Ally-Rescap Dispute Shows the Rest of the Story: Myth vs. Fact


“The true transaction is the one where investors gave money to borrowers and the borrowers agreed to pay it back either under the terms of the note, the terms of the bond or some combination of the two. That loan is NOT secured but was intended to be secured by both the actual lender (investors) and the actual borrower (the homeowners). ” — Neil F Garfield, Esq.,

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Editor’s Analysis: It is still too much to fathom for most Judges, lawyers and even homeowners and investors. The scale of theft in the mortgage crisis is not accepted by government either, so it is being replicated by the banks in student loans and commercial loans to businesses where the spigot is wide open with crazy terms.

The Judges ask “where is your evidence” and the answer as set forth in Wigmore and other scholars on evidence is that where the information is exclusively within the care, custody and control of the party against whom the allegation is made, the burden shifts to that party to prove that the allegation is untrue.

But Judges don’t want to do that probably because they still think the debt is real and legitimate between the parties in front of him or her.

The diversion of funds and documents has been working very well for the Wall Street banks for years now and they have essentially stolen 5-6 million homes using sleight of hand financial maneuvers. But some Judges, like the one I was in front of yesterday in Tallahassee are getting on board at least in terms of acquainting themselves with the process of securitization. Most of them are still arriving at the wrong conclusion because the alternative seems preposterous.

But if you examine the disputes between the big boys, the truth is easy to discern. Here we have (see article below) Rescap and Ally fighting over what others regard as preposterous. But it is difficult to imagine a scenario in which the Rescap claims and other creditors of Ally Financial would not be true since they want to do the deal.

The U.S. Government owns 74% of Ally and is offering to put up $750 Million to cover liabilities relating to mortgages. Why would the bank have liabilities? Because the loans don’t exist or are grossly overvalued and Ally and others shared in tier 2 yield spread premiums that were fraudulently taken from investor money to buy other investments for the banks including insurance payable to the banks and credit default swaps payable to the banks even though the banks were not putting up one nickle and were using the same system of fabrication and forgery to fool counterparties on guarantees of the loan pools which, it turns out, didn’t exist.

Dozens of writers including myself have looked at the settlements with law enforcement and regulatory agencies screaming that the settlements are rounding errors compared with the full scope of the fraud used to promote and cover-up the Wall Street Bank Ponzi scheme. We are ignored. But now the real creditors and the people who really lost money — the investors — are starting to peak under the hood of the brand new car they bought and are finding the shell of a 1965 VW bug with no engine or steering wheel.

They don’t like what they see and they want to know (a) where did all that money go if it didn’t go into mortgages and (b) why isn’t the government or Ally stepping up, facing the music and agreeing to cover the liability and losses that are already in the pipeline and likely to get much much larger as the next five years unfolds.

Unfortunately for Ally and the U.S. Government, the creditors are not stupid and unsophisticated. They understand what happened and are completely unwilling to cover losses that the banks caused by stealing money. For this one company, Ally Financial, whose size is barely comparable to the giants on Wall Street who engineered this catastrophe, Rescap and the other creditors say that the $750 million offer is “a drop in the bucket” compared to the actual liabilities and losses of Ally.

(Small wonder that the shadow banking system has over $700 trillion in nominal value cash equivalents that are not worth much more than $15 trillion. Every dollar reported on those instruments in the shadow banking system is rife with potential liabilities several times the reported value of the instrument.)

So finally we have a bankruptcy court examiner auditing the transaction and accounts and rendering a report in May, 2013. The report is likely to be stunning and will have far reaching effects as the asset side of the balance sheet of Ally drops to a small fraction of what is currently reported. It won’t take more than a few seconds for the high speed traders to crash the stocks of the Wall Street Banks because the accounting for non-existing and overvalued assets on their balance sheets is just as bad or worse than Ally.

And all of that adds up to a reasoning process that takes time, explanation and sometimes crayons in court to get across tot he Judge. The DESCRIBED debt never existed because the “lender” was actually a naked nominee just like all the other naked nominees in the whole mortgage meltdown. When the time comes that the pretender lenders are required to produce cancelled checks and wire transfer receipts and instructions it will be obvious that the paper in the securitization chains is worthless or worse carrying liabilities for fraud and statutory violations. It will be equally obvious that the subservicers, master servicers, trustees of empty pools, and others created an illusion that worked, receiving trillions of dollars in insurance type contracts on transactions that never occurred.

The true transaction is the one where investors gave money to borrowers and the the borrowers agreed to pay it back either under the terms of the note, the terms of the bond or some combination of the two. That loan is NOT secured but was intended to be secured by both the actual lender (investors) and the actual borrower (the homeowners). 

On the other hand neither the lender nor the borrower ever intended to do a deal that was guaranteed to fail — and that would have required true appraisals and true prices that were dead even with the actual value of the property — i.e. if the true value of the property was used, there would have no no crash, the loans would have been smaller and the ability to repay the loans would have been correspondingly enhanced.

In a giant piece of irony, realtors are complaining that appraisers are holding up deals (the way they should have during he mortgage meltdown period) with appraisals that don’t add up to the contract price. In the old days that was it — either the buyer came up with more cash, the seller reduced the price or the bank relented after being given additional collateral. Usually it was some combination of those factors.

By ANDREW R. JOHNSON, Wall Street Journal

Negotiations are breaking down between creditors of bankrupt mortgage lender Residential Capital LLC and its parent, Ally Financial Inc., making it likely the government-owned auto-finance company will face litigation as it seeks to sever ties, people familiar with the matter said.

The creditors, including Wilmington Trust Corp. and other members of a committee representing ResCap’s unsecured creditors, are pushing Ally to provide more money to settle potential liabilities it could face as ResCap’s parent.

Ally, which is 74%-owned by the U.S. government, is working to cap its exposure to the subprime lender’s mortgage business so it can move forward on efforts to repay its $17.2 billion crisis-era bailout and focus on its core auto-lending and online-banking businesses.

At issue is a settlement Ally reached last year with ResCap in conjunction with the mortgage subsidiary’s bankruptcy filing. Under the deal, Ally has proposed paying $750 million to ResCap’s estate in return for a release from potential liability claims from outsiders.

But creditors have blasted the deal, saying the $750 million represents a drop in the bucket compared with what they say are Ally’s true liabilities. They say the parent company stripped ResCap of its most valuable asset, an ownership stake in Ally Bank, as part of a transaction completed in 2009. They insist Ally should retroactively pay more for the deal, among other claims.

A bankruptcy court examiner is investigating that transaction as well as others surrounding ResCap’s May Chapter 11 bankruptcy filing. The examiner’s report is expected to be completed in May.

“There is no support among the constituencies for the proposed amount of the Ally contribution because the amount is far too small in comparison to the value of the claims that have been and may be asserted against Ally,” Wilmington Trust, a unit of M&T Bank Corp., MTB -0.44% said in a letter to ResCap’s board this month. Wilmington said the negotiation process for the settlement was “rife with conflicts and information gaps.”

See full article at ResCap Creditors Press Ally for Larger Pact

Investigation Highlights Challenges to Foreclosure Docs

Got this off the “Mortgage Servicing News” newsletter:
June 16, 2010
Investigation Highlights Challenges to Foreclosure Docs

By Kate Berry

The backlash is intensifying against banks and mortgage servicers that try to foreclose on homes without all their ducks in a row.

Because the notes were often sold and resold during the boom years, many financial companies lost track of the documents. Now, legal officials are accusing companies of forging the documents needed to reclaim the properties.

Recently, the Florida Attorney General’s Office said it was investigating the use of “bogus assignment” documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And a state judge in Florida has ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times.

“Mortgage assignments are being created out of whole cloth just for the purposes of showing a transfer from one entity to another,” said James Kowalski Jr., an attorney in Jacksonville, Fla., who represents the borrower in the M&T case.

“Banks got away from very basic banking rules because they securitized millions of loans and moved them so quickly,” Kowalski said.

In many cases, Kowalski said, it has become impossible to establish when a mortgage was sold, and to whom, so the servicers are trying to recreate the paperwork, right down to the stamps that financial companies use to verify when a note has changed hands.

Some mortgage processors are “simply ordering stamps from stamp makers,” he said, and are “using those as proof of mortgage assignments after the fact.”

Such alleged practices are now generating ire from the bench.

“The court has been misled by the plaintiff from the beginning,” Circuit Court Judge J. Michael Traynor said in a motion dismissing M&T’s foreclosure action with prejudice and ordering the hearing.

The Marshall Watson law firm in Fort Lauderdale, Fla., which represents M&T in the case, declined to comment and the bank said it could not comment.

In a notice on its website, the Florida attorney general said it is examining whether Docx, an Alpharetta, Ga., unit of Lender Processing Services, forged documents so foreclosures could be processed more quickly.

“These documents are used in court cases as ‘real’ documents of assignment and presented to the court as so, when it actually appears that they are fabricated in order to meet the demands of the institution that does not, in fact, have the necessary documentation to foreclose according to law,” the notice said.

Docx is the largest lien release processor in the United States working on behalf of banks and mortgage lenders.

Peter Sadowski, an executive vice president and general counsel at Fidelity National in Fort Lauderdale, said that more than a year ago his company began requiring that its clients provide all paperwork before the company would process title claims.

Lender Processing Services, which was spun off from Fidelity National two years ago, did not return calls seeking comment Tuesday. The company disclosed in its annual report in February that federal prosecutors were reviewing the business processes of Docx. The company said it was cooperating with the investigators.

“This is systemic,” said April Charney, a senior staff attorney at Jacksonville Area Legal Aid and a member of the Florida Supreme Court’s foreclosure task force.

“Banks can’t show ownership for many of these securitized loans,” Charney continued. “I call them empty-sack trusts, because in the rush to securitize, the originating lender failed to check the paper trail and now they can’t collect.”

In Florida, Georgia, Maryland and other states where the foreclosure process must be handled through the courts, hundreds of borrowers have challenged lenders’ rights to take their homes. Some judges have invalidated mortgages, giving properties back to borrowers while lenders appeal.

In February, the Florida state Supreme Court set a new standard stipulating that before foreclosing, a lender had to verify it had all the proper documents. Lenders that cannot produce such papers can be fined for perjury, the court said.

Kowalski said the bigger problem is that mortgage servicers are working “in a vacuum,” handing out foreclosure assignments to third-party firms such as LPS and Fidelity.

“There’s no meeting to get everybody together and make sure they have their ducks in a row to comply with these very basic rules that banks set up many years ago,” Kowalski said. “The disconnect occurs not just between units within the banks, but among the servicers, their bank clients and the lawyers.”

He said the banking industry is “being misserved,” because mortgage servicers and the lawyers they hire to represent them in foreclosure proceedings are not prepared.

“We’re tarring banks that might obviously do a decent job, and the banks are complicit because they hired the servicers,” Kowalski said.

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