Qui Tam? Class Action? Mass joinder? Wrongful foreclosure?

The problem with qui tam in connection with mortgages and foreclosures is that they have not yet worked except in rare instances. The biggest hurdle seems to be that the agency that supposedly got defrauded (e.g. FDIC) by false claims steps forward and says it was OK. You can’t force them to admit that they were defrauded and if they are unwilling to do so, there is no possible claim. The false claims act apparently needs amendment such that an agency may not ratify or forgive criminal behavior.

The second thing that usually trips up a qui tam action is that the relator must be someone with specific knowledge that is outside of the public domain and specific to that individual. Most such actions are dismissed because they are merely disguised class actions.
The third thing that is an obstacle to a successful qui tam action is that the expense of litigation is much higher than ordinary litigation. So most people file such actions in the hope of a state AG or the US AG accepting the action and litigating it. If the AG steps on it, the inference is raised that the qui tam lacks merit or can’t be raised to the necessary level of proof — making it that much harder to prove a prima facie case.
All that said, the reason why people keep trying to go for qui tam actions is that the rewards can be enormous. One person received $31 million in a settlement. See stories on Lynn Simoniak.
My personal preference (which could be dead wrong) is a mass joinder action in which homeowners who have or had loans claimed as securitized by one specific REMIC trust scheme, bring a claim essentially stating that it was all a lie. I like it because proving that the loan was not securitized is actually quite simple in discovery.
You end up not actually proving it, but rather blocking the opposition from introducing any evidence that the transaction was a loan and was securitized. If there is no evidence supporting the securitization of the “loan” the claims of the lawyers, servicer, trust and trustee are left without any foundation. And once that is the case any past, current or future foreclosure judgments or sales are void, not merely voidable.

Without securitization (or some other enforceable agreement detailing the rights between the owner of the underlying obligation and the foreclosure players) there is no right, title or interest in the debt, note or mortgage and no authority to administer, collect or enforce.

Neil F Garfield, MBA, JD, 73, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.

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They are AT It Again: Ocwen Securitizing Gov.-Backed Mortgages

Just in case you were wondering if anything is changing in the world of finance, the answer is no, not really. Ocwen here is announcing that they are securitizing mortgages backed by the government, and selling the pieces to investors, who really ought to know better by now.

They are doubling down on a failed strategy in the hope that it will bring the housing market out of its slump. Maybe it will work for a time, but the net result is that the fundamental dysfunction of the financial markets are being ignored. Trust is the basic component of everything that happens in the financial markets and trust is what was broken completely in the mortgage crisis.

They lied, cheated, stole and then fabricated documents out of thin air, forged with the signatures of unsophisticated office workers who were told that if they want a paycheck they need to do what they were told. That gave birth to what was eventually called robo-signing and surrogate signing, forging of signatures and invalid documentation unsupported by either authority or consideration. It looks to me that no lessons were learned on Wall Street except that if you make the crime big enough, nothing will happen to you.

This is why in the Full day seminar on August 25 in Emeryville (San Francisco) we delve into the components of discovery and pleading so that homeowners stop making or allowing records on appeal to contain matters that are in dispute appear as though they are not in dispute.

One interesting question that should be asked is that if the risk of loss is covered by BOTH securitization (diversification) and government backing, what benefits are the consumers getting in rates?

This article from Housing Wire by Jon Prior, is one of many to come as the policy of “doing what works” continues to dominate over “doing what is right.” With these policies in effect the vast majority of homeowners are being left out in the cold and the few who litigate successfully will get reasonable settlements or modifications. The bottom line is that housing as a keystone component of our economy will continue to drag the economy even as we try to spike activity in other sectors.

Ocwen to securitize FHA mortgages

A special vehicle put together by subprime mortgage servicer Ocwen Financial Corp. ($24.38 0.29%) plans to acquire government-backed loans soon and package them into bonds for investors.

Ocwen and its former asset management firm Altisource built Correspondent One last year. The vehicle will buy mortgages originated by Lenders One, which Ocwen estimates wrote 8% of all home loans in the U.S. last year. Lenders One is a national alliance of mortgage bankers, correspondent lenders and suppliers of mortgage products and services.

Correspondent One will also acquire Federal Housing Administration mortgages soon for future securitizations, Ocwen disclosed to investors in its second quarter filing. Currently, roughly 98% of FHA loans are securitized through Ginnie Mae bonds.

The company said Correspondent One acquired roughly $17 million in conventional loans from Lenders One in the first half of 2012.

“Correspondent One has seen significant, positive environmental changes in the correspondent lending market. There has been a contraction in correspondent lending,” Ocwen said, alluding to recent exits by Bank of America ($7.91 0.035%), Ally Financial and others.

In July, Ocwen also began setting up agreements to purchase servicing on newly originated loans. Under the arrangements with undisclosed firms, lenders would sell the loan to either Fannie Mae or Freddie Mac or issue a Ginnie Mae security backed by FHA loans. The servicing on those loans would automatically transfer to Ocwen.

The company serviced nearly $128 billion in mortgages as of June 30, nearly double the $70 billion portfolio it held one year prior.

The funding pipeline for Correspondent One and these special arrangements reached nearly $195 million at the end of July, Ocwen said.

Ginnie may raise its minimum net-worth requirement for issuers of its FHA-backed mortgage bonds, American Banker reported this week. Smaller lenders are becoming shut out and could turn to more creative and private deals like the one Ocwen has set up in order to fund their new loans.



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