Fannie and Freddie Demand $6 Billion for Sale of “Faulty Mortgage Bonds”

You read the news on one settlement after another, it sounds like the pound of flesh is being exacted from the culprits again and again. This time the FHFA, as owner of Fannie and Freddie, is going for a settlement with Bank of America for sale of “faulty mortgage bonds.” And most people sit back and think that justice is being done. It isn’t. $6 Billion is window dressing on a liability that is at least 100 times that amount. And stock analysts take comfort that the legal problems for the banks has basically been discounted already. It hasn’t.

For practitioners who defend mortgage foreclosures, you must dig a little deeper. The term “faulty mortgage bonds” is a euphemism. Look at the complaints there filed. When they are filed by agencies it means that after investigation they have arrived at the conclusion that something was. very wrong with the sale of mortgage bonds. That is an administrative finding that concluded there was at least probable cause for finding that the mortgage bonds were defective and potentially were criminal.

So what does “defective” or “faulty” mean? Neither the media nor the press releases from the agencies or the banks tell us what was wrong with the bonds. But if you look at the complaints of the agencies, they tell you what they mean. If you look at the investor lawsuits you see that they are alleging that the notes and mortgages were “unenforceable.” Both the agencies and the investors filed complaints alleging that the mortgage bonds were a farce, sham or in other words, a PONZI Scheme.

Why is that important to foreclosure defense? Digging deeper you will find what I have been reporting on this blog. The investors money was not used to fund the REMIC trusts. The unfunded trusts never had the money to buy or fund the origination of bonds. The notes and mortgages were never sold to the Trusts even though “assignments” were executed and shown in court. The assignments themselves were either backdated or violated the 90 day cutoff that under applicable law (the laws of the State of New York) are VOID and not voidable.

What to do? File Freedom of Information Act requests for the findings, allegations and names of investigators for the agency that were involved in the agency action. Take their deposition. Get documents. Find put what mortgages were looked at and which bond series were involved. Get a list of the mortgages and the bonds that were examined. Get the findings on each mortgage and each mortgage bond. Use the the investor allegations as lender admissions admissions in court — that the notes and mortgages are unenforceable.

There is a disconnect between what is going on at the top of the sham securitization chain and what went on in sham mortgage originations and sham sales of loans. They never happened in the real world, no matter how much paper you throw at it.

And that just doesn’t apply to mortgages in default — it applies to all mortgages, which is why all the mortgages that currently exist, and most of the deeds that show ownership of the property have clouded and probably “defective” and “faulty” titles. It’s clear logic that the government and the banks are seeking to avoid, to wit: that if the way in which the money was raised to fund the loans or purchase the loans were defective, then it follows that there are defects in the chain of title and the money trail that were obviously not disclosed, as per the requirements of TILA and Reg Z.

And when you keep digging in discovery you will find out that your client has some clear remedies to collect the profits and compensation paid to undisclosed recipients arising out of the closing of the “loan.” These are offsets to the amount claimed as due. If the loan was not funded by the Trust, then the false paper trail used by the banks in foreclosure is subject to successful attack. If the loans were in fact funded directly by the trust complying with the REMIC provisions of the Internal Revenue Code, then the payee on the note and the mortgagee on the mortgage would be the trust — or if the loan was actually purchased, the Trust would have issued money to the seller (something that never happened).

And lastly, for now, let us look at the capital structure of these banks. A substantial portion of their capital derives from assets in the form of mortgage bonds. This is the most blatant lie of all of them. No underwriter buys the securities issued by the company seeking financing through an offering to investors. It is an oxymoron. The whole purpose of the underwriter was to create securities that would be appealing to investors. The securities are only issued when you have a buyer for them, and then the investor is the owner of the security — in this case mortgage bonds.

The bonds are not issued to the investment bank as an asset of the investment bank. But they ARE issued to the investment bank in “street name.” That is merely to facilitate trading and delivery of certificates which in most cases in the mortgage bond market don’t exist. The issuance in street name does not mean the banks own the mortgage bonds any more than when you a stock and the title is issued in street name mean that you have loaned or gifted the investment to the investment bank.

If you follow the logic of the investment bank then the deposits of money by depository customers could be claimed as assets — without the required entry in the liabilities section of the balance sheet because every dollar on deposit is a liability to pay those monies on demand, which is why checking accounts are referred to as demand deposits.

Hence the “asset” has been entered on the investment bank balance sheet without the corresponding liability on the other side of their balance sheet. And THAT remains that under cover of Federal Reserve purchase of these bonds from the banks, who don’t own the bonds, the value of the bonds is 100 cents on the dollar and the owner is the bank — a living lies fundamental. When the illusion collapses, the banks are coming down with it. You can only go so far lying to the public and the investment community. Eventually the reality is these banks are underfunded, under capitalized and still being propped up by quantitative easing disguised as the purchase of mortgage bonds at the rate of $85 Billion per month.

We need to be preparing for the collapse of the illusion and get the other financial institutions — 7,000 community and regional banks and credit unions — ready to take on the changes caused by the absence of the so-called major banks who are really fictitious entities without a foundation related to economic reality. The backbone is already available — electronic funds transfer is as available to the smallest bank as it is to the largest. It is an outright lie that we need the TBTF banks. They have failed and cannot recover because of the enormity of the lies they told the world. It’s over.

Wells Fargo Wrongful Foreclosure Kills Elderly Homeowner?


“The administrator of the estate of Larry Delassus sued Wells Fargo, Wachovia Bank, First American Corp. and others in Superior Court, for wrongful death, elder abuse, breach of contract and other charges.

Delassus died at 62 of heart disease after Wells Fargo mistakenly held him liable for his neighbor’s property taxes, doubled his mortgage payments, declared his loan in default and sold his Hermosa Beach condominium, according to the complaint.”

If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-296-1960. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.


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

Editor’s Comment and Analysis: There are two reasons why I continue this blog and my return to the practice of law despite my commitment to retirement. The general reason is that I wish to contribute as much as I can to the development of the body of law that can be applied to large-scale economic fraud that threatens the fabric of our society. The specific reason for my involvement is exemplified in this story which results in the unfortunate death of a 62-year-old man. I have not reported it before, but I have been the recipient of several messages from people whose life has been ruined by economic distress and who then proceeded to take their own lives.  In some cases I was successful in intervening. But in most cases I was unable to do anything before they had already committed suicide.

It is my opinion that the current economic problems, and mortgage and foreclosure problems in particular, stem from an attitude that pervades corporate and government circles, to wit: that the individual citizen is irrelevant and that damage to any individual is also irrelevant and unimportant. If you view the 5 million foreclosures that have already been supposedly completed as merely a collection of irrelevant and unimportant citizens and their families then the policies of the banks on Wall Street and the politicians who are unduly influenced by those banks, becomes perfectly logical and acceptable.

I start with the premise that each individual is both relevant and important regardless of their economic status or their political status. In my opinion that is the premise of the Declaration of Independence and the United States Constitution. The wrongful foreclosure by strangers to the transaction is not only illegal and probably unconstitutional, it is fundamentally wrong in that it is founded on the arrogance of the ruling class. Our country is supposed to be a nation of laws not a nation of a ruling class.

If you start with the premise that the Wall Street banks want and need as many foreclosures as possible to complete transactions in which they received the benefit of insurance proceeds and proceeds of head products like credit default swaps, then you can see that these “mistakes”  are in actuality intentional acts intended to drive out legitimate homeowners from their homes. These actions are performed without any concern for the legality of their actions, the total lack of merit of their claims, or the morality and ethics that we should be able to see in economic institutions that have been deemed too big to fail.

The motive behind these foreclosures and the so-called mistakes is really very simple, to wit: the banks have nothing to lose by receiving with the foreclosure but they had everything to lose by not proceeding with the foreclosure. The problem is not a lack of due diligence. The problem is an intentional avoidance of due diligence and the ability to employ the tactic of plausible deniability. Mistakes do happen. But in the past when the bank was notified that the error had occurred they would promptly rectify the situation. Now the banks ignore such notifications because any large-scale trend in settling, modifying or resolving mortgage issues such that the loan becomes classified as “performing” will result in claims by insurers and claims from counterparties in credit default swaps that the payments based upon the failure of the mortgage bonds due to mortgage defaults was fraudulently reported and therefore should be paid back to the insurer or counterparty.

In most cases the amount of money paid through various channels to the Wall Street banks was a vast multiple of the actual underlying loans they claimed were in asset pools. The truth is the asset pools probably never existed, in most cases were never funded, and thus were incapable of making a purchase of a bundle of loans without any resources to do so. These banks claim that they were and are authorized agents of the investors (pension funds) who thought they were buying mortgage bonds issued by the asset pools but in reality were merely making a deposit at the investment bank. The same banks claim that they were not and are not the authorized agents of the investors with respect to the receipt of insurance proceeds and proceeds from hedge product’s life credit default swaps. And they are getting away with it.

They are getting away with it because of the complexity of the money trail and the paper trail. This can be greatly simplified by attorneys representing homeowners immediately demanding proof of payment and proof of loss (the essential elements of proof of ownership) at the origination, assignment, endorsement or other method of acquisition of loans. In both judicial and nonjudicial states it is quite obvious that the party seeking to invoke  foreclosure proceedings avoids the third rail of basic rules and laws of contract, to wit: that the transactions which they allege occurred did not in fact occur and that there was no payment, no loss and no risk of loss to any of the parties that are said to be in the securitization chain. The securitization chain exists only as an illusion created by paperwork.

The parties who handled the money as intermediaries between the lenders and the borrowers do not appear anywhere in the paperwork allegedly supporting the existence of the securitization chain. Instead of naming the investors as the owner and payee on the note and mortgage, these intermediaries diverted the ownership of the note to controlled entities that use their apparent ownership to trade in bonds, derivatives, and hedge products as though the capital of the investment bank was at risk in the origination or acquisition of the loans and as though the capital of the investment bank was at risk in the issuance of what can only be called bogus mortgage bonds.

Toward that end, the Wall Street banks have successfully barred contact and cooperation between the actual lenders and the actual borrowers. These banks have successfully directed the attention of the courts to the fabricated paperwork of the assignments, endorsements and securitization chain. The fact that these documents contain unreliable hearsay statements about transactions that never occurred has escaped the attention and consideration of the judiciary, most lawyers, and in fact most borrowers.

It is this sleight-of-hand that has thrown off policymakers as well as the judiciary and litigants. The fact that money appeared at the time of the alleged loan closing is deemed sufficient to prove that the designated lender on the closing papers was in fact the source of the loan; but they were not the source of the funds for the loan and as the layers of paperwork were added there were no funds at all in the apparent transfer of ownership of the loan that was originated by a strawman with an undisclosed principal, thus qualifying the loan as predatory per se according to the federal truth in lending act.

The fact that the borrower in many cases ceased making payments is deemed sufficient to justify the issuance of a notice of default, a notice of sale and the actual foreclosure of the home and eviction of the homeowner. The question of whether or not any payment was due as escaped the system almost entirely.

Even if the  borrower makes all the payments demanded, the banks will nonetheless seek foreclosure to justify the receipt of insurance and credit default swap proceeds. So they manufacture excuses like failure to pay taxes, failure to pay  insurance premiums, abandonment, failure to maintain or anything else they can think of that will justify the foreclosure and a demand for money that far exceeds  any loss and without giving the borrower an opportunity to avoid foreclosure by either curing the problem for pointing out that there was no problem at all.

As I have pointed out before, the entire mortgage system was turned on its head. If you turn it back to right side up then you will see that the receipt of money by the intermediary banks is an overpayment on both the bond issued to the investor (or the debt owed to the investor) and the promissory note that was executed by the borrower on the false premise that there had been full disclosure of all parties, intermediaries and their compensation as required by the federal truth in lending act, federal reserve regulations and many state laws involving deceptive lending.

Wells Fargo will no doubt defend the action of the estate of the dead man with allegations of a pre-existing condition which would have resulted in his death in all events. The problem they have in this particular case is that the causation of the death is a little easier to prove when the death occurs in the courtroom based upon false claims, false collections, and probably a duty to refund excess payments received from insurers and counterparties to credit default swaps.

The cost of the largest economic crime in human history is very human indeed.


Elderly Man Allegedly Dies in Court Fighting Wells Fargo ‘Wrongful’ Foreclosure

Another Kind of Dual Tracking: Loan Origination Fraud

NOTE: Dual tracking and loan origination fraud by the banks will be a prime topic explained in detail by Neil Garfield, Dan Edstrom and Jim Macklin at the upcoming seminars.

At the Sign Up for Full Day Seminar in Emeryville (San Francisco), a specialist from Nevada will present the issues in mediation and forcing the true decision makers and owners of the loan to step forward. We will also present this important material in the Anaheim seminars. One is for homeowners Sign up for 1/2 day Homeowners Seminar and the other is a CLE seminar for lawyers, paralegals and other real estate professionals Sign Up for Full Day Seminar in Anaheim. Participants will get discounts on the purchase of our forms library and workbooks. Call 520-405-1688 for details.

People ask me why I don’t write an ordinary book for layman instead of the manuals we sell. Well, I have written two and dumped them in the trash because they were just the kind of rehash you keep seeing new authors expounding upon the dead Norse that has already been expounded.

My book would therefore really be very short. It would start with the plain and simple and ingenious process that lies at the heart of the securitization fraud.

It is called dual tracking. And the reason for this name is that Wall Street didn’t name it. Wall Street would have named it something like synthetic collateralized real estate closings deriving their value from the dual process of lending of money to a homeowner or buyer and the parallel process of signing closing documents for trading. That sounds better than dual tracking doesn’t it? Because it doesn’t tell anyone what they were doing.


What we are left with is a chain of documents without value and a chain of money without documents. The third phenomenon arises from Wall Street’s ignoring its promises to depositors (investor-lenders) and promises made to homeowners who are buyers or refinancing existing homes they own.

Imagine that I loaned you $100. You would owe it to me even if we never wrote one word on paper. Now if I forged a note signed by you, or had it robo-signed, you would still owe me the $100. If I tried to use the forged instrument in a legal proceeding I would be subject to contempt of court, fraud charges and sanctions but you would still owe me the $100.  And THAT is the reason why most pro se litigants are losing. The lawyers are making the same mistake.

Back to dual tracking. Now let’s imagine that I did loan you the $100 but I did it by writing a Check using my bank as the intermediary. Nothing has changed, right? You have the check, you cashed it and you owe me the $100. Simple as that. But here is where lawyers, judges and policy makers are missing the genius of invention by Wall Street.

When I write a check on my bank to you, my bank and your bank are intermediaries. We depend upon the normal relationship of a customer and his bank. I expect my bank to pay your bank and I expect and you expect that your bank will pay you the money. And if that is what happens, then you still owe the $100.
Even if you deposit the check, which adds another bank intermediary to the story, nobody considers the banks to be anything other than providing services to you and me for access to the extensive grid that makes it possible to move money from me to you. Here again is where lawyers, judges and Policy makers get lost.
The presence of the banks is factually irrelevant because I could have lent a single crisp $100 bill to you without any banks being involved. Doing it by checks puts the nation’s payment processing grid to work — which makes it essential that you and I trust that the banks will do as we have instructed, which, after all, is governed by our contracts with our respective banks. It would never occur to either of us that the banks would make any claim to or about our private loan. And on the books and records of the intermediary banks there would be no loan receivable because such an entry would only be in my books and records. The loan receivable is mine because I loaned the money. It’s common sense.

In savings or investment accounts I maintain at the bank, the bank becomes both an intermediary holding my money safely and a borrower to the extent that the bank has agreed to pay me interest for leaving the money in the bank. Thus if my check to you was drawn on a money market account the amount withdrawn would only be the amount written on my check ($100). If the bank took part of the $100 and then forwarded to to your bank you would justifiably say the debt has been reduced because you didn’t get $100, you got less.

But if the bank loaned you $50 and you never received $100, you would agree that the debt is $50. In that case the bank would show on it’s books and records a loan receivable from you for $50. They would have you sign closing documents naming the bank as payee because the bank was the lender.
Sometimes banks intermediate loans just like they intermediate deposits. So in our example I might give the bank $100 with explicit instructions on what kinds of loans and what degree of risk was acceptable to me. If they loaned you money out of my account with the bank then the loan receivable would be on my books, not the books and records of the banks. And the documents you would sign for the loan would disclose that you are receiving the loan from me and that the bank was acting as an authorized representative for me. It’s all very logical and certain.
Now imagine that I wrote the check to XYZ investment bank for deposit. At that point they are still just an intermediary in the role of accepting deposits and not in processing transactions. They are awaiting further instructions from me as to what to do with the money I sent them. If the money was deposited into savings account, I sent them the money because they promised me interest of 5%.
As things get more sophisticated, I might deposit my money into an account to make loans to you and others like you for the same 5% interest or perhaps a little more in interest. But if they loaned you the money at 10%. as the depositor I understand that banks make money loaning out money on deposit. But I was expecting interest of 5% not 10% which is obviously a much riskier loan than I had agreed with the investment bank.

Why did the bank not follow my instructions and our agreement? The fact is they should have but they didn’t. Since I was loaning $100 and expecting 5% interest, I was expecting a $5 payment per year in interest. I expected the bank to get me a borrower whose credit rating was unassailable and safe or not to make the loan at all.

The bank violated my agreement, my trust and my instructions when they chose to insert themselves as a principal in the transaction. Both you and the banks became co-obligors. The bank would owe me money for whatever they took out contrary to contract and you would owe me money for the loan. The amount they took out of my account was much more than what you had actually borrowed.
The Bank’s obligation was to pay me back my principal with 5% interest. But they wanted more fees than customary so they found a less credit worthy borrower and loaned him the money. That borrower is you in many cases. And you agreed to the 10% interest because you knew you had bad credit.


But only on Wall Street would they take the extra interest charged to you using my money on deposit. They took it for themselves because they didn’t want to explain to me why they had funded a loan that violated the limits on risk that were expressed in my agreement with the bank. They lied to me and told me they had loaned $100 to you at 5%.  In fact they had only loaned $50 at 10%. By doing that they created a liability for the Bank which still owed me $100 even though they only loaned $50.

But wait. If the bank loaned the money out at 10% then the interest was being paid at $10 per year instead of five, right? Wrong! In order to get what I wanted, which was $5 per year, they only had to lend out $50 at 10%, which yields $5 per year. But I don’t know they did this because they reported that my money was being used as instructed when in fact they stopped being intermediaries and started being borrowers from me because now they had loaned you only $50 and they had taken $50 more from me. Remember I gave them $100, not $50.

If they were being truthful they would have said they couldn’t find a good borrower so they found one who wasn’t so highly rated. they should have given me the choice of whether or not to engage in that loan and I would have said no because I was interested in the safety of my money not the aggressive possibility of growth. And if they made the 10% loan anyway they would have reported to me at the end of the month in my end of month statement, that I had $50 still on deposit tom them in addition to the $50 I loaned you despite my instructions. So my statement would have two line items: one would be the loan receivable to me and the other would be the $50 they didn’t loan out which would be shown as cash on deposit with them, whom I trusted to keep my money safe.

But imagine now that they didn’t issue that report and instead issued a report that $100 had been removed to make loans to you and others, from which they had taken” customary fees”. Oops that would be a lie. They were using the other $50 for themselves, having sold your $50 loan to my account for $100, netting them as much in fees as had actually been used for my loan to you.

Back to dual tracking. Now imagine that the XYZ investment bank had to go looking for borrowers with higher credit risks in order to take that extra $50 out of my $100 investment. They find you. And they want you to sign the usual and customary paperwork associated with a loan, which of course is made payable to me, right? After all I was the lender, the source of funds and the creditor. But the XYZ investment bank when they took my $100 promised to pay me back $100 even though they were only lending out half. Just like any other deposit, where the bank will give you your money when it is due to you as a demand deposit, CD or in this case a loan to you.

Back to dual tracking. They couldn’t put my name on the loan documents because that would lead the borrower straight to me.  We would find out together that they loaned only half of the money I deposited with the bank and that the bank took the rest as “fees” and trading profits.

Enter the straw man also known as the nominee. The XYZ bank hires a mortgage broker who hires a loan originator who lies to you and tells you they are lending you the money. since you expected a $50 loan and you received the $50 loan neither you nor I was the wiser. We couldn’t compare notes or accounts because neither of us knew the identity of the other and I didn’t even know the transaction had occurred and that the terms of the transaction were so different from what I had agreed as a lender, should be the terms.

So you are asked to sign papers to some company called First Freedom Easy Mortgages, who your mortgage broker has told you is the lender. But we know now that First Freedom Easy Mortgage was not the lender. It was a hired actor in a play. You signed loan documents including a promissory note to a payee with whom you absolutely had no financial transaction and you still owe me the money. You owe me the money because it came from me, regardless of what paper you signed to anyone else. And you don’t owe the money to someone else just because you signed paperwork, but never received any money from them.

First freedom Easy Mortgage was a creature created by the banks, not me. They did that because they wanted to “borrow” the loan, claim it as their own, and sell it multiple times to multiple investors. This was all orchestrated by XYZ investment bank who not only sold and resold the loan as if it was their own, but they also bought insurance. They told me it was insured but they failed to tell me that they were the beneficiary who would receive the proceeds of the insurance — not as my agents, my depository institution, but for themselves.

When your loan went into default, according to the paperwork First Freedom Easy Mortgage was the payee on the note. And the only documents of your loan transaction are between you and First Freedom Easy Mortgage so that is the only thing that people look at and believe. But you still owe me $50 because the $50 you received was my $50.

Back to dual tracking. We have the money transaction in which I loaned you $50. And we have another $50 loan transaction that is fully documented but where no money was received by you. That was cover for the extra money the bank took for itself without using it to lend money and make interest income for me. According to the paperwork you owe $50 to First Freedom Easy Mortgage because that is what the documents say AND you still owe me my $50. So you owe twice the amount you borrowed. You know what we call that? Usury. It’s a crime.

If the signed documents have no value because no value was exchanged between those parties, then that mortgage is securing the faithful performance of the terms of a note in which there was no value (no loan was received by you from the documented transaction. So we are left with a document trail (securitization) with no value and in which all conventions and provisions were routinely ignored AND a money trail which leaves no documents at all (no footprints in the sand). That is dual tracking.

And that is why in discovery you need to press hard on the actual financial transactions to force them to show the actual flow of money. AND THAT is why they will most likely settle with you if it looks like you are getting too close for comfort.

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