Ready to jump back into the Mortgage Minefield? Take these precautions.

by K.K. McKinstry/Lendinglies.com

Despite knowing what I know about the corrupt practices of the Federal Reserve, Government sponsored enterprises- Fannie Mae and Freddie Mac; not to mention originators, lenders, trustees, and the banks themselves- I decided the benefits of home ownership outweighed the risks and decided to jump back into the lending minefield in order to purchase a home.

Knowing that my loan could always go into default in the future, especially if I have the unfortunate luck of being assigned to a corrupt loan servicer who attempts to engineer a default-  I decided to be pro-active and take some protective measures.  First of all, I emailed the originator and asked if they are the lender or merely an originator.  The broker, either unaware or deliberately lying to me, told me that his company would be funding the loan with its own money.  He likely just made his first RESPA Regulation Z violation.  I have no doubt that the funds will be coming from an entirely different party and that I will receive no disclosure of this fact.  He claims the loan and note will be held by a portfolio lender but refuses to divulge who this party is.

Next, the lender claims it will cover the broker-provided mortgage protection insurance but has not yet disclosed that I will likely be paying a higher interest rate for lender provided mortgage insurance.  According to investigator Bill Paatalo under the 1998 Home Owners Protection Act (HOPA) the lender must disclose the fee and interest rate differences between borrower mortgage protection insurance and lender mortgage protection insurance.  There is also the issue of kickbacks and other profit generating schemes that are often not revealed to the borrower at loan closing.  I will be providing the closing documents to my attorney for review prior to closing to ensure there aren’t any obvious issues or discrepancies.

Lastly, after being burned once by an unethical loan servicer who forged its name on a mortgage note during litigation and claimed the note was the original- I will take measures to ensure this doesn’t happen again.  Not only will I be recording the closing (with the consent of all parties present) and taking screenshots of all of the documents,  but I will also be signing the mortgage note with a custom color of blue ink manufactured in Japan with a unique chemical profile.  I will then provide a copy of the copier paper and ink to my attorney to maintain on my behalf.

In the future if my mortgage note is destroyed and the servicer attempts to replicate (forge/fabricate) the note, they are going to have difficulty creating the unique ink profile.  I have also provided a forensic document examiner with the same paper and ink samples.  I have heard of people mixing their DNA into the ink- but I don’t believe that is necessary- a unique ink profile should be adequate.  For the record, I use a custom mix of  two shades of Pilot Iroshizuku ink.

When I was researching mortgage lenders, I had several lending criteria in mind that I believe offer homeowners additional protections when compared to the Megabank lenders (Wells Fargo, Bank of America, JPMC).  First, I was looking for a “portfolio” lender who would agree to service and maintain my loan on its books for at least five years to avoid my loan being sold from unaccountable servicer to servicer.   I spoke to loan officers at credit unions and locally owned banks before finding a small lender out of South Carolina who held its loans in-house.  My experience is that when a lender has skin-in-the-game (carrying the paper) they will work with you in good faith if you run into temporary financial issues or have a difficult life event occur.  As we all know- life can throw some curveballs and if you are with a heartless Megabank- one missed payment can start an avalanche of problems that are difficult to resolve.

The second criteria I sought in a lender was the use of a physical, wet-ink note that would be held by the bank during the loan period.  Many banks are now using e-lending that allow documents and signatures to be digital.  The problem with electronic-mortgages is that any document can easily be altered by photo-shop in the future if needed including mortgage notes.  If e-lending was available in the 2000s it would have been much easier for lenders to alter loan documents.

If there are problems that arise in the future (foreclosure, disputes, insurance claims) and the lender decides to digitally alter the e-documents, the presumption will be that the lender is providing the accurate documents.  I recommend that people avoid electronic mortgage providers although the industry is pushing for lenders to process all loans entirely online from application to closing.

In conclusion, for now- some of the best ways to protect yourself if you decide to take out a mortgage is to find a credit union, local bank, or portfolio lender who will keep and service your loan for its duration- or at least for five to ten year of the loan. Signing a physical note with a proprietary ink and providing your attorney with paper and ink samples is another good practice to ensure there is only ONE mortgage note in commerce.  If you can, record the loan closing or at least take photos of the documents you sign.  Lastly, avoid e-documents including notes and mortgages if possible.

The banks are in the process of devising new ways to perfect the securitization scheme to their advantage that don’t benefit the homeowner.  The banks claim the new e-lending practices are faster, cheaper and benefit the consumer but ultimately they benefit the bank more.  Therefore, it is up to the consumer to protect their interests to the best of their ability.

Political Lesson: Run Against the Banks

Don’t wait until we find out what Trump really means to do as President. We should make up his mind and express outrage to him and all sitting Senators, Congressman, Governors, State legislators, law enforcement, County and City Government and even the Courts. This election is not over, unless we let it be over and accept more of the same.
Ever since I took my first peek at what was going on in the marketplace for residential mortgage loans, I have been saying that if politicians want to win and be loved, they should run against the banks. The election last night was determined by hatred and disgust. The pundits tells us it was because of bigotry. But if you take the long view you can easily see how most of the population of the U.S., and indeed around the world, has been subjected to the overall view that they don’t matter. If the election of Obama told us anything it was that as a whole we are NOT a bigoted country. We are an indifferent country, if you measure that by who leads us. The arrogance with which average working people have been treated has been virtually unprecedented. The voters were not indifferent last night. Any politician who continues to be aloof and arrogant about the little guy who doesn’t matter should be challenged at the polls in the next election cycle.
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While the politicians refused to see it, comfortable in their world view and talking points, the anger of working class Americans has grown rather than diminished by the recognition that the banks and other big businesses pulled the rug out from under us by patently illegal acts — and price gouging — especially in drugs and medical services. The anger consumers felt when the financial system was portrayed as collapsing in 2008-2009 grew, rather than diminished in time.
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Consumer/voter rage is directly related to the fact that government did nothing about it except to allow working families to bear the entire brunt of a loss created by the banks. People lost their homes, their jobs, their lifestyle while government touted all the progress we were making. That progress never reached tens of millions of Americans. Meanwhile the banks received trillions upon trillions of dollars from the U.S. Treasury, the Federal reserve, and the theft of investor money capped by the bonus of getting ownership of homes that should never have been subjected to foreclosure proceedings.
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If this election is being called an upset, ask Bernie Sanders whose meteoric rise in the polls was only tempered by the view that he couldn’t win. He couldn’t win because the democratic party apparatus had already set up a rigged system that made it impossible for Hillary Clinton to lose. Between the 400 “super delegates” already pledged before the primaries began, and tipping the procedures and scales by the DNC in so many ways, no candidate stood a chance of becoming the nominee against Hillary Clinton.
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Up until now politicians have been largely successful at misdirection: instead of accepting blame for failure to do their job in office, they have succeeded in getting us to blame each other. Between the Trump and Sanders supporters we actually have a vast majority of Americans who are now insisting that the system change for the benefit of all its citizens. The consistent surveys of people who think the country is headed in the wrong direction clearly point to the fact that their lives are not getting better, their hope is diminished and their world view arises from despair over their economic position in the world.
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Trump was right: this was an election of the people versus a corrupt, aloof and arrogant establishment. Despite the obvious advantages of allowing a fair fight in which Sanders could have won the Democratic nomination and possibly the general election, the Democrats chose a candidate who was deeply flawed and deeply indebted to Wall Street. The Democrats may well have selected the only candidate who would lose against Trump. Such is the “wisdom” at the top.
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While Trump was also literally indebted to Wall Street through his loans, he never lost track of the fact that people were mad as hell. The party apparatus of both major political parties ignored that, which made the angry voters even angrier. A review of the numbers shows that in virtually every county and precinct the strength of that hatred resulted in lop-sided support for Trump as high as 80% or more.
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We have all heard the scream. Now it is time to inform those who are still in Washington DC know that the rigged system has expired. It is the follow through by voters that will determine how the country goes- writing to Congressman and Senators, law enforcement and even the courts, will seal the deal. Let them know that you were voting for real change where the average American citizen is priority #1. There is nothing like an active, informed citizenry to make changes that throw out old self-serving ideas and the politicians who espouse them.
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Don’t wait until we find out what Trump really means to do as President. We should make up his mind and express outrage to him and all sitting Senators, Congressman, Governors, State legislators, law enforcement, County and City Government and even the Courts. This election is not over, unless we let it be over and accept more of the same.

Servicer Advances: More Smoke and Mirrors

Several people are issuing statements about servicer advances, now that they are known. They fall into the category of payments made to the creditor-investors, which means that the creditor on the original loan, or its successor is getting paid regardless of whether the borrower has paid or not. The Steinberger decision in Arizona and other decisions around the country clearly state that if the creditor has been paid, the amount of the payment must be deducted from the amount allegedly owed by the “borrower” (even if the the borrower doesn’t know the identity of the creditor).

The significance of servicer advances has not escaped Judges and lawyers. If the payment has been made and continues to be made, how can anyone declare a default on the part of the creditor? They can’t. And if the payment has been made, then the notice of default, the end of month statements, the notice of acceleration and the amount demanded in foreclosure are all wrong by definition. The tricky part is that the banks are once again lying to everyone about this.

One writer opined either innocently or at the behest of the banks that the servicers were incentivized to modify the loans to get out of the requirement of making servicer advances. He ignores the fact that the provision in the pooling and servicing agreement is voluntary. And he ignores the fact that even if there is a claim for having made the payment instead of the borrower, it is the servicer’s claim not the lender’s claim. That means the servicer must bring a claim for contribution or unjust enrichment or some other legal theory in its own name. But they can’t because they didn’t really advance the money. Anyone who has experience with modification knows that the servicers make it very difficult even to apply for a modification.

Once again the propaganda is presumed to be true. What the author is missing is that there is no incentive for the Servicer to agree to make the payments in the first place. And they don’t. You can call them Servicer advances but that does not mean the money came from the Servicer. The prospectus clearly states that a reserve pool will be established. Usually they ignore the existence of the REMIC trust on this provision like they do with everything else. The broker dealer (investment banker) is always the one party who directly or indirectly is in complete control over the funds of investors.
Like the loan closing the source of funds is concealed. The Servicer issues a distribution report with disclaimers as to authenticity, accuracy etc. That report gets to the investor probably through an investment bank. The actual payment of money comes from the reserve pool made out of investor’s funds. The prospectus says that the investor can be paid out of his own funds. And that is exactly what they do. If the Servicer was actually taking its own money to make payments under the category of Servicer advances, the author would be correct.
The Servicer is incentivized by two factors — its allegiance to the broker dealer and the receipt of fees. They get paid for everything they do, including their role of deception as to Servicer advances.
When you are dealing with smoke and mirrors, look away from the mirror and walk through the smoke. There, in all its glory, is the truth. The only reason Servicer advances are phrased as voluntary is because the broker dealer wants to make the payments every month in order to convince the fund manager that they should buy more mortgage bonds. They want to be able to stop when the house of cards falls down.

Banks Still Out Cheating Their Customers and Everyone Else

It is easy to think of the mortgage meltdown as a period of time in which the banks went wild. Unfortunately that period of time never ended. They are still doing it. The level of sophistication it takes to do the kinds of things that banks have been doing for the last 20 years is probably beyond the knowledge and experience of any of the regulators. In addition, it is beyond the knowledge and experience of most consumers, lawyers and judges; in fact as to non-regulators, bank behavior makes no sense. After having seen the results of what are euphemistically called subprime mortgages, Wells Fargo is plunging back in and obviously expecting to make a profit. Apparently the quasi governmental entities that issue guarantees on certain mortgages will allow these subprime mortgages. Wells Fargo says it now understands the parameters under which the guarantors (Fannie and Freddie) will approve those mortgages without a risk that Wells Fargo will be required to buy them back.

That is kind of a mouthful. We have thousands of transactions that are being conducted that directly affect the ownership and balance of various types of loans including mortgage loans. The picture presented in court is that the ownership and status of each loan is stable enough for representations to be made. But the truth is that the professional witnesses hired by the bank’s foreclosure actions only present a slice of the life of a loan. They neither know nor do they inquire about the rest of the information. For example, they come to court with a a report showing the borrower’s record of payments to the servicer but they do not show servicer’s record of payments to the creditor. By definition they are saying that they only know part of the financial record and that consists of a made for trial report on the borrower’s activities. It does not show what happened to the payments made by the borrower and does not show payments made by others —  like loss sharing with the FDIC, servicer advances, insurance, and other actual payments that were made.

These payments are not allocated to any specific loan account because that would reduce the amount claimed as due from the borrower to the creditor — as it should. And the intermediaries and conduits who are making claims against the borrower have no intention of paying the actual creditors (the investors) any more than they absolutely have to. So you have these intermediaries claiming to be real parties in interest or claiming to represent the real parties in interest when in fact they are representing themselves.

They cheat the investor by not disclosing payments received from insurance and FDIC loss sharing. They cheat the borrower by not disclosing those payments that reduce the count receivable and therefore the account payable. They cheat the borrower again when they fail to show “servicer advances” which are payments received by the alleged trust beneficiaries regardless of whether or not the borrower submits monthly payments.  (That is, there can’t be a default in payments to the “trust” because the pass through beneficiaries are getting paid. Thus if there is any liability of the borrower it would be to intermediaries who made those servicer payments by way of a new liability created with each such payment and which is NOT secured by any mortgage because the borrower never entered into any deal with the servicer or investment bank — the real source of servicer advances).

Then they cheat the investor again by forcing a case into a foreclosure sale when the borrower was perfectly prepared, willing and able to enter into a settlement agreement that would have paid the rest are far more than the proceeds of a foreclosure sale and final liquidation. Their object is to maximize the loss of the investor and maximize the loss of the borrower to the detriment of both and solely for the benefit of the intermediary or conduit that is pulling the strings and handling the money.  And they are still doing it.

The banks have become so brazen that they are manipulating currency markets in addition to the debt markets. While we haven’t seen any reports about activities in the equity markets, there is no reason to doubt that their illegal activities are not present in equity transactions. For the judicial system to assume that the Banks are telling the truth or presenting an accurate picture of the  transaction activity relating to a particular loan is just plain absurd now. The presumption in court should be what it used to be, at a minimum. Before the era of securitization, most judges scrutinized the documentation to make sure that everything was in order. Today most judges will say that everything is in order because they are pieces of paper in front of them, regardless of whether any of those pieces of paper represents an accurate rendition of the facts related to the loan in dispute. Most judges in most cases are rubber-stamping judgments for intermediaries and thus are vehicles for the intermediaries and conduits to continue cheating and stealing from investors and borrowers.

The latest example is the control exercised by the large banks over currency trading. Regulators are clueless.  The banks are no longer even concerned with the appearance of propriety. They are cheating the system, the society, the government and of course the people with impunity. They are continuing to pay or promote their stocks as healthy investment opportunities. Perhaps they are right. If they continue to be impervious to prosecution for violating every written and unwritten rule and law then their stock is bound to rise both in price and in price-to-earnings ratio. They now have enough money which they have diverted out of the economy of this country and other countries that they can create fictitious transactions showing proprietary trading profits for the next 20 years.

This is exactly what I predicted six years ago. They are feeding the money back into the system and laundering it through the appearance of proprietary trading. It is an old trick. But they have enough money now to make their earnings go up every year indefinitely. On the other hand, if the regulators and investigators actually study the activities of the banks and start to bring enforcement actions and prosecutions, maybe some of that money that was taken from our economy can be recovered, and the financial statements of those banks will be revealed and smoke and mirrors. Then maybe their stock won’t look so good. Right now everyone is betting that they will get away with it.

New forex lawsuit parses data to make case

Yesterday, 03:13 PM ET · JPM

  • There have been a number of suits against the global banks over claims of forex manipulation, but this latest by the City of Philadelphia Board of Pensions and Retirement is the first to include research highlighting unusual movements in major currencies.
  • Using data compiled by Fideres, the plaintiffs analyzed daily trading right around the 4 PM fix of currency prices … curiously, anomalous price movements became rarer and less pronounced after the initial reports of rigging surfaced last summer.
  • Morgan Stanley has spent some time looking at euro/dollar spikes at 4 PM and also concluded they were unrelated to economic events. Instead of collusion though, Morgan pins the blame on computerized trading programs.
  • The seven banks sued by Philadelphia which is seeking damages as high as $10B: Barclays (BCS), Citigroup (C), Deutsche Bank (DB), HSBC, JPMorgan (JPM), RBS, and UBS.

Read more at Seeking Alpha:
http://seekingalpha.com/currents/post/1565171?source=ipadportfolioapp_email

EMINENT DOMAIN IS NOW IN PLAY: MORTGAGES BEING SEIZED

One of the interesting things about the news media and its relationship with the Wall Street banks is that the real events happening out in the marketplace are completely disregarded by virtually everyone if the event would encourage similar efforts to challenge or replace the toxic mortgages that litter the landscape of the financial marketplace. One such series of events includes eminent domain. When it was first proposed it was quite a bit of publicity about it and if you relied upon the mainstream media reporting financial information you would have assumed that it was an idea that simply came and went.

Not so fast. Eminent domain has been  in use for at least one year as municipalities condemned the mortgage, and seize it for its real value. In some cases the banks are working to have the value declared as what the Federal Reserve is paying: 100%. In most cases the value is pegged lower and the savings are passed on to homeowner who now no longer need to leave their homestead and can pay a newly reconstituted mortgage that reflects economic reality, giving them the roof over their heads and the possibility of building equity again.

It will really get interesting when eminent domain results in questioning the ownership and the money trail establishing the value of the mortgage. It seems that at least one entity, Mortgage Resolution Partners LLC , has realized that there is value in this business plan as we have previously discussed on this blog several times.  The real value of the mortgages is probably zero or close to that amount. In fact it may well be that the value of the mortgages is actually negative as I have previously discussed in other articles on this blog.

That presents an unparalleled profit opportunity for intermediaries who create or promote a situation in which the old toxic mortgage gets “paid off” and a new mortgage is essentially created out of the old one but does not possess any of the toxic qualities of the securitized mortgages. The interesting part of this of course is that the new mortgages will probably be sold into the secondary market and securitized. Perhaps this time they will do it right. If this catches on in a big way despite bank efforts to hush it up, then the foreclosure crisis will be over.

Steven Gluckstern, who’s spent more than a year pushing local governments to seize mortgages from bond trusts to cut balances and help homeowners, is renewing attempts with backing from cities in California and Nevada.

To read the entire article, go to http://www.bloomberg.com/news/2013-07-17/eminent-domain-plan-decried-by-doubleline-sees-new-life.html

BOA, Urban Lending Sued for Rackateering on Fraudulent “Modification” Program

In a case that may have far-reaching consequences, a lawsuit was filed in federal court in Colorado accusing Bank of America of racketeering, which is what borrowers have been screaming about for years. It was a game to the bank. They intentionally lured people into what they thought was a good faith modification program, encouraged people to get deeper and deeper into “debt”, and then foreclosed when they were sure that the person could not reinstate nor exercise a right of redemption. A key player in this scheme was Urban Lending Solutions.

In a case that I am currently litigating, Bank of America at first denied any knowledge of Urban Lending Solutions. When confronted with correspondence issued from urban lending solutions under the letterhead of Bank of America, they finally conceded that they knew who who the company was.  In a Massachusetts case depositions were taken and it is quite clear that this affiliate of Bank of America had their employees working off of Scripts and that anyone who went off the reservation would be disciplined or fired. Going off the reservation merely meant that they actually tried to help a borrower achieve a modification.

There are at least six whistleblowers who have executed sworn affidavits stating that the modification program was a sham. I think we might be getting closer to the point where whistleblowers tell us that the origination of the loan was a sham and that the so-called sales of loans were also sham transactions. Those employees of Bank of America or their affiliates who were successful in throwing homeowners into foreclosure were rewarded with $500 gift certificates to Target and other stores.

The claims against Bank of America are using laws that were designed to target organized crime. For seven years experts and laymen have been claiming that the banks were engaged in organized crime in the  the sale of mortgage mines, origination of loans, the assignment of loans, the recording of unperfected mortgage liens, wrongful foreclosures, illegal foreclosure sales in which the property was sold without any cash being paid, interference  in the right of the borrower to reinstate, modify, or redeem.

We are just around the corner from the key question, to wit: why would the banks engage in organized crime to create foreclosures when it is painfully obvious to homeowners and local government officials across the country that the banks have no interest in acquiring the property but only causing the sale of the property at a foreclosure auction?  Why would the banks delay the prosecution of their cases for years? Why would the banks argue against expediting discovery against them and against the borrower? Why would the banks argue for less money in foreclosure rather than more money in modification?

The answer to all of those questions is simply that there is more money in this scheme than has been divulged.  In the coming weeks and months the revelations about the true nature of these transactions will shock the conscience of the country and cause voters and politicians to rethink their position regarding the ability of regulators and courts to clawback illegally obtained proceeds that started with the transactions originated with the money of investors and somehow ended up with the banks growing by 30% despite a failing economy and a diving housing market.

We are now at the point where filing RICO charges against the banks is likely to gain traction whereas in prior years it was considered overkill for what appeared to be negligence in paperwork caused by the volume of mortgages and foreclosures. Volume had nothing to do with it. The banks made a ton of money selling those mortgage bonds.  Out the money they made selling the mortgage bonds was dwarfed by the amount they made when they received insurance, credit default swap proceeds, and taxpayer money on investments owned by the investors and not by the banks. So far more than 5 million foreclosures have proceeded illegally which means that 5 million families have been disrupted in some cases beyond repair. Recent estimates suggest that another 5 million foreclosures will be added to the list unless the banks are required to conform with their regulations and the laws of the federal and state government.

BOA and Urban Lending Sued on Racketeering Charges

The Truth Keeps Coming: When Will Courts Become Believers?

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comments and Practice Suggestions: On the heels of AG Eric Holder’s shocking admission that he withheld prosecution of the banks and their executives because of the perceived risk to the economy, we have confirmation and new data showing the incredible arrogance of the investment banks in breaking the law, deceiving clients and everyone around them, and covering it up with fabricated, forged paperwork. And they continue to do so because they perceive themselves as untouchable.

Practitioners should be wary of leading with defenses fueled by deceptions in the paperwork and instead rely first on the money trail. Once the money trail is established, each part of it can be described as part of a single transaction between the investors and the homeowners in which all other parties are intermediaries. Then and only then do you go to the documentation proffered by the opposition and show the obvious discrepancies between the named parties on the documents of record and the actual parties to the transaction, between the express repayment provisions of the promissory note and the express repayment provisions of the bond sold to investors.

Practitioners should make sure they are up to speed on the latest news in the public domain and the latest developments in lawsuits between the investment banks, investors and guarantors like the FHA who have rejected loans as not conforming to the requirements of the securitization documents and are demanding payment from Chase and others for lying about the loans in order to receive 100 cents on the dollar while the actual loss was incurred by the investors and the government sponsored guarantors.

Another case of the banks getting the money to cover losses they never had because at all times they were mostly dealing with third party money in funding or purchasing mortgages. It was never their own money at risk.

Three “deals” are now under close scrutiny by the government and by knowledgeable foreclosure defense lawyers. For years, Chase, OneWest and BofA have taken the position that they somehow became the owner of mortgage loans because they acquired a combo of WAMU and Bear Stearns (Chase), IndyMac (OneWest), and a combo of Countrywide and Merrill Lynch (BofA).

None of it was ever true. The deals are wrapped in secrecy and even sealed documents but the truth is coming out anyway and is plain to see on some records in the public domain as can be easily seen on the FDIC site under the Freedom of Information Act “library.”

The naked truth is that the “acquiring” firms have very complex deals on those mortgage loans that the acquiring firm chooses to assert ownership or authority. It is  a pick and choose type of scenario which is neither backed up by documentation nor consideration.

We have previously reported that the actual person who served as FDIC receiver in the WAMU case reported to me that there was no assignment of loans from WAMU, from the WAMU bankruptcy estate, or the FDIC. “if you are looking for an assignment of those loans, you are not going to find it because there was no assignment.” The same person had “accidentally” signed an affidavit that Chase used widely across the country stating that Chase was the owner of the loans by operation of law, which is the position that Chase took in litigation over wrongful foreclosures. Chase and the receiver now take the position that their prior position was unsupportable. So what happens to all those foreclosures where the assertions of Chase were presumed true?

Now Chase wants to disavow their assumption of all liabilities regarding WAMU and Bear Stearns because it sees what I see — huge liabilities emerging from those “portfolios” of foreclosed properties that were foreclosed and sold at auction to non-creditors who submitted credit bids.

You might also remember that we reported that in the Purchase and Assumption Agreement with the FDIC, wherein Chase was acquiring certain operations of WAMU, not including the loans, the consideration was expressly stated as zero and that the bid price from Chase happened to be a little lower than their share of the tax refund to WAMU, making the deal a “negative consideration” deal — i.e., Chase was being paid to acquire the depository assets of WAMU. Residential loans were not the only receivables on the books of WAMU and the FDIC receiver said that no accounting was ever done to figure out what was being sold to Chase.

Each of the deals above was complicated by the creation of entities (Maiden Lane LLCs) to create an “off balance sheet” liability for the toxic loans and bonds that had been traded around as if they were real.

Nobody ever thought to check whether the notes and mortgages recorded the correct facts in their content as to the cash transaction between the borrower and the originator. They didn’t, which is why the investors and the FDIC both now assert that not only were the loans not subject to underwriting rules compatible with industry standards, but that the documents themselves were not capable of enforcement because the wrong payee is named with different terms of repayment to the investors than what those lenders thought they were buying.

In other words, the investors and the the government sponsored guarantee organizations are both asserting the same theory, cause of action and facts that borrowers are asserting when they defend the foreclosure. This has been misinterpreted as an attempt by borrowers to get a free house. In point of fact, most borrowers simply don’t want to lose their homes and most of them are willing to enter into modifications and settlements with proceeds far superior to what the investor gets on foreclosure.

Borrowers admit receiving money, but not from the originator or any of the participants in what turned out to be a false chain of securitization which existed only on paper. The Borrowers had no knowledge nor even access to the knowledge that they were actually entering into a loan transaction with a stranger to the documents presented at the loan “closing.” This pattern of table funded loans is branded by the Truth in Lending Act and Reg Z as “predatory per se.” The coincidence of the money being received by the closing date was a reasonable basis for assuming that the originator was not play-acting, but rather actually acting as lender and underwriter of the loan, which they were certainly not.

The deals cut by Chase, OneWest and BofA are models of confusion and shared losses with the FDIC and other investors who participated in the Maiden Lane excursion. The actual creditor is definitely not Chase, OneWest nor BofA. Bank of America formed two corporations that merely served as distractions — Red Oak Merger Corp and BAC Home Loans and abandoned both after several foreclosures were successfully concluded by BAC, which owned nothing.

As we have previously shown, if the mortgage securitization scheme had been a real financial tool to reduce risk and increase lending, the REMIC trust would have ended up on the note and mortgage, on record in the office of the County Recorder. There would have been no need to establish MERS or any other private database in which trades were made and “trading profits” were booked in order to siphon off a large chunk of the money advanced by investors.

The transferring of paper does not create a transaction wherein a loan is proven or established in law or in fact. There must be an actual transaction in which money exchanged hands. In most cases (nearly all) the actual transaction in which money exchanged hands was between the borrower and an undisclosed third party entity.

This third party entity was inserted by the investment bankers so that the investment bank could claim ownership (when legally the loans already were owned by the investors) and an insurable interest in the loans and bonds that were supposedly backed by the loans. This way the banks could assert their right to proceeds of sale, insurance, and credit default swaps leaving their investor clients out in the cold and denying the borrowers the right to claim a reduction in the liability for their loan.

In litigation, every effort should be made to force the opposition to prove that the investor money was deposited into the a trust account for the REMIC trust and that the REMIC trust actually paid for the loans. Actually what you will be doing is forcing an accounting that shows that the REMIC was never funded and was never the buyer of the loans. Hence nobody in the false securitization chain had any ownership of the debt leading to the inevitable conclusion that for them the note was unenforceable and the mortgage was a nullity for lack of consideration and a lack of a meeting of the minds.

Once you get to the accounting from the Trustee of the Trust, the Master Servicer and the subservicer, you will uncover trades that involve representations of the investment bank that they owned the loans and in fact the mortgage bonds which were clearly pre-sold to investors before the first application for loan was ever received.

Thus persistent borrowers who litigate for the actual truth will track the money and then show that the cash transactions differ from the documented transactions and that the documented transactions lacked consideration. The only way out for the banks is to claim that they embraced this convoluted route as agents for the investors, but then that still means that money received in federal bailouts, insurance and credit default swaps would reduce the receivable of the actual creditors (investors) and thus reduce the amount payable by the actual borrowers (homeowners).

The unwillingness of the Department of Justice to enforce long standing laws regarding fraud and deceit, identity theft and other crimes, tends to create an atmosphere of impunity a round the banks and a presumption that the borrowers are merely technical objections of a certain number of documents not having all their T’s crossed and I’s dotted.

From a public policy perspective, one would have to concede that protecting the banks did nothing for liquidity in the marketplace and nothing for the credit markets in particular. Holder’s position, which I guess is also Obama’s position, is that it is better to allow average Americans to sink into poverty than to hold the banks and bankers accountable for their white collar crimes.

Legally, if the prosecutions ensued and the cases were proven, restitution would be ordered based not on some back-room deal but on approval of the Court. Restitution would clawback much of the capital of the mega banks who are holding that money by virtue of illegal transactions. And restitution would provide the only stimulus to the economy that would be fundamentally sound. Investors and borrowers would both share in the recovery of at least part of the wealth lost to the banks during the mortgage maelstrom.

I have no doubt that the same defects will appear in auto loans, student loans and other forms of consumer loans especially including credit card loans. The real objection of the banks is that after all this effort of stealing the money and the homes they might be forced to give it all back. The banks perceive that as a “loss.” I perceive it as simple justice applied every day in the courtrooms of America.

JPM: The Washington Mutual Story
http://www.ritholtz.com/blog/2013/03/jpm-wamu/

Bear Stearns, JPMorgan Chase, and Maiden Lane LLC
http://www.federalreserve.gov/newsevents/reform_bearstearns.htm

Mistakenly Released Documents Reveal Goldman Sachs Screwed IPO Clients
http://news.firedoglake.com/2013/03/12/mistakenly-released-documents-reveal-goldman-sachs-screwed-ipo-clients/

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