As regulators conclude their long investigation into the cloud of companies and the maze of paths of paperwork and money the real victims are being revealed. We know Pension funds got hit hard and are now underfunded strictly as a result of buying worthless mortgage bonds from investment bankers who promised them protection and transparency but instead proved to be the predator. Now regulators are suing Morgan Stanley for defrauding two credit unions that failed as a result of taking a loss on those bonds — a loss that was a gain to the investment banker.
But they still don’t have it exactly right. The regulators are now freely describing mortgages that were “faulty”, “defective”‘ or “non-conforming”. They are describing bonds whose indentures were violated. Yet the government still stands on the sidelines when we look at the damage caused to millions of homeowners who have been forced from their homes and lost everything. The guise is “personal responsibility” — meaning that homeowners are to blame for what happened to them. Meanwhile the question of ownership of who owns the loan and the balance of the loan are being circumvented through destructive litigation, led by judges who are ill-informed mostly because lawyers have failed to learn securitization of debt.
Thus the government has failed to lead the way to stopping Foreclosures. It is still a basic axiom in the offices of regulators, the courtrooms of the judiciary and in mainstream media that individual borrowers are the people who must take responsibility and pay for the fraud. They should have known better. They should have read the documents. But this “logic” flies in the face that two branches of government have already recognized is that the one party who is at a disadvantage in a mortgage loan transaction and credit generally is the borrower — not the lender.
This issue was officially decided by the Federal Government in The Federal Truth in Lending Act was enacted for just that purpose and reason. The Federal Real Estate Settlement Procedures Act was enacted for just that purpose. And the many states that have enacted deceptive lending statutes that freely borrow from TILA and RESPA. Lawyers need to include this in their pleadings, memorandums and oral arguments to start where we should start — at the beginning. If those mortgages are being settled with the creditors who loaned the money because the loans were defective, and they are being settled with shared risk of loss, then why should our attitude toward borrowers be any different as to the same defective mortgages?
A good starting point would be to find the list of defective mortgages to see if your mortgage is in the
list of mortgages claimed to have been securitized, where the mortgages were described as defective, and where the mortgage bonds were described as fraudulent. Fraudulent appraisals are being ignored in the courtroom despite the clear provisions TILA that makes the appraisal and the viability of the loan the responsibility of the lender. Foreclosure defense attorneys are missing an important part of their argument when they fail to start with the responsibilities of the lender, the reasons why those standards were not applied, and the fact that the real lenders in millions of table-funded (predatory per se– I.e. Presumptively predatory) were being defrauded in two ways — non-conforming defective loans and mortgage bonds.
Of course the agencies could make thing easy by forcing publication of a list of REMIC trusts that have been subject to settlements relating to fraudulent and deceptive lending, and fraudulent and deceptive sale of mortgage bonds. But the truth is that the false axioms of the cloud of companies acting under cover of false claims of securitization are settling in the minds of judges, lawyers and regulators that somehow tens of millions of mostly unsophisticated people conspired to defraud the system. How likely is that? Or is it more likely that mortgage companies were pushing, coercing, lying, and deceiving the borrowers — just as the the lawsuits against the investment banks state? And just as they have done in the past?
Those lawsuits frequently allege that the underlying mortgages were non-compliant and unenforceable. If the investment bankers and investors, insurers and government agencies can agree that those mortgages were not enforceable, why is it that lawyers have not brought that message with them into the courtroom? And when they do, why are judges ignoring the argument. It has already been decided at the highest levels of government that the homeowner is hopelessly outgunned at closing. Why assume anything different? When those laws were passed , the number of loan options was 4 or 5. During this period of mortgage madness and meltdown, the number of mortgage products climbed to over 400 options. Borrowers didn’t do that. It was the mortgage originator who had no risk of loss because the money of the investor was what ended up on the table at closing.
Filed under: CDO, community banks, CORRUPTION, evidence, Fannie MAe, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, investment banking, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer | Tagged: credit unions, defective mortgages, investors, Morgan Stanley, regulators, unenforceable mortgages | 13 Comments »