Levitin and Yves Smith – TRUST=EMPTY PAPER BAG

Living Lies Narrative Corroborated by Increasing Number of Respected Economists

It has taken over 7 years, but finally my description of the securitization process has taken hold. Levitin calls it “securitization fail.” Yves Smith agrees.

Bottom line: there was no securitization, the trusts were merely empty sham nominees for the investment banks and the “assignments,” transfers, and endorsements of the fabricated paper from illegal closings were worthless, fraudulent and caused incomprehensible damage to everyone except the perpetrators of the crime. They call it “infinite rehypothecation” on Wall Street. That makes it seem infinitely complex. Call it what you want, it was civil and perhaps criminal theft. Courts enforcing this fraudulent worthless paper will be left with egg on their faces as the truth unravels now.

There cannot be a valid foreclosure because there is no valid mortgage. I know. This makes no sense when you approach it from a conventional point of view. But if you watch closely you can see that the “loan closing” was a shell game. Money from a non disclosed third party (the investors) was sent through conduits to hide the origination of the funds for the loan. The closing agent used that money not for the originator of the funds (the investors) but for a sham nominee entity with no rights to the loan — all as specified in the assignment and assumption agreement. The note and and mortgage were a sham. And the reason the foreclosing parties do not allege they are holders in due course, is that they must prove purchase and delivery for value, as set forth in the PSA within the 90 day period during which the Trust could operate. None of the loans made it.

But on Main street it was at its root a combination pyramid scheme and PONZI scheme. All branches of government are complicit in continuing the fraud and allowing these merchants of “death” to continue selling what they call bonds deriving their value from homeowner or student loans. Having made a “deal with the devil” both the Bush and Obama administrations conscripted themselves into the servitude of the banks and actively assisted in the coverup. — Neil F Garfield, livinglies.me

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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John Lindeman in Miami asked me years ago when he first starting out in foreclosure defense, how I would describe the REMIC Trust. My reply was “a holographic image of an empty paper bag.” Using that as the basis of his defense of homeowners, he went on to do very well in foreclosure defense. He did well because he kept asking questions in discovery about the actual transactions, he demanded the PSA, he cornered the opposition into admitting that their authority had to come from the PSA when they didn’t want to admit that. They didn’t want to admit it because they knew the Trust had no ownership interest in the loan and would never have it.

While the narrative regarding “securitization fail” (see Adam Levitin) seems esoteric and even pointless from the homeowner’s point of view, I assure you that it is the direct answer to the alleged complaint that the borrower breached a duty to the foreclosing party. That is because the foreclosing party has no interest in the loan and has no legal authority to even represent the owner of the debt.

And THAT is because the owner of the debt is a group of investors and NOT the REMIC Trust that funded the loan. Thus the Trust, unfunded had no resources to buy or fund the origination of loans. So they didn’t buy it and it wasn’t delivered. Hence they can’t claim Holder in Due Course status because “purchase for value” is one of the elements of the prima facie case for a Holder in Due Course. There was no purchase and there was no transaction. Hence the suing parties could not possibly be authorized to represent the owner of the debt unless they got it from the investors who do own it, not from the Trust that doesn’t own it.

This of course raises many questions about the sudden arrival of “assignments” when the wave of foreclosures began. If you asked for the assignment on any loan that was NOT in foreclosure you couldn’t get it because their fabrication system was not geared to produce it. Why would anyone assign a valuable loan with security to a trust or anyone else without getting paid for it? Only one answer is possible — the party making the assignment was acting out a part and made money in fees pretending to convey an interest the assignor did not have. And so it goes all the way down the chain. The emptiness of the REMIC Trust is merely a mirror reflection of the empty closing with homeowners. The investors and the homeowners were screwed the same way.

BOTTOM LINE: The investors are stuck with ownership of a debt or claim against the borrowers for what was loaned to the borrower (which is only a fraction of the money given to the broker for lending to homeowners). They also have claims against the brokers who took their money and instead of delivering the proceeds of the sale of bonds to the Trust, they used it for their own benefit. Those claims are unsecured and virtually undocumented (except for wire transfer receipts and wire transfer instructions). The closing agent was probably duped the same way as the borrower at the loan closing which was the same as the way the investors were duped in settlement of the IPO of RMBS from the Trust.

In short, neither the note nor the mortgage are valid documents even though they appear facially valid. They are not valid because they are subject to borrower’s defenses. And the main borrower defense is that (a) the originator did not loan them money and (b) all the parties that took payments from the homeowner owe that money back to the homeowner plus interest, attorney fees and perhaps punitive damages. Suing on a fictitious transaction can only be successful if the homeowner defaults (fails to defend) or the suing party is a holder in due course.

Trusts Are Empty Paper Bags — Naked Capitalism

student-loan-debt-home-buying

Just as with homeowner loans, student loans have a series of defenses created by the same chicanery as the false “securitization” of homeowner loans. LivingLies is opening a new division to assist people with student loan problems if they are prepared to fight the enforcement on the merits. Student loan debt, now over $1 Trillion is dragging down housing, and the economy. Call 520-405-1688 and 954-495-9867)

The Banks Are Leveraged: Too Big Not to Fail

When I was working with Brad Keiser (formerly a top executive at Fifth Third Bank), he formulated, based upon my narrative, a way to measure the risk of bank collapse. Using a “leverage” ration he and I were able to accurately define the exact order of the collapse of the investment banks before it happened. In September, 2008 based upon the leverage ratios we published our findings and used them at a seminar in California. The power Point presentation is still available for purchase. (Call 520-405-1688 or 954-495-9867). You can see it yourself. The only thing Brad got wrong was the timing. He said 6 months. It turned out to be 6 weeks.

First on his list was Bear Stearns with leverage at 42:1. With the “shadow banking market” sitting at close to $1 quadrillion (about 17 times the total amount of all money authorized by all governments of the world) it is easy to see how there are 5 major banks that are leveraged in excess of the ratio at Bear Stearns, Lehman, Merrill Lynch et al.

The point of the article that I don’t agree with at all is the presumption that if these banks fail the economy will collapse. There is no reason for it to collapse and the dependence the author cites is an illusion. The fall of these banks will be a psychological shock world wide, and I agree it will obviously happen soon. We have 7,000 community banks and credit unions that use the exact same electronic funds transfer backbone as the major banks. There are multiple regional associations of these institutions who can easily enter into the same agreements with government, giving access at the Fed window and other benefits given to the big 5, and who will purchase the bonds of government to keep federal and state governments running. Credit markets will momentarily freeze but then relax.

Broward County Court Delays Are Actually A PR Program to Assure Investors Buying RMBS

The truth is that the banks don’t want to manage the properties, they don’t need the house and in tens of thousands of cases (probably in the hundreds of thousands since the last report), they simply walk away from the house and let it be foreclosed for non payment of taxes, HOA assessments etc. In some of the largest cities in the nation, tens of thousands of abandoned homes (where the homeowner applied for modification and was denied because the servicer had no intention or authority to give it them) were BULL-DOZED  and the neighborhoods converted into parks.

The banks don’t want the money and they don’t want the house. If you offer them the money they back peddle and use every trick in the book to get to foreclosure. This is clearly not your usual loan situation. Why would anyone not accept payment in full?

What they DO want is a judgment that transfers ownership of the debt from the true owners (the investors) to the banks. This creates the illusion of ratification of prior transactions where the same loan was effectively sold for 100 cents on the dollar not by the investors who made the loan, but by the banks who sold the investors on the illusion that they were buying secured loans, Triple AAA rated, and insured. None of it was true because the intended beneficiary of the paper, the insurance money, the multiple sales, and proceeds of hedge products and guarantees were all pocketed by the banks who had sold worthless bogus mortgage bonds without expending a dime or assuming one cent of risk.

Delaying the prosecution of foreclosures is simply an opportunity to spread out the pain over time and thus keep investors buying these bonds. And they ARE buying the new bonds even though the people they are buying from already defrauded them by NOT delivering the proceeds fro the sale of the bonds to the Trust that issued them.

Why make “bad” loans? Because they make money for the bank especially when they fail

The brokers are back at it, as though they haven’t caused enough damage. The bigger the “risk” on the loan the higher the interest rate to compensate for that risk of loss. The higher interest rates result in less money being loaned out to achieve the dollar return promised to investors who think they are buying RMBS issued by a REMIC Trust. So the investor pays out $100 Million, expects $5 million per year return, and the broker sells them a complex multi-tranche web of worthless paper. In that basket of “loans” (that were never made by the originator) are 10% and higher loans being sold as though they were conventional 5% loans. So the actual loan is $50 Million, with the broker pocketing the difference. It is called a yield spread premium. It is achieved through identity theft of the borrower’s reputation and credit.

Banks don’t want the house or the money. They want the Foreclosure Judgment for “protection”

 

ADAM LEVITIN: HOUSING MARKET IS TOO BIG TO FAIL

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Adam Levitin posts on www.creditslips.org

EDITOR’S COMMENT: Adam Levitin has nailed it again. From politics to practicality to legality.

The Multistate Foreclosure Settlement

posted by Adam Levitin
The New York Times came out with a strong editorial urging state AGs and the Administration not to rush into the proposed multi-state settlement deal. I think it’s worthwhile reviewing what we know about the deal and the arguments for and against it.  Let’s start with the facts that we know.  There aren’t many that are publicly confirmed; the Administration, the AGs leading the multi-state settlement, and the banks very much want to avoid public comment on the deal–they want to present it as a fait accompli.  As a result, there hasn’t been definitive reporting on the contents of the term sheet currently circulating among AGs.  It appears, however, the the deal has the following features.

Some 16 banks that do mortgage servicing will:

contribute a total of $5 billion in cash;
contribute total of mortgage assets with a face value of $20 billion, but a market value considerably lower;
agree to uniform servicing standards.
In exchange, the state and federal authorities signing on would give the banks:

  • a release of all servicing claims;
  • a release of all origination claims, including discriminatory lending claims;
  • a release of all MERS claims against the banks, leaving MERS Inc. as a potential defendant for MERS related issues (MERS Inc. has no financial assets of note.)
  • Perhaps $20B of the money would be used for principal write-downs and for interest rate reductions (via refinancings, which have the added benefit of relieving the banks of rep and warranty problems on the old loan) on the loans owned by these banks, which is less than 10% of the first lien loans in the U.S.

Let’s start with the argument for this deal and then consider why it is wrong.

The defenders of the deal make no bones that it is perfect.  Instead, they make two related arguments for the deal:  Too-Big-to-Fail and Exigency.

  • The Too-Big-to-Fail argument is that the US housing market is too fragile and can’t afford anything upsetting status quo; it is necessary to close some sort of deal for stability’s sake.
  • The Exigency argument is that every day of delay means more foreclosures, so it’s imperative to close the deal fast to get help to homeowners.

So what’s wrong with these arguments?

What’s Wrong with the Too-Big-to-Fail Argument

The housing market is too-big-to-fail. It’s true. The problem is that it has failed, and the proposed multi-state deal doesn’t fix the market. The deal simply isn’t broad enough to put all the housing market concerns to rest. The deal doesn’t buy peace for the banks or stability for the US housing market.  It just blows the government’s last wad on a sideshow issue, robosigning. Consider all the critical issues the settlement does not (and cannot) address:

  • The $700B in negative equity in the US.
  • Clouded title from MERS
  • Clouded title from wrongful foreclosrues
  • Billions in investor putback and securities fraud claims
  • Investor suits against trustee banks
  • Disposal of the REO inventory and the shadow REO inventory
  • Foreclosures
  • If the deal is to help the US housing market on a macro-scale, it has to take a major bite out of negative equity. $20B isn’t even a scratch.

The Too-Big-to-Fail argument, like all TBTF arguments, also grates against the rule of law.  In this case, it elevates housing market stability over the rule of law.  Ignoring banking law like prompt corrective action and source of strength doctrine and perverting section 13 of the Federal Reserve Act are all problematic, but the law being violated there is law designed to protect the banking system.  That means it is at least susceptible to the argument that its violation actually furthers its purpose.

The same cannot be said about robosigning and fair lending and securities laws.  Those laws are not enacting to protect the banking system.  They are enacted to protect the citizens for whose benefit the government suffers the banking system to exist.  Ignoring the rule of law in these contexts deeply undermines the legitimacy of the US legal system.  It starts to look like the only rule of decision is “banks win.”  That’s a recipe for social disaster. But that seems to be the message that is going out now.  If you’re a bank, you get bailed out and then get a get out of jail free card to boot.  If you’re a homeowner you get some empty promises of help, some more empty promises, and then you lose your home.  The fate of an $11 trillion market is hardly trivial, but when compared to the importance of rule of law in society, it looks like 30 silver shekels.

Now I recognize that there is a seeming tension between saying that robosigning is a sideshow issue and that it goes to the heart of the rule of law.  My point is this:  if the goal here is macroeconomic stability, who gives a fig about robosigning and why is the multistate settlement wasting its time on the issue?  But if our goal is to be a society of laws, not banks, then robosigning is a hugely important and symbolic issue.

If one takes the Too-Big-to-Fail argument seriously, then this is simply the wrong settlement.  Instead, we need a global settlement that addresses negative equity and makes the market clear, that clears MERS title, that compensates for wrongful foreclosures and for the harm to society via robosigning.  We need a settlement that can put investor claims to rest too.

Alternative, if this is about robosigning, then there shouldn’t be any settlement, much less any rush. Instead, we should just see prosecutions, fines, and jail time.

What’s Wrong with the Exigency Argument

The exigency argument REALLY galls me. It’s got all the chutzpah of the patricide pleading for mercy because he’s an orphan. Where the fuck was the exigency for the past three years?  The Administration wasted years dicking around with HAMP and HARP programs that were patently flawed from the get-go.  Look at the Congressional Oversight Panels’ original reports of HAMP.  All of the problems were obvious to anyone who wasn’t willfully blind.

And what of the AGs?  It’s not like servicing is a brand new issue to many AGs–some of them have been dealing with servicing since 2003 or so.  If there was some exigency, the AGs inclined to sign onto the settlement should have been putting resources on investigation years ago, and they should have closed this deal months ago.

Now, it is true that every day of delay means more foreclosures.  But rushing a crappy deal doesn’t serve homeowners’ interests.  A quickie deal that gives token relief won’t prevent any foreclosures.  Better to take a little more time and have a serious deal that gives serious relief.

If we want to prevent foreclosures, we need to see something more than a token attack on negative equity.  We need major principal reductions (remember, however, that principal reductions are a GAAP accounting write-down, not hard cash).  We also need serious hands-on involvement with borrowers.  It is time-consuming, and expensive, but these are our neighbors, our friends, our family, our countrymen.  Their fate affects us all.  And the evidence is clear that hands-on involvement works.  It saves money and homes in the end.  A recent HUD door-knocking program for FHA loans cost $17 million and saved taxpayers $1 billion. Fortunately HUD insisted on the program, because the bank that services those loans had no interest in it.

The two arguments for the multi-state deal, Too-Big-to-Fail and Exigency don’t hold any water.  But pointing out the flaws in these arguments are not an affirmative argument against the deal. So here they are:

The Multi-State Deal Gives Too Much Away.

The settling AGs and federal government would be giving away claims that they have not investigated and therefore cannot possibly value, something the NY and DE AGs noted in a recent op-ed.  The Huffington Post has previously reported that the AGs have done virtually no investigation of robosigning (excluding now NY, DE, and NV).  And there has been even less investigation of origination claims.  Many of the origination claims have statutes of limitations are will expire soon, but these are serious fraud and civil rights claims.  They are much, much more serious issues than the mass perjury of robosigning in terms of harms to individuals.

The Multi-State Deal Accomplishes Too Little.

If the goal of the settlement is to bring stability to the housing market, this won’t do it.  Consider all the issues left unresolved.  Investor claims, including putbacks and trustee suits are left untouched.  Homeowner claims for wrongful foreclosure and wrongful denial of modifications are left untouched.  Homeowner claims for discriminatory lending are left untouched.  Servicing standards will, hopefully, reduce servicer abuses, but that requires real enforcement.  It’s hard to imagine the AGs who sign this deal ever cracking the whip on compliance.  We know the OCC won’t.  And the CFPB can’t yet.  Critically, NOTHING in the settlement will stop the unending parade of foreclosures or get rid of the $700 billion in negative equity that is dragging down the US economy.  Indeed, it’s laughable to think that $25 billion of nominal assets would possibly cover these liabilities.

To put hard numbers on this, what does $20 billion buy?  At $65,000 negative equity per mortgage, it doesn’t buy very much.  It puts 307,692 homeowners back to zero equity. That less than 3% of the 10.9 million homeowners with negative equity. Or what about in terms of interest rate reductions over 5 years?  Let’s assume an average mortgage balance of $150,000.  That means a 1% (100bps) reduction in the interest rate on that mortgage would be $1,500.  How many homeowners does $25 billion over 5 years help?  $20b/$1500/5=2.6 million.  So $20 billion gets 2.6 billion homeowners a 1% (100bp) reduction in their interest rate.  These homeowners save $125/month for 5 years.  At the end of which the homeowner will still have deep negative equity. And it would still be helping less than a quarter of underwater homeowners.

Here’s my proposal:  let’s just call this HAMP 2.0.  It’s like a sequel to a bad movie.  We know how it is going to end. Let’s just stop wasting everyone’s time here. If this is the best the Administration can do, we might as well adopt the Mitt Romney foreclosure plan–stand aside and let the system do its work. (Gosh, that sounds an awful lot like the Geithner non-plan…) Even if one thinks of the settlement as a one-two punch with HARP 2.0, it’s a wishful featherweight in a heavyweight bout.

Here’s the question you should be asking the AGs and the Administration:  is this going to matter on the macro level?  And if not, is it doing justice?  A settlement better be doing one or the other, if not both. If it’s neither, all this is a little gravy to a handful of random homeowners and some unconvincing political C.Y.A.

The Administration Only Gets One More Bite at the Apple

A final thought.  Yves Smith made a trenchant political observation at the AmeriCatalyst mortgage conference yesterday:  the Administration only gets one more bite at the apple in terms of getting the housing market right. If the Administration flubs this, as they have consistently flubbed the housing issue, by going small bore and trying to sweep problems under the rug, rather than addressing them, there are serious political implications. It doesn’t take a lot to connect the dots between the multistate settlement and the deep national demand for accountability for the financial crisis that is manifesting itself in OWS and the need to take real action to deal with the housing market problems that are at the core of the US’s economic woes.

I’m not sure where the Administration’s political team is on this one, but imho, it seems like they are letting Treasury drive the 2012 campaign off the cliff via this settlement that will confirm the perception that the Administration works for Wall Street, not Main Street. And if you think I’m nuts on this, just read the first line of the NYT editorial:  “The banks want California, and the Obama administration hopes they can get it.”  In a country craving accountability for the financial crisis and its aftermath, being cozy with the banks is the wrong place to be when approaching a general election.

November 9, 2011 at 10:40 PM in Financial Institutions, Mortgage Debt & Home Equity, Too Big to Fail (TBTF)–

“Phantom” Trustees: Tools of Wall Street

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EDITOR’S ANALYSIS: There are so many “Trustees” running around these days, it is impossible to figure out what they do and if they even really exist. In the article below, Streitfield points out that the “Trustees” on deeds of trust “in those states where foreclosures are not governed by the courts” are essentially phantom entities. The original trustee on teh deed fo trust is usually a genuine entity qualified to act in good faith on behalf of the beneficiary.

There are three phantom deals running parallel in each “securitized” loan situation: (1) the actual transaction which involves money exchanging hands and where there is no trustee at all named on the deed of trust for the investor-lender (2) the fictitious securitization infrastructure under which the investor believes the receivables are being carved up into pieces that reduce risk to nearly zero in which there is no trustee named on the deed of trust for investor-lender or anyone else and (3) the fictitious transaction described in the closing documents in which a trustee is named on the deed of trust for a false beneficiary.

The current practice is driven by the fact that the original “trustee” on the deed of trust is unwilling to perform tasks that are at best dubious as to their authenticity or compliance with legal requirements. Thus when the “loan” is declared in default (but is not necessarily in default) by some remote entity taking instructions from another remote entity, a “substitution of trustee” is executed and filed. This is of course years after the deal was done usually and is signed by people without authority — like from MERS or some other robo-signing forgery and fabrication mill. The new “Trustee” is completely controlled by Wall Street and simply has a name that is used to initiate foreclosures, whether it even knows that the notice went out or not.

This practice is mirrored by the now multitudinous so-called foreclosure mills that were bankrolled by Wall Street, who staffed the offices, supplied the money, and and personnel, and leased the license of an attorney who had few scruples in connection with the use of his name or law license. If you get a look at the daily calendar of David Stern or any of the other foreclosure mill moguls you’ll see they didn’t have much to do. Neither do the trustees. BILLIONS of dollars were paid out to such mills, trustees, and remote vehicles for them to keep their mouths shut and do what they were told to do.

As the article below points out, people like Adam Levitin are highly critical of the deals that are being made with the remote vehicles and servicers, inasmuch as the real players who too the money from the investors, intentionally lost it as part of a scheme whereby they turn the investors’ loss into a profit worth multiples of the loss, and are now seeking to take homes in foreclosures using appearances instead of reality.

Levitin says, and I agree, that these deals are worse than no deal at all because they provide political cover to Wall Street. We can expect to see more of them until Wall Street has its way and the matter is “settled” with entities that have no assets, no authority, and whose mere presence causes defective and chaotic title problems for generations to come.

New Rules for Mortgage Servicers Face Early Criticism

By DAVID STREITFELD

Federal banking regulators have not officially imposed their new rules for the top mortgage servicers, but criticism is already being heard. A wide coalition of consumer and housing groups is denouncing the legal agreements, which are likely to be published within a few days.

The new rules require the servicers to improve their processing systems, to stop foreclosing while negotiating to modify the loan and to give borrowers a single direct means of contact.

Servicers will be required to bring in a consultant to investigate complaints by homeowners who lost money because of foreclosure processing errors in 2009 and 2010. In some cases the homeowners could be compensated.

The problem, said Alys Cohen of the National Consumer Law Center, is the agreements “do not in any way require the servicers to stop avoidable foreclosures, and that is what we need.”

At the heart of the complaints by Ms. Cohen and others is whether the servicers, which are arms of the biggest banks, may be compelled to give households fighting foreclosure a better shot at renegotiating their loans and staying in their properties.

The servicers argue that whatever mistakes they made in handling foreclosures — errors that will be amply on view in a regulatory report accompanying the agreements — they never foreclosed on anyone not in severe default. They are strongly resisting proposals to cut the debt of homeowners in default to help them stay put.

The issue has wide repercussions for an ailing housing market. About four million people are either in foreclosure or near it. Some housing analysts argue that adding those houses to the abundant inventory already on the market will further reduce values for all owners and prolong the downturn.

To some critics, the pending fixes are all but useless. Adam Levitin, an associate professor of law at Georgetown University who has closely monitored efforts to more tightly regulate foreclosure practices, calls it “a sham settlement” that is worse than none at all.

“It gives the banks political cover, undermines attempts at a real and just resolution, and could be the basis for the regulators to claim that state actions are pre-empted,” Mr. Levitin said. Allowing federal regulators to pre-empt or elbow aside potentially stronger state actions during the housing boom has been widely seen as contributing to the collapse.

Representatives of the regulators, including the Office of the Comptroller of the Currency and the Federal Reserve, declined to comment.

The legal agreements, which take the form of consent orders, will be signed by the 14 largest servicers, including Bank of America, Wells Fargo and JPMorgan Chase. They are being published on the heels of new evidence that foreclosures are still being conducted improperly.

The Washington attorney general, Rob McKenna, sent a letter last week to a group of trustees. The trustees work with the servicers in states like Washington where the courts do not oversee foreclosures.

Washington law requires trustees to have a local office so borrowers in default can submit documentation or last-minute payments. In a continuing foreclosure investigation, Mr. McKenna found that many trustees were effectively invisible. In his letter, Mr. McKenna called their absence “widespread, illegal and contrary to an effective and just foreclosure process.”

Among the groups protesting the consent orders are the Center for Responsible Lending, the Consumer Federation of America and dozens of local and regional housing groups. In a letter to the regulators, the groups are asking for the withdrawal of the agreements in favor of “specific and protective measures regarding loss mitigation, account management and documentation.”

Efforts to get the servicers to change their practices have a long and not particularly successful track record. During the boom the servicers needed to do little more than deposit the checks of borrowers. That changed when defaults began to swell and borrowers called to try to work out new loan arrangements.

Servicers were ill-equipped to deal with something so complicated. Nor did they have much incentive, because in most cases the loans had long ago been sold to investors. Borrowers complained that servicers were sloppy, that they lost paperwork and then lost it again, that they reshuffled borrowers among endless personnel to no effect and that they foreclosed on the property even while supposedly negotiating to save it.

These assertions were brought into sharp focus last fall after revelations by servicers that in their haste and sloppiness they had broken local laws and regulations. They imposed moratoriums while saying they were clearing up the problem, but by then a range of federal and state investigations were under way.

A coalition of all 50 state attorneys general joined by the Obama administration set out to change the process of foreclosure so more borrowers could remain in their homes. The goal of the regulators was more limited.

The efforts by the attorneys general to impose a broader settlement with a multibillion-dollar penalty and some provision to restructure mortgages by cutting debt are continuing, however slowly.

Attorney General Tom Miller of Iowa, who is leading the effort, said a settlement with regulators “neither pre-empts nor impacts our efforts.” The attorneys general are striving to pursue their negotiations out of the public eye so every incremental step is not open to commentary and criticism.

LIKE HAMP MODIFICATIONS, AG DEAL IS WINDOW DRESSING

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“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

EDITOR’S ANALYSIS: It’s really simple. Wall Street banks got away with financial equivalent of murder and the administration either doesn’t get it or doesn’t want to get it. The deal with AG offices around the country is going to split apart into meaningless drivel just like the HAMP or any other modification process. The banks want the houses, pure and simple. It is the only way they make money for the 4th time in this merry-go-round of financial farce. They know how to pretend to offer modifications, lose the paperwork and otherwise stall, delay and obfuscate and now they are doing the same thing with the AG offices.

SO HERE IS THE QUESTION: WHICH ATTORNEY GENERAL WILL HAVE THE COURAGE AND BACKING TO ACTUALLY TAKE ON WALL STREET? Because the only way out of this is by litigating or negotiating with the actual people who are owed money from these mortgages. Right now they are not at the table nor anywhere to be seen, and frankly unknown in many instances. Present circumstances indicate the that the U.S. Government is the largest owner of mortgages, or the party with a claim to the largest number of mortgages (which probably is a false claim based upon bogus mortgage bonds). The award for honesty and effectiveness will go to the Attorney General who publicly says “we are talking to the wrong people — these servicers didn’t make the loans, didn’t purchase the receivables, and don’t have any authority to make a deal.”

In Foreclosure Settlement Talks With Banks, Predictions of a Long Process

By DAVID STREITFELD

Little was settled in the first round of foreclosure settlement talks.

The nation’s top mortgage servicers met Wednesday in Washington with the attorneys general from five states as well as Obama administration officials, beginning negotiations in earnest over new rules for homeowners who are in default.

The one thing everyone seemed to agree on was that an agreement was going to take time.

“We have a long way to go,” Iowa Attorney General Tom Miller, who is leading the effort from the states’ side, said after the afternoon session broke up.

“Obviously this is a very large set of issues, and it’s going to take some time to work through,” Thomas J. Perrelli, associate United States attorney general, said.

The quest to secure new foreclosure rules, which began last fall after the banks were shown to be breaking the rules as they pursued evictions, may be slow but it is playing out in public. When the effort was started, every attorney general signed on, but the coalition has begun to fracture.

Several Republican attorney generals are accusing their colleagues of overreaching in their attempt to bring the banks under control, while at least one Democrat, Eric T. Schneiderman, the New York attorney general, has expressed concern that any deal would immunize the banks from future legal action.

After Wednesday’s meeting, Mr. Schneiderman said through a spokesman that he remained worried about “providing broad amnesty to servicers.”

The banks at the meeting were Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and GMAC. A spokeswoman for GMAC, which is partly owned by taxpayers as a result of failing during the recession, called the session “productive and useful” but added it was “an extremely complex topic.” The other banks declined to comment.

Lengthy negotiations work to the banks’ advantage, critics say.

“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

The government negotiators may receive some support from the imminent release of a report by banking regulators. The report, based on investigations conducted over the winter, is expected to establish what many households in default knew long ago: that banks cared little for the legal niceties governing foreclosure, exacerbating the troubles of millions at a particularly vulnerable point of their lives.

In addition, the report is expected to show that bank employees were poorly trained, that they let law firms and other third party contractors run wild, and that they had little interest in keeping people in their houses.

Lenders say they have fixed these problems, and that few if any homeowners were evicted who did not deserve it. But as recently as a few weeks ago, a major bank, HSBC, which is based in London, was forced to suspend foreclosures when regulators found a number of deficiencies.

Enforcement action is expected to follow the release of the report by the Federal Reserve, the Office of the Comptroller of the Currency and other banking regulators. Those fines and penalties would be separate from any monetary settlement that results from talks with the state attorneys general.

The banking regulators were not present at Wednesday’s all-day meeting.

About two million households are in foreclosure, and another two million are in severe default. Data released this week by an analytics firm, LPS Applied Analytics, showed that banks were making some progress with modifications but that foreclosure was becoming, for better or worse, a permanent state for many families.

The government proposals require homeowners in foreclosure to be treated on an individual basis and would put in place a variety of measures that would encourage banks to modify mortgages rather than evict.

“I’m really hopeful something comes out of this,” said Jay Speer of the Virginia Poverty Law Center. “It’s starting to look like the last chance for real reform. The Virginia legislature still has this amazing allegiance to the big banks.”

If the negotiations are being conducted behind the scenes, the banks and their supporters are openly waging a battle for popular sentiment. The banks are presenting themselves as champions of those homeowners who might be hostile to the idea of someone in default getting an undeserved break.

Banks say cutting the mortgage debt of foreclosed families into something more bearable creates issues of moral hazard — that people will default to get a better deal.

Even as JPMorgan Chase representatives were meeting with the task force, the bank’s chief executive, Jamie Dimon, was rejecting the idea of writing down delinquent balances.

“Yeah, that’s off the table,” Mr. Dimon told reporters after a United States Chamber of Commerce forum in Washington.

His comments echoed previous remarks by other bankers, including the Wells Fargo chief executive John G. Stumpf, who said “it makes no sense” to entice people not to pay their debts.

Four Republican attorneys general wrote a letter last week to Mr. Miller of Iowa, expressing concern with the “scope, regulatory nature and unintended consequences,” of the settlement proposals, particularly with the question of principal reductions. The attorney general of Virginia, Kenneth T. Cuccinelli, one of the signatories, was invited to Wednesday’s session to allay his concerns.

Critics of the banks say the entire issue is a red herring, and that principal writedowns are not such a gift that people would default to get them. [EDITOR’S NOTE: IT’S NO GIFT IF IT IS RESTITUTION FOR FRAUD]

“Moral hazard is being invoked by the banks and their defenders as an excuse to do nothing, rather than out of any real concern for fairness,” Mr. Levitin said.

Citi Article —FORECLOSURE GONE WILD— Tells ALL: Use this MEMO to make your case

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Submitted by Jon Lindeman, Esq. Florida

So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:

The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

Foreclosures Gone Wild

“Three Potential Outcomes — Levitin articulated three possible outcomes to the aforementioned issues and assigned an equal likelihood to each. In his best case scenario, these issues are deemed merely technical in nature and are successfully resolved but it takes at least year to do so and all foreclosures are delayed by at least a year. Levitin disputed the claim by banks that these issues can be resolved in a month or so and attributed the banks’ claims to “legal posturing.” In the medium case scenario, litigation ensues and it takes years to sort out these matters. In the worst case scenario, the aforementioned issues become a “systemic problem” which causes the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.”

“Most mortgage trusts were set up as REMICs (Real Estate Mortgage Investment Conduits) which are special purpose vehicles used to pool mortgages. Under the IRS code, REMIC confers a special tax status in which the cash flows to the trust are not taxed. Investors in the trust pay taxes. The tax exempt nature is important. If the trusts were in fact to be taxed, the taxes would distort the yields required by investors.”

“To qualify as a REMIC under the IRS code and enjoy the beneficial tax treatment, the trust (1) must be passive and (2) cannot acquire any new assets 90 days following the trust’s creation.

“When a home with a mortgage on it is sold, the mortgage must be released at closing by the current mortgage owner before a new mortgage with title insurance is issued. If it is not known with certainty who owns the mortgage in question, it cannot be released. If the title company is not satisfied that there is a good release on the old mortgage, it will refuse to insure the new mortgage.

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