Fannie and Freddie Unloading Bogus “Mortgage” Bonds

Standard Operating Procedure: Create more bogus paper on top of piles of old bogus paper and you contribute to the illusion that any of it is real. The “business model” still leaves out the basic fallacy: that most loans were never actually securitized into the trusts that are claiming them. Hence the at the base of this pyramid, is an MBS issued by an entity without any assets in cash, property or loans.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://blogs.barrons.com/incomeinvesting/2014/06/30/government-support-for-gse-mortgage-transfer-securities-unrealistic-fitch/

The actual goal here is to spread the risk so wide that the impact is reduced when it is finally conceded that the original MBS had no value and every successor synthetic derivative is just as worthless as the one before it.

At ground level, this creates a dichotomy. First the act of a Government Sponsored Entity (GSE) engaging in a “re-REMIC” transfer adds to the illusion that the issuing trust ever acquired the loan in the first place. But second, it corroborates the finding by me, Adam Levitin and others who know and have studied the situation: the foreclosure based upon claims from alleged REMIC Trusts are false claims.

If the original MBS had real value because it was issued by a real REMIC Trust, the process described as “re-REMIC” would not be necessary. Hedge products would be sufficient to cover the changing risk from alleged defaults on loans that were legitimately made by originators. The fact is that the “loans” did not produce loan contracts because one party was owed the debt while another party was named on the bogus note.

And THAT corroborates the experience of millions of homeowners who attempted to learn about the fictitious financial transaction in which “successors” to the “originator” paid nothing for the “transfer” of the loan because it could not be sold by the preceding party who had no ownership.

Why The Investors Are Not Screaming “Securities Fraud!”

Everyone is reporting balance sheets with assets that derive their value on one single false premise: that the trusts that issued the original mortgage bonds owned the loans. They didn’t.

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This article is not a substitute for an opinion and advice from competent legal counsel — but the opinion of an attorney who has done no research into securitization and who has not mastered the basics, is no substitute for an opinion of a securitization expert.

Mortgage backed securities were excluded from securities regulation back in 1998 when Congress passed changes in the laws. The problem is that the “certificates” issued were (a) not certificates, (b) not backed by mortgages because the entity that issued the MBS (mortgage bonds) — i.e. the REMIC Trusts — never acquired the mortgage loans and (c) not issued by an actual “entity” in the legal sense [HINT: Trust does not exist in the absence of any property in it]. And so the Real Estate Mortgage Investment Conduit (REMIC) was a conduit for nothing. [HINT: It can only be a “conduit” if something went through it] Hence the MBS were essentially bogus securities subject to regulation and none of the participants in this dance was entitled to preferred tax treatment. Yet the SEC still pretends that bogus certificates masquerading as mortgage backed securities are excluded from regulation.

So people keep asking why the investors are suing and making public claims about bad underwriting when the real problem is that there were no acquisition of loans by the alleged trust because the money from the sale of the mortgage bonds never made it into the trust. And everyone knows it because if the trust had purchased the loans, the Trustee would represent itself as a holder in course rather than a mere holder. Instead you find the “Trustee” hiding behind a facade of multiple “servicers” and “attorneys in fact”. That statement — alleging holder in due course (HDC) — if proven would defeat virtuality any defense by the maker of the instrument even if there was fraud and theft. There would be no such thing as foreclosure defense if the trusts were holders in due course — unless of course the maker’s signature was forged.

So far the investors won’t take any action because they don’t want to — they are getting paid off or replaced with RE-REMIC without anyone admitting that the original mortgage bonds were and remain worthless. THAT is because the managers of those funds are trying to save their jobs and their bonuses. The government is complicit. Everyone with power has been convinced that such an admission — that at the base of all “securitization” chains there wasn’t anything there — would cause Armageddon. THAT scares everyone sh–less. Because it would mean that NONE of the up-road securities and hedge products were worth anything either. Everyone is reporting balance sheets with assets that derive their value on one single false premise: that the trusts that issued the original mortgage bonds owned the loans. They didn’t.

Banks are essentially arguing in court that the legal presumptions attendant to an assignment creates value. Eventually this will collapse because legal presumptions are not meant to replace the true facts with false representations. But it will only happen when we reach a critical mass of trial court decisions that conclude the trusts never owned the loans, which in turn will trigger the question “then who did own the loan” and the answer will eventually be NOBODY because there never was a loan contract — which by definition means that the transaction cannot be called a loan. The homeowner still owes money and the debt is not secured by a mortgage, but it isn’t a loan.

You can’t force the investors into a deal they explicitly rejected in the offering of the mortgage bonds — that the trusts would be ACQUIRING loans not originating them. Yet all of the money from investors who bought the bogus MBS went to the “players” and then to originating loans, not acquiring them.

And you can’t call it a contract between the investors and the borrowers when neither of them knew of the existence of the other. There was no “loan.” Money exchanged hands and there is a liability of the borrower to repay it — to the party who gave them the money or that party’s successor. What we know for sure is that the Trust was never in that chain.

The mortgage secured the performance under the note. But the note was itself part of the fraud in which the “borrower” was prevented from knowing the identity of the lender, the compensation of the parties, and the actual impact on his title. The merger of the debt into the note never happened because the party named on the note was not the party giving the money. Hence the mortgage should never have been released from the closing table much less recorded.

So if the fund managers admit they were duped as I have described, then they can kiss their jobs goodbye. There were plenty of fund managers who DID look into these MBS and concluded they were just BS.

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