Deutsch Bank on Verge of Collapse?

there is no such thing as a soft landing in a cornered marketplace

Despite claiming $52 TRILLION “notional” value in derivatives (nearly all the money in the world) DB has posted a shattering loss and according to the IMF poses the most serious systemic loss to the financial system. Reports indicate that 29 DB employees were at the root of manipulating the LIBOR index which is used as the primary index for variable rate loans. Nobody has addressed the issue of whether adjusted payments should be scrutinized even while knowing that the index was rigged.

 

see http://www.visualcapitalist.com/chart-epic-collapse-deutsche-bank/

Nothing equals nothing. The fact is that DeutschBank allowed itself to be window dressing on bogus REMIC Trusts as though the DB trust department was managing the money for investors. Other than ink on paper, the trusts did not exist and neither did any assets of the purported trusts. DB led the way as a principal party in creating the illusion of “something” when in fact there was nothing at all.

Then DB executives took highly leveraged risks in betting on the bogus mortgage bonds (and other “asset-backed” securities) issued by those bogus REMIC Trusts. Then they papered it over with all kinds of complex derivative products — all of which were based upon the nonexistent ownership of the primary asset — loans. DB claims over $52 Trillion in “value” for those derivatives as a tier 3 asset (i.e., it is worth what management says it is worth). The current leverage ratio for DB is reported at 40x, which is just 2 points lower than Bear Stearns before it toppled over. The leverage is disguised as “sales” for which DB has subsequent liability. All of this was predicted and described by Abraham Briloff  in Unaccountable Accounting published by Harper and Rowe in 1972. Nearly all of these “trades” are merely devices to kick the can down the road, covering over losses that DB would rather not admit.

This situation reminds me of a scene long ago when I was working on Wall Street as a Trainee security analyst in the research department of a medium sized brokerage firm. One of the family partners came into our research department and told us confidently that despite all rumors to the contrary there would be no layoffs in our department. I think I had another job before he returned to his office just ahead of the layoff of the entire department 2 weeks later. My intuition told me that he was lying. On Wall Street it’s not the lying that is frowned upon, it is getting caught. My experience has taught me that the bigger the entity the bigger the lies and the more serious the systemic risk to the whole of society. That was in 1968-9.

At that time the crisis was the “paper crash” — meaning that Wall Street firms had “lost track” of the location and ownership of stock and bond certificates. Now they are filing “lost note” complaints like confetti. When you send a Qualified Written Request or Debt Validation Request, you get nothing unless you are already in litigation where suddenly “original” documentation pops up.

This time it is far more serious as the fortunes of many investors, banks and other institutions rely on the value of DB stock and promises to pay. The problem in 1968-1969 was addressed by “best guesses” and converting from a system where investors received actual certificates to a system where trades were recorded privately on the books and records of the brokerage houses and investors had to rely on the statements from their broker as evidence of their asset holdings.

But the systemic problem is the same. Today it is the notes and loan documents that are lost. The conversion to using a private record of transactions sounds like MERS today. And the claim to $52 Trillion in “notional value” is pure obfuscation. The total of all real money in the world is probably under $70 Trillion. So does DB own most or all of it? I don’t think so and neither does anyone else, which is why DB is in trouble. They got caught.

The report in the link above says that DB is in full crisis mode as DB tries to escape the death spiral that took down Lehman, Bear Stearns, Merrill Lynch and others.

The importance of these events goes far beyond the significance of DB itself. DB, whose stock is selling at 8% of what it was selling at in 2007, is unfortunately only a symbol of an epic disaster that is slowly unfolding. The fundamentals have changed. Nearly all “debt” that was created over the past 15 years is fatally defective — leaving enforcement only to the good graces of judges who are willing to overlook centuries of law governing the purchase and sale of negotiable paper.

The reason for the continuing weakness in economic systems around the world is that most of the money was sucked out of those systems. The method of the banks in achieving this non-heroic status is responsible for the continuing recession that is creating so much disturbance around the world. Leaders of those countries have been sucking it up in order to create a soft landing.

But here is what we know from history — there is no such thing as a soft landing in a cornered marketplace. The banks converted our economies from 85% reliance on manufacturing and services to an economy where half of the economic activity consists of trading securities back and forth — i.e., trading the same securities over and over again. That means that actual economic activity in the production and delivery of goods and services has declined from 85% to 50% and it is still dropping. The rest is smoke and mirrors. It is the belief or entanglements with the banks that keeps us from moving on, clawing back, and restoring household wealth to the only place that will actually generate real economic activity — the middle class and lower economic tiers.

Henry Ford proved the point spectacularly about 100 years ago when he doubled the wages of his workers — to the astonishment and dismay of his competitors. It was clear to everyone but Ford that he had obviously lost his mind. Despite that clarity that everyone agreed was the true way of looking at things, Ford’s move created the middle class and thus created a stable demographic who continue to buy what he was selling. In a short time, Ford was the dominant player in the marketplace selling automobiles and the “realists” were gone.

Until the middle class is restored (i.e., it gets back the money that was distributed away from them into the hands of a handful of men who had used their positions of influence to corner the market on money), the “recovery” will continue to be smoke and mirrors, the society will be disrupted and eventually companies that do rely on people to purchase their goods and services won’t have anyone to sell them to. And creating debt to cover the shortfall doesn’t work anymore. The middle class must have a pathway to financial security, not to financial ruin.

Ocwen: Investors and Borrowers Move toward Unity of Purpose!

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

Please consult an attorney who is licensed in your jurisdiction before acting upon anything you read on this blog.

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Anyone following this blog knows that I have been saying that unity of investors and borrowers is the ultimate solution to the falsely dubbed “Foreclosure crisis” (a term that avoids Wall Street corruption). Many have asked what i have based that on and the answer was my own analysis and interviews with Wall Street insiders who have insisted on remaining anonymous. But it was only a matter of time where the creditors (investors who bought mortgage backed securities) came to realize that nobody acting in the capacity of underwriter, servicer or Master Servicer was acting in the best interests of the investors or the borrowers.

The only thing they have tentatively held back on is an outright allegation that their money was NOT used by the Trustee for the Trust and their money never made it into the Trust and that the loans never made it into the Trust. That too will come because when investors realize that homeowners are not going to walk away, investors as creditors will come to agreements to salvage far more of the debts created during the mortgage meltdown than the money salvaged by pushing cases to foreclosure instead of the centuries’ proven method of resolving troubled loans — workouts. Nearly all homeowners would execute a new clean mortgage and note in a heartbeat to give investors the benefits of a workout that reflects economic reality.

Practice hint: If you are dealing with Ocwen Discovery should include information about Altisource and Home Loan Servicing Solutions, investors, and borrowers as it relates to the subject loan.

Investors announced complaints against Ocwen for mishandling the initial money, the paperwork and the subsequent money and servicing on loans created and a acquired with their money. The investors, who are the actual creditors (albeit unsecured) are getting close to the point where they state outright what everyone already knows: there is no collateral for these loans and every disclosure statement involving nearly all the loans violated disclosure requirements under TILA, RESPA, and Federal and state regulations.
The fact that (1) the loan was not funded by the payee on the note and mortgagee on the mortgage and (2) that the money from creditors were never properly channeled through the REMIC trusts because the trusts never received the proceeds of sale of mortgage backed securities is getting closer and closer to the surface.
What was unthinkable and the subject of ridicule 8 years ago has become the REAL reality. The plain truth is that the Trust never owned the loans even as a pass through because they never had had the money to originate or acquire loans. That leaves an uncalculated unsecured debt that is being diminished every day that servicers continue to push foreclosure for the protection of the broker dealers who created worthless mortgage bonds which have been purchased by the Federal reserve under the guise of propping up the banks’ balance sheets.

“HOUSTON, January 23, 2015 – Today, the Holders of 25% Voting Rights in 119 Residential Mortgage Backed Securities Trusts (RMBS) with an original balance of more than $82 billion issued a Notice of Non-Performance (Notice) to BNY Mellon, Citibank, Deutsche Bank, HSBC, US Bank, and Wells Fargo, as Trustees, Securities Administrators, and/or Master Servicers, regarding the material failures of Ocwen Financial Corporation (Ocwen) as Servicer and/or Master Servicer, to comply with its covenants and agreements under governing Pooling and Servicing Agreements (PSAs).”
  • Use of Trust funds to “pay” Ocwen’s required “borrower relief” obligations under a regulatory settlement, through implementation of modifications on Trust- owned mortgages that have shifted the costs of the settlement to the Trusts and enriched Ocwen unjustly;
  • Employing conflicted servicing practices that enriched Ocwen’s corporate affiliates, including Altisource and Home Loan Servicing Solutions, to the detriment of the Trusts, investors, and borrowers;
  • Engaging in imprudent and wholly improper loan modification, advancing, and advance recovery practices;
  • Failure to maintain adequate records,  communicate effectively with borrowers, or comply with applicable laws, including consumer protection and foreclosure laws; and,

 

  • Failure to account for and remit accurately to the Trusts cash flows from, and amounts realized on, Trust-owned mortgages.

As a result of the imprudent and improper servicing practices alleged in the Notice, the Holders further allege that their experts’ analyses demonstrate that Trusts serviced by Ocwen have performed materially worse than Trusts serviced by other servicers.  The Holders further allege that these claimed defaults and deficiencies in Ocwen’s performance have materially affected the rights of the Holders and constitute an ongoing Event of Default under the applicable PSAs.  The Holders intend to take further action to recover these losses and protect the Trusts’ assets and mortgages.

The Notice was issued on behalf of Holders in the following Ocwen-serviced RMBS: see link The fact that the investors — who by all accounts are the real parties in interest disavow the actions of Ocwen gives rise to an issue of fact as to whether Ocwen was or is operating under the scope of services supposedly to be performed by the servicer or Master Servicer.
I would argue that the fact that the apparent real creditors are stating that Ocwen is misbehaving with respect to adequate records means that they are not entitled to the presumption of a business records exception under the hearsay rule.
The fact that the creditors are saying that servicing practices damaged not only the investors but also borrowers gives rise to a factual issue which denies Ocwen the presumption of validity on any record including the original loan documents that have been shown in many cases to have been mechanically reproduced.
The fact that the creditors are alleging imprudent and wholly improper loan modification practices, servicer advances (which are not properly credited to the account of either the creditor or the borrower), and the recovery of advances means that the creditors are saying that Ocwen was acting on its own behalf instead of the creditors. This puts Ocwen in the position of being either outside the scope of its authority or more likely simply an interloper claiming to be a servicer for trusts that were never actually used to acquire or originate loans, this negating the effect of the Pooling and Servicing Agreement.  Hence the “servicer” for the trust is NOT the servicer for the subject loan because the loan never arrived in the trust portfolio.
The fact that the creditors admit against interest that Ocwen was pursuing practices and goals that violate laws and proper procedure means that no foreclosure can be supported by “clean hands.” The underlying theme here being that contrary to centuries of practice, instead of producing workouts in which the loan is saved and thus the investment of the creditors, Ocwen pursued foreclosure which was in its interest and not the creditors. The creditors are saying they don’t want the foreclosures but Ocwen did them anyway.
The fact that the creditors are saying they didn’t get the money that was supposed to go to them means that the money received from lost sharing with FDIC, guarantees, insurance, credit default swaps that should have paid off the creditors were not paid to them and would have reduced the damage to the creditors. By reducing the amount of damages to the creditors the borrower would have owed less, making the principal amounts claimed in foreclosures all wrong. The parties who paid such amounts either have or do not have separate unsecured actions against the borrower. In most cases they have no such claim because they explicitly waived it.
This is the first time investors have even partially aligned themselves with Borrowers. I hope it will lead to a stampede, because the salvation of investors and borrowers alike requires a pincer like attack on the intermediaries who have been pretending to be the principal parties in interest but who lacked the authority from the start and violated every fiduciary duty and contractual duty in dealing with creditors and borrowers. Peal the onion: the reason that their initial money is at stake is that these servicers are either acting as Master Servicers who are actually the underwriters and sellers of the mortgage backed securities,
I would argue that the fact that the apparent real creditors are stating the Ocwen is misbehaving with respect to adequate records means that they are not entitled to the presumption of a business records exception under the hearsay rule.
The fact that the creditors are saying that servicing practices damaged not only the investors but also borrowers gives rise to a factual issue which denies Ocwen the presumption of validity on any record including the original loan documents that have been shown in many cases to have been mechanically reproduced.
The fact that the creditors are alleging imprudent and wholly improper loan modification practices, servicer advances (which are not properly credited to the account of either the creditor or the borrower), and the recovery of advances means that the creditors are saying that Ocwen was acting on tis own behalf instead of the creditors. This puts Ocwen in the position of being either outside the scope of its authority or more likely simply an interloper claiming to be a servicer for trusts that were never actually used to acquire or originate loans, this negating the effect of the Pooling and Servicing Agreement.
The fact that the creditors admit against interest that Ocwen was pursuing practices and goals that violate laws and proper procedure means that no foreclosure can be supported by “clean hands.” The underlying theme here being that contrary to centuries of practice, instead of producing workouts in which the loan is saved and thus the investment of the creditors, Ocwen pursued foreclosure which was in its interest and not the creditors. The creditors are saying they don’t want the foreclosures but Ocwen did them anyway.
The fact that the creditors are saying they didn’t get the money that was supposed to go to them means that the money received from lost sharing with FDIC, guarantees, insurance, credit default swaps that should have paid off the creditors were not paid to them and would have reduced the damage to the creditors. By reducing the amount of damages to the creditors the borrower would have owed less, making the principals claimed in foreclosures all wrong. The parties who paid such amounts either have or do not have separate unsecured actions against eh borrower. In most cases they have no such claim because they explicitly waived it.
This is the first time investors have even partially aligned themselves with Borrowers. I hope it will lead to a stampede, because the salvation of investors and borrowers alike requires a pincer like attack on the intermediaries who have been pretending to be the principal parties in interest but who lacked the authority from the start and violated every fiduciary duty and contractual duty in dealing with creditors and borrowers.

Rockwell P. Ludden, Esq. — A Lawyer who gets it on Securitization and Mortgages

see FORECLOSURE, SECURITIZATION DON’T MIX ROCKY&#39S+ARTICLE+in+the+CAPE+COD+TIMES+February+21,+2015

As I write this, I have no recall of Mr. Ludden before today. BUT his article in of all places, the Cape Cod Times, struck me as astonishing in its concise description of the illegal foreclosures that are skimming past Judges desks with hardly a look much less the usually required judicial scrutiny. He says

No one should have the legal right to take your home merely by winking and nodding their way around a significant flaw in the securitization model and whatever burrs it may leave on the industry’s saddle. …

Is there anyone with a present contractual connection to you or the loan who has actually suffered a default? If not, any… foreclosure begins to bear an uncanny resemblance to double dipping.

It is time for Judges to dust off the principle of fundamental fairness that lies at the heart of our legal system, demand a level playing field, and stand behind alternatives to foreclosure that serve the legitimate interests of homeowner and industry alike.

His article is both insightful and concise, which is more than I can say for some of the things that I have written at length. And I guess if you are in the Cape Cod area it probably would be a good idea to contact him at rpl@luddenkramerlaw.com. He pierces through layers upon layers of subterfuge by the financial industry and comes up with the right conclusion — separation not just of note and mortgage — but more importantly the separation between the note and the ultimate certificate that spells out the rights of a creditor to repayment and the rights of anonymous individuals and entities to foreclose. In securitization practice the note ceases to exist.

He correctly concludes that the assignments (and I would add endorsements and powers of attorney) are a sham, designed to conceal basic flaws in the entire securitization model. The only thing I would add is something that has not quite made it to the surface of these chaotic waters — that the money from the investors never made it into the trust — something that is perfectly consistent with ignoring the securitization model and the securitization documents.

The ‘assignment’ creates the appearance of [the] missing connection. But it is all hogwash, the only discernible purpose of which is to grease the skids for an illegal foreclosure. It is done long after the Trust has closed its doors. [referring to both the cutoff date and the fact that the trust actually does not ever get to own the debt, loan, note or mortgage]

The banks kept the money and assigned the losses to the investors. Then they bet on the losses and kept the profits from their intentionally watered down underwriting practices. Then they stole the identity of the borrowers and the investors and bought insurance that covered “losses” that were never incurred by the named insured — the Banks. The family resemblance to Ponzi scheme seems closer than mere double dipping in an infinite scheme of dipping into the funds of thousands of institutional investors and into the lives of millions of homeowners.

see also A 21st Century Trust Indenture Act?

posted by Adam Levitin

Why Are the Banks Abandoning Homes? Hundreds of Thousands of Homes Bulldozed After Foreclosure

For More Information and assistance please call 954-495-9867 or 520-405-1688

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No reasonable person would abandon this many homes after taking the trouble to foreclose on them. There is an obvious preference for foreclosure over workouts, modifications, short sales, resales, and other tools. This shows clearly that loss mitigation is not one of the factors in the minds of those who say they represent investors or REMIC trusts.

So they must have a reason to force the sale of a home other than loss mitigation. The people initiating these foreclosures and subsequent abandonment are acting against the interest of the investors who actually put up the money for the “securitization fail” that I identified and Adam Levitin named.

Thus it must be concluded that those who control the foreclosure process at the big investment banks benefit in some way other than loss mitigation. That can only mean one of two things:

  • The people making the decision make more money foreclosing than in pursuing workouts, modifications, or other settlements and/or
  • The people making the decision are using the foreclosing process to institutionalize “securitization fail” and thus avoid trillions of dollars in liability owed to the investors, insurers, guarantors, counterparties on hedge products, the borrowers and local, state and federal government.

This can only mean that the purpose of the foreclosure is not to mitigate damages to the actual lender or creditor. They don’t want performing loans even if it means that the homeowner is paying off the entire balance of the loan. And they make it difficult if not impossible to get a correct figure for a payoff.

So if the money is not the issue, and the house is not really in issue why do they pursue foreclosures, fabricate documents to do it and use robo-signers and robo witnesses to force through foreclosures on homes they will only abandon at the end of the process?

Should we not be asking whether good faith and clean hands have been established to justify the equitable remedy of forfeiture of the home?

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In South Florida news this morning, local Sheriffs are banding together to board up more than 1,000 homes in Lake Worth. In each case the home was foreclosed. In most cases, the homeowner applied for a modification and was told they could not apply until they were 90 days in arrears. In most cases, all efforts at modification were turned down under the guise that the investors refused to modify or workout the loan. That was most probably a lie. Neither the servicer nor the Trustee or other “enforcer” ever went to the investors with a single workout plan.

Continuous allegations of fraudulent foreclosures on predatory and fraudulent loans have been “settled” but not with the effected homeowners nor with local governments and homeowner associations who are deeply effected by this tragic fraud on the courts, the borrowers, the governments, and the society at large — as millions of jobs were lost and hundreds of thousands of businesses closed down as their customers were displaced from their homes (around 16 Million people directly displaced by fraudulent foreclosures thus far).

As foreclosures continue to increase in number (despite news reports to the contrary) more homeowners are being forced out of their homes, including many that were in the family for generations. The houses, now empty, lay dormant sometimes for 6 years or more before the actual “auction” sale takes place. During that time, miscreants move in creating meth labs, crack houses, safe houses for gangs etc. In the end the property is abandoned, and it leads to more foreclosures and more abandonment. Eventually entire neighborhoods are converted to ghost towns reducing the property values to zero — perfect for an intermediary who wants to cheat investors. The foreclosure sale and abandonment show the recovery at zero. Investors are even told that they should be happy that they didn’t incur further liability than their investment in the property.

In most states, effort to reclaim the homes have failed because they were stripped of the vital mechanical systems and even building materials — a new industry resulting from this process of foreclosure and abandonment. The local property taxes are unpaid for years — leading to forever where the homes are completely abandoned and demolished. But the local government is stuck with the bill because with the new construction from the false boom created by the banks they expanded infrastructure and social services (police, fire, medical etc.).

Meanwhile the same local government is being told that their investment in mortgage bonds have produced losses. So they are stuck with the double whammy of non-payment of property and other taxes plus a direct loss incurred from the “securitization fail” scheme. I believe that attorneys ought to take cases on contingency where local government files suit against the banks. The allegation should be made that not only did the banks NOT act in good faith, they acted in BAD faith because they had no right to foreclose on false papers created at the closing of a loan wherein the borrower and investors were unaware of the true nature of the transaction.

A Foreclosure Judgment and Sale is a Forced Assignment Against the Interests of Investors and For the Interests of the Bank Intermediaries

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Successfully hoodwinking a Judge into entering a Judgment of Foreclosure and forcing the sale of a homeowner’s property has the effect of transferring the loss on that loan from the securities broker and its co-venturers to the Pension Fund that gave the money to the securities broker. Up until the moment of the foreclosure, the loss will fall on the securities brokers for damages, refunds etc. Once foreclosure is entered it sets in motion a legal cascade that protects the securities broker from further claims for fraud against the investors, insurers, and guarantors.

The securities broker was thought to be turning over the proceeds to the Trust which issued bonds in an IPO. Instead the securities broker used the money for purposes and in ways that were — according to the pleadings of the investors, the government, guarantors, and insurers — FRAUDULENT. Besides raising the issue of unclean hands, these facts eviscerate the legal enforcement of loan documents that were, according to those same parties, fraudulent, unenforceable and subject to claims for damages and punitive damages from borrowers.

There is a difference between documents that talk about a transaction and the transaction documents themselves. That is the essence of the fraud perpetrated by the banks in most of the foreclosure actions that I have reviewed. The documents that talk about a transaction are referring to a transaction that never existed. Documents that “talk about” a transaction include a note, mortgage, assignment, power of attorney etc. Documents that ARE the transaction documents include the actual evidence of actual payments like a wire transfer or canceled check and the actual evidence of delivery of the loan documents — like Fedex receipts or other form of correspondence showing that the recipient was (a) the right recipient and (b) actually received the documents.

The actual movement of the actual money and actual Transaction Documents has been shrouded in secrecy since this mortgage mess began. It is time to come clean.

THE REAL DEBT: The real debt does NOT arise unless someone gets something from someone else that is legally recognized as “value” or consideration. Upon receipt of that, the recipient now owes a duty to the party who gave that “something” to him or her. In this case, it is simple. If you give money to someone, it is presumed that a debt arises to pay it back — to the person who loaned it to you. What has happened here is that the real debt arose by operation of common law (and in some cases statutory law) when the borrower received the money or the money was used, with his consent, for his benefit. Now he owes the money back. And he owes it to the party whose money was used to fund the loan transaction — not the party on paperwork that “talks about” the transaction.

The implied ratification that is being used in the courts is wrong. The investors not only deny the validity of the loan transactions with homeowners, but they have sued the securities brokers for fraud (not just breach of contract) and they have received considerable sums of money in settlement of their claims. How those settlement effect the balance owed by the debtor is unclear — but it certainly introduces the concept that damages have been mitigated, and the predatory loan practices and appraisal fraud at closing might entitle the borrowers to a piece of those settlements — probably in the form of a credit against the amount owed.

Thus when demand is made to see the actual transaction documents, like a canceled check or wire transfer receipt, the banks fight it tooth and nail. When I represented banks and foreclosures, if the defendant challenged whether or not there was a transaction and if it was properly done, I would immediately submit the affidavits real witnesses with real knowledge of the transaction and absolute proof with a copy of a canceled check, wire transfer receipt or deposit into the borrowers account. The dispute would be over. There would be nothing to litigate.

There is no question in my mind that the banks are afraid of the question of payment and delivery. With increasing frequency, I am advised of confidential settlements where the homeowner’s attorney was relentless in pursuing the truth about the loan, the ownership (of the DEBT, not the “note” which is supposed to be ONLY evidence of the debt) and the balance. The problem is that none of the parties in the “chain” ever paid a dime (except in fees) and none of them ever received delivery of closing documents. This is corroborated by the absence of the Depositor and Custodian in the “chain”.

The plain truth is that the securities broker took money from the investor/lender and instead of of delivering the proceeds to the Trust (I.e, lending the money to the Trust), the securities broker set up an elaborate scheme of loaning the money directly to borrowers. So they diverted money from the Trust to the borrower’s closing table. Then they diverted title to the loan from the investor/lenders to a controlled entity of the securities broker.

The actual lender is left with virtually no proof of the loan. The note and mortgage is been made out in favor of an entity that was never disclosed to the investor and would never have been approved by the investor is the fund manager of the pension fund had been advised of the actual way in which the money of the pension fund had been channeled into mortgage originations and mortgage acquisitions.

Since the prospectus and the pooling and servicing agreement both rule out the right of the investors and the Trustee from inquiring into the status of the loans or the the “portfolio” (which is nonexistent),  it is a perfect storm for moral hazard.  The securities broker is left with unbridled ability to do anything it wants with the money received from the investor without the investor ever knowing what happened.

Hence the focal point for our purposes is the negligence or intentional act of the closing agent in receiving money from one actual lender who was undisclosed and then applying it to closing documents with a pretender lender who was a controlled entity of the securities broker.  So what you have here is an undisclosed lender who is involuntarily lending money directly a homeowner purchase or refinance a home. The trust is ignored  an obviously the terms of the trust are avoided and ignored. The REMIC Trust is unfunded and essentially without a trustee —  and none of the transactions contemplated in the prospectus and pooling and servicing agreement ever occurred.

The final judgment of foreclosure forces the “assignment” into a “trust” that was unfunded, didn’t have a Trustee with any real powers, and didn’t ever get delivery of the closing documents to the Depositor or Custodian. This results in forcing a bad loan into the trust, which presumably enables the broker to force the loss from the bad loans onto the investors. They also lose their REMIC status which means that the Trust is operating outside the 90 day cutoff period. So the Trust now has a taxable event instead of being treated as a conduit like a Subchapter S corporation. This creates double taxation for the investor/lenders.

The forced “purchase” of the REMIC Trust takes place without notice to the investors or the Trust as to the conflict of interest between the Servicers, securities brokers and other co-venturers. The foreclosure is pushed through even when there is a credible offer of modification from the borrower that would allow the investor to recover perhaps as much as 1000% of the amount reported as final proceeds on liquidation of the REO property.

So one of the big questions that goes unanswered as yet, is why are the investor/lenders not given notice and an opportunity to be heard when the real impact of the foreclosure only effects them and does not effect the intermediaries, whose interests are separate and apart from the debt that arose when the borrower received the money from the investor/lender?

The only parties that benefit from a foreclosure sale are the ones actively pursuing the foreclosure who of course receive fees that are disproportional to the effort, but more importantly the securities broker closes the door on potential liability for refunds, repurchases, damages to be paid from fraud claims from investors, guarantors and other parties and even punitive damages arising out of the multiple sales of the same asset to different parties.

If the current servicers were removed, since they have no actual authority anyway (The trust was ignored so the authority arising from the trust must be ignored), foreclosures would virtually end. Nearly all cases would be settled on one set of terms or another, enabling the investors to recover far more money (even though they are legally unsecured) than what the current “intermediaries” are giving them.

If this narrative gets out into the mainstream, the foreclosing parties would be screwed. It would show that they have no right to foreclosure based upon a voidable mortgage securing a void promissory note. I received many calls last week applauding the articles I wrote last week explaining the securitization process — in concept, as it was written and how it operated in the real world ignoring the REMIC Trust entity. This is an attack on any claim the forecloser makes to having the rights to enforce — which can only come from a party who does have the right to enforce.

see https://livinglies.wordpress.com/2014/09/10/securitization-for-lawyers-conflicts-between-reality-the-documents-and-the-concept/

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

For more information on foreclosure offense and defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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.

Relevance: THE FORECLOSER HAS NO RIGHT TO BE IN COURT WITHOUT THE SECURITIZATION DOCUMENTS AND RECORDS

 Courts and lawyers are continually ignoring the obvious. By zeroing in on the NOTE, they are ignoring the documents that allow the person in possession of the note to be in court. That results in elimination of critical elements of a prima facie case in which the Defendant borrower lacks the superior knowledge and resources of the Plaintiff and its co-venturers that would show the truth about his loan ownership and balance.

Premise:

Chronologically the document trail starts with the securitization documents. Without the securitization documents there is no privity or nexus between the borrowers and the lenders. Neither one of them signed the deal that the other signed. Without the Assignment and Assumption Agreement, the Prospectus and the Pooling And Servicing Agreement, the trust does not exist, the servicer has no powers, the trustee has no powers, and there is no right of representation or agency between any of those parties as it relates to either the lender investors or the homeowner borrowers.

 

The Assignment and Assumption Agreement between the originator and the aggregator sets forth all the rules and actions preceding, during and after the loan”closing”, including the underwriting by parties other than the originator and the ownership of the loan by parties other than the originator. It is a contract to violate public policy, the Federal Truth in Lending Law prohibiting table funded loans designed to withhold disclosure, and usually state deceptive and predatory lending statutes.

 

The Assignment and Assumption Agreement was an agreement to commit illegal acts that were in fact committed and which strictly governed the conduct of the originator, the closing agent, the document processing, the delivery of documents, the due diligence, the underwriting, the approval by parties other than the originator and the risk of loss on parties other than the originator. The Assignment and Assumption Agreement is essential to the Court’s knowledge of the intent and reality of the closing, intentionally withheld from the borrower at closing. It cannot be anything other than relevant in any action sought to enforce the documents produced at a loan closing that was conducted in strict adherence to the illegal Assignment and Assumption Agreement.

 

The other closing is with the investors who were accepting a proposed transaction to lend money for the origination or acquisition of loans through a trust. Those documents and records (Prospectus, Pooling and Servicing Agreement, Distribution reports, etc) provide for the creation and governance of the trust, the appointment of a trustee and the powers of the trustee, and the appointment and the powers of the Master Servicer and subservicers. Those documents also provide for there requirements of reporting and record keeping, including the physical location and custody of actual loan documents. Without those documents, there is no power or authority for the trustee, the trust, the Master Servicer, the subservicer, the Depository, the Securities Administrator the purchase of insurance, credit default swap trading, funding the origination or acquisition of loans, or collection and enforcement of loan documents. without those documents the Court cannot know what records should be kept and thus what records need to be produced to show the status of the obligation in the books and records of the creditor — regardless of whether the loan was actually securitized or just claimed to be securitized.

 

Procedure and UCC
In Judicial States, the Plaintiff is bringing suit alleging a default by the Defendant on a promissory note and for enforcement of a mortgage. The name of the payee on the note is different from the name of the Plaintiff in the lawsuit. The name of the mortgagee is different from the the name of the Plaintiff. The suit is bought by (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised.

 

In Non-Judicial States, the name of the “new” beneficiary is different from the name of the payee on the promissory note and the name of the beneficiary on the Deed of Trust. The “new beneficiary” files a “Substitution of Trustee”, the Trustee sends a notice of default, notice of sale and notice of acceleration based upon “representations” from the “new beneficiary.” This process allows a stranger to the transaction to assert its position outside of a court of law that it is the new beneficiary and even allows the new beneficiary to name a company as the “new trustee” in the Notice of Substitution of Trustee. The foreclosure is initiated by the new trustee on the deed of trust on behalf of (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised. In these cases it is the burden of the borrower to timely file a motion for Temporary Injunction to stop the trustee’s sale of the property.

 

Argument:
By failing to assert with clarity the identity of the creditor on whose behalf they are “holding” the note and mortgage (or deed of trust) and failing to assert the presence of the actual creditor (holder in due course) the parties initiating foreclosure have (a) failed to assert the essential elements to enforce a note and mortgage and (b) have failed to establish a prima facie case in which the burden should shift to the borrowers to defend. The present practice of challenging the defenses first is improper and contrary to the requirements of due process and the rules of civil procedure. If the Plaintiff in Judicial states or beneficiary in non-judicial states is unable to sustain their burden of proof for a prima facie case, then Judgment should be entered for the alleged borrower.

 

Evidence:
Virtually all loans initiated or originated or acquired between 1996 and the present are subject to claims of securitization, which is the first reason why the securitization documents are relevant and must be introduced as evidence along with proof of compliance with those documents because they are almost all governed by New York State law governing common law trusts. Any act not permitted by the trust instrument (Pooling and Servicing Agreement) is void, which means for purposes of the case narrative, the act or event never occurred.

If the Plaintiff or beneficiary is alleging that it is a holder and not alleging it is a holder in due course then there is a 96% probability that the creditor is either a trust or a group of investors who paid money to a broker dealer in an IPO where securities were issued by the trust and the investors money should have been paid to the trust. In all events, the assertion of “holder” status instead of “Holder in Due Course” means by definition that one of two things is true: (1) there is no holder in due course or (2) there is a Holder in Due Course and the party initiating the foreclosure and collection proceedings is asserting authority to represent the holder in due course. In all events, the representation of holder rather than holder in due course is an admission that the party initiating the foreclosure proceeding is there in a representative capacity.

 

THE FORECLOSER HAS NO RIGHT TO BE IN COURT WITHOUT THE SECURITIZATION DOCUMENTS:

 

If the proceeding is brought by a named trust, then the existence of the trust, the authority of the trust, the manner in which the trust may acquire assets, and the authority of the servicer, Master servicer, trustee of the trust, depository, securities administrator and others all derive from the trust instrument. If there is a claim of securitization and the provisions of the securitization documents were not followed then in virtually all foreclosure cases the wrong parties are initiating the foreclosures — because the money of the investors went direct to the origination and purchase of loans rather than through the SPV Trust which for tax purposes was designed to be a REMIC pass through trust.

 

If the foreclosing party identifies itself as a servicer and as a holder it is admitting that it is there in a representative capacity. Their prima facie case therefore includes the documents and events in which acquired the right to represent the actual creditor. Those are only the securitization documents.

 

If the foreclosing party identifies itself as a holder but does not mention that it is a servicer, the same rules apply — the right to be there is a representative capacity must derive from some written instrument, which in virtually cases is the Pooling and Servicing Agreement.

 

Representations that the loan is a portfolio loan not subject to securitization are generally untrue. In a true portfolio loan the UCC would not apply but the rules governing a holder in due course can be used as guidance for the alleged transaction. The “lender” must show that it actually funded the loan, in good faith (in accordance with the requirements of Federal and State law governing lending) and without knowledge of the borrower’s defenses. They would be able to show their underwriting committee notes, reports and correspondence, the verification of the loan, the property value, the ability of the borrower to repay and all other national standards for underwriting and appraisals. These are only absent when there is no risk of loss on the alleged loan, because if the borrower doesn’t pay, the money was never destined to be received by the originator anyway.

 

In addition, the Prospectus offering to the investors combined with the Pooling and Servicing Agreement constitute the “indenture” describing the manner in which the investment will be returned to the investors, including interest, insurance proceeds, proceeds of credit default swaps, government and non government guarantees, etc. This specifies the duties and records that must be kept, where they must be kept and how the investors will receive distributions from the servicer. Proof of the balance shown by investors is the only relevant proof of a dealt and the principal balance due, applicable interest due, etc. The provisions of the contract between the creditors and the trust govern the amount and manner of distributions to the creditor. Thus it is only be reference to the creditors’ records that a prima facie case for default and the right to accelerate can be made. The servicer records do not include third party payments but do include servicer advances. If records of servicer advances are not shown in court, and the provision for servicer advances is in the prospectus and/or pooling and servicing agreement, then the Court is unable to know the balance and whether any default occurred as a result of the borrower ceasing to make payments to the servicer.

 

In short, it is the prospectus and pooling and servicing agreement that provide the framework for determining whether the creditors got paid as per their expectations pursuant to their contract with the Trust. It is only by reference to these documents that the distribution reports to the investors can be used as partial evidence of the existence of a default or “credit event.” Representations that the borrower did not pay the servicer are not conclusive as to the existence of a default. Only the records of the creditor, who by virtue of its relationships with multiple co-obligors, can establish that payments due were paid to the creditor. Servicer records are relevant as to whether the servicer received payments, but not relevant as to whether the creditor received those payments directly or indirectly. The servicer and creditors’ records establish servicer advance payments, which if made, nullify the creditor default. The creditors’ records establish the amount of principal or interest due after deductions from receipt of third party payments (insurance, credit default swaps, guarantees, loss sharing etc.).

For more information call 954-495-9867 or 520-405-1688.

 

 

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