The Big Hoax: Are “Sales” of “Loans” and “Servicing” Real?

Posted on May 14, 2019 by Neil Garfield

References to sales of loans and servicing rights are usually merely false assertions to distract homeowners and lawyers from looking at what is really happened. By accepting the premise that the loan was sold you are accepting that the loan was (a) real and (b) owned by the party who was designated to appear as a “Seller.”

By accepting the premise that the servicing data and documents were transferred you are accepting that the transferor had the correct data and documents and that the designated servicer is actually in position to represent the accounting records of the party whose name was used to initiate the foreclosure.

GET FREE HELP: Just click here and submit  the confidential, free, no obligation, private REGISTRATION FORM.
Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM 
Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
========================

As Reynaldo Reyes of Deutsche Bank said in deposition and in recorded interviews, the entire structure and actual events are “counterintuitive.” The banks count on that for good reason. Most lawyers and almost all homeowners assume that at least some of what the banks are saying is true. In fact, nearly everything they say, write or produce as “business records” is a fabrication. But homeowners, lawyers and judges buy it as though it was solid gold.

In defending homeowners from foreclosure, lawyers who win more cases than they lose do so because of their willingness to believe that the entire thing is a hoax. Their withering cross examination and use of discovery reveals the complete absence of any corroborating evidence that would be admissible in court.

Even the most “biased” judges will concede that the case for foreclosure has not been made and they rule for the homeowner. But this only happens if the lawyer takes the opposition to task.

Chase did not acquire loans from WAMU and WAMU did not acquire loans from Long Beach etc. At the time of the claimed “acquisition” those loans were long gone, having been funded or purchased by one of the big 4 investment banks, directly or indirectly (through intermediate investment banks or simple cham conduit fictitious names or entities). In fact the ONLY time that the actual debt was clearly owned by anyone was, at best, a 30 day period during which the investment bank had the debt on its balance sheet as an asset.

So all sales from any seller other than one of the investment banks is a ruse. And there are no references to sales by the investment banks because that would be admitting and accepting potential liability for lending and servicing violations. It would also lead to revelations about how many times and in how many pieces the debt was effectively sold to how many investors who were NOT limited to those who had advanced money to the investment bank for shares in a nonexistent trust that never owned anything and never transacted any business.

Similarly the boarding process is a hoax. There is generally no actual transfer of servicing even with the largest “servicers.” They are all using a central platform on which data is kept, maintained, managed and manipulated by a third party who is kept concealed using employees who are neither bonded nor trained in maintaining accurate records nor protecting private data.

There is no transfer of servicing data. There is no “boarding” and no “audit.” In order to keep up the musical chairs game in which homeowners and lawyers are equally flummoxed, the big investment banks periodically change the designation of servicers and simply rotate the names, giving each one the login and password to enter the central system (usually at a server maintained in Jacksonville, Florida).

BOTTOM LINE: If you accept the premises advanced by the lawyers for the banks you will almost always lose. If you don’t and you aggressively pound on the legal foundation for the evidence they are attempting to use in court the chances of winning arise above 50% and with some lawyers, above 65%.

To be successful there are some attitudes of the defense lawyer that are necessary.

  • The first is that they must believe or be willing to believe that their client deserves to win. A lawyer who thinks that the client is only entitled to his/her time or a delay of the “inevitable” will never, ever win.
  • The second is that they must believe or be willing to believe that the entire scheme of lending, servicing and foreclosure is a hoax. Each word and each document that a lawyer assumes to be valid, authentic and not fabricated is a step toward defeat.
  • The third is that the lawyer must fight to reveal the gaps, consistencies and insufficiencies of the evidence and not to prove that this is the greatest economic crime in human history. All trials are won and lost based on evidence. The burden is always on the foreclosing party or the apparent successors to the foreclosing party to prove that title properly passed.
  • Fourth is arguably the most important and the one that is most overlooked. The lawyer must believe or be willing to believe that the foreclosure was not initiated on behalf of any party who could reasonably described as a creditor or owner of the debt. The existence of the trust, the presence of a real trust in any transaction in which a loan was purchased, sold or settled to a trustee, and the various permutations of strategies employed by the banks are not mere technical points. They are a coverup for the fact that no creditor and no owner of the debt ever receives any benefit from a successful foreclosure of the property.

Yes it is counterintuitive. You are meant to think otherwise and the banks are counting on that with you, your lawyer and the judge. But just because something is counterintuitive doesn’t mean that it isn’t true.

Filed under: boarding process, burden of persuasion, burden of pleading, BURDEN OF PROOF, CORRUPTION, discovery, Discovery -Subpoena, evidence, expert witness, Fabrication of documents, foreclosure, foreclosure defenses, foreclosure mill, forgery, investment banking, Investor, legal standing, originator, Pleading, prima facie case, Servicer, sham transactions, TRIAL OBJECTIONS, trial strategy | Tagged: , , , , , , , , , | 8 Comments »

Cal. 3d DCA: WRONGFUL FORECLOSURE — You Can Cancel the Assignment, Notice of Default, Notice of Sale and Reverse the Sale.

Posted on April 11, 2019 by Neil Garfield

This decision “Not for publication” takes one more step toward unravelling the false claims of securitization that resulted in millions of fake foreclosures over at least 15 years. The pure nonsense being peddled by Wall Street investment banks still remains as the underlying basis for assumptions and presumptions that are contrary to fact and contrary to legal and equitable principles.

But the window is now open to include the investment banks as defendants in complaints for damages and disgorgement, because as this decision reveals, the courts may not be willing to take a giant leap of faith that someone must be the lender and that “someone” is part of the chain of players who are pursuing foreclosure. Without that leap of faith, without that bias, their “doctrine” is left dangling in the wind.

GET FREE HELP: Just click here and submit  the confidential, free, no obligation, private REGISTRATION FORM.
Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM 
Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
========================

See http://lawzilla.com/blog/rainn-gauna-v-jpmorgan-chase-bank/

YES it does stand for the proposition that at least this court says that cancellation of instruments is the one cause of action that in fact does exist because the assignment was from an assignor that had no interest in the debt. I think that it is important to make it clear that the words “no beneficial interest” means “no ownership of the debt.” But the use of the words “no beneficial interest” implies the validity of the deed of trust by which the property was encumbered in favor of a “lender” (or its agent “MERS”) who was a sales agent and not a lender and from whom the borrower received no funds.

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This twisted concept seems to be saying to the judicial world that we know that table funded loans occur but we are not going to invalidate the enforcement of contracts lacking in consideration because there must be someone in the mix who did provide consideration and who was in some kind of relationship with the sales agent. Hecne the courts are thinking that they are following substance over form and thus preventing a windfall to borrowers. Instead they are stepping over the facts.
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The money came from an investment bank and yes the investment bank knew that the “originator” would be named as lender. The purpose of this arrangement was to shield the investment bank from liability for violations of lending laws of which we all know there were many spanning the categories of appraisal fraud, avoidance of underwriting risk (without which nobody could be considered a lender), to concealment instead of disclosure of terms, compensation etc.
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You can’t pick up one end of the stick without  picking up the other. If we are going to accept the notion that in foreclosure cases we are going to treat a contract as enforceable even though it lacked consideration and nobody else that is named in the chain has ever paid value, then the assumption is that an unnamed party who actually did pay value, is the real party in interest. That is the investment bank. And THAT can ONLY mean that the investment bank was present in underwriting and granting the loan through its naked nominee, the sales agent or “originator.”
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If that is so then the liability for lending violations MUST attach to the investment bank. And if that is so then at least in judicial states, by alleging those lending violations through the affirmative defense of recoupment, the foreclosure can be mitigated or defeated entirely. In nonjudicial states one would need to allege active concealment preventing the borrower from knowing the real party in interest with whom he was dealing.

*

This could be the end of nonjudicial foreclosures at least as to LBMT-WAMU-Chase. It should be treated as such. If I had time, I could literally write a book about this decision as it is so instructive as to pleading requirements and common mistakes made by trial and appellate courts like for example, assuming that a legal default exists when nobody who owned the debt declared such a default or even said that payment was delinquent in some way.

*
It also shows the lengths that many courts will go to avoid “fraud.” While they will accept the notion that something was wrongful and that the defendants knew it was wrongful, contrary to fact and law, they refuse so see it as fraud. A quick look at any FTC action will reveal that such restrictions do not apply if the same allegations come from a governmental agency.
*

The case is also instructive in that it repeats a very common scenario regarding the origination and progression of the loan. This court and other courts will eventually face the day when their assertions come full circle: for now, they are saying that just because there was no consideration between then named lender and the borrower doesn’t mean there was no enforceable contract.

*

Yes it does mean that in every context other than foreclosure litigation. But because of the rules in UCC Article 3 the maker of a note takes a risk when they execute the promissory note without having received any consideration because the note represents, under law, the right to enforce it, which if it is acquired for value might mean the enforcement would be free from borrower”s defenses. That liability does not create an enforceable loan contract. Even common sense dictates that for a loan contract to be enforceable there must be a loan between the parties to the contract.

*

PRACTICE NOTE: All that said, this case only stands for the proposition that a complaint is sufficient when it pleads that the party on whose behalf an assignment was made had no ownership in the debt. The proof of the pudding will be at trial. How will you prove this basic proposition. The answer is that you have taken the first step which is that you put the matter in issue. The second step is discovery. And the third step, if it ever gets to that, is establishing at trial that the supposed beneficiary under a deed of trust or the mortgagee under a mortgage deed had not satisfied its burden of proof showing an ownership interest in the underlying debt.”

*

The opposition to that narrative will be what it has always been. That possession of the “original” note raises the legal presumption that the named beneficiary under the deed of trust in fact was the legal beneficiary under the deed of trust. Possession of the note, they will argue equals ownership of the debt. If the judge accepts that proposition, the burden of proof will then fall on the borrower to rebut that presumption — a leap that most judges have already demonstrated they don’t want to make. So the persuasiveness of then presentation including an unrelenting march toward revelation of the truth is the only thing that carries the day.

*

The banks know that what they’re doing is wrong. But history shows that they can get away with it except with the apparently rare homeowner who aggressively and relentlessly defends the foreclosure.

Filed under: CORRUPTION, discovery, evidence, Fabrication of documents, foreclosure, foreclosure defenses, forensic investigation, investment banking, Investor, jurisdiction, legal standing, originator, Pleading, Servicer, sham transactions, standing | Tagged: , , , , , , | 13 Comments »

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007

Posted on April 21, 2011 by Neil Garfield

Internal emails indicate Deutsche Bank knew they were bankrolling toxic mortgages by Ameriquest and others

Internal emails indicate Deutsche Bank knew they were bankrolling toxic mortgages by Ameriquest and others

iWatch

In 2007, the report says, Deutsche Bank rushed to sell off mortgage-backed investments amid worries that the market for subprime loans was deteriorating.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007 about a deal stocked with securities created from raw material produced by Ameriquest and other subprime lenders.

Deutsche Bank Analyst: Overpay For Our Assets, Or You’ll Regret It

By Zachary Roth – February 12, 2009, 3:49PM

For a while now, it’s seemed like Wall Street’s message to government has been: We screwed up. But if you don’t rescue us on our terms, you’re all gonna be in trouble.

But you don’t usually see that expressed quite as clearly as it was in a research memo sent out yesterday by a senior Deutsche Bank analyst, and obtained by TPMmuckraker.

In the memo — one of Deutsche’s daily “Economic Notes” sent out to the firm’s clients, and to some members of the press — Joseph LaVorgna, the bank’s chief US economist, essentially, appears to warn that if the government doesn’t pay high prices for the toxic assets on the books of Deutsche and other big firms, there will be massive consequences for the US economy.

Writes LaVorgna:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the
economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives.

We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

One leading economist described the memo to TPMmuckraker as a “ransom note” to the US government. And David Kotok of Cumberland Advisors, who writes such research memos for his own clients, acknowledged that the memo, like all such communications, could be interpreted as an attempt to influence policy-makers.

Still, seeing the memo as a threat to the government to drive the softest of bargains wouldn’t be entirely fair. Kotok that cautioned that the effects of a single analyst’s memo are limited: “Joe LaVorgna doesn’t have enough clout to hold the US government hostage.”

LaVorgna himself was blunt: “I don’t write editorials,” he told TPMmuckraker.

At the very least, the memo can be seen as a frank statement of position from the chief economist of a major bank: if the government doesn’t cave and buy up all the banks’ toxic assets at inflated prices, the country will suffer.

Nice fix we’ve got ourselves into.


Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 15 Comments »

ALLSTATE FILES SUIT LAYING OUT ALL THE ALLEGATIONS YOU NEED

Posted on February 24, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

REQUIRED READING

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

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , | 73 Comments »

Option ARMs Come Back into Center Stage: 350,000 Active Option ARMs with over 200,000 in California. 78 Percent of Option ARMs have yet to hit Recast Dates.

Posted on December 1, 2009 by Neil Garfield

Option ARMs Come Back into Center Stage: 350,000 Active Option ARMs with over 200,000 in California. 78 Percent of Option ARMs have yet to hit Recast Dates.

Option ARMs are the gift that keeps on giving this holiday season.  As it turns out, these pesky toxic mortgages are still sitting waiting to hit recast periods.  Like a street vendor taco these things went down nicely and appeared cheap but came with a hefty aftermath.  The last option ARMs were made in 2007 yet they are still causing much pain in the housing market.  Attorney General Jerry Brown has requested data from the top 10 issuers of option ARMs with a deadline date of November 23.  It’ll be interesting to see what is released from the AG’s office.  However, Standard & Poors issued a report on option ARMs last week and found that much of the problems with these loans are still to come.

One of the stunning points found was that 93 percent of option ARM borrowers decided to go with the negative amortization option otherwise known as the “minimum payment” option.  This is something we have established from many fronts and data sets.  The bottom line is the vast majority went with negative amortization and this grew the actual balance owed.  Yet one of the new findings in the report was that 78 percent of all outstanding option ARMs have yet to hit major recast points.  Given that 58 percent of option ARMs are here in California, this is a one state wrecking ball:

In total, some 350,000 option ARMs are still active nationwide.  Over 200,000 of these loans are here in California.  The most risky option as we have established with option ARMs is the negative amortization payment:

Now why was this payment such a poor choice?  Well as the California housing market fell by 50 percent from its peak, the actual balance on many option ARMs was going up.  So not only is the home underwater from the initial starting point, the loan taken out on the home has increased on 90+ percent of these borrowers.  This is like negative equity squared.  So deep are these loans in negative equity territory that not even HAMP can save them.  Oh, and speaking of HAMP, it is turning out to be a colossal failure as expected:

“(NY Times) Capitol Hill aides in regular contact with senior Treasury officials say a consensus has emerged inside the department that the program has proved inadequate, necessitating a new approach. But discussions have yet to reach the point of mapping out new options, the aides say.

“People who work on this on a day-to-day basis are vested enough in it that they think there’s a need to do a course correction rather than a wholesale rethink,” said a Senate Democratic aide, who spoke on the condition he not be named for fear of angering the administration. “But at senior levels, where people are looking at this and thinking ‘Good God,’ there’s a sense that we need to think about doing something more.”

I know many delusional folks in California were thinking that somehow the quiet on the option ARM front had to do with the masterful success of HAMP.  Of course, these loans never qualified for HAMP but that is beside the point.  HAMP is failing because of a simple reason.  Negative equity.  Here in California, we have millions underwater.  Those with option ARMs are not only underwater, they are going to have massive spikes in their monthly payments at a time when the California unemployment rate is the highest in record keeping history.  The problem is Wall Street has sucked up all the taxpayer bailouts and for what?  To keep the crony welfare investment banks ticking?  Trillions of dollars out the door and the real economy is still troubled.  HAMP had the naïve premise that the only problem was high interest rates and the problem with the housing market was toxic mortgages.  Well, the actual problem is thousands of homes are still valued at bubble prices and with stagnant wages for a decade, people can’t afford homes without going massively into debt.  Prime, near prime, and subprime means little when you have no income and that is why even prime defaults are spiking.  The option ARM had such an allure for the gold rush California home speculator because it sidestepped that tiny little caveat of income.  It allowed maximum leverage without the valid income support.  80 percent of option ARMs went stated income.  In other words, people made crap up like saying they made $200,000 when they were pulling $75,000 to qualify for that $600,000 home:

“(CNN) There is another little problem that many option-ARM borrowers seeking refinancing would face: “Upwards of 80% of were stated-income loans,” said Westerback.

These are the so-called “liar loans” in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers’ income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.

Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.”

As people chime in about stabilization, California is still hovering near the bottom in terms of prices.  The only reason we have seen prices move slightly up is because the massive jump into foreclosed homes, the home buyer tax credit, Fed buying securities to lower mortgage rates, and all these phony moratoriums that we are now seeing are basically delaying reality for many.  Inventory is artificially low because of the shadow inventory.

People ask for a solution.  Here it is:  We should have (and still should) break up the banks into pieces that are small enough to fail.  Bring back Glass-Steagall with some teeth.  Commercial and investment banking should be put into silos that don’t even come close to one another.  Banks that need to fail should.  After all, the government now backs 90+ percent of all mortgages so why do we even need them?  A quick assessment should have been made from day one on housing.  Those that couldn’t afford their homes should have gotten assistance into rentals.  Here’s a thought.  Why didn’t we create a program where those who had no way of paying on an overpriced home were given a tax break to rent a place in an empty commercial real estate development?  Right there you kill two birds with one stone.  Of course, those on Wall Street and those in our government are two sides of the same coin.  For the past three decades they have systematically neutered our government to the point of it being a bread and circus spectacle.

You think the 200,000 option ARM borrowers in California are sitting in a good spot?  Let us look at negative equity rates for a few metro areas since this is the largest predictor of future foreclosures:

If you look at the Inland Empire and the Phoenix metro area, they virtually reflect one another.  In fact, both areas have negative equity rates of 54% of all mortgage holders.  This is incredible.  Half of all borrowers are underwater in these big regions.  But look at the largest block of mortgages in California clustered in the Los Angeles-Long Beach area.  1.5 million mortgages and 400,000+ are underwater.  You think this is going to bode well for home prices as option ARMs hit their recast dates in stride from 2010 to 2012?  I put in a more normal area of Dallas above and you can see what a normal market looks like.  Even there, you can see that negative equity is still an issue.  But compare that to California and it is another story completely.  What does this mean?  The middle market is certainly going to take major hits once these loans hit their recast dates.  If they don’t qualify for HAMP, then what?  S&P in their report gives an example of a hypothetical $400,000 mortgage:

The payment flat out doubles at the recast date.  Do you think people are going to be able to come up with an extra $1,200 per month with no problems?  You know what the typical mortgage payment for a home bought last month in California totaled?  $1,097.  That is the price of the hypothetical increase in the priciest state in the U.S.  So yes sales are happening but at a much lower end.  How is this going to help those in negative equity on more expensive homes?  Take a look at the raw numbers for the state:

34 percent of all California mortgages are underwater.  You can rest assured that 80+ percent of those option ARMs are underwater.  As the above highlights, those mortgages are still here and they are still toxic.

Option ARMs fall under a bigger umbrella of Alt-A loans.  California has over 700,000 active Alt-A loans.  The bulk of the 200,000+ California option ARMs fall under this category.  But the bulk of these loans are also toxic mortgage waste.  These will go off as well.  These are actually part of the shadow inventory including those who simply stop paying but banks sit back and do absolutely nothing.  Is that really a solution?  Take a look at where the Alt-A loans are in California:

Los Angeles and Orange counties hold the biggest number of Alt-A and option ARM loans.  Do you really think this is a bottom?  It might be for a home in the Inland Empire selling for $100,000 or $150,000 depending on local area dynamics.  But many cities in Los Angeles and Orange County are vastly overpriced.  The above dynamics look similar to how subprime was building up in 2006 and 2007 before the market imploded.  Yet somehow things are now different.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , | 12 Comments »

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