DELAY Is the Name of the Game

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Editor’s Notes:  

It comes as no surprise that BofA, now the unproud owner of Countrywide, would repeatedly appeal a judgment in which a moral man tried to avoid moral hazard at Countrywide and was fired for it. Corporations do that all the time to gain the advantage of achieving a smaller settlement or to dissuade others from doing the same thing. I feel appalled that this guy in Gretchen’s story is still waiting for his compensation and that if BofA has its way, he will be deprived of it altogether. BofA of coruse says that when they acquired CW there just wasn’t a job left for him. Bullcrap:

“But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.” (e.s., see full article below and link).

“These folks went in the other direction” is an understatement. And while most of the media is stepping back from foreclosure stories except for reporting the numbers, this story brings back the raw, mean, lawless intent of Countrywide and other leaders of the securitization scam. Let me first remind you that for the most part, the “securitization” never occurred. Any loan declared to be part of a pool that was “securitized” or otherwise transferred into the pool is a damn lie. Very few people understand how that even COULD be true, much less believe that it is an accurate statement. But it is true. There was no securitization in most cases.

If a loan was securitized it would have been underwritten by a bona fide lender and then sold to an aggregator, and from there sold to a REMIC “trust” or special purpose vehicle. Certificates of ownership of the loan together with a promise to pay the owner of the loan a sum of money with interest would have been issued to qualified investors like pension funds and other institutional investors upon which our society depends for social services and a safety net (which in the case of pension funds is largely funded by the workers themselves). Of course the investors would have paid the investment banker for those loans including a small fee for brokering the transaction. And everyone lives happily ever after because Tinker Bell certified the transactions.

So if the loan was securitized, then both the document trail and the money trail would show that the loan was properly owned and funded by the “lender,”, the lender assigned the loan in exchange for payment from the aggregator and the aggregator assigned the loan in exchange for payment into the pool (REMIC, trust, or whatever you want to call it). The problem for the banks is that none of that happened in most cases. And their solution to that problem, instead of acting like trustworthy banks, is to delay and fabricate and forge and intimidate. (PRACTICE NOTE: THESE ARE THE DOCUMENTS AND PROOF OF PAYMENT YOU WANT IN DISCOVERY)

The real story is that the loan was not underwritten by a bona fide lender whose role involved any risk of loss on the loan. In fact, in most cases there was no financial transaction between the lender named on the note and mortgage and the borrower. The financial transaction actually occurred between the borrower and an undifferentiated commingled group of investors who THOUGHT they were buying into REMICs but whose money was used for anything BUT the REMICs. Their money was in an account far from the securitization chain described above controlled by an investment bank who was taking “trading profits” and fees out of the money as though it was their own private piggy bank.

The “assignment” (sometimes erroneously referred to as an allonge or endorsement) was offered and accepted between the named lender (who was not the real lender) and the mortgage aggregator WITHOUT PAYMENT. The assignment says “for value received” but the value was received by the borrower and the investment bank and so there was no payment by the aggregator for an assignment from a “lender” that wasn’t the lender anyway and who never had one penny in the deal, nor any legal right to declare that they were the owner of the loan.

The “aggregator” was a fictitious entity meant to deceive any inquiring eyes. My eyes were inquiring and for a long while I believed in the existence of the aggregator — but then I was late on getting the real scoop on Santa and tooth fairy too. But it misdirects the attention of the audience like any illusionist. Meanwhile various “affiliates of the investment bank are busy creating “exotic instruments” that make believe that the bank owns the loan and thus has the power to sell it, when in fact we all know that the investors own the note but even they don’t quite understand how they own the note — a fact complicated by the fact that the “aggregator” was a fiction and the money came from a Superfund escrow account in which ALL the money from ALL the investors was commingled and the moment of funding of each loan was a different moment in the SuperFund account because money was coming and going and so were investors. This is what enabled the banks to (a) sell something they didn’t own (they called it selling forward, but it wasn’t selling forward, it was fraud) (b) sell it over and over again, by calling the “exotic instrument” something else, changing a few pieces of information about the loan data and presto!, Bear Stearns had “leveraged” the loan 42 times.

Translation: They sold something they didn’t have 42 times. And the risk of loss was that if someone in the chain of sales ever demanded delivery, they needed to go out and buy the loans which they figured was a sure thing because in all probability the loans were not worth the paper they were written on and in the open market, they could be purchased for pennies while Bear Stearns et al was selling the loans 42 times over at 100 cents on the dollar.

The last “assignment” for “value received” into the “pool” also had similar problems. First, the aggregator was a fictitious entity, second there was no value paid, and third they had already sold the loan 42 times. Add to that the assignment simply never took place to either the aggregator or the pool unless there was litigation and you have a real mess on your hands, which is where distraction and delay and illusion and raw intimidation come into play — all present in the case of one Michael Winston, a former executive at Countrywide Financial.

The repeated sales of the loans, the repeated collection of insurance for losses that never occurred, and repeated collection of proceeds of credit default swaps (a/k/a sales with a different name) means quite simply that the loan was paid in full from the start and that there is no balance due and probably never was any balance due and even if there was a balance due it was never due to the people who are now foreclosing. So why are they foreclosing? Because if they get to complete a foreclosure it completes the illusion that the investors were owed the money from the borrower instead of the bank that stole their money in the first place. So they pursue foreclosures while their PR machines grind out the illusion of modifications and mediation and short-sales. Nobody is getting good title or a title policy worth the paper it is written upon, but who cares?

He Felled a Giant, but He Can’t Collect

By GRETCHEN MORGENSON

“TAKING on corporate Goliaths for their wrongdoing should not be so daunting.”

That’s the view of Michael Winston, a former executive at Countrywide Financial, the subprime lending machine that was swallowed up by Bank of America in 2008. Mr. Winston won a wrongful-dismissal and retaliation case against the company in February 2011, but is still waiting to receive his $3.8 million award. Bank of America is fighting back and has appealed the jury verdict twice.

After hearing a month of testimony from a parade of top Countrywide officials, including the company’s founder, Angelo Mozilo, a California state jury sided with Mr. Winston. An executive with decades of expertise in management strategy, he contended that he was pushed out for, among other things, refusing to follow questionable orders from his superiors.

But for the last year and a quarter, Mr. Winston, 61, has been in legal limbo. Bank of America lost one appeal in the court that heard the case and has filed another that is pending in state appellate court.

Mr. Winston, meanwhile, has been unable to find work that is commensurate with his experience. “The devastation caused by Countrywide to me, my family, my team, the work force, customers, shareholders, taxpayers and citizens around the world is incalculable,” he said.

Before joining Countrywide, Mr. Winston held high-powered strategy posts at Motorola, McDonnell Douglas and Lockheed. He was global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that post in 2003 to care for his parents, who were terminally ill.

At Countrywide, he said, one of his problems was his refusal in fall 2006 to misrepresent the company’s corporate governance practices to analysts at Moody’s Investors Service. The ratings agency had expressed concerns about succession planning at Countrywide and other governance issues that the company hoped to allay.

Mr. Winston says a Countrywide executive asked him to write a report outlining Countrywide’s extensive succession planning for use by Moody’s. He refused, noting that he had no knowledge of any such plan. The company began to diminish his duties and department shortly thereafter. He was dismissed after Bank of America took over Countrywide.

Of course, it is not unusual for big corporate defendants to appeal jury awards. Bank of America argues in its court filings that the jury erred because Mr. Winston’s battles with his Countrywide superiors had nothing to do with his dismissal. Bank officials testified that he was let go because there was no job for him at the acquiring company.

“We believe that the jury’s finding of liability on the single claim of wrongful termination in retaliation is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” a Bank of America spokesman said.

In court filings, the bank also said that the jury appeared to be “swayed by emotion and prejudice, focusing on unsubstantiated and unsupported statements by plaintiff and his counsel slandering Countrywide and its executives.”

But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.”

The credibility of all testimony in the case was central to jurors’ deliberations, Mr. Usher said. Instructions to the jury went into great detail on this point, advising them that they were “the sole and exclusive judges of the believability of the witnesses and the weight to be given the testimony of each witness.” The instructions added: “A witness, who is willfully false in one material part of his or her testimony, is to be distrusted in others.”

Mr. Usher said that those who testified against Mr. Winston “didn’t have a lot of credibility.”

That’s putting it mildly, said Charles T. Mathews, a former prosecutor in the Los Angeles County district attorney’s office who represented Mr. Winston. He said he was so disturbed by what he characterized as persistent perjury by various Countrywide officials that he forwarded annotated copies of court transcripts to Steve Cooley, the Los Angeles district attorney, for possible investigation.

“We won a multimillion-dollar verdict against Countrywide, but it sticks in my guts that they lied through their teeth and continue to escape accountability,” Mr. Mathews wrote to Mr. Cooley, urging him to investigate.

Whether perjury or not, the testimony ran into withering challenges.

Countrywide’s top human resources executive testified that Mr. Winston was a problematic employee and not a team player. But a performance evaluation she had written shortly before the company started to reduce his duties was produced in the case. It said Mr. Winston had “done well to build relationships with key members of senior management and continues to do so.”

The evaluation went on: “Michael strives to be a team player,” and “is absolutely focused on process improvement in his areas and has been working tirelessly to do so since he’s been on board.”

Mr. Mathews also contends that Mr. Mozilo, in a rare courtroom appearance, misrepresented his views of Mr. Winston. First, Mr. Mozilo testified that he did not know Mr. Winston, even though testimony and documents showed that he had attended presentations with him, personally given Mr. Winston a pair of Countrywide cuff links and told another employee that Mr. Winston’s leadership programs were “exactly what Countrywide needs.”

Mr. Mozilo’s testimony that he was unimpressed with Mr. Winston and his work was also refuted by another Countrywide executive who said that Mr. Mozilo was enthusiastic enough about Mr. Winston’s programs to suggest that he present them to the company’s board.

Asked about Mr. Mozilo’s testimony, David Siegel, a lawyer who represents him, said in an e-mail that there was no merit to the accusation that Mr. Mozilo was not truthful.

A spokeswoman for Mr. Cooley’s office confirmed last week that it had received the court transcripts and said that one of its prosecutors was reviewing them. She declined to comment further.

“God forbid our system continues to ignore these people and their acts,” Mr. Mathews said in an interview last week. “I am optimistic but the price of justice can be different depending on what your wallet says.”


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Screw the Pooch!!??

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Editor’s Comment:

Do some research, think about what you know and what you need to know. Come to my seminar or any seminar on securitization and you will understand the significance. Naked short-selling is the same as selling forward. In both cases you sell to an “investor” something where you have no asset and no money to back it up. You take the money from the investor and use it pretty much any way you like and account for it as “trading profits.” Then you take what is left and you create the illusion of transactions when in fact the documents refer to a virtual transaction in which the parties were different than those described on the closing documents and the terms of repayment of the loan are different than the terms disclosed to either the  investor or the borrower.

This sort of thing is unfathomable to most people, except those who spent a lot of time on Wall Street or doing Wall Street-type things, which is an adequate description of my background. If you sold a car to someone when you didn’t have the car or the money to buy it and then you took the money and put part of it in your pocket as your fee and then went out and bought a junker, you might be charged with civil or criminal fraud. Don’t you think? But on Wall Street these behaviors are permitted in the name of increasing liquidity.

What a country!

Joe Floren Screws the Pooch

by Patrick Byrne

The first time I heard Joe Floren speak I was standing behind him in an elevator in his law firm’s San Francisco office tower  as another lawyer informed him that the subpoena Joe Floren had served the previous day on a colleague of mine had reached her in the hospital, after a difficult delivery of her first child, while she was breastfeeding for the first time.

“Really? That’s beautiful. I love it!” He replied with glee.

Joseph E. Floren, Esq., is a lawyer at Morgan Lewis, the white shoe law firm defending Goldman Sachs against Overstock’s prime broker litigation, and tonight I celebrate the mistake Joe Floren made yesterday.  In filing Goldman’s response to Overstock’s motion to vacate the trial court judge’s decision to stay his own decision to unseal various documents related to this litigation (in more straightforward English: the trial court judge decided to unseal some documents while also deciding to delay acting on his decision, but we objected to this delay, and Goldman responded to our objections), Joe Floren screwed the pooch. He filed something containing an attachment he forgot to redact. That attachment is a previous filing of Overstock’s, a filing which contains but a sample of the shenanigans at Goldman and Merrill that has turned up over the course of five years and millions of pages of discovery, but which filing we had redacted when we made it (as good litigants do).

Fortunately for the cause of all that is good and right about America, Joe Floren’s goof came to the attention of a diligent 1st amendment attorney in California named Karl Olson, who represents the Economist, Bloomberg, the New York Times and Wener Publications (owners of Rolling Stone magazine) in their efforts to obtain the documents.  Karl Olson provided Joe Floren’s sloppy filing to his clients. Tonight these stories appeared:

Rolling Stone: Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling’

Bloomberg: Goldman, Merrill E-Mails Show Naked Shorting, Filing Says

Economist: An enlightening mistake

Really, Joe Floren?  That’s beautiful.  I love it.

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Goldman Sachs Messages Show It Thrived as Economy Fell

Editor’s Note: Now the truth as reported here two years ago.
  • There were no losses.
  • They were making money hand over fist.
  • And this article focuses only on a single topic — some of the credit default swaps — those that Goldman had bought in its own name, leaving out all the other swaps bought by Goldman using other banks and entities as cover for their horrendous behavior.
  • It also leaves out all the other swaps bought by all the other investment banking houses.
  • But most of all it leaves out the fact that at no time did the investment banking firms actually own the mortgages that the world thinks caused enormous losses requiring the infamous bailout. It’s a fiction.
  • In nearly all cases they sold the securities “forward” which means they sold the securities first, collected the money second and then went looking for hapless consumers to sign documents that were called “loans.”
  • The securities created the intended chain of securitization wherein first the investors “owned” the loans (before they existed and before the first application was signed) and then the “loans” were “assigned” into the pool.
  • The pool was assigned into a Special Purpose Vehicle that issued “shares” (certificates, bonds, whatever you want to call them) to investors.
  • Those shares conveyed OWNERSHIP of the loan pool. Each share OWNED a percentage of the loans.
  • The so-called “trust” was merely an operating agreement between the investors that was controlled by the investment banking house through an entity called a “trustee.” All of it was a sham.
  • There was no trust, no trustee, no lending except from the investors, and no losses from mortgage defaults, because even with a steep default rate of 16% reported by some organizations, the insurance, swaps, and other guarantees and third party payments more than covered mortgage defaults.
  • The default that was not covered was the default in payment of principal to investors, which they will never see, because they never were actually given the dollar amount of mortgages they thought they were buying.
  • The entire crisis was and remains a computer enhanced hallucination that was used as a vehicle to keep stealing from investors, borrowers, taxpayers and anyone else they thought had money.
  • The “profits” made by NOT using the investor money to fund mortgages are sitting off shore in structured investment vehicles.
  • The actual funds, first sent to Bermuda and the caymans was then cycled around the world. The Ponzi scheme became a giant check- kiting scheme that hid the true nature of what they were doing.
April 24, 2010

Goldman Sachs Messages Show It Thrived as Economy Fell

By LOUISE STORY, SEWELL CHAN and GRETCHEN MORGENSON

In late 2007 as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they were making “some serious money” betting against the housing markets.

The e-mails, released Saturday morning by the Senate Permanent Subcommittee on Investigations, appear to contradict some of Goldman’s previous statements that left the impression that the firm lost money on mortgage-related investments.

In the e-mails, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November of 2007 that the firm indeed had lost money initially. But it later recovered from those losses by making negative bets, known as short positions, enabling it to profit as housing prices fell and homeowners defaulted on their mortgages. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”

In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, remarked on figures that showed the company had made a $51 million profit in a single day from bets that the value of mortgage-related securities would drop. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.

The messages were released Saturday ahead of a Congressional hearing on Tuesday in which seven current and former Goldman employees, including Mr. Blankfein, are expected to testify. The hearing follows a recent securities fraud complaint that the Securities and Exchange Commission filed against Goldman and one of its employees, Fabrice Tourre, who will also testify on Tuesday.

Actions taken by Wall Street firms during the housing meltdown have become a major factor in the contentious debate over financial reform. The first test of the administration’s overhaul effort will come Monday when the Senate majority leader, Harry Reid, is to call a procedural vote to try to stop a Republican filibuster.

Republicans have contended that the renewed focus on Goldman stems from Democrats’ desire to use anger at Wall Street to push through a financial reform bill.

Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrast with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Mr. Levin said in a statement Saturday when his office released the documents. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

A Goldman spokesman did not immediately respond to a request for comment.

The Goldman messages connect some of the dots at a crucial moment of Goldman history. They show that in 2007, as most other banks hemorrhaged losses from plummeting mortgage holdings, Goldman prospered.

At first, Goldman openly discussed its prescience in calling the housing downfall. In the third quarter of 2007, the investment bank reported publicly that it had made big profits on its negative bet on mortgages.

But by the end of that year, the firm curtailed disclosures about its mortgage trading results. Its chief financial officer told analysts at the end of 2007 that they should not expect Goldman to reveal whether it was long or short on the housing market. By late 2008, Goldman was emphasizing its losses, rather than its profits, pointing regularly to write-downs of $1.7 billion on mortgage assets and leaving out the amount it made on its negative bets.

Goldman and other firms often take positions on both sides of an investment. Some are long, which are bets that the investment will do well, and some are shorts, which are bets the investment will do poorly. If an investor’s positions are balanced — or hedged, in industry parlance — then the combination of the longs and shorts comes out to zero.

Goldman has said that it added shorts to balance its mortgage book, not to make a directional bet that the market would collapse. But the messages released Saturday appear to show that in 2007, at least, Goldman’s short bets were eclipsing the losses on its long positions. In May 2007, for instance, Goldman workers e-mailed one another about losses on a bundle of mortgages issued by Long Beach Mortgage Securities. Though the firm lost money on those, a worker wrote, there was “good news”: “we own 10 mm in protection.” That meant Goldman had enough of a bet against the bond that, over all, it profited by $5 million.

Documents released by the Senate committee appear to indicate that in July 2007, Goldman’s daily accounting showed losses of $322 million on positive mortgage positions, but its negative bet — what Mr. Viniar called “the big short” — came in $51 million higher.

As recently as a week ago, a Goldman spokesman emphasized that the firm had tried only to hedge its mortgage holdings in 2007 and said the firm had not been net short in that market.

The firm said in its annual report this month that it did not know back then where housing was headed, a sentiment expressed by Mr. Blankfein the last time he appeared before Congress.

“We did not know at any minute what would happen next, even though there was a lot of writing,” he told the Financial Crisis Inquiry Commission in January.

It is not known how much money in total Goldman made on its negative housing bets. Only a handful of e-mail messages were released Saturday, and they do not reflect the complete record.

The Senate subcommittee began its investigation in November 2008, but its work attracted little attention until a series of hearings in the last month. The first focused on lending practices at Washington Mutual, which collapsed in 2008, the largest bank failure in American history; another scrutinized deficiencies at several regulatory agencies, including the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.

A third hearing, on Friday, centered on the role that the credit rating agencies — Moody’s, Standard & Poor’s and Fitch — played in the financial crisis. At the end of the hearing, Mr. Levin offered a preview of the Goldman hearing scheduled for Tuesday.

“Our investigation has found that investment banks such as Goldman Sachs were not market makers helping clients,” Mr. Levin said, referring to testimony given by Mr. Blankfein in January. “They were self-interested promoters of risky and complicated financial schemes that were a major part of the 2008 crisis. They bundled toxic and dubious mortgages into complex financial instruments, got the credit-rating agencies to label them as AAA safe securities, sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the financial instruments that they sold, and profiting at the expense of their clients.”

The transaction at the center of the S.E.C.’s case against Goldman also came up at the hearings on Friday, when Mr. Levin discussed it with Eric Kolchinsky, a former managing director at Moody’s. The mortgage-related security was known as Abacus 2007-AC1, and while it was created by Goldman, the S.E.C. contends that the firm misled investors by not disclosing that it had allowed a hedge fund manager, John A. Paulson, to select mortgage bonds for the portfolio that would be most likely to fail. That charge is at the core of the civil suit it filed against Goldman.

Moody’s was hired by Goldman to rate the Abacus security. Mr. Levin asked Mr. Kolchinsky, who for most of 2007 oversaw the ratings of collateralized debt obligations backed by subprime mortgages, if he had known of Mr. Paulson’s involvement in the Abacus deal.

“I did not know, and I suspect — I’m fairly sure that my staff did not know either,” Mr. Kolchinsky said.

Mr. Levin asked whether details of Mr. Paulson’s involvement were “facts that you or your staff would have wanted to know before rating Abacus.” Mr. Kolchinsky replied: “Yes, that’s something that I would have personally wanted to know.”

Mr. Kolchinsky added: “It just changes the whole dynamic of the structure, where the person who’s putting it together, choosing it, wants it to blow up.”

The Senate announced that it would convene a hearing on Goldman Sachs within a week of the S.E.C.’s fraud suit. Some members of Congress questioned whether the two investigations had been coordinated or linked.

Mr. Levin’s staff said there was no connection between the two investigations. They pointed out that the subcommittee requested the appearance of the Goldman executives and employees well before the S.E.C. filed its case.

TRUE SALE and ASSIGNMENTS: The Nature of REMIC

From “Anonymous”

Editor’s Post: It’s always a pleasure to read something where someone actually knows what they are talking about. The following post was picked up from the comments. The key points that are relevant to the Qualified Written Request and Discovery are

1. In the shuffling of paperwork, where was a “true sale” of the pool , a portion of the pool or any of the alleged loan obligations?

2. This material doesn’t come from someone’s head. It comes from established rules from the Financial Accounting Standards Board, statutes and administrative rules.

3. If the “loan” doesn’t show up on the balance sheet of the entity making a claim it is an admission that they are not a creditor. This takes some digging. Individual loans are a rarely shown on any balance sheet. They are shown on the worksheets or the equivalent of the bookkeeping department and the accountant who prepared the financial statements. Deposing the accountant for the company in question might get you the information you need and make the other side pretty nervous that you are zeroing in on their game. Deposing the Treasurer or CFO might get you even more. In many cases these entities NEVER booked any loans. They ONLY showed fees on their income statement which means that they admit they only provided a service (to whom?) in passing the “loan” through as a conduit.

4. Timing of the “assignments.” Besides the obvious fabrications that have been discussed in these pages, if you actually demand and get the enabling documents you will find, most of the time, that the requirements have NOT been met for acceptance of the assignment. The author points out that there is usually a 90-day rule, after which the the assignment is by definition not accepted. But there are other requirements as well, especially the one that says that the assignment must be recorded or in recordable form, which generally speaking it is not.

5. The sale, according to the paperwork, is to the underwriter, not the “Trust” (SPV). So you have a right to challenge the assertion that the “Trustee” is a Trustee, that the “Trust” is a trust and that there is anything in the trust. But I would add that the PRACTICE here was the selling forward of the mortgage backed security which means they were selling something they didn’t have. So the LEGAL title to the paper MIGHT not inure to the benefit of the holder of the mortgage backed bond; but it is equally true that they already “promised” the investor that they WOULD own the “loans”, and the investor is the only one who advanced money (and thus the only one meeting the definition of creditor). Hence there MUST be an equitable right by MBS holders to make a claim — the question being against whom — the homeowner, the investment banker or someone else? Your point in Court should NOT be to try to cover this abstractly with the Judge but only to have an expert witness that would make the assertion backing up your allegations. Your strategy is simply to say that according to the information you have there is a question of fact before the court as to what entity, if any, has this loan on their balance sheet? That is a question for discovery. And once that entity has been identified then you would want to discover the claims of third parties who could or would make a claim on that “asset.”

6. The author’s statement that the investor does not show the loan on its balance sheet is therefore both right and wrong. The investor bought a bond that is payable by an entity that issued the bond. That entity is not the homeowner and therefore it could be argued that the homeowner, who was not party to that transaction, does not have any obligation to the investor and that therefore the entry on the balance sheet of the pension fund investor would not account for the “loan.” BUT, the bond contains a conveyance of a percentage interest in a pool (which as we have seen might not exist), which purportedly includes “loans” of which the Homeowner’s deal was one. Thus effectively the ONLY party who could make an accounting entry for the loan in compliance with generally accepted accounting practices, is the investor. It comes down to the most basic of double entry bookkeeping practice. A debit from cash and a credit to receivables.

——————————————————————-

The “true sale” concept was the focus of FASB 166 and 167. Once the market crisis hit, intervention to support the SPVs rendered any “true sale” negated because there can be no intervention under a true sale.

Also, Mike H. is right regarding REMICs and ninety-day rule. A REMIC is a static fund and no mortgages can be added after 90 days (very limited exception). Many assignments are long after the 90 days and some are not even effectuated to the cutoff date (or 90 day rule) of the REMIC. Even if effectuated, and due to the dissolution of REMIC (violation of “true sale” by intervention), assignments are not valid. The problem is that if the loan is in default, it is no longer a pass-through security held by any trust. It has been removed.

As a result, assignments presented by foreclosure attorneys in court is probably not the LAST assignment. As discussed, collection rights are sold after the swap is paid.

Although courts view assignment and sale as the same thing for collection rights. It is not the same thing. In the process of securitization the mortgage loans are SOLD to security underwriters (we never see this sale in the chain), and the cash flows passed-through are assigned. The security underwriter still has the loan on their books (even if concealed by off-balance sheet conduit). Once in default, the loan is charged-off, and is no longer an asset, and the assignment of cash flows is also extinguished..

Again, the Federal Reserve, in Interim Opinion for TILA Amendment, has emphasized that the creditor is the one who must account for the loan on their balance sheet. It is not investors that have beneficial interests in REMICS, Pass-throughs, or any other security. Question is – who now is accounting for collection rights on it’s balance sheet. Who was accounting for rights at time of foreclosure initiation. How much did they pay for those rights??

There seems to be much confusion regarding the word “investor.” For beneficial interest in securities one may be called an “investor”. But this investor does not account for mortgage loan on its books. In terms of mortgage loan ownership, “investor” may also be used instead of “creditor.” But this investor accounts for mortgage loan (or collection rights) on its books – that is the investor you want to know.

Any last assignment recorded is likely NOT the actual last assignment executed. Foreclosure attorneys ignore this because they reason that the default derivatives attach the current owner/investor to the original trust. This is false – as derivatives are not certificates and not securities – and not part of the trust. The default loan is gone from the trust – gone from banks books – and in the hands of some “investor” who saw profit potential in the collection rights to the default loan. This what the government not only concealed, but also promoted to help the banks “clear” their off/on balance sheets of “toxic assets.”

Finally, Neil is right about sentiment in courts. Going in and asking for a “free house” will harm you. Sentiment in country in not on our side due to media propaganda. I have a long time friend in a prestigious private equity firm. Sentiment is that if anyone gets a principal reduction it is unfair because everyone should then get a principal reduction. People not affected by foreclosure fraud just do not get it. It is always all about “me” – even if they have not been harmed. I do not know how we are going to change this thinking – but if we do not – we will continue to get no help from government and lose in courts. Need a big case, with a judge that grants and enforces full discovery, in order to change the sentiment.

WAMU Screws UP and Tries to Sue 7 Years Later!!!

COME TO OUR SANTA MONICA SEMINARS 9/3-9/4

florida-regulator-resigns-after-letting-bank-robbers-and-other-felons-operate-as-mortgage-brokers

Dear Bryan:

OK. FIRST OF ALL YOU WILL BE CONTACTED BY A MEMBER OF OUR TEAM TO GET FURTHER INFORMATION SO WE MIGHT BE ABLE TO HELP YOU A LITTLE MORE. PLEASE REMEMBER THAT I AM A LICENSED ATTORNEY IN FLORIDA BUT ACTUALLY DON’T PRACTICE ANYMORE. WHATEVER I TELL YOU HERE SHOULD BE REVIEWED WITH COMPETENT LICENSED LOCAL COUNSEL BEFORE YOU MAKE ANY DECISION OR TAKE ANY ACTION. ANYTHING I SAY HERE IS BASED UPON THE LIMITED AMOUNT OF INFORMATION YOU HAVE GIVEN TO ME AND UPON A COMPLETE REVIEW OF YOUR FACTS,MY OPINION COULD CHANGE AND IN ANY EVENT MY OPINION MIGHT NOT BE RELEVANT IN YOUR LEGAL JURISDICTION.

I’ll break down your fact pattern piece piece and comment on each piece:

1. You write “I am currently dealing with an issue in court where I actually rescinded a loan within the 3 day period.”

ANSWER:

  • Whether your rescission was effective depends upon how you did it. But most cases state that ANY written intention to rescind is sufficient. The rescission, as you can see in the blog and general comments below, has the effect of canceling the note and mortgage.
  • The 3 day rescission appears to be different than other rescission remedies in that it applies automatically.
  • Other rescissions are subject to acceptance or objection by lenders.
  • This means that ALL documents should have been returned to you, canceled with an acknowledgment that the loan is null and void.
  • If the mortgage was recorded, a satisfaction of mortgage should be recorded by the “lender” and can be required in a court of law.
  • If the note was signed, then the note should be returned to you in its original form, along with some writing on it that says “rescinded or canceled.”
  • Remember that rescission under TILA is NOT  the only rescission remedy available under State and Federal Statutes and common law.
  • PLEASE NOTE THAT THE PRACTICE OF “SELLING FORWARD” MIGHT COMPLICATE ANY RESCISSION. THE “LENDER” MIGHT WELL RESIST YOUR ATTEMPT TO RESCIND EVEN THOUGH IT HAS NO RIGHT TO DO SO. ITS MOTIVATION IS THAT BY “SELLING FORWARD” IT ESSENTIALLY RECEIVED MONEY IN FULL FOR THE FULL AMOUNT OF THE PRINCIPAL STATED ON YOUR NOTE OR PROPOSED NOTE AND IT ASSIGNED YOUR NOTE AND MORTGAGE EVEN IF YOUR NOTE AND MORTGAGE NEVER EXISTED.
  • IN ADDITION, THE “LENDER” WAS ACTUALLY A STAND-IN FOR THE REAL LENDER WHO WAS NOT DISCLOSED SO YOUR RESCISSION MIGHT HAVE BEEN ADDRESSED, UNDER TILA, TECHNICALLY TO THE WRONG PARTY, BUT THE APPARENT AGENCY OF THE NOMINAL DISCLOSED LENDER WILL PROBABLY BE SUFFICIENT TO MAKE YOUR RESCISSION VALID.
  • UNDER THE POOLING AND SERVICE AGREEMENT SIGNED BETWEEN THE “LENDER” AND THE REAL LENDER THE “LENDER” MIGHT HAVE TO BUY BACK YOUR LOAN OR SUBSTITUTE WITH ANOTHER “LIKE” LOAN AND MIGHT NOT HAVE THE SOLVENCY (OR WILLINGNESS) TO DO IT.
  • IN 40% OF THE CASES, THE DOCUMENTATION HAS DISAPPEARED BECAUSE THE “SELLING FORWARD” CAN ONLY BE ACCOMPLISHED BY EXECUTING A FRAUDULENT OF ASSIGNMENT OF A NON-EXISTENT NOTE AND MORTGAGE AND EXECUTED IN BLANK WITH A SQUIGGLE OVER YOUR NAME AS THOUGH YOU HAD SIGNED IT. THIS PRACTICE HAS BEEN USED EVEN WHERE THE LOAN WAS SOLD AT OR AFTER CLOSING. Thus the REVERSAL OF THE TRANSACTION REVEALS FRAUD ON THE PART OF AGENTS, SERVANTS OR EMPLOYEES OF “LENDER” AND OTHER PARTIES. Thus the note is destroyed or missing when the subject comes up.
  • If you DID sign a note, there is the distinct possibility that it was transferred or transmitted to a Structured Investment Vehicle (SIV — see Glossary) in the Cayman Islands or to some other third party and might not be recoverable by your lender.

2. You write: “(The closing atty. at the title co. seemed shady and we did not feel comfortable with the whole deal.) Well, they (WAMU) funded and paid off the other mort. co. within the 3 days which violated the “delay of performance” statute. Then they attempted to collect and I informed them that I had rescinded. (I have a copy of the form, a copy of the express mail label, a copy of the signed delivery receipt, etc.) Plenty of proof that I rescinded in a timely manner. This was 2001. I made no payment to them at all.”

ANSWER:

  • If you willl look at one of the recent blog posts, you will see that a title company sued Countrywide mortgage basically saying that they should not be on the hook for fraudulent dealing engendered by Countrywide. The title company is supposed to make sure you have clear title and it is required to perform due diligence before it issues a title policy. Once it issues the title policy it is liable for any damages resulting from ad efect in title. It is presumed, I think correctly, that the title company knows all it needs to know. In most cases, the title company was well aware of the securitization of these loans and the fact that recording, fees paid, real parties in interest and other disclosure requirements, together with other wrongful behavior, created a cloud on the title to the property, the mortgage and the note — three separate issues of ittle, each having its own legal consequences. You might have good claims against the title company and the title insuraunce company (and the title company and the title insurance company might have good claims against your “lender”).
  • The attorney for the title company is under the same obligations as the title company PLUS his obligations as a lawyer to avoid even the appearance of impropriety. You might have claims against the attorney as well. If you have a gut feeling that something is wrong, it usually is wrong, and you should not proceed unless and until you have consulted with someone who is competent, licensed and objective, with no dog in the race except to do right by you.
  • WAMU, according to its 10k annual reports filed with the Securities and Exchange Commission, which is a sworn public document, sold all of its loans and participated in the loose procedures desribed above. In all probability their problem resulted from the fact that they received the money but didn’t have the money or the willingness to reverse the transaction because all of a sudden they were at risk on what they thought was a risk free transaction. From an accounting perspective their problem was simple. They never took the loan onto their balance sheet as an asset, never set aside a reserve for rescission, default or delinquency, and therefore have no way of accounting for a rescission where all they really did was act as an unregistered mortgage broker and conduit for a loan from an undisclosed third party.

3. You write: “I made no payment to them at all. I attempted to pay my old mort. co. but they sent my payment back. Well I faxed them (WAMU) several copies of my rescission documents over the years and it wasn’t until 2005 that they canceled the mortgage with a “lost note” affidavit. Clearly beyond the 20 day requirement in paragraph (d)(2) of reg. Z. Now here in 2008 they are trying to sue for the money they paid out back in 2001.”

ANSWER:

  • This is slightly confused and the reason why we need more information. I assume you mean that you made no payment to WAMU because you had rescinded. The fact that they canceled the note with a lost note affidavit might not be sufficient if they were no longer the holder or holder in due course.
  • In any event, my guess is that applicable statutes of limitations or the rarely used common law doctrine of laches would prevent them from proceeding in litigation. There is also a possibiity of estoppel since you acted on their cancellation of the note with the lost note affidavit. Beware the affidavit however — it was probably signed by someone with absolutely no knowledge of you, your transaction, your note or your mortgage. In this case, though it would seem that a full recovery of your attorney fees and costs would be appropriate.
  • They key here is to keep the burden of proof on them. If they succeed in somehow shifting the burden of proof onto you, there is considerable expense in discovery and other investigations that are required.
  • Seems like the suit should be met with a speaking motion to dismiss, a notice of action that you will seek attorney fees for a frivolous lawsit, and/or a motio  for summary judgment.
  • If you ahve the lost note affidavit and there is paperwork showing that they were cancelling the debt, and they can’t show that you ever paid,they have a problem. They have an even greater problem if they never resolved the payoff of your old mortgage. Sounds to me that at this point you have your house free and clear of any encumbrance of mortgage or note.
  • In order to clarify the situation, it would seem appropriate to file an action to quiet title against WAMU.
  • Then I think Iw ould file a separate lawsuit to quiet title against the old mortgage company. from thier prospective they were right in returning your attmmepted payments because the loan was paid off.

4. You write: “Several questions because my lawyer has never faced anything like this. Wouldn’t violation of Federal Law be used as a defense against an “unjust enrichment” claim? Couldn’t a SOL defense be used because they let so much time expire and in a sense “NEVER” complied with paragraph (d)(2)?”

ANSWER: Your lawyer and every lawyer is actually facing issues like this every day — they just don’t realize it. Almost all loans from 2001-2008 fall into this category. This is only different because it highlights the chaos the players were creating. Yes SOL applies.

5. You Write: “Could it be established that I never have to comply with paragraph (d)(3) because they can never comply with (d)(2) technically because of an implied “statute of limitations” ie. the 20 days? Could my attempts to fax copies and work towards a resolution be considered an attempt to “tender” if a timely compliance with (d)(2) had occurred? Honestly, my wife and I sought a resolution years ago and instead WAMU sought on lt to force a loan on us and then tried all kinds of tactics to collect, EVEN FORECLOSURE proceedings! On a property that they had NO CLAIM to under the Right of Rescission we exercised. Their harassment has gone on to this day, and now THEY HAVE THE GALL TO SUE US! After all of this, I don’t think they deserve anything. I have done everything properly under the law, they have at every turn not followed the law and even denied that we had a rescission. Now a Judge may possibly rule in their favor, but I feel that the Right of Rescission may be the key to beating them. I know this is a lot, but do you have any advice on this situation?
>
> Thanks in advance and GOD BLESS!
>
> Bryan

ANSWER: I THINK WE HAVE COVERED IT. I AGREE WITH YOU BUT IT MIGHT BE MORE CHALLENGING WITH MORE FACTS. I WOULD PROCEED WITH MORTGAGE AUDITS ON BOTH “LOANS” AND A TITLE OPINION.

We have several who MIGHT assist you and you can of course find your own. You can also use the information on this blog to get started yourself or to get your lawyer started in the right direction.

A member of our team will contact you shortly to get information. This information will be passed on to a member of our volunteer team who will give you suggestions or options on how to proceed.

The normal procedure is as follows (although every case has some differences)

1. Information gathering — have your loan information and closing documents at your fingertips before our team member calls you. If you don’t get a call, please dial 954-494-6000.
2. File review
3. Referral to Mortgage Audit Group that will analyze your mortgage, find potential or actual violations of TILA and initiate RESPA procedures to settle your case.
4. Demand Letter to “lender” requesting documents to prove they are the holder of the note and that they have the power to enforce the mortgage and note.
5. Rescission Letter or Cancellation where appropriate: Note that this might be under TILA but it will probably include rescission or cancellation under other Federal and State statutes and common law. Rescission does NOT mean you are offering your house to the lender. Rescission is the reversal of a transaction. The transaction you reverse here is the “loan” of money in exchange for your signature on a pile of documents that you could not possible understand, and where the real lender was hidden from you, and where most of the fees generated by your loan closing was were not disclosed, which is a violation of several different Federal and State requirements. Rescission cancels the note and mortgage and gives rise to a possible claim by the lender for return of the loan — but without any claim on your house. The lender’s claim is subject to numerous defenses, affirmative defenses, set offs, and counterclaims.
6. Litigation: referral to a competent licensed legal professional in your area. Or you can find your own and our attorneys will assist. Fees vary, but a retainer is ordinarily involved since these attorneys must be paid for their time. However, most of the attorneys we work with keep their retainers low and take most of the case on contingency — a good indication that they believe a substantial recovery for you is possible. Recovery of attorneys fees and costs is deducted off the amount you owe.

NOTE: WHILE I AM LICENSED TO PRACTICE LAW IN THE STATE OF FLORIDA AND I AM AN EXPERIENCED LITIGATOR — ESPECIALLY WITH THE ISSUES RAISED BY FORECLOSURE DEFENSE, I CONSIDER MYSELF RETIRED, AND I HAVE NO INTENTION OF ACCEPTING A RETAINER OR APPEARING IN COURT ON BEHALF OF ANY NEW CLIENTS. I AM A WRITER AND A RESOURCE. SINCE I LIVE IN ARIZONA, THE LIKELIHOOD OF MY APPEARING IN ANY CASE IN FEDERAL OR STATE COURT IN FLORIDA IS EXTREMELY LOW. THEREFORE I HAVE BEEN SEEKING AND RECRUITING ATTORNEYS WHO ‘GET IT” TO TAKE THESE CASES ON. I TEACH SEMINARS AND I MENTOR LAWYERS OVER THE PHONE. I AM ALSO AUTHORING A BOOK ON THE HOMEOWNER’S WAR, WORKBOOKS FOR LAWYERS AND WORKBOOKS FOR PRO SE LITIGANTS WHO CANNOT FIND OR AFFORD AN ATTORNEY. I DO NOT RECOMMEND PRO SE APPEARANCES ALTHOUGH I WILL CANDIDLY REPORT THAT PRO SE LITIGANTS ARE HAVING CONSIDERABLE SUCCESS AT THE MOMENT.

Neil F. Garfield, Esq.
ngarfield@msn.com

This e-mail transmission may be protected by attorney client privilege and attorney work product privilege if it contains legal advice or opinions, and it contains information that are private, trade secrets, protected by non-disclosure and non-circumvention agreements between the parties and is therefore confidential and privileged. It may also be for the sole purpose of compromise and settlement only if it contains an offer and may not be used in any judicial or quasi-judicial or administrative proceeding without the express written consent of the sender. It is intended only for the addressee(s) named above. If you receive this e-mail in error, please do not read, copy or disseminate it in any manner. If you are not the intended recipient, any disclosure, copying, distribution or use of the contents of this information is prohibited. Please reply to the message immediately by informing the sender that the message was misdirected. After replying, please erase it from your computer system. Your assistance in correcting this error is appreciated.

> Date: Mon, 18 Aug 2008 12:14:33 +0000
> To: ngarfield@msn.com
New comment on your post #165 “FORECLOSURES: TILA RIGHT OF RESCISSION and CONSEQUENCES”
> E-mail : bkfoster@bellsouth.net

> Comment:
> I am currently dealing with an issue in court where I actually rescinded a loan within the 3 day period. (The closing atty. at the title co. seemed shady and we did not feel comfortable with the whole deal.) Well, they (WAMU) funded and paid off the other mort. co. within the 3 days which violated the “delay of performance” statute. Then they attempted to collect and I informed them that I had rescinded. (I have a copy of the form, a copy of the express mail label, a copy of the signed delivery receipt, etc.) Plenty of proof that I rescinded in a timely manner. This was 2001. I made no payment to them at all. I attempted to pay my old mort. co. but they sent my payment back. Well I faxed them (WAMU) several copies of my rescission documents over the years and it wasn’t until 2005 that they canceled the mortgage with a “lost note” affidavit. Clearly beyond the 20 day requirement in paragraph (d)(2) of reg. Z. Now here in 2008 they are trying to sue for the money they paid out back
> in 2001. Several questions because my lawyer has never faced anything like this. Wouldn’t violation of Federal Law be used as a defense against an “unjust enrichment” claim? Couldn’t a SOL defense be used because they let so much time expire and in a sense “NEVER” complied with paragraph (d)(2)? Could it be established that I never have to comply with paragraph (d)(3) because they can never comply with (d)(2) technically because of an implied “statute of limitations” ie. the 20 days? Could my attempts to fax copies and work towards a resolution be considered an attempt to “tender” if a timely compliance with (d)(2) had occurred? Honestly, my wife and I sought a resolution years ago and instead WAMU sought on lt to force a loan on us and then tried all kinds of tactics to collect, EVEN FORECLOSURE proceedings! On a property that they had NO CLAIM to under the Right of Rescission we exercised. Their harassment has gone on to this day, and now THEY HAVE THE GALL TO SUE US! After all of
> this, I don’t think they deserve anything. I have done everything properly under the law, they have at every turn not followed the law and even denied that we had a rescission. Now a Judge may possibly rule in their favor, but I feel that the Right of Rescission may be the key to beating them. I know this is a lot, but do you have any advice on this situation?
>
> Thanks in advance and GOD BLESS!
>
> Bryan

>
>

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