Attorney Verification of Foreclosure Complaints

This is a blatant flaunting and end run around the rule of law. Following a 15 year tradition of fabricating “facially valid” documents, lawyers are having an employee of the law firm sign documents to verify a complaint or other filing.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Practically every consult I do for attorneys in litigation involves some document that was fabricated, forged and/or robosigned. This trick at misdirection of the court is accomplished by fabricating a document that looks to be facially valid but contains nothing but blatant lies about the people who signed it, the people who offered it, and the lawyers who pursue a false narrative based upon the presumptive validity of documents they know are not just flawed but more importantly fictitious having been fabricated strictly for the purpose of litigation and foreclosure.

Such documents are inadmissible, so the false proffer in court is that they are old valid and authentic documents that were not fabricated for use in court.

The latest turn (although not new) in these events is the execution of a “verification” or other document to be filed with the court by an employee of a law firm that at least initially starts the foreclosure. You may remember that David Stern and others made millions providing this service to banks, servicers and other parties who were involved in the initiation or maintenance of an action to foreclose. While Stern lost his license to practice law, he made off with tens of millions of dollars in fees directly attributable to falsifying documents.

Like the Bernie Madoff situation, some people were thrown under the bus and some people were not. Madoff’s PONZI scheme was not a singular event involving the the largest economic crime ($60 Billion) in Wall Street history. The publication of it gave convenient cover to underwriting banks and other cooperating entities involved in the absolute greatest of all PONZI schemes — the sale of worthless securities issued by empty trusts (over $5 trillion). The PONZI aspect was the same. But Madoff’s scheme was barely 1% of the amount stolen by Wall Street banks. And the Courts have been unwitting accomplices.

The actual “promise to pay” the investors came from the empty trust and not a homeowner or group of homeowners. The debt owed by homeowners was never owed to either the creditor (the investors) nor the trust (which was empty and never operated).  And the payments came from a dynamic dark pool consisting entirely of investor money that was legally and actually supposed to be in a bank account clearly labeled for the REMIC Trust that issued the RMBS — and then managed by a “Trustee” but the Trustee turned out to have no power. All the payments received by investors came from the dark pool — not from borrower payments or recoveries in foreclosure.

All power was vested in the “Master Servicer” which of course was the underwriter who sold the bogus RMBS in the first place — another hallmark of control always present in PONZI schemes. The entire scheme was based upon invested capital being diverted from the trusts — and then covered up by (a) payments out of the dynamic dark pool (PONZI) and (b) originating rather than buying nonconforming loans (a more elaborate PONZI).  The rest of the money was concealed in “trading profits” that are gradually released from the stockpile of money sucked out of the economy by the participating banks.

All of these transactions were “off balance sheet.” Since there were no “real transactions” in “real life” (loans, sales of loans creating a chain) the obvious fraud could only be covered up by getting court orders on a mass scale that assumed the false bank narrative was true. Those court orders and judgments were the first and only presumptively legal document in the entire chain. This is why the banks seek foreclosures at all costs to seal up potential civil and criminal liability for their initial theft from investors. Modifications must be done for purpose of appearances, but they are an intrusion into the business plan of getting as many foreclosures booked as possible.

In order to obtain such orders judges had to be satisfied that the designated forecloser was indeed a “lender” or “Creditor.” In order to do that the banks had to present fraudulent documents. In order to get the fraudulent documents through the system, the bank attorneys knew that in most cases they would only need to present “facially valid documents.” The judges would not look “under the hood.” And borrowers who could see the scam did not have access to information that would lead to the discovery of admissible evidence. Hence most contested foreclosures are still resolved in favor of the co-venturers involved in the fraudulent scheme.

Foreclosure mills are among the people whom the banks will readily throw under the bus (“we’re shocked to discover that our law firm was committing such heinous crimes”). If the law firms were unwilling to provide these “extracurricular services” they never would have retained the business of foreclosures. The banks needed to win because they needed that one legal document that would create the almost conclusive presumption that everything that preceded the judgment allowing foreclosure. And the banks knew that could only be done by fraudulent misrepresentations to the courts, to borrowers, to government agencies including law enforcement that to date has jailed absolutely nobody except Lorraine Brown of DOCX.

So what do I say when represented by an obviously  false document executed by an employee of the foreclosure mill? For example I just received (hat tip to Bill Paatalo) one such “verification” in  which the signor declares that the client is out of town and so the law firm is executing the verification for the client.

The obvious response is that (1) being located somewhere else doesn’t prevent an authorized competent person from doing the verification (2) the absence of a competent witness does not give authority to anyone else to verify as though they were a competent witness (3) the verification does not and probably cannot assert that the signor is competent, to wit:

COMPETENCY consists of (a) OATH (b) PERCEPTION (C) MEMORY and (d) the ability to communicate what the witness saw, heard or otherwise experienced personally.

The law firm clearly has no personal knowledge and therefore is executing the verification just to satisfy the elements of a facially valid verification, when both reason and parole evidence clearly shows that the verification is a sham.

Hence, sanctions should be appropriate against the employee who signed it, the lawyer, the law firm and the “client” if the client knew that this was being done. Of course in most cases the party named as bringing the foreclosure is NOT the client, which is another fraudulent misrepresentation in court that would defeat jurisdiction. The client is always the sub-servicer who takes orders from the “Master Servicer”, i.e.  the underwriter who created bogus trusts to issue bogus mortgage bonds and walked away with trillions of dollars.

 

Mortgage Lenders Network and Wells Fargo Battled over Servicer Advances

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

As usual, the best decisions come from cases where the parties involved in “securitization” are fighting with each other. When a borrower brings up the same issues, the court is inclined to disregard the borrower’s defense as merely an attempt to get out of  a legitimate debt. In the Case of Mortgage Lenders  versus Wells Fargo (395 B.K. 871 (2008)), it is apparent that servicer advances are a central issue. For one thing, it demonstrates the incentive of servicers to foreclose even though the foreclosure will result in a greater loss to the investor then if a workout or modification had been used to save the loan.

See MLN V Wells Fargo

It also shows that the servicers were very much aware of the issue and therefore very much aware that between the borrower and the lender (investor or creditor) there was no default, and on a continuing basis any theoretical default was being cured on a monthly basis. And as usual, the parties and the court failed to grasp the real economics. Based on information that I have received from people were active in the bundling and sale of mortgage bonds and an analysis of the prospectus and pooling and servicing agreements, I think it is obvious that the actual money came from the broker dealer even though it is called a “servicer advance.” Assuming my analysis is correct, this would further complicate the legal issues surrounding servicer advances.

This case also demonstrates that it is in bankruptcy court that a judge is most likely to understand the real issues. State court judges generally do not possess the background, experience, training or time to grasp the incredible complexity created by Wall Street. In this case Wells Fargo moves for relief from the automatic stay (in a Chapter 11 bankruptcy petition filed by MLN) so that it could terminate the rights of MLN as a servicer, replacing MLN with Wells Fargo. The dispute arose over several issues, servicer advances being one of them. MLN filed suit against Wells Fargo alleging breach of contract and then sought to amend based on the doctrine of “unjust enrichment.” This was based upon the servicer advances allegedly paid by MLN that would be prospectively recovered by Wells Fargo.

The take away from this case is that there is no specific remedy for the servicer to recover advances made under the category of “servicer advances” but that one thing is clear —  the money paid to trust beneficiaries as “servicer advances” is not recoverable from the trust beneficiaries. The other thing that is obvious to Judge Walsh in his discussion of the facts is that it is in the servicing agreements between the parties that there may be a remedy to recover the advances; OR, if there is no contractual basis for recovering advances under the category of  “servicer advances” then there might be a basis to recover under the theory of unjust enrichment. As always, there is a complete absence in the documentation and in the discussion of this case as to the logistics of exactly how a servicer could recover those payments.

One thing that is perfectly clear however is that nobody seems to expect the trust beneficiaries to repay the money out of the funds that they had received. Hence the “servicer advance” is not a loan that needs to be repaid by the trust or trust beneficiaries. Logically it follows that if it is not a loan to the trust beneficiaries who received the payment, then it must be a payment that is due to the creditor; and if the creditor has received the payment and accepted it, the corresponding liability for the payment must be reduced.

Dan Edstrom, senior securitization analyst for the livinglies website, pointed this out years ago. Bill Paatalo, another forensic analyst of high repute, has been submitting the same reports showing the distribution reports indicating that the creditor is being paid on an ongoing basis. Both of them are asking the same question, to wit:  “if the creditor is being paid, where is the default?”

One attorney for US bank lamely argues that the trustee is entitled to both the servicer advances and turnover of rents if the property is an investment property. The argument is that there is no reason why the parties should not earn extra profit. That may be true and it may be possible. But what is impossible is that the creditor who receives a payment can nonetheless claim it as a payment still due and unpaid. If the servicer has some legal or equitable claim for recovery of the “servicer advances” then it can only be against the borrower, on whose behalf the payment was made. This means that a new transaction occurs each time such a payment is made to the trust beneficiaries. In that new transaction the servicer can claim “contribution” or “unjust enrichment” against the borrower. Theoretically that might bootstrap into a claim against the proceeds of the ultimate liquidation of the property, which appears to be the basis upon which the servicer “believes” that the money paid to the trust beneficiaries will be recoverable. Obviously the loose language in the pooling and servicing agreement about the servicer’s “belief” can lead to numerous interpretations.

What is not subject to interpretation is the language of the prospectus which clearly states that the investor who is purchasing one of these bogus mortgage bonds agrees that the money advanced for the purchase of the bond can be pooled by the broker-dealer; it is expressly stated that the investor can be paid out of this pool, which is to say that the investor can be paid with his own money for payments of interest and principal. This corroborates my many prior articles on the tier 2 yield spread premium. There is no discussion in the securitization documents as to what happens to that pool of money in the care custody and control of the broker-dealer (investment bank). And this corroborates my prior articles on the excess profits that have yet to be reported. And it explains why they are doing it again.

It doesn’t take a financial analyst to question why anyone would think it was a great business model to spend hundreds of millions of dollars advertising for loan customers where the return is less than 5%. The truth in lending act passed by the federal government requires the participants who were involved in the processing of the loan to be identified and to disclose their actual compensation arising from the origination of the loan — even if the compensation results from defrauding someone. Despite the fact that most loans were subject to claims of securitization from 2001 to the present, none of them appear to have such disclosure. That means that under Reg Z the loans are “predatory per se.”

To say that these were table funded loans is an understatement. What was really occurring was fraudulent underwriting of the mortgage bonds and fraudulent underwriting of the underlying loans. The higher the nominal interest rate on the loans (which means that the risk of default is correspondingly higher) the less the broker-dealer needed to advance for origination or acquisition of the loan; and this is because the investor was led to believe that the loans would be low risk and therefore lower interest rates. The difference between the interest payment due to the investor and the interest payment allegedly due from the borrower allowed the broker-dealers to advance much less money for the origination or acquisition of loans than the amount of money they had received from the investors. That is a yield spread premium which is not been reported and probably has not been taxed.

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

I caution that when enough cases have been lost as a result of servicer advances, the opposition will probably change tactics. While you can win the foreclosure case, it is not clear what the consequences of that might be. If it results in a final judgment for the homeowner then it might be curtains for anyone to claim any amount of money from the loan. But that is by no means assured. If it results in a dismissal, even with prejudice, it might enable the servicer to stop making advances and then declare a default if the borrower fails to make payments after the servicer has stopped making the payments. Assuming that a notice of acceleration of the debt has been declared, the borrower can argue that the foreclosing party has elected its own defective remedy and should pay the price. If past experience is any indication of future rulings, it seems unlikely that the courts will be very friendly towards that last argument.

Attorneys who wish to consult with me on this issue can book 1 hour consults by calling 520-405-1688.

Why Are We having So Much Trouble Connecting the Dots?

Matt Weidner reports that he went to court on a case where IndyMAc was the plaintiff. IndyMac was one of the first banks to collapse. It was found that they owned virtually zero mortgages and had “securitized” the rest which is to say they never loaned the money or got paid off by a successor. Now the servicing rights on IndyMac have been sold. So when the time came for trial he finds the lawyer fighting with his own witness. It seems that she would not say she worked for IndyMac because she didn’t. That meant there was no corporate representative present to testify for the plaintiff. case over? Not according to what we have seen where IndyMac foreclosures continue to be rubber stamped by Judges who do not understand the gravity of the situation.

The precedent being set is for anyone who knows about a default to race to the courthouse with a complaint to foreclose after fabricated a notice of default and asserting themselves as the successor to whoever the borrower was paying. The borrower doesn’t know the difference and generally doesn’t care because they mistakenly think they are screwed no matter what. So the pretender lender that was collecting takes it time partly because they are simply collecting fees on “non-performing” loans. Meanwhile our creative criminal goes in and alleges that he is the holder of a lost note, submits affidavits, but of course stays away from the essential allegation that there ever was a transaction between himself and the borrower. These days Judges don’t seem to require that.

Judgment is entered for our creative criminal and he becomes by court order, the creditor who can submit a credit bid at auction. He makes the non-cash bid at the auction and presto he just got himself a free house which he sells at discount on the open market. He only needs to do a few of those before he vanishes with a few million dollars. In fact, we have learned that such “foreclosures” are going on now sometimes creatively named such that it looks like the name of a bank. That is why I have been saying for 7 years that  the foreclosures, if they are allowed to proceed, will eventually create chaos in the marketplace.

You might ask why the banks don’t raise a big stink about this practice. The answer is that there are only a few such scams going on at the moment. And the banks are relying on the loopholes created in pleading practice to get their own foreclosures through the same way as our criminal because they really don’t own the loan or even the servicing rights. Yup! That is called a syllogism: if the creative criminal is a criminal for doing what he did, then the bank or anyone else who engages in the same behavior is also a criminal.

And that is why the justice department and regulators are ramping up their investigations and charges, getting ready to indict the bankers who thought they were untouchable. If you read the reports of securities analysts, you will see three types of authors — those who obviously have drunk the Kool-Aide and believe Bank of America and Chase hinting the stock is a good buy, those who are paid to plant pretty articles about the banks, and supposedly declining foreclosures and increasing housing prices, and those who have looked at the jury conviction of Countrywide, looked at the pace of settlements, and looked at the announcements that there are many more investigations and charges to be resolved, and who have seen the probability of indictments, and they conclude that BOA is soon going to be on the chopping block for sale in pieces and the same will happen with Chase, Citi and maybe even Wells.

While the media is not paying attention to the impending doom of the mega banks, the market is discounting the stock and the book value of these companies is dropping like a stone because real investment analysts under stand that much of what is being carried on the books as assets, is really worthless garbage. Charges of fraud are announced practically everyday, saying that the banks defrauded investors, defrauded Fannie and Freddie, and defrauded each other, as well as insurance companies and counterparties on credit default swaps. In other words it is pretty well settled that the sale of mortgage bonds was a sweeping fraudulent scheme and that the word PONZI scheme is accurate, not some conspiracy theory as I was treated back in 2007-2010.

So now that we know that there was complete fraud at one end of the stick (where the funding for the origination and acquisition of mortgages took place), the question is why is anyone looking at foreclosures as inevitable or proper or even possible. It is the same stick. If one end is burning then it is quite likely that the other end will be burning soon and that is exactly what I predict for the coming months.

Having been in court multiple times over the last month representing clients seeking to retain their homes it is readily apparent that the Judges are changing their minds about whether the foreclosure is inevitable or that collection by these creative criminals is wise or legal — i.e., whether the enire exercise involves an arrogant willingness to commit perjury. Since the mortgages were part of the scheme and the part where the lender appeared with the money is covered in fraud, it is certainly reasonable to assume that the the fraudulent schemes included the origination and transfer of mortgage paper. And that is exactly the case.

If it wasn’t the case there never would have been fraud at the top because the investors would be on the note and mortgage and some some nominee of the broker dealer (“BANK”) or they would have been on a recorded assignment closed out within 90 days of the start of the REMIC trust, which would have been funded by money from investors paid to the investment bank (broker dealer) who then forwarded the net proceeds tot he Trust. None of that ever happened, though, which is how the fraud was enabled.

Practice Hint: I like to demonstrate by drawing a large “V” where the bottom is the closing agent, the left side is the money trail and the right side is the paper trail — and showing that they never meet. That means the paper trail is a fictional story about transactions that never occurred. The money trail is actual facts and data showing actual transactions where money exchanged hands but there was no documentation. The “Trust” was never funded with money or assets, so the money went straight down the left side from the investors at the top of the left side to the closing agent, who applied the investors money to close a transaction that was documented as though the originator had loaned the money. The same reasoning applies to transfers and assignments.

The core of the cases filed by the banks is that the Note is prima facie evidence that a transaction occurred. It is entitled to a presumption of validity. But where the borrower denies the transaction ever occurred, and files the right discovery to get evidence of the wire transfers and canceled checks, the banks go wild because they know their entire case will not only fall apart but subject them to prosecution.

Which brings us to Marshall Watson, who seeks to be licensed again to practice law, and David Stern who is about to be disbarred forever. The good news is that they were disciplined for fabrication and forgery of documents. The bad news is that the inquiry stopped there and nobody ever asked why it was necessary to fabricate or forge documents.

FRAUD! In Foreclosure Court Indymac/Onewest Doesn’t Own Notes and Mortgages, But “They” Continue To Foreclose Anyway
http://ireport.cnn.com/docs/DOC-1051166/

Suspended Ft. Lauderdale foreclosure mill head seeks return
http://therealdeal.com/miami/blog/2013/10/24/suspended-fort-lauderdale-foreclosure-mill-head-seeks-return/

Florida Bar referee calls for ex-foreclosure king’s disbarment
http://therealdeal.com/miami/blog/2013/10/30/florida-bar-referee-calls-for-ex-foreclosure-kings-disbarment/

JPM Could Lose Its Charter for Criminal Responsibility in Madoff PONZI Scheme

From www.seekingalpha.com —
JPM’s Madoff entanglement could prompt review of bank charter
The Office of the Comptroller of the Currency (OCC) has reportedly told the office of U.S. Attorney Preet Bharara that a criminal money laundering conviction of JPMorgan (JPM) for turning a blind eye to Bernie Madoff’s Ponzi scheme could trigger a review of the bank’s charter.

Editor’s Note: practically every day we hear of new gross violations of law and intentional misconduct by the large banks who squandered their brand recognition on absurd situations. I have always said that it was impossible for Madoff to have stolen $60 Billion without the knowledge and complicity of the major firms on Wall Street. The revelations of the Madoff theft of money from investors was quickly cast as the largest fraud in history. But it wasn’t. The largest fraud can be counted in the tens of trillions of dollars by all the key players on Wall Street in the PONZI scheme that is falsely called securitization of debt — the proof of which can easily be seen at ground level as investors and borrowers alike are settling claims or winning key verdicts.

The Madoff affair actually provided cover for the Wall Street banks and helped steer the narrative to supposedly reckless and irresponsible behavior when in fact management was deceiving, stealing and profiting from a PONZI scheme that depended upon (a) the sale of mortgage bonds and (b) the sale of mortgage products. Once investors stopped buying bonds and homeowners stopped buying loan products the scheme collapsed and banks had the temerity to say they had lost vast sums of money — a claim that is clearly untrue. They received a bailout for those losses in the form of TARP and other programs from the U.S. treasury, the Federal reserve and other sources, when it was investors, insurers, borrowers, taxpayers, guarantors and other parties who were taking losses having given tens of trillions of dollars to the Wall Street banks in money and property.

Now the chickens are coming home to roost. And the cries of well-known analysts that the banks are being treated unfairly is losing credibility by the hour. The banks are finally losing the narrative and the association of politicians with them is proving more costly than the benefit of taking money from the bank lobbyists to protect the banks from prosecution arising out of behavior that would land any ordinary mortal in jail for a long time.

Lawyers defending foreclosure cases should take note and use this information pointing out what the court already knows: that there was fraud at the top in the selling of worthless mortgage bonds deriving their value from defective mortgages, there was fraud in the robo-signing, LPS fabrication of documents, the intentional destruction of cash equivalent promissory notes that we now know were defective, in the words of the investors, insurers, government guarantee agencies, insurers and rating agencies.

PRACTICE NOTE: It should be noted and stated openly that any pleading, affidavit or testimony from those banks is inherently untrustworthy and should be subject to intense scrutiny. The remedy of forfeiture in Foreclosures is extreme according to the public policy of every state and should be strictly construed against the party seeking that remedy. Every legislature has put that statement in its laws. Instead, the narrative has been that deadbeat borrowers were clogging the system with bogus defenses.

It never occurred to the courts, the lawyers and even the borrowers that the courts were clogged with bogus claims of ownership, bogus accounting for receipts and disbursements, the existence of co-obligors when the note payable was converted to a bogus bond payable, and wrongful Foreclosures that the banks and the regulators know were wrongful, obtained settlements, consent orders and more promises from people whose business model is all about lying, manipulation of markets and theft.

JPMorgan hit by U.S. bribery probe into Chinese hiring

How did the banks get away with it? Bribery takes many forms. It doesn’t need to be a direct payment, but merely something of value to the regulator or law enforcement officer. In this case it is the hiring of children of banking regulators in China. There is no reason why we should think that couldn’t happen here. It did. The revolving door of regulators, law enforcement and the banks has long been known.

Even if it isn’t a bribe, the bank is hiring people and then designating them for important positions in government regulation. Jamie Dimon sits on the Board at the New York Federal Reserve. Being immersed in the bank culture, the people involved come to believe the myths repeated every day. It becomes part of their culture.

The reason why the decisions on banking have been so chaotic is that there is a direct conflict between the real world and the illusions created by the banks. Put another way, the difference is between truth and fiction.

The fact remains that practically no mortgage can be satisfied or released because the ownership is completely deranged. The correction can only come from the courts when they realize and learn that the origination of the loan was a sham transaction, not just a table funded loan, and that the intent was fraud on the investors and homeowners (who were also “investors”). The scheme unraveled precisely in concert with investors ceasing to buy the “mortgage bonds” issued by entities in “street name.” That is the red flag that alerts authorities that the securitization chain was in fact a fraudulent PONZI scheme. The issuers were designated asset pools that had nothing in them, and in most cases were not funded, directly or indirectly. So the mortgage bonds were worthless.

And now that the facts are being slowly revealed, the depth of malfeasance by the banks is being recognized for what it is — but the government is sticking with its policy of “no prosecution.” Until the government steps up to the mike and says outright that the scheme was a fraudulent scheme in which the borrowers were used as pawn to steal money from investors, most people are not going to believe it. Until respectable economists and legal scholars step up and say that the loan transaction described in the note never existed and was a strawman transaction that should have been revealed to the borrower, this tragedy will stop.

Study the Assignment and Assumption Agreements executed before the first loan application was ever accepted for review. Track the money from strangers showing up at closing as though it was the money of the designated payee on the note and mortgage. The rest will be easy. But until regulators see the public as their boss instead of the banks, don’t expect any help from outside the courtroom.

JPMorgan hit by U.S. bribery probe into Chinese hiring

BOA “SENIOR COLLECTOR”: “I lied because I was told to lie.”

Want to know why the blog is called “Living Lies”? Then read this:

see affidavit.boa3.djk

see also Memorandum to Certify Class: Editor’s Note: This is where the banks are at their most vulnerable.. They have gone to great lengths to create the illusion that they were modifying loans or even willing to do so when in fact what they really wanted and needed is a foreclosure sale to prevent them from getting hammered on liability for stealing the investors’ money and for diversion of both assets and money from the investors and from what would have been a benefit to borrowers. memotocertifyclass. I believe that there are monetary damages that could be awarded particularly when the pretender lender cannot come up with an allegation and proof of financial injury. Opportunities to sell or refinance the home were thwarted both by the pending foreclosure action and the negative credit reporting from non-creditors. People who have had their credit scores tanked by the pretender lenders should write to the credit reporting agencies and tell them that the report is false and fraudulent — that you never owed any money to the entity that entered the negative report.

Practice Hint: Get the name of the person and confirm their telephone, email, fax and physical address. Tell them you are recording the conversation for training purposes. And then record it.

This affidavit shows exactly why you need people are both lawyers and forensic computer experts to assist on most cases. Law firms lacking these resources and lacking private investigators, are not equipped well enough to do battle with these lying behemoths. If they are charging low fees just to sign you up, their chances are diminished that they can do anything besides delay a wrongful foreclosure instead of beating it.

This affidavit is an example of why the entire foreclosure process is going to unravel in the near future. Previously judges were resisting pleading, argument and discovery direct it at the credibility and truthfulness of affidavits and live testimony in court if they were submitted by a well-known bank or other institution supposedly acting on behalf of a bank. As time passed more and more judges were beginning to discern inconsistencies in the pleading and proof of the banks. But they still thought that the banks were most likely in possession of “the truth” and that any representation from the bank should be treated as credible whereas any representation from the borrower should be treated as dilatory at best.

Bank of America has taken the position that its house is totally in order. They even got the Atty. Gen. of the state of New York to back off of a lawsuit that was eventually filed only against HSBC. Danielle Kelly, Esq., of the firm of Garfield, Gwaltney, Kelley and White is writing an article about affidavits (in support of foreclosing) signed by people with no idea of what they contain (or knowing that they are lies), including the description of the signor as someone with authority to do so. You’ll see that article shortly, so I won’t belabor the point. I’ll simply quote the following from an affidavit of a supposedly senior person at BOA filed in United States District Court for the District of Massachusetts.:

Using the Bank of America computer systems I saw that hundreds of customers had made their required trial payments, sent the documents requested of them, but had not received permanent modifications. I also saw records showing that Bank of America employees have told people that  documents had not been received when, in fact, the computer system showed that Bank of America had received the documents. This was consistent with the instructions my colleagues and I were given. We were told to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payments (when in fact it had). We were told that admitting that the bank received documents would “open a can of worms” since the bank was required to underwrite a loan modification within 30 days of receiving those documents and it did not have sufficient underwriting staff to complete the underwriting in that time…. Site leaders regularly told us that the more we delayed the HAMP modification process, the more fees Bank of America would collect. We were regularly drilled that it was our job to maximize fees for the bank by fostering and extending the lay of the … modification process by any means we could —  this included lying to customers. For example, we were instructed by our supervisors at Bank of America to delay modifications by telling homeowners who called in at their documents were “under review,” when, in fact, there had been no review or any other work done on the file.

Employees who were caught admitting that Bank of America had received financial documents or that the borrower was actually entitled to a permanent loan modification where discipline and often terminated without warning.

The only other thing that I would state at this point is that Bank of America did not merely lie to its customers. Bank of America makes a practice of lying to its own staff. While the use of a “nonperforming” loan are higher than the fees paid on a  “performing” loan, the real reason for this outrageous behavior is that the banks are attempting to protect and maintain their receipt of outrageous sums of money that they have declared to be proprietary trading profits. As I have stated before these banks are intermediaries. They are not and never were principals or real parties in interest in any transaction between the homeowner and the investors who put up the money.

As partial explanation of what I am talking about, consider this: you order a brand-new TV on Amazon using one of your many plastic cards. The vendor is (by way of example) Best Buy. Your account is debited $1000 which is exactly the amount you agreed to pay. Later, you find out that Best Buy accepted $600 for the TV and the intermediaries kept the other $400.  You also find out that during the shipping process the intermediaries took possession of the TV and intentionally dropped it 30 times to make sure that it wouldn’t work. During that process you learn that the intermediaries each paid for a contract of insurance using your money. Sure enough, the TV arrives in 1000 pieces. Each of the intermediaries receives full payment for the TV probably at the original purchase price of $1000. The intermediaries tell you that your problem is with Best Buy because that is the vendor in the transaction. Best Buy tells you that the TV was just fine when it left its distribution center and directs you to one of the intermediaries that handled either the shipment or the payment for the shipment. You are left going around in circles and you get worn out or you accept a settlement that is worth far less than the TV you purchased.

Now comes the fun part. The issuer of the credit card wants you to repay them $1000 at the end of the month or pay monthly installments with an interest rate of 24%. All you know is that you got screwed but you’re not entirely sure how that happened. The purpose of this blog is to educate you gradually on how you got screwed and why you are not a deadbeat; instead, you are a pawn in a very large Ponzi scheme.

Garfield, Gwaltney, Kelley & White

4832 Kerry Forest Parkway, Suite B

Tallahassee, Florida 32309

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http://www.fbi.gov/lasvegas/press-releases/2013/former-chief-executive-officer-of-mortgage-servicing-company-pleads-guilty-to-bank-fraud-in-scheme-to-withhold-funds-from-wells-fargo-bank  – But they won’t go after Wells?  Makes a lot of sense

From Danielle Kelley, Esq. : The affidavits filed with the Court in Massachusetts by BOA and Urban employees are infuriating.   I particularly like the one that talks about the gift cards and $500 bonus payments to employees who had high foreclosure numbers and the one about the “Blitz” where as many as 1,500 modification applications would be denied several times a month based on production numbers whether the homeowners truly qualified for a modification or not. Selling out homeowners while collecting federal incentives to “pretend” to consider them for a federal modification program and then behind closed doors giving Target gift cards to employees who have high foreclosure numbers? 

Follow the Money Trail: It’s the blueprint for your case

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. 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 Analysis and Comment: If you want to know where all the money went during the mortgage madness of the last decade and the probable duplication of that behavior with all forms of consumer debt, the first clues have been emerging. First and foremost I would suggest the so-called bull market reflecting an economic resurgence that appears to have no basis in reality. Putting hundred of billions of dollars into the stock market is an obvious place to store ill-gotten gains.
But there is also the question of liquidity which means the Wall Street bankers had to “park” their money somewhere into depository accounts. Some analysts have suggested that the bankers deposited money in places where the sheer volume of money deposited would give bankers strategic control over finance in those countries.
The consequences to American finance is fairly well known here. But most Americans have been somewhat aloof to the extreme problems suffered by Spain, Greece, Italy and Cyprus. Italy and Cyprus have turned to confiscating savings on a progressive basis.  This could be a “fee” imposed by those countries for giving aid and comfort to the pirates of Wall Street.
So far the only country to stick with the rule of law is Iceland where some of the worst problems emerged early — before bankers could solidify political support in that country, like they have done around the world. Iceland didn’t bailout bankers, they jailed them. Iceland didn’t adopt austerity to make the problems worse, it used all its resources to stimulate the economy.
And Iceland looked at the reality of a the need for a thriving middle class. So they reduced household debt and forced banks to take the hit — some 25% or more being sliced off of mortgages and other consumer debt. Iceland was not acting out of ideology, but rather practicality.
The result is that Iceland is the shining light on the hill that we thought was ours. Iceland has real growth in gross domestic product, decreasing unemployment to acceptable levels, and banks that despite the hit they took, are also prospering.
From my perspective, I look at the situation from the perspective of a former investment banker who was in on conversations decades ago where Wall Street titans played the idea of cornering the market on money. They succeeded. But Iceland has shown that the controls emanating from Wall Street in directing legislation, executive action and judicial decisions can be broken.
It is my opinion that part or all of trillions dollars in off balance sheet transactions that were allowed over the last 15 years represents money that was literally stolen from investors who bought what they thought were bonds issued by a legitimate entity that owned loans to consumers some of which secured in the form of residential mortgage loans.
Actual evidence from the ground shows that the money from investors was skimmed by Wall Street to the tune of around $2.6 trillion, which served as the baseline for a PONZI scheme in which Wall Street bankers claimed ownership of debt in which they were neither creditor nor lender in any sense of the word. While it is difficult to actually pin down the amount stolen from the fake securitization chain (in addition to the tier 2 yield spread premium) that brought down investors and borrowers alike, it is obvious that many of these banks also used invested money from managed funds as gambling money that paid off handsomely as they received 100 cents on the dollar on losses suffered by others.
The difference between the scheme used by Wall Street this time is that bankers not only used “other people’s money” —this time they had the hubris to steal or “borrow” the losses they caused — long enough to get the benefit of federal bailout, insurance and hedge products like credit default swaps. Only after the bankers received bailouts and insurance did they push the losses onto investors who were forced to accept non-performing loans long after the 90 day window allowed under the REMIC statutes.
And that is why attorneys defending Foreclosures and other claims for consumer debt, including student loan debt, must first focus on the actual footprints in the sand. The footprints are the actual monetary transactions where real money flowed from one party to another. Leading with the money trail in your allegations, discovery and proof keeps the focus on simple reality. By identifying the real transactions, parties, timing and subject moment lawyers can use the emerging story as the blueprint to measure against the fabricated origination and transfer documents that refer to non-existent transactions.
The problem I hear all too often from clients of practitioners is that the lawyer accepts the production of the note as absolute proof of the debt. Not so. (see below). If you will remember your first year in law school an enforceable contract must have offer, acceptance and consideration and it must not violate public policy. So a contract to kill someone is not enforceable.
Debt arises only if some transaction in which real money or value is exchanged. Without that, no amount of paperwork can make it real. The note is not the debt ( it is evidence of the debt which can be rebutted). The mortgage is not the note (it is a contract to enforce the note, if the note is valid). And the TILA disclosures required make sure that consumers know who they are dealing with. In fact TILA says that any pattern of conduct in which the real lender is hidden is “predatory per se”) and it has a name — table funded loan. This leads to treble damages, attorneys fees and costs recoverable by the borrower and counsel for the borrower.
And a contract to “repay” money is not enforceable if the money was never loaned. That is where “consideration” comes in. And a an alleged contract in the lender agreed to one set of terms (the mortgage bond) and the borrower agreed to another set of terms (the promissory note) is no contract at all because there was no offer an acceptance of the same terms.
And a contract or policy that is sure to fail and result in the borrower losing his life savings and all the money put in as payments, furniture is legally unconscionable and therefore against public policy. Thus most of the consumer debt over the last 20 years has fallen into these categories of unenforceable debt.
The problem has been the inability of consumers and their lawyers to present a clear picture of what happened. That picture starts with footprints in the sand — the actual events in which money actually exchanged hands, the answer to the identity of the parties to each of those transactions and the reason they did it, which would be the terms agreed on by both parties.
If you ask me for a $100 loan and I say sure just sign this note, what happens if I don’t give you the loan? And suppose you went somewhere else to get your loan since I reneged on the deal. Could I sue you on the note? Yes. Could I win the suit? Not if you denied you ever got the money from me. Can I use the real loan as evidence that you did get the money? Yes. Can I win the case relying on the loan from another party? No because the fact that you received a loan from someone else does not support the claim on the note, for which there was no consideration.
It is the latter point that the Courts are starting to grapple with. The assumption that the underlying transaction described in the note and mortgage was real, is rightfully coming under attack. The real transactions, unsupported by note or mortgage or disclosures required under the Truth in Lending Act, cannot be the square peg jammed into the round hole. The transaction described in the note, mortgage, transfers, and disclosures was never supported by any transaction in which money exchanged hands. And it was not properly disclosed or documented so that there could be a meeting of the minds for a binding contract.
KEEP THIS IN MIND: (DISCOVERY HINTS) The simple blueprint against which you cast your fact pattern, is that if the securitization scheme was real and not a PONZI scheme, the investors’ money would have gone into a trust account for the REMIC trust. The REMIC trust would have a record of the transaction wherein a deduction of money from that account funded your loan. And the payee on the note (and the secured party on the mortgage) would be the REMIC trust. There is no reason to have it any other way unless you are a thief trying to skim or steal money. If Wall Street had played it straight underwriting standards would have been maintained and when the day came that investors didn’t want to buy any more mortgage bonds, the financial world would not have been on the verge of extinction. Much of the losses to investors would have covered by the insurance and credit default swaps that the banks took even though they never had any loss or risk of loss. There never would have been any reason to use nominees like MERS or originators.
The entire scheme boils down to this: can you borrow the realities of a transaction in which you were not a party and treat it, legally in court, as your own? So far the courts have missed this question and the result has been an unequivocal and misguided “yes.” Relentless of pursuit of the truth and insistence on following the rule of law, will produce a very different result. And maybe America will use the shining example of Iceland as a model rather than letting bankers control our governmental processes.

Banking Chief Calls For 15% Looting of Italians’ Savings
http://www.infowars.com/banking-chief-calls-for-15-looting-of-italians-savings/

Prosecutors Getting Tough? Small Banks ONLY!!

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What’s the Next Step? Consult with Neil Garfield

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

Editor’s Comment and Analysis: Abacus Bank has only $272 million in deposits. In rank, it is near the very bottom of the ladder. And apparently justifiably, federal prosecutors have seen fit to prosecute the bank for fraud. The quandary here is why the prosecutors are putting their muscle behind just the low-hanging fruit and why they are settling with the mega banks for the same acts — without threat of prosecution. If we could offer $17 trillion in various forms of “relief” for the banks, they certainly could pony up $1 billion and investigate the truth behind the securitization claims. The only conclusion I can reach is that the administration, so far, doesn’t want proof of the truth.

One of the things that Yves gets right here is that when Fannie and Freddie get involved, it isn’t the end of the line and it certainly does not mean that the loan was not “securitized” using the same fake documents at origination and the same fake mortgage bonds, albeit guaranteed by Fannie and Freddie who serve as “Master Trustee” of the investment pools that presumably “bought the loans with actual money. Like their cousins in the non government guaranteed loans, the money largely comes from fat accounts where the investors’ money was commingled beyond recognition and the investment bank who created and sold the bogus mortgage bonds was the “buyer” on paper so that they could bet against the same loans and bonds they were selling to investors.

Yves still refers to the scheme as reckless as though a judgment was made without knowing the consequences of the banks’ actions. Nothing could be further from the truth. This wasn’t reckless.

It was intentional because that was where the big money came from. The scheme was to take as much as possible from money advanced by pension funds and keep it, while giving the illusion of a securitization scheme for funding mortgages and reducing risk.

The mega banks even bet on their success and the investors’ loss, the borrowers’ loss and the loss shouldered by taxpayers, increasing their leverage positions up  to 42 times (Bear Stearns). As we all know, the risk was magnified not reduced and the only experts that really knew were in the departments where collateralized debt obligations were packaged on paper, sold to investors and never transferred to any trust, REMIC of SPV.

With Abacus, the punch line is that their default rate was 1/10th that of the national average indicating that contrary to the practices of the mega banks, some underwriting was involved and some verification and oversight was employed.

What is avoided is that $13 trillion in loans were originated using the false securitization scheme in which the borrower was kept in the dark about who his lender was, and where upon inquiry the borrower was told that the identity of the lender was confidential and private, nearly all of which loans were classic cases of fraud in the execution, fraud in the inducement, breach of contract, slander of title, and recording false documents in the county records. The perpetrators of these schemes are settling for fractions of a penny on the dollar with full agreement that their conduct will not be reviewed.

So here is the question: If Abacus is guilty of fraud and caused minimal damage to the economy or the borrowers, isn’t the bar set higher for the mega banks. Why are they allowed to slip through without getting the same treatment as a bank whose deposits equal less than 1/10 of 1% of the size of the megabanks who caused mayhem here and around the world?

Quelle Surprise! Prosecutors Get Tough on Mortgage Fraud….At an Itty Bitty Bank
http://www.nakedcapitalism.com/2013/02/quelle-surprise-prosecutors-get-tough-on-mortgage-fraud-at-an-itty-bitty-bank.html

CRIME AND PUNISHMENT: 2013 AND BEYOND

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What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

——————–HOW TO GET AWAY WITH IT——————–

“Thus under the current scenario each one ($1) dollar spent on criminalizing certain acts, prosecuting them and punishing them is met by a comparative figure of seventeen thousand ($17,000) dollars in damages caused solely by the Wall Street mortgage meltdown alone. It’s impossible to graph on a single piece of paper — it would take 12 reams of paper for economic crimes versus 1/4 inch on a single piece of paper for all other crimes.

‘If the current societal cost of all crimes including nonviolent drug related offenses was plotted at 1/4 inches, the next line down for economic crimes would be 68,000 inches long or 6,181 pages. Yet the number of people prosecuted and incarcerated for economic crimes is, thus far, less than 1% of the number of people snared in the 1980’s savings and loan scandal which all admit to have had far less reaching consequences than the PONZI “derivative” scheme of 1996-2012. ” Neil F Garfield, Esq., www.livinglies.me

CRIME AND PUNISHMENT

Do you think that a person who possesses marijuana should be given a state or federal pension? What would you do if you found out that this is exactly what is happening for 1,000,000 U.S. Citizens every year? What would you think if you were told that they were each getting a pension of $40,000 year, free medical care, plus the initial cost of processing their pension applications to the state or federal government which adds another $40,000 for each pensioner?  The cost is $40 Billion per year plus the cost of initial processing of another $15 Billion per year.

$55 Billion per year is spent on pensioning possessors of marijuana and other drugs, plus the cost of socialized medicine and care for all pensioners, which includes those who commit violent crimes when they are young who are now senior citizens posing no threat to society but nonetheless retain their room, board, and medical care. The total cost of this system exceeds $80 Billion per year, which using the ten year budgets that are being hotly debated in Washington, would reduce the deficit by about $1 TRILLION dollars.

Most of the pensioners would be forced to work if they were not on the pension system. The loss from taking these people out of the workforce is another $6 Billion per year, which over ten years is another $6 Billion and the loss to economic activity is at least another $25 Billion per year or over a ten year period $250 Billion to the federal and state government on income and sales taxes is another

There are 1,500,000 people incarcerated in the United States at any one time — more per capita than any other country in the world, most of whom have far lower violent crime rates than those in the U.S. which admittedly are declining due to factors not well understood (economic, abortion, lead in gasoline and other products etc. – nobody knows).

If you were to draw out a simple three stage pyramid of incarcerated people in this country the vast base of nearly 1 million people would be comprised of those committed non-violent acts which means by definition that nobody got hurt. The vast majority of those were given sentences of “pension” for minimum mandatory periods for possession of controlled substances, mostly, marijuana. Hence, these people committed acts that posed no threat to anyone in society, or to put it simply, posed no threat to society. We spend $40 billion per year, which with inflation and other factors will cost nearly a Trillion dollars over the next ten years on these people.

The next level comprising just half the size of the foundation of the pyramid consist of people who committed violent crimes. And the last level is composed of a tiny fraction of people who committed “economic” crimes that are presumed to be non-violent. The fact that these economic criminals altered the landscape of the finance and economies all over the world in whole or in part, resulting in inevitable suicides, mass shootings, riots, wars and billions of dollars in mental health costs which leads to tens of billions of dollars in physical ailments brought on stress does not get any consideration as to whether their crimes hurt society more than say, a murderer, who shoots his partner for stealing.

Up until thirty years ago the pyramid didn’t look anything like the pyramid today. Costs for incarcerated “pensioners” and other people held in prisons and jails were far less than 1/3 of what they are today. The reason that the cost of and size of the prison system has quadrupled in 3 decades is MONEY. The prison system was privatized and this is what happens when you privatize a societal function like police, fire, and prisons. After years of lobbying big business managed to support or convince legislators that privatizing the prison system was a good idea.

This was a great idea for business — but only if they kept the jails full, using the same business model as the hotels. If you have no guests staying there you lose money. The more you can count on a full prison or jail the more you can spend on new jails and prisons, using the Wall Street markets to bankroll you. The trick is to make sure that people are convicted of something and sent to prison. And if the prison industry had their way they would make breathing a criminal event because that would give them an unlimited number of people to choose from in filling their ever growing prison system.

The closest thing they could come to criminalized breathing is taking a puff of a cigarette and since there were many types of cigarettes — tobacco and other substances, they supported anyone who was “afraid” of marijuana and managed to pass a new era of prohibition where we all know is where organized crime got its start.

To make certain they were reaching the huge population of people who used marijuana they even made it a crime just to possess it. This coup enabled the prison industry to grow into one of the largest industries in our economy (over $60 Billion per year) and create one of the largest lobbying systems to make certain that as many thing could be criminalized as possible, so long as it was directed to large numbers of potential “guests.” Violent crimes were not as much fun as non-violent crimes because costs of insurance and other measures goes up exponentially as the risk goes up, guards demand more pay for assuming the risk of dealing with violent individuals and the list goes on. Hence the lower sentences on violent crimes than possession of pot.

As for the economic crimes, the pickings are slim. The prison business model views it as a loser. There are just not enough people committing them as those who commit drug offenses and violent crimes. So prosecutions are sparse and the number of guests is very limited — really of no consequence in the business model of the prison industry. Besides it was the kingpins of Wall Street that financed the privatization of prison systems with new bonds, stock offerings and hedge products like credit default swaps. The last thing the prison lobby wants are prosecutions of Wall Street titans who are supporting the prison industry. And the last thing a politician wants is to to decriminalize non-violent drug crimes if he or she is dependent upon Wall Street or direct donations to their campaigns from the prison industry. The two lobbies combined probably exceed the total of all other lobbying.

I submit that the pyramid is inverted and that any politician  who lacks the nerve to do what is best for society should be removed from office and replaced with someone who will vote with an eye towards what will most benefit his or her constituents and the country as a whole, as is stated in their oath of office. I submit that the reason why Wall Street criminals were not prosecuted is that they are indirectly in charge of criminal prosecution system and the departments of corrections in each state and federal prison or jail.

If you analyze the pyramid in terms of damage to society, the base would be economic crimes costing some 1/3 of the world’s wealth — $17 trillion — through an obvious PONZI scheme that was named “securitization.” The principal flag for recognizing a PONZI scheme is that it collapses when people stop buying in because the venture is using incoming investments to pay the old investors. That is exactly what happened.

Compounding the crime, the Wall Street Bankers took money from investors under false pretenses, intentionally diverted a large part of that money into their own pockets, and then funded mortgages from remote thinly capitalized entities of dubious or impossibility viability by manipulating property values, rating systems, mortgage brokers and nominees that became called “originators, as if that term means anything.

The Wall Street Banks diverted investor money into their own pockets, then compounded that with  making themselves (instead of the investors they were required to protect) beneficiaries of insurance, federal bailouts and proceeds from “hedge” products like credit default swaps.

Instead of protecting the investors by having them named as payee on the funded loans, they created plainly defective notes and mortgages that were patently wrong as potential liens on the homeowner’s property.

Instead of having the money that funded the loans come from REMIC trusts that issued the bogus mortgage backed bond, they funded the loans from other entities leaving the REMIC and the investor with nothing.

They had simply diverted the paperwork from the investors for whom they were supposedly acting as agents, and created the illusion that the Wall Street Banks owned the mortgage backed bonds that contained no mortgages, no notes, were not backed and therefore bogus bonds  with no capacity to pay the expected interest and principal back to the investor.

So the foundation of pyramid based upon societal damage would be $17 trillion, with a continuing cost of trillions of dollars per year caused by squeezing values of currency on which the banks made even more money, minimum, whereas the cost to society of even the most violent crimes would be under $10 billion using the most liberal formulas. The cost to society of non-violent drug crimes could be computed as high as $3 Billion per year depending upon whose analysis you look at.

Thus under the current scenario each one ($1) dollar spent on criminalizing certain acts, prosecuting them and punishing them is met by a comparative figure of seventeen thousand ($17,000) dollars in damages caused solely by the Wall Street mortgage meltdown alone. It’s impossible to graph on a single piece of paper. If the current societal cost of all crimes including nonviolent drug related offenses was plotted at 1/4 inches, the next line down for economic crimes would be 68,000 inches long or 6,181 pages.

The outcome is clear — the bigger the economic crime the less likely the punishment regardless of the damage to society. And, as we all know, criminals who are successful tend to escalate their criminality rather than say “‘enough.”

Unless the State and Federal and Local governments understand and act on these self-evident truths, it is virtually certain that whatever is left in world wealth will be taken on the next round of Wall Street exotic securities that only robotic supercomputers can properly value — on chips containing programs created on Wall Street and never reviewed by any regulatory agency.

I submit that like the FDA, an agency I have no love for, the labeling of products from Wall Street should await approval from a newly created division of the SEC that can review —- and understand — the tricks and tools of the new “securities” being offered and that the U.S. attorneys and Attorneys General get together a task force and claw back what they can to cure or assist their deficits.

Until that happens Wall Street will continue its 4 decades long pursuit of selling crap instead of investments.

Appraisal Fraud and Facts: Essential to Securitization Scam

The REMICS are mirror images of the NINJA loans — no income, no assets, no job

the borrower did not realize that the false appraisal and other deficiencies in underwriting had shifted the risk of loss to the homeowner and the investors

Editor’s Notes: Our economy and the economic structure in other countries is stuck because of the false appraisal reports that supported funding of at least $13 trillion (U.S. only) of loans that were so complex that the Chairman of the Federal Reserve, Alan Greenspan didn’t understand them nor his staff of more than 100 PhDs. They were intentionally opaque because complexity is the way you get the other side of the “deal” (the buyer) to accept your explanation of the transaction. It also is designed to avoid criminal penalties even when the scheme unravels. Getting a Judge or Jury to understand what really happened is a challenge that has been insurmountable in both civil and criminal cases and investigations.

As stated in the 2005 petition to Congress from 8,000 appraisers who did not want to “play ball” with the banks, the appraisers were faced with a choice: either they submit appraisal reports $20,000 higher than contract and earn more money for each appraisal and earn  more money through volume, OR they won’t work at all.

Developers, mortgage brokers, and the “originators” (sales organization that pretended to be the lender), sellers and homeowners needing cash in an economy where there wages and earnings were not keeping up with the cost of living —- all reacted with glee when this system went into action. As “prices” rose by leaps and bounds — fed by a flood of money and demands for more mortgages — everyone except the banks ended up crashing when the money stopped flowing. That is how we know that it was the money that made prices rise, rather than demand.

So most appraisers were both stuck and pleasantly enjoying incomes 4-10 times what they had previously received, and obediently submitted appraisal reports that were in fact unsupportable by industry standards or any other standards that a reasonable and rational lender would use — if they were lending their own money. By lending money from investors the risk of loss was entirely removed. The originators got paid regardless of whether the mortgage was paid, or went underwater or caused the homeowner to execute a strategic default.

By using the originators as surrogates at the closing, the appraisal report was accepted without the required due diligence and confirmation that would be present if you went to the old style community bank loan department. The fact is that there was NO UNDERWRITING involved as we knew it before the securitization scam. The “extra” interest charged to No DOC loans (usually 3/4%-1.5%) and the premium interest charged on NINJA (No income, no assets, no job) loans was sold to borrowers on the premise that the “lender” was taking a higher risk. But the truth is they didn’t do any due diligence or underwriting of the loans regardless of whether or not the borrower was submitting information that confirmed their income, assets and ability to pay.  Thus the premium for the “extra risk” was based upon a false premise (like all the other premises of the securitization PONZI scheme).

The normal way of judging the price of a loan (the interest rate) was the perceived risk composed of two elements: ability to repay the loan, and the value of the property if the loan is not repaid. The banks that foisted the securitization scam upon the world got rid of both: they did nothing to confirm the ability to repay because they didn’t care if the borrower could repay. And they intentionally hyped the “value” of the property far above any supportable level as is easily shown in the Case Schiller index.

This is where PRICE and VALUE became entirely different concepts. By confusing the homeowner and hoodwinking the investors with false appraisals, they were able to move more money into the PONZI Scheme, as long as investors were buying the bogus mortgage bonds issued by fictitious entities that had no assets, no income and no prospects of either one. The REMICS are a mirror image of NINJA loans.

The value of the property was not the same as the prices supported by the false appraisal reports. The prices were going up because of the sales efforts of the banks to get homeowners giddy over the the numbers, making them feel, for a few moments as though they were more wealthy than they were in reality. But median income was flat or declining, which means that the value was flat or declining.

Thus prices went up while values of the homes were going down not only because of the median income factor but because of the oversold crash that was coming. Thus the PONZI scheme left the homeowner with property that would most likely be valued at less than any value that was known during the time the homeowner owned the property, while the contract price and appraisal report “valued” the property at 2-4 times the actual value.

The outcome was obvious: when all was said and done, the banks would be holding all the money and property while the investors, taxpayers, and homeowners were all dispensable pawns whose losses came under the category of “tough luck.”

While this might seem complex, the proof of appraisal fraud is not nearly as difficult as the explanation of why the banks wanted false appraisals. In the civil actions for wrongful lending or wrongful foreclosure, the homeowner need only show that the lender intentionally deceived the borrower as to the value of the property.

And the lack of actual underwriting committees and confirmations is essentially the proof, but you would be wise to have an appraiser who can testify as an expert as to what standards apply in issuing an appraisal report, to whom the appraisal report is addressed (i.e., the “originator”). Then using the foundation for the standards apply it to the property at hand at the time the original appraisal report was issued. It might also help if you catch the “originator” getting a part of the appraisal fee (like Cornerstone Appraisals, owned by Quicken Loans).

The borrower testifies that they were relying upon the “lender” representation that the loan had been carefully reviewed, underwritten, confirmed and approved based upon market conditions, ability of the borrower to repay and the value of the property. After all it was the “lender” who was taking the risk.

Thus the borrower did not realize that the false appraisal and other deficiencies in underwriting had shifted the risk of loss to the homeowner and the investors whose money was used to fund the loan — albeit not in the way it was presented in the prospectus where the REMIC was the supposed vehicle for the funding of the loans or the purchase of the loans.

Everyone in the securitization PONZI Scheme got paid. When you look at it from the perspective described above then you probably arrive at the same conclusion I did — all that money that was made and paid and not disclosed to the borrower changes the dynamics of the deal and the undisclosed compensation and profits should be paid to the borrower who was the party with the real risk of loss.

And in fact, if you look at the Truth in Lending Act, THAT is exactly what it says — all undisclosed compensation (which is broadly defined by the Act) is refundable with treble damages. Why lawyers have not taken action on this highly lucrative and relatively easy case to prosecute is a mystery to me.

Because of the statute of limitations applied in TILA cases, the TILA cause of action might not survive, especially in today’s climate, although more and more  judges are starting to see just how badly the banks acted. I therefore recommend to attorneys to use alternative pleading and add counts under other federal statutes (RICO, etc) and state statutes of deceptive lending, and common law fraud. The action for common law fraud, is the easiest to prosecute as I see it.

The interesting aspect of this that will lead to early settlement is that the pleading is simple as to the elements of the cause of action and can easily survive a motion to dismiss, the facts are clearly going to be in dispute which makes survival on a motion for summary judgment a much higher probability, and in discovery you have a nuclear option: since your cause of action is for return or sharing of the unlawful booty that was paid, plus treble, punitive or exemplary damages, discovery into all the different parties who made money in the chain is far easier to argue than the usual defensive foreclosure case.

The other thing you have is the possibility of stating a cause of action to force the retention of the property, to protect the homeowner in the collection of damages rendered by the final verdict. A lis pendens might be appropriate, and the bond need not be much more than nominal because unless the bank or servicer has a BFP to buy the property, you can easily show that your client is already posting bond every month they pay the utilities and maintain the property.

The compensatory damages would be a measure of the difference between the actual value of the deal and the deal that was offered to the homeowner. In simple terms, it could be that the appraisal report was $250,000 higher than the actual value of the property. As a result, the damages include the $250,000 plus the interest paid on that $250,000 and where appropriate, the loss of the house in foreclosure, plus interest from the date of the fraud (i.e. the closing), attorney fees, and costs of the action.

This action might also have special applications in commercial property cases where the appraisals are known to have come in much higher than the owner or buyer had ever expected. In some cases the “appraisal” actually changed the terms of the contract on the assumption that the property was worth much more than the original offer.

It’s Down to Banks vs Society

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We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process. — Economist Steve Keen

Bankers Are Willing to Let Society Crash In Order to Make More Money

Editor’s Comment: 

I was reminded last night of a comment from a former bond trader and mortgage bundler that the conference calls are gleeful about the collapse of economies and societies around the world. Wall Street will profit greatly on both the down side and then later when asset prices go so low that housing falls under distressed housing programs and 125% loans become available in bulk. They think this is all just swell. I don’t.

The obvious intent on the part of the mega banks and servicers is to bring everything down with a crash using every means possible. When you look at the offers state and federal government programs have offered for the banks to modify, when you see the amount of money poured into these banks by our federal government in order to prop them up, you cannot conclude otherwise: they want our society to end up closed down not only by foreclosure but in any other way possible. They withhold credit from everyone except the insider’s club.

So now it is up to us. Either we take the banks apart or they will take us apart. I had a recent look at many modification proposals. In the batch I saw, the average offer from the homeowner was to accept a loan 20%-30% higher than fair market value and 50%-75% higher than foreclosure is producing. It seems we are addicted to the belief that this can’t be true because no reasonable person would act like that. But the answer is that the system is rigged so that the intermediaries (the megabanks) control what the investors and homeowners see and hear, they make far more money on foreclosures than they do on modifications, and they make far money on all the “bets” about the failure of the loan by foreclosing and not modifying.

The reason for the unreasonable behavior, as it appears, is that it is perfectly reasonable in a lending environment turned on its head — where the object was to either fund a loan that was sure to fail, or keep a string attached that would declare it as part of a failed “pool” that would trigger insurance and swaps payments.Steve Keen: Why 2012 Is Shaping Up To Be A Particularly Ugly Year

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we’re now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall — which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

The reason that we have this trauma for the asset markets is because of this whole relationship that rising debt has to the level of asset market. If you think about the best example is the demand for housing, where does it come from? It comes from new mortgages. Therefore, if you want to sustain he current price level of houses, you have to have a constant flow of new mortgages. If you want the prices to rise, you need the flow of mortgages to also be rising.

Therefore, there is a correlation between accelerating and rising asset markets. That correlation applies very directly to housing. You look at the 20-year period of the market relationship from 1990 to now; the correlation of accelerating mortgage debt with changing house prices is 0.8. It is a very high correlation.

Now, that means that when there is a period where private debt is accelerating you are generally going to see rising asset markets, which of course is what we had up to 2000 for the stock market and of course 2006 for the housing market. Now that we have decelerating debt — so debt is slowing down more rapidly at this time rather than accelerating — that is going to mean falling asset markets.

Because we have such a huge overhang of debt, that process of debt decelerating downwards is more likely to rule most of the time. We will therefore find the asset markets traumatizing on the way down — which of course encourages people to get out of debt. Therefore, it is a positive feedback process on the way up and it is a positive feedback process on the way down.

He sees all of the major countries of the world grappling with deflation now, and in many cases, focusing their efforts in exactly the wrong direction to address the root cause:

Europe is imploding under its own volition and I think the Euro is probably going to collapse at some stage or contract to being a Northern Euro rather than the whole of Euro. We will probably see every government of Europe be overthrown and quite possibly have a return to fascist governments. It came very close to that in Greece with fascists getting five percent of the vote up from zero. So political turmoil in Europe and that seems to be Europe’s fate.

I can see England going into a credit crunch year, because if you think America’s debt is scary, you have not seen England’s level of debt. America has a maximum ratio of private debt to GDP adjusted over 300%; England’s is 450%. America’s financial sector debt was 120% of GDP, England’s is 250%. It is the hot money capital of the western world.

And now that we are finally seeing decelerating debt over there plus the government running on an austerity program at the same time, which means there are two factors pulling on demand out of that economy at once. I think there will be a credit crunch in England, so that is going to take place as well.

America is still caught in the deleveraging process. It tried to get out, it seemed to be working for a short while, and the government stimulus seemed to certainly help. Now, that they are going back to reducing that stimulus, they are pulling up the one thing that was keeping the demand up in the American economy and it is heading back down again. We are now seeing the assets market crashing once more. That should cause a return to decelerating debt — for a while you were accelerating very rapidly and that’s what gave you a boost in employment —  so you are falling back down again.

Australia is running out of steam because it got through the financial crisis by literally kicking the can down the road by restarting the housing bubble with a policy I call the first-time vendors boost. Where they gave first time buyers a larger amount of money from the government and they handed over times five or ten to the people they bought the house off from the leverage they got from the banking sector. Therefore, that finally ran out for them.

China got through the crisis with an enormous stimulus package. I think in that case it is increasing the money supply by 28% in one year. That is setting off a huge property bubble, which from what I have heard from colleagues of mine is also ending.

Therefore, it is a particularly ugly year for the global economy and as you say, we are still trying to get business back to usual. We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process.

In order to successfully emerge on the other side of this this painful period with a more sustainable system, he believes the moral hazard of bailing out the banks is going to have end:

[The banks] have to suffer and suffer badly. They will have to suffer in such a way that in a decade they will be scared in order to never behave in this way again. You have to reduce the financial sector to about one third of its current size and we have to also ultimately set up financial institutions and financial instruments in such a way that it is no longer desirable from a public point of view to borrow and gamble in rising assets processes.

The real mistake we made was to let this gambling happen as it has so many times in the past, however, we let it go on for far longer than we have ever let it go on for before. Therefore, we have a far greater financial parasite and a far greater crisis.

And he offers an unconventional proposal for how this can be achieved:

I think the mistake [central banks] are going to make is to continue honoring debts that should never have been created in the first place. We really know that that the subprime lending was totally irresponsible lending. When it comes to saying “who is responsible for bad debt?” you have to really blame the lender rather than the borrower, because lenders have far greater resources to work out whether or not the borrower can actually afford the debt they are putting out there.

They were creating debt just because it was a way of getting fees, short-term profit, and they then sold the debt onto unsuspecting members of the public as well and securitized their way out of trouble. They ended up giving the hot potato to the public. So, you should not be honoring that debt, you should be abolishing it. But of course they have actually packaged a lot of that debt and sold it to the public as well, you cannot just abolish it, because you then would penalize people who actually thought they were being responsible in saving and buying assets.

Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create ‘central bank money’ (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down — no choice. Therefore, if you have debt, you can reduce the debt level, but if you do not have debt, you get a cash injection.

Of course, this would then feed into the financial sector would have to reduce the value of the debts that it currently owns, which means income from debt instruments would also fall. So, people who had bought bonds for their retirement and so on would find that their income would go down, but on the other hand, they would be compensated by a cash injection.

The one part of the system that would be reduced in size is the financial sector itself. That is the part we have to reduce and we have to make smaller.  That is the one that I am putting forward and I think there is a very little chance of implementing it in America for the next few years not all my home country [Australia] because we still think we are doing brilliantly and all that. But, I think at some stage in Europe, and possibly in a very short time frame, that idea might be considered.

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Fine Print: The Real Story on the “$25 Billion” Multistate Settlement

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One of the things I heard from a high ranking official in state government is that only a tiny fraction of the “settlement” is translating into actual dollars from the banks to anyone. In Arizona the $1.3 billion is subject to an “earn-down” as it was described to me and the net amount turned out to be $97 million and then on the website for the attorney general of the state, the $97 million became $47 million.

So I brought up my calculator and discovered that out of the “settlement” the banks were paying themselves around $1.2 billion out of the $1.3 billion (some say it is $1.6 billion, but the net left for the state remains unchanged at $97 million) and that some of the balance of the money is “unaccounted for.” By the way this has NOTHING to do with the Arizona Department of Housing, which is as close to non-political as you can get in any government.

So in plain language, the banks are taking money from their left pocket and putting int heir right pocket and saying it was a deal. This sounds a lot like the fake claims of securitization and assignment of debt on housing, student loans, credit cards, auto loans etc. In the end, no money will move except a tiny percentage because since the banks are simply paying themselves out of their own money how bad can the accounting be for them?

In Arizona, the legislature decided, as per the terms of the “settlement” to take the money and use it as part of general operating funds leaving distressed homeowners with nothing. So now there is something of an uproar in Arizona. Here is a $1.3 billion settlement that could have reversed a downward economic spiral for the state that will be felt for decades, and we end up with only 7% of that figure and then at least half, if not all of that is being taken for uses other than homeowner relief that is essential for economic recovery.

My guess is that they will say they are stopping the move to use the homeowner relief funds for perks to corporate donors and then quietly go out and do it anyway. What is your guess?

——————————————–

By Howard Fischer, Capitol Media Services

State officials agreed Tuesday to delay the transfer of $50 million of disputed mortgage settlement funds, at least for the time being.

Assistant Attorney General David Weinzweig made the offer during a hearing where challengers were hoping to get a court order blocking the move while its legality is being decided by Maricopa County Superior Court Judge Mark Brain. Attorney Tim Hogan of the Arizona Center for Law in the Public Interest, who represents those opposed to the transfer, readily agreed.

“You don’t want to rush the judge,” said Hogan, whose clients are people he believes would be helped by the funds.

“You want him to take his time on important questions like this,” Hogan said. “And so it’s reasonable to agree not to transfer the funds for a certain period of time to give the judge the opportunity to do that.”

The move sets the stage for a hearing in August on the merits of the issue.

Weinzweig told Brain he believes the transfer, ordered by state lawmakers earlier this year, is legal. Anyway, he said, Hogan’s clients have no legal standing to challenge what the Legislature did.

The fight surrounds a $26 billion nationwide settlement with five major lenders who were accused of mortgage fraud.

Arizona’s share is about $1.6 billion, with virtually all of that earmarked for direct aid to those who are “under water” on their mortgages — owing more than their property is worth — or have already been forced out of their homes.

But the deal also provided $97 million directly to the state Attorney General’s Office. The terms of that pact said the cash was supposed to help others with mortgage problems as well as investigate and prosecute fraud.

Lawmakers, however, seized on language which also said the money can be used to compensate the state for the effects of the lenders’ actions. They said the result of the mortgage crisis was lower state revenues, giving them permission to take $50 million from the settlement to balance the budget for the fiscal year that begins July 1.

Hogan’s suit is based on his contention that the settlement terms put the entire $97 million in trust and makes Attorney General Tom Horne, who was authorized by state law to sign the deal, responsible for ensuring the cash is properly spent.

Horne urged lawmakers not to take the funds. But once the budget deal was done, he went along and took the position that, regardless of whether the cash could have been better spent elsewhere, the transfer demand is legal.

Whatever Brain rules is likely to be appealed.

The challenge was brought on behalf of two people who would benefit by the state having more money to help homeowners avoid foreclosure. The lawsuit said both are currently “at risk” of losing their homes.

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State Programs with Real Money Going Unused

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Millions for Principal Reduction and Moving Expenses and No Applicants

Editor’s Comment: 

I had the pleasure of listening last night to Michael Trailor, the Director of the Arizona Department of Housing. It was like a breath of fresh air. He was a home builder for decades and when the market crashed he went into this obscure post of this obscure state agency that turns out to have its counterparts in many if not all states. Each of these agencies has received money and authority to help homeowners and they are willing to pay down principal reductions, buy the loans and then modify and pay for moving expenses in short sales and other events.

Trailor is a plain-speaking non-politician who tells it like it is. His agency has programs based upon the premise that principal reduction is the only thing that works and he has working relationships with some small banks where his agency literally pays the principal down while the Bank shares in that loss. The small banks see the sense in it. He can’t get cooperation from the big banks and servicers.

In the meeting at Darrell Blomberg’s Tuesday Strategist presentation (every week at Macayo’s restaurant in downtown Phoenix), we heard straight talk and we heard about a number of programs that I had advocated before Trailor became director. My suggestions fell on deaf ears. Trailor’s programs are of the same variety and creativity with the objective of saving the Arizona economy from destruction.

He reported that three states got together under the same program to make the offer of sharing the reduction of principal because the banks said that Arizona was not big enough on its own to motivate the banks to participate in the program. So he got three states — Arizona, California and Nevada. The banks did the old familiar two-step with him and his counterparts in the other states and essentially refused to pparticipate. Every borrower knows that two-step by heart.

I made some suggestions for programs that could be introduced in bankruptcy court, where the power of the Banks is much less. Right now if they don’t want to modify the loan, they can’t be forced. If they don’t want to SELL the loan and then modify it as the beneficiary or mortgagee, the mega bank can and does say no (while the small bank can and does say yes).

That’s right. His agency said they would buy the loan from the bank for 100 cents on the dollar, and then modify the loan the principal and payments to something the borrower could afford and that would not lead to future foreclosures (the fate of practically all modifications). The mega banks killed the idea. Don’t you wonder why banks would contrary to the interest of a ‘lender” who can minimize their losses with government money that has already been allocated but is not yet spent?

This is exactly what I predicted back in 2008. The small banks agree because it is the smart thing to do and THEY are actually owed the money. The mega banks refuse to go along with the deal because hanging on the now invisible and non-existent trunk of an existing debt-tree are hundreds of branches of swaps, insurance and credit enhancements upon which Wall Street has made and is continuing to make billions of dollars in “trading profits” at the expense of the investors and to the detriment of the homeowners.

In other words, they sold the loan multiple times — up to 40 times as I read the data. So hanging on your $200,000 loan could be as much as $8 MILLION in derivatives, swaps etc. That could mean $8 million in claims on the proceeds of sale of the obligation or note or satisfaction of the note or obligation.

Here is my suggestion for those homeowners’ attorneys that have started a bankruptcy proceeding. Where the so-called creditor has sent out a notice of sale and has filed a motion to lift the automatic stay, apply for assistance from the Arizona Department of Housing or whatever the equivalent is in your state. If the agency agrees to assist in refinancing or buying the loan so the homeowner can stay and pay, then the bank would need to explain the basis on which they are responding negatively. After all they are being offered 100 cents on the dollar — why isn’t that enough?

Make sure you notify the Trustee and Court of the pending application made to the agency and don’t use it in a silly fashion promising things that the agency will not corroborate.

I believe that Trailor’s agency and his counterparts would respond with some program that would essentially be an offer to the supposed creditor — provided that the true creditor steps forward and can prove that they are the actual party to whom the money from the homeowner’s obligation is owed. Darrell and I are starting talks with Trailor’s agency to get specific programs that will work in bankruptcy court and maybe other situations.

Once the Notice of Sale is sent,  the “creditor” has committed itself to selling. How can they turn around and say no when they are being offered the full amount? In that court, once the “lender” has committed to selling the property they can hardly say they don’t want to sell the loan — especially if they are receiving 100 cents on the dollar. The offer would be accepted by the Trustee, I am fairly certain, and the Judge since there really is no choice.

Now here is where the fun begins. The Judge would agree as would the U.S. Trustee that only the party to whom the money is owed can get the money. Some of you might recall my frequent diatribes about who can submit a credit bid — only the actual creditor to whom the original loan is now owed or an authorized representative who submits the bid on behalf of THAT creditor.

So assuming the Trustee and Judge agree that the “creditor” who filed the Motion to Lift Stay MUST sell the loan or release it upon receiving full payment, then they are stuck with coming up with the real creditor, which is going to be impossible in many cases, difficult in virtually all other cases. Trailor is sitting on hundreds of millions of dollars to help homeowners and he can’t use it because nobody will play ball under circumstances that he “naively” thought would be a no-brainer.

For those versed in bankruptcy you know the rest. The “lender” must admit that it is not the lender, that is has no authority to represent the creditor, that it doesn’t know who the creditor is or even if one still exists. The mortgage can be attacked as not being a perfected lien on the property and the obligation is wiped out or reduced by the  final order entered in the bankruptcy court.

Now the banks and servicers are going to fight this one tooth and nail because while the loan might be $200,000, there is an average of around $4 million in derivatives and exotic credit enhancements hanging on this loan. If it is paid off, then all accounts must settle. There are going to be gains and losses, but the net effect might well be that the bank “Sold” the loan 20 times. And the best part of it is that you don’t need t prove the theft. If will simply emerge from the failure of the “lender” to conform with the order of the court approving the deal. 

This is a classic case of the scam used in the “The Producers” which has been done on Broadway and movies. You sell 10,000% of a show you know MUST fail. They select “Springtime for Hitler” right after World War II and expect it to crash. After all it is musical comedy. But the show is a spectacular success. So whereas the news of the show’s closing would have sent investors to their accountants to write it off for tax purposes, now they were all clamoring for an accounting for their share of the profits. Since the producers had sold the show 100 times over it was impossible to pay the investors and they went to jail.

THAT is the problem here. It is only if the show closes with a foreclosure that the investors will not ask for the accounting. If the show succeeds (the loan is paid off) then all the investors will want their share of the payments that are due — unless they had the misfortune of taking the wrong side of a “bet” that the loan would fail. Not many investors did that. But the investment banks that sold the show (the loan) many times over used those bets as a way of selling the show over and over again.

If I’m lying I’m dying. That is what is happening and when people realize that as homeowners they are sitting on leverage worth 20 times their loan and they use it against the banks and servicers, they will get some very nice results. Agencies like Arizona’s Department of Housing can save the day like the cavalry just by making the offer and getting a judge to enforce it and watch in merriment how the “lenders” insist that they don’t want the payment and they can’t be forced to take it. That is what happens  when you turn the conventional and reasonable lending model on its head.

So now the banks and servicers must come up with a whole new set of fabricated, forged and fraudulent documents in which the investors assigned their interest in the obligation or note or mortgage to some other entity that is now the “creditor” — but the question that will be asked by every Trustee and Judge in bankruptcy court “who paid for this, how much did they pay, and how do we know a transaction actually happened.” That is the problem with a VIRTUAL TRANSACTION. At some point, like every PONZI scheme, the house of cards falls down.

Check with Arizona Department of Housing

Of course if you are not in Arizona check with the equivalent agency in your state. Chances are they have hundreds of millions of dollars and no place to spend it for homeowners because the banks won’t agree to no-brainer solutions that any bank can and does accept if they were playing the “Securitization game.” Don’t expect the agency to march into court and save the day. The agency is not going to litigate your case for you. But they probably will give you plenty of support and encouragement and offers of real money to end this nightmare of foreclosures. You must do the work, fill out applications and get the process underway before you can go to the court with a motion that says we have a settlement vehicle pending with a state agency and you can prove it is true.

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How the Servicers and Investment Banks Cheat Investors and Homeowners

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Master Servicers and Subservicers Maintain Fictitious Obligations

Editor’s Comment: 

This article really is about why discovery and access to the information held by the Master Servicer and subservicer, investment bank and Trustee for the REMIC (“Trust”) is so important. Without an actual accounting, you could be paying on a debt that does not exist or has been extinguished in bankruptcy because it was unsecured. In fact, if it was extinguished in bankruptcy, giving them the house or payment might even be improper. Pressing on the points made in this article in order to get full rights in discovery (interrogatories, admissions and production) will yield the most beneficial results.

Michael Olenick (creator of FindtheFraud) on Naked Capitalism gets a lot of things right in the article below. The most right is that servicers are lying and cheating investors in addition to cheating homeowners.

The subservicer is the one the public knows. They are the ones that collect payments from the “borrower” who is the homeowner. In reality, they have no right to collect anything from the homeowner because they were appointed as servicer by a party who is not a creditor and has no authority to act as agent for the creditor. They COULD have had that authority if the securitization chain was real, but it isn’t.

Then you have the Master Servicers who are and should be called the Master of Ceremonies. But the Master Servicer is basically a controlled entity of the investment bank, which is why everyone is so pissed — these banks are making money and getting credit while the rest of us can’t operate businesses, can’t get a job, and can’t get credit for small and medium sized businesses.

Cheating at the subservicer level, even if they were authorized to take payments, starts with the fees they charge against the account, especially if it becomes (delinquent” or in “default” or “Nonperforming.” At the same time they are telling the investors that the loan is a performing loan and they are making payments somewhere in the direction of the investors (we don’t actually know how much of that payment actually gets received by investors), they are also declaring defaults and initiating a foreclosure.

What they are not reporting is that they don’t have the paperwork on the loan, and that the value of the portfolio is either simply over-stated, which is bad enough, or that the portfolio is worthless, which of course is worse. Meanwhile the pension fund managers do not realize that they are sitting on assets that may well have a negative value and if they don’t handle the situation properly, they might be assessed for the negative value.

It gets even worse. Since the money and the loans were not handled, paid or otherwise organized in the manner provided in the pooling and servicing agreement and prospectus, the SPV (“Trust”) does not exist and has no assets in it — but it might have some teeth that could bite the hand that fed the banks. If the REMIC was not created and the trust was not created or funded, then the investors who in fact DID put up money are in a common law general partnership. And since the Credit Default Swaps were traded using the name of  entities that identified groups of investors, the investors might be hit with an assessment to cover a loss that the “pool” can’t cover because they only have a general partnership created under common law. Their intention to enter into a deal where there was (a) preferential tax status (REMIC) and (b) limited liability would both fall apart. And that is exactly what happened.

The flip side is that the credit default swaps, insurance, credit enhancements, and so forth could have and in most cases did produce a surplus, which the banks claimed as solely their own, but which in fact should have at least been allocated to the investors up to the point of the liability to them (i.e., the money taken from them by the investment bank).

AND THAT is why borrowers should be very interested in having the investors get their money back from the trading, wheeling and dealing made with the use of the investors’ money. Think about it. The investors gave up their money for funding mortgages and yours was one of the mortgages funded. But the vehicle that was used was not a simple  one. The money taken from the investors was owed by the REMIC in whose name the trading in the secret derivative market occurred.

Now think a little bit more. If the investors get their rightful share of the money made from the swaps and insurance and credit enhancements, then the liability is satisfied — i.e., the investor got their money back with interest just like they were expecting.

But, and here is the big one, if the investor did get paid (as many have been under the table or as part of more complex deals) then the obligation to them has been satisfied in full. That would mean by definition that the obligation from anyone else on repayment to the investor was extinguished or transferred to another party. Since the money was funded from investor to homeowner, the homeowner therefore does not owe the investor any money (not any more, anyway, because the investor has been paid in full). The only valid transfer would be FROM the REMIC partnership not TO it. But the fabricated, forged and fraudulent documents are all about transferring the loan TO the REMIC that was never formed and never funded.

It is possible that another party may be a successor to the homeowner’s obligation to the investor. But there are prerequisites to that happening. First of all we know that the obligation of the homeowner to the investor was not secured because there was no agreement or written instrument of any kind in which the investor and the borrower both signed and which set forth terms that were disclosed to both parties and were the subject of an agreement, much less a mortgage naming the investor. That is why the MERS trick was played with stating the servicer as the investor. That implies agency (which doesn’t really exist).

Second we know that the SWAPS and the insurance were specifically written with expressly worded such that AIG, MBIA etc. each waived their right to get payment from the borrower homeowner even though they were paying the bill.

Third we know that most payments were made by SWAPS, insurance and the Federal Reserve deals, in which the Fed also did not want to get involved in enforcing debts against homeowners and that is why the Federal Reserve has never been named as the creditor even though they in fact, would be the creditor because they have paid 100 cents on the dollar to the investment bank who did NOT allocate that money to the investors.

Since they did not allocate that money to the investors, as servicers (subservicer and Master Servicer), they also did not allocate the payment against the homeowner borrower’s debt. If they did that, they would be admitting what we already know — that the debt from homeowner to investor has been extinguished, which means that all those other credit swaps, insurance and enhancements that are STILL IN PLAY, would collapse. That is what is happening in our own cities, towns, counties and states and what is happening in Europe. It is only by keeping what is now only a virtual debt alive in appearance that the banks continue to make money on the Swaps and other exotic instruments. But it is like a tree without the main trunk. We have only branches left. Eventually in must fall, like any other Ponzi scheme or House of Cards.

So by cheating the investors, and thus cheating the borrowers, they also cheated the Federal Reserve, the taxpayers and European banks based upon a debt that once existed but has long since been extinguished. If you waded through the above (you might need to read it more than once), then you can see that your  feeling, deep down inside that you owe this money, is wrong. You can see that the perception that the obligation was tied to a perfected mortgage lien on the property was equally wrong. And that we now have $700 trillion in nominal value of derivatives that has at least one-third in need of mark-down to zero. The admission of this inescapable point would immediately produce the result that Simon Johnson and others so desperately want for economic reasons and that the rest of us want for political reasons — the break-up of banks that are broken. Only then will the market begin to function as a more or less free trading market.

How Servicers Lie to Mortgage Investors About Losses

By Michael Olenick

A post last week reviewed a botched foreclosure for a mortgage loan in Ace Securities Home Equity Loan Trust 2007-HE4 dismissed with prejudice, meaning that the foreclosure cannot be refilled; a total loss for investors. Next, we reviewed why the trust has not yet recorded the loss despite the six month old verdict.

As an experiment, I gave my six year-old daughter four quarters. She just learned how to add coins so this pleased her. Then I told her I would take some number of quarters back, and asked her how many I should take. Her first response was one – smart kid – then she changed her mind to two, because we’d each have two and that’s the most “fair.” Having mastered the notion of loss mitigation and fairness, and because it’s not nice to torture six year-old children with experiments in economics, I allowed her to keep all four.

When presented with a similar question – whether to take a partial loss via a short-sale or principal reduction, or whether to take a larger loss through foreclosure – the servicers of ACE2007-HE4 repeatedly opt for the larger losses. While the dismissal with prejudice for the Guerrero house is an unusual, the enormous write-off it comes with through failure to mitigate a breach – to keep overall damages as low as possible – is common. When we look more closely at the trust, we see the servicer again and again, either through self-dealing or laziness, taking actions that increase losses to investors. And this occurs even though the contract that created the securitization, a pooling and servicing agreement, requires the servicer to service the loans in the best interest of the investors.

Let’s examine some recent loss statistics from ACE2007-HE4. In May, 2012 there were 15 houses written-off, with an average loss severity of 77%. Exactly one was below 50% and one, in Gary, IN, was 145%; the ACE investors lent $65,100 to a borrower with a FICO score of 568 then predictably managed to lose $94,096. In April, there were 23 homes lost, with an average loss severity of 82%, three below 50%, though one at 132%, money lent to a borrower with an original FICO score of 588.

Of course, those are the loans with finished foreclosures. There are 65 loans where borrowers missed at least four consecutive payments in the last year with yet there is no active foreclosure. Among those are a loan for $593,600 in Allendale, NJ, where the borrower has not made a payment in about four years, though they have been in and out of foreclosure a few times during that period. It’s not just the judicial foreclosure states; a $350,001 loan in Compton, CA also hasn’t made a payment in over a year and there is no pending foreclosure.

There is every reason to think the losses will be higher for these zombie borrowers than on the recent foreclosures. First, every month a borrower does not pay the servicer pays the trust anyway, though the servicer is then reimbursed the next month, mainly from payments of other borrowers still paying. This depletes the good loans in the trust, so that the trust will eventually run out of money leaving investors holding an empty bag. And on top of that, when the foreclosure eventually occurs, the servicer also reimburses himself for all sorts of fees, late fees, the regular servicing fee, broker price opinions, etc. Longer times in foreclosure mean more fees to servicers. Second, the odds are decent that the servicers are holding off on foreclosing on these homes because the losses are expected to be particularly high. Why would servicers delay in these cases? Perhaps because they own a portfolio of second mortgages. More sales of real estate that wipe out second liens would make it harder for them to justify the marks on those loans that they are reporting to investors and regulators. Revealing how depressed certain real estate markets were if shadow inventory were released would have the same effect.

These loans will eventually end up either modified or foreclosed upon, but either way there will be substantial losses to the trust that have not been accounted for. Of course, this assumes that the codes and status fields are accurate; in the case of the Guerreros’ loan the write-off – with legal fees for the fancy lawyers who can’t figure out why assignments are needed to the trust – is likely to be enormous. How much? Nobody except Ocwen knows, and they’re not saying.

Knowing that an estimated loss of 77%, is if anything an optimistic figure, even before we get to the unreported losses on the Guerrero loan, it seems difficult to understand why Ocwen wouldn’t first try loss mitigation that results in a lower loss severity. If they wrote-off half the principal of the loan, and decreased interest payments to nothing, they’d come out ahead.

Servicers give lip service to the notion that foreclosure is an option of last resort but, only when recognizing losses, do their words seem to sync with their behavior. But it’s all about the incentives: servicers get paid to foreclose and they heap fees on zombie borrowers, but even with all sorts of HAMP incentives, they don’t feel they get paid enough to do the work to do modifications. Servicers are reimbursed for the principal and interest they advance, the over-priced “forced placed insurance” that costs much more and pays out much less than regular insurance, “inspections” that sometimes involve goons kicking in doors before a person can answer, high-priced lawyers who can’t figure out why an assignment is needed to bind a property to a trust, and a plethora of other garbage fees. They’re like a frat-boy with dad’s credit-card, and a determination to make the best of it while dad is still solvent.

Despite the Obama campaign promise to bring transparency to government and financial markets, the investors in trusts remain largely unknown, so we’re not sure who bears the brunt of the cost of Ocwen’s incompetence in loss mitigation (to be fair Ocwen is not atypical; most servicers are atrocious). But, ACE2007-HE4 has a few unique attributes allowing us to guess who is affected.

ACE2007-HE4 is named in a lawsuit filed by the Federal Housing Finance Agency (FHFA), which has sued ACE, trustee Deutsche Bank, and a few others citing material misrepresentations in the prospectus of this trust. As pointed out in the prior article, both the Guerreros’ first and second loans were bundled into the same trust – so there were definitely problems – though the FHFA does not seem to address that in their lawsuit.

With respect to ACE2007-HE4, the FHFA highlights an investigation by the Financial Industry Regulatory Authority (FINRA), which found that Deutsche Bank “‘continued to refer customers to its prospectus materials to the erroneous [delinquency] data’”even after it ‘became aware that the static pool information underreported historical delinquency rates.”

The verbiage within the July 16, 2010 FINRA action is more succinct: “… investors in these 16 subsequent RMBS securitizations were, and continue to be, unaware that some of the static pool information .. contains inaccurate historical data which underreported delinquencies.” FINRA allowed Deutsche Bank to pay a $7.5 million fine without either admitting or denying the findings, and agreed never to bring another action “based on the same factual findings described herein.”

Despite the finding and the fine, FINRA apparently forgot to order Deutsche Bank to knock off the conduct, and since FINRA did not reserve the right to circle back for a compliance check maybe Deutsche Bank has the right to produce loss reports showing whatever they wish to.

It is unlikely that Deutsche Bank had trouble paying their $7.5 million fine since the trust included an interest swap agreement that worked out pretty well for them. Note that these swap agreements were a common feature of post 2004 RMBS. Originators used to retain the equity tranche, which was unrated. When a deal worked out, that was nicely profitable because the equity tranche would get the benefit of loss cushions (overcollateralization and excess spread). Deal packagers got clever and devised so-called “net interest margin” bonds which allowed investors to get the benefit of the entire excess spread for a loan pool. The swaps were structured to provide a minimum amount of excess spread under the most likely scenarios. But no one anticipated 0% interest rates.

From May, 2007, when the trust was issued, to Oct., 2007, neither party paid one another. In Nov., 2007, Deutsche Bank paid the trust $175,759.04. Over the next 53 months that the swap agreement remained in effect the trust paid Deutsche Bank $65,122,194.92, a net profit of $64,946,435.88. Given that Deutsche traders were handing out t-shirts reading “I’m Short Your House” when this trust was created, I can see why they’d bet against steep interest rates over the next five years, as the Federal Reserve moved to mitigate the economic fallout of their mischievousness with low interest rates.

In any event, getting back to Fannie Mae and Freddie Mac (the FHFA does not disclose which), one of the GSEs purchased $224,129,000 of tranche A1 at par; they paid full freight for this fiasco. Since this trust is structured so that losses are born equally by all A-level tranches once the mezzanine level tranches are destroyed by losses, which they have been, to find the party taking the inflated losses you just need to look in the nearest mirror. Fannie and Freddie are, of course, wards of the state so it is the American taxpayer that gets to pay out the windfall to the Germans. In this we’re like Greece, albeit with lousier beaches and the ability to print more money.

If the mess with the FHFA and FINRA were not enough, ACE2007-HE4 is also an element in the second 2007 Markit index, ABX.HE.AAA.07-2, a basket of tranches of subprime trusts that – taken as a whole – show the overall health of all similar securities. This is akin to being one of the Dow-Jones companies, where a company has its own stock price but that price also affects an overall index that people place bets on. Tranche A-2D, the lowest A-tranche, is one of the twenty trusts in the index. Since ACE2007-HE4 is structured so that all A-tranches wither and die together once the mezzanine level tranches are destroyed it has the potential to weigh in on the rest of the index. Therefore, the reporting mess – already known to both the FHFA and FINRA – stands to be greatly magnified.

The problems with this trust are numerous, and at every turn, the parties that could have intervened to ameliorate the situation failed to take adequate measures.

First there is the botched securitization, where a first and second lien ended up in the same trust. Then, there is failure to engage in loss mitigation, with the result that refusing to accept the Guerrero’s short-sale offers or pleas for a modification, resulting in a more than 100% loss. Next, there is defective record-keeping related to that deficiency and others like it. And the bad practices ensnarled Fannie /Freddie when they purchased almost a quarter billion dollars of exposure to these loans. Then there’s the mismanaged prosecution by FINRA, where they did not require ongoing compliance, monitoring, or increasing fines for non-compliance. There’s the muffed FHFA lawsuit, where the FHFA did not notice either the depth of the fraud, namely two loans for the same property in the same trust, and that the reporting fraud they cited continues. I’m not sure if the swap agreement was botched, but you’d think FINRA and the FHFA would and should do almost anything to dissolve it while it was paying out massive checks every month. Finally, returning full circle, there’s the fouled up foreclosure that the borrowers fought only because negotiations failed that resulted in a the trust taking a total loss on the mortgage plus paying serious legal fees.

It is an understatement to say this does not inspire confidence in any public official, except Judge Williams, the only government official with the common sense to lose patience with scoundrels. We’d almost be better off without regulators than with the batch we’ve seen at work.

US taxpayers would have received more benefit by burning dollar bills in the Capitol’s furnace to heat the building than we received from bailing out Fannie, Freddie, Deutsche Bank, Ocwen, and the various other smaller leaches attached to the udder of public funds. We could and should have allowed the “free market” they worship to work its magic, sending them to their doom years ago. That would have left investors in a world-o-hurt but, in hindsight, that’s where they’re ending up anyway with no money left to fix the fallout. It is long past time public policy makers did something substantive to rein in these charlatans.

My six year-old daughter understands the concept of limiting losses to the minimum, and apportionment of those losses in the name of fairness. Maybe Tim Geithner should take a lesson from her about this “unfortunate” series of events, quoting Judge Williams, before wasting any more money that my daughter will eventually have to repay.

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The Reporter Who Saw it Coming

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Editor’s Comment:

By Dean Starkman

Mike Hudson thought he was merely exposing injustice, but he also was unearthing the roots of a global financial meltdown.

Mike Hudson began reporting on the subprime mortgage business in the early 1990s when it was still a marginal, if ethically challenged, business. His work on the “poverty industry” (pawnshops, rent-to-own operators, check-cashing operations) led him to what were then known as “second-lien” mortgages. From his street-level perspective, he could see the abuses and asymmetries of the market in a way that the conventional business press could not. But because it ran mostly in small publications, his reporting was largely ignored. Hudson pursued the story nationally, via a muckraking book, Merchants of Misery (Common Courage Press, 1996); in a 10,000-word expose on Citigroup-as-subprime-factory, which won a Polk award in 2004 for the small alternative magazine Southern Exposure; and in a series on the subprime leader, Ameriquest, co-written as a freelancer, for the Los Angeles Times in 2005. He continued to pursue the subject as it metastasized into the trillion-dollar center of the Financial Crisis of 2008—briefly at The Wall Street Journal and now at the Center for Public Integrity. Hudson, 52, is the son of an ex-Marine and legendary local basketball coach. He started out on rural weeklies, covering championship tomatoes and large fish and such, even produced a cooking column. But as a reporter for The Roanoke Times he turned to muckraking and never looked back. CJR’s Dean Starkman interviewed Hudson in the spring of 2011.

Follow the ex-employees

The great thing about The Roanoke Times was that there was an emphasis on investigation but there was also an emphasis on storytelling and writing. And they would bring in lots of people like Roy Peter Clark and William Zinsser, the On Writing Well guy. The Providence Journal book, the How I Wrote the Story, was a bit of a Bible for me.

As I was doing a series on poverty in Roanoke, one of the local legal aid attorneys was like, “It’s not just the lack of money—it’s also what happens when they try to get out of poverty.” He said basically there are three ways out: they bought a house, so they got some equity; they bought a car so they could get some mobility; or they went back to school to get a better job. And in every case, he had example after example of folks, who because they were doing just that, had actually gotten deeper in poverty, trapped in unbelievable debt.

His clients often dealt with for-profit trade schools, truck driving schools that would close down; medical assistant’s schools that no one hired from; and again and again they’d be three, four, five, eight thousand dollars in debt, and unable to repay it, and then of course prevented from ever again going back to school because they couldn’t get another a student loan. So that got me thinking about what I came to know as the poverty industry.

I applied for an Alicia Patterson Fellowship and proposed doing stories on check-cashing outlets, pawn shops, second-mortgage lenders (they didn’t call themselves subprime in those days). This was ’91. We didn’t have access to the Internet, but I came across a wire story about something called the Boston “second-mortgage scandal,” and got somebody to send me a thick stack of clips. It was really impressive. The Boston Globe and other news organizations were taking on the lenders and the mortgage brokers, and the closing attorneys, and on and on.

I was trying to make the story not just local but national. I had some local cases involving Associates [First Capital Corp., then a unit of Ford Motor Corp.]. Basically, it turned out that Ford Motor Company, the old-line carmaker, was the biggest subprime lender in the country. The evidence was pretty clear that they were doing many of the same kinds of bait-and-switch salesmanship and, in some cases, pure fraud, that we later saw take over the mortgage market. I felt like this was a big story; this is the one! Later, investigations and Congressional hearings corroborated what I was finding in ’94, ’95, and ’96. And it seems so self-evident now, but I learned that finding ex-employees often gives you a window into what’s really going on with a company. The problem has always been finding them and getting them to talk.

I spent the better part of the ‘90s writing about the poverty industry and about predatory lending. As a reporter you don’t want to be defined by one subject. So I was actually working on a book about the history of racial integration in sports, interviewing old Negro-league baseball players. I was really trying to change a little bit of how I was moving forward career-wise. But it’s like the old mafia-movie line: every time I think I’m out, they pull me back in.

Subprime goes mainstream

In the fall of 2002, the Federal Trade Commission announced a big settlement with Citigroup, which had bought Associates, and at first I saw it as a positive development, like they had nailed the big bad actor. I’m doing a 1,000-word freelance thing, but of course as I started to report I started hearing from people who were saying that this settlement is basically giving them absolution, and allowed them to move forward with what was, by Citi standards, a pretty modest settlement. And the other thing that struck me was the media was treating this as though Citigroup was cleaning up this legacy problem, when Citi itself had its own problems. There had been a big magazine story about [Citigroup Chief Sanford I.] “Sandy” Weill. It was like “Sandy’s Comeback.” I saw this and said, ‘Whoa, this is an example of the mainstreaming of subprime.’

I pitched a story about how these settlements weren’t what they seemed, and got turned down a lot of places. Eventually I went to Southern Exposure and called the editor there, Gary Ashwill, and he said, “That’s a great story, we’ll put it on the cover.” And I said, “Well how much space can we have?” and he said, “How much do we need?” That was not something you heard in journalism in those days.

I interviewed 150 people, mostly borrowers, attorneys, experts, industry people, but the stuff that really moves the story are the former employees. Many of them had just gotten fired for complaining internally. They were upset about what had gone on—to some degree about how the company treated them, but usually very upset about how the company had pressured them and their co-workers to mistreat their customers.

As a result of the Citigroup stuff, I got a call from a filmmaker [James Scurlock] who was working on what eventually became Maxed Out, about credit cards and student loans and all that kind of stuff. And he asked if I could go visit, and in some cases revisit, some of the people I had interviewed and he would follow me with a camera. So I did sessions in rural Mississippi, Brooklyn and Queens, and Pittsburg. Again and again you would hear people talk about these bad loans they got. But also about stress. I remember a guy in Brooklyn, not too far from where I live now, who paused and said something along the lines of: ‘You know I’m not proud of this, but I have to say I really considered killing myself.’ Again and again people talked about how bad they felt about having gotten into these situations. It was powerful and eye-opening. They didn’t understand, in many cases, that they’d been taken in by very skillful salesmen who manipulated them into taking out loans that were bad for them.

If one person tells you that story, you say okay, well maybe it’s true, but you don’t know. But you’ve got a woman in San Francisco saying, “I was lied to and here’s how they lied to me,” and then you’ve got a loan officer for the same company in suburban Kansas saying, “This is what we did to people.” And then you have another loan officer in Florida and another borrower in another state. You start to see the pattern.

People always want some great statistic [proving systemic fraud], but it’s really, really hard to do that. And statistics data doesn’t always tell us what happened. If you looked at some of the big numbers during the mortgage boom, it would look like everything was fine because of the fact that they refinanced people over and over again. So essentially a lot of what was happening was very Ponzi-like—pushing down the road the problems and hiding what was going on. But I was not talking to analysts. I was not talking to high-level corporate executives. I was not talking to experts. I was talking to the lowest level people in the industry— loan officers, branch managers. I was talking to borrowers. And I was doing it across the country and doing it in large numbers. And when you actually did the shoe-leather reporting, you came up with a very different picture than the PR spin you were getting at the high level.

One day Rich Lord [who had just published the muckraking book, American Nightmare: Predatory Lending and the Foreclosure of the American Dream, Common Courage Press, 2004) and I went to his house. We were sitting in his study. Rich had spent a lot of time writing about Household [International, parent of Household Finance], and I had spent a lot of time writing about Citigroup. Household had been number one in subprime, and then CitiFinancial/Citigroup was number one. This was in the fall of 2004. We asked, well, who’s next? Rich suggested Ameriquest.

I went back home to Roanoke and got on the PACER—computerized court records—system and started looking up Ameriquest cases, and found lots of borrower suits and ex-employee suits. There was one in particular, which basically said that the guy had been fired because he had complained that Ameriquest business ethics were terrible. I just found the guy in the Kansas City phone book and called him up, and he told me a really compelling story. One of the things that really stuck out is, he said to me, “Have you ever seen the movie Boiler Room [2000, about an unethical pump-and-dump brokerage firm]?”

By the time I had roughly ten former employees, most of them willing to be on the record, I thought: this is a really good story, this is important. In a sense I feel like I helped them become whistleblowers because they had no idea how to blow the whistle or what to do. And Ameriquest at that point was on its way to being the largest subprime lender. So, I started trying to pitch the story. While I had a full-time gig at the Roanoke Times, for me the most important thing was finding the right place to place it.

The Los Angeles Times liked the story and teamed me with Scott Reckard, and we worked through much of the fall of 2004 and early 2005. We had thirty or so former employees, almost all of them basically saying that they had seen improper, illegal, fraudulent practices, some of whom acknowledged that they’d done it themselves: bait-and-switch salesmanship, inflating people’s incomes on their loan applications, and inflating appraisals. Or they were cutting and pasting W2s or faking a tax return. It was called the “art department”—blatant forgery, doctoring the documents. You know, it was pretty eye-opening stuff. One of the best details was that many people said they showed Boiler Room—as a training tape! And the other important thing about the story was that Ameriquest was being held up by politicians, and even by the media, as the gold standard—the company cleaning up the industry, reversing age-old bad practices in this market. To me, theirs was partly a story of the triumph of public relations.

Leaving Roanoke

I’d been in Roanoke almost 20 years as a reporter, and so, what’s the next step? I resigned from the Roanoke Times and for most of 2005 I was freelancing fulltime. I made virtually no money that year, but by working on the Ameriquest story, it helped me move to the next thing. I interviewed with The Wall Street Journal [and was hired to cover the bond market]. Of course I came in pitching mortgage-backed securities as a great story. I could have said it with more urgency in the proposal, but I didn’t want to come off as like an advocate, or half-cocked.

Daily bond market coverage is their bread-and-butter, and it’s something that needs to be done. And I tried to do the best I could on it. But I definitely felt a little bit like a point guard playing small forward. I was doing what I could for the team but I was not playing in a position where my talents and my skills were being used to the highest.

I wanted to do a documentary. I wanted to do a book [which would become The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis, Times Books, 2010]. I felt like I had a lot of information, a lot of stuff that needed to be told, and an understanding that many other reporters didn’t have. And I could see a lot of the writing focused on deadbeat borrowers lying about their income, rather than how things were really happening.

Through my reporting I knew two things: I knew that there were a lot of predatory and fraudulent practices throughout the subprime industry. It wasn’t isolated pockets, it wasn’t rogue lenders, it wasn’t rogue employees. It was really endemic. And I also knew that Wall Street played a big role in this, and that Wall Street was driving or condoning and/or profiting from a lot of these practices. I understood that, basically, the subprime lenders, like Ameriquest and even like Countrywide, were really just creatures of Wall Street. Wall Street loaned these companies money; they then made loans; they off-loaded the loans to Wall Street; Wall Street then sold them [as securities to investors]. And it was just this magic circle of cash flowing. The one thing I didn’t understand was all the fancy financial alchemy—the derivatives, the swaps, that were added on to put them on steroids.

It’s clear that people inside a company, one or two or three people, could commit fraud and get away with it, on occasion, despite the best efforts of a company. But I don’t think it can happen in a widespread way when a company has basic compliance systems in place. The best way to connect the dots from the sleazy practices on the ground to people at high levels was to say, okay, they did have these compliance people in place; they had fraud investigators, loan underwriters, and compliance officers. Did they do their jobs? And if they did, what happened to them?

In late 2010, at the Center for Public Integrity, I got a tip about a whistleblower case involving someone who worked at a high level at Countrywide. This is Eileen Foster, who had been an executive vice president, the top fraud investigator at Countrywide. She was claiming before OSHA that she was fired for reporting widespread fraud, but also for trying to protect other whistleblowers within the company who were also reporting fraud at the branch level and at the regional level, all over the country. The interesting thing is that no one in the government had ever contacted her! [This became “Countrywide Protected Fraudsters by Silencing Whistleblowers, say Former Employees,” September 22 and 23, 2011, one of CPI’s best-read stories of the year; 60 Minutes followed with its own interview of Foster, in a segment called, “Prosecuting Wall Street,” December 14, 2011.] It was very exciting. We worked really hard to do follow-up stories. I did about eight stories afterward, many about General Electric, a big player in the subprime world. We found eight former mortgage unit employees who had tried to warn about abuses and whom management had shunted aside.

I just feel like there needs to be more investigative reporting in the mix, and especially more investigative reporting—of problems that are going on now, rather than post-mortems or tick-tocks about financial disasters or crashes or bankruptcies that have already happened.

And that’s hard to do. It takes a real commitment from a news organization, and it can be a high-wire thing because you’re working on these stories for a long time, and market players you’re writing about yell and scream and do some real pushback. But there needs to be more of the sort of early warning journalism. It’s part of the big tent, what a newspaper is.

America Is Not Broke

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ

“For us to admit that we have let a small group of men abscond with and hoard the bulk of the wealth that runs our economy, would mean that we’d have to accept the humiliating acknowledgment that we have indeed surrendered our precious Democracy to the moneyed elite. Wall Street, the banks and the Fortune 500 now run this Republic — and, until this past month, the rest of us have felt completely helpless, unable to find a way to do anything about it.” — Michael Moore

“400 obscenely rich people, most of whom benefited in some way from the multi-trillion dollar taxpayer “bailout” of 2008, now have more loot, stock and property than the assets of 155 million Americans combined. If you can’t bring yourself to call that a financial coup d’état, then you are simply not being honest about what you know in your heart to be true.” — Michael Moore

EDITORIAL ANALYSIS: Michael Moore GETS IT! He understands that what happened was political, not economic. It was theft and a grab for power that worked. And he understands that “we the people” in the preamble of our great  Constitution of the United States of America together with the 9th Amendment to that great instrument of human rights, that we THE PEOPLE have the right to take back both the power and the money.

AND that is because, as Thomas Jefferson said, that when in the course of human events” it becomes necessary for the people to act to break the bonds of governance and reinstate the rule of law, we have the right to do it. And in this great country we have every right and obligation to do it without changing our form of government or even resorting to violent revolution. We need only the will to take the streets because we mean it and to start voting and acting like we are in charge, to give up fear as our prime motivator and replace it with hope.

Just because Wall Street has TAKEN the money and the power doesn’t mean we are required to let them keep it. The framers of our government meant for us to correct imbalances of power, high crimes, misdemeanors and other criminal acts and to enable people to get fresh starts and to deprive freedom to those who commit sins against our humanity and our society, committing them to imprisonment, fine and forfeiture —- just like any little guy.

Michael Moore
Oscar and Emmy-winning director

 

America Is Not Broke

Speech delivered at Wisconsin Capitol in Madison, March 5, 2011
America is not broke.

Contrary to what those in power would like you to believe so that you’ll give up your pension, cut your wages, and settle for the life your great-grandparents had, America is not broke. Not by a long shot. The country is awash in wealth and cash. It’s just that it’s not in your hands. It has been transferred, in the greatest heist in history, from the workers and consumers to the banks and the portfolios of the uber-rich.

Today just 400 Americans have more wealth than half of all Americans combined.

Let me say that again. 400 obscenely rich people, most of whom benefited in some way from the multi-trillion dollar taxpayer “bailout” of 2008, now have more loot, stock and property than the assets of 155 million Americans combined. If you can’t bring yourself to call that a financial coup d’état, then you are simply not being honest about what you know in your heart to be true.

And I can see why. For us to admit that we have let a small group of men abscond with and hoard the bulk of the wealth that runs our economy, would mean that we’d have to accept the humiliating acknowledgment that we have indeed surrendered our precious Democracy to the moneyed elite. Wall Street, the banks and the Fortune 500 now run this Republic — and, until this past month, the rest of us have felt completely helpless, unable to find a way to do anything about it.

I have nothing more than a high school degree. But back when I was in school, every student had to take one semester of economics in order to graduate. And here’s what I learned: Money doesn’t grow on trees. It grows when we make things. It grows when we have good jobs with good wages that we use to buy the things we need and thus create more jobs. It grows when we provide an outstanding educational system that then grows a new generation of inventers, entrepreneurs, artists, scientists and thinkers who come up with the next great idea for the planet. And that new idea creates new jobs and that creates revenue for the state. But if those who have the most money don’t pay their fair share of taxes, the state can’t function. The schools can’t produce the best and the brightest who will go on to create those jobs. If the wealthy get to keep most of their money, we have seen what they will do with it: recklessly gamble it on crazy Wall Street schemes and crash our economy. The crash they created cost us millions of jobs.  That too caused a reduction in revenue. And the population ended up suffering because they reduced their taxes, reduced our jobs and took wealth out of the system, removing it from circulation.

The nation is not broke, my friends. Wisconsin is not broke. It’s part of the Big Lie. It’s one of the three biggest lies of the decade: America/Wisconsin is broke, Iraq has WMD, the Packers can’t win the Super Bowl without Brett Favre.

The truth is, there’s lots of money to go around. LOTS. It’s just that those in charge have diverted that wealth into a deep well that sits on their well-guarded estates. They know they have committed crimes to make this happen and they know that someday you may want to see some of that money that used to be yours. So they have bought and paid for hundreds of politicians across the country to do their bidding for them. But just in case that doesn’t work, they’ve got their gated communities, and the luxury jet is always fully fueled, the engines running, waiting for that day they hope never comes. To help prevent that day when the people demand their country back, the wealthy have done two very smart things:

1. They control the message. By owning most of the media they have expertly convinced many Americans of few means to buy their version of the American Dream and to vote for their politicians. Their version of the Dream says that you, too, might be rich some day ˆ this is America, where anything can happen if you just apply yourself! They have conveniently provided you with believable examples to show you how a poor boy can become a rich man, how the child of a single mother in Hawaii can become president, how a guy with a high school education can become a successful filmmaker. They will play these stories for you over and over again all day long so that the last thing you will want to do is upset the apple cart — because you — yes, you, too! — might be rich/president/an Oscar-winner some day! The message is clear: keep your head down, your nose to the grindstone, don’t rock the boat and be sure to vote for the party that protects the rich man that you might be some day.

2. They have created a poison pill that they know you will never want to take. It is their version of mutually assured destruction. And when they threatened to release this weapon of mass economic annihilation in September of 2008, we blinked. As the economy and the stock market went into a tailspin, and the banks were caught conducting a worldwide Ponzi scheme, Wall Street issued this threat: Either hand over trillions of dollars from the American taxpayers or we will crash this economy straight into the ground. Fork it over or it’s Goodbye savings accounts. Goodbye pensions. Goodbye United States Treasury. Goodbye jobs and homes and future. It was friggin’ awesome and it scared the shit out of everyone. “Here! Take our money! We don’t care. We’ll even print more for you! Just take it! But, please, leave our lives alone, PLEASE!”

The executives in the board rooms and hedge funds could not contain their laughter, their glee, and within three months they were writing each other huge bonus checks and marveling at how perfectly they had played a nation full of suckers. Millions lost their jobs anyway, and millions lost their homes. But there was no revolt (see #1).

Until now. On Wisconsin! Never has a Michigander been more happy to share a big, great lake with you! You have aroused the sleeping giant know as the working people of the United States of America. Right now the earth is shaking and the ground is shifting under the feet of those who are in charge. Your message has inspired people in all 50 states and that message is: WE HAVE HAD IT! We reject anyone tells us America is broke and broken. It’s just the opposite! We are rich with talent and ideas and hard work and, yes, love. Love and compassion toward those who have, through no fault of their own, ended up as the least among us. But they still crave what we all crave: Our country back! Our democracy back! Our good name back! The United States of America. NOT the Corporate States of America. The United States of America!

So how do we get this? Well, we do it with a little bit of Egypt here, a little bit of Madison there. And let us pause for a moment and remember that it was a poor man with a fruit stand in Tunisia who gave his life so that the world might focus its attention on how a government run by billionaires for billionaires is an affront to freedom and morality and humanity.

Thank you, Wisconsin. You have made people realize this was our last best chance to grab the final thread of what was left of who we are as Americans. For three weeks you have stood in the cold, slept on the floor, skipped out of town to Illinois — whatever it took, you have done it, and one thing is for certain: Madison is only the beginning. The smug rich have overplayed their hand. They couldn’t have just been content with the money they raided from the treasury. They couldn’t be satiated by simply removing millions of jobs and shipping them overseas to exploit the poor elsewhere. No, they had to have more ˆ something more than all the riches in the world. They had to have our soul. They had to strip us of our dignity. They had to shut us up and shut us down so that we could not even sit at a table with them and bargain about simple things like classroom size or bulletproof vests for everyone on the police force or letting a pilot just get a few extra hours sleep so he or she can do their job — their $19,000 a year job. That’s how much some rookie pilots on commuter airlines make, maybe even the rookie pilots flying people here to Madison. But he’s stopped trying to get better pay. All he asks is that he doesn’t have to sleep in his car between shifts at O’Hare airport. That’s how despicably low we have sunk. The wealthy couldn’t be content with just paying this man $19,000 a year. They wanted to take away his sleep. They wanted to demean and dehumanize him. After all, he’s just another slob.

And that, my friends, is Corporate America’s fatal mistake. But trying to destroy us they have given birth to a movement — a movement that is becoming a massive, nonviolent revolt across the country. We all knew there had to be a breaking point some day, and that point is upon us. Many people in the media don’t understand this. They say they were caught off guard about Egypt, never saw it coming. Now they act surprised and flummoxed about why so many hundreds of thousands have come to Madison over the last three weeks during brutal winter weather. “Why are they all standing out there in the cold? I mean there was that election in November and that was supposed to be that!

“There’s something happening here, and you don’t know what it is, do you…?”

America ain’t broke! The only thing that’s broke is the moral compass of the rulers. And we aim to fix that compass and steer the ship ourselves from now on. Never forget, as long as that Constitution of ours still stands, it’s one person, one vote, and it’s the thing the rich hate most about America — because even though they seem to hold all the money and all the cards, they begrudgingly know this one unshakeable basic fact: There are more of us than there are of them!

Madison, do not retreat.  We are with you. We will win together.

Follow Michael Moore on Twitter: MMFlint

 

Discovery Hints: Goldman Sachs may not be the only firm in SEC cross hairs

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP 5/23-24

Editor’s Notes: These lawsuits from the SEC, the Class Action lawyers etc., are already producing fall-out — dozens of articles and production of secret emails etc. that can only help your case. Follow them closely as they will inevitably lead to admissible evidence of what you can only argue generally now.Use Google and other search engines and subscribe to securitization sites.

In motion practice your credibility will be enhanced if you can refer to other cases where government agencies, attorneys general, U.S. Attorneys etc. have filed cases alleging the same thing you are alleging. To the extent that it is truthful to say so, you can point to various elements of proof that are coming out of those cases. This will vastly enhance your ability to gain the Judge’s attention — but don’t try to prove YOUR case simply on the basis that it appears to be true in OTHER cases. Use these other cases to establish your foundation for discovery requests and why they MUST come up with all the documents, ledgers, accounting and bookkeeping data, distribution reports, emails etc. related to the pool in which your particular loan is located.

Goldman Sachs may not be the only firm in SEC cross hairs

The agency’s fraud suit against the Wall Street giant may foreshadow similar cases against other financial firms and trigger a wave of private litigation.

By E. Scott Reckard, Los Angeles Times

April 22, 2010 | 3:32 p.m.

The government’s fraud lawsuit against Goldman, Sachs & Co. could portend cases against other financial giants that turned subprime mortgages into complex securities while also accelerating a surge in private litigation against Wall Street.

In announcing the Goldman case, Securities and Exchange Commission enforcement chief Robert Khuzami said the agency was looking into similar transactions at other firms. As the SEC struggles to shed its image as the snoozing securities cop that missed Bernard L. Madoff’s vast Ponzi scheme, the agency is likely to bring additional cases, said Alan Bromberg, a securities law professor at Southern Methodist University.

“The SEC has become pretty aggressive, so it’s a good bet,” Bromberg said. Goldman, he said, was probably chosen as the first target because of its prominence. “It is the biggest and by most estimates the best firm on Wall Street.”

Goldman Sachs is accused of failing to disclose that a hedge fund that helped it create complex securities had actually placed a bet that the investment would fail. Goldman has said it provided full disclosure to sophisticated investors who knew that some other knowledgeable party was betting against them.

The suit against Goldman will undoubtedly encourage similar claims by investors, said Boston University securities law expert Elizabeth Nowicki.

Private lawyers “are going to start filing these suits like they’re going out of style,” she said.

It’s not unusual for SEC cases to pave the way for private lawsuits. For example, the SEC’s announcement that it was investigating conflicts of interest by securities analysts in 2001 triggered a wave of private litigation making the same allegation.

In the case of the mortgage-linked investments known as collateralized debt obligations, a variation of which is at the heart of the Goldman Sachs case, lawyers for investors had already begun their assault.

UBS, Morgan Stanley, Merrill Lynch and Deutsche Bank face private lawsuits alleging they misled investors in CDOs or similar investments. The firms, like Goldman, have denied any wrongdoing.

“The question is whether the SEC has uncovered the tip of the iceberg,” Nowicki said.

The issue is especially important, she said, because the high-risk investments caused such huge losses for financial firms and investors around the world, magnifying the effect of the collapse of the housing and mortgage markets.

“Without these devastating transactions we would have had a regular downturn in the housing markets and not a near depression,” said Nowicki, a former SEC attorney who practiced securities law on Wall Street and has testified as an expert witness in disclosure cases.

The financial crisis has spawned hundreds of lawsuits, with the targets shifting from the lenders that made dubious home loans to the Wall Street firms that transformed mortgage bonds backed by subprime loans into supposedly solid investments, Jonathan Pickhardt, a securities-law attorney, wrote in a recent legal journal article.

The suits that deal with CDOs include allegations that some of the firms creating and marketing CDOs stuffed troubled assets into them without disclosure, especially as mortgage defaults surged in 2007; improperly influenced CDO management firms that were hired to pick assets independently; and withheld key information from credit-rating firms.

The bar of proof appears higher in CDO cases than in the SEC’s suits last year against former executives of Countrywide Financial Corp. of Calabasas and New Century Financial Corp. of Irvine, two major companies brought down by the mortgage meltdown.

That’s because the suits against the executives, including Countrywide co-founder Angelo Mozilo, accuse them of misleading individual shareholders and other members of the investing public. Mozilo and the other defendants in these cases have denied the allegations.

In contrast, the participants in the CDO transactions were, as UBS put it in statements responding to two CDO-related lawsuits, “professional and knowledgeable” banks and sophisticated investors who knew what they were buying.

Making it tougher still to prove fraud, the transactions in the SEC action against Goldman and a private suit targeting Merrill Lynch involved so-called synthetic CDOs. Such creations don’t contain actual mortgage bonds. Instead they hold insurance-like instruments tied to a portfolio of mortgage bonds. The CDOs essentially sold insurance on the bonds. Other investors bought that insurance, betting that home-loan defaults would lower the value of both the bonds and the CDOs themselves.

As a result, the structure of synthetic CDOs required outside investors to bet that the CDOs would incur losses.

For example, in a case brought by Rabobank, a large Dutch financial firm, against Merrill Lynch, now part of Bank of America Corp., the Wall Street firm said the CDO contract contained standard language obliging investors to conduct their own research on the deal and not rely on information provided by Merrill.

scott.reckard@latimes.com

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