About Those 1099 and Other Tax Filings from Servicers and Banks …

The problem for everyone involved is that in reality the investors made nothing and merely received a portion of their own money as though it had come from the trust. But it didn’t come from the trust because the trust didn’t even have a bank account. If the banks had disclosed the truth of the matter the investors would have known this is a Ponzi scheme. Imagine what would happen if someone claimed sub S treatment when the corporation they had formed did no business, had no bank account and never had any business activity, never had any assets or liabilities and never had any income or expenses.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER. HIRE AN ACCOUNTANT OR OTHER QUALIFIED TAX ANALYST

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Few people can say they understand the Internal Revenue Code (IRC), and far fewer understand the statute that gave birth to the idea of a REMIC pass through entity (REAL ESTATE MORTGAGE INVESTMENT CONDUIT). The banks lobbied heavily for this section because it left open doors that could be exploited for the benefit of banks selling the “investment products” to the huge detriment of (1) the investors who advanced money into what turned out to be a nonexistent trust, (2) borrowers who were coaxed into signing “closing” documents as though the party named on the documents was lending them money, and (3) the US Government and the taxpayers who ultimately picked up the tab for a “bailout” of banks who had lost nothing from the actual “loans” nor the “mortgage bonds” because the banks were selling them not buying them. The bailouts from the US Treasury and the Federal Reserve in reality only added to the pornographic profits made by the banks by rewarding them with payments on losses incurred by others.

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Follow the money. Because of tacit agreements with Bush and Obama administrations the IRS has been granting repeated safe harbor extensions to the banks and servicers who have filed documents that  say that a REMIC was formed. Such filings were mostly false.  The problem is that the money and the acquisitions of “loans” MUST be through the trusts in order to get pass-through treatment. Without pass-through treatment, (like a sub S corporation) the cash received by investors is taxable income — even the portion, if any, that is attributable to principal. But the banks have been telling investors that they are getting the interest payment that they signed up for — according to the Prospectus and Pooling and Servicing Agreement. What they are actually getting is their own money back from the investment they  thought they made.

[NOTE: The part attributable to principal would be taxable because the notes themselves, even if they were valid, are not the source of income to investors as far as the investors know. The source is supposedly the REMIC Trust — an entity that was created on paper but never used. In reality the source was a pool of dark money consisting entirely of investor money. But the banks and servicers are reporting to the investors that the money they are receiving is “income”from interest due from the REMIC Trust that never operated. The banks and services are obviously not reporting the cash as part of a Ponzi scheme. So the investors are paying taxes on the return of their own money. Hence the part of the payment from the “borrower” that has been designated as “principal” is reported as “interest” in reports to the investors. In reality the money from “borrowers” merely dumped into a dark pool along with all the other money received from investors.  The entire “loan closing” and subsequent foreclosures are a charade adding the judgment from a court of law that is treated as giving a stamp of approval for everything that preceded the judgment.]

The problem for everyone involved is that in reality the investors made nothing and merely received a portion of their own money as though it had come from the trust. But it didn’t come from the trust because the trust didn’t even have a bank account. If the banks had disclosed the truth of the matter the investors would have known this is a Ponzi scheme. Imagine what would happen if someone claimed sub S treatment when the corporation they had formed did no business, had no bank account and never had any business activity, never had any assets or liabilities and never had any income or expenses.

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The forms filed with the IRS are fraudulent. The 1099 issued to borrowers who avoided deficiency judgments are fraudulent because they come from entities that had no loss and never had the authority to collect or enforce. In reality if the true facts were followed there would be no taxable event for getting their own money back from their “investment.” But the way it is reported, the investors are getting “income” on which they owe taxes. The real taxes on real income should come from the banks that stole a large part of the money advanced by investors. It’s like Al Capone — in the end it was income tax that brought him down.

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Instead the investors are being taxed for interest received and are exposed to more taxes when they get money reported as “principal.” Neither the investors nor the borrowers should be paying taxes on any money or “benefit” they reportedly received (because there was no benefit). So the end result is that the banks made all the money, paid no taxes, and are taking a deduction for payments made to investors and for waivers of deficiency on loans they never owned.

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I have been telling borrowers for years to send the IRS a latter or notice in which they flatly state that the  form filed with the IRS was wrong, fraudulent and inoperative. The borrower received no benefit from the bank or servicer that filed it. Hence no tax is due. Thus far I have seen no evidence that the IRS is attempting to enforce the payment of income taxes from people who have challenged the the authenticity of the report. The IRS apparently does NOT want to be in the shoes of the banks trying to prove that the bank who filed the form owned the loan when they already know that the transaction was not actually a loan and that the “loan closing” transaction was the the result of the unauthorized and fraudulent use of investor money.

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Eventually the truth comes out. The problem for the banks is that they stole money and didn’t pay tax on their ill-gotten gains. Every time a “servicer” “recovers” “servicer advances” they are taking more money from investors because every “advance” was taken from a pool of money that consisted solely of investor cash. When they “recover” it they book it as return of capital rather than pure income which is what it really is, even if it is illegally obtained.

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If they admitted what it was then the banks would be required to pay huge sums in taxes. But they would also be facing angry investors who, upon realizing that every cent they received was their own money and not return on capital “invested” into a trust, would press claims and in many cases DID press claims and settled with the bank that defrauded them. So the banks and servicers are attempting to avoid both jail and huge sums in back taxes that would put a significant dent in the “deficit” of the U.S. government caused by the illegal and fraudulent activity of the banks.

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Securitization for Lawyers

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

The CONCEPT of securitization does not contemplate an increase in violations of lending laws passed by States or the Federal government. Far from it. The CONCEPT anticipated a decrease in risk, loss and liability for violations of TILA, RESPA or state deceptive lending laws. The assumption was that the strictly regulated stable managed funds (like pensions), insurers, and guarantors would ADD to the protections to investors as lenders and homeowners as borrowers. That it didn’t work that way is the elephant in the living room. It shows that the concept was not followed, the written instruments reveal a sneaky intent to undermine the concept. The practices of the industry violated everything — the lending laws, investment restrictions, and the securitization documents themselves. — Neil F Garfield, Livinglies.me

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“Securitization” is a word that provokes many emotional reactions ranging from hatred to frustration. Beliefs run the range from the idea that securitization is evil to the idea that it is irrelevant. Taking the “irrelevant” reaction first, I would say that comes from ignorance and frustration. To look at a stack of Documents, each executed with varying formalities, and each being facially valid and then call them all irrelevant is simply burying your head in the sand. On the other hand, calling securitization evil is equivalent to rejecting capitalism. So let’s look at securitization dispassionately.

First of all “securitization” merely refers to a concept that has been in operation for hundreds of years, perhaps thousands of years if you look into the details of commerce and investment. In our recent history it started with “joint stock companies” that financed sailing expeditions for goods and services. Instead of one person or one company taking all the risk that one ship might not come back, or come back with nothing, investors could spread their investment dollars by buying shares in a “joint stock company” that invested their money in multiple sailing ventures. So if some ship came in loaded with goods it would more than offset the ships that sunk, were pirated, or that lost their cargo. Diversifying risk produced more reliable profits and virtually eliminated the possibility of financial ruin because of the tragedies the befell a single cargo ship.

Every stock certificate or corporate or even government bond is the product of securitization. In our capitalist society, securitization is essential to attract investment capital and therefore growth. For investors it is a way of participating in the risk and rewards of companies run by officers and directors who present a believable vision of success. Investors can invest in one company alone, but most, thanks to capitalism and securitization, are able to invest in many companies and many government issued bonds. In all cases, each stock certificate or bond certificate is a “derivative” — i.e., it DERIVES ITS VALUE from the economic value of the company or government that issued that stock certificate or bond certificate.

In other words, securitization is a vehicle for diversification of investment. Instead of one “all or nothing” investment, the investors gets to spread the risk over multiple companies and governments. The investor can do this in one of two ways — either manage his own investments buying and selling stocks and bonds, or investing in one or more managed funds run by professional managers buying and selling stocks and bonds. Securitization of debt has all the elements of diversification and is essential to the free flow of commerce in a capitalistic economy.

Preview Questions:

  • What happens if the money from investors is NOT put in the company or given to the government?
  • What happens if the certificates are NOT delivered back to investors?
  • What happens if the company that issued the stock never existed or were not used as an investment vehicle as promised to investors?
  • What happens to “profits” that are reported by brokers who used investor money in ways never contemplated, expected or accepted by investors?
  • Who is accountable under laws governing the business of the IPO entity (i.e., the REMIC Trust in our context).
  • Who are the victims of misbehavior of intermediaries?
  • Who bears the risk of loss caused by misbehavior of intermediaries?
  • What are the legal questions and issues that arise when the joint stock company is essentially an instrument of fraud? (See Madoff, Drier etc. where the “business” was actually collecting money from lenders and investors which was used to pay prior investors the expected return).

In order to purchase a security deriving its value from mortgage loans, you could diversify by buying fractional shares of specific loans you like (a new and interesting business that is internet driven) or you could go the traditional route — buying fractional shares in multiple companies who are buying loans in bulk. The share certificates you get derive their value from the value of the IPO issuer of the shares (a REMIC Trust, usually). Like any company, the REMIC Trust derives its value from the value of its business. And the REMIC business derives its value from the quality of the loan originations and loan acquisitions. Fulfillment of the perceived value is derived from effective servicing and enforcement of the loans.

All investments in all companies and all government issued bonds or other securities are derivatives simply because they derive their value from something described on the certificate. With a stock certificate, the value is derived from a company whose name appears on the certificate. That tells you which company you invested your money. The number of shares tells you how many shares you get. The indenture to the stock certificate or bond certificate describes the voting rights, rights to  distributions of income, and rights to distribution of the company is sold or liquidated. But this assumes that the company or government entity actually exists and is actually doing business as described in the IPO prospectus and subscription agreement.

The basic element of value and legal rights in such instruments is that there must be a company doing business in the name of the company who is shown on the share certificates — i.e., there must be actual financial transactions by the named parties that produce value for shareholders in the IPO entity, and the holders of certificates must have a right to receive those benefits. The securitization of a company through an IPO that offers securities to investors offer one additional legal fiction that is universally enforced — limited liability. Limited liability refers to the fact that the investment is at risk (if the company or REMIC fails) but the investor can’t lose more than he or she invested.

Translated to securitization of debt, there must be a transaction that is an actual loan of money that is not merely presumed, but which is real. That loan, like a stock certificate, must describe the actual debtor and the actual creditor. An investor does not intentionally buy a share of loans that were purchased from people who did not make any loans or conduct any lending business in which they were the source of lending.

While there are provisions in the law that can make a promissory note payable to anyone who is holding it, there is no allowance for enforcing a non-existent loan except in the event that the purchaser is a “Holder in Due Course.” The HDC can enforce both the note and mortgage because he has satisfied both Article 3 and Article 9 of the Uniform Commercial Code. The Pooling and Servicing Agreements of REMIC Trusts require compliance with the UCC, and other state and federal laws regarding originating or acquiring residential mortgage loans.

In short, the PSA requires that the Trust become a Holder in Due Course in order for the Trustee of the Trust to accept the loan as part of the pool owned by the Trust on behalf of the Trust Beneficiaries who have received a “certificate” of fractional ownership in the Trust. Anything less than HDC status is unacceptable. And if you were the investor you would want nothing less. You would want loans that cannot be defended on the basis of violation of lending laws and practices.

The loan, as described in the origination documents, must actually exist. A stock certificate names the company that is doing business. The loan describes the debtor and creditor. Any failure to describe the the debtor or creditor with precision, results in a failure of the loan contract, and the documents emerging from such a “closing” are worthless. If you want to buy a share of IBM you don’t buy a share of Itty Bitty Machines, Inc., which was just recently incorporated with its assets consisting of a desk and a chair. The name on the certificate or other legal document is extremely important.

In loan documents, the only exception to the “value” proposition in the event of the absence of an actual loan is another legal fiction designed to promote the free flow of commerce. It is called “Holder in Due Course.” The loan IS enforceable in the absence of an actual loan between the parties on the loan documents, if a third party innocent purchases the loan documents for value in good faith and without knowledge of the borrower’s defense of failure of consideration (he didn’t get the loan from the creditor named on the note and mortgage).  This is a legislative decision made by virtually all states — if you sign papers, you are taking the risk that your promises will be enforced against you even if your counterpart breached the loan contract from the start. The risk falls on the maker of the note who can sue the loan originator for misusing his signature but cannot bring all potential defenses to enforcement by the Holder in Due Course.

Florida Example:

673.3021 Holder in due course.

(1) Subject to subsection (3) and s. 673.1061(4), the term “holder in due course” means the holder of an instrument if:

(a) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
(b) The holder took the instrument:

1. For value;
2. In good faith;
3. Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;
4. Without notice that the instrument contains an unauthorized signature or has been altered;
5. Without notice of any claim to the instrument described in s. 673.3061; and
6. Without notice that any party has a defense or claim in recoupment described in s. 673.3051(1).
673.3061 Claims to an instrument.A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.
This means that Except for HDC status, the maker of the note has a right to reclaim possession of the note or to rescind the transaction against any party who has no rights to claim it is a creditor or has rights to represent a creditor. The absence of a claim of HDC status tells a long story of fraud and intrigue.
673.3051 Defenses and claims in recoupment.

(1) Except as stated in subsection (2), the right to enforce the obligation of a party to pay an instrument is subject to:

(a) A defense of the obligor based on:

1. Infancy of the obligor to the extent it is a defense to a simple contract;
2. Duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor;
3. Fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms;
This means that if the “originator” did not loan the money and/or failed to perform underwriting tests for the viability of the loan, and gave the borrower false impressions about the viability of the loan, there is a Florida statutory right of rescission as well as a claim to reclaim the closing documents before they get into the hands of an innocent purchaser for value in good faith with no knowledge of the borrower’s defenses.

 

In the securitization of loans, the object has been to create entities with preferred tax status that are remote from the origination or purchase of the loan transactions. In other words, the REMIC Trusts are intended to be Holders in Due Course. The business of the REMIC Trust is to originate or acquire loans by payment of value, in good faith and without knowledge of the borrower’s defenses. Done correctly, appropriate market forces will apply, risks are reduced for both borrower and lenders, and benefits emerge for both sides of the single transaction between the investors who put up the money and the homeowners who received the benefit of the loan.

It is referred to as a single transaction using doctrines developed in tax law and other commercial cases. Every transaction, when you think about it, is composed of numerous actions, reactions and documents. If we treated each part as a separate transaction with no relationship to the other transactions there would be no connection between even the original lender and the borrower, much less where multiple assignments were involved. In simple terms, the single transaction doctrine basically asks one essential question — if it wasn’t for the investors putting up the money (directly or through an entity that issued an IPO) would the transaction have occurred? And the corollary is but for the borrower, would the investors have been putting up that money?  The answer is obvious in connection with mortgage loans. No business would have been conducted but for the investors advancing money and the homeowners taking it.

So neither “derivative” nor “securitization” is a dirty word. Nor is it some nefarious scheme from people from the dark side — in theory. Every REMIC Trust is the issuer in an initial public offering known as an “IPO” in investment circles. A company can do an IPO on its own where it takes the money and issues the shares or it can go through a broker who solicits investors, takes the money, delivers the money to the REMIC Trust and then delivers the Trust certificates to the investors.

Done properly, there are great benefits to everyone involved — lenders, borrowers, brokers, mortgage brokers, etc. And if “securitization” of mortgage debt had been done as described above, there would not have been a flood of money that increased prices of real property to more than twice the value of the land and buildings. Securitization of debt is meant to provide greater liquidity and lower risk to lenders based upon appropriate underwriting of each loan. Much of the investment came from stable managed funds which are strictly regulated on the risks they are allowed in managing the funds of pensioners, retirement accounts, etc.

By reducing the risk, the cost of the loans could be reduced to borrowers and the profits in creating loans would be higher. If that was what had been written in the securitization plan written by the major brokers on Wall Street, the mortgage crisis could not have happened. And if the actual practices on Wall Street had conformed at least to what they had written, the impact would have been vastly reduced. Instead, in most cases, securitization was used as the sizzle on a steak that did not exist. Investors advanced money, rating companies offered Triple AAA ratings, insurers offered insurance, guarantors guarantees loans and shares in REMIC trusts that had no possibility of achieving any value.

Today’s article was about the way the IPO securitization of residential loans was conceived and should have worked. Tomorrow we will look at the way the REMIC IPO was actually written and how the concept of securitization necessarily included layers of different companies.

Countrywide Found Guilty of Fraud, JPM Criminal Responsibility for Madoff PONZI Scheme

“The words PONZI SCHEME and FRAUD applied to the mortgage meltdown has been largely dismissed by policy makers, law enforcement and regulators. Instead we heard the terms RISKY BEHAVIOR and RECKLESSNESS. Now law enforcement has finally completed its investigation and determined that those who set the tone and culture of Wall Street were deeply involved in the Madoff PONZI scheme and were regularly committing FRAUD in the creation and sale of mortgage bonds and the underlying “DEFECTIVE” loans. The finding shows that these plans were not risky nor reckless. They were intentional and designed to deceive and cause damage to everyone relying upon their false representations. The complex plan of false claims of securitization is now being pierced making claims of “plausible deniability” RISKY and RECKLESS.

And if the loans were defective there is no reason to believe that this applies only to the loans claimed to be in default. It applies to all loans subject to false claims of securitization, false documentation for non existent transactions, and fraudulent collection practices by reporting and collecting on balances that were fraudulently stated in the first instance. At this point all loans are suspect, all loan balances stated are suspect, and all Foreclosures based on these loans were frauds upon the court, should be vacated and the homeowner reinstated to ownership of the property and possession of the property. All such loans should have the loan balance adjusted by the courts for appropriate set off in denying the borrowers the benefit of the bargain that was presented to them.

“It is now difficult to imagine a scenario where the finding of the intentional use and creation of defective mortgages will not trickle down to all mortgage litigation. The Countrywide decision is the first that expressly finds them guilty of creating defective loans. It is impossible to believe that Countrywide’s intentional acts of malfeasance won’t spread to the investment banks that used Countrywide as the aggregator of defective loans (using the proprietary desk top underwriting software for originators to get approval). The reality is coming up, front and center. And Judges who ignore the defenses of homeowners who were of course defrauded by the same defective mortgages are now on notice that bias towards the banks simply doesn’t work in the real world.” — Neil F Garfield,www.livinglies.me October 24, 2013

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By Neil F Garfield, Esq. Tallahassee, Florida October 24, 2013. If the mortgages were defective and were used fraudulently to gain illicit profits it is not possible to avoid the conclusions that homeowners are among the victims. By using false appraisals the huge banks created the illusion of rising prices. This was manipulation of market prices just as the banks were found guilty of manipulating stated market rates for interbank lending “LIBOR” and use of the manipulated pricing to trade for further benefit knowing that the reality was different. The banks have continued this pattern behavior and are still doing it, and laying fines as a cost of doing business in the manipulation and ownership of natural resources. They are a menace to all societies on the planet. The threat of that menace must be removed In the face of a clear and present danger posed by the real world knowledge that where an opportunity arises for “moral hazard” the banks will immediately use it causing further damage to government, taxpayers, consumers and investors.

None of it was disclosed or even referenced at the alleged loan closing with borrowers despite federal and state laws that require all such undisclosed profits and compensation to be disclosed or suffer the consequence of required payment to the borrower of all such undisclosed compensation. The borrowers are obviously entitled to offset for the false appraisals used by lenders to induce borrowers to accept defective loan products.

Further, borrowers have a clear right of action for treble damages for the pattern of conduct that constituted fraud as a way of doing business. In addition, borrowers can now be scene through a clear lens — that they are entitled to the benefit of the bargain that they reasonably thought they were getting. That they were deceived and coerced into accepting defective loans with undisclosed players and undisclosed compensation and undisclosed repayment terms raises the probability now that borrowers who present their case well, could well start getting punitive damages awards with regularity. It’s easy to imagine the closing argument for exemplary or punitive damages — “$10 billion wasn’t enough to stop them, $25 billion wasn’t enough to stop of them, so you, members of the jury, must decide what will get their attention without putting them out of business. You have heard evidence of the tens of billions of dollars in profits they have reported. It’s up to you to decide what will stop the banks from manipulating the marketplace, fraudulently selling defective loans to borrowers and pension funds alike with the intention of deceiving them and knowing that they would reasonably rely on their misrepresentations. You decide.”

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U.S. prepares to take action against JPMorgan over Madoff
In what would be an almost unheard of move when it comes to U.S. banks, the FBI and the U.S. attorney’s office are in talks with JPMorgan (JPM) about imposing a deferred prosecution agreement over allegations that the bank turned a blind eye to Bernie Madoff’s Ponzi scheme, the NYT reports.
Authorities would suspend criminal charges against JPMorgan but impose a fine and other concessions, and warn the bank that it will face indictments over any future misconduct.
However, the government has not decided to charge any current or former JPMorgan employees.
The report comes as the bank holds talks with various regulators over a $13B deal to settle claims about its mortgage practices.

Countrywide found guilty in U.S. mortgage suit
A federal jury has found Bank of America’s (BAC -2.1%) Countrywide unit liable for defrauding Fannie Mae (FNMA +22%) and Freddie Mac (FMCC +19.4%) by selling them thousands of defective mortgages.
The judge will determine the amount of the penalty – the U.S. has requested $848M, the gross loss to the GSEs as calculated by its expert witness.
The suit centered on Countrywide’s HSSL – High Speed Swim Lane – program instituted in August 2007, says the government, to keep the music playing as the property market was falling apart.

DOJ probes nine leading banks over sale of mortgage debt
The Department of Justice is reportedly investigating nine major banks over the sale of problematic mortgage bonds, although the probes are for civil infractions rather than criminal ones.
The banks are Bank of America (BAC), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), Morgan Stanley (MS), RBS (RBS), UBS (UBS) and Wells Fargo (WFC).
The inquiries span U.S. attorney’s offices from California to Massachusetts, and come as JPMorgan tries to reach a multi-billion dollar settlement over the issue.

PONZI SCHEMES: Liability Of Lawyers and Accountants to be Considered

“Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, (March 3, 1882 – January 18, 1949), commonly known as Charles Ponzi, was an Italian businessman and con artist in the U.S. and Canada. His aliases include Charles Ponci, Carlo and Charles P. Bianchi.[1] Born in Italy, he became known in the early 1920s as a swindler in North America for his money making scheme. Charles Ponzi promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage.[2][3] In reality, Ponzi was paying early investors using the investments of later investors. This type of scheme is now known as a “Ponzi scheme“. His scheme ran for over a year before it collapsed, costing his “investors” $20 million.” — see Wikipedia.

Editor’s Comments: The Supreme Court is going to hear a case involving a Ponzi Scheme that once upon a time was considered huge, until it was dwarfed by Madoff, which in turn was dwarfed by the Wall Street firms. The interesting thing about the original Ponzi Scheme is that it involved the promotion of false derivatives, which is exactly what happened in the mortgage meltdown.

Ponzi’s scheme was based upon the false premise that certain certificates could be purchased at one price in one place and sold at a higher price in another place because markets vary from one place to another. Had he actually believed the false premise he would have invested according to plan.

But there is no question from anyone about the fact that the plan was unworkable and Ponzi knew it. So he never invested the money and simply relied upon continuing sales of his “securities” in a private investment scheme to fund the illusion of payments as promised; as sales progressed he was able to pay investors their expected return in order to encourage additional sales and word of mouth success. When investors stopped buying the scheme quickly collapsed. Look back on the mortgage bond market. When investors stopped buying, the entire system collapsed.

Ponzi’s derivatives were fake. They were not derivatives because he never invested in the plan. He just kept the money and managed it until the scheme collapsed. The Mortgage Bond market was virtually identical to Ponzi except that it was more complex in terms of the number of moving parts. The mortgage bonds and credit default swaps were not derivative products either because the bonds never derived their value from actual mortgage loans. The “derivatives” that were allegedly exempt from securities regulation, the insurance products that were allegedly exempt from insurance regulation, were in fact not derivatives in most cases. The REMIC tranche that issued the bonds was a creature of the investment banks and the money advanced by investors never made it to the trust.

Like Ponzi the investment banks pocketed the money and then funded only what they needed to fund to give investors the false impression that their money was being invested in the manner required by the enabling documents — the Pooling and Servicing Agreement, Prospectus and the use of an Assignment and Assumption agreement that was used to cover the movement of money. Everything they did was designed to encourage the sales of additional bogus bonds. Profits were made primarily by the cloud of players created by the Wall Street banks, while the losses from the inherent false premise of the “investment” plan fell to investors and borrowers in “loans” that were virtual gifts to cover up the theft of principal by the banks.

Now the question before the Supreme Court is not whether the principals are liable to victims of the fake investment scheme, but whether the professionals and affiliates are liable for their negligence or fraud in helping the Ponzi scheme to progress. To put it in lay terms, the question before the court is whether an accountant or lawyer for the Ponzi scheme can be liable if they negligently or knowingly assisted in the Ponzi scheme.

The very question testifies to the state of our tolerance for misbehavior and why our current foreclosure mess has failed to yield criminal prosecutions on mass fraud. Iceland put their bankers in jail and now enjoys a growing economy and a stable banking environment. In the United States there has been nothing. The FBI has stated that 80% of mortgage fraud is committed by the banks. Yet prosecutions have only been on the other 20%.

So the question is whether a lawyer or accountant negligently or knowingly assisted in defrauding the public should be liable for their actions. To put it more simply, will that lawyer or accountant be liable for actions that we know were wrong and caused and contributed to extensive damage, and without which the scheme could not have operated. The answer seems obvious — except when you consider our awe of large schemes. The larger the scheme, the less likely is the prosecution. This in turn has resulted in the incentive for Ponzi operators to become as large as possible. In turn that means the incentive to escape prosecution requires that the scheme have massive scope and injuries.

If the Supreme Court hands down a decision favorable to investors, it will likely be that the liability extends only to private investment schemes that are not fully registered with the SEC. And if that happens then investors will be able to prove the Ponzi scheme and prove the accountants and lawyers were criminally and civilly liable.

This has everything to do with the mortgages and foreclosures. If the loans were window dressing on a Ponzi scheme instead of real loans by the originators and underwritten in accordance with industry standards, then the securities (mortgage bonds) issued from Wall Street were not derivatives. The impact travels all the way down to the closing table at which the closing agent applied money from investors held by investment banks to fund loans that were doomed to failure not only because of economic factors but also because the control over whether the loans would fail lay with the investment banks — not with the borrower, the lender investor, or anyone else.

If the loans were faked — in terms of NOT being funded in accordance with the indentures on the bonds — then clarity opens up in the mortgage mess, to wit: the loans were made from the pocket of investment banks and not the REMIC trusts. They were using investor money as their own, which is why the banks received insurance proceeds and proceeds of credit default swaps, and the proceeds of sale of the bogus mortgage bonds to the Federal Reserve.

The damage to investors occurred as a result of alleged loans. But the loans were in essence payment to or on behalf of people who believed they were borrowers when in fact they were being used in the Ponzi scheme — and had been exposed to risks that they knew nothing about because despite Federal and State law to the contrary, disclosure was withheld about the identity of the parties to the “loan” transaction, the fees paid to numerous parties, and the nature of the roles of the players that created the appearance of a loan transaction and a false chain of securitization.

The investors money was used to fund the alleged loans and fees but the documentation gave the loan to the Wall Street banks — a practice prohibited by the Truth in lending Act and the deceptive lending practices acts in many states. The point here is that the documentation — the note and mortgage — were executed in favor of a party who was a non-lendor nominee of a non-lender nominee of the investor lenders. And that is why it is nearly impossible to get a valid satisfaction of mortgage on payoff or on short-sale. The “satisfaction” is directed at a recorded instrument that is a lie, which means that the mortgage was not satisfied because it was never a perfected lien in the first place. The money currently being paid on the payoff is going to parties who were strangers to the mortgage transaction.

Thus the decision by the Supreme Court in the Stanford Case could and should have impact on the auditors and attorneys and other professionals that currently enjoy a weird sort of immunity despite their obvious wrongdoing in deceiving the public and enabling the fraud. A proper audit would have revealed that bonds on the balance sheet of the banks were in fact owned by investors and were worthless creating a potential liability that should have been reported. A proper review by the ratings agency would have identified the proposed plan as nonconforming when in fact they granted a triple A rating. These “third parties” were paid to violate the standards of their profession and they knew it. Whistle blowing memos went unheeded in all  such organizations.

The ability of investors to prove the existence of a Ponzi scheme would have huge consequences on the foreclosure procedures. The focus would properly shift from “deadbeat” borrowers to felonious tricksters. A proper ruling in the Stanford case would thus open up the possibility for direct communication between investors and borrowers, enabling settlements that would enable investors to mitigate their damages on a large scale with the help of borrowers who are still willing to sign “modifications” that would result in the recording of actual perfected mortgage encumbrances eliminating nearly all of the foreclosure docket.

Stanford Ponzi Scheme Goes to Supreme Court

Deadline Approaching, U.S. Is Weighing More Charges in Madoff

Zombie Properties: Banks Don’t Want the Money, Don’t Want the Property: They Just Want Foreclosure Sale and Deed

The borrowers are for the most part willing to straighten this mess out if approached with fair terms that reinstate their credit and reinstate or create loans that are free from the myriad of defects in the falsely claimed securitization chains. The intermediate banks don’t want that because they would be facing liability for trillions of dollars they collected through fraud, deceit and identity theft. So if things keep going the way they are going, the ultimate effect is indeed going to be that the “free house” is going to switch from the intermediate banks who have no just or legal claim to the property to the homeowner whose signature was used in ways he never agreed and would never have agreed. — Neil F Garfield, livinglies.me

With 6.6 foreclosures and an equal amount to come, given 2.5 residents per household, more than 33 million people will be displaced— paying the price for the misbehavior of the bank and having been used as innocent, ignorant pawns in a PONZI scheme that has nearly perfected the technique of PONZI schemes. — Neil F Garfield, livinglies.me

Internet Store Notice: As requested by customer service, this is to explain the use of the COMBO, Consultation and Expert Declaration. The only reason they are separate is that too many people only wanted or could only afford one or the other — all three should be purchased. The Combo is a road map for the attorney to set up his file and start drafting the appropriate pleadings. It reveals defects in the title chain and inferentially in the money chain and provides the facts relative to making specific allegations concerning securitization issues. The consultation looks at your specific case and gives the benefit of litigation support consultation and advice that I can give to lawyers but I cannot give to pro se litigants. The expert declaration is my explanation to the Court of the findings of the forensic analysis. It is rare that I am actually called as a witness apparently because the cases are settled before a hearing at which evidence is taken.
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See LivingLies Store: Reports and Analysis

 

Zombie Properties got their name from being in a state of limbo. Broadly characterized, they include first homes abandoned my misinformed homeowners who believed their home was subject to a legitimate foreclosure. Second they include properties subject to foreclosures but where the bank has put off getting the final judgment or put off the sale. And third they include properties in which the foreclosure sale has occurred but the property was abandoned by the Banks.

Not surprisingly many schemes have evolved in which the renting of these properties has been accomplished by strangers to the transaction. Knowing that the property is temporarily or permanently abandoned, people are offering “deals” to renters, collecting rents on property they don’t own. In other cases the neighborhoods have become so blighted that nobody would move in there if you gave the house to them. So Detroit, Cleveland and other cities are bull dozing tens of  thousands of homes creating farm land and park land where businesses and residential housing had been.

It seems obvious now that the Banks want that foreclosure sale and that is the end of the story. They don’t want the money (we are trying to give them the money in several cases (1000 cents on the dollar) and they are resisting, they don’t want the house (we are actually deeding the house to them without prejudice and without an agreement to avoid a deficiency judgment), They don’t want reinstatement, they don’t want redemption, and they don’t want any modification or mediation except just enough to give the public relations impression that they are trying to work things out. In most modifications, even where the modification is approved and the homeowner complied with all terms including the payments, the Bank goes ahead and forecloses anyway.

In a real mortgage situation, Banks will do almost anything to avoid foreclosure. If you review the literature on foreclosures prior to 2007 it is all based upon workouts in commercial and residential real estate. In fact “workouts” are an area of concentration for most law firms that engage in mortgage litigation whether they are on the lender side or the borrower’s side. Now now. The Bank wants the foreclosure sale and the borrower, investor who put up the funds and insurers who “covered” a “loss” and the counterparts who were covering announced losses, let them be damned.

Why do we have a pandemic of zombies and foreclosures when so many homeowners are actually eager to sign new document that would clear up the title problems caused by MERS, improper disclosure at closing as to who the lender was, claims of fraud, predatory lending deceptive lending etc.?

In the law we say look to the result to determine the intention. There is no doubt that the policies and procedures pursued by the banks, on loans they never owned based upon mortgage bonds that were issued by unfunded trusts, MINIMIZES the eventual monetary recovery and justifies the payment of insurance, payment of hedge contracts (CDS), and the reports to investors that there investment was lost because of foreclosures and expenses of foreclosure, leaving the Banks with the money and frequently the house too because they brought the foreclosure as a servicer without stating they were acting for a principal that had advanced the actual money for the loan.

Since the Banks are evading payment in full, evading receipt of the deed to the home, and evading workouts and modifications, the intent is clear no matter how logical the other alternatives appear to the advantage of all concerned. The intent is to get a foreclosure sale and deed on foreclosure which in most states starts a short statute of limitations ticking in which the deed on foreclosure cannot be challenged.

Of course there are possible remedies involving fraud on the court or the borrower that MIGHT change that but the foreclosure sale basically closes the book on the matter. What does this do for the banks? It ends the possibility of having to account for and pay back money received from investors, insurers, CDS counterparties, guarantors (Fannie and Freddie) and the Federal Reserve who has been buying the worthless mortgage bonds (that supposedly represent a claim of ownership over the loans) at the rate of $85 Billion per month apparently for years.

By getting a deed from a foreclosure sale, they put another layer of deniability between them, the Banks, and the parties from whom they took money on the announced failure of the loans, the bonds or the asset pools. The essential defect of the loans, that the payee and named mortgagee never loaned a dime to the borrower (unknown to the borrower) destroys the claim that the note and mortgage lien were ever perfected. This defect results in a finding of no valid mortgage, nullification of the instrument, and thus no security for the lending party — something that obviously smart Wall Street lawyers knew about but thought they could finesse — and they were right.

By having the information at hand in a title and securitization analysis, getting it explained in an Expert declaration from a credible source, and consulting with those who actually understand what happened here, the lawyer can feel confident that he is pleading and can prove that the entire transaction was a sham. Ask any professor of law who knows bills, notes, negotiable instruments, etc. If there was o underlying transaction in which value was exchanged both ways, no enforceable rights arise. There simply isn’t a transaction at all, and all the paperwork in the world isn’t going to fix that without getting a signature from the borrower — which most borrowers are willing to do if they get a fair modification based upon real values, instead of the artificially inflated values that were used for the loans.

The fact remains that virtually all loans were paid off in their entirety whether they ever went into “default” (which could not exist because the loan no longer existed), or whether they are performing loans in which hapless homeowners are paying monthly payments to a bank who does not own the loan, on a loan that either no longer exists or which has been paid down by actual payment from parties who waived subrogation, waived contribution and waived any right of action against the homeowner. If the account receivable is paid off, the banks’ claim for recovery one more time (after being paid several times over 100 cents on the dollar) in the form of a foreclosure is nothing more than looking for an official governmental action that cuts off the players who advanced the money on the same loan assets repeatedly.

Looking again to the result to determine the intent, it cannot be argued that the Banks pretended to issue mortgage bonds issued from a REMIC trust that was never funded and then did whatever they wanted to do with the trillions of dollars deposited with those investment bank for purchase of the bonds. The investors weren’t buying bonds. They were buying problems. They were, contrary to agreement with the investment bank, directly lending money to homeowners without a note or mortgage.

The actual closing procedure was a sham. The closing agent applied the money received from investors through one of the investment banks or an affiliate of the investment bank as though it was a loan from the named payee on the note and the named mortgagee on the mortgage or the named beneficiary on the deed of trust.

Thus the title, to which the investors were expecting and entitled was diverted from the investors to puppet companies who were already under contract to do what they were told — as in the Assignment and Assumption Agreement executed between the loan “originator” and the “aggregator” neither of whom advanced a dime, nor did they need to do so — the money from the investors being at hand in a commingled account at the investment bank who never followed through giving money or loans to the Trustee of the New York “Trust” thus creating a legal entity that had neither money nor assets.

The illusion is ONLY completed with an apparently legal “foreclosure sale” which creates a presumption of validity on the 6.6 million foreclosures completed thus far, and the additional latest estimate of 7 million more foreclosures). By fabricating foreclosure documents after the “trades” had been completed (i.e., the banks had received payment for the bonds and loans several times over that they never reported to the investors – but which still must be accounted for as payment to the investor because the investment banks were at all times acting as the agents of the investors).

Confused? Here is the easy way of looking at it. The Banks stole the identity of the investors and the REMIC trust by issuing the bonds into street name” but showing on end of month statements to the investors that they owned the bonds and loans. After selling the loans several times or receiving mitigating payments that were intended to reduce the loss, the loans were worthless to the Banks and now represented a liability to give all that money back because the underlying loans were fraudulent and defective and the trading profits declared by the banks was really the proceeds of theft. All the participants squeeze the last ounce of fees and profit from this PONZI scheme which was completely reliant on the continued purchase of the bogus mortgage bonds. When it was all over, they pitched the loan over the fence and said the Trust owned it but there had never been a transaction between the trust and anyone else in which the trust paid for and was delivered the loan according to the terms of the Prospectus and the Polling and Servicing Agreement.

Want it shown differently? The Banks stole the identity of the borrowers and traded on it knowing they would do anything possible to make the loan go into default and thus collect, in addition to the original money advanced by investors, insurance and other funds that paid off the loan several times over. Some enterprising Class Action lawyer who really knows what they are doing can lay claim to the vast pool of money that emerged from this scheme with the real parties in interest — the investor lenders and the homeowner borrowers taking the loss. The payment extinguishes the loan and the over payment collected by the banks is due back to the homeowner unless the investors intervene and assert claims to the pool of money that ultimately was held by firms that were at best only intermediaries and at worst (and usually) complete strangers tot he transactions with investors and complete strangers to transactions with the borrowers.

The borrowers are for the most part willing to straighten this mess out if approached with fair terms that reinstate their credit and reinstate or create loans that are free from the myriad of defects in the falsely claimed securitization chains. The intermediate banks don’t want that because they would be facing liability for trillions of dollars they collected through fraud, deceit and identity theft. So if things keep going the way they are going, the ultimate effect is indeed going to be that the “free house” is going to switch from the intermediate banks who have no just or legal claim to the property to the homeowner whose signature was used in ways he never agreed and would never have agreed.

When owners walk, ‘zombie’ homes become nuisance
http://www.usatoday.com/story/money/personalfinance/2013/09/01/foreclosed-homes-zombie-titles/2753385/

Zombie properties run rampant across Florida
http://www.housingwire.com/articles/26579-zombie-properties-run-rampant-across-florida

Jacksonville-Based EverBank to Pay $43.3 Million for Foreclosure Crimes
http://4closurefraud.org/2013/08/27/jacksonville-based-everbank-to-pay-43-3-million-for-foreclosure-crimes/

Southwest Florida riddled with underwater homeowners
http://www.housingwire.com/articles/26650-one-third-of-homeowners-in-southwest-florida-underwater

The Cautious Approach to Buying Foreclosures
http://www.realtytrac.com/content/news-and-opinion/the-cautious-approach-to-buying-foreclosures-7849

 

 

75% of the Loans and Bonds Were Based on LIES — LivingLies

Here’s the second thing that is, however, getting absolutely no press and is completely insane. So remember there are only lawyers for the lender and lawyers for the insurance company arguing to the judge. And so a bizarre version of reality emerged from all of this in which 75 percent of the time the lender lies deliberately to the insurer, lies to the people who buy the bonds. All of these people are, you know, supposedly among the most sophisticated financial players in the world. But as soon as they get to fraud in the origination, in the making of the loan, with no discussion, everybody involved assumes that it must have been the borrowers that did all the lying, not the lenders. — Transcript, Bill Black interview with Paul Jay, Senior Editor, TRNN

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

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 Note: FINALLY someone (other than me) said it — if the banks were lying at least 75% of the time to the regulators, pension funds, insurance companies, credit default swap counterparties — obviously the most sophisticated people in the world of finance — why do we suddenly turn the table over and play blame the victim when it comes to origination of the loan?

Nothing could be more obvious than that the loans were nearly all based upon layers of lies, each layer seemingly supporting or corroborating the other, despite the fact that none of it was true.

The lender wasn’t the lender. The loan came from a an undisclosed party in an table funded transaction — but here the table funding strictly prohibited the originator from touching or affecting any financial transaction at the loan closing. The wrong payee is named, the terms for repayment conflict with (1) the terms of repayment of the mortgage bond and (2) the terms of repayment arising out of the fact that the real transaction in which money exchanged hands, gave rise to borrower’s obligation to yet another undisclosed party, a non-creditor initiates the foreclosure, a non-creditor submits a credit bid, the credit bid is accepted and a complete stranger to the transaction who neither funded the original loan nor the purchase of the loan gets to evict a homeowner who is not even in default — but does not know that.

The appraisal was a lie, the viability of the loan was a lie, the stated income was a lie generated by the originator and mortgage broker, the “pick a payment” was a lie because once you owe 125% of the original loan amount through negative amortization, your loan resets to a higher interest rate based upon the amount you originally borrowed PLUS 25%.

From one end to the other the securitization of residential mortgages was a lie having no merit or substance at all. It was a PONZI scheme that was wholly dependent upon new investors buying more bogus mortgage bonds issued by REMIC “trusts” that had no trust documents, no trustor, no assets, no business, no money and no loans. Why isn’t this accepted at the origination level just as the media is perfectly willing to accept that in order to generate those sales of bogus mortgage bonds, the banks lied?

Do you want proof? When did the system collapse? When defaults reached their high? NOPE. It was when investors suddenly stopped buying the bogus mortgage bonds, the credit trading markets froze up and everyone was a trapped in a lie except the banks of course who through their “laddering” as Goldman Sachs like to call it, siphoned off trillions of dollars through Bermuda and Cayman into thousands of depository accounts and investments all over the world.

No legitimate business collapses when people stop buying their stock, yet in every PONZI scheme that is the sole reason why the house of cards collapses. Hence, the securitization was an illusion where the money was diverted FROM the REMIC and the title tot he loan was diverted FROM the REMIC and the terms of the note and bond were different, neither one being disclosed to lender or borrower.

The very idea that the banks lost money and that they needed money to ease of the credit markets was a lie. To ease up the credit markets, the banks would have had to start lending again. That was the deal with Paulson and Geithner. But they didn’t start lending, they stopped the lending they were already doing sending the world into a tailspin.

All this because of an undefined assumption and fear that if the big banks fail the whole world comes to an end. That is Bulls–t. Just look at Iceland and other countries who are not giving the banks the benefit of the doubt. They have positive GDP growth and they have easing credit, and their society is more stable than ours.

This is an interview worth reading and following:

http://truth-out.org/video/item/14484-judge-rules-against-bank-precedent-could-cost-bank-of-america-billions

Rating Agencies Finally Drawing Fire They Richly Deserve — But Will They be Prosecuted?

“The Justice Department claims that the faulty projections were not simply naïveté, but rather a deliberate effort to produce inflated, fraudulent ratings. “The complaint asserts that S.& P. staff chose not to update computer programs because the changes would have led to harsher ratings, and a potential loss of business,” (e.s.)

“I was there. It is not possible that companies like S&P, Fitch and other rating agencies didn’t know how to do securities analysis — they invented it. The S&P Book was widely used as a shorthand method of evaluating a stock or bond for decades before I arrived on Wall Street. They were known and trusted for their data and their crunching of data. It isn’t possible that they wouldn’t know that the ratings were artificially inflated. They were only concerned with collecting fees and covering their behinds with “plausible deniability.”What they gave up was the their reputation for truth and clarity. Now they can’t be trusted.

And the same goes triple for the investment banks who brought those bogus mortgage bonds to market. Wall Street is a small place. Everyone but the customers and borrowers knew what was going on and everyone knew a huge bust was coming. If they knew and the regulators knew, why did they allow it play out when the warning signs were already clear in the early 2000’s.” Neil F Garfield, www.livinglies.me

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure or to challenge whoever is taking your money every month, 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 Analysis: When you see movies like Too Big to Fail and read any of the hundreds of books published on the great recession, you must be left with a sense of outrage  and/or disappointment that our government and our major banks tacitly approved of the illegal activities undertaken by all the participants in what turned out to be a PONZI scheme covered over by a fraudulent scheme they called “Securitization.”

Despite some people raising the concern that the homeowners were hit hardest by the criminal enterprise, any concern for them vanished in the face of an invalid assumption by Hank Paulson and Ben Bernanke that the economy would fail and society would fall apart if they didn’t bail out the banks. If anything, the behavior of the banks was the equivalent of NOT bailing them out because they never honored their part of the bargain — increasing the flow of capital into the economy through loans and investments. While that understanding should have been reduced to writing, it was obvious that the banks would lend out money with extra capital infused into their balance sheet. Except they didn’t.

And the world didn’t end, but there was chaos all over the world because the banks were and continue sitting on a bounty that has not been subject to any audit or accounting.

As I expected, the rating agencies are now being sued not for negligence but for intentionally skewing the ratings knowing that stable managed funds were restricted from investing in anything but the safest securities (meaning the highest rating from a qualified rating agency). It is the same story as the appraisers of real property who were pressured into inflating and then re-inflating the prices of property whose value was left far behind. Both the rating agencies and the appraisers who participated in this illicit scheme caved in to threats from Wall Street that they would never see any business again if they didn’t “play ball.”

The very structure and the actual movement of money and documents would tip off an amateur securities analyst. Starting with the premise of securitization and an understanding of how it works (easily obtained from numerous sources) any analysis would have revealed that something was wrong. Securities analysis is not just sitting at a desk crunching numbers. It is investigation.

Any investigation at random picking apart the loan deals, the diversion of title from the REMIC trusts, the diversion of money from the investors to a mega-account in which the investors’ money was indiscriminately commingled, thus avoiding the REMICs entirely, would lead to the inevitable conclusion that even the highest rated tranches and the highest rated bonds, were a complete sham. Indeed internal memos at S&P shows that it was well understood by all — they even made up a song about it.

The analysis by the people at S&P omitted key steps so they wouldn’t be accused of knowing what was going on. It is the same as the underwriting of the loans themselves where the underwriting process was reduced to a computer platform in which the aggregator approved the loan — not he originator — and the investment banker wired the funds for the loan on behalf of the Investors, but the documents showed that it was the originator, who was not allowed to touch any of the money funded for loans, whose name was placed on the note and mortgage. Why?

Any good analyst would have and several did ask why this was done. They got back a double-speak answer that would have resulted in an unrated or low-rated mortgage bond, with a footnote that the REMICs may never have been funded and that therefore without other sources of capital they could not possibly have purchased the loans. Which means of course that the REMICs named in foreclosures over the past 5-6 years.

Some of the best analysts on Wall Street saw at a glance that this was a PONZI scheme and a fraudulent play on the word “Securitization.” Simply tracing the parties to their real function would and still will reveal that all of them were acting in nominee capacities and not as true agents of the investors or participants in the securitization scheme.

And the nominees include but are not limited to the REMIC itself, the Trustee for the REMIC, the subservicer, the Master Servicer, the Depositor, the aggregator, the originator, and the law firms, foreclosure mills and companies like LPS and DOCX who sprung up with published price sheets on fabrication of documents and forgeries of of those documents to convince a court that the foreclosure was real and valid. The whole thing was a sham.

If I saw it at a glance after being out of Wall STreet for many years, you can bet that the new financial and securities analysts at the rating agencies also saw it. Instead they buried their true analysis behind a mountain of fabricated data that in itself was a nominee for the real data and then crunched the numbers in the way that the Wall Street firms dictated.

The fact that there were algorithms that took the world’s fastest computers a full weekend to process without the ability to audit the results should have and did in fact alert many people that the bogus mortgage bonds were unratable because there was no way to confirm their assumptions or their outcome.

The government is very close, now that it is moving in on the ratings companies. They are close to revealing that this was not excessive risk taking it was excessive taking — theft — and that the rating companies should lose their status as rating companies, the officers and analysts who signed off should be prosecuted, and the receiver appointed over the assets should claw back the excessive fees paid to the ratings companies from officers of the ratings companies and, following the yellow brick road, the CEO’s of the investment banks.

We have found out, thanks to the greed and deception practiced by the banks on officers at the highest level of your government what will happen if the credit markets free up without the TARP money being used to free up those markets. It isn’t pretty but it isn’t apocalypse either. The proof is in. The mega banks should be taken down piece by piece and their function should be spread out over a wide swath of more than 7,000 community banks, credit unions and savings and loan associations — all of whom have access to the utilities at SWIFT, VISA, MasterCard, check 21, and other forms of interbank electronic funds transfer.

If the administration really wants a correction and really wants to increase confidence in the marketplaces around the world and the financial system supporting those markets, then it MUST take the harshest action possible against the people and companies who engineered this world-wide crisis. Eventually the truth will all be out for everyone to see. Which side of history do we mean to be aligned — the bank oligopoly or a capitalist, free, democratic society.

BY WILLIAM ALDEN, DealBook NY TIMES

DOCUMENTS IN S.&P. CASE SHOW ALARM Documents included in the Justice Department’s lawsuit against Standard & Poor’s provide a glimpse at the company’s inner working in the run-up to the financial crisis. “Tensions appeared to be escalating inside the firm’s headquarters in Lower Manhattan as it publicly professed that its ratings were valid, even as the home loans bundled into mortgage-backed securities, or M.B.S., were failing at accelerating rates,” Mary Williams Walsh and Ron Nixon write in DealBook. “Together, the documents show a portrait of some executives pushing to water down the firm’s rating models in the hope of preserving market share and profits, while others expressed deep concerns about the poor performance of the securities and what they saw as a lowering of standards.”

Some of the documents also showed some of the snark among the rank-and-file over the impending crisis. One analyst in March 2007 borrowed from the Talking Heads, creating new lyrics to “Burning Down the House,” according to the complaint: “Subprime is boi-ling o-ver. Bringing down the house.” In a confidential memo reproduced in the complaint, one executive said: “This market is a wildly spinning top which is going to end badly.”

At the heart of the civil case are the computer models S.&P. used to rate complex mortgage securities. The Justice Department claims that the faulty projections were not simply naïveté, but rather a deliberate effort to produce inflated, fraudulent ratings. “The complaint asserts that S.& P. staff chose not to update computer programs because the changes would have led to harsher ratings, and a potential loss of business,” Peter Eavis writes. But S.&P., which says the lawsuit is without merit, disagrees with the government’s characterization of the models. Catherine J. Mathis, an S.& P. spokeswoman, said the Justice Department had not “shown actual adjustment to the models or other changes that were not analytically justified.”

Indeed, the government faces an uphill battle in making its case that S.&P. intentionally inflated ratings. “The government will have to prove that ratings were in fact faulty, and published intentionally so as to deceive investors in the securities. In response, S.& P. could simply argue that the company was just as blinded by the financial crisis as anyone else, and that questionable e-mails are simply the work of lower-level employees who were not involved in the decision-making,” Peter J. Henning and Steven M. Davidoff write. “Even if the Justice Department can prove the agency acted to deceive investors, it still has to deal with something lawyers call reliance. In other words, did investors rely on these ratings to make their decisions?”

R.B.S APPROACHES SETTLEMENT OVER RATE-RIGGING The Royal Bank of Scotland said on Wednesday that it was in advanced discussions with authorities on both side of the Atlantic over settling accusations that it manipulated Libor. “Although the settlements remain to be agreed, R.B.S. expects they will include the payment of significant penalties as well as certain other sanctions,” the bank said.

A settlement, which could be announced as soon as Wednesday, is expected to include a penalty of about 400 million pounds, or $626 million, according to several news reports. “As part of the anticipated deal, R.B.S.’s Japanese unit is expected to plead guilty to a crime in the U.S., although the Justice Department isn’t expected to charge any individuals, according to one of the people briefed on the talks,” The Wall Street Journal writes. John Hourican, the head of R.B.S.’s investment bank, is also expected to resign, the reports said.

S&P Analyst Joked of ‘Bringing Down the House’ Ahead of Collapse
http://www.bloomberg.com/news/2013-02-05/s-p-analyst-joked-of-bringing-down-the-house-ahead-of-collapse.html

Case Details Internal Tension at S.&P. Amid Subprime Problems
http://dealbook.nytimes.com/2013/02/05/case-details-internal-tension-at-s-p-amid-subprime-problems/

Justice Sues S&P, But What Purpose are Ratings Agencies Serving Anyway?
http://business.time.com/2013/02/06/justice-sues-sp-but-what-purpose-are-ratings-agencies-serving-anyway/

S&P charged with fraud in mortgage ratings
http://www.wsws.org/en/articles/2013/02/06/rate-f06.html

Chorus of Whistles as the Blowers Get Ignored or Shutdown

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

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).

Editors Comment and Analysis: Chorus of whistles around the country and indeed around the world is going over the administration’s handling of the wrongful foreclosure claims and the outright bullying, intimidation and lying that lies at both the root of the false securitization scheme for residential mortgages and the false foreclosure review process supposedly designed to correct the problem. The plain truth, as pointed out in the article below and the Huffington Post, is that the reviews were never intended to work.

Take a step back for perspective. The news is being carefully managed by Wall Street just as Congress is being carefully manipulated by Wall Street. But for the inquiring mind, the data is right there in front of everyone and is being ignored at the peril of the future of the real estate industry which depends upon certainty that the title intended in the transaction is actually conveyed without undisclosed or “unknown” liabilities. The title companies are greasing the rails with their
“Guarantee of Title” but that doesn’t fix the corrupted title records.

We know that every study done shows collectively that

  1. Strangers to the transaction dominate the foreclosure activity — i.e.,  entities that are not injured or even involved with eh funding of the original loan or the payment of the price of the loan on assignment, endorsement or transfer of the alleged loan.
  2. In virtually ALL cases of securitization, regardless of whether the securitization started at the origination of the loan, or later, the use of nominees rather than actual parties was the rule, and the documents misrepresent both the parties and terms of repayment.
  3. The Banks are slowly prolonging the process to be able to assert the statute of limitations on criminal or civil prosecution but that wouldn’t protect them if law enforcement would dig deeper and find that there was nothing but fraud at the origination and all the way up the “Securitization” chain — all of which transactions were unsupported by consideration.
  4. We know the Banks know that they are exposed to awesome liability equaling the whole of the mortgage market from 1996 to the present. If that were not true they would be announcing settlements every day where some bank is paying hundreds of millions or billions or tens of billions of dollars “without admitting liability.”
  5. We know that in ALL foreclosures where a loan was claimed to be securitized or even where it was hidden tactically (like Chase does), the “credit bid” at auction was not submitted by an injured party. Thus the party who submitted the credit bid was not a creditor and everyone of those foreclosures — millions of them — can be and should be overturned.
  6. We know that at origination the money came from a controlled entity not of the originator but of the aggregator. The originator was not permitted to touch the money nor did the originator ever have any risk of loss. Hence the originator was a nominee with no more rights or powers than MERS. The borrower was left with the fact that he was dealing with unknown parties whose “underwriting process” was designed to get the deal done and allow the originator to proceed.
  7. We know that without the approval from the aggregator, the originator would not have announced approval of the loan. At no time did the Borrower know that they were actually dealing with Countrywide or other aggregators and that the money was coming through an entity (credit warehouse) set up by Countrywide for the origination of loans, with the caveat being that the money for funding would NOT go through the hands of the originator.
  8. We know that the mortgage liens were not perfected.
  9. We know that the note describes a transaction that never occurred — wherein the originator loaned money to the borrower. (No consideration) and that the originator never had any risk of loss.
  10. We know that the actual transaction was from an aggregate fund in which investments from multiple investors in what the investors thought were discreet accounts for each REMIC trust but where the Trust was ignored just as the requirements of state law or ignored by using nominees without disclosure of the principal on the note, mortgage or deed of trust.
  11. We know the losses on the bogus mortgage bonds were taken by the injured parties — the investors (pension funds) who put up the money.
  12. We know that the investment bank, aggregator and Master Servicer were in control of all transactions and that the subservicers were nominees for the Master Servicer whose name is kept out of litigation.
  13. We know the despite the loss hitting the investors because it was after all their money that funded this PONZI scheme, it was the banks who were allowed to take the insurance, proceeds of credit default swaps and federal bailouts leaving the investors twisting in the wind.
  14. We know that the investment bank, Master Servicer and aggregators were in privity, owed duties and were agents of the investors when they received the insurance and bailout money.
  15. We know that the banks kept the money from insurance and bailouts instead of paying the investors and reducing the balance due to the investors.

We know all these things, and much more, with whistle-blowers stepping up every day. The day of reckoning is coming and the announcement of BofA about another hidden earnings hit is only 2-3% of the actual number as shown on their own statements and probably more like 1/10 % of their real liability.

The term “Zombie” is being used to describe many features of our financial landscape. Truth be told it ought to be used to describe our entire financial system. If the actual corrections were made in accordance with existing law and existing equitable doctrines applied in hundreds of millions of other individual cases, we would be working on plans to wind down the mega banks, wind down household debt, falsified by the banks, and wind down the efforts to derail appropriate lawsuits by real injured parties.

The more you understand about what REALLY happened, the more you will see the opportunity for relief. I can report to you that I am receiving daily reports of multiple cases in which the borrower is winning motions. Even a year ago that was unthinkable.

The Judges are starting to catch on and some lawyers are realizing that this is just like any other case — their client is subject to enforcement of an alleged debt or foreclosure action and their answer is to deny the allegations, the documents and make them prove up their status as injured party on a perfected mortgage lien securing the promises on a valid note for a debt created by actual payment of the named party to the borrower.

The assumption by Judges and lawyers that there wouldn’t be a foreclosure if the facts didn’t support it is going down fast. Judges are realizing that title is being corrupted by bad presentations made by pro se litigants and many lawyers in which they admit the essential elements of the foreclosure and then try to get relief. Deny and Discover covers that. Deny anything you can deny as long as you have no reason to believe it to be true beyond a reasonable doubt. Let them, force them to prove their case. They can’t. If you press discovery you will be able to show that to be true.  File counter motions for summary judgment with your own affidavits and attack the affidavits of the other side in support of their motions.

More Whistleblower Leaks on Foreclosure Settlement Show Both Suppression of Evidence and Gross Incompetence

No wonder the Fed and the OCC snubbed a request by Darryl Issa and Elijah Cummings to review the foreclosure fraud settlement before it was finalized early last week. What had leaked out while the Potemkin borrower reviews were underway showed them to be a sham, as we detailed at length in an earlier post. But even so, what actually took place was even worse than hardened cynics had imagined.

We are going to be reporting on this story in detail, since we are conducting an in-depth investigation. But this initial report by Huffington Post gives a window on a good deal of the dubious practices that took place during the foreclosure reviews. I strongly suggest you read the piece in full; there is a lot of nasty stuff on view.

There are some issues that are highlighted in the piece, others that are implication that get somewhat lost in the considerable detail. The first, as stressed by Sheila Bair and other observers, is that the reviews were never designed to succeed. This is something we and others pointed out; this was all an exercise in show. The OCC had entered into these consent orders in the first place with the aim of derailing the 50 state attorney general settlement negotiations. This was all intended to be diversionary, but to make it look like it had some teeth, borrowers who were foreclosed on in 2009 and 2010 who thought they were harmed were allowed to request a review. If harm was found, they could get as much as $15,000 plus their home back if they had suffered a wrongful foreclosure, or if they home had already been sold, $125,000 plus any equity in the home. Needless to say, the forms were written at the second grade college level, making them hard to answer. A whistleblower for Wells Fargo reported that of 10,000 letters, harm was found in none because the responses were interpreted in such a way as to deny harm (for instance, if the borrower did not provide dates of certain incidents, those details were omitted from the assessment).

But the results were even worse than that, hard as it is to believe. For instance, even though the OCC stipulated that the banks hire supposedly independent reviewers, they were firmly in control of the process. From the article, describing the process at Bank of America, where a regulatory advisory firm Promontory was supposed to be in charge:

Bank of America contractors were reviewing Bank of America loans at a Bank of America facility under the management of full-time Bank of America employees. They were reporting those results to Promontory, the outside independent consultant, whose employees started their reviews based on what Bank of America contractors had concluded.

As the auditor, Promontory had authority to overrule any conclusion drawn by a Bank of America contractor. Promontory has defended its work as independent from influence by Bank of America. But the Bank of America contractors said it was clear to them that what they noted during their reviews was integral to the process. They continued to do substantive, evaluative review work until a few months ago, they said, when they were told that their job going forward was simply to dig up documents for Promontory.

Of course, Promontory protests that it was in charge. It is hard to take that seriously when no one from Promontory was on premises. And the proof is that the Bank of America staff suppressed the provision of information:

Another contract employee recounted the time he noted in a file that he couldn’t find vital documents, such as notice supposedly sent to a homeowner that a foreclosure was pending. “Change your answer,” he said he was told on several occasions by his manager.

Second is that the OCC was changing the goalposts as the reviews were underway. But was that due to OCC waffling or pushback by the consultants acting in the interest of the banks to derail the process by making the results inconsistent over time? If you do the first month of reviews under one set of rules and then get significant changes in month two, that implies you have to revise or redo the work in month one. That serves the consultants just fine, their bills explode. And the banks get to bitch that the reviews are costing too much, which gives them (and the OCC) a pretext for shutting them down, which is prefect, since they were all intended to be a PR rather than a substantive exercise from the outset.

Consider this section:

From the the consultants’ point of view, it was the government regulators who had some explaining to do. First there was the constant change in guidance, throughout at least the first eight months of the process, as to what they wanted the auditors to do and how they wanted them to do it, they said. The back-and-forth was so constant, one of the consultants involved with the process said that specific guidelines for determining if a mortgage borrower had been harmed by certain kinds of foreclosure fraud still weren’t in place as late as November 2012.

Huh? Tell me how hard it is to determine harm. If a borrower was charged fees not permitted by statue or the loan documents, there was harm. If the fees were in excess of costs (not permitted) there was harm. If the fees were applied in the wrong order, there was harm. If a borrower was put into a mod, made the payments as required in the mod agreement, but they weren’t applied properly and they were foreclosed on despite following bank instructions, there was harm. Honestly, there are relatively few cases where there is ambiguity unless you are actively trying to throw a wrench in the process, and it is not hard to surmise that is exactly what was happening. That is not to say there might not have been ambiguity on the OCC side, but it is not hard to surmise that this was contractor/bank looking to create outs, not any real underlying problem of understanding harm v. not harm.

It looks that some of the costly process changes were also due to the consultants being caught out as being in cahoots with their clients rather than operating independently:

The role of the Bank of America contract employees did not change to simply doing support work for Promontory until near the end of last year. That happened after ProPublica reported that Promontory’s employees were checking over Bank of America’s work, rather than conducting a fully independent review.

Finally, the article mentions (but does not dwell on) the fact that there was considerable evidence of borrower harm:

The reviewer said she found some kind of bogus fee in every file she looked at, ranging from a few dollars to a few thousand dollars. Another who looked for errors that violated state statutes estimated that 30 to 40 percent of loan files contained mistakes.

One reviewer who provided a comment that we elevated into a post was far more specific:

…in one case I reviewed the borrower paid approximately 25K to reinstate his mortgage. Then he began to make his mortgage payments as agreed. Each time he made a payment the payment was sent back stating he had to be current for the bank to accept a payment. He made three payments and each time the response was the same. Each time he wrote and called stating he had sent in the $25K to reinstate the loan and had the canceled check to prove it. After several months the bank realized that they had put the 25K in the wrong account. At that time that notified him that they were crediting his account, but because of the delay in receiving the reinstatement funds into the proper account he owed them more interest on the monies, late fees for the payments that had been returned and not credited and he was again in default for failing to continue making his payment. The bank foreclosed when he refused to pay additional interest and late fees for the banks error. I was told that I shouldn’t show that as harm because he did quit making his payments. I refused to do that.

There was another instance when there was no evidence that the bank had properly published the notice of sale in the newspaper as required by law. The argument the bank made when it was listed as harm to the borrower was “here is the foreclosure sale deed, obviously we followed proper procedure, and you should change your answer as to harm.”

Often there is no evidence of a borrower being sent a proper notice of intent to accelerate the mortgage. When these issues are noted in a file we are told to ignore them and transfer those files to a “special team” set up to handle that kind of situation. You choose whatever meaning you like for that scenario.

To add insult to injury, the settlement fiasco was shut down abruptly without the OCC and the Fed coming with a method for compensating borrowers. So the records have been left in chaos. That pretty much guarantees that any payments will be token amounts spread across large number of borrowers, which insures that borrowers that suffered serious damage, such as the case cited above, where the bank effectively extorted an extra $25,000 from a borrower before foreclosing on him, will get a token payment, at most $8,000 but more likely around $2,000. Oh, and you can be sure that the banks will want a release from private claims as a condition of accepting payment. $2,000 for a release of liability is a screaming deal, and it was almost certainly the main objective of this exercise from the outset. Nicely played indeed.

Read more at http://www.nakedcapitalism.com/2013/01/more-whistleblower-leaks-on-foreclosure-settlement-show-both-suppression-of-evidence-and-gross-incompetence.html#m7aM5FACevivJMRf.99

Media Still Taking Their Queues from Wall Street

CHECK OUT OUR DECEMBER SPECIAL!

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).

Editor’s Comment: If you read the mainstream media instead of the actual complaints being filed by agencies and consumers, you get the message that it is foreclosures that are dragging the economy down because of how slow they are in judicial states. They present a compelling case consisting of half truths about diminishing property values, lower lending, overwhelming servicer capacity, resistance to modifications, and delays in the “inevitable” foreclosure caused by judicial backlog.

The message is clear — let’s get this over with and move on with our economic recovery. With consumer purchasing weakening and the threat of huge lawsuits against the banks that caused this mess, the spin is that if we just forget about the whole mess, everyone would be better off.

My message is that the foreclosure mess is the result of compounded fraud, Ponzi schemes and unethical behavior by the Wall Street banks — and that the victims of that fraud deserve restitution just like any other fraud case.

Those victims include almost every part of the economy but the focus is on investors (pension funds providing lifeblood to people on fixed incomes) and homeowners who were coerced, enticed and deceived by the values used at their loan closing certified by appraisers who under threat of coercion (never working again) gave the banks the values as instructed.

Both sides of the transactions — the investors who loaned their money and the homeowners who borrowed money were deceived and economically devastated by the same lies and false documentation created to give the appearance of a proper mortgage-backed bond, a proper mortgage and then a proper foreclosure.

None of it was true. The bets were made against those mortgages because the banks knew the loans were bad and that even if they were not bad, they had unconditional power (through the Master Servicer) to declare that the “pool” was impaired. The fact that the pool was never funded and never received any of the loans escaped the attention of most people.

Neither the investors nor the homeowners ever had a chance. And the “burden” now placed on the banks of coughing up hundreds of billions (trillions) of dollars for their fraudulent behavior is said to endanger our economy. My message is that the economy, the dollar and our standing in the world is far more endangered by letting it be known that if your fraud is big enough you will never be prosecuted. It creates an uncertainty in the marketplace where trust and reliance on such checks and balances as appraisers and rating agencies is used as a principal measure as to whether to get involved in a deal.

If the banks were using the investor (pension) money, why did the banks get the bailout and other  forms of relief totaling more than all the mortgage loans put together, whether “in default” or or completely current in payments? Why didn’t that money go to the investors and the resulting credit inure to the borrowers whose loans were improperly priced by fraudulent and deceptive means?

My message is that the economy will recover far more quickly when people recognize that the government and the judicial system requires that everyone play by the same rules. If you have a case, then prove it. That is why I keep harping on Deny and Discover as the principal strategy for foreclosure and mortgage litigation.

The facts are that most of the loans were bad — defective as to who they named as payee on a loan the borrower never received, and defective as to the principal due based upon fraudulent appraisals. The borrowers received loans from third parties in table funded loans that were not only not disclosed, they were hidden from the borrower and the source of the loan money, the investors (pension funds).

The loans that were funded were undocumented intentionally because the banks wanted a window of time within which they could claim the loans were the asset of the bank instead of the investors. The documentation enabled the banks to pretend to be the lender and therefore reap the benefits of large bets against loans that increasingly were doomed from the start. After they made their money they pitched the loans, contrary to the express terms of the Pooling and Servicing Agreement, over the fence and told the investors that THEY had lost money while the banks had made trillions of dollars.

The reason why foreclosures proceed more slowly through those states requiring a judicial process is that the banks don’t have the goods. Most of the loans were never funded by the party whose name was placed on the note and mortgage. And it is no different but easier to circumvent in the non-judicial states.

The borrowers, completely ignorant of what was done to them at closing and completely ignorant of the trillions paid on the loan liability and received by the banks assume that they owe the amount demanded by the bank — when in fact the overpayment received by the banks as agent for the investors might well be an overpayment that is due back to the borrower after the investor is paid.

The only reason things that gone so far astray is that the bank strategy is working — blame the borrower and admit to some negligence and some paperwork problems. But forgery, robo-signing, powers of attorney, false endorsements, false beneficiaries, false substitutions of trustees and false affidavits are not “paperwork problems.”

False documents would not be necessary if the loans were real secured loans in a real fair and free market. If the investors and borrowers knew what was really being done with the documents and the money, they never would have entered the deal in the first place.

These are crimes that should be prosecuted. THEN the economy will recover when restitution is given to investors and homeowners, the banks assets are written down to true market value (excluding loans they never funded or purchased).

PRACTICE TIP: Attack the lien first without regard to the outstanding obligation to avoid appearing that you are seeking a “free house.”

Don’t limit your Discovery to the Subservicer. You are only getting a small slice of the pie of the information that way. Demand the same discovery from the Master Servicer and the “Trustee” of the “trust.”

Only the Master Servicer has access to information regarding third party payments. And only the Investment Banker (the brokerage that sold the bogus mortgage bonds) can account for the bets they made using insurance and credit default swaps.

And don’t forget to ask the Trustee why the “trust” was not administered through their trust division or trust subsidiary. You might well find that that no trust account was ever created for the trust and that the “trustee” did not administer the affairs of the trust because there was nothing to administer and the trustee’s powers are claimed by Deutsch, Mellon, and U.S. Bank to actually be that of agent rather than trustee with fiduciary responsibility — when it comes time to assess damages against the losing pretender lender.

Upshot of the Foreclosure Backlog

More Bailouts Coming

What’s the Next Step? Consult with Neil Garfield

CHECK OUT OUR NOVEMBER SPECIAL

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).

Editor’s Comment: Ignoring the obvious, Federal Agencies and the Courts are compounding the problems caused by the sham securitization scheme that covered up the largest PONZI scheme in history. And the taxpayers are paying for it. Investors are losing money and homeowners are losing money and their homes as the plain fact of defects in the origination documents are ignored, except when it comes to agencies and institutions suing each other, all alleging the same thing — the documents are unenforceable.

This isn’t just a paperwork problem, which is why I keep saying that while the UCC arguments have merit they are not dispositive of the real issues. The paperwork is bad because banks intentionally created a scheme that they never would have accepted from borrowers — using layers and ladders of corporate veils to hide the real parties in interest.

They diverted the investor money into their own piggy banks and they diverted the origination documents from the investors because they had plans for that paperwork — plans that required them to be able to “prove” they owned the loan and therefore could trade the loans, sell them, hedge them, insure them and even take Federal bailouts because of “defaults” on loans the mega banks never made nor purchased.

Now the FHA is going to need extra money to make good on guarantees on toxic documents that are not necessarily bad loans but were insured at the mortgage bond level. The banks are getting paid over and over again as they laugh all the way to their accounts in the Cayman Islands.

But it doesn’t end there. The investors were mostly managed funds for retirement including vested pension funds that in some cases have reduced the assets held by the fund so drastically that they have already declared themselves “underfunded” which is another way of saying they are insolvent. Some are insured and some are not. But either way, if pensioners and retirees are going to get the income they counted on in retirement the funds are going to need money. And there is no place to get it except from the Federal government.

The accounting for the loans excludes any information from the Master Servicer (the only party with ALL the information about the loan and the money and the documents) and specifically the third party payoffs received by the banks who at all times were, whether they like it or not, acting as agents of the investors. The money the banks made belongs to the investors — the managed retirement funds; but they are not getting it except if they sue for fraudulent representations made at the time of the sale of the bogus “mortgage-backed” bonds.

If the investors did get their share of the money that was paid by insurance, credit default swaps, other hedges and federal bailout, they would not have lost nearly as much as they did in the value of their assets and they probably would not be “underfunded.”

But this creates the politically unacceptable consequence of lowering the amount due on each obligation owed to the investor — a benefit that would inure to the benefit of homeowners who are one of the obligees on those debts.

Somehow we have arrived at the conclusion that it is better to reward the perpetrator of the crime rather than give restitution to the victims. Somehow we have arrived at the conclusion that the windfalls should continue going the way of the banks instead of the investors and borrowers.

Just looking at all the actions filed by agencies and institutions there is a clear consensus that the loans were bad from the start. They named the wrong (strawman) payee, they named the wrong mortgagee/beneficiary (strawman) and they never disclosed or referred to the real obligation to the investors as set forth in the mortgage bond which was the ONLY reason the investors advanced the money.

This is why I am pushing DENY AND DISCOVER  as the principal strategy to pursue coupled with discovery aimed not at the document trail but at the money trail where the would-be forecloser must show that the origination documents accurately recited the the true facts of the transaction and where the assignments were transferred for “value received.” When you ask for proof of payment, wire transfer instructions, wire transfer receipts, they are completely absent in assignments and in the origination they clearly show that the loan was never funded by the party “disclosed” as the lender at closing. They never show the terms of repayment as set forth in the bond. And therefore they leave the borrower and all other people or entities with a stake in the property after that transaction in a state of limbo because there is no clear path to clear title.

Too many cases are being lost in all forums because pro se litigants and lawyers and Judges are too willing to take the word of the party in the room that they MUST be the creditor — why else would they be there? It is because in most cases they are getting a free house when they were playing with investor money and they have created the losses to the investors, the homeowners and the taxpayers.

The government should claw back the money paid to the banks and claw back the profits they made using investor money to gamble with. The accounts should be settled with the investors and then allocated to the debts of each borrower to see what balance, if any, is left. The losses will largely vanish just be applying existing law and long-standing standards of accounting and bookkeeping. The resulting balance, if  any can easily be paid off by borrowers who will again have some equity in their homes because of the vast amount of over-payments received by the banks which they paid out in bonuses to their employees for their participation and silence in the PONZI scheme. As soon as the investors stopped buying the the bogus mortgage bonds the scheme collapsed — the hallmark of every illicit scheme based not on on real business but rather the appearance of of doing business.

F.H.A. Audit Said to Show Low Reserves

By

The Federal Housing Administration’s annual report is expected to show a sharp deterioration in the agency’s financial condition, including a shortfall in reserves, the result of escalating losses on the $1.1 trillion in mortgages that it insures, according to people with knowledge of the entity’s operations.

The F.H.A., the Department of Housing and Urban Development unit that insures home mortgages, reports on its capital reserves at the end of each fiscal year and makes projections for its financial position in the coming year. If the report, due later this week, showed that the F.H.A.’s capital reserves had fallen deep into negative territory, it would be a stark reversal from projections last year that it would show a positive economic value of $9.4 billion in 2012.

Capital reserves are kept to cover future losses. Outsiders have questioned whether the agency would some day need an infusion from Treasury if its reserves are insufficient.

Alex Wohl, a spokesman for the F.H.A., said, “We’re not going to comment on it until the actuarial report comes out on Friday.”

This year, the F.H.A. has tried to improve its financial position by raising the premiums that it levies on loans and increasing its volume significantly. But those efforts may have been negated by rising loan losses, even on mortgages that it insured long after the credit crisis took hold.

More than one in six F.H.A. loans are delinquent 30 days or more, according to Edward Pinto, a resident fellow at the American Enterprise Institute who specializes in housing. Delinquencies increased by 166,000 from June 30, 2011, to September 2012, he said, a 12 percent increase. Loans insured by the F.H.A. often allow very small down payments of 3.5 percent of the purchase price.

“There’s a fundamental problem with the F.H.A.,” Mr. Pinto said. “Its loans are too risky and that has to be addressed. It’s not the legacy book that’s creating all the problems. It’s beyond that.”

Brian Chappelle, a former F.H.A. official who is now at Potomac Partners, a mortgage consulting firm, said that he had not seen the audit report but that he had been told some of the shortfall resulted from less optimistic projections for home prices than were in last year’s audit.

“In and of itself, it doesn’t mean that they’re going to need a draw from the Treasury,” he said.

At the same time, “there is no question that F.H.A. was going to suffer,” he added. “The amazing thing is that F.H.A. stayed solvent for as long as it did.”

The F.H.A. is subject to a statutory capital requirement of 2 percent of loans, or about $22 billion on its $1.1 trillion portfolio. An economic value of negative $5 billion to $10 billion would leave the F.H.A. $27 billion to $32 billion short of this statutory requirement, Mr. Pinto said. This would be the fourth consecutive year that F.H.A. has failed to meet the requirement, he added.

What’s the Next Step? Consult with Neil Garfield

CHECK OUT OUR NOVEMBER SPECIAL

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).

Editor’s Comment: Among the unsung culprits in the false securitization scheme were the developers who conspired to raise prices to unconscionably high levels and the Wall Street funding that loaned the money for construction of new residential palaces. The reason the developer did it was once again, no risk and all profit, knowing that no matter how high the price, the appraisal would be approved. And the reason why IndyMac and other fronts for Wall Street’s tsunami of money did it was the same, no risk and all profit.

So what we have going on is that a few bankers are being thrown under the bus to take the blame for “isolated”instances of malfeasance. Their defense bespeaks of the widespread nature of this crime and how it created its own context of right and wrong. Many of them are saying they were following industry standards. Here’s the rub: they are right. The problem is that the new industry standards were illegal, fraudulent and disgraceful.

So here we have three IndyMac executives — out of thousands of people who did the exact same thing they did — accused of approving unworkable loans that were never repaid because in every Ponzi scheme the result is the same: when people stop putting in new money, the scheme collapses.

The question is not why these three are being charged in a civil action. The real questions are why are they not being charged with criminal fraud, and why thousands of other individuals who engaged in identical behavior are not being charged both civilly and criminally.

Then we have an interesting question: if it was improper for these three IndyMac execs to approve bad loans to developers, why are there no charges pending for approving bad loans and misleading homeowners?

DOJ keeps saying that they did not accumulate enough evidence to prove a criminal case, which as we all know, must be proven beyond a reasonable doubt. But I say the DOJ simply went for the low-hanging fruit, intimidated by the complexity of securitization. But if they take two steps back and get their heads out of the thickets, they will see a simple Ponzi scheme that can be prosecuted easily.

Other than a criminal environment, what bank or other organization would set bonuses based upon the number of loans or the amount of money they moved? In the real world where right and wrong are inserted into the equation, bonuses, salary and employment is based upon the perception of management that an individual is contributing to a profit center. Here the bank is said to have “lost money” much of which was off set by insurance, Federal bailout and gigantic fees paid tot he bank for pretending to be a lender when they were not.

Criminal larges are way overdue against both the corporate mega banks and the titans who ran them, right down the line to anyone who had enough knowledge to realize the acts they were committing were wrong. But the money was too damn good — getting paid 4-10 times usual compensation was enough for them to keep their mouths shut — but not in all cases. Some people did quit or blow whistles. They are buried in the mounds of documents and statements taken by law enforcement all over the country.

It is not the lack of evidence that keeps the prosecutions, even the civil ones, from becoming a wave, it is the will of the people charged  with law enforcement decisions whose opinions were guided by political pressures. The Obama administration owes a better explanation of what is happening in the housing market and how it can be fixed. Without taking economists seriously on the importance of housing and prosecuting those who break the rules, the economy will continue to drag.

Japan just announced they had an annual GDP decline of 3.5%. Remember when we afraid japan’s money would take over the world? Their shrinking economy is due to the fact that they ideologically stuck to their guns and refused to stimulate the economy, protect their currency, and reign in the big money people. All they needed was a philosophy that the common man doesn’t matter. Hopefully our election which broke in favor of the democrats because of demographics, will teach a lesson — that without the success and hopes and good prospects for the common person entering the workforce, the economy can stall for decades.

FDIC seeks damages from three former IndyMac executives

Trial begins on a civil lawsuit that accuses them of negligence in approving loans that developers and home builders never repaid.

By E. Scott Reckard, Los Angeles Times

When the Federal Deposit Insurance Corp. seized Pasadena housing lender IndyMac Bank four years ago, the scene resembled the grim bank failures of the 1930s.

Panicked depositors, seeking to reclaim their money, lined up outside branches of the big savings and loan, whose collapse under the weight of soured mortgage and construction loans helped usher in the financial crisis and biggest economic downturn since the Great Depression.

As those memories fade, the government’s effort to reclaim losses stemming from the financial debacle grinds on, with one IndyMac case winding up this week before a federal jury in Los Angeles.

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The civil lawsuit seeks damages from three former IndyMac executives, accusing them of negligence in approving 23 loans that developers and home builders never repaid, costing the bank almost $170 million.

The executives approved ill-advised loans because they earned bonuses for beefing up lending to developers and builders, said Patrick J. Richard, a lawyer representing the FDIC.

“They violated their duties to the bank,” Richard said in his opening statement to the jury Tuesday. “They violated standards of safe and reasonable banking.”

The bankers deny wrongdoing, contending that they made solid business decisions, which at the time were well-considered and approved by regulators and higher-ups at IndyMac.

“This case,” defense attorney Damian J. Martinez said in his opening statement Wednesday, “is about the government evaluating these loans with 20/20 hindsight after the greatest recession we’ve had since the Depression in the 1930s.”

The defendants — Scott Van Dellen, Richard Koon and Kenneth Shellem — ran IndyMac’s Homebuilder Division, a sideline to the thrift’s main business of residential mortgage lending. Court filings show the FDIC settled its case against a fourth former executive at the builder operation, William Rothman, by agreeing to a $4.75-million settlement to be paid by IndyMac’s insurance companies.

The trial, playing out before U.S. District Judge Dale S. Fischer, highlights how federal authorities — often stymied at bringing criminal cases against major players in the financial crisis — have pursued civil damages on a number of fronts.

One high-profile example involved the Securities and Exchange Commission‘s investigation of Countrywide Financial Corp. of Calabasas. The SEC exacted a $67.5-million settlement from former Chief Executive Angelo Mozilo, who ran Countrywide as it expanded to become the nation’s largest purveyor of subprime and other high-risk mortgages.

A Justice Department probe of Mozilo had found too little evidence to support a criminal prosecution. Admitting no wrongdoing, Mozilo paid $22.5 million of the SEC settlement himself, with corporate insurance policies covering most of the balance.

On another front, federal and state prosecutors have filed a series of civil lawsuits accusing major home lenders including Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and JPMorgan Chase & Co. of fraud and recklessness that cost taxpayers and investors billions of dollars.

Taking a different approach, the FDIC suits aim to recover losses in its insurance fund, which compensates depositors when banks fail. The agency says it has authorized lawsuits against 665 insiders at 80 institutions seized during the recent crisis, with 33 suits already filed.

The IndyMac case now going to trial, filed in July 2010, was the first of those suits.

Recoveries typically are modest compared with the losses.

IndyMac’s failure cost the federal insurance fund more than $13 billion, the largest loss among the 463 banks that have failed since 2008. But the FDIC is seeking only $170 million in the suit that has gone to trial in L.A., plus $600 million in a separate suit against former IndyMac Chief Executive Michael Perry.

(Perry contends that the pending lawsuit, accusing him of negligently allowing $10 billion in dicey mortgages to pile up on IndyMac’s books, is without merit.)

The FDIC is proceeding with the IndyMac case despite a setback in its efforts to collect from IndyMac’s insurance. U.S. District Judge Gary Klausen ruled July 2 that IndyMac officer and director insurance policies at the time of its failure cannot be used to cover any damages the agency wins against former bank insiders.

An appeal of that ruling is before the U.S. 9th Circuit Court of Appeals. If the ruling stands, the FDIC could only try to recover damages by attaching the defendants’ personal assets.

The IndyMac defendants’ earnings were modest by the standards of executives running large financial firms, such as Mozilo, whose take during the housing bubble has been estimated at nearly $470 million. But their compensation — in the $500,000 annual range for Koon and Shellem and well over $1 million for Van Dellen, who headed the Homebuilder Division — merited note by the FDIC.

Richard, the lawyer making the FDIC’s opening statement, noted that Van Dellen had rejected a suggestion by Perry in July 2006, as cracks appeared in the housing markets, that IndyMac take a cautious approach in its lending to home builders.

Van Dellen replied in an email that “now is the time to pounce,” Richard told the jury. “So what was his motivation? His bonus for 2006 production was 4 1/2 times his base salary — $914,000 — tied to production” of more builder loans.

scott.reckard@latimes.com

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It’s the title, Stupid!

“What is surprising is the fresh evidence these cases are turning up of cockeyed mortgage practices, during both the boom and the bust. As these matters are adjudicated, perhaps we will finally learn whether these practices were intended or accidental.” — Gretchen Morgenson, NY Times

Editor’s Analysis: Gretchen Morgenson has latched onto the key element of the “securitization” of home loans that was faked to cover a Ponzi scheme in which the largest financial players in the world were pulling all the strings.

While the propaganda would have us believe that the situation is improving, the looming number of decisions from now alerted Judges may well produce a tidal change in the outcome of foreclosure litigation, the value of the bogus mortgage bonds which appear to be worthless from start to finish, and the balance owed on any of the debt issued under the guise of securitization.

Romney and the Republicans, taking their talking points from Wall Street are saying let’s wait until the market “bottoms out.” What people want and could have is a market where prices are going up, not “bottoming out.” Voters do not want to hear that because each year the predictions are the same: the market is finally hit bottom and is recovering, only to be bashed by news of ever-decreasing prices on homes.

The judicial system is where it all happening, albeit at the usual frustrating snails pace that the courts are known for, some of which is caused by the sheer volume through which the banks and servicers, masquerading as note holders push good-looking documents with not a single word of truth recited.

Judges are starting to realize that the issue of the identity of the creditor is important if any of these cases are going to settle or where a modification is the final result.

Under HAMP the servicers and “owners” of the mortgages are required to consider the mortgage modification proposal from borrowers. But they are not doing that, complaining that it is straining their resources and infrastructure since they are not set up for that. Whose fault is that? They took the TARP money and they agreed to modify where appropriate and even get paid for it.

The borrower is left in purgatory with no knowledge of the proper party to whom they can submit a proper proposal for modification, with principal loan r eduction or actually principal loan correction since the original appraisal was false and procured by the bank. Judges like settlements. But they can’t get it if they keep siding with the banks that the identity of the lender and the actual accounting for all money paid in or paid out of the loan receivable account is irrelevant.

The problem is MERS and the entire origination process where the rented name of a payee on the note, the rented name of the lender described in the note and mortgage, and the rented name of the mortgagee or beneficiary was used instead of the actual source of funds.

The second problem is the balance due, on which the servicers and attorneys have piled illegal fees.

The answer is the strategy of deny and discover which is being pursued by alliance partners of livinglies and the garfieldfirm.com. By the way, we are especially ready in South Florida. Call our customer service number 520-405-1688 for details on getting legal representation.

The banks and servicers are pretending that the report from the most recent sub-servicer is sufficient for the foreclosure. That has never been the case. Historically, if a lender felt it needed to foreclose it came to court with the entire loan receivable account starting with the funding and origination of the loan and continuing without breaks, up to and including the date of filing.

The banks and servicers have been steadfast in their stonewalling to prevent the homeowner from knowing the true status of their account, the true identity of the creditor, all of which can be gleaned not from the the records of the subservicer but from the records of the Master Servicer and the “Trustee” of the supposed common law trust which was “qualified” as a REMIC for tax purposes.

An accounting from the Master Servicer and Trustee would lead to the discovery of admissible evidence as to what the real creditor was owed after receipt of all payments, and who the current real creditor might be. After all, they looking for foreclosure and they are taking these properties by “credit bids” instead of paying cash at the auction. Only a creditor whose debt was secured by the mortgage or deed of trust can submit a credit bid.

The truth is that virtually all credit bids that have been submitted are invalid because they were not submitted by a secured creditor. And that leads to an even larger problem for the banks. Those “assets” they are holding on their balance sheet are not just fake, worth zero, they are also offset by a liability to those whose money was taken by the same investment banks that sold bogus mortgage bonds to the investors.

Since those sales were made through elaborate CDOs, CDS and other devices, we have known since 2007, that the reported “leverage” (using investor money) was as much as 42 times the amount of the average loan in the portfolio.

So that loan for $300,000 resulted in a 100 cents on the dollar payoff to banks who had neither funded nor purchased the loans but were representing themselves as the legal holder of the note and thus the obligation.

If the mortgage was invalid, the note was unenforceable because it wasn’t funded by the parties named on the note, and the “assignment,” or other transfer or sale of the “note” were all equally null and void, then the bank that has picked one end of the stick saying the assets on their balance sheet are real, should also have put a contingent liability on their balance sheet for as much as $12 million on the $300,000 loan.

Each time foreclosure is completed, or appears to be completed, that huge liability is wiped out arguably. Then the banks keep the $12 million, and dump the loss on the individual loan on the investors, which is usually some 50%-65% of the loan amount.

THAT is why the banks and servicers are in the business of foreclosure, not modification or settlement. They have no choice. They could owe back all that money they received. It isn’t the loss of $300,000 or some part thereof  they are worried about, it is the liability of $12 million on that loan that they are avoiding.

The political impact of this will be devastating to incumbents not in 2012 but in 2014 when the pension funds, who have already reported they are “underfunded” start slashing pension benefits, thus requiring another round of Federal Bailouts because the government so far has refused to claw back all of the money that was made by the banks and distribute it to the investors and reduce the borrowers balance owed on the “loan.”

Given the above scenario and the widespread use of nominees in lieu of real lenders and real sources of funding, it is highly probable that the title to potentially tens of millions of properties have clouds either because the foreclosure was wrongful or because the wrong party executed the satisfaction of mortgage or both.

And as stated in the previous post, this is not a gift to homeowners. They will owe tax on the elimination of the mortgages and loans because the loans were paid, not forgiven.

It is left-handed way of providing huge principal reductions because of PAYMENT (not forgiveness). With the balance paid, the borrowers must report the claim as a gain paid by co-obligors they never knew existed. With a top tax rate of 35% currently, soon to be 38%, the homeowner will have a tax obligation for no more than the tax rate applied against the balance due on the loan — the equivalent of a loan reduction of 65%-75%, which would satisfy anyone.

Modification proposals from homeowners are much higher than that. The only reason they are rejected is because each modification would transform each loan into the class of “performing” and would materially change the balance sheet of each of the mega banks with adverse consequences for the mega banks and a bonanza for the 7,000 community banks sand credit unions in this country.

But in order to determine the balance due, the accounting must be a total accounting starting from the original funding of the loan right up to the present. When Judges realize that the would-be foreclosers can’t or won’t provide that they will start making the opposite presumption — that it is the banks and servicers that are the deadbeats.

No Loan Receivable Account Exists

Everyone seems to be having trouble with winning these cases outright. I think I have discovered the problem.

Most attorneys start in the middle of things because that is how it comes to them. Basic Contracts Law, first day of law school. For an agreement to be enforceable it must have all three of the these components: offer, acceptance and consideration. You can’t have just an offer, you can’t have just an acceptance, there must be some act that the law recognizes as consideration if the offer is accepted. Absent all three there is no way for a party to enforce an agreement for which there was either no acceptance nor any consideration.

If I loan you $100, you owe me $100 whether you sign a piece of paper or not. I offered to make the loan, you agreed to accept it and pay it back. That is true and presumed to be the reasonable interpretation of any exchange of money or property — that it isn’t a gift. And ALL of that is true whether there is documentation or not.

It is equally true that if I induce you to sign the note under the promise that I will loan you the $100, we have offer and acceptance and evidence of both the offer and the acceptance. But if I don’t give you the $100, there is no consideration and the agreement is not enforceable regardless of whether it is in writing or not. In the real world, I might survive a motion to dismiss or even a motion for summary judgment, but I could never win at trial because I don’t have any evidence that the money was delivered to you in cash, check or wire transfer.

But you are still going to lose and have a judgment entered against you for the $100 if you don’t deny that you ever got the money and you probably should add for good measure that you were fraudulently induced to sign a note when I knew I wasn’t going to give you the money.

The deal signed by most borrowers lacked consideration because the money did NOT come from the party representing itself to be the lender. The offer to the borrower was not the deal that the investor-lender or even the nonexistent trust pool was promised so if could not have been offered that way — with all the securitization parties involved and all their compensation contrary to the requirements of TILA for disclosure, whose purpose is to give the borrower an opportunity to exercise choice and seek a better competing deal in the marketplace. The borrower accepted an offer that was not backed by consideration nor the intent to provide it.

Hence there was no meeting of the minds in the first instance.

If you reverse the analysis and say that it was the borrower who made the offer it gets even worse. 99% of the real applications if they contained the true facts would never have been accepted by any investor or even a bank looking for subprime profits.

Hence the basics of contracts law have not been met – — you might have the argument to say there was an offer, but there are not grounds to say there was or even would have been acceptance if the true facts were known, and the documents signed do not reflect either the offer or the acceptance by the actual investor-lender or even the pool, whose documents were routinely ignored.

The real problem of Wall Street lies in the facts not in theory. They took the money in with complete disregard to the wishes and intent and agreement of the investor lenders and then funded loans from their own accounts that were based upon false premises made both to the investor-lenders and the borrowers. It is the fact that the money came from a Wall Street account rather than an investor account that causes the confusion.

That funding was the consideration — but that was separate from the documentary chain used by the securitizers. You can’t point to consideration “over there” and say that was the consideration you gave in exchange for the note and mortgage unless you can show that “over there” was connected to the documents that were presented to the borrower and signed under false pretenses, creating fraud in the inducement and even fraud in the execution of those documents.

They were “borrowing” the consideration from “over there” and borrowing the identity of the investor-lenders and borrowers to create a monumental shrine to Ponzi schemes in which the total nominal value of the scheme exceed world fiat money by 12 times the actual supply of money. The ONLY was to combat this is to dismantle the fraudulent scheme so that the threat posed by “shadow banking” no longer exists, seizure of the assets illegally obtained, and making whatever restitution is possible to investor-lenders and homeowners, past, present and future.

They did the illegal deals and then had their own people “approve”them and even accept them into non-existing pools without bank accounts. They claimed the loans as their own when it was convenient for them to do so — getting the money for plunging values of the mortgage bonds at 100 cents on the dollar.

Then they dumped what was left of the paperwork over the fence and told the investor NOW the loan is yours and you have a loss. But at all times these banks were merely depository institutions and they were accepting deposits from investor-lenders more or less in the same form as a CD. Their balance sheet did not show a loan receivable. It would have shown a liability for the deposit that was due back to the investor-lender but for them inserting fictitious entities that would take the liability and the loss borrower. In other words a shell game supporting the usual Ponzi scheme scenario.

In a word, they merely substituted the mortgage bond owed by a non-existent entity with no assets for a normal loan receivable account. Thus no loan receivable accounts exists.

TD Bank Slammed with $67 Million in Aiding Ponzi Scheme

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Dear Lawyers Who Would Like to Make a Ton of Money:

Here is a case where the guilt and liability of the Bank (read that as Deep Pocket) was predicated upon circumstantial and direct evidence — the kind of thing that you are currently ignoring in the foreclosure fraud marketplace. This case is a reminder to you that juries will come back with huge verdicts if they are presented with the right evidence and if you don’t concede your case before you begin.

The Rothstein scheme was no better and no worse than the Wall Street securitization scheme. But he only stole $1 billion whereas Wall Street titans stole trillions of dollars plus millions of homes, so far. The only thing different was the numbers.

The specific accusation here is that TD Bank employees knew of the fraud and assisted in assuring investors their money was sound. In the Fake Securitization of home mortgages scheme, the banks and non-bank entities, as well as title companies, title agents, real estate agents, appraisers, closing agents, and pretender lenders knew of the fraud and assisted in assuring people who were buying homes and assisted in assuring people who were buying mortgage bonds that they were buying a safe “investment.”

Everybody except the borrower and the investor knew the deal was cooked, that the appraisal wasn’t real, that the ratings weren’t real and that the pool couldn’t work because the investment bank had already withdrawn more money than could ever be covered, and that the house could never sustain the value used to close the deal.

Everyone knew that the money being used to pay the investors was coming from the flow of new investments and their own money — that is everyone except the person who bought bogus mortgage bonds and the person who bought a bogus loan product.

Like the fraudulent foreclosure marketplace, the Rothstein business model used people who pretended to be bank employees — in the Bank. Sounds like robo-signing and surrogate signing, doesn’t it? And the party named in the loan origination documents as the lender was pretending to be a lender when in fact the real lender was hiding behind four layers of curtains.

Accordingly, both borrowers and investors were deceived into believing and relying upon the assurances that all industry standards of due diligence, review and confirmation were being performed when in fact they were intentionally ignored for the simple reason that the schemers needed the loans to fail and the mortgage bonds to default in order to make even more money from side-bets on the guaranteed to fail deals.

The truth was that everyone in the false securitization chain was being paid to act as though the loans were securitized in communication with the investor and were paid to act as though the loans were not securitized in communications with the borrowers.

The loans were treated as though they were securitized when it suited the investment banks who created the bogus mortgage bonds and then treated as though they were not securitized when it suited them — fabricating, forging and simulating transactions in which the loan was “Sold” without any money exchanging hands, but profits were taken out of the money due investors.

Based on those “sales” they then posed as creditor lenders in foreclosures and who submitted credit bids at the auction which was conducted by their own affiliates if it was a non-judicial state or by clerks of the court in judicial states.

Rothstein is serving a 50+ year sentence. What do you need, Mister or Madame lawyer, to get off your chair and look into this. Using standard contingency fees and applying them against the $6+ trillion stolen already, there is at least $2.4 trillion in fees waiting for you to pluck off the tree on the low hanging branches. What are you waiting for?

MIAMI –  A federal jury decided Wednesday that Toronto-based TD Bank owes an investment group $67 million for its role in a $1.2 billion Ponzi scheme that was operated by a now disbarred attorney, Scott Rothstein.

The verdict came in a lawsuit filed by Coquina Investments, based in Corpus Christi, Texas. It was the first to go to trial of several pending lawsuits filed by wronged investors against the bank and others. Coquina attorney David S. Mandel said the jury “sent exactly the right message to TD Bank.”

Once a prominent South Florida attorney, Rothstein is serving a 50-year prison sentence after pleading guilty to running a massive scam involving investments in phony legal settlements that imploded in 2009. The 49-year-old lawyer has been cooperating extensively with federal prosecutors, and more people are expected to face criminal charges; seven besides Rothstein have already been charged.

The scheme was one of the largest frauds in South Florida history and triggered the failure of the once high-flying Fort Lauderdale law firm Rothstein Rosenfeldt Adler. Rothstein has boasted about paying bribes to unnamed politicians, judges and law enforcement officials, and he raised thousands of dollars for the campaigns of many state and national politicians.

Testimony and court documents show that Rothstein used an account at a TD Bank branch as an integral part of the scheme. Conspirators in his scheme allegedly posed as TD Bank employees, and one of Rothstein’s associates devised a fake TD Bank website on which fake account balances were posted for investors.

“This bank was integral to the fraud, and the fact is that it could not have succeeded without their active participation in the Ponzi scheme,” Mandel said. “TD Bank was Rothstein’s partner in crime.”
Spokeswoman Rebecca Acevedo said TD Bank would explore its legal options and insisted the massive fraud should be blamed squarely on Rothstein.

“We will continue to defend the bank against claims of wrongdoing,” Acevedo said.

TD Bank, a subsidiary of Toronto-Dominion Bank of Canada, operates 1,280 branches in 15 states and Washington, D.C., according to the bank’s website. It had $160 billion in total deposits and $202 billion in assets as of Oct. 31.

Mandel said key TD Bank employees knew of the fraud and assisted Rothstein in assuring investors their money was sound. In a lengthy sworn deposition in December, Rothstein claimed he gave former TD Bank vice president Frank Spinosa more than $50,000 to ignore obvious signs of illegal activity.

Called to testify in the Coquina trial, Spinosa invoked his Fifth Amendment right against self-incrimination. His attorney has repeatedly denied Rothstein’s accusations, contending that Rothstein is falsely implicating other people in hopes of winning a sentence reduction recommendation from federal prosecutors.

Read more: http://www.foxnews.com/us/2012/01/18/td-bank-owes-ponzi-scheme-victims-67m-florida-jury-says/#ixzz1jqiOiE1L

 

LIQUIDATE EVERYTHING: LET THEM EAT CAKE

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EDITORIAL COMMENT: Conservatives don’t conserve anything and liberals are not liberating anyone. Regulators don’t regulate, and congress isn’t passing laws that make any sense. Policy makers are getting their orders from Wall Street instead of originating the policy decisions. 216,000 jobs were added last month to our ailing economy, but most of those jobs were in sectors where the going wage won’t pay for even basic living expenses.

They say the unemployment rate has dropped to 8.8% — which is SPIN ON STEROIDS. First you have another 8%-10% who have become so discouraged they have stopped looking for a job. Then you have the underemployed at around 10%-15%. And now, courtesy of the Wall Street spin cycle which the government is parroting, we have something I would call “soft unemployment” — which consists of people who are technically employed but not making a living wage, which looks like it is right around 7%-8%.

So altogether we have an unemployment problem of around 36%+. AND THEY CALL THAT PROGRESS. One third of our labor force is not employed when we need them employed working on an infrastructure that is seriously going to collapse with increasing frequency. Why do we need to wait until the bridges fall, the tunnels collapse, and the electricity and water get turned off?

We all know that no matter how they spin things, the housing market is still falling into an abyss, homelessness is on the rise, and employment, if you want to call it that, is at an all-time low. Half of our economy as the government reports consists of financial services, which means that half of our economy consists of trading meaningless pieces of paper as though this was actually commerce. I thought commerce was like buying a toaster or hiring someone to clean your yard. If you take away the Wall Street vapor asset levels are a small fraction of what is reported, and the level of commerce is around 52%-55% of reported GDP, which means that our debt ratio as a country is much higher because the reported $14 trillion dollar economy is really an $8 trillion economy — and going down.

There is no possibility of true economic recovery unless we get practical and face reality. One of the realities is that we can’t rely on our politicians to do anything that makes any sense. That is quite a challenge. If we don’t stop the sale of homes in fraudulent foreclosures we will be setting the stage for more of the same, and setting the example that crime pays. As the wealth of the nation goes down the toilet, Wall Street strangely is coming up with more and more assets and income —- hmmm.

Just where is all that “money” coming from — or was it there all along, was the bailout a scam rewarding Wall Street for creating the illusion of securitizing debt and thus enabling the largest PONZI scheme in the history of the world?

The Mellon Doctrine

By PAUL KRUGMAN

NY Times

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into depression. To be fair, there’s some question about whether Mellon actually said that; all we have is Hoover’s version, written many years later.

But one thing is clear: Mellon-style liquidationism is now the official doctrine of the G.O.P.

Two weeks ago, Republican staff at the Congressional Joint Economic Committee released a report, “Spend Less, Owe Less, Grow the Economy,” that argued that slashing government spending and employment in the face of a deeply depressed economy would actually create jobs. In part, they invoked the aid of the confidence fairy; more on that in a minute. But the leading argument was pure Mellon.

Here’s the report’s explanation of how layoffs would create jobs: “A smaller government work force increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.” Dropping the euphemisms, what this says is that by increasing unemployment, particularly of “educated, skilled workers” — in case you’re wondering, that mainly means schoolteachers — we can drive down wages, which would encourage hiring.

There is, if you think about it, an immediate logical problem here: Republicans are saying that job destruction leads to lower wages, which leads to job creation. But won’t this job creation lead to higher wages, which leads to job destruction, which leads to …? I need some aspirin.

Beyond that, why would lower wages promote higher employment?

There’s a fallacy of composition here: since workers at any individual company may be able to save their jobs by accepting a pay cut, you might think that we can increase overall employment by cutting everyone’s wages. But pay cuts at, say, General Motors have helped save some workers’ jobs by making G.M. more competitive with other companies whose wage costs haven’t fallen. There’s no comparable benefit when you cut everyone’s wages at the same time.

In fact, across-the-board wage cuts would almost certainly reduce, not increase, employment. Why? Because while earnings would fall, debts would not, so a general fall in wages would worsen the debt problems that are, at this point, the principal obstacle to recovery.

In short, Mellonism is as wrong now as it was fourscore years ago.

Now, liquidationism isn’t the only argument the G.O.P. report advances to support the claim that reducing employment actually creates jobs. It also invokes the confidence fairy; that is, it suggests that cuts in public spending will stimulate private spending by raising consumer and business confidence, leading to economic expansion.

Or maybe “suggests” isn’t the right word; “insinuates” may be closer to the mark. For a funny thing has happened lately to the doctrine of “expansionary austerity,” the notion that cutting government spending, even in a slump, leads to faster economic growth.

A year ago, conservatives gleefully trumpeted statistical studies supposedly showing many successful examples of expansionary austerity. Since then, however, those studies have been more or less thoroughly debunked by careful researchers, notably at the International Monetary Fund.

To their credit, the staffers who wrote that G.O.P. report were clearly aware that the evidence no longer supports their position. To their discredit, their response was to make the same old arguments, while adding weasel words to cover themselves: instead of asserting outright that spending cuts are expansionary, the report says that confidence effects of austerity “can boost G.D.P. growth.” Can under what circumstances? Boost relative to what? It doesn’t say.

Did I mention that in Britain, where the government that took power last May bought completely into the doctrine of expansionary austerity, the economy has stalled and business confidence has fallen to a two-year low? And even the government’s new, more pessimistic projections are based on the assumption that highly indebted British households will take on even more debt in the years ahead.

But never mind the lessons of history, or events unfolding across the Atlantic: Republicans are now fully committed to the doctrine that we must destroy employment in order to save it.

And Democrats are offering little pushback. The White House, in particular, has effectively surrendered in the war of ideas; it no longer even tries to make the case against sharp spending cuts in the face of high unemployment.

So that’s the state of policy debate in the world’s greatest nation: one party has embraced 80-year-old economic fallacies, while the other has lost the will to fight. And American families will pay the price.

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EDITOR’S NOTE: Moynihan is pulling out the old argument, trying to stir up people who have been paying their mortgage so he and the other mega banks won’t be required to cough up trillions of dollars they stole through fraudulent appraisals of property inducing people to get into “loan” transactions that were guaranteed to fail, which the mega banks were betting on, so they would win going both ways. They did the same thing to investors with fraudulent appraisals (ratings) inducing people to get into MBS transactions, which were guaranteed to fail, and which the mega banks were betting on, so they could win going both ways.

What he is saying is that it is too hard to explain to people who have been paying their mortgage payments why others, who were not paying their mortgage payments, are getting a break. What he means is that if they DID explain it as a clawback from a fraudulent series of transactions, millions more people, whether they were paying or not, would demand their money back too. They will realize that just because they CAN afford to take the loss on a fraudulent transaction, doesn’t mean they SHOULD take the loss any more than anyone else.

And THAT in turn would be the end of the mega banks and the grip on this country’s power structure. because it would deplete every bit of equity they have and remove them from the table of active players in banking, leaving the REST of the banking industry, consisting of over 7,000 banks and credit unions to pick up the pieces which will be remarkably easy to do, and will produce no catastrophe other than for the those who continue to benefit from a PONZI scheme that is remaining alive, morphing into the next great catastrophe.

See Simon Johnson’s extremely clear, well written analysis, with citations and back-up for everything he says and I say www.baselinescenario.com.

AND Moynihan is issuing a tacit threat: everyone who relies on dividend income and is expecting dividend income from BOA will be on the short end of the stick — kind of like the lowest people in every PONZI scheme. I’m not saying they should be punished for believing this drivel from Moynihan. In a nation of laws, however, it is no argument at all to leave “well enough alone” if it means that victims remain uncompensated because other people, possibly without knowledge of the tainted aspect of the money, will lose.  Such shareholders in the mega banks may also be victims, at least some of them, and they may have their remedies too. In the end, there won’t be enough money to go around to satisfy everyone, but one thing is for sure — in a nation of laws — the perps should do the walk, not the victims.

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

NY Times

Bank Chief Rejects Idea of Reducing Home Loans

By NELSON D. SCHWARTZ

Showing resistance for the first time against government pressure to write off tens of billions worth of mortgage debt, Bank of America executives said on Tuesday that the idea was unworkable and warned that it would be unfair to borrowers who had managed to stay current on their loans.

“There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”

All 50 state attorneys general, as well as a host of federal agencies, are pushing for a settlement over investigations into foreclosure abuses by major mortgage servicers that could cost the industry $20 billion or more. Much of that money would be earmarked to reduce principal owed by homeowners facing foreclosure.

But picking just who to help is among the thorniest questions facing government regulators, as well as the banks themselves. Even the most outspoken attorney general on the issue, Tom Miller of Iowa, acknowledged on Monday that too generous a program might encourage homeowners to walk away from properties where the value of the loan exceeded how much the underlying property was worth.

Indeed, industry experts estimate that nearly a trillion dollars worth of mortgage debt is “underwater,” a result of house prices having fallen since the original loans were made. Federal officials hope a settlement with the servicers will help individual borrowers and provide a cushion for the weak housing market.

Officials of Bank of America, the nation’s biggest mortgage servicer, argue that any effort to help troubled borrowers should not penalize borrowers who are underwater but have managed to make their monthly payments.

“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?”

“This is an unsolvable question,” he said. “It’s a very slippery slope.”

The comments by Mr. Moynihan and Mr. Laughlin came at a daylong meeting with investors and analysts in New York, the first of its kind for Bank of America since 2007.

Despite fierce criticism by regulators and political leaders that its efforts to help troubled borrowers have fallen short, Bank of America executives insist that the number of successful modifications the bank has completed is on the rise. The bank says more than 800,000 mortgages have been modified in the last three years.

Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”

Late last week, the attorneys general presented the five biggest mortgage servicers, including Bank of America, with a 27-page proposal that would drastically reshape how they deal with homeowners facing foreclosure. It did not include a specific dollar figure, but government officials say they want to combine any overhaul of the foreclosure process with a monetary settlement that could finance more modifications for troubled borrowers.

The existing modification program created by the Obama administration, known as HAMP, has helped far fewer borrowers than originally promised. It also faces fierce opposition from Republicans in the House of Representatives, who voted last week to kill the program.

Mr. Moynihan believes investors who hold trillions in mortgage securities have to be involved in any settlement. It is not exactly clear what role they would play as part of the settlement with the federal government.

Officials at Bank of America, as well as other large servicers, declined to comment on the specifics of the 27-page proposal, and the industry has been cautious about fighting back too aggressively, mindful of the tales of robo-signing and other abuses that prompted the investigation by the attorneys general and federal regulators last fall.

What’s more, consumers and politicians are keenly aware that Bank of America and other financial giants have staged a remarkable turnaround since the government bailed out the industry after the collapse of Lehman Brothers in 2008.

“I think reasonable minds will prevail on this,” Mr. Moynihan said. “We do push back and we get to reasonableness.”

Still, the comments at Tuesday’s investor meeting are a preview of the arguments the industry is poised to make more forcefully in the weeks ahead as it negotiates with the attorneys general and other regulators behind closed doors. On Monday, Mr. Miller said he hoped a settlement could be reached within two months.

As the huge volume of loan losses recedes and the economy improves, Mr. Moynihan said his company had the power to earn $35 billion to $40 billion a year. Bank of America lost $2.2 billion in 2010, weighed down by special charges and the lingering effects of the housing bust and the recession on consumers.

He also reiterated his position that the long wave of acquisitions undertaken by his predecessors was over. “I can’t stress enough to you how much of a peace dividend we’ll get without mergers,” Mr. Moynihan said. “That peace dividend is effectively a permanent dividend.” The bank intends to resume payouts to shareholders in the second half of 2011.

NO SURPRISE: MADOFF CONNECTION WITH SEC and “Mortgage Backed Bonds”

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

EDITOR’S NOTE: Well we already knew that his son was working in SEC enforcement so it should come as no surprise that the SEC attorney that was involved in payouts to victims was also involved with Madoff. In fact, it should be no surprise that hundreds of “channels” were involved on Wall Street because Madoff never made a trade. It was a PONZI scheme, but he was well connected and knew perfectly well that the GREAT SECURITIZATION SCAM in mortgage-backed bonds was also a scam.

So while the SEC and others generally like to grab people like this, and others like to blow the whistle and see the scheme fall apart, the SEC, being the recipient of a 29 page TEN YEAR OLD report prepared by one of the most knowledgeable analysts on Wall Street, did nothing. That report showed that what Madoff was saying was impossible from any angle and everyone on Wall Street knew for a fact that they had never seen or heard of a single trade from the Madoff “accounts.” Even the mega banks that had Madoff money parked in them knew they had not seen a trade and were talking and writing about it in emails and over cocktails at lunch. What Madoff didn’t realize was that powers bigger than him — and he had a lot of power — were using him as the scape goat to divert attention from their own scam. AND IT WORKED!

The plain truth is that if anyone blew the whistle on Madoff, then the entire mortgage scam would have come to a halt because Madoff would have traded his knowledge of the securitization scam for leniency or even immunity. He miscalculated, like all PONZI artists, because after 30 years he thought both his scheme and the securitization scheme would go on forever — a kind of mutually assured destruction tacit agreement existed between the mega banks and Madoff. Neither one ratted the other out even though both knew what was going on.

So now everyone is in a hurry to get the foreclosures done so we can put this nasty episode behind us, except it just won’t go away. The Banks, in control of government, are successfully arguing that if they are allowed to slowly convert this mess into another mess, the economy will be better off and that less people will be hurt. Using that logic, Madoff and all other PONZI operators should have been left alone. Ask anyone who got nicked by a PONZI scheme — they all secretly wished it could have gone a little longer so they would have gotten their money back — even though that meant that someone else’s money was “paying” them.

This is why PEOPLE need to act in the their central role as the boss of this sovereign country. It says so right in the constitution in clear unambiguous words. PEOPLE need to act, using their powers of removal, election, petitions, and referendums to take control of the government away from those who are using the current occupants of offices that pull the levers of power and put it into the hands of people who understand that if they pull the same crap, they too will fall under the axe of the real boss in this country — its voting citizens.

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NY TIMES

S.E.C. Chairwoman Under Fire Over Ethics Issues

By LOUISE STORY and GRETCHEN MORGENSON

The Securities and Exchange Commission took a beating two years ago for failing to detect Bernard L. Madoff’s multibillion-dollar Ponzi scheme during the decades that he ran it.

Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.

The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.

Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.

Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.

Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.

“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”

Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.

Mr. Becker did not return a call for comment.

In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.

“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.

Congressional investigators want to know if Mr. Becker and Ms. Schapiro took all the necessary steps outlined in government ethics rules. Under the United States code, for example, Ms. Schapiro may have been required to make a written determination that Mr. Becker’s financial interest was not substantial enough to affect his job performance. A spokesman for the S.E.C. said that such a waiver would not be required unless Mr. Becker had been found to have a substantial financial conflict.

Congress also asked Ms. Schapiro whether she discussed Mr. Becker’s Madoff account with other staff members or commissioners and if she took up the matter with officials in the federal government’s Office of Government Ethics, or the commission’s ethics counsel.

“As the government official responsible for appointing Mr. Becker to his position in 2009, what steps did you take to manage the appearance of or actual conflict of interest presented by Mr. Becker’s financial interest in the Securities Investor Protection Corporation’ liquidation?” asked a March 1 letter signed by four Republican members of the House Financial Services Committee. They are Spencer Bacchus of Alabama, Jeb Hensarling of Texas, Scott Garrett of New Jersey and Mr. Neugebauer.

In any Ponzi scheme, there are victims who withdraw money before the fraud is exposed. There are many such Madoff investors and determining how much they may keep is being sorted out in two places. Some investors are fighting in court to be entitled to the amount of money on their final Madoff statements, though they have been unsuccessful so far. Another battle involves how much customers can be compensated by the Madoff trustee and the Securities Investor Protection Corporation, a government entity that helps recover money for customers of failed brokerage firms. The S.E.C. oversees SIPC; neither matter has been decided.

Mr. Becker’s late mother, Dorothy, invested $500,000 with Mr. Madoff’s company; when she died in 2004, her three sons transferred the money into a new account at the firm. The next year, the investment was worth $2.04 million and they withdrew it. Mr. Picard said that the family should be allowed to keep the original $500,000 investment but return $1.54 million — all of the gain — to compensate other victims.

If the S.E.C. gets its way, Mr. Becker and his brothers would be allowed to keep more than that to compensate them for the time the money was invested with Mr. Madoff. How much more is unknown because details of the commission’s proposal have not been disclosed.

Both SIPC and Mr. Picard, the trustee for the Madoff estate, have proposed that the customers who withdrew funds before the fraud was uncovered should be allowed to keep only as much money as they put in. Initially, the full commission agreed and approved that approach in early 2009, according to the two people briefed on the discussions.

Mr. Becker joined the commission in February that year. By spring, he began meeting with lawyers for Madoff customers seeking a different formula. They wanted to let longer-term investors keep more money than those who had money with Mr. Madoff for shorter periods. Mr. Becker apparently dismissed arguments that investors were entitled to the amounts Mr. Madoff had listed on their final statements.

In the summer of 2009, Mr. Becker did reverse the commission’s earlier decision, however. His legal staff came up with a new proposal to reflect the length of time the money was invested, and the commissioners approved it at the end of the year. Some at the agency who worked with SIPC expressed dissent about the change, according to the people briefed on the deliberations.

Stephen P. Harbeck, the chief executive of SIPC, confirmed that his investor protection unit and the S.E.C. had initially agreed that victims should be able to keep only the money they had originally put into the Madoff firm. “Then they refined their opinion,” he said on Monday, referring to the S.E.C. He said that he did not know who had pushed for the change.

The S.E.C.’s definition, Mr. Harbeck said, would benefit anyone who withdrew more money from their Madoff accounts than they had put in. Mr. Becker’s family would be among them.

Legal Research Society Uncovering the CUSIP Applications: Converting Notes into Bonds

LIVINGLIES—GARFIELD CONTINUUM BLOG

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

Editor’s Note: I’m not sure about the submission below and I invite comments. The point missing, I think, is that the notes themselves were not EACH converted into bonds. The securitization structure appears to me to be the intermingling of notes (which are probably invalid because they do not accurately reflect the loan obligation). The notes are thrown into a pool by a wave of a magic wand (i.e., just by entering them on a proprietary spreadsheet instead of actually transferring the documents legally). The principal amount of the notes, according to Charles Koppa who has researched this thoroughly, exceeds the principal amount of the bonds issued from the pool (i.e., the trust or SPV) by a factor of 20%. That’s called overcollateralization.

The interesting question which I think Koppa and the LRS are beginning to hone in on is this: how could the bond payable to investors be overcollateralized? If the investors advanced $1,000,000 and they have receivables from loans to homeowners totaling $1,200,000. But if you think about it, that is not possible. The receivables would either have to be overstated (fraud) or something else is working here. If the nominal value of the receivables is $1,200,000 that means that $1.2 million was FUNDED. Since the pretender lenders are not funding the loans except by use of investor money who thought they were buying bonds (that in many cases might not have ever existed in reality, something that the CUSIP research might reveal), where did the extra $200,000 of FUNDING come from?

Once you eliminate all possibilities except one, that ONE regardless of how improbable or counter-intuitive, must be the answer. So my answer three years ago and now is the same: the pretender lenders entered data on the same loan obligation with minor differences in dates or other index on more than one spreadsheet for more than one pool and issued bonds including the same loan obligation in multiple pools. The investor buying the bond under the mistaken belief that he has the protection of the property values and the protection of the receivables turns out to have neither.

The concept of overcollateralization was probably accepted because of the essential LIE at the base of the securitization scheme and which has yet to be completely absorbed by the courts or mainstream media: investors thought they were buying loans that had already been funded by originating banks. Hence the question of where did the money come from was solved. It appeared to come from the funds of the originators who were then selling them upstream into securitization chains. It made perfect sense. It just wasn’t true. The TRUTH was that the all the money came from the investors not the loan originators. The TRUTH is that the sale of “bonds” to investors took place first, before the loans were funded, exactly the converse of what the investors thought.

Thus the illusion of overcollateralization could only be created by literally selling the same asset (receivables from a funded loan) several times. It was an illusion because at the time of the purchase of the bond there were no loans and thus there were no receivables. Like the foreclosure procedures that have landed the pretenders in hot water, the method of operation was to back-fill where necessary. All eyes were on the flow of money and cutting up the money pie as it came down from the investors and then as it came up from the homeowners. The investors were never meant to be paid in full, like every Ponzi scheme. They were intended to be lulled into thinking it was working long enough for them to be “reloaded” (i.e., to sell them more garbage).

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From: john@showmetheloan.net
Sent: 11/11/2010 11:16:35 P.M. Central Standard Time
Subj: VERY VERY IMPORTANT// from the desk of John Stuart

This just in:
I attended a weekly meeting of legal researchers in AZ, I have not attended in a while. They have started meeting at our workshop, every Thursday 7pm to 9pm. The Legal Research Society,, http://www.legalresearchsociety.org (I think)

Terry, the group leader and old friend brought up a concept, I will tell you what happened, how I think we should use, and then why I think it might work.

1. Terry had a friend being sued by a credit card company. The friend, just for the hell of it, asked the cc company for the CUSIP number for the APPLICATION. The banks dismissed the case and has not come back. So Terry, after going thru RFAs and interroitories to no avail, decided to try it. On his next document he asked the bank for the CUSIP number for the APLLICATION. They have since disappeared.

2. I think we should ask the banks for CURRENT COMPLETE copies of the ORIGINAL APPLICATION:
Inclusive of: legible copy of the stamping that states:
PAY TO THE ORDER…..WITHOUT RECOURSE and the CUSIP number for the APPLICATION.

This applies whether it is a mortgage or a deed of trust.

3. Why I think this may work:
a. Notes are converted to bonds all the time, that is what CUSIP numbers are for. You can buy a bond with any note or instrument. Promissory note, Federal Reserve Note, any note can be used to buy a bond.
b. Applications are NOT instruments and CANNOT be converted to instruments.
c. If the bank obtained a CUSIP number for an application that means they illegally converted an application to an instrument to purchase a bond that they then used to obtain a loan from the government to pass thru money to convert real property.

If they really do get CUSIP numbers for applications the whole game is over with. No case, no foreclosure, no payments, no contest of ownership. Its done.

Thinking about it makes my head spin because of the simplicity. If that is what they have to do to get the loan from the feds so they don’t risk their own money everything makes sense. That would be why they can claim there is a loan and we are in on it, its our application. Then really, the ONLY law broken was that of unlawfully converting an application to an instrument. Which would then cause the instrument to be invalid, the bond invalid, the loan have to be repaid by the bank IF they foreclose, but NOT if they don’t and just drop the case. That’s one hell of a barganing chip.

Could it be this simple? Its possible. It sure would answer the question why are the judges ruling against Notes and accepting the other documents as evidence of the deal.

I do not know if this will work. The idea is less than two hours old. But I think everyone should start trying to figure it out. If no one comes up with a good argument I think we should go for it.

FRONT PAGE FORGERY — NY TIMES

SERVICES YOU NEED

“Linda M. Tirelli, a lawyer in White Plains who represents Ms. Nuer in the case against Chase. “This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me.”

“Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.”

EDITORS note: you will have to obtain the paper version of the New York Times to see the three examples of obvious forgeries. The fact that it is on the front page of the newspaper is significant in itself. Gretchen Morgenson has done an excellent job of summing up the examples of fabrication, improper purposes, improper procedures and the probability that actual crimes have been committed.

Although it appears that we are rapidly approaching the reality of this situation, the absence of the “fundamentals” is conspicuous. It is true that the industry practice involved conduct by attorneys, servicers, banks, trustees and others that should probably result in disciplinary actions by the agencies that purport to regulate these entities. But the underlying theme of this article as well as the rest of mainstream media is an assumption that the “defaults” actually exist and therefore that the foreclosures are virtually inevitable but for technical violations on the part of the lenders.

This article also highlights the instances where multiple entities attempted to foreclose on the same property using the same alleged mortgage documents, each making the claim that they are the holder of the note, the real party in interest and possessed of standing to initiate foreclosure proceedings. But the article attributes this to the inability of the “lenders” to deal with the volume of defaults in mortgages.

  • The concept that the mortgages themselves may be fatally defective is completely absent from any reporting on the subject.

  • The concept that the default may not actually exist because the actual creditors have mitigated their losses through receipt of third party payments is completely absent from any reporting on this subject.

  • The concept that the encumbrance on the property may never have been perfected or that it is unenforceable now is completely absent from any reporting on the subject.

Don’t make the mistake of confusing information with evidence. The article in the New York Times as well as this article is merely information. Evidence has a legal definition and if you want to prove something you must meet that definition in order to have some fact or document admitted into the court record and considered in a decision. What is good for the goose is good for the gander. The courts have improperly admitted representations of counsel and improper affidavits as evidence, under the presumption that the underlying facts were undoubtedly true. It would be equally improper of the court to lend the same presumption to you. And this is why I have reversed myself and now discourage homeowners representing themselves in court.  A licensed experienced attorney hopefully will know how important it is to raise properly framed objections as early as possible in the proceedings in order to take control of the narrative.

In fact, all of the representations of counsel and the proffer of information contained in affidavits, assignments, endorsements, powers of attorney, substitutions of trustee, notices of default, notices of sale, or any of the other documents used to initiate foreclosure proceedings contains nothing more than false allegations that should have been subject to a simple denial by the borrower, thus requiring the party seeking affirmative relief to properly plead and prove their case. This they cannot do because of the absence of any fact or witness that would actually support their case.

These cases are not simply flawed. They are complete shams, a fraud upon the court, the homeowner, and any subsequent party  who believes that they received clear title resulting from a foreclosure or short sale. The current conduct of the pretender lenders and their attorneys and foreclosure mills is only a continuation of the Ponzi scheme that started with the first sale of an alleged mortgage bond to an investor who believed that the proceeds were being used primarily to fund loans that were properly valued and subjected to rigorous industry-standard underwriting procedures. The lies told to the investors who were the actual lenders in these transactions were identical to the lies told to the homeowners who were the borrowers in these transactions. Separating these parties–the lender and the borrower–was the core tactic and requirement of those who originated this fraudulent scheme.

The reason for the stonewalling on answers to qualified written requests, on answers to debt validation letters, and on responses to demands for discovery is not just that the fabrication and forgery of documents will be revealed–a fact well known to attorneys whose employees created and executed the fabrications and forgeries. The greater reason is to maintain the separation between the lender and the borrower. At some point in the evolution of this epic drama the lenders and the borrowers will get together and compare notes. At that time, the revelation of fraudulent and perhaps criminal conduct throughout this fraudulent scheme extending over a decade will be unavoidable. Stonewalling kicks the can down the road while the perpetrators explore their options to avoid liability and prosecution.

Here is a contribution from Ann:

For full Deposition transcripts of Robot Signers, go to
http://www.scribd.com
and put their name on the search.

Many interesting foreclosure legal pleadings and info
at
http://www.scribd.com/83jjmack
http://www.scribd.com/winston2311
http://www.scribd.com/foreclosure
fraud

October 3, 2010

Flawed Paperwork Aggravates a Foreclosure Crisis

04mortgage.html?_r=1&hp

By GRETCHEN MORGENSON

As some of the nation’s largest lenders have conceded that their foreclosure procedures might have been improperly handled, lawsuits have revealed myriad missteps in crucial documents.

The flawed practices that GMAC Mortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.

Problems emerging in courts across the nation are varied but all involve documents that must be submitted before foreclosures can proceed legally. Homeowners, lawyers and analysts have been citing such problems for the last few years, but it appears to have reached such intensity recently that banks are beginning to re-examine whether all of the foreclosure papers were prepared properly.

In some cases, documents have been signed by employees who say they have not verified crucial information like amounts owed by borrowers. Other problems involve questionable legal notarization of documents, in which, for example, the notarizations predate the actual preparation of documents — suggesting that signatures were never actually reviewed by a notary.

Other problems occurred when notarizations took place so far from where the documents were signed that it was highly unlikely that the notaries witnessed the signings, as the law requires.

On still other important documents, a single official’s name is signed in such radically different ways that some appear to be forgeries. Additional problems have emerged when multiple banks have all argued that they have the right to foreclose on the same property, a result of a murky trail of documentation and ownership.

There is no doubt that the enormous increase in foreclosures in recent years has strained the resources of lenders and their legal representatives, creating challenges that any institution might find overwhelming. According to the Mortgage Bankers Association, the percentage of loans that were delinquent by 90 days or more stood at 9.5 percent in the first quarter of 2010, up from 4 percent in the same period of 2008.

But analysts say that the wave of defaults still does not excuse lenders’ failures to meet their legal obligations before trying to remove defaulting borrowers from their homes.

“It reflects the hubris that as long as the money was going through the pipeline, these companies didn’t really have to make sure the documents were in order,” said Kathleen C. Engel, dean for intellectual life at Suffolk University Law School and an expert in mortgage law. “Suddenly they have a lot at stake, and playing fast and loose is going to be more costly than it was in the past.”

Attorneys general in at least six states, including Massachusetts, Iowa, Florida and Illinois, are investigating improper foreclosure practices. Last week, Jennifer Brunner, the secretary of state of Ohio, referred examples of what her office considers possible notary abuse by Chase Home Mortgage to federal prosecutors for investigation.

The implications are not yet clear for borrowers who have been evicted from their homes as a result of improper filings. But legal experts say that courts may impose sanctions on lenders or their representatives or may force banks to pay borrowers’ legal costs in these cases.

Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.

In Florida, problems with foreclosure cases are especially acute. A recent sample of foreclosure cases in the 12th Judicial Circuit of Florida showed that 20 percent of those set for summary judgment involved deficient documents, according to chief judge Lee E. Haworth.

“We have sent repeated notices to law firms saying, ‘You are not following the rules, and if you don’t clean up your act, we are going to impose sanctions on you,’ ” Mr. Haworth said in an interview. “They say, ‘We’ll fix it, we’ll fix it, we’ll fix it.’ But they don’t.”

As a result, Mr. Haworth said, on Sept. 17, Harry Rapkin, a judge overseeing foreclosures in the district, dismissed 61 foreclosure cases. The plaintiffs can refile but they need to pay new filing fees, Mr. Haworth said.

The byzantine mortgage securitization process that helped inflate the housing bubble allowed home loans to change hands so many times before they were eventually pooled and sold to investors that it is now extremely difficult to track exactly which lenders have claims to a home.

Many lenders or loan servicers that begin the foreclosure process after a borrower defaults do not produce documentation proving that they have the legal right to foreclosure, known as standing.

As a substitute, the banks usually present affidavits attesting to ownership of the note signed by an employee of a legal services firm acting as an agent for the lender or loan servicer. Such affidavits allow foreclosures to proceed, but because they are often dubiously prepared, many questions have arisen about their validity.

Although lawyers for troubled borrowers have contended for years that banks in many cases have not properly documented their rights to foreclose, the issue erupted in mid-September when GMAC said it was halting foreclosure proceedings in 23 states because of problems with its legal practices. The move by GMAC followed testimony by an employee who signed affidavits for the lender; he said that he executed 400 of them each day without reading them or verifying that the information in them was correct.

JPMorgan Chase and Bank of America followed with similar announcements.

But these three large lenders are not the only companies employing people who have failed to verify crucial aspects of a foreclosure case, court documents show.

Last May, Herman John Kennerty, a loan administration manager in the default document group of Wells Fargo Mortgage, testified to lawyers representing a troubled borrower that he typically signed 50 to 150 foreclosure documents a day. In that case, in King County Superior Court in Seattle, he also stated that he did not independently verify the information to which he was attesting.

Wells Fargo did not respond to requests for comment.

In other cases, judges are finding that banks’ claims of standing in a foreclosure case can conflict with other evidence.

Last Thursday, Paul F. Isaacs, a judge in Bourbon County Circuit Court in Kentucky, reversed a ruling he had made in August giving Bank of New York Mellon the right to foreclose on a couple’s home. According to court filings, Mr. Isaacs had relied on the bank’s documentation that it said showed it held the note underlying the property in a trust. But after the borrowers supplied evidence indicating that the note may in fact reside in a different trust, the judge reversed himself. The court will revisit the matter soon.

Bank of New York said it was reviewing the ruling and could not comment.

Another problematic case involves a foreclosure action taken by Deutsche Bank against a borrower in the Bronx in New York. The bank says it has the right to foreclose because the mortgage was assigned to it on Oct. 15, 2009.

But according to court filings made by David B. Shaev, a lawyer at Shaev & Fleischman who represents the borrower, the assignment to Deutsche Bank is riddled with problems. First, the company that Deutsche said had assigned it the mortgage, the Sand Canyon Corporation, no longer had any rights to the underlying property when the transfer was supposed to have occurred.

Additional questions have arisen over the signature verifying an assignment of the mortgage. Court documents show that Tywanna Thomas, assistant vice president of American Home Mortgage Servicing, assigned the mortgage from Sand Canyon to Deutsche Bank in October 2009. On assignments of mortgages in other cases, Ms. Thomas’s signatures differ so wildly that it appears that three people signed the documents using Ms. Thomas’s name.

Given the differences in the signatures, Mr. Shaev filed court papers last July contending that the assignment is a sham, “prepared to create an appearance of a creditor as a real party in interest/standing, when in fact it is likely that the chain of title required in these matters was not performed, lost or both.”

Mr. Shaev also asked the judge overseeing the case, Shelley C. Chapman, to order Ms. Thomas to appear to answer questions the lawyer has raised.

John Gallagher, a spokesman for Deutsche Bank, which is trustee for the securitization that holds the note in this case, said companies servicing mortgage loans engaged the law firms that oversee foreclosure proceedings. “Loan servicers are obligated to adhere to all legal requirements,” he said, “and Deutsche Bank, as trustee, has consistently informed servicers that they are required to execute these actions in a proper and timely manner.”

Reached by phone on Saturday, Ms. Thomas declined to comment.

The United States Trustee, a unit of the Justice Department, is also weighing in on dubious court documents filed by lenders. Last January, it supported a request by Silvia Nuer, a borrower in foreclosure in the Bronx, for sanctions against JPMorgan Chase.

In testimony, a lawyer for Chase conceded that a law firm that had previously represented the bank, the Steven J. Baum firm of Buffalo, had filed inaccurate documents as it sought to take over the property from Ms. Nuer.

The Chase lawyer told a judge last January that his predecessors had combed through the chain of title on the property and could not find a proper assignment. The firm found “something didn’t happen that needed to be fixed,” he explained, and then, according to court documents, it prepared inaccurate documents to fill in the gaps.

The Baum firm did not return calls to comment.

A lawyer for the United States Trustee said that the Nuer case “does not represent an isolated example of misconduct by Chase in the Southern District of New York.”

Chase declined to comment.

“The servicers have it in their control to get the right documents and do this properly, but it is so much cheaper to run it through a foreclosure mill,” said Linda M. Tirelli, a lawyer in White Plains who represents Ms. Nuer in the case against Chase. “This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me.”

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