Who Are the Creditors?

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Since the distributions are made to the alleged trust beneficiaries by the alleged servicers, it is clear that both the conduct and the documents establish the investors as the creditors. The payments are not made into a trust account and the Trustee is neither the payor of the distributions nor is the Trustee in any way authorized or accountable for the distributions. The trust is merely a temporary conduit with no business purpose other than the purchase or origination of loans. In order to prevent the distributions of principal from being treated as ordinary income to the Trust, the REMIC statute allows the Trust to do its business for a period of 90 days after which business operations are effectively closed.

The business is supposed to be financed through the “IPO” sale of mortgage bonds that also convey an undivided interest in the “business” which is the trust. The business consists of purchasing or originating loans within the 90 day window. 90 days is not a lot of time to acquire $2 billion in loans. So it needs to be set up before the start date which is the filing of the required papers with the IRS and SEC and regulatory authorities. This business is not a licensed bank or lender. It has no source of funds other than the IPO issuance of the bonds. Thus the business consists simply of using the proceeds of the IPO for buying or originating loans. Since the Trust and the investors are protected from poor or illegal lending practices, the Trust never directly originates loans. Otherwise the Trust would appear on the original note and mortgage and disclosure documents.

Yet as I have discussed in recent weeks, the money from the “trust beneficiaries” (actually just investors) WAS used to originate loans despite documents and agreements to the contrary. In those documents the investor money was contractually intended to be used to buy mortgage bonds issued by the REMIC Trust. Since the Trusts are NOT claiming to be holders in due course or the owners of the debt, it may be presumed that the Trusts did NOT purchase the loans. And the only reason for them doing that would be that the Trusts did not have the money to buy loans which in turn means that the broker dealers who “sold” mortgage bonds misdirected the money from investors from the Trust to origination and acquisition of loans that ultimately ended up under the control of the broker dealer (investment bank) instead of the Trust.

The problem is that the banks that were originating or buying loans for the Trust didn’t want the risk of the loans and frankly didn’t have the money to fund the purchase or origination of what turned out to be more than 80 million loans. So they used the investor money directly instead of waiting for it to be processed through the trust.

The distribution payments came from the Servicer directly to the investors and not through the Trust, which is not allowed to conduct business after the 90 day cutoff. It was only a small leap to ignore the trust at the beginning — I.e. During the business period (90 days). On paper they pretended that the Trust was involved in the origination and acquisition of loans. But in fact the Trust entities were completely ignored. This is what Adam Levitin called “securitization fail.” Others call it fraud, pure and simple, and that any further action enforcing the documents that refer to fictitious transactions is an attempt at making the courts an instrument for furthering the fraud and protecting the perpetrator from liability, civil and criminal.

And that brings us to the subject of servicer advances. Several people  have commented that the “servicer” who advanced the funds has a right to recover the amounts advanced. If that is true, they ask, then isn’t the “recovery” of those advances a debit to the creditors (investors)? And doesn’t that mean that the claimed default exists? Why should the borrower get the benefit of those advances when the borrower stops paying?

These are great questions. Here is my explanation for why I keep insisting that the default does not exist.

First let’s look at the actual facts and logistics. The servicer is making distribution payments to the investors despite the fact that the borrower has stopped paying on the alleged loan. So on its face, the investors are not experiencing a default and they are not agreeing to pay back the servicer.

The servicer is empowered by vague wording in the Pooling and Servicing Agreement to stop paying the advances when in its sole discretion it determines that the amounts are not recoverable. But it doesn’t say recoverable from whom. It is clear they have no right of action against the creditor/investors. And they have no right to foreclosure proceeds unless there is a foreclosure sale and liquidation of the property to a third party purchaser for value. This means that in the absence of a foreclosure the creditors are happy because they have been paid and the borrower is happy because he isn’t making payments, but the servicer is “loaning” the payments to the borrower without any contracts, agreements or any documents bearing the signature of the borrower. The upshot is that the foreclosure is then in substance an action by the servicer against the borrower claiming to be secured by a mortgage but which in fact is SUPPOSEDLY owned by the Trust or Trust beneficiaries (depending upon which appellate decision or trial court decision you look at).

But these questions are academic because the investors are not the owners of the loan documents. They are the owners of the debt because their money was used directly, not through the Trust, to acquire the debt, without benefit of acquiring the note and mortgage. This can be seen in the stone wall we all hit when we ask for the documents in discovery that would show that the transaction occurred as stated on the note and mortgage or assignment or endorsement.

Thus the amount received by the investors from the “servicers” was in fact not received under contract, because the parties all ignored the existence of the trust entity. It was a voluntary payment received from an inter-meddler who lacked any power or authorization to service or process the loan, the loan payments, or the distributions to investors except by conduct. Ignoring the Trust entity has its consequences. You cannot pick up one end of the stick without picking up the other.

So the claim of the “servicer” is in actuality an action in equity or at law for recovery AGAINST THE BORROWER WITHOUT DOCUMENTATION OF ANY KIND BEARING THE BORROWER’S SIGNATURE. That is because the loans were originated as table funded loans which are “predatory per se” according to Reg Z. Speaking with any mortgage originator they will eventually either refuse to answer or tell you outright that the purpose of the table funded loan was to conceal from the borrower the parties with whom the borrower was actually doing business.

The only reason the “servicer” is claiming and getting the proceeds from foreclosure sales is that the real creditors and the Trust that issued Bonds (but didn’t get paid for them) is that the investors and the Trust are not informed. And according to the contract (PSA, Prospectus etc.) that they don’t know has been ignored, neither the investors nor the Trust or Trustee is allowed to make inquiry. They basically must take what they get and shut up. But they didn’t shut up when they got an inkling of what happened. They sued for FRAUD, not just breach of contract. And they received huge payoffs in settlements (at least some of them did) which were NOT allocated against the amount due to those investors and therefore did not reduce the amount due from the borrower.

Thus the argument about recovery is wrong because there really is no such claim against the investors. There is the possibility of a claim against the borrower for unjust enrichment or similar action, but that is a separate action that arose when the payment was made and was not subject to any agreement that was signed by the borrower. It is a different claim that is not secured by the mortgage or note, even if the  loan documents were valid.

Lastly I should state why I have put the “servicer”in quotes. They are not the servicer if they derive their “authority” from the PSA. They could only be the “servicer” if the Trust acquired the loans. In that case they PSA would affect the servicing of the actual loan. But if the money did not come from the Trust in any manner, shape or form, then the Trust entity has been ignored. Accordingly they are neither the servicer nor do they have any powers, rights, claims or obligations under the PSA.

But the other reason comes from my sources on Wall Street. The service did not and could not have made the “servicer advances.” Another bit of smoke and mirrors from this whole false securitization scheme. The “servicer advances” were advances made by the broker dealer who “sold” (in a false sale) mortgage bonds. The brokers advanced money to an account in which the servicer had access to make distributions along with a distribution report. The distribution reports clearly disclaim any authenticity of the figures used, the status of the loans, the trust or the portfolio of loans (non-existent) as a whole. More smoke and mirrors. So contrary to popular belief the servicer advances were not made by the servicers except as a conduit.

Think about it. Why would you offer to keep the books on a thousand loans and agree to make payments even if the borrowers didn’t pay? There is no reasonable fee for loan processing or payment processing that would compensate the servicer for making those advances. There is no rational business reason for the advance. The reason they agreed to issue the distribution report along with money that was actually under the control of the broker dealer is that they were being given an opportunity, like sharks in a feeding frenzy, to participate in the liquidation proceeds after foreclosure — but only if the loan actually went into foreclosure, which is why most loan modifications are ignored or fail.

Who had a reason to advance money to the creditors even if there was no payment by the borrower? The broker dealer, who wanted to pacify the investors who thought they owned bonds issued by a REMIC Trust that they thought had paid for and owned the loans as holder in due course on their behalf. But it wasn’t just pacification. It was marketing and sales. As long as investors thought the investments were paying off as expected, they would buy more bonds. In the end that is what all this was about — selling more and more bonds, skimming a chunk out of the money advanced by investors — and then setting up loans that had to fail, and if by some reason they didn’t they made sure that the tranche that reportedly owned the loan also was liable for defaults in toxic waste mortgages “approved” for consumers who had no idea what they were signing.

So how do you prove this happened in one particular loan and one particular trust and one particular servicer etc.? You don’t. You announce your theory of the case and demand discovery in which you have wide latitude in what questions you can ask and what documents you can demand — much wider than what will be allowed as areas of inquiry in trial. It is obvious and compelling that asked for proof of the underlying authority, underlying transaction or anything else that is real, your opposition can’t come up with it. Their case falls apart because they don’t own or control the debt, the loan or any of the loan documents.

Levitin and Yves Smith – TRUST=EMPTY PAPER BAG

Living Lies Narrative Corroborated by Increasing Number of Respected Economists

It has taken over 7 years, but finally my description of the securitization process has taken hold. Levitin calls it “securitization fail.” Yves Smith agrees.

Bottom line: there was no securitization, the trusts were merely empty sham nominees for the investment banks and the “assignments,” transfers, and endorsements of the fabricated paper from illegal closings were worthless, fraudulent and caused incomprehensible damage to everyone except the perpetrators of the crime. They call it “infinite rehypothecation” on Wall Street. That makes it seem infinitely complex. Call it what you want, it was civil and perhaps criminal theft. Courts enforcing this fraudulent worthless paper will be left with egg on their faces as the truth unravels now.

There cannot be a valid foreclosure because there is no valid mortgage. I know. This makes no sense when you approach it from a conventional point of view. But if you watch closely you can see that the “loan closing” was a shell game. Money from a non disclosed third party (the investors) was sent through conduits to hide the origination of the funds for the loan. The closing agent used that money not for the originator of the funds (the investors) but for a sham nominee entity with no rights to the loan — all as specified in the assignment and assumption agreement. The note and and mortgage were a sham. And the reason the foreclosing parties do not allege they are holders in due course, is that they must prove purchase and delivery for value, as set forth in the PSA within the 90 day period during which the Trust could operate. None of the loans made it.

But on Main street it was at its root a combination pyramid scheme and PONZI scheme. All branches of government are complicit in continuing the fraud and allowing these merchants of “death” to continue selling what they call bonds deriving their value from homeowner or student loans. Having made a “deal with the devil” both the Bush and Obama administrations conscripted themselves into the servitude of the banks and actively assisted in the coverup. — Neil F Garfield, livinglies.me

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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John Lindeman in Miami asked me years ago when he first starting out in foreclosure defense, how I would describe the REMIC Trust. My reply was “a holographic image of an empty paper bag.” Using that as the basis of his defense of homeowners, he went on to do very well in foreclosure defense. He did well because he kept asking questions in discovery about the actual transactions, he demanded the PSA, he cornered the opposition into admitting that their authority had to come from the PSA when they didn’t want to admit that. They didn’t want to admit it because they knew the Trust had no ownership interest in the loan and would never have it.

While the narrative regarding “securitization fail” (see Adam Levitin) seems esoteric and even pointless from the homeowner’s point of view, I assure you that it is the direct answer to the alleged complaint that the borrower breached a duty to the foreclosing party. That is because the foreclosing party has no interest in the loan and has no legal authority to even represent the owner of the debt.

And THAT is because the owner of the debt is a group of investors and NOT the REMIC Trust that funded the loan. Thus the Trust, unfunded had no resources to buy or fund the origination of loans. So they didn’t buy it and it wasn’t delivered. Hence they can’t claim Holder in Due Course status because “purchase for value” is one of the elements of the prima facie case for a Holder in Due Course. There was no purchase and there was no transaction. Hence the suing parties could not possibly be authorized to represent the owner of the debt unless they got it from the investors who do own it, not from the Trust that doesn’t own it.

This of course raises many questions about the sudden arrival of “assignments” when the wave of foreclosures began. If you asked for the assignment on any loan that was NOT in foreclosure you couldn’t get it because their fabrication system was not geared to produce it. Why would anyone assign a valuable loan with security to a trust or anyone else without getting paid for it? Only one answer is possible — the party making the assignment was acting out a part and made money in fees pretending to convey an interest the assignor did not have. And so it goes all the way down the chain. The emptiness of the REMIC Trust is merely a mirror reflection of the empty closing with homeowners. The investors and the homeowners were screwed the same way.

BOTTOM LINE: The investors are stuck with ownership of a debt or claim against the borrowers for what was loaned to the borrower (which is only a fraction of the money given to the broker for lending to homeowners). They also have claims against the brokers who took their money and instead of delivering the proceeds of the sale of bonds to the Trust, they used it for their own benefit. Those claims are unsecured and virtually undocumented (except for wire transfer receipts and wire transfer instructions). The closing agent was probably duped the same way as the borrower at the loan closing which was the same as the way the investors were duped in settlement of the IPO of RMBS from the Trust.

In short, neither the note nor the mortgage are valid documents even though they appear facially valid. They are not valid because they are subject to borrower’s defenses. And the main borrower defense is that (a) the originator did not loan them money and (b) all the parties that took payments from the homeowner owe that money back to the homeowner plus interest, attorney fees and perhaps punitive damages. Suing on a fictitious transaction can only be successful if the homeowner defaults (fails to defend) or the suing party is a holder in due course.

Trusts Are Empty Paper Bags — Naked Capitalism

student-loan-debt-home-buying

Just as with homeowner loans, student loans have a series of defenses created by the same chicanery as the false “securitization” of homeowner loans. LivingLies is opening a new division to assist people with student loan problems if they are prepared to fight the enforcement on the merits. Student loan debt, now over $1 Trillion is dragging down housing, and the economy. Call 520-405-1688 and 954-495-9867)

The Banks Are Leveraged: Too Big Not to Fail

When I was working with Brad Keiser (formerly a top executive at Fifth Third Bank), he formulated, based upon my narrative, a way to measure the risk of bank collapse. Using a “leverage” ration he and I were able to accurately define the exact order of the collapse of the investment banks before it happened. In September, 2008 based upon the leverage ratios we published our findings and used them at a seminar in California. The power Point presentation is still available for purchase. (Call 520-405-1688 or 954-495-9867). You can see it yourself. The only thing Brad got wrong was the timing. He said 6 months. It turned out to be 6 weeks.

First on his list was Bear Stearns with leverage at 42:1. With the “shadow banking market” sitting at close to $1 quadrillion (about 17 times the total amount of all money authorized by all governments of the world) it is easy to see how there are 5 major banks that are leveraged in excess of the ratio at Bear Stearns, Lehman, Merrill Lynch et al.

The point of the article that I don’t agree with at all is the presumption that if these banks fail the economy will collapse. There is no reason for it to collapse and the dependence the author cites is an illusion. The fall of these banks will be a psychological shock world wide, and I agree it will obviously happen soon. We have 7,000 community banks and credit unions that use the exact same electronic funds transfer backbone as the major banks. There are multiple regional associations of these institutions who can easily enter into the same agreements with government, giving access at the Fed window and other benefits given to the big 5, and who will purchase the bonds of government to keep federal and state governments running. Credit markets will momentarily freeze but then relax.

Broward County Court Delays Are Actually A PR Program to Assure Investors Buying RMBS

The truth is that the banks don’t want to manage the properties, they don’t need the house and in tens of thousands of cases (probably in the hundreds of thousands since the last report), they simply walk away from the house and let it be foreclosed for non payment of taxes, HOA assessments etc. In some of the largest cities in the nation, tens of thousands of abandoned homes (where the homeowner applied for modification and was denied because the servicer had no intention or authority to give it them) were BULL-DOZED  and the neighborhoods converted into parks.

The banks don’t want the money and they don’t want the house. If you offer them the money they back peddle and use every trick in the book to get to foreclosure. This is clearly not your usual loan situation. Why would anyone not accept payment in full?

What they DO want is a judgment that transfers ownership of the debt from the true owners (the investors) to the banks. This creates the illusion of ratification of prior transactions where the same loan was effectively sold for 100 cents on the dollar not by the investors who made the loan, but by the banks who sold the investors on the illusion that they were buying secured loans, Triple AAA rated, and insured. None of it was true because the intended beneficiary of the paper, the insurance money, the multiple sales, and proceeds of hedge products and guarantees were all pocketed by the banks who had sold worthless bogus mortgage bonds without expending a dime or assuming one cent of risk.

Delaying the prosecution of foreclosures is simply an opportunity to spread out the pain over time and thus keep investors buying these bonds. And they ARE buying the new bonds even though the people they are buying from already defrauded them by NOT delivering the proceeds fro the sale of the bonds to the Trust that issued them.

Why make “bad” loans? Because they make money for the bank especially when they fail

The brokers are back at it, as though they haven’t caused enough damage. The bigger the “risk” on the loan the higher the interest rate to compensate for that risk of loss. The higher interest rates result in less money being loaned out to achieve the dollar return promised to investors who think they are buying RMBS issued by a REMIC Trust. So the investor pays out $100 Million, expects $5 million per year return, and the broker sells them a complex multi-tranche web of worthless paper. In that basket of “loans” (that were never made by the originator) are 10% and higher loans being sold as though they were conventional 5% loans. So the actual loan is $50 Million, with the broker pocketing the difference. It is called a yield spread premium. It is achieved through identity theft of the borrower’s reputation and credit.

Banks don’t want the house or the money. They want the Foreclosure Judgment for “protection”

 

Securitization for Lawyers: Conflicts between reality, the documents and the concept.

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Editor’s Note: The solution is obvious. Remove the servicers, Trustees and other “collection” entities from the situation. Those entities have been working against investors, lenders, the Trusts, and borrowers from the start. They continue to obstruct settlements and modifications because they have substantial liability for performing loans.

Their best strategy is to create the illusion of defaults even when the creditor has been paid in full.

Our best strategy is to remove them from the mix. And then let the chips fall. Since they ignored the PSA they are not authorized to act anyway.

For those who are religious about free market forces, this should be appealing inasmuch as it lets the marketplace function without being hijacked by players who illegally cornered the marketplace in finance, currency and economic activity. — Neil Garfield, livinglies.me

Continuing with my article THE CONCEPT OF SECURITIZATION, and my subsequent article How Securitization Was Written by Wall Street, we continue now with the reality. What we find is predictable conflict arising out of the intentional ambiguity and vagueness of the securitization documents (Prospectus, Pooling and Servicing Agreement, Assignment and Assumption Agreement etc.). The conclusion I reach is that the Banks gambled on their ability to confuse lender/investors, borrowers, regulators, the rating agencies, the insurers, guarantors, counterparties to credit default swaps, the courts and the gamble has paid off, thus far.

THE ECONOMICS OF TOXIC WASTE MORTGAGE LOANS

It is easy to get lost in the maze of documents and transactional analysis. The simple fact is that the banks wanted to make more risky loans than the less risky loans that always worked but gave them only a sliver of the potential profit they would make if they threw their status and reputations to the wind. If they could cash in on the element of “trust” and that people would rather keep their money in a bank than under their mattress there was literally no end to the amount of money they could make. They could even use their hundred year old brand names to create the illusion that THEY would never do something as stupid as what I am about to show you:

  1. To make things simple assume that a pension fund has $1,000 that the fund manager wishes to invest in a low risk “investment.”
  2. Assume that the fund manager wants a 5% return on investment (ROI)
  3. That means of course that the fund manager expects to get his money back ($1,000) PLUS $50 per year (5% of $1,000 invested).
  4. So the fund manager calls one of his “trusted” brokers and tells the broker what the pension is looking for as a return.
  5. The broker tells the fund manager that there is an investment that qualifies.
  6. The fund manager sends the $1,000 from the pension fund to the broker.
  7. The broker lends 25% or $250 out of the $1,000, or so it seems, for interest at 5%, as demanded by the fund manager. It looks good enough that the fund manager wants to give the broker more money.
  8. The fund manager gets deposits of $50 per year and is quite happy.
  9. Skipping a few steps assume that the pension fund has been happily buying into this “investment” for a while.
  10. But the broker takes the next $1,000 and lends out only $500 at 10%, yielding a rate of return of 10% or $50. Oddly, the dollar return is exactly what the fund manager is expecting — $50 per year for each thousand invested.
  11. But the “investment” is only $500.
  12. So the broker forms a series of companies and has his “proprietary trading desk” execute a transaction in which the $500 loan is sold to the pension fund for $1,000. No money exchanges hands because the broker has already “invested” the money for his own purposes. Neither the pension fund nor the Trust gets anything from the broker-controlled entity that “sold” the loan that in many cases had not even been yet originated!
  13. The pension fund’s money is traveling a road very different than the one portrayed in the Prospectus and the Pooling and Servicing agreement. That pension money was used to originate most of the loans without even the originator knowing it. Unknown to the pension fund the pension money was sued to fund origination and acquisition of loans; this is opposite to the apparent IPO scenario where the Trust issued “mortgage-backed bonds” that the lender/investors thought they were buying. The transaction between the REMIC Trust and the pension fund was never completed. The REMIC Trust is left unfunded and the contract documents for the formation and operation of the REMIC Trust were completely ignored in reality, while the illusion was created that the REMIC Trusts (completely controlled by the broker who “sold” the “bonds”) were operating with the money from the pension fund.
  14. It is the money of the pension fund that appears at closing, having been sent there by the broker. The only lender is the pension fund and the only debt is between the homeowner and the pension fund. But that loan is never documented and that is how the brokers get to claim almost anything. They are quintessential pretender lenders operating through a veil of cloaks and curtains and peculiarly NOT branding the product because they knew it was beyond wrong. It was probably criminal.
  15. This evens things out — the fund manager sees his $1,000 “invested” and the return of $50 per year. So the fund manager is clueless as to what is happening. The fund manager does not realize that the pension fund is the direct creditor of the debtor/homeowner.
  16. Now assume that the “investment” is a bond issued by a trust that will loan money or acquire loans.
  17. That means the “sale” transaction is between the Trust created and controlled by the broker and the company that is created and controlled by the broker to loan the money. This trade occurs at the proprietary trading desk of the broker. It shows up as a sale between the Trust and, for example, Countrywide. Countrywide gets no money and delivers no documents. The Trust pays no money nor receives any documents (note or mortgage). The “depositor” for the Trust is left out of all transactions.
  18. And THAT means the broker can declare a “profit” from his proprietary trading desk of $500 — because he only loaned $500 and the pension fund gave him $1,000. That leaves $500 of uninvested capital that the broker converts to “profit” at the broker’s trading desk.
  19. The broker knows that the $500 loan is priced at 10% interest because there is a substantial likelihood that the borrower will default. The higher the risk, the higher the interest rate. Nobody would question that. This gives the broker a chance to “bet” on the failure of the loans and the consequent failure of “bonds” that derived their value from the nonexistent assets of the Trust. Frequently at “closing” the title and liability insurance names a payee other than the originator — maintaining the distance between the originator and the closing.
  20. Getting insurance and credit default swaps is difficult because of the higher risk. So the broker buys a credit default swap from another Trust he has created where the loans are conventional 5% loans. This is the conventional loan Trust, which is also probably mostly unfunded. The sale of the swap actually means that the conventional loan trust has agreed to buy the toxic loan Trust “assets” (which do not exist) if there are a sufficient number of defaults on loans on the list for that toxic waste Trust.
  21. This means that the Trust “selling” the credit default swap will make up for losses in the toxic waste trust containing loans at interest rates of 10% or higher.
  22. When the Trust with the 10% loans goes up in smoke because the loans fail at predictable rates, the conventional Trust is on the hook to bail out the toxic waste trust.
  23. The bailout virtually bankrupts the conventional trust. Both the toxic waste trust and the conventional trust have been essentially wiped out. But the pension fund continues to receive payments as long as the broker can maintain the illusion — a device created as “servicer advances” so that the pension fund will continue to buy more of these bonds which were sold as loans to the Trust.
  24. This causes a “credit event” which the broker declares and sends to the insurance company that insured the risk on the conventional loan trust. The insurer (AIG, AMBAC etc) pays the loss declared by the broker as “Master Servicer”. This further enhances the illusion that the Trust was funded and that the bonds were in fact sold and issued by the Trust in exchange for the investment by the pension fund.
  25. The losses in the toxic waste trust are covered by the credit default swap with the conventional loan trust, and the losses in the conventional loan trust are covered by insurance.
  26. When the borrower in the toxic waste trust finally stops paying, the broker orders the servicer to declare a default and foreclose. The “default” is declared based upon the provisions of the note executed at the borrower’s loan closing. But the note is evidence of a loan that does not exist — i.e., a loan by the originator to the borrower. And the mortgage therefore exists to provide security for a nonexistent debt based upon legal presumptions regarding the note, which in actuality is worthless and should be re turned to the borrower for destruction.
  27. Meanwhile the pension fund continues to get the $50 per year from the broker. So the fund manager is blissfully ignorant of the fact that the “investment” was a scam that has already blown up.
  28. Eventually the loan in “default” is sold at a foreclosure sale in the name of the broker-controlled Trust.
  29. The proceeds are not sent to the pension fund because that would alert the fund manager of the default. So the property is kept as “REO” property as long as possible. As long as the pension fund is buying bonds, the bank retains the property in REO status and keeps paying the pension fund $50 per year.
  30. CONCLUSION: The broker has created a $500 “profit” from the proprietary trading desk, the pension fund is going to get a loss from a loan that was not what they ordered, and the broker collects the proceeds of the credit default swap and the insurance without accounting to anyone. Altogether, the broker makes around $1500 on a $500 loan in which the broker received $1,000 from the pension fund. This is a general and oversimplified example of what happened in virtually all the REMIC trust financing.
  31. If the broker had put the money into the Trust and made the loans from the trust then the profit of $1500 disappears. Any profit becomes the profit of the Trust and the Trust beneficiaries. And the broker is left accepting only his typical sliver of the pie as a commission. Why accept the miniscule commission when you can claim it all and then some?
  32. When most loans are originated, they are funded by the pension fund without the pension knowing about it. In standard transactional analysis that makes the pension fund the creditor and the borrower the debtor.
  33. But the only way the broker could make his “proprietary trading profits” is by placing the name of a third party on the note and mortgage. This raises the prospect of “moral hazard” where originators claim loans as their own even though the money for the loan came from third parties. The originator thinks the money came from an aggregator. In  that scenario, the aggregator would be getting the money from the Trust but in fact, the aggregator gets no money which stays with the broker. The entire “chain” is an illusion culminating with the illusion that the Trust was an actual real party in interest. But in that case the Trust would be a holder in due course. That is the way it is supposed to be as per the Concept and the Securitization documents. Experience shows that no claims of any holder in due course are ever made.
  34. The broker’s position was protected by (a) the Assignment and Assumption Agreement with the originator and (b) control over the money going into each loan closing and coming out of it.
  35. The Assignment and Assumption Agreement is executed before the loan is originated and governs the transaction without disclosure to the borrower. It is the ONLY real assignment (sort of) in that it is the contract in which actual funds are sent to the closing table — albeit not from the originator.
  36. The originator does not get to touch the money and has no rights to the note and mortgage even if the originator’s name is on it. But to make sure, many loans were made using MERS as nominee which was also bank controlled, thus preventing the originator from “moral hazard” in claiming the loan as its own. The real purpose of MERS was not to sidestep recording fees (a perk of the plan) but rather to make sure originators had no legal or equitable claim to the fake mortgage paper that was executed by the borrower. This might constitute an admission in conduct that neither the note nor the mortgage should have been executed, much less delivered and recorded. This leads to the conclusion that none of the mortgages or notes are in actuality enforceable unless they end up in the hands of a holder in due course.
  37. To further protect the broker from the originator taking delivery of the note and doing something with it, the instructions were to destroy the note signed by the borrower which would be resurrected later through mechanical means as needed. (See Katherine Ann Porter study —2007 — when she was at University of Iowa).
  38. Control over the fictitious note and mortgage was thus secured to the broker.
  39. When and if the loan goes into foreclosure and it is contested, then the false paper is mechanically created and signed and then sent up a chain of companies none of which pays any money for the loan because none of their predecessors had anything to sell. Eventually when a loan goes into foreclosure, the paperwork appears and the assignment to the Trust is then created and executed by robo-signors etc.
  40. The only time an assignment appears is when the loan is sent into foreclosure. I have made hundreds of attempts to get the closing documents and assignments to the Trust where the loans were NOT in “default”. None of the banks had the documents. Creative discovery directed at the records custodian will confirm this basic fact.
  41. Loan are sent into foreclosure because the borrower stopped paying — even though the creditor has continued to receive all expected payments. Hence the real creditor, the pension fund, has not experienced a “Credit event” (i.e., a default). Legally no default exists unless the creditor fails to receive a required payment. In nearly all cases the creditor continued to get paid regardless of whether the payments were made by borrowers on the “faulty” notes and mortgages (see below). So the notice of default is merely the intermediaries covering their tracks as often as possible luring people into the illusion of a default or just declaring it even if the payments are current. And that is why modifications and settlements are kept to a minimum so that the government sees efforts being made to help borrowers when in fact the only real instruction is to foreclose because the $500 loan represents at least $1500 in liability to the broker and its co-venturers.
  42. In court, the broker-controlled foreclosing party asserts ownership over the debt, the note and the mortgage. The loans are “scrubbed” by LPS in Jacksonville or some other company or division (like Chase) so that only one party is selected to claim rights to enforce the false closing documents. Occasionally they still get it wrong and two parties sue for foreclosure each filing the “original” note.  In truth the debt is the property of the pension fund who will receive very little money even after the property is completely liquidated, because each of the participants in this scheme gets fees for the “work” they are doing.
  43. The REMIC Trust is left as an unfunded entity except for loans that are the subject of a final judgment of foreclosure in the name of the Trust, which is why they didn’t name the Trust as Plaintiff until recently when they couldn’t avoid it.
  44. The final judgment ends the potential liability to refund the $1500 in “profits” that the broker “made” because it is proof that the loan failed. Then the broker eventually collects the proceeds of liquidation of the property acquired in foreclosure. If such liquidation is not possible, then the broker abandons the property and it is demolished. (see Detroit, Cleveland and other cities where entire neighborhoods were demolished and parks put in their place).
  45. By adding a healthy scoop of toxic waste loans and nearly toxic waste loans to the mix, the broker makes far more money in fees, profits and commissions than the original principal of the loan. By adding multiple sales to the mix of the same loan or the same bond, they made even more. And each time a foreclosure judgment is entered, and each time a foreclosure sale is said to be completed, the brokers are laughing their heads off because they got away with it.

The gamble has worked very well for the brokers (investment banks) because even now, all these parties are assuming there is at least some truth in what the Banks are saying in Court. They are wrong. Most of the positions taken in court are directly in conflict with the actual facts, the actual transactions and the actual movement of money. These banks continue to profit from the confusion and the inability or unwillingness of all those parties to actually read the documents and then demand proof that the transactions were real.

The press has not done much good either. Take a look at virtually any article written by financial and other types reporters. They get close to the third rail of journalism but they fail or refuse to take it to the next step — a report or declaration that most of the mortgages are fatally defective, incapable of being legally enforced, and leaving the borrowers and lenders with nothing but their own wits to figure out what to do with the debt that was created. Such a paradigm shift would mirror the policy adopted in Iceland where household debt was reduced by more than 25% providing the earliest evidence of a stimulus to a failing economy — producing positive GDP growth and low unemployment far ahead of the gains reported in other economies, including the U.S. The fact remains that the debt is no longer as much as what was loaned, it is not owned by any of the strangers who are enforcing them, and the note and mortgage are fatally defective.

If I am a borrower and I receive a loan of money from one person and then I am tricked into signing a note and mortgage in favor of someone else, there are TWO potential liabilities created — in exchange for ONE loan of money. If the signed paperwork gets into the hands of someone who is a Holder in Due Course, the fact that the borrower was cheated is irrelevant. I will owe the entire loan to both the person who loaned me the money AND the person who paid for the fake paperwork in good faith without knowledge of my defenses. But if the end party with the paperwork does NOT claim Holder in Due Course status, then the borrower has a right to show the loan on THAT PAPERWORK never happened. So then I will owe only the person from whom I received the money — a loan that is undocumented (except for proof of payment) and thus unsecured. Thus borrowers should not be seen as seeking relief; they should be seen as seeking justice — one debt for one loan.

The fact is that the borrower is treated as the party with the burden of proving that no loan actually underlies the paperwork upon which the forecloser is placing reliance. It is unfair to place the burden on the borrower, and within the Judge’s discretion, based upon common law, the Judge has the power to require the foreclosing party to prove the underlying loan if it is merely denied (as opposed to appearing in the affirmative defenses).

Both the closing documents with the lender (pension fund) and the closing documents with the borrower (homeowner) should be considered void, in the nature of a wild deed. Hence there could be no foreclosure and any foreclosure that already happened would be wrongful. In a quiet title action the mortgage on record should be nullified first, and then the homeowner could move on to seeking a declaration of rights from the court in which his title is not impaired by the bogus mortgage based upon a bogus note which is evidence of a loan of money that does not exist.

If I am lender and I give a broker money to deliver to a trust that is the borrower in my transaction and then the broker gives my money to someone else as a loan, the same reasoning applies. The mistake made is calling these lenders “investors”. They are not. They think they are investors and everyone calls them that but they have not invested in any Trust because their money was never delivered to the intended borrower and was instead loaned to borrowers that the lender would never have approved in a manner that was specifically prohibited by the securitization documents (which were routinely ignored).

Like the borrower, the lenders are stuck with documentation for a loan that never happened. The loan was intended (concept and written documents) to be between themselves and a trust. But the REMIC Trust never got the money. The lender (pension fund) is left with an undocumented loan to an actual borrower without a note or mortgage made in favor of the lender or any agent of the lender. Neither the common law nor the securitization documents were followed — delivery of the loan documents simply never happened; nor did payment for those documents (except for exorbitant fees and “profits” declared by the participants in the scheme).

If you look at an article like Trustees Seek $4.5 Billion Settlement with JP Morgan, you see the usual code language. But like the court room, follow-up questions would be appropriate. “Mortgage-bond trustees including U.S. Bank N.A. and Bank of New York Mellon Corp. asked a New York state court judge to approve a $4.5 billion settlement with JPMorgan Chase & Co. (JPM) over investor claims of faulty home loans.”

US Bank is consolidating its position as the Trustee of multiple REMIC Trusts whose documents name other parties and conditions for replacement of Trustee that prohibit US Bank from becoming the “new Trustee.” This is like a stranger to the transaction in non-judicial states who declares that it the beneficiary without proving it and then names a “substitute trustee” on the deed of trust. This substitution is frequently bogus. But if it goes unchallenged, it becomes the law of that case. The “beneficiary” under the deed of trust is nothing of the kind and the substitution of trustee is just plain wrong.

Bank of New York Mellon is essentially clueless as to what actions are pending in its name and they never produce a witness even when they are the plaintiff in the judicial foreclosure states. The current common practice is to rotate “servicers” such that the witness at a foreclosure trial is a person employed by a servicer who is new to the transaction — long after the loan was claimed to be in default and long after the “assignment” appeared and long after even the foreclosure litigation commenced. There also exists a confused claim because of rotation of Plaintiffs without amendment to the pleadings.  Plaintiffs are rotated as though it were only a name change. At trial there exists an amorphous claim of being the owner of the debt which is more like an implication or presumption.

The broker (investment banks) never claim to be a holder in due course because THAT would require proof of payment, delivery of the documents, good faith and lack of knowledge of the borrower’s defenses. But worse, it would reveal that BONY/Mellon has no records, knowledge, possession or accounts relating to the trust, the pool or any individual loan — except those that have been foreclosed on false pretenses.

JP Morgan has been caught in flat out lies repeatedly as to “ownership” of loans allegedly obtained from Washington Mutual for a price of “ZERO” without any agreement or assignment even claiming that the loans were purchased by Chase. Many of their claims are based upon “loans” originated by non-existent entities like American Broker’s Conduit. We see the same entities or non entities used by Wells Fargo, Bank of America and CitiMortgage with great regularity.

“Faulty home loans” is a phrase frequently used in press releases and press reports. What does that mean? If they were faulty, in what way? If they were faulty how could they be enforceable? This goes back to what I said above. The real loan was never documented.  And what was documented was not a real loan. This enabled the banks to create the illusion of normal paperwork for “standard home loans” as they frequently claim through their attorneys in court. By trick and intentional confusion they often convince a Judge to treat them as though they were holders in due course even without the claim of HDC status thus defeating the borrower before the case ever gets to trial.

So why are they settling for $4.5 Billion on more than $75 Billion in “securitized” “mortgage backed” bonds? Notice that 5 of them won’t settle which is to say they won’t join the party. The rest are willing to continue playing games with these worthless bonds and worthless loan documents. By “settling” for $4.5 Billion, the Trustees are taking about 6 cents on the dollar. They are also pretending that they are the ultimate owners of the bonds and mortgages. And they are pretending that the bonds and mortgages are real, hoping that the courts will continue to treat them as such. Hence they maintain the illusion that securitization of home loans was real.

The real problem can be seen by reference to the shadow banking marketplace, where the nominal value of cash equivalent instruments are now estimated to be around 1 quadrillion dollars — which is around 12-14 times the actual amount of all the government fiat money issued in the current world. Nobody knows if there is any real value in those instruments but current estimates are that they might be worth as much as $27 Trillion which is still more than 1/3 of all government fiat money issued in the current world. Why so much?

The loans and the bonds were all sold multiple times under various disguises. The simple truth is that a final deed issued as a result of an “auction” from a foreclosure seals off much of the liability for returning the money that the banks received when they posed as lenders and sold, insured or hedged their interest in the bonds and mortgages, neither of which could they possibly own and neither of which had any value in the first place. The original debt between the lenders (pension funds etc) and the borrowers (homeowners) remains in place and is continued to be carried on the books of multiple institutions who think they own it.

The practical solution might be a court recognition of the banks as agents of the lenders, and allocating the multiple payments received by the lenders, the banks and all the other intermediaries. This will vastly reduce or even eliminate the debt from the homeowner leaving the defrauded lender/investors to sue the banks not for 6 cents on the dollar but for 100 cents on the dollar. Any other resolution leaves homeowners holding the bag on transactions they could not possibly have understood because the information — that would have alerted them to these issues — was intentionally withheld.

The behavior of the brokers (investment banks) lends considerable support to the defense of unclean hands. Even if they somehow validated or ratified the closing foreclosure procedures they should be left with an unenforceable mortgage and then a note on which they could sue — if they could prove that the loan of money came from someone in their alleged chain of title.

The solution is to recognize the obvious. This will restore household wealth and prevent further gains by the banks who created this mess.

 

 

Securitization for Lawyers: How it was Written by Wall Street Banks

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Continuing with my article THE CONCEPT OF SECURITIZATION from yesterday, we have been looking at the CONCEPT of Securitization and determined there is nothing theoretically wrong with it. That alone accounts for tens of thousands of defenses” raised in foreclosure actions across the country where borrowers raised the “defense” securitization. No such thing exists. Foreclosure defense is contract defense — i.e., you need to prove that in your case the elements of contract are absent and THAT is why the note or the mortgage cannot be enforced. Keep in mind that it is entirely possible to prove that the mortgage is unenforceable even if the note remains enforceable. But as we have said in a hundred different ways, it does not appear to me that in most cases, the loan contract ever existed, or that the acquisition contract in which the loan was being “purchased” ever occurred. But much of THAT argument is left for tomorrow’s article on Securitization as it was practiced by Wall Street banks.

So we know that the concept of securitization is almost as old as commerce itself. The idea of reducing risk and increasing the opportunity for profits is an essential element of commerce and capitalism. Selling off pieces of a venture to accomplish a reduction of risk on one ship or one oil well or one loan has existed legally and properly for a long time without much problem except when a criminal used the system against us — like Ponzi, Madoff or Drier or others. And broadening the venture to include many ships, oil wells or loans makes sense to further reduce risk and increase the likelihood of a healthy profit through volume.

Syndication of loans has been around as long as banking has existed. Thus agreements to share risk and profit or actually selling “shares” of loans have been around, enabling banks to offer loans to governments, big corporations or even little ones. In the case of residential loans, few syndications are known to have been used. In 1983, syndications called securitizations appeared in residential loans, credit cards, student loans, auto loans and all types of other consumer loans where the issuance of IPO securities representing shares of bundles of debt.

For logistical and legal reasons these securitizations had to be structured to enable the flow of loans into “special purpose vehicles” (SPV) which were simply corporations, partnerships or Trusts that were formed for the sole purpose of taking ownership of loans that were originated or acquired with the money the SPV acquired from an offering of “bonds” or other “shares” representing an undivided fractional share of the entire portfolio of that particular SPV.

The structural documents presented to investors included the Prospectus, Subscription Agreement, and Pooling and Servicing Agreement (PSA). The prospectus is supposed to disclose the use of proceeds and the terms of the payback. Since the offering is in the form of a bond, it is actually a loan from the investor to the Trust, coupled with a fractional ownership interest in the alleged “pool of assets” that is going into the Trust by virtue of the Trustee’s acceptance of the assets. That acceptance executed by the Trustee is in the Pooling and Servicing Agreement, which is an exhibit to the Prospectus. In theory that is proper. The problem is that the assets don’t exist, can’t be put in the trust and the proceeds of sale of the Trust mortgage-backed bonds doesn’t go into the Trust or any account that is under the authority of the Trustee.

The writing of the securitization documents was done by a handful of law firms under the direction of a few individual lawyers, most of whom I have not been able to identify. One of them is located in Chicago. There are some reports that 9 lawyers from a New Jersey law firm resigned rather than participate in the drafting of the documents. The reports include emails from the 9 lawyers saying that they refused to be involved in the writing of a “criminal enterprise.”

I believe the report is true, after reading so many documents that purport to create a securitization scheme. The documents themselves start off with what one would and should expect in the terms and provisions of a Prospectus, Pooling and Servicing Agreement etc. But as you read through them, you see the initial terms and provisions eroded to the point of extinction. What is left is an amalgam of options for the broker dealers selling the mortgage backed bonds.

The options all lead down roads that are absolutely opposite to what any real party in interest would allow or give their consent or agreement. The lenders (investors) would never have agreed to what was allowed in the documents. The rating agencies and insurers and guarantors would never have gone along with the scheme if they had truly understood what was intended. And of course the “borrowers” (homeowners) had no idea that claims of securitization existed as to the origination or intended acquisition their loans. Allan Greenspan, former Federal Reserve Chairman, said he read the documents and couldn’t understand them. He also said that he had more than 100 PhD’s and lawyers who read them and couldn’t understand them either.

Greenspan believed that “market forces” would correct the ambiguities. That means he believed that people who were actually dealing with these securities as buyers, sellers, rating agencies, insurers and guarantors would reject them if the appropriate safety measures were not adopted. After he left the Federal Reserve he admitted he was wrong. Market forces did not and could not correct the deficiencies and defects in the entire process.

The REAL document is the Assignment and Assumption Agreement that is NOT usually disclosed or attached as an exhibit to the Prospectus. THAT is the agreement that controls everything that happens with the borrower at the time of the alleged “closing.” See me on YouTube to explain the Assignment and Assumption Agreement. Suffice it to say that contrary to the representations made in the sale of the bonds by the broker to the investor, the money from the investor goes into the control of the broker dealer and NOT the REMIC Trust. The Broker Dealer filters some of the money down to closings in the name of “originators” ranging from large (Wells Fargo, Countrywide) to small (First Magnus et al). I’ll tell you why tomorrow or the next day. The originators are essentially renting their names the same as the Trustees of the REMIC Trusts. It looks right but isn’t what it appears. Done properly, the lender on the note and mortgage would be the REMIC Trust or a common aggregator. But if the Banks did it properly they wouldn’t have had such a joyful time in the moral hazard zone.

The PSA turned out to be the primary document creating the Trusts that were creating primarily under the laws of the State of New York because New York and a few other states had a statute that said that any variance from the express terms of the Trust was VOID, not voidable. This gave an added measure of protection to the investors that the SPV would not be used for any purpose other than what was described, and eliminated the need for them to sue the Trustee or the Trust for misuse of their funds. What the investors did not understand was that there were provisions in the enabling documents that allowed the brokers and other intermediaries to ignore the Trust altogether, assert ownership in the name of a broker or broker-controlled entity and trade on both the loans and the bonds.

The Prospectus SHOULD have contained the full list of all loans that were being aggregated into the SPV or Trust. And the Trust instrument (PSA) should have shown that the investors were receiving not only a promise to repay them but also a share ownership in the pool of loans. One of the first signals that Wall Street was running an illegal scheme was that most prospectuses stated that the pool assets were disclosed in an attached spreadsheet, which contained the description of loans that were already in existence and were then accepted by the Trustee of the SPV (REMIC Trust) in the Pooling and Servicing Agreement. The problem was that the vast majority of Prospectuses and Pooling and Servicing agreements either omitted the exhibit showing the list of loans or stated outright that the attached list was not the real list and that the loans on the spreadsheet were by example only and not the real loans.

Most of the investors were “stable managed funds.” This is a term of art that applied to retirement, pension and similar type of managed funds that were under strict restrictions about the risk they could take, which is to say, the risk had to be as close to zero as possible. So in order to present a pool that the fund manager of a stable managed fund could invest fund assets the investment had to qualify under the rules and regulations restricting the activities of stable managed funds. The presence of stable managed funds buying the bonds or shares of the Trust also encouraged other types of investors to buy the bonds or shares.

But the number of loans (which were in the thousands) in each bundle made it impractical for the fund managers of stable managed funds to examine the portfolio. For the most part, if they done so they would not found one loan that was actually in existence and obviously would not have done the deal. But they didn’t do it. They left it on trust for the broker dealers to prove the quality of the investment in bonds or shares of the SPV or Trust.

So the broker dealers who were creating the SPVs (Trusts) and selling the bonds or shares, went to the rating agencies which are quasi governmental units that give a score not unlike the credit score given to individuals. Under pressure from the broker dealers, the rating agencies went from quality culture to a profit culture. The broker dealers were offering fees and even premium on fees for evaluation and rating of the bonds or shares they were offering. They HAD to have a rating that the bonds or shares were “investment grade,” which would enable the stable managed funds to buy the bonds or shares. The rating agencies were used because they had been independent sources of evaluation of risk and viability of an investment, especially bonds — even if the bonds were not treated as securities under a 1998 law signed into law by President Clinton at the behest of both republicans and Democrats.

Dozens of people in the rating agencies set off warning bells and red flags stating that these were not investment grade securities and that the entire SPV or Trust would fail because it had to fail.  The broker dealers who were the underwriters on nearly all the business done by the rating agencies used threats, intimidation and the carrot of greater profits to get the ratings they wanted. and responded to threats that the broker would get the rating they wanted from another rating agency and that they would not ever do business with the reluctant rating agency ever again — threatening to effectively put the rating agency out of business. At the rating agencies, the “objectors” were either terminated or reassigned. Reports in the Wal Street Journal show that it was custom and practice for the rating officers to be taken on fishing trips or other perks in order to get the required the ratings that made Wall Street scheme of “securitization” possible.

This threat was also used against real estate appraisers prompting them in 2005 to send a petition to Congress signed by 8,000 appraisers, in which they said that the instructions for appraisal had been changed from a fair market value appraisal to an appraisal that would make each deal work. the appraisers were told that if they didn’t “play ball” they would never be hired again to do another appraisal. Many left the industry, but the remaining ones, succumbed to the pressure and, like the rating agencies, they gave the broker dealers what they wanted. And insurers of the bonds or shares freely issued policies based upon the same premise — the rating from the respected rating agencies. And ultimate this also effected both guarantors of the loans and “guarantors” of the bonds or shares in the Trusts.

So the investors were now presented with an insured investment grade rating from a respected and trusted source. The interest rate return was attractive — i.e., the expected return was higher than any of the current alternatives that were available. Some fund managers still refused to participate and they are the only ones that didn’t lose money in the crisis caused by Wall Street — except for a period of time through the negative impact on the stock market and bond market when all securities became suspect.

In order for there to be a “bundle” of loans that would go into a pool owned by the Trust there had to be an aggregator. The aggregator was typically the CDO Manager (CDO= Collateralized Debt Obligation) or some entity controlled by the broker dealer who was selling the bonds or shares of the SPV or Trust. So regardless of whether the loan was originated with funds from the SPV or was originated by an actual lender who sold the loan to the trust, the debts had to be processed by the aggregator to decide who would own them.

In order to protect the Trust and the investors who became Trust beneficiaries, there was a structure created that made it look like everything was under control for their benefit. The Trust was purchasing the pool within the time period prescribed by the Internal Revenue Code. The IRC allowed the creation of entities that were essentially conduits in real estate mortgages — called Real Estate Mortgage Investment Conduits (REMICs). It allows for the conduit to be set up and to “do business” for 90 days during which it must acquire whatever assets are being acquired. The REMIC Trust then distributes the profits to the investors. In reality, the investors were getting worthless bonds issued by unfunded trusts for the acquisition of assets that were never purchased (because the trusts didn’t have the money to buy them).

The TRUSTEE of the REMIC Trust would be called a Trustee and should have had the powers and duties of a Trustee. But instead the written provisions not only narrowed the duties and obligations of the Trustee but actual prevented both the Trustee and the beneficiaries from even inquiring about the actual portfolio or the status of any loan or group of loans. The way it was written, the Trustee of the REMIC Trust was in actuality renting its name to appear as Trustee in order to give credence to the offering to investors.

There was also a Depositor whose purpose was to receive, process and store documents from the loan closings — except for the provisions that said, no, the custodian, would store the records. In either case it doesn’t appear that either the Depositor nor the “custodian” ever received the documents. In fact, it appears as though the documents were mostly purposely lost and destroyed, as per the Iowa University study conducted by Katherine Ann Porter in 2007. Like the others, the Depositor was renting its name as though ti was doing something when it was doing nothing.

And there was a servicer described as a Master Servicer who could delegate certain functions to subservicers. And buried in the maze of documents containing hundreds of pages of mind-numbing descriptions and representations, there was a provision that stated the servicer would pay the monthly payment to the investor regardless of whether the borrower made any payment or not. The servicer could stop making those payments if it determined, in its sole discretion, that it was not “recoverable.”

This was the hidden part of the scheme that might be a simple PONZI scheme. The servicers obviously could have no interest in making payments they were not receiving from borrowers. But they did have an interest in continuing payments as long as investors were buying bonds. THAT is because the Master Servicers were the broker dealers, who were selling the bonds or shares. Those same broker dealers designated their own departments as the “underwriter.” So the underwriters wrote into the prospectus the presence of a “reserve” account, the source of funding for which was never made clear. That was intentionally vague because while some of the “servicer advance” money might have come from the investors themselves, most of it came from external “profits” claimed by the broker dealers.

The presence of  servicer advances is problematic for those who are pursuing foreclosures. Besides the fact that they could not possibly own the loan, and that they couldn’t possibly be a proper representative of an owner of the loan or Holder in Due Course, the actual creditor (the group of investors or theoretically the REMIC Trust) never shows a default of any kind even when the servicers or sub-servicers declare a default, send a notice of default, send a notice of acceleration etc. What they are doing is escalating their volunteer payments to the creditor — made for their own reasons — to the status of a holder or even a holder in due course — despite the fact that they never acquired the loan, the debt, the note or the mortgage.

The essential fact here is that the only paperwork that shows actual transfer of money is that which contains a check or wire transfer from investor to the broker dealer — and then from the broker dealer to various entities including the CLOSING AGENT (not the originator) who applied the funds to a closing in which the originator was named as the Lender when they had never advanced any funds, were being paid as a vendor, and would sign anything, just to get another fee. The money received by the borrower or paid on behalf of the borrower was money from the investors, not the Trust.

So the note should have named the investors, not the Trust nor the originator. And the mortgage should have made the investors the mortgagee, not the Trust nor the originator. The actual note and mortgage signed in favor of the originator were both void documents because they failed to identify the parties to the loan contract. Another way of looking at the same thing is to say there was no loan contract because neither the investors nor the borrowers knew or understood what was happening at the closing, neither had an opportunity to accept or reject the loan, and neither got title to the loan nor clear title after the loan. The investors were left with a debt that could be recovered probably as a demand loan, but which was unsecured by any mortgage or security agreement.

To counter that argument these intermediaries are claiming possession of the note and mortgage (a dubious proposal considering the Porter study) and therefore successfully claiming, incorrectly, that the facts don’t matter, and they have the absolute right to prevail in a foreclosure on a home secured by a mortgage that names a non-creditor as mortgagee without disclosure of the true source of funds. By claiming legal presumptions, the foreclosers are in actuality claiming that form should prevail over substance.

Thus the broker-dealers created written instruments that are the opposite of the Concept of Securitization, turning complete transparency into a brick wall. Investor should have been receiving verifiable reports and access into the portfolio of assets, none of which in actuality were ever purchased by the Trust, because the pooling and servicing agreement is devoid of any representation that the loans have been purchased by the Trust or that the Trust paid for the pool of loans. Most of the actual transfers occurred after the cutoff date for REMIC status under the IRC, violating the provisions of the PSA/Trust document that states the transfer must be complete within the 90 day cutoff period. And it appears as though the only documents even attempted to be transferred into the pool are those that are in default or in foreclosure. The vast majority of the other loans are floating in cyberspace where anyone can grab them if they know where to look.

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Who REALLY Owns the Loan ?

With stories like this, we know that there are settlements, but we don’t know the terms. Just like the confidential settlements with homeowners that occur every day, we never hear the terms of settlement. The issue is whether the banks are being forced to either pay for the losses they created by writing bad loans or if they will be required to re-purchase the whole thing because the loans are, in the words of the investors, unenforceable.

If they are paying off the investors for the loss, and the loss is directly related to the bad underwriting on specific loans, then the payment has reduced the the amount receivable and identified who is to blame for this problem. If the banks are repurchasing the loans because they were bad, unenforceable loans, why are they being allowed to enforce loans that are admittedly unenforceable?

And if the investors are the lenders and the lenders are admitting against interest that the loans are bad and unenforceable how can anyone come to court and enforce the debt under the premise they are suing for the lenders and seeking the old balance?

In discovery, the homeowner should aggressively seek information regarding these settlements. It makes no sense to have the lender paid of in part or entirely and then to allow some intermediary to enforce it when the basis of the settlement was that the origination was bad and that the loans are not enforceable.

BlackRock, Pimco among those suing trust units of major banks over mortgages

  • The trustee units of Detusche Bank (DB), U.S. Bancorp (USB), Wells Fargo (WFC), HSBC, and Bank of New York Mellon (BK) face a lawsuit by an investor group led by BlackRock (BLK) and Pimco (and also including PRU and SCHW) over their role in overseeing and enforcing terms on more than 2K mortgage-backed bonds between 2004 and 2008.
  • The group is seeking damages for losses on the paper that have surpassed $250B, reports the WSJ. At issue, say the plaintiffs, is the banks breaching their duty to bondholders by failing to force the lenders and bond issuers to repurchase poorly underwritten loans.
  • A similar plaintiffs group has already won settlements from Bank of America and JPMorgan for their roles in originating and selling toxic mortgages.

Read more at Seeking Alpha:
http://seekingalpha.com/currents/post/1807443?source=ipadportfolioapp_email

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Miami Sues JPMorgan Over Discriminatory Lending Practices

As further corroboration of the articles on this site and an infinite number of mainstream and not-so-mainstream sites, the banks sold mortgage bonds to investors under the presumption that the risk of loss was nearly zero. If done properly, securitization works. It gives a greater opportunity to more people to get home loan and other kinds of credit financing. And we now know that the primary target of many campaigns was to get new “customers” to take a loan (even if the bank wouldn’t give them a bank account) and in a huge number of cases consisted of those people who were faced with language, education and cultural challenges. Any fool would know that if you are going to do business who are restricted by such challenges, things are not likely to turn out as planned. The City of Miami thinks there is something wrong with that plan. So do I.

It is easy to see why scam artists would target such people. They are easy to convince because the con man convinces them he or she is trustworthy. The “customer” comes to rely on the seller for information about whatever it is he or she is selling. In conventional terms it might be selling insurance on a weekly payment basis or selling an annuity for a large down payment made from the proceeds of life insurance. The insurance turns out not to be real or, in less pernicious cases, the insurance doesn’t cover nearly what was promised by the seller. In any event the Seller makes money because the customer gives money to him or her. The money goes into his or her pocket and they are able to live off their ill-gotten gains.

All this gets a whole lot less obvious when the “seller” is trying to “give” money to the customer and have the customer sign loan papers. Why would anyone give up the money knowing that the loan has a larger risk of failing because the customer is challenged in some ways that make it less likely they will have employment, less likely they will have savings and less likely that they will be able to pay the interest, much less the principal amount “loaned?” It sounds like a fool’s errand — lending money to people who are not likely to pay the money back. And yet, the banks did exactly that and employed tens of thousands (10,000 convicted felons in Florida alone) to sell such loans.

The key question is not whether the banks did it to make money. The answer is obvious. Of course they were making money — but how when they were getting agreements to pay the loan from people who would never pay it back — often because after the teaser period was over it was obvious on its face that nobody in their financial circumstance could pay more than their entire household income? The only rational answer is that the banks had no risk and that they made all their money on the front end AND when the loan failed by betting against the loans they were selling to unsuspecting investors. And the only way they could pull off that maneuver is to intervene in the lending process such that the investor and borrower never meet up. And the only way they could avoid disgorgement of their illegally obtained profits from “proprietary trading” and “fees” is to foreclose on as many mortgages as possible.

So when you take the entire program on its face, you can see that foreclosure was an integral part of their profit model because it cuts off the rights of borrowers, investors, insurers etc. from demanding disgorgement of illegally obtained compensation that was never disclosed at closing — an absolute requirement under the Truth in Lending Act. And they knew the day would come when everything would collapse and the proof of that is that they were betting on exactly that to happen.

And they knew that they would be destroying documents, “losing” documents etc such that they would be fabricating those documents with such advanced technology that the borrower never realized that he was being shown a document he had never seen before, much less signed. And finally, they knew they would be fined and censured. No matter — they simply used investor money again to pay fines and damages that were caused by the banks put are being paid by still unsuspecting investors. (except for people like Vincent Fiorillo bond manager at DoubleLine who has had enough of this game).

The Miami suit needs to result in discovery that digs deep into the books of JPMorgan to see just how much money was made on each of those bad loans (bad for both the investors and the borrowers) to see just how much money they made, how they made it and how much they made. The results will astonish most casual observers. The bottom line is that the banks made profits that were higher than anytime in history but they weren’t really “profits.” They were proceeds of theft.

It should all be disgorged and the communities that were decimated by the Bank should be restored. That is the RIGHT thing, especially when you learn that many of the “loans” were the result of hard sell, midnight visits signing piles of documents the customer had no way of understanding and no opportunity to read even if they could understand them. Add to that the refi’s were really homes that were paid off or  nearly paid off. If they had just been left alone, the same people would have actual positive net worth and would never have faced foreclosure.

JPMorgan sued by Miami over mortgage discrimination

  • At issue are alleged predatory lending practices in minority neighborhoods since at least 2004 which Miami blames for causing waves of foreclosures in the housing bust. After issuing high-cost loans to minorities, JPMorgan (JPM -0.3%), says the city, refused to refinance on the same eased terms extended to others.
  • The lawsuit follows a similar one launched a few weeks ago by Los Angeles.  Wells Fargo, Citi, and BofA face similar charges.
 Read more at Seeking Alpha:

http://seekingalpha.com/currents/post/1802293?source=ipadportfolioapp_email

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