Livinglies&#039;s Weblog

The recession was her fault. Meet Wall Street’s scapegoat, the one person to get jail time for the most massive mortgage fraud in history. By David Dayen

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, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Comment: In a very good piece written by David Dayen for Salon.com (see link below), he takes the government and the bankers to task for masquerading under the “rule of law” while actually undermining it — something that consumers and homeowners have instinctively known for decades.

The general consensus of those in government and on the bench is that they are so deathly afraid of giving a free house to a homeowner that they are willing to overlook criminal and civil misbehavior — leading to granting a free pass to those pretending to be lenders to get the free house.

Worse than that, we have established a climate that allows for the possibility of taking a crime to some indescribable level where it becomes somehow necessary to allow the crime to stand because of the “risk” posed to the rest of society. That Too Big To Fail thing came directly out of the proposition that if the big banks were allowed or forced to fold, the credit markets would freeze up. So our government gave them even more money than the ill-gotten and well secreted money they made during the mortgage boom, under the supposition that those banks would start lending.

The reverse happened. People received notices in the mail informing them of decreases in their credit limit on credit cards, HELOCs, and cancellation of loan commitments on small businesses and real estate purchases. The outcome predicted by those on Wall Street as well as Hank Paulson, then Treasury Secretary to President Bush, was a massive recession with millions of jobs lost and a huge demographic of people who are working at jobs for less money requiring less of their their talents. Armageddon arrived and we managed to steer our way of of the roughest waters for the time being, but we also proved that the Too Big To Fail hypothesis was dead wrong.

So they have a scapegoat that they are going to send to prison without involving any of her superiors, affiliates or the actual conspirators who created LPS and DOCX. The case proves, however, that people CAN go to jail for these crimes and that the line we were fed about it not being illegal was incorrect or an outright lie. The truth, as we now know it, is that the actions of the banks were a total fraud and that many entities and companies and institutions aided and abetted the the most massive fraud in human history.

Thus the issue is no longer whether there is a case that can be made, proven and thus sending people to jail and ordering restitution to all the injured stakeholders. Instead the issue of who will get thrown under the bus so that nobody really “important” gets the adjoining prison cells.

“This scheme was part of the giant bundle of illegal conduct known as foreclosure fraud. According to statements of fact from the Justice Department, from 2003 to 2009 DocX recorded over one million fake documents. That’s probably a low number. DocX wasn’t just forging signatures, they were fabricating entire loan files. During the bubble years, they created a now-infamous mortgage fabrication price sheet, where mortgage servicers, who had trouble proving in court that they owned the homes they wanted to put into foreclosure, could purchase, at low prices, whatever documents they needed. To “Recreate Entire Collateral File,” basically the whole set of documents including the promissory note? That would set a servicer back $95.00.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Business News, CRIME, criminal prosecutions, DAVID DAYEN, fraud, housing, justice, mortgage fraud, salon.com, Wall Street | 128 Comments »

Prosecutors Getting Tough? Small Banks ONLY!!

Posted on February 1, 2013 by Neil Garfield

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

http://www.pbs.org/wgbh/pages/frontline/untouchables/

Editor’s Comment and Analysis: Abacus Bank has only $272 million in deposits. In rank, it is near the very bottom of the ladder. And apparently justifiably, federal prosecutors have seen fit to prosecute the bank for fraud. The quandary here is why the prosecutors are putting their muscle behind just the low-hanging fruit and why they are settling with the mega banks for the same acts — without threat of prosecution. If we could offer $17 trillion in various forms of “relief” for the banks, they certainly could pony up $1 billion and investigate the truth behind the securitization claims. The only conclusion I can reach is that the administration, so far, doesn’t want proof of the truth.

One of the things that Yves gets right here is that when Fannie and Freddie get involved, it isn’t the end of the line and it certainly does not mean that the loan was not “securitized” using the same fake documents at origination and the same fake mortgage bonds, albeit guaranteed by Fannie and Freddie who serve as “Master Trustee” of the investment pools that presumably “bought the loans with actual money. Like their cousins in the non government guaranteed loans, the money largely comes from fat accounts where the investors’ money was commingled beyond recognition and the investment bank who created and sold the bogus mortgage bonds was the “buyer” on paper so that they could bet against the same loans and bonds they were selling to investors.

Yves still refers to the scheme as reckless as though a judgment was made without knowing the consequences of the banks’ actions. Nothing could be further from the truth. This wasn’t reckless.

It was intentional because that was where the big money came from. The scheme was to take as much as possible from money advanced by pension funds and keep it, while giving the illusion of a securitization scheme for funding mortgages and reducing risk.

The mega banks even bet on their success and the investors’ loss, the borrowers’ loss and the loss shouldered by taxpayers, increasing their leverage positions up to 42 times (Bear Stearns). As we all know, the risk was magnified not reduced and the only experts that really knew were in the departments where collateralized debt obligations were packaged on paper, sold to investors and never transferred to any trust, REMIC of SPV.

With Abacus, the punch line is that their default rate was 1/10th that of the national average indicating that contrary to the practices of the mega banks, some underwriting was involved and some verification and oversight was employed.

What is avoided is that $13 trillion in loans were originated using the false securitization scheme in which the borrower was kept in the dark about who his lender was, and where upon inquiry the borrower was told that the identity of the lender was confidential and private, nearly all of which loans were classic cases of fraud in the execution, fraud in the inducement, breach of contract, slander of title, and recording false documents in the county records. The perpetrators of these schemes are settling for fractions of a penny on the dollar with full agreement that their conduct will not be reviewed.

So here is the question: If Abacus is guilty of fraud and caused minimal damage to the economy or the borrowers, isn’t the bar set higher for the mega banks. Why are they allowed to slip through without getting the same treatment as a bank whose deposits equal less than 1/10 of 1% of the size of the megabanks who caused mayhem here and around the world?

Quelle Surprise! Prosecutors Get Tough on Mortgage Fraud….At an Itty Bitty Bank
http://www.nakedcapitalism.com/2013/02/quelle-surprise-prosecutors-get-tough-on-mortgage-fraud-at-an-itty-bitty-bank.html

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Abacus, Fannie, fraud, Freddie, Investigation, Naked Capitalism, Ponzi scheme, PROOF, prosecution, yves Smith | 101 Comments »

F-Bomb on Display on PBS Piece on Fraud by the Banks

Posted on January 23, 2013 by Neil Garfield

“To hear some on Wall Street tell it, no one saw the financial crisis coming. As Jamie Dimon, the chairman and CEO of JPMorgan Chase, explained to the Financial Crisis Inquiry Commission, “In mortgage underwriting, somehow we just missed … that home prices don’t go up forever.”

Others were less confident. In fact, well before the housing bubble burst, alarm bells were starting to sound among key players in the mortgage industry: due diligence underwriters.

Due diligence underwriters are paid by banks to assess the risk of buying mortgage portfolios. In the run-up to the crisis, they were among the first to suspect that loosening loan standards could pose a potentially catastrophic threat to the economy.

Several due diligence underwriters — most speaking publicly for the first time — told FRONTLINE correspondent Martin Smith that it wasn’t uncommon to see school teachers claiming salaries of $12,000 a month on their mortgage applications, or electricians moving from $500 a month in rent to homes worth $650,000. The only problem — their supervisors didn’t seem to want to hear about it.

“Fraud in the due diligence world, fraud was the F-word or the F-bomb,” said Tom Leonard. “You didn’t use that word,” — Jason Breslow, PBS

VIDEO: Fraud Was the F-Word as Contract Hourly Workers Toiled into the Night

Editor’s Comment: Most of the questions and answers are over and they lead straight to the top of the mega banks. If there was any actual risk of loss as opposed to the illusion of a risk of loss, most of the loans would not have been approved.

Since the banks were playing with investor money and essentially stealing it they had created a labyrinth of paperwork that was vague enough to enable them to claim plausible deniability and even the outright lie that Jamie Dimon told when he said that they never saw the meltdown coming because they too thought the market would always go up.

They stacked and compounded the risk elements such that the banks would be paid, the investors would lose their entire investment and the homeowners would be lured into deals that could not possibly work — especially when you factor in the known fact that the prices were spiked higher than anytime in the history of record keeping relative to actual value and the median income required to pay the mortgages. At the heart was fraud: fraud in the appraisal, fraud in the “underwriting,” fraud in the ratings, and fraud in the way the money chain and document chains were handled.

What has escaped most media analysts is that the higher the risk, the more money the banks made. By increasing the risk elements as high as they could go, the nominal interest rate on the loan was as high as it could go. By increasing the interest rate, less money was funded for loans than what was expected by the investors.

In order to achieve the expected return of $50,000 per year, the loan could have been a 5% loan, which is what the investors expected, and the Principal funded would be $1 million. If the interest rate was 10%, meaning the probability of repayment was low at best, then the funding goes down to $500,000 creating the illusion of satisfying the goal of $50,000 per year. If the interest rate was 15%, meaning there was no likelihood at all that the loan would survive, then the funding would have been $333,000.

But in both the 10% loan and the 15% loan, the investor advanced $1 million expecting the loan to be a safe loan to a credit worthy person on a piece of property that was truly worth more than the loan. Thus a yield spread was created and the premium on that yield spread would have been $500,000 for the 10% loan, and $667,000 for the 15% loan. Where did the money go? Into the profits of the banks as proprietary trading activity that were all fictitious transactions.

The banks were supposed to provide triple-A rated bonds backed by good performing loans in which the viability of the deal had been underwritten, verified and confirmed as to income, value of the property etc. — and not just on the first day of the loan where the borrower paid a teaser rate.

Ask any banker doing conventional loans whether he or she would have approved any of the loans taken at random from the piles at Countrywide or WAMU. The answer is NO. I know because I did ask. Real loans have real risk. These were neither real loans nor did they carry any risk of loss to the purported players who were mere intermediaries violating the blueprint set forth in the prospectus and pooling and servicing agreement.

The mega banks, knowing that the loans were completely void for a variety of reasons, and knowing that the banks would some day need to create the illusion of an accounting, needed a state document (deed on foreclosure) to close the book or else the investors and borrowers would end up owning the bank.

But they went further. Having tasted the red meat of astonishing profit margins they sought to increase their gains to astrophysical levels. They bought insurance and credit default swaps betting against the the very same loans they had underwritten and the very same bogus mortgage bonds they had underwritten and sold.

The results are well known. Banks collected 100% on the dollar repeatedly on the same loans and bonds even though none of the loans or bonds confirmed to the requirements of the disclosures to both the investors and the borrowers.

From http://www.pbs.org—–by Jason M. Breslow

One of Leonard’s peers, Eileen Loiacono, saw much of the same.

“You couldn’t say the word ‘fraud’ because we couldn’t prove that it was fraud. … Even if we suspected, we had to say, ‘This appears to be incorrect.’ You would never say, ‘This looks fraudulent.’”

In The Untouchables, premiering tonight, FRONTLINE examines why not one Wall Street executive has been prosecuted for fraud tied to the sale of bad mortgages. Through interviews with prosecutors, government officials and industry whistleblowers, the film raises new questions over whether senior bankers either ignored or contributed to fraud while inflating the bubble through the purchase and securitization of shoddy loans.

The Untouchables airs tonight on most PBS stations, (check your local listings here) or you can watch it online, starting at 10 pm EST.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Breslow, Chase, f-word, fraud, Jamie Dimon, www.pbs.org | 33 Comments »

Why Investors (Pension Funds) Should Link With Borrowers in Suits Against Investment Banks

Posted on January 18, 2013 by 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 Analysis and Strategic Tips: At a glance, anyone should be able to see that the issues upon which investors are suing the investment banks over bogus mortgage bonds are virtually identical to the issues present in every foreclosure case. It is not hard to see why: they are both the only real parties in interest, they were both told the same lies, and they were both victims of a scheme that was common to investors and borrowers alike in which title, money and insurance were intentionally diverted from the streams of money pouring through Wall Street. Both are injured parties resulting from the scheme and both should be compensated for the fraud at the bottom, in the middle and on top of the chain of lies.

And now they share one more thing adding insult to injury — they both are filing suits that are going nowhere, except in sporadic circumstances. It’s true that the tide is turning in many states, most recently Georgia, but the fact is that most foreclosures are “completed” using false documents, false demands for money and false credit bids.

In the article below it is revealed that Judges are ruling that investors can’t simply say they were defrauded by bogus mortgage bonds, but rather they must file a separate lawsuit on each loan that did not measure up to industry standards at the time of the alleged underwriting. This is interesting because now if the investors proceed, a borrower can look up to see whether his loan is being targeted by the investors, what they are saying about it, and whether there is discovery that can be shared between investor and borrower.

As long as 5 years ago I suggested that the only way the mortgage mess could truly be cleaned up is if the borrowers and lenders (investors) put their hands together and went after the investment banks and all the tentacles spreading out from those institutions now of ill repute.

A pincer action between investors coming from one end alleging they are the real parties in interest and the borrowers coming from another direction could and I think most likely would be successful.

The “curious” paragraphs that require 25% of the investors (who don’t know each other because the investment bank won’t give them names) to enforce put-backs reveals that the investment banks never really intended to do anything about bad loans but rather intended to screw the investors.

But if investors and borrowers complained that the lending was not actually performed by the originators who were mere nominees for undisclosed parties and that the note and mortgage were fatally defective for lack of consideration, ANY investor could join that suit because it wouldn’t be about put-backs, it would be about fraud, theft and PONZI schemes.

And if the investors alleged that the money was put into a general fund instead of a trust fund for the REMIC they thought they were buying into, then the investors would not be bound by the constraints of the REMIC documents because the investment banks ignored those entities when they were moving the money around, doing and moving the documents and closing and selling paper that was fatally defective.

At that point both the lender and the borrower would be complaining that the mortgage documents were not real and they could directly create a clearinghouse where new mortgages were established based upon true fair market values and BOTH could still go after the investment banks for consequential and punitive or treble damages.

This would of course raise the myth or test the myth that the mega banks are too big to fail. I think that is simply not true and never was true. In fact, it is the major banks who are refusing to execute their promise to lend and revive the economy. The money siphoned out of the economy properly should be paid to the lenders (investors) and thus reduce the balance due on the lender’s receivables.

Any accounting from the MASTER SERVICER would show that the bond receivable, which ought to be roughly equal to the notes receivable, is deficient, with the gap representing money diverted from the money chain by the investment banks contrary to the express terms of the offering made to the investors as stated in the prospectus and PSA.

By simply comparing notes with the borrowers, the investors could have iron clad case. Unsecured loans that were toxic and fraudulent from the beginning could be converted to secured loans that are conventional and worth every penny written on the documents that describe them — like the note, mortgage etc. The investors should be mitigating damages instead of letting investment banks bang them over the head repeatedly with compounding lies. The mitigation of those damages should reduce the loan balances to what they should have been in the first place without appraisal fraud.

As it stands now every mortgage transaction is suspect as to validity, enforceability and security. Getting the investors and borrowers together could change all that, and provide substantial fiscal stimulus to the economy without the government spending a dime — in fact, quite the opposite, the government could recover hundreds of billions of dollars paid in guarantees on the bogus bonds and loans.

Every day we wait, the damages to our economy the corruption of our title records and the confidence in our economy as presenting a fair playing field is compounded.

Dear Pension Fund Manager: I know you think of the borrowers as ants living in a remote world, but many of those “Ants” are the same people expecting pension benefits that will need to be reduced because of lack of money caused by your losses to the investment banks who still have the money.

Isn’t it time you got rid of your bias against homeowners and borrowers and realized that it is in your self interest to treat the borrowers, especially those who are fighting in the court system, with respect and dignity.

If you don’t these pensioners are going to come after you for not doing all you could to recover the funding for the pension fund you manage. You are being set up by the investment banks and they are in the process of throwing you under the bus without you realizing it.

From http://www.nakedcapitalism.com

New Ruling on Mortgage Putbacks a Potential Huge Win for Banks

Even though, for most people, the housing crisis is a thing of the past, the fight over who should bear the cost of sloppy and openly fraudulent mortgage origination and securities sales continues to grind through the courts.

We’ve written now and again about mortgage putback cases, which are also called representation and warranty, or “rep and warranty” litigation. Investors in mortgage-backed securities were not quite as dumb as the crisis aftermath had made them look. The sponsors of the securitizations made promises in the offering documents (called representations and warranties) about the quality of the loans. It turns out they lied.

Normally, when a loan is found to be worse than the sponsors promised, the remedy is a putback. The originator is required to take the bad loan back and replace it, either with cash or buy replacing it with a loan that was of the quality that the investors were promised. However, the mortgage securitizations put hurdles in front of the investors: it took a minimum level of investors (usually 25%) to demand putbacks and it was hard for any investor to know who else had bought a particular deal. Even then, the trustee (who was the party who was responsible for putting back the loan) almost always ignored and fought investor putback requests. They have ongoing relationships with the sponsors, so they don’t want to ruffle big meal tickets, plus the margins for acting as a mortgage securitization trustee are thin, so they don’t lift a finger unless they absolutely have to.

Investors have thus been going to court to enforce their putback rights. We haven’t been enthusiastic about these suits. It isn’t that the investors weren’t harmed or that the banks really didn’t lie about their wares. But we have always been of the view that ultimately, if these suits get anywhere, the plaintiff would have to show on a loan by loan basis that the default was due not to normal underwriting losses (as in death, disability, job loss) but specifically because the loan was bad (as the loan was so badly underwritten that default was highly likely). That is, the plaintiffs don’t just have to show that their contracts were breached (the loans were worse than they were supposed to be) but that the breach was what caused damages.

What makes these cases potential duds, or at best unlikely to produce damages within hailing distance of investor losses is the fact that they will likely require a loan by loan fight. Imagine the cost of each side doing discovery on a loan, and telling its version of the story as to why the borrower defaulted. Multiply that by thousands of loans and the cost of proving how much you are owed becomes very costly relative to what the plaintiff might recoup. That’s why the people we know who have experience in rep and warranty litigation have expected these cases to settle for comparatively small percentages of likely losses suffered (now having said that, in an important ruling last year in Syncora v. EMC, the judge agreed that misrepresentations about loan quality would increase the risk of an insured loan pools, meaning Syncora would not need to get into a huge analysis of how many loans defaulted and why. But that ruling was based on insurance statues, so that doesn’t help mortgage bond investors).

The cases that are furthest along are those involved monoline insurers, since they had stronger putback rights in their contracts than bond investors. In MBIA v Countrywide, the judge agreed to allow MBIA to construct a sample of the loans (the two sides will now fight over what is an adequate sample) but even within that sample, we’d expect both sides to do a loan level analysis, which would probably include loan level discovery. Ugh.

Alison Frankel of Reuters points to a new ruling which could make this investor-unfriendly picture even uglier. A new ruling has told bond investors to file separate cases on each loan they think was misrepresented. No, I am not making that up. From her post:

I did a double take Wednesday, when I noticed a pair of new suits by Lehman Brothers Holdings in federal court in Colorado. The complaints, which are almost identical, claim that the mortgage originator Universal American Mortgage breached representations and warranties about loans it sold to Lehman, which subsequently suffered losses as a result of those breaches. But here’s the thing: Each suit addresses only one supposedly deficient loan! Lehman’s lawyers at Akerman Senterfitt allege that Lehman sustained about $100,000 in damages on one of the loans and $120,000 on the other — numbers that are light years apart from the multibillion-dollar claims we’ve seen from groups of mortgage-backed securities investors who band together to assert contract breaches in thousands of loans at a time.

The Lehman complaints each also contained a curious paragraph, noting that the claims at issue were previously asserted as counts in an eight-loan put-back case Lehman was litigating in federal court in Miami. The judge in that case, Lehman said, had decided after a pretrial conference last week that “each loan must be filed separately, rather than joined within one action.”

That notation sent me to the docket in the Florida case, and to the order entered by U.S. District Judge James King on Jan. 9. It’s true: King ruled that every allegedly deficient loan has to be addressed in its own suit, not in a block case. “The lack of commonality among the various factual circumstances pertinent to each of the eight individual loans makes them all but impossible to be adjudicated together,” King wrote. “That lack of commonality flows from, among other things, the facts that each of these loans was made at a different time, to different borrowers, in different locations involving different purchases of different real properties; most fundamentally, each loan requires separate proof as to whether a breach occurred, what damages, if any, flowed from any such breach, and what the amounts of any such damages are.”

To add insult to injury, the eight loan case was far enough along that it was scheduled to go to trial in March. And even though this conclusion may seem barmy to some readers, it may have precedential value since few investor putback cases have gotten very far:
Universal American’s lawyer, Philip Stein of Bilzin Sumberg Baena Price & Axelrod, told me Wednesday that if other judges

following King’s lead, the ruling could have profound implications for put-back litigation, since it significantly increases the cost of asserting breach-of-contract claims. (Stein also blogged about the order at Bilzin’s Mortgage Crisis Watch site.) Few put-back cases, Stein said, have reached final pretrial conferences, so few judges have considered the kind of commonality challenges he raised back in 2011 in Universal American’smotion to dismiss the Lehman suit. The judge denied the dismissal motion in order to permit discovery, Stein said, but was receptive when Universal American revived its argument at a pretrial hearing on Jan. 4.

If this ruling does establish what Frankel correctly calls “a new paradigm”, you’d need your head examined to ever invest in anything other than government guaranteed mortgage bonds. And of more immediate import, investors who had hoped they would recover some of their losses will find, yet again, that they’ve spent a lot on lawyers to find out that they don’t have much protection under the law.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: banks, borrowers, Custodial funds, fraud, investment banks, investors, Master Servicer, REMIC, trust, trust account | 297 Comments »

U.S. Attorney Continues to Prosecute Despite Settlements

Posted on January 10, 2013 by Neil Garfield

See the story and Links Here

Editor’s Note: Preet Bharara, the U.S. Attorney for the Southern District of New York. He is unfazed by the tangle of “settlements” and will not let up on prosecuting Bank of America for fraud. He gets it and is methodically working his way through the maze set up by the mega banks.

BofA settled a civil claim that it had lied when they “sold” mortgages advertised as meeting government standards. We all know by now that the loans “lacked documentation and underwriting.” But what is still to come out is WHY they lacked documentation and WHY the loans lacked underwriting.

The documentation was absent simply to hide the fact that the bank was pretending to have ownership or an insurable interest in the loans and mortgage bonds. The true transaction was between the investor/lenders and the homeowner/borrowers. BofA stole or misused the identities of both the lender and the borrowers so that it could sell the loans many times under guise of exotic derivative instruments called mortgage backed bonds.

If fully documented, the lender would have shown up as the investors, which is as it should have been. BofA never put up a dime for the funding or acquisition of any of the loans. Its claim of ownership and an insurable interest was a blatant lie, inasmuch as they actually had no risk of loss, which is why there was no underwriting standards applied either.

I would suggest you track the pleadings of this U.S. Attorney and pick up some pointers along the way. He is definitely on the right track. As for now, the focus is on the bad mortgage bonds, bad loans, and lack of documentation up at the lender level.

Once that veil is penetrated it will be revealed that the borrower was defrauded using the same misdirected documentation using appraisal fraud as the principal leverage point.

But the real stuff is going to hit the fan as more and more people realize that this standard practice in the industry allegedly to “protect” the investors, invalidated the chain of title and there has been no effort to correct the problem. When it is revealed that the investors were cheated out of their money by a use of proceeds that crosses the borders of fraud, and that the terms of the bonds were never intended to be satisfied, just as the terms of the loan were never meant to be satisfied or secured, then we will have justice peeking its head out over the mess.

In the end, legally, there will be privity or a relationship only between the investor/lenders and the borrowers and that there transaction was supposed to be documented and recorded. Instead the banks documented and recorded a different transaction in which the intermediaries looked like the principals and were therefore able to do “proprietary trading” in which they took investor money from one pocket and put it into another.

That is what opened the door to huge “profits” (actually theft proceeds) on the way up and on the way down. These banks are now buying the same houses from themselves (using another affiliate entity) and then reporting the results to the investors so they can write off the loss. They are going to be the largest landowners in history as a result of this PONZI scheme.

The investors were duped into thinking that all the intermediary entities were being used to protect them from liability from claims of deceptive and predatory lending practices. In actuality the investors were already protected because their agents committed intentional acts of malfeasance and crimes that were specifically prohibited in the documents and other representations the investors received.

Just like the Too Big to Fail Myth, the investors are operating under the myth that if they assert themselves as lenders, they are going to get sued. That too is untrue. If they assert themselves as lenders, then they are going to show proof of payment, something the megabanks can’t do because they used investor money instead of their own.

If the investors assert themselves as lenders they will see that money is missing from the investment pools and that in fact the investment pools were never funded at all. They will realize that they have a legitimate claim for repayment of loans, and a legitimate claim for civil or criminal theft against the banks who intentionally diverted the documentation and the money from the investors and from the borrowers.

That will leave the investors and borrowers with (1) an obligation that is mostly undocumented and (2) unsecured. But the borrowers are more than happy to allow a mortgage if it reflects fair market value. This is what will give the investors far more than the current process in which the banks have a stranglehold on the mortgage modification process (for mortgages that are invalid from the start).

If you pierce through the veil of PR and utter nonsense flowing out of the banks and their planted articles in every periodical around the country, you will find your lender and you will find out the balance due because both of you (homeowner and investor) are going to want to know what happened to all the insurance money, credit default swaps and Federal bailouts that were promised, paid, but not delivered.

Because the mega banks were mere intermediaries pretending to be lenders the entire current scenario is going to turn upside down. Ultimately, the insurance, CDS and bailouts were in fact bailouts of the homeowners and investors. When they are applied correctly according to common sense and the contracts that were executed, practically none of the mortgages will have the balance demanded by the intermediary banks who claim but do not own the mortgages or rights to foreclose. Thus practically no foreclosure was correct by any standard, no credit bid was valid at auction, and no eviction was legal.

As these facts are revealed and accepted by a critical mass of people, the Too Big to Fail Myth will be put to the test. The nonexistent assets on their balance sheets will be reduced to zero. What will really happen is simply that the mega banks will collapse inward and the thousands of other banks that are unfairly under the thumb of the bank oligarchy will be able to pick up the pieces that are left and return to normal banking, with normal profits and normal bonuses.

Allowing the mega bank to retain the money they stole is like throwing a steak to a dog. Now that they have a taste of unlawful profits driving their profitability upward, they will only want more. Our job is to make sure they don’t get it. The Obama administration was surprised by the quick recovery by the banks. The truth, as it will be revealed in the coming months and years, is that there was no bank recovery because there were no bank losses. THAT is why the banks grew while the rest of the economy tanked.

Theoretically it is impossible for the bank profits to go up while the stock market and the economy is going down the drain. Their profits are supposed to come from being intermediaries in commerce, not principals.

Thus the higher the commercial activity, the better it is for the banks. But here, the relationship was twisted. The banks sucked the money out of the economy in “off balance sheet” transactions, secreted the money around the world, and are now able to report higher and higher profits every year simply because that is the way that they can repatriate their ill-gotten gains. By doing that they drive up the apparent value of their stocks and their stockholders are happy. What the stockholders do not realize is that this is a powder keg that will, at some point, implode. Yes, Warren Buffet is wrong.

Despite a settlement with an alleged victim, U.S. District Attorney Preet Bharara will continue to prosecute Bank of America for selling allegedly fraudulent loans to Fannie Mae and other government-sponsored enterprises, his office told the Charlotte Business Journal.

Bharara, U.S. attorney in the Southern District of New York, charged BofA with fraud in a $1 billion federal lawsuit in October. He alleged in court documents that BofA had sold government agencies such as Fannie Mae billions of dollars in mortgages that were advertised as meeting government standards. However, the suit contends the loans actually lacked proper documentation and underwriting.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Bank of America, BofA, Charlotte Business Journal, Fannie MAe, fraud, Preet Bharara, pretender lenders, too big to fail, U.S. attorney, Warren Buffet | 67 Comments »

Banks Controlled Independent Reviews

Posted on January 7, 2013 by Neil Garfield

“TARP was supposed to cover losses from defaulting loans. But then it was switched to make direct capital infusions into the mega banks. Why the switch? Because everyone realized very early on that the banks had no losses from defaulting loans. It was the investors who made the loans and would take those losses. But even though the government recognized this fact, it did so in secret allowing the confusing notion of bank losses to permeate the judicial cases. All they had to do to stop foreclosures was to tell the truth and Judges would have correctly assumed that the Banks were mere intermediaries. PRACTICE HINT: Is Champerty and maintenance a cause of action for damages, a defense to a lawsuit or both?” — Neil F Garfield, livinglies.me

If you are having trouble believing that the recession, the mortgages, the foreclosures, the auctions, and the health of the banks are all a big lie click here for Matt Taibbi’s Article in Rolling Stone

Editor’s Comment: The so-called independent reviews were neither independent nor reviewed. They were processed. Which is to say they went in one end and came out the other. The so-called reviews relied completely on the banks themselves to review their own criminality in the foreclosure process that was only one step in a multifaceted plan to take down the wealth of America and concentrate in the hands of people who could claim it as their own.

The reviews were not independent because all the information offered was the information that the banks wanted to reveal and half of that was completely fictitious. The lack of an administrative hearing process made it impossible for the independent review conclusions to be challenged. Talk about stacking the deck.

A random survey of foreclosures would show that the forecloser was a complete stranger to the transaction, never invested a penny in the origination or purchase of the loan, and never accounted properly for its actions to the actual lender/investors. How do we know this with certainty? Because real independent reviews like the ones conducted in counties all over the country came to exactly that conclusion after reviewing foreclosures that were “completed.”

There is no ambiguity except whether the credit bid and ensuing deed upon foreclosure is void or voidable. I maintain it is void and not voidable. Voidable means that the victim must do something to replace the job of the county recorder. Voidable means that the transaction stands and the deed is valid even though we know it is a wild deed with no place for it in the chain of title. Voidable means that in a later refi or sale if some title lawyer is actually doing his work the way it was done since the dawn of title records, he or she is going to discover the wild deed and declare the title to be clouded defective or fatally defective. And that would be because of all the documents submitted by a series of entities that had no function except layering over the festering corruption of title created in the first place.

Actual findings that somehow leaked through the controlled review process were suppressed. It all comes down to the same thing in administrative action, law enforcement action, executive action and legislative action: homeowners are deadbeats who don’t count or can be managed through the miracle of telling big lies through the media. The conclusion reached in virtually all cases was the same: while the forgeries, fabrications and perjury were bad things and the ensuing theft of the homes was allowed to proceed anyway, the net result is that these people borrowed the money, defaulted on the payments and lost the house they were supposed to lose anyway.

It is a compelling argument if it was true. In fact, the posturing and lying of the banks enhanced the lender/investor losses and stopped the homeowners from connecting up with real lenders to settle the loans and then go after the banks together for lying to everyone about appraisals, underwriting, and loan quality.

As I see it, the only way this is going to wind up is that those people who fight back with Deny and Discover will be rewarded for their efforts if they persist. But on the whole, most people will not fight back leaving the Banks with windfall several times over. Government won’t help them. If the Banks lose every case that is contested it will be less than the amount they would reserve for loan losses if their loans were real.

We all know that the Banks were using investor money 96% of the time, and yet we allowed them to get insurance, credit default swaps, and federal bailouts on investments they never made. We allow them to pretend that they own what the investors own, thus corrupting their balance sheets with fictitious assets. We allowed them to book fictitious sales of bogus mortgage bonds to investors using the investors own money to create the infrastructure that was never used to sell, assign or securitize the loans. The Bankers who control the banks also control all the profits from these false “proprietary trades”, book them as they wish partly to keep the value of the stock higher and higher, and then keep the rest in off balance sheet off-shore transactions spread around the world.

In an economy that is still driven 70% by consumer spending these policies are arrogant and stupid. The investors who were the real lenders should be paid. The balance on the books owed to those investors should be reduced. And the process of separating the false tier 2 premiums on proprietary trades and the REAL balance owed by borrowers should proceed. This can only happen, given current circumstances by denial of all elements of the cause of action for foreclosure, and pressing on through discovery against the Master Servicer, subservicer (who did they pay? how long did they day after the declaration of default?), the Trustee of the REMIC trust (where are the trust accounts?), the aggregators and other parties that were engaged in the PONZI scheme that was covered over by a false infrastructure of assignments and securitization which never took place.

Our economy is projected to grow at a mere 2% this year if we are lucky, because the banks are holding all the fuel for the engine. If we were to apply simple precepts of law on fraud and contracts, the amount clawed back to investors and homeowners would end the crisis for the economy and yes, possibly threaten the existence of the large banks, but greatly enhance the prospects for the 7,000 other banks in the U.S. alone. But that of course would only happen if we were doing things right.

OCC Foreclosure Reviewer: “Independent” Reviews Were Controlled by Banks, Which Suppressed Any Findings of Harm to Foreclosed Homeowners
http://www.nakedcapitalism.com/2013/01/occ-foreclosure-file-reviewer-independent-reviews-were-controlled-by-banks-which-suppressed-any-findings-of-harm-to-foreclosed-homeowner.html

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: business, control by banks, economy, finance, fraud, Master Servicer, OCC reviews, trustee | 131 Comments »

Media Still Taking Their Queues from Wall Street

Posted on December 10, 2012 by Neil Garfield

Upshot of the Foreclosure Backlog

Editor’s Comment: If you read the mainstream media instead of the actual complaints being filed by agencies and consumers, you get the message that it is foreclosures that are dragging the economy down because of how slow they are in judicial states. They present a compelling case consisting of half truths about diminishing property values, lower lending, overwhelming servicer capacity, resistance to modifications, and delays in the “inevitable” foreclosure caused by judicial backlog.

The message is clear — let’s get this over with and move on with our economic recovery. With consumer purchasing weakening and the threat of huge lawsuits against the banks that caused this mess, the spin is that if we just forget about the whole mess, everyone would be better off.

My message is that the foreclosure mess is the result of compounded fraud, Ponzi schemes and unethical behavior by the Wall Street banks — and that the victims of that fraud deserve restitution just like any other fraud case.

Those victims include almost every part of the economy but the focus is on investors (pension funds providing lifeblood to people on fixed incomes) and homeowners who were coerced, enticed and deceived by the values used at their loan closing certified by appraisers who under threat of coercion (never working again) gave the banks the values as instructed.

Both sides of the transactions — the investors who loaned their money and the homeowners who borrowed money were deceived and economically devastated by the same lies and false documentation created to give the appearance of a proper mortgage-backed bond, a proper mortgage and then a proper foreclosure.

None of it was true. The bets were made against those mortgages because the banks knew the loans were bad and that even if they were not bad, they had unconditional power (through the Master Servicer) to declare that the “pool” was impaired. The fact that the pool was never funded and never received any of the loans escaped the attention of most people.

Neither the investors nor the homeowners ever had a chance. And the “burden” now placed on the banks of coughing up hundreds of billions (trillions) of dollars for their fraudulent behavior is said to endanger our economy. My message is that the economy, the dollar and our standing in the world is far more endangered by letting it be known that if your fraud is big enough you will never be prosecuted. It creates an uncertainty in the marketplace where trust and reliance on such checks and balances as appraisers and rating agencies is used as a principal measure as to whether to get involved in a deal.

If the banks were using the investor (pension) money, why did the banks get the bailout and other forms of relief totaling more than all the mortgage loans put together, whether “in default” or or completely current in payments? Why didn’t that money go to the investors and the resulting credit inure to the borrowers whose loans were improperly priced by fraudulent and deceptive means?

My message is that the economy will recover far more quickly when people recognize that the government and the judicial system requires that everyone play by the same rules. If you have a case, then prove it. That is why I keep harping on Deny and Discover as the principal strategy for foreclosure and mortgage litigation.

The facts are that most of the loans were bad — defective as to who they named as payee on a loan the borrower never received, and defective as to the principal due based upon fraudulent appraisals. The borrowers received loans from third parties in table funded loans that were not only not disclosed, they were hidden from the borrower and the source of the loan money, the investors (pension funds).

The loans that were funded were undocumented intentionally because the banks wanted a window of time within which they could claim the loans were the asset of the bank instead of the investors. The documentation enabled the banks to pretend to be the lender and therefore reap the benefits of large bets against loans that increasingly were doomed from the start. After they made their money they pitched the loans, contrary to the express terms of the Pooling and Servicing Agreement, over the fence and told the investors that THEY had lost money while the banks had made trillions of dollars.

The reason why foreclosures proceed more slowly through those states requiring a judicial process is that the banks don’t have the goods. Most of the loans were never funded by the party whose name was placed on the note and mortgage. And it is no different but easier to circumvent in the non-judicial states.

The borrowers, completely ignorant of what was done to them at closing and completely ignorant of the trillions paid on the loan liability and received by the banks assume that they owe the amount demanded by the bank — when in fact the overpayment received by the banks as agent for the investors might well be an overpayment that is due back to the borrower after the investor is paid.

The only reason things that gone so far astray is that the bank strategy is working — blame the borrower and admit to some negligence and some paperwork problems. But forgery, robo-signing, powers of attorney, false endorsements, false beneficiaries, false substitutions of trustees and false affidavits are not “paperwork problems.”

False documents would not be necessary if the loans were real secured loans in a real fair and free market. If the investors and borrowers knew what was really being done with the documents and the money, they never would have entered the deal in the first place.

These are crimes that should be prosecuted. THEN the economy will recover when restitution is given to investors and homeowners, the banks assets are written down to true market value (excluding loans they never funded or purchased).

PRACTICE TIP: Attack the lien first without regard to the outstanding obligation to avoid appearing that you are seeking a “free house.”

Don’t limit your Discovery to the Subservicer. You are only getting a small slice of the pie of the information that way. Demand the same discovery from the Master Servicer and the “Trustee” of the “trust.”

Only the Master Servicer has access to information regarding third party payments. And only the Investment Banker (the brokerage that sold the bogus mortgage bonds) can account for the bets they made using insurance and credit default swaps.

And don’t forget to ask the Trustee why the “trust” was not administered through their trust division or trust subsidiary. You might well find that that no trust account was ever created for the trust and that the “trustee” did not administer the affairs of the trust because there was nothing to administer and the trustee’s powers are claimed by Deutsch, Mellon, and U.S. Bank to actually be that of agent rather than trustee with fiduciary responsibility — when it comes time to assess damages against the losing pretender lender.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: economy, fraud, fraudulent appraisals, judicial system, NON JUDICIAL SALES, Ponzi, restitution, wrongful foreclosure | 113 Comments »

1.5 Million Seniors Foreclosed — Most Illegally

Posted on December 4, 2012 by Neil Garfield

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Editor’s Comment and Analysis: As I predicted (along with many others), the foreclosure scam is reaching further and further to all segments of the population. With more than half of all homeowners under 40 being “underwater” and the release of information showing that widows are being hit hardest, the statistics showing 1.5 million foreclosures on people over 50 are hardly surprising. But they don’t tell the whole human story of grief, confusion and disbelief that the banks would engage in large-scale fraud.

It is ironic that many of the millions who were hit with foreclosure were the same people who joined the public outcry against mortgage relief because they were playing by the rules, making their payments, and also losing money. They failed to educate themselves and their naive belief that the debts were legitimate and the borrowers were deadbeats led the public, the media, and those who pull the levers of power in Federal and State government to conclude that the debts were legitimate and the market simply went sour.

To call these debts legitimate in the face of absolutely incontrovertible facts regarding appraisal fraud, forgery, robo-signing, and lies told in in court is akin to drawing the distinction between rape and legitimate rape. You can argue all you want about what a woman should look for to “detect” a possible criminal and and argue circumstances when she “asked for it” but rape is rape.

And you can argue all you want about how homeowners should have read a pile of papers 6 inches thick to determine what was really going to happen to their lives if they signed those papers and that they should have investigated who was behind the easy money, but in the end they were the victims, just like many investors were the victims.

And until we agree that the money the banks received should have been allocated to the investors on whose behalf they received the money we won’t know the amount of the debt of the homeowner, if any, that is remaining. Allowing foreclosures to start, foreclosure “sales” to be conducted, foreclosure deeds to be issued “for cash received” when they accepted a credit bid from a non-creditor, and then allowing evictions was and remains wrong.

In fact, while I have not seen a study analyzing this, I’ll bet you will find that the same people who were foreclosed were on pensions paid by managed funds that bought the bogus mortgage bonds that enabled the mortgage meltdown in the first place.

So the same people were both losers in investing in mortgages and then losers when their own money was used against them in deals that were impossible to be viable.

The tragic irony here is that most borrowers still don’t get it. They also think the debts are legitimate and that any claims of fraud or predatory loan practices are just ways of delaying the inevitable foreclosure and eviction.

Precious few homeowners have any idea that they have legitimate defenses and remedies that would lead to a mortgage-free house or a modification that uses fair market value as a basis for the loan balance and applies the payments received by creditors from insurance, credit default swaps and federal bailouts.

In what I have called Deny and Discover, lawyers following this blog or who have arrived at the same conclusions on their own are winning case after case. Mark Stopa published an article about 14 cases in Florida in which 14 different judges entered summary final judgment FOR THE BORROWER!

As the banks plant articles warning against strategic defaults, ultimately, there is no debtor’s prison in this country and they can’t do a thing about it. And widows, pensioners and others who are on fixed incomes and facing rising medical and living expenses are forced into default. This mess will take decades to clear up unless government does its job of governing and applying the same set of rules to everyone. If you commit fraud, you owe restitution and you are punished either civilly or criminally.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: appraisal fraud, credit bid, Eviction, foreclosure sale, foreclosure scam, fraud, legitimate debt, pension funds, seniors foreclosure, underwater, widow foreclosure | 39 Comments »

Deutsch and Goldman Lose Bid to Dismiss FHFA Lawsuit for Fraud

Posted on November 14, 2012 by Neil Garfield

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Administrative Process May Provide a Lift to Borrowers

Editor’s Comment: Following on the heals of a similar ruling against JPMorgan Chase, Judge Denise Cote, denied the motion to dismiss the lawsuit of the Federal Housing Finance Agency that overseas Fannie and Freddie.

Simply put the agency is charging the investment banks with intentionally misrepresenting the underwriting standards that were in use during the mortgage meltdown. To put it more simply, the fraud we know that occurred at ground zero (the “closing” table) is being traced up the line to the banks that were pulling the strings and causing the fraud.

The allegations of course are insufficient in and of themselves to use as proof of anything. They are unproven allegations in a civil court suit in Federal Court in Manhattan. BUT there is an interesting argument to be made here that should not be ignored. I did a lot of work in administrative law when I was practicing full-time.

The procedure that any agency follows in filing such a lawsuit is something that should be pointed out when you are making arguments about fraud in the origination or assignments of loans.

In order for an agency to file suit, there must be a “finding” that the facts alleged in the complaint are true. In order for that to happen there must be an investigation and it must be brought before a committee or board for a finding of probable cause.

Normally the finding of probable cause would result in an administrative action brought before a hearing officer that would result in either acquittal of the offending suspect (respondent) or fines, penalties or even revocation of their right to do business with the agency or under the auspices of the agency.

Here the action is brought in civil court which must mean that the findings were strong enough to go beyond probable cause to establish in the findings of the agency that these violations did occur beyond a reasonable doubt. Hence, it could be argued, given the structure and process of administrative actions, that the investment banks have already been found by administrative agencies to be fraudulent.

Then you go to the facts alleged and see what those facts were (see article on JPMorgan denial of dismissal for copy of the complaint). Where there are similarities, you can allege the same thing and apply it to the origination of the loan and the so-called assignments and claims of securitization. AND you can say that there has already been an administrative finding that the fraud occurred, which is persuasive authority at a minimum.

In these cases the investment banks are accused of intentionally lying about the underwriting standards used in origination of the loans — something we have been saying here for years.

That means it was no mistake that they failed to put the name of the real payee on the note and mortgage and it was no mistake that they failed to reference the REMIC or the pooling and servicing agreement which set the terms of repayment, sometimes in direct contradiction to the terms expressed in the note that they induced the borrower to sign. The information was intentionally withheld from the borrower and promptly used with Fannie and Freddie knowing ti was false, as to verifications of value, income viability etc. (see previous post).

In essence the FHFA is saying the same thing that the investors are saying, which is the same thing that the borrowers are saying — these origination documents are worthless scraps of paper replete with deficiencies, lies and misrepresentations, unsupported by consideration and unenforceable.

The defense of the investment banks is that they HAVE been enforcing the notes and mortgages (Deeds of trust). They are saying that since the courts have let most of the cases go to foreclosure, the documents must be valid and enforceable. If improper underwriting standards had been used, or more properly stated, if underwriting standards were ignored, then the borrower would have had a right to rescission, which the courts have largely rejected. It is circular reasoning but it works, for the most part when it is a single homeowner against a big bank.

But when it is institution against institution its not so easy to pull the wool over the judge’s eyes. AND unlike the borrowers, the FHFA is not plagued with guilt over whether they were stupid to begin with and therefore deserve the punishment of taking the largest loss of their lives.

The answer to that is that the banks were only able to “enforce” as a result of the ignorance of the judges, lawyers and borrowers as to the truth behind the facts of each loan origination, assignment etc.

By Jonathan Stempel, Reuters

A U.S. judge rejected bids by Goldman Sachs Group Inc (GS.N) and Deutsche Bank AG (DBKGn.DE) to dismiss a federal regulator’s lawsuits accusing them of misleading Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) into buying billions of dollars of risky mortgage debt.

In separate decisions on Monday, U.S. District Judge Denise Cote in Manhattan said the Federal Housing Finance Agency may pursue fraud claims over some of the banks’ representations in offering materials regarding mortgage underwriting standards.

The FHFA had sued over certificates that Fannie Mae and Freddie Mac, known as government-sponsored enterprises, had bought between September 2005 and October 2007.

Goldman underwrote about $11.1 billion of the certificates, and Deutsche Bank roughly $14.2 billion, the regulator has said.

Michael DuVally, a Goldman spokesman, declined to comment, as did Deutsche Bank spokeswoman Renee Calabro. Trials in both cases are scheduled to begin in September 2014.

Last year, the FHFA filed 18 lawsuits against banks and finance companies over mortgage losses suffered by Fannie Mae and Freddie Mac on roughly $200 billion of securities.

Cote handles 16 of the lawsuits, and previously refused to dismiss its cases against Bank of America Corp’s (BAC.N) Merrill Lynch unit, JPMorgan Chase & Co (JPM.N) and UBS AG (UBSN.VX).

In her Deutsche Bank ruling, the judge said that while the offering materials said representations were “preliminary” and “subject to change,” their use suggested that the German bank “fully intended the GSEs to rely on” them.

Meanwhile, Cote rejected what she called Goldman’s “legally dubious” claim not to be liable over prospectus supplements it did not write, saying “it is difficult to square with the fact that the bank’s name is prominently displayed on each.”

She dismissed some claims over representations concerning owner-occupied homes and loan values.

The FHFA became the conservator of Fannie Mae and Freddie Mac after federal regulators seized the mortgage financiers on September 7, 2008.

In May, Deutsche Bank agreed to pay $202.3 million in a separate federal probe, in which its MortgageIT unit admitted it had lied to the U.S. government over whether its loans were eligible for federal mortgage insurance.

Cote said it is too soon to decide liability over MortgageIT activity that predated its 2007 takeover by Deutsche Bank.

The cases are Federal Housing Finance Agency v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-06192; and Federal Housing Finance Agency v. Goldman Sachs & Co et al in the same court, No. 11-06198.

(Reporting By Jonathan Stempel in New York; Editing by John Wallace, Tim Dobbyn and M.D. Golan)

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: administrative process, Denise Cote, Deutsch, Fannie, Federal Housing Finance Agency, FHFA, fraud, Freddie, Goldman, JPMorgan, REMIC | 27 Comments »

BOA Facing Fraud Suit from FHFA

Posted on November 9, 2012 by Neil Garfield

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BOA lost in a bid to dismiss a lawsuit based upon the lies it told the Fannie and Freddie about the loans it was seeking guarantees for sale into the secondary securitization market. This follows closely my prior post about why the obligations, notes and mortgages should all be considered a nullity — worthless.

Unfortunately, Judge Cote said that the FHFA (Federal Housing Finance Agency) failed to state a strong enough case about loan to value ratios. Perhaps the agency will take another crack at that because appraisal fraud was an essential ingredient in this PONZI scheme.

If you read the complaint, it will give you a few ideas on how to frame your own complaints. Obviously it would be wise to beef up the allegations regarding loan to value ratios and the relationship of those to appraisal fraud. FHFA_v_BoA_Other

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Bank of America, BofA, fraud, Merrill Lynch, mortgage bonds, mortgages | 37 Comments »

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

Posted on September 30, 2012 by Neil Garfield

“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.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: AGGREGATOR, AIG, AMbac, bailouts, Bank of America, buyouts, countrywide, Federal government, fraud, Merrill Lynch | 88 Comments »

Modification Scam by Banks and Servicers

Posted on September 10, 2012 by Neil Garfield

NOTICE: IN ANSWER TO INQUIRIES RECEIVED FROM CITIES AND COUNTIES, YES EMINENT DOMAIN IS A GOOD IDEA BUT NOT BECAUSE OF THE REASONS STATED THUS FAR. IT IS A GOOD IDEA BECAUSE THE PARTIES CLAIMING TO BE INJURED BY THE SEIZURE WOULD BE REQUIRED TO SHOW THAT THEY WERE INJURED IN REAL DOLLARS AND REAL WIRE TRANSFERS, CANCELLED CHECKS AND WITNESSES. THEY CAN’T DO THAT. INITIATION OF EMINENT DOMAIN WOULD BE THE ULTIMATE DISCOVERY TOOL THAT WOULD END FORECLOSURES ANYWHERE IT IS INVOKED. AND IT WOULDN’T COST A DIME.

And see end of this article where the federal government could recoup $2.5 trillion right now and at the same time provide a $10 trillion stimulus to the economy without spending one dime.

Modification Scam by Banks and Servicers

The above link will tell you a lot about what is happening in the industry — but it still assumes that the loans were bundled and sold when they were not. So far as I can tell in 6 years of analysis and study by myself, my team and the published reports in the public domain, there is no evidence of bundling, no evidence the “pools” or “trusts” were ever funded by either money or loans.

To understand WHY and HOW modifications would be turned into a scam by the banks you must understand their motivation for intentionally taking less in a “foreclosure sale” than they can get in the secondary market for selling a new mortgage, modified mortgage or refinanced mortgage. As Reynaldo Reyes from Deutsch Bank put it — “it is all very counter-intuitive.” In other words, a big fat lie on a scale unparallelled in human history.

The motivation lies in the fact that everything is already paid. The money from insurance, credit default swaps and federal bailouts, together with multiple resales of the same portfolio and hence the multiple sales of each loan going into the pocket of each banker. Anytime a loan goes into foreclosure, it seals the deal — allowing the banks to keep their ill-gotten gains that could amount to as much as 40 times the principal due under the loan.

So they don’t want your $400,000 even if you have it, because it endangers the $16 million they received and might mean they must pay it back. And THAT is a contingent liability not shown on any of the mega bank financial statements. If it was, they would be declared insolvent, which is exactly the case — unless they can get all the loans into foreclosure with the exception of a few modifications or settlements done for PR, expediency or other reasons.

Hence the quote from one employee of a servicer that when he asked why a perfectly valid modification proposal was being rejected the answer from his boss was “we are in the foreclosure business, not the modification business.” Unfortunately the media report ended there. I always ask for something more, however. If they consider themselves in any business, as a “servicer” why would that not be simply to process the receipts and disbursements and correspondence with the borrower and the creditor? Why would they care one way or the other whether the loan was modified, settled, refinanced, paid through short-sale or regular sale? Why indeed.

The answer lies in the fact that the subservicers and Master Servicers are the real people handling the actual money and hiding the movement of the money, while they are forced to fabricate, forge and perjure themselves in millions of recorded documents to cover up the fact that the original loan documents were a sham.

If they did the original loan right, which would take no more effort than doing it wrong, then we wouldn’t have this mess. That would be because loan origination would return to the right business proposition — loaning money with the intention of getting repaid.

But here, because of the tricks and maneuvering of the investment banks, the goal was to fund loans that (a) would not and could not be repaid and (b) even if they were repaid, would be labelled as being devalued in a non-existent pool over which the Master Servicer had the exclusive right in its sole discretion to say that the portfolio had failed and the mortgage bonds had to be written down or written off.

It’s like buying 40 different policies of life insurance on your partner and then killing him. Without a conscience, you would be looking for lots of partners even as the grieving families buried the dead, their hopes and dreams forever changed.

Modification has never been about modification. It has always been about foreclosure, which puts the state stamp of approval that the loan failed. Everything LOOKS right, so the Judges rubber stamp them, because, as stated by thousands of Judges, these securitization arguments sound like a gimmick to get out of a legitimate debt. After all would a Bank with 150 year old gold plated reputation put itself in the position where all of its managers and executives could go to jail along with the legions of lawyers representing them? Of course not. But they did.

If you look closely at modification just as I have looked closely at the loan origination, you will see that like the original documents you are left with a holographic image of an empty paper bag.

The documents don’t track the movement of money which is to say that the payee and lender and the beneficiary had already agreed never to touch the money going in or coming out of the deal. Hence the note, which is a contract, and the mortgage or deed of trust, which is a contract was never funded. Those contracts may be in writing but they are useless pieces of paper that can’t ever be worth a dime without the signature of the homeowner on new documents connecting the dots to the the real lender and allowing the non-disclosure of the real lender to stand.

All of that is presumptively cured by the appearance of a deed on foreclosure arising out of a credit bid which we all know was not from a creditor and which the auctioneer and the trustee and the stated mortgagee and the stated substituted trustee, and the lawyers using it all know is a big fat lie. Since no cash was paid at auction, and the credit bid was invalid, the sale never occurred. Bu the issuance of the deed anyway creates the presumption that the sale did in fact occur.

Now we can look at how the modifications are a total scam just like the origination of false notes and mortgages followed by false assignments, endorsements and allonges.

Probably half the “foreclosures” (I put that in quotes because someday, I hope the homes will be returned to their rightful owner) result from the servicers telling the first lie: “stop paying your mortgage payments, because we can’t consider your offer of modification without you being delinquent.” Once again, borrowers are duped because they are hearing music in the ears. Stop paying? And it is the BANK that is telling us to stop paying? What could be better?

Then the games start. You might remember that in 2007 Katherine Ann Porter did a ground-breaking study that blew the lid off of this gigantic fraud not in theory but in a scientific study which found that no less than 40% of the notes signed by borrowers were INTENTIONALLY lost or destroyed. Once again, that is an interesting fact but I asked why a bank would take a valuable piece of paper and shred it. The answer is simple: if they showed it to the investors and others, they would be in obvious breach if not accused of Madoff or Drier type fraud and Ponzi schemes. So better to claim they can’t find it and make up the rest, than to show the actual notes, many of which were not signed by borrowers ever, but whose signature was photo-shopped onto the document.

Why mention that again? Because 80% and perhaps more, of the modification proposals are claimed as not received, lost or accidentally destroyed while month after month the homeowner gets deeper and deeper in debt on missed payments (that are actually not due at all, but that is another story). So the strategy is simple. Make sure people stop paying, make sure you can declare the default and acceleration of the full amount due, and then either foreclose or tell them their proposal for modification is rejected by the investor after consideration required by HAMP.

The homeowner is faced with 9-18 months of missed payments, plus fees and costs to reinstate the loans and some of them do just that. But most people have spent at least part of the money and are unable to reinstate the loan with this “creditor” who never funded nor purchased the loan and who is the servicer for a party that never funded or purchased the loan. Wall Street wins. Half of the people who were foreclosed were losing their homes not only to fraudulent tricky documents, but because the Bank had manipulated them into going into de fault when they were not in default, even assuming the loan origination documents were actually valid and enforceable (which of course they are not).

Sprinkle a little guilt and moral dilemma into the soup and you have the perfect scenario for Wall Street to foreclose on millions of homes, thus sealing the deal on profits that were multiples of the entire funding of the mortgages but which probably never reached the investors.

Here is something to think about: $13 Trillion in loans were written, $2.6 trillion went into “default” on which the loss was around $1.3 trillion because of the residual value of the house, and last but best of all, Wall Street has received no less than $17 Trillion more than the principal of all the loans written during the mortgage meltdown.

Is there any reason anyone should be making payments on their mortgage? If so, it should be to the federal government not the banks. If the homeowners were “given”their homes free and clear, they could be taxed on the windfall since it would not be forgiveness of debt of rather avoidance of debt through third party payment.

The tax liability would be a small fraction of the original mortgage which of course is invalid, but the loan proceeds were still received by or on behalf of the borrower so an obligation does exist (albeit without documentation like a note or mortgage) and its extinguishment is a taxable benefit to homeowners. The tax liability would be around $2.5 trillion, which means that the average liability of the household would be reduced by around 80% as it relates to the house. Everyone wins except the Banks who still will come out ahead because we all know that it never happens that the scam artist doesn’t have some of the money stashed away.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: eminent domain, fraud, modification, perjury, scam, taxes | 21 Comments »

Libor vs Mortgage Scandals: Amount of Money Appears to be the Only Difference

Posted on August 28, 2012 by Neil Garfield

COME TO THE ANAHEIM 1/2 SEMINAR WEDNESDAY MORNING

It appears as though LIBOR is being thrown under the bus as a distraction from the much larger mortgage securitization scam. Both cases relied upon trust that was breached, money that was invented, figures that were fabricated, lying, cheating and inside trading to the detriment of the institutions that participated in one form or another. In both cases the ultimate victims on both sides of the transactions is the consumer.

Yet with LIBOR “suits are mounting,” (Wall Street Journal) investigations proliferating and a handy group of scapegoats far from the top of the scam may well be prosecuted.

The only difference seems to be that the size of the LIBOR scandal in terms of consequences to the institutions and consumers appears to be far less than the monumental scam foisted upon taxpayers all over the industrialized world, especially in the U.S.

To be certain the manipulation of the LIBOR rates was clearly an intentional act, but so was the insertion of the bankers naked nominees when residential loans were originated. In most cases, securitization was different in the commercial setting because it was more likely that more questions would be asked by higher priced, more sophisticated lawyers for the borrower.

The manipulation of LIBOR rates resulted in the wrong calculation of adjustable rate mortgages all over the world, making the notices of default, demand for payment and perhaps even the sales illegal. That is more in the nature of legal argument. The insertion of nominees controlled by the investment banks as payees, nominees, trustees, beneficiaries and mortgagees in lieu of the institutions that were actually providing the money and hiding the compensation that TILA requires to be disclosed, the steady practice of table funded loans which are deemed “predatory per se” under regulation Z, allowed intermediaries to pretend to be the lenders, the owners of the loans so they could trade with impunity. If they lost money, they threw the loss over the fence at the taxpayers and investment funds that bought bogus mortgage bonds. If they made money, they kept it.

The only difference is that the the amount of money involved in the non-existent securitization scheme that was so well “documented” was that it resulted in siphoning out the life blood of multiple nations and sending the world into a recession not seen in most of your lifetimes. AND the policy makers in Washington either were or are in bed with the perpetrators on this scheme, whereas the LIBOR scandal is being couched in terms where the traders were conspiring but the banks were unaware of their transgressions.

Let’s face it, if suddenly you have a trading department that is reporting profits geometrically and even exponentially higher than any other time in history, as CEO you would want to know why. Those trading profits did exactly that in both LIBOR and the mortgage securitization myth. One must ask why thousands of advertisements costing billions of dollars were on TV, radio, newspapers and magazines for loans at 5%. Put pencil to paper. If normal underwriting standards were used, and normal fees were applied to intermediaries who made the loan possible, there would be no room in the budget for such extravagance, much less the pornographic profits and bonuses reported on Wall Street. Why were armies of salesmen, including 10,000 convicted felons in Florida alone pushed into the market place as mortgage brokers or mortgage originators?

The intentional reporting of the wrong rates has an effect on all loans, past, present and future, but it requires yet more education of an already overloaded judiciary. So throwing a few traders under the bus and calling it a day is pretty much what is going to happen.

As it turns out though, the Banks have painted themselves into a corner on the securitization scam. What they securitized was paper, not money. The monetary transactions were left untouched by the documents, leaving the people who loaned the money through the scam vehicle known as a REMIC trust with no security for a bad loan.

Hence neither the documentation of an on-existent transaction between the parties named on the instrument, nor the manipulation of terms that were presented in one set to the investor-lenders and an entirely different set of terms presented to the borrower created valid contracts, much less perfected liens. But that didn’t matter to the intermediaries who were supposed to be acting as intermediaries — in the same way a check clears the bank — with no claim to the subject matter of the transaction.

They too manipulated rates by creating second tier yield spread premiums, and thus created spreads upon which they could withdraw money, pay for insurance, credit default swaps and other bets that the bad loans they wanted and received would fail, leaving the market in free-fall.

Predicting the market to to fall is like pushing a person off a cliff. You pretty much know that once the balance is lost the person is doomed. Doctoring up the applications with false income and false property appraisals did exactly that. It was a bet on a sure thing. Wall Street could rest comfortably in the knowledge that housing would ultimately fall to normal levels simply because there was nobody who could or would pay the premium they invested on the mortgage scam.

Now Wall Street is creating entities that will buy up “distressed”properties — a product of their own wrongdoing, using the money of the same people who owned the homes that were foreclosed — i.e., their pension and 401k retirement money. So they used your own money to fund a bad loan to you that they knew they could foreclose, and in between the time they originated the loan documents and the time of foreclosure they engaged in trading on your mortgage even though they had no part in funding or purchasing the loan.

My question to you is where is your outrage? When are you going to fight the bank control of Washington, the bank manipulation of judiciary by fabricating false, forged documentation that “looks right?” You can do it by voting against hose most closely tied to the Wall Street community, by fighting with the party claiming to be your mortgage lender/servicer, or both. If you don’t you are handing the Country over to the banks and leaving it to your children and grandchildren to suffer the consequences.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: borrowers, distressed properties, fraud, homeowners, insidekr trading, insider trading, intermediaries, Libor, nominees, securitization scam, taxpayers, VICTIMS, Wall Street | 29 Comments »

Summit County Ohio Prosecutor Using the F Word Against Freddie

Posted on July 16, 2012 by Neil Garfield

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Editor’s Comment:

By now the law suits by counties against Wall Street mortgage madness to collect fees, fines, taxes, interest and assessments are becoming so commonplace, that we ALMOST are reluctant to report them. But we still will report especially when there is something noteworthy about counties and cities striking back at Wall Street.

Back in 2007 when I started the blog and most people saw me not so much as a lone voice of truth in the wilderness as the loan popper on the fringe of legal “theories” I used the word FRAUD often but maybe not often enough. Now the very respectable count and city attorneys suing the giant Wall Street creations like Fannie and Freddie (who claim to be government agencies when it suits them, and private corporations when it suits them) are using the F word more than I did. FRAUD is not easily alleged or proven. Fraud requires intent to deceive and a host of other elements before it becomes actionable even in a civil court where it must be proven far beyond more likely than not (clear and convincing evidence standard). Yet here it is bandied about like apples at a supermarket.

What is different is that the word fraud is being used against a lot of banks and financial entities that defy description like Fannie, Freddie and Ginny. And the people using F word are government lawyers and prosecutors in law enforcement. And the F word is being used across not just the country but the world. All that means right now, is that normally reticent lawyers are feeling bolder about their allegations and about their ability to prove those allegations.

But remember you saw it here first, years ago. The mortgage meltdown was no mistake. It was intentional with complete knowledge as to the horrendous consequences the countries of the world and their states and provinces would suffer. And with the kind of indifference to humanity that was present when slave trading was allowed. And it was done for money and the PEOPLE who did it made more money than any person has a right to make on Wall Street, sucking the wealth out of the country to the detriment of their own companies (with 50% of profits attributed as bonuses over and above the ridiculously high salaries already paid) and the shareholders who are supposed to be the ones who get most of the profits — not employees even if they are officers.

The PEOPLE on Wall Street who used their companies as tools to gain personal wealth for themselves, the world be damned, they always made money. They always do make money when the Markets go up and when they go down, because they make it when money moves, so they made a lot of money look like it was moving many times. They called it leveraging and selling forward. I called it FRAUD and now I am somewhat encouraged that more and more people are seeing these actions not as excess but as fraud.

Summit County Ohio Prosecutor Files Fraud Lawsuit Against Freddie Mac for Failure to Pay Transfer Taxes and Fees

Mortgage corporation failed to pay taxes and fees to Summit County for six years

AKRON, OHIO – Summit County Prosecuting Attorney Sherri Bevan Walsh today filed a complaint in Summit County Court of Common Pleas against Federal Home Loan Mortgage Corporation, widely known as “Freddie Mac,” on behalf of Russell M. Pry, executive of Summit County, and Kristen M. Scalise, fiscal officer of Summit County. The complaint requests that Freddie Mac be ordered to pay restitution to Summit County for neglecting to pay fees and taxes over a six-year period.

From 2002 through December 31, 2008, Freddie Mac failed to pay the fees or transfer taxes on more than 3,500 real estate transactions. Freddie Mac claimed to be exempt from those payments because it is a government entity.

Summit County contends that Freddie Mac was fraudulent in this claim, as Freddie Mac is not a government entity, but rather it is a federally-chartered private corporation. Furthermore, the fees and transfer taxes on real estate transactions are an excise tax, not a direct tax. Government entities are not exempt from excise taxes.

“Freddie Mac’s failure to pay fees and transfer taxes on these properties amounts to nothing less than fraud,” said Prosecutor Walsh. “That fraud came at significant expense to Summit County taxpayers, and I fully expect that the Court will order Freddie Mac to repay the money it owes to the citizens of Summit County.”

Summit County is asking the Court to find that Freddie Mac committed fraud when it claimed to be exempt from real estate transfer fees and transfer taxes. The County is seeking repayment of all unpaid fees and transfer taxes plus interest and penalties.

Full complaint below…

www.4closureFraud.org

STATE OF OHIO COUNTY OF SUMMIT v FEDERAL HOME LOAN MORTGAGE CORPORATION

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: 4closureFraud.org, Akron Ohio, Dristen M Scalise, Federal Home Loan Mortgage Corporation, fraud, Freddie Mac, Russell M Pry, Sherri Bevan Walsh, State of Ohio County of Summit v Federal home Loan Mortgage Corporation, Summit County Court of Common Pleas, Summit County Ohio, transfer taxes and fees | 35 Comments »

Inflated Appraisals as Assumption of Risk and Joint Venture with the Pretender Lender

Posted on July 12, 2012 by Neil Garfield

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Editor’s Comment:

The allegation of an intentionally inflated appraisal of the property supports many claims, defenses, affirmative defenses and positions. A property that is appraised at $300,000 was usually coming in at precisely $20,000 more than the target value used for the contract for purchase or the commitment for funding a refi. The appraiser was selected, directly or indirectly by the so-called lender whom I have dubbed the “pretender lender,” so named because the borrower is deceived into thinking that he/she is entering into a financial transaction with one party — the one named on the promissory note as payee or named as the mortgagee, beneficiary or lender on the mortgage or deed of trust. In fact, however, the financial transaction took place between the borrower and an undisclosed party while the paperwork revealed no such dichotomy in violation of federal and state lending laws).

But in addition to the documents smelling like 3 day-old fish based upon the failure of the documents to describe an actual financial transaction between the pretender lender and the borrower, the terms of the loan are different than the ones stated in the note and mortgage.

The pretender lender is merely an originator whose name is “rented” for the purpose of creating a bankruptcy remote vehicle (so-named by the banking industry) that could commit every violation of lending laws under the sun. When the homeowner seeks redress he/she finds himself confronting a non-existent entity that was never legally formed, and/or a bankrupt entity, or a dissolved entity that in any event never supplied the credit or cash for the transaction recited in the mortgage documents.

The inflated appraisal is performed by appraisers with the full knowledge that they are doing the equivalent of appraising a car’s value as being 40% above the retail sticker on the showroom floor. Industry standard appraisals withstand the test of time. A reasonable period of time for an appraisal to stand on its own legs is expressed in years not months. In most cases the homeowner quickly found out in days, weeks or at most months, that the fair market value of the property was at least vastly over-stated in order to make the loan as large as possible, and, as we have seen, the inflation of the appraisal ranged from 30% to 75% in those areas that were targeted by Wall Street — with the worst offenses occurring in areas of low financial sophistication or people with language issues because they had recently moved to the U.S.

The appraiser is selected by the lender and, as stated by the 8,000 appraisers who signed petitions in protest in 2005, threatened with no employment if they didn’t come back with an appraisal at least $20,000 over the target contract price (the contract being given to them, which is a violation in itself of industry standards. Many appraisers refused and went to work only for small banks who were making loans with their own money and credit. The pretender lenders were not worried about risk of loss because the originator whose name was loaned to the Wall Street bank for a price above rubies, was not using its own money and credit. In fact, the originator usually had not money or credit, with some notable exceptions where a major institution originated the loan, but was not bankruptcy remote (thinly capitalized). None the less they were not the source of funds, not using their own money or credit and thus assumed no risk of loss for the “decline” in the value of the property after closing —a decline precipitated by the free market providing a value range that is in line with median income.

This article is meant to provoke discussion amongst both bankruptcy lawyers and civil litigators as to whether a known inflated value places part of the risk of loss on all loans, not just those that went into default. By inserting a false value into the equation, the borrower reasonably relied upon the appraiser as supposedly confirmed by the “lender” under OCC regulations. That risk can be quantified — i.e., an appraisal at $300,000 for property worth only $200,000 created an immediate risk of loss not assumed by the borrower but rather assumed by the lender named in the documents.

Thus when the loss is realized in the conventional sense, it should be “realized” in the accounting sense and applied against the lender, thus reducing the allowable claim to the value of the property. This isn’t lien-stripping. This is contract law and assumption of risk. The borrower did not come up with the appriser or the appraisal. It was the lender and under industry standards the appraisal was presumed to be confirmed through due diligence by the lender. In the old days, the bank officers would go out and visit the property a few times and check on the work done by the apprisers. Some form of that due diligence is required under current regulations (see OCC regulations) and industry standards.

The latest time that the loss attributable to the inflated appraisal should be applied is at the time the loan is subject to foreclosure. At that time, I would argue, the amount demanded in wrong and therefore an illegal impediment to reinstatement, redemption, settlement or modification. Since the borrower was the victim of the new standards for underwriting mortgages without any announcements of new standards, the borrower can hardly be held responsible for the inflated appraisal regardless of what they did with the money from the loan and regardless of the source of funding (the real party who transacted business with the borrower where money exchanged hands).

The terms of repayment are changed by the inflated appraisal. Since the inflation of the value of the property was not only known but caused by the pretender lender, the transaction converts from a standard mortgage deal to a joint venture in which if the property value continues to go up, the lender gets its money but if the property value goes down, the lender has assumed the risk of loss to the extent that the value of the property declined — or at least that portion of the decline attributable to the inflated appraisal.

This supports fraud accusations, slander of title and a variety of other causes of action. But just a importantly it makes the pretender lender a partner of the borrower and raises an issue of fact that must be resolved by the court before allowing any foreclosure to proceed or before any attempt can be made to modify the mortgage under HAMP or redeem the property under state law. The successor lenders in the securitization chain are alleging in one form or another that the amount due is strictly computed from the amount stated on the note. But in fact, the co-obligor in the securitization chain is the pretender lender who assumed part of the risk of the loss. Any notice default or attempt to foreclose in which an inflated appraisal was part of the original transaction, regardless of the identity of the real lender, is plainly wrong or even a misrepresentation to the borrower and the court. hence the notice provisions in all states, judicial or non-judicial, are violated in virtually all foreclosures.

But wait there is more. Foreclosures already completed can be more easily overturned by these allegations with the assistance of an honest appraiser. And for those foreclosures, whether overturned or not, the borrower can seek contribution from the co-obligor(s) pretender lender or those who used the originator as a vehicle to shield them against predatory lending claims. In our example above, this would mean that the homeowner might have a clear cause of action against the pretender lender and its successors for the $100,000 loss in value. It would also pull the rug out from “credit bids” based upon documentation allegedly from the originating lender. If the credit bid lieu of cash was higher than the amount due, this created a barrier for others to bid cash on the property making the loan paid in full and the excess proceeds payable to the borrower.

By denying that the pretender lender used an honest appraisal and denying that the borrower is the only obligor, and denying the debt to at least to the extent of the inflation of the appraisal the borrower puts in issue a material fact in dispute and the amount of the bifurcation of risk of loss between the borrower and the amount to be attributed to the originating lender opens the hallowed doors of discovery. affirmatively alleging that the appraisal was inflated puts the burden on the borrower, so it should be avoided if possible.

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: assumption of risk, bankruptcy remote vehicle, co-obligor pretender lenders, fraud, inflated appraisals, joint venture with pretender lender, predatory lending, pretender lender, slander of title | 21 Comments »

CORRUPTION OF TITLE CHAINS IS PANDEMIC

Posted on July 10, 2012 by Neil Garfield

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Editor’s Notes:

As we predicted more and more County recorder offices are suing to collect transfer fees on loans that have gone to foreclosure under the allegation that a valid loan and lien was transferred. Expect other revenue collectors in the states to start doing the same for registration fees, taxes, interest, penalties and fines. This battle is just beginning. We are now about to enter the phase of finger pointing in which each type of defendant — bank, servicer, MERS, Fannie, Freddie etc. defends with varying exotic defenses that more or less point the finger at some other part of the securitization chain.

The real story is that title chains have been irretrievably corrupted — which means that title cannot be established by using the documents alone. Parole evidence from witnesses and production of back-up documents must show the path of the loan and the proof that the transaction was real. Defenders of these lawsuits may be forced to admit that there was no actual financial transaction and that the assignments were assignments of “convenience” negating the reality of the transfer or of any transaction at all.

Either way they are going to have a problem that can’t be fixed. They can’t prove up the documents because the documents are contrary to the path of monetary transactions and recite facts that are untrue —- in addition to the fact that the documents themselves were fabricated, forged, robo-signed and fraudulently presented. This is why I say that regardless of how hard anyone tries to do the wrong thing, the only right way to correct these problems is to negate the foreclosures that have already been concluded, stop the ones that are being conducted in the same way as the old way, and make them prove up their right to foreclose. They either must admit that there were not valid transactions — including the original note and mortgage — or they won’t be able to prove a valid transaction because the money came from sources other than those shown on the closing documents.

The actual sources of the money loaned the money to borrowers without documentation believing they had the documentation. But the mere fact that borrowers signed documents is not an invitation for any stranger to imply that it was for their benefit. For these reasons the mortgage in most cases was never perfected into a valid lien and cannot be perfected without corrective instruments signed by the borrower or upon some order by a court. But the courts are going to be far more careful about the proof here. Most Judges are going to take the position that they could be fooled once when the foreclosure originally went through on the premise of valid documents and an actual financial transaction attached to THOSE documents, but that they won’t be fooled a a second time. They will demand proof. And proof according to the normal rules of evidence is completely lacking because the entire securitization chain was a lie from one end to the other.

The borrower will end up owing the money less offsets for payments received by the real creditor, once the identity of the real creditor is revealed, but the absence of a mortgage or deed of trust naming that actual creditor will void the mortgage and negate the credit bid at the auction.

Ohio lawsuit accuses Freddie Mac of fraud

by Tara Steele

The battle between Fannie Mae, Freddie Mac, and various government entities continues, each taking a different approach on the battlefield.

Freddie Mac sued by county in Ohio

Last year, Mortgage Electronic Registration Systems Inc. (MERS) became the subject of lawsuits from counties across the nation as District Attorneys allege the company never owned the loans they were facilitating foreclosures for, and in most cases, judges agree, and their authority to facilitate has been denied in several counties. Dallas County alleges the mortgage-tracking system violates Texas laws and shorted the county anywhere from $58 million to over $100 million in uncollected filing fees due to the MERS system, dating back to 1997.

Others sued MERS as well; in February, in the U.S. Court for the Western District of Kentucky, Chief Judge Joseph McKinley Jr. dismissed a lawsuit filed by the Christian County Clerk, denying relief to the County for the same relief sought by Dallas County and others.

Rampant mortgage fraud, continued robosigning

Studies have shown that MERS destroyed the chain of title in America, and other studies reveal that illegal robosigning is still in play, and that foreclosure fraud has occurred in themajority of loans.

As the courts have not yet rewarded cities, counties, or states pursuing action against MERS, other tactics are being taken by these entities, for example, Louisiana is using RICO laws to sue MERS.

Summit County, Ohio taking a different approach

Summit County, Ohio filed a lawsuit¹ Tuesday against Freddie Mac, alleging a failure to pay fees on transfer taxes on over 3,500 real estate transactions over six years. Court documents show that the Federal Home Loan Mortgage Corporation is accused of committing fraud by claiming it was a government entity, thereby exempt from transfer taxes. The County has not released a final assessment of the amount they believe is due, but they will also be seeking interest and penalties.

This approach is far different than going after MERS (which coincidentally was established by Fannie Mae and Freddie Mac over 15 years ago), rather going directly after the still-functioning Freddie Mac.

“The reality is Freddie Mac is a federally chartered, private corporation and they should have been paying these fees and taxes,” Assistant Prosecutor Joe Fantozzi told the Akron Beacon Journal.

Freddie Mac and Fannie Mae began paying transfer taxes in 2009, so the lawsuit is only seeking transfer taxes due from 2002 through 2008, which in Summit County are $4 per $1,000 on all real estate transactions. Additionally, the county also charges a 50-cent lot fee and recording fees, which are $28 for the first two pages and $8 for each additional page.

Fannie Mae not named, FHFA already fighting back

Although Geauga County in Ohio sued MERS, Chase Bank, and CoreLogic, the Akron Beacon Journal reports that Summit County is believed to be the first county in the state to file legal action against Freddie Mac. Fannie Mae was not named in the suit due to the low volume of mortgages in the county it handled during the time period.

The Federal Housing Finance Agency (FHFA), the conservator of Fannie and Freddie, is fighting back on these same battle lines, suing in Illinois to validate the two mortgage giants’ tax-exempt status, the Chicago Tribune reported. This move is likely an effort to circumvent more lawsuits like the one currently being filed in Summit County.

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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Akron Beacon Journal, Chase Bank, Chicago Tribune, Chief judge Joseph McKinley Jr, CoreLogic, corruption of title chains, county recorder offices, Fannie MAe, FHFA, fraud, Freddie Mac, Joe Fantozzi, kentucky, Louisiana, MERS, mortgage fraud, Ohio, Recording fees, RICO, robosigning, Tara Steele, taxes | 69 Comments »

Turning the Tide Toward Borrowers

Posted on June 4, 2012 by Neil Garfield

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Editor’s Comment:

Nocera and several other responsible journalists have finally reached the point of taking a larger perspective than the narrow myths perpetuated by Wall Street. Wall Street would have us believe that they took bad risks and “made mistakes” causing the financial collapse. His point is the Justice Department has taken after “the smallest of smallest” and he believes that those prosecutions are in lieu of the prosecutions that ought to occur against those who are responsible for setting up a criminal enterprise with the appearance of a conventional business structure.

The problem is easy to describe and difficult to solve. It is simply true that prosecutions of “small fry” are easier because they don’t have the resources or knowledge necessary to properly defend themselves. It is equally true that the successful prosecution can be used for public relations purposes to show that a regulating agency or law enforcement is doing its job.

On the other hand prosecution of Jamie Dimon or Lloyd Blankfein would provoke a vigorous defense conducted by dozens of lawyers whose purpose would be to merely poke holes in the prosecutions case rather than proving their clients innocence. In order to prosecute such people and those close to them, it would be necessary for the regulating agencies and law enforcement to acquire specialized knowledge so that they would know what to investigate and arrive at conclusions as to which violations to prosecute based upon their likelihood of success.

The solution is obvious. Since there is no likelihood that most regulatory agencies and most law enforcement agencies would ever be able to mount such a challenge to the Titans of Wall Street, and the political risk of losing such a case would be devastating, they simply must maintain the status quo, which is to say that they should continue the policy of going after “small fry”. On the other hand if they really want to represent the citizens of their country or their state (or their county), they could appoint a special prosecutor whose payment would be relatively minimal in terms of getting the case started and largely dependent upon the actual payment of fines, penalties, interests, and restitution. There are at present at least a dozen law firms in the country (including our very own GarfieldFirm.com) who could perform this service under the direction of the Attorney General or county attorney or both.

The only thing that the state would need to provide is space and facilities and perhaps some minimal capital. To put this in perspective, I made an approach to the appropriate people in government in the state of Arizona in 2008 in that proposal it was my naïvely idealistic presumption that the state would be more than happy to collect taxes, fees, fines, penalties interest etc that were due from out of state residence residing on Wall Street in the state of New York. Based upon existing AZ law I projected a 10 billion dollar recovery. Their finance department looked over my analysis and decided I was wrong. They projected a recovery of 3 billion dollars which as it turns out is exactly the amount of the budget deficit of the state.

At this point it is fair to say that the risk reward ratio of prosecuting the Titans of Wall Street has reached a point where it is irresistible if it is performed by a special prosecutor who has no ambitions for public office. In the process, the state would recover not only the taxes, fees, fines, penalties and interest, but the homeowners would be virtually guaranteed some form of restitution based upon the wrongful foreclosures and the trading of their loans and securities whose value was derived from their loans.

It is well understood and known that we are only halfway through a contest of enormous consequence. Without appropriate restraints on banking and financial service companies most of the liberties and rights set forth in the founding documents of our country will become meaningless. Until now the investment banks have been able to control the narrative. But the facts about their misdeeds and malfeasance are starting to drown out the gigantic Wall Street machine. I’m not saying that the tide has already turned. But with the help of readers like you who become proactive and write letters to their attorney generals, county attorneys, and the regulatory agencies demanding such action, the tide will turn earlier rather than later.

The Mortgage Fraud Fraud

By JOE NOCERA

I got an e-mail the other day from Richard Engle telling me that his son Charlie would be getting out of prison this month. I was happy to hear it.

Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June 20, Charlie, 49, will move temporarily to a halfway house, after which he will be on probation for another five years. And unless he can get the verdict overturned, he will have to spend the rest of his life with a felony on his record.

Perhaps you remember Charlie Engle. I wrote about him not long after he entered a minimum-security facility in Beaver, W.Va., 16 months ago. He’s the poor guy who went to jail for lying on a liar loan during the housing bubble.

There were two things about Charlie’s prosecution that really bothered me. First, he’d clearly been targeted by an agent of the Internal Revenue Service who seemed offended that Charlie was an ultramarathoner without a steady day job. The I.R.S. conducted “Dumpster dives” into his garbage and put a wire on a female undercover agent hoping to find some dirt on him. Unable to unearth any wrongdoing on his tax returns, the I.R.S. discovered he had taken out several subprime mortgages that didn’t require income verification. His income on one of them was wildly inflated. They don’t call them liar loans for nothing.

Charlie has always insisted that he never filled out the loan document — his mortgage broker did it, and he was actually a victim of mortgage fraud. (The broker later pleaded guilty to another mortgage fraud.) Indeed, according to a recent court filing by Charlie’s lawyer, the government failed to turn over exculpatory evidence that could have helped Charlie prove his innocence. For whatever inexplicable reason, prosecutors really wanted to nail Charlie Engle. And they did.

Second, though, it seemed incredible to me that with all the fraud that took place during the housing bubble, the Justice Department was focusing not on the banks that had issued the fraudulent loans, but rather on those who had taken out the loans, which invariably went sour when housing prices fell.

As I would later learn, Charlie Engle was no aberration. The current meme — argued most recently by Charles Ferguson, in his new book “Predator Nation” — is that not a single top executive at any of the firms that nearly brought down the financial system has spent so much as a day in jail. And that is true enough.

But what is also true, and which is every bit as corrosive to our belief in the rule of law, is that the Justice Department has instead taken after the smallest of small fry — and then trumpeted those prosecutions as proof of how tough it is on mortgage fraud. It is a shameful way for the government to act.

“These people thought they were pursuing the American dream,” says Mark Pennington, a lawyer in Des Moines who regularly defends home buyers being prosecuted by the local United States attorney. “Right here in Des Moines,” he said, “there was a big subprime outfit, Wells Fargo Financial. No one there has been prosecuted. They are only going after people who lost their homes after the bubble burst. It’s a scandal.”

The Justice Department has had a tough run recently. Last week, Eric Schneiderman, the New York attorney general — who was recently given a role by President Obama to investigate the mortgage-backed securities issued during the bubble — complained publicly that he wasn’t getting the resources he needed from the Justice Department. And, of course, on Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of the former presidential candidate John Edwards.

In the Edwards case, the Justice Department spent tens of millions of dollars, and trotted out novel legal theories, to prosecute a man who was essentially trying to keep people from discovering that he had had a mistress and an out-of-wedlock child. Salacious though it was, the case has zero public import. Yet this same Justice Department isn’t willing to use similar resources — and perhaps even trot out some novel legal theories — to go after the pervasive corporate wrongdoing that gave us the financial crisis and the Great Recession. (I should note that the Justice Department claims that it “will not hesitate” to prosecute any “institution where there is evidence of a crime.”)

Think back to the last time the federal government went after corporate crooks. It was after the Internet bubble. Jeffrey Skilling and Kenneth Lay of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was prosecuted and given a lengthy prison sentence. Now recall which Justice Department prosecuted those men.

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.