Livinglies's Weblog

Editor’s comment: The article below summarizes the bad loan analysis: “finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.” What’s missing? — flaws in loans that included altered or fraudulent appraisals, altered or fraudulent disclosures under TILA, altered or fraudulent settlement statements, straw lenders, and mortgage brokers who listed fictitious creditors and underwriters. 

The media and law enforcement still refuse to take the extra step — simply looking at the origination of each loan and determining whether the same standards they are using to disqualify the underwriting of the loans should be used to invalidate the enforceability of the loans.

I know this is a hot button, but I remind you that it is our position here that IF there is a balance due on the obligation, the homeowner still owes it — but that the amount of the claim is being falsely reported and the identity of the creditor is being fraudulently presented.

Most importantly, the collateral for the obligation — the home — has never attached to the loan, particularly as to “strangers to the transaction” who were neither parties to the borrower’s transaction nor parties to the lender’s transaction.

Strategically the path of least resistance is to start by attacking the mortgage and not the the obligation. Tactically, the and realistically, the entire obligation, if it is documented at all, is contained in BOTH the closing documents with the investors lenders (the securitization documents) and the closing documents with the borrower (the escrow closing with the homeowner). Even then, since the two sets of documents don’t refer to each other, and the two sets of people — lenders and borrowers — are not identified properly in either set of documents, some equitable reformation of the entire transaction must be used, which means there can’t be any summary judgment or non-judicial foreclosure.

And unless the actual creditor shows up in the courtroom with proof of a claim of loss, there is no action, period. Strangers tot he transactions are not permitted to enter into a court proceeding claiming a debt owed to another person merely because they learned of the debt. They must possess their own claim and they can recover only up the amount of their own claim, if they prevail. AND they are not parties to the security instrument (mortgage or deed of trust) so they are not secured.

The current pilot program of naming the pool is a strategic rope-a-dope. In more than 50% of the cases, the pool does not exist anymore having been resolved (settled) or succeeded by another pool with different terms. In short they have been paid.

In 95% of the cases, the loan never made it into the pool nor could it have been accepted by the manager or trustee because the loan was

• (a) non performing at the time of the “assignment”
  
• (b) not supported by an actual monetary transaction in which the loan was sold and
  
• (c) was imperfectly “assigned” by unauthorized clerks acting as officers using methods not approved by the PSA AFTER the cutoff date (meaning that even if they were right about assigning the loan late into the pool and even if the pool “accepted” the assignment despite the prohibition against doing so, the principal and material representation to investors regarding tax treatment by the Internal Revenue Code (activity is considered nontaxable event) would be breached.

In the end I return to my basic question: if the original loans were valid, if the loan documents did not contain false declarations of fact, then why would any of the banks have ever needed to resort to fabrication, forgery and fraud? We keep hearing the latest mantra that renting the properties is the way out of the foreclosure mess. No, that isn’t true. All the title problem and monetary losses suffered by victims of fraud would remain under that scenario.

LAWYERS GET THIS POINT!: The fact that an assignment document has been presented does not mean the assignment occurred. Each one says “for value received.” Attack that through discovery and you will find that in no case was any money paid for the sale, transfer or assignment of any loan because the original transaction already took place between the lender investors and the borrower homeowner. There was nothing to pay and nothing to receive because the obligation was already owned legally and equitably by the investors at the time of the alleged sale, transfer or assignment. And the fact that an assignment is offered does not mean that it has been or could be accepted. Discovery directed at the assignee will clear that up in 30 seconds.

The real way out of the foreclosure mess is (a) reverse the wrongful foreclosures (even if you want to narrow them down to those in which the borrower actually owes money and can’t pay it) and (b) stopping any future foreclosures by strangers to the transactions that are based upon false declarations in fabricated documents identifying the wrong parties, and omitting key elements of the terms of repayment.

It is simple. Give back what was stolen in money, property, and reputation (credit scores etc.) and the whole country will have its middle class restored with money to spend in our consumer driven economy.

Citigroup Whistle-Blower Says Bank’s ‘Brute Force’ Hid Bad Loans From U.S.

By Bob Ivry, Donal Griffin and Andrew Harris

Four years after rotten mortgages helped trigger a global financial crisis, Sherry Hunt said her Citigroup Inc. quality-control team was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.

Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed yesterday by the U.S. Attorney’s Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims, and admitted that it certified loans for FHA backing that didn’t qualify.

Hunt, who filed a sealed lawsuit against New York-based Citigroup in August that the government joined, will collect $31 million of that sum — before taxes and attorney’s fees — as a whistle-blower, she said in an interview yesterday. The settlement, which encompassed misconduct spanning 2004 to the present, indicates Citigroup has lingering problems in its O’Fallon, Missouri-based CitiMortgage unit.

“Citigroup in particular received government funding, taxpayer dollars, because of its risky operations,” said Peter Henning, a law professor at Wayne State University in Detroit. “It shows that they hadn’t really learned much of a lesson from the financial crisis.”

Inspector General

The inspector general for the U.S. Department of Housing and Urban Development faulted Citigroup’s quality-control program during a 2008 audit, according to the complaint. Taxpayers rescued the bank with a $45 billion bailout that same year and guaranteed more than $300 billion of its risky assets after the lender’s stability was threatened by mounting costs on soured loans. The bank lost a total of $29.3 billion in 2008 and 2009.

Hunt’s co-workers, instead of checking for fraud or making reports about underwriting defects to the FHA as required, argued with her over the soundness of the loans, she said. Employees who acted as “gatekeepers” applied “what they describe as ‘brute force’ to pressure Citi’s quality control managers” into downplaying defects, according to the government’s complaint.

Some colleagues had pay incentives tied to reducing the number of reported problems, and they spent hours trying to get her to relax her warnings, including those about the most basic deficiencies, Hunt said.

‘Beating Us Up’

“They started beating us up over the quality-control reports,” she said.

Last year, she said, she became convinced she was being asked to look the other way on serious flaws. That’s when she decided to become a whistle-blower.

“All a dishonest person had to do was change the reports to make things look better than they were,” Hunt said in an interview. “I wouldn’t play along.”

Citigroup has approved about 30,000 loans with a value of $4.8 billion for FHA insurance since 2004; more than 30 percent of those borrowers have quit paying, the Justice Department said in its complaint. Almost half the bank’s FHA loans originated in 2006 and 2007 have defaulted, the government said, with HUD paying out almost $200 million in insurance claims on mortgages Citigroup originated or underwrote since 2004.

citigroup-whistle-blower-says-bank-s-brute-force-hid-bad-loans.html