AP Fannie, Freddie and BOA set to Reduce Principal and Payments

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Editor’s Comment:

Partly as a result of the recent settlement with the Attorneys General and partly because they have run out of options and excuses, the banks are reducing principal and offering to reduce payments as well. What happened to the argument that we can’t reduce principal because it would be unfair to homeowners who are not in distress? Flush. It was never true. These loans were based on fake appraisals at the outset, the liens were never perfected and the banks are staring down a double barreled shotgun: demands for repurchase from investors who correctly allege and can easily prove that the loans were underwritten to fail PLUS the coming rash of decisions showing that the mortgage lien never attached to the land. The banks have nothing left. BY offering principal reductions they get new paperwork that allows them to correct the defects in documentation and they retain the claim of plausible deniability regarding origination documents that were false, predatory, deceptive and fraudulent. 

Fannie, Freddie are set to reduce mortgage balances in California

The mortgage giants sign on to Keep Your Home California, a $2-billion foreclosure prevention program, after state drops a requirement that lenders match taxpayer funds used for principal reductions.

By Alejandro Lazo

As California pushes to get more homeowners into a $2-billion foreclosure prevention program, some Fannie Mae and Freddie Mac borrowers may see their mortgages shrunk through principal reduction.

State officials are making a significant change to the Keep Your Home California program. They are dropping a requirement that banks match taxpayers funds when homeowners receive mortgage reductions through the program.

The initiative, which uses federal funds from the 2008 Wall Street bailout to help borrowers at risk of foreclosure, has faced lackluster participation and lender resistance since it was rolled out last year. By eliminating the requirement that banks provide matching funds, state officials hope to make it easier for homeowners to get principal reductions.

The participation by Fannie Mae and Freddie Mac, confirmed Monday, could provide a major boost to Keep Your Home California.

Fannie Mae and Freddie Mac own about 62% of outstanding mortgages in the Golden State, according to the state attorney general’s office. But since the program was unveiled last year, neither has elected to participate in principal reduction because of concerns about additional costs to taxpayers.

Only a small number of California homeowners — 8,500 to 9,000 — would be able to get mortgage write-downs with the current level of funds available. But given the previous opposition to these types of modifications by the two mortgage giants, housing advocates who want to make principal reduction more widespread hailed their involvement.

“Having Fannie and Freddie participate in the state Keep Your Home principal reduction program would be a really important step forward,” said Paul Leonard, California director of the Center for Responsible Lending. “Fannie and Freddie are at some level the market leaders; they represent a large share of all existing mortgages.”

The two mortgage giants were seized by the federal government in 2008 as they bordered on bankruptcy, and taxpayers have provided $188 billion to keep them afloat.

Edward J. DeMarco, head of the federal agency that oversees Fannie and Freddie, has argued that principal reduction would not be in the best interest of taxpayers and that other types of loan modifications are more effective.

But pressure has mounted on DeMarco to alter his position. In a recent letter to DeMarco, congressional Democrats cited Fannie Mae documents that they say showed a 2009 pilot program by Fannie would have cost only $1.7 million to implement but could have provided more than $410 million worth of benefits. They decried the scuttling of that program as ideological in nature.

Fannie and Freddie last year made it their policy to participate in state-run principal reduction programs such as Keep Your Home California as long as they or the mortgage companies that work for them don’t have to contribute funds.

Banks and other financial institutions have been reluctant to participate in widespread principal reductions. Lenders argue that such reductions aren’t worth the cost and would create a “moral hazard” by rewarding delinquent borrowers.

As part of a historic $25-billion mortgage settlement reached this year, the nation’s five largest banks agreed to reduce the principal on some of the loans they own.

Since then Fannie and Freddie have been a major focus of housing advocates who argue that shrinking the mortgages of underwater borrowers would boost the housing market by giving homeowners a clear incentive to keep paying off their loans. They also say that principal reduction would reduce foreclosures by lowering the monthly payments for underwater homeowners and giving them hope they would one day have more equity in their homes.

“In places that are deeply underwater, ultimately those loans where you are not reducing principal, they are going to fail anyway,” said Richard Green of USC’s Lusk Center for Real Estate. “So you are putting off the day of reckoning.”

The state will allocate the federal money, resulting in help for fewer California borrowers than the 25,135 that was originally proposed. The $2-billion program is run by the California Housing Finance Agency, with $790 million available for principal reductions.

Financial institutions will be required to make other modifications to loans such as reducing the interest rate or changing the terms of the loans.

The changes to the program will roll out in early June, officials with the California agency said. The agency will increase to $100,000 from $50,000 the amount of aid borrowers can receive.

Spokespeople for the nation’s three largest banks — Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. — said they were evaluating the changes. BofA has been the only major servicer participating in the principal reduction component of the program.

Like I said, the loans never made into the “pools”

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Editor’s Comment:

When I first suggested that securitization itself was a lie, my comments were greeted with disbelief and derision. No matter. When I see something I call it the way it is. The loans never left the launch pad, much less flew into a waiting pool of investor money. The whole thing was a scam and AG Biden of Đelaware and Schniedermann of New York are on to it.

The tip of the iceberg is that the note was not delivered to the investors. The gravitas of the situation is that the investors were never intended to get the note, the mortgage or any documentation except a check and a distribution report. The game was on.

First they (the investment banks) took money from the investors on the false pretenses that the bonds were real when anyone with 6 months experience on Wall street could tell you this was not a bond for lots of reasons, the most basic of which was that there was no borrower. The prospectus had no loans because there were no loans made yet. The banks certainly wouldn’ t take the risks posed by this toxic heap of loans, so they were waiting for the investors to get conned. Once they had the money then they figured out how to keep as much of it as possible before even looking for residential home borrowers. 

None of the requirements of the Internal Revenue Code on REMICS were followed, nor were the requirements of the pooling and servicing agreement. The facts are simple: the document trail as written never followed the actual trail of actual transactions in which money exchanged hands. And this was simply because the loan money came from the investors apart from the document trail. The actual transaction between homeowner borrower and investor lender was UNDOCUMENTED. And the actual trail of documents used in foreclosures all contain declarations of fact concerning transactions that never happened. 

The note is “evidence” of the debt, not the debt itself. If the investor lender loaned money to the homeowner borrower and neither one of them signed a single document acknowledging that transaction, there is still an obligation. The money from the investor lender is still a loan and even without documentation it is a loan that must be repaid. That bit of legal conclusion comes from common law. 

So if the note itself refers to a transaction in which ABC Lending loaned the money to the homeowner borrower it is referring to a transaction that does not now nor did it ever exist. That note is evidence of an obligation that does not exist. That note refers to a transaction that never happened. ABC Lending never loaned the homeowner borrower any money. And the terms of repayment intended by the securitization documents were never revealed to the homeowner buyer. Therefore the note with ABC Lending is evidence of a non-existent transaction that mistates the terms of repayment by leaving out the terms by which the investor lender would be repaid.

Thus the note is evidence of nothing and the mortgage securing the terms of the note is equally invalid. So the investors are suing the banks for leaving the lenders in the position of having an unsecured debt wherein even if they had collateral it would be declining in value like a stone dropping to the earth.

And as for why banks who knew better did it this way — follow the money. First they took an undisclosed yield spread premium out of the investor lender money. They squirreled most of that money through Bermuda which ” asserted” jurisdiction of the transaction for tax purposes and then waived the taxes. Then the bankers created false entities and “pools” that had nothing in them. Then the bankers took what was left of the investor lender money and funded loans upon request without any underwriting.

Then the bankers claimed they were losing money on defaults when the loss was that of the investor lenders. To add insult to injury the bankers had used some of the investor lender money to buy insurance, credit default swaps and create other credit enhancements where they — not the investor lender —- were the beneficiary of a payoff based on the default of mortgages or an “event” in which the nonexistent pool had to be marked down in value. When did that markdown occur? Only when the wholly owned wholly controlled subsidiary of the investment banker said so, speaking as the ” master servicer.”

So the truth is that the insurers and counterparties on CDS paid the bankers instead of the investor lenders. The same thing happened with the taxpayer bailout. The claims of bank losses were fake. Everyone lost money except, of course, the bankers.

So who owns the loan? The investor lenders. Who owns the note? Who cares, it was worth less when they started; but if anyone owns it it is most probably the originating “lender” ABC Lending. Who owns the mortgage? There is no mortgage. The mortgage agreement was written and executed by the borrower securing terms of payment that were neither disclosed nor real.

Bank Loan Bundling Investigated by Biden-Schneiderman: Mortgages

By David McLaughlin

New York Attorney General Eric Schneiderman and Delaware’s Beau Biden are investigating banks for failing to package mortgages into bonds as advertised to investors, three months after a group of lenders struck a nationwide $25 billion settlement over foreclosure practices.

The states are pursuing allegations that some home loans weren’t correctly transferred into securitizations, undermining investors’ stakes in the mortgages, according to two people with knowledge of the probes. They’re also concerned about improper foreclosures on homeowners as result, said the people, who declined to be identified because they weren’t authorized to speak publicly. The probes prolong the fallout from the six-year housing bust that’s cost Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders more than $72 billion because of poor underwriting and shoddy foreclosures. It may also give ammunition to bondholders suing banks, said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm.

“The attorneys general could create a lot of problems for the banks and for the trustees and for bondholders,” Gradman said. “I can’t imagine a better securities law claim than to say that you represented that these were mortgage-backed securities when in fact they were backed by nothing.”

Countrywide Faulted

Schneiderman said Bank of America Corp. (BAC)’s Countrywide Financial unit last year made errors in the way it packaged home loans into bonds, while investors have sued trustee banks, saying documentation lapses during mortgage securitizations can impair their ability to recover losses when homeowners default. Schneiderman didn’t sue Bank of America in connection with that criticism.

The Justice Department in January said it formed a group of federal officials and state attorneys general to investigate misconduct in the bundling of mortgage loans into securities. Schneiderman is co-chairman with officials from the Justice Department and the Securities and Exchange Commission.

The next month, five mortgage servicers — Bank of America Corp., Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. and Ally Financial Inc. (ALLY) — reached a $25 billion settlement with federal officials and 49 states. The deal pays for mortgage relief for homeowners while settling claims against the servicers over foreclosure abuses. It didn’t resolve all claims, leaving the lenders exposed to further investigations into their mortgage operations by state and federal officials.

Top Issuers

The New York and Delaware probes involve banks that assembled the securities and firms that act as trustees on behalf of investors in the debt, said one of the people and a third person familiar with the matter.

The top issuers of mortgage securities without government backing in 2005 included Bank of America’s Countrywide Financial unit, GMAC, Bear Stearns Cos. and Washington Mutual, according to trade publication Inside MBS & ABS. Total volume for the top 10 issuers was $672 billion. JPMorgan acquired Bear Stearns and Washington Mutual in 2008.

The sale of mortgages into the trusts that pool loans may be void if banks didn’t follow strict requirements for such transfers, Biden said in a lawsuit filed last year over a national mortgage database used by banks. The requirements for transferring documents were “frequently not complied with” and likely led to the failure to properly transfer loans “on a large scale,” Biden said in the complaint.

“Most of this was done under the cover of darkness and anything that shines a light on these practices is going to be good for investors,” Talcott Franklin, an attorney whose firm represents mortgage-bond investors, said about the state probes.

Critical to Investors

Proper document transfers are critical to investors because if there are defects, the trusts, which act on behalf of investors, can’t foreclose on borrowers when they default, leading to losses, said Beth Kaswan, an attorney whose firm, Scott + Scott LLP, represents pension funds that have sued Bank of New York Mellon Corp. (BK) and US Bancorp as bond trustees. The banks are accused of failing in their job to review loan files for missing and incomplete documents and ensure any problems were corrected, according to court filings.

“You have very significant losses in the trusts and very high delinquencies and foreclosures, and when you attempt to foreclose you can’t collect,” Kaswan said.

Laurence Platt, an attorney at K&L Gates LLP in Washington, disagreed that widespread problems exist with document transfers in securitization transactions that have impaired investors’ interests in mortgages.

“There may be loan-level issues but there aren’t massive pattern and practice problems,” he said. “And even when there are potential loan-level issues, you have to look at state law because not all states require the same documents.”

Fixing Defects

Missing documents don’t have to prevent trusts from foreclosing on homes because the paperwork may not be necessary, according to Platt. Defects in the required documents can be fixed in some circumstances, he said. For example, a missing promissory note, in which a borrower commits to repay a loan, may not derail the process because there are laws governing lost notes that allow a lender to proceed with a foreclosure, he said.

A review by federal bank regulators last year found that mortgage servicers “generally had sufficient documentation” to demonstrate authority to foreclose on homes.

Schneiderman said in court papers last year that Countrywide failed to transfer complete loan documentation to trusts. BNY Mellon, the trustee for bondholders, misled investors to believe Countrywide had delivered complete files, the attorney general said.

Hindered Foreclosures

Errors in the transfer of documents “hampered” the ability of the trusts to foreclose and impaired the value of the securities backed by the loans, Schneiderman said.

“The failure to properly transfer possession of complete mortgage files has hindered numerous foreclosure proceedings and resulted in fraudulent activities,” the attorney general said in court documents.

Bank of America faced similar claims from Nevada Attorney General Catherine Cortez Masto, who accused the Charlotte, North Carolina-based lender of conducting foreclosures without authority in its role as mortgage servicer due improper document transfers. In an amended complaint last year, Masto said Countrywide failed to deliver original mortgage notes to the trusts or provided notes with defects.

The lawsuit was settled as part of the national foreclosure settlement, Masto spokeswoman Jennifer Lopez said.

Bank of America spokesman Rick Simon declined to comment about the claims made by states and investors. BNY Mellon performed its duties as defined in the agreements governing the securitizations, spokesman Kevin Heine said.

“We believe that claims against the trustee are based on a misunderstanding of the limited role of the trustee in mortgage securitizations,” he said.

Biden, in his complaint over mortgage database MERS, cites a foreclosure by Deutsche Bank AG (DBK) as trustee in which the promissory note wasn’t delivered to the bank as required under an agreement governing the securitization. The office is concerned that such errors led to foreclosures by banks that lacked authority to seize homes, one of the people said.

Renee Calabro, spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.

Investors have raised similar claims against banks. The Oklahoma Police Pension and Retirement System last year sued U.S. Bancorp as trustee for mortgage bonds sold by Bear Stearns. The bank “regularly disregarded” its duty as trustee to review loan files to ensure there were no missing or defective documents transferred to the trusts. The bank’s actions caused millions of dollars in losses on securities “that were not, in fact, legally collateralized by mortgage loans,” according to an amended complaint.

“Bondholders could have serious claims on their hands,” said Gradman. “You’re going to suffer a loss as bondholder if you can’t foreclose, if you can’t liquidate that property and recoup.”

Teri Charest, a spokeswoman for Minneapolis-based U.S. Bancorp (USB), said the bank isn’t liable and doesn’t know if any party is at fault in the structuring or administration of the transactions.

“If there was fault, this unhappy investor is seeking recompense from the wrong party,” she said. “We were not the sponsor, underwriter, custodian, servicer or administrator of this transaction.”

Reuters: Top Justice Officials Linked With Pretender Lenders and MERS

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Covington Issued Legal Opinions that Started MERS

Editor’s Note: 4 years ago I interviewed lawyers that had detailed knowledge of the start of MERS and the entire mortgage mess. They told me, on promise of anonymity, and for use as background only, that some of the lawyers balked at the assignment to the tasks at Covington and other law firms that were drafting the initial documentation for what became known as “Securitization” of mortgage debt. At least two resigned, according to these sources, stating that what they were being asked to do was be complicit in criminal acts.
In a world dominated by financial services, it is hard to think of a scenario where the public officials and lawyers involved would not be associated in some way with the mega Banks, so the mere association with those firms might not indicate direct complicity on the part of Holder and Breurer — especially in large firms like Covington.
But the appearance of impropriety is present when the justice department refrains from prosecution despite wide scale published reports of forgery, fabrication and fraud reported by the officials who are charged with responsibility for maintaining an orderly system of records and a registry of title in each county.
Even if Holder and Breurer were not directly involved in the representation of MERS and the mega Banks, it certainly appears as though they are protecting their old employers from the consequences of committing the largest economic crimes in human history.
And taking President Obama at his word, he has been told that what the Banks did was legal. I have no doubt that is exactly what he has been told. The problem is that he believed what what he was told.
As far as the overall plan for securitization and even the use of MERS, there may well have been no law prohibiting the plan, although we can all agree there should have been such laws in place. The problem is that the plan was not followed — instead violations of the plan were used as a vehicle to commit theft and fraud upon investors and borrowers alike using the same tactics that departed from all legal requirements.
  • It was the departure from the plan that got the Banks into trouble and they should be in deep trouble.
  • The blue print for securitization required that the money and documents follow a certain path.
  • Instead the money followed whatever path those Banks wanted, despite clear requirements to the contrary in the securitization documents.
  • And the transfer documents for each loan, without which there would be no securitization, were not present, drafted or executed, much less delivered.
  • And this was because the Banks, even though they were merely intermediaries, asserted ownership over the loans in a grey are they created between the execution of the loan by the borrower and the supposed delivery of the loans into the pools that the investors had created with their money.
  • By asserting ownership, directly or indirectly, the banks were able to create fictitious “trades” which they used to create transaction profits, only some of which were reported, the rest being “off balance sheet” and channeled out of the country.
  • Those “profits” were merely the improper use of proceeds from borrowers’ money and property and investors’ money and that was advanced for the purchase of mortgage bonds, intended for funding mortgage loans.
There are crimes upon crimes in this story with plenty of low hanging fruit that would entice any prosecutor. That the prosecutions have not proceeded and that the investigations have been self-limiting, combined with the desire to settle with the Banks before the investigation is complete (or even started) leaves only questions of the worst kind. At this point though the administration’s press for settlement with the Banks and servicers can only be seen as disingenuous — since we know that forgery, fraud, and fabrication of documents that never existed can only be illegal.

Insight: Top Justice officials connected to mortgage banks

By Scot J. Paltrow
Fri Jan 20, 2012 9:31am EST

(Reuters) – U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at a Washington law firm that represented a Who’s Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.

The firm, Covington & Burling, is one of Washington’s biggest white shoe law firms. Law professors and other federal ethics experts said that federal conflict of interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.

Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients. Justice Department spokeswoman Tracy Schmaler said Holder and Breuer had complied fully with conflict of interest regulations, but she declined to say if they had recused themselves from any matters related to the former clients.

Reuters reported in December that under Holder and Breuer, the Justice Department hasn’t brought any criminal cases against big banks or other companies involved in mortgage servicing, even though copious evidence has surfaced of apparent criminal violations in foreclosure cases.

The evidence, including records from federal and state courts and local clerks’ offices around the country, shows widespread forgery, perjury, obstruction of justice, and illegal foreclosures on the homes of thousands of active-duty military personnel.

In recent weeks the Justice Department has come under renewed pressure from members of Congress, state and local officials and homeowners’ lawyers to open a wide-ranging criminal investigation of mortgage servicers, the biggest of which have been Covington clients. So far Justice officials haven’t responded publicly to any of the requests.

While Holder and Breuer were partners at Covington, the firm’s clients included the four largest U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co – as well as at least one other bank that is among the 10 largest mortgage servicers.

DEFENDER OF FREDDIE

Servicers perform routine mortgage maintenance tasks, including filing foreclosures, on behalf of mortgage owners, usually groups of investors who bought mortgage-backed securities.

Covington represented Freddie Mac, one of the nation’s biggest issuers of mortgage backed securities, in enforcement investigations by federal financial regulators.

A particular concern by those pressing for an investigation is Covington’s involvement with Virginia-based MERS Corp, which runs a vast computerized registry of mortgages. Little known before the mortgage crisis hit, MERS, which stands for Mortgage Electronic Registration Systems, has been at the center of complaints about false or erroneous mortgage documents.

Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JP Morgan Chase and several other large banks. It was meant to speed up registration and transfers of mortgages. By 2010, MERS claimed to own about half of all mortgages in the U.S. — roughly 60 million loans.

But evidence in numerous state and federal court cases around the country has shown that MERS authorized thousands of bank employees to sign their names as MERS officials. The banks allegedly drew up fake mortgage assignments, making it appear falsely that they had standing to file foreclosures, and then had their own employees sign the documents as MERS “vice presidents” or “assistant secretaries.”

Covington in 2004 also wrote a crucial opinion letter commissioned by MERS, providing legal justification for its electronic registry. MERS spokeswoman Karmela Lejarde declined to comment on Covington legal work done for MERS.

It isn’t known to what extent if any Covington has continued to represent the banks and other mortgage firms since Holder and Breuer left. Covington declined to respond to questions from Reuters. A Covington spokeswoman said the firm had no comment.

Several lawyers for homeowners have said that even if Holder and Breuer haven’t violated any ethics rules, their ties to Covington create an impression of bias toward the firms’ clients, especially in the absence of any prosecutions by the Justice Department.

O. Max Gardner III, a lawyer who trains other attorneys to represent homeowners in bankruptcy court foreclosure actions, said he attributes the Justice Department’s reluctance to prosecute the banks or their executives to the Obama White House’s view that it might harm the economy.

But he said that the background of Holder and Breuer at Covington — and their failure to act on foreclosure fraud or publicly recuse themselves — “doesn’t pass the smell test.”

Federal ethics regulations generally require new government officials to recuse themselves for one year from involvement in matters involving clients they personally had represented at their former law firms.

President Obama imposed additional restrictions on appointees that essentially extended the ban to two years. For Holder, that ban would have expired in February 2011, and in April for Breuer. Rules also require officials to avoid creating the appearance of a conflict.

Schmaler, the Justice Department spokeswoman, said in an e-mail that “The Attorney General and Assistant Attorney General Breuer have conformed with all financial, legal and ethical obligations under law as well as additional ethical standards set by the Obama Administration.”

She said they “routinely consult” the department’s ethics officials for guidance. Without offering specifics, Schmaler said they “have recused themselves from matters as required by the law.”

Senior government officials often move to big Washington law firms, and lawyers from those firms often move into government posts. But records show that in recent years the traffic between the Justice Department and Covington & Burling has been particularly heavy. In 2010, Holder’s deputy chief of staff, John Garland, returned to Covington, as did Steven Fagell, who was Breuer’s deputy chief of staff in the criminal division.

The firm has on its web site a page listing its attorneys who are former federal government officials. Covington lists 22 from the Justice Department, and 12 from U.S. Attorneys offices, the Justice Department’s local federal prosecutors’ offices around the country.

As Reuters reported in 2011, public records show large numbers of mortgage promissory notes with apparently forged endorsements that were submitted as evidence to courts.

There also is evidence of almost routine manufacturing of false mortgage assignments, documents that transfer ownership of mortgages between banks or to groups of investors. In foreclosure actions in courts mortgage assignments are required to show that a bank has the legal right to foreclose.

In an interview in late 2011, Raymond Brescia, a visiting professor at Yale Law School who has written about foreclosure practices said, “I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history.”

Holder has resisted calls for a criminal investigation since October 2010, when evidence of widespread “robo-signing” first surfaced. That involved mortgage servicer employees falsely signing and swearing to massive numbers of affidavits and other foreclosure documents that they had never read or checked for accuracy.

Recent calls for a wide-ranging criminal investigation of the mortgage servicing industry have come from members of Congress, including Senator Maria Cantwell, D-Wash., state officials, and county clerks. In recent months clerks from around the country have examined mortgage and foreclosure records filed with them and reported finding high percentages of apparently fraudulent documents.

On Wednesday, John O’Brien Jr., register of deeds in Salem, Mass., announced that he had sent 31,897 allegedly fraudulent foreclosure-related documents to Holder. O’Brien said he asked for a criminal investigation of servicers and their law firms that had filed the documents because they “show a pattern of fraud,” forgery and false notarizations.

(Reporting By Scot J. Paltrow, editing by Blake Morrison)

 

Allocating Bailout to YOUR LOAN

Editor’s Note: Here is the problem. As I explained to a Judge last week, if Aunt Alice pays off my obligation then the fact that someone still has the note is irrelevant. The note is unenforceable and should be returned as paid. That is because the note is EVIDENCE of the obligation, it isn’t THE obligation. And by the way the note is only one portion of the evidence of the obligation in a securitized loan. Using the note as the only evidence in a securitized loan is like paying for groceries with sea shells. They were once currency in some places, but they don’t go very far anymore.

The obligation rises when the money is funded to the borrower and extinguished when the creditor receives payment — regardless of who they receive the payment from (pardon the grammar).

The Judge agreed. (He had no choice, it is basic black letter law that is irrefutable). But his answer was that Aunt Alice wasn’t in the room saying she had paid the obligation. Yes, I said, that is right. And the reason is that we don’t know the name of Aunt Alice, but only that she exists and that she paid. And the reason that we don’t know is that the opposing side who DOES know Aunt Alice, won’t give us the information, even though the attorney for the borrower has been asking for it formally and informally through discovery for 9 months.

I should mention here that it was a motion for lift stay which is the equivalent of a motion for summary judgment. While Judges have discretion about evidence, they can’t make it up. And while legal presumptions apply the burden on the moving party in a motion to lift stay is to remove any conceivable doubt that they are the creditor, that the obligation is correctly stated and to do so through competent witnesses and authenticated business records, documents, recorded and otherwise. All motions for lift stay should be denied frankly because of thee existence of multiple stakeholders and the existence of multiple claims. Unless the motion for lift stay is predicated on proceeding with a judicial foreclosure, the motion for lift stay is the equivalent of circumventing due process and the right to be heard on the merits.

But I was able to say that the the PSA called for credit default swaps to be completed by the cutoff date and that obviously they have been paid in whole or in part. And I was able to say that AMBAC definitely made payments on this pool, but that the opposing side refused to allocate them to this loan. Now we have the FED hiding the payments it made on these pools enabling the opposing side (pretender lenders) to claim that they would like to give us the information but the Federal reserve won’t let them because there is an agreement not to disclose for 10 years notwithstanding the freedom of information act.

So we have Aunt Alice, Uncle Fred, Mom and Dad all paying the creditor thus reducing the obligation to nothing but the servicer, who has no knowledge of those payments, won’t credit them against the obligation because the servicer is only counting the payments from the debtor. And so the pretender lenders come in and foreclose on properties where they know third party payments have been made but not allocated and claim the loan is in default when some or all of the loan has been repaid.

Thus the loan is not in default, but borrowers and their lawyers are conceding the default. DON’T CONCEDE ANYTHING. ALLEGE PAYMENT EVEN THOUGH IT DIDN’T COME FROM THE DEBTOR.

This is why you need to demand an accounting and perhaps the appointment of a receiver. Because if the servicer says they can’t get the information then the servicer is admitting they can’t do the job. So appoint an accountant or some other receiver to do the job with subpoena power from the court.

Practice Hint: If you let them take control of the narrative and talk about the note, you have already lost. The note is not the obligation. Your position is that part or all of the obligation has been paid, that you have an expert declaration computing those payments as close as  possible using what information has been released, published or otherwise available, and that the pretender lenders either refuse or failed to credit the debtor with payments from third party sources —- credit default swaps, insurance and other guarantees paid for out of the proceeds of the loan transaction, PLUS the federal bailout from TARP, TALF, Maiden Lane deals, and the Federal reserve.

The Judge may get stuck on the idea of giving a free house, but how many times is he going to require the obligation to be paid off before the homeowner gets credit for the issuance that was was paid for out of the proceeds of the borrowers transaction with the creditor?

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court

By Bob Ivry

April 14 (Bloomberg) — The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Regardless of whether the Fed appeals, the Clearing House will take the next legal step by asking for a review by the full appellate court, Saltzman, 49, said at his office in New York. If the ruling is unfavorable, the bank group will petition the Supreme Court, he said.

Joined Lawsuit

The 157-year-old, New York-based Clearing House Payments Co., which processes transactions among banks, is owned by its 20 members. They include Citigroup Inc., Bank of New York Mellon Corp., Deutsche Bank AG, HSBC Holdings Plc, PNC Financial Services Group Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

The Clearing House Association, a lobbying group with the same members, joined the lawsuit in September 2009, after an initial ruling against the central bank in federal court in Manhattan.

The Fed is “reviewing the decision and considering our options,” said Fed spokesman David Skidmore in Washington. He had no comment on Saltzman’s plans.

Attorneys face a May 3 deadline to file their appeals.

“We’ll wait to see the motion papers,” said Thomas Golden, attorney for Bloomberg who is a partner at New York- based Willkie Farr & Gallagher LLP. “The judges’ decision was well-reasoned, and we doubt further appeals will yield a different result.”

Bloomberg sued in November 2008 under the U.S. Freedom of Information Act, after the Fed denied access to records of four Fed lending programs and a loan the central bank made in connection with New York-based JPMorgan Chase’s acquisition of Bear Stearns Cos. in March 2008.

231 Pages

The central bank contends that 231 pages of daily reports summarizing lending activity, which were prepared by the Federal Reserve Bank of New York for the Fed Board of Governors in Washington, aren’t covered by the FOIA. The statute obliges federal agencies to make government documents available to the press and the public. The suit doesn’t seek money damages.

The Fed released lists on March 31 of assets it acquired in the 2008 bailout of Bear Stearns.

The New York Times Co., the Associated Press and Dow Jones & Co., publisher of the Wall Street Journal, are among media companies that have signed up as friends of the court in support of Bloomberg.

The Fed Board of Governors’ “refusal to disclose the names of borrowers renders public oversight of its actions impossible — it prevents any assessment of the effectiveness of the Board’s actions and conceals any collusion, corruption, fraud or abuse that might have occurred,” the news organizations said in a letter to the appeals panel.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: April 14, 2010 00:01 EDT

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