The Department of Justice and the Securities and Exchange Commission are proceeding from the wrong presumption. They are starting with public policy and politics instead of enforcement of the law to maintain the fabric of our society. It results in the rule of man rather than the rule of law. And it is tearing us apart even if government refuses to talk about and mainstream medium refuses to report on it despite the constant drum beat of new lawsuits and new settlements of bank wrongdoing.
Hardly a day goes by without some settlement being announced with respect to the sale of fraudulent securities to investors. Now we have announcements that Bank of America and Chase are being investigated and sued for civil and criminal behavior with respect to the sale of mortgage bonds to investors.
They have framed their complaints in such a way that it is presumed that proper procedure was followed in the origination and assignment of loans while at the same time they are alleging that proper procedure was not followed in the origination and assignment of loans. The difference is only whether they are saying the victims are the investors or they are ignoring the fact that the victims include the homeowners. It is like a scene from Gulliver’s Travels where the incredibly ridiculous is taken as true. Investors should be restored but homeowners may be cheated and bear most of the burden of the bank’s misbehavior because it is convenient to do so.
Once again we have agency determination of wrongdoing and still we have a judicial system that is more concerned with validating the illegal mortgages and validating illegal foreclosure judgments and validating illegal foreclosure auctions and validating deeds issued from illegal foreclosure auctions and validating evictions of homeowners who legally should be declared the owner of the home free and clear of any encumbrance and frankly free and clear of any debt which by now has been paid multiple times by third parties who have no interest in pursuing the homeowners for payment.
This is going to be decided on a case-by-case basis in the judicial system and only successful where the attorney for the homeowner is extremely aggressive on discovery. Otherwise, the public policy and mainstream media will control the narrative on each case such that despite fatally defective fabricated documents with false signatures were used in the origination and assignment of the mortgage loan.
Attorneys have to be creative in explaining how the fraudulent sale of securities to investors is tied to the fraudulent sale of a loan product to homeowners. But you can start with the single transaction doctrine in which it can be stated with considerable certainty that had the investors known what was going on in the origination and transfer of loans they never would have advanced a penny. And the borrowers would never have signed the documents if they knew that an inflated appraisal was used in making the loan unreasonable and very expensive once the true value of the property was reflected in the marketplace. Borrowers would also have never signed documents if they knew that the undisclosed intermediaries were making a mystery profit that amounted to far more than the amount of the alleged principal due on the mortgage. They would not have signed the documents if they knew that their identities were being stolen and traded.
In other words, if federal law had been followed requiring the disclosure of all compensation and all parties to the loan transaction, none of the transactions would have occurred. The federal law is the federal truth in lending act and the federal real estate settlement and procedures act. Qualified written requests and debt validation letters are treated as jokes in the industry and irrelevant in court.
The banks are rolling in money while the rest of the economy struggles. How is that possible? Answer: they are taking the money owed to investors and which would erase the debt and they are keeping it thus maintaining the illusion that the loan to the homeowner has not been paid.
The banks have succeeded in driving home a false assertion, to wit: that the homeowners are seeking a windfall profit by receiving the house free and clear of any encumbrance and being released from any debt. What they are really doing is covering up their own windfall caused by stiffing investors, insurers, credit default swap counterparties, homeowners, taxpayers and the Federal Reserve. It might SEEM wrong to let the homeowners off the hook but only if their debt remains unpaid. But under the rule of law that is exactly what happens when the debt has been paid. Homeowner did not create this. Wall Street created this complex series of transactions that were conjured up to cover up a Ponzi scheme in which depository institutions created the illusion of ownership of the securities and cash deposited with them in good faith by investors.
At some point the prosecution in the cases that are now pending and that will be pending in the near future will come face-to-face with the conflict of the rule of law versus the rule of man. The conventional wisdom is that public policy should prevail even if it means taking someone’s home illegally. The logic is that if the mortgages were declared invalid and the debts have been paid, a large shift in wealth would occur from the banking sector to the middle class and even parts of the poverty sector. We already have enough information in the public domain to know that most of the foreclosures are illegal and the parties that have been thrown out of their homes have a cause of action in damages or to recover the home — a fact well known to agencies and their investigators but not known to the families because the agency has stepped in to protect the bank and refused to notify the families that were affected by the illegal behavior.
It may be true that the mortgages and the alleged transfers of the mortgages were all an illusion that there is no value to most of the mortgage bonds and therefore there are no assets that have been purchased by the Federal Reserve in those bond purchases because there was noting to put in the asset pool (trust) and they never bothered to event try to put it in the pool until challenged in litigation. This has created the ridiculous situation where an illegal transaction of no value and no valid documentation supports it is nonetheless treated as valid simply because nobody has challenged it. And when they reach the line in the sand where it means declaring the mortgages and foreclosures to be fraudulent and invalid, void and unenforceable, past, present and future, then they will settle for pennies on the dollar —- again.
The Obama administration is simply running on the wrong track. Restoring the rule of law will restore the ability of the middle class to fuel a dynamic economy. Any negative impact on a mega-bank that is broken up into pieces is not a price to pay — it is an additional perk to bring the banking industry down to size where it can be regulated and where they can be stopped from using the money of depositors and investors as though it was their own.