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by Neil F Garfield, livinglies.me

Confusion Starts Here: The pretenders are playing a shell game that is intended to strip the homeowners of their claims, their remedies, and their homes. It’s working because hardly anyone is asking where the money went. Instead of looking for cold hard cash, we are trapped in a never ending cycle of cases in which the homeowner, either pro se, or through counsel, has essentially conceded the case away by admitting the debt, admitting the default, admitting the amount owed, and admitting that the opposing side either does or might have the right to foreclose on behalf of nameless third parties who were never disclosed.

At the start of any proceeding you don’t win on the merits. You win on procedure. Homeowners go into court expecting justice when all the court system promises is a fair hearing, not a guarantee of justice.  If you fail to present the issues such that there is an actual issue of fact about which the parties disagree and that fact is material to the outcome of the case, then the Judge, procedurally, has no choice but to provide you with a “fair hearing,” even if he or she thinks you have virtually no chance of winning.

The issue of fact must be credible though, so don’t be using arguments, even if they might be right, that sound like conspiracy theory. The only thing the Judge will actually hear are issues fact that apply to this loan, this debt, this note and this mortgage or deed of trust. The only thing the Judge can hear are questions of fact relating to the debt, who funded it, or bought it, and who stands to lose money because of the alleged default by the homeowner. Note the words “stands to lose money” which is the essence of “standing” as a legal argument.

So can only win on procedure not the merits, which is counter intuitive since it is the merits we want to get to. That means you raise the right issues at the right time so that you get to the next step in litigation. Each time you go to court you seek to remind the judge that the other side are banksters, but you don’t rely on that to move your side of the case forward.

They will play games with appeals too, where the order entered is not “final” and therefore can’t be appealed. The homeowner has posted bond, but the appellate court remands the case and dismisses the appeal because the order was not a final order. Then they file a motion to take the bond posted by the homeowner and in the end the demoralized homeowner is left with no claim pending, no appeal, no bond money, no house, and no remedies. Which is just where the Banks want you. Do they want your underwear too?

Here are some questions that lie at the heart of the procedural and substantive part of the case: Did they pay for this loan, did they fund it and if not did someone else do it that has not been disclosed and if so where is their authority to appear in a representative capacity?

Where is the money — i.e., what was the real transaction or set of transactions. There can’t be a sale if there was no consideration. Any transfer of documents, fabricated, forged or otherwise is void without it being a sale. It is a transfer of convenience in a shell game that seeks to deprive the debtor of a party against whom she can lodge her complaints and with whom she could conceivably settle or modify her loans.

Unless they paid for the loan in a sale of the paper, they have no colorable right to the claim — unless they NOW wish to allege that they are appearing in a representative capacity. If so, they need to say the identity of the creditor, how the debt of that creditor relates to this house, and how they came to represent the creditor, and why they didn’t tell the court any of this before. (That last one is one you want to pound them on, because of its relevance later in the proceeding).

This isn’t hypothetical. The good thing about attacking the whole foreclosure process and eviction process after it is “over” is that by that time the shell game is over — they have committed themselves in writing to who the players are and what transactions they are actually relying upon. The best time, from a lawyer’s perspective, to attack the pretender lenders is after they have completed their scam. It is at the end that they admit now that a pool of investors funded the loan and now claims ownership.

Question: If the investors already owned the debt, then why should a servicer or any other intermediary be able to foreclose and bid in its own name? For that matter if the investors already owned the debt at closing with the homeowner then how can any sale or transfer take place between the conduits or intermediates in the transaction? What effect would any transaction between the intermediaries when the full sale has already taken place between the homeowner and the investors who funded the loan?

The only valid sale would be from the investors. And if the investors funded the loan, then why wasn’t that reflected on the note? If the investors funded the loan, why wasn’t that reflected on the deed of trust (mortgage)? Why do they hold so tightly to the proposition that they are the “holder” of the note when they refuse to allege they are the holder in due course? Whom does that leave to sue for predatory and fraudulent lending practices?

The tactic that is working for the pretender lenders is get you lost in the woods of documentation when you should be looking at the money trail which is why I continually harp on people getting both the COMBO Title and Securitization Analysis AND the Loan Level Analysis. Ideally you should have the Forensic Loan analysis as well in which the requirement of TILA and other sources highlight the necessity of disclosure of the real parties, their real compensation and the real terms of the deal from source to borrower.

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Editor’s Comment: If there was any doubt in your mind about who thinks they run the government, it was dispelled yesterday when Reuters reported that Jamie Dimon, CEO of JPMorgan Chase warned Obama that if the new investigation team actually does anything, there won’t be any settlement.

The sheer arrogance of a possible criminal demanding that the government stop investigating him or else the too big too fail bank won’t participate in settlement talks is unfathomable. It demands a response from Obama and it demands a re-thinking at the White House about its relationships with the big banks.

The real investigations are just getting started, with considerable support from already published instances of robo-signing, surrogate signing, forgery, fabrication and fraud in the foreclosure process.

Dimon reacted because of one major risk: the entire securitization scheme will be revealed as a scam from beginning to end. This would mean that the banks would have enormous liability to virtually all MBS investors, enormous tax liability for the REMICs and potentially to the investors, and enormous liability to homeowners who were duped into thinking that they had been through conventional loan underwriting when in fact it was jsut a marketing scheme to justify the movement of money.

As stated on these pages before, the result will be

• (1) that investors, as creditors in these transactions are owed 100 cents on the dollar not by the homeowners, but by the Banks, who took investor money and either didn’t invest it all in loans, or invested in loans that they knew ( and were betting on) would fail
  
• (2) that potentially trillions of dollars in unreported income went untaxed amounting more than any bailout
  
• (3) that the mortgage documentation was so defective as to defy reformation or correction, leaving the loans unsecured and possibly non-existent and
  
• (4) that the homeowners who have been foreclosed and dispossessed still own their properties with an unclear debt or obligation that is unsecured.

Dimon is trying to block reality from entering into the picture. Selling the loans multiple times through exotic instruments that looked like hedge products has its consequences. It leaves the creditor or its agents filled with money obtained through multiple payments on the same debt. All this seems counter-intuitive, I know. And it sure puts a crimp on the foreclosure plan that takes homes to satisfy a debt that has already been satisfied multiple times.

Beyond that, it provides a blueprint for correcting the corruption of the title registries across the country. Once the loans are shown to be defective beyond recognition, and once securitization is shown to be a word and a plan that was never actually executed, the whole thing boils down to one simple fact: there were loans but there were no mortgages. Papers was signed that meant nothing, disclosed nothing and violated every industry practice in place for hundreds of years.

There is no greater fiscal stimulus to the economy than returning ill-gotten gains to the investors and homeowners who were victims of this scheme. It will save pensions and allow people to recover the wealth that was siphoned out of the economy instead of the job Wall Street was meant to fulfill — pumping liquidity into the economy for expansion, innovation and prosperity. The answer is right there in front of us. The Banks have attempted to place false ideology in front of the requirements of law. The only question is whether the government will let that happen.

See Full Story on Reuters

JPMorgan Chase & Co Chief Executive Jamie Dimon said President Barack Obama’s decision to expand investigations into home lending and sales of mortgage securities could stop settlement talks with the states over foreclosure practices.

“It has a pretty good chance of derailing it,” Dimon said in a televised interview with CNBC from Davos, Switzerland on Thursday.

Obama, in his State of the Union address Tuesday, said he has asked his attorney general to create a special unit of prosecutors to expand investigations into home lending and packaging of mortgage-backed securities. It is not clear how the new unit will be different from earlier investigations.

JPMorgan is the largest U.S. bank and one of the larger servicers of mortgage loans. JPMorgan, Bank of America, Wells Fargo & Co, Citigroup and Ally Financial Inc have been in talks with state attorneys general for months about settling allegations of foreclosure abuses.

The banks and states have been discussing a plan that would have the banks pay $25 billion to homeowners through reductions in principal on mortgage loans.

“I think it would be better for America if that settlement took place,” Dimon said. “If this thing derails that, so be it.”

(Reporting by David Henry; editing by John Wallace)

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RECEIVERS SHOULD BE APPOINTED TO FORCE DISGORGEMENT OF PENSION MONEY

Editor’s Note: It isn’t just the Banks that are covering up the fact that those “assets” on their balance sheet are not assets and never were owned by the Banks. The underlying threat here is that the loss is going to hit pension funds and other “investors” in RMBS whose money was used to fund mortgages (after the investment banks took a huge bite out of the pool of funds as “trading profits”). Pensioners are already getting notices of cutbacks and even elimination of the pension benefits.

This is all brought to you by the makers of such accounting tricks like “off balance sheet transactions.” Try telling your boss that the money you stole was an off balance sheet transaction and see if that covers it — or if you end up a guest of the state or federal government in prison.

RMBS Losses in Limbo: As Bad As They Seem, The Reality May Be Much Worse

Since the financial crisis in 2007, residential mortgage-backed securities have been hit with high levels of borrower defaults, realized losses and credit rating downgrades.  Realized losses declared on private residential mortgage-backed securities (RMBS), already much higher than original rating agency and investor estimates, are projected to rise substantially in the coming months, according to a recent analysis by R&R Consulting, a credit rating and valuation firm in New York.

On the securities performing at December 2011, a universe of approximately $1.42 trillion, R&R estimate the amount of additional losses likely to materialize is $300 billion, with one-third concentrated in ten arranger names, including Countrywide, Morgan Stanley and JP Morgan. About 17,000 tranches, or 34% of the universe analyzed by R&R, may lose up to 83% of their remaining principal.

In addition, R&R estimates that approximately $175 billion of losses already incurred on the loans have not yet been allocated to the bonds in the related transactions. Failure to allocate realized loan losses could distort the valuation of related RMBS tranches.

“The light at the end of the tunnel is still a long way off for RMBS,” said Iuliia Palamar, head of ABS research for R&R.  “We are now drilling down into the analysis to identify the individual transactions by vintage, servicer and other important issues with respect to these losses.”

Unallocated Losses by Security Vintage

In the course of conducting valuations on RMBS, the R&R analytics team discovered widespread, serious, repeated data discrepancies. Ann Rutledge, a founding principal, asked the team to measure the magnitude of the discrepancy on the RMBS universe. To do this, R&R subtracted cumulative losses allocated to the tranches from unallocated, expected losses, calculated as the sum of defaults, bankruptcies, foreclosures and REOs minus recoveries. “The results were very disturbing: $175 billion of unallocated current losses and $300 billion of imminent losses,” Rutledge said.

Rutledge commented that she was not clear why these losses are being held in limbo instead of being properly allocated, since the data used by R&R in the calculations were included in the servicer reports. She cautioned, “Investors should be concerned about receiving inaccurate bond performance information and paying unnecessary fees.”

The implication for bond holders in RMBS is significant with respect to both estimates.  Subordinated securities in the RMBS with probable future losses ought to be written down by such losses but instead may be continuing to receive interest owed to more senior tranches. It could also mean that servicers are earning fees against loans that have already been liquidated, which also reduces the amount of cash to pay senior bond holders.  For example, in one month, servicers could generate $75 million or more in inappropriate fees against the $175 billion in unallocated losses.

Rutledge also noted that R&R has observed a steady increase in amount of limbo losses, raising the prospect that a significant amount of funds are still being misallocated for bond investors.

“The system for MBS is still fundamentally broken,” she said. “All the loose ends need to be identified and knit together into a well-functioning system before investors can feel comfortable investing in RMBS once more.”

R&R Consulting is a credit rating and valuation boutique. Founded in 2000, R&R has a patented process for obtaining current intrinsic valuations on structured securities in the secondary market.

Inquiries should contact Iuliia Palamar at +12128675693 or iuliia@creditspectrum.com

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SPECIAL PROSECUTOR REQUIRED

Covington 2004 Legal Opinion to MERSCORP

Editor’s Comment: In my opinion the purpose of this letter was to provide CYA to MERS and its founders and members. Since it was dated in 2004 and questions were already emerging about the legality of MERS and what it would do to the title registries, MERS sought a legal opinion so that they could say they were proceeding “on advice of counsel.” Generally, this takes the operation out of range for criminal prosecution, but not always. It could land both MERS and the lawyers (including members of the our justice department in hot water depending upon the full circumstances surrounding the request from MERS and the answer from Covington.

Considering the fact that the leading members of the department of justice worked at Covington, it is imperative that we have an independent special prosecutor appointed to review the whole process. Such action has been taken on a lot less facts than what we have now.

The letter implies that a private system of title registry is legal and valid without committing itself to the fact that such a private registry would and should have no probative value in case there was litigation regarding the transfers. MERS was not certified or even allowed to proceed as a substitute for the public records of each state nor did they even apply for such status. Records of MERS should be ignored in any contested proceeding.

But the big question is what would this opinion look like if they had been told that the parties were manipulating the data, fabricating documents, forging signatures and otherwise violating the documents of record?

Particularly troublesome is this quote from the opinion issued by Covington:

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MINNEAPOLIS (WCCO) — Occupy Minneapolis protesters were arrested on in downtown Minneapolis Wednesday night, according to police.

Sgt. William Palmer says the arrests, all adult men, were made at 800 Nicollet Mall.

Fifteen others chose to leave prior to the arrests.

In an email released Wednesday night, Occupy Minneapolis representatives say the protesters, 3 total, were arrested while demanding negotiation from US Bank headquarters for homeowners in foreclosure.

“We are disappointed that US Bank chose to ignore thousands of signatures and their customers cries for help as the foreclosure continues to rip apart our communities. Today they decided they would rather have peaceful demonstrators arrested than sit down and work in good faith to find a solution,” said activist Ben Egerman.

About 50 people took part in the protest.

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Obama’s Credibility is on the Line

IT’S TIME TO CROSS EXAMINE YOUR EXPERTS, MR. PRESIDENT

Editor’s Note: Despite protests across the nation — in the streets, parks, courts and other venues, despite the well-published reports and proof published as to forged, fabricated, fraudulent and invalid documents, The Obama administration has been soft-pedaling both the rhetoric and the action from his administration to obtain justice for the perpetrators of crimes and restitution to the victims.

While we might cut him some slack for all that was on his plate, the time has long past where he should have been using independent judgment without deferring to “experts” from the industry, indeed the law firms and the financial firms that created the current mess with rippling and dangerous effects across the globe.

I don’t call on Obama or any Judge to read  and accept at face value the tens of thousands of pages on this blog alone containing copies of actual proof of crimes,  forgery, fabrication and invalid mortgage liens. But when public officials and presidents of title companies are saying the same thing, then you should at least consider that the charges in this blog and others like it might be true. That takes independent thinking.

If you don’t know how to cross examine your experts and advisers, Mr. Obama, then get some people who do know how to do that. Those experts will fold like a house of cards on the smallest amount of pressure exerted by questions that run to the reality of what happened instead of the spin.

To put it more bluntly: President Obama, you were  given a gift of high intellect and lofty rhetoric. It’s time to start using that intellect to analyze the data, not just remember what you were told about it. It is time to act on the fierce urgency of now, remember that? Neither the economy nor your political prospects will improve until you catch up to what most people already know — the Banks are the problem and we expect you to fix it.

A Mortgage Investigation

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Editor’s Note: The article below is very good at pointing to some of the reasons why robo-signing, surrogate signing, forgery, fabrication and fraud was a system option created by Banks to cover up their real activities. Her conclusions are all correct. I would only add that the fraud goes deeper, because the grey area created between the defective closing of the loan and the execution of false documents of transfer was used by the Banks to enlarge the derivative market to a point of no return.

We now have something close to a quadrillion dollars in nominal value derivatives in a world economy that has less than 1/10th that amount in actual cash. With world currency adding up to less than $100 trillion, the amount of quantitative easing (printing money) is running dangerously large and reminiscent of the hyper inflation in Germany that led to World War II. The situation is not quiet the same because the derivatives, in large part, cancel each other out as hedge bets going both ways. But the estimates are that some $50 trillion remain to be satisfied out of what was only a $50 trillion currency  supply when this started.

In plain language, the Banks have only started and will continue to drain from our collective economies until they are stopped. If they want their own country let them do it the old-fashioned way. Taking over the world financial system is a coup d’etat en masse. For America to allow this to continue is an invitation for other countries to retaliate against the U.S. in financial and other ways.

Why all the robo-signing?

January 24, 2012

Securitization and the shadow banking system

by Ellen Brown

(Extensively revised and updated Jan. 25) – The Wall Street Journal reported on Jan. 19 that the Obama administration was pushing heavily to get the 50 state attorneys general to agree to a settlement with five major banks in the “robo-signing” scandal.

The scandal involves employees signing names not their own, under titles they did not really have, attesting to the veracity of documents they had not really reviewed. Investigation reveals that it did not just happen occasionally but was an industry-wide practice, dating back to the late 1990s, and that it may have clouded the titles of millions of homes. If the settlement is agreed to, it will let Wall Street bankers off the hook for crimes that would land the rest of us in jail – fraud, forgery, securities violations and tax evasion.

To the president’s credit, however, he seems to have shifted his position on the settlement in response to protests before his State of the Union address. In his speech on Jan. 24, President Obama did not mention the settlement but announced instead that he would be creating a mortgage crisis unit to investigate wrongdoing related to real estate lending. “This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans,” he said.

The deeper question is why

Whether massive robo-signing occurred is no longer at issue. The question that still needs to be investigated is why it was being done. The alleged justification – that they were so busy they cut corners – hardly seems credible given the extent of the practice.

The robo-signing largely involved assignments of mortgage notes to mortgage servicers or trusts representing the investors who put up the loan money. Assignment was necessary to give the trusts legal title to the loans. But according to consumer attorneys April Charney and O. Max Gardner III, who have reviewed large numbers of these cases, the banks that originally signed the notes with the homeowners virtually never assigned them over to the trusts, as required by governing law and the terms of the trust documents. Robo-signing occurred long after the fact, and it was done routinely across the industry. That means it must have served some industry purpose. But what?

Here is a working hypothesis, suggested by Martin Andelman: Securitized mortgages are the “pawns” used in the pawn shop known as the “repo market.” “Repos” are overnight sales and repurchases of collateral. Yale economist Gary Gorton explains that repos are the “deposit insurance” for the shadow banking system, which is now larger than the conventional banking system and is necessary for the conventional system to operate. The problem is that repos require “sales,” which means the mortgage notes have to remain free to be bought and sold. The mortgages are left unendorsed so they can be used in this repo market.

The evolution of the shadow banking system

Gorton observes that there is a massive and growing demand for banking by large institutional investors – pension funds, mutual funds, hedge funds, sovereign wealth funds – which have millions of dollars to park somewhere between investments. But FDIC insurance covers only up to $250,000. FDIC insurance was resisted in the 1930s by bankers and government officials and was pushed through as a populist movement: the people demanded it. What they got was enough insurance to cover the deposits of individuals and no more. Today, the large institutional investors want similar coverage. They want an investment that is secure, that provides them with a little interest, and that is liquid like a traditional deposit account, allowing quick withdrawal.

The shadow banking system evolved in response to this need, operating largely through the repo market. “Repos” are sales and repurchases of highly liquid collateral, typically Treasury debt or mortgage-backed securities – the securitized units into which American real estate has been ground up and packaged, sausage-fashion. The collateral is bought by a “special purpose vehicle” (SPV), which acts as the shadow bank. The investors put their money in the SPV and keep the securities, which substitute for FDIC insurance in a traditional bank. (If the SPV fails to pay up, the investors can foreclose on the securities.) To satisfy the demand for liquidity, the repos are one-day or short-term deals, continually rolled over until the money is withdrawn.

This money is used by the banks for other lending, investing or speculating. Gorton writes: “This banking system (the “shadow” or “parallel” banking system) – repo based on securitization – is a genuine banking system, as large as the traditional, regulated banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend, and credit, which is essential for job creation, will not be created.”

All behind the curtain of MERS

The housing shell game was made possible because it was all concealed behind an electronic smokescreen called MERS (an acronym for Mortgage Electronic Registration Systems, Inc.). MERS allowed houses to be shuffled around among multiple, rapidly changing owners while circumventing local recording laws. Title would be recorded in the name of MERS as a place holder for the investors, and MERS would foreclose on behalf of the investors. Payments would be received by the mortgage servicer, which was typically the bank that signed the mortgage with the homeowner. The homeowner usually thinks the servicer is the lender, but in fact it is an amorphous group of investors.

[Editor's Note: Failure to disclose all the parties in a mortgage loan transaction and the fees they received is a violation of the Federal Truth in Lending Act and a violation of deceptive lending laws in most states. The transaction is not complete until those disclosures are made. This isn't merely technical. It is intended to alert the borrowers that a loan without so many intermediaries feeding off the origination, they might find a better loan or more realistic loan elsewhere. That was the purpose of TILA and it is largely ignored by writers, the courts and law enforcement]

This all worked until courts started questioning whether MERS, which admitted that it was a mere conduit without title, had standing to foreclose. Courts have increasingly held that it does not.

Making matters worse for the servicing banks, Fannie Mae sent out a memo telling servicers that in order to be reimbursed under HAMP – a government loan modification program designed to help at-risk homeowners meet their mortgage payments – the servicers would have to produce the paperwork showing the loan had been assigned to the trust.

The hasty solution was a rash of assignments signed by an army of “robosigners,” to be filed in the public records. But the documents are patent forgeries, making a shambles of county title records.

Four thousand marched in Oakland Nov. 19, 2011, to protest fallout from the banking collapse – foreclosures, school closures and police attacks on dissent. – Photo: ©David Bacon

Complicating all this are tax issues. Since 1986, mortgage-backed securities have been issued to investors through SPVs called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be “static.” Mortgages can’t be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer significantly after the closing date is invalid.

Yet the newly robo-signed documents, which are required to begin foreclosure proceedings, are almost always executed long after the trust’s closing date. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.

John O’Brien, register of deeds for the Southern Essex District of Massachusetts, calls it a “criminal enterprise.” On Jan. 18, he called for a full scale criminal investigation, including a grand jury to look into the evidence. He sent to Massachusetts Attorney General Martha Coakley, U.S. Attorney General Eric Holder and U.S. Attorney Carmen Ortiz over 30,000 documents recorded in the Salem Registry that he says are fraudulent.

From lending machines to borrowing machines

The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent, but because they have been required to in order to come up with the collateral – in this case real estate – to back their loans. It is the way our system is set up: The banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional façade of fractional reserve lending. Instead, they are vacuuming up our money and lending it back to us at higher rates.

The banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did. Instead, they are vacuuming up our money and lending it back to us at higher rates.

“Instead of lending into the economy,” says British money reformer Ann Pettifor, “bankers are borrowing from the real economy.” She wrote in the Huffington Post in October 2010: “[T]he crazy facts are these: Bankers now borrow from their customers and from taxpayers. They are effectively draining funds from household bank accounts, small businesses, corporations, government treasuries and from, e.g., the Federal Reserve. They do so by charging high rates of interest and fees, by demanding early repayment of loans, by illegally foreclosing on homeowners, and by appropriating and then speculating with trillions of dollars of taxpayer-backed resources.”

Not only has the system destroyed county title records, but it is highly vulnerable to bank runs and systemic collapse. In the shadow banking system, as in the old fractional reserve banking system, the collateral is being double-counted: It is owed to the borrowers and the depositors at the same time. This allows for expansion of the money supply, but bank runs can occur when the borrowers and the depositors demand their money at the same time. And unlike the conventional banking system, the shadow banking system is largely unregulated. It doesn’t have the backup of FDIC insurance to prevent bank runs.

That is what happened in September 2008 following the bankruptcy of Lehman Brothers, a major investment bank. Gary Gorton explains that it was a run on the shadow banking system that caused the credit collapse that followed. Investors rushed to pull their money out overnight. LIBOR – the London interbank lending rate for short-term loans – shot up to around 5 percent. Since the cost of borrowing the money to cover loans was too high for banks to turn a profit, lending abruptly came to a halt.

Fixing the system

The question is how to eliminate this systemic risk. As noted by The Business Insider: “Regulate shadow banking more tightly, and you probably have to also provide government backstops. Shudder. Try to shut the thing down or restrict it and you suck credit out of the system, credit which much of the non-financial ‘real’ economy uses and needs.”

[Editor's Note: I strongly disagree. Shutting down the mega banks and resolving them under standard operating procedures of resolving insolvent banks,  which they are, would result in the release of equity and wealth back into the system on a scale that would provide 5-6 times the original stimulus package. The reserves the Banks are sitting on would come flooding back into the market as groups of banks culled from the more than 7,000 banks and credit unions operating safely under current law pick up the pieces. There is no reason other than scare tactics that would suggest that shutting down the derivatives market, as it is now constituted would result in a massive blow-out. The loss would be contained to the equity stakeholders (stockholders) of these entities instead of being spread out across the world to everyone.]

Banco do Brasil, a public-owned bank that operates as a commercial venture, is Latin America’s biggest bank by assets. It is doing so well it is eying possible acquisition targets and opening branches in the United States.

Interestingly, countries with strong public sector banking systems largely escaped the 2008 credit crisis. These include the BRIC countries – Brazil Russia, India and China – which contain 40 percent of the global population and are today’s fastest growing economies. They escaped because their public sector banks do not need to rely on repos and securitizations to back their loans. The banks are owned and operated by the ultimate guarantor – the government itself. The public sector banking model deserves further study.

A system that requires the slicing and dicing of mortgages behind an electronic smokescreen so they can be bought and sold as collateral for the pawn shop of the repo market is fraught with perils and is unsustainable.

Whatever the solution, a system that requires the slicing and dicing of mortgages behind an electronic smokescreen so they can be bought and sold as collateral for the pawn shop of the repo market is obviously fraught with perils and is unsustainable. Please contact your state attorney general and urge him or her not to go through with the robo-signing settlement, which will be granting immunity for crimes that are not yet fully known. Phone numbers are here. The surface of this great shadowy second banking system has barely been scratched. It needs a very thorough investigation.

Ellen Brown is an attorney in Los Angeles and president of the Public Banking Institute. In “Web of Debt,” her latest of 11 books, she shows how a private cartel has usurped the power to create money from the people themselves and how we the people can get it back. Her websites are WebofDebt.com and EllenBrown.com. She can be reached at ellenhbrown@gmail.com. The Bay View contributed some of the citations in this story.

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Editor’s Comment: If the financial institutions were lying to each other, committing civil and criminal fraud, how much of a stretch is it to think that they are lying to the Courts, lying to homeowners, and that they lied to homeowners who bought bogus loan products just like they lied to John Hancock who insured the bogus mortgage bonds based upon lies to the fund managers (investors) who served as the real lenders?

Why would ANYONE presume that the mortgages are valid liens, or that anyone other than the defrauded investors is entitled to any money from the borrowers, from the bailout, from insurance contracts, from CDS, and other credit “enhancements” all procured by fraud?

See Full Article on Bloomberg

JPMorgan Chase & Co. was sued by Manulife Financial Corp.’s John Hancock Life Insurance unit, which accused the bank of fraud in connection with the sale of residential mortgage-backed securities.

The lawsuit, filed today in New York state Supreme Court in Manhattan, seeks unspecified damages for losses of market value and principal and interest payments, as well as rescission and recovery of payment for the investments.

John Hancock bought the securities “in reliance on the false and misleading” statements made by the defendants, which include Bear Stearns & Co. and Washington Mutual Inc. (WAMUQ), both of which were acquired by JPMorgan, lawyers for the Boston-based insurer said in the lawsuit.

“Based on these material misrepresentations and omissions, plaintiffs purchased securities that were far riskier than had been represented, backed by mortgage loans worth significantly less than had been represented, and that had been made to borrowers who were much less creditworthy than had been represented,” attorneys for John Hancock said in the lawsuit.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Jennifer Zuccarelli, a spokeswoman for JPMorgan, didn’t immediately return a telephone message left at her office seeking comment on the lawsuit.

The case is John Hancock Life Insurance Co. v. JPMorgan Chase & Co. (JPM), 650195/2012, New York state Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Weakness of BOA Poses Threat to Entire System

Editor’s Comment: When I proposed it 4 years ago, it was dismissed as the ravings of a fringe lunatic. Now it’s mainstream. BOA, Citi, JPM et al are in no better shape than the banks that were allowed to fail. In fact, they are in worse shape than some of them and should be allowed to fail because they are not viable businesses and represent a large black hole through which taxpayer money, debt and revenue is poured with regularity.

Now leading groups of consumer advocates, academics and economists are calling for the dismantling of the megabanks, some for the reasons expressed here, and some because from a specific financial perspective — it is too dangerous to leave a tottering giant riddled with cancerous lesions to lead the financial markets. It makes no sense. A “run on the bank” is almost inevitable and when it happens the result will be catastrophic, the group says, and I agree with them.

See Full Story on Reuters

(Reuters) – A group of consumer advocates, academics and economists want to end “too-big-to-fail” banks, starting with Bank of America Corp.

The group, led by consumer advocacy organization Public Citizen, plans to file a petition with the Federal Reserve Board and other regulators on Wednesday asking them to carve the bank into simpler, safer pieces.

The Fed and the coalition of regulators known as the Financial Stability Oversight Council have the authority to take such action under the Dodd-Frank financial reform law passed in 2010, the group said.

Nearly two dozen professors and groups have joined the effort.

… the petition is a dramatic criticism of regulators who have so far done little to shrink giant banks after the 2007-2009 financial crisis.

“Bank of America currently poses a grave threat to U.S. financial stability by any reasonable definition of that phrase,” the 24-page petition said.

It said Bank of America, the nation’s second-largest bank, is too large and complex, and that its financial condition could deteriorate rapidly at any moment, potentially causing the market to lose confidence in the bank.

“An ensuing run on the bank could cause a devastating financial crisis,” the petition said.

David Arkush, director of Public Citizen’s Congress Watch division, said a lot of the group’s concerns apply to other large banks, but that Bank of America is the institution most exposed to the housing crisis.

“Regulators need to get ahead of this and act proactively to reform Bank of America,” Arkush said.

Bank of America has had a tough time emerging from the financial crisis, particularly because of mortgage losses tied to its 2008 Countrywide Financial purchase.

The bank’s stock slid 58 percent last year as investors expressed disappointment with the speed of a turnaround and fear about the bank’s ability to comply with new capital rules.

Bank of America, the Fed and the Treasury declined to comment on the planned petition.

Some community groups decided to pass on signing the entreaty. Janis Bowdler, an official with the National Council of La Raza, said the letter was distributed on a list-serve for a coalition called Americans for Financial Reform, but her group decided not to join up.

“I don’t want to downplay the concerns that were raised,” said Bowdler, “but for now, a strong housing market and cleaning up Countrywide is the priority for us.”

NCLR is a national Hispanic civil rights organization. It receives financial support from Bank of America.

The Center for Responsible Lending, which has been critical of banks for mortgage lending practices, has also declined to participate. CRL president Mike Calhoun declined comment.

Bank of America was one of the large banks that received a government bailout during the financial crisis. It paid back the $45 billion in 2009, but analysts say it still needs more capital to absorb mortgage-related losses and to meet new international standards.

(Reporting By Rick Rothacker; Additional reporting by Dave Clarke in Washington and David Henry in New York; Editing by Phil Berlowitz)

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Editor’s Comment: It’s a gutsy move. The lawyer for the newspapers filed the complaint alleging illegal mark-ups in pricing. That filing indirectly attacks their own advertising revenues. What they are going to find is that the “trustees” are not trustees at all and where paid off to keep quiet.

Trustees are routinely “substituted” in robo style. That is because the original trustee would never do what the pretender lender wanted them to do. The old Trustee would exercise due diligence and demand some sort of proof that the “new creditor” actually owned the loan and that the loan was in default. That would create all sorts of problems for the pretenders, inasmuch as they don’t have the proof — because the proof doesn’t exist. The proof doesn’t exist because they don’t own the loan and the only way they can pretend to be the new creditor is with fabricated and forged documents.

So a new “Trustee” is either created or controlled by the pretenders with the understanding that they will do as they are told to do by the pretenders and not as the law requires. In exchange, the Trustee is given carte blanche to charge whatever they want making extra profits for allowing the pretenders to “rent” the professional license of the “new” trustee. Those extra fees — like the extra fees made by all the other intermediaries and conduits in the fake “securitization” chain, is the economic incentive to break the law, violate ethics and defraud the courts, borrowers and investors.

As the facts emerge, the attorney who played “trustee” will be shown to have dodged the requirements all the way around — so much so that the appointment of Northwest will be immediate reason to inquire as to whether their was an actual trustee at all as required by Oregon statutes. Thus the limited grievance filed by the gutsy attorney for the newspapers, is merely the tip of the iceberg.

This action is on the heals of hundreds of grievances filed against notaries, appraisers and real estate brokers for failing to comply with the ethical standards of their professions. The fact that the target is finally a lawyer, ups the ante quite a bit.

Perhaps, when all else has failed, prosecutors will do the right thing.

From oregonlive.com

By Jeff Manning, The Oregonian

The Associated Press: A sign of the times across the country as foreclosures hit coast to coast.

A lawyer representing The Bulletin of Bend and the Redmond Spokesman  newspapers has filed an ethics complaint with the Oregon State Bar against an executive of the Northwest’s largest foreclosure trustee, accusing the company of secretly marking up the cost of foreclosure legal ads to its lender clients.

Michael Dillard, of the Karnopp Petersen law firm in Bend, filed the complaint last week against David Fennell, a lawyer and a principal owner of Northwest Trustee Services, which by its own account has handled more than 250,000 foreclosures.

Dillard alleges that Northwest Trustee and its advertising operation, FEI, charged its clients an undisclosed 18 percent premium over the actual price. These “deceptive and dishonest” tactics, Dillard said, allowed FEI to collect from its clients about $360,000 more than it actually paid for the foreclosure notices published in the Redmond newspaper just since 2009.

Those costs were then presumably passed on by banks to homeowners and others, Dillard said.

Stephen Routh, CEO of Northwest Trustee Services, denied that FEI was charging a secret premium. “The markup was fully disclosed to it customers,” Routh said. “It’s how they make a profit.”

The complaint is intriguing on several levels. Since the economic crash of 2008 let loose a tidal wave of home foreclosures, the financial industry has been accused many times over by homeowners of improperly and fraudulently repossessing homes. But in this case, one of Northwest Trustee’s own vendors alleges wrongdoing, with 26 pages of painstaking detail backing up the claim.

The complaint puts Western Communications, owner of the Redmond Spokesman, The Bulletin and a handful of other newspapers, in a delicate position. It is accusing one of its largest advertisers of underhanded billing practices even as the newspapers’ parent company struggles through a Chapter 11 bankruptcy.

The Bulletin published a lengthy story Tuesday about Northwest Trustee’s alleged overcharging.

The Oregonian published a story about Northwest Trustee Jan. 14, which focused on the company’s emergence during the foreclosure boom as one of the region’s largest newspaper advertisers and its decision to begin buying newspapers outright.

Markups add up

Northwest Trustee enjoys particular clout in central Oregon. The once-high-flying resort area is now one of Oregon’s foreclosure hotbeds.

The foreclosure disaster contained a big upside for Western Communications, which calls itself WesCom. Northwest Trustee ran all its foreclosure legal notices in the Redmond Spokesman.

“They’re one of our largest advertisers,” said John Costa, editor in chief. “It’s a significant piece of money.”

Through a convoluted series of events last spring, WesCom came to suspect that FEI may be charging its lender clients more for legal notices than it was actually paying.

It wasn’t a lot of money. Though the Spokesman generally charged just over $1,000 for the legal notice ads required by Oregon law, WesCom suspected FEI billed $1,185.

Fueling its suspicion were requests from FEI that WesCom continue to bill the lower rate but list the higher rate on invoices and other paperwork between the two companies.

WesCom hired Dillard to investigate. Last spring, according to his ethics complaint, he found evidence –two bills from Northwest Trustee to Sterling Savings Bank – that backed up WesCom’s hunch. Northwest Trustee charged Sterling the higher rate – $1,185. Sterling declined to comment for this story.

Editor has hunch

Costa decided the billing dispute had wider implications and was worthy of a story. In December, he assigned Bulletin reporter Heidi Hagemeier to investigate.

Hagemeier found additional bills from Northwest Trustee to U.S. Bancorp. Here too, Northwest Trustee charged the higher rate. One invoice listed Fennell as “payee.”

It is, of course, common for businesses to include in their customer bills a markup for subcontractor charges. A home remodeling general contractor, for instance, will often charge the homeowner a surcharge on top of the bills from plumbers, electricials and other subcontractors.

The key difference in the case of Northwest Trustee, Dillard argued, is disclosure, or the lack thereof. “When your remodeling contractor marked up the subcontractors’ bills, he did not falsely represent to you that the plumbers bill was $600 when in fact it was really only $550,” he said.

2004 case

Bar ethical rules hold lawyers to a particularly stringent standard, as Fennell learned firsthand in 2004. Then, the Washington State Bar determined that a company within the Northwest Trustee umbrella was charging clients a 50 to 100 percent markup for posting foreclosure notices at people’s homes without disclosing it.

The markup was small – about $50 to $100. But both state bars deemed the undisclosed markup dishonest and suspended Fennell’s license a year.

It’s dangerous, of course, for WesCom to go public with its suspicions about one of its largest advertisers. The down economy and a dispute with a main lender, Bank of America, prompted WesCom to file for Chapter 11 reorganization in August.

“It wasn’t tempting at all to say ‘We’re just going to continue to take their money,’” Costa said. “We couldn’t be complicit in that. We have an obligation to tell the public.”

Northwest Trustee’s Routh said the ethics complaint is another hardball tactic in a strained relationship. Routh and Fennell started up the Oregon Legal Journal in 2009 as an alternative for its own foreclosure notices, a move that threatened WesCom’s Deschutes County foreclosure legal notice business.

And while it’s fashionable to bash the foreclosure business, Routh said, it’s important to note that newspapers have not hesitated to profit off the trend. The more than 2,000 FEI foreclosure notices the Spokesman has run since 2009 generated more than $2 million in revenue.

On Jan. 17, Dillard filed his bar complaint. He accused Fennell of “conduct involving dishonesty, fraud, deceit or misrepresentation that reflects adversely on the practice of law.”

Dillard and Costa said they believe the markups they allege Northwest Trustee was involved in could be widespread and “add up to hundreds of thousands of dollars of secret profits in central Oregon and perhaps millions of dollars elsewhere.”

– Jeff Manning

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, Justin ruben, LOAN MODIFICATION, modification, moveon, National People's Action, New Bonttom LIne, Obama, protests, quiet title, rescission, RESPA, securitization, sherrod brown, TILA audit, trustee, WEISBAND ]]> http://livinglies.wordpress.com/2012/01/24/thousands-too-big-to-jail-protests-around-nation-against-settlement-proposed-by-obama-and-ags/feed/ 17 livinglies COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary http://livinglies.wordpress.com/2012/01/24/arkansas-foreclosures-tumble-after-judge-questions-title/ http://livinglies.wordpress.com/2012/01/24/arkansas-foreclosures-tumble-after-judge-questions-title/#comments Tue, 24 Jan 2012 20:36:47 +0000 Neil Garfield http://livinglies.wordpress.com/?p=16349 ]]> MOST POPULAR ARTICLES

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EDITOR’S COMMENT AND ANALYSIS: All efforts to date, with singular exceptions, seem to be directed at “settlements” that give short shrift to what was done to millions of homeowners, investors, states cities and towns. Pension funds have been hit hard, making it difficult to meet their obligations and causing some to tell pensioners that their pensions are going to be reduced or even eliminated.  The focus seems to be on stopping these criminal practices in the future. You robbed a convenience store? Just don’t do it again and give back 1% of the money you stole. You killed the proprietor? Don’t do it again.

Nobody is happy about the proposed settlement being  pushed by the White House except those attorney generals and justice department officials that would rather roll over than investigate and bring those who  committed criminal acts to justice. Anyone who was defrauded or otherwise destroyed by this bank-imposed mess deserves restitution — not some hollow promise that the Banks won’t do it again. That is promise that is never going to be kept and it offends the sensibilities of 80% of Americans.

Watching the political trail, observers note that politicians have largely turned a deaf ear to history in favor of what appears to them as good politics. Republicans barely mention the defective mortgage process, the fraudulent sale of bogus securities to institutional investors (i.e.., the managed funds that control our pension and savings), while Democrats wring their hands in impotence avoiding the issue.

The problem is money. Banks are controlling the narrative. They have the money to pay Newt Gingrich $1.6 million+ to help thwart investigations and pass legislation that keeps management safe from prosecution.

Politicians are out of touch with what is happening on the ground where people are looking to government to solve real problems instead of scoring what they think are public relations victories. Those victories will translate into defeat in November.

Polls show that the voting public doesn’t think the President, the Congress or the Courts have a clue about the reality of this situation. The reality is people hate the Banks, hate the bailouts, and hate the politicians who facilitated the bailouts. The truth is that people are suspicious of politicians and don’t believe that anyone new in office will do anything different than anyone claiming incumbency. People fear the future because they can see clearly that nobody is doing anything about it.

Gingrich surged in South Carolina and may continue his surge to become the Republican nominee for President. That was because he talked tough and gave some lip service to the plight of homeowners in foreclosure and homeowners who are walking away from their mortgages in record numbers — something approaching 50% of all foreclosures this year will come from people who are unwilling to pay for the the greed of Wall Street, adding millions more foreclosed homes to a housing market that is already depressed and wrecked beyond all recognition.

The answer is clearly that those who were robbed are due, under our existing set of laws, to get restitution — return of their money, their homes, their pensions and their lives. It is unacceptable for the Banks to keep any part of their ill-gotten gains.

The atmosphere is ripe for third party and little known candidates to run for offices that are essentially vacant or outright “occupied” by the Banks. Running against the Banks and for American jobs using all practical means at our disposal, running to bring back the exceptional character of American innovation and power in the marketplace of commerce and in the marketplace of ideas, will be seen as running for the American dream, whereas all others will be seen as running against it or they will be seen as indifferent to it.

This year, 2012, is a watershed year, if we make it that way. If the candidates come forward who want nothing except a better America, the voters will respond. As for the rest of the politicians, I won’t miss them, will you?

Obama May Highlight Foreclosure Settlement in State of the Union

by Jon Prior

President Obama could mention in the State of the Union address Tuesday new developments in the negotiation between mortgage servicers and government officials, according to two members of Congress.

“There seems to be evidence that he may do something,” said Sen. Sherrod Brown, D-Ohio, in a conference call with reporters Monday, “and we hope ‘the something’ is launching a wider investigation.”

Rep. Brad Miller, D-N.C., said rumors were floating around Washington that the president may even announce the settlement, though he couldn’t confirm that. The White House did not immediately comment. However, a spokesman for Iowa AG Tom Miller, said not to expect a full announcement this week.

In October 2010, evidence surfaced of mortgage servicers, processors and attorneys signing foreclosure affidavits en masse and without a proper review of the loan file as required by law in judicial states. Since those robo-signing allegations surfaced, negotiations to settle the case have labored between the banks, the remaining state attorneys general, the Justice Department and the Department of Housing and Urban Development.

Bank officials have said few if any foreclosures wrongfully took place as a result of the documentation issues. Ally Financial (GJM: 22.16 -0.18%) CEO Michael Carpenter has been the most vocal, even saying in a recent call with investors that he was willing to fight the government in court if the terms did not match what he believed the violations to be.

The president may be feeling the pressure from his base to make this the wide-scale crackdown on Wall Street that Americans have been calling for since the financial crisis struck in 2007.

Justin Ruben, executive director of the progressive group MoveOn.org, said Monday in a recent survey of previous Obama supporters, 60% said they would be unlikely to help him this November should the settlement become a “sweetheart deal for servicers.”

SEE FULL ARTICLE ON HOUSINGWIRE.COM

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

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 EDITOR’S NOTE: “Because GMAC Mortgage lacked standing to bring the ejectment action, the trial court never acquired subject-matter jurisdiction over the ejectment action. Accordingly, the judgment of the trial court is void and is hereby vacated. Moreover, because a void judgment will not support an appeal, we dismiss this appeal. Id.“

“GMAC Mortgage, like BAC in Sturdivant, had not been assigned the mortgage before it initiated foreclosure proceedings. Consequently, under our holding in Sturdivant, GMAC Mortgage lacked authority to foreclose the mortgage when it initiated the foreclosure proceedings,“

With those words tens of thousands of foreclosures, if not millions, are cast into doubt and, in Alabama — arguably the most conservative state in the nation, thousands of foreclosures can be overturned after eviction, after the sale at “auction” because if the creditor did not have proof of the sale of the loan (including payment, to complete the transaction, then they couldn’t very well initiate any Notice of Default, Notice of Sale, or submit a “credit bid” at auction, simply because they were not the creditor.

This is why homeowners, investors and banks looking to refinance property that was ever subject to claims of securitization and foreclosure must have the information contained in our COMBO title and Securitization report (see above). That house you think you lost or are in the process of losing or are in the process of buying or are in the process of refinancing needs to have these questions cleared up before anyone can proceed.

PATTERSON v. GMAC MORTGAGE, LLC
Alabama Court of Civil Appeals.
Decided January 20, 2012.

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EDITOR’S NOTE: All non-judicial states have a provision that allows for judicial foreclosure. It is one of the things that is often overlooked. My point has always been that the non-judicial statutes are unconstitutional only if they don’t allow judicial foreclosures and especially if the foreclosing party is allowed to prevail in a case in which the forecloser would otherwise not prevail in a judicial foreclosure. the trustee in non-judicial foreclosure case is a substitute for the court and must act with due diligence — another fact that is often overlooked.

The implication is that the trustee must act some independence for the protection of both the debtor and creditor. That is impossible when the new creditor appearing on the scene essentially files a substitution of trustee in which the “creditor” is appointed as trustee — a very common scenario that is not apparent on its face. The substitute trustee is often not a trustee and doesn’t qualify because it is controlled or even owned (Recontrust owned by BOA) by the new putative creditor.

The reference to “primarily” simply means that the rules of non-judicial foreclosure or the complexities of the case  make it such that a judicial foreclosure is the only way to resolve the issues of the case. Also commercial foreclosures are usually only allowed as judicial. Check the State statutes and see what they provide — the conditions under which non-judicial is permitted and the conditions under which judicial is mandated.

State by State Foreclosure Procedures

This is a general guide only, laws change and you need to check your state statutes for accurate, up to date procedures. Foreclosure type will most often be either judicial or non-judicial, if you have a specific question about a state process, you can ask it on the discussion board. Months to foreclose include the legal minimum required and the probable time length once foreclosure has begun. Deficiency judgments are available in some states if the lender loses money through the foreclosure process, if it is not practical for the lender to enforce a judgment, it will be listed. Homeowner redemption after foreclosure is possible in some states, the time periods are listed where available.

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EDITOR’S NOTE: In a scheme this blatantly disregarding law and common sense and a scheme that was so large as to constitute the largest economic crime in human history, it is unlikely that the “friends of Angela are limited to what we know now. My guess is that the list grew longer and longer and touched more and more people that were given “gifts” of preferential mortgage treatment, including reductions of principal. 

That the scheme went suddenly dark is usually a sign that some of these unknown people used their power and influence to kill the investigation or, unlikely, that indictments are near.

SEE FULL ARTICLE ON HOUSINGWIRE.COM

VIP MORTGAGE PROGRAM INVESTIGATION GOES DARK

by Jon Prior

An investigation by Rep. Darrell Issa, R-Calif., into the Countrywide VIP loan program that allegedly gave connected policymakers in Washington sweetened mortgages has become increasingly hushed in recent weeks.

The “Friends of Angelo” investigation has been waged over three years now. Previous subpoenaed information from members of Congress went to ethics committees in both chambers. But Sens. Kent Conrad, D-N.D., and former Sen. Christopher Dodd, D-Conn., were cleared by the committees of knowingly taking any such loans from Countrywide. Rep. Edolphus Towns, D-N.Y., denied any wrongdoing as well.

“We’re beyond ethics here,” Issa said during House oversight committee hearing September 2009 chaired by Cummings. “We are at a point where the American people at least should know who they gave money to or benefit to, how they did it, and so on.”

Frustrated with a lack of action from the committee — chaired by Towns at the time — Issa requested the panel hold hearings on the allegations rather than deferring to the ethics committee.

In February, as committee chair, Issa issued a subpoena for documents, emails and other information from Bank of America (BAC: 7.07 +1.58%), which bought Countrywide in 2008, regarding past dealings with members of Congress.

But in December, Issa went to the ethics committee with his findings and did not publicly disclose the names of the four lawmakers he found to be allegedly linked to the VIP program. Two Republicans from California, Reps. Howard McKeon and Elton Gallegly, acknowledged being two of the four Issa mentioned to the ethics committee.

No hearings have been scheduled over the findings, and Democrats claim the discovery of Republican links to the program prompted less public proceedings. But a spokesman for the committee said recent revelations have not altered the course of the investigation at all. With a Republican majority in the House, Issa as the committee’s chair can issue subpoenas and conduct interviews on his own accord, the spokesman said, changing the dynamic from when Issa needed to publicly call on members to move the investigation forward.

A spokesperson for McKeon said in a statement that McKeon was “shocked and angry to hear this” and denied ever meeting or speaking to former Countrywide CEO Angelo Mozilo.

In a letter to Issa Tuesday, Rep. Elijah Cummings, D-Md., reversed his earlier stances on the matter and called for more public disclosures from the investigation, even revealing some details from the subpoena. Documents gathered from the investigation show communications between Countrywide executives Stephen Brandt and Maritza Cruz as they prepared McKeon’s documents. Both Cruz’s and McKeon’s signatures are on the documents, according to Cummings.

Cummings also revealed an internal email at Countrywide from Brandt that alleges Mozilo’s role in approving McKeon’s loan.

“Per Angelo — ‘take off 1 point, no garbage fees, approve the loan and make it a no doc,’” Brandt wrote to staff, according to Cummings’ letter.

In the letter, the Maryland representative also said evidence from the subpoenas show Mike Farrell, a former lobbyist for the Mortgage Bankers Association, directed McKeon to the Countrywide VIP program.

A spokesperson for McKeon issued the following statement in response to Cummings’ letter: “Mr. McKeon is committed to transparency on this — he believes that the actions of Countrywide should be looked into and wants to get to the bottom of what Countrywide did to his loan

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

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EDITOR’S NOTE: Adding insult to injury it appears as though the great settlement will fall far short of the tobacco settlement, at a fraction of the nominal cost and with other people’s money used to pay for what should be criminal fines. Investors are increasingly going vocal about supporting principal reduction (or correction), but this is no license to use the money in the pool to finance a $25 billion settlement for wrongdoing by the Banks, not investors.

This settlement is a farce. Securitization was a farce. The mortgages were a farce. The foreclosures were a farce. The auctions were a farce. The credit bids at auction were a farce. And the evictions were a farce. They were and are all based upon upon fraudulent conduct and representations, inducing investors to lose money the moment they bought the bogus mortgage bonds and inducing the  borrowers to lose money the moment they bought the bogus loan products.

Somehow the Banks have kept the narrative going that foreclosures are good and that they were clear out the inventory of homes that are empty and offered for sale. That is a living lie. The foreclosures are false and each additional foreclosure adds to the mounting title problems as well as being a vehicle for shifting and transfer of wealth from those who earned it to those who simply want it.

Sherrod Brown: Banks Shouldn’t Be Able to Pay Foreclosure Fraud Settlement With Investor Money
By: David Dayen	Tweet

I brought up one of my chief problems with the possible foreclosure fraud settlement, the fact that AGs have already tried a settlement that mandated banks to deliver loan modifications to borrowers, and they flat-out didn’t do it. But Sen. Sherrod Brown offers up another problem. It turns out that, under the settlement, the banks could be allowed to pay out penalties using mortgage capital – basically the assets of investors, not anything that would harm the banks themselves. I wrote about this a couple weeks ago:

To be clear, a substantial number of investors would support principal reductions. They’ve come out and said so. They often end up in a better place with them than with foreclosure sales. But they would not have any say in the matter, according to this proposal, and the banks would get off scot-free for their fraudulent activities. The losses in the system would incur to the homeowners and the investors [...] not only is the $19-$25 billion figure inadequate to deal with the massive foreclosure crisis or the extent of the fraud perpetrated, but banks would have a way to wriggle out of some of the charges.

It’s good to see Brown pick up on this in his letter to the lead negotiators on the settlement, which I’ve put in full below. In addition to stating that the sum total for the settlement is inadequate, Brown criticizes this creative accounting where the banks wouldn’t even pay the penalty. Here’s an excerpt:

There are reports that the settlement could permit servicers to receive credit for writing down the value of mortgage-backed securities (MBS) owned by investors, without requiring servicers to reduce principal on the mortgages and second liens that they own. Ohio’s public employee pension funds have significant investments in MBS, and therefore have significant interest in the terms of the settlement. The reported settlement terms would allow banks to write down the investments of many of my constituents, without sacrificing anything. And, depending upon the scope, any settlement could potentially preclude these funds from pursuing actions to recoup more than $457 million in losses, allegedly due to credit ratings agencies improperly rating MBS. Such terms are unacceptable.

It’s a nice bit of framing to say that teachers and law enforcement officers and first responders would be penalized for Wall Street malfeasance. But as I’ve said, and as Brown said in this letter, investors often make out better with principal reduction than with a foreclosure sale at a massive loss. That’s not the issue. It’s that a penalty should actually hurt. And this won’t hurt a single servicer; they’ll be settling with someone else’s money. The settlement could rectify this simply by saying that the servicer must pick up the cost of the principal reduction and make the investors whole. But that probably won’t happen.

Brown also mentions that “State attorneys general tried this approach in a 2008 settlement with servicer Countrywide—it did not work.” Indeed! This is the point I’ve been trying to make. The settlement path is well-traveled and always unsatisfactory.

I would expect stakeholders to raise the volume on all of these issues in the next few days. They should stick to a few simple points. This settlement does almost nothing for most homeowners, the release of liability damages the rule of law, we tried this kind of settlement before and the banks just ignored their responsibilities, and the banks want to pay the penalty with someone else’s money.

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Alluring subprime debt can still poison investors

By Agnes T. Crane

See Full Story on Reuters

Subprime mortgage debt has got its mojo back. A growing number of investors reckon there’s life yet in the mortgage market’s toxic sludge from the crisis – and that now’s the time to buy. But buyers should tread carefully.

Yields are certainly enticing. Last year’s battering lopped up to a third off the value of subprime mortgage bonds, leaving some fetching 10 to 12 percent, according to Barclays estimates. U.S. junk bonds, by contrast, offer less than 8 percent. Moreover, while the U.S. housing market is hardly in a recovery, few think home prices will fall by more than a few percentage points from here.

Investment banks in particular look eager to scoop up the mortgage sludge. Credit Suisse has just bested Goldman Sachs and two other broker-dealers to a $7 billion slice of the subprime holdings the Federal Reserve took from American International Group in 2008 – though the central bank will not disclose the price until April. It’s not the first time this year the Swiss bank has been involved in the market: the bank’s senior managers are getting in on the act, too, voluntarily buying $450 million-worth of securities and putting them into a fund of mostly subprime bonds that the bank set up in 2008 to pay staff bonuses.

Less swift investors may be focusing on the chance of a good deal of supply coming onto the market. All in, some $1.2 trillion is walled up in U.S. banks, insurers, hedge funds and European firms, according to Barclays. Banks, especially, may be big sellers as Basel III capital rules are onerous for securitized debt. Europe’s lenders hold some $70 billion, with up to $20 billion potentially for sale, while U.S. banks are sitting on around $200 billion, according to Barclays’ tally.

But subprime mortgage bonds have long been an illiquid asset. The analysis required to price such complex securities makes trading them incredibly difficult. And any attempt to sell more than a small amount can quickly whack prices. That happened last year when the Fed used public auctions to get rid of some of its AIG waste and ended up offloading less than it hoped.

Buyers with a longer-term investment horizon of a couple of years or more can usually stomach some short-term volatility, especially if they don’t need to mark to market. But those who are looking for a quick fix risk getting slimed.