The running of the bears

Spanish Banks Said to Be Set for Downgrade by Moody’s Today (Update 1)

Moody’s Investors Service is set to downgrade the credit ratings of Spanish banks later today, said two people with knowledge of the situation.

Fitch Calls For Capital Increase As Run On Spanish Banks Continues

Fitch ratings has called for a huge increase in capital reserves at the world’s biggest banks today as the markets reel from the run on Spain’s banks. The agency recommended banks across the world raise a total of $556 billion an increase of 23 percent over what the banks are currently holding.

Fitch made the recommendations on 29 of the world’s systemically important banks. That list includes Goldman Sachs Group, HSBC Holdings plc, Mizuho Financial Group Inc., Bank of America Corp., Societe General S.A., and JPMorgan Chase & Co. Banco Santander S.A., a Spanish banking giant, is among the list of the most important 29 banks. It is not at as much risk from the current run on deposits in the country but suffers from the aura of the crisis.

The increase in the amount of money banks have to hold and simply sit on meant the firms will not be able to earn money on those reserves and will reduce profitability. The other option is leaving the institutions open to failure. It is this tradeoff that will dominate the institutions for the next several years.

After, and in the midst of, such a unique and deep financial crisis it is probable that regulators will swing too far toward stability leaving less room for growth and innovation. It may be some years before a correct balance is restored to the sector but it seems inevitable that right now government interference is going to grow.

State rescue may be beginning of end for Spain's Bankia

Spain's government plans to clean up, downsize and sell Bankia within three years, but the strategy could be short-lived as the bank's capital gap may be larger than the 15 billion euros ($19.1 billion) so far identified, government and financial sources say.

"The bank faces two options," said a financial source with direct knowledge of the bank's situation. "First, to be wound down. Second, to be wound down. The question is how small it will be at the end."

Bankia, Spain's fourth-biggest lender with more than 10 percent of bank deposits, said its clients can be absolutely calm over the deposits they hold, while Spain's Economy Secretary said there had not been an exit of deposit funds.

The government which nationalized Bankia last week after months of uncertainty over its capacity to weather the financial storm.

Finally, the government is under intense public pressure to reduce the taxpayers' bill by selling the more than 5.4 billion euros worth of stakes the bank holds in major Spanish companies such as Iberdrola and Mapfre.

The Socialist opposition said last week it would back the Bankia takeover on condition public funds would be recovered at some point. Yet public anger at the banks is rising after seven other lenders had to be bailed out by the state at a time when education and health spending are being cut.

The lender's auditor Deloitte identified several gaps in Bankia's accounts and it is still not clear whether its rescue will cost the government more than the 15 billion euros it initially planned to inject.

A senior government source last week estimated the size of the state intervention at up to 10 billion euros.

That would come on top of the conversion of a 4.47 billion euros loan into shares, which will give the state 45 percent of Bankia, with an option to take another 3 percent, and 100 percent of its parent company Banco Financiero y de Ahorros (BFA).

Loaded with bad loans from a decade-long real estate boom, the bank needs to raise about 1.3 billion euros by June to comply with stringent European Banking Authority capital rules.

It also needs to find at least 6 billion euros by the end of the year to comply with two financial reforms presented by Spain's centre-right government in February and last week.

Greeks pull cash out of banks as confidence wanes

Greeks withdrew more than $900 million Monday and another $600 million Tuesday, according to the Greek Central Bank. While deposits have been steadily leaving banks since the start of the country's debt problems in 2009, this week's outpouring of cash reflects a new level of panic, analysts say.

Meanwhile, in Spain, the newspaper El Mundo said customers have withdrawn more than €1 billion ($1.27 billion) since the state took over Bankia, the country's fourth-largest lender, a week ago. Bankia insisted its depositors' money was safe, and the government denied there was a run on the bank.

Regulators sit on fence, banks get whitewashed

U.S. says lenders must pay for wrongful foreclosures

The federal government on Wednesday ordered the nation's largest banks and mortgage servicers to identify and compensate borrowers whose homes were taken in wrongful foreclosures.

In Palm Beach County, 51,518 foreclosures were filed during that period.

Shari Olefson, a Fort Lauderdale attorney who represents banks, called the orders "fluff" and questioned how long it would take to determine wrongdoing in individual foreclosures.

"I don't know what 'improperly foreclosed on' means because at the end of the day, if someone isn't paying their mortgage, they should be foreclosed on," said Olefson, who wrote the 2009 book Foreclosure Nation: Mortgaging the American Dream. "If you're in default, it's proper to foreclose on you."

But homeowner advocates criticized the much-anticipated agreements Wednesday, saying they impose no financial penalties and are vague about what kind of foreclosure practices would garner reparations and what those reparations would be.

"This is a huge whitewash to shut everyone up and continue the status quo," said Palm Beach County homeowner advocate Lisa Epstein, who writes a blog called Foreclosure Hamlet. "The end result will be a lot of frustrated people requesting restitution that will probably be denied."

Mortgage Lenders Get A Slap On The Wrist

... bank regulators attempted to punish the banks for such practices today but I’m not so sure they succeeded.

The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision announced today a settlement with the 14 largest U.S. mortgage servicers including Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo.

The settlement doesn’t fine the banks for any of the wrongdoing but instead lists ways they need to improve their mortgage and foreclosure proceedings.I’ll stop there with the banker bashing that Dimon hates so much and instead take a minute to bash the OCC for getting in bed with the banks.

When you have to tell a bank not to purposely confuse borrowers and to communicate with them instead of keeping them in the dark about what you’re really doing to their mortgage something is wrong. No. Something is up.

Last month, a state financial regulator testified before the House Oversight Committee about his efforts with state attorneys general to gather data from subprime servicers. In his testimony, the regulator revealed that the data fell short of its potential to reveal foreclosure problems because the Office of the Comptroller of the Currency forbade national banks from providing loss mitigation data to the states.

(Check out Matt Stoller’s piece about the OCC cover up: Comptroller of the Currency Orders National Banks to Cover Up Foreclosure Scandal)

Now, a month later, the OCC and other regulators have basically announced that the foreclosure problems weren’t that bad,and that the bank can figure out how to resolve the residual problems on their own. The banks, I’m sure, couldn’t agree more.

Analysis: U.S. banks still face big foreclosure risks

In March, the OCC and other bank regulators bolted from a joint effort by the 50 states' attorneys general and multiple federal agencies to reach a "global" settlement with the servicers on terms tougher than those favored by the OCC.

OCC spokesman Robert Garsson said there had not been any intent to undercut the other regulators, or protect the banks at the expense of consumers. Referring to the banks' practices in servicing mortgages, he said, "From our perspective there's a process that's broken and needs to be fixed. Our enforcement orders will accomplish that."

In reality, within their states, the attorneys general have stronger powers than federal regulators to prosecute wrongdoing involving foreclosures. Foreclosures mainly are governed by state, not federal law. And the attorneys general have authority under state law to bring both criminal and civil cases for violations such as submitting false affidavits, creating false mortgage assignments, and forging signatures.

They also can bring lawsuits in state courts demanding restitution to homeowners and new requirements -- potentially stricter than those imposed by the OCC -- for handling foreclosures and loan modifications. Attorneys general in Florida and New York already have investigations well under way, and have subpoenaed law firms that handle large numbers of foreclosures for the major banks.

Federal bankruptcy courts oversee foreclosures for homeowners who are in bankruptcy. The U.S. Trustees Office, an arm of the Justice Department that oversees the integrity of the bankruptcy courts, has launched actions in bankruptcy courts around the country alleging that representatives of the banks committed fraud on the courts by knowingly submitting forged and fraudulent documents.

The U.S. Trustees office is working with local federal prosecutors in some areas, potentially leading to a series of criminal prosecutions.

Investor trusts that purchased securitized mortgages have filed large numbers of lawsuits against the banks, alleging that they never actually turned over to them the mortgages that they had bought. The suits claim that the banks never provided the documents legally required to turn over ownership.

A rapidly increasing number of state courts and federal bankruptcy judges around the country have begun to routinely throw out foreclosure cases when the banks cannot produce authentic documents showing who owns the mortgages. The courts' actions have slowed or halted foreclosures in areas subject to those rulings. RealtyTrac, which publishes foreclosure statistics, said the court decisions were largely responsible for a 27 percent decline in foreclosures from a year earlier.

U.S. judge to sanction LPS for lying to court

A federal bankruptcy judge in New Orleans said she will impose sanctions on Lender Processing Services, after concluding that the mortgage servicing company deliberately committed fraud on the court in a foreclosure case, by giving false testimony and submitting a "sham" affidavit.

The judge granted a motion by the U.S. Trustee's Office for sanctions, and said she would decide on financial and other penalties against LPS later, after holding a hearing.

Her opinion in the bankruptcy of Ron and LaRhonda Wilson, also sharply criticized the entire mortgage servicing industry.

"One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry," she wrote.

Related reading:

In Financial Crisis, a Dearth of Prosecutions Raises Alarms

Why Isn't Wall Street in Jail?

Fannie closes doors on foreclosure law firms

Foreclosure law firm lays off nearly half of its staff, after losing Fannie Mae

A Hollywood [Florida] law firm that processes thousands of foreclosures for major lenders laid off almost half of its 568 employees Monday, days after the government-owned mortgage giant Fannie Mae pulled its files from the practice.

Monday's layoffs echoed the massive job cuts that the law office of David J. Stern and public-traded affiliate DJSP Enterprises instituted after Fannie Mae and Freddie Mac, the other federal mortgage guarantor, dumped them. Fannie and Freddie comprised the bulk of Stern's business. About 700 Stern employees lost their jobs, according to regulatory filings.

Lawyer held in contempt over 'fraud' in foreclosure filing

Miami-Dade Circuit Judge Maxine Cohen Lando expressed her displeasure Friday in a case that involved a property in Homestead with a $265,134 foreclosure judgment issued in July.

Lando said the so-called original note and original mortgage were filed months after the bank said those documents were lost.

"That in itself is a fraud upon the court," Lando wrote in an order to show cause as to why she should not hold Ben-Ezra & Katz attorneys in contempt.

But, she added, the action "pales in comparison" to the fact that the mortgage and note are to a different property in Lehigh Acres, and that the documents are improperly signed and notarized. Lando said her verbal contempt finding on Friday would be followed by a written order.

The judge dismissed the foreclosure case and banned the lender from refiling it.

See, The Ball and Chain of Title

Bankruptcy judge makes MESS of MERS

Guambat has written before about MERS, an uncommon concoction of financial wizardry that simply ignored centuries of the common law of conveyance.

It was a scheme intended to grease the wheels of real estate mortgage securitization, by depriving local governments across the USA of the control (and revenues) of recording title, and along the way, depriving many mortgage debtors of their due process, and, perhaps, some lawyers of their licentious licenses.

In much the same manner that the credit implosion served as a reality check for the mark to model dreamers, a bankruptcy court has thrown a cold bucket of reality on Le MERS.

Merscorp Lacks Right to Transfer Mortgages, Judge Says

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

“MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal.”

Grossman said Select Portfolio had to show that U.S. Bank owned both the note and the mortgage, and there was no evidence that it held the note. The judge disagreed with Select Portfolio’s argument that U.S. Bank held the note because the note “follows” the mortgage, which it said U.S. Bank owned.

“By MERS’s own account, the note in this case was transferred among its members, while the mortgage remained in MERS’s name,” Grossman wrote. “MERS admits that the very foundation of its business model as described herein requires that the note and mortgage travel on divergent paths.”

A WSJ real estate blog elaborated:

U.S. Bankruptcy Judge Questions Legal Claims of MERS

At issue was whether U.S. Bank had legal standing to foreclose. The loan was originated by First Franklin in 2006 and MERS became an agent for First Franklin, which ultimately transferred the loan to Aurora Bank and later to U.S. Bank. Both of those banks are members of MERS, which allowed it to also act on behalf of those agents, according to MERS’s lawyers.

“By MERS account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note,” wrote Judge Grossman. “[T]here is nothing in the record to prove that the Note in this case was transferred according to the process described above other than MERS’s representation that its computer database reflects that the Note was transferred to U.S. Bank.”

“The documentation provided to the Court in this case…is stunningly inconsistent with what the parties define as the fact of this case,” Judge Grossman wrote. The theory that MERS “can act as a ‘common agent’ for undisclosed principals is not support [sic] by the law.”

The opinion also rejected any argument that MERS’s reach was so broad and deep that it should receive favorable treatment from the judiciary:

The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.

Laurence Platt, a banking industry attorney at K&L Gates in Washington, said the Agard case represented an “outlier that goes against years of decisions by New York courts that find assignments from MERS to be consistent with New York law.”

A spokeswoman for MERS also said that a separate decision on Friday by a U.S. Bankruptcy Court judge in Kansas had affirmed MERS’s ability to foreclose on behalf of Countrywide Financial Corp. In the case, the judge wrote that the court had received “uncontroverted evidence” that MERS was acting as an agent for Countrywide, allowing MERS to act on its behalf.

Massachusetts Supreme Ct upholds law, banks quiver

Guambat has been one of the smallest of very many voices discussting the securitization of real estate mortgages.

Banks very merrily and purposefully just disregarded the law of real property, setting up their own rules which they determined were above the law. They're feeling a bit insecure about their security just about now.

Indeed, Fox News would seem to have you believe that the nasty courts were just being unsportsman like to the banks:

Court Deals Blow to Banks in Foreclosure Case

Banks were dealt a big blow on Friday after a Massachusetts top court ruled Wells Fargo didn't have the right to foreclose on a pair of homes because they securitized and repackaged the mortgages.

The ruling could impact the broader financial industry because virtually all banks slice mortgages up and sell them back to investors.

First, understand what's happened. The courts are not saying that peoples' debts are invalid. This is not about the debt. The courts are saying banks cannot just take peoples' properties from them to recover the debt.

This is about property law, not creditor rights. And the banks simply ignored the property law. In a land of laws, that's a risky thing for anyone to do. Of course, banks have had it all so one sided for so long they seem to have overlooked the notion.

A more level-headed Fox scribe at the WSJ put it this way:

In the ruling, the court said, "We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied."

A blog post in the Washington Post has done a very useful service in providing a link to the Massachusetts Court's Decision, and in discussing it:

After examining the paperwork filed by the banks, a lower court judge, the Massachusetts Land Court's Keith C. Long, said he had determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off houses.

Long's decision hits on one of the most sensitive issues related to how mortgages were securitized: something called "endorsements in blank." In the rush to aggregate and sell and then resell mortgages, many of the mortgages documents were transferred without explicitly naming who the note was being sold to.

The financial services industry has argued that this practice is legally valid but Long ruled, "These blank mortgage assignments were never recorded and they were not legally recordable."

The banks had appealed Long's decision, arguing that they had clear title to the properties. But on Friday, Massachusetts Supreme Court Justice Ralph D. Gants wrote that the court agreed that the banks "failed to make the required showing that they were the holders of the mortgages at the time of foreclosure."

The link that was provided is here.

The Decision noted that this was hardly a trifling technical error. It was a massive error committed in a situation where the banks were given powers of significant proportion over other people's property without any judicial oversight. The conflicts of interest are obvious, and in need of obvious integrity, which the banks lack. In the more solemn words of the Court, the Justice said,

"Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that "one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void."

One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose.

Any effort to foreclose by a party lacking "jurisdiction and authority" to carry out a foreclosure under these statutes is void.

For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests.

Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor.

Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone's home or farm and must be treated as such.

Where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale and foreclosure, or was one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14. A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.

We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.

the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage.

the plaintiffs initially argued that postsale assignments were sufficient to establish their authority to foreclose, and now argue that these assignments are sufficient when taken in conjunction with the evidence of a presale assignment. They argue that the use of postsale assignments was customary in the industry

To the extent that the plaintiffs rely on this title standard for the proposition that an entity that does not hold a mortgage may foreclose on a property, and then cure the cloud on title by a later assignment of a mortgage, their reliance is misplaced because this proposition is contrary to G.L. c. 183, § 21, and G.L. c. 244, § 14.

If the plaintiffs did not have their assignments to the Ibanez and LaRace mortgages at the time of the publication of the notices and the sales, they lacked authority to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14, and their published claims to be the present holders of the mortgages were false.

Because an assignment of a mortgage is a transfer of legal title, it becomes effective with respect to the power of sale only on the transfer; it cannot become effective before the transfer.

A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time.

In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.

Finally, we reject the plaintiffs' request that our ruling be prospective in its application. A prospective ruling is only appropriate, in limited circumstances, when we make a significant change in the common law. We have not done so here.

The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs' apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.

The banks have tried to make the claim that the deficiencies were merely "technical", but they did a very heavy make-over on some very fundamental property law principles when they tried to pull this little caper. These cases were about taking title to land, not about suing on a debt.

The banks are great ones when it comes to making so many technical conditions to entrap others or baffle regulators or sneak through purposefully designed holes in legislation. When they trip up themselves in their own technical contrivances, they should bear the risk they created.

60% of Fannie/Freddie repurchase requests remain unrescinded

Banks Resisting Fannie, Freddie Demands to Buy Back Mortgages

Fannie Mae and Freddie Mac are facing growing resistance as they attempt to push failed home loans off their books and onto the balance sheets of banks including Bank of America Corp. and JPMorgan Chase & Co.

The two government-owned mortgage companies are enforcing contracts that require lenders to buy back loans that didn’t meet underwriting standards. At the end of September, the companies reported, banks hadn’t responded to $13 billion in buyback requests. A third of those were at least four months old and Freddie Mac has begun to assess penalties for the delays.

Lenders say they are resisting buybacks because McLean, Virginia-based Freddie Mac and Washington-based Fannie Mae are unfairly second-guessing old appraisals, accusing originators of failing to verify income, or pinning failed loans on minor technical errors.

About 40 percent of repurchase requests are rescinded after lenders provide additional paperwork, said John A. Courson, chief executive officer of the Mortgage Bankers Association, a Washington trade group.

“We’re burning a lot of stockholder resources, and clearly a lot of Fannie and Freddie resources, to have 40 percent of these things rescinded,” Courson said in an interview. “It hurts the banks and frankly we’re wasting government resources, too.”

Courson, of the mortgage bankers group, said the industry’s concerns about the buybacks go beyond the volume. “It’s the nature of the requests, where so many try to assert a defect that has no actual bearing on the individual loan’s performance,” he said.

Lenders say that while Fannie Mae and Freddie Mac are asserting that loans went bad because of faulty underwriting, the leading cause of default is actually unemployment.

“If a loan paid for five years, then the client lost their job and somebody goes back and says, ‘You didn’t dot that I or cross that T,’ technically the originator has to buy that loan back,” William C. Emerson, chief executive officer of Detroit- based Quicken Loans, said in an interview. “Loans are being put back for very vague, gray reasons.”

“This is the first time in history you’ve seen this much pushback against the GSEs,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry trade publication in Bethesda, Maryland. “It’s just the volume of it. It’s bigger numbers. And this time the reasons are a lot grayer.”

Democrats and Republicans alike are pressing for the GSEs to return to solvency and repay taxpayer funds.

“We need to pursue all available legal claims to limit the losses to taxpayers,” said Representative Brad Miller, a North Carolina Democrat who serves on the House Financial Services Committee.

The GSEs should get what they’re owed and leave it to regulators to take action later if buybacks cause problems for banks, said Phillip Swagel, a former assistant Treasury secretary under President George W. Bush

“It’s better to uncover everything and for people to face up to their obligations,” Swagel said.

Fannie Mae and Freddie Mac say the mounting buyback demands are the result of growing delinquencies, not new enforcement.

“There’s no new policy. This is something that’s always been done,” said Freddie Mac spokesman Brad German. “The fact that more defaulted loans are triggering reviews that may lead to repurchase requests, given the volume of defaults, is not entirely surprising.”

Overall, 33 percent to 39 percent of loans questioned by the GSEs are leading to buybacks

Mortgage fraud

Many people have blamed the subprime meltdown on all that scum whats wanted to get a house they clearly weren't entitled to couldn't afford. Guambat is dubious, but this story shows what could happen if it were true.

Johnston Sen. Maselli charged with bank fraud

State Sen. Christopher B. Maselli, D-Johnston, was indicted Thursday on federal charges that he falsified bank and federal tax documents, and lied about his income and assets, in obtaining more than $1.5 million in mortgages.

Maselli was indicted on seven counts of bank fraud, a spokesman for U.S. Attorney Peter Neronha confirmed Friday morning.

According to the indictment, Maselli, a self-employed real estate attorney in North Providence, inflated his annual income dating back to 2005, lied about his personal assets, and submitted phony and altered bank statements and IRS tax returns when applying for mortgages, a home-improvement loan, and an auto loan.

Maselli denied the accusations through his lawyer. Boston attorney William H. Kettlewell said in a statement that several of the loans have been paid in full, and the remaining loans are being paid in according to the "lenders" requirements.

"The banks have not lost a cent," Kettlewell stated. "In short, there was no fraud, there is no fraud and we believe there will never be a determination of fraud concerning these loans."

Maselli was approved for five mortgages on residential properties in Johnston and North Providence, and an auto loan for a 2005 Lexus SUV, totaling approximately $1,525,027.50, according to the U.S. Attorney's office.

RI state senator resigns, to plead guilty to fraud

Sen. Christopher Maselli, a Johnston Democrat and real estate lawyer, resigned on Monday. He is scheduled to plead guilty in federal court in Providence on Wednesday to eight counts of bank fraud.

Maselli's lawyer, William H. Kettlewell, says Maselli deeply regrets his actions. He says the loan payments are current and the banks have not lost any money on them.

MERS eat notes

Mairzy doats and dozy doats and liddle lamzy divey
A kiddley divey too, wooden chew?

If the words sound queer and funny to your ear, a little bit jumbled and jivey
Sing "Mares eat oats and does eat oats and little lambs eat ivy"

Mairzy Doats

There's a guest/ghost author on Barry Ritholtz' blog today, who knows his oats from his ivy league.

What Is MERS and What Role Does It Have in the Foreclosure Mess? (Hint: It Holds 60% of All Mortgages, But Has ZERO Employees)

You’ve heard the name Mortgage Electronic Registration Systems or “MERS” mentioned in relation to the foreclosure problems in the residential real estate market.

But what is MERS?

It is the company created and owned by all of the big banks to process title to property in the U.S. Approximately 60% of the nation’s residential mortgages are recorded in the name of MERS.

MERS, the banks and the mainstream financial press all say that it was simply to save fees by digitizing mortgage electronic.

But as Ellen Brown notes, there is in reality a very different reason that the big banks created MERS:

The rating agencies required that the conduit be “bankruptcy remote,” which meant it could hold title to nothing ….

Indeed, the secretary and treasurer of MERS admitted this in a deposition

MERS is a shell corporation with no employees, but thousands of officers.

Astonishingly, MERS “vice presidents” are simply paralegals, customer service representatives, and foreclosure attorneys employed by other companies. MERS even sells its corporate seal to non-employees on its internet web page for $25.00 each. Ironically, MERS, Inc.—a company that pretends to own 60% of the nation’s residential mortgages—does not have any of its own employees but still purports to have “thousands” of assistant secretaries and vice presidents.

As the treasurer and secretary of MERS admitted in a deposition:

Q Does MERS have any salaried employees?
A No.
Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.
Q Does MERS have any employees currently?
A No.
Q In the last five years has MERS had any
employees?
A No.
Q To whom do the officers of MERS report?
A The Board of Directors.
How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.
Q Approximately?
A I wouldn’t even begin to be able to tell you
right now.
Q Is it in the thousands?
A Yes.
Q Have you been doing this all around the
country in every state in the country?
A Yes.
Q And all these officers I understand are unpaid
officers of MERS?
A Yes.

In another deposition, a legal assistant at a law firm initiating 4000 to 7000 foreclosures per month in Florida held herself out as “vice president” and “assistant secretary” of MERS. She testified:

Q: The question was you have no job duties as an assistant secretary of MERS, correct?
A: I do not have any job duties other than signing the assignments and mortgage. Does that help?
Q: Yes. Here, I’ll try to rephrase this. Do you attend any board meetings at MERS?
A: No, sir.
Q: Do you attend any meetings at all at MERS?
A: No, sir.
Q: Do you report to the secretary of MERS?
A: No, sir.
Q: Who is the secretary of MERS?
A: I have no idea.

***

Q: Where are the MERS offices located?
A: I can’t remember.
Q: How many offices do they have?
A: I have no idea.
Q: Do you know where their headquarters are?
A: Nope.
Q: Have you ever been there?
A: No.
Q: How many employees do they have?
A: I have no idea.

The “vice president” and “assistant secretary” MERS signing sworn statements under penalty perjury was simply making it up and doing what she was told.

And as a a forthcoming article in the Real Property, Trust and Estate Law Journal notes, saving fees was another motivation for the giant banks in running mortgages through MERS, but in a way which is shadier than routine cost-cutting efforts.

In the mid-1990s mortgage bankers decided they did not want to pay recording fees for assigning mortgages anymore. This decision was driven by securitization—a process of pooling many mortgages into a trust and selling income from the trust to investors on Wall Street. Securitization, also sometimes called structured finance, usually required several successive mortgage assignments to different companies. To avoid paying county recording fees, mortgage bankers formed a plan to create one shell company that would pretend to own all the mortgages in the country—that way, the mortgage bankers would never have to record assignments since the same company would always “own” all the mortgages.

Even though not a single state legislature or appellate court had authorized this change in the real property recording, investors interested in subprime and exotic mortgage backed securities were still willing to buy mortgages recorded through this new proxy system.

Worse, MERS may have literally “split the baby” and rendered millions of mortgages unsecured:

Typically, the same person holds both the note and the deed of trust. In the event that the note and the deed of trust are split, the note, as a practical matter becomes unsecured. Restatement (Third) of Property (Mortgages) § 5.4. Comment. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Id. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. Id. The mortgage loan became ineffectual when the note holder did not also hold the deed of trust.

The mortgage industry has premised its proxy recording strategy on this separation despite the U.S. Supreme Court’s holding that “the note and the mortgage are inseparable.” If today’s courts take the Carpenter decision at its word, then what do we make of a document purporting to create a mortgage entirely independent of an obligation to pay? If the Supreme court is right that a “mortgage can have no separate existence” from a promissory note, then a security agreement that purports to grant a mortgage independent of the promissory note attempts to convey something that cannot exist.

While this argument will surely strike a discordant note with the mortgage bankers that invested billions of dollars in loans originated with this simple flaw, the position is consistent with a long and hitherto uncontroversial line of cases. Many courts have held that a document attempting to convey an interest in realty fails to convey that interest when an eligible grantee is not named. Courts all around the country have long held: “there must be, in every grant, a grantor, a grantee and a thing granted, and a deed wanting in either essential is absolutely void.”

The article itself is full of citations and quotes from various sources, and Guambat has made a hash of identifying what is from where. Much like MERS itself.

You will have to read the article directly to be better educated that this hack cut and paste job has done. You won't regret it.

Sarbox at your cervix, sir.

Sarbanes-Oxley meets servicer execs

Sarbox, enacted in 2002 in response to corporate fraud at firms like Enron, mandates increased personal liability for senior managers. And we should be clear here — it doesn’t seem to be Sarbanes-Oxley per se that could come back to haunt mortgage servicer execs accused of shoddy practices, but rather Sarbox-type agreements they may have signed as part of the US Treasury’s various housing programmes.

Servicing executives were required by the Treasury Department to sign Sarbanes-Oxley-type agreements by Sept. 30 certifying they were in compliance with the Making Home Affordable Program. Some servicing executives initially balked

it does state that the “servicer is in material compliance with, and certifies that all services have been materially performed in compliance with all applicable federal, state and local laws, regulations, regulatory guidance, statutes, ordinances codes and requirements.”

The issue then is that some mortgage servicer execs could face personal lawsuits brought under the False Claims Act — if they guaranteed that their own internal servicing processing satisfied that applicable law compliance requirement.

The Countrywide Legacy: The BofA Put

Pimco, NY Fed Said to Seek BofA Repurchase of Mortgages

A group of bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that didn’t name the firms. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.

Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP.

“We now are in a position where we have to start a clock ticking,” Patrick, who is based in Houston, said today in a telephone interview.

If the issues aren’t fixed within 60 days, BNY Mellon should declare Countrywide in default on its servicing contracts, Patrick said.

The initiative covered by the letter sent to Bank of America and BNY Mellon yesterday is separate from the effort coordinated through Dallas lawyer Talcott Franklin, Patrick said. That firm is coordinating action for a larger group of mortgage-bond investors holding more than $500 billion of the debt.

PIMCO, BlackRock, and NY Fed Ask BofA to Repurchase Mortgage Bonds

With investors of this stature looking to force a bank as significant as Bank of America to buy back bonds, you can expect a tidal wave to begin. Other mortgage bond investors will almost certainly begin to follow suit. Other banks will also likely be the target of similar demands. If banks refuse, then lawsuits will likely follow.

Just 3 examples of how real estate fraud worked

"Putting this behind" them seems to be a common refrain.

2nd UPDATE: NY Real-Estate Developer Pleads Guilty To Fraud

Thomas Kontogiannis pleaded guilty to conspiracy to commit bank and wire fraud in federal court in Brooklyn on Friday. The charges were connected to two New York developments, one in Brooklyn and one in Queens.

U.S. Attorney Loretta E. Lynch called the mortgage fraud "staggering" in its scope. New York Superintendent of Banks Richard H. Neiman said it was "one of the largest mortgage frauds directed by a single individual."

Kontogiannis is already currently serving a 97-month prison sentence after pleading guilty in 2008 to money laundering. Prosecutors had alleged Kontogiannis helped former U.S. Rep. Randy "Duke" Cunningham to launder bribes.

Cunningham was sentenced to more than eight years in prison in February 2008 after pleading guilty in 2005 to accepting $2.4 billion in bribes.

Kontogiannis's indictment said that he employed family and workers who acted as straw buyers on properties he owned and directed false loan files. The mortgages included false appraisals and other documentation. After the loans closed, Kontogiannis prevented the mortgages and deeds from being recorded, so he could sell the same property repeatedly. He eventually sold the loans to Washington Mutual or the Credit Suisse unit, DLJ Mortgage Capital Inc., according to the charges.

Kontogiannis's attorney Gregory O'Connell said his client had taken full responsibility for the matter and "expressed his sincere remorse and hopes to put this difficult manner behind him."

Mortgage company CEO from Colts Neck admits fraud

The chief executive of a Marlboro-based residential loans company pleaded guilty in federal court to bilking mortgage lenders out of more than $11 million to fund a lavish lifestyle through wire fraud, according to federal prosecutors.

David Findel, 45, of Colts Neck, who is president and CEO of Marlboro-based Worldwide Financial Resources, faces 20 years in federal prison and fines that could total more than half the amount he stole, after admitting he prepared and sold fake mortgage loans from 2008 through September 2009, according to U.S. Attorney Paul J. Fishman.

Findel on Thursday told U.S. District Court Judge Peter G. Sheridan that after selling an original loan to a third-party lender, he would create a second set of fraudulent mortgage documents for the same property to sell to another third-party lender and keep the proceeds of the second mortgage loan.

Mozilo Settles SEC Fraud Claims For $67.5 Million

Angelo Mozilo, former Countrywide Financial Corp. Chief Executive Officer, has agreed to settle fraud claims for $67.5 Million. $22.5 million will be paid as penalty and $45 million will be taken from the gains in selling inflated shares. In addition, he was barred by the SEC from serving as an officer or director of a public company.

“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite, a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” Robert Khuzami, director of the SEC’s enforcement division, said in the statement.

Alongside Mozilo, Former Chief Financial Officer Eric Sieracki and former Chief Operating Officer David Sambol also agreed to settlements. Sambol agreed to pay a $520,000 penalty and $5 million in disgorgement, and Sieracki agreed to pay a $130,000 penalty.

“Countrywide Financial Corporation will advance funds to Mozilo and Sambol as required by the indemnification provisions of its corporate bylaws in these circumstances,” according to the bank’s statement. “Those funds will be used by the defendants to pay the non-penalty amounts ordered by the Court.”

The penalty and disgorgement payments will go to the settlement fund for the Countrywide securities class action that Bank of America agreed to settle in April for $600 million.

See, also, How Countrywide Covered the Cracks

Mr. Mozilo and his two former colleagues were accused of misrepresenting the company’s declining lending standards during 2006 and 2007 and portraying themselves publicly as underwriters of high-quality mortgages even as they learned that the company’s loans were becoming increasingly risky.

The government also contended that Mr. Mozilo and Mr. Sambol improperly profited on inside information about the company’s problematic loans when they sold Countrywide shares. From May 2005 to the end of 2007, Mr. Mozilo generated $260 million from his stock sales, while Mr. Sambol’s sales produced $40 million, the government says.

“As is the case with most settlements, this is a compromise where nobody comes out a complete winner,” said Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels. “The S.E.C. gets a substantial monetary settlement and a bar with respect to Mozilo serving as an officer or director. On Mozilo’s side, he is probably satisfied to have this behind him.

Lawyers for Mr. Mozilo declined to comment. Mr. Sambol’s lawyer said his client had “put the matter behind him for the benefit of his family and loved ones.”

That article, in particular, is worth a read-through. It is full of not previously disclosed admissions of how bad things were known to be, but covered up.


Now, one example of how the fraud MAY have worked, but due to technical legalities, we will not find out:

BofA's Countrywide wins dismissal of mortgage case

Investors cannot force Countrywide Financial Corp to buy back mortgages that the lender agreed to modify, a New York court ruled.

Kapnick ruled that the two plaintiff investment funds had not complied with requirements necessary to sue -- including a provision mandating that they gather the support of 25 percent of investors.

Bank of America spokeswoman Shirley Norton said they are pleased the court recognized the 25 percent rule.

"These preconditions protect investors collectively against ill-conceived litigation forays that could prove damaging to investors -- such as the Greenwich plaintiffs' bid, which would effectively halt all modifications of distressed mortgages," Norton said.

The decision by New York State Supreme Court Justice Barbara Kapnick, made public on Wednesday, dismissed a lawsuit brought by two investment funds.

Also, NY judge rules in favor of Countrywide in lawsuit brought by investors over pooled mortgages

The funds, which own securities made up of pooled mortgage loans, claimed Countrywide reduced payments due on hundreds of thousands of home loans by as much as $8.4 billion and failed to buy the mortgages back from investors.

The investors claimed Countrywide was required under a contract to buy back any mortgages that it modified to lower borrowers' payments.

If forced to absorb lower payments on the mortgages, the value of the securities will decline, the funds argued.

William Frey, chief executive of Greenwich Financial Services in Greenwich, Conn., said Wednesday those issues remain unresolved by the ruling.

"This case was not decided on the merits, it was decided on a procedural issue," Frey said, adding that his lawyers are deciding whether to appeal the decision or refile the lawsuit.

Taking notes

Some people are taking notes, and some aren't.

Guambat has joined the throng to blog on about the so-called "fauxclosure" fanfare of recent times, and this is not the post that will distract him from that hullabaloo.

Because, however hard it may be to swallow, the achilles heel to the security issues facing the real estate securitization cabal is the failure to keep notes, assignments and mortgages together, and the following stories may just be the first swallow of the spring, though, of course, one swallow does not a spring make.

But first, stop reading this post and go read this Washington Post article, for necessary background and color:

For foreclosure processors hired by mortgage lenders, speed equaled money

Millions of homes have been seized by banks during the economic crisis through a mass production system of foreclosures that was set up to prioritize one thing over everything else: speed.

Law firms competed with one another to file the largest number of foreclosures on behalf of lenders - and were rewarded for their work with bonuses. These and other companies that handled the preparation of documents were paid for volume, so they processed as many as they could en masse, leaving little time to read the paperwork and catch errors.

And the big mortgage companies overseeing it all - including government-owned Fannie Mae - were so eager to get bad loans off their books that they imposed a penalty on contractors if they moved too slowly.

The system was so automated and so inflexible that once a foreclosure process began, homeowners and consumer advocates say, there was often no way to stop it.

The financial incentives show that the problems plaguing the foreclosure process extend well beyond a few, low-ranking document processors who forged documents or failed to review foreclosure files even as they signed off on them. In fact, virtually everyone involved - loan servicers, law firms, document processing companies and others - made more money as they evicted more borrowers from their homes, creating a system that was vulnerable to error and difficult for homeowners to challenge.

As was said, go read the article, all of it. The authors did a great job.

Anyway, Michael A. Fox of Johnstown, Ohio, has been taking notes about the goings on down in Florida, because what happens in Florida hardly ever stays in Florida.

Johnstown man sues GMAC Mortgage, alleges fraud in foreclosure process

In his complaint, filed in Common Pleas Court, Fox seeks at least $25,000 in compensatory damages and $25,000 in a civil penalty, plus undetermined punitive damages that his attorney said will be 2 percent of GMAC's 2009 gross revenue.

The complaint states that Jeffrey Stephan, who signed Fox's foreclosure assignment Jan. 26, 2009, also testified in a Florida state foreclosure case that he signed 10,000 affidavits and assignments in a month without knowledge of the cases or verifying the accuracy of the information.

"Stephan knew or should have known that these hundreds of affidavits would be filed in Ohio courts and relied upon by Ohio common pleas court judges in deciding whether one plaintiff in the particular case had a right to foreclose on Ohio residents," Fox states in his complaint. "GMAC knew or should have known the same."

The court has not yet issued a final order, which precedes a sheriff's sale, said Fox's attorney, John Sherrod.

Sherrod said he has no idea who actually owns the promissory note on Fox's mortgage because it has been assigned so many times.

Barry Ritholtz related a little story about that guy, Jeffrey Stephan:

I’ll let Thomas A. Cox, a retired lawyer, describe GMAC’s foreclosure process and the work of its limited signing officer, Jeffrey Stephan in a court filing:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

Meanwhile, an alleged mortgage originator seems to have joined Fauxclosures Anonymous, and issued something of a confession, for which Guambat fervently hopes he gets off at least as lightly as Angelo Mozilo.

The art of mortgage fraud

How do you get official approval of large-scale fraud, theft, and racketeering? You become a mortgage originator (i.e. a “Too-big-To-Fail bank”) like me. Let me walk you through the scheme:

Once you entice the “borrower” into your institution, you have them sign an IOU – a promise to pay on a mortgage which is backed by overvalued real-estate.

Now that you have their note, you're ready to make a real killing by trading this thing up. Stay with me, because this is where it gets really interesting. It's time to “secure” this debt by coming to agreeable terms with securitizers and ratings agencies. Let the raters AAA rate pretty much everything you throw at the securitizers who's job it is to bundle your mortgages into a trust. They can do this without even reviewing the paperwork because, and here is the beautiful part, there is no paperwork.

Why is there no securities paperwork, you ask?

Remember, the trust that underlies a mortgage backed security (MBS) must hold the borrower's note. If the trustee isn't given the note within 90 days after signing, the securities are not legal instruments. All that counts is that we “assign” the deed of trust to whomever “holds” the mortgage to keep the charade going.

Now, no one wants to pay pesky taxes and recording fees for every change of custody the mortgage takes. Let's get some background on this last point from L. Randall Wray, Professor of Economics at University of Missouri, a guy who's analyzed the goings on in the securities industry:

“MBSs are typically pooled through a Real Estate Mortgage Investment Conduit (REMIC) that must according to the Internal Revenue Code hold all the paperwork demonstrating a complete chain of title. Done properly, taxes are avoided. Since a number of intermediaries are usually involved from the mortgage originator through to the trustee of the REMIC, there must be endorsements all along the line. However, it now appears that most of the original notes are still held in the loan originator warehouses. There are no endorsements. The trustees do not have the notes.”

So why do we hold on to the promissory notes while fraudulently assigning the mortgages to a trust? Well, exposing the notes to investor scrutiny would be pretty silly. You don't inform the mark they're being conned. Wray does a great job of explaining how the situation has played out thus far:

“...The tranching process actually prohibited assignment of the notes to the REMICs. Bundles of mortgages of varying quality would be tranched into a variety of securities, say from AAA to BBB. But no individual mortgage is actually assigned to a particular tranche—until it defaults. When one defaults, it is assigned to a lower tranche security and then the foreclosure process begins. This means that from inception of that BBB security, there was no way to assign a note to the trustee because the trustee did not know in advance which mortgage would default. The REMIC trustees tried to get around that by using a dummy conduit called MERS (Mortgage Electronic Registration System) that would “hold” the mortgages and assign them to the proper tranches later. But they do not have the paperwork either, and some courts have rejected their claims as owners.”

Let's just hope borrowers don't start asking for their notes en masse (knock on wood). You see, in our greed and haste we successfully separated the note from the trust deed, leaving trustees with only an “accessory” instrument. If mortgage holders try to foreclose with only the mortgage assignment in their possession, well, in 45 US states they'll be out of luck in a court of law.

A foreclosure mess of their own design, by Andrew Leonard

Why do some courts consider a properly prepared document trail for mortgage loans so important? Christopher Peterson, a law professor at the University of Utah, provides part of the answer. He quotes a federal bankruptcy judge:

Lest one think that the ... Courts have exalted form over substance, it is critical to note several concepts.... [W]e are dealing with interests in Land -- not a security interest in an inventory of plumbing fixtures, in chinchillas, in canned corn, or in a lawn and garden tractor. Land. Land is certainly the asset which people deem to be their most important "possession": There is no other "thing" more important historically in our culture tha[n] an interest in land, whether that interest be in a condominium, in a house, or in farm. Land. The transferring of interests in land has been entrusted to a system of records that allows people to be certain that this single most important asset in their lives is indeed going to be theirs, and that the encumbrances recorded with respect to this asset are in fact accurate and valid. It is therefore absolutely imperative that transactions in land be guaranteed to vest title in the people who invested in those transactions, and that the investors know definitively the interests in the land in which they invest which may affect their interests in this singularly important asset. The record of land transactions in the Recorder's Office provides this critical assurance. Perhaps the most critical aspect of this "chain" of assurance is to guarantee as much as possible on the face of an instrument that a person purported to have signed a document which affects interests in land actually did sign that document.

That quote comes from the riveting paper, "Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System," published in the Summer 2010 issue of the University of Cincinnati Law Review. (Hat tip, Felix Salmon.)

Badges! We don't need no steenking affidavits

There's a bit of a con game going on with the foreclosure issues, as you would expect given Wall Street's involvement and the heaps of money at stake. The con is that this is just a case of a little bit of paperwork error and that we need to sweep it all under the rug because we don't need to spend all this time and money protecting admittedly defaulting homeowners.

The truth is, this is about getting a quick fix to paper over the paper gufflaw to protect Wall Street.

Here's the con, the "insignificant" paper error and the merit-less defaulting owner (the payoff to the banks is down below):

A Primer On The Foreclosure Crisis

So what’s going on here? Why is the foreclosure machinery of our nation’s largest banks suddenly grinding to a halt?

In 2007, a federal judge held that Deutsche Bank lacked standing to foreclose in 14 cases because it could not produce the documents proving that it had been assigned the rights in the mortgages when they were securitized.

Now, Guambat can digress to tell you, in days gone by he has had to pursue many collection cases, most of them default, and in every case he had to prove his claim, under penalty of perjury and loss of professional license, if not further penalty to both Guambat and Guambat's client, whose claim he was averring.

The federal judge's decision against Deutsche Bank is entirely consistent, routine and unremarkable in Guambat's admittedly limited experience.

Maybe in other places the courts just take the lawyer's word for everything.

Now wouldn't that be a happy world!?

But back to the CNBC Primer:

Every time a mortgages changes hands, the new owners are supposed to receive an “assignment” of the mortgage notes from the buyers. The assignment is typically a short little document signed by both the seller and buyer of the mortgage acknowledging the sale, which is then attached to the mortgage documents themselves and delivered to the new owner.

When a mortgage is securitized it is typically sold to a Wall Street firm, which pools the mortgage with thousands of others. Investors buy slices of the pool, entitling them to cash-flows from the mortgage payments. The actual mortgages are assigned to a newly created investment vehicle. A servicer is tasked with ensuring the payments to borrowers get divided up properly and that delinquent borrowers get foreclosed upon.

Here’s where things get tricky. When a mortgage is securitized, the investors in the mortgage bonds don’t get assignments or notes. The investment vehicle doesn’t get the assignments or notes either. Instead, the physical notes are typically sent to a document repository company. The transfer of interests is noted in an electronic database.

For most mortgages, the note probably still exists somewhere.

Guambat can only day dream about telling the judge that a contract or a mortgage or an assignment must surely exist somewhere. Oh what a wonderful place where judges say, "no problemo, Counselor: proceed".

And it is in this sarcastic world that some of the commentators actually live, lost in the daydream, as this following comment from a Bloomberg report illustrates.

A complete halt would be “catastrophic” for the U.S. economy and hurt home sales, said a statement today from President Tim Ryan at the Securities Industry and Financial Markets Association, Wall Street’s biggest lobby.

SIFMA, which represents Wall Street securities firms, banks and asset managers, said a moratorium would “unjustly” create losses for housing market investors, including workers with pensions, retirement accounts or mutual funds, and “further constrain consumer credit and spending” because of uncertainty in the securitization market.

Thomas Brown, chief executive officer of Second Curve Capital LLC said “People on average have not been paying for a year and a half and that’s not in dispute,” Brown told Tom Keene and Ken Prewitt on “Bloomberg Surveillance” this morning. “A third of these homes that are in foreclosure are completely empty, so people have already left or they never actually owned them because they were investors.”

So, why even bother with all that "proofy" stuff?

Just go take it away; won't take long to sort this out. We don't need no steenking poofy proofies. It ain't nuthin' more than paper work, anyway. Hey, give a bank a break!

"Rocket Docket" rushing foreclosures, lawyers say

With 15,000 open foreclosure cases in Duval County, it's staffed by retired judges with a goal of resolving 25 cases an hour, leading some critics to label it the "Rocket Docket," and there are harsher descriptions as well.

"The fundamental problem," said Chip Parker, an attorney who specializes in foreclosure defense, "is that for the first time, this court was created with the specific goal of reducing foreclosures 62 percent."

"If they find for the defendant, the plaintiffs [usually lenders] just refile," he said. "The only way to reduce [the case load] is to give it to the plaintiff. It's designed with a result in mind, and that's not how justice is supposed to work."

Now, here's the payoff for the con, saving Wall Street's ass -- again. At our expense -- again.

Don't Underestimate the Fauxclosure Mess

Massive liability for banks

Washington Post writer Ezra Klein spoke with Congressman Brad Miller (D-N.C.) about what this mess could mean for the banks. According to Miller:

There is massive potential liability for the securitizers, which are mostly the biggest banks. The contract was that if mortgages didn't meet certain requirements, then the securitizer would buy them back.

There's been lots of litigation where investors try to get securitizers to buy back the bad mortgages because they were flawed, but that litigation has been stymied by procedural objections.

If the private investors can break through that defense and require the mortgages that don't meet the requirements to be bought back, the liabilities for the biggest banks will be enormous.

The controversy also raises more questions about investment banks such as Morgan Stanley and Goldman Sachs that securitized these mortgages in the first place.

BUT WAIT, THERE'S MORE:

Foreclosure Fear: Q&A Risk Analytics Chris Whalen

All the documents are questionable.

If the lien wasn't changed, you can't go into court and foreclose. You can't stand up in front of the judge and say "I am the party who owns the mortgage your honor." He's going to look at the docket and if the record in the New York State courthouse doesn't say that he's the owner - he may not agree.

So when you have an imperfection in the record, you're in big trouble as a lender. You basically have an unsecured loan. That's the issue that's really going to commit the banks this year and next year.

Investors are going to sue them [banks] because they were sold a security that was fraudulent. It was not collateralized. And the underwriter of the security did not take the steps required to go out there and perfect the collateral lien, because they wanted to keep the extra half point for themselves as profit in the underwriting instead of having it as the expense for the underwriting.

The fact of bad documentation does not change the fact that the mortgage is bad.

The fact that Wall Street didn't want to spend an extra half point when they did a mortgage-backed security to send paralegals around the country to change the collateral lien on the mortgage - nobody noticed.

Factbox: The role of MERS in foreclosure furor

WHAT IS MERS?

MERS, based in Reston, Virginia, is a private company owned by leading banks and mortgage processors. They founded it in 1995 to speed up legal record-keeping of mortgages and sales of mortgage loans through securitizations. Its main purpose was to be an electronic registry that would keep track of repeated sales of mortgage loans as the number of new mortgages and refinancings boomed.

WHY IS MERS FACING LEGAL CHALLENGES AND GOVERNMENT INQUIRIES?

MERS, on behalf of the banks and myriad trusts that own the mortgage loans, has initiated thousands of foreclosure actions around the country, as the "mortgagee of record" listed on homeowners' mortgages. Homeowners' lawyers and advocacy groups contend that MERS has no right to initiate the actions because it doesn't own the mortgage loans. Lending laws specify that only the actual owner of the loan can file a foreclosure action. Lawyers also have alleged that MERS bypassed laws requiring mortgages and refinancings to be recorded in county recorders offices. Issues have been raised in several court cases about whether MERS misled courts about ownership of the loans.

The Ball and Chain of Title

It has been talked about round the blogosphere for yonks now that the financial gamesmanship of mortgage securitization, almost from the beginning, was running well in advance of the legal niceties.

In the olden days when Guambat was a young lawyer, a loan was made, attached to a promissory note and secured by a piece of property in a solemn, monogamist and ever-lasting marriage. Hardly any action involving title could be finalized without producing every piece of paper signed off by every interested party, notarized and certified under penalty of perjury.

But securitization tore apart that happy home, slicing, dicing, and re-splicing all the rights, powers and interests in ways previously seen as impractical legally, if not a bit over the top in a sluttish sense.

Whereas the one heretofore monogamist mortgage once knew its related parts, now who knew who owned, controlled or beneficially or otherwise benefited from capital, income or pee stream?

And if the marriage broke up for whatever reason, what King could possibly put the Humpty Dumpty melange of interests together again?

Well, it's beginning to look like a King-hit on the entire mortgage industry. The second fallout from the screaming securitization of the financial wizards.

Will this one be as bail-outable as the first? Shall Guambat begin passing the plate?

The Foreclosure Scandal Begins to Hit Home

In foreclosure controversy, problems run deeper than flawed paperwork

Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.

Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.

These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."

The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.

For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.

For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.

The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.

MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.

The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company's role caused few objections until millions of homes began to fall into foreclosure. In August, the Maine Supreme Court threw out a foreclosure case because "MERS did not have a stake in the proceedings and therefore had no standing to initiate the foreclosure action."

In May, a New York judge dismissed another case because the assignment of the loan by MERS to the bank HSBC was "defective," he said. The plaintiff's counsel seemed to be "operating in a parallel mortgage universe," the judge wrote.

Also in May, a California judge said MERS could not foreclose on a home, because it was merely a representative for Citibank and did not own the loan.

On the other hand, Minnesota legislators passed a law stating that MERS explicitly has the right to bring foreclosure cases. And on its Web site and in e-mails, MERS cites numerous court decisions around the country that it says demonstrate the company's right to act on behalf of lenders and to undertake foreclosures.

Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.

"They have no legal standing and no right to foreclose," McKeever said. "If you or I did this one time, we'd be in jail."

Flawed Foreclosure Documents Thwart Home Sales

With home sales this past summer at the lowest level in more than a decade, real estate is ill-prepared to suffer another blow. But as a scandal unfolds over mortgage lenders’ shoddy preparation of foreclosure documents, the fallout is beginning to hammer the housing market, especially in states like Florida where distressed properties are abundant.

Three major mortgage lenders — Bank of America, GMAC Mortgage and JPMorgan Chase — have said they are suspending foreclosures in the 23 states where they first need a judge’s approval. They are also waving off Fannie Mae from selling any of the foreclosed homes whose loans they sold to Fannie.

The companies say they are reviewing their operations after disclosures that employees signed documents without determining the accuracy of the material, as is required by law.

Those reviews are throwing into limbo hundreds of thousands of foreclosures and pending home sales, analysts estimate, though the lenders and Fannie Mae have been mostly silent about precise numbers and other specifics.

More broadly, the revelations about the sloppy paperwork are emboldening homeowners and law enforcement officials in many states to question whether lenders rightfully hold the notes underlying foreclosed properties — further chilling the housing market.

Ohio Attorney General Sues GMAC Over Improper Affidavits; Maximum Damages Exceed $10 Billion

So much for the idea that the affidavit problem is a mere technicality and a mere operational hassle for the banks. They had clearly viewed complying with their own agreements as an option, not a requirement, with the savings for cutting corners only somewhat offset by the costs of getting caught from time to time.

Some jurisdictions aren’t buying the banks’ “crime pays” logic. These abuses challenge the basic principles of the rule of law.

Admittedly, the affidavit problem is a secondary front in the overall bank “my dog ate your mortgage” mess. But the fact that a supposedly minor problem may not prove to be so minor illustrates that all these battles will be hard fought and thus more costly than the banks’ breezy assurances would lead one to believe.

The ultimate objective is to break the excuses that the banks have been using to avoid doing serious principal writedowns. If one state is able to get a mass settlement, whether in the course of private action or state attorney general suits and investigations, it will be a precedent that other banks will find difficult to ignore.

Ohio Attorney General Sues GMAC, Seeks $25,000 Per False Affidavit

Richard Cordray, the Attorney General for the state of Ohio has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

“It is now becoming clear that fraud, deception, and an utter disregard for accuracy are in part to blame for our national foreclosure disaster,” Cordray said in prepared remarks. “What we are seeing and hearing strikes at the very foundation of the rule of law in our court system… Clearly any fraud or deception that has contributed to this state of affairs must be stopped, and those responsible must be held accountable.”

When challenged by one reporter about the fact that the borrowers were in fact delinquent and that merits some action on the part of the lender, Cordray struck back. “What each side merits is that proper legal processes be carefully followed… If we would file a case with an affidavit we know to be false, that is seen as a very serious matter by the court. I don’t see why this should be taken any more lightly.”

Is HR3808 The Equivalent Of TARP 2 And Obama's "Get Out Of Bail" Gift Card For The High Frequency Signing Scandal?

Now that the High Frequency Signing (HFS, not to be confused with HFT) scandal is mainstream, and virtually every single foreclosure in the US in the past several years is under question, with the impact on mortgage servicers (who just happen to be the TBTF banks) could be just as dire as the fallout from the credit crunch, it appears that the get out of jail card for the banking syndicate has once again materialized, this time in the form of bill HR3808: Interstate Recognition of Notarizations Act of 2009, sponsored by Republican representative Robert Aderholt.

In summary, the bill requires all federal and state courts to recognize notarizations made in other states. That's the theoretical definition: the practical one - the legislation, if enacted, could protect bank and mortgage processors from liability for false or improperly prepared documents.

Bank foreclosure cover seen in bill at Obama's desk

The timing raised eyebrows, coming during a rising furor over improper affidavits and other filings in foreclosure actions by large mortgage processors such as GMAC, JPMorgan and Bank of America.

"It is troubling to me and curious that it passed so quietly," Thomas Cox, a Maine lawyer representing homeowners contesting foreclosures, told Reuters in an interview.

A deposition made public by Cox was what first called attention to improper affidavits by GMAC. Since then, GMAC, JPMorgan and others have halted foreclosure actions in many states after acknowledging that they had filed large numbers of affidavits in which their employees falsely attested that they had personally reviewed records cited to justify the foreclosures.

Cox said the new obligation for courts to recognize notarizations of documents filed by big, out-of-state companies, would make it more difficult and costly to challenge the validity of the documents.

The law, the "Interstate Recognition of Notarizations Act," requires all federal and state courts to recognize notarizations made in other states.

The law specifically includes "electronic" notarizations stamped en masse by computers. Currently, only about a dozen states allow electronic notarizations, according to the National Notary Association.

After languishing for months in the Senate Judiciary Committee, the bill passed the Senate with lightning speed and with hardly any public awareness of the bill's existence on September 27, the day before the Senate recessed for midterm election campaign.

The bill's approval involved invocation of a special procedure. Democratic Senator Robert Casey, shepherding last-minute legislation on behalf of the Senate leadership, had the bill taken away from the Senate Judiciary committee, which hadn't acted on it.

The full Senate then immediately passed the bill without debate, by unanimous consent.

Boiler Rooms and Foreclosure Mills: A Brief History of America's Mortgage Industry

Just about every corner of America's mortgage industry has been blemished by significant levels of fraud over the past decade.

On the front end of the process, for example, many mortgage pros used "boiler-room" salesmanship to peddle loans to borrowers who didn't understand what they were getting and couldn't afford their loans in the long run. To make these deals go through, some workers forged borrowers' signatures on key disclosure documents, pressured real estate appraisers to inflate home values, and created fake W-2 tax forms that exaggerated loan applicants' earnings.

At Ameriquest Mortgage, one of the companies I focus on in my new book about the subprime mortgage debacle, The Monster, this sort of cut-and-paste document production was so common employees joked that the work was being done in "The Lab" or the "Art Department."

Little was done to stop the bad practices when they were happening. Former Federal Reserve Chairman Alan Greenspan would later explain to CBS' 60 Minutes: "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late. I didn't really get it until very late in 2005 and 2006." The Fed took no action even when it became aware of the problems, he said, because "it's very difficult for banking regulators to deal with that."

Congress and other powers in Washington failed to get the facts and act the first time around -- when lenders were engaged in a frenzy of predatory lending. The foreclosure scandal is a second chance for lawmakers and bureaucrats to prove that they can ferret out the truth and take action.

In the Last Four Months, Three Homeowners Have Sued Bank of America for Mistakenly Foreclosing on Their Homes

Some 2.8 million homeowners faced the threat of foreclosure last year, but it wasn't supposed to happen to Charlie and Maria Cordoso. In 2005, the New Bedford, Mass. couple paid in full -- in cash -- for a house in Springville, Fla., and rented it out with plans eventually to use the home as a retirement getaway.

They said they were shocked to learn earlier this month that Bank of America had locked them out and removed their clothing and furniture from the property.

"It's a national issue," said Joseph deMello, one of lawyers representing the Cordosos.

Bank of America actually had planned to foreclose on a property about 10 houses away but mistakenly went after the Cordosos' home instead, deMello said.

Foreclosure experts like Rick Sharga, of California-based foreclosure tracking firm RealtyTrac, say cases like these are symptomatic of a broken system strained by the housing boom and bust.

Banks have been "unable to efficiently handle the volume of distressed assets that are coming through," Sharga said. "We also are seeing the results of what had been less-than-rigorous paperwork and documentation management over the last decade or so as loans became commodities that were packaged, sold, repackaged and resold."

Sharga said that while human error contributed to errant foreclosures in the past, they're happening with greater frequency now as banks find themselves overwhelmed with delinquent mortgages.

Updating the US foreclosure scandal

Bombshell of Foreclosure Fraud – Full Deposition of TAMMIE LOU KAPUSTA Law Office of David J Stern

Freshly squozen

"Perhaps banks should go back to giving away toasters.
Rising short-term interest rates, and the failure of long-term rates to rise with them, have caused margins at federally-insured banks and thrifts to shrink to their lowest level in 15 years, the Federal Deposit Insurance Corp. said on Thursday.
Margins are now the lowest since the third quarter of 1990, when the U.S. economy was in recession.
Large institutions are feeling more pain because they rely more on short-term borrowings for funding, the FDIC said." http://today.reuters.com/investing/financeArticle.aspx?type=fundsNews2&storyID=URI:urn:newsml:reuters.com:20050825:MTFH08690_2005-08-25_20-11-15_N25339356:1

So the banks turn to the real estate market for a fix:

"Lenders 'will do almost anything possible to keep the mortgage factories humming,' wrote CreditSights Inc. analyst David Hendler in June. 'The catch here is that the deep-discount mortgages entice more customers today who may not be able to handle the much higher mortgage payments later.'"
http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nN25602097