Bank of New York Mellon

Posted on January 15, 2016 by Neil Garfield
WE HAVE REVAMPED OUR SERVICE OFFERINGS TO MEET THE REQUESTS OF LAWYERS AND HOMEOWNERS. This is not an offer for legal representation.
Our services consist mainly of the following:
  1. 30 minute Consult — expert for lay people, legal for attorneys
  2. 60 minute Consult — expert for lay people, legal for attorneys
  3. Case review and analysis
  4. Rescission review and drafting of documents for notice and recording
  5. COMBO Title and Securitization Review
  6. Expert witness declarations and testimony
  7. Consultant to attorneys representing homeowners
  8. Books and Manuals authored by Neil Garfield are also available, plus video seminars on DVD.
For further information please call 954-495-9867 or 520-405-1688. You also may fill out our Registration form which, upon submission, will automatically be sent to us. That form can be found at https://fs20.formsite.com/ngarfield/form271773666/index.html?1452614114632. By filling out this form you will be allowing us to see your current status. If you call or email us at neilfgarfield@hotmail.com your question or request for service can then be answered more easily.
================================

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

—————-
I have periodically reminded people that they should be carefully watching litigation between the perpetrators of the massive false securitization scheme. You really should see those cases, including tax cases, where the admissions and allegations in some cases directly contravene allegations by the same parties in foreclosure cases. It doesn’t bother them taking inconsistent positions because (a) nobody looks and (b) they will get away with it anyway, as long as Judges presume that all is well with the paperwork.
The prime issues in these cases revolve around a simple proposition. If the Trustee of a REMIC Trust was the Trustee of a REMIC Trust, why didn’t they act like it — demanding buy-backs, damages etc. for horrendous underwriting criteria that was opposite to what was promised in the prospectus, what was reported to the rating agencies and what was disclosed through press releases?
The answer is simple — there was no Trust, REMIC or otherwise. Investors who believed that the money would be managed by the Trust were intentionally deceived by the Underwriter/Master Servicer. The money did not go under Trustee management. Instead it went into the pocket of the Wall Street Bank that acted as the underwriter/master servicer.
While the terms of the Trust duties as spelled out in the prospectus and the Pooling and Servicing Agreement are craftily worded, it is apparent that the duties of the Trustee shrink as you read further and further. But under common law and apparently the TRUST INDENTURE ACT, a named Trustee who  accepts the assignment and is named in the Trust has duties that transcend the caveats that essentially leave the so-called Trustee with no duties at all.
Normally this would bother a prospective Trustee (US Bank, DEUTSCH, BONY/MELLON, Citi, BOA, Wells Fargo etc.). But what is STILL not being recognized is that the initial premise of the transaction never occurred. The money from the sale of the MBS to investors never made it into any account under management by the Trustee. It really was THERE that the named Trustee failed to act, even though they were recruited for their name (leasing their brand) for a monthly fee with no Trustee responsibilities. Upon issuance of the MBS from the Trust, the Trust was owed the proceeds. It never received the proceeds and the Trustee either didn’t know, didn’t care or both.
Josh Yager writes the following:

 

The preamble to the Uniform Prudent Investor Act notes, “The tradeoff in all investing between risk and return is identified as the fiduciary’s central consideration.”  For most trustees determining the return that was produced by the assets held in trust is a fairly straightforward exercise. Most investment managers are required to produce performance data that is SEC-compliant. However, defining whether the return experienced was appropriate, given the level of risk that was taken, is more complicated.

The Bogert treatise states, “The trustee cannot assume that if investments are legal and proper for retention at the beginning of the trust, or when purchased, they will remain so indefinitely. Rather, the trustee must systematically consider all the investments of the trust at regular intervals to ensure that they are appro­priate” (A. Hess, G. Bogert, & G. Bogert, Law of Trusts and Trustees §684, pp.145–146 (3d ed. 2009)).

To fulfill this duty to monitor the risk and return of the trust assets a prudent trustee, acting in good faith, will make the following inquiries:

Target Return: The manager’s actual performance will initially be compared to the trustee’s stated return objective. This begs the question whether the trustee has taken steps to define a targeted rate of return for the assets of which they are responsible. If they have not, they are encouraged to do so. The Target Return is stated as an absolute number (e.g., 7.0%) or as a real, inflation-adjusted number (e.g., Inflation + 4.0%).

Strategic Benchmark: The manager’s actual performance will be tested to determine whether any strategic value has been added by the manager.  This test answers the specific question, “Have the manager’s strategic investment choices produced a better outcome than a simple investment in a few major asset classes?”  This is done by comparing the actual performance and risk to that of a simple “vanilla” Strategic Benchmark that is historically consistent with the trustee’s stated Target Return (see above).  The Strategic Benchmark is a combination of Russell 3000 (US Stock), MSCI ACWI ex-US (Int’l stock including Emerging Markets), and Barclays 1-10 Yr Muni (Bonds).  For tax-deferred/free accounts, the bond component will be the BOFAML US Corp/Govt 1-10 Yr.

  1. The stock-to-bond ratio used is a mix of stocks and bonds which historically matched the client’s Target Return over the last 50 years.
  2. The Russell 3000 and MSCI ACWI ex-US are intended to represent the entire stock universe.  For example, the Russell 3000 includes US Small Cap stocks, US Value stocks, etc., and the MSCI ACWI ex-US includes Emerging Market stocks.
  3. The US-to-Int’l ratio is fixed at 70/30 to represent the “home bias” that investors of any given country typically exhibit and to recognize that the client usually spends US Dollars.
  4. For example, if the client’s Target Return is 7.0% (or Inflation + 4.0%), the Strategic Benchmark will be 40% Barclays 1-10 Yr Muni, 42% Russell 3000 and 18% MSCI ACWI ex-US.

Risk: In addition to measuring the manager’s performance against these two benchmarks, there must be an evaluation of the risk that has been accepted by each manager. Some forms of risk are quantitative and can be discovered through statistical analysis. Other types of risk cannot be deduced from statistical inquiry and require a more subjective analysis.

  1. Quantitative Risk Measures
  • Standard Deviation / Downside Deviation
  • Value-at-Risk
  • Beta
  • Max Drawdown
  • High Month Return / Low Month Return
  • Sharpe Ratio (risk-adjusted return)
  • M-Squared (risk-adjusted return)
  • Information Ratio (risk-adjusted return)
  1. Qualitative Risks
  • Lack of Liquidity: The % of the trust that cannot be liquidated within 5 business days
  • Concentration: The % of the trust held in the single largest security
  • Leverage: The % of leverage used by the trust as reflected in a debt-to-equity ratio
  • Lack of Valuation: The % of the trust assets that do not have daily valuation

Most investment managers, if provided with this overview, can help the trustee create a record that these factors have been considered and documented. If the investment manager is unable to help the trustee develop such a record, a prudent trustee will take steps to independently evaluate these factors or find an investment manager that is willing and able to do so.

Filed under: foreclosure | Tagged: , , , , , , , , | 10 Comments »

The CLOUD: No Name, No Docs, No Terms, No Balance Due: MBS Investors Screwed and Taking Borrowers Down With Them

Posted on September 20, 2013 by Neil Garfield

Writing with the flu. Despite symptoms and medication that makes me dizzy, I feel compelled to write about something that is getting traction out there. The more you look at the false claims of securitization the more it stinks. We are dealing with a system that is based on really big lies. I’m sure our leaders of government have a very appealing rationalization why we must pretend the mortgage bonds are real, why we must pretend the mortgages are real, why we must pretend the notes are real, and why we must pretend the debts and defaults are real. But those are lies based on sham transactions. And those lies are based in public policy. And public policy is contrary to law.

My focus is on cases pending in the judicial branch of government. Our system of government was designed to insert the judicial branch into disputes so that fractures in public policy do not cheat citizens out of their basic rights. In this case, the failure of the other two branches of government to include the rights of homeowners is damaging both to the society generally and producing millions of cases of unjust enrichment and displacement of millions of people from their homes in cases, where if all facts were known two facts would be inescapably accepted: (1) mortgages filed as encumbrances against real property were fatally defective and unenforceable and (2) the balance owed on the debt is either impossible to ascertain or zero, with a liability owed to homeowners on the overpayments received in the midst of that opaque cloud we are calling “securitization.”

The trigger for the writing of this article is once again coming from BANK OF NEW YORK MELLON as the “Trustee” of vast numbers of REMIC Trusts. Bill Paatalo, a private investigator, uncovered an officer of BONY who is very frustrated with BOA and others who are telling borrowers that BONY is the owner of their loan. Indeed, suits have been brought in the name of BONY without any reference to the trust; and of course suits have been brought in the name of BONY as Trustee of a REMIC Trust, which represents but does not own the loans (the ownership interest being “conveyed” with the issuance of the mortgage bond to investors who were duped into thinking they were buying high grade investments. BONY and DEUTSCH both say such suits are brought without their authorization and have instructed servicer’s to cease and desist using the name of Deutsch of BONY MELLON in foreclosure suits.

The problem revealed is contained in an email Paatalo posted from an officer of BONY MELLON, who wants BOA to stop telling people that BONY is the owner of their loans. He says BONY doesn’t own the loans and has no right, power or obligation to modify or mitigate damages caused by the borrower failing or stopping payments on the loan they unquestionably received. He says BONY is the Trustee for the loan and denies ownership and further denies the ability or right to modify.

What he doesn’t say is what he means by “Trustee for the loan” and why the “trust” should be considered real as a legal person when there is no financial account or assets held in the name of the Trust. Like Reynaldo Reyes at Deutsch Bank, he is basically saying there are no trust assets, there never was any funding of the trust, and there never was an assignment or purchase of the loan by the trust — for the simple reason that the Trust never had a bank account much less the money to buy loans or anything else.

So Reyes and this newly revealed actor from BONY are saying the same thing. They are Trustees in name only without any duties because no money or assets are in the trust. Which brings us back to the beginning. If the loan was securitized, the Trust would have had a bank account to receive money advanced by investors who were purchasing alleged mortgage bonds that promised that the investor also was an owner of the loans — an undecided percentage interest in the loans.

That money in the Trust account would have been used to fund or purchase the loan to the borrower. And the Trust would have been the mortgagee or beneficiary on the mortgage or deed of trust. There would have been no need for MERS, or originators or any of the countless sham corporations that are now out of business and who supposedly loaned money to borrowers. If it was real, the records would show the Trust paid for the loan and the recorded documents from the loan closing would clearly show the Trust as the lender.

It is really a very simple deal, if it is real. But complexity was introduced by Wall Street, the effect of which was that the lenders didn’t get the loans they were expecting, didn’t get the collateral they thought they were getting and didn’t even get named as lenders despite the fact that it was investor money that was used to make and acquire the loans. Like the borrowers, investors were stepping into a cloud that intentionally obscured the ownership of the loan.

On the one hand, the Banks covered ownership by the issuance and execution of an Assignment and Assumption Agreement, but that was before any loan applications existed, just like the prospectus and sale of the bonds — a process known as selling forward on Wall Street. On the other hand, the bonds were issued in the name of the investment banks, a process called Street Name on Wall Street. On the third hand, the loan documents showed neither the investment banks nor the investors or even the REMIC Trusts. instead they showed some other entity as the lender even though the “lender” had advanced mooney whatsoever — a process later dubbed as “pretender lenders” by me in in my writing and seminars.

By pushing title through pretender lenders and private exchanges that registered title that was never published (like the county recorders’ offices publish recorded deeds, mortgages and liens), the Banks created a Cloud which by definition created clouded title to the property, the loan and created a mortgage document that was recorded despite naming the wrong terms and the wrong payee.

Pushing title away from the investors who advanced the money and toward themselves, the Banks were able to play with the money as if it were their own, and even purchase insurance and credit default swaps payable to the banks, who were clearly the intermediary agents of the investors. And the Banks even got the government to guarantee half the loans even though the underwriting standards were ignored — since the banks had no risk of loss on the loans (they were using investor money and they were getting the right to receive third party payments from the government and private parties). Eventually after the meltdown, the Banks became part of a program where tens of billions of dollars worth of the bogus mortgage bonds owned by the investors were sold to the Federal government (some $50 Billion per month).

Through their creation of the Cloud, the banks were able to take the money of the investors and receive it as their own, concealing the initial theft (skimming) off the top by creating sham proprietary trades. Now they are receiving judgments and deeds from foreclosure auctions based upon their submission of a credit bid that clearly violates the very specific provisions of state statutes that identify who can submit a credit bid rather than cash at the auction. Only the actual owner of the unpaid account receivable has the right to submit a credit bid.

And by the creation of the Cloud judges and lawyers missed the point completely. The result is stripping the investors of value, ownership and right to collect on the loans they advanced. At no time has any Servicer filed a foreclosure in the name of the investors whose money was used to fund the deal. In no case is there any underlying real transaction in which real money was paid and something was received in exchange. The Courts are now the vehicle of public policy and manifest injustice by enforcement of unenforceable mortgages for fabricated notes referring to non existent debts.

The net result is that public policy and government action is contrary to the rule of law.

Filed under: CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, investment banking, Investor, MODIFICATION, Mortgage, Pleading, securities fraud, Servicer, trustee | Tagged: , , , , , , | 57 Comments »

Banks Traded on Inside Information on Mortgages

Posted on June 2, 2013 by Neil Garfield

Despite the pronouncements by Eric Holder, the chief law enforcement officer of the United States, and the obvious reticence of the Securities and Exchange Commission, the vast majority of securities attorneys believe that the banks were (a) trading on inside information and (b) committing securities fraud when they funded and then traded on mortgages that were too toxic to ever succeed.

The first, trading on inside information, is regularly prosecuted by the justice department and the SEC. It is why Martha Stewart went to jail in rather flimsy evidence. The catch, justice and the SEC say is that this only applies to securities and the 1998 act signed into law by Clinton makes mortgage bonds and hedges on mortgage bonds NOT securities. It also makes the insurance paid on the mortgage bonds NOT insurance. This is despite the fact that the instruments meet every definition of securities and both the insurance contracts and credit default swaps appear to meet every definition of insurance. But the law passed by Congress in 1998 says otherwise, so how can we prosecute?

The second, securities fraud meets the same obstacle they say because they can’t accuse anyone of committing fraud in the issuance or trading of securities when the law says there were no securities.

So goes the spin coming from Wall Street and as long as law enforcement in each state and the DOJ keeps listening to Wall Street and their lawyers, they will keep arriving at the same mistaken conclusion.

If Wall Street had in fact followed the plan of securitization set forth in their prospectuses and pooling and servicing agreements, assignment and assumption agreements and various other instruments that were created to build the infrastructure of securitization of debt — including but not limited to mortgages, credit cards, auto loans, student loans etc. — then Wall Street would be right and the justice department and the SEC might be stuck in the mud created by the 1998 law. But that isn’t what happened and therefore the premise behind the apparent immunity of Wall Street Banks and bankers is actually an illusion.

Starting with the issuance of the mortgage bonds, most of them were issued before any mortgage was originated or acquired by anyone. In fact, the list attached to the prospectus for the mortgage bonds said so — stating that the spreadsheet or list attached was by example only, that these mortgages do not exist but would be soon be replaced with real mortgages acquired pursuant to the enabling documents for the creation of the REMIC “trust.” But that is not what happened either.

In no way did the Banks follow the terms of the prospectus, PSA, assignment and assumption agreements or anything else. Instead what they really did was create the illusion of a securitization scheme that covered up the reality of a PONZI scheme, the hallmark of which is that it collapses when investors stop buying the bogus securities and more investors want their money out than those wishing to put money into the scheme. There was no reason for the entire system to collapse other than the fact that Wall Street planned and bet on the collapse, thus making money coming and going and draining the lifeblood of capital worldwide out of economies and marketplaces that depended upon the continued flow of capital.

The creation of the REMIC “trust” was a sham. It was never formalized, never funded and never acquired any mortgages. hence any “exempt” securities issued by it were not the kind intended by the Act signed into law in 1998. It was not a mortgage-backed security, or credit backed security, it was an illusion designed to defraud anyone who invested in them. The purpose of issuing the mortgage bonds was not to fund and acquire mortgages but rather to steal as much money out of the flow as possible while covering their tracks with some of the money ending up on the closing table for newly originated or previously originated bundles of mortgages that were to be acquired. That isn’t what happened either.

Wall Street bankers put the money from investors into their own private piggy bank and then funded and acquired mortgages with only part of the money while they made false “proprietary trades” in the “mortgage bonds” that made it look like they were trading geniuses making money hand over fist while the rest of the world saw their wealth decline by as much as 60%-70%. The funding for debt came not from the unfunded REMIC “trusts” but from the investment banker who was merely an intermediary depository institution which unlawfully was playing with investor money. The actual instruments upon which Wall Street relies to justify its actions is the prospectus, the PSA, and the Master Servicing agreement — each of which was used to sell the investors on letting go of their money in exchange for the promises and conditions contained in the exotic agreements containing numerous conflicting clauses.

Thus the conclusion is that since the mortgage bonds were issued by an unfunded and probably nonexistent entity, the investors had “bought” an interest in an incoherent series of agreements that together constituted a security or, in the alternative, that there was no security and the investors were simply duped into parting with their money which is fraud, pure and simple.

I would say that investors acquired certain passive rights to the instruments used, with the exception of the bogus mortgage bonds that were usually worthless pieces of paper or entries on a log. In my opinion the issuance of the prospectus was the issuance of a security. The issuance of the PSA was the issuance of a security, And the issuance of the other agreements in the illusory securitization chain may also have been the issuance of a security. If cows can be securities, then written instruments that were used to secure passive investments are certainly securities. The exemption for mortgage bonds doesn’t apply because neither the mortgage bond nor the REMIC “trust” were ever funded or used — except in furtherance of their fraud when they claimed losses due to mortgage defaults and obtained federal bailouts, insurance and proceeds of credit default swaps.

The loan closings, like the funding of the “investments” was similarly diverted away from the investor and toward the intermediaries so that they could trade on the appearance of ownership of the loans in the form of selling bundles of loans that were not even close to being properly described in the paperwork — although the paperwork often looked as though it was all proper.

The trading, hedging and insuring of investments that were not only destined by actually planned to fail was trading on inside information. The Banks knew very well that the triple A rating of the mortgage bonds was a sham because the mortgage bonds were worthless. What they were really trading in was the ownership of the loans which they knew were falsely represented on the note and mortgage. They thus converted the issuance of the promissory note signed by the borrower into a security under flase pretenses because the payee on the note and the secured party on the mortgage never completed the transaction, to wit: they never funded the loan and they made sure that the terms of repayment on the promissory note did not match up with the terms of repayment set forth in the prospectus, which was the real security.

Knowing from the start that they had the power (through the powers conferred on the Master Servicer) to pull the rug out from under the “investments” they traded with a vengeance hedging and selling as many times as they could based upon the same alleged loans that were in fact funded directly by and therefor owned by the investors directly (because the REMIC was ignored and so was the source of funding at the alleged loan closing).

Being the sole source of the real information on the legality, quality and quantity of these nonexistent investments in mortgage bonds, the Wall Street banks, their management, and their affiliates were committing both violation of the insider trading rule and the securities fraud rule ( as well as various other common law and statutory prohibitions and crimes relating to deceptive practices in the sale of securities). By definition and applying the facts rather than the spin, the Banks a have committed numerous crimes and the bankers should be held accountable. Let’s not forget that by this time in the S&L scandal more than 800 people were sent to jail despite various attempts to mitigate the severity of their trespass and trampling on the rights of investors and depositors.

Failure to prosecute, while the statute of limitations is running out, is taking the rule of law and turning it on its head. The Obama administration has an obligation to hold these people accountable not only because violations of law should be prosecuted but to provide some deterrence from a recurrence or even escalation of the illegal practices foisted upon institutions, taxpayers and consumers around the world. Ample evidence exists that the Banks, emboldened by the lack of prosecutions, have re-started their engines and are indeed in the process of doing it again.

Think about it, where would a company get the money to have a multimedia advertising campaign blanketing areas of the the Country when the return on investment, according to them is only 2.5%? Between marketing, advertising, processing, and administrative costs, pus a reserve for defaults, they are either running a going out of business strategy or there is something else at work.

And if the transactions were legitimate why do the numbers of foreclosures drop like stones in those states that require proof of payment, proof of loss, and proof of ownership? why have we not seen a single canceled check or wire transfer receipt that corroborates the spin from Wall Street? Where is the real money in this scheme?

James Surowiecki: Why Is Insider Trading on the Rise?
http://www.newyorker.com/talk/financial/2013/06/10/130610ta_talk_surowiecki

FROM OTHER MEDIA SOURCES —-

Foreclosure Victims Protesting Wall Street Impunity Outside DOJ Arrested, Tasered
http://www.truth-out.org/news/item/16527-victims-of-foreclosure-arrested-tasered-protesting-wall-street-impunity-outside-doj

Watch out. The mortgage securities market is at it again.
http://money.cnn.com/2013/05/23/news/economy/mortgage-backed-securities.pr.fortune/

Wall Street Lobbyists Literally Writing Bills In Congress
http://news.firedoglake.com/2013/05/27/wall-street-lobbyists-literally-writing-bills-in-congress/

Time to Put the Heat on the Fed and FDIC to Fix Lousy Governance at TBTF Banks
http://www.nakedcapitalism.com/2013/05/so-if-shareholders-wont-rein-in-jamie-dimon-time-to-put-the-heat-on-the-fed-and-fdic.html

West Sacramento homeowner uses new state law to stop foreclosure
http://www.sacbee.com/2013/05/23/5441875/west-sacramento-homeowner-uses.html

The Foreclosure Fraud Prevention Act: A.G. Schneiderman Commends Assembly for Passing Foreclosure Relief Bills
http://4closurefraud.org/2013/05/23/the-foreclosure-fraud-prevention-act-a-g-schneiderman-commends-assembly-for-passing-foreclosure-relief-bills/

Where did the California foreclosures go? Level of foreclosures sales dramatically down. Foreclosure legislation and bank processing. Subsidizing investor purchases via HAFA.
http://www.doctorhousingbubble.com/california-foreclosure-process-hafa-program-subsidize-investor-purchases/

Wasted wealth – The ongoing foreclosure crisis that never had to happen – The Hill’s Congress Blog
http://thehill.com/blogs/congress-blog/economy-a-budget/301415-wasted-wealth–the-ongoing-foreclosure-crisis-that-never-had-to-happen

Oregon Foreclosure Avoidance Program gets tuneup
http://www.oregonlive.com/opinion/index.ssf/2013/05/oregon_foreclosure_avoidance_p.html

Filed under: CDO, CORRUPTION, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , | 103 Comments »

MERS: A FAILED ATTEMPT AT BYPASSING STATE AND FEDERAL AUTHORITY

Posted on September 7, 2011 by Neil Garfield

MOST POPULAR ARTICLES

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

Fannie-Freddie’s Hypocritical Suit Against Banks Making Loans that GSEs Helped Create

Fannie-Freddie’s Hypocritical Suit Against Banks Making Loans that GSEs Helped Create

EDITOR’S NOTE:  Practically everything that the government is doing with respect to the economy and the housing market in particular is hypocritical. If we look to the result to determine the intent of the government you can see why nothing is being done to improve DOMESTIC market conditions. By removing the American consumer from the marketplace (through elimination of available funds in equity, savings or credit) the economic prospects for virtually every marketplace in the world is correspondingly diminished. The downward pressure on economic performance worldwide creates a panic regarding debt and currency. By default (and partially because of the military strength of the United States) people are ironically finding the dollar to be the safest haven during a bad storm.

 The result is that the federal government is able to borrow funds at interest rates that are so low that the investor is guaranteed to lose money after adjusting for inflation. The climate that has been created is one in which investors are far more concerned with preservation of capital than return on capital. In a nutshell, this is why the credit markets are virtually frozen with respect to the average potential consumer, the average small business owner, and the average entrepreneur or innovator who would otherwise start a new business and fuel rising employment.

 While it is true that the lawsuits by Fannie and Freddie are appropriate regardless of their past hypocritical behavior, they are really only rearranging the deck chairs on the Titanic. Ultimately there must be a resolution to our current economic problems that is based in reality rather than the power to manipulate events. The scenario we all seek  would cleanup the rising title crisis, end the foreclosure crisis, and restore a true marketplace in the purchase and sale of real estate. We have all known for decades that the housing market drives the economy.

 There is obviously very little confidence that the government and market makers in the United States are going to seek any resolution based in reality. Therefore while investors are parking their money in dollars they are also driving up the price of gold and finding other innovative ways to preserve their wealth. As these innovations evolve it is almost certain that an alternative to the United States dollar will emerge. The driving force behind this innovation is the stagnation of the credit markets and the world marketplace. My opinion is that the United States is pursuing a policy that virtually guarantees the creation of a new world reserve currency.

 The creation of MERS was a private attempt to substitute private business plans for public laws. It didn’t work. The lawsuits by the government-sponsored entities together with lawsuits from investors who were duped into being lenders and homeowners who were duped into being borrowers in a rigged market are only going to result in money judgments and money settlements. With a nominal value of credit derivatives at over $600 trillion and the actual money supply at under $50 trillion there is literally not enough money in the world to fix this problem. The problem can only be fixed by recognizing and applying existing law to existing transactions.

 This means that MERS, already discredited, must be treated as a nonexistent entity in the world of real estate transactions. Nobody wants to do that because the failure to disclose an actual creditor on the face of a purported lean or encumbrance on land is a fatal defect in perfecting the lien. This is true throughout the country and it is obvious to anyone who has studied real property transactions and mortgages. If you don’t have the name and address of the creditor from whom you can obtain a satisfaction of mortgage, then you don’t have a mortgage that attaches to the land as a lien. It is this realization that is forming a number of lawsuits from the investors who advanced money for mortgage bonds. Those advances were the funds that were used to finance pornographic Wall Street profits with the balance used to fund absurd mortgage products.

 This is basic property law and public policy. There can be no confidence or consistency in the marketplace without a buyer or a lender knowing that they can rely upon the information contained in a government title Registry at the county recording office. Any other method requires them to take the word of someone without the authority of the government. This is a fact and it is the law. But the banks are successfully using politics to sidestep the basic essential elements of law. Under their theory the fact that the mortgage lien was never perfected would be ignored so that bank and non-bank institutions could become the largest landholders in the country without ever having spent a dime on loaning any money or purchasing the receivables. Politics is trumping law.

 The narrative and the debate are being absolutely controlled by Wall Street interests. We say we don’t like what the banks did and many say they don’t like banks at all. But it is also true that the same people who say they don’t like banks are willing to let the banks keep their windfall and make even more money at the expense of the taxpayer, the consumer and the homeowner. There are trillions of dollars available for investment in business expansion, government projects, and good old American innovation to drive a healthy economy. It won’t happen until we begin to drive the debate ourselves and force government and banking to conform to rules and laws that have been in existence for centuries.

from STOP FORECLOSURE FRAUD…………….

Lets NOT forget both Fannie and Freddie, like most of the named banks they are suing, each are shareholders of MERS.

Again, who gave the green light to eliminate the need for assignments and to realize the greatest savings, lenders should close loans using standard security instruments containing “MOM” language back in April 26, 1999?

This was approved by Fannie Mae and Freddie Mac which named MERS as Original Mortgagee (MOM)!

Open Market-

“U.S. is set to sue dozen big banks over mortgages,” reads the front-page headline in today’s New York Times. The “deck” below the headline explains that that the Federal Housing Finance Agency, which oversees the government-sponsored enterprises Fannie Mae and Freddie Mac, is “seen as arguing that lenders lacked due diligence” in the loans they made.

A more apt description would probably be that Fannie and Freddie are suing the banks for selling them the very loans the GSEs helped designed and that government mandates encourage — and are still encouraging them to make. These conflicted actions are just one more of the government’s contributions to the uncertainty that is helping to keep unemployment at 9 percent.

Strangely the author of the Times piece, Nelson Schwartz, ignores the findings of a recent blockbuster

…

[OPEN MARKET]

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 36 Comments »

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

Posted on April 21, 2011 by Neil Garfield

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

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

iWatch

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

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

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

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

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

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

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

Writes LaVorgna:

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

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

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

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

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

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

Nice fix we’ve got ourselves into.


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

REGISTER OF DEEDS JEFF THIGPEN (NC) AND JOHN O’BRIEN (MA): REQUIRE ALL PAST AND PRESENT MERS ASSIGNMENTS TO BE FILED

Posted on April 7, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

GET COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ

SEE 60-minutes-securitization-property-titles-are-a-train-wreck

GETTING CLOSER TO THE TRUTH

EDITORIAL COMMENT: Every day we take a little more lipstick off the pig and discover, of all things, A PIG! This is a basic challenge to Wall Street that is so simple and so right that there is nothing to do but obey — but they won’t. If all the MERS transactions are recorded, it would not only recover billions in unpaid recording and registration fees, but trigger other tax liabilities on Federal, State and Local levels. The whole REMIC exemption is based upon the REMIC vehicle being closed within 90 days.

Oops! Nearly all REMIC (SPV, TRUST) vehicles are still open (i.e., empty) after many years. And Wall Street’s fees taken under the cover of the REMIC transactions and hidden from all, would be painfully obvious resulting not only in monumental income tax liability but liability for fraudulent sale of securities, appraisal fraud on the property, RICO and many other causes of action too numerous to mention (see Causes of Action on left side of this Blog).

But that is just a dream. There is no way they can record all 80 million MERS transactions because many of them don’t actually exist. In the end, the issue is simple — are we going to sacrifice a system of title recordation in place for centuries with an exemption (get out of  jail free) card for Wall Street and thus create commercial chaos for decades or centuries to come? Or are we going to let the chips fall where they will? If the chips fall naturally, some people will make money and some people will lose money. Some people will be satisfied and some people will be mad as hell. That’s what happens in a free market, isn’t it?

All we are offered is POLICY argument that says POLICY is more important than the law. That has never been true in theory. But now the only way out for Wall Street is to make it true in theory as well as in practice. Abandoning the separate but equal powers of the judiciary and thus removing one leg of the three legged stool the founders created when they launched the USA would be the single most important element in the destruction of the country as it is presently constituted — causing a secession battle and the same problems that Russia had when stopped being the Soviet Union.

Basically Wall Street is saying “we went to all this trouble and expense to cheat and deceive you and we ought to be able to keep it. Screw you if you think you are getting any of it back.” The government is nodding its head like a head on a spring in the back seat of the car. The people are saying we want governance not pie-splitting. How this will all end up is going to be interesting and profound. Unless we apply the rule of law suggested simply by applying the requirement of recording transactions in a public registry, we will have about as much confidence in the stability of U.S. commerce as there is in any of the third world countries.

Every PONZI scheme fails. All efforts by Wall Street and the government controlled by Wall Street have failed to find an alternative way around the rule of law that doesn’t strike at the heart of our constitutional system. All the people who lose money in a PONZI scheme wish the scheme had gone on just long enough for THEM to get their money back and someone else to lose THEIR money. That’s where we are, folks, and the time to end every PONZI scheme is immediately before another person gets hurt.

These foreclosures are virtually all based on factually false and fraudulent representations, documentation, and premises. Practically none of the “mortgages” are legal and if any one of them was singularly the subject of a quiet title action, the homeowner would win on the merits, based upon the facts. It is only because of the volume of transactions that legislators and bureaucrats are scurrying around looking for a novel way out of this scam, because they are getting “benefits” from Wall Street. The requirement of recording, will expose the truth: (1) that the only real parties to the transaction are not present in any existing documents and (2) that the existing documents describe transactions that never actually took place. They can’t record these documents because most states make it a criminal offense to record, execute, witness or notarize fraudulent documents.

FOR IMMEDIATE RELEASE:

Greensboro, NC

April 7, 2011

Contact:

Jeff Thigpen, Guilford County Register of Deeds

Ph. 336-451-5300

Ph. 336-641-3239

jthigpe@co.guilford.nc.us

REGISTER OF DEEDS JEFF THIGPEN (NC) AND JOHN O’BRIEN (MA) ASK 50 STATE ATTORNEY GENERAL FORECLOSURE WORK GROUP TO REQUIRE ALL PAST AND PRESENT MERS ASSIGNMENTS TO BE FILED!

JOHN L. O’BRIEN, JR.                                                                                                          JEFF L. THIGPEN
Register of Deeds                                                                                                                    Register of Deeds

Commonwealth of Massachucetts                                                                            Guilford County, North Carolina
Phone: 978-542-1704                                                                                                           Phone: 336-451-5300
Fax: 978-542-1706                                                                                                                  Fax: 336-641-5778
website: www.salemdeeds.com website: www.guilforddeeds.com

April 6, 2011

The Honorable Tom Miller
Iowa Attorney General
1305 E. Walnut Street
Des Moines IA 50319

Dear Attorney General Miller,

We appreciate your leadership in the mortgage foreclosure working group, as part of a coordinated national effort by states, to review the practice of “robo-signing” within the mortgage servicing industry.   We understand this investigation is nearing conclusion, but we want to implore you to act on a very important issue to homeowners across the country.

As County Land Record Recorders in Massachusetts and North Carolina, we have been gravely concerned about the role of the Mortgage Electronic Registration Systems (MERS) in not only foreclosure proceedings, but as it undermines the legislative intent of our offices as stewards of land records.   MERS tracks more than 60 million mortgages across the United States and we believe it has assumed a role that has put constructive notice and the property rights system at risk.    We believe MERS undermines the historic purpose of land record recording offices and the “chain of title” that assures ownership rights in land records.

As a result, we are asking as part of your probe, that this task force and the National Association of Attorney Generals require that all past and present MERS assignments of deeds of trust/mortgages be filed in local recording offices throughout the United States immediately.  Assignments are required by statute to be filed in Massachusetts, however they are not currently required to be recorded in North Carolina.   We feel, that it is important that the Registers of Deeds should have representatives at the table before any settlement is discussed or agreed to as it relates to MERS failure to record assignments and pay the proper fees.

This action would serve three specific purposes.   First, the filing of all assignments would help recover the chain of title that determines property ownership rights that has been lost and clouded over during the past 13 years because of the scheme that MERS has set in place.  Second, transparency and confidence in ownership rights would be restored and this would prevent the infringement upon those rights by others.   Third, this action would support a return to sound fundamentals in our economy between the financial services industry and public recording offices.

MERS has defended their practices by saying that they were helping the registries of deeds by reducing the amount of paperwork that needed to be recorded. This claim is outrageous.  This is help we did not ask for, nor was it help that we needed.  It is very clear that the only ones that they were helping were themselves. Over the past 10-12 years, recording offices across the United States have upgraded their internal and external technology to meet the demands of lenders, title underwriters, title searchers and citizens.  In fact, in 1998 the Southern Essex District Registry of Deeds in Massachusetts became the first registry of deeds to provide both document images and indices available to the public, 24 hours a day, free of charge on the world-wide-web. In doing so, the Registry received a Computerworld Smithsonian Award which recognized the innovative use of technology to benefit society. In 2009, the Guilford County Register of Deeds was given a Local Government Federal Credit Union Productivity Award by the North Carolina Association of County Commissioners for their technological innovations.  Nationally, over 93% of the public land records are up to date and current, according to Ernest Publishing.

As of today, there are over 600 recording jurisdictions, covering 43% of the US population that have incorporated an eRecording model into their document recording operations.   We believe these jurisdictions cover nearly 80% of the volume of assignments that should be recorded.  The remaining areas could be covered quickly, with legislation requiring such action by state legislatures.

Quite frankly, we believe this can and should be done.  It’s the right thing to do.

In the coming weeks, we will be working with our national organizations, the National Association of County Recorders, Election Officials and Clerks (NACRC) and the International Association of Clerks, Recorders, Election Officials, and Treasurers (IACREOT) to take the same position.   We are also sending a copy of this letter to the National Conference on State Legislatures (NCSL) and the National Association of Counties (NACO).

Thank you for your immediate attention.

Sincerely,

Jeff L.Thigpen
Guilford County Register of Deeds, NC

John O’Brien
Southern Essex District Registry of Deeds, MA

###

SOURCE: Jeff Thigpen

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , | 34 Comments »

FRAUD IS THE CENTRAL PROBLEM

Posted on July 3, 2010 by Neil Garfield

It is hard to state this strongly enough. The entire mortgage backed securitization structure was based upon FRAUD. An intentional misstatement of a material fact known to be untrue and which the receiving party reasonably relies to his detriment is fraud. BOTH ends of this deal required fraud for completion. The investors had to believe the securities were worth more and carried less risk than reality. The borrowers had to believe that their property was worth more and carried less risk than reality. Exactly the same. Using ratings/appraisals and distorting their contractual and statutory duties, the sellers of this crap defrauded the investors, who supplied the money and the borrowers were accepted PART of the benefit.

See this article posted by our friend Anonymous:

Posts by Aaron Task
“A Gigantic Ponzi Scheme, Lies and Fraud”: Howard Davidowitz on Wall Street
Jul 01, 2010 08:00am EDT by Aaron Task in Newsmakers, Banking
Related: XLF, AIG, GS, JPM, BAC, C, FNM
Play Video
Play VideoNow Playing
Day one of the Financial Crisis Inquiry Commission’s two-day hearing on AIG derivatives contracts featured testimony from Joseph Cassano, the former head of AIG’s financial products unit. Goldman Sachs president Gary Cohn was also on the Hill.
Meanwhile, the Democrats are still trying to salvage the regulatory reform bill, with critical support from Senator Scott Brown (R-Mass.) reportedly still uncertain.
According to Howard Davidowitz of Davidowitz & Associates, what connects the hearings and the Reg reform debate is the lack of focus on the real underlying cause of the financial crisis: Fraud.
“It was a massive fraud… a gigantic Ponzi Scheme, a lie and a fraud,” Davidowitz says of Wall Street circa 2007. “The whole thing was a fraud and it gets back to the accountants valuing the assets incorrectly.”
Because accountants and auditors allowed Wall Street firms to carry assets at “completely fraudulent” valuations, he says the industry looked hugely profitable and was able to use borrowed funds to make leveraged bets on all sorts of esoteric instruments. “Their bonuses were based on profits they never made and the leverage they never could have gotten if the numbers were right – no one would’ve given them the money in their right mind,” Davidowitz says.
To date, the accounting and audit firms have escaped any serious repercussions from the credit crisis, a stark difference to the corporate “death sentence” that befell Arthur Anderson for its alleged role in the Enron scandal.
To Davidowitz, that’s perhaps the greatest outrage of all: “Where were the accountants?,” he asks. “They did nothing, checked nothing, agreed to everything” and collected millions in fees while “shaking hands with the CEO.”

Filed under: CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, foreign relations, GTC | Honor, HERS, investment banking, MODIFICATION, Mortgage, securities fraud, Servicer, trustee | Tagged: , , , , , , , , , | 20 Comments »

TBW Taylor Bean Chairman Arrested On Fraud Charges

Posted on June 17, 2010 by Neil Garfield

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

Editor’s Note: TBW has been high on my list of incompetent fraudsters. I always thought it was a stupid risk to “sell” mortgages and “sell” the servicing rights (probably to their own entity), and then take the servicing back. Stupid maybe, but they had no choice. The entire Taylor Bean operation wreaks of fraud and inconsistencies.

Bottom Line: If you have a TBW as the originating “lender” this article indicates, as we have known all along, that they were using OPM (Other People’s Money) and they were NOT the lender even though they said they were. It is highly likely that few, if any, of the loans were actually “securitized” because the loans were either nonexistent as described, never accepted by any pool (even though there might be a pool out there that claims ownership) and that none of the assignments were ever completed.

Thus your claims against TBW (including appraisal fraud, predatory loan practices, deceptive loan practices, fraud etc.) are properly directed, to wit: TBW still owns the paper, although the obligation is subject to an equitable unsecured claim from investors who funded the loan.

June 16, 2010

Executive Charged in TARP Scheme

By ERIC DASH

Federal prosecutors on Wednesday accused the former chairman of Taylor, Bean & Whitaker, once one of the nation’s largest mortgage lenders, of masterminding a fraud scheme that cheated investors and the federal government out of billions of dollars and led to last year’s sudden failure of Colonial Bank.

The executive, Lee B. Farkas, was arrested late Tuesday in Ocala, Fla., after a federal grand jury in Virginia indicted him on 16 counts of conspiracy, bank fraud, wire fraud and securities fraud. Separately, the Securities and Exchange Commission brought civil fraud charges against Mr. Farkas in a lawsuit filed on Wednesday.

Prosecutors said the fraud would be one of the biggest and most complex to come out of the housing collapse and the government’s huge bailout of the banking industry. In essence, they described an elaborate shell game that involved covering up the lender’s losses by creating fake mortgages and passing them along to private investors and government agencies.

Federal officials became suspicious after Colonial BancGroup, the main source of financing for Mr. Farkas’s company, tried to obtain $553 million in bailout money from the Troubled Asset Relief Program. The TARP application, filed in early 2009, was contingent on the bank first raising $300 million from private investors.

According to the S.E.C. complaint, Mr. Farkas and his partners said they would contribute $150 million, two private equity firms would each contribute $50 million, and a “friends and family” investor group would contribute another $50 million. “In truth, neither of the $50 million investors were private equity investors and neither ever agreed to participate,” the complaint said.

Mr. Farkas pocketed at least $20 million from the fraud, which he used to finance a private jet and a lavish lifestyle that included five homes and a collection of vintage cars, prosecutors said.

But the case is likely to expand beyond Mr. Farkas. The complaints cite the involvement of an unnamed Colonial Bank executive and other co-conspirators in the suspected fraud, and prosecutors said they might hold others accountable down the road.

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Officials said the many layers of the scheme resulted in more than $1.9 billion of losses to investors; a $3 billion loss to the Department of Housing and Urban Development, which guaranteed many of the loans that Mr. Farkas’s company sold; and a $3.6 billion hit to the Federal Deposit Insurance Corporation, which had to take over Colonial Bank and pay its depositors after many of the bank’s assets were found to be worthless.

The complaints also list BNP Paribas and Deutsche Bank, which provided financing to Mr. Farkas’s company, as victims of the suspected fraud. Together, they lost $1.5 billion.

According to the complaints, the fraud started as early as 2002 with an effort to conceal rising operating losses at Taylor, Bean & Whitaker, a mortgage lender founded by Mr. Farkas. The first stage involved an attempt to hide overdrafts on a credit line the company had with Colonial Bank. As those overdrafts grew, prosecutors contend, Mr. Farkas and his associates started selling fake mortgage assets to Colonial Bank in exchange for tens of millions of dollars.

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

The transactions were “designed to give the false appearance that the loans were being sold into the secondary mortgage market,” Mr. Breuer said. “In fact, they were not.”

By 2008, prosecutors contend, the scheme had entangled the federal government. Investigators in the Office of the Special Inspector General for TARP took notice of the size of Colonial Bank’s bailout application and became suspicious of the accuracy of the bank’s statements.

That led investigators to alert other federal officials and draw a connection between Colonial Bank and Taylor, Bean & Whitaker, whose offices were raided by federal agents in August 2009. Both companies would soon stop operating.

“We knew it was a longstanding and close relationship between Colonial and T.B.W., and we decided that we needed to take a much closer look,” Neil M. Barofsky, the TARP special inspector general, said at a news conference on Wednesday. Investigators also discussed the situation with Treasury officials to “make sure the money would not go out the door.”

Federal officials have conducted nearly 80 criminal and civil investigations into companies that accepted TARP money, but so far they have filed charges in only one other case. In March, the head of Park Avenue Bank in Manhattan was accused of trying to defraud the government bailout program.

Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, Fannie MAe, foreclosure, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES | Tagged: , , , , , , , , , , , , , , , , , , , , , , , | 27 Comments »

Allocation of Third Party Payments and Loans to Specific Loan Accounts

Posted on May 25, 2010 by Neil Garfield

TURNING A DEFENSE INTO AN AFFIRMATIVE DEFENSE FOR SET OFF AND A CLAIM OR COUNTERCLAIM FOR DAMAGES AND ATTORNEY FEES

So the question is how would you allocate third party payments and what difference will that make to a Judge hearing the case.

ASSUMPTION: XYZ Investment Banking Holding company has received a total of $50 billion in third party payments from insurance, counterparties, credit enhancements (moving money from one tranche to another within the SPV “Trust”), and federal assistance or bailout. Each one of these is subject to separate analysis, but for simplicity we will treat them all the same.

  • The money received was for “toxic assets” meaning bad mortgages or pools that were written down in value because of the presence of bad loans in the pools. Whether those loans really made it into the pool when the “assignment” was years after the cutoff date in the PSA and was for a non-performing loan which is specifically excluded in the PSA is yet another issue that requires separate analysis.
  • Out of the many SPV entities created and sold to investors, 50 were in the status of default or write-down, triggering the insurance, bailouts etc.
  • Arithmetically, assuming $1 billion goes to each pool under the assumption they were all the same size (not true in reality, so you would be required to make a calculation to arrive at the prorata share of each pool which involve several factors and is subject to a whole separate analysis that will be ignored for purposes of this example).
  • Out of each pool, 50% of the loans were in some stage of negative credit event. Thus we have $1 billion to allocate to 50% of the loans.
  • For purposes of this example, the assumption is that each loan was the same size and that there are 4000 loans each with a nominal principal balance of $350,000 claimed.
  • For purposes of this loan each borrower stopped making payments under identical terms 6 months before the receipt of the third party payments.
  • If we ignore the payments then each loan would be entitled to a credit of $250,000 and the investors in each pool would receive a pro rated share of the $1 billion, which amounts to $250,000 per loan.
  • If we don’t ignore the payments and assume that the payments under the note would have been $2,000 per month principal and interest only, then $12,000 wood first be allocated to the past due payments and the default, in relation to the creditors (investors) would be cured. This would be in accordance with the note provisions that first allocate receipts to the payments due.
  • Then fees and costs would be paid off, which we will assume are $13,000, as per the terms of the note.
  • Thus the $250,000 allocation would be reduced by $25,000 before application to principal. That leaves $225,000 allocated to principal.
  • Reducing the principal by $225,000 leaves a balance due on the obligation of $125,000 ($350,000-$225,000).
  • Reducing the balance for the appraisal fraud at origination: (1) appraisal for this example was $370,000 (2) real fair market value was $250,000 (3) borrower made down payment of $20,000 (4) total damages for appraisal fraud = $120,000.
  • After reduction for appraisal fraud the balance on the obligation in our example here is $5,000.
  • Under TILA the failure to disclose the hidden fees and hidden parties and resulting effect on the APR, would mean that the borrower is entitled to either rescission or return of all payments made including the costs of closing and points on the loan, plus attorney fees and possibly treble damages which would mean that someone owes the borrower money, the obligation has been extinguished, the note is evidence of an obligation that has been paid in full, and the mortgage secured is incident to a note securing a non-existent obligation. Either way, under rescission or allocation, the borrower owes nothing.
  • The net result for the creditor is that they get or should get $250,000 cash plus a claim for damages against numerous parties for ratings fraud, appraisal fraud and securities fraud.
  • The net result for the intermediaries who stole all the money including the third party payments is that they get the shaft including possible criminal liability.

A very similar allocation procedure would be appropriate for the top quality performing loans under the theory of identity theft. Without using these high FICO credit-worthy people’s identity and loan score they would not have had the golden cover to the heap of dog poop stinking underneath.

Filed under: CASES, CDO, CORRUPTION, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop | Tagged: , , , , , , , , , , , | 18 Comments »

Obama Moves Closer to Principal Reduction Mandate

Posted on March 10, 2010 by Neil Garfield

Editor’s note: This is red meat for investors and borrowers seeking restitution for losses caused by improper appraisals, ratings and representations concerning loan and property values, loan viability, securities fraud, deceptive lending practices, TILA violations etc.

Obama Bank Policy Signals $1 Trillion in Writedowns

April 3 (Bloomberg) — U.S. regulators may force Bank of America Corp., Citigroup Inc. and at least a dozen of the nation’s biggest financial institutions to write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.

Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.

Lower valuations would lead to new writedowns and capital injections from the $134.5 billion remaining in the Troubled Asset Relief Program, Nobel Prize-winning economist Joseph Stiglitz said.

“The only way banks will sell is under duress,” the 66- year-old professor at Columbia University in New York said in a phone interview.

Asset sales are the latest step in President Barack Obama’s effort to restart the U.S. economy through the most costly rescue of the financial system in history. Treasury Secretary Timothy Geithner’s Legacy Loan Program and Legacy Securities Program together are targeted to start at $500 billion and may expand to $1 trillion.

Auctioning Assets

Geithner’s plan will purchase loans and be overseen by the FDIC, which will offer debt guarantees while the Treasury invests capital alongside investors.

The FDIC would auction assets after the Office of the Comptroller of the Currency, Office of Thrift Supervision or the Fed signals that a bank is in danger of failing.

“If we thought that was the right decision to address their situation, we would certainly tell an institution to move in that direction,” said William Ruberry, an OTS spokesman in Washington.

Geithner’s plan to buy loans and securities “can be very useful,” Comptroller of the Currency John Dugan said in a Bloomberg Television interview today. “It’s one more arrow in the quiver to address problems with assets on banks’ balance sheets.”

Treasury spokesman Isaac Baker said in an e-mail that the program is voluntary and the government expects banks will want to sell assets to clean their balance sheets and make it easier to raise capital from investors, he said.

Financing Help

“Past auctions cannot reliably predict asset prices in the Public Private Investment Program, as we are creating a new market that has not previously existed to help value these assets, and offering financing to help investors purchase them,” Baker said.

Setting up a facility to purchase distressed loans will allow the FDIC to put a bank into “a silent resolution,” said Joshua Rosner, a managing director at investment-research firm Graham Fisher & Co. in New York.

“This is a way to functionally wind down a bank as big as Citi without the world realizing that they’re essentially in resolution,” he said. “The real value of this is a tool to resolve a too-big-to-fail institution.”

The FDIC is considering allowing banks to share in future profits on loans sold to public-private partnerships to encourage healthier lenders to participate, according to Jim Wigand, the agency’s deputy director for resolutions and receiverships. The regulator is seeking comments through April 10 on the program, said spokesman David Barr.

Assets sold under the Legacy Loans Program may be worth an average of 56.3 cents on the dollar, based on the results of FDIC auctions at failed banks over the past 15 months.

‘Large Amounts’

Writedowns would total $1 trillion if the program buys $500 billion in loans at 32 cents on the dollar, the average for non- performing commercial loans in the FDIC sales.

Geithner said March 29 that some financial institutions will need “large amounts of assistance.” He’s trying to avoid bank nationalizations by wooing investors to purchase loans with taxpayer-guaranteed financing to protect them against loss. The U.S. move to clear away distressed assets contrasts with Japanese financial authorities’ reluctance to do so in a 1990s financial crisis, which led to a decade of economic stagnation.

“This is going to be our Yucca Mountain right here,” said Joseph Mason, an associate professor at Louisiana State University in Baton Rouge and former FDIC visiting scholar, referring to the proposed radioactive-waste storage site in Nevada.

Half-Life

“You can put it in a train car and ship it across the country. The half-life of this stuff is real long, but it has to burn off,” he said.

The FDIC’s average auction value of 56.3 cents on the dollar for residential and commercial loans is based on 312 sales worth $1.1 billion since Jan. 1, 2008, according to the FDIC. The average for 348 commercial loans for which borrowers stopped paying was 32 cents on the dollar. Auction prices ranged from 0.02 cent to 101.2 cents on the dollar, according to the FDIC.

In announcing its loan-sale program last week, the Treasury provided an example of a purchase price of 84 cents on the dollar, with taxpayers putting up 6 cents, investors 6 cents and the FDIC guaranteeing 72 cents in financing.

“Eighty-four cents is just laughable” because the market value for loans is much lower, said Barry Ritholtz, chief executive officer of New York-based FusionIQ, an independent research firm.

The U.S. is structuring the loan purchases to leave the government with most of the risk, while investors stand to gain most of any profit, economist Stiglitz said.

‘Almost No Upside’

“There’s almost no upside for the taxpayer,” he said. “The government is giving a 110 percent bailout.”

How much investors offer for assets is “going to be the key” determinant of Bank of America’s participation in the government’s two asset-purchase programs, CEO Kenneth Lewis said in a Bloomberg Television interview March 27.

“If there’s an issue with the program, it’s going to be trying to get banks to sell assets,” FDIC Chairman Sheila Bair said in a speech the same day at the Isenberg School of Management of the University of Massachusetts in Amherst.

“If I have concern, it’s the pricing may not be where seller and buyer are willing to meet,” she said.

Any standoff between investors and banks over loan prices may scuttle Geithner’s plan to segregate non-performing assets and restart lending, said Bob Eisenbeis, chief monetary economist with Vineland, New Jersey-based Cumberland Advisors and a former Atlanta Federal Reserve Bank research director.

‘Really Bad Stuff’

“It’s hard to believe that the really bad stuff that’s causing all the problems are going to be offered for sale,” Eisenbeis said. “The institutions won’t want to sell them if they get a true price, because their capital would take too much of a hit.”

With preparations for auctions under way, U.S. banks are being put through so-called stress tests, which Geithner said last month are a comprehensive set of standards for the financial system’s most important lenders. The examinations of loans and their collateral and payment histories are scheduled to be completed by April 30.

Banks have almost $4.7 trillion of mortgages and $3 trillion of other loans that aren’t packaged into bonds, according to the Fed. The vast majority are carried at full value because they don’t need to be written down until they default, according to Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC.

“Just because it’s being held at full value doesn’t mean it’s not bad,” Alpert said.

Obama Effort

While regulators don’t intend to publish the details of their stress tests, the results will effectively become known once banks announce how much capital they need to raise. Regulators will then give lenders six months to obtain funds from investors or taxpayers as a last resort.

The tests are designed to mesh with Obama’s effort to remove banks’ distressed mortgage assets that have hampered lending to consumers and businesses. Officials aim to have the first loan purchases by private investors financed by the government within weeks of the conclusion of the stress tests, according to the Treasury.

Including TARP, the U.S. government and the Fed have spent, lent or guaranteed $12.8 trillion to combat the financial collapse and a recession that began in December 2007. The amount approaches the $14.2 trillion U.S. gross domestic product last year.

‘Constructive Plan’

Obama met with the CEOs of the nation’s 12 biggest banks on March 27 at the White House to enlist their support to thaw a 20-month freeze in bank lending.

Lenders undergoing stress tests include New York-based Citigroup, which has received three rounds of capital infusions valued at $60 billion, including $45 billion from TARP, according to Bloomberg data.

“The administration has put forth a constructive plan to address the critical issues facing the financial services industry, and we are committed to working together with the industry to help achieve the goals of the plan,” CEO Vikram Pandit said in a statement before meeting with Obama.

Citigroup spokesman Stephen Cohen declined to comment.

The U.S. tests also involve Charlotte, North Carolina-based Bank of America, which also received $45 billion from TARP. It bought Merrill Lynch & Co. — the largest underwriter of failed collateralized debt obligations, according to Standard & Poor’s — and home-lender Countrywide Financial Corp.

Bank of America spokesman Scott Silvestri declined to comment.

Option ARMs

San Francisco-based Wells Fargo purchased Wachovia Corp., the nation’s biggest provider of option adjustable-rate mortgages, for $15 billion. In doing so, it took responsibility for about $122 billion of option ARMs sold by the Charlotte bank.

Option ARM loans allow borrowers to defer part of their interest payments and add it to their principal. When housing collapsed, many holders of the mortgages were left owing more than the value of their homes.

Wachovia issued more than half its option ARMs in California, according to bank filings. Wells Fargo was already the biggest lender in the state.

“Wells Fargo supports any plan by the Treasury that helps financial institutions efficiently sell troubled assets while still providing an investment return to the U.S. taxpayer,” spokeswoman Janis Smith said in an e-mail.

Web Distribution

The ability to distribute loan information over the Internet will also support prices by expanding the number of buyers and allowing for sales as small as $100,000, said Stephen Emery, a managing director at New York-based Mission Capital Advisors, which brokered $3 billion of real-estate loan sales last year.

Terms offered under the Legacy Loans Program, including government-backed financing, will also help boost demand and selling prices by as much as 20 percent, he said.

“The leverage will allow buyers to bump their price a little bit,” Emery said. “But that still doesn’t mean that something that was worth 30 is now worth 60. What’s going to happen is now it’s worth 35 or 36 cents.”

To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net;

marcus@foreclosureProSe.com

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , | 8 Comments »

Foreclosure Defense: Rescission Letter, Demand Letter

Posted on May 29, 2008 by Neil Garfield

events-coming-up-for-garfield-continuum-and-garfield-handbooks

New comment on your post #214 “Glossary: Mortgage Meltdown and Foreclosure”

Comment: A question on TILA and Non-judicial Foreclosure for anyone who knows the answer; Does a rescission letter that is timely and certifiably mailed to all appropriate parties (lender, assignee, servicer, trustee) prevent/nullify a pending non-judicial foreclosure sale? Would appreciate any information that may help find that answer.

bootcamp-04_08_newsletter

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Complicated answer: technically speaking the purchase money first mortgage is exempted from TILA rescission but is still available under little FTC and common law fraud. This exemption was carved out after exhaustive lobbying by lenders.

The actual answer to your question is MAYBE. It depends upon the auctioneer’s assessment, but if you let everyone know at the auction that they are buying into a lawsuit our experience shows that generally speaking nobody bids — not even the lender.

Now if you accompany your letetr with the TILA audit and an attorney’s demand letter, you are in a stronger position.

The TILA/Mortgage audit is the key and most people don’t know how to do it even though they are advertising otherwise on fancy websites etc. We have two on our site that we are currently referring to and we are looking for others that are actually competent and not fly by night take your money and run places.

And if you are willing to file suit against the lender, there are a number of ways to prevent the sale and turn the tables on the lender. There are even strategies that are outlined in this blog that show how in certain cases the borrower walked away with the house free and clear of the mortgage and note.

Here is some verbiage that has been used, but frankly without an attorney to deal with the lender, your position is not going to be taken as seriously as it would with a competent attorney who understands the complex issues:

Dear Sir or Madam: Please accept this letter on behalf of the above-named property owner and borrower. While this letter is written in part for purposes of settlement and compromise it is already a demand letter which can and will be used as necessary. It is therefore not a confidential communication protected under the rules of settlement disclosures and correspondence.

You have previously been presented with proper notices of deceptive lending practices in the closing on the above-referenced loans. Said notices were accompanied by Proposed Resolutions under the Federal Truth in Lending Act and the Real Estate Settlement Procedures Act.

Notwithstanding the above, your agents have threatened foreclosure, sale and eviction of the homeowner/borrower, despite the facts that the borrower is not in default, the lender and trustee are ignorant of any facts to state affirmatively that the borrower is or is not in default, the lender is in default of its obligations under applicable Federal and State laws, the lender at the closing the servicing agent are not the real parties in interest (i.e., they lack standing to proceed to judicial or non-judicial sale), the trustee and lender lack authority to proceed but have intentionally and fraudulently filed papers and posted notices as though the authority was present.

WE HEREWITH DEMAND THE NAMES AND CONTACT INFORMATION ALONG WITH A DESCRIPTION OF THE SECURITY SOLD, THE ASSIGNMENT MADE, AGREEMENTS SIGNED, BETWEEN ALL OF THE MORTGAGE BROKERS, REAL ESTATE BROKERS, DEVELOPERS, APPRAISERS, MORTGAGE AGGREGATORS, INVESTMENT BANKERS, RETAIL OR OTHER SELLER OF SECURITIES AND THE INVESTORS WHO PURCHASED THE SECURITIES.

Based upon information received from the experts in this case and based upon our own factual and legal investigation there appear to be claims in addition to the claims stated in prior correspondence, which claims based upon the following summary, are in most cases not exclusive and therefore the demands stated in this letter and prior correspondence you have received, which is incorporated herein as specifically as if set forth at length hereat, should all be considered cumulative.

Usury: As a result of the artificially inflated “fair market values” utilized by LENDER et al, its agents, servants and/or employees, to induce the borrower to sign the mortgage documents and purchase the property, the effective yield now vastly exceeds the legal lending limit in the State of Florida, if the borrower pays in accordance with the mortgage and note indentures. A quick review of the usury law in Florida will reveal that while it has been relaxed somewhat to accommodate predatory lending through credit cards and payday loans, it remains somewhat stringent in connection with other loans and allows the borrower to to cancel the loan and collect damages. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus attorney fees and costs of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

Security Violation: The subject mortgage was part of a purchase transaction in which the property was sold with promises and assurances that the value would go up, the rental value would assure a return on investment, and that the investor need not perform any work, since the maintenance and other factors would be done by third parties — the Condominium Association, the real estate broker, the management office etc. This constitutes, despite the appearance of other “uses” the sale of a security under the Securities Act of 1933 and other applicable Federal and state Securities laws. The sale of this security was improper, lacking disclosure, rights to rescind under the securities laws, and lacking in disclosure as to the true nature of the transaction and the true position of the parties, including but not limited to the fact that the “lender” was in actuality acting as a conduit, removing the essential aspect of risk-sharing in the normal lender-borrower relationship, that the risk of loss was not only real but unavoidable because of the artificially inflated values, and that the Buyer should consider the purchase to be a high-risk investment with the possibility of total loss. Since the sale of THIS security was part of larger plan to sell securities to “qualified” investors using false ratings and false assurances of insurance, together with a promised rate of return in excess of the revenue produced by the underlying efforts, the sale of THIS security was part of larger Ponzi scheme wherein securities were sold at both ends of the spectrum of the supplier of capital (the investor) and the consumer of the capital (the borrower and the seller of the property). Since compensation arising from the transaction with this borrower was not disclosed to the borrower, the transaction lacked proper disclosure and is subject to rescission, compensatory and punitive damages. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus attorney fees of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

Common Law Fraud in the Inducement and Fraud in the execution of the closing documents including but not limited to the settlement statement, the mortgage and note. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus punitive and/or exemplary damages plus attorney fees of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

Little FTC Act (Florida): while the transaction clearly involves interstate commerce, Florida law provides for much the same remedies as described above for unfair and deceptive lending or business practices. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus punitive and/or exemplary damages plus attorney fees of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

TILA claims have been summarized in prior correspondence. Because the transaction is not a pure first mortgage residential transaction, the TILA exception for rescission does not apply and we therefore demand rescission in addition to the above-stated claims. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus punitive and/or exemplary damages plus attorney fees of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

RESPA: You have failed to properly respond to the claims under the act are are currently in violation. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus punitive and/or exemplary damages plus attorney fees of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

RICO: As stated above there were multiple parties in multiple states in a scheme spanning virtually all continents in which false, misleading and non-conforming statements were made to investors and borrowers alike, wherein LENDER et al acted in concert with other ”lenders” and investment bankers to artificially create the appearance of higher market values for property and the false appearance of trends that did not in actuality exist, but for the “free money” (secured under false pretenses) pumped into a financial system and real estate market consisting of false and deceptive high pressure sales tactics whose objectives were to get the borrower’s signature without regard for the consequences to either the borrower or the investor. Hence, just for the record, in the unlikely event we do not settle this case, demand is herewith made for full satisfaction of the mortgage and note plus three times the value of the note in damages, plus punitive and/or exemplary damages plus attorney fees of 10% of the value of the of the claim which is the principal of the note plus three times the principal of the note.

Under Federal Law, you are a provider of financial services and/or products to a borrower whom you or your agents, predecessors, or successors intentionally deceived at the closing of the loan, conspired to misrepresent the proper appraised value of the property, and have now ignored your basic responsibilities of presenting a response to the notices and correspondence already on file with you and regulatory agencies, who have been informed of your illegal and improper conduct.

Notwithstanding the above, the borrowers are now faced with the apparent prospect of losing their house, their credit rating, and have been required to seek the services of legal counsel to forestall the loss, for which services demand is herewith made under the terms of the mortgage and all applicable Federal (TILA, RESPA, RICO) and State Law..

YOUR CONDUCT, IF YOU PROCEED, CONSTITUTES CRIMINAL THEFT AND CIVIL THEFT OF THE REAL PROPERTY SUBJECT TO THE MORTGAGE, NOTE AND PROCEEDINGS YOU HAVE POSTED AND FILED. Accordingly your position, in the absence of any authority to do so under law is invalid and illegal. ON BEHALF OF THE BORROWER/HOMEOWNER DEMAND IS HEREWITH MADE THAT ALL EFFORTS AT SALE, EVICTION OR FORECLOSURE BE STOPPED IMMEDIATELY AS THE PROPERTY IS SCHEDULED FOR EVICTION/SALE WITHIN A FEW DAYS.

Any further attempts at collection will result in further action taken on behalf of the borrowers for all remedies available in law and equity in both administrative proceedings, and judicial forums possessing competent jurisdiction, which will seek damages for unfair trade trade practices, treble damages under applicable law for RICO, FTC and little FTC violations, consequential damages and refunds, attorney fees, court costs, and all other available remedies in law or equity.

PLEASE GOVERN YOURSELVES ACCORDINGLY!!!

respa_request_-_mike1-rev-1-neil

Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: , , , , , , , , , , | 139 Comments »

Mortgage Meltdown: Fueled by Fraud

Posted on November 25, 2007 by Neil Garfield

Most stories about the mortgage crisis begin with the idea that people were induced to buy homes they could not afford. This is mostly incorrect. The reason for the meltdown is that people were induced to “buy” mortgages they could not afford — when in fact they qualified for mortgages they could afford and would still be paying but for the deceit of mortgage brokers and even real estate brokers who were skimming from the transaction.  The lenders and investment bankers who are claiming “plausible deniability” on this are not telling the truth. We know that because they paid the kickback either directly or by financing it.   This is not a story about buyers who went into a frenzy buying things they couldn’t afford.This is largely a story of conversion of equity of innocent people into fees for well-heeld, well connected scam artists — i.e., the transfer of wealth from those who have money and whose intent to buy something they could in fact afford, was switched into a scheme to take away their money, convert it to fees, take away their houses and all the improvements they made on those houses, and take away the savings of investors who were duped into buying shares in managed funds and institutions that were buying “high rated” CDO’s. On the buying end of the game, here is how it works.

  1.  Joe Jones and his wife Mary go house shopping. They are well-employed, with reliable jobs, and good credit ratings. They have a well-analyzed budget as to what they can afford and what they can’t but hey lack one thing — sophistication in financial instruments and legal knowledge of complex mortgages. This presented an opportunity to the scam artists out there who are claiming protection under the law, because they say what they did was legal. It wasn’t and it isn’t. They lied, took money for lying, and intentionally used their position of trust for their own benefit instead of delivering the services and Joe and Mary thought they were hiring when they went to a mortgage broker.
  2. The real estate broker steers them to a mortgage broker that (a) will assure that the deal closes because they will do anything to get the borrowers to sign papers that misrepresent their financial position and that misrepresent the value of the home and (b) more importantly, will give the real estate broker a kickback for the referral because the mortgage broker is about to pick up a huge fee called a “yield spread premium.”
  3. The Mortgage broker is presented in one of two alternatives in this market: (a) give the customer the best mortgage they qualify for and collect a reasonable fee or (b) convince the customer to take a mortgage that appears cheaper but is in fact much more expensive, for which the mortgage broker will get a kickback representing a fee which is a percentage of the the difference between the value of the mortgage the customer should have received and the higher value of the mortgage they were convinced into signing. If the mortgage broker goes for the the dishonest option, he/she might earn as much as $10,000 EXTRA. 
  4. Since the application process is both complex and expensive in time and money the customer is not free to shop around as one might think from the advertisements. And the nuances of one mortgage proposal versus another, are not clear except to experts who conceived them — people who knew they were going to transfer the risk to investors up stream. Thus none of the downstream participants — the “lender”, the “underwriter,” the “appraiser,” the real estate broker, the title company, the lawyers, the mortgage broker or the seller/developer have any interest in keeping the transaction honest because they are all going to make money whether the deal fails or not. The risk is going to Wall Street where it is being parceled out in “derivative securities” in nothing less that clear securities fraud on MANY levels. 
  5. Thus we have fraud going on at both ends of the line — starting at the home purchase and ending with the securities purchase. The amazing part of this is that while they were all committing fraud with full knowledge of the damage to the buyers and securities investors, the giddy greed factor became so great that even the scam operators themselves took positions in the CDO’s (which might as well be called junk bonds or junk securities) so that they could sell them at a premium to multiply the fees they were earning from this scheme into capital gains many times the fees they were “earning.”
  6. So Joe and Mary can afford a mortgage where the total payments are $2350 per month but are steered into a mortgage where the payments appear to be lower. The deal is “explained” to them until their minds are numb with too much information and too little understanding. They listen to their mortgage broker who after all is the person they hired to advise them and who clearly does understand the complexities of these obscure documents and instruments of conveyance. 
  7. Joe and Mary are also encouraged to put down less money than they can afford because that makes the mortgage debt higher and increases the bonus kickback to the mortgage broker for converting them from a conventional mortgage that they can afford to a sub-prime mortgage (in sheep’s clothing) that they cannot afford. 
  8. Now it is 2 years alter and Joe and Mary are in shock. Their income is stable, their credit rating is great, they have a great family and they have fixed up the new house nicely to their liking. But they have a growing problem. The 6% mortgage they could afford for a conventional mortgage was never presented. They could have paid that off easily. Instead they have a sub-prime, negative amortization mortgage, adjustable in its rates and they are now up to 11% with payments more than twice what their budget will allow them to pay. 
  9. So Joe and Mary are either not making payments, offering partial payments that are being rejected by a mortgage service provider who does not have the authority to adjust anything, or about to stop making payments. They are considering bankruptcy to save them but there while relief might be available, all of their payments under a Chapter 13 plan, are subject to an additional 10% fee for the bankruptcy trustee to process it. So in fact they are facing worse trouble if they go that route.
  10. In short, they are screwed and nobody cares.
  11. But here is what ought to happen:
    1. They should get legal help because all sorts of laws were violated — including truth in lending, breach of contract with the mortgage broker, and fraud — civil if not criminal. 
    2. Lawyers should step up tot he plate and take these cases on contingency, forcing the lenders and investors to settle the claims by giving the Jones family a mortgage they should have received in the first place and paying them damages for the fraud that was committed. Fees would be paid by the scam artists instead of the lenders.
    3. The Sheriff should convene his economic crimes unit to investigate and prosecute people for this fraud.
    4. The Sheriff should also call a moratorium on evictions.
    5. The State and Federal Attorney General should do the same and should join with the attorney generals of other states much the same as was done when Big Tobacco was taken on. 
    6. The state legislature should pass remedial legislation changing the procedures for foreclosure so that the victims have more time to get their defenses up.
    7. The Congress should do the same and initiate regulation of interstate lenders and the mortgage brokers that enter the transactions with felony penalties for violation of the duty to disclose.
    8. The Governor should issue an order stopping eviction on all foreclosures until there is a hearing before a judge where it is determined that there is not at least probably cause to believe that a fraud was committed. 
    9. Class action suits should be initiated against the mortgage banking, investment banking and retail securities firms that created this scheme, with full restitution, fines and loss of licenses — people should not be put out of their houses, Wall Street scammers should be put out of business.

Filed under: CDO, CORRUPTION, Eviction, foreclosure, Investor, politics, securities fraud | Tagged: , , , , , | 1 Comment »

%d bloggers like this: