Why Are We having So Much Trouble Connecting the Dots?

Posted on October 31, 2013 by Neil Garfield

Matt Weidner reports that he went to court on a case where IndyMAc was the plaintiff. IndyMac was one of the first banks to collapse. It was found that they owned virtually zero mortgages and had “securitized” the rest which is to say they never loaned the money or got paid off by a successor. Now the servicing rights on IndyMac have been sold. So when the time came for trial he finds the lawyer fighting with his own witness. It seems that she would not say she worked for IndyMac because she didn’t. That meant there was no corporate representative present to testify for the plaintiff. case over? Not according to what we have seen where IndyMac foreclosures continue to be rubber stamped by Judges who do not understand the gravity of the situation.

The precedent being set is for anyone who knows about a default to race to the courthouse with a complaint to foreclose after fabricated a notice of default and asserting themselves as the successor to whoever the borrower was paying. The borrower doesn’t know the difference and generally doesn’t care because they mistakenly think they are screwed no matter what. So the pretender lender that was collecting takes it time partly because they are simply collecting fees on “non-performing” loans. Meanwhile our creative criminal goes in and alleges that he is the holder of a lost note, submits affidavits, but of course stays away from the essential allegation that there ever was a transaction between himself and the borrower. These days Judges don’t seem to require that.

Judgment is entered for our creative criminal and he becomes by court order, the creditor who can submit a credit bid at auction. He makes the non-cash bid at the auction and presto he just got himself a free house which he sells at discount on the open market. He only needs to do a few of those before he vanishes with a few million dollars. In fact, we have learned that such “foreclosures” are going on now sometimes creatively named such that it looks like the name of a bank. That is why I have been saying for 7 years that  the foreclosures, if they are allowed to proceed, will eventually create chaos in the marketplace.

You might ask why the banks don’t raise a big stink about this practice. The answer is that there are only a few such scams going on at the moment. And the banks are relying on the loopholes created in pleading practice to get their own foreclosures through the same way as our criminal because they really don’t own the loan or even the servicing rights. Yup! That is called a syllogism: if the creative criminal is a criminal for doing what he did, then the bank or anyone else who engages in the same behavior is also a criminal.

And that is why the justice department and regulators are ramping up their investigations and charges, getting ready to indict the bankers who thought they were untouchable. If you read the reports of securities analysts, you will see three types of authors — those who obviously have drunk the Kool-Aide and believe Bank of America and Chase hinting the stock is a good buy, those who are paid to plant pretty articles about the banks, and supposedly declining foreclosures and increasing housing prices, and those who have looked at the jury conviction of Countrywide, looked at the pace of settlements, and looked at the announcements that there are many more investigations and charges to be resolved, and who have seen the probability of indictments, and they conclude that BOA is soon going to be on the chopping block for sale in pieces and the same will happen with Chase, Citi and maybe even Wells.

While the media is not paying attention to the impending doom of the mega banks, the market is discounting the stock and the book value of these companies is dropping like a stone because real investment analysts under stand that much of what is being carried on the books as assets, is really worthless garbage. Charges of fraud are announced practically everyday, saying that the banks defrauded investors, defrauded Fannie and Freddie, and defrauded each other, as well as insurance companies and counterparties on credit default swaps. In other words it is pretty well settled that the sale of mortgage bonds was a sweeping fraudulent scheme and that the word PONZI scheme is accurate, not some conspiracy theory as I was treated back in 2007-2010.

So now that we know that there was complete fraud at one end of the stick (where the funding for the origination and acquisition of mortgages took place), the question is why is anyone looking at foreclosures as inevitable or proper or even possible. It is the same stick. If one end is burning then it is quite likely that the other end will be burning soon and that is exactly what I predict for the coming months.

Having been in court multiple times over the last month representing clients seeking to retain their homes it is readily apparent that the Judges are changing their minds about whether the foreclosure is inevitable or that collection by these creative criminals is wise or legal — i.e., whether the enire exercise involves an arrogant willingness to commit perjury. Since the mortgages were part of the scheme and the part where the lender appeared with the money is covered in fraud, it is certainly reasonable to assume that the the fraudulent schemes included the origination and transfer of mortgage paper. And that is exactly the case.

If it wasn’t the case there never would have been fraud at the top because the investors would be on the note and mortgage and some some nominee of the broker dealer (“BANK”) or they would have been on a recorded assignment closed out within 90 days of the start of the REMIC trust, which would have been funded by money from investors paid to the investment bank (broker dealer) who then forwarded the net proceeds tot he Trust. None of that ever happened, though, which is how the fraud was enabled.

Practice Hint: I like to demonstrate by drawing a large “V” where the bottom is the closing agent, the left side is the money trail and the right side is the paper trail — and showing that they never meet. That means the paper trail is a fictional story about transactions that never occurred. The money trail is actual facts and data showing actual transactions where money exchanged hands but there was no documentation. The “Trust” was never funded with money or assets, so the money went straight down the left side from the investors at the top of the left side to the closing agent, who applied the investors money to close a transaction that was documented as though the originator had loaned the money. The same reasoning applies to transfers and assignments.

The core of the cases filed by the banks is that the Note is prima facie evidence that a transaction occurred. It is entitled to a presumption of validity. But where the borrower denies the transaction ever occurred, and files the right discovery to get evidence of the wire transfers and canceled checks, the banks go wild because they know their entire case will not only fall apart but subject them to prosecution.

Which brings us to Marshall Watson, who seeks to be licensed again to practice law, and David Stern who is about to be disbarred forever. The good news is that they were disciplined for fabrication and forgery of documents. The bad news is that the inquiry stopped there and nobody ever asked why it was necessary to fabricate or forge documents.

FRAUD! In Foreclosure Court Indymac/Onewest Doesn’t Own Notes and Mortgages, But “They” Continue To Foreclose Anyway
http://ireport.cnn.com/docs/DOC-1051166/

–Suspended Ft. Lauderdale foreclosure mill head seeks return
http://therealdeal.com/miami/blog/2013/10/24/suspended-fort-lauderdale-foreclosure-mill-head-seeks-return/

Florida Bar referee calls for ex-foreclosure king’s disbarment
http://therealdeal.com/miami/blog/2013/10/30/florida-bar-referee-calls-for-ex-foreclosure-kings-disbarment/

Filed under: CDO, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure mill, GARFIELD GWALTNEY KELLEY AND WHITE, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, Servicer | Tagged: , , , , , , , , , , , | 195 Comments »

Big Banks Headed For Break-Up

Posted on March 14, 2013 by Neil Garfield
“What policy makers are starting to realize is that the absence of prosecutions and regulatory action against these banks has produced a profound loss of confidence not only in the financial markets but in the leader of the financial markets (the United States) to control itself and its own participants in finance. It’s not just fair to enforce existing laws and regulations against the banks who so flagrantly violated them and nearly destroyed all the economies of the world, it’s the only practical thing to do.” — Neil F Garfield, livinglies.me
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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comment: There is an old expression that says “At the end of the day, everybody knows everything.” The question of course is how long is the “day.” In this case the day for the bank appears to be about 10-12 years. The foibles of their masters, the conduct of their policies, and the arrogance of their behavior has led them into the position where the once unthinkable break-up of the bank oligopoly and their control, over our government is coming to a close.

The titans of Wall Street have thus far avoided criminal prosecution because of the misguided assumption — promulgated by Wall Street itself — that such prosecutions would destroy the economic systems all over the world (remember when Detroit arrogance reached its peak with “what’s good for GM is good for the country?”). But the Dallas Fed are joining the ranks of of once lone voices like Simon Johnson stating that Too Big to Fail is not a sustainable model and that it distorts the markets, the marketplace and our society.

It is virtually certain now that the mega banks are going to literally be cut down to size and that some form of Glass-Steagel will be revived. As that day nears, the images and facts pouring out onto the public and the danger to the American taxpayer facing deficits caused by the banks in part because they siphoned out the life-blood of liquidity from the American marketplace will overwhelm the last vestiges of resistance and the same lobbyists who were the king makers will be the kiss of death for re-election of any public official.

As they are cut down, the accounting and auditing will start and it will take years to complete. What will emerge is a pattern of theft, deceit, fraud, forgery, perjury and other crimes that are most easily seen in the residential foreclosures that now appear to be mostly illusions that have caused nightmare scenarios for millions of Americans and people in other countries. Those illusions though are still with us and they are still taken as real by many in all branches of government. The thought that the borrower should never have been foreclosed and that the amount demanded of them was wrong is not accepted yet. But it will be because of arithmetic.

Investment banks sold worthless bonds issued by empty creatures that existed only on paper without any assets, money or value of any kind. The banks then funded mortgages of increasingly obvious toxicity to people who might have been able to afford a normal mortgage or who couldn’t afford a mortgage at all but were assured by the banks that the deal was solid. Both investors and homeowners were taken to the cleaners. Neither of them has been addressed in any bailout or restitution.

It is the bailout or restitution to the investors and homeowners that is the key to rejuvenating our economy. Trust in the system and wealth in the middle class is the only historical reference point for a successful society. All the rest crumbled. As the banks are taken apart, the privilege of using “off-balance sheet” transactions will be revealed as a free pass to steal money from investors. The banks took the money from investors and used a large part of it to gamble. Then they covered their tracks with lies about the quality of loans whose nominal rates of interest were skyrocketing through previous laws against usury.

For those who worry about the deficit while at the same time remain loyal to their largest banking contributors, they are standing with one foot upon the other. They can’t move and eventually they will fall. The American public may not be filled with PhD economists, but they know theft when it is revealed and they know what should happen to the thief and the compatriots of the thief.

For the moment we are still rocketing along the path of assuming the home loans, student loans, credit cards, auto loans, furniture loans et al were valid loans wherein the lenders had a risk of loss and actually suffered a loss resulting from the non payment by the borrower. As the information spreads about what really happened with all consumer debt, housing included, the people will understand that their debts were paid off by the investment banks, the insurance, companies and the counterparties on hedge products like credit default swaps.

A creditor is entitled to be repaid the money loaned. But if they have been repaid, the fact that the borrower didn’t pay it does not create a fact pattern under which the current law allows the creditor to seek additional payment from the borrower when their receivable account is zero. Yet it is possible that the parties who paid off the debt might be entitled to contribution from the borrower — if they didn’t waive that right when they entered into the insurance or hedge contract with the investment banks. Even so, the mortgage lien would be eviscerated. And the debt open to discussion because the insurers and counterparties did in fact agree not to pursue any remedies against the borrowers. It’s all part of the cover-up so the transactions look like civil matters instead of criminal matters.

Thus far, we have allowed windfall after windfall to the banks who never had any risk of loss and who received federal bailouts, insurance, and proceeds of credit default swaps and multiple sales of the same loan — all without crediting the investors who advanced all the money that was used in the mortgage maelstrom.

The practical significance of this is simple: the money given to the banks went into a black hole and may never be seen again. The money given BACK to (restitution) investors will result in fixing at least partly the imbalance caused by the bank theft. It will also decrease the loss suffered by the lenders in the loans marked as home loans, auto loans, student loans etc. This in turn reduces the amount owed by the borrower. Their is no “reduction” of principal there is merely a “deduction” or “correction” to reflect payments received by the investors or their agents.

The practical significance of this is that money, wealth and income will be  channeled back to the those who are in the middle class or who belong there but for the trickery of the banks and the economy starts to hum a little better than before.

It all starts with abandoning the Too Big To Fail hypothesis. What policy makers are starting to realize is that the absence of prosecutions and regulatory action against these banks has produced a profound loss of confidence not only in the financial markets but in the leader of the financial markets to control itself and its own participants in finance. It’s not just fair to enforce existing laws and regulations against the banks who so flagrantly violated them and nearly destroyed all the economies of the world, it’s the only practical thing to do.

Big Banks Have a Big Problem
http://economix.blogs.nytimes.com/2013/03/14/big-banks-have-a-big-problem/

We The Taxpayers Are On The Hook For Mortgages, Student Loans, Banks
http://lonelyconservative.com/2013/03/we-the-taxpayers-are-on-the-hook-for-mortgages-student-loans-banks/

Documentary Co-Produced by Broker Exposes Foreclosure Devastation, Housing System Flaws, in Low-Income Hispanic Neighborhood of Phoenix
http://rismedia.com/2013-03-13/documentary-co-produced-by-broker-exposes-foreclosure-devastation-housing-system-flaws-in-low-income-hispanic-neighborhood-of-phoenix/

Housing advocates accuse Wells Fargo of damaging communities through foreclosures
http://www.scpr.org/blogs/economy/2013/03/13/12908/housing-advocates-accuse-well-fargo-damaging-commu/

 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud, Student Loans | Tagged: , , , , , , , , , , , , | 18 Comments »

Our Turn to Strike Back: Schneiderman Files Massive Lawsuit Against Pretenders

Posted on February 3, 2012 by Neil Garfield

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“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law,”

EDITOR’S NOTE: Don’t confuse this with other cases. This is the first shot that seeks to drive a stake into the heart of the foreclosure process and NOW, unlike before, the defendants have committed themselves in millions of foreclosures where upon challenge they had been successful at playing shell games with the documents. Everything they did is  engraved in stone now and it either can’t be justified or it can be. Schneiderman has crafted a well-written, well-reasoned lawsuit, but more than that this lawsuit in long a facts and short on presumptions. That is what makes it different.

Read this and use it in your pleadings.

A.G. SCHNEIDERMAN ANNOUNCES MAJOR LAWSUIT AGAINST NATION’S LARGEST BANKS FOR DECEPTIVE & FRAUDULENT USE OF ELECTRONIC MORTGAGE REGISTRY

Complaint Charges Use Of MERS By Bank Of America, J.P. Morgan Chase, And Wells Fargo Resulted In Fraudulent Foreclosure Filings  

Servicers And MERS Filed Improper Foreclosure Actions Where Authority To Sue Was Questionable

Schneiderman: MERS And Servicers Engaged In Deceptive and Fraudulent Practices That Harmed Homeowners And Undermined Judicial Foreclosure Process

NEW YORK – Attorney General Eric T. Schneiderman today filed a lawsuit against several of the nation’s largest banks charging that the creation and use of a private national mortgage electronic registry system known as MERS has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process. The lawsuit asserts that employees and agents of Bank of America, J.P. Morgan Chase, and Wells Fargo, acting as “MERS certifying officers,” have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party uad the authority to bring a case when in fact it may not have. The lawsuit names JPMorgan Chase Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., as well as Virginia-based MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems, Inc.

The lawsuit further asserts that the MERS System has effectively eliminated homeowners’ and the public’s ability to track property transfers through the traditional public records system. Instead, this information is now stored only in a private database – which is plagued with inaccuracies and errors – over which MERS and its financial institution members exercise sole control. Additional defendants include BAC Home Loans Servicing, LP, Chase Home Finance LLC, EMC Mortgage Corporation, and Wells Fargo Home Mortgage, Inc.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law,” said Attorney General Schneiderman. “Our action demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. Only through real accountability for the illegal and deceptive conduct in the foreclosure crisis will there be justice for New York’s homeowners.”

The financial industry created MERS in 1995 to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages. MERS operates as a membership organization, and most large companies that participate in the mortgage industry – by originating loans, buying or investing in loans, or servicing loans – are members, including JPMorgan Chase, Bank of America, Wells Fargo, Fannie Mae, and Freddie Mac. Over 70 million loans nationally have been registered in MERS System, including about 30 million currently active loans.

Through their membership in MERS, these companies avoided publicly recording the purchase and sale of mortgages by designating MERS Inc. – a shell company with no economic interest in any mortgage loan – as the “nominal” mortgagee of the loan in the public records. Instead, MERS members were supposed to log mortgage transfers in the MERS private electronic registry. The basic theory behind MERS is that, because MERS Inc. serves as a “nominee” (or agent) for most major lenders, it remains the “mortgagee” in the public records regardless of how often the loan is sold or transferred among MERS members. Thus, although MERSCORP has only about 70 employees, MERS Inc. serves as the mortgagee of record for tens of millions of loans registered in the MERS System.

MERS has granted over 20,000 “certifying officers” the authority to act on its behalf, including the authority to assign mortgages, to execute paperwork necessary to foreclose, and to submit filings on behalf of MERS in bankruptcy proceedings. These certifying officers are not MERS employees, but instead are employed by MERS members, including JPMorgan Chase, Bank of America, and Wells Fargo.

MERS’ conduct, as well as the servicers’ use of the MERS System, has resulted in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially clouded titles on properties throughout the State of New York. In fact, several New York judges have questioned the standing of the foreclosing party in cases involving MERS loans and the validity of mortgage assignments executed by MERS certifying officers.

The lawsuit specifically charges that the defendants have engaged in the following fraudulent and deceptive practices:

  • MERS has filed over 13,000 foreclosure actions against New York homeowners listing itself as the plaintiff, but in many instances, MERS lacked the legal authority to foreclose and did not own or hold the promissory note, despite saying otherwise in court submissions.
  • MERS certifying officers, including employees and agents of JPMorgan Chase, Bank of America, and Wells Fargo, have repeatedly executed and submitted in court legal documents purporting to assign the mortgage and/or note to the foreclosing party. These documents contain numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid. These assignments were often automatically generated and “robosigned” by individuals who did not review the underlying property ownership records, confirm the documents’ accuracy, or even read the documents. These false and defective assignments often masked gaps in the chain of title and the foreclosing party’s inability to establish its authority to foreclose, and as a result have misled homeowners and the courts.
  • MERS’ indiscriminate use of non-employee “certifying officers” to execute vital legal documents has confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose. MERS certifying officers have regularly executed and submitted in court mortgage assignments and other legal documents on behalf of MERS without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel. The signature line just indicates that the individual is an “Assistant Secretary,” “Vice President,” or other officer of MERS. Indeed, these documents often purport to assign the mortgage to the certifying officer’s own employer. Moreover, as a result of the defendants’ failure to track the designation of certifying officers and the scope of their authority to act, individuals have executed legal documents on behalf of MERS, such as mortgage assignments and loan modifications, when they were either not designated as a MERS certifying officer at the time or were not authorized to execute documents on behalf of MERS with respect to the subject loan.
  • MERS and its members have deceived and misled borrowers about the importance and ramifications of MERS’ role with respect to their loan by providing inadequate disclosures.
  • The MERS System is riddled with inaccuracies which make it difficult to verify the chain of title for a loan or the current note-holder, and creates confusion among stakeholders who rely on the information. In addition, as a result of these inaccuracies, MERS has filed mortgage satisfactions against the wrong property.

The lawsuit seeks a declaration that the alleged practices violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.

The matter is being handled by Deputy Bureau Chief of the Bureau of Consumer Frauds & Protection Jeffrey K. Powell, Assistant Attorney General Clare Norins, and Assistant Solicitor General Steven C. Wu, under the supervision of First Deputy Attorney General Harlan Levy.

Attachment:

 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , | 53 Comments »

MegaBanks Lose Ground on Ratings of Their Own Companies

Posted on June 7, 2011 by Neil Garfield

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“Everyone is cognizant of the fact that the banks will end up back in the lap of the government should there be a problem,” said Daniel Alpert, managing partner at Westwood Capital LLC, a New York-based investment bank. “What the ratings agency is saying here is that if we had another problem in the next six to 12 months, it’s unlikely the government will once again unilaterally protect bondholders. It’s politically untenable.” Alpert said he holds a small stake in Citigroup.

 

ONCE PARTNERS IN CRIME, RATING AGENCIES TURN ON INVESTMENT BANKS TO BOLSTER THEIR OWN CREDIBILITY

EDITOR’S NOTE: I’m sorry. I can’t resist saying I told you so. The ankle biting begins as that the battle for survival and staying out of jail has just begun. It will be months or even years before the battle to win the “sacrifice your former friends” game is over. The entire illusion of securitization could not have been achieved without the apparent rubber stamp of genuine approval from what appeared to be independent third parties. With the appraisers and rating agencies in the bag, Wall Street was able to pull off the largest heist in history.

And speaking of history, when is it going to dawn on the Obama administration that they may not look so good in the light of history.  For all their good intent, and for all their concern about not disrupting the markets any more, historians will look back on this time and say he could have turned it around by simply telling the truth to the American People, to wit: the mortgages are fake, the mortgage bonds are fake, the balance sheets are lies, the loans were lies, and the government is going to do everything in its power to return BOTH investors and homeowners to the position they were in before this great fraud began.

The lip service to “transparency” does not apparently reach all the way to the top. The administration is still running scared from the sky falling if they actually take down the banks. Instead, they are adopting a laissez faire stance (typically a Republican stance) and just like their Republican friends they are going to see this blow up in their faces. Intentionally taking the banks down is FAR better than just letting them collapse one night or over a weekend. Obama is wasting an opportunity not just for saving the country from decades of heartache while we keep the balloon inflated with nothing but hot air, but for his own campaign where he could show decisiveness and action, now that we already know the megabanks are in fact going to fail miserably.

BofA, Citigroup Among Banks That May Be Lowered by Moody’s

By Donal Griffin and Dakin Campbell – Jun 2, 2011

Bank of America Corp. (BAC), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) may be downgraded by Moody’s Investors Service as the rating firm reviews whether the government will limit its support of the largest financial firms.

Ever since the financial crisis, ratings for the banks have been boosted by an assumption that the U.S. would provide extra support if the lenders got into trouble again, the ratings firm said in a statement today. A review by Moody’s will “focus on whether these ratings should be adjusted to remove this unusual uplift and include only pre-crisis levels of government support.”

Investors have regarded the banks as too big to fail after they received government aid in 2008 to keep the financial system from collapsing. Lawmakers have since overhauled regulations and passed the Dodd-Frank legislation to avoid a repeat of bailouts that aided firms including Charlotte, North Carolina-based Bank of America, which received $45 billion.

“Everyone is cognizant of the fact that the banks will end up back in the lap of the government should there be a problem,” said Daniel Alpert, managing partner at Westwood Capital LLC, a New York-based investment bank. “What the ratings agency is saying here is that if we had another problem in the next six to 12 months, it’s unlikely the government will once again unilaterally protect bondholders. It’s politically untenable.” Alpert said he holds a small stake in Citigroup.

Building a Cushion

Bank of America, Citigroup and San Francisco-based Wells Fargo have raised funds from private investors to repay U.S. aid and have been building capital to guard against further declines in housing prices. Moody’s rates Citigroup’s senior unsecured debt at A3, and assigns a rating of A2 to Bank of America and A1 to Wells Fargo. A1 is the fifth-highest of 10 investment-grade ratings and A2 is sixth.

Citigroup welcomes the reassessment of its rating, Chief Financial Officer John Gerspach said in an e-mailed statement, calling his bank one of the best-capitalized financial institutions in the industry. At Bank of America, “our stand- alone rating should be higher given the progress that we’ve made to strengthen our balance sheet, improve our capital and liquidity and reduce our risk profile,” said Jerry Dubrowski, a spokesman for the lender.

Mary Eshet, a spokeswoman for Wells Fargo, said Moody’s review is consistent with its statements from as far back as a year ago and that the bank’s unsupported ratings remain among the strongest in the industry.

Credit-Default Swaps

Credit-default swaps on Citigroup rose 7 basis points to 135.4 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Bank of America’s swaps increased 6.7 basis points to 155.5 basis points.

Wells Fargo’s swaps rose 4.3 basis points to 89 basis points, according to CMA. A rising price indicates more doubt on the part of investors about whether a debtor will meet its obligations.

Moody’s will assess improvements in Bank of America’s and Citigroup’s financial strength, and “this may temper the extent of any ratings downgrades that could result from its review of these firms’ unusual level of systemic support,” the ratings firm said.

In March, under expanded powers granted by Dodd-Frank, the Federal Deposit Insurance Corp. laid out a framework for priority payment of creditors and procedures for filing claims in liquidations of large, complex firms. Congress sought the liquidation authority after the September 2008 bankruptcy of Lehman Brothers Holdings Inc. deepened the credit crisis and highlighted the ties among the largest financial firms.

Liquidation Authority

The move to establish an orderly process for winding down firms was “key” to Moody’s review, Robert Young, managing director with the ratings firm, said in a phone interview.

“Post-Dodd Frank, you evaluate willingness and ability to reduce support or impose losses on creditors,” Young said. “Clearly the intent of the government is to not provide support.” The government’s liquidation authority wouldn’t work as of right now, so Moody’s isn’t prepared to discount government support entirely, he said.

Bank of America and Citigroup “have sizable residential mortgage exposures,” Moody’s said. “Their credit costs could therefore spike if the U.S. economy were to contract again. Further, they continue to face litigation costs related to faulty foreclosure practices.”

Collateral Damage

Downgrades could weaken the banks’ liquidity, limit access to credit markets and pressure businesses that rely on trading revenue, according to regulatory filings. A downgrade by one level at all rating firms could cost Bank of America $1.2 billion for collateral posting and termination payments tied to derivatives and trading agreements, the bank said.

Citigroup said a one-grade reduction of senior and short- term ratings could result in the loss of $8.7 billion in commercial paper funding and $500 million in derivative triggers and margin requirements, and Wells Fargo said it would have been required to post collateral of $1.1 billion as of March 31 had downgrades below investment grade triggered provisions in derivative contracts.

“We would not be surprised to see a one-notch downgrade in Citi and possibly a two notch downgrade in Bank of America’s published senior ratings,” said David Havens, managing director of credit trading at Nomura Holdings Inc., in an e-mail. “This is because Citi has a notch less support, and seems to have less current issues (read: mortgages) than Bank of America.”

Bank of America advanced 5 cents to $11.29 at 4 p.m. in New York Stock Exchange composite trading, leaving it down 15 percent this year. Citigroup gained 36 cents to $40.01, also with a 15 percent drop year to date. Wells Fargo rose 22 cents to $27.16; it’s down 12 percent since Dec. 31.

Bank of New York Mellon Corp. (BK) had the outlook on its debt lowered to “negative” from “stable,” Moody’s said. That brings it in line with other financial firms benefiting from the assumption of government support, including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), all based in New York.

To contact the reporter on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , | 12 Comments »

FIRST MERS THEN MARS and PHOENIX: Systematic Destruction of Original Notes

Posted on October 12, 2010 by Neil Garfield

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EDITOR’S NOTE: Discovery should include inquiries about MARS and Phoenix. See below. Inch by inch we get closer and closer.

From a reader in litigation:
I worked for Wells Fargo as an contractor. I was a computer programmer in the Frederick, md office. I also worked in the Columbia, md office where Wells operated as the Master Servicer for most of these securitized pools.
I helped program the software that selected loans to pool. The system was tied into their origination system (A mainframe system called MARS). The investment side would feed it the criteria of the types of loans it needed to fill the pools. Terms, int rate, etc. This would in turn feed into the origination system and “magically” tell all of wells fargo what type of loans to originate. This was about 5 yrs ago. I remember asking questions as to where the originals where and know one could answer. They scanned the note and mortgage. Some went to a storage facility allegedly in the mountains. As that cost increased, they just simply started scanning and then destroying.

When I worked for the master servicer headquarters in Columbia, MD. That place was like Fort Knox. It rivaled any DOD top secret facility here in the DC area. I worked on a system called Phoenix that housed all the information of who where the investors. I almost got fired for accidentally bringing in a usb drive one time.

The Wells Fargo Columbia, MD office is where all the magic happened behind closed doors. The master servicer as you know controls the flow of money, advance payments, etc. One side of the building was completely off limits. The investment brokers and execs sat on this side with guards.

If you find some addl people from that office we can depose individuals from that office and piece together more facts.

Ironically, I have a federal case in MD court against Wells Fargo, HSBC and Mers. I know they don’t have my note, but my case has just sat for months. These latest news revelations will give me more ammunition to move forward.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , | 17 Comments »

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