Problems with Lehman and Aurora

Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.


I keep receiving the same question from multiple sources about the loans “originated” by Lehman, MERS involvement, and Aurora. Here is my short answer:

Yes it means that technically the mortgage and note went in two different directions. BUT in nearly all courts of law the Judge overlooks this problem despite clear law to the contrary in Florida Statutes adopting the UCC.

The stamped endorsement at closing indicates that the loan was pre-sold to Lehman in an Assignment and Assumption Agreement (AAA)— which is basically a contract that violates public policy. It violates public policy because it withholds the name of the lender — a basic disclosure contained in the Truth in Lending Act in order to make certain that the borrower knows with whom he is expected to do business.

Choice of lender is one of the fundamental requirements of TILA. For the past 20 years virtually everyone in the “lending chain” violated this basic principal of public policy and law. That includes originators, MERS, mortgage brokers, closing agents (to the extent they were actually aware of the switch), Trusts, Trustees, Master Servicers (were in most cases the underwriter of the nonexistent “Trust”) et al.
The AAA also requires withholding the name of the conduit (Lehman). This means it was a table funded loan on steroids. That is ruled as a matter of law to be “predatory per se” by Reg Z.  It allows Lehman, as a conduit, to immediately receive “ownership” of the note and mortgage (or its designated nominee/agent MERS).

Lehman was using funds from investors to fund the loan — a direct violation of (a) what they told investors, who thought their money was going into a trust for management and (b) what they told the court, was that they were the lender. In other words the funding of the loan is the point in time when Lehman converted (stole) the funds of the investors.

Knowing Lehman practices at the time, it is virtually certain that the loan was immediately subject to CLAIMS of securitization. The hidden problem is that the claims from the REMIC Trust were not true. The trust having never been funded, never purchased the loan.


The second hidden problem is that the Lehman bankruptcy would have put the loan into the bankruptcy estate. So regardless of whether the loan was already “sold” into the secondary market for securitization or “transferred” to a REMIC trust or it was in fact owned by Lehman after the bankruptcy, there can be no valid document or instrument executed by Lehman after that time (either the date of “closing” or the date of bankruptcy, 2008).


The reason is simple — Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.


The problems are further compounded by the fact that the “servicer” (Aurora) now claims alternatively that it is either the owner or servicer of the loan or both. Aurora was basically a controlled entity of Lehman.

It is impossible to fund a trust that claims the loan because that “reporting” process was controlled by Lehman and then Aurora.


So they could say whatever they wanted to MERS and to the world. At one time there probably was a trust named as owner of the loan but that data has long since been erased unless it can be recovered from the MERS archives.


Now we have an emerging further complicating issue. Fannie claims it owns the loan, also a claim that is untrue like all the other claims. Fannie is not a lender. Fannie acts a guarantor or Master trustee of REMIC Trusts. It generally uses the mortgage bonds issued by the REMIC trust to “purchase” the loans. But those bonds were worthless because the Trust never received the proceeds of sale of the mortgage bonds to investors. Thus it had no ability to purchase loan because it had no money, business or other assets.

But in 2008-2009 the government funded the cash purchase of the loans by Fannie and Freddie while the Federal Reserve outright paid cash for the mortgage bonds, which they purchased from the banks.

The problem with that scenario is that the banks did not own the loans and did not own the bonds. Yet the banks were the “sellers.” So my conclusion is that the emergence of Fannie is just one more layer of confusion being added to an already convoluted scheme and the Judge will be looking for a way to “simplify” it thus raising the danger that the Judge will ignore the parts of the chain that are clearly broken.

Bottom Line: it was the investors funds that were used to fund loans — but only part of the investors funds went to loans. The rest went into the pocket of the underwriter (investment bank) as was recorded either as fees or “trading profits” from a trading desk that was performing nonexistent sales to nonexistent trusts of nonexistent loan contracts.

The essential legal problem is this: the investors involuntarily made loans without representation at closing. Hence no loan contract was ever formed to protect them. The parties in between were all acting as though the loan contract existed and reflected the intent of both the borrower and the “lender” investors.

The solution is for investors to fire the intermediaries and create their own and then approach the borrowers who in most cases would be happy to execute a real mortgage and note. This would fix the amount of damages to be recovered from the investment bankers. And it would stop the hemorrhaging of value from what should be (but isn’t) a secured asset. And of course it would end the foreclosure nightmare where those intermediaries are stealing both the debt and the property of others with whom thye have no contract.

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Hunter vs Aurora: Fla 1st DCA Business Records Gets Tougher

Show me any other period in American history where banks lost so many cases. to schedule, leave message or make payments.




The heat on the banks has been steadily increasing for the last three years and has increased at an increasing rate during the past 18 months. More and more banks are losing in what the bank lawyers call a “Simple, standard foreclosure action.” Show me any other period in American history where banks lost so many cases. There is obviously nothing simple and nothing standard about these foreclosures that have caused ruination of some 25 million people living in around 9 million homes.

If things were simple, we wouldn’t be looking at musical chairs in servicing, plaintiffs and “holders.” If things were standard, the creditor would come forth with clear proof that it paid for this loan. Nobody I know has EVER seen that. I have written about why. Suffice it to say, if there was a real creditor who could come forward and end the argument, they would have done so.

Two years ago the Hunter case was decided. The court was presented with a panoply of the usual smoke and mirrors. The court took on the issue of the business records exception as a guide to the trial judges in the 1st District and to the trial lawyers who defend homeowners in foreclosure. This is a sample of the part of the analysis we do. Here are some quotes and comments from the case:

Aurora alleged in its “Complaint to Foreclose Mortgage and to Enforce Lost Loan Documents” that it owned and held the promissory note and the mortgage, [note that the allegation is never made that Aurora was the owner of the debt or was the lender. Why not? Who is the actual creditor?]
original owner of the note and mortgage was MortgageIT, and that MortgageIT subsequently assigned both to Aurora. A letter dated January 27, 2007, from Aurora to Mr. Hunter entitled, “Notice of Assignment, Sale, or Transfer of Servicing Rights,” directed him to remit mortgage payments to Aurora beginning February 1, 2007. The “Corporate Assignment of Mortgage” executed on June 11, 2007, and recorded on January 8, 2008, showed MortgageIT as the assignor and Aurora as the assignee. [MortgageIT was a thinly capitalized originator/ broker who could not have made all the loans it originated. Hence the presumption should be that it didn’t loan money to Hunter. Logically it follows that it never owned the debt and should not have had its name on the note or the mortgage. Nor did the source of funds ever convey ownership to MortgageIT. So what value or validity is there in looking at an assignment or endorsement or even delivery from Mortgage IT? And given that behavior (see below) do we not have circumstances in which the paperwork is suspect? Should that be enough to withhold the statutory presumptions attendant to “holding” a note?]
To establish that it held and had the right to enforce the note as of April 3, 2007, Aurora sought to put in evidence certain computer-generated records: one, a printout entitled “Account Balance Report” dated “1/30/2007,” indicating Mr. Hunter’s loan was sold to Lehman Brothers—of which Aurora is a subsidiary and for which Aurora services loans—and payment in full was received on “12/20/2006;” the second, a “consolidated notes log” printout dated “7/18/2007” indicating the physical note and mortgage were sent—it is not readily clear to whom—via two-day UPS on April 18, 2007. Neither document reflects that it was generated by MortgageIT. -[Interesting that Aurora is identified as a subsidiary of Lehman who was in bankruptcy in October of 2008. Aurora usually represents itself as a stand-alone company which is obviously not true. Equally obvious (see discussion above) is that the reason why Mortgage IT was not identified on the printout is that it had nothing to do with the actual loan money — neither payment of the loan as a lender nor payment for the loan from the homeowner. Mortgage IT, for all intents and purposes, in the real world, was never part of this deal.]

Section 90.803(6) provides one such exception for business records, if the necessary foundation is established:

A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinion, or diagnosis, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity and if it was the regular practice of that business activity to make such memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, or as shown by a certification or declaration that complies with paragraph (c) and s. 90.902(11), unless the sources of information or other circumstances show lack of trustworthiness. (e.s.) – [THIS is the point of my article. Under current circumstances both in the Hunter case and in the public domain the court should have considered the fact that the parties were well known to have fabricated, forged and otherwise misrepresented documents, together with outright lying about the existence of underlying transactions that would track the paperwork upon which courts have heaping one presumption after another. My argument is that Aurora should not have been given the benefit of the doubt (i.e. a presumption) but rather should have been required to prove each part of its case. My further argument is that virtually none of the foreclosure cases should allow for presumptions in evidence after the massive and continuing settlements for fraud relating to these residential mortgages. If this doesn’t show lack of trustworthiness, then what would?]

— If you want this kind of analysis done on your case —
See a description of our services  click here:

Aurora Home Loan (Dissolved –now DLJ Mortgage) Goes Down in Flames

Fur further information please call 954-495-9867 or 520-405-1688


The only thing I would add to this is that Aurora was never real — it was a sham corporation to continue the illusion of ownership and rights to enforce unenforceable mortgages that were fraudulently created and where ownership was fraudulently created by self serving documents. The purpose of Aurora was the same as what Chase did — create a vehicle by which ownership of loans or rights to enforce are claimed to exist even when they don/t Aurora was a creature of the now bankrupt Lehman Brothers. It is interesting that Aurora Loan Services is now DLJ Mortgage which matches with an old name on Wall Street — Donaldson, Lufkin and Jenrette — another investment bank that was active in “securitization.” So we have gone from Bankrupt Lehman to DLJ who was a player all along.


March 5, 2015

Court of Appeals Case No. 32A04-1403-MF-104

Appeal from the Hendricks Superior Court
The Honorable Matthew G. Hanson,
Special Judge
Cause No. 32D05-1109-MF-522

On July 31, 2009, Plunkitt and Imbody filed a joint Indiana Trial Rule 12(B)(6) motion to dismiss, arguing that Aurora could not enforce the note unless it showed that it was in possession of the original note. On the date of the hearingon the motion to dismiss, Aurora produced the original note, unendorsed, with no allonges attached to it. At the hearing, Aurora requested and received additional time to respond to the motion to dismiss. Three months later, in October 2009, Aurora filed its response to the Defendants’ motion to dismiss. To its response, it attached for the first time an “Allonge to Note” which purported to show that CIT had endorsed the note to Aurora. Appellant’s App. pg. 114. Aurora also argued, as an alternative theory, that it was entitled to enforce the note as a non-holder transferee pursuant to Uniform Commercial Code (“U.C.C.”) section 3-301(2), codified at Indiana Code sections 26-1-3.1- 301(2).
Plunkitt and Imbody filed a motion to strike the purported allonge and Aurora’s new theory of recovery, emphasizing that the undated allonge had not been produced or even mentioned during the nearly two years of litigation of the matter and that Aurora’s alternative theory of recovery was outside the scope of the pleadings. The trial court agreed with the Defendants and struck the allonge and the alternate transferee argument. The court then granted the Defendants’ motion to dismiss, noting that “striking having occurred, evidence that [Aurora] is the holder of the Note that is the basis of litigation in the within cause is totally lacking.” Appellant’s App. p. 126. Aurora moved to file a second amended complaint, and the trial court denied the motion. Aurora did not appeal the dismissal of its November 7, 2007 complaint.

In September 2011, nearly two years after the trial court granted the Defendants’ motion to dismiss in the first cause of action (“Aurora I”), Aurora filed another complaint under a separate cause number in the same superior Court.The complaint sought to enforce the note pursuant to Indiana Codesection 26-1-3.1-301 and alleged the same or substantially similar facts as the complaint filed in Aurora I. To the complaint, Aurora attached both the allonge stricken by the trial court in Aurora I and a second allonge, which purported to contain a blank endorsement of the note by Aurora. On November 1, 2011, Plunkitt and Imbody filed a motion for a more definite statement, noting that Aurora failed to state under which legal basis in Uniform Commercial Code section 301 it sought to enforce the note. Aurora amended its complaint on December 7, 2011, asserting that it was the note’s holder pursuant to U.C.C. section 301(1), codified at Indiana Code section 26-1-3.1-301(1). On January 12, 2012, Plunkitt and Imbody filed a joint motion to strike both allonges and to dismiss the case pursuant to Trial Rule 12(B)(6), Trial Rule 12(B)(8), and principles of res judicata. The trial court held a hearing on the Defendants’ motion to dismiss on December 5, 2013. At the hearing, counsel or Aurora informed the trial court that Aurora Loan Services had been dissolved and noted that it had filed a motion to substitute DLJ Mortgage in Aurora’s place as plaintiff.
The trial court held Aurora’s motion to substitute plaintiff in abeyance pending the court’s ruling on the Defendants’ motion to strike and motion to dismiss. On December 9, 2013, based in part on the  Aurora I court’s order regarding the purported allonge, the trial court granted the Defendants’ motion to strike the allonges and dismissed the complaint pursuant to 12(B)(6), finding that “Aurora is still not a party with any provable right to proceed against the Defendant.” Appellant’s App. p. 20. The trial court denied the Defendants’ motion to dismiss pursuant to 12(B)(8) and principles of res judicata, noting that “the issue of whether default has occurred is still a matter that can be heard, but must be pursued by a correct Plaintiff” and that “the prior matter that was dismissed was done so based on the fact that the [Aurora] could not prove that they had a right back then any more than they can prove they have a right now.” Appellant’s App. p. 21.
Aurora filed a motion to correct error on January 9, 2014. In its motion, Aurora argued that the trial court failed to apply the proper standard when striking the two allonges and in determining that Aurora was not entitled to enforce the note and that the trial court should have converted the Defendants’ motion to dismiss to a motion for summary judgment. Aurora also requested leave to file a second amended complaint to assert an alternative theory of recovery based on Indiana Code section 26-1-3.1-301(2) and -301(3). The trial court denied Aurora’s request for leave to file a second amended complaint and denied Aurora’s motion to correct error.
For all of these reasons, we conclude that the trial court did not abuse its discretion in striking two allonges submitted by Aurora with its complaint and did not err in denying Aurora’s motion for leave to amend its complaint. The trial court did err in failing to convert the Defendants’ motion to dismiss to a motion for summary judgment, but because Aurora was provided a unique and ample opportunity to rebut the Defendants’ arguments over the course of two cases involving the same facts, this error was harmless.

MERS Assignments VOID

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While there are a number of cases that discuss the role of Mortgage Electronic Registration Systems (MERS), this tells the story in the shortest amount of time. MERS was only a nominee to track the off-record claims from multiple parties participating in what we call the securitization of loans. It now appears that the securitization in most cases never took place but the banks and their affiliates are foreclosing in the name of REMIC trusts anyway, relying on “presumptions” to “prove” that the Trust actually purchased and took possession of the alleged loan. In every case I know of  where the homeowner was allowed to probe deeply into the issues of whether the Trust actually received the loan, it has either been determined that the Trust didn’t own the loan, or the case was settled before the court could announce that ruling.

Decided in April of last year, this case slams Aurora, who was and remains one of the worst offenders in the category of fraudulent foreclosures. The Court decided that since the basis of the claim was an assignment from MERS who had no interest int he debt, note or mortgage, there were no “successors.” This logic is irrefutable. And as regular readers know from reading this blog I believe the same logic applies to any other party who has no interest in the debt, note or mortgage — like an unfunded “originator” whose name appears on not only the Mortgage, like MERS, but also on the note.

Judges have trouble with that analysis because in their minds they think the homeowner is trying to get a free house. Even if that were true, it doesn’t change the correct application of law. But the opposite is true. The homeowner is trying to stop the foreclosing party from getting a free house and the homeowner is trying  to find his creditor. I actually had a judge yesterday rule that the source of funds, ownership and balance was essentially irrelevant. Discovery on nearly all issues was blocked by his ruling, leaving the trial to be a very short affair since the defenses have been eliminated by that Judge by express ruling.

The attorney representing the bank basically argued that the case was simple and that anything that happened prior to the alleged default was also irrelevant. The Judge agreed. So when a trial judge makes such rulings, he or she is basically narrowing the issue down to when we were just starting out in 2007 in what I call the dark ages. The trial becomes mostly clerical in which the only relevant issues are whether the homeowner received a loan and whether the homeowner stopped paying. All other issues are treated as irrelevant defenses, including the behavior of the “servicer” whose authority cannot be questioned (because of the presumption raised by an apparently facially valid instrument of virtually ANY sort).

The moral of the story is persistence and appeal. I believe that such rulings are reversible potentially even as interlocutory appeals as to affirmative defenses and discovery. If anyone files a lawsuit they should be required to answer all potential questions about that that lawsuit in good faith. That is what discovery is for. The strategy of moving to strike affirmative defenses is meant to cut off discovery to the point where no defenses can be raised or proven. And cutting off discovery is what the foreclosers need to do or they will face sanctions, charges of fraud, perjury and worse when the real facts are revealed.

BOFA-Aurora Appraisal Fraud $1.8Million Lawsuit Filed in New York for One Homeowner


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

Use this form under the heading “Best Practices” — Excellent in every respect. Hats off to Ivan Young of the Young Law Group in Bohemia, New York. I say the Defendants have a collective exposure of several million dollars. If I can find one lawyer that writes a complaint for identity theft on a client like this, we will have completed our forms library. They never could have done this without falsely inflated appraisals, falsely inflated ratings and without stealing the identity of credit worthy borrowers.

Appraisal Fraud Newby- Complaint 12302011

Talk about a lawyer who gets it!! These lawyers all get it and they are after the the biggest players, weaving together the fraud and the participants in the fraud in an artful way that will in my opinion easily get past a motion to dismiss. My only regret is that these lawyers are so good at  pleading and most likely so good at discovery that the case will settle before we get much more out of this case. I am fairly certain that these lawyers were probably threatened with all sorts of consequences if they file the suit. This lawsuit says “Bring it on!”

Here are the things I like about this lawsuit:

  1. It puts appraisal fraud front and center in the complaint. Nothing timid about this.
  2. The Defendants include everyone in the securitization chain including, counter-intuitively but factually correct, the Aurora Lehman Nexus with BOA and Countrywide.
  3. The point is that but for the appraisal fraud none of these players would have played the game at all, and this is clear from the complaint.
  4. BOA “expected or should reasonably have expected its acts and business activities to have consequences within the State of New York, County of Nassau.”
  5. Paragraph 7 correctly states the interrelationship between BOA and the CW companies.
  6. Nailing the appraiser for failing to register in the State to do business. Could lead to blocking the appraiser from filing any defense.
  7. Names the individual appraisers as Defendants — the only way to have someone on the hook who can flip on the other defendants and admit the wrongdoing.
  8. The lawyer figured out the relationships between the different appraisers and appraisal companies before he filed the suit. So when they come in trying to play the shell game they will end up with dirt all over themselves.
  9. The lawyer figured out the interrelationships between the appraiser, the title agents, the title agent etc. before he filed the suit.
  10. The lawyer nails the facts on appraisal fraud. Then traces step by step how the value was inflated.
  11. The allegations weave in violations of TILA and RESPA seamlessly so that the facts speak for themselves without interpretation required.
  12. The clear language of the complaint details the manner in which the Plaintiff was duped and the manner in which the plaintiff was financially damaged in money and credit standing.
  13. “Countrywide fully knew that the loan was based upon a completely bogus appraised value” and “immediately sold, transferred or assigned Plaintiff’s’ first mortgage to Aurora Bank, F.S>B. a/k/a Aurora MSF Lehman.”
  14. RICO, instead of looking like it is out of the blue or a stretch, is an obvious next step, and the lawyer takes it with ease.



COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

Borrowers beware: your assumption that you are in default is based upon the fact that YOU didn’t make a payment. But you can only be in default if that payment was due. The payment cannot be due if the creditor has been satisfied in whole or in part by the various means by which these Bankers diverted money from the investors into their own pockets. You should be very concerned about that — because that money sitting in the pockets of Bankers is actually money that should be applied against the balance due on your “loan.” After all you paid for it with your own money in the form of taxes, payments to the servicer and the value of your signature and identity without which the mortgage bonds could never have been sold to investors.” Neil Garfield

EDITOR’S NOTE: I picked this up from the comments. It’s very good and helps describe some of the inner workings of how this crisis manifested as a grueling indictment of Wall Street and government laissez-faire, while the system played with our money, our future and the quality of our lives.

The one thing that keeps bothering me about the Lehman Brothers situation is that Lehman is in Bankruptcy while Aurora is not. But Aurora is essentially an arm of Lehman, and it is a mere servicer that is asserting rights of ownership over loans in direct derogation of the rights of (1) investors who put up the money and (b) borrowers who are trying to modify or settle the claims relating to their loan or  the title on their property. By what right is Aurora operating outside the scrutiny of the Bankruptcy Court in New York that is unraveling the Lehman puzzle?

I am aware of motions filed with respect to this issue but I am unaware of any resolution of those motions. It seems that the Bankruptcy Court is being used as yet another layer to keep investors from understanding or even knowing the facts about their investments. The goal is obviously  to deplete the apparent equity in the homes down to zero, which is why housing prices are going down. It is no mystery. The lower the housing prices, the easier it is to eat up the equity with fees that are uncontrollable.

Thus the Banks have a vested interest in keeping the housing market in a downward spiral just as they had a vested interest in keeping it in an upward spiral when they were soliciting unsophisticated borrowers and investors to buy into this game. I might add that  Alan Greenspan himself said in a television interview that he and a 100 other highly respected PhD economists looked at these financial products and were unable to decipher them.

Thus the effort by Wall Street to create asymmetry of information succeeded, which is all they needed to make the investors rely on the investment banks for the value of their investment and make the borrowers rely on them (through fraudulent inflated appraisals) for the value of their signature on paper that was in truth only part of the scheme of issuance of unregistered fraudulent securities. The fraud continues because the government regulators still don’t understand that the Banks are controlling the modification process, that they are producing scant modifications that fail anyway, just to pacify the government, and not to create an actual steady flow of modifications.

The Banks want the property, and then, using the valuation factors that were buried in the prospectus and pooling and services agreement, they are in the position of declaring a total loss  for the investors, while the Banks diverted money and assets that were due to the investors. This is really very simple. If the Banks wanted to settle the claims on the mortgages and foreclosures, they would have done so. They have the power, the infrastructure and the money to do it. They are not doing it because they are creating the appearance of a total loss while they line their pockets with investors money — money that should be paid to or credited to the investor.

If the investor actually received the money or was the recipient of a credit for the money pocketed by the Banks, then the amount due to the creditor would be reduced. This is turn would reduce the obligation due to the investor — an obligation that supposedly derives in large part from borrowers who thought they were entering into conventional loans but were in fact issuing paper that was traded without regulation or accountability. Thus all or part of the money that went into the pockets of the Banks is actually a credit against the obligation due to the ivnestor, a fact well known to investors and which is causing them to sue, the SEC to bring enforcement actions and other administrative actions to take a variety of actions, all leading presumably to criminal prosecutions.

The fact that is getting lost in all this is that if the obligation is reduced, then the amount claimed as due from the borrower is correspondingly reduced. The borrowers’ obligations may have been reduced to zero but in virtually all cases, it has been substantially reduced IN FACT, but applied IN LAW — i.e., the Notice of Default is wrong in every case as is the the notice of sale, the judgments entered, and the bogus auction that takes place in which title goes not to the investors or for the benefit of the investors but to the Banks who were using the money of the investors and thus had no loss.

In many cases the balance, unknown to the homeowner, was reduced to zero long before they were even notified that action was taken being against them for failing to pay — but what they failed to pay was a payment that was not due. IN fact, the diverted funds sitting in the pockets of the Bankers, is equal to far more than any group of so-called defaulted loans — and it is looking like far more than any group of loans that were funded during this period. That being the case, it is easy to see why the economy is anemic — the bankers have sucked out all the blood and as the body tries to cover they keeping taking that too.

Borrowers beware: your assumption that you are in default is based upon the fact that YOU didn’t make a payment. But you can only be in default if that payment was due. The payment cannot be due if the creditor has been satisfied in whole or in part by the various means by which these Bankers diverted money from the investors into their own pockets. You should be very concerned about that — because that money sitting in the pockets of Bankers is actually money that should be applied against the balance due on your “loan.” After all you paid for it with your own money in the form of taxes, payments to the servicer and the value of your signature and identity without which the mortgage bonds could never have been sold to investors.

Submitted on 2011/10/19 at 11:47 pm by Esther 9

I was watchng Cnbc around 1AM: it was about the repackagind of CDO’s and the great export they are, also stated that the issue in the mortgage origination and Kyle Vance who note the historic crash we are undergoing now …. I guess there are transcripts, set the stage from beginning to where we are now on Wall Street

Also, following in researchng HSBC:

How maths killed Lehman Brothers
by Horatio Boedihardjo
Submitted by plusadmin on June 1, 2009
• credit crunch
• finance
• financial mathematics
• financial modelling
• Plus new writers award 2009

This article is the winner in the university category of the Plus new writers award 2009.
On a sunny morning in 2001, a piece of investment plan landed on the desk of Dick Fuld, the then Chief Executive of Lehman Brothers. The document, compiled by a team of maths and physics PhDs, included a calculation to show how the bank will always end up with a profit if they invest on the real estate markets. Fuld was impressed. The next five years saw the bank borrowing billions of dollars to invest in the housing market. It worked. The housing market boom had turned Lehman Brothers from a modest firm into the world’s fourth largest investment bank.

The Lehman Brothers headquarters, Rockefeller Center, New York, before the collapse. Image: David Shankbone.
But as the housing market started to shrink, the assumptions that the PhDs made began to break down one by one. The investment now became a mistake, resulting in a stunning loss of $613 billion. On September 15 2008 Lehman Brothers collapsed — “The largest bankruptcy in the US history,” as described by Wikipedia.
The money making model
Imagine that you are working for Lehman Brothers and one morning you receive a phone call from HSBC.
“Hi! A hundred customers have each borrowed $1 million from us for a year. We would like to buy an insurance from you which will cover us in the case of any of them defaulting. From their application forms we reckon they each have a 3% chance of default. How much will the insurance cost?”
You can in fact calculate it, easily. The 100 customers each have a 3% chance of defaulting, so you expect three customers to default next year. That is, you will need to pay $3 million next year. Assuming the interest rate is about 3% each year, next year’s $3 million would be worth 3/(3/100+1)=3/1.03=2.91 million now.
Therefore HSBC will have to pay you at least $2.91 million for the insurance. Obviously Lehman Brothers wasn’t a charity and so, to make money, they would double the price to $5.82 million and expect to make $2.91 million out of each of these deals on average. This kind of insurance is called a credit default swap (CDS).
The legendary CDO
After putting down the phone, you might be quite worried about what would happen if ten of the borrowers defaulted, because then you would have to pay $10 million back! In this case, consider this deal: how about paying me a certain premium, and if more than ten defaults occur, you will only need to pay for ten of them and I will pay for the rest. If less than ten defaults occur, you will have to pay for all the defaults and I won’t pay anything. The type of deal that I am offering is called the senior tranche of a collateralised debt obligation (CDO) contract, while the one you are getting is called the junior tranche of the CDO.

Looks like a safe investment? Better think twice!
The attractiveness of the senior tranche is that almost all of the time I don’t have to pay anything, just pocketing my premium. Imagine how unlikely it is to have more than ten borrowers defaulting together! Senior tranches were generally considered to be almost as safe as borrowing money from the government. Since the senior tranche offers a better return than, but seems to be just as safe as, putting the money in the bank, the investors just loved it. In 2004 there were only $157.4 billion of CDO being issued, but by 2007 the amount grew to $481.6 billion.
But don’t you find it a bit unfair that you can have something as safe as bank deposits, that offers a higher return?

The pitfalls
Yes, it is unfair! In fact, CDO is a lot riskier than bank deposits, but Lehman Brothers, like many investors, didn’t seem to know that. Let’s go back to our original model. The first source of error is that we have assumed that each investor has a 3% chance of defaulting. How do we know that? It must be from historical data. The problem is, there hasn’t been a national drop of housing price since the great depression in the 1920s, so the chance that a borrower defaults was calculated on the basis of a good period when the housing prices surged. However, the housing market crashed in 2007. Many borrowers’ properties are now worth even less than the loan they have to pay in the future, so many of them refuse to pay. To worsen the situation, 22% of these borrowers are the so-called subprime borrowers — those who had little income and had little hope of returning money. Banks were not afraid of lending money to them because even if they defaulted, the insurance would pay them back. The participation of the subprime borrowers makes lending much riskier than before.
In fact, the default probability in the US has quadrupled from the 3% as assumed in the model to 12% since 2007, making it four times riskier. This means that investors like Lehman Brothers will be hit four times harder than they have anticipated.
Actually it is worse than that. The profitability, or lack of it, of financial products more complicated than CDS and CDO may depend on the square of the default probability, rather than the probability itself. Now as the default probability rises from 0.03 to 0.12, the square of the probability increased from 0.0009 to 0.0144 — that’s an increase by a factor of 16!

The Lehman Brothers headquarters on the night of September 15, 2008. Image: Robert Scoble.
There is also a second and more subtle source of error. Whether you can make money from selling the CDO insurance for the bank depends on whether the borrowers return the money, which in turns depends on the economy. So if the economy goes down, you are a lot more likely to lose money. If you are an active investor, then you probably have invested in the stock market as well. Now if the market crashes you lose both the money invested in the stock market and in the CDO. Suppose, on the other hand, that instead of spending the money on CDO, you bet on whether Manchester United will win the European Champion League. This time in order to lose all your money you need both the market to go down and Manchester United to lose their match — this is less likely than just having the market go down. Therefore, investing on CDO is a riskier choice than betting for Manchester United. The error in our model is that we have not taken into account this extra risk due to its dependence of CDO on the market.
These two errors were sufficient to mask the risk in CDO. In fact, the errors are so serious that 27 out of 30 of the CDOs issued by Merril Lynch were downgraded from AAA (the safest investment) to “junk” when the errors were spotted.
The fall of Lehman Brothers
Lehman Brothers, unaware of the hidden risks, decided to invest big on CDO. It even had a 35 to 1 debt to equity ratio, that is, it only owned $1 out of every $36 in its bank account — the other $35 were borrowed from somewhere. This meant that a loss of just 3% of the money on its balance sheet, would have meant the loss of all the money it owned. After suffering heavy losses (more than 3% of the money in its balance) from CDO, borrowers began to lose confidence and called back the loans. As Lehman had always relied on short-term loans, its lenders were able to pull their cash back quickly. Now the bank was in trouble. It borrowed much more than it was able to return and soon found itself unable to pay back.

Cochrane: RoboSigning at Aurora

Did E.Todd Whittemore robo-sign as Officer of Aurora Loan Services LLC 10K misrepresenting who?
Aurora Loan Services not listed in Federal Reserve Repository Report
Note: Todd Whittemore no longer at Aurora Loan Financial LLC now at Digital Risk LLC
• Executive Vice President at Aurora Loan Services a Lehman Brothers Company
• Senior Vice President at Lehman Brothers
• Executive Vice President at Mortgage Project Group
• Supervisory Accountant at Resolution Trust Corporation
• __________________________________________________________________________
Leo Trautman SVP-CAO Loan Administration at Aurora Loan Services
Location Cheyenne, Wyoming Area Industry Financial Services
Overview Current
• SVP-CAO Loan Administration at Aurora Loan Services
• Vice President at Lehman Brothers Holdings Inc.
• VP Loan Administration at Lehman Brothers Bank

Aurora Loan Services, LLC originates and services prime and subprime residential mortgage loans through wholesale and correspondent channels. The company also buys mortgages originated by other mortgage bankers, banks, and credit unions. Aurora Loan Services, LLC was formerly known as Aurora Loan Services, Inc. The company was founded in 1997 and is headquartered in Littleton, Colorado. Aurora Loan Services, LLC operates as a subsidiary of Lehman Brothers Bank, FSB.

About Aurora: They call themselves ‘Aurora Loan Ser vices’
Recognize this infamous SEC-robo signer’as E. Todd Whittemore? Same person?

Todd Whittemore Former EVP of Aurora Loan
Chris Zimmerman – now VP Foreclosure & Bankruptcy at BankUnited
Past: AVP Foreclosue & Contested Default at Aurora Loan Services
Managing Paralegal at Aurora Loan Services
Default Supervisor at NPB Mortgage
Education: Judge Advocate School
Summary Results driven management executive with 10 years experience in default servicing. Strong managerial skills with a demonstrated ability to motivate staff to achieve established goals
Specialties Expertise in:

Foreclosure Timeline Management
Contested/Litigated Case Resolution
Bankruptcy Processing/Timeline Management
LPS Desktop Conversion & Process Implementation
REO Processing
FHA/VA/GSE Servicing Requirements
Team Building/Staff Training/Development
Policy & Procedure Development
Legislative & Regulatory Changes
Vendor Management & Oversight
Janet Martin Vice President Special Servicing Location Greater San Diego Area Industry Financial Services Overview Current Vice President Special Servicing at Vericrest Financial
Past Executive Consultant at Martin Consulting LLC ; Vice President Loss Mitigation at Aurora ; Vice President Loss Mitigation at Select Portfolio Servicing

Education Stringham Real Estate School Van Ed Real Estate School January 2009
Auroa Loan Services, Denver – Real Estate
Master Servicing – VP Investor Reporting Systems @ Aurora Loan Services
Past: VP Aurora Loan Services
VP – Master Servicing Operations at Aurora Loan Services
VP Servicer Balancing at Aurora Loan Services

E.Todd Whittemore – EVP – Carla Wise – SVP, Robert Simpson- EVP, James Park – Chief Appraiser and SVP Janet Martin – VP
10350 Park Meadows Drive
Littleton, CO 80124 United States
Founded in 1997 Phone:720-945-3000 Fax: 720-945-3084

Observation on Linkedin: SVP Aurora Bank FSB Indianapolis, Sr VP at Lehman Indianapolis, Sr. VP at New Century Indianapolis and the Carla Wise Portfolio Mgr at Charter One Bank OH
State of Colorado


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