By the METHOD of pooling and tranching, they converted from negotiable to non-negotiable instrument. (Article VIII UCC).
That means that upon transfer the recipient of the payment is satisfied in full and a new obligation arises between the seller and buyer separate and apart from the borrower. Further, the method calls for the proceeds of payment from one note to be used as collateral (cross collateralization) for another. This breaches the terms of the note which states that payments by borrower will be applied to what the borrower owes.
So the investor receives the “benefit” of multiple obligors plus insurance and credit default swaps and an investment grade rating that was obtained under false pretenses. But what the investor is holding is not the original note. He/she/it is holding a stream of revenue with multiple conditions. A conditional promise to pay is not a negotiable instrument.
The only party on record as mortgagee or beneficiary under a deed of trust has been paid in full as to principal, paid in full as to disclosed fees, and has received undisclosed fees as well because they were standing in for the real lender whose identity and existence was withheld from the borrower — all TILA violations.
The purpose of the disclosure requirements is to crate enough transparency that both the funding source and the borrower can readily perceive the risks of the transaction. In this case the pattern of conduct was to make sure the investor and borrower could never get together to compare notes. This prevented the borrower from assessing whether better terms were available (instead of huge fees going to intermediaries) and it prevented the investor from assessing the risk and rate of return on investment (because only a portion of the invested dollars was going to fund mortgages — the rest going to fees spread around like a whiskey bottle at a frat party (Mike Stuckey’s phrase, MCNBC.com).
Filed under: CDO, CORRUPTION, Eviction, foreclosure, GTC | Honor, MODIFICATION, Mortgage, securities fraud Tagged: | borrower, disclosure, foreclosure defense, foreclosure offense, Lender Liability, mortgage meltdown, rescission, securitization