Justice Department has come under renewed pressure from members of Congress, state and local officials and homeowners’ lawyers to open a wide-ranging criminal investigation of mortgage servicers, the biggest of which have been Covington clients. So far Justice officials haven’t responded publicly to any of the requests.

While Holder and Breuer were partners at Covington, the firm’s clients included the four largest U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co – as well as at least one other bank that is among the 10 largest mortgage servicers.

DEFENDER OF FREDDIE

Servicers perform routine mortgage maintenance tasks, including filing foreclosures, on behalf of mortgage owners, usually groups of investors who bought mortgage-backed securities.

Covington represented Freddie Mac, one of the nation’s biggest issuers of mortgage backed securities, in enforcement investigations by federal financial regulators.

A particular concern by those pressing for an investigation is Covington’s involvement with Virginia-based MERS Corp, which runs a vast computerized registry of mortgages. Little known before the mortgage crisis hit, MERS, which stands for Mortgage Electronic Registration Systems, has been at the center of complaints about false or erroneous mortgage documents.

Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JP Morgan Chase and several other large banks. It was meant to speed up registration and transfers of mortgages. By 2010, MERS claimed to own about half of all mortgages in the U.S. — roughly 60 million loans.

But evidence in numerous state and federal court cases around the country has shown that MERS authorized thousands of bank employees to sign their names as MERS officials. The banks allegedly drew up fake mortgage assignments, making it appear falsely that they had standing to file foreclosures, and then had their own employees sign the documents as MERS “vice presidents” or “assistant secretaries.”

Covington in 2004 also wrote a crucial opinion letter commissioned by MERS, providing legal justification for its electronic registry. MERS spokeswoman Karmela Lejarde declined to comment on Covington legal work done for MERS.

It isn’t known to what extent if any Covington has continued to represent the banks and other mortgage firms since Holder and Breuer left. Covington declined to respond to questions from Reuters. A Covington spokeswoman said the firm had no comment.

Several lawyers for homeowners have said that even if Holder and Breuer haven’t violated any ethics rules, their ties to Covington create an impression of bias toward the firms’ clients, especially in the absence of any prosecutions by the Justice Department.

O. Max Gardner III, a lawyer who trains other attorneys to represent homeowners in bankruptcy court foreclosure actions, said he attributes the Justice Department’s reluctance to prosecute the banks or their executives to the Obama White House’s view that it might harm the economy.

But he said that the background of Holder and Breuer at Covington — and their failure to act on foreclosure fraud or publicly recuse themselves — “doesn’t pass the smell test.”

Federal ethics regulations generally require new government officials to recuse themselves for one year from involvement in matters involving clients they personally had represented at their former law firms.

President Obama imposed additional restrictions on appointees that essentially extended the ban to two years. For Holder, that ban would have expired in February 2011, and in April for Breuer. Rules also require officials to avoid creating the appearance of a conflict.

Schmaler, the Justice Department spokeswoman, said in an e-mail that “The Attorney General and Assistant Attorney General Breuer have conformed with all financial, legal and ethical obligations under law as well as additional ethical standards set by the Obama Administration.”

She said they “routinely consult” the department’s ethics officials for guidance. Without offering specifics, Schmaler said they “have recused themselves from matters as required by the law.”

Senior government officials often move to big Washington law firms, and lawyers from those firms often move into government posts. But records show that in recent years the traffic between the Justice Department and Covington & Burling has been particularly heavy. In 2010, Holder’s deputy chief of staff, John Garland, returned to Covington, as did Steven Fagell, who was Breuer’s deputy chief of staff in the criminal division.

The firm has on its web site a page listing its attorneys who are former federal government officials. Covington lists 22 from the Justice Department, and 12 from U.S. Attorneys offices, the Justice Department’s local federal prosecutors’ offices around the country.

As Reuters reported in 2011, public records show large numbers of mortgage promissory notes with apparently forged endorsements that were submitted as evidence to courts.

There also is evidence of almost routine manufacturing of false mortgage assignments, documents that transfer ownership of mortgages between banks or to groups of investors. In foreclosure actions in courts mortgage assignments are required to show that a bank has the legal right to foreclose.

In an interview in late 2011, Raymond Brescia, a visiting professor at Yale Law School who has written about foreclosure practices said, “I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history.”

Holder has resisted calls for a criminal investigation since October 2010, when evidence of widespread “robo-signing” first surfaced. That involved mortgage servicer employees falsely signing and swearing to massive numbers of affidavits and other foreclosure documents that they had never read or checked for accuracy.

Recent calls for a wide-ranging criminal investigation of the mortgage servicing industry have come from members of Congress, including Senator Maria Cantwell, D-Wash., state officials, and county clerks. In recent months clerks from around the country have examined mortgage and foreclosure records filed with them and reported finding high percentages of apparently fraudulent documents.

On Wednesday, John O’Brien Jr., register of deeds in Salem, Mass., announced that he had sent 31,897 allegedly fraudulent foreclosure-related documents to Holder. O’Brien said he asked for a criminal investigation of servicers and their law firms that had filed the documents because they “show a pattern of fraud,” forgery and false notarizations.

(Reporting By Scot J. Paltrow, editing by Blake Morrison)

 

GOVERNMENT OFFICIALS NEGOTIATING (SELL-OUT!) WITH BANKS AND TAKING POLITICAL CONTRIBUTIONS SIMULTANEOUSLY

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SELL-OUT!

EDITOR’S COMMENT: WHAT ARE THEY NEGOTIATING ABOUT AND WITH WHOM ARE THEY NEGOTIATING? This is theater in the most absurd. Our government is negotiating with the very people who have demonstrated that they must fabricate and forge documents in order to establish their authority to do anything. Even in hostage negotiations we don’t give as much as we are giving to the servicers. They have no authority.

By definition they don’t own the obligation which means the obligation of the borrower is not owed to them. They are not the authorized agent of the real owner of the obligation until the real owner is identified and says they give authority to the agent to negotiate on their behalf.

Those documents don’t exist because those facts don’t exist. The investors are not going to give the servicers anything. If they were going to do that it would have happened en masse and avoided lots of paperwork problems for the banks. If it were not for political contributions, thousands of people would be headed for jail cells.

Instead we are negotiating away the future of America — for what? All homeowners are affected by these negotiations because when the so called honest Joe Homeowner goes to sell his home he is going to be hopping mad that not only can’t he deliver marketable title, he now has nobody to sue because the government sold him out. AND he still can’t sell his house because there is no way to clear up title.

These negotiations are a farce because down the road, they will be meaningless except that they will have added time to the already corrupted title registries across the country.

Mortgage servicers spend millions on political contributions

Banks under scrutiny as housing crisis festers

Posted Aug 8, 2011, 2:55 pm

Michael Hudson & Aaron Mehta Center for Public Integrity

As the financial markets roil, one of the critical factors weighing down the U.S. economy is the flood of home foreclosures. Thursday’s crash underscores how difficult it will be for the economy to make significant strides while the housing market is still in tatters.

The pace of the housing market recovery may depend in part on the outcome of intense negotiations underway among state and federal authorities and the nation’s five largest mortgage servicers.

Government officials are negotiating with the firms — Bank of America, JP Morgan Chase & Co., Citigroup, Wells Fargo & Co. and Ally Financial Inc. — over allegations of widespread abuses in the foreclosure process. State attorneys general around the country have been investigating evidence that the big banks used falsified documentation to process foreclosures.

Four of the five companies under scrutiny—Bank of America, JP Morgan, Wells Fargo and Citigroup — are major donors for state and federal political campaigns. Between them, they have donated at least $8 million since the start of 2009 to candidates, party committees and other political action committees, according to an iWatch News analysis of campaign finance data.

(Ally Financial hasn’t given money during that period to campaigns under its current name or is previous name, General Motors Acceptance Corp., or GMAC).

The fate of foreclosure negotiations could go a long way toward determining where the housing market will go in the next few years.

Normally, the housing market plays a leading role in any economic recovery. But that hasn’t been the case in the aftermath of the U.S. financial crisis of 2008.

“It’s has been a negative factor in this recovery — or lack of recovery,” housing economist and consultant Michael Carliner said.

Generally, when interest rates go down, that spurs the mortgage and housing markets and helps move the economy in the right direction. But that hasn’t happened this time around, said Carliner, a former economist for the National Association of Home Builders. “We have lowest mortgage rates since the early 1950s and it’s not doing anything,” he said.

Interest rates on 30-year fixed rate mortgages averaged 4.39 percent for the week ending Aug. 4, according to a survey by mortgage giant Freddie Mac.

What’s holding back the housing market, Carliner said, is a glut of available homes for sale, due in part to overbuilding during the housing boom and to continuing foreclosure woes. An “excess inventory” of perhaps 2 million homes is making it hard for the housing market to get going again, he said.

The inventory of foreclosures continues to grow. In June, one out of every 583 housing units in the United States received a foreclosure notice, according to data provider Realty Trac. The numbers are even worse in the hardest hit markets, where housing prices climbed the fastest during the housing boom and fell the most when the housing crash came. In Nevada, one out of every 114 housing units was the subject of a foreclosure filing in June.

Investigations and negotiations over allegations of fraudulent foreclosure practices by big banks have helped slow down the foreclosure process, making it harder for the market to work through defaults and readjust, Carliner said.

He would like to see a deal between government officials and mortgage servicers that would pave the way to swifter foreclosures that would help put the foreclosure problem in the past. “If people haven’t paid their mortgages in two years, they shouldn’t be able to keep their house,” Carliner said.

Not everyone agrees.

Ira Rheingold, executive director of the National Association of Consumer Advocates, a consumer attorneys group, argues that any national settlement should be about keeping people in their homes. He wants a settlement that would require banks to reduce the amount of mortgage debt held by distressed homeowners.

Reducing their payments and overall debts would help keep them in their homes and reduce the number of foreclosures, he said. It would also provide a measure of justice, he said, for homeowners who were defrauded via bait-and-switch salesmanship, falsified documentation and other predatory tactics that were common during the mortgage frenzy of the past decade.

Rheingold acknowledges, though, that extracting large concessions from big banks will be a “tough slog.”

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The banks have high-powered legal talent and lobbyists on their side, and four of the top five mortgage services have given generously to state and federal political campaigns, according to an iWatch News analysis of election data provided by the subscription-only CQMoneyLine. 

  • Since the start of 2009, Bank of America has donated at least $3.2 million to candidates, party committees and other PACs. Among the top recipients was Rep. Jeb Hensarling (at least $17,500), a Texas Republican who is vice chairman of the House Financial Services Committee. Another Texan Republican, Randy Neugebauer , received at least $16,000 from the financial giant. Neugebauer also serves on the Financial Services Committee, and chairs the Subcommittee on Oversight and Investigations.
  • JPMorgan Chase has donated over $ 2.8 million to candidates, party committees and other PACs since the start of 2009. The firm has made donations to the Republican Governors Association (at least $50,000), the National Republican Senatorial Committee (at least $45,000) and the National Republican Congressional Committee (at least $45,000), the Democratic Governors Association (at least $25,000) and the Democratic Senatorial Campaign Committee (at least $15,000). The firm also donated at least $15,000 to the Blue Dog PAC, the fundraising arm of the Blue Dog Democrats who were vital to financial corporations when the Democrats controlled the House.
  • and ranking member on the financial services committee’s Subcommittee on Financial Institutions and Consumer Credit.
  • Wells Fargo gave over $1 million to candidates, party committees and other PACs since the start of 2009. Wells Fargo has given at least $45,000 each to the NRCC and NRSC and at least $30,000 each to the DSCC and DCCC. It also donated at least $17,000 to Rep. Ed Royce , a California Republican who serves on the Financial Services committee. Another top recipient was Democrat Carolyn Maloney of New York, the vice chair of the Joint Economic Committee
  • Citigroup has given $850,000 to candidates, party committees and other PACs since the start of 2009. Among its top individual recipients is Democrat Gregory Meeks of New York. Meeks, who sits on the House Committee on Financial Services, has received at least $10,000 from Citi. Another is Ohio Republican Rep. Pat Tiberi (at least $15,000), a member of the powerful Ways and Means committee. Tiberi is currently the Chairman of the Subcommittee on Select Revenue, which has jurisdiction over federal tax policy.

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ALLSTATE FILES SUIT LAYING OUT ALL THE ALLEGATIONS YOU NEED

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2.24.2011 Chase -Allstate-Complaint

JUST LOOKING AT THE TABLE OF CONTENT WILL TELL YOU WHAT YOU NEED TO KNOW

NATURE OF ACTION …………………………………………………………………………………………………….1
PARTIES ………………………………………………………………………………………………………………………..7
JURISDICTION AND VENUE ……………………………………………………………………………………….16
BACKGROUND ……………………………………………………………………………………………………………17
A.    THE MECHANICS OF MORTGAGE SECURITIZATION …………………………………….17
B.    SECURITIZATION OF MORTGAGE LOANS: THE TRADITIONAL MODEL ……..19
C.    THE SYSTEMIC VIOLATION OF UNDERWRITING AND APPRAISAL STANDARDS IN THE MORTGAGE SECURITIZATION INDUSTRY …………………..21
D.    DEFENDANTS WERE AN INTEGRATED VERTICAL OPERATION CONTROLLING EVERY ASPECT OF THE SECURITIZATION PROCESS…………..24
(1)    JPMorgan Defendants……………………………………………………………………..24 (2)

WaMu Defendants ………………………………………………………………………….26 (3)

Bear Stearns Defendants ………………………………………………………………….27
E.    DEFENDANTS’ OFFERING MATERIALS…………………………………………………………..29 (1)

The JPMorgan Offerings………………………………………………………………….29 (2)

The WaMu Offerings………………………………………………………………………30 (3)

The Long-Beach Offering………………………………………………………………..32 (4)

The Bear Stearns Offerings………………………………………………………………32
SUBSTANTIVE ALLEGATIONS …………………………………………………………………………………..34
I.    THE OFFERING MATERIALS CONTAINED UNTRUE STATEMENTS OF MATERIAL FACT AND OMISSIONS ABOUT THE MORTGAGE ORIGINATORS’ UNDERWRITING STANDARDS AND PRACTICES, AND MATERIAL CHARACTERISTICS OF THE MORTGAGE LOAN POOLS ……………..34
A.    Defendants’ Misrepresentations Regarding Underwriting Standards And Practices …………………………………………………………………………………………………..34
(1)    JPMorgan Defendants’ Misrepresentations Regarding Underwriting Standards And Practices………………………………………………35
i
(2)    WaMu Defendants’ Misrepresentations Regarding Underwriting Standards and Practices……………………………………………………………………35
(3)    Long Beach Defendants’ Misrepresentations Regarding Underwriting Standards and Practices……………………………………………….36
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Underwriting Standards and Practices……………………………………………….39
B.    Defendants’ Misrepresentations Regarding Owner-Occupancy Statistics …………40
(1)    JPMorgan Defendants’ Misrepresentations Regarding Owner- Occupancy Statistics ……………………………………………………………………….40
(2)    WaMu Defendants’ Misrepresentations Regarding Owner Occupancy Statistics ……………………………………………………………………….41
(3)    Bear Stearns Defendants’ Misrepresentations Regarding Owner Occupancy Statistics ……………………………………………………………………….41
C.    Defendants’ Misrepresentations Regarding Loan-to-Value and Combined Loan-to-Value Ratios…………………………………………………………………………………42
(1)    JPMorgan Defendants’ Misrepresentations Regarding LTV and CLTV Ratios………………………………………………………………………………….42
(2)    WaMu Defendants’ Misrepresentations Regarding LTV and CLTV Ratios ……………………………………………………………………………………………42
(3)    Bear Stearns Defendants’ Misrepresentations Regarding LTV and CLTV Ratios………………………………………………………………………………….43
D.    Defendants’ Misrepresentations Regarding Debt-to-Income Ratios …………………44
(1)    JPMorgan Defendants’ Misrepresentations Regarding Debt-to- Income Ratios ………………………………………………………………………………..44
(2)    WaMu Defendants’ Misrepresentations Regarding Debt-to-Income Ratios ……………………………………………………………………………………………44
(3)    Bear Stearns Defendants’ Misrepresentations Regarding Debt-to- Income Ratios ………………………………………………………………………………..45
E.    Defendants’ Misrepresentations Regarding Credit Ratings……………………………..46
(1)    JPMorgan Defendants’ Misrepresentations Regarding Credit Ratings ………………………………………………………………………………………….46
(2)    WaMu Defendants’ Misrepresentations Regarding Credit Ratings………..47 ii
(3)    Long Beach Defendants’ Misrepresentations Regarding Credit Ratings ………………………………………………………………………………………….48
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Credit Ratings ………………………………………………………………………………………….48
F.    Defendants’ Misrepresentations Regarding Credit Enhancements……………………49
(1)    JPMorgan Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..49
(2)    WaMu Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..50
(3)    Long Beach Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..50
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Credit Enhancements ………………………………………………………………………………..51
G.    Defendants’ Misrepresentations Regarding Underwriting Exceptions………………51
(1)    JPMorgan Defendants’ Misrepresentations Regarding Underwriting Exceptions …………………………………………………………………51
(2)    WaMu Defendants’ Misrepresentations Regarding Underwriting Exceptions ……………………………………………………………………………………..52
(3)    Long Beach Defendants’ Misrepresentations Regarding Underwriting Exceptions …………………………………………………………………53
(4)    Bear Stearns Defendants’ Misrepresentations Regarding Underwriting Exceptions …………………………………………………………………53
H.    Defendants’ Misrepresentations Regarding Alternative Documentation Loans ……………………………………………………………………………………………………….53
(1)    JPMorgan Defendants’ Misrepresentations Regarding Alternative Documentation Loans ……………………………………………………………………..54
(2)    WaMu Defendants’ Misrepresentations Regarding Alternative Documentation Loans ……………………………………………………………………..54
(3)    Bear Stearns Defendants’ Misrepresentations Regarding Alternative Documentation Loans …………………………………………………….55
I.    Defendants’ Misrepresentations Regarding Full-Documentation Loans……………55
iii
J.    Defendants’ Misrepresentations Regarding Adverse Selection of Mortgage Loans ……………………………………………………………………………………………………….56
K.    Defendants’ Failure to Disclose the Negative Results of Due Diligence …………..57
II.    ALL OF DEFENDANTS’ REPRESENTATIONS WERE UNTRUE AND MISLEADING BECAUSE DEFENDANTS SYSTEMATICALLY IGNORED THEIR OWN UNDERWRITING GUIDELINES ……………………………………………………58
A.    Evidence Demonstrates Defendants’ Underwriting Abandonment: High Default Rates And Plummeting Credit Ratings ……………………………………………..59
B.    Statistical Evidence of Faulty Underwriting: Borrowers Did Not Actually Occupy The Mortgaged Properties As Represented……………………………………….62
(1)    The JPMorgan Offerings………………………………………………………………….64 (2)

The WaMu Offerings………………………………………………………………………64 (3)

The Bear Stearns Offerings………………………………………………………………65
C.    Statistical Evidence of Faulty Underwriting: The Loan-to-Value Ratios In The Offering Materials Were Inaccurate ………………………………………………………65
(1)    The JPMorgan Offerings………………………………………………………………….66 (2)    T

he WaMu Offerings………………………………………………………………………68 (3)

The Bear Stearns Offerings………………………………………………………………71
D.    Other Statistical Evidence Demonstrates That The Problems In Defendants’ Loans Were Tied To Underwriting Guideline Abandonment………..72
E.    Evidence Demonstrates That Credit Ratings Were A Garbage-In, Garbage-Out Process …………………………………………………………………………………75
F.    Evidence From Defendants’ Own Documents And Former Employees Demonstrates That The Representations In Defendants’ Offering Materials Were False ……………………………………………………………………………………………….76
(1)    The JPMorgan Offerings………………………………………………………………….76 (2)

The WaMu Offerings………………………………………………………………………80 (3)

The Long Beach Offerings……………………………………………………………….87 (4)

The Bear Stearns Offerings………………………………………………………………92
iv
G.    Evidence From Defendants’ Third-Party Due Diligence Firm Demonstrates That Defendants Were Originating Defective Loans………………….94
H.    Evidence Of Other Investigations Demonstrates The Falsity Of Defendants’ Representations ………………………………………………………………………97
(1)    The WaMu and Long Beach Offerings………………………………………………97
(2)    The Bear Stearns Offerings………………………………………………………………99
III.    DEFENDANTS’ REPRESENTATIONS CONCERNING UNAFFILIATED ORIGINATORS’ UNDERWRITING GUIDELINES WERE ALSO FALSE ……………102
A.    Countrywide ……………………………………………………………………………………………104
(1)    Defendants’ Misrepresentations Concerning Countrywide’s Underwriting Practices…………………………………………………………………..104
(2)    These Representations Were Untrue And Misleading………………………..105 B.

GreenPoint ……………………………………………………………………………………………..109
(1)    Defendants’ Misrepresentations Concerning GreenPoint’s Underwriting Practices…………………………………………………………………..109
(2)    These Representations Were Untrue And Misleading………………………..111 C.    PHH……………………………………………………………………………………………………….115
(1)    Defendants’ Misrepresentations Concerning PHH’s Underwriting Practices ………………………………………………………………………………………115
(2)    These Representations Were Untrue And Misleading………………………..116 D.

Option One……………………………………………………………………………………………..118
(1)    Defendants’ Misrepresentations Concerning Option One’s Underwriting Practices…………………………………………………………………..118
(2)    These Representations Were Untrue and Misleading:………………………..120 E.    Fremont ………………………………………………………………………………………………….122
(1)    Defendants’ Misrepresentations Concerning Fremont’s Underwriting Practices…………………………………………………………………..122
(2)    These Representations Were Untrue and Misleading…………………………124 IV.

THE DEFENDANTS KNEW THEIR REPRESENTATIONS WERE FALSE ………….126
v
A.    The Statistical Evidence Is Itself Persuasive Evidence Defendants Knew Or Recklessly Disregarded The Falsity Of Their Representations………………….126
B.    Evidence From Third Party Due Diligence Firms Demonstrates That Defendants Knew Defective Loans Were Being Securitized …………………………127
C.    Evidence Of Defendants’ Influence Over The Appraisal Process Demonstrates That Defendants Knew The Appraisals Were Falsely Inflated …………………………………………………………………………………………………..130
D.    Evidence Of Internal Documents And Former Employee Testimony Demonstrates That Defendants Knew Their Representations Were False ……….131
(1) (2) (3) (4)
JPMorgan Defendants Knew Their Representations Were False…………131 WaMu Defendants Knew Their Representations Were False ……………..133 Long Beach Defendants Knew Their Representations Were False………138 Bear Stearns Defendants Knew Their Representations Were False ……..140
V.    ALLSTATE’S DETRIMENTAL RELIANCE AND DAMAGES ……………………………144

VI.    TOLLING OF THE SECURITIES ACT OF 1933 CLAIMS …………………………………..146

FIRST CAUSE OF ACTION …………………………………………………………………………………………149

SECOND CAUSE OF ACTION …………………………………………………………………………………….150

THIRD CAUSE OF ACTION………………………………………………………………………………………..152

FOURTH CAUSE OF ACTION …………………………………………………………………………………….155

FIFTH CAUSE OF ACTION …………………………………………………………………………………………157

PRAYER FOR RELIEF ………………………………………………………………………………………………..157

JURY TRIAL DEMANDED………………………………………………………………………………………….158

Ratings Arbitrage a/k/a Fraud

Investment banks bundled mortgage loans into securities and then often rebundled those securities one or two more times. Those securities were given high ratings and sold to investors, who have since lost billions of dollars on them.

Editor’s Note: The significance of this report cannot be overstated. Not only did the investment bankers LOOK for and CREATE loans guaranteed to fail, which they did, they sold them in increasingly complex packages more than once. So for example if the yield spread profit or premium was $100,000 on a given loan, that wasn’t enough for the investment bankers. Without loaning or investing any additional money they sold the same loans, or at least parts of those loans, to additional investors one, two three times or more. In the additional sales, there was no cost so whatever they received was entirely profit. I would call that a yield spread profit or premium, and certainly undisclosed. If the principal of the loan was $300,000 and they resold it three times, then the investment bank received $900,000 from those additional sales, in addition to the initial $100,000 yield spread profit on sale of the loan to the “trust” or special purpose vehicle.

So the investment bank kept $1 million dollars in fees, profits or compensation on a $300,000 loan. Anyone who has seen “The Producers” knows that if this “show” succeeds, i.e., if most of the loans perform as scheduled and borrowers are making their payments, then the investment bank has a problem — receiving a total of $1.3 million on a $300,000 loan. But if the loans fails, then nobody asks for an accounting. As long as it is in foreclosure, no accounting is required except for when the property is sold (see other blog posts on bid rigging at the courthouse steps documented by Charles Koppa).

If they modify the loan or approve the short sale then an accounting is required. That is a bad thing for the investment bank. But if they don’t modify any loans and don’t approve any short-sales, then questions are going to be asked which will be difficult to answer.

You make plans and then life happens, my wife says. All these brilliant schemes were fraudulent and probably criminal. All such schemes eventually get the spotlight on them. Now, with criminal investigations ongoing in a dozen states and the federal government, the accounting and the questions are coming anyway—despite the efforts of the titans of the universe to avoid that result.

All those Judges that sarcastically threw homeowners out of court questioning the veracity of accusations against pretender lenders, can get out the salt and pepper as they eat their words.

“Why are they not in jail if they did these things” asked practically everyone on both sides of the issue. The answer is simply that criminal investigations do not take place overnight, they move slowly and if the prosecutor has any intention of winning a conviction he must have sufficient evidence to prove criminal acts beyond a reasonable doubt.

But remember the threshold for most civil litigation is merely a preponderance of the evidence, which means if you think there is more than a 50-50  probability the party did something, the prima facie case is satisfied and damages or injunction are stated in a final judgment. Some causes of action, like fraud, frequently require clear and convincing evidence, which is more than 50-50 and less than beyond a reaonsable doubt.

From the NY Times: ————————

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.

by LOUISE STORY

Andrew Cuomo, the attorney general of New York, sent subpoenas to eight Wall Street banks late Wednesday.

The investigation parallels federal inquiries into the business practices of a broad range of financial companies in the years before the collapse of the housing market.

Where those investigations have focused on interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.

The agencies themselves have been widely criticized for overstating the quality of many mortgage securities that ended up losing money once the housing market collapsed. The inquiry by the attorney general of New York, Andrew M. Cuomo, suggests that he thinks the agencies may have been duped by one or more of the targets of his investigation.

Those targets are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is now owned by Bank of America.

The companies that rated the mortgage deals are Standard & Poor’s, Fitch Ratings and Moody’s Investors Service. Investors used their ratings to decide whether to buy mortgage securities.

Mr. Cuomo’s investigation follows an article in The New York Times that described some of the techniques bankers used to get more positive evaluations from the rating agencies.

Mr. Cuomo is also interested in the revolving door of employees of the rating agencies who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, said the people with knowledge of the investigation, who were not authorized to discuss it publicly.

Contacted after subpoenas were issued by Mr. Cuomo’s office late Wednesday night notifying the banks of his investigation, spokespeople for Morgan Stanley, Credit Suisse and Deutsche Bank declined to comment. Other banks did not immediately respond to requests for comment.

In response to questions for the Times article in April, a Goldman Sachs spokesman, Samuel Robinson, said: “Any suggestion that Goldman Sachs improperly influenced rating agencies is without foundation. We relied on the independence of the ratings agencies’ processes and the ratings they assigned.”

Goldman, which is already under investigation by federal prosecutors, has been defending itself against civil fraud accusations made in a complaint last month by the Securities and Exchange Commission. The deal at the heart of that complaint — called Abacus 2007-AC1 — was devised in part by a former Fitch Ratings employee named Shin Yukawa, whom Goldman recruited in 2005.

At the height of the mortgage boom, companies like Goldman offered million-dollar pay packages to workers like Mr. Yukawa who had been working at much lower pay at the rating agencies, according to several former workers at the agencies.

Around the same time that Mr. Yukawa left Fitch, three other analysts in his unit also joined financial companies like Deutsche Bank.

In some cases, once these workers were at the banks, they had dealings with their former colleagues at the agencies. In the fall of 2007, when banks were hard-pressed to get mortgage deals done, the Fitch analyst on a Goldman deal was a friend of Mr. Yukawa, according to two people with knowledge of the situation.

Mr. Yukawa did not respond to requests for comment.

Wall Street played a crucial role in the mortgage market’s path to collapse. Investment banks bundled mortgage loans into securities and then often rebundled those securities one or two more times. Those securities were given high ratings and sold to investors, who have since lost billions of dollars on them.

Banks were put on notice last summer that investigators of all sorts were looking into their mortgage operations, when requests for information were sent out to all of the big Wall Street firms. The topics of interest included the way mortgage securities were created, marketed and rated and some banks’ own trading against the mortgage market.

The S.E.C.’s civil case against Goldman is the most prominent action so far. But other actions could be taken by the Justice Department, the F.B.I. or the Financial Crisis Inquiry Commission — all of which are looking into the financial crisis. Criminal cases carry a higher burden of proof than civil cases. Under a New York state law, Mr. Cuomo can bring a criminal or civil case.

His office scrutinized the rating agencies back in 2008, just as the financial crisis was beginning. In a settlement, the agencies agreed to demand more information on mortgage bonds from banks.

Mr. Cuomo was also concerned about the agencies’ fee arrangements, which allowed banks to shop their deals among the agencies for the best rating. To end that inquiry, the agencies agreed to change their models so they would be paid for any work they did for banks, even if those banks did not select them to rate a given deal.

Mr. Cuomo’s current focus is on information the investment banks provided to the rating agencies and whether the bankers knew the ratings were overly positive, the people who know of the investigation said.

A Senate subcommittee found last month that Wall Street workers had been intimately involved in the rating process. In one series of e-mail messages the committee released, for instance, a Goldman worker tried to persuade Standard & Poor’s to allow Goldman to handle a deal in a way that the analyst found questionable.

The S.& P. employee, Chris Meyer, expressed his frustration in an e-mail message to a colleague in which he wrote, “I can’t tell you how upset I have been in reviewing these trades.”

“They’ve done something like 15 of these trades, all without a hitch. You can understand why they’d be upset,” Mr. Meyer added, “to have me come along and say they will need to make fundamental adjustments to the program.”

At Goldman, there was even a phrase for the way bankers put together mortgage securities. The practice was known as “ratings arbitrage,” according to former workers. The idea was to find ways to put the very worst bonds into a deal for a given rating. The cheaper the bonds, the greater the profit to the bank.

The rating agencies may have facilitated the banks’ actions by publishing their rating models on their corporate Web sites. The agencies argued that being open about their models offered transparency to investors.

But several former agency workers said the practice put too much power in the bankers’ hands. “The models were posted for bankers who develop C.D.O.’s to be able to reverse engineer C.D.O.’s to a certain rating,” one former rating agency employee said in an interview, referring to collateralized debt obligations.

A central concern of investors in these securities was the diversification of the deals’ loans. If a C.D.O. was based on mostly similar bonds — like those holding mortgages from one region — investors would view it as riskier than an instrument made up of more diversified assets. Mr. Cuomo’s office plans to investigate whether the bankers accurately portrayed the diversification of the mortgage loans to the rating agencies.

Gretchen Morgenson contributed reporting

Assignments to Non MERS Members Further Cloud Title

Your case should first be summarized by your securitization expert who relies upon the expert opinions of others as to underwriting, appraisal, mortgage brokers etc. Then those other experts come in. After that, the forensic analyst and homeowner come in to fill in the facts upon which the experts relied.

But you build your case in reverse of the order of presentation, starting with the homeowner, then the forensic analyst, then the sub-experts, and finally the securitization expert.

From: Tony Brown

Editor’s Note: I have not bothered to edit the following comment because for those of you who are attending the forensic workshop I wanted you to see how information is often presented. Here is clear evidence of (a) why a forensic analyst is essential and (b) why you need a method of presentation that gives the Judge a clear picture of the true nature of a securitized transaction.

The other lesson to be gleaned is that forensic analysts should stick to facts and expert witnesses should stick to opinions. Lawyers should stick to argument. Any overlap will result in a brutal cross examination that will, quite rightfully, draw blood.

I’m planning a workshop whose working name is Motion Practice and Discovery for late in May. You see there is method to our madness here notwithstanding our critics.

Your case should first be summarized by your securitization expert who relies upon the expert opinions of others as to underwriting, appraisal, mortgage brokers etc. Then those other experts come in. After that, the forensic analyst and homeowner come in to fill in the facts upon which the experts relied.

But you build your case in reverse of the order of presentation, starting with the homeowner, then the forensic analyst, then the sub-experts, and finally the securitization expert.

Mers was named nominee on the mortgage and filed at the Register Of Deeds in Greenville SC, supposedly according to a lost note affidavit the original lender RBMG sold the note and according to MERS servicer ID the loan was transferred off of the MERS system and MIN# deactivated because of a sale to a non-mers member in 2002. NO ASSIGNMENT WAS RECORDED.Now the new owner EMC sold the loan to Bear Stearns which deposited into the Asset Backed Securities which did an assignment/sell to JP MORGAN CHASE as trustee. Now there has been a foreclosure started on the loan in March 2009 by The Bank OF New York Mellon as successor trustee for JP MORGAN CHASE who claims to be the real party in interest and hold the note. By way Of an assignment which was recorded at the ROD after the LIS-PENDENS and after the filing of complaint.Here is more fraud because the assignment was from MERS on behalf of the original lender RBMG which is defunct and has been since 2005 to the THE BANK OF NEW YORK MELLON. MERS has no authority to do an assignment because the loan was transferred from them in 2002 and Mers was Longer the mortgagee as nominee of record.Now are you with me( no chain of title) the BANK OF NEW YORK MELLON produced in discovery to me an allonge RBMG to EMC along with the lost note affidavit. EMC showed an allonge to JP MORGAN CHASE which skipped BEAR STEARNS. BEAR STEARNS was the depositor into the securities. First let start with the allonges: according to the UCC an allonge is only used when there is NO ROOM ON THE ORIGINAL NOTE FOR ENDORSEMENT and must be firmly attached as to become a part of the note. AN ALLONGE cannot be used to transfer interest and is invalid if there is room on the note for endorsements and is invalid it not attached. A lost note and two allonges that were not signed and not dated and even skipped BEAR STEARNS that deposited it into the securities is the purported chain of title , now let’s look at the prospectus:Bear Stearns Asset Backed Securities Inc · 424B5 · Bear Stearns Asset Backed Certificates Series 2003-2 · On 6/30/03 Document 1 of 1 · 424B5 · Prospectus . Assignment of the Mortgage Loans; Repurchase At the time of issuance of the certificates, the depositor will cause the mortgage loans, together with all principal and interest due with respect to such mortgage loans after the cut-off date to be sold to the trust. The mortgage loans in each of the mortgage loan groups will be identified in a schedule appearing as an exhibit to the pooling and servicing agreement with each mortgage loan group separately identified. Such schedule will include information as to the principal balance of each mortgage loan as of the cut-off date, as well as information including, among other things, the mortgage rate,the borrower’s monthly payment and the maturity date of each mortgage note. In addition, the depositor will deposit with Wells Fargo Bank Minnesota, National Association, as custodian and agent for the trustee, the following documents with respect to each mortgage loan: (a) except with respect to a MOM loan, the original mortgage note, endorsed without recourse in the following form: “Pay to the order of JPMorgan Chase Bank, as S-40——————————————————————————– trustee for certificate-holders of Bear Stearns Asset Backed Securities, Inc., Asset-Backed Certificates, Series 2003-2 without recourse,” with all intervening endorsements, to the extent available, showing a complete chain of endorsement from the originator to the seller or, if the original mortgage note is unavailable to the depositor, a photocopy thereof, if available, together with a lost note affidavit; (b) the original recorded mortgage or a photocopy thereof, and if the related mortgage loan is a MOM loan, noting the applicable mortgage identification number for that mortgage loan; (c) except with respect to a mortgage loan that is registered on the MERS(R) System, a duly executed assignment of the mortgage to “JPMorgan Chase Bank, as trustee for certificate-holders of Bear Stearns Asset Backed Securities, Inc., Asset-Backed Certificates, Series 2003-2, without recourse;” in recordable form, as described in the pooling and servicing agreement; (d) originals or duplicates of all interim recorded assignments of such mortgage, if any and if available to the depositor; (e) the original or duplicate original lender’s title policy or, in the event such original title policy has not been received from the insurer, such original or duplicate original lender’s title policy shall be delivered within one year of the closing date or, in the event such original lender’s title policy is unavailable, a photocopy of such title policy or, in lieu thereof, a current lien search on the related property; and (f) the original or a copy of all available assumption, modification or substitution agreements, if any. In general, assignments of the mortgage loans provided to the custodian on behalf of the trustee will not be recorded in the appropriate public office for real property records, based upon an opinion of counsel to the effect that such recording is not required to protect the trustee’s interests in the mortgage loan against the claim of any subsequent transferee or any successor to or creditor of the depositor or the seller, or as to which the rating agencies advise that the omission to record therein will not affect their ratings of the offered certificates. In connection with the assignment of any mortgage loan that is registered on the MERS(R) System, the depositor will cause the MERS(R) System to indicate that those mortgage loans have been assigned by EMC to the depositor and by the depositor to the trustee by including (or deleting, in the case of repurchased mortgage loans) in the computer files (a) the code in the field which identifies the trustee and (b) the code in the field “Pool Field” which identifies the series of certificates issued. Neither the depositor nor the master servicer will alter these codes (except in the case of a repurchased mortgage loan). A “MOM loan” is any mortgage loan as to which, at origination, Mortgage Electronic Registration Systems, Inc. acts as mortgagee, solely as nominee for the originator of that mortgage loan and its successors and assigns. S-41——————————————————————————– The custodian on behalf of the trustee will perform a limited review of the mortgage loan documents on or prior to the closing date or in the case of any document permitted to be delivered after the closing date, promptly after the custodian’s receipt of such documents and will hold such documents in trust for the benefit of the holders of the certificates. In addition, the seller will make representations and warranties in the pooling and servicing agreement as of the cut-off date in respect of the mortgage loans. The depositor will file the pooling and servicing agreement containing such representations and warranties with the Securities and Exchange Commission in a report on Form 8-K following the closing date. After the closing date, if any document is found to be missing or defective in any material respect, or if a representation or warranty with respect to any mortgage loan is breached and such breach materially and adversely affects the interests of the holders of the certificates in such mortgage loan, the custodian, on behalf of the trustee, is required to notify the seller in writing. If the seller cannot or does not cure such omission,defect or breach within 90 days of its receipt of notice from the custodian, the seller is required to repurchase the related mortgage loan from the trust fund at a price equal to 100% of the stated principal balance thereof as of the date of repurchase plus accrued and unpaid interest thereon at the mortgage rate to the first day of the month following the month of repurchase. In addition, if the obligation to repurchase the related mortgage loan results from a breach of the seller’s representations regarding predatory lending, the seller will be obligated to pay any resulting costs and damages incurred by the trust. Rather than repurchase the mortgage loan as provided above, the seller may remove such mortgage loan from the trust fund and substitute in its place another mortgage loan of like characteristics; however, such substitution is only permitted within two years after the closing date. With respect to any repurchase or substitution of a mortgage loan that is not in default or as to which a default is not imminent, the trustee must have received a satisfactory opinion of counsel that such repurchase or substitution will not cause the trust fund to lose the status of its REMIC.

I’m not a MOM loan the loan transferred off of MERS, Mers no longer tracked the assignments and let’s not forget I HAVE IN MY POSSESSION THE ORIGINAL NOTE STAMPED FULLY PAID AND SATISFIED NEGOTIATED TO ME FROM RBMG. The note is date stamped MARCH 2002 and has been in my possession since 2004 along with a letter from the RBMG stating the loan is fully paid and satisfied address to me which is the declaratory letter.

New York Judges Slam Baum Law Firm and JP Morgan Chase Citing Questionable Legal Work

Liening on NY homeowners

TRUSTEE SAYS “Chase filed documents that appear to be patently false or misleading”

As pointed out in this article, 95% of foreclosures are NOT scrutinized. This is why homeowners need to go to forensic analysts, experts and lawyers. Most people are walking away from homes they still own on the basis of a claim by a party who is NOT a creditor. The TILA Audit, if it includes conclusions drawn from an analysis of the securitization of the transaction, will provide the homeowner with ample ammunition to raise issues of fact and require proof from the pretender lender.

As in many cases, careful scrutinization will reveal that the assignment and other documents are fabricated, forged and/or improperly notarized. The most obvious example is shown here where the document was signed in Florida and notarized in Buffalo, NY at the offices of the foreclosure mill (Baum law offices).

This type of scrutiny and research on the securitization of the loan is an essential part of the forensic analysis. If ignored, the “audit” becomes a vehicle for potential recovery of a minor amount of damages, plus attorney fees. If used properly the damages rise and the potential for principal reduction or even elimination of the obligation, note and mortgage if the other side can’t come up with the real party in interest.

By RICHARD WILNER, NY POST

Last Updated: 12:01 PM, February 28, 2010

Posted: 12:54 AM, February 28, 2010

As the mortgage melt down paralyzed the economy across the US and throughout New York State, one company in the center of the storm had all the business it could handle.The little-known law firm of Steven J. Baum PC

, which is based in suburban Buffalo, NY, and represents dozens of banks in matters of failed mortgages, last year filed a staggering 12,551 foreclosure lawsuits in New York City and the suburbs, which works out to about 48 a day.The foreclosure mill is one of a handful of super-regional law firms used by the country’s banks — and its lawyers appear to have practiced in every county courthouse and bankruptcy court from Staten Island to Plattsburgh and from Montauk to Niagara Falls.

But as the volume of its workload increased, so did complaints from opposing lawyers and judges that some of the thousands of lawsuits contained questionable legal work.

One bank caught in the crosshairs is JPMorgan Chase Bank, one of the largest mortgage lenders in the city.

Last month, Diana Adams, the US Trustee in Manhattan, filed papers in court supporting punitive financial sanctions against the bank for a string of bad behavior, including seeking to foreclose on homes after they rejected the attempts to make on-time payments and for failing to prove they own the mortgage on a home even as they move to seize it.

Chase filed documents that appear to be patently false or misleading, Adams said in the filing.

Although Chase has recently taken steps to address concerns expressed by courts in connection with other cases, based on Chase’s past and current conduct it needs to be sanctioned, Adams wrote.

A spokesperson for Chase had no comment on the US Trustee’s action.

The complaints against Baum — on the record during hearings, in legal pleadings and, eventually, borne out in judges’ decisions — include:

* Not divulging mortgage payments: In the White Plains bankruptcy of Blanca Garcia, Baum’s firm filed papers claiming Garcia was in arrears — when she actually made payments and showed the court her receipts, but they were not credited to her account. When Garcia’s lawyer complained, Baum’s firm answered the claim but, the lawyer said in court papers, ignored the receipts and continued to claim the mortgage was in arrears.

* Creating questionable assignments: A Suffolk County judge took it upon himself to investigate a filing by Baum’s firm when it attempted to foreclose on the home of Gloria E. Marsh. “A careful review,” the judge wrote in a four-page order, “reveals a number of glaring discrepancies and unexplained issues of substance.”

The judge found that Baum filed the action before the date it claimed its client took ownership of the mortgage.

* Botched legal papers: In the bankruptcy of Matthew Austin, Baum’s firm tried to prove that its client owned the mortgage backing Austin’s house by filing an assignment of that mortgage from a Florida company signed by an executive of that company — but it was notarized in Buffalo, NY.

To the extent assignor flew to upstate New York to appear before a notary in the law offices of Steven J. Baum, PC, defies all logic,” the lawyer said in court papers. “Clearly this is a manufactured document intended to defraud the Court.” The bank and Austin, in hopes of settling the matter, are discussing a mortgage modification.

The Baum firm has not been found to have committed any fraud. It did not return calls for comment.

Those lawyers’ complaints appear to have gained critical traction.

Judges are taking action. A few, like Justice Jeffrey Spinner in a widely reported case in Suffolk last November, are ripping up mortgages and tossing entire cases brought by Baum after it couldn’t prove its case.

Second, the US Trustee, the arm of the Department of Justice charged with keeping the country’s bankruptcy courts free from malpractice, has had its Manhattan office monitoring cases involving the Baum firm.

And just last month, a New York bankruptcy judge said he now has “probable cause” to believe that lawyers for the Baum firm acted inappropriately.

The problems involving Baum and others highlight the increasingly nasty foreclosure problem in the US after banks started the profitable (for them) system of securitizing mortgages and then slicing and dicing pieces of the loans and selling them around the world. Little attention was paid to having an easy-to-use system tracking mortgage ownership. (MERS ANYONE?)

Now, as foreclosure actions clog the country’s courts, some lawyers are fighting back and asking bank lawyers or mortgage servicers to provide proof they own the mortgage.

In most instances, it can’t be done.

“In 85 percent of the cases I handle, the paperwork submitted by the bank or mortgage service company is not in order,” said Linda Tirelli, a consumer bankruptcy lawyer based in White Plains and Stamford, CT. For example, she said, one mortgage servicer recently filed paperwork to prove it owned a mortgage and it said it was assigned ownership by Lehman Brothers in October 2009.

“Now everyone knows there was no Lehman last October,” Tirelli said.

For clients with aggressive lawyers, pushing back against banks — and forcing them to realize that they can’t prove they own the mortgage and therefore will not be able to foreclose — often result in the banks offering a mortgage modification.

Tirelli said the case of the faulty Lehman assignment resulted in her client getting the interest rate on her mortgage cut to 3 percent and $15,000 being cut from her principal.

“And she was denied a mortgage modification by the bank twice before that,” Tirelli said. “If we didn’t fight back she would have lost her house.”

David Shaev, who also represents consumers in bankruptcy court, concurs that most claims filed by banks are defective.

“I mean as the court and everyone in the country knows, the number of foreclosures has increased exponentially, and the volume — I think frankly — had an impact on the quality of the work that was done and submissions to the court,” Jay Teitelbaum, a lawyer for JPMorgan Chase Bank, said in a Jan. 7 court hearing.

Chase hired Teitelbaum after debtors raised questions about the quality of work by the Baum firm.

Steven J. Baum, 41, took over his father’s sleepy Buffalo law practice several years ago, moved it to suburban Amherst and super-sized it. It now has about 500 employees, according to an ad it placed on an online jobs site, plus has started Pillar Processing, a legal-document processing company. Pillar, too, has gotten the attention of judges.

One judge blasted Baum for trying to distance himself from a bad courtroom gambit by having a non-lawyer employed by Pillar file a motion canceling the request.

Last year, Baum filed 5,312 foreclosure actions in New York City, according to state court online records: 2,231 cases in Queens, 1,592 cases in Brooklyn, 692 cases in Staten Island, 678 cases in the Bronx and 119 cases in Manhattan.

One bank executive told a judge during a hearing in a Poughkeepsie court hearing that the bank pays law firms $650 for every referral — presumably just to file the foreclosure action. Additional pleadings would be extra.

And Baum counts nearly every bank that provided a mortgage in The Big Apple as a client — Bank of America, Chase, Wells Fargo, HSBC, US Bank, GMAC Mortgage, Deutsche Bank, Sovereign Bank, Citibank, OneWest, M&T Bank, Bank of New York Mellon, to name just a dozen, according to court records.

While embattled homeowners with aggressive lawyers like Tirelli and Shaev fight the banks and lawyers and end up with mortgage modifications. most of Baum’s 5,312 cases in NYC last year were fought against no legal opponent. Usually, delinquent homeowners can’t afford to hire lawyers. The result is a slam-dunk win for Baum — and the foreclosure of another house — in what amounts to a legal heavyweight picking a fight with a 98-pound legal weakling.

There’s no telling how many houses could have been saved from foreclosure, how many homeowners would still be in their homes and how far down the recovery road the housing market would have been had each embattled homeowner fought back against a broken foreclosure system.

The case of Sylvia Nuer, a Bronx home health care aide, is one exam ple. Nuer owns a one-bedroom Parkchester condo and moved to buy a larger two-bedroom unit in the same building. After her lawyer, who also represented the seller and collected a commission on the sale, messed up some paperwork, Nuer was unable to take possession of the larger unit.

She had to pay two mortgages on her modest salary and soon was forced to file bankruptcy. But Nuer was lucky. She hired a lawyer and fought the bank, which at first refused to simply take back the larger apartment Nuer knew she couldn’t afford to pay for and not live in.

The bank filed costly motion after costly motion.

Finally, Manhattan Bankruptcy Judge Robert E. Gerber had hadenough and told the bank’s lawyer to work out a deal with Nuer.

Alluding to those fighting foreclosure actions without a lawyer, Gerber said: “There must be hundreds, if not thousands of [Nuers] . . . who get this stuff done to them all the time.”

Shaev, of Shaev & Fleischman, citing a recent study, said more than 95 percent of claims in foreclosure cases are not scrutinized. Until that changes, homeowners are going to be needlessly tossed from their homes.

Playing with house money

JPMorgan Chase Bank, under CEO Jamie Dimon, and the law firm of Steven Baum are drawing unwanted attention from bankruptcy judges who are upset over how they are handling some foreclosure actions. Federal authorities are asking for punitive monetary sanctions to be levied against Chase, citing these three cases:

Case #1

Name: Christopher and Bobbi Ann Schuessler

Home: $299K Sullivan County home with $120K equity.

Wrong: Chase refused to accept payment made at bank branch, then moved to foreclose on house after falsely claiming debtor was two months in arrears and that no equity existed in the home.

Result: Bank backs down, pays Schuesslers’ costs.

Judge: “The system utilized by [Chase] constitutes an abuse of the bankruptcy process.” Court’s action should “serve as warning to all [banks].”

Case #2

Name: William R. Pawson

Home: $1.5M Midtown Manhattan Co-op with $220K mortgage.

Wrong: Chase refused online payments then went after apartment because Pawson was delinquent.

Result: Chase paid $50K to settle after Pawson complained.

Judge: “But what concerns me is, after reading Schuessler case [and] having seen [Chase’s] papers here, it’s kind of two strikes. Three strikes and you’re out, frankly.”

Case #3

Name: Sylvia Nuer

Home: $39K Bronx condo plus $104K second property lien.

Wrong: Chase wrongly claims it owns the mortgage to condo; its own witness couldn’t explain bank’s paperwork.

Result: US Trustee joins Nuer’s lawyer’s move for punitive monetary sanctions against Chase.

Judge: “There must be hundreds, if not thousands of [Nuers] . . . who get this stuff done to them all the time.”

Busy bees

Steven J. Baum’s law firm filed 12,551 foreclosure actions in the New York area last year.

Queens 2,231

Brooklyn 1,592

Staten Isl. 692

Bronx 678

Manhattan 119

ALL NYC: 5,312 or 102/week

Nassau 2,210

Suffolk 3,083

Westchester 796

Rockland 444

Orange 706

SUBURBS: 7,239 or 139/week

NYC & SUBURBS: 12,551 or 241/week or 48/day

Source: Official Web site, New York State Courts

richard.wilner@nypost.com

CONSCIENCE, COMMITMENT AND COURAGE

By GRETCHEN MORGENSON

Published: November 1, 2008

AS a senior mortgage underwriter, Keysha Cooper was proud of her ability to spot fraud and other problems in a loan application. A decade of vetting mortgage documents had taught her plenty, she says.

But as a senior mortgage underwriter at Washington Mutual during the late, great mortgage boom, Ms. Cooper says she found herself in a vise. Brokers squeezed her from one side, her superiors from the other, she says, and both pressured her to approve loans, no matter what.

“At WaMu it wasn’t about the quality of the loans; it was about the numbers,” Ms. Cooper says. “They didn’t care if we were giving loans to people that didn’t qualify. Instead, it was how many loans did you guys close and fund?”

Ms. Cooper, 35, was laid off a year ago and is still unemployed. She came forward to discuss her experiences at the bank in order to help shareholders recover money from WaMu executives.

Ms. Cooper is one of 89 employees whose stories fill a voluminous complaint filed against officers of the company by the Ontario Teachers’ Pension Plan board, a big shareholder. Topping the list of defendants is Kerry K. Killinger, the WaMu chief executive who was ousted in mid-September.

WaMu was seized by federal regulators in late September, the biggest bank failure in the nation’s history. It was sold to JPMorgan Chase for $1.9 billion.

The shareholder complaint depicts WaMu’s mortgage lending operation as a boiler room where volume was paramount and questionable loans were pushed through because they were more profitable to the company.

When underwriters refused to approve dubious loans, they were punished, she says.

MS. COOPER started at WaMu in 2003 and lasted three and a half years. At first, she was allowed to do her job, she says. In February 2007, though, the pressure became intense. WaMu executives told employees they were not making enough loans and had to get their numbers up, she says.

“They started giving loan officers free trips if they closed so many loans, fly them to Hawaii for a month,” Ms. Cooper recalls. “One of my account reps went to Jamaica for a month because he closed $3.5 million in loans that month.”

Although Ms. Cooper couldn’t see it, the wheels were already coming off the subprime bus.

“If a loan came from a top loan officer, they didn’t care what the situation was, you had to make that loan work,” she says. “You were like a bad person if you declined a loan.”

One loan file was filled with so many discrepancies that she felt certain it involved mortgage fraud. She turned the loan down, she says, only to be scolded by her supervisor.

“She told me, ‘This broker has closed over $1 million with us and there is no reason you cannot make this loan work,’ ” Ms. Cooper says. “I explained to her the loan was not good at all, but she said I had to sign it.”

The argument did not end there, however. Ms. Cooper says her immediate boss complained to the team manager about the loan rejection and asked that Ms. Cooper be “written up,” with a formal letter of complaint placed in her personnel file.

Ms. Cooper said the team manager told her to “restructure” the loan to make it work. “I said, how can you restructure fraud? This is a fraudulent loan,” she recalls.

Ms. Cooper says that her bosses placed her on probation for 30 days for refusing to approve the loan and that her team manager signed off on the loan.

Four months later, the loan was in default, she says. The borrower had not made a single payment. “They tried to hang it on me,” Ms. Cooper said, “but I said, ‘No, I put in the system that I am not approving this loan.’ ”

Brokers often tried to bribe Ms. Cooper to approve loans, she says. One offered to pay $900 to send her son to football summer boot camp if she would approve a loan that had been declined by a host of other lenders. “I told him no and not to disrespect me like that again,” Ms. Cooper says.

Hidden fees meant brokers could easily make between $20,000 and $40,000 on a $500,000 loan, Ms. Cooper says.

“WaMu was allowing brokers to get 6 to 8 percent off one loan,” she says. “If I had a loan where the borrower was already tight and then I saw the broker is getting $10,000 or $20,000, I would cut their fees back. They would get so upset with me.”

Ms. Cooper says that loans she turned down were often approved by her superiors. One in particular came back to haunt WaMu.

Vetting a loan one day, Ms. Cooper says she became suspicious when a photograph of the house being bought showed one street address while documents deeper in the file showed a different address. She contacted the appraiser, and recalls that he said that he must have erred and that he would send her the correct documents.

“So then he sent me an appraisal with a picture of the same house but this time with the right number on it,” Ms. Cooper recalls. “I looked the address up in our system and could not find it. I called the appraiser and said, ‘Please investigate.’ ”

The appraiser came back, reporting that a visit to the California property had found everything in order and in agreement with the original appraisal. “I was so for sure that it was fraud I wanted to get on an airplane,” Ms. Cooper says.

The $800,000 loan was approved, but not by Ms. Cooper. Six months later, it defaulted, she says. “When they went to foreclose on the house, they found it was an empty lot,” she recalls. “I remember clear as day this manager comes over to me and asks, ‘Do you remember this loan?’ I knew just what she was talking about.”

Rejecting loan after loan, however, gave her battle fatigue. “The more you fight, the more you get in trouble,” she says. She was written up three or four times at WaMu.

After WaMu’s mortgage lending unit laid her off, she applied for work in its retail banking division. She was turned down, she suspects, because of the critical letters in her personnel file.

Ms. Cooper’s biggest regret, she says, is that she did not reject more loans. “I swear 60 percent of the loans I approved I was made to,” she says. “If I could get everyone’s name, I would write them apology letters.”

CHAD JOHNSON, a partner at Bernstein, Litowitz Berger & Grossmann, is lead counsel for shareholders in the suit. He said: “Killinger pocketed tens of millions of dollars from WaMu, while investors were left with worthless stock.” With WaMu gone, he added, “it is all the more important that Killinger and his co-defendants are held accountable.”

The lawyer representing WaMu and Mr. Killinger did not return a phone call seeking comment.

Ms. Cooper hopes to return to the mortgage business soon. “I loved underwriting because it’s about being able to put a person in their dream home,” she says. “But messing these borrowers around was wrong.”

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