SEC Examining Role of Servicers, Whether Mortgages Transferred to Trusts « naked capitalism

Friday, December 17, 2010

SEC Examining Role of Servicers, Whether Mortgages Transferred to Trusts

Hhhm, despite the breezy assurances of the American Securitization Forum that everything was handled properly when residential mortgage backed securitizations were created, the SEC does not seem completely convinced. Reuters reports it has expanded its ongoing probe into foreclosure practices (hat tip Lisa Epstein):

The Securities and Exchange Commission launched the new phase of its investigation by sending out a fresh round of subpoenas last week to big banks like Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co, the sources said.

The SEC’s subpoenas focus on the earliest stage of the mortgage securitization process, said the sources, who requested anonymity because the probe is not public.

The sources said the SEC is asking for information about the role of so-called “master servicers” — specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.

In many cases, Wall Street banks that underwrite mortgage-backed securities either own their own master servicing firms or are closely aligned with one….

One of the sources said the SEC is seeking information about the role banks had in mortgage securitization. The regulator is also looking at the role trustees for the trusts that issued the mortgage-backed securities had in monitoring the performance of the underlying loans.

The SEC is looking at whether loans were properly transferred to the trusts that issued the securities, the source said.

This is a positive development, but we’ll know the authorities are really taking problems in this space seriously when they audit servicer software and processes to see how the apply borrower payments, levy charges, and deal with borrower questions and complaints about the accuracy of their payment record.

19 Comments:

Francois T says:

December 17, 2010 at 5:13 pm

The SEC?
As in Society for the Exculpation of Corporations?

That’ll raise my hopes so much…

david chessik says:

December 18, 2010 at 1:57 pm

SEC no evil. The will find and report that the banksters are honorable. The SEC previously deleted computer files relating to reports about the transfer of notees to trusts. The SEC, the FED, MERS, GS, JPM, are parts of the same monster.

indio007 says:

December 17, 2010 at 5:54 pm

What the hell took so long? After listening to FDIC , OCC, FHDC, Treasury , IRS all claim lack of authority they pop their ostrich head out?

Securitization antics is the reason the SEC was invented. Taking a individual’s private security (mortgage note) sprinkling legelase voodoo on it then offering it publicly without recourse to the witch doctor???? This should have had these guys foaming at the mouth from go.

readerOfTeaLeaves says:

December 17, 2010 at 5:59 pm

This is a positive development, but we’ll know the authorities are really taking problems in this space seriously when they audit servicer software and processes to see how the apply borrower payments, levy charges, and deal with borrower questions and complaints about the accuracy of their payment record.

Yup. And not just the versions of the software currently in use, but going back to the origins. And not just Company A’s software, but also the interconnections.
And while the SEC is at it, here’s hoping they impound a lot of hard drives and check them thoroughly for wiped files.

Texas Reader says:

December 17, 2010 at 6:03 pm

And Housing Wire has this little gem:

“Arizona attorney general Terry Goddard is suing Bank of America Corp. (BAC: 12.57 +0.40%) and its affiliated companies, alleging the company violated the Arizona Consumer Fraud Act as well as a consent judgment entered in March 2009 between Arizona and the Countrywide companies now owned by BofA…..”

RDE says:

December 17, 2010 at 6:38 pm

Bank of America stock up 15.5% since December 1. Savy investors just love that fraud—-. And are voting with their dollars that there will be no consequences.

Paul Repstock says:

December 18, 2010 at 2:23 am

You might think this a logical consequence of a perception that the banks will not be allowed to go bankrupt (that they essentially have bankruptcy insurance due to their links to the government), thus making big banks a fool proof investment.

I see it slightly differently. During my many years in the markets I have observed that the public seems to want to buy when prices are high and rising. The back side of this is that when insiders want to sell, they want to do so at high prices rather than low. When so little of price setting mechanisms is actually in public hands, the prices are determined by institutional holders.

Therefore, perhaps when enough stock has been unloaded and “shorted”, then these TBTF’s suddenly won’t be??

Just a thought.

jal says:

December 17, 2010 at 6:49 pm

http://www.scribd.com/doc/33940688/3/III-SECURITIZATION’S-RIGIDITIES

REWRITING FRANKENSTEIN CONTRACTS:
WORKOUT PROHIBITIONS IN RESIDENTIAL MORTGAGE-BACKED SECURITIES

ANNA GELPERN*
ADAM J. LEVITIN

Rewriting PSAs will not resolve today’s financial crisis. Yet voluntary foreclosure prevention initiatives are unlikely to succeed as long as contract rigidities persist. The continuing foreclosure epidemic also holds an important lesson for the future: even where contract rigidity makes perfect sense for the parties, pervasive rigidities can have catastrophic consequences for financial stability and for society.

skippy says:

December 17, 2010 at 6:50 pm

Offspring of bank stress tests???

Skippy…paint me dubious…

matthew slaughter says:

December 17, 2010 at 6:57 pm

its funny, buried in the comments sections on slashdot every now and then, on a story on, say, database technology for exxample, you will see a comment like ‘i was hired by a major mortgage companies to work on their database. i went in there,, the guys who had been running it were clueless.’

Chris says:

December 17, 2010 at 6:58 pm

The market is controlled by the large financial institutions so it is no surprise to see bank stocks higher. The large funds control 70% of the trades in the stock market according to what I read in Econned. The more the banks are allowed to get away with their schemes banks stocks will go higher.

I think people are starting to realize that the banks have control of the country. There will be little done to take away their power. It is clear that the banks have committed numerous illegal acts but they have suffered no repercussions. Actually their egregious behavior had been rewarded with huge bonuses and free capital.

How could we believe any different after seeing the top financial executives at a summit with the president.
Wall Street has its tentacles touching everyone in Washington and no one will dare tell them to knock it off.

More on Bank State here.
http://financialrealityrevisited.blogspot.com/2010/12/bank-state-already-here.html

noash says:

December 17, 2010 at 7:07 pm

It looks like the SEC isn’t the only thing B of A and other bankers have to worry about. The states of Nevada and Arizona are suing B of A over loan mods. Wall Street Journal http://tinyurl.com/26j3vgq

ex-PFC Chuck says:

December 17, 2010 at 7:20 pm

Does anyone know what’s behind this t**d that the Fed just dropped on the table:

Right now the Federal Reserve Board is proposing a new rule to make changes to rescission and disclosure provisions in the Truth in Lending Act. There’s no urgency to do this, especially right now with the mortgage market so weak and suspicion about lenders and servicers so high. The way it is being done is that it looks like it wants to circumvent the new consumer protection agency before it is up and running; given the bad history of mess-ups with the Federal Reserve and consumer protection, wouldn’t it be wise to wait just a little while longer?

See Rortybomb’s post here: http://tinyurl.com/2b25bua

Conscience of a conservative says:

December 17, 2010 at 7:38 pm

What took the SEC so long is right.

Lowest Bidder says:

December 17, 2010 at 7:39 pm

There are big defense contractors at work in the SEC. Fixin’ and upgradin’ and billin’. Let’s forge everything, including transfers ex-post facto, in the Digital reality of today, what was once a paper borne nuisance becomes the perfect white collar crime…
I’d like to see the Al Capones of Banking taken down, but the FBI is fixated on either the drug war or taking down their own spectacular bombing plots.
Meanwhile, the SEC appears to be perpetually groveling for relevance (as is any other corporate-bitch agency) It’s fear, loathing and check writing for the Feds, that’s all it ever was. Foreclosures as austerity, forget your lawnmovers and tomato plants, those days are gone.

za says:

December 17, 2010 at 8:18 pm

Let me guess the outcome… all very complicated, no one’s fault really, investigation closed.

ZADOOFKA FLORIDA says:

December 18, 2010 at 9:52 pm

You forgot: “big fine”.

razzz says:

December 17, 2010 at 10:00 pm

SEC is comfortable with investigating now, they just had a larger rug installed.

60sradical says:

December 17, 2010 at 11:56 pm

Yves, and regulars:
Actual “Govt. regulation” is an oxymoron. The regulators and the regulated financal fraudsters do not want SECURITIZATION to be understood by the American homeowners at any meaningful level, lest critcal mass is reached. It’s just a guess, but if 2-3% of American homeowners became hip to this most odious scene,we’d finally have millions of flaring pitchforks raised up. onward.

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