Foreclosures on Nonexistent Mortgages

I have frequently commented that one of the first things I learned on Wall Street was the maxim that the more complicated the “product” the more the buyer is forced to rely on the seller for information. Michael Lewis, in his new book, focuses on high frequency trading — a term that is not understood by most people, even if they work on Wall Street. The way it works is that the computers are able to sort out buy or sell orders, aggregate them and very accurately predict an uptick or down-tick in a stock or bond.

Then the same investment bank that is taking your order to buy or sell submits its own order ahead of yours. They are virtually guaranteed a profit, at your expense, although the impact on individual investors is small. Aggregating those profits amounts to a private tax on large and small investors amounting to billions of dollars, according to Lewis and I agree.

As Lewis points out, the trader knows nothing about what happens after they place an order. And it is the complexity of technology and practices that makes Wall Street behavior so opaque — clouded in a veil of secrecy that is virtually impenetrable to even the regulators. That opacity first showed up decades ago as Wall Street started promoting increasing complex investments. Eventually they evolved to collateralized debt obligations (CDO’s) and those evolved into what became known as the mortgage crisis.

in the case of mortgage CDO’s, once again the investors knew nothing about what happened after they placed their order and paid for it. Once again, the Wall Street firms were one step ahead of them, claiming ownership of (1) the money that investors paid, (2) the mortgage bonds the investors thought they were buying and (3) the loans the investors thought were being financed through REMIC trusts that issued the mortgage bonds.

Like high frequency trading, the investor receives a report that is devoid of any of the details of what the investment bank actually did with their money, when they bought or originated a mortgage, through what entity,  for how much and what terms. The blending of millions of mortgages enabled the investment banks to create reports that looked good but completely hid the vulnerability of the investors, who were continuing to buy mortgage bonds based upon those reports.

The truth is that in most cases the investment banks took the investors money and didn’t follow any of the rules set forth in the CDO documents — but used those documents when it suited them to make even more money, creating the illusion that loans had been securitized when in fact the securitization vehicle (REMIC Trust) had been completely ignored.

There were several scenarios under which property and homeowners were made vulnerable to foreclosure even if they had no mortgage on their property. A recent story about an elderly couple coming “home” to find their door padlocked, possessions removed and then the devastating news that their home had been sold at foreclosure auction is an example of the extreme risk of this system to ALL homeowners, whether they have or had a mortgage or not. This particular couple had paid off their mortgage 15 years ago. The bank who foreclosed on the nonexistent mortgage and the recovery company that invaded their home said it was a mistake. Their will be a confidential settlement where once again the veil of secrecy will be raised.

That type of “mistake” was a once in a million possibility before Wall Street directly entered the mortgage loan business. So why have we read so many stories about foreclosures where there was no mortgage, or was no default, or where the mortgage loan was with someone other than the party who foreclosed?

The answer lies in how these properties enter the system. When a bank sells its portfolio of loans into the system of aggregation of loans, they might accidentally or intentionally include loans for which they had already received full payment. Maybe they issued a satisfaction maybe they didn’t. It might also include loans where life insurance or PMI paid off the loan.

Or, as is frequently the case, the “loan” was sold after the homeowner was merely investigating the possibility of a mortgage or reverse mortgage. As soon as they made application, since approval was certain, the “originator” entered the data into a platform maintained by the aggregator, like Countrywide, where it was included in some “securitization package.

If the loan closed then it was frequently sold again with the new dates and data, so it would like like a different loan. Then the investment banks, posing as the lenders, obtained insurance, TARP, guarantee proceeds and other payments from “co-obligors” on each version of the loan that was sold, thus essentially creating the equivalent of new sales on loans that were guaranteed to be foreclosed either because there was no mortgage or because the terms were impossible for the borrower to satisfy.

The LPS roulette wheel in Jacksonville is the hub where it is decided WHO will be the foreclosing party and for HOW MUCH they will claim is owed, without any allowance for the multiple sales, proceeds of insurance, FDIC loss sharing, actual ownership of the loans or anything else. Despite numerous studies by those in charge of property records and academic studies, the beat goes on, foreclosing by entities who are “strangers to the transaction” (San Francisco study), on documents that were intentionally destroyed (Catherine Ann Porter study at University of Iowa), against homeowners who had no idea what was going on, using the money of investors who had no idea what was going on, and all based upon a triple tiered documentary system where the contractual meeting of the minds could never occur.

The first tier was the Prospectus and Pooling and Servicing Agreement that was used to obtain money from investors under false pretenses.

The second tier consisted of a whole subset of agreements, contracts, insurance, guarantees all payable to the investment banks instead of the investors.

And the third tier was the “closing documents” in which the borrower, contrary to Federal (TILA), state and common law was as clueless as the investors as to what was really happening, the compensation to intermediaries and the claims of ownership that would later be revealed despite the borrower’s receipt of “disclosure” of the identity of his lender and the terms of compensation by all people associated with the origination of the loan.

The beauty of this plan for Wall Street is that nobody from any of the tiers could make direct claims to the benefits of any of the contracts. It has also enabled then to foreclose more than once on the same home in the name of different creditors, making double claims for guarantee from Fannie Mae, Freddie Mac, FDIC loss sharing, insurance and credit default swaps.

The ugly side of the plan is still veiled, for the most part in secrecy. even when the homeowner gets close in court, there is a confidential settlement, sometimes for millions of dollars to keep the lawyer and the homeowner from disclosing the terms or the reasons why millions of dollars was paid to a homeowner to keep his mouth shut on a loan that was only $200,000 at origination.

This is exactly why I tell people that most of the time their case will be settled either in discovery where a Judge agrees you are entitled to peak behind the curtain, or at trial where it becomes apparent that the witness who is “familiar” with the corporate records really knows nothing and ahs nothing about the the real history of the loan transaction.

PICK-A-PARTY — BOA – RED OAK – Countrywide Merger Revealed in all its “Glory”

Maybe now I will get something other than a blank look when I referred to anomalies in what appears to be the merger of Bank of America with Countrywide. For about 18 months now I have been saying that there is something wrong with that report, because the documents in the public domain show two things, to wit: first, that BAC was merely a name change for Countrywide;  and second, it appears to be a merger between Red Oak Merger Corp. and Countrywide.  My conclusion was that Bank of America was claiming what it wanted depending upon the circumstances and disregarding the actual transactions. In fact, in various court actions ranging from foreclosures to investor and insurer lawsuits over bogus mortgage bonds, Bank of America was submitting documents referring to agreements that referred to fictional transactions.

This behavior should come as no surprise to anyone who has been following the actions and statements of the major banks throughout the financial crisis.  The various positions asserted by Bank of America in court actions around the country contradict each other and are obviously intended to mislead the court. It is for that reason that I have maintained the position that any benefit claimed by Bank of America by virtue of its alleged merger with Countrywide should be tested thoroughly in discovery.  Lawyers, judges and borrowers should stop assuming that if the bank says something it must be true. My position is that if a bank says something it probably is not true or it is misleading or both.

This is not merely some technical objection. This issue runs to the heart of our title system. There are many of us who are sending up warning flares. Judges, attorneys, title agents, and other experts have examined this issue and concluded that we are headed for a crash of the recording system that will undermine the title and priority of owners and lenders.

Thanks to one of my readers, I obtained the following quote and link which requires substantial study and analysis to see how this will impact any case in which  your opposition is Bank of America.

BAC is not just a “shareholder” of
Countrywide, as it argued to the Court at the outset of the case.
Then from Charles Koppa on the idiotic practice of allowing a controlled company or subsidiary be substituted for the trustee on the deed of trust on record — namely in this case Bank of America (AGAIN) who owns and controls Recontrust. SO in this case, like nearly all of the non-judicial situations, pick-a-party: the beneficiary on the deed of trust vanishes and is replaced with a “new beneficiary” by fiat more than anything in fact. Then the new beneficiary effectively names itself as the new trustee on the deed of trust. THIS PRACTICE SHOULD BE CHALLENGED AND NOW IS A GOOD TIME TO DO IT. THE COURTS ARE GETTING WISE TO THESE ANTICS.
From Koppa:
ReconTrust is “owned” by Bank of America Corporation.
 
Bank National Associations are governed by The Office of Controller of The Currency.
Anything on ReconTrust, NA?  It should be Governed by OCC, part of the US Treasury Dept (NOT the SEC)?
 
If ReconTrust is a subsidiary of Bank of America Corporation…. This is NOT Bank of America, “NA”or “BANA”.  So, which are THEY??
How can one “NA”= National Association, own a second “NA”.  Looks like self-dealing to us whistleblowers! 
Jes Thinkin: Who receives proceeds of lien foreclosure sales conducted by ReconTrust  which become REO re-sales of Land Titles @ 100% profit??
Who receives proceeds from Trustee Sales to third parties where “bid purchase proceeds” are delivered to ReconTrust @ 100% profit (to WHO)???
 
OPINION 1: Add common ownership by BANA of LandSafe Title for “corrections” on all ReconTrust foreclosure land title transactions; means possible crimes of “Conversion”.  Borrowers real property Trust Deed/Mortgage (a hard record asset) transfers via MERS/REMIC and off-balance sheet accounting into purported RMBS Products via Bank of America Securities, etc. as a non-transparent new soft asset class, which funds lien security investment credits without reference to the borrower.
 
Opinion 2: Countrywide/BAC converts “loan obligations debt” with homeowners… into pre-funded aggregated “securities credits” assigned to affiliated servicers by the Sponsor of the SEC Prospectus (Like BANA).  Upon loan default servicer changes hats and squires foreclosure liquidation of the fabricated “lien security” (under SEC).  This delivers “huge profits” beyond the REMIC Trust —- via BAC Home Loans and “controlled servicers” named by the Shadow Sponsor.  Affiliated servicer names ReconTrust as a self-substituted Foreclosure Trustee which seems to be clear of all regulation and criminality!!
 
Opinion 3:  Double income on a single transaction = “Embezzlement”.  20% Real Estate Equity is confiscated into the RBMS via “identity theft”of innocent homeowners using proceeds to the REMIC via the FED discount process! 
 
Opinion 4:  Vertical integration of all steps accomplishes “conversion for purposes of embezzlement”, which violates Anti-Trust Act, RICO, mail/wire fraud, etc.  What part of organized crime might IRS, OCC and SEC regulators actually understand when the California18 brings legal action via the evidence against ReconTrust prepared in vain for CA-AG Harris a year ago?
 
What is your opinion?
 
Charles J. Koppa 760-787-9966, www.TitleTrail.com

Quicken Loans Cut to the Quick for $3.5 million on $180k Loan

“[Customers and employees] accuse the company of using high-pressure salesmanship to target elderly and vulnerable homeowners, as well as misleading borrowers about their loans, and falsifying property appraisals and other information to push through bad deals….

A group of ex-employees, meanwhile, have gone to federal court to accuse Quicken of abusing workers and customers alike. In court papers, former salespeople claim Quicken executives managed by bullying and intimidation, pressuring them to falsify borrowers’ incomes on loan applications and to push overpriced deals on desperate or unwary homeowners.”

Internet Store Notice: As requested by customer service, this is to explain the use of the COMBO, Consultation and Expert Declaration. The only reason they are separate is that too many people only wanted or could only afford one or the other — all three should be purchased. The Combo is a road map for the attorney to set up his file and start drafting the appropriate pleadings. It reveals defects in the title chain and inferentially in the money chain and provides the facts relative to making specific allegations concerning securitization issues. The consultation looks at your specific case and gives the benefit of litigation support consultation and advice that I can give to lawyers but I cannot give to pro se litigants. The expert declaration is my explanation to the Court of the findings of the forensic analysis. It is rare that I am actually called as a witness apparently because the cases are settled before a hearing at which evidence is taken.
If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services. Get advice from attorneys licensed in the jurisdiction in which your property is located. We do provide litigation support — but only for licensed attorneys.
See LivingLies Store: Reports and Analysis

Editor’s Comment and Analysis: Quicken is one of those company’s that looks like a lender but isn’t. They say they are the bank when they are not. And they have been as predatory or more so than anyone else in the marketplace, despite the PR campaign of Dan Gilbert, formerly of Merrill Lynch Bond Trading department, who now heads up the company after selling it and then buying it back. They also have an “appraisal” company that is called Cornerstone Appraisals, that shares in the appraisal fees a fact missed by every one of the lawsuits I have seen.

The Quicken two step generally involved the company as an aggressive originator and nowhere is their aggressiveness more apparent than in the lawsuit than in the lawsuit described below. The one fact that everyone still has wrong however is that there is an assumption that Quicken loaned the money to the borrower. In fact, Quicken was neither the underwriter nor the lender and never had a risk of loss on any of the loans it originated. It used the Countrywide IT platform to underwrite the loans, inflated appraisals to increase its fees, and lured borrowers into deals that were impossible — like the lawsuit described below where a piece of property was worth about 1/6th of the original appraisal amount. AND when even the borrower thought the appraisal was ridiculous and refused to sign the loan, they reduced the appraisal and loan so it was still more than 4x the value of the property.

After that the closing funds came from an investment bank, not Quicken Loans or even Countrywide. The investor money was applied to the closing but the investors received nothing of what they were promised. They didn’t get a note or a mortgage. THAT paperwork went to naked nominees of the investment bank so they could steal, trade and create the largest inflation of pseudo-dollars in the shadow banking world that we have ever known — ten times the actual money supply.

Quicken Loans arrogantly rolled the dice and ended up with punitive damages in the millions and a large fee award top the the law firm of Bordas and Bordas in Wheeling Ohio. The Bordas firm proved many points worth mentioning.

  1. Appraisal fraud was at the heart of the mortgage meltdown. If industry standards were applied as stated in the petition of more than 8,000 licensed appraisers in 2005, these deals would never have happened and none of the foreclosures would have happened. And let’s remember that the appraisal is a representation of the LENDER not the borrower.
  2. Cases taken on contingency fee represent a huge share of commerce in the legal profession. My opinion is that liability and damages are starting to form a pattern and that cases against lenders for wrongful foreclosure, slander of title, fraud, RICO and other causes of action will start settling like PI cases currently do, which is why so many lawyers go into personal injury law.
  3. Judicial recognition of the overbearing and egregiously fraudulent behavior of the banks against unwary or unsophisticated homeowners is at the brink of total acceptance.
  4. As courts begin to zoom in on these closings they don’t like what they see. None of it makes sense because none of it is legal.
  5. Courts don’t like to be played as the fool or tool of a gangster perpetrating a large scale fraud. They get testy when pushed, and that is exactly what happened in Ohio.
  6. Most importantly, plain old good lawyering will win the day if you are prepared, understand the material and practice your presentation. Jason Causey, Jim Bordas, and their legal team deserve many kudos for taking on a company whose PR image was squeaky clean and then showing the dirt underneath — just as the Trusts were gilded with a few good looking loans and the rest, underneath, were toxic waste.

“Quicken ordered an appraisal of the home that Jefferson was interested in refinancing and the appraisal request included an estimated value of the subject property of $262,500. The trial court would later conclude the value of the property was $46,000.

“Appraiser Dewey Guida of Appraisals Unlimited, Inc. valued the property at $181,700 and after Jefferson backed out of the process for a few weeks because of her concern that she would be unable to afford the payments, Johnson was able to close her on a $144,800 loan.

“Although Jefferson had initially received a written Good Faith Estimate for a loan in the amount of $112.850 with a 2.5 “loan discount points” and no balloon feature, this much larger loan actually charged her for 4.0 points, while only giving her 2.5, and had a balloon payment after 30 years of $107,015.71, the amount of which was not disclosed, according to court documents.”

 

  1. Quicken Loans ordered to pay $3.5M in mortgage case, appeals

    wvrecord.com › Ohio County

    Aug 7, 2013 – WHEELING – A judgment in a fraud lawsuit against Quicken Loans has only gotten bigger since an appeal to the state Supreme Court, so the 

  2. Mortgage Mess: Why Quicken Loans May Not Be as Squeaky Clean

    http://www.cbsnews.com/…/mortgage-mess-why-quicken-loans-may-not-be-as…

    Feb 8, 2011 – Quicken Loans‘ lending practices may not be as exemplary as the company contends. A federal lawsuit starting in Detroit today and other legal 

  3. Ripoff Report | quicken loans directory of Complaints & Reviews

    Ripoff Report | Complaints Reviews Scams Lawsuits Frauds Reported. Company Directory | quicken-loans. Approximately 342 Reports Found Showing 1-25.

Perils of Pooling: OneWest

Apparently my article yesterday hit a nerve. NO I wasn’t saying that the only problems were with BofA and Chase. OneWest is another example. Keep in mind that the sole source of information to regulators and the courts are the ONLY people who understand mergers and acquisitions. So it is a little like one of those TV shows where the only way they can get an arrest and conviction is for the perpetrator or suspect to confess. In this case, they “confess” all kinds of things to gain credibility and then lead the agencies and judicial system down a rabbit hole which is now a well trodden path. So many people have gone down that hole that most people that is the way to get to the truth. It isn’t. It is part of a carefully constructed series of complex conflicting lies designed carefully by some very smart lawyers who understand not just the law but the way the law works. The latter is how they are getting away with it.

Back to OneWest, which we have detailed in the past.

The FDIC has posted the agreement at http://www.fdic.gov/about/freedom/IndyMacMasterPurchaseAgrmt.pdf

OneWest was created almost literally overnight (actually over a weekend) by some highly placed players from Wall Street. There is an 80% loss sharing arrangement with the FDIC and yes, there appears to be some grey area about ownership of the loans because of that loss sharing agreement. But the evidence of a transaction in which the loans were actually purchased by a brand new entity that was essentially unfunded is completely absent. And that is because OneWest and Deutsch take the position that the loans were securitized despite IndyMac’s assurances to the contrary. The only loans in which OneWest appears to be a player are those in which the loan was subject to (false) claims of securitization. No money went to the trustee, no money went to the trust, no assets went into the pool because the REMIC asset pool lacked the funding to purchase any assets.

Add to that a few facts. Deutsch is usually the “trustee”of the REMIC asset pool, but Reynaldo Reyes says he has nothing to do. He has no trust accounts and makes no decisions and performs no actions. Sound familiar. I have him on tape and his deposition has already been taken and publicized on the internet by others. Reyes says the whole arrangement is “counter-intuitive” (a very creative way of saying it is a lie). It is up to the servicer (OneWest) to decide what loans are subject to modification, mediation or even reinstatement. It is up to the servicer as to when to foreclose. And the servicer here is OneWest while the Master Servicer appears to be the investment banking arm of Deutsch, although I do not have that confirmed.

The way Reyes speaks about it the whole thing ALMOST makes sense. That is, until you start thinking about it. If Deutsch Bank has an extensive trust subsidiary, which it does, then why is a VP of asset management in control of the trust operations of the REMIC asset pools. Answer: because there are no funded trusts and there are no asset pools with assets. Hence any statement by OneWest that it is the owner of the loan is untrue as is the allegation that Deutsch is the trustee because all trustee duties have been delegated to the servicer. That leaves the investor with an empty box for an asset pool and no trustee or manager or even an agent to to actually know what is going on or who is monitoring their money and investments.

Note that like BOfA using Red Oak Merger Corp., there is the creation of a fictional entity that was not used by the name of, no kidding, “Holdco.” This is to shield OneWest from certain liabilities as a lender. Legally it doesn’t work that way but practically it generally does work that way because judges listen to bank lawyers to tell them what all this means. That is like asking a 1st degree murder defendant to explain to the jury the meaning of reasonable doubt.

Now be careful here because there is a “loan sale” agreement referenced in the package posted by the FDIC. But it refers to an exhibit F. There is no exhibit F and like the ambiguous agreements with the FDIC in Countrywide and Washington mutual, there are words there, but they don’t really say anything. Suffice it to say that despite some fabricated documents to the contrary, there is no evidence I have seen that any loan  receivable was transferred to or from a REMIC asset pool, Indy-mac, or Hold-co.

These people were not stupid and they are not idiots. And their lawyers are pretty smart too. They know that with the presumption of a funded loan in existence, the banks could pretty much get away with saying anything they wanted about the ownership, the identity of the creditor and the ability to make a credit bid at the auction of a property that should never have been foreclosed in the first instance — and certainly not by these people.

But if you dig just a little deeper you will see that the banks are represented to the regulatory authorities that they own the bonds (not true because the bonds were created and issued to specific investors who bought them); thus they include the bonds as significant items on their balance sheet which allows them to be called mega banks or too big to fail when in fact they have a tiny fraction of the reserve requirements of the Federal Reserve which follows the Basel accords.

Then when you turn your head and peak into courtrooms you find the same banks claiming ownership of the loan receivable, which was created when the funding occurred at the “closing” of the loan. They know they are taking inconsistent positions but most judges lack the sophistication to pinpoint the inconsistency. And that is how 5 million people lost their homes.

On the one hand the banks are claiming there was no fraud in the issuance of mortgage backed bonds by a REMIC asset pool formed as a trust. In fact, they say the loans were transferred into the REMIC asset pool. Which means that ownership of the mortgage bonds is ownership of the loans — at least that is what the paperwork shows that was used to sell pension funds on buying these worthless bogus bonds. Then they turn around and come to court as the “holder” and get a foreclosure sale in which the bank submits the credit bid and buys the property without spending one dime. What they have done is, in lay terms, offered the debt to pay for the property. But the debt, according to the same people is owned by the investors or the REMIC trust, not the banks.

Then they turn to the insurers and counterparties on credit default swaps, and the Federal reserve that is buying these bonds and they say that the banks own the bonds, have an insurable interest, and should receive the proceeds of payments instead of the investors who actually put up the money. And then they say in court that the account receivable is unpaid, there is a default, and therefore the home should be foreclosed. What they have done is create a chaotic complex of lies and turn it into an illusion that changes colors and density depending upon whom the banks are talking with.

There is no default on the account receivable if the account was paid, regardless of who paid it — as long as it was really paid to either the owner of the loan receivable or the authorized agent of the owner (i.e., the investor/lender). And so it is paid. And if paid, there can be no action on the note because the loan receivable has been satisfied. There can be no action on the mortgage because it was never a perfected lien and because the loan receivable was extinguished by PAYMENT. You can’t use the mortgage to enforce the note which is evidence for enforcement of a debt when the debt no longer exists.

Judges are confused. The borrower must owe money to someone so why not simply enter judgment and let the creditors sort it out amongst themselves. The answer is because that is not the rule of law and if a creditor has a claim against the borrower it should be brought by that creditor not some stranger to the transaction whose actions are stripping the real creditor of lien rights and collection rights over the debt. What the courts are doing, by analogy, is saying that you must have killed someone when you fired that gun so we will dispense with evidence and a jury and proceed to sentencing. We will let the people in the crowd decide who is the victim who can bring a wrongful death action against you even if we don’t even know when the gun was fired and who pulled the trigger. In the meanwhile you are sentenced to death or life in prison under our rocket docket for murders of unknown persons.

 

 

Perils of Pooling

We hold these truths to be self evident: that Chase never acquired any loans from Washington Mutual and that Bank of America never acquired any loans from Countrywide.  A review of the merger documents approved by the FDIC reveals that neither Chase nor Bank of America wanted to assume any liabilities in connection with the lending operations of Washington Mutual or Countrywide, respectively. The loans were expressly left out of the agreement which is available for everyone to see on the FDIC website in the reading room.

With the exception of a few instances in which the court pointed out that Chase only acquired servicing rights and that Bank of America may not have acquired any rights, judges have been rubber-stamping foreclosures initiated by Bank of America (or entities controlled by Bank of America like Recontrust) under the assumption that Bank of America must be the owner of the Countrywide mortgages. The same is true  for judges who have been rubber-stamping foreclosures initiated by Chase under the assumption that Chase must be the owner of the Washington Mutual mortgages. After all, if they don’t own the mortgages then who does? The answer is that in nearly all cases either BofA nor Countrywide and neither Chase nor WAMU owned the loans and their financial statements prove it.

Not only have the judges been rubber-stamping the foreclosures and participating in a scheme that is correcting our title records nationwide, the entry of judgment against the borrower and for Bank of America or for Chase completes the theft of the investors money that was used for exorbitant fees, profits and bonuses and then finally for the funding of the origination or acquisition of loans. The fact that the REMIC trust was ignored in both form and content has also been the subject of the defective rulings from the bench.  Not only have the courts ruled against the borrowers and for the banks, they have even ruled against the presentation of evidence that would have shown that the investors were being stripped of their expected lien rights and then stripped again on their expected return of principal and interest, and then barred by collateral estoppel from ever bringing it up.

Since most of the foreclosures have emanated from Bank of America and Chase it is a fair assumption that most of the foreclosure sales were void because no valid bid was received in exchange for the deed. The property is still owned by the original homeowner In any case where a credit bid was submitted by Bank of America or Chase on any loan in which either Countrywide Mortgage or Washington Mutual was involved. I might add that the Federal Reserve in New York is completely aware of these facts and is steadfastly refusing to reveal the truth to the public or even to the homeowners whose homes were illegally and wrongfully foreclosed by Bank of America and Chase for a loan where both Bank of America and Chase and their chain of affiliates had been paid multiple times on a loan receivable account owned by the source of the funds, to wit: the investors who thought they were buying mortgage bonds from a funded legally organized REMIC trust.

CAVEAT:  The courts are mainly concerned with finality. In many states there may be a statute of limitations to challenge a void deed from an auction sale. Check with an attorney who is licensed in the jurisdiction in which your property is located before you take any action or make any decision.

It seems crazy to think that someone could apply for a loan and get the benefits of funding without ever being required to pay it back to the lender.  But that is exactly what is happening as a result of defective court decisions.  The lender consists of a group of investors including pension funds that are now underfunded as a result of the civil and possibly criminal theft of funds by Bank of America and Chase or the investment firms acquired by them.

Homeowners are being forced to pay Bank of America and Chase rather than the investors who actually advanced the funds. Bank of America and Chase actively interfere and Stonewall whenever a borrower or an investor seeks to peek under the hood to see what is in the box. There is nothing in the box. The deal was always between the investors and homeowners. The bank’s lied. They pretended that they were the lenders when in fact there were only the intermediaries. The result was that all the payments received from borrowers, government, the federal reserve, insurers, guarantors, co-obligors, and counterparties on credit  default swaps went to the accounts of Bank of America and Chase rather than to the investors.

 By holding back the money, Bank of America and Chase, just like other banks created the illusion of a default and since they had created the illusion of ownership of the default they took the money instead of handing it over to the investors. You read the lawsuits that have been filed by  investors against the investment banks that sold them worthless mortgage bonds issued by an empty asset pool you will see that they allege affirmatively that the notes and mortgages are unenforceable.

That makes it unanimous! Both the lender and the borrower agree that the documentation is defective and unenforceable. Both the lender and the borrower agree that the lender should get paid.  And both the lender and the borrower agree that the lender is entitled to be paid only once for the money advanced by the lender.  And both the lender and the borrower agree that the banks are holding trillions of dollars in money that should have been used to pay off the account receivable owned by the investors.

With the lender paid off or where the account receivable has been reduced by payments to the banks who were acting as agents of the investors but breaching their duties to the investors, the amount payable by the homeowner as a borrower would be correspondingly reduced or eliminated. In fact, under the requirements of the federal truth in lending act, the overpayment is due to the borrower for failure to disclose the true facts of the transaction. In fact, under federal law, treble damages, legal interest, attorneys fees and costs probably also apply.

U.S. v BofA: Countrywide Eliminated Underwriting Standards

EDITOR’S NOTE:  The complaint below is from the United States Atty. for the Southern District of New York gives us a clear picture of the processing of loans without any underwriting standards at Countrywide and other aggregators across the country. The complaint is not authority, but it is a guide for what you can allege and what you can ask about in discovery.

It is time to ask the nuclear question, to wit: in light of the revelations that are already in the public domain with dozens of whistleblowers, is it not reasonable to assume that the aggregators not only knew about fabricated, forged and inaccurate loan applications, but actually intended that result. I ask that question because of the number of attempted prosecutions of people for mortgage fraud, when mortgage fraud was exactly what Countrywide wanted.  They clearly wanted the highest possible volume of loans approved under circumstances where it can only be assumed that they wanted those loans to fail, in order to be paid by insurers, counterparties on credit default swaps, the federal government in bailouts and now the Federal Reserve which appears to be  buying $85 billion in worthless mortgage bonds from the financial industry every month.

  Thus Wall Street collected money from the investors (and took a share of that and put it in their pocket), collected money from borrowers (and took a share of that and put it in their pocket), collected money from insurers which went only into their pockets, collected money from the proceeds of credit default swaps which went only into their pockets,  collected money from the government in the bank bailouts, collected money from the government sponsored entities who guarantee the loans, and are collecting money from the Federal Reserve who are buying worthless mortgage bonds which have little or no interest in any secured loan, residential or otherwise. On top of all of that Wall Street has taken the homes of more than 5 million families and is expected to take the homes of another 5 million families —  supposedly to cover the “loss”  on mortgage bonds they never owned and mortgage loans they never owned.

And then you have the real question, to wit: why would banks create a scheme that originated loans, most of which were destined to fail in one fashion or another? And the answer is unavoidable and incontestable: they did it because that was the way they could make the most money.

And then the second real question, to wit: why would banks want foreclosures but not want the property?  And the related question is why would they want a foreclosure under circumstances where a modification would produce far greater proceeds to mitigate the loss on a loan that a foreclosure? And the related question to that is why would the largest bank in the world adopt a policy of fraud in order to guide people into foreclosure deceiving them into thinking that they were getting a modification? And the final question related to all of that is why with the modification not become permanent after the borrower has done everything correctly during the trial period?  The answer is extremely simple: the foreclosure process is the largest cover-up in history for the largest economic crime in history; it provides cover for all of the defects, multiple payments that were already received and never disclosed, and the diversion of money and property from investors and homeowners.

Here are some relevant allegations in the complaint:

HUSTLE: A PLAN TO DESTROY HOMEOWNERS AND DEFRAUD INVESTORS: The U.S. Government in its complaint filed against Bank of America details the specific ways in which Countrywide was operating when loans were originated.

“Countrywide rolled out a new streamlined loan origination model is called the “hustle.”

In order to increase the speed at which it originated and sold loans to the GSES,  countrywide eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated, leading to rampant instances of fraud and other serious lung defects all while countrywide was informing the GSES that it had tightened its underwriting guidelines.”

Countrywide eliminated underwriter review even from many high risk loans. In lieu of underwriter review, countrywide assigned critical underwriting tasks to loan processors who were previously considered unqualified even to answer borrower questions. At the same time, countrywide or eliminated previously mandatory checklists that provided instructions on how to perform these underwriting tasks. Under the Hustle, such instructions on proper underwriting were considered nothing more than unnecessary forms that would slow the swim lane down.

Countrywide also eliminated the position of compliance specialist, an individual previously responsible for conducting a final, independent check on alone to ensure that all conditions on the loans approval were satisfied prior to funding.

The Hustle began in full force in approximately August 2007.

Countrywide also concealed the quality control reports on Hustle loans demonstrating that instances of fraud and other material defects (i.e. defects making the loans in eligible for investors sell) were legion. Countrywide’s own quality control reports identified material defect rate of nearly 40% in certain months, rates that were nearly 10 times the industry-standard defect rate of approximately 4%.

U.S. v. BOA False Claims Act complaint, SDNY 10-25-2012

ENCORE BANK v. BOA, NA (2013) Effective as of July 1, 2008, the parent company of BofA, Bank of America Corporation, acquired the parent corporation of Countrywide, Countrywide Financial Corporatio

 

Trustees on REMICs Face a World of Hurt

DID YOU EVER WONDER WHY TRUSTEES INSTRUCTED THE INVESTMENT BANKS TO NOT USE THEIR NAME IN FORECLOSURES?

Editor’s Comment: Finally the questions are spreading over the entire map of the false securitization of loans and the diversion of money, securities and property from investors and homeowners. Read the article below, and see if you smell the stink rising from the financial sector. It is time for the government to come clean and tell us that they were defrauded by TARP, the bank bailouts, and the privileges extended to the major banks. They didn’t save the financial sector they crowned it king over all the world.

Nowhere is that more evident than when you drill down on the so-called “trustees” of the so-called “trusts” that were “backed” by mortgage loans that didn’t exist or that were already owned by someone else. The failure of trustees to exercise any power or control over securitization or to even ask a question about the mortgage bonds and the underlying loans was no accident. When the whistle blowers come out on this one it will clarify the situation. Deutsch, US Bank, Bank of New York accepted fees for the sole purpose of being named as trustees with the understanding that they would do nothing. They were happy to receive the fees and they knew their names were being used to create the illusion of authenticity when the bonds were “Sold” to investors.

One of the next big revelations is going to be how the money from investors was quickly spirited away from the trustee and directly into the pockets of the investment bankers who sold them. The Trustee didn’t need a trust account because no money was paid to any “trust” on which it was named the trustee. Not having any money they obviously were not called upon to sign a check or issue a wire transfer from any account because there was no account. This was key to the PONZI scheme.

If the Trustees received money for the “trust” then they would be required under all kinds of laws and regulations to act like a trustee. With no assets in a named trustee they could hardly be required to do anything since it was an unfunded trust and everyone knows that an unfunded trust is no trust at all even if it exists on paper.

Of course if they had received the money as trustee, they would have wanted more money to act like a trustee. But that is just the tip of the iceberg. If they had received the money from investors then they would have spent it on acquiring mortgages. And if they were acquiring mortgages as trustee they would have peeked under the hood to see if there was any loan there. to the extent that the loans were non-confirming loans for stable funds (heavily regulated pension funds) they would rejected many of the loans.

The real interesting pattern here is what would have happened if they did purchase the loans. Well then — and follow this because your house depends upon it — if they HAD purchased the loans for the “trust” there would have no need for MERS, no trading in the mortgages, and no trading on the mortgage bonds except that the insurance would have been paid to the investors like they thought it would. The Federal Reserve would not be buying billions of dollars in “mortgage bonds” per month because there would be no need — because there would be no emergency.

If they HAD purchased the loans, then they would have a recorded interest, under the direction as trustees, for the REMIC trusts. And they would have had all original documents or proof that the original documents had been deposited somewhere that could be audited,  because they would not have purchased it without that. Show me the note never would have gotten off the ground or even occurred to anyone. But most importantly, they would clearly have mitigated damages by receipt of insurance and credit default swaps, payable to the trust and to the investment banker, which is what happened.

No, Reynaldo Reyes (Deutsch bank asset manager in control of the trustee program), it is not “Counter-intuitive.” It was a lie from start to finish to cover up a PONZI scheme that failed like all PONZI schemes fail as soon as the “investors” stop buying the crap you are peddling. THAT is what happened in the financial crisis which would have been no crisis. Most of the loans would never have been approved for purchase by the trusts. Most of the defaults would have been real, most of the debts would have been real, and most importantly the note would be properly owned by the trust giving it an insurable interest and therefore the proceeds of insurance and credit default swaps would have been paid to investors leaving the number of defaults and foreclosures nearly zero.

And as we have seen in recent days, there would not have been a Bank of America driving as many foreclosures through the system as possible because the trustee would have entered into modification and mitigation agreements with borrowers. Oh wait, that might not have been necessary because the amount of money flooding the world would have been far less and the shadow banking system would be a tiny fraction of the size it is now — last count it looks like something approaching or exceeding one quadrillion dollars — or about 20 times all the real money in the world.

At some point the dam will break and the trustees will turn on the investment banks and those who are using the trustee’s name in vain. The foreclosures will stop and the government will need to fess up tot he fact that it entered into tacit understandings with scoundrels. When you sleep with dogs you get fleas — unless the dog is actually clean.

Stay Tuned for more whistle blowing.

In Countrywide Case, Trustees Failed to Provide Oversight on Mortgage Pools

Curious and Shocking Failure to Follow the Law: BofA, Chase and OneWest

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Announcement: Based upon current information and direct interviews with participants I have come to three broad conclusions:

  1. Bank of America never acquired any loans from Countrywide.
  2. Chase never acquired any loans from Washington Mutual
  3. OneWest never acquired the Indy Mac loans but instead entered into a loss sharing arrangement wherein the FDIC would absorb 80% of the loss and OneWest would receive the proceeds from foreclosure.

BofA never merged with BAC home Loans and the entity created to merge with Countrywide was Red Oak Merger Corp. which like the REMIC trusts was completely ignored. Neither Countrywide, red Oak BAC nor Bank of America ever paid one cent to acquire the loan balances. Hence the paperwork showing “for value received” is a lie.

Chase Bank acquired the banking operations of WAMU for  consideration that is expressly stated as zero. No assignment of WAMU loans exist, according to the FDIC receiver for WAMU. In most cases neither  WAMU nor  Chase ever spent one nickle funding or acquiring loans.

OneWest was capitalized with less than $2 billion and even that is not confirmed inasmuch as there doesn’t seem to be any transaction in which money was moved into a OneWest bank account. Like the above, neither Indy Mac nor One West ever paid for the loans.

All of that means is that they are not injured parties if the borrower doesn’t pay nor are they responsible parties if the investor is not paid. Their claim of agency just doesn’t cut it. For purposes of collecting insurance and proceeds from credit default swaps and federal bailouts, they claim ownership and then after payment, they claim agency so they can chase the foreclosure too, in addition to being paid several times over. But for purposes of sharing in the bounty of betting against the same mortgage bonds as they were selling to the investors the banks consider that proprietary trading and insist on the investors (lenders) taking the loss.

Practice hint: dig deeper and follow the money trail and don’t think that the note is part of the money trail. It isn’t. Only a cancelled check or wire transfer receipt, or ACH confirmation or check 21 confirmation would be proof of ownership (proof of payment) and proof of loss (entitling them to submit a credit bid at the auction of the property). Stick with this strategy and you won’t be sorry. The failure to come up with evidence of an actual injury to an actual party is deadly not only on the facts but for jurisdictional purses of standing.

The banks have cleverly steered the conversation in court to why they should not be required to produce the actual records of actual transactions affecting the loan or the loan pool claiming an interest in the pool. They only want the  court to look at the note and mortgage and the fabricated “allonges”, endorsements, transfers, sales, assignments, all of which are evidence and carry certain presumptions. But he story told by those documents turns out to be a fiary tale when you look at where and when money exchanged hands and between what parties.

The banks are avoiding the obvious: that they claim a REMIC trust exists and was funded (both of which are probably untrue), and that the REMIC trust acquired the loan by buying it (without any evidence of a money exchange) backdated to when the loan was “closed” [note it is our position that none of these loans were closed, since they have yet to be completed].

If the Trust DID own the loan, then what effect does a fabricated assignment have from the originator, aggregator or anyone else other than the trust? The pretender lenders can’t have it both ways. They can’t say they transferred the loan into the trust in 2006 and then claim that an assignment in 2011 from Countrywide to Bank of America conveyed anything.

Who’s on First?

CHECK OUT OUR DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s comment: In a classic Abbott and Costello routine (look it up for those who are too young) the banks are playing “who’s on First” and winning because of the dizzying pace with which they move the goalpost.

I wrote the following comments (see below) on a case I was assisting in which Quicken Loans  purportedly originated the loan but immediately informed the borrower to start paying Countrywide. Countrywide in turn disappeared into what now appears as RED OAK MERGER CORP and the borrower was told to start making the payments to BAC. BAC claimed ownership of the loan until they didn’t at which point they admitted that the loan belonged to some REMIC trust. The REMIC trust turned out not to exist and was never funded.

Then Bank of America informed the borrower that it was BofA that owned the loan despite all evidence and admissions to the contrary. Then BAC disappeared and a little drilling gave up the name Red Oak Merger Corporation which was planned to be the entity that would take over Countrywide. But apparently, like the REMICS, it was set up but never used.

Now the borrower is seeking a short-sale. BofA has performed its usual circus of “errors”in which it loses or purges files for important sounding reasons but which have not one grain of truth. During this time the borrower has lost sales because BofA tried to pawn off the loan servicing to another entity which produced conflicting notices to the borrower that the loan had been transferred for servicing and that the loan had NOT been transferred for servicing.

The borrower has property that is easily salable. BofA came back with a counter-offer for the short-sale. The HUD counselor located in Phoenix and who is extremely savvy about these loans and the legalities of the false moves by the banks finally asked “Who’s on First” by asking who was making decisions and what guidelines they were using.

BofA responded that the trustee BNY Mellon was the only one with that information. So the HUD counselor asked the same questions to BNY Mellon as trustee or the supposedly fully funded trust that included the borrower’s loan. BNY Mellon responded with the same answer Reynaldo Reyes at Deutsch Bank did — we are the trustee in name only.  All decisions regarding short-sales, modification and foreclosure are made by “the servicer.” Of course they didn’t distinguish between the subservicer and the Master Servicer.

The question asked of me was whether this was meaningless double talk and my answer is that it is very meaningful doubletalk providing admissions that the real loan is undocumented, unsecured and leaves the investors (pension funds) holding the bag, while the investment banks were rolling in a redaction of 1/3 of the world’s wealth. Borrowers don’t matter because they are deadbeats anyway and don’t deserve discussion.

Here is my response to the information we had at hand:

How could it be the responsibility of the servicer unless it was the servicer that was acting not as a bookkeeping and collection agent but as the trustee for the investors? If BNY Mellon claims to be the trustee then by definition (look it up) they ARE the investors and they would be the only ones who had the power to make the decision. If they are saying (just like DeutschBank does) that the servicer  makes the decisions then they are saying that  they have delegated(?) the trustee function to the subservicer (usually just referred to as the “servicer”). So like Reynaldo Reyes at Deutsch bank admitted, he is not a trustee for anything and the whole thing is, as he put it, very “Counter-intuitive.”

None of this makes sense until you consider the possibility that nobody ever started a trust, a trust account or gave any powers to a trustee, established beneficiaries of the trust or funded the trust. It makes perfect sense if you consider the alternative: that the investment banks sold bogus mortgage bonds to investors pretending that REMIC trusts were funded and issued the bonds. Read carefully: they are attempting avoid criminal liability and civil liability for the insurance, Federal bailouts and hedge proceeds the banks received on behalf of the investors but which they never reported much less paid the investors. The amount is in the trillions.

By telling you that the trustee has no power they are telling you that the trustee is not a trustee. By telling you that the power to make decisions is in the hands of the servicer, the correct question is which servicer? — the subservicer who dealt only with the borrower or the Master Servicer that dealt with ALL transactions directly or indirectly on behalf of the investment bank that did the selling and underwriting of the bogus mortgage bonds? Assuming either one actually has that power, the next question is how the “servicer” was appointed the manager and why, since they already had a trustee? The answer is what they are avoiding, so far successfully, but which at the end of the day will come out:

NO REMIC trust was used and none of the parties with whom we are dealing ever spent one penny of their own money, capital or deposits (if they were a depository institution) on funding or buying a loan. The true money trail generally looks like this: Investor—> Investment banker- who sold the bonds–> aggregator or intermediary affiliate of investment banker—> closing agent —> payoff seller and prior mortgage (probably paying a non-creditor in exchange for a fabricated release of lien and satisfaction of note which is never given back to borrower marked “PAID).”

The important thing is not who is in the money trail but who is not in the money trail. If you track the wire transfer receipts and wire transfer instructions and are able to track any compensation after closing that was not disclosed but nonetheless paid to undisclosed parties you will NOT find the loan originator whose name, as nominee (but they never said so) was used as the lender and the possessor of the loan receivable.

That is, you won’t find the originator as a funding source but you will find the originator as a paid servicer for the undisclosed aggregator in an illegal and predatory pattern of table-funded loans. In Discovery: PRACTICE TIP: Demand copies of the bookkeeping records that shows that the originator booked the transaction with the borrower as a loan receivable.

You will find that most of the loans were not booked at all on the balance sheet of the originator which means that their own records contain an admission against interest, to wit: that they were not the lender because they did not add the loan receivable to their assets, nor a reserve for bad debt to their liabilities, because they had not funded the loan and were not exposed to any risk of loss. The originator, especially those originators without any financial charter as a depository institution, was merely a paid nominee to ACT as though it was the lender and take the blame if there were findings in court that the closing was illegal or irregular. But there again the originator has no risk because of the corporate veil which shields the operators of the nominee pretender lender leaving the borrower with an empty shell possibly declaring bankruptcy like First Magnus or Century.

The money came from the investors through the investment banker through the aggregator in which the investors’ money was used to create the appearance of an asset consisting of only part of the investor’s money and then sold back to the investor “pool” which turns out not to exist because it was neither funded nor were the conditions of the pool ever followed.  This sale was booked by the investment banker as a “trading profit.” In other words, they took the money of the investor into one pocket and while transferring it from pocket to pocket took out their trading profit on transactions that were a complete illusion.

The documents use the nominee originator (like Quicken Loans) for the note to create “evidence” of an obligation that does not exist because Quicken Loans and its aggregator never funded the loan or the purchase of the loan — but that didn’t stop them from selling the loan several times, insuring it for the benefit of the investment banker and aggregator, and getting paid Federal bailout money and proceeds from credit default swaps all without deducting the amount promised as repayment to the investor, which is why the investors are suing.

The investors are saying there was a false closing based upon no underwriting standards and a fake bond based upon the backing of a mortgage and note that didn’t exist or was never enforceable.

When you boil it all down there was nobody at closing on the lender side. The named payee was a nominee for an undisclosed party and the named secured party was the nominee of an undisclosed party and the consideration came neither from the nominee nor the undisclosed principal. This is what leaves investors holding the bag.

The foreclosures are a grand scheme of cover-up for what was a simple PONZI scheme whose survival depended not upon borrower payments on legitimate loans but rather on the sale of more bogus mortgage bonds. There were no funded REMIC trusts, there were no active trustees, and the job of managing the flood of money fell to the Master Servicer who instructed the subservicer and all other parties what to do with their new found wealth.

The investors are saying they are left with a pile of money owed to them, documented by fake bonds, and no documentation on what was actually done with their money.

That leaves them in a position where they can NEVER claim that the loan money they advanced (and which was commingled beyond recognition) was never secured with a perfected lien or mortgage. The foreclosures that have taken place are based upon an illusion of a transaction that was never consummated — namely that the named payee on the note would loan the borrower money. They didn’t loan the money so the transaction lacks consideration.

Lacking consideration they have nonetheless fabricated, used, executed and recorded papers procured under false pretenses and they are taking the position in court that the borrower may not inquire as to the internal workings of the scheme that defrauded him  and which the investors  (Pension funds) corroborated with their lawsuits.

If you went to the originator and asked to payoff or rescind they would have had to go to the investment banker or aggregator to find out what to do instead of simply following the federal statute (TILA) and returning the documents in exchange for the money. By contract the originator agrees and the wire transfer instructions the originator agrees, just like MERS, to not take, claim or keep any money from the transaction.

PRACTICE TIP: Getting the cancelled check of the borrower to see who cashed the check in which account owned by which party might be helpful in determining the truth about the so-called closing. A good question to ask in discovery is how the”servicer” accounted for each payment it received or disbursed and what notes or notations were used. Then the next question to the subservicer, Master Servicer and investment banker is to whom did you disburse money and why?

Incredible “Hustle”: JPM Moves Exec Who Defrauded Fannie and Freddie to Defrauding Borrowers Again

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Victims can receive up to $125,000 in cash or, in some cases, get their homes back. But the review has already been marred by evidence that the banks themselves play a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by a central conflict of interest.”

Editor’s Comment and Analysis: The rules and laws are in place and the banks are flagrantly violated them — again. While the infrastructure is in place to compensate victims of wrongful foreclosure and to stop wrongful foreclosures, the programs are routinely corrupted and ignored.

JPMorgan and the other mega banks actually had a name for the game: the “Hustle.” “Rebecca Mairone, worked at Countrywide and Bank of America from 2006 until earlier this year, when she left for JPMorgan Chase, according to her LinkedIn profile.” (see article below).

Mairone stands accused of a two year “scam” of foisting bad loans onto Fannie and Freddie on behalf of Bank of America. Now she is at JPM supervising the compensation program for wrongful foreclosure victims. Do you think there might be a conflict of interest or two in that structure?

So now she is the head of the “independent Foreclosure Review” process. “The review “never seemed designed to place first the interests of those who were supposed to be helped — victimized homeowners,” said Neil Barofsky, the former federal prosecutor who served as the special inspector general for the Troubled Asset Relief Program, better known as the bank bailout.”

The DOJ lawsuit says “”Countrywide knowingly churned out loans with escalating levels of fraud and other serious material defects and sold them to” Fannie and Freddie.”

Countrywide had a name for its policy of abandoning underwriting standards, lying to borrowers, brokers and closing agents: “The new modus operandi was called the “High Speed Swim Lane”; its motto was “Loans Move Forward, Never Backward,” according to the suit. The company allegedly paid bonuses to its employees based on the number of loans they pushed through, not on whether the loans were sound.

AND THIS is why I am telling you that if you push the banks into a corner by denying all the essential allegations they make about your loan and then demand discovery on the money trail starting with the first dollars that went in or out of a REMIC or that went in or out of the loan you thought you were getting, you will prove your case and the bank will retreat.

The fact is that in most cases the REMIC played no part in the lending process but the investors, who were advancing money THOUGHT they were investing in a REMIC, were actually lending money to the investment bank who took control as if the loans belonged to the banks. Then they traded, insured and contracted as though they were the owners. They claimed losses on federal bailouts when they had no losses.

The lies told to investors were identical to the lies told to borrowers as to the underwriting, the appraisal values, the ability of borrowers to pay on loans where the payments would skyrocket above any known income the borrower ever had, and so many severe defects in the origination of the loans that the investors themselves have come to the conclusion that there is nothing enforceable about those loans -– not the obligation, the note (as evidence of the obligation) nor the mortgage which secured a defective note containing both the wrong payee and the wrong terms of repayment.

As I have repeatedly stated, the investors should join with borrowers in a tactical pincer action, but they don’t. And I can only conclude that the reason they don’t is that the fund managers who bought these bonds knew more than they say they knew and went ahead because of the some benefit they received by buying the bogus mortgage bonds. Things don’t happen on this scale without lots of people knowing.

Red-faced bureaucrats who take their information from banks are going to be explaining for years to come why they gave money to the banks when it was the investors and homeowners who were the ones losing money while the banks were raking in the money on the way up and on the way down the greatest bubble in history.

Exec Who Allegedly Enabled Fraud Runs Chase’s Effort to Compensate Foreclosure Victims

by Paul Kiel
ProPublica,

An executive who the Justice Department says facilitated a scheme to defraud Fannie Mae and Freddie Mac is now spearheading JPMorgan Chase’s role in the government’s program to compensate victims of the big banks’ abusive foreclosure practices.

The executive, Rebecca Mairone, worked at Countrywide and Bank of America from 2006 until earlier this year, when she left for JPMorgan Chase, according to her LinkedIn profile.

In a lawsuit filed last month in federal court in New York, Justice Department attorneys allege that Countrywide, which was bought by Bank of America in 2008, perpetrated a two-year scam to foist shoddy home loans on Fannie and Freddie. Neither Mairone nor any other individuals are named as defendants in the civil suit, and no criminal charges have been filed against her or anyone else in connection with the alleged misconduct. But Mairone is one of two bank officials cited in the suit as having repeatedly ignored warnings about the “Hustle,” as the alleged scheme was called inside the company, and she prohibited employees from circulating some of those warnings outside their division.

Mairone was chief operating officer of the Countrywide lending division that allegedly carried out the “Hustle.” She took the helm of JPMorgan Chase’s involvement in the Independent Foreclosure Review this summer, according to a former Chase employee.

The review, overseen by federal banking regulators, requires the nation’s biggest banks to compensate victims for harm they inflicted on borrowers. Victims can receive up to $125,000 in cash or, in some cases, get their homes back. But the review has already been marred by evidence that the banks themselves play a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by a central conflict of interest.

Mairone’s role raises additional questions about the Independent Foreclosure Review.

The review “never seemed designed to place first the interests of those who were supposed to be helped — victimized homeowners,” said Neil Barofsky, the former federal prosecutor who served as the special inspector general for the Troubled Asset Relief Program, better known as the bank bailout.

“Finding out that the person running it for JPMorgan Chase is a person whose conduct in the run-up to financial crisis was allegedly so egregious that she somehow managed to be one of the only people actually named in a case brought by the Department of Justice goes beyond irony,” he continued. “It speaks volumes to the banks’ true intent and lack of concern for homeowners when addressing the harm that they caused during the foreclosure crisis.”

In response to ProPublica’s questions about Mairone’s role in the foreclosure review and the suit’s allegations, Chase issued a brief statement confirming that Mairone is a managing director who is “working on the Independent Foreclosure Review process.” The statement added, “It would not be appropriate for us to discuss another firm’s litigation.”

Chase declined to make Mairone available for comment, and she did not return a message left at her home number.

The Suit’s Allegations

Countrywide was the industry leader in subprime loans, which are typically given to borrowers with a troubled credit history. In 2007, the subprime market began to collapse as more and more of those borrowers defaulted on their loans. Countrywide grew desperate to find ways to keep profiting from issuing mortgages.

Fannie and Freddie guarantee home loans, relieving banks of the risk that borrowers will default. So in 2007, the government’s suit alleges, Countrywide began the Hustle to pass a huge number of risky loans, many with phony incomes attributed to the borrowers, on to Fannie and Freddie.

At that time, the two mortgage giants were restricting their underwriting guidelines, making it harder for lenders like Countrywide to find borrowers who qualified for Fannie and Freddie backed loans.

The suit alleges that Countrywide deliberately gutted its system for detecting unqualified borrowers, leading to a flood of flawed and outright fraudulent loans backed by Fannie and Freddie.

The new modus operandi was called the “High Speed Swim Lane”; its motto was “Loans Move Forward, Never Backward,” according to the suit. The company allegedly paid bonuses to its employees based on the number of loans they pushed through, not on whether the loans were sound. According to the suit, the new system created a torrent of loans that often featured inflated borrower incomes, accelerated by employees who had every incentive to fabricate numbers to get the loans into the “High Speed Swim Lane.”

The suit says a number of employees within Countrywide raised alarms about the Hustle before it launched, but that Mairone and the division’s president “ignored” those warnings.

Once the new system was up and running, one concerned executive had underwriters run checks on the loans. Mairone allowed the checks, but said they should be run in parallel to the loan funding process so, according to the suit, they didn’t “‘slow the swim lane down.’”

The tests found a “staggering rate of defects,” the suit says, but Mairone did not “alter or abandon the Hustle model.” Instead, the suit alleges, she “prohibited” underwriters from circulating the results outside of the lending division. “As warnings about the Hustle went unheeded,” the complaint alleges, “Countrywide knowingly churned out loans with escalating levels of fraud and other serious material defects and sold them to” Fannie and Freddie.

The Hustle continued “through 2009,” the Justice Department alleges, well after Bank of America acquired Countrywide. The scheme led to more than $1 billion in losses at Fannie and Freddie as borrowers defaulted, according to the suit.

The government took over Fannie and Freddie in 2008, and since then taxpayers have pumped in $187.5 billion to keep them afloat.

The federal suit was first brought under seal as a qui tam suit under the False Claims Act by a former Countrywide and Bank of America executive, Edward O’Donnell, who says he tried to stop the Hustle. A qui tam suit allows a private citizen to sue on behalf of the government and receive a portion of the settlement or judgment if the suit is successful. The Justice Department joined O’Donnell’s suit in October in Southern District of New York, filing its own complaint and trumpeting it in a press release.

A Bank of America spokesman disputed allegations in the suit that it had refused to repurchase the faulty “Hustle” loans from Fannie Mae after they defaulted in large numbers. “Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters,” said spokesman Lawrence Grayson. “At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

A Career Spans the Crisis

Mairone’s career has spanned the entire life cycle of the foreclosure crisis.

After working for Countrywide and Bank of America’s lending divisions, Mairone moved to the bank’s servicing division in 2009. There, at the height of the crisis, she was in charge of deciding how to deal with homeowners who could not pay their mortgages and wanted to modify the terms of their loans.

It didn’t go well. The big banks all signed up for the government’s main foreclosure prevention program and agreed to provide modifications for qualified borrowers. But as we’ve reported over the years (we even interviewed Mairone herself in early 2011), the biggest banks often botched loan modifications and regularly subjected customers to errors and abuses, some resulting in mistaken foreclosures. The big banks in general did a poor job, but analyses have shown that Bank of America performed the worst of all. Homeowners had less of a chance of getting a modification from Bank of America than any other major mortgage servicer, studies show.

Such failings eventually led to government efforts to compensate homeowners for the banks’ errors and abuses. The Federal Reserve and the Office of the Comptroller of the Currency launched the Independent Foreclosure Review in late 2011. About 4.4 million homeowners are eligible for the review, and those who are determined to have been harmed can receive up to $125,000 in cash compensation.

Regulators required each of the banks to hire an outside consultant to independently conduct the review, but as ProPublica has reported, there is abundant evidence that the banks themselves are playing a large role. The program has also been marked by low participation by borrowers and a lack of transparency.

Regulators have said the banks are only playing a supporting role in the review, and that the consultants are entirely responsible for deciding how borrowers are compensated.

Mairone’s current employment at Chase was first reported by The Street, an online news service that covers finance, but the story did not say Mairone was working on the bank’s Independent Foreclosure Review. She oversees hundreds of Chase employees who gather documents for the reviews, according to the former Chase employee. Chase declined to say how many employees Mairone oversees or detail her job responsibilities.

Chase’s main regulator, the Office of the Comptroller of the Currency, said its policy is not to comment on specific individuals or ongoing litigation. “The OCC and the Federal Reserve are monitoring the conduct of the Independent Foreclosure Review to ensure reviews are conducted fairly and thoroughly,” said spokesman Bryan Hubbard.

Jonathan Gandal, a spokesman for Deloitte, the consultant Chase hired for the review, said, “We are conducting an independent review of the files and it is our review and analysis alone that will drive our recommendations. Beyond that, we are not at liberty to discuss matters pertaining to our services.”

 

Another Pennies on the Dollar Settlement

Editor’s Note: like the post before this one, it is astonishing how these settlements fall so far short of the actual damage that was created by the banks by their intentional illicit and criminal behavior.

This one “relates to conduct at Greenwich Capital, the R.B.S. unit that bundled mortgages into securities and sold them to investors. Nevada found that R.B.S. worked closely with Countrywide Financial and Option One, two of the most aggressive lenders during the boom.” They were categorized as sub-prime even if the borrower was not sub-prime. That way they loaned less of the investor money at a higher nominal rate, charged the borrower for additional underwriting risk when there was no underwriting at all, and kept the excess interest, the excess funding that should  have gone into standard loans properly underwritten according to industry standards.

The trap was teaser rates that borrowers could never decipher: “From 2004 through 2006, R.B.S. packaged $90 billion of these loans, many originated by Countrywide. The mortgages typically began with an artificially low interest rate that rose significantly after a year or two. Under the terms of these loans, borrowers could choose to pay only a fraction of what they owed monthly, resulting in a rising principle balance.”

And the media is all about how the housing problem is ending. That is nonsense. It is coming to a head, but the peak won’t be until perhaps 2014.

Bank Settles Over Loans in Nevada

By

The Royal Bank of Scotland agreed to pay $42.5 million late Tuesday in a settlement with the Nevada attorney general that ends an 18-month investigation into the deep ties between the bank and two mortgage lenders during the housing boom.

Most of the money paid by R.B.S. — $36 million — will be used to help distressed borrowers throughout Nevada. In addition, R.B.S. agreed to finance or purchase subprime loans in the future only if they comply with state laws and are not deceptive.

The settlement between the bank and Catherine Cortez Masto, Nevada’s attorney general, relates to conduct at Greenwich Capital, the R.B.S. unit that bundled mortgages into securities and sold them to investors. Nevada found that R.B.S. worked closely with Countrywide Financial and Option One, two of the most aggressive lenders during the boom.

Officials working with Ms. Masto say that they examined R.B.S.’s activities from 2004 to 2007. During those years, the bank provided funding for more than $100 billion of risky loans, many made by Countrywide and Option One. In 2005 and 2006, R.B.S. was the third-largest securitizer of subprime mortgages and adjustable-rate loans.

“I remain committed to enforcing Nevada’s laws against the players — including those on Wall Street — that contributed to and profited from reckless and deceptive mortgage lending in Nevada,” Ms. Masto said in a statement. “The payment from R.B.S. will alleviate some of the injury to the Silver State and its residents. The changes to its securitization process should help make sure that we do not go down this road again.”

In agreeing to the settlement, R.B.S. neither admitted nor denied the acusations.

During the investigation, Nevada officials examined more than one million pages of documents and interviewed former R.B.S. employees and borrowers. Ms. Masto’s office concluded that the bank had essentially created joint ventures with Countrywide and Option One and that its financing enabled those lenders to make reckless loans that were unlikely to be repaid.

The attorney general also examined whether R.B.S. reviewed the mortgages bought from Countrywide and concluded that the bank bundled and sold loans even after identifying them as problematic. Moreover, at Countrywide’s request, the bank limited the number of loans it reviewed, the attorney general’s office said.

Nevada has been hit hard by the foreclosure crisis. Some 60 percent of borrowers in the state have mortgages of greater value than the properties underlying them, according to Core Logic, a real estate data company.

Ms. Masto’s case comes after several others brought recently by state regulators against firms involved in mortgage securities. Earlier this month, the New York attorney general sued Bear Stearns over its conduct during the boom, and last week, the Massachusetts securities regulator sued Putnam Advisory, a unit of Putnam Investments, for misleading investors who bought a collateralized debt obligation it was managing. Officials at both firms rejected the allegations and said they would vigorously defend themselves in court.

Some securities lawyers say that it is easier for state officials to bring successful actions against banks for questionable activities than it is for federal investigators. That is mostly because of stringent requirements under federal securities laws.

“This strategy sidesteps the need to prove intent to defraud and to detail fraud allegations as is required for similar actions under the federal securities laws,” said Lewis D. Lowenfels, an authority in securities law in New York. According to the Nevada attorney general’s office, R.B.S. was among the larger bundlers of a risky type of loan known as a pay-option adjustable-rate mortgage. From 2004 through 2006, R.B.S. packaged $90 billion of these loans, many originated by Countrywide. The mortgages typically began with an artificially low interest rate that rose significantly after a year or two. Under the terms of these loans, borrowers could choose to pay only a fraction of what they owed monthly, resulting in a rising principle balance.

R.B.S. also worked hard to keep Countrywide generating loans for the bank’s securities, investigators said.

Ms. Masto’s office said that R.B.S.’s mortgage funding operation was widespread across Nevada, which is why most of the settlement will go to borrowers who have suffered harm.

BOA Sued for ONLY $1 Billion by NY Federal Prosecutor

Editor’s Note: OK I’m glad they sued and I am glad they are alleging “brazen fraud.” But considering the trillions that were lost from this fraud why are the suits for only $1 billion and the settlements for only $25 billion? Why are we not clawing back the ill-gotten money from the brazen fraud they are alleging, giving relief to the victims (investors and homeowners) and restoring the country’s financial system to sound footing?

BOA stands accused, again and again, for “carrying out a scheme, started by its Countrywide Financial unit, that defrauded government-backed mortgage agencies by churning out loans at a rapid pace without proper controls. In a civil suit, prosecutors seek to collect at least $1 billion in penalties from the bank as compensation for the behavior that they say forced taxpayers to guarantee billions in bad loans.”

I ask you. Are there two sets of rules. Who amongst us would not have criminal charges brought against us for this behavior?

But the main concern I have is that both prosecutors and the media have not considered the fact that this was not “Slipshod” as the article reports or negligence or even gross negligence. It was intentional.

The mega banks made mega money in two main ways: (1) they pretended to own the loans and declare defaults or write downs on pools that were insured or covered by credit default swaps, keeping the money for themselves instead of the investors. (2) The crappy loans made the most money for the banks — because they were able to put a higher rate on the mortgage and thus lend out less money to achieve the same dollar return projected to the investors. The rest of the money they kept.

That is called a PONZI scheme because there is no way to payback the money without more investors buying into the bogus mortgage bonds. Dreier is serving a long sentence, Madoff is serving a long sentence but Dimon and other Mega bank executives are serving terms on bank boards of directors and on the Board at the New York Federal Reserve. Does that sound right to anyone’s ears?

U.S. Accuses Bank of America of a ‘Brazen’ Mortgage Fraud

By BEN PROTESS, www.nytimes.com

9:34 p.m. | Updated

Five years after the housing market crumbled, government officials are still trying to assign blame for the problems that fueled the mortgage boom and bust.

On Wednesday, federal prosecutors in New York took aim at Bank of America. They accused it of carrying out a scheme, started by its Countrywide Financial unit, that defrauded government-backed mortgage agencies by churning out loans at a rapid pace without proper controls. In a civil suit, prosecutors seek to collect at least $1 billion in penalties from the bank as compensation for the behavior that they say forced taxpayers to guarantee billions in bad loans.

Financial firms have been battling chaotic – and at times redundant – litigation related to the mortgage mess. The cases have come from a patchwork of federal agencies, state officials and shareholder suits, some of which have been resolved in multibillion-dollar settlements.

“They never know who’s going to be coming after them next,” said Dan Hurson, a former federal prosecutor who now defends securities cases. “There’s no central traffic cop.”

Still, the public has been frustrated with the limited number of criminal actions that have been filed since the financial crisis. Few cases have taken aim at top executives. Even in the latest case against Bank of America, no company officials were sued as part of the complaint. Angelo R. Mozilo, the former chief executive of Countrywide Financial, never faced criminal charges but did agree in 2010 to pay $67.5 million to settle a civil fraud case brought by the Securities and Exchange Commission.

Mr. Hurson said that the government had yet to overcome the notion that federal authorities were reluctant to pursue the top rungs of Wall Street. The criminal actions to come from the crisis, he noted, have focused on “small-time operators.”

The government, however, has contended that it has aggressively pursued mortgage fraud. As the legal deadline approaches for filing crisis-related cases, President Obama formed a mortgage task force to investigate wrongdoing. The unit recently announced its first case, taking action against JPMorgan Chase over mortgage deals created by Bear Stearns, the firm that JPMorgan bought during the crisis.

The legal problems for Bank of America, however, have taken a deeper financial toll, costing the bank billions in write-downs and settlements. Much of its problems stem from its takeover of Countrywide Financial, once the nation’s largest mortgage lender. The bank also struck a $2.4 billion deal in September to settle a class-action lawsuit over shareholder claims that it misled investors about the 2009 purchase of Merrill Lynch.

In the lawsuit on Wednesday, the Justice Department attacked a home loan program known as the “hustle,” which the bank inherited from Countrywide in 2008 and kept alive through 2009.

Prosecutors say the venture was a symbol of Wall Street’s slipshod standards during the mortgage bubble. According to the lawsuit, Countrywide rubber-stamped mortgage loans to risky borrowers and passed them on to Fannie Mae and Freddie Mac, the two government-controlled mortgage financial giants that guaranteed the loans. The two entities were ultimately stuck with heavy losses and a glut of foreclosed properties.

“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” Preet Bharara, the United States attorney in Manhattan, said in a statement. “This lawsuit should send another clear message that reckless lending practices will not be tolerated.”

Mr. Bharara filed the civil suit along with the inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. The government watchdog for the bank bailout program, the special inspector general for the Troubled Asset Relief Program, or TARP, also joined the complaint.

In a statement, a Bank of America spokesman said the bank “has stepped up and acted responsibly to resolve legacy mortgage matters; the claim that we have failed to repurchase loans from Fannie Mae is simply false.” The spokesman, Lawrence Grayson, added, “At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

The case builds on a broader federal crackdown of Wall Street that continues years after the onset of the crisis. In a last-ditch effort to hold financial firms accountable, Mr. Bharara this month sued Wells Fargo over questionable mortgage deals.

The assertions in the Bank of America suit, however, do not shed much new light on the mortgage mess. The Federal Housing Finance Agency last year sued 17 big banks over losses sustained by Fannie Mae and Freddie Mac over different mortgage-related products. The twin mortgage finance companies, also bailed out by taxpayers in 2008 and still controlled by the government, continue to push firms like Bank of America to repurchase billions of dollars in bad loans.

The flurry of litigation, which comes on the cusp of the presidential election, has caused some on Wall Street to question whether the effort is rooted in political motivations.

Other white-collar lawyers say the complaints rehash old claims put forth by private investors. JPMorgan says that the government urged it to buy Bear Stearns, a defense that does not apply to Bank of America, which acquired Countrywide as part of an aggressive expansion effort.

Still, a lawyer close to the Bank of America case, who spoke on the condition of anonymity because the case was continuing, argued that the bank had already repaid Fannie Mae for some of the soured loans in question. Other loans, this person argued, were never before disputed by Fannie Mae.

The lawsuit threatens to impose steep fines on the bank. The Justice Department filed the case under the False Claims Act, which could provide for triple the damages suffered by Fannie and Freddie, a penalty that could reach more than $3 billion.

The act also provides an avenue for a Countrywide whistle-blower, Edward J. O’Donnell, to cash in. Under the act, the government can piggyback on accusations he filed in a lawsuit that was kept under seal until now.

Mr. O’Donnell, who lives in Pennsylvania, was an executive vice president for Countrywide before leaving the company in 2009. The government’s case in part hinges on the credibility of his claims.

In the 46-page lawsuit, prosecutors contend that Countrywide abandoned its lending standards in 2007 with the creation of the “hustle” program. Short for “HSSL,” or “High-Speed Swim Lane,” the program adopted the motto “move forward, never backward,” prosecutors said, citing Countrywide documents.

With the goal of generating a high number of loans, Countrywide tore down internal controls known as tollgates that were in place to slow the mortgage process and root out risky borrowers. The firm at one point removed trained underwriters from the loan process, opting instead to rely on “unqualified and inexperienced” loan processors.

At times, prosecutors claim, loan processors crossed a legal line. Some “repeatedly did manipulate” loan forms, jotting down higher incomes for borrowers so they would qualify for Fannie Mae’s standards.

By early 2008, the lax standards started to show. More than a third of the unit’s loans were defective, a significant jump over the industry standard of about 5 percent.

Despite the poor performance, prosecutors said, the bank sold the loans to Fannie Mae and Freddie Mac and “concealed the defect rates and continued the hustle.”

Bank of Arrogance Claims Insurer Knew What It Was Getting Into

WHERE ARE THE TRIALS?

Editor’s Analysis: There are only two choices here: either the insurer knew that the loans were bad or was misled into thinking the loans were good. Or to be more specific, it knew that the mortgage BONDS were bad or it was misled into thinking the BONDS were as GOOD as represented.

It’s not hard to envision a grand conspiracy in which the insurers were paid extra money to issue contracts on pools knowing full well they might fail and that the government would bail them out.

That actually might be the case, but either way they paid and that means the principal and interest due back to the investors should be reduced. If the principal and interest due to the creditor is reduced it is simple logic that the principal and interest due from the debtor would be correspondingly reduced. The creditor is only entitled to repayment, not multiple payments.

Multiple payments would lead to the conclusion that there was an overpayment and they owe the money back to the homeowner; like it or not, if the homeowner’s aunt made the payment there would be no question that the creditor could not still make the claim. It should not be any different if the Aunt turns out to be an insurance company.

But it seems more likely that the convoluted style with which the securitization scheme was drafted and pitched to investors, rating agencies and insurers, as well as Fannie and Freddie pretty much leads to the conclusion that the banks were at least probably consistent: they lied.

BofA attorneys are getting creative and blaming the victims starting with the homeowner right up to the insurance company. Soon they will blame the regulatory agencies and then the government itself for forcing them to underwrite bad loans, divert the paperwork from the REMIC, cheat the investor out of an enforceable loan and then steal the money too. That is in fact more or less the claim when blame is laid at the doorstep of Fannie and Freddie. And there is more truth to that since the executives at the GSE’s were in bed with Wall Street.

Still I find it more likely that Fannie and Freddie did not know how bad this situation was, that the ratings were a complete farce and the insurance was issued under false pretenses.

If the mortgages were really valid liens, if the notes were really valid evidence of the obligation and matched up with the creditor’s expectation of repayment, if the mortgage bonds were real, if the REMICs were actually funded, then there would have been a few actual trials instead of settlements. What bank would settle such cases if it had done everything right? Where are the trials?

The entire foreclosure controversy would be over if there were real trials with real evidence and real witnesses with real personal knowledge providing the foundation for real documents with proof of payment and the current status of the loan.

10-20 such trials would have ended the controversy —– the banks would be right and the borrowers all deadbeats. Instead, when trial approaches the banks all settle every case.

Why would they do that unless they were afraid of losing a very simple case where the facts were not in doubt? The answer is simple: the lawyers won’t go so far as to go to trial because they won’t  subject themselves to discipline and criminal charges for fraud, forgery, and perjury.

 

Lawyers for Bank of America ($9.32 0.11%) claim insurer MBIA knew what it was getting when it agreed to insure mortgage bonds containing subprime loans originated by Countrywide.

The whole concept behind MBIA’s major suit against Countrywide and BofA, which acquired Countrywide in 2008, is that the lender was fraudulent in representing the quality of loans that the insurer ended up facing losses on by agreeing to insure the mortgages in case of default.

In a motion for the court to rule in favor of Countrywide, BofA alleges that MBIA once had a practice of performing due diligence on mortgage loans, but failed to do so in this case.

“[D]espite its own past practices, and the well-known risks associated with the underlying loans, MBIA made a business decision to stop conducting any loan-level due diligence prior to insuring the securitizations,” Countrywide (BofA) said in its motion.

BofA also claims that MBIA never took note of input from third-party due diligence providers.

MBIA, on the other hand, asked the court for summary judgment in its favor and says the test of whether BofA has to repurchase Countrywide loans is based on whether it can be proven “there was a material and adverse impact on MBIA’s interests.”

MBIA says this should be the standard used whether or not the loans actually defaulted or became delinquent.

“Defendant Countrywide Home Loans breached representations and warranties with respect to at least 56% of the loans in the 15 securitizations of residential mortgages at issue in this action and that such breaches had a material and adverse impact on MBIA’s interests in the affected mortgage loans,” MBIA said in its own motion with the court.

In both motions, the parties are asking the court to rule in their favor on fraud claims, breach of contract and indemnification claims originally filed against Countrywide by MBIA.

kpanchuk@housingwire.com

BOA Deathwatch: $2.43 Billion Settlement — Tip of the Iceberg

“If we know with certainty that misrepresentation to investors lies at the heart of the so-called securitization scheme, why is it so hard for Judges and lawyers to believe that misrepresentation to homeowners lies at the heart of the origination of the loans that were the most important part of the securitization scheme? In fact, why is it so hard for Judges and Lawmakers and Regulators to conceive and believe that Wall Street didn’t securitize the loans at all and only pretended to do so?” — Neil F Garfield, livinglies.me

EDITOR’S ANALYSIS: The settlement sounds big, but Bank of America has already announced that it had “put aside” another $42 billion for the defective acquisitions of Merrill Lynch, an underwriter in the fake securitization scheme, and Countrywide, a sham aggregator of residential mortgage loans.

The facts keep getting reported, but nobody seems to question the meaning of those facts or their consequences. The Wall Street Journal reports that dozens of lawsuits are still pending against BOA from insurers, credit default swap counter-parties and investor-lenders, each alleging that “countrywide wasn’t honest about the quality of mortgage backed securities it issued before the financial crisis. While it is true that pressure was exerted from Hank Paulson to make sure that BOA acquired Merrill and Countrywide to prevent a general financial collapse (you won’t have an economy by Monday if we don’t step in” (quote from Paulson and Bernanke to President George W Bush, it is equally true that BOA management pronounced the deals as the “deal of a lifetime.”

The very fact that BOA failed to peak under the hood before buying the car is ample corroboration of the handshake mentality being leveraged against each other as Banks scrambled to the top of the heap without concern for either their own companies or the country. Their lack of concern for their companies comes from the fact that they were receiving cash bonuses of pornographic size while those acquisitions went sour. Back in the days when management of the investment banks required general partnerships in which the partners could be personally liable, none of this could have happened. If the Bank fell, management didn’t care because they would still be rich whereas in the old days they would have been wiped out.

The settlement announced on Friday gives a very small percentage of money back to investor lenders and shareholders in the bank, both of which consist of groups of people who were largely investing for retirement. Next year, the writing on the wall is clear as a bell: either pension benefits are going to be slashed or there will be another major government bailout of the pension funds, some of which is already provided by law in government guarantees.

Either way, the people are going to be screaming at a continuation of an endless financial crisis that could be stopped on a dime by one simple magic bullet: admitting that the mortgage bonds were pure trash backed by no loans, and thus paving the way for the removal of the “mortgages” or Deeds of trust” that were recorded to secure the loans. But nobody wants to do that because ideology is still controlling the policies and the practical consequences of those policies is that more undeserving banks will be getting free homes for which they neither funded the origination nor the acquisition of the loans because the “originator” was never the lender.

Politically, the Banks are losing traction as representatives of both major political parties step away from the Banks, even while accepting huge donations from them. It is clear that the candidates who are receiving huge donations are probably bound by promises to back the banking industry as they desperate try to avoid the correct legal conclusion that virtually none of the loans were made payable to the lender, and none of the mortgages or deeds of trust were secured by a perfected lien.

It isn’t just that the the loan losses will fall on the Banks that were pulling the strings on the puppets at closings with the investors and closings with the homeowners; their real problems stem from the false claim that they were are holding valuable paper (mortgage backed bonds) whose value would not survive the worksheet of a first year auditor.

With only nominees on the note and mortgage and the obligation being owed to an as yet undefined group of investors whose money was used, contrary to written agreement and oral assurances, to be place bets at the window of the banks and hedge funds around the world and fund managers who were supposedly investing in triple A rated “Stable” securities that were “insured”, the investor lawsuits corroborate what we have been saying for 6 years: if the existing laws of property and contract are applied, neither the promissory note (at least 40% of which were intentionally destroyed) nor the mortgages (deeds of trust) are enforceable for collection or foreclosure.

The homeowner owes money to an undefined group of creditors, the balance of which is unknown because the Banks control the accounting and the accounting leaves out significant insurance proceeds, payments from credit default swap counter-parties, and federal buyouts and bailouts. The Banks are fighting to retain control of that accounting because if some third party starts auditing the money trail they are going to find that the “assets”  claimed by the banks are actually liabilities owed back to the parties that paid 100 cents on the dollar for the entire pool of mortgage bonds, none of which were actually backed by a legal obligation or an enforceable lien.

In short, if borrowers litigate they are fighting to get to the point where the banks and servicers are over a barrel and must settle — but only after making it as difficult as possible. Hence the strategy described in my seminars called “Deny and Discover”.

Because at the end of the day when  the number of cases won by borrowers exceeds the number of successful foreclosures (or perhaps far before that time) the assets are going to disappear and the liabilities are going to pop up in the banks. The consequence is that these banks will either have greatly diminished equity or negative equity — i.e., the BANKS will be Underwater! The FDIC and Federal reserve will thus be required to step in an “resolve these behemoth banks selling off the salable parts to smaller, manageable banks that are not so big they can’t be regulated.

As I survey the landscape, I see no hope for BOA, Citi, Chase or even Wells Fargo to survive the bloodbath that is coming, nor should they. The value of their stock will drop to worthless, which it is now anyway but not recognized, and the value of those regional or community banks and credit unions that pick up the pieces will correspondingly rise. The loans will vanish because the investors have no practical way of determining whose money went into any particular loan; the reason for that is that the money trail avoids the document trail like the plague. There were not trust accounts or other financial accounts in the name of the empty pools that issued the worthless mortgage bonds.

This is where ideology, law and practicality clash because of a lack of understanding of the consequences. The homeowners are getting a house not “free” but unencumbered by the originators who faked them out with false payees, false lenders and false secured parties. But the tax code already takes care of that. This isn’t forgiveness of debt. This reduction, in fact possibly overpayment of the debt was caused by the banks trading with investor money as though the money and the loans were the property of the banks, which they were not.

The effect on homeowners is that they will be required to recognize “income” from the elimination of the obligation, which is taxable and subject to Federal tax liens. The amount of that lien or obligation will be far less than the amount of the original loan, but the government will receive a portion of the savings through taxes, the investor-lenders will be compensated as the megabanks are resolved, and the crisis caused by a disappearing middle class will be over.

That will give us time to devote our attention to student loans and those “Defaults” which were also subject to false claims of securitization and in which the government guarantee was supposedly divided up without government consent as the originator, not caring about loan repayment, pushed students into larger and larger loans. What the participants in THAT fake securitization chain don’t realize is that under existing applicable law, it is my opinion that an election was made: either they had a loan receivable on the books for which there could be government guarantee, or they could reduce the risk by splitting the loans up into pieces and get paid handsomely for simply originating the loan. Simple logic says that the banks could not have both the guarantee from the government PLUS the elimination for risk through securitization in table funded loans that most probably also ignored the closing documents with investor lenders who advanced money for pools in which student loans were supposedly “assigned.”

Vacate the Substitution of Trustee

“The Bottom Line is that if the REMIC transactions were real, they would have been named on the note and mortgage. The fact that they never were named or disclosed demonstrates clearly that something else was going on besides funding mortgages with REMIC money from investors. Nobody would loan money without putting their name as payee on the note, their name as lender on the note and mortgage and their name as beneficiary. The Wall Street explanation that MERS and other obscurities were necessary to securitize the loans is in fact directly contrary to the fact that the loans were never securitized, that the mortgage bonds were bogus obligations from empty REMICs with no bank account and no active manager or trustee.” Neil F Garfield, livinglies.me

A recent case I reviewed, resulted in a full analysis, and my suggestions for strategy, tactics, pleading and oral argument. It involved Bank of America,  Recontrust and BONY/Mellon.

What is again so interesting is that we are dealing with BOA in SImi Valley, CA (supposedly) with Reconstrust in in in Richardson, TX. What is interesting is that the response to my letter which was addressed only to Recontrust came from BOA. This is evidence of the fact that Recontrust are one and the same entity. It doesn’t prove it but it is evidence of it. Thus the challenge to the substitution of trustee comes under the heading that a beneficiary cannot name itself as the trustee. The statute says the TRUSTOR names the trustee on the deed of trust not the beneficiary. And while the beneficiary may change the trustee there is nothing in the statute that even suggests that a beneficiary could name itself as the new trustee. The statute says that the trustee is to substitute for a court of law and that it is to exercise (See Hogan decision and others) a fiduciary duty toward both the Trustor and the beneficiary.

In most cases, the appearance of Bank of America as a beneficiary is via “merger with BAC” which was created to take the servicing rights from Countrywide (not the ownership of the loan). Yet the debt validation letter causes a response to show that the creditor is Bank of America while the Notice of Default shows as having a REMIC as the creditor, which would make the REMIC the beneficiary. So we have a conflict of creditors that comes from the same source.

Since the REMIC is required by law and contract to be closed out within 90 days with the loans in it, and since we know they didn’t do that, the money from the investors was beyond any reasonable doubt channeled through  conduits controlled by the investment banker and not the account of the REMIC because there was no trust account, bank account or any account through which the investor money was channeled and then sued to fund or buy loans. This leads to the inevitable conclusion that the entire scheme is a smoke screen for what really occurred.

Based upon what we know, the REMIC structure was actually ignored when it came to the movement of money. Based upon what we know, Quicken Loans and others acted as “originators”, which is a word that is not really defined legally but it would imply that it was the sales entity to reel in borrowers for a deal. While Quicken Loans was shown as payee on the note and lender on the note and mortgage (deed of trust), Quicken had neither loaned any money nor secured the loan through any legal nexus between Quicken and the investors. MERS was inserted as a placeholder for title purposes. Quicken was thus inserted as a placeholder for payment purposes — all without ad  equate disclosure of the compensation received by MERS or QUICKEN in the deal (a clear violation of TILA and RESPA).

Immediately after the closing of the loan the borrower was informed that the servicing rights had been transferred to Countrywide, and thereafter BAC emerged as the servicer. BAC was formed as a wholly owned subsidiary of bank of America and then merged with Bank of America for unknown reasons, and thus the servicing of the loan was assumed to be the right of Bank of America. But what was there to service?

If Quicken did not advance the funds for the loan nor did Quicken or any of its “successors” advance money for the purchase of a perfectly performing loan, then who did? The answer comes from irrefutable logic. We know the REMIC was ignored so the money didn’t come from the REMIC. If there was an intermediary who was acting as agent for the REMIC it had to be the Trustee for the REMIC who has no trust account or bank account to show for it. Thus the money came from another source and the money taken from investors may or may not have been used to fund the borrower’s loan in this case or more likely, a larger pool of investor funds was used as the source of funding but was NOT documented with the usual promissory note and mortgage (deed of trust) signed by the borrower.

The legal conclusion I reach is that the mountain of paperwork starting with the “origination” of the loan is worthless paper unsupported by either consideration (funding the loan) and whose recitations of facts are at variance with (1) the actual trail of money and (2) the provisions of the documents upon which Bank of America now relies requiring assignment of the loan in recordable form into the REMIC within 90 days while it was still performing. But they couldn’t assign it into the trust because (1) the trust had no money or account with which to pay for the loan and (2) this would have prevented the investment bank from trading the loan and the loan portfolios as if it were the property of the investment bank.

Thus Bank of America is attempting to appear as the new beneficiary based upon a complete lack of any chain of transactions that would make it so. And they are using the cover of BONY as “trustee” as cover for their false and fraudulent representations knowing full well that neither BONY nor the REMIC ever received a dime from investors, borrowers or anyone else and that instead the flow of money was entirely outside the sham paper transactions upon which BOA now relies.

Having covered up an incomplete unexecuted contract without funding the loan, the securitization participants proceeded to act as though the loan transaction with Quicken was real. If they relied upon the original trustee, the original trustee would have required sufficient title and other information from BOA before taking any action against the Trustor borrower.

Thus Bank of America names Reconstrust as the substitute trustee, that will “play ball” with them because Recontrust is owned and controlled by Bank of America. The challenge, as we have said, should be to the substitution of trustee as not having named an objective third party and instead being the equivalent of the beneficiary naming itself as trustee. BY definition, the new trustee is neither likely nor able to exercise due diligence and act in a responsible manner with a  fiduciary duty to the trustor and beneficiary, if they can determine the  identity of the beneficiary.

Thus any TRO or other action should be directed against the substitution of trustee as being outside the intent of the statute and violative of due process since it provides the beneficiary with unfettered ability to sell property merely on a whim.  In order to demonstrate compliance with the requirements of constitutional dude process the legislature had to show that there was a different procedure in place that would allow for the claims of all stakeholders to be heard. Even if the substitution of trustee was valid, the mere denial of the claims of the beneficiary and accusations of fraud, false assignments, and a closing at which the mortgage lien was not perfected, on a note that did not  name the proper payee nor state the same terms of repayment that the investors received when they “bought” the bogus mortgage bonds.

Bottom Line: The Pile of paperwork is worthless and does not create nor provide evidence of an actual transaction that took place wherein the named payee and lender ever fulfilled its part of the bargain — lending money to the borrower. Nor does it present even the possibility of a perfected mortgage lien. Thus foreclosure is impossible. The trustee was and is under an obligation in contested cases to file an interpleader action where the stakeholders’ claims may be heard on the merits. The primary trustee on the deed of trust may have violated its fiduciary duties by allowing the practice that it, of all entities, would or should have known was both illegal and improper. For both procedural and substantive reasons, the notice of default and notice of sale should be vacated and purged from the county records.

DELAY Is the Name of the Game

Featured Products and Services by The Garfield Firm

——–>SEE TABLE OF CONTENTS: WHOSE LIEN IS IT ANYWAY TOC

LivingLies Membership – If you are not already a member, this is the time to do it, when things are changing.

For Customer Service call 1-520-405-1688


Editor’s Notes:  

It comes as no surprise that BofA, now the unproud owner of Countrywide, would repeatedly appeal a judgment in which a moral man tried to avoid moral hazard at Countrywide and was fired for it. Corporations do that all the time to gain the advantage of achieving a smaller settlement or to dissuade others from doing the same thing. I feel appalled that this guy in Gretchen’s story is still waiting for his compensation and that if BofA has its way, he will be deprived of it altogether. BofA of coruse says that when they acquired CW there just wasn’t a job left for him. Bullcrap:

“But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.” (e.s., see full article below and link).

“These folks went in the other direction” is an understatement. And while most of the media is stepping back from foreclosure stories except for reporting the numbers, this story brings back the raw, mean, lawless intent of Countrywide and other leaders of the securitization scam. Let me first remind you that for the most part, the “securitization” never occurred. Any loan declared to be part of a pool that was “securitized” or otherwise transferred into the pool is a damn lie. Very few people understand how that even COULD be true, much less believe that it is an accurate statement. But it is true. There was no securitization in most cases.

If a loan was securitized it would have been underwritten by a bona fide lender and then sold to an aggregator, and from there sold to a REMIC “trust” or special purpose vehicle. Certificates of ownership of the loan together with a promise to pay the owner of the loan a sum of money with interest would have been issued to qualified investors like pension funds and other institutional investors upon which our society depends for social services and a safety net (which in the case of pension funds is largely funded by the workers themselves). Of course the investors would have paid the investment banker for those loans including a small fee for brokering the transaction. And everyone lives happily ever after because Tinker Bell certified the transactions.

So if the loan was securitized, then both the document trail and the money trail would show that the loan was properly owned and funded by the “lender,”, the lender assigned the loan in exchange for payment from the aggregator and the aggregator assigned the loan in exchange for payment into the pool (REMIC, trust, or whatever you want to call it). The problem for the banks is that none of that happened in most cases. And their solution to that problem, instead of acting like trustworthy banks, is to delay and fabricate and forge and intimidate. (PRACTICE NOTE: THESE ARE THE DOCUMENTS AND PROOF OF PAYMENT YOU WANT IN DISCOVERY)

The real story is that the loan was not underwritten by a bona fide lender whose role involved any risk of loss on the loan. In fact, in most cases there was no financial transaction between the lender named on the note and mortgage and the borrower. The financial transaction actually occurred between the borrower and an undifferentiated commingled group of investors who THOUGHT they were buying into REMICs but whose money was used for anything BUT the REMICs. Their money was in an account far from the securitization chain described above controlled by an investment bank who was taking “trading profits” and fees out of the money as though it was their own private piggy bank.

The “assignment” (sometimes erroneously referred to as an allonge or endorsement) was offered and accepted between the named lender (who was not the real lender) and the mortgage aggregator WITHOUT PAYMENT. The assignment says “for value received” but the value was received by the borrower and the investment bank and so there was no payment by the aggregator for an assignment from a “lender” that wasn’t the lender anyway and who never had one penny in the deal, nor any legal right to declare that they were the owner of the loan.

The “aggregator” was a fictitious entity meant to deceive any inquiring eyes. My eyes were inquiring and for a long while I believed in the existence of the aggregator — but then I was late on getting the real scoop on Santa and tooth fairy too. But it misdirects the attention of the audience like any illusionist. Meanwhile various “affiliates of the investment bank are busy creating “exotic instruments” that make believe that the bank owns the loan and thus has the power to sell it, when in fact we all know that the investors own the note but even they don’t quite understand how they own the note — a fact complicated by the fact that the “aggregator” was a fiction and the money came from a Superfund escrow account in which ALL the money from ALL the investors was commingled and the moment of funding of each loan was a different moment in the SuperFund account because money was coming and going and so were investors. This is what enabled the banks to (a) sell something they didn’t own (they called it selling forward, but it wasn’t selling forward, it was fraud) (b) sell it over and over again, by calling the “exotic instrument” something else, changing a few pieces of information about the loan data and presto!, Bear Stearns had “leveraged” the loan 42 times.

Translation: They sold something they didn’t have 42 times. And the risk of loss was that if someone in the chain of sales ever demanded delivery, they needed to go out and buy the loans which they figured was a sure thing because in all probability the loans were not worth the paper they were written on and in the open market, they could be purchased for pennies while Bear Stearns et al was selling the loans 42 times over at 100 cents on the dollar.

The last “assignment” for “value received” into the “pool” also had similar problems. First, the aggregator was a fictitious entity, second there was no value paid, and third they had already sold the loan 42 times. Add to that the assignment simply never took place to either the aggregator or the pool unless there was litigation and you have a real mess on your hands, which is where distraction and delay and illusion and raw intimidation come into play — all present in the case of one Michael Winston, a former executive at Countrywide Financial.

The repeated sales of the loans, the repeated collection of insurance for losses that never occurred, and repeated collection of proceeds of credit default swaps (a/k/a sales with a different name) means quite simply that the loan was paid in full from the start and that there is no balance due and probably never was any balance due and even if there was a balance due it was never due to the people who are now foreclosing. So why are they foreclosing? Because if they get to complete a foreclosure it completes the illusion that the investors were owed the money from the borrower instead of the bank that stole their money in the first place. So they pursue foreclosures while their PR machines grind out the illusion of modifications and mediation and short-sales. Nobody is getting good title or a title policy worth the paper it is written upon, but who cares?

He Felled a Giant, but He Can’t Collect

By GRETCHEN MORGENSON

“TAKING on corporate Goliaths for their wrongdoing should not be so daunting.”

That’s the view of Michael Winston, a former executive at Countrywide Financial, the subprime lending machine that was swallowed up by Bank of America in 2008. Mr. Winston won a wrongful-dismissal and retaliation case against the company in February 2011, but is still waiting to receive his $3.8 million award. Bank of America is fighting back and has appealed the jury verdict twice.

After hearing a month of testimony from a parade of top Countrywide officials, including the company’s founder, Angelo Mozilo, a California state jury sided with Mr. Winston. An executive with decades of expertise in management strategy, he contended that he was pushed out for, among other things, refusing to follow questionable orders from his superiors.

But for the last year and a quarter, Mr. Winston, 61, has been in legal limbo. Bank of America lost one appeal in the court that heard the case and has filed another that is pending in state appellate court.

Mr. Winston, meanwhile, has been unable to find work that is commensurate with his experience. “The devastation caused by Countrywide to me, my family, my team, the work force, customers, shareholders, taxpayers and citizens around the world is incalculable,” he said.

Before joining Countrywide, Mr. Winston held high-powered strategy posts at Motorola, McDonnell Douglas and Lockheed. He was global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that post in 2003 to care for his parents, who were terminally ill.

At Countrywide, he said, one of his problems was his refusal in fall 2006 to misrepresent the company’s corporate governance practices to analysts at Moody’s Investors Service. The ratings agency had expressed concerns about succession planning at Countrywide and other governance issues that the company hoped to allay.

Mr. Winston says a Countrywide executive asked him to write a report outlining Countrywide’s extensive succession planning for use by Moody’s. He refused, noting that he had no knowledge of any such plan. The company began to diminish his duties and department shortly thereafter. He was dismissed after Bank of America took over Countrywide.

Of course, it is not unusual for big corporate defendants to appeal jury awards. Bank of America argues in its court filings that the jury erred because Mr. Winston’s battles with his Countrywide superiors had nothing to do with his dismissal. Bank officials testified that he was let go because there was no job for him at the acquiring company.

“We believe that the jury’s finding of liability on the single claim of wrongful termination in retaliation is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” a Bank of America spokesman said.

In court filings, the bank also said that the jury appeared to be “swayed by emotion and prejudice, focusing on unsubstantiated and unsupported statements by plaintiff and his counsel slandering Countrywide and its executives.”

But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.”

The credibility of all testimony in the case was central to jurors’ deliberations, Mr. Usher said. Instructions to the jury went into great detail on this point, advising them that they were “the sole and exclusive judges of the believability of the witnesses and the weight to be given the testimony of each witness.” The instructions added: “A witness, who is willfully false in one material part of his or her testimony, is to be distrusted in others.”

Mr. Usher said that those who testified against Mr. Winston “didn’t have a lot of credibility.”

That’s putting it mildly, said Charles T. Mathews, a former prosecutor in the Los Angeles County district attorney’s office who represented Mr. Winston. He said he was so disturbed by what he characterized as persistent perjury by various Countrywide officials that he forwarded annotated copies of court transcripts to Steve Cooley, the Los Angeles district attorney, for possible investigation.

“We won a multimillion-dollar verdict against Countrywide, but it sticks in my guts that they lied through their teeth and continue to escape accountability,” Mr. Mathews wrote to Mr. Cooley, urging him to investigate.

Whether perjury or not, the testimony ran into withering challenges.

Countrywide’s top human resources executive testified that Mr. Winston was a problematic employee and not a team player. But a performance evaluation she had written shortly before the company started to reduce his duties was produced in the case. It said Mr. Winston had “done well to build relationships with key members of senior management and continues to do so.”

The evaluation went on: “Michael strives to be a team player,” and “is absolutely focused on process improvement in his areas and has been working tirelessly to do so since he’s been on board.”

Mr. Mathews also contends that Mr. Mozilo, in a rare courtroom appearance, misrepresented his views of Mr. Winston. First, Mr. Mozilo testified that he did not know Mr. Winston, even though testimony and documents showed that he had attended presentations with him, personally given Mr. Winston a pair of Countrywide cuff links and told another employee that Mr. Winston’s leadership programs were “exactly what Countrywide needs.”

Mr. Mozilo’s testimony that he was unimpressed with Mr. Winston and his work was also refuted by another Countrywide executive who said that Mr. Mozilo was enthusiastic enough about Mr. Winston’s programs to suggest that he present them to the company’s board.

Asked about Mr. Mozilo’s testimony, David Siegel, a lawyer who represents him, said in an e-mail that there was no merit to the accusation that Mr. Mozilo was not truthful.

A spokeswoman for Mr. Cooley’s office confirmed last week that it had received the court transcripts and said that one of its prosecutors was reviewing them. She declined to comment further.

“God forbid our system continues to ignore these people and their acts,” Mr. Mathews said in an interview last week. “I am optimistic but the price of justice can be different depending on what your wallet says.”


BUY THE BOOK! CLICK HERE!

BUY WORKSHOP COMPANION WORKBOOK AND 2D EDITION PRACTICE MANUAL

GET TWO HOURS OF CONSULTATION WITH NEIL DIRECTLY, USE AS NEEDED

COME TO THE 1/2 DAY PHOENIX WORKSHOP: CLICK HERE FOR PRE-REGISTRATION DISCOUNTS

Whistleblower Bangs BofA for $14.5 million in Mortgage Case

Featured Products and Services by The Garfield Firm

——–>SEE TABLE OF CONTENTS: WHOSE LIEN IS IT ANYWAY TOC

LivingLies Membership – Get Discounts and Free Access to Experts

For Customer Service call 1-520-405-1688

Editor’s Comment:

Countrywide Financial Inflated Appraisals 

For people in law enforcement this is a time when it gets to be fun going after the big guys.  Being arrogant to the highest degree going into this mortgage mess you can only imagine the ego of the Titans of Wall Street after making trillions of dollars in turning the entire mortgage process on its head and reversing all common sense criteria in underwriting loans.

The rats are leaving the ship by the thousands, whether they want to or not.  There is hardly a day that goes by that some former employee of Countrywide, Bank of America, Chase, Citi or Wells Fargo does not reveal that they were under instructions to violate regulations and law.

The inflation of appraisals of the securities and the inflation of the homes themselves was the key to the success of the Wall Street plan.  This plan was devoted to sucking out as much o the liquidity in the marketplace as they could possibly achieve.  This in itself is a reversal of even the purpose of allowing Wall Street to exist.  Wall Street’s mandate is to provide liquidity in the marketplace and not taking it away.  Instead they took the equivalent of the gross domestic product of several countries combined (including the United States) and converted the proceeds to “trading profits”.

It is good that these whistleblowers are appearing and it’s even good they are making so much money.  This will encourage other whistleblowers and will encourage those attorneys who thought mortgage litigation was beneath them.  As these cases proceed we will see more and more understandable facts emerge that explain the tragic reversal of our financial model and the historic consequences to most of the major countries of the world.

Bank of America Whistleblower Receives $14.5 million in Mortgage Case

By Rick Rothacker

(Reuters) – A former home appraiser will receive $14.5 million as part of a whistleblower lawsuit that accused subprime lender Countrywide Financial of inflating appraisals on government-insured loans, his attorneys said Tuesday.

Kyle Lagow’s lawsuit sparked an investigation that culminated in a $1 billion settlement announced in February between Bank of America Corp (BAC.N) and the U.S. Justice Department over allegations of mortgage fraud at Countrywide, his attorneys said in a news release. Bank of America bought Countrywide in 2008.

Lagow’s suit was one of five whistleblower complaints that were folded into the $25 billion national mortgage settlement that state and federal officials reached with Bank of America and four other lenders this year. His suit was unsealed in February, but the amount of his settlement had not been disclosed.

Gregory Mackler, a whistleblower who challenged Bank of America’s handling of the government’s HAMP mortgage modification program, has also finalized a settlement, said Shayne Stevenson, an attorney with the Hagens Berman law firm, which represented both whistleblowers. Stevenson declined to comment on Mackler’s settlement amount.

The complaints were brought under a whistleblower provision in the U.S. False Claims Act, which allows private individuals with knowledge of wrongdoing to bring suits on behalf of the government and share in the proceeds of any settlement.

Both Lagow and Mackler lost their jobs after raising concerns about practices at their companies and faced difficult times awaiting settlements, Stevenson said. Lagow, who worked in a Countrywide appraisal unit, filed his suit in 2009; Mackler, who worked at a firm called Urban Lending Solutions, brought his case in 2011.

“These guys are inspirational,” Stevenson said. “They both did the right thing. They should inspire other people to come forward.”

Bank of America declined to comment. A spokesman for the U.S. Attorney’s Office in the Eastern District of New York, which handled the Bank of America settlement, also declined to comment.

BUY THE BOOK! CLICK HERE!

BUY WORKSHOP COMPANION WORKBOOK AND 2D EDITION PRACTICE MANUAL

GET TWO HOURS OF CONSULTATION WITH NEIL DIRECTLY, USE AS NEEDED

COME TO THE 1/2 DAY PHOENIX WORKSHOP: CLICK HERE FOR PRE-REGISTRATION DISCOUNTS

Bribery or Business as Usual?

Featured Products and Services by The Garfield Firm

LivingLies Membership – Get Discounts and Free Access to Experts

For Customer Service call 1-520-405-1688

Editor’s Comment and Analysis:

There is only one way this isn’t an outright bribe that should land the senator in jail — and that is proving that he received nothing of value. Stories abound in the media about haircut rates given to members of government particularly by Countrywide, now owned by Bank of America. Now we see it on the way down where others go through hoops and ladders to get a modification of short-sale but members of Congress get special treatment.

The only way this could be considered nothing of value is if the banks that gave this favor knew that they didn’t lend the money, didn’t purchase the loan and didn’t have a dime in the deal. They can prove it but they won’t because the fallout would be that there are no loans in print and that there are no perfected mortgage loans. The consequence is that there can be no foreclosures. And it would mean that the values carried on the books of these banks are eihter overstated or entirely fictiouos. The general consensus is that capital requirments for the banks should be higher. But what if the capital they are reporting doesn’t exist?

We are seeing practically everyday how Congress is bought off by the Banks and yet we do nothing. How can you expect to be taken seriously by the executive branch and the judicial branch of goveornment charged with enforcing the laws? If you are doing nothing and complaining, it’s time to get off the couch and do something with the Occupy Movement or your own private war with the banks. If you are not complaining, you should be — because this tsunami is about to hit the front door of your house too whether you are making the payments or not.

The power of the new aristocracy in American and European politics is felt around the globe. People are suffering in the U.S., Ireland, France, Spain, Italy, Greece and other places because the smaller banks in all those countries got taken to the cleaners by huge conglomerate Wall Street Banks. Ireland is reporting foreclosures and defaults at record rates. It was fraud with an effect far greater than any other act of domestic or international terrorism. And it isn’t just about money either. Suicides, domestic violence ending in death and mental illness are pandemic. And nobody cares about the little guy because the little guy is just fuel for the endless appetite of Wall Street. 

If Obama rreally wants to galvanize the electorate, he must be proactive on the fierce urgency of NOW! Those were his words when he was a candidate and he owes us action because that urgency was felt in 2008 and is a vice around everyone’s neck now.

JPMorgan Chase & the Senator’s Short Sale:

It’s Hypocritical -But Is It Corrupt?

By Richard (RJ) Eskow

There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:

Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?

The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

People should be demanding those answers now.

When Jamie Met Mike

It’s not a pretty picture: In one corner is the Senator who wants to strike down Federal child labor laws and offer American residency to any non-citizen who buys a home with cash. In the other is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes.

“Giving debt relief to people that really need it,” said Dimon, “that’s what foreclosure is.” That comment is Dickensian in its insensitivity – and Dimon’s bank offered real relief to the Senator from Utah.

The story of the short sale on Sen. Mike Lee’s home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn’t believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation’s leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity – money owed to the banks for non-existent home value – is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were “underwater” (meaning they owe more than the home is now worth). That’s about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the “short sale,” in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike’s Deal

But Mike Lee didn’t have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn’t said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let’s see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You’d think a story like that would get a little more attention than it has so far.

The Right’s Outrageous Hypocrisy

We haven’t seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their “legal obligation” and the terrible “message they would send” by walking away from their mortgages.

Then he did a short sale on the MBA’s headquarters. It sold for a reported $41 million, just three years after the MBA – those captains of real estate – paid $74 million for it.

The MBA calls itself “the voice of the mortgage banking industry.”

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: “Losers! Losers! Losers!”

Mike Lee’s Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout of JPMorgan Chase after voting to end unemployment for jobless Americans. Lee also argued against Federal child labor laws, although he did acknowledge that child labor is “reprehensible.”

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes “the federal government’s out-of-control spending has evolved into a major threat to our economic prosperity and job creation” and that he came to Washington to, among other things, “properly manage our finances”. Lee’s website also scolds Congress because, he says, it “cannot live within its means.”

As Ed McMahon used to say, “Write your own joke.”

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy – and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like … well, like what JPMorgan Chase just did in London.

“Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap”

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from Wall Street New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 – as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks – banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads “Million Dollar Sellers’ Club.”

Mike Lee’s bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they’ve put into high-end homes, people like … well, like Mike Lee.

Jamie Dimon’s Outrageous Hypocrisy

Then there’s Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

“Yeah,” Dimon said of principal reductions for homeowners like Sen. Lee, “that’s off the table.”

Dimon’s been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a “loan by loan” basis.

The Rich Are Different – They Have More Mortgage Relief

“The rich are different,” wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that ” the only difference between the rich and other people is that the rich have more money.”

And they apparently find it a lot easier to walk away from their underwater homes.There’s been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don’t want to “reward the underserving,” since hedge fund traders who overestimated next year’s bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that’s where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that’s what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a “loan by loan” basis.

Immoral Logic

While this “loan by loan” approach lacks morality, there’s some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That’s why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they’re not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That’s where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

(“Sorry to interrupt, Mr. Dimon, but it’s London calling.”)

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here’s what the public deserves to know:

Could the writedown on the home’s value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don’t know enough to answer that question yet.

What are JPMorgan Chase’s procedures for deciding who receives mortgage relief and who doesn’t?

Dimon may prefer to handle these matters on a “loan by loan” basis, but there must be guidelines that bank officers can follow. And presumably they’ve been written down somewhere. Were they followed in Mike Lee’s case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, “a big elfin’ deal.” A mid-level bank officer isn’t likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee’s mortgage?

It wouldn’t be unheard of if a a sensitive matter like this one was escalated to all the way to the company’s most senior executive – especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM’s scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a “Friend of Jamie”?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide – even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called “Friends of Angelo,” named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a “Friends of Jamie” list at JPMorgan Chase – and is Mike Lee’s name on it?

Were there any discussions between the bank’s executives and the Senator regarding the foreign home buyer’s bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys – this doesn’t look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee’s home? 

JPMorgan Chase funded, and was an active participant, in the “MERS” program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

“Today’s Wall Street Corruption Fun Fact”: MERS was operated by the Mortgage Bankers Association – the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they’d been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by “average American” you mean “most homeowners,” then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee’s credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee’s mortgage write-off?

That gets tricky – but in a moral sense, you could certainly say that.

Short Selling Democracy

There’s no question that this deal is hypocritical and ugly, and that it reflects much of what’s still broken about both our politics and Wall Street. Is it a scandal? Without these answers we can’t know. This was either a case of the special treatment that is so often reserved for the wealthy, or it’s something even worse: influence peddling and political corruption.

it’s time for JPMorgan Chase and Sen. Mike Lee to come clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public’s entitled to some answers.


Like I said, the loans never made into the “pools”

Featured Products and Services by The Garfield Firm

NEW! 2nd Edition Attorney Workbook,Treatise & Practice Manual – Pre-Order NOW for an up to $150 discount
LivingLies Membership – Get Discounts and Free Access to Experts
For Customer Service call 1-520-405-1688

Want to read more? Download entire introduction for the Attorney Workbook, Treatise & Practice Manual 2012 Ed – Sample

Pre-Order the new workbook today for up to a $150 savings, visit our store for more details. Act now, offer ends soon!

Editor’s Comment:

When I first suggested that securitization itself was a lie, my comments were greeted with disbelief and derision. No matter. When I see something I call it the way it is. The loans never left the launch pad, much less flew into a waiting pool of investor money. The whole thing was a scam and AG Biden of Đelaware and Schniedermann of New York are on to it.

The tip of the iceberg is that the note was not delivered to the investors. The gravitas of the situation is that the investors were never intended to get the note, the mortgage or any documentation except a check and a distribution report. The game was on.

First they (the investment banks) took money from the investors on the false pretenses that the bonds were real when anyone with 6 months experience on Wall street could tell you this was not a bond for lots of reasons, the most basic of which was that there was no borrower. The prospectus had no loans because there were no loans made yet. The banks certainly wouldn’ t take the risks posed by this toxic heap of loans, so they were waiting for the investors to get conned. Once they had the money then they figured out how to keep as much of it as possible before even looking for residential home borrowers. 

None of the requirements of the Internal Revenue Code on REMICS were followed, nor were the requirements of the pooling and servicing agreement. The facts are simple: the document trail as written never followed the actual trail of actual transactions in which money exchanged hands. And this was simply because the loan money came from the investors apart from the document trail. The actual transaction between homeowner borrower and investor lender was UNDOCUMENTED. And the actual trail of documents used in foreclosures all contain declarations of fact concerning transactions that never happened. 

The note is “evidence” of the debt, not the debt itself. If the investor lender loaned money to the homeowner borrower and neither one of them signed a single document acknowledging that transaction, there is still an obligation. The money from the investor lender is still a loan and even without documentation it is a loan that must be repaid. That bit of legal conclusion comes from common law. 

So if the note itself refers to a transaction in which ABC Lending loaned the money to the homeowner borrower it is referring to a transaction that does not now nor did it ever exist. That note is evidence of an obligation that does not exist. That note refers to a transaction that never happened. ABC Lending never loaned the homeowner borrower any money. And the terms of repayment intended by the securitization documents were never revealed to the homeowner buyer. Therefore the note with ABC Lending is evidence of a non-existent transaction that mistates the terms of repayment by leaving out the terms by which the investor lender would be repaid.

Thus the note is evidence of nothing and the mortgage securing the terms of the note is equally invalid. So the investors are suing the banks for leaving the lenders in the position of having an unsecured debt wherein even if they had collateral it would be declining in value like a stone dropping to the earth.

And as for why banks who knew better did it this way — follow the money. First they took an undisclosed yield spread premium out of the investor lender money. They squirreled most of that money through Bermuda which ” asserted” jurisdiction of the transaction for tax purposes and then waived the taxes. Then the bankers created false entities and “pools” that had nothing in them. Then the bankers took what was left of the investor lender money and funded loans upon request without any underwriting.

Then the bankers claimed they were losing money on defaults when the loss was that of the investor lenders. To add insult to injury the bankers had used some of the investor lender money to buy insurance, credit default swaps and create other credit enhancements where they — not the investor lender —- were the beneficiary of a payoff based on the default of mortgages or an “event” in which the nonexistent pool had to be marked down in value. When did that markdown occur? Only when the wholly owned wholly controlled subsidiary of the investment banker said so, speaking as the ” master servicer.”

So the truth is that the insurers and counterparties on CDS paid the bankers instead of the investor lenders. The same thing happened with the taxpayer bailout. The claims of bank losses were fake. Everyone lost money except, of course, the bankers.

So who owns the loan? The investor lenders. Who owns the note? Who cares, it was worth less when they started; but if anyone owns it it is most probably the originating “lender” ABC Lending. Who owns the mortgage? There is no mortgage. The mortgage agreement was written and executed by the borrower securing terms of payment that were neither disclosed nor real.

Bank Loan Bundling Investigated by Biden-Schneiderman: Mortgages

By David McLaughlin

New York Attorney General Eric Schneiderman and Delaware’s Beau Biden are investigating banks for failing to package mortgages into bonds as advertised to investors, three months after a group of lenders struck a nationwide $25 billion settlement over foreclosure practices.

The states are pursuing allegations that some home loans weren’t correctly transferred into securitizations, undermining investors’ stakes in the mortgages, according to two people with knowledge of the probes. They’re also concerned about improper foreclosures on homeowners as result, said the people, who declined to be identified because they weren’t authorized to speak publicly. The probes prolong the fallout from the six-year housing bust that’s cost Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders more than $72 billion because of poor underwriting and shoddy foreclosures. It may also give ammunition to bondholders suing banks, said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm.

“The attorneys general could create a lot of problems for the banks and for the trustees and for bondholders,” Gradman said. “I can’t imagine a better securities law claim than to say that you represented that these were mortgage-backed securities when in fact they were backed by nothing.”

Countrywide Faulted

Schneiderman said Bank of America Corp. (BAC)’s Countrywide Financial unit last year made errors in the way it packaged home loans into bonds, while investors have sued trustee banks, saying documentation lapses during mortgage securitizations can impair their ability to recover losses when homeowners default. Schneiderman didn’t sue Bank of America in connection with that criticism.

The Justice Department in January said it formed a group of federal officials and state attorneys general to investigate misconduct in the bundling of mortgage loans into securities. Schneiderman is co-chairman with officials from the Justice Department and the Securities and Exchange Commission.

The next month, five mortgage servicers — Bank of America Corp., Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. and Ally Financial Inc. (ALLY) — reached a $25 billion settlement with federal officials and 49 states. The deal pays for mortgage relief for homeowners while settling claims against the servicers over foreclosure abuses. It didn’t resolve all claims, leaving the lenders exposed to further investigations into their mortgage operations by state and federal officials.

Top Issuers

The New York and Delaware probes involve banks that assembled the securities and firms that act as trustees on behalf of investors in the debt, said one of the people and a third person familiar with the matter.

The top issuers of mortgage securities without government backing in 2005 included Bank of America’s Countrywide Financial unit, GMAC, Bear Stearns Cos. and Washington Mutual, according to trade publication Inside MBS & ABS. Total volume for the top 10 issuers was $672 billion. JPMorgan acquired Bear Stearns and Washington Mutual in 2008.

The sale of mortgages into the trusts that pool loans may be void if banks didn’t follow strict requirements for such transfers, Biden said in a lawsuit filed last year over a national mortgage database used by banks. The requirements for transferring documents were “frequently not complied with” and likely led to the failure to properly transfer loans “on a large scale,” Biden said in the complaint.

“Most of this was done under the cover of darkness and anything that shines a light on these practices is going to be good for investors,” Talcott Franklin, an attorney whose firm represents mortgage-bond investors, said about the state probes.

Critical to Investors

Proper document transfers are critical to investors because if there are defects, the trusts, which act on behalf of investors, can’t foreclose on borrowers when they default, leading to losses, said Beth Kaswan, an attorney whose firm, Scott + Scott LLP, represents pension funds that have sued Bank of New York Mellon Corp. (BK) and US Bancorp as bond trustees. The banks are accused of failing in their job to review loan files for missing and incomplete documents and ensure any problems were corrected, according to court filings.

“You have very significant losses in the trusts and very high delinquencies and foreclosures, and when you attempt to foreclose you can’t collect,” Kaswan said.

Laurence Platt, an attorney at K&L Gates LLP in Washington, disagreed that widespread problems exist with document transfers in securitization transactions that have impaired investors’ interests in mortgages.

“There may be loan-level issues but there aren’t massive pattern and practice problems,” he said. “And even when there are potential loan-level issues, you have to look at state law because not all states require the same documents.”

Fixing Defects

Missing documents don’t have to prevent trusts from foreclosing on homes because the paperwork may not be necessary, according to Platt. Defects in the required documents can be fixed in some circumstances, he said. For example, a missing promissory note, in which a borrower commits to repay a loan, may not derail the process because there are laws governing lost notes that allow a lender to proceed with a foreclosure, he said.

A review by federal bank regulators last year found that mortgage servicers “generally had sufficient documentation” to demonstrate authority to foreclose on homes.

Schneiderman said in court papers last year that Countrywide failed to transfer complete loan documentation to trusts. BNY Mellon, the trustee for bondholders, misled investors to believe Countrywide had delivered complete files, the attorney general said.

Hindered Foreclosures

Errors in the transfer of documents “hampered” the ability of the trusts to foreclose and impaired the value of the securities backed by the loans, Schneiderman said.

“The failure to properly transfer possession of complete mortgage files has hindered numerous foreclosure proceedings and resulted in fraudulent activities,” the attorney general said in court documents.

Bank of America faced similar claims from Nevada Attorney General Catherine Cortez Masto, who accused the Charlotte, North Carolina-based lender of conducting foreclosures without authority in its role as mortgage servicer due improper document transfers. In an amended complaint last year, Masto said Countrywide failed to deliver original mortgage notes to the trusts or provided notes with defects.

The lawsuit was settled as part of the national foreclosure settlement, Masto spokeswoman Jennifer Lopez said.

Bank of America spokesman Rick Simon declined to comment about the claims made by states and investors. BNY Mellon performed its duties as defined in the agreements governing the securitizations, spokesman Kevin Heine said.

“We believe that claims against the trustee are based on a misunderstanding of the limited role of the trustee in mortgage securitizations,” he said.

Biden, in his complaint over mortgage database MERS, cites a foreclosure by Deutsche Bank AG (DBK) as trustee in which the promissory note wasn’t delivered to the bank as required under an agreement governing the securitization. The office is concerned that such errors led to foreclosures by banks that lacked authority to seize homes, one of the people said.

Renee Calabro, spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.

Investors have raised similar claims against banks. The Oklahoma Police Pension and Retirement System last year sued U.S. Bancorp as trustee for mortgage bonds sold by Bear Stearns. The bank “regularly disregarded” its duty as trustee to review loan files to ensure there were no missing or defective documents transferred to the trusts. The bank’s actions caused millions of dollars in losses on securities “that were not, in fact, legally collateralized by mortgage loans,” according to an amended complaint.

“Bondholders could have serious claims on their hands,” said Gradman. “You’re going to suffer a loss as bondholder if you can’t foreclose, if you can’t liquidate that property and recoup.”

Teri Charest, a spokeswoman for Minneapolis-based U.S. Bancorp (USB), said the bank isn’t liable and doesn’t know if any party is at fault in the structuring or administration of the transactions.

“If there was fault, this unhappy investor is seeking recompense from the wrong party,” she said. “We were not the sponsor, underwriter, custodian, servicer or administrator of this transaction.”

The Reporter Who Saw it Coming

Featured Products and Services by The Garfield Firm

NEW! 2nd Edition Attorney Workbook,Treatise & Practice Manual – Pre-Order NOW for an up to $150 discount
LivingLies Membership – Get Discounts and Free Access to Experts
For Customer Service call 1-520-405-1688

Want to read more? Download entire introduction for the Attorney Workbook, Treatise & Practice Manual 2012 Ed – Sample

Pre-Order the new workbook today for up to a $150 savings, visit our store for more details. Act now, offer ends soon!

Editor’s Comment:

By Dean Starkman

Mike Hudson thought he was merely exposing injustice, but he also was unearthing the roots of a global financial meltdown.

Mike Hudson began reporting on the subprime mortgage business in the early 1990s when it was still a marginal, if ethically challenged, business. His work on the “poverty industry” (pawnshops, rent-to-own operators, check-cashing operations) led him to what were then known as “second-lien” mortgages. From his street-level perspective, he could see the abuses and asymmetries of the market in a way that the conventional business press could not. But because it ran mostly in small publications, his reporting was largely ignored. Hudson pursued the story nationally, via a muckraking book, Merchants of Misery (Common Courage Press, 1996); in a 10,000-word expose on Citigroup-as-subprime-factory, which won a Polk award in 2004 for the small alternative magazine Southern Exposure; and in a series on the subprime leader, Ameriquest, co-written as a freelancer, for the Los Angeles Times in 2005. He continued to pursue the subject as it metastasized into the trillion-dollar center of the Financial Crisis of 2008—briefly at The Wall Street Journal and now at the Center for Public Integrity. Hudson, 52, is the son of an ex-Marine and legendary local basketball coach. He started out on rural weeklies, covering championship tomatoes and large fish and such, even produced a cooking column. But as a reporter for The Roanoke Times he turned to muckraking and never looked back. CJR’s Dean Starkman interviewed Hudson in the spring of 2011.

Follow the ex-employees

The great thing about The Roanoke Times was that there was an emphasis on investigation but there was also an emphasis on storytelling and writing. And they would bring in lots of people like Roy Peter Clark and William Zinsser, the On Writing Well guy. The Providence Journal book, the How I Wrote the Story, was a bit of a Bible for me.

As I was doing a series on poverty in Roanoke, one of the local legal aid attorneys was like, “It’s not just the lack of money—it’s also what happens when they try to get out of poverty.” He said basically there are three ways out: they bought a house, so they got some equity; they bought a car so they could get some mobility; or they went back to school to get a better job. And in every case, he had example after example of folks, who because they were doing just that, had actually gotten deeper in poverty, trapped in unbelievable debt.

His clients often dealt with for-profit trade schools, truck driving schools that would close down; medical assistant’s schools that no one hired from; and again and again they’d be three, four, five, eight thousand dollars in debt, and unable to repay it, and then of course prevented from ever again going back to school because they couldn’t get another a student loan. So that got me thinking about what I came to know as the poverty industry.

I applied for an Alicia Patterson Fellowship and proposed doing stories on check-cashing outlets, pawn shops, second-mortgage lenders (they didn’t call themselves subprime in those days). This was ’91. We didn’t have access to the Internet, but I came across a wire story about something called the Boston “second-mortgage scandal,” and got somebody to send me a thick stack of clips. It was really impressive. The Boston Globe and other news organizations were taking on the lenders and the mortgage brokers, and the closing attorneys, and on and on.

I was trying to make the story not just local but national. I had some local cases involving Associates [First Capital Corp., then a unit of Ford Motor Corp.]. Basically, it turned out that Ford Motor Company, the old-line carmaker, was the biggest subprime lender in the country. The evidence was pretty clear that they were doing many of the same kinds of bait-and-switch salesmanship and, in some cases, pure fraud, that we later saw take over the mortgage market. I felt like this was a big story; this is the one! Later, investigations and Congressional hearings corroborated what I was finding in ’94, ’95, and ’96. And it seems so self-evident now, but I learned that finding ex-employees often gives you a window into what’s really going on with a company. The problem has always been finding them and getting them to talk.

I spent the better part of the ‘90s writing about the poverty industry and about predatory lending. As a reporter you don’t want to be defined by one subject. So I was actually working on a book about the history of racial integration in sports, interviewing old Negro-league baseball players. I was really trying to change a little bit of how I was moving forward career-wise. But it’s like the old mafia-movie line: every time I think I’m out, they pull me back in.

Subprime goes mainstream

In the fall of 2002, the Federal Trade Commission announced a big settlement with Citigroup, which had bought Associates, and at first I saw it as a positive development, like they had nailed the big bad actor. I’m doing a 1,000-word freelance thing, but of course as I started to report I started hearing from people who were saying that this settlement is basically giving them absolution, and allowed them to move forward with what was, by Citi standards, a pretty modest settlement. And the other thing that struck me was the media was treating this as though Citigroup was cleaning up this legacy problem, when Citi itself had its own problems. There had been a big magazine story about [Citigroup Chief Sanford I.] “Sandy” Weill. It was like “Sandy’s Comeback.” I saw this and said, ‘Whoa, this is an example of the mainstreaming of subprime.’

I pitched a story about how these settlements weren’t what they seemed, and got turned down a lot of places. Eventually I went to Southern Exposure and called the editor there, Gary Ashwill, and he said, “That’s a great story, we’ll put it on the cover.” And I said, “Well how much space can we have?” and he said, “How much do we need?” That was not something you heard in journalism in those days.

I interviewed 150 people, mostly borrowers, attorneys, experts, industry people, but the stuff that really moves the story are the former employees. Many of them had just gotten fired for complaining internally. They were upset about what had gone on—to some degree about how the company treated them, but usually very upset about how the company had pressured them and their co-workers to mistreat their customers.

As a result of the Citigroup stuff, I got a call from a filmmaker [James Scurlock] who was working on what eventually became Maxed Out, about credit cards and student loans and all that kind of stuff. And he asked if I could go visit, and in some cases revisit, some of the people I had interviewed and he would follow me with a camera. So I did sessions in rural Mississippi, Brooklyn and Queens, and Pittsburg. Again and again you would hear people talk about these bad loans they got. But also about stress. I remember a guy in Brooklyn, not too far from where I live now, who paused and said something along the lines of: ‘You know I’m not proud of this, but I have to say I really considered killing myself.’ Again and again people talked about how bad they felt about having gotten into these situations. It was powerful and eye-opening. They didn’t understand, in many cases, that they’d been taken in by very skillful salesmen who manipulated them into taking out loans that were bad for them.

If one person tells you that story, you say okay, well maybe it’s true, but you don’t know. But you’ve got a woman in San Francisco saying, “I was lied to and here’s how they lied to me,” and then you’ve got a loan officer for the same company in suburban Kansas saying, “This is what we did to people.” And then you have another loan officer in Florida and another borrower in another state. You start to see the pattern.

People always want some great statistic [proving systemic fraud], but it’s really, really hard to do that. And statistics data doesn’t always tell us what happened. If you looked at some of the big numbers during the mortgage boom, it would look like everything was fine because of the fact that they refinanced people over and over again. So essentially a lot of what was happening was very Ponzi-like—pushing down the road the problems and hiding what was going on. But I was not talking to analysts. I was not talking to high-level corporate executives. I was not talking to experts. I was talking to the lowest level people in the industry— loan officers, branch managers. I was talking to borrowers. And I was doing it across the country and doing it in large numbers. And when you actually did the shoe-leather reporting, you came up with a very different picture than the PR spin you were getting at the high level.

One day Rich Lord [who had just published the muckraking book, American Nightmare: Predatory Lending and the Foreclosure of the American Dream, Common Courage Press, 2004) and I went to his house. We were sitting in his study. Rich had spent a lot of time writing about Household [International, parent of Household Finance], and I had spent a lot of time writing about Citigroup. Household had been number one in subprime, and then CitiFinancial/Citigroup was number one. This was in the fall of 2004. We asked, well, who’s next? Rich suggested Ameriquest.

I went back home to Roanoke and got on the PACER—computerized court records—system and started looking up Ameriquest cases, and found lots of borrower suits and ex-employee suits. There was one in particular, which basically said that the guy had been fired because he had complained that Ameriquest business ethics were terrible. I just found the guy in the Kansas City phone book and called him up, and he told me a really compelling story. One of the things that really stuck out is, he said to me, “Have you ever seen the movie Boiler Room [2000, about an unethical pump-and-dump brokerage firm]?”

By the time I had roughly ten former employees, most of them willing to be on the record, I thought: this is a really good story, this is important. In a sense I feel like I helped them become whistleblowers because they had no idea how to blow the whistle or what to do. And Ameriquest at that point was on its way to being the largest subprime lender. So, I started trying to pitch the story. While I had a full-time gig at the Roanoke Times, for me the most important thing was finding the right place to place it.

The Los Angeles Times liked the story and teamed me with Scott Reckard, and we worked through much of the fall of 2004 and early 2005. We had thirty or so former employees, almost all of them basically saying that they had seen improper, illegal, fraudulent practices, some of whom acknowledged that they’d done it themselves: bait-and-switch salesmanship, inflating people’s incomes on their loan applications, and inflating appraisals. Or they were cutting and pasting W2s or faking a tax return. It was called the “art department”—blatant forgery, doctoring the documents. You know, it was pretty eye-opening stuff. One of the best details was that many people said they showed Boiler Room—as a training tape! And the other important thing about the story was that Ameriquest was being held up by politicians, and even by the media, as the gold standard—the company cleaning up the industry, reversing age-old bad practices in this market. To me, theirs was partly a story of the triumph of public relations.

Leaving Roanoke

I’d been in Roanoke almost 20 years as a reporter, and so, what’s the next step? I resigned from the Roanoke Times and for most of 2005 I was freelancing fulltime. I made virtually no money that year, but by working on the Ameriquest story, it helped me move to the next thing. I interviewed with The Wall Street Journal [and was hired to cover the bond market]. Of course I came in pitching mortgage-backed securities as a great story. I could have said it with more urgency in the proposal, but I didn’t want to come off as like an advocate, or half-cocked.

Daily bond market coverage is their bread-and-butter, and it’s something that needs to be done. And I tried to do the best I could on it. But I definitely felt a little bit like a point guard playing small forward. I was doing what I could for the team but I was not playing in a position where my talents and my skills were being used to the highest.

I wanted to do a documentary. I wanted to do a book [which would become The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis, Times Books, 2010]. I felt like I had a lot of information, a lot of stuff that needed to be told, and an understanding that many other reporters didn’t have. And I could see a lot of the writing focused on deadbeat borrowers lying about their income, rather than how things were really happening.

Through my reporting I knew two things: I knew that there were a lot of predatory and fraudulent practices throughout the subprime industry. It wasn’t isolated pockets, it wasn’t rogue lenders, it wasn’t rogue employees. It was really endemic. And I also knew that Wall Street played a big role in this, and that Wall Street was driving or condoning and/or profiting from a lot of these practices. I understood that, basically, the subprime lenders, like Ameriquest and even like Countrywide, were really just creatures of Wall Street. Wall Street loaned these companies money; they then made loans; they off-loaded the loans to Wall Street; Wall Street then sold them [as securities to investors]. And it was just this magic circle of cash flowing. The one thing I didn’t understand was all the fancy financial alchemy—the derivatives, the swaps, that were added on to put them on steroids.

It’s clear that people inside a company, one or two or three people, could commit fraud and get away with it, on occasion, despite the best efforts of a company. But I don’t think it can happen in a widespread way when a company has basic compliance systems in place. The best way to connect the dots from the sleazy practices on the ground to people at high levels was to say, okay, they did have these compliance people in place; they had fraud investigators, loan underwriters, and compliance officers. Did they do their jobs? And if they did, what happened to them?

In late 2010, at the Center for Public Integrity, I got a tip about a whistleblower case involving someone who worked at a high level at Countrywide. This is Eileen Foster, who had been an executive vice president, the top fraud investigator at Countrywide. She was claiming before OSHA that she was fired for reporting widespread fraud, but also for trying to protect other whistleblowers within the company who were also reporting fraud at the branch level and at the regional level, all over the country. The interesting thing is that no one in the government had ever contacted her! [This became “Countrywide Protected Fraudsters by Silencing Whistleblowers, say Former Employees,” September 22 and 23, 2011, one of CPI’s best-read stories of the year; 60 Minutes followed with its own interview of Foster, in a segment called, “Prosecuting Wall Street,” December 14, 2011.] It was very exciting. We worked really hard to do follow-up stories. I did about eight stories afterward, many about General Electric, a big player in the subprime world. We found eight former mortgage unit employees who had tried to warn about abuses and whom management had shunted aside.

I just feel like there needs to be more investigative reporting in the mix, and especially more investigative reporting—of problems that are going on now, rather than post-mortems or tick-tocks about financial disasters or crashes or bankruptcies that have already happened.

And that’s hard to do. It takes a real commitment from a news organization, and it can be a high-wire thing because you’re working on these stories for a long time, and market players you’re writing about yell and scream and do some real pushback. But there needs to be more of the sort of early warning journalism. It’s part of the big tent, what a newspaper is.

Follow

Get every new post delivered to your Inbox.

Join 3,118 other followers

%d bloggers like this: