It’s always hard to imagine that some giant corporation will crumble all at once. But that has happened repeatedly over our economic history and BofA has trended on the edge throughout its 111 year history. The article in the above link tracks those events and comes to the conclusion that BofA has finally learned its lesson and could be a gigantic opportunity for investors. I beg to differ. As anyone who is involved with foreclosures will tell you, BofA continues to operate as though it was above the law. Bank management is still so impressed with themselves that they fail to see the precipice they are on.
For too long the public policy has been to save the megabanks who are literally too big to regulate — especially across state boundaries and national boundaries. For too long the public policy has been to force homeowners to shoulder the price of the mortgage meltdown. The banks survived financially but the homeowners didn’t. If the banks had been allowed to fail, the homeowners would not have lost $13 trillion in household wealth and the great recession would never have happened. The spending power would have been hit but not nearly as hard as what resulted from a refusal to do the obvious — take the bad behavior of the banks and spread it over all players, not just the homeowners. Iceland did it and the banks and the homeowners did just fine without a major recession. (Not so much for the bankers, who were thrown in jail for defrauding investors, borrowers and everyone in between).
The amount of liability out there for BofA and other major banks remains staggering. And the rulings regarding rescission and proof of foreclosure are a tightening noose around the necks of the the banks, even if their managers have escaped prosecution for criminal activity. As the pace picks up it is obvious that BofA and other banks are facing huge losses from loans “that never were” and mega write-offs on their balance sheet that will put them, once again, in the official position of what everyone already knows to be the case: insolvent.
BOTTOM LINE: The banks knowingly took money from investors for the “purchase” of mortgage backed securities that were issued by empty, non-operating REMIC Trusts. It was the holy grail of criminal investment banking — do an IPO and keep the money because the issuing entity doesn’t need nor want the money. Then through a series of “remote” or “bankruptcy remote” vehicles they slid money onto the loan closing table, pretending that the originator was the lender. The paperwork at closing should have protected the investors because it was their money). Instead it created fake paperwork creating the illusion of rights under the UCC and other theories to enforce worthless paper without alleging or proving that they ever paid for the paper, the loan or anyone else. In legal speak, the banks have the courts treating them as holders in due course of negotiable instruments without BEING holders in due course, and the paper upon which they rely is neither real nor negotiable.
The investor’s money was the source of the loan and it was fraud and breach of contract that their money ended up on the closing table with borrowers. This was precisely why Congress labeled such behavior as predatory per se — for the protection of borrowers, investors and the marketplace. Government missed its cue and instead geared up to millions of foreclosures instead of taking control of the failed banks and renegotiating the loan terms with adequate protections for the investors and the borrowers — the only real parties in the transaction. The Courts missed their cue as well. Instead of actually learning the details of these transactions, knowing that they knew nothing about securitization judges nevertheless ruled repeatedly in favor of the banks and prevented the borrower from getting discovery and forcing the borrower to absorb the burden of proof of facts that were uniquely in the hands of the banks, hidden away from public and private view.
None of the transactions reported by the banks ever took place except as paper trades on their trading desks — with fictional sellers and buyers and fictional money. The reason the banks cling so desperately to the presumptions regarding negotiable paper is that they win no cases if the court allows the borrower to drill down in discovery or the court forces the burden of proof onto the the alleged “holder” to prove the loan or any transaction implied by the false paper they are using in court. They lose every time except in those instances where the originator actually loaned money to the borrower and still has the loan (about 4% of all loans over the last 15 years).
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