Goldman Sachs Fined $5 Billion for Violations Dating Back to 2008

…should anyone who owns a home that is subject to claims of securitization of their mortgage be at risk of losing their property?

…the government should stop the arrogant policy of letting most of the burden fall onto middle class property owners.

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So we have another “settlement” with one of the major players in the greatest economic crime in human history. But the cover-up of the actual transgressions  emanating from corruption on Wall Street continues. Government investigators should have had a press conference in which they clearly stated the nature of the violations — all of them. People deserve to hear the truth; and the government should stop the arrogant policy of letting most of the burden fall onto the middle class property owners.

The defects in government intervention give rise the illusion that these settlements only have effect on the investors and other financial institutions who were defrauded. Both the charges and the settlements seem far away from the ground level loans and foreclosures. But that is only because of deals in which the government’s continued complicity in “protecting the banking system — a policy that has rewarded trillion dollar banks and given them unfair advantage over the 7,000 other banks and credit unions.

Government now knows the truth about what Wall Street did. But they are restricting their comments in the fear that maybe notes and mortgages would be obviously void, making the MBS bonds worthless causing some world-wide panic and even aggression against the United States for allowing these enormous crimes to occur and continue.

For example, if the government investigators actually said that the REMIC Trusts were never funded, then the cases pending in which the REMIC Trust is named as the initiator of the foreclosure would dissolve into nothing. There would be no Plaintiff in judicial states and there would be no beneficiary in non-judicial states. Thus the filing of a substitution of trustee on a deed of trust would be void. It would raise jurisdictional issues in addition to the absence of any foundation for the assertion of the right to foreclose.

If government investigators identified patterns of conduct in the fabrication, forgery and utterance of false instruments, recording false instruments, then presumptions of validity might not apply to documents presented in court as evidence. Instead of the note being all the evidence needed from a “holder”, the actual underlying transactions would need to be proven by parties seeking foreclosure. If those transactions don’t actually exist, then it follows that the note, mortgage and claim are worthless.

And a borrower could point to the finding by administrative agencies and law enforcement agencies that these practices constitute customary and usual practices in the industry — a statement that would go a long way to convincing a judge that he or she should not assume or presume anything without proof of payment (consideration) in the origination of the loan with whoever ended up as Payee on the note. The same analysis would apply for the alleged acquisition of the “loan.”

If the party on the note or the party claiming they acquired the loan was NOT a party to an actual transaction in which they made the loan or paid to acquire it, then the note is evidence of a transaction that does not exist. Instead government is continuing to cover-up the fact that a policy decision has been made in which borrowers can fend for themselves against perpetrators of financial violence.

The view from the bench still presumes that they would not have a case to decide if there wasn’t a valid loan transaction and a valid acquisition of the loan. They see defects in documentation as splitting hairs. And to make matters worse I have personally seen judges strike virtually all discovery requests that address the issue of whether real transactions took place. And I have seen lawyers retreat over the one issue that would mean success or failure for their client. The task of defending illegal foreclosures would be far easier if the consensus view from the bench was that all the loans are suspect and need to be proven as to ownership, balance and authority.

These issues are almost impossible to prove at trial because the parties with the actual information and proof are not even at the trial. But they can be reached in discovery where on a motion to compel answers and a hearing on the objections from the “bank” or “servicer” the homeowner presses his demand for data and documents that show the actual existence or nonexistence of these transactions.

It would seem that the U.S. Department of Justice is coming out of the shadows on this. They are looking back to 10 years ago when the violations were at their most extreme. We may yet see criminal prosecutions. But putting people in jail does not address the essential issue, to wit: should anyone who owns a home that is subject to claims of securitization of their mortgage be at risk of losing their property?

 

The Logic of Wall Street “Securitization:” The transaction that never existed

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The logic of Wall Street schemes is simple: Create the trusts but don’t use them. Lie to everyone and assure everyone that Trusts were used to “securitize” loans. The strategy is so successful and the lie is so big and has been going on for so long, that most people believe it.

You see it in the decisions of the appellate courts who render opinions like the recent 3rd district in California which expresses the premise that the borrower was loaned money by the originator. Once you start with THAT premise, the outcome is no surprise. But start with reverse premise — that the borrower was NOT loaned money BY THE ORIGINATOR and you end up with a very different result.

We could assume that Wall Street is reckless in lending money. They can afford to be reckless because they are using investor money. And, so the story goes, the boys on Wall Street got a little wild with loans that they would never have approved for themselves.

Without risk of any loss, Wall Street investment banks make money regardless of whether the loan succeeds or goes into default.

But Wall Street is not content with earning fees. The basic credo is a question: “How can we make YOUR money OUR money.” And they have successfully devised and followed that goal for many years. As one insider told me in an interview that must remain anonymous, “It is like a magic trick. You create a trust and everyone is looking at the trust and everyone is looking at transactions affecting the trust, when in fact all the action is occurring off record, off the books and away from scrutiny by investors, trustees, rating agencies, insurers, borrowers, and of course, the courts.” 

So the question becomes “what happens to investor money after it is received by the investment bank?” If the money passes from the bank account of the managed fund (pension) fund to the bank account of the investment bank that sold bonds issued by a Trust then the Trust would receive the money. It didn’t.

The Trust would then issue funds for the origination or acquisition of loans. In return it would get the loan documents and they would be placed with the Depositor or Depository — pretty much the way ordinary loans are done. It didn’t. Instead we had millions of loan documents lost or destroyed and then re-created for litigation purposes. Why would an entire industry have engaged in that behavior? Was it really a “volume” problem where there was too much paper or was it something more sinister?

The problem is that the investment bank that acts as broker in selling the bonds is in control of the loans and investments of the Trusts. Since the fees of the investment bank are based on the existence of transactions in which the Trust issues money in exchange for investment certificates, the Wall Street bank is incentivized to make that Trust money move regardless of the quality of the investment. And since the Trust has no say in the actual underwriting decision to originate or acquire the loan, the investment bank is the only one in charge. That leaves the fox guarding the hen house.

But that doesn’t satisfy Wall Street either. They realized that they can create “proprietary profits” for the investment banks by creating a yield spread premium. A yield spread premium is the difference in value between two different loans to the same party for the same transaction — one is the honest one and the other is fictitious.

At closing the borrower is steered into the fictitious one which is far more risky and expensive than the one the borrower is actually qualified to receive.

At the investor level the “trust” is ordered to take loans that are far less valuable than they appear. This means that the Trust buys the investment bonds or shares that the investment bank has created with nobody checking the quality or ownership of the investment. The Pooling and Servicing Agreement contains provisions that effectively bars the Trustee or the investors from knowing or even inquiring about these transactions. Look at any PSA and you will see it.

The bottom line is that the worse the loan terms for the borrower and the more likely it is that the loan will fail, the lower the value of the loan. But if it is sold as though it was an ordinary conventional loan at 5%, then the price, charged for a crappy loan is much higher than its true value. Same scenario as the inflated appraisals of real property and homes. 

So the investment bank inserts itself as the Seller of the loan to the trust. At their proprietary trading desk the investment bank sells its ownership interest in the loan to the trust for the higher “value” because the investment bank is making the decisions on what loans the trust will buy. Meanwhile they have created loans that are worth far less and even have principal due on the “notes” that is far less than what the trust is forced to “pay.”

Checking with informed sources, it is evident that those proprietary transactions were fictitious and allowed the investment banks to report huge “profits” while everyone else was losing their shirts trading bonds, equities and anything else. The transaction at the proprietary trading desk of the investment bank was fictitious because the trust did not issue any payment to the investment bank, who never formally owned the loan in the first place.

You don’t see investment banks anywhere in the chain of title whether you review public records or even MERS. So you have the investment bank selling a loan they don’t own to a trust that never paid for it. The entire transaction is recorded but does not exist.

In the case of a 15% $300,000 loan to a “borrower”, it is “SOLD” as a 5% conventional loan giving the investment bank a reason to declare that it made a profit on a “proprietary trade.” How much profit? Figure it out — on the back of a napkin you can see how the investment banks “sold” the $300,000 loan but “received” $900,000 from the Trust leaving the investors with an instant $600,000 loss and the probability of losing the rest of the $300,000 as well. This is exactly opposite to the provisions of the Prospectus and PSA.

Upon examination, my sources tell me, the money to cover that declared “trading” profit does exist at the investment bank. That is because the investment bank took the money from investors, never funded the trust, and pocketed the $600,000 in advance of the “proprietary trade, which they could cause to be recorded and reported at any time, since the investment bank was in total control.

Enter moral hazard.

The only incentive that the investment bank to stay honest is to report good results so the managed funds buy more bonds. But that does not protect investors. The investment bank creates a classic PONZI scheme in which it uses investor money to make the monthly payments on the bonds or shares and reports that “all is well.” The report disclaims reliability, credibility and authenticity. Wells Fargo has an especially strong disclaimer on the distribution report to investors. The disclaimers were ignored as “boiler plate” by fund managers who made the investment on behalf of the their pensioners or mutual fund shareholders.

All the fund managers needed to know was that they were getting paid — but they did not realize that a significant part of the payment came from their own investment dollars advanced to the investment bank, as broker for the purchase of trust bonds or shares.

So the investment bank makes much less money on good investments for the trust than on really bad investments. In fact they have the  incentive to make certain the loan fails. Not only do they get the yield spread premium described above, the investment bank, is trading on inside information in which only the investment bank knows the truth. It places bets against the viability of the loan and bets further against the value of the mortgage bonds, and buys contracts for insurance, betting that the value of the bond will fall in a “credit event” without the necessity of an actual default.

SO IF THE INVESTMENT BANK DID NOT GIVE THE TRUST THE MONEY FROM INVESTORS, WHERE DID THE INVESTORS’ MONEY GO?

That is the trillion dollar question. And THIS is where the Courts have it completely wrong. Either we are a nation of laws or a nation governed by the financial industry. The banks bet on themselves, and so far, they were right to do so.

The money given to the investment banks was spread out over a long list of intermediaries owned or controlled by the investment bank. AND then SOME of it was spread out funding loans to borrowers. But the investment bank obviously could not name itself on the note and mortgage. That would have revealed that the tax advantages of a REMIC trust were nonexistent because the trust was not involved in the transaction.

So an elaborate, complicated, circuitous route was chosen for the “approval” of loans for origination or acquisition. First you have a nominee, which is often MERS plus a “lender” who was also a nominee even though they were called lender. The “lender” was subject to an assignment and assumption agreement that prohibited the “lender” from exercising any control over the closing on the loan that was being “originated.” In short, they were being paid to pretend to be a lender — hence the term pretender lender. 

The closing agent, whose fee depends upon actually closing, and the mortgage broker, whose fee depends upon actually closing, and the title company, whose fee depends upon the actual closing, have no interest in protecting the borrower from what is about to transpire.

The closing agent gets money from any one of a variety of sources OTHER THAN THE “LENDER.” The closing agent applies those funds to the closing as though the “Lender” made the loan. As stated by one mortgage document specialist for a large “originator”, “We knew that table funded loans were predatory and illegal, but we didn’t take that seriously. And the borrowers didn’t know who the lender was — that was the point. We used table funded loans to conceal the actual lender.”

Those funds came from the investors, although the money did not come through the trust. It came from the investment bank which was acting in the capacity, as they tell it, as a depository bank — which is why the Federal government allowed them to become commercial banks able to act as depositories. And every effort was made to prevent any evidence as to whose money was actually involved in the loan. Since it was the investor money that was used to originate or acquire the loan, it should have been the investors who were named as owner of the loan and recorded as such in the public records.

If you look at the PSA, it requires funding of the trust, of course. But it also requires that its acquisition of loans contain all the elements of a holder in due course, thus barring any claims from borrowers about irregularities at the closing, violations of state and federal law, etc. In summary the only defenses a borrower could raise against a holder in due course is that they paid or that they never signed the note. So a person who pays money in good faith without knowledge of the borrower’s defenses is pretty well protected. In litigation with borrowers, borrowers would be told they must sue the intermediaries that caused the problems with their loans.

The fact that no foreclosure of a loan subject to “claims of securitization” alleges HDC (holder in due course) status is very substantial corroboration that the Trust did not pay for the loan in good faith without knowledge of the borrower’s defenses.

The banks have been betting on a lot of things and winning every bet. In court they are betting that they will be treated as holders in due course and not as simply holders either with or without any right to enforce where they might be required to prove the actual loan of money from the originator, or the payment of money for an assignment and endorsement. And THAT is why the appellate court is assuming that the loan actually occurred — you, know, the loan that is underlying the execution of the note and mortgage, because the borrower didn’t know the truth.

The factual problem is that the presumptions and assumptions relied upon by the courts are in direct conflict with the real facts. The legal problem is that starting with the original loan, many cases, and always with the assignment of loan, is that somewhere in the chain (and probably at more than one point in the “chain”) there is no underlying transaction for the paper upon which the bankers rely in foreclosure.

Some OTHER transaction occurred, which is why the note is evidence of a loan that does not exist between the “lender” and the “borrower” and why the assignment is evidence of a transaction that does not exist between the assignor and assignee. The mistake being made is basic law: the courts are confusing “evidence” of a transaction with the transaction itself. In so doing they are escalating the status of the forecloser from a mere holder to a holder in due course without any actual claim or allegation of HDC status. Once that is done, the borrower is doomed.

The doom should fall on the investment bank and all the intermediaries that participated in this scheme. They left the investors with no coverage — the investors money was used in ways that were expressly prohibited by the offering, the PSA, and even the rules governing investments by stable managed funds whose risk is required to be extremely low in any investment. The investors are the involuntary lenders with no note and no mortgage.

The good news is that nearly all borrowers would be happy to execute a note and mortgage to investors who actually funded their loan or even a trust that was identified by the investors to represent them. The terms would be based upon current economic reality and would thus mitigate the damages to both the investor lenders and the borrowers. The balance, as we have already seen, lies in lawsuits for damages against the investment banks and their intermediaries demanding refunds, damages and even punitive damages. Those lawsuits are being brought by investors, borrowers, insurers, and guarantors and in some cases by counterparties to credit default swaps.

Without the execution of a real note and real mortgage, the foreclosures are fatally defective. So the bad news is that as long as the courts assume and then presume and then enter judgment for the foreclosing party, the Judge is inadvertently sealing a greater loss applied against the investor lender, removing the tax advantages of a REMIC trust, and creating another bar to liability and accountability of the investment bank who effectively has been lying and cheating its way through the system — using legal “presumptions” that are directly contrary to the facts.

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The MERS Mortgage Twilight Zone- Judges Not Afraid to Do What’s Right

GREAT POST BY MATT WEIDNER

even if the instant motion was timely, the explanations offered by plaintiff’s counsel,
in his affirmation in support of the instant motion and various documents attached to exhibit F of
the instant motion, attempting to cure the four defects explained by the Court in the prior May 2,
2008 decision and order, are so incredible, outrageous, ludicrous and disingenuous that they
should have been authored by the late Rod Serling, creator of the famous science-fiction
televison series, The Twilight Zone. Plaintiff’s counsel, Steven J. Baum, P.C., appears to be
operating in a parallel mortgage universe, unrelated to the real universe.

plaintiff’s counsel claims that the assignment is valid because Ms. Gazzo is an officer of MERS, not an agent of MERS. Putting aside Ms. Gazzo’s conflicted status as both assignor attorney and employee of assignee’s counsel, Steven J. Baum, P.C., how would the Court have known from the plain language of the September 10, 2007 assignment that the assignor, Ms. Gazzo, is an officer of MERS? She does not state in the assignment that she is an officer of MERS and the corporate resolution is not attached.

The MERS Mortgage Twilight Zone- Judges Not Afraid to Do What’s Right
Posted on July 17, 2010 by Foreclosureblues
Editor’s Note…This discusses the newly famous “Twilight Zone” decision by a judge in favor of a NY homeowner. What it would be like to be the first attorney or homeowner on your block to enter….”The Twilight Zone.”

http://foreclosureblues.wordpress.com

The MERS Mortgage Twilight Zone- Judges Not Afraid to Do What’s Right
Today, July 17, 2010, 2 hours ago | Matthew D. Weidner, Esq.

http://www.4closureFraud.org
Discussion
“The instant renewed motion is dismissed for untimeliness. Plaintiff made its renewed motion for
an order of reference 204 days late, in violation of the Court’s May 2, 2008 decision and order.
Moreover, even if the instant motion was timely, the explanations offered by plaintiff’s counsel,
in his affirmation in support of the instant motion and various documents attached to exhibit F of
the instant motion, attempting to cure the four defects explained by the Court in the prior May 2,
2008 decision and order, are so incredible, outrageous, ludicrous and disingenuous that they
should have been authored by the late Rod Serling, creator of the famous science-fiction
televison series, The Twilight Zone. Plaintiff’s counsel, Steven J. Baum, P.C., appears to be
operating in a parallel mortgage universe, unrelated to the real universe.
Rod Serling’s opening
narration, to episodes in the 1961 – 1962 season of The Twilight Zone (found at
http://www.imdb.com/title/tt005250/quotes), could have been an introduction to the arguments
presented in support of the instant motion by plaintiff’s counsel, Steven J. Baum, P.C. – “You are
[*7]traveling through another dimension, a dimension not only of sight and sound but of mind. A
journey into a wondrous land of imagination. Next stop, the Twilight Zone.”
With respect to the first issue for the renewed motion for an order of reference, the validity of the
September 10, 2007 assignment of the subject mortgage and note by MERS, as nominee for
CAMBRIDGE, to plaintiff HSBC by “Nicole Gazzo, Esq., on behalf of MERS, by Corporate
Resolution dated 7/19/07,” plaintiff’s counsel claims that the assignment is valid because Ms.
Gazzo is an officer of MERS, not an agent of MERS. Putting aside Ms. Gazzo’s conflicted status
as both assignor attorney and employee of assignee’s counsel, Steven J. Baum, P.C., how would
the Court have known from the plain language of the September 10, 2007 assignment that the
assignor, Ms. Gazzo, is an officer of MERS? She does not state in the assignment that she is an
officer of MERS and the corporate resolution is not attached.
Thus, counsel’s claim of a valid
assignment takes the Court into “another dimension” with a “journey into a wondrous land of
imagination,” the mortgage twilight zone.”

New York trial court judges Arthur Schack and Jeffrey Spinner have received international attention for their “courageous” opinions denying foreclosure to banks when the banks present absurd foreclosure cases in front of them and demand judgment.

The really absurd thing about all the attention these judges have gotten is that there isn’t anything courageous about the opinions at all. Not to diminish at all the good work of these judges and the other judges that are actually challenging the absurd standards of the foreclosure mills–because they really are acting courageously–the point is that opinions like the ones they get attention for could be written by every single circuit court judge in this state if the judges would take a deep breath, step back from their courtrooms and really think about what they are doing.

Sometimes we all need to take a step back and view our world and our work from a different perspective. I implore each of you to read the attached MERS Mortgage Twilight Zone opinion. Print this opinion out and share it with every judge you come in front of. Share the opinion with the new senior judges.

They may scoff and disregard you at first, but you’re not seeking a “kill” right there. You may not convince that judge to change his or her perspective on the spot, but I am convinced that if the judges take this opinion home and read it not in the pressured environment of their courtrooms, but in the quiet space of their homes, they will start to see absurdity playing out in their courtrooms. I’ve learned how important it is to share my work with my significant other and with folks who are not immersed in this world. Recognition is the first step. Solutions come next. Read the opinion in its entirety and think about how it applies directly to each of the cases you find yourself involved in…

Fla. Supremes Order Bar to Prosecute UPL Against Banks

Administrative Law is one of those areas that interest only academics like me. It isn’t sexy but it carries BIG teeth. Sometimes it is easier to crack the shell of the titans by an unexpected move where you win hands down and there isn’t much work to do. It’s kind of like taking down AL Capone for income tax evasion. They didn’t get him on the other crimes but he went to jail and died there.

When I was active in the practice of law, I defended many different types of individuals who were licensed by a regulatory board, including lawyers, accountants, doctors, engineers, real estate brokers etc. My eyes were opened at the tremendous amount of power these agencies wield and the devastating effect they have on licensees. It also opened my eyes to the fact that consumers had access to government help that was really there but most consumers didn’t know it.

The latest move in Florida is a simple recognition that practicing law without a license is illegal. In many states beyond fines and an injunction, it is an actual felony punishable by imprisonment. And in most states there is a PRIVATE right of action against those who practice law without a license. It is called Unauthorized Practice of Law (UPL).

Before your eyes cloud over with yet another theory, this isn’t a theory. It is a fact. And besides giving you a right of action for damages, it calls into question whether any of the documents were legally prepared and if yet another misrepresentation caused you to execute them, believing that an attorney had been involved.

What this does is fill out your argument that the entire transaction was illusory and nothing was what it seemed to be. That is what TILA, RESPA and other consumer protection laws are all about. Yes you signed the documents but that doesn’t mean the documents were properly prepared, nor does it mean that a security interest in your property was ever or could ever be perfected. Yes an obligation was created, but that doesn’t mean you owe the pretender lender. If you shop at Target, the neighborhood supermarket cannot collect the money for your purchase at Target.

But I think most importantly, as the old readers of this blog have seen before, decisions like this and the FTC settlement with BOA for $108 million bring us to a point where government is getting hip to the deficiencies at all levels of the lending process and the documentation. That means that now is the time to file appropriate grievances against anyone who carries a license or charter on loan practices that do not conform with industry standards and in particular, the rules governing the profession for which they were licensed.

Who’s licensed? Just about everyone. Mortgage brokers, real estate brokers, title agents, closing agents, trustees, lenders, originators, etc. An originator like Quicken that specifically and repeatedly told its prospective customers that it was the lender when in fact they were only brokering the money as a mortgage broker or originator has a problem. It just engaged in false and deceptive business and loan practices, but more importantly it created a “table funded” loan, which is a fancy way of not telling you the identity of your creditor and how much money everyone is making on this loan.

The best part is that if you file the grievance early enough, you won’t have to go to court because the enforcement mechanism of the agency will do the investigation, the prosecution, and the discovery for you. And if you do prosecute for damages, in most cases you will prove a claim under TILA you will get attorneys fees paid by the pretender lender or other parties against whom you have filed your grievance.




Finally, Borrowers Score Points

“The court certainly agrees that ‘mistakes happen,’ ” Judge Bohm wrote. “However, when mistakes happen not once, not twice, but repeatedly, and when actions are not taken to correct these mistakes within a reasonable period of time, the failure to right the wrong — particularly when the basis for the problem is a months-long violation of an agreed judgment — the excuse of ‘mistakes happen’ has no credence.”

Judge Bohm also punted Wells’s claim that its problems with the couple were anomalies. He cited three other federal cases — one in Florida and two in Louisiana — in which Wells improperly collected money from borrowers, applied payments inappropriately, overcharged borrowers or failed to keep accurate records. The judge imposed $11,825 in fines on Wells and required it to pay $4,544 in lawyer’s fees to the De La Fuentes.

Editor’s Note: Finally the ship is turning. Virtually every day I receive another trial court ruling or appellate decision that recognizes the fraudulent predatory practices of the nations largest financial institutions.

Whether it is fines, contempt, damages, title, striking pleadings, or just plain fury directed at these heretofore venerable institutions, one by one, Judges are starting to scrutinize what had been a ministerial clerk-like function of approving foreclosure. One by one they are seeing outright fraud — not just at the time of closing but during servicing, during foreclosure, and even during bankruptcy.

Lawyers who are making money hand over fist advocating for these institutions best be careful that their ankle-biting clients will point the finger at them and claim an “advice of counsel” defense. Law firms that have increased their profits a hundred fold by bringing document fabrication and forgery “in-house” are now up for criminal investigations, indictment, conviction and prison.

Pretender lenders who have been in a non-stop feeding frenzy for years are now seeing the walls close in around them. And the political capital they thought they had purchased on capital hill has depreciated. That is why they are concentrating their lobbying dollars on state legislatures.

At bottom is the sickening awareness that our nation’s finance companies betrayed the country and the world. This was not just fraud on the investors who bought mortgage backed securities and the homeowners who bought unworkable, incomprehensible loan products.

It was fraud upon the country and it worked. Instead of seeing the great wrong perpetrated upon 20 million homeowners and 300 million taxpayers, instead of seeing the storm and the victims for what it was, our leaders and our neighbors were convinced that the victims were to blame. That one assumption magnified the  loss and prevented a robust recovery.

Most of all it prevented justice.

Nobody would argue that a victim of fraud has rights in court. If the fraud is proven, then the object of the decision should be to restore the victims to the position they had before the fraud was committed.

Nobody would argue that if the crime was egregious against society that punitive damages, exemplary damages, compensatory damages and jail should be the punishment.

Somehow this simple proposition that we all believe in has been turned on its head through the purchasing of favors in legislatures. The last bastion left to protect the country from a continuation of fraud in the courts and a perpetuation of fraud upon innocent victims is the judiciary. They are starting to get it right. Let’s hope it stays that way.

June 11, 2010

Finally, Borrowers Score Points

By GRETCHEN MORGENSON

WHILE the wheels of justice have turned very slowly in the years since our nation’s financiers and regulators nearly cratered our economy, the Federal Trade Commission’s settlement last Monday with Countrywide Home Loans suggests that they haven’t entirely ground to a halt.

Countrywide, now a unit of Bank of America, was once led by Angelo Mozilo and was the nation’s largest mortgage lender in the glorious, pre-crisis days of the housing boom. But it was also a predatory institution, and the F.T.C., citing Countrywide’s serial abuse of troubled borrowers, extracted a $108 million fine from Bank of America last week.

That money will go back to some 200,000 customers whom Countrywide forced to pay outsized fees for foreclosure services. These included billing a borrower $300 to have a property’s lawn mowed and levying $2,500 in trustees’ fees on another borrower, when the going rate for that service was about $600.

Though Countrywide’s mortgage contracts specifically barred such practices, they served the company well by generating income during downturns when it was harder to keep making money off new mortgages. This “counter-cyclical diversification strategy,” as Countrywide called it, was designed to “extract the last dollar out of the pockets of the most desperate consumers,” said Jon Leibowitz, the F.T.C. chairman.

Mr. Leibowitz also said Countrywide made bogus claims about what homeowners owed during the resolution of bankruptcy cases and added fees to borrowers’ obligations without notice. His office’s investigation turned up cases in which Countrywide tried to collect improper fees years after a bankruptcy case was over.

In some cases, Mr. Leibowitz said, even after a distressed homeowner became up-to-date on all of his or her payments, Countrywide would start another foreclosure proceeding against the same borrower.

PRETTY shameful, all in all. But nothing new to lawyers who represent troubled borrowers. They say these kinds of abuses still occur.

“We’ve been screaming about these practices for I don’t know how many years now,” said David B. Shaev, a lawyer in New York City who represents consumers. “A lot of the fees seem like nickel-and-dime charges, but they add up to big money. The $108 million in the Countrywide case is the tip of the iceberg.”

The other dubious Countrywide actions identified by the F.T.C. — pursuing foreclosure improperly, adding fees without notice — also sound familiar to consumer lawyers across the country.

Consider a recent federal bankruptcy case in Houston involving Wells Fargo. The facts of the case were outlined last month in a harsh contempt ruling against the bank by Judge Jeff Bohm.

Back in 2003, Antoinette and Lenord De La Fuente filed for bankruptcy protection after they fell behind on their Washington Mutual mortgage. Court filings show they proposed a restructuring plan that called for 60 monthly payments to the bankruptcy trustee, who would in turn distribute the money to their creditors. The bankruptcy court agreed to the couple’s plan in June 2004.

The couple dutifully made their payments. Wells Fargo took over their loan in June 2007 and the next January sent the couple a letter accusing them of being delinquent by $8,400. Wells told them that they had until mid-February to come up with the money or the bank would start foreclosure proceedings.

The court documents show that the borrowers tried unsuccessfully to argue that Wells was wrong. But Wells refused to back down; afraid they would lose their home, the couple struck a forbearance agreement and received a loan modification in April 2008.

This loan modification violated the borrowers’ repayment plan. “Wells Fargo frightened the De La Fuentes into making payments to Wells Fargo in violation of the confirmation order,” Judge Bohm wrote.

In June 2008, the couple hired a lawyer to investigate the dispute with Wells; they filed a lawsuit against the bank that August. About a year later, Wells offered to settle with the couple. In a court-approved settlement, Wells stated that the couple were indeed current on their $66,572 mortgage and owed no outstanding fees or charges. Wells agreed to pay the couple about $30,000 for their legal fees.

With that, the couple thought their problem with Wells had been solved.

But in November 2009, Wells told them their mortgage balance had mysteriously increased to almost $71,000, even though they had made all of their payments. Two months later, Mrs. De La Fuente noticed that Wells had reversed several of the mortgage payments she and her husband had made. When she asked Wells why, she was told her loan was in bankruptcy status; if she wanted to resolve the problem, she would have to pay almost $9,000. Late fees were also accruing.

The couple and their lawyer went back to court and accused Wells of violating the settlement agreement. After hearing testimony, the court agreed. It also didn’t buy the argument of Wells that errors, including a computer glitch, caused the couple’s problems.

“The court certainly agrees that ‘mistakes happen,’ ” Judge Bohm wrote. “However, when mistakes happen not once, not twice, but repeatedly, and when actions are not taken to correct these mistakes within a reasonable period of time, the failure to right the wrong — particularly when the basis for the problem is a months-long violation of an agreed judgment — the excuse of ‘mistakes happen’ has no credence.”

Judge Bohm also punted Wells’s claim that its problems with the couple were anomalies. He cited three other federal cases — one in Florida and two in Louisiana — in which Wells improperly collected money from borrowers, applied payments inappropriately, overcharged borrowers or failed to keep accurate records. The judge imposed $11,825 in fines on Wells and required it to pay $4,544 in lawyer’s fees to the De La Fuentes.

Teri Schrettenbrunner, a Wells Fargo spokeswoman, said, “There is no doubt here that we didn’t handle this case well, but it is rare that you see a confluence of this many errors coming together as you did on this case.”

She contended that a vast majority of Wells’s mortgage customers are satisfied with it and that its operations are nothing like Countrywide’s. “There are significant contrasts between the way Countrywide did business and the way we do business,” she said.

NEVERTHELESS, for imperiled borrowers, the new scrutiny on foreclosure practices is long overdue. Thankfully, the United States Trustee, the Department of Justice unit that oversees the nation’s bankruptcy courts, is also investigating possible improprieties among lenders, mortgage servicers and the law firms that represent them in bankruptcy cases against homeowners. The trustee’s office assisted the F.T.C. in the Countrywide matter.

It’s a slow process, to be sure. But at least it is proceeding.

More Investors Are Suing Chase: Cheer them on!

Submitted by Beth Findsen, Esq. in Scottsdale, Az

Investors-suing-Chase-includes-list-of-mortgage-backed-securities-various-originators-like-New-Century-WAMU-Wells-Fargo-ResMae-Greenpoint-Coun

One of the many things I find interesting in this lawsuit is that FINALLY the pretender lenders are at least being referred to as originators and not banks, lenders or any of the other things that had most people believing.

Here too investors sue the rating agencies, Moody’s, S&P, Fitch paving the way for borrowers to make virtually the same allegations against the appraisers and the pretender lender who hired the appraiser.

The only thing left for the investors is to realize that the only way they are actually going to mitigate losses is by creating an entity that negotiates modifications directly with borrowers. Otherwise these intermediaries in the securitization chain are going to continue cleaning their clocks.


Here are some morsels you too might find interesting

7. The true facts that were misstated in or omitted from the Offering Documents
include:
(1) The Originators systematically disregarded their stated underwriting
standards when issuing loans to borrowers;
(2) The underlying mortgages were based on appraisals that overstated the
value of the underlying properties and understated the loan-to-value ratios
of the Mortgage Loans;
(3) The Certificates’ credit enhancement features were insufficient to protect
Certificate holders from losses because the underwriting deficiencies
rendered the Mortgage Loans far less valuable than disclosed and the
credit enhancement features were primarily the product of the Rating
Agencies’ outdated models. As such, the level of credit enhancement
necessary for the Certificates’ risk to correspond to the pre-determined
credit ratings was far less than necessary; and
(4) The Rating Agencies employed outdated assumptions, relaxed ratings
criteria, and relied on inaccurate loan information when rating the
Certificates. S&P’s models had not been materially updated since 1999
and Moody’s models had not been materially updated since 2002. These
outdated models failed to account for the drastic changes in the type of
loans backing the Certificates and the Originators’ systemic disregard for their underwriting standards. Furthermore, the Rating Agencies had conflicts of interest when rating the Certificates.
8. As a result, Lead Plaintiff and the Class purchased Certificates that were backed by collateral (i.e., the Mortgage Loans) that was much less valuable and which posed greater risk of default than represented, were not of the “best quality” and were not equivalent to other investments with the same credit ratings. Contrary to representations in the Offering Documents, the Certificates exposed purchasers to increased risk with respect to delinquencies, foreclosures and other forms of default on the Mortgage Loans.

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