BANKS EDGE CLOSER TO THE ABYSS: Florida Judge Forces Permanent Modification

GGKW (GARFIELD, GWALTNEY, KELLEY AND WHITE) provides Legal Services across the State of Florida. We also provide litigation support to attorneys in all 50 states. We concentrate our practice on mortgage related issues, litigation and modification (or settlement). We are available to represent homeowners, business owners, and homeowner associations seeking to preserve their interest in the property and seeking damages (monetary payment).  Neil F Garfield is a licensed Florida attorney who provides expert witness and consulting fees all over the country. No board certification is offered by the Florida Bar, so the firm may not claim expertise in mortgage litigation. Mr. Garfield’s status as an “expert” is only as a witness and not as an attorney.
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For the second time in as many weeks a trial judge has ordered the pretender lender to execute a permanent modification based upon the borrowers total compliance with the provisions of the trial modification.This time Wells Fargo (Wachovia) was given the terms of the modification, told to put it in writing and file it. If they don’t sanctions will apply just as they will be in the Florida Panhandle case we reported on last week.

Remember that before the trial modification begins the pretender lender is supposed to have done all the underwriting required to validate the loan, the value of the property, the income of the borrower etc. That is the responsibility of the lender under the Truth in Lending Act.

Of course we know that cases were instead picked at random with a cursory overview simply because there was no intention to ever give a permanent modification. Borrowers and their attorneys have known this for years. Government, always slow on the uptake, is starting to get restless as more and more Attorneys General are saying that the Banks are not complying with the intent or content of the agreement when the banks took TARP money.

The supreme irony of this case is that Wells Fargo didn’t want the TARP money and was convinced to take it and accept the terms of HAMP because if only the banks that really need it took the money it was argued that this would start a run on the banks named that had to take TARP. The other ironic factoid here is that the whole issue of ownership of the loans blew up in the face of the government officers around the country that thought TARP was a good idea — only to find out that the “toxic assets” (TARP – “Toxic Asset Relief Program”) were not defaulting mortgages.

  1. So instead of telling the banks they were liars and going after them the way Teddy Roosevelt did 100 years ago, they changed the definition of toxic assets to mean mortgage bonds.
  2. This they thought would take care of it since the mortgage bonds were the evidence of “ownership” of the  “underlying” home loans.
  3. Then the government found out that the mortgage bonds were not failing, they were merely the subject of a declaration from the Master Servicer (a necessary and indispensable party to all mortgage litigation, in my opinion) that the value of the bond had fallen ,thus triggering payment from insurers, counterparties on credit default swaps etc to pay up to 100 cents on the dollar for each of the bonds —
  4. which means the receivable account from the borrower had been either extinguished or reduced through third party payment.
  5. But by cheating the investors out of the insurance money (something the investors are taking care of right now in the courts), they thought they could keep saying the loans were in default and the mortgage bond had been devalued and thus the payment of insurance was legally valid.
  6. BUT the real truth is that the loans had never made into the asset pools that issued the mortgage bonds.
  7. So the TARP definitions were changed again to “whatever” and the money kept flowing to the banks while they were rolling in money from all sides — investors, insurers, CDS counterparts, sales of the note to multiple asset pools (REMICs) and then sales of the note to the Federal Reserve for 100 cents on the dollar.
  8. This leaves the loan receivable account in many cases in an overpaid status if one applies generally accepted accounting principles and allocates the Federal, insurance and CDS money to the bonds and the “underlying” loans.
  9. So the Banks took the position that since the money was not coming in to cover the loans (because the loans were not in the asset pool that issued the mortgage bond and therefore the mortgage bond was NO evidence of ownership of the loan) that therefore they could apply the money any way they wanted, and that is where the government left it, to the astonishment and dismay of the the rest of the world. that is when world economies went into a nose dive.

The whole purpose of the mega banks in in entering into trial modification was actually to create the impression that the mega banks were modifying loans. But to the rest of us, the trial modification was supposed to to be last hurdle before the disaster was finally over. Comply with the payment schedule, insurance, taxes, and everything else, and it automatically becomes your permanent modification.

Not so, according to Bank of America, Wells Fargo, Chase, Citi and their brothers in arms in the false scheme of securitization. According to them they could keep the money paid by the borrower to be approved for the trial modification, keep the money paid by the borrower to comply with the terms of the trial modification and then the banks could foreclose making up any excuse they wanted to deny the permanent modification. The sole straw upon which their theory rests is that they were only obligated to “consider” the modification; according to them they were NEVER required to make it such that the modification would become permanent unless the bank expressly said so, which in most cases it does not.

When you total it all up, the Banks received a minimum of $2.50 for each $1.00 loan “out there” regardless of who owns it. Under the terms of the promissory note signed by the borrower, that means the account is paid in full and then some. If the investor has not stepped up to file a competing claim against the borrower’s new claim for overpayment, then the entire overage should be paid to the borrower.

The Banks want to say, like they did to the government, that the trial modification is nothing despite the presence of an offer, acceptance and consideration. To my knowledge there are at least two judges in Florida who think that is a ridiculous argument and knowing how judges talk amongst themselves behind closed doors, I would expect more of these decisions. If the borrower applies for and is approved for trial modification and they comply with the trial provisions, a contract is formed.

The foreclosure defense attorney in Palm Beach County argued SIMPLE contract. And the Judge agreed. My thought is that if you are in a trial modification get ready to hire that attorney or some other one who gets it and can cover your geographical area. Once that last payment is made, and in most cases, the payment is continued long after the trial modification period is officially over, the Bank has no equitable or legal right to deny the permanent modification.

The only caveat here is whether the Judge was correct in stating the amount of principal due without hearing evidence on third party payments and ownership of the loan. WHY WOULD THE BANK WANT LESS MONEY IN FORECLOSURE RATHER THAN MORE MONEY IN A MODIFICATION? The answer is that out of the $2.50 they received for the loan, they would be required to refund $2.50 because the Bank was supposed to be an intermediary, not a principal in the transaction. So the balance quoted by the judge without evidence was quite probably wrong by a mile.

If there is any balance it is most likely a small fraction of the original principal due on the promissory note. And, as we have been saying for years, it is most likely NOT due to the party that is entering into the modification. This last point is troubling but “apparent authority” doctrines might cover the problem.

Every time a loan does NOT go into foreclosure, the Banks’ representation of defaults and the value of the loan (in order to trigger insurance and other third party payments)  come under question and the prospect of disaster for the Bank rises, to wit:  refunding trillions of dollars in insurance and CDS money as well as money received from co-obligors on the bond (the finished product after the note was moved through the manufacturing process of a false securitization scheme).

Every time a loan is found NOT to have actually been purchased by the asset pool (REMIC, Trust etc.) because there was no money in the asset pool and that the investors merely have an equitable right to claim the note and mortgage under constructive trust or resulting trust theories, the validity of the mortgage encumbrance fades to black. There is no such thing as an equitable mortgage lien or an equitable lien of any sort. And there is plenty of good sense and many law review articles as well as case decisions that explain why that is true.

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PRACTICE HINT FOR ATTORNEYS: Whether you are litigating or negotiating, send a preservation letter to every possible party or witness that might be involved. That way when you ask for production, they can’t say they destroyed or lost it without facing severe consequences. It might even stop the practice of the Banks trashing all documents periodically as has been disclosed in the whistle-blower affidavits from BOA and other banks. If you need assistance in creating a long form preservation letter we are available to provide litigation assistance on that and many other matters that might arise in foreclosure defense.

BOA Seeks to Seal Damaging Testimony from Urban Lending

HAPPY INDEPENDENCE DAY!

WHY ARE THE BANKS FIGHTING TO GET AS LITTLE AS POSSIBLE FROM EACH “FAILED” LOAN?

A drama is playing out in the state of Massachusetts. Bank of America is pretending to be the lender or the authorized servicer or both. But it outsourced the task of dealing with borrowers seeking modification. The company that was used is Urban Lending Solutions (ULS).  A deposition was taken from a knowledgeable source from within ULS.  The attorney  taking the deposition was merely looking for evidence of a script prepared by Bank of America that ULS employees were to follow. Not only was the script uncovered but considerable other evidence suggested institutional policies at Bank of America that were in direct conflict with the requirements of law, and in direct violation of the settlements with the Department of Justice and the banking regulators.

The transcript of the deposition was sealed at the request of Bank of America, which the borrower did not interpose any objection. Now there are a lot of people who want to see that deposition and who want to take the deposition of the same witness and other witnesses at ULS who might reveal the real intent of Bank of America. The question which is sought to be answered is why the mega banks are fighting so hard to take less money in a foreclosure sale then they would get in a modification or even a short sale. The policy is obvious. Borrowers are lured into a hole that gets deeper and deeper so that foreclosure seems inevitable and indefensible. Even after a successful trial modification the banks are turning down the permanent modification, as though they had the power to do so.

Now a number of attorneys are preparing motions to the trial court in Massachusetts to unseal the transcript of the ULS employee. Bank of America is opposing these efforts on the grounds of “confidentiality” which from my perspective makes absolutely no sense. Why would Bank of America share confidential information or trade secrets with a vendor whose only purpose was to interfere with the modification process? My opinion is that the only information that Bank of America wishes to keep secret is that the instructions they gave to ULS clearly show that Bank of America was not interested in anything other than achieving a foreclosure sale in as many cases as possible.

In nearly all cases the modification of the loan more than doubles the prospect of proceeds from the loan and in some cases approaches 100%. Thus the full-court press from the megabanks to go to foreclosure is a mystery that will be solved. My sources from inside the industry together with my own analysis indicates that the reason is very simple. The banks took in money from investors, insurers, counterparties in credit default swaps, the Federal Reserve, the Department of the Treasury and other parties based on the representation of the banks that (A) the banks owned the mortgage bonds and therefore on the loans and (B) there was a loss resulting from widespread defaults on mortgages. Under the terms of the various contracts within the false chain of securitization and the Master servicer had sole discretion as to whether or not the value of the mortgage bonds and the asset pools had declined and had sole discretion as to the amount of the loss caused by the defaults. Both representations were false — the Banks did not own the bonds or the loans and the loss was not even close to what was represented to insurers and other third parties.

As a general rule of thumb, the banks computed value of the collateral at around 25% and therefore received payment to compensate the banks for a 75% loss. They received the payment several times over and then sold the mortgage bonds to the Federal Reserve for 100% of the face value of the bonds. It can be fairly estimated that they received no less than 250% of the principal amount due on each of the loans contained within the asset pool that had issued each mortgage bond. While they had to create the appearance of objectivity by showing a number of the loans as performing, they intentionally overestimated the number of loans that were in default or were in the process of going into default.

Let us not forget that while nobody was looking the Federal Reserve has been “purchasing” the worthless mortgage bonds at the rate of $85 billion per month for a long time and doesn’t appear to have any intention of stopping that flow of money to banks that have already received more than 100% of the principal due on the notes. And lest you be confused, the money the banks received should have gone to the investors and should never have been kept by the banks. The purchases by the Federal Reserve at 100% of face value despite a market value of zero is merely a way for the Federal Reserve to keep the mega banks floating on an illusion.

Since the banks received 250% of the principal amount due on the loan, an actual recovery from the borrower of 100% (for example) on the loan would leave the banks with a liability to all of the third parties that paid the banks. The refund liability would obviously be 150% of the principal amount due on the loan and the banks would be required to turn over the hundred percent recovery from the borrower to the investors adding to their liability. THIS IS WHY I SAY CALL THEIR BLUFF AND OFFER THEM ALL THE MONEY DEMANDED ON CONDITION THAT THEY PROVE OWNERSHIP AND PROVE THE LOSS IS ACTUALLY THE LOSS OF THE BANK AND NOT OF THE INVESTORS.

But if the case goes through a foreclosure sale, the banks can take a comfortable position that the number of defaults and the depth of the loss was as great as they represented when they took payment from insurers and other third parties. The liability of 250% is completely eliminated. Thus while it might appear to be in the bank’s interest to take a 60% recovery from the borrower instead of a 25% recovery from a foreclosure sale, the liability that would be created each time alone was modified or settled would dwarf the apparent savings to the pretender lender or actual creditor.

The net result is that on a $100,000 loan, the investor takes an extra $35,000 loss over and above what would normally apply in a workout and the bank avoids $250,000 in liabilities to third parties who paid based upon false representations of losses.

The mere fact that they went to great lengths to seal the transcript indicates how vulnerable they feel.

PRACTICE MEMO TO FORECLOSURE DEFENSE LAWYERS

As a condition precedent I would suggest that in all cases where we feel the deposition transcript would be helpful I think it would create more credibility if you issued a subpoena duces tecum directed at Urban to produce the witness whose deposition was sealed in the existing case and to bring those records that were requested or demanded at that deposition. One of the questions that needs to be answered is whether the witness witness is still working for Urban, whether the witness has “disappeared”, and whether his testimony has changed — thus we would need the other deposition to test credibility and perhaps get exhibits that BANA either didn’t object to, which means they waived confidentiality. If they do not move to quash the subpoena then they might also be arguably waiving the confidentiality objection.
If they do object, you have two bites of the apple — if they move to quash they must state the grounds other than than it will damage their chances in litigation. The trial court would then hear the objections and of course each if the cases that could benefit from unsealing the deposition results in a hearing, then several judges would hear the same objection. The likelihood is that the objection would attempt to bootstrap the order sealing the deposition as reason enough to quash the subpoena. That in turn puts pressure on the Massachusetts judge to release the transcript.
The more Motions filed the better. So I would suggest that we reach out through media to get as many people as possible with separate motions saying that sealing the deposition is causing a disruption in due process. Since Urban reached out on behalf of BANA — an allegation that should be made in opposition test the motion to quash the subpoena in each case — exactly what confidential information needs to be protected? Has the Massachusetts court heard a motion in liming preventing the use of the deposition at trial? If not, then the objection is waived since the Plaintiff will clearly use the deposition at trial, if there is one.
The other issue is that BOA can’t simply allege confidentiality rather than strategy in litigation. They must state with particularity what could be possibly confidential. There is no attorney-client privilege, there is no attorney work product privilege.  At first Bank of America disclaimed any knowledge or relationship with ULS.  When it became obvious that the relationship existed and that ULS was using Bank of America letterhead to communicate with borrowers they finally admitted that the relationship existed and then went one step further by alleging confidentiality and trade secrets so that the contract and instructions between Bank of America and ULS would never see the light of day., For a company that BOA disclaimed any knowledge but who used BOA stationery they were clearly an agent of BANA. What exactly could Urban have other than information about modification and foreclosure? I would also notice or subpoena BANA to produce the person who signed the contract with Urban and to bring the contract with him or her. Who received instructions from BOA? Where are those instructions? Were they produced at the sealed deposition.
 If the Massachusetts court does not unseal the transcript, doesn’t this give BOA an opportunity for a do-over where they fabricate documents that are different from those produced in the sealed deposition?
What were the instructions to Urban? What was the goal of the relationship between BOA and URban? Where are the scripts now that we’re produced in the sealed deposition?
Were the instructions to Urban the same as the instructions to all vendors assisting in the foreclosure process? Why did BOA even need Urban if it had proof of payment, proof of loss,  proof of ownership of the loan? We want to know what scripts were used by Urban and whether the same scripts were distributed to other vendors whose behavior could be plausibly denied. Discovery is a process by which the party seeking it must only show that it might lead to the discovery of admissible evidence. THE POINT MUST BE MADE THAT THE DEFENSE FOR WHICH WE ARE LOOKING FOR SUPPORT AND CORROBORATION IS THAT THE DELIBERATE POLICY AND PRACTICE OF BOA WAS TO MOVE PEOPLE INTO DEFAULT BY TELLING THEM TO STOP MAKING PAYMENTS. WE WANT TO SHOW THAT THEIR GOAL WAS FORECLOSURE NOT MODIFICATION CONTRARY TO THE REQUIREMENTS UNDER HAMP AND HARP AND THAT RATHER THAN PROCESS MODIFICATION OR SETTLEMENTS THE POLICY WAS TO DERAIL AS MANY AS POSSIBLE TO GET THE FORECLOSURE EVEN IF IT MEANT THAT THE INVESTORS WOULD GET LESS MONEY? Why?
The instruction was to use the promise or carrot of modification to trick the homeowner into (a) acknowledging BOA as the right party (b) stop making payments causing an apparent default and causing an escrow shortage (c) thus assuring the foreclosure sale despite the fact that BOA never acquired and (d) thus assuring that claims against them from investors (see dozens of law suits against BOA) and from insurers and counter parties on credit default swaps and payments from co-obligors based on the “default” that BOA fabricated — payments that involved more than the loan itself in multiples of the supposed loan balance.

This is an important battle. Let’s win it. There is strength in numbers. We might find the scripts were prepared by someone who used scripts from other banks and that the banks were in agreement that despite the obligations under HAMP and HARP and despite their ,rinses in the AG and OCC settlement, their goal is to foreclose at all costs because if the general pattern of conduct is to settle these loans and make them “performing” loans again it is highly probable that for each dollar of principal that gets taken of the table there is a liability or claim for $10. This would establish that the requirements of HAMP and HARP has resulted in negotiating with the fox while the fox is in the henhouse getting fat.

BOA, Urban Lending Sued in Qui Tam by WHistleblower: They never intended to modify the loans

Just a quick note as follow up to my article this morning. Read this qui tam complaint and see how it corroborates the facts and theories presented on this blog. Note the following quote: ” these mechanisms of fraud were and are interconnected and directly observed by Relator Mackler, who worked with various BOA executives while at Urban Lending Solutions beginning in April 2010. BOA outsources various HAMP obligations to Urban. Upon witnessing the unlawful, fraudulent practices listed above, among others, Mackler brought his concerns to the highest levels of Urban and to executives at Bank of America. Eventually, his objections to these practices led to his termination on March 17, 2011.”

US ATTORNEY GOT THIS DISMISSED BUT ANOTHER ONE IS PENDING IN MASSACHUSETTS UNDER SEAL.

Read, plagiarize This, and use it: http://www.documentcloud.org/documents/324428-greg-mackler-complaint.html

http://thinkprogress.org/economy/2012/03/08/440628/whistleblower-claims-bofa-blocked-help/?mobile=nc

Truth Coming Home to Roost: JPM Knew the Loans Were Bad

In a statement shortly after he sued JPMorgan Chase, Mr. Schneiderman [Attorney general, New York state] said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure or to challenge whoever is taking your money every month, 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).

A PRIMER ON COOKING THE BOOKS

Editor’s Comment and Analysis: It’s been a long pull to get the real information about the misbehavior of the mega banks and their officers. But Schneiderman, Attorney general of the State of New York, is drilling down to where this really needs to go. And others, tired of receiving hollow assurances from the mega banks are suing — with specific knowledge and proof that is largely unavailable to borrowers — a good reason to watch these suits carefully.

Both internal emails and interviews have revealed that they repeatedly were warned by outside analysts of the perils of the mortgage lending process. The officers of JPM chose to change the reports to make them look more appealing to investors who gave up the pension money of their pensioners in exchange for what turns out to be bogus mortgage bonds issued by a non-existent or unfunded entity that never touched a dime of the investors’ money and never received ownership or backing from real loans with real security instruments (mortgages and deeds of trust).

A lawsuit filed by Dexia, a Belgian-French bank is being closely watched with justified trepidation as the onion gets pealed away. The fact that the officers of JPM and other mega banks were getting reports from outside analysts and took the trouble to change the reports and change the make-up of the bogus mortgage bonds leads inevitably to a single conclusion — the acts were intentional, they were not reckless mistakes, they weren’t gambling. They were committing fraud and stealing the pension money of investors and getting ready to become the largest landowners in the country through illegal, fraudulent, wrongful foreclosure actions that should have been fixed when TARP was first proposed.

The Dexia lawsuit focuses on JPM, WAMU and Bear Stearns, acquired by JPM with government help. The failure to provide bailout relief to homeowners at the same time sent the economy into a downward spiral. Had the Federal reserve and US Treasury department even ordered a spot check as to what was really happening, the “difficult” decisions in 2008 would have been averted completely.

Receivership and breakdown of the large banks would have produced a far more beneficial result to the financial system, and is still, in my opinion, inevitable. Ireland is doing it with their major bank as announced yesterday and other countries have done the same thing. Instead of the chaos and trouble that the banks have policy makers afraid of creating, those countries are coming out of the recession with much stronger numbers and a great deal more confidence in the marketplace.

The practice note here is that lawyers should look at the blatant lies the banks told to regulators, law enforcement and even each other. The question is obvious — if the banks were willing to lie to the big boys, what makes you think that ANYTHING at ground level for borrowers was anything but lies?  They went to their biggest customers and lied in their faces. They certainly did the same in creating the illusion of a real estate closing at ground level.

Lawyers should question everything and believe nothing. Normal presumptions and assumptions do not apply. Keep your eye on the money, who paid whom, and when and getting the proof of payment and proof of loss. You will find that no money exchanged hands except when the investors put up money for the bonds that were supposed to be mortgage backed, and the money that was sent down the pipe via wire transfer to the closing agent under circumstances where the “lender” was not even permitted to touch the money, much less use it in their own name for funding.

The diversion of money away from the REMICs and the diversion of title away from the REMICs leaves each DOCUMENTED loan as non-existent, with the note evidence of a transaction in which no value exchanged hands, and the mortgage securing the obligations of the invalid note.

The diversion of the documents away from the flow of money leaves the borrower and lenders with a real loan that, except for the wire transfer receipts, that was undocumented and therefore not secured. Yet nearly all borrowers would grant the mortgage if fair market value and fair terms were used. Millions of foreclosures would have been thwarted by settlements, modifications and agreements had the investors been directly involved.

Instead the subservicers rejected hundreds of thousands of perfectly good proposals for modification that would have saved the home, mitigated the damages to investors, and left the bank liable to investors for the rest of the money they took that never made it into the money chain and never made it into the REMIC.

Add to this mixture the rigging of LIBOR and EuroBOR, the receipt of trillions in mitigating payments kept by the banks that should have been paid and credited to the investors, and it is easy to see, conceptually, how the amount demanded in nearly all foreclosure cases is wrong.

Discovery requests should include, in addition to third party insurance and CDS payments, the method used to compute new interest rates and whether they were using LIBOR ( most of them did) and what adjustments they have made resulting from the revelation that LIBOR was rigged — especially since it was the same mega banks that were rigging the baseline rate of interbank lending.

Once you are in the door, THEN you can do not only your own computations on resetting payments, but you can demand to see all the transactions so that the applied interest rate was used against the alleged principal. At that point you will know if a loan receivable account even exists and if so, who owns it — and a fair guess is that it is not now nor was it ever any of the parties who have “successfully” completed foreclosure, thus creating a corruption of title in the marketplace for real estate that has never happened before.

E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad

By JESSICA SILVER-GREENBERG

When an outside analysis uncovered serious flaws with thousands of home loans, JPMorgan Chase executives found an easy fix.

Rather than disclosing the full extent of problems like fraudulent home appraisals and overextended borrowers, the bank adjusted the critical reviews, according to documents filed early Tuesday in federal court in Manhattan. As a result, the mortgages, which JPMorgan bundled into complex securities, appeared healthier, making the deals more appealing to investors.

The trove of internal e-mails and employee interviews, filed as part of a lawsuit by one of the investors in the securities, offers a fresh glimpse into Wall Street’s mortgage machine, which churned out billions of dollars of securities that later imploded. The documents reveal that JPMorgan, as well as two firms the bank acquired during the credit crisis, Washington Mutual and Bear Stearns, flouted quality controls and ignored problems, sometimes hiding them entirely, in a quest for profit.

The lawsuit, which was filed by Dexia, a Belgian-French bank, is being closely watched on Wall Street. After suffering significant losses, Dexia sued JPMorgan and its affiliates in 2012, claiming it had been duped into buying $1.6 billion of troubled mortgage-backed securities. The latest documents could provide a window into a $200 billion case that looms over the entire industry. In that lawsuit, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has accused 17 banks of selling dubious mortgage securities to the two housing giants. At least 20 of the securities are also highlighted in the Dexia case, according to an analysis of court records.

In court filings, JPMorgan has strongly denied wrongdoing and is contesting both cases in federal court. The bank declined to comment.

Dexia’s lawsuit is part of a broad assault on Wall Street for its role in the 2008 financial crisis, as prosecutors, regulators and private investors take aim at mortgage-related securities. New York’s attorney general, Eric T. Schneiderman, sued JPMorgan last year over investments created by Bear Stearns between 2005 and 2007.

Jamie Dimon, JPMorgan’s chief executive, has criticized prosecutors for attacking JPMorgan because of what Bear Stearns did. Speaking at the Council on Foreign Relations in October, Mr. Dimon said the bank did the federal government “a favor” by rescuing the flailing firm in 2008.

The legal onslaught has been costly. In November, JPMorgan, the nation’s largest bank, agreed to pay $296.9 million to settle claims by the Securities and Exchange Commission that Bear Stearns had misled mortgage investors by hiding some delinquent loans. JPMorgan did not admit or deny wrongdoing.

“The true price tag for the ongoing costs of the litigation is terrifying,” said Christopher Whalen, a senior managing director at Tangent Capital Partners.

The Dexia lawsuit centers on complex securities created by JPMorgan, Bear Stearns and Washington Mutual during the housing boom. As profits soared, the Wall Street firms scrambled to pump out more investments, even as questions emerged about their quality.

With a seemingly insatiable appetite, JPMorgan scooped up mortgages from lenders with troubled records, according to the court documents. In an internal “due diligence scorecard,” JPMorgan ranked large mortgage originators, assigning Washington Mutual and American Home Mortgage the lowest grade of “poor” for their documentation, the court filings show.

The loans were quickly sold to investors. Describing the investment assembly line, an executive at Bear Stearns told employees “we are a moving company not a storage company,” according to the court documents.

As they raced to produce mortgage-backed securities, Washington Mutual and Bear Stearns also scaled back their quality controls, the documents indicate.

In an initiative called Project Scarlett, Washington Mutual slashed its due diligence staff by 25 percent as part of an effort to bolster profit. Such steps “tore the heart out” of quality controls, according to a November 2007 e-mail from a Washington Mutual executive. Executives who pushed back endured “harassment” when they tried to “keep our discipline and controls in place,” the e-mail said.

Even when flaws were flagged, JPMorgan and the other firms sometimes overlooked the warnings.

JPMorgan routinely hired Clayton Holdings and other third-party firms to examine home loans before they were packed into investments. Combing through the mortgages, the firms searched for problems like borrowers who had vastly overstated their incomes or appraisals that inflated property values.

According to the court documents, an analysis for JPMorgan in September 2006 found that “nearly half of the sample pool” – or 214 loans – were “defective,” meaning they did not meet the underwriting standards. The borrowers’ incomes, the firms found, were dangerously low relative to the size of their mortgages. Another troubling report in 2006 discovered that thousands of borrowers had already fallen behind on their payments.

But JPMorgan at times dismissed the critical assessments or altered them, the documents show. Certain JPMorgan employees, including the bankers who assembled the mortgages and the due diligence managers, had the power to ignore or veto bad reviews.

In some instances, JPMorgan executives reduced the number of loans considered delinquent, the documents show. In others, the executives altered the assessments so that a smaller number of loans were considered “defective.”

In a 2007 e-mail, titled “Banking overrides,” a JPMorgan due diligence manager asks a banker: “How do you want to handle these loans?” At times, they whitewashed the findings, the documents indicate. In 2006, for example, a review of mortgages found that at least 1,154 loans were more than 30 days delinquent. The offering documents sent to investors showed only 25 loans as delinquent.

A person familiar with the bank’s portfolios said JPMorgan had reviewed the loans separately and determined that the number of delinquent loans was far less than the outside analysis had found.

At Bear Stearns and Washington Mutual, employees also had the power to sanitize bad assessments. Employees at Bear Stearns were told that they were responsible for “purging all of the older reports” that showed flaws, “leaving only the final reports,” according to the court documents.

Such actions were designed to bolster profit. In a deposition, a Washington Mutual employee said revealing loan defects would undermine the lucrative business, and that the bank would suffer “a couple-point hit in price.”

Ratings agencies also did not necessarily get a complete picture of the investments, according to the court filings. An assessment of the loans in one security revealed that 24 percent of the sample was “materially defective,” the filings show. After exercising override power, a JPMorgan employee sent a report in May 2006 to a ratings agency that showed only 5.3 percent of the mortgages were defective.

Such investments eventually collapsed, spreading losses across the financial system.

Dexia, which has been bailed out twice since the financial crisis, lost $774 million on mortgage-backed securities, according to court records.

Mr. Schneiderman, the New York attorney general, said that overall losses from flawed mortgage-backed securities from 2005 and 2007 were $22.5 billion.

In a statement shortly after he sued JPMorgan Chase, Mr. Schneiderman said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”

Deny and Discover — Where the Rubber Meets the Road

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Editor’s Analysis: The banks are broke and this rule properly applied will reveal exactly how badly they fall short of capital requirements. It can be found at Volume 77, No. 169 of the Federal Register dated, Thursday, August 30, 2012 2012-16759 Capital Risk Disclosure Requirements Under Dodd Frank.

Admittedly this is not for the feint of heart or those with limited literacy in economics, accounting and finance; but if you find yourself in the position of not understanding, then go to any economist or banker or finance specialist or accountant  and they will explain it to you.

Lewtan which produces ABSnet is offering a service to banks that will give the banks and plausible deniability when the figures come up all rosy for the banks. Lewtan should be careful in view of the action being taken against the ratings companies, which is the start of an assault on the citadel of evil intent on Wall Street.

The fundamental aspect of these new rules are that the bank must report on the degree of risk it has taken on in any activity or holding. They must also  show how they arrived at that assessment and under the Freedom of Information Act (FOIA) you might be able to get copies of their filing whether they do it themselves (doubtful) or hire someone like Lewtan which is obviously going to do the bidding of its paying clients.

The main problem for the banks is that they are holding overvalued assets and some non-existent assets on their balance sheet. A review to assess risk if properly conducted, will definitely turn up both kinds of assets reported on the balance sheet of the banks, which in turn will reduce their reported capital reserves, which in turn will result in changing the ratio between capital and risk.

This might sound like gumbo to you. But here is the bottom line: the banks were using investor money. We all know that. In baby language, the question is if they were using someone else’s money how did the banks lose any money?

They did receive the money from investors like pension funds, and other managed funds for retirement or contingencies. But they diverted the money and the documents to make it appear that the bank owned the assets that were intended to be purchased for the REMIC trusts. The Banks then purchased and claimed to be an insured or a party who had sustained a loss when in fact the loss was incurred by the investors and the mortgage bonds and loans were owned collectively by the investors.

By doing that the insurance proceeds were paid to the banks creating an instant liability to the investors to whom they owed a common law and contractual duty to provide an accounting and distribution based upon the insurance recovery. At no time did the banks ever have a risk of loss nor an insurable interest in their own name. And at not time were they bound by the REMIC documents because they ignored the REMICs and conducted transactions through an entirely different superstructure.

As agents of the investors they should have followed the REMIC documents and purchased the insurance and CDS protection for the benefit of the investors. But they didn’t do that. They kept the money for the bank who never had any proof of loss, proof of payment and was a mere intermediary claiming the rights of the principal. The same thing happened with Credit Default Swaps and Federal bailouts.

That is why the definition of toxic assets changed over a weekend when TARP was started. It was thought that the mortgages had gone bad for the banks.

Then they realized that the mortgages weren’t going bad to the extent reported and that the bank was suffering no loss because they were using investor money to create the funding of loans and the funding of proprietary trading in which they masked the theft of trillions from investors.

So the government quietly changed the definition of toxic assets to mortgage bonds — but that ran into the same problem, to wit: the mortgage bonds were underwritten by the banks but purchased by the investors (pension funds etc.).

Now the rubber meets the road. The claim that somehow the banks got stuck with mortgage bonds is patently absurd. If they have mortgage bonds it is not because they bought them, it is because they created them but were unable to sell them because the market collapsed and the PONZI scheme fails whenever the suckers stop buying.

The actual proceeds from theft from the investors and the borrowers is parked off shore around the world. The Banks having been feeding the money back in very slowly because they want to create the appearance of an increasingly profitable bank, when in fact, their revenues sand earnings are slipping away quickly — except for the bolstering they get from repatriating stolen money from investors and borrowers and calling them “proprietary trades.”

Nobody on Wall Street is making that kind of money on trades, proprietary or otherwise, but the banks are claiming ever increasing profits, raising their stock price, defrauding their stockholders. So against each overvalued and non-existent asset claimed by the mega banks on their balance sheet is a liability of far exceeding the assets or even the combined assets of the banks. Treasury knows, this, the Fed knows this and central bankers around the world know it. But they have been drinking the Kool-Aid believing that if they call out the mega banks on this fake accounting, the entire financial system will collapse.

So yes there is a consensus between those who pull the levers of power that they will allow the banks to pretend to have assets, that their liabilities are fairly low, and that the risks associated with their business activities, assets and liabilities are minimal even while knowing the converse is true. The system’s foundation is a loose amalgamation of lies that will eventually collapse anyway but everyone likes to kick the can down the road.

You are getting in this article a sneak peek into why the banks all rushed to foreclose rather than modify or settle on better terms. What is important from the practice point of view is that (1) the “Consideration” mandated by HAMP is not happening and you can prove it with the right allegations and discovery and (2) the reports tendered to OCC and the Fed under this rule will reveal that the issue of proof of loss, risk of loss, proof of payment and ownership is completely muddled — unless you follow the money trail (see yesterday’s article). You can subpoena the reports given by the banks from both the bank itself or the agency. My opinion is that you fill find a treasure trove of information very damaging to the banks and the Treasury Department.

There will be caveats in the notes that express the risk of inaccuracy and which reveal the possibility that the banks neither own nor control the mortgages except as agents for the investors, that the liability to the investors is equal to the money received from insurance, CDS, and bailouts, and that the borrower’s loan payable balance was corresponding reduced as to the investor and increased to entities that are not or cannot press any claims against the borrowers. Educate yourself and persist — the tide is turning.

Excerpt from attached section of Federal Register:

The bank’s primary federal supervisor may rescind its approval, in whole or in part, of the use of any internal model and determine an appropriate regulatory capital requirement for the covered positions to which the model would apply, if it determines that the model no longer

complies with the market risk capital rule or fails to reflect accurately the risks of the bank’s covered positions. For example, if adverse market events or other developments reveal that a material assumption in an approved model is flawed, the bank’s primary federal supervisor may require the bank to revise its model assumptions and resubmit the model specifications for review. In the final rule, the agencies made minor modifications to this provision in section 3(c)(3) to improve clarity and correct a cross-reference.

Financial markets evolve rapidly, and internal models that were state-of-the- art at the time they were approved for use in risk-based capital calculations can become less effective as the risks of covered positions evolve and as the industry develops more sophisticated modeling techniques that better capture material risks. Therefore, under the final rule, as under the January 2011 proposal, a bank must review its internal models periodically, but no less frequently than annually, in light of developments in financial markets and modeling technologies, and to enhance those models as appropriate to ensure that they continue to meet the agencies’ standards for model approval and employ risk measurement methodologies that are, in the bank’s judgment, most appropriate for the bank’s covered positions. It is essential that a bank continually review, and as appropriate, make adjustments to its models to help ensure that its market risk capital requirement reflects the risk of the bank’s covered positions. A bank’s primary federal supervisor will closely review the bank’s model review practices as a matter of safety and soundness. The agencies are adopting these requirements in the final rule.

Risks Reflected in Models. The final rule requires a bank to incorporate its internal models into its risk management process and integrate the internal models used for calculating its VaR-based measure into its daily risk management process. The level of sophistication of a bank’s models must be commensurate with the complexity and amount of its covered positions.

Shiller: Is Housing Recovery Real?

World renowned economist Robert Shiller, in a candid interview with Drew Sandholm of CNBC, gives a realistic perspective on the housing market. Calling the housing bubble a “once in a lifetime thing,” Shiller says that the outlook is uncertain. The “recovery” even if housing increases by 3% per annum, would in reality be flat, especially after the superstorm that hit the Northeast.

The chilling comment from the economist who showed us graphically how the housing bubble of the mortgage meltdown was so out of whack with history, is that the true recovery could take as long as 50 years. This unthinkable consequence is not so far off if you look at the factors that led up to the bubble and the enormous surge in home prices while “value” of housing was flat or even decreasing. The surge during a 4-5 year period blasted through any charts on the subject, most notably the Case-Shiller Index which removes inflation from the computation.

The long and short of it is that we have years, perhaps decades to recover from the shock the economy received from the Wall Street players who flooded the housing market with money causing a blow out in prices as underwriting standards were completely ignored in favor of “getting the deal done.”

We are left with treating each tragic case of foreclosure on a case by case basis which most of the people cannot afford to do. Having drained their savings and retirement in the hopes of keeping their homes they are without funds to challenge the banks who have all the money the investors gave them and now have all the money from proceeds of sales of foreclosure homes.

At some point someone with authority must demand from the banks an accounting for what happened. How is it possible for the banks to collect federal bailouts, insurance and proceeds from credit default swaps when they were using investor money?

If the loss falls to the investor because of foreclosure and market conditions, why didn’t they get the money from bailouts, insurance and CDS? And why  should we not treat the money the banks got as money received by agents of the investors reducing the obligation of homeowners?

Why are we quibbling about “principal reduction” when the principal has already been reduced by payment? Why did the banks divert the paperwork away from the investors and put “nominees” or strawmen on the notes, mortgages and deeds of trust?

The ugly truth is that Wall Street was playing with deposits from investors and calling it proprietary trades. Heads we win, tails you lose. If we allow that we have condoned theft.

And THAT is why I think the banks can be beaten in court. If you trace the money first and demand to see the money trail from beginning to end from the Master Servicer, Trustee and foreclosing agent the true nature of these transactions will emerge. And when all is said and one, if we don’t challenge this despicable scheme, the banks, having cornered the market on “money” (with over 10 times the amount of government authorized money) they now are seeking to corner the real estate market and become the world’s largest landowner.

Banks are allowed to exist to facilitate commerce, not capture it. They should be regulated like utilities so that when they go off the reservation with obtuse machinations of financial products, they are quickly reined in. That regulation can only come from winning in court since the regulatory agencies, while recognizing the problem are too timid to seek the appropriate relief.

shiller-housing-recovery-could-50-125741773.html

CFPB Safe Harbor Rule Would Allow Homeowners to Fight Bad Mortgages

Editor’s Comment: The practice of disregarding normal loan underwriting standards creates a claim that homeowners were tricked into loans that they could never repay. The Consumer Financial Protection Bureau, built by Elizabeth Warren under Obama’s direction is about to pass a rule that addresses that very issue. The new Rule would allow homeowners contesting foreclosure to introduce evidence challenging whether the “lender” correctly determined a borrower’s ability to repay the loan.

The details of the test for the “safe harbor” provision that is being contested are not yet known. The objective is to separate those who are using general knowledge of bad practices in the industry from those who were actually hurt by those practices. It would provide the presiding judge with a simple, clear test to determine whether the evidence submitted (not merely allegations — so the burden is still on the homeowner) are sufficient to determine that the “lender” wrote a loan that it knew or should have known could not be repaid.

The game being indirectly addressed here is that the participants in the fake securitization scheme intentionally wrote bad loans and then were successful at entering into contracts that paid insurance, credit default swap and federal bailout proceeds to the participants in the scheme even though they neither made the loan nor did the forecloser actually buy the loan (no money exchanged hands).

Those who do not meet the test would have “frivolous” claims dismissed summarily by the Judge. But they would have other grounds to sue the “lender” or the party making false claims of default and foreclosure. Those who do meet the test, would defeat the foreclosure leaving the loan in a state of limbo.

The net legal effect of the rule could be that the mortgage is void and the note is no longer considered evidence of the entire transaction — because the risk of loss on the homeowner shifts to the lender, at least in part. This would clear the path for principal reduction and new loans that would correct the corruption of title in the county title records.

The rule is coming at the behest of the Federal Reserve, which has is own problems on how to account for the trillions they have advanced for “bad” mortgages or worthless bogus mortgage bonds.

The question remains whether the purchase of these bonds conveys some right of action to collect money that the investors advanced, and who would receive that money. It also leaves open the question of whether a mortgage bond purportedly owned by the Federal reserve or even sold by the the Federal Reserve changes the players with standing to bring lawsuits or other foreclosure proceedings.

This rule, when it is finally written and passed, won’t solve all the problems but it could have a cascading effect of restoring at least some homeowners to at least a better financial condition than the one in which they find themselves.

The issue that would be interesting to see litigated is whether the homeowners who meet the test now have a claim to recover part or all of the money they paid on the mortgage thus far or if they are given an additional credit for the overage they paid — another way of reducing principal.

The bottom line is that there is recognition at all levels of government agencies —Federal and State — that there are problems with the origination of the loans and not just with the robo-signed assignments, allonges endorsements and fake powers of attorney. This recognition is going to be felt throughout the regulatory and judicial system and will redirect the attention of Judges to the reality that Wall Street banks wanted bad loans so they could make millions on each bad loan through multiple sales of the same loans using insurance, credit default swaps, TARP and other schemes to cover it all up.

http://www.housingwire.com by John Prior

Consumer Financial Protection Bureau Director Richard Cordray told a House committee Thursday that mortgage lenders would still not be safe if the bureau elects to grant a safe harbor provision to the upcoming Qualified Mortgage rule.

“The safe harbor versus rebuttable presumption is a mirage,” Cordray said. “Even safe harbor isn’t safe. You can always be sued for whether you meet the criteria or not to get into the safe harbor. It’s a bit of a marketing concept there. The more important point is are we drawing bright lines? If someone were to say to me safe harbor or anything else, I would go with a safe harbor. But I don’t think safe harbor is truly safe. And I think it oversimplifies the issue.”

Rep. Michael Grimm, R-N.Y. then right away pressed Cordray on which he would choose: a safe harbor or rebuttable presumption. The director was forced to remind him the rule was still under development and would be finalized in January.

“I have not taken a position. I have discussed the issue,” Cordray said.

Mortgage industry lobbyists have been pressing the bureau since it overtook QM rulemaking responsibility from the Federal Reserve last year to install “clear, bright lines” and a legal safe harbor that protects lenders from future homeowner suits during foreclosure.

A rebuttable presumption provision allows homeowners to introduce evidence in court challenging whether the lender correctly determined a borrower’s ability to repay the loan before it was written. But a safe harbor allows a simple test for a judge to find if the mortgage met the QM rule, and frivolous suits could be dismissed early.

The Mortgage Bankers Association even showed the CFPB that attorney fees go up to an average $84,000 for a summary judgment from $26,000 if it’s dismissed. The risk of this increased cost would be passed on to borrowers, they claim.

Some consumer advocacy groups previously said such suits are rare, and a safe harbor could clear lenders from risks down the road rule makers cannot anticipate now.

Cordray repeatedly said in the hearing Thursday that his goal on QM and upcoming rules for the mortgage market is to protect consumers but not cut off access to credit. Forcing courts to define areas left gray by regulators is not something he would permit.

“As a former attorney general in Ohio, gray areas of the law are not appreciated,” Cordray said. “They’re difficult for people trying to comply. If we write rules that are murky, they’ll end up getting resolved in courts and it will take years and be very expensive. We are making real efforts to draw very bright lines.”

jprior@housingwire.com

How the Goldman Vampire Squid Just Captured Europe

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Editor’s Comment:

Guest Writer:  Ellen Brown

Ellen is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com.  She is also chairman of the Public Banking Institute.

How the Goldman Vampire Squid Just Captured Europe

By Ellen Brown, Truthout | News Analysis

The Goldman Sachs coup that failed in America has nearly succeeded in Europe – a permanent, irrevocable, unchallengeable bailout for the banks underwritten by the taxpayers.

In September 2008, Henry Paulson, former CEO of Goldman Sachs, managed to extort a $700 billion bank bailout from Congress. But to pull it off, he had to fall on his knees and threaten the collapse of the entire global financial system and the imposition of martial law; and the bailout was a one-time affair. Paulson’s plea for a permanent bailout fund – the Troubled Asset Relief Program or TARP – was opposed by Congress and ultimately rejected.

By December 2011, European Central Bank President Mario Draghi, former vice president of Goldman Sachs Europe, was able to approve a 500 billion euro bailout for European banks without asking anyone’s permission. And in January 2012, a permanent rescue funding program called the European Stability Mechanism (ESM) was passed in the dead of night with barely even a mention in the press. The ESM imposes an open-ended debt on EU member governments, putting taxpayers on the hook for whatever the ESM’s eurocrat overseers demand.

The bankers’ coup has triumphed in Europe seemingly without a fight. The ESM is cheered by euro zone governments, their creditors and “the market” alike, because it means investors will keep buying sovereign debt. All is sacrificed to the demands of the creditors, because where else can the money be had to float the crippling debts of the euro zone governments?

There is another alternative to debt slavery to the banks. But first, a closer look at the nefarious underbelly of the ESM and Goldman’s silent takeover of the ECB….

The Dark Side of the ESM

The ESM is a permanent rescue facility slated to replace the temporary European Financial Stability Facility and European Financial Stabilization Mechanism as soon as member states representing 90 percent of the capital commitments have ratified it, something that is expected to happen in July 2012. A December 2011 YouTube video titled “The shocking truth of the pending EU collapse!” originally posted in German, gives such a revealing look at the ESM that it is worth quoting here at length. It states:

The EU is planning a new treaty called the European Stability Mechanism, or ESM: a treaty of debt…. The authorized capital stock shall be 700 billion euros. Question: why 700 billion?… [Probable answer: it simply mimicked the $700 billion the US Congress bought into in 2008.][Article 9]: “,,, ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them … within seven days of receipt of such demand.” … If the ESM needs money, we have seven days to pay…. But what does “irrevocably and unconditionally” mean? What if we have a new parliament, one that does not want to transfer money to the ESM?…

[Article 10]: “The Board of Governors may decide to change the authorized capital and amend Article 8 … accordingly.” Question: … 700 billion is just the beginning? The ESM can stock up the fund as much as it wants to, any time it wants to? And we would then be required under Article 9 to irrevocably and unconditionally pay up?

[Article 27, lines 2-3]: “The ESM, its property, funding and assets … shall enjoy immunity from every form of judicial process…. ” Question: So the ESM program can sue us, but we can’t challenge it in court?

[Article 27, line 4]: “The property, funding and assets of the ESM shall … be immune from search, requisition, confiscation, expropriation, or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.” Question: … [T]his means that neither our governments, nor our legislatures, nor any of our democratic laws have any effect on the ESM organization? That’s a pretty powerful treaty!

[Article 30]: “Governors, alternate Governors, Directors, alternate Directors, the Managing Director and staff members shall be immune from legal process with respect to acts performed by them … and shall enjoy inviolability in respect of their official papers and documents.” Question: So anyone involved in the ESM is off the hook? They can’t be held accountable for anything? … The treaty establishes a new intergovernmental organization to which we are required to transfer unlimited assets within seven days if it so requests, an organization that can sue us but is immune from all forms of prosecution and whose managers enjoy the same immunity. There are no independent reviewers and no existing laws apply? Governments cannot take action against it? Europe’s national budgets in the hands of one single unelected intergovernmental organization? Is that the future of Europe? Is that the new EU – a Europe devoid of sovereign democracies?

The Goldman Squid Captures the ECB

Last November, without fanfare and barely noticed in the press, former Goldman executive Mario Draghi replaced Jean-Claude Trichet as head of the ECB. Draghi wasted no time doing for the banks what the ECB has refused to do for its member governments – lavish money on them at very cheap rates. French blogger Simon Thorpe reports:

On the 21st of December, the ECB “lent” 489 billion euros to European Banks at the extremely generous rate of just 1% over 3 years. I say “lent,” but in reality, they just ran the printing presses. The ECB doesn’t have the money to lend. It’s Quantitative Easing again.The money was gobbled up virtually instantaneously by a total of 523 banks. It’s complete madness. The ECB hopes that the banks will do something useful with it – like lending the money to the Greeks, who are currently paying 18% to the bond markets to get money. But there are absolutely no strings attached. If the banks decide to pay bonuses with the money, that’s fine. Or they might just shift all the money to tax havens.

At 18 percent interest, debt doublesin just four years. It is this onerous interest burden – not the debt itself – that is crippling Greece and other debtor nations. Thorpe proposes the obvious solution:

Why not lend the money to the Greek government directly? Or to the Portuguese government, currently having to borrow money at 11.9%? Or the Hungarian government, currently paying 8.53%. Or the Irish government, currently paying 8.51%? Or the Italian government, who are having to pay 7.06%?

The stock objection to that alternative is that Article 123 of the Lisbon Treaty prevents the ECB from lending to governments. But Thorpe reasons:

My understanding is that Article 123 is there to prevent elected governments from abusing Central Banks by ordering them to print money to finance excessive spending. That, we are told, is why the ECB has to be independent from governments. OK. But what we have now is a million times worse. The ECB is now completely in the hands of the banking sector. “We want half a billion of really cheap money!!” they say. OK, no problem. Mario is here to fix that. And no need to consult anyone. By the time the ECB makes the announcement, the money has already disappeared.

At least if the ECB was working under the supervision of elected governments, we would have some influence when we elect those governments. But the bunch that now has their grubby hands on the instruments of power are now totally out of control.

Goldman Sachs and the financial technocrats have taken over the European ship. Democracy has gone out the window, all in the name of keeping the central bank independent from the “abuses” of government. Yet, the government is the people – or it should be. A democratically elected government represents the people. Europeans are being hoodwinked into relinquishing their cherished democracy to a rogue band of financial pirates, and the rest of the world is not far behind.

Rather than ratifying the draconian ESM treaty, Europeans would be better advised to reverse Article 123 of the Lisbon treaty. Then, the ECB could issue credit directly to its member governments. Alternatively, euro zone governments could re-establish their economic sovereignty by reviving their publicly owned central banks and using them to issue the credit of the nation for the benefit of the nation, effectively interest free. This is not a new idea, but has been used historically to very good effect, e.g. in Australia through the Commonwealth Bank of Australia and in Canada through the Bank of Canada.

Today, the issuance of money and credit has become the private right of vampire rentiers, who are using it to squeeze the lifeblood out of economies. This right needs to be returned to sovereign governments. Credit should be a public utility, dispensed and managed for the benefit of the people.

To add your signature to a letter to parliamentarians blocking ratification of the ESM, click here.

GLOVES OFF? Massive Wave Of Lawsuits To Be Filed By The US Against America’s Biggest Banks

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ANOTHER BANK BAILOUT???

Massive Wave Of Lawsuits To Be Filed By The US Against America’s Biggest Banks As Soon As Tomorrow

Tyler Durden's picture

Submitted by Tyler Durden on 09/01/2011 22:30 -0400

FROM www.zerohedge.com

In a move that could either send BAC stock limit down overnight or send it soaring (we are still trying to figure out just what is going on here), the NYT has broken major news that the US is preparing to go nuclear on more than a dozen big banks among which Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, in an attempt for Fannie and Freddie to recoup $30 billion if not much more. The lawsuit is expected to hit the docket in the next few days: “The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.” Now, taken at face value, this would mean that Bank of America can kiss its ass goodbye as unlike the Walnut Place litigation, this will take place in Federal Court where Article 77 is not applicable. Yet there is something that gives us pause: namely logic, captured by the following words: “While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again,” said Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues.” In other words: if the banks are sued, and if justice prevails, the end of the world is nigh and cue TARP 2 – XXX. Now where have we heard that argument over, and over, and over before.

From the NYT:

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The prestory is by now known by everyone:

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

The response? Why Paulson-esque Mutual Assured Destruction:

But privately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.

Investors fear that if banks are forced to pay out billions of dollars for mortgages that later defaulted, it could sap earnings for years and contribute to further losses across the financial services industry, which has only recently regained its footing.

The total litigation amount will not be in the trillions… but will certainly be in the tens if not hundreds of billions.

While the banks put together tens of billions of dollars in mortgage securities backed by risky loans, the Federal Housing Finance Agency is not seeking the total amount in compensation because some of the mortgages are still good and the investments still carry some value. In the UBS suit, the agency said it owned $4.5 billion worth of mortgages, with losses totaling $900 million. Negotiations between the agency and UBS have yielded little progress.

Bottom line: the gloves are coming off, and while we want to believe that this is the final nail in BAC’s coffin (Quinn Emanuel is counsel for the FHFA), we do have a nagging feeling that the US will not purposefully do everything in its power to destroy its banking sector.

WALL STREET EXECS: NOTHING TO LOSE, EVERYTHING TO GAIN, WIN OR LOSE

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LAWYERS CONSIDER NAMING INDIVIDUAL EXECUTIVES

AS DEFENDANTS IN DAMAGE SUITS FOR HOMEOWNERS

“the Federal Reserve purchased almost all the mortgage securities issued by Fannie and Freddie in 2009.”

EDITORIAL COMMENT: Has anybody asked exactly what Fannie, Freddie and Ginny do? I have. From what I see, read and hear, they are essentially the same as the REMICS that Wall Street created — in fact, it is highly probably that they were created at the instigation of Wall Street. They were never capitalized with an investment, they have no status as a depository or lending institution, they don’t lend money and they don’t actually buy mortgages although supposedly they are buying mortgage bonds.

On the one hand we are told that buying mortgage bonds is the same as buying the mortgages and on the other, we are confronted in court with the argument, that the owner of the mortgage bonds have nothing to do with the foreclosure. Which is it?

Meanwhile we are told that the U.S. treasury and/or the Federal Reserve own or have as collateral nearly all the mortgage bonds whose value is, on paper solely derived from receivables expected from payments on loans given to homeowners. The problem is that the homeowners signed papers that were prepared by and executed in favor of an entity that even if it was bank, was NOT using its own money to fund the mortgage. In fact, many times the  funds for the loan were wired in to the closing agent from a remote entity that is mentioned in neither the closing papers with the homeowner or the securitization papers with the investor.

Back to F&F. What do they do? As far as I can tell they have one function in their charter — to put the stamp of approval on a mortgage so that it qualifies to be guaranteed by the U.S. taxpayer. What happens when the mortgage is declared in default? Who makes that declaration? Is it true? who is the creditor? IS the creditor or the creditor’s agent still getting payments? If they are getting payments, from whom are they receiving these payments and why? If they are still receiving payments, how could the loan be in default? If the loan is not in default, how can anyone, with or without standing, initiate a foreclosure sale?

So basically F&F are merely “bookkeepers” without any accountability and nothing really at stake, but they receive fees for processing the loans, which is to say they get paid for allowing their stamp and their standard documents, rigged with changes, to be passed around, sold into the secondary market and then supposedly securitized — all without a single piece of paper ever being written, executed or delivered. Using that logic we would be giving up evidence of title and if you agreed to pay  for a car, you might get the car but the evidence of title would be “private” (like MERS) and there would be no way for anyone to be sure if you had conveyed title to the car to 10 people.

Many of the mortgages didn’t go bad. Many of them are still performing. And yet they are part of the group of failed mortgage bonds whose terms were rigged to be able to declare a “default” on the mortgage bond even though most of the loans were performing. Those seem to be what the Federal Reserve bought 100 cents on the dollar. It was kind of NO DOC purchase by the Federal Reserve based upon the credibility and good faith of the thieves who got us into this mess. That there was nothing in the bond, nothing in the pool, no trust, no trust assets, and no trustee doesn’t seem to matter.

And for all of this the executives of F&F were paid millions of dollars in executive compensation. And somehow people are mildly surprised to find out that the executives came from hedge funds and other places on Wall Street. So we have this guy from Putnam making millions for doing nothing while somebody else is counted amongst the “employed, breaking his or her back, for a wage that won’t even put enough food on the table to feed the family. AND now we have the inspector general saying everything that I just did, but do you think it will make any difference? I don’t — not unless as a nation we rise up and start exercising the power we have in the constitution. These people ought to be afraid of us, not the other way around.

I’m talking to lawyers who have investigators and research people working round the clock on this. It looks like the only people who really made out well are the few people in management through whose hands the tens of trillions of dollars passed. There is a growing recognition that the off-shore money trail leads all over the world and may just be controlled by literally a handful of people. So they are thinking that they might name the executives of the various entities involved in securitization as defendants and state that those defendants were actually acting outside the scope of their employment, diverting corporate opportunity from the stockholders, who so far have been too stupid to bring derivative actions, and piercing through into the personal finances of these people — and we all know their names.

Report Criticizes High Pay at Fannie and Freddie

By GRETCHEN MORGENSON

Regulators have approved generous executive compensation at Fannie Mae and Freddie Mac, the taxpayer-backed mortgage finance giants, with little scrutiny or analysis, according to a report published Thursday by the inspector general of the Federal Housing Finance Agency.

The companies, whose fates are to be decided by Congress this year, paid a combined $17 million to their chief executives in 2009 and 2010, the two full years when Fannie Mae and Freddie Mac were wards of the state, the report found. The top six executives at the companies received $35.4 million over the two years. Since Fannie Mae and Freddie Mac were taken over in September 2008, the companies’ mounting mortgage losses have required a $153 billion infusion from taxpayers. Total losses may reach $363 billion through 2013, according to government estimates.

Charles E. Haldeman Jr., a former head of Putnam Investments, the giant fund management concern, joined Freddie Mac as its chief executive in 2009. He made $7.8 million for 2009 and 2010. Fannie Mae’s chief is Michael J. Williams, who has worked at the company since 1991. He received $9.3 million for the two years. Company officials declined to comment.

With hundreds of billions in government support necessary to keep the companies running, questions are arising about the nature of the pay packages and how performance goals are determined. The pay was approved by the housing finance agency, which is charged with conserving the assets of Fannie and Freddie on behalf of taxpayers.

“F.H.F.A. has a responsibility to Congress and taxpayers to efficiently, consistently, and reliably ensure that the compensation paid to Fannie Mae’s and Freddie Mac’s senior executives is reasonable,” ’said Steve A. Linick, the newly appointed inspector general of the agency, in a statement.  “This is especially true when you realize that the U.S. Treasury has invested close to $154 billion to stabilize Fannie Mae and Freddie Mac,” and they “are spending tens of millions of dollars for executive compensation.”

The report cited a “lack of standardized evaluation criteria, documentation of management procedures and internal controls” at the oversight agency, missing steps that may have led to overpayments.

For example, the inspector general said that taxpayer support of the companies may have made performance benchmarks easier to meet for executives. In 2009, Fannie Mae issued 47 percent of new mortgage-backed securities, far exceeding its goal of 37.5 percent. But, as the report noted, this hurdle was almost certainly cleared because the Federal Reserve purchased almost all the mortgage securities issued by Fannie and Freddie in 2009.

In response to the report, the housing agency said that it would “institute a more formal and systematic approach” to its review of the performance benchmarks and the assessment of whether they were reached by the companies’ executives. A spokeswoman for the agency said its officials declined to comment.

Lavish executive pay that does not track a company’s performance has led to anger among shareholders in recent years. When the government stepped in to support some of the nation’s biggest financial institutions in 2008, compensation became an issue of concern to taxpayers. Executive pay at institutions receiving support under the Troubled Asset Relief Program, for example, was subject to approval by an overseer, the special master for TARP. Fannie and Freddie were not required to submit to this process because their assistance did not come from TARP.

As the primary regulator and conservator of both companies, the housing agency has broad powers to direct the companies’ activities; it has replaced board members and senior officers, for example. And it can bar the companies from making golden parachute payments to executives. It consulted with the TARP special master on executive pay at Fannie and Freddie after they were rescued by the government.

Nevertheless, the agency delegates pay decisions to the companies’ boards, accepting their recommendations “unless there is an observed reason to do otherwise,” according to the inspector general’s report. The F.H.F.A. receives advice from its own compensation consultant as well as the work of those hired by Fannie and Freddie.

The inspector general’s report noted that the executives at Fannie and Freddie received far more than their counterparts at other federal housing agencies. The top executive at Ginnie Mae, for example, received an annual salary of less than $200,000. The inspector general suggested that the agency review the discrepancy and account for it to taxpayers.

Agency officials say the salaries and deferred compensation awarded to executives at Fannie and Freddie are necessary if they are to attract and keep talent required to run those operations effectively. They say that current pay at Fannie and Freddie is roughly 40 percent less than it was before the bailout and maintain that the compensation plans are based on the companies’ ability to meet financial and performance targets, like providing liquidity and affordability to the mortgage market.

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, testified before Congress on Thursday about proposals to overhaul Fannie and Freddie. “I am concerned that legislation to overhaul the compensation levels and programs in place today with the application of a federal pay system to nonfederal employees carries great risk for the conservatorships and hence the taxpayer,” he said.

Last year, Mr. DeMarco testified that the executive compensation plans at Fannie and Freddie were designed to achieve the goals of the conservatorship and “align executive decision-making with the long-term financial prospects of the enterprises, and minimize costs to the taxpayer.”

Because shares of both Fannie and Freddie have little value, the companies’ executive compensation consists solely of cash paid out in base salary, deferred salary and long-term incentive pay.

But Brian Foley, a compensation consultant in White Plains questioned the characterization of the companies’ incentive pay as long term, given that it is paid entirely within two years. “One hundred percent of the compensation is paid for two-year performance and a fair portion of that is without regard to performance,” he said. “I understand the stock is worthless, but that doesn’t mean you can’t have cash on the table for a long period. If anybody needs to have good long-term performance, isn’t it Fannie Mae and Freddie Mac?”

Barofsky: HOW TARP FAILED HOMEOWNERS

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

“The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.”


Where the Bailout Went Wrong

By NEIL M. BAROFSKY

Washington

TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.

From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”

Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.

But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.

Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds. It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery. (In my job as special inspector general I could not bring about the changes I thought were needed — I could only make recommendations to the Treasury Department.)

Meanwhile, the act’s goal of helping struggling homeowners was shelved until February 2009, when the Home Affordable Modification Program was announced with the promise to help up to four million families with mortgage modifications.

That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers’ favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime.

Treasury Secretary Timothy Geithner has acknowledged that the program “won’t come close” to fulfilling its original expectations, that its incentives are not “powerful enough” and that the mortgage servicers are “still doing a terribly inadequate job.” But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury’s most specific Main Street promise will not be honored.

Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that. Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

Neil M. Barofsky was the special inspector general for the Troubled Asset Relief Program from 2008 until today.

WELLS WHISTLEBLOWER REVEALS BLACK HOLE FOR DOCUMENTS AND PROCEDURES

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

EDITOR’S COMMENT: LIVINGLIES HAS INDEPENDENTLY VERIFIED EVERY STATEMENT OF THIS WHISTLE-BLOWER. IT OPENS THE DOOR TO A WHISTLE-BLOWER LAWSUIT, A QUI TAM ACTION IN WHICH THE RELATER OR WHISTLE-BLOWER CAN RECEIVE HUNDREDS OF MILLIONS OF DOLLARS AS WILL THE LAWYERS. I’m sure that some smart people will follow up on this. The ramifications are huge.

AN INCREDIBLE, HONEST, REVEALING POST BY AN ANONYMOUS WELLS FARGO EMPLOYEE. WOW. THANK YOU.

Hi, 

If this is posted, it has be posted anonymously.

Many people seeking loan modifications have difficulty with their paperwork being lost. This rarely happens. The reason their documents go missing is because they are intentionally destroyed in order to prevent a loan modification in circumstances where Wells has a legal obligation to modify a loan. Wells Fargo had a legal obligation under its TARP agreement when it still had 25 billion in Federal money, and still has the obligation as part of its servicing agreements. If Wells has an obligation to modify, but doesn’t want to, they have to create a way of rejecting the modification application without there being a record of it. Losing the documents serves this purpose.

Documents are destroyed in “The Black Hole.” The people you talk to when you are seeking a loan modification have no knowledge of it. Many of them are temps, lacking experience in loan processing. It never registers with most of them that something strange is going on. The Black Hole is kept completely isolated from Wells Fargo servicing staff. Even if they realize it exists, they have no idea of its location.

Here’s how it works. Any document pertaining to a loan modification must pass through The Black Hole. A customer cannot simply submit a document directly to the people working on their modification application. Wells gives customers a fax number to submit their documents to. This fax number goes directly into the Black Hole. If physical documents are sent to a Wells Fargo fulfillment center (known as an FC), they are faxed to the Black Hole by servicing staff. If you send documents directly to a processor working on loan modification, they are forbidden to simply take the documents and work on your application. They must fax them to the black hole. Serving staff are only permitted to communicate with a borrower via telephone or mail using form letters- no email.

The people who work in servicing are completely cut off from The Black Hole. They have never talked to anyone who works there, they have never received any communication from it. Documents go into The Black Hole, sometimes they come out, sometimes they don’t. When documents disappear, it’s not random.
The following is my belief as to how the Black Hole works. I won’t give my reasons behind the belief, because it would be a long explanation. Documents sent to The Black Hole are converted to PDF documents. A software system scans the document, pulling the loan number. With the loan number, the system automatically pulls servicing data- such as payment history, investor info, loan to value at origination, and so on. Another existing software system (an LPS product) identifies the property location and data on the local real estate market. The Black Hole uses this information to make a decision about whether or not it is in the best interest of the lender/servicer to modify the loan.
If you are way upside-down in your house, the lender/servicer may not want to foreclose if they have a risk that they can’t saddle the investor with the loss- better modify that loan! What if they can foreclose, pay off the investor, and make money on the equity in the house?- your modification docs might get lost. Depending on who the investor is, they may want to drag things out to make higher servicing fees, or in the case of a government loan, make money by the fees charged for services by third party vendors, vendors in which the servicer has ownership interest. In the case of Wells, this would be RELS. There is nothing that warms the heart of a banker like risk-free fee income. The relationships with LPS and First American should also be given scrutiny.

I think it unlikely The Black Hole is actually in Wells Fargo. They have to keep it separate from their own staff, and separation provides a layer of insulation from discovery in lawsuits. It’s likely a service provided by LPS. It’s curious that other servicers who are LPS clients have a public record of the same kinds of loan modification document disappearance. My best guess for the name of the LPS product (software) that does this is LPS HAMP Solutions.

Why would Wells do this? Doesn’t this sound far-fetched? You have to understand how they think. First, a core element of Wells Fargo corporate culture is what they call “the Wells Fargo swagger.” This a polite way of saying that at Wells Fargo corporate, arrogance is a virtue. Legally, this is outside the application of any existing regulatory box. While all of the intent for violations of law are there, there is no precedent for the law having been applied in this way.  For example, Wells Fargo knows the O.C.C. could potentially apply Reg B to loan mod applications, but they have never done so. Plus, Reg B fines levied per occurrence. Even if the O.C.C. said that every instance of document destruction is the equivalent of a loan denial, what record is there that it occurred? Wells Fargo staff meets with the O.C.C. bi-weekly. They have an established system for their interaction. All of this falls outside of their established way of interacting. The internal Wells Fargo compliance system is built to serve this existing interaction.
This is why a big corporation like Wells can run circles around regulators, making money all the way. Regulators are under funded and understaffed. Wells makes it easy to do their job with compliance systems that tell the regulators what they want to hear, while they are way out in front of the Federal Government making money on the frontier.
Wells Fargo’s public statements regarding loan modification, as well as on many other subjects, are not credible. Remember the scandal in 2009 about charitable contributions? Earlier this year, Mark Heid stood up in front of Congress and, in sworn testimony, stated Wells Fargo had 17,000 people working to keep people in their homes. This was false. Using an internal system, I counted them. The total number was a lot less, and this included all of the people in loss mitigation, even all the people whose job it is to foreclose on houses- not keep them in their homes. Just prior to Mark Heid’s first appearance before congress in 2010, Wells Fargo converted existing loan fulfillment sites to loan modification- an effort to fluff the numbers – and started converting those fulfillment sites back to loan origination right after his second testimony. Even in the interim between the two congressional appearances, there were fulfillment sites internally listed as loan modifications sites that were at least partially committed to origination. In Wells Fargo’s Branch retail fulfillment system, there was (as of June 2010), approximately 6,500 people working in loan origination fulfillment- and creating a new loan is a lot more work than modifying an existing loan. I find Mark Heid’s testimony be very difficult to believe.  How do we know Wells Fargo is telling the truth when they claim to have modified over half a million mortgages? How can this be independently verified? The compliance agent for the Federal Loan Modification program is Freddie Mac, a company with whom Wells Fargo has old, very close, and very large (hundreds of billions of dollars) relationships. How do we know they are telling the truth about anything?

Anonymous

Warren in – Summers Out: Change is in the Wind

SERVICES YOU NEED

The surprising departure of Lawrence Summers, once touted as the next FED chairman, along with the installation of Elizabeth Warren, Chair of the Congressional Oversight Committee on TARP is a clear signal that the administration has turned its attention to the fundamentals of the economy and away from the ideology that directly maintained the continuing fraud on the American taxpayer, the hapless borrowers who were defrauded over a 10 year period, and the equally hapless pensioners whose fund managers supplied the capital to create this mess. Continued joblessness along with the projection of increases in joblessness will depress housing and other driving forces of the economy.

The simple logic is irrefutable. If there is no money to buy and we are out of options to even pretend (using credit) that there is a supply of money to buy, then selling is going down the drain. Dollar Stores are seeing increased business while most everyone else is sitting with rising losses and decreasing profits. The next big dipper in what everyone was SAYING would not be a double dip recession is coming and it is right around the corner. China isn’t helping either, as they maintain policies that give their companies an unfair subsidy that their American counterparts are not getting.

So now the Federal reserve is going to be buying debt again by printing more money and by using the proceeds of their investments in mortgage bonds. What? Is the FED getting the money on the mortgage bonds, and is the money coming at least partly from borrowers? Is part of the money coming from co-obligors pursuant to securitization documents that created the securitized infrastructure?

So just who is foreclosing on middle America? The Federal Reserve, that’s who. But are they getting the proceeds from foreclosure or simply accepting money that is a scrap of what once was because of the feeding frenzy of illegal fees, profits and rents taken out by the pretender lenders, servicers, investment banks and their agents and affiliates? Using the same plausible deniability argument that the rest of the banks and pretender lenders are using the Fed will say “Don’t look at us we are just own the receivables from the bond.”

But you see that is exactly the point. Pretender lenders are going to court and giving an accounting from a non-creditor (the servicer) and refusing to disclose whether any other money hit the table. Judges are left with the misimpression that because the borrower missed a payment, a default occurred. Not true. There is no default unless the creditor has lost money. If the Fed is still getting paid, then the Notice of Default is a fraud.

Is that fair? You bet it is. In any commercial loan situation, if the lender had already mitigated its damages, there is no way the court or bankruptcy court would allow the lender to ignore it. Why should it be any different for residential loans? The principle is the same: no creditor should receive more than the amount owed. And yet in every foreclosure involving a securitized loan (96% of all loans) that is exactly what is happening. The creditors and their agents are receiving money from multiple sources AND taking the house without crediting the obligation with the extra money they received.

  • They turn down short-sales when the proposed selling price is LESS THAN THE AMOUNT OWED TO THE CREDITOR. And of course they refuse to identify the actual creditors and refuse to provide a full accounting.

  • They turn down modifications when the proposed correction in the principal due is LESS than the amount owed to the creditor on the obligation. If the creditor were paid any more they would be receiving more than the amount owed on the obligation. And they do. WHEN THE BORROWER COMPLAINS ABOUT THE DOUBLE DIP PAYMENTS THE BORROWER IS ACCUSED OF IMMORALITY AND TRYING TO GET A FREE HOUSE. WHEN THE CREDITOR AND THE CREDITOR’S AGENTS GET PAID SEVERAL TIMES OVER ON THE SAME OBLIGATION, THAT IS BUSINESS, TOUGH LUCK.

  • They initiate foreclosure proceedings and sales based upon accounting information that they KNOW is only a partial accounting and that they KNOW is ignoring other money received, thus depriving the homeowner of a chance to settle or refinance the house.They use fraudulent affidavits signed by people who know nothing (see article on GMAC and similar articles on Deutsch and other pretender lenders)

  • They pretend to have a secured loan when they never perfected the lien. The originating lender was never owed the money. The actual lender was never on the note or security instrument.

So now Obama has some choices to make and they are narrowing. Does he continue to allow this charade or does he stop it. Because if he stops it, then a lot of powerful people are going to increase their hatred of him. But if he stops it and the tide turns, then middle America is back on the path to being restored, the taxpayers are back on the way to reducing deficits, and the stranglehold that Wall Street has exercised mercilessly will be broken. What’s a President to do?

CLASS ACTION FORM: HAMP and UNJUST ENRICHMENT

class_action_against_boa1_kahlo HAMP

Editor’s Note: Excellent Pleading on HAMP, TARP and related matters. They also bring up unjust enrichment which might also be applicable to the receipt and non-disclosure of third party payments.

Good facts on illicit “modification” practices and the reasons why the modifications usually don’t become permanent.

KAMIE KAHLO and DANIEL KAHLO, on
behalf of themselves and all others similarly
situated,
Plaintiffs,
v.
BANK OF AMERICA, N.A. and BAC

HOME LOANS SERVICING, LP,
Defendants

HAGENS BERMAN SOBOL SHAPIRO LLP
By: s/ Steve W. Berman
Steve W. Berman, WSBA #12536
Ari Y. Brown, WSBA #29570
HAGENS BERMAN SOBOL SHAPIRO LLP
1918 Eighth Avenue, Suite 3300
Seattle, Washington 98101
(206) 623-7292
steve@hbsslaw.com
ari@hbsslaw.com

Discovery Issues Revealed: PRINCIPAL REDUCTION IS A RIGHT NOT A GIFT – CA Class Action V BOA on TARP funds

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP MAY 23-24

PRINCIPAL REDUCTION IS A RIGHT NOT A GIFT. IF THE OBLIGATION HAS BEEN PAID BY THIRD PARTIES, THEN THE OBLIGATION HAS ALREADY BEEN REDUCED. THE ONLY FUNCTION REMAINING IS TO DO THE ACCOUNTING.

There should be no doubt in your mind now that virtually none of the foreclosures processed, initiated or threatened so far have been anything other than wrong. The payments from third parties clearly reduced the principal due, might be allocable to payments that were due (thus eliminating even the delinquency status) and thus eviscerates the amount demanded by the notice of delinquency or notice of default.

Thus in addition to the fact that the wrong party is pursuing foreclosure, they are seeking to enforce an obligation that does not exist.”

Editor’s Note: This is what we cover in the upcoming workshop. Connect the dots. Recent events point out, perhaps better than I have so far, why you should press your demands for discovery. In particular identification of the creditor, the recipients of third party payments, and accounting for ALL financial transactions that refer to or are allocable to a specific pool in which your specific loan is claimed to have been pledged or transferred for sale to investors in pieces.

This lawsuit seeks to force BOA to allocate TARP funds to the pools that were referenced when TARP funds were paid. In turn, they want the money allocated to individual loans in those pools on a pro rata basis. It is simple. You can’t pick up one end of the stick without picking up the other end too.

The loans were packaged into pools that were then “processed” into multiple SPV pools, shares of which were sold to investors. Those shares “derived” their value from the loans. TARP paid 100 cents on the dollar for those shares. Thus the TARP payments were received based upon an allocation that “derived” its value from the loans. The only possible conclusion is to allocate the funds to the loans.

But that is only part of the story. TARP, TALF and other deals on a list that included insurance, and credit default swaps (synthetic derivatives) also made such payments. Those should also be allocated to the loans. Instead, BOA wants to keep the payments without applying the payments to the loans. In simple terms they their TARP and then still be able to keep eating, even though the “cake” has been paid off (consumed) by third party payments.

Now that the Goldman Sachs SEC lawsuit has been revealed, I can point out that there are other undisclosed fees, profits, and advances made that are being retained by the intermediaries in the securitization and servicing chains that should also be allocated to the loans, some of which are ALSO (as previously mentioned in recent articles posted here) subject to claims from the SEC on behalf of the investors who went “long” (i.e., who advanced money and bought these derivative shares) based upon outright lies, deception and an interstate and intercontinental scheme of fraud.

In plain language, the significance of this accounting is that if you get it, you will have proof beyond any doubt that the notice of default and notice of sale, the foreclosure suit and the demands from the servicer were all at best premature and more likely fraudulent in that they KNEW they had received payments that had paid all or part of the borrower’s obligation and which should have been allocated to the benefit of the homeowner.

There should be no doubt in your mind now that virtually none of the foreclosures processed, initiated or threatened so far have been anything other than wrong. The payments from third parties clearly reduced the principal due, might be allocable to payments that were due (thus eliminating even the delinquency status) and thus eviscerates the amount demanded by the notice of delinquency or notice of default.

Thus in addition to the fact that the wrong party is pursuing foreclosure, they are seeking to enforce an obligation that does not exist. This is a breach of the terms of the obligation as well as the pooling and service agreement.

INVESTORS TAKE NOTE: IF THE FUNDS HAD BEEN PROPERLY ALLOCATED THE LOANS WOULD STILL BE CLASSIFIED AS PERFORMING AND THE VALUE OF YOUR INVESTMENT WAS MUCH HIGHER THAN REPORTED BY THE INVESTMENT BANK. YOU TOOK A LOSS WHILE THE INVESTMENT BANK TOOK THE MONEY. THE FORECLOSURES THAT FURTHER REDUCED THE VALUE OF THE COLLATERAL WERE ILLUSORY SCHEMES CONCOCTED TO DEFLECT YOUR ATTENTION FROM THE FLOW OF FUNDS. THUS YOU TOO WERE SCREWED OVER MULTIPLE TIMES. JOINING WITH THE BORROWERS, YOU CAN RECOVER MORE OF YOUR INVESTMENT AND THEY CAN RECOVER THEIR EQUITY OR AT LEAST THE RIGHTS TO THEIR HOME.

On Thu, Apr 15, 2010 at 9:35 PM, sal danna <saldanna@gmail.com> wrote:

California homeowners file class action suit against Bank of America for withholding TARP funds

Thu, 2010-04-08 11:43 — NationalMortgag…

California homeowners have filed a class action lawsuit against Bank of America claiming the lending giant is intentionally withholding government funds intended to save homeowners from foreclosure, announced the firm of Hagens Berman Sobol Shapiro. The case, filed in United States District Court in Northern California, claims that Bank of America systematically slows or thwarts California homeowners’ access to Troubled Asset Relief Program (TARP) funds by ignoring homeowners’ requests to make reasonable mortgage adjustments or other alternative solutions that would prevent homes from being foreclosed.

“We intend to show that Bank of America is acting contrary to the intent and spirit of the TARP program, and is doing so out of financial self interest,” said Steve Berman, managing partner of Hagens Berman Sobol Shapiro.

Bank of America accepted $25 billion in government bailout money financed by taxpayer dollars earmarked to help struggling homeowners avoid foreclosure. One in eight mortgages in the United State is currently in foreclosure or default. Bank of America, like other TARP-funded financial institutions, is obligated to offer alternatives to foreclosure and permanently reduce mortgage payments for eligible borrowers struck by financial hardship but, according to the lawsuits, hasn’t lived up to its obligation.

According to the U.S. Treasury Department, Bank of America services more than one million mortgages that qualify for financial relief, but have granted only 12,761 of them permanent modification. Furthermore, California has one of the highest foreclosure rates in the nation for 2009 with 632,573 properties currently pending foreclosure, according to the California lawsuit.

“We contend that Bank of America has made an affirmative decision to slow the loan modification process for reasons that are solely in the bank’s financial interests,” Berman said.

The complaints note that part of Bank of America’s income is based on loans it services for other investors, fees that will drop as loan modifications are approved. The complaints also note that Bank of America would need to repurchase loans it services but has sold to other investors before it could make modifications, a cumbersome process. According to the TARP regulations, banks must gather information from the homeowner, and offer a revised three-month payment plan for the borrower. If the homeowner makes all three payments under the trial plan, and provides the necessary documentation, the lender must offer a permanent modification.

Named plaintiffs and California residents Suzanne and Greg Bayramian were forced to foreclose their home after several failed attempts to make new arrangements with Bank of America that would reduce their monthly loan payments. According to the California complaint, Bank of America deferred Bayramian’s mortgage payments for three months but failed to tell them that they would not qualify for a loan modification until 12 consecutive payments. Months later, Bank of America came back to the Bayramian family and said would arrange for a loan modification under the TARP home loan program but never followed through. The bank also refused to cooperate to a short-sale agreement saying they would go after Bayramian for the outstanding amount.

“Bank of America came up with every excuse to defer the Bayramian family from a home loan modification which forced them into foreclosure,” said Berman. “And we know from our investigation this isn’t an isolated incident.”

The lawsuits charge that Bank of America intentionally postpones homeowners’ requests to modify mortgages, depriving borrowers of federal bailout funds that could save them from foreclosure. The bank ends up reaping the financial benefits provided by taxpayer dollars financing TARP-funds and also collects higher fees and interest rates associated with stressed home loans.

For more information, visit www.hbsslaw.com.

Allocating Bailout to YOUR LOAN

Editor’s Note: Here is the problem. As I explained to a Judge last week, if Aunt Alice pays off my obligation then the fact that someone still has the note is irrelevant. The note is unenforceable and should be returned as paid. That is because the note is EVIDENCE of the obligation, it isn’t THE obligation. And by the way the note is only one portion of the evidence of the obligation in a securitized loan. Using the note as the only evidence in a securitized loan is like paying for groceries with sea shells. They were once currency in some places, but they don’t go very far anymore.

The obligation rises when the money is funded to the borrower and extinguished when the creditor receives payment — regardless of who they receive the payment from (pardon the grammar).

The Judge agreed. (He had no choice, it is basic black letter law that is irrefutable). But his answer was that Aunt Alice wasn’t in the room saying she had paid the obligation. Yes, I said, that is right. And the reason is that we don’t know the name of Aunt Alice, but only that she exists and that she paid. And the reason that we don’t know is that the opposing side who DOES know Aunt Alice, won’t give us the information, even though the attorney for the borrower has been asking for it formally and informally through discovery for 9 months.

I should mention here that it was a motion for lift stay which is the equivalent of a motion for summary judgment. While Judges have discretion about evidence, they can’t make it up. And while legal presumptions apply the burden on the moving party in a motion to lift stay is to remove any conceivable doubt that they are the creditor, that the obligation is correctly stated and to do so through competent witnesses and authenticated business records, documents, recorded and otherwise. All motions for lift stay should be denied frankly because of thee existence of multiple stakeholders and the existence of multiple claims. Unless the motion for lift stay is predicated on proceeding with a judicial foreclosure, the motion for lift stay is the equivalent of circumventing due process and the right to be heard on the merits.

But I was able to say that the the PSA called for credit default swaps to be completed by the cutoff date and that obviously they have been paid in whole or in part. And I was able to say that AMBAC definitely made payments on this pool, but that the opposing side refused to allocate them to this loan. Now we have the FED hiding the payments it made on these pools enabling the opposing side (pretender lenders) to claim that they would like to give us the information but the Federal reserve won’t let them because there is an agreement not to disclose for 10 years notwithstanding the freedom of information act.

So we have Aunt Alice, Uncle Fred, Mom and Dad all paying the creditor thus reducing the obligation to nothing but the servicer, who has no knowledge of those payments, won’t credit them against the obligation because the servicer is only counting the payments from the debtor. And so the pretender lenders come in and foreclose on properties where they know third party payments have been made but not allocated and claim the loan is in default when some or all of the loan has been repaid.

Thus the loan is not in default, but borrowers and their lawyers are conceding the default. DON’T CONCEDE ANYTHING. ALLEGE PAYMENT EVEN THOUGH IT DIDN’T COME FROM THE DEBTOR.

This is why you need to demand an accounting and perhaps the appointment of a receiver. Because if the servicer says they can’t get the information then the servicer is admitting they can’t do the job. So appoint an accountant or some other receiver to do the job with subpoena power from the court.

Practice Hint: If you let them take control of the narrative and talk about the note, you have already lost. The note is not the obligation. Your position is that part or all of the obligation has been paid, that you have an expert declaration computing those payments as close as  possible using what information has been released, published or otherwise available, and that the pretender lenders either refuse or failed to credit the debtor with payments from third party sources —- credit default swaps, insurance and other guarantees paid for out of the proceeds of the loan transaction, PLUS the federal bailout from TARP, TALF, Maiden Lane deals, and the Federal reserve.

The Judge may get stuck on the idea of giving a free house, but how many times is he going to require the obligation to be paid off before the homeowner gets credit for the issuance that was was paid for out of the proceeds of the borrowers transaction with the creditor?

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court

By Bob Ivry

April 14 (Bloomberg) — The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Regardless of whether the Fed appeals, the Clearing House will take the next legal step by asking for a review by the full appellate court, Saltzman, 49, said at his office in New York. If the ruling is unfavorable, the bank group will petition the Supreme Court, he said.

Joined Lawsuit

The 157-year-old, New York-based Clearing House Payments Co., which processes transactions among banks, is owned by its 20 members. They include Citigroup Inc., Bank of New York Mellon Corp., Deutsche Bank AG, HSBC Holdings Plc, PNC Financial Services Group Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

The Clearing House Association, a lobbying group with the same members, joined the lawsuit in September 2009, after an initial ruling against the central bank in federal court in Manhattan.

The Fed is “reviewing the decision and considering our options,” said Fed spokesman David Skidmore in Washington. He had no comment on Saltzman’s plans.

Attorneys face a May 3 deadline to file their appeals.

“We’ll wait to see the motion papers,” said Thomas Golden, attorney for Bloomberg who is a partner at New York- based Willkie Farr & Gallagher LLP. “The judges’ decision was well-reasoned, and we doubt further appeals will yield a different result.”

Bloomberg sued in November 2008 under the U.S. Freedom of Information Act, after the Fed denied access to records of four Fed lending programs and a loan the central bank made in connection with New York-based JPMorgan Chase’s acquisition of Bear Stearns Cos. in March 2008.

231 Pages

The central bank contends that 231 pages of daily reports summarizing lending activity, which were prepared by the Federal Reserve Bank of New York for the Fed Board of Governors in Washington, aren’t covered by the FOIA. The statute obliges federal agencies to make government documents available to the press and the public. The suit doesn’t seek money damages.

The Fed released lists on March 31 of assets it acquired in the 2008 bailout of Bear Stearns.

The New York Times Co., the Associated Press and Dow Jones & Co., publisher of the Wall Street Journal, are among media companies that have signed up as friends of the court in support of Bloomberg.

The Fed Board of Governors’ “refusal to disclose the names of borrowers renders public oversight of its actions impossible — it prevents any assessment of the effectiveness of the Board’s actions and conceals any collusion, corruption, fraud or abuse that might have occurred,” the news organizations said in a letter to the appeals panel.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: April 14, 2010 00:01 EDT

Principal Reduction: A Step Forward by BofA, Wells Fargo

Editor’s Note: Better late than never. It is a step in the right direction, but 30% reduction is not likely to do the job, and waiting for mortgages to become delinquent is simply kicking the can down the road.

The political argument of a “gift” to these homeowners is bogus. They are legally entitled to the reduction because they were defrauded by false appraisals and predatory loan practices — fueled by the simple fact that the worse the loan the more money Wall Street made. For every $1,000,000 Wall Street took from investors/creditors they only funded around $650,000 in mortgages. If the borrowers performed — i.e., made their payments, Wall Street would have had to explain why they only had 2/3 of the investment to give back to the creditor in principal. If it failed, they made no explanation and made extra money on credit default swap bets against the mortgage.

For every loan that is subject to principal reduction, there is an investor who is absorbing the loss. Yet the new mortgage is in favor of the the same parties owning and operating investment banks that created the original fraud on investors and homeowners. THIS IS NO GIFT. IT IS JUSTICE.

—-EXCERPTS FROM ARTICLE (FULL ARTICLE BELOW)—–

New York Times

Policy makers have been hoping the housing market would improve before any significant principal reduction program was needed. But with the market faltering again, those wishes seem to have been in vain.

Substantial pressure came from Massachusetts, which won a significant suit last year against Fremont Investment and Loan, a subprime lender. The Supreme Judicial Court ruled that some of Fremont’s loans were “presumptively unfair.” That gave the state a legal precedent to pursue Countrywide.
The threat of a stick may be helping banks to realize that principal write-downs are in their ultimate self-interest. The Bank of America program was announced simultaneously with the news that the lender had reached a settlement with the state of Massachusetts over claims of predatory lending.

The percentage of modifications that included some type of principal reduction more than quadrupled in the first nine months of last year, to 13.2 percent from 3.1 percent, according to regulators.

Wells Fargo, for instance, said it had cut $2.6 billion off the amount owed on 50,000 severely troubled loans it acquired when it bought Wachovia.

March 24, 2010

Bank of America to Reduce Mortgage Balances

By DAVID STREITFELD and LOUISE STORY

Bank of America said on Wednesday that it would begin forgiving some mortgage debt in an effort to keep distressed borrowers from losing their homes.

The program, while limited in scope and available by invitation only, signals a significant shift in efforts to deal with the millions of homeowners who are facing foreclosure. It comes as banks are being urged by the White House, members of Congress and community groups to do more to stem the tide.

The Obama administration is also studying whether to provide more help to people who owe more on their mortgages than their homes are worth.

Bank of America’s program may increase the pressure on other big banks to offer more help for delinquent borrowers, while potentially angering homeowners who have kept up their payments and are not getting such aid.

As the housing market shows signs of possibly entering another downturn, worries about foreclosure are growing. With the volume of sales falling, prices are sliding again. When the gap increases between the size of a mortgage and the value that the home could fetch in a sale, owners tend to give up.

Cutting the size of the debt over a period of years, however, might encourage people to stick around. That could save homes from foreclosure and stabilize neighborhoods.

“Banks are willing to take some losses now to avoid much greater losses later if the housing market continues to spiral, and that’s a sea change from where they were a year ago,” said Howard Glaser, a housing consultant in Washington and former government regulator.

The threat of a stick may be helping banks to realize that principal write-downs are in their ultimate self-interest. The Bank of America program was announced simultaneously with the news that the lender had reached a settlement with the state of Massachusetts over claims of predatory lending.

The program is aimed at borrowers who received subprime or other high-risk loans from Countrywide Financial, the biggest and one of the most aggressive lenders during the housing boom. Bank of America bought Countrywide in 2008.

Bank of America officials said the maximum reduction would be 30 percent of the value of the loan. They said the program would work this way: A borrower might owe, say, $250,000 on a house whose value has fallen to $200,000. Fifty thousand dollars of that balance would be moved into a special interest-free account.

As long as the owner continued to make payments on the $200,000, $10,000 in the special account would be forgiven each year until either the balance was zero or the housing market had recovered and the borrower once again had positive equity.

“Modifications are better than foreclosure,” Jack Schakett, a Bank of America executive, said in a media briefing. “The time has come to test this kind of program.”

That was the original notion behind the government’s own modification program, which was intended to help millions of borrowers. It has actually resulted in permanently modified loans for fewer than 200,000 homeowners.

The government program, which emphasizes reductions in interest rates but not in principal owed, was strongly criticized on Wednesday by the inspector general of the Troubled Asset Relief Program for overpromising and underdelivering.

“The program will not be a long-term success if large amounts of borrowers simply redefault and end up facing foreclosure anyway,” the inspector general, Neil M. Barofsky, wrote in his report. One possible reason is that even if they get mortgage help, many borrowers are still loaded down by other kinds of debt like credit cards.

Bank of America said its new program would initially help about 45,000 Countrywide borrowers — a fraction of the 1.2 million Bank of America homeowners who are in default. The total amount of principal reduced, it estimated, would be $3 billion.

The bank said it would reach out to delinquent borrowers whose mortgage balance was at least 20 percent greater than the value of the house. These people would then have to demonstrate a hardship like a loss of income.

These requirements will, the bank hopes, restrain any notion that it is offering easy bailouts to those who might otherwise be able to pay. “The customers who will get this offer really can’t afford their mortgage,” Mr. Schakett said.

Early reaction to the program was mixed.

“It is certainly a step in the right direction,” said Alan M. White, an assistant professor at Valparaiso University School of Law who has studied the government’s modification program.

But Steve Walsh, a mortgage broker in Scottsdale, Ariz., who said he had just abandoned his house and several rental properties, called the program “another Band-Aid. It probably would not have prevented me from walking away.”

Even before Bank of America’s announcement, reducing loan balances was growing in favor as a strategy to deal with the housing mess. The percentage of modifications that included some type of principal reduction more than quadrupled in the first nine months of last year, to 13.2 percent from 3.1 percent, according to regulators.

Few of these mortgages were owned by the government or private investors, however. Banks tended to cut principal only on mortgages they owned directly. Wells Fargo, for instance, said it had cut $2.6 billion off the amount owed on 50,000 severely troubled loans it acquired when it bought Wachovia.

Bank of America said it would be offering principal reduction for several types of exotic loans. Some of the eligible loans are held in the bank’s portfolio, but the program will also apply to some loans owned by investors for which Bank of America is merely the manager.

The bank developed the program partly because of “pressure from everyone,” Mr. Schakett said. Even the investors who owned the loans were saying “maybe we should be doing more,” he said.

Substantial pressure came from Massachusetts, which won a significant suit last year against Fremont Investment and Loan, a subprime lender. The Supreme Judicial Court ruled that some of Fremont’s loans were “presumptively unfair.” That gave the state a legal precedent to pursue Countrywide.

“We were prepared to bring suit against Bank of America if we had not been able to reach this remedy today, which we have been looking for for a long time,” said the Massachusetts attorney general, Martha Coakley.

Bank of America agreed to a settlement on Wednesday with Ms. Coakley that included a $4.1 million payment to the state.

Reducing principal is widely endorsed, in theory, as a cure for foreclosures. The trouble is, no one wants to absorb the costs.

When the administration announced a housing assistance program in the five hardest-hit states last month, officials explicitly opened the door to principal forgiveness. Despite reservations expressed by the Treasury, the White House and Housing and Urban Development officials have continued to study debt forgiveness in areas with lots of so-called underwater homes, according to two people with knowledge of the matter.

On a national scale, such a program risks a political firestorm if the banks are unable to finance all the losses themselves. Regulators like the comptroller of the currency and the Federal Reserve have been focused on maintaining the banks’ capital levels, which could be hurt by large-scale debt forgiveness.

“You have to be very careful not to design a program that would change people’s fundamental behavior across the country in a destabilizing way or would be widely perceived as unfair to people who are continuing to pay,” Michael S. Barr, an assistant secretary of the Treasury, said early this year.

Policy makers have been hoping the housing market would improve before any significant principal reduction program was needed. But with the market faltering again, those wishes seem to have been in vain.

Bank of America’s announcement came within hours of a fresh report that underscored the renewed weakness. Sales and prices are dropping, leaving even more homeowners underwater.

Sales of new homes fell in February to their lowest point since the figures were first collected in 1963, the Commerce Department said. Sales are about a quarter of what they were in 2003, before the housing boom began in earnest.

“It’s shocking,” said Brad Hunter, an analyst with the market researcher Metrostudy. “No one would ever have imagined it would go this low.”

U.S. Plans Big Expansion in Effort to Aid Homeowners

March 25, 2010

U.S. Plans Big Expansion in Effort to Aid Homeowners

By DAVID STREITFELD

The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.

The administration’s earlier efforts to stem foreclosures have largely been directed at borrowers who were experiencing financial hardship. But the biggest new initiative, which is also likely to be the most controversial, will involve the government, through the Federal Housing Administration, refinancing loans for borrowers who simply owe more than their houses are worth.

About 11 million households, or a fifth of those with mortgages, are in this position, known as being underwater. Some of these borrowers refinanced their houses during the boom and took cash out, leaving them vulnerable when prices declined. Others simply had the misfortune to buy at the peak.

Many of these loans have been bundled together and sold to investors. Under the new program, the investors would have to swallow losses, but would probably be assured of getting more in the long run than if the borrowers went into foreclosure. The F.H.A. would insure the new loans against the risk of default. The borrower would once again have a reason to make payments instead of walking away from a property.

Many details of the administration’s plan remained unclear Thursday night, including the precise scope of the new program and the number of homeowners who might be likely to qualify.

One administration official cautioned that the investors might not be willing to volunteer any loans from borrowers that seemed solvent. That could set up a battle between borrowers and investors.

This much was clear, however: the plan, if successful, could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.

The F.H.A. has already expanded its mortgage-guarantee program substantially in the last three years as the housing crisis deepened. It now insures more than six million borrowers, many of whom made minimal down payments and are now underwater.

Sources said the agency would use $14 billion in funds from the Troubled Asset Relief Program, some of which it could dangle in front of financial institutions as incentives to participate.

Another major element of the program, according to several people who described it, will be to encourage lenders to write down the value of loans for borrowers in modification programs. Until now, the government’s modification efforts have focused on lowering interest rates.

Lenders began offering principal forgiveness last year on loans they held in their own portfolios. In the fourth quarter, however, this process abruptly reversed itself, for reasons that are unclear. The number of modifications that included principal reduction fell by half.

Bank of America, the country’s biggest bank, announced this week that it would forgive principal balances over a period of years on an initial 45,000 troubled loans.

Another element of the White House’s housing program will require lenders to offer unemployed borrowers a reduction in their payments for a minimum of three months.

An administration official declined to speak on the record about the new programs but said they would “better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.”

The new initiatives would expand the government’s current mortgage modification plan, announced a year ago with great fanfare. It has resulted in fewer than 200,000 people getting permanent new loans. As many as seven million borrowers are seriously delinquent on their loans and at risk of foreclosure.

NPR Interview with Author Lewis Reveals Profits in Bad Loans.

Bear in mind now, that underneath this all are subprime mortgage loans and pool of subprime mortgage loans in which only eight percent have to go bad for the whole CDO to be worth zero.

NPR Interveiw with Lewis Author

Submitted by Ron Ryan, Esq. (Tucson) with the following comment:

The story broke on 60 minutes last week and on NPR Tuesday about people getting filthy rich from buying multiple CDS, which was a large cause of the economy almost sending the world into Apocalypse.  While so far they got that part right, they are selling it like there were just some smart people that noticed that the the pools were doomed to “fail,” meaning there would be a moment when the trigger defining failure would surely hit (8% default rate), what they are missing is that this was pre-planned as part of a grand scheme.

Editor’s Note: I agree with Ron. These people were obviously not stupid. They walked away with trillions. The task of homeowners, litigators, forensic analysts, and experts is to explain the counter-intuitive nature of this scheme — to engineer as large a pool of cash or cash equivalents in exchange for zero value; that means by definition creating inherently defective loan products and selling them to unsophisticated homeowners who were not in a position to know the difference.

In economics it is called asymmetric access to information. On the other end, the investors were led to purchase inherently defective bonds thinking they were backed by mortgage loans, which collectively created a low-risk pool.

Only the middle-men knew the truth. So only the middlemen purchased credit default swaps betting against the very loans they created and against the securities they sold. And only the middlemen presented claims that were satisfied by the Federal bailout under the false representation that THEY were holding toxic assets when in fact it was the the homeowners and investors that were holding toxic assets.


BOA Suits Claims Credit Reports Used Instead of Title Searches

BofA Title claims
BofA Wants $535M From Title Insurers
By DAN MCCUE

CHARLOTTE, N.C. (CN) – Bank of America claims mortgage insurers owe it more than $535 million for losses it suffered when the housing bubble burst. BofA, which bought the poster boy of the subprime lending fiasco, Countrywide Financial, 2 years ago, says title insurers unfairly refuse to cover busted mortgage loans that originated before the financial meltdown.
Bank of America, one of America’s largest mortgage lenders and the recipient of more than $45 billion in TARP funds from the federal government, claims that United General Title Insurance and First American Title Insurance, now corporate affiliates, insured mortgages for title defects, undisclosed intervening liens and other problems, and to cover equity loans and lines of credit up to $500,000.
Now the insurers are balking at paying the claims, blaming Bank of America and the firms it acquired prior to the global economic crisis for creating their own problems, BofA says in Mecklenburg County Court.
As of February the two insurers have denied at least 2,200 of Bank of America’s claims, representing more than $235 million in losses, and failed to respond to another 2,300 claims, representing more than $300 million in losses, BofA says.
All of the claims arise from a home equity loan or line of credit that is in default, the bank says.
BofA demands coverage of its losses, plus compensatory and punitive damages for breach of contract and bad faith.
BofA is also a plaintiff in a suit filed in Los Angeles Superior Court by Countrywide Home Loans, demanding $111 million from Triad Guaranty Insurance.
In that complaint, Countrywide and BofA claim Triad is wrongly trying to rescind coverage for high-risk practices that it encouraged.
BofA is represented by Davis Halvreich with Reed Smith in the North Carolina case. 

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