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The Legal Lie at the Heart of the $8.5 Billion Bank of America and Federal/State Mortgage Settlements

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Once in a while, you can discern a linchpin lie on which other important lies hinge. We can point to quite a few in America: the notion of a permanent war on terror, which somehow justifies vitiating not just the Constitution, but even the Magna Carta, or the idea of an imperial executive branch.

Now the apparently-to-be-filed-in-court-today Federal/state attorneys general mortgage settlement is less consequential than matters of life and limb. But it still show the lengths to which the officialdom is willing to go to vitiate the law in order to get its way.

HUD Secretary Donovan, the propagandist in chief for the Federal/state mortgage pact, has claimed he has investor approval to do the mortgage modifications that are a significant portion of the value of the settlement. We’ll eventually see what is actually in the settlement, but the early PR was that “no less than $10 billion” of the $25 billion headline total was to come from principal reductions. Modifications of mortgages not owned by banks, meaning in securitized trusts, are counted only 50% and before Donovan realized he was committing a faux pas, he said he expected 85% of the mods to be from securitizations, so that means $17 billion.

Bear in mind that investors, analysts, and commentators have objected to the very premise of this arrangement. A settlement involves a release of liability, and in anything other than the through-the-looking-glass world of rule by banks, the party that did the bad stuff is the one that pays for the settlement. This deal is like stealing your neighbor’s gold watch and using it to resolve charges of embezzlement.

But what about this investor approval that Donovan says he has? He has told both journalists and mortgage investors directly that the bulk of the mods will come from Countrywide deals and he has consent via the $8.5 billion Bank of America/Bank of New York settlement. Huh? First, it seems more that a bit cheeky to rely on a major piece of a program via a deal that has not yet gone through (the Bank of America settlement was removed to Federal court and has now been sent back to state court, and there will be discovery in the state court process, so approval is not imminent).

But second and more important, investors approved nothing. Bank of New York is trying to act well outside its authority as trustee for the 530 Countrywide trusts in the settlement. It’s tantamount to having a friend that you gave a medical power of attorney claim that it gave him the authority to sell your car and write checks on your account.

The terms of Countrywide PSAs vary, but all appear to restrict mods. The prohibitions varied by credit quality of the deal. Alt-A and early vintage (2004 and earlier) deals often barred mods completely; subprime and later vintage deals generally allowed for a higher limit on mods, with 5% the top amount across these deals. The idea was that some mods were expected in the dreckier mortgage pools. Nevertheless, all of them, as well as the few that had no caps, also required Bank of America to buy the modified loans back at par. That is something the battered Charlotte bank would be very keen to avoid doing.

Now remember, as we have discussed, that these Countrywide deals also typically elected New York law as governing law for the trust. New York trust law is both well settled and unforgiving. Trusts are permitted to act only as stipulated; any deviation is a “void act” and has no legal force. And a trustee can ONLY exercise the authority the trust has; as an agent, it cannot exceed the legal rights its principal has.

On top of that, Countrywide pooling and servicing agreements (the contracts that govern the securitizations, and in particular, set forth the duties of the servicer and the trustee), again like all PSAs, require an amendment to the PSA to change their terms. That in turn requires approval of the certificateholders, meaning the investors. Our Tom Adams has looked at a few Countrywide PSA, and what he has found so far is that it take the approval of either 51% or 2/3 of the certificateholders in each class, meaning in each tranche of the deal. To wit:

This Agreement may also be amended from time to time by the Depositor, each Seller, the Master Servicer and the Trustee with the consent of the Holders of a Majority in Interest of each Class of Certificates affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Holders of Certificates; provided,
however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, payments required to be distributed on any Certificate without the consent of the Holder of such Certificate, (ii) adversely affect in any material respect the interests of the Holders of any Class of Certificates in a manner other than as described in (i), without the consent of the Holders of Certificates of such Class evidencing, as to such Class,
Percentage Interests aggregating 66-2/3% or (iii) reduce the aforesaid percentages of Certificates the Holders of which are required to consent to any such amendment, without the consent of the Holders of all such Certificates then outstanding.

Now how does the Bank of America/Bank of New York settlement agreement deal with this wee problem? It pretends it does not exist (emphasis ours):

(e) Loss Mitigation Considerations. In considering modifications and/or other loss mitigation strategies, including, without limitation, short sales and deeds in lieu of foreclosure, the Master Servicer and all Subservicers shall consider the following factors: (a) the net present value of the Mortgage Loan at the time the modification and/or other loss mitigation strategy is considered and whether the contemplated modification and/or other loss mitigation strategy would have a positive effect on the net present value of the Mortgage Loan as compared to foreclosure; (b) where loan performance is the goal, whether the modification and/or other loss mitigation strategy is reasonably likely to return the Mortgage Loan to permanently performing status; (c) whether the borrower has the ability to pay, but has defaulted strategically or is otherwise acting strategically; (d) reasonably available avenues of recovery of the full principal balance of the Mortgage Loan other than foreclosure or liquidation of the loan; (e) the requirements of the applicable Governing Agreement; (f) such other factors as would be deemed prudent in its judgment; and (g) all requirements imposed by applicable Law. When the Master Servicer and/or Subservicer, in implementing a modification and/or other loss mitigation strategy (which may, pursuant to the Governing Agreements, include principal reductions), considers the factors set forth above, and/or acts in accordance with the policies or practices that the Master Servicer is then applying to its or any of its affiliates’ “held for investment” portfolios, the Master Servicer shall be deemed to be in compliance with its obligation to service the Mortgage Loans prudently in keeping with the relevant servicing provisions of the relevant Governing Agreement and the requirements of this Subparagraph 5(e), the modification and/or other loss mitigation strategy so implemented shall be deemed to be permissible under the terms of the applicable Governing Agreement, and the judgments in applying such factors to a particular loan shall not be subject to challenge under the applicable Governing Agreement, this Settlement Agreement, or otherwise. Notwithstanding anything else in this Subparagraph 5(e), no principal modification by the Master Servicer or any Subservicer shall reduce the principal amount due on any Mortgage Loan below the current market value of the property, as determined by a third-party broker price opinion, using a fair market value method, applying normal marketing time criteria and excluding REO or short sale comparative sales in the valuation calculation.

Now this might not strike you as amiss until you realize this deal is between the trustee, Bank of New York, and Bank of America. The investors are NOT party to it and their consent has not been obtained, either properly, via amendments to the PSA, or by any other means.

You might say, “Weren’t there 22 big investors who originally signed a letter that led to this deal?” Yes, and that happens to be irrelevant. Those 22 investors didn’t have even as much as 25% in most of the 530 trusts (the necessary percentage to take action against a trustee); there are many trusts in this settlement where these 22 investors have NO interest at all. So Bank of New York can’t pretend it has enough in the way of investors via the investor letter to give it the authority to ignore the PSA.

Keep this in mind: Bank of New York’s petition to the court to approve the deal in an Article 77 hearing makes NO mention of the fact that they will effectively be amending the PSA to permit modifications to stay in the trust and to exceed 5% of the pool balance.

Since the purpose of the hearing is to obtain a judicial determination whether Bank of New York acted properly in settling with Bank of America, one would assume the parties to the action are bound by the normal requirements of making accurate submissions to the court, just as they are at trial (Judge William Pauley, who approved the removal of the case to federal court, argued that this hearing fits “comfortably” within the definition of a trial). Thus BoNY should mention that the modification provision excerpted above requires an amendment which requires consent of 51% or more of the certificateholders in each class in each trust. Instead, they instead discuss the broad powers of the trustee! And yet they later argued the reverse to Judge Pauley. He noted in his ruling: “If, as BYNM [Bank of New York Mellon] argues, the only relevant legal standards for evaluating its conduct as trustee are found in the PSAs…” If they have only the authority given them by the PSA, they have no authority to authorized mods beyond those contemplated in the PSA for each deal.

And as we observed above even if BoNY could be argued to have additional authority under common law, that extra common law authority in New York is nada.

It is hard to conclude anything other than that Gibbs & Bruns, the firm representing Bank of New York, lied to the court about what the settlement constitutes and what the PSAs permit. The PSAs have very clear terms on modifications and changing them should require an amendment.

But lying to the court seems to be standard operating procedure for Kathy Patrick, the partner leading the settlement deal. Alison Frankel of Reuters described how Gibbs & Bruns lied about why they were leading this action:

The most dramatic moment at the Sept. 21 hearing on Bank of America’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors came near the end, when Gibbs & Bruns partner Robert Madden stood up to address Manhattan federal judge William Pauley’s concerns about how the settlement came to be. Tall and clear-spoken, Madden captured the judge’s attention as he explained that his clients, a group of 22 large institutional investors, hadn’t entered a sweetheart deal with BofA, but had banded together to force the bank to pony up billions to investors for claims BofA thought it would never have to deal with.

“The problem was that these repurchase claims were lying fallow,” Madden said, according to the transcript of the hearing. “No one was doing anything. None of (the investors now objecting to the deal) were doing anything. And, I’m sorry to say, the trustee wasn’t doing anything. Limitations were running on those claims, and nothing was happening.”

Or was it?

I’ve learned that in the summer of 2010, as Gibbs & Bruns began to push Countrywide MBS trustee Bank of New York Mellon to act on its assertions that mortgages underlying the Countrywide securities were deficient, another group of Countrywide MBS investors was finalizing its own notice of default to serve on BNY Mellon.

You need to read the Alison Frankel article in full to have some appreciation as to what happened. The pre-existing, and likely larger group of investors (I am told it included Fannie, which is one of the biggest investors in MBS) had concluded an investigation and found breaches in every single Countrywide securitization (Bill Frey had developed proof of Countrywide modifying loans where Bank of America owned a second lien behind that first and had not wiped it out first, as would be required). But when Fannie confirmed the Frey information and said it was in, Blackrock suddenly withdrew and went with Patrick, as shortly did another existing Gibbs & Bruns client, Pimco.

Now why, might you ask, would investors drop out of a group that had hard evidence of breaches and could prove real economic harm, and switch to one that could only handwave? I’m no fan of rep and warranty cases, and even so, I’ve estimated this deal is a screaming bargain for those liabilities alone; the servicing breaches that the earlier (Grais & Ellis) group found would add to the total value of the deal, as does its waiver on chain of title claims. It’s not hard to guesstimate that this settlement is worth easily ten times the $8.5 billion Bank of America plans to pony up. And Mr. Market agrees. BofA’s stock was trading below $6 when both settlements were in doubt; it’s now up more than 33%, closing last Friday at $8.05.

So why would Pimco and Blackrock abandon a strategy that would seem likely to bear more fruit? Recall that Blackrock signed on to the Gibbs & Bruns negotiated settlement while it was still 49% owned by Merrill, um, Bank of America. So its motives seem straightforward, even if they also happen to be a breach of its fiduciary duty to its investors.

Pimco is awfully active in Washington; it is almost certainly one of the fund managers that the Fed chooses to talk to about its interest rate thinking, which effectively means Pimco has permitted inside information (one of my readers refused to invest in Pimco funds because the returns were sufficiently out of line with benchmarks that the funds either had to be taking on more risk than they pretended to or were reliant on privileged information). So Pimco has plenty of reason to curry favor rather than make life miserable for Bank of America, and by extension, the Administration, which has thrown its lot in fully with the big banks.

Now let’s go back to the Donovan lie, which depends on the Gibbs & Bruns lie not being challenged by the court, or the $8.5 billion settlement not coming unglued for some other reason. Donovan is relying on the authority supposedly conferred by the $8.5 billion settlement…which has not been approved by court, meaning it is not yet valid and may not come to fruition. Yet (per leaks) the banks are to get credit for mods starting March 31 even though the Federal/state AG deal won’t be approved by that date either. And remember also that four other large servicers are signing up to the Federal/state settlement. Even though the authorities anticipate that the other major servicers will enter into private settlements along the BofA/BoNY lines once it is approved, that is some ways away even if everything breaks in the banks’s favor.

Recall how sanctimonious Timothy Geithner has been about not breaking contracts, such as the AIG credit default swaps agreements and employment contracts with AIG staffers. Similarly, Obama pay czar Kenneth Feinberg excoriated bankers for the bonuses they took out of firms they blew up but refused to try to claw back pay, because it might lead to lawsuits. So? The Administration didn’t necessarily need to win that litigation to prevail. If it did discovery on what executives were paid, what they did, and how derelict they were in their duty, they could have created such a huge and cry so to keep bankers cowed for at least five years. And as we have pointed out repeatedly, Team Obama has also refused to use the best weapon in its arsenal: Sarbanes Oxley, which would allow it to file civil and from that if successful, criminal charges for false certifications about the adequacy of internal controls, in particular, risk controls.

Now the railroading of investors may not seem all that important to many of you. But you are in fact all exposed. The failure of Fannie to pursue valid claims, for instance, is a direct subsidy from taxpayers to Bank of America and other banks. And more important, if investors are for the most part, too afraid, too compromised, or too plain lazy to take action against banks, and will sit passively as their contracts are violated, what hope is there for ordinary, less well connected citizens?

This settlement farce reveals yet again that contracts in America have become decidedly one sided affairs: banks will take advantage of every trap and snare, and engage in further abuses if they can get away with them, but woe betide anyone on the other side. You have perilous little hope that you will get a fair hearing from regulators (witness the farce of the OCC foreclosure reviews) or courts, since banks both outgun and outlie most opponents.

The banks and the authorities seem remarkably unaware of what they are doing in undermining the rule of law, which is critical to resolving disputes peacefully in a complex and combative society. They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine.

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72 comments

  1. Jim A

    So can bondholders sue BONY for utter failure in it’s role as trustee? I smell liability….

    1. jake chase

      This main post is not easy reading for anyone 44 yrs removed from law school, but it seems obvious that groups of aggrieved investors ought to be lining up to sue the trustees and the servicers for conspiring to violate the express terms of the documents governing these securitizations. Is their failure to do so perhaps a case of instititutional investors not caring about the consequences to what is after all not their money? Generally speaking, these so called investors only seem to care about their comparative performance. If all of them are being screwed then none of them is disadvantaged and all get to keep those cushy sinecures in which they pretend to be financial experts and rake off a nice little percentage of assets in exchange for showing up and sounding intelligent when interviewed by the business media.

      1. Up the Ante

        “.. groups of aggrieved investors ought to be lining up to sue ..”

        I think we need to be honest, jake, the lack of it is either evidence of a revolution or of a coup.

      2. Nathanael

        I think we’ve found out what the scheme for circumventing New York State trust law is.

        There will be investors lining up to sue — obivously.

        The plan is to remove all those cases to the corrupt federal courts where New York State law can be completely ignored by corrupt judges.

        They’ll do this by claiming that it implicates this national “settlement” which was dealt with in federal court.

    2. Jim Strong

      I have a different take on the constellation of issues, discussions on the mortgage crisis. I have a different take on what the BIG LIE really is.

      The big legal lie lies in the securitization process itself, which system wide, far in excess of Country Wide, involves all securitezed mortgages since banks were allowed to get into the securitization business.

      The titles and notes were destroyed by the millions, and thus the LEGAL STANDING (the legal paper trail of ownership, note transfers, county registrations ) OF ALL THESE PROPERTIES WAS PERMANENTLY DESTROYED TOO, and there is no way to restore legal standing to property that has lost it. The triple AAA security ratings were fraudulent from the get-go as the investors were buying securities backed by NOTHING WITH ANY LEGAL STANDING. The investors received a security with a rating, and NO papers showing their ownership of a property, no evidence of note transfers, etc. as should have happened under existing laws.

      Millions of mortgage crimes have been committed with these acts of the destruction of the legal standing of property, which became what I call NON-PROPERTY, and, as the protection of property is the the first item protected by the Constitution and because the securitization process destroyed all involved properties, the biggest crimes, still ongoing, in American history have and are, in direct association with the derivatives system, still taking place. Like a one way fish trap, the properties, as bags of securities, are held by Fannie, Freddie, FLHB, the Fed (almost a trillion worth and growing) are circulating within the Executive Branch of govt. and there is no legal way to transfer property with no legal-standing, no original paper-trail, back to the private world, EXCEPT BY FRAUDULENT reproduction of original documents, or supposed original documents as might be imagined.

      The tool of creating NON-PROPERTY, might serve as a marxist’s greatest tool to permanently transfer private property to a centralized govt., paid for at public expense, for use, redistribution as desired by govt. at a later time, at further public expense.

      The fact that the entire book of mortgage backed securities in the Executive Branch is in the trillions, with more planned, with the 50 states attorneys general are merely considering establishing a $25B fine to the banks for the crime of destroying trillions of dollars of formerly private property with legal standing, at great banking profit, is incomprehensible. The banks, with criminal status of their crime removed, with the precedent of a very low fine of $25B established, can continue the profitable crime unabated with future potential fines considered just a cost of doing business as in the past, and the crime of property legal standing destruction and fraudulent securitized sale of such. We are witnessing the legitimization of the destruction of the legal standing of private property on a wholesale scale and its transfer to Federal,Executive Branch control on a nation-wide basis. The problem is vastly larger than the small focus on Countrywide, Maiden Lane, etc.

      There is no LEGAL way to call any of the created mortgage “backed” securities real property in the first place, without a real, legitimate, legal existing paper trail, and that seems to be the BIG LIE, the BIG CRIME to me.

      1. David Snieckus

        Jim Strong
        Can I quote you on this in my DIRTY DOZEN REPORT: About the Dozen or more flagrantly fraudulent procedures of the top five banks along with the lawyers in the banking industry as it pertains to mortgages.

        david snieckus
        99 Crescent Street
        newton, MA 02466
        617-964-2951

  2. Conscience of a conservative

    An article this weekend that appeared in the Washington Post and elsehwere omitted that Countrywide modifications were using investor loans serviced by Countrywide and to add insult to injury gave full attribution to Countrywide. Only CNN included a reference to investor owned mortgages.

    It’s so easy to be generous using other people’s money

    1. Conscience of a conservative

      Susan, It would be interesting if investors were able to organize and sue to block the settlement under the guise that basic contract law is being violated with 1st lien holders taking losses ahead of 2nd lien holders and further supported by the violations of the PSA in seeking investor support.

      1. James Cole

        It would be more than interesting, there is real money at stake here. Lots and lots of people invest in PIMCO’s Total Return Fund–it has a NAV of $150 billion.

      2. nonclassical

        ..thanks…this is exactly the sort of reporting-documentation-comprehension I come here to expand upon my own understanding…

  3. ex-PFC Chuck

    Am I correct in inferring that these shenanigans may put at risk the defined-benefit pensions that some of us older folks depend upon? I’ve kept my eye out for any mention of this here at NC or elsewhere but don’t recall seeing anything. Am I excessively paranoid?? Or is it there but talked about by no one? Comments?

    1. Conscience of a conservative

      Mortgages are not an insignificant part of the funding of retirement plans.

    2. James Cole

      Yves mentioned this effect in an off-hand comment in part of a larger post on this a few weeks ago but did not fully make the case.

      Technically, the beneficiary of a DB plan is not exposed to the risk of investments since by definition the benefit you receive is pre-defined according to some formula based on past earnings etc.

      But practically, if your DB fund experiences losses, it will have trouble meeting its payment obligations to retirees and could eventually default, which would put it in the hands of the Pension Benefit Guaranty Corporation. Question is whether this is significant in light of the dramatic underfunding of DB plans to begin with.

  4. Ned Ludd

    “The banks and the authorities seem remarkably unaware of what they are doing in undermining the rule of law, which is critical to resolving disputes peacefully in a complex and combative society. They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine.”

    I disagree. The U.S., over the past 10 years, has become a might-makes-right soceity, where the rule of law is a means to punish the poor and protect the powerful. The banks and authorities have the might to crush social unrest and the media to disseminate propaganda for them. Undermining the rule of law won’t expose them – it’s part of their agenda to transform the law into something that keeps the serfs in line and ensures that the well-connected are bailed out from any mistakes that they make.

    When the Roman Republic transformed into a Principate, the Imperial government was able to mask autocratic rule with the illusion of republican formalities for several hundred years. It then maintained itself as an explicitly despotic state for another two hundred years after that. We are seeing the end of a republican system in the U.S. and a transformation into its own form of oligarchy. The ruling class will come from the top tier of the “natural aristocracy” that Matthew Yglesias finds so appealing.

    For the modern liberal (and “the smartest conservatives”), their political philosophy can reduced to this: be happy with your gruel, serfs. It’s better gruel than your parents had.

    1. Jim A

      And rather than selling themselves into slavery as many Roman small holders did, today’s 99%ers are borrowing thier way into debt peonage. History may not repeat itself but sometimes is sure does rhyme.

      1. R Foreman

        They’re not really in debt if you consider that the money is being invented into existence by the lenders. The banks don’t lend their own money for the most part (especially when considering that losses get paid by taxpayers).

        Who are the borrowers in debt to? No one. And why is any organization allowed to loan money it doesn’t own? That’s counterfeiting.

    2. jsn

      As a small independent business owner in NYC these last 16 years, I can tell you that in the last ten contracts have become only as good as the intentions of the richer party to them.

    3. Nathanael

      “The banks and authorities have the might to crush social unrest and the media to disseminate propaganda for them.”

      No, actually, they don’t. They think they do, but they don’t. Please refer to Louis XVI or Tsar Nicholas for reference regarding this particular form of hubris.

      The Roman Empire had Augustus and he was happy to help the masses; people will accept the end of democracy and the end of the rule of law if *the rulers make their lives OK*. Bread and circuses.

      The elites today have been *removing the bread* and that is a deeply unwise move. There aren’t enough of them to keep power (<1%) and they don't have enough support because of their behavior.

      Oh, and they're slowly losing the media thanks to the slow public abandonment of newspapers, TV, and radio in favor of the Internet.

  5. Johnny Fraudclosure

    “They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine. ” Really?

    1. Yves Smith Post author

      From an attorney in the heartlands: “You folks on the coasts may take this sort of thing, but when people realize what has been done to them, they don’t take it lying down. If a mother winds up on the street, one of her children will be in someone’s office with a gun, saying, “If this isn’t fixed in a week, I’m coming back.” And it’s gonna happen in my state first, we’ll be the leaders.”

      1. LucyLulu

        Ya know, I’ve been thinking along the same lines…… that one of these days we’ll be reading headlines about a foreclosure victim who takes out his rage on one of the big-shot banking executives. Would whoever falls prey get more sympathy from the people than bin Laden did, for his execution without the right to due process?

        1. F. Beard

          The poetic justice about banking is that though the banks seem like good guys during the boom they are forced to act like ass-holes during the bust. But weren’t they such all along?

      2. scraping_by

        Sadly, we’re not originals on this; we’re following in the footsteps of our grandfathers. The Penny Auction was one of many cases.

        During the Great Depression, an auction where a bankrupt farmer was being sold out by the bank would, of course, be attended by the farmer’s neighbors. But these neighbors would come carrying their shotguns. Then one of these neighbors would bid a penny on every item sold, up to and including the land. Oddly, no one tried to overbid. The bankrupt farmer was then allowed to buy back his operation for what it cost – usually a couple of dollars.

        Now that we’re in the Silent Depression, times have changed. In America, all stories of class warfare and economic violence are suppressed, never making the news and never, ever being taught (formally) in school. But it’s pretty certain some people are out there ready to write new tales in that suppressed, vital story.

        1. ScottS

          I had a similar thought — let’s band together and buy foreclosures at their firesale price and work out a fair price for the original owner. I hope the shotguns aren’t necessary…

  6. Susan the other

    Just wondering if the Federal Reserve is actually going forward with a plan to resolve this whole mess and make many situations moot. If it goes ahead with its new operation to “sanitize” bonds, i.e. buy them all up and transform them into new bonds much like the shell game in Greece, what impact will this have on all the claims and counterclaims which are now emerging in the MBS market? Will investors be made whole at the time of the sale of the bond/CDOs to the Fed? Or is this something else entirely? Just thinkin’ it would only take a trillion or so to resolve this using EZ methods. Banks off the hook, investors paid off; homeowners given a safety net perhaps. And taxpayers footing the bill for all subsequent sanitized defaults.
    And as the responsible party for this and everything else, taxpayers can then demand that the banks be turned into utilities and finally regulated. And Treasury can loan itself all the money it needs interest free.

  7. Up the Ante

    “.. breaches in every single Countrywide securitization ”

    Geithner/AIG
    Sarbanes-Oxley

    “They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine. ”

    A Lincoln-like promotion of the North’s business model, it won’t be a new thing in NYS. Get ready, ’cause you know it’s planned.
    Chump change will be dropping to the floor, and it’s going to be the judges of NY’s ??

    This ought to be quite entertaining.

  8. steelhead23

    As regards the rule of law – aren’t judges supposed to espouse that? Is it possible that the judge hearing the settlement will see the lies (with your able assistance) and quash the thing? That is what should happen, isn’t it?

  9. vlade

    How about filing motion-for-leave to get friend-of-the-court submission there, discussing all of this?

    I know MfL is likely to fail, but if no-one tries, it won’t be there for sure.

    1. Nathanael

      This is actually a good idea. The tactic here is to keep the defrauding of the investors and the violation of the trust agreements “sub rosa” so that the judge doesn’t have to publicly notice it.

      Any filing which forces the judge to actually address this issue could be a game-changer.

  10. Sleeper

    Please, enough of the shock and disbelief.

    The fix is in.

    The media is muzzled.

    The judges bought.

    And the banks bailed out (again).

    And your pension is gone.

    The rule of law is long dead.

    1. Antifa

      The rule of law is never dead. It is just in force or it is not. The many abuses of King John led to him being taken to a room full of nobles with drawn swords and mades to sign the Magna Carta.

      The many abuses of King George led to the American Revolution.

      The many abuses of our current lords and leaders will lead to the populace putting force behind the laws as written.

      We’re just in the “many abuses” part of this recurring pattern right now. The other part where rascals are caught and wrongs made right will come along like morning after night.

  11. AverageStan

    This is outrageous. This “settlment” clearly, wilfully spreads the costs away from the bank and to average investors. There outta’ be a law for this bank heist.

  12. John S

    There is a small not-accurate statement in the article. BofA IS modifying loans, and NOT buying them back.

    I am working on one trust (where my loan supposedly sits), and of the approximately 900 loans left in the trust, about 110 have been modified.

    1/2 have had recapitalizations to some degree of past due payments, so balances have actually gone up.

    1/2 have had principal reductions AND forgiveness for past due payments (as evidenced by negative principal payments while also having realized losses shown in the monthly report). A good discussion of this is here http://www.subprimeshakeout.com/2012/03/servicers-behaving-badly-an-insiders-perspective-on-the-root-cause-of-this-recurring-problem.html

    Where there have been true principal reductions, the amounts have varied from $20K to as much as $150K. In the trust I am speaking about, the top 20 cram downs have been meaningful in amounts ($80K and more).

    In all 20 cases, basically the loan was reset to FMV for the house (using eppraisal.com as a guide).

    I wish that I could get at (or talk to) Bill Frey’s data on CW 2nds for this trust. I have a feeling that the big cram downs are on homes where BofA/CW has both 1st and 2nd positions.

    As a side, BofA denied my own mod stating “we don’t make principal reductions” and “do not ever lower the interest rate below 3.875%”, both are lies based on the BONY reports.

    1. Yves Smith Post author

      Please re-read the post. It is accurate. The pooling & servicing agreements require Countrywide (now Bank of America) to buy back modified loans at par. Lisa Epstein has previously pointed out that Bank of America is not buying the loans back, which is a clear violation of the PSA. The way they apply borrower payments is ALSO a violation of the PSA.

      Just because they are doing it does not mean they aren’t required to do so and therefore violating the contracts.

    1. LucyLulu

      How odd. When I posted the link, no subscription was required. I don’t think this is the same article either. I know the formatting was different.

      Here’s another one from WSJ that includes a link to the actual filing:

      http://blogs.wsj.com/deals/2012/03/12/signed-sealed-delivered-mortgage-settlement-actually-filed/

      And in case it gets pulled from free view, here is the direct link to the court filing:

      http://www.justice.gov/opa/documents/complaint.pdf

      Along with links to consent orders for five banks:

      http://www.justice.gov/opa/opa_mortgage-service.htm

  13. LucyLulu

    Three whistleblower cases related to the False Claims Acts have been unsealed, one in February, and two last week. None of this should surprise regular readers of NC. If interested, here are links to the unsealed court documents:

    Case against Bank of America/Countrywide relating to obtaining fraudulent appraisals:
    https://s3.amazonaws.com/s3.documentcloud.org/documents/323984/kyle-lagow-countrywide-complaint.pdf

    Case against Bank of America alleging fraud involving HAMP modifications, i.e. not making them, diversion to proprietary mods:
    http://www.scribd.com/doc/84426171/FALSE-CLAIMS-ACT-BANK-OF-AMERICA-RIPS-OFF-HAMP-WHISTLEBLOWER-MAKES-A-LOT-OF-MONEY

    Third case alleging fraud against FHA by Citibank:
    https://www.documentcloud.org/documents/323985-citibank-complaint.html

    1. LucyLulu

      Yves,
      Reading the linked lawsuit above related to HAMP mods:

      The suit states that HAMP required trial mods be made permanent, trials to typically be of 90 day duration, with the permanent mod maintaining the same terms as the trial mod, as long as the borrower remained current with their mod trial payments and qualified for permanent modification. I was thinking about the example you posted that Lisa Epstein had sent. Unless perhaps the difference in her new payment is rolling in the HOA assessment (and given condo value, that is one stiff HOA!), ASHMI is in non-compliance with HAMP.

  14. LucyLulu

    The best explanation I’ve heard for the institutional funds signing on to the $8.5 million settlement came in a Bill Black radio interview from last summer. Black said that his assumption for why they agreed upon such a paltry sum was that the parties all understood that any larger would undermine BAC’s solvency.

    Secondly, what immediately comes to mind re: the objections raised by Yves as to the authority the trustee has to sign on to the $8.5M and the 49 state AG agreements on behalf of investors is ‘Are counsel for the intervenors raising these questions, and if not, why not’ Alternatively, if they are raising them, are they not gaining any traction?

  15. Enraged

    Is anyone going to comment on the recent 270 resignations from worldide banks, in pretty much every country, including here, with about 7 Goldman Sachs executives, quite a few Swiss Credit guys, some JP Morgan, etc?

    Google “massive bank resignations” and today’s date and you’ll get the entire list with links to the articles.

    I think a major clean up is in the works and, eventually, I expect that ou government may end up having to jump ship as well, as did other governments in recent weeks.

    1. Yves Smith Post author

      I saw that list and was not impressed. There was no year to year comparison, and it included a pretty large number of organizations. There is nothing that indicates this is not a normal number of departure from boards and executive positions in a typical year. It included organizations well beyond the, say, 30 too big to fail banks. Goldman has a huge number of managing directors (it named 261 new ones, the smallest number in a long time). MDs get pushed out quickly, typically in 7-10 years to make room for the new ones.

      1. Enraged

        I don’t necessarily agree. For one thing, the dates indicate that, although it started out as a trickle in September 2011, it is now happening quickly, especially in the past few weeks. For another, the list of countries indicate that it is worldwide and not limited to the US. Lastly, some of articles announcing them clearly indicate that the resignations result from oingoing investigations by different regulatory agencies from those different countries and some report arrests as well.

        The fact that there are no such lists for previous years also tells me that, this year, it is significant: worldwide, people want to see justice rendered. This kind of news usually doesn’t make it to mainstream media in France or Germany, except in very specialized circles. Now, it has. As a European who follows the news there, I think it means a lot more than we want to acknowledge, the same way that a 45% boost in sales of safes in Europe shows people more willing than ever to shun the banking system.

        I guess we’ll have to wait and see…

        1. Yves Smith Post author

          Didn’t you get what I said? You have no baseline for comparison.

          If I told you the temperature on the surface of a manned satellite making reentry, would you have any basis for ascertaining whether it was in trouble or not? Same issue. People resign for all sorts of reasons; age, political pressures, thinning of boards (boards over a certain size are considered too large and some companies are whittling them down over time). And MDs, as I said, turn over at investment banks at a rapid clip.

  16. C

    So the question then becomes what can we do? I used to spend time pushing for action from my elected rep but they stopped with the promise to “vote for a bill to fix wall street when one is presented to them.” My State AG has focused soley on indignantly pointing to the settlement and promising future action, despite the statute of limitations running out, and the local press seems to think that all is ok.

    Where next do we as individuals go other than backing the Occupy movement which I already do.

    1. Richard Wilson

      What can we do, you ask? I’ll tell you. In your personal life, as far as it is possible, in your words, thoughts and deeds, you must expound on mankind’s desperate need for public central banks (as opposed to the current privatelty owned central banks). This will do away with debt-based currency, and buffer the effects of fractional reserve banking. It will change the world.

      DEBT to private central bankers is a form of POLLUTION. Credit and fiat currency are like fossil fuels. They create big, fast-moving economies, but they also accumulate debt pollution until we have the current global catastrophe.

      Debt is killing us faster than all other forms of pollution combined. Indeed, debt is the cause of most other forms of pollution, since it drives the mad quest to “grow,” and with it, our fixation on nuclear power, plus the hyper-consumption of forests, fossil fuels, and other resources. Debt is also a force multiplier for human greed and corruption.

      Despite being the deadliest form of pollution, debt is also the easiest and quickest of all forms to cure. We only need to get rid of private ownership of central banks, thereby eliminating debt-based currency, and reclaiming true monetary sovereignty.

  17. scraping_by

    Actually, the class action suit I’m waiting to see is the county registrars of deeds, who’ve been done out of millions, tens of millions, adding up to likely billions of dollars in tax revenue unlawfully withheld.

    Of course, a county is a subdivision of a state, which means the counties’ legal representation is, ultimately, the state AG. And the state AG…

    Never mind.

    1. LucyLulu

      Qui tam suits were registered in some states, at least, relating to MERS and recording fees (NV, MA, NC that I know for sure, all by the same party). I’ve never heard or looked into what has happened with them. NC does not require that transfers be recorded, so that suit would likely have been dismissed, but MA does have a recording requirement (NV??). Perhaps cases are under seal?

      1. LucyLulu

        FYI: A ‘qui tam’ suit is a suit filed by a private citizen on behalf of the government. The citizen may keep 30% of any awards.

      2. Nathanael

        Hmmm. In MA, it was ruled that the unregistered transfers simply had no legal force. So I don’t know how that would affect the registrars’ cases….

  18. Walter Wit Man

    Good post Yves.

    This settlement does represent the rot of our legal system. The entire official response to the mortgage bubble was rotten . . . but this is the cherry on top. Pure rot and corruption and lawlessness that benefits the powerful. In other words, fascism.

    Lots of American myths are being shattered. It’s not just the myth of American justice and jurisprudence.

    Our media is fraudulent and intentionally shows fake news and propaganda to aid the criminal elite. They show war propaganda.

    Also, the political game is almost entirely a charade. Both parties work for the same elite. The politicians are entirely corrupted and bought and paid for. They are nothing but actors that play a role. It’s Harlem Globetrotters vs. the Washington Generals. People like Chertoff make millions selling us body scanner devices and people like Holder worked at a firm that provided legal advice about MERS and related issues. Everyone passes through the revolving doors with millions in their pockets.

    These horrible truths are becoming more and more apparent.

    I once thought the judicial branch was the last hope against tyranny but now I realize how foolish and naive that thinking was. As with the political and media elite, there are few patriots and far too many fascists among our judiciary. And the judiciary has been moving right for decades, as have most areas of our official society.

    No. It’s too late. Our benches are stuffed deep with fascists under neoliberal and conservative cover. The fascists are in charge. Hitler had legal cover for his crimes and America’s crimes are turning out to be even worse than Hitler’s. American fascism will get its stamp of approval from the judges. Hell, it’s looking like Hitler and the Nazis were far more connected to America than we were told in our history books. We’ve been fascist for a while it’s just now the truth is becoming obvious to more and more people.

  19. lambert strether

    The appalling National Mortgage Settlement site is actually more honest than most of the press coverage:

    The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct. Both of these practices violate the law. The settlement provides benefits to borrowers whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service.

    Of course, “violate the law” means perjury, which courts used to take seriously, even for the big fish, but what of that?

    1. beowulf

      routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct…

      There ought to be a law against that… oh wait:
      “Whoever makes any false entry in any book, report, or statement of such bank, company, branch, agency, or organization with intent to injure or defraud such bank, company, branch, agency, or organization, or any other company, body politic or corporate or any individual person, or to deceive any officer of such bank, company, branch, agency, or organization… Shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.”
      18 USC 1005 http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=491&invol=58

      Leaving aside that “individual person” is certainly inclusive of homeowners,”body politic or corporate” is an old-school term for local government. Perhaps those $2000 “thanks rubes” checks might be letting banks off a bit lightly when the criminal fine for each count of bank fraud is 500 times higher.

  20. Joe Firestone (LetsGetitDone)

    “The banks and the authorities seem remarkably unaware of what they are doing in undermining the rule of law, which is critical to resolving disputes peacefully in a complex and combative society. They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine.”

    An exemplar of understatement. What happens in a complex and combative society where gun ownership is barely regulated, when the “rule of law” breaks down. The 0.001 % should certainly be contemplating that about now.

    Beo, nice snark!

  21. flex

    America,
    Can you take one more lie and swallow your pride that we had been fooled again? How is your American Dream now? This is like waking up from a nightmare after 50 years thinking we are living on the land of the free and home of the brave. Where is Rip Van Wrinkle to pinch me and wake me up? I cannot wait to see how the American People will react in a week after all this settled down and we hear more propaganda by the media. This is another Deja Vu all over again. What ever happened to the emperor has no clothes? How many times can the government get involve with high rank players, like the movers and shakers of the economy, wall st, the bankers, big oil, big pharma, and big corporations to rule the people and the country.
    Is there a dancing with the stars or American Idol show on TV so we don’t need be disturbed by this news today? Do you ever wonder why HDTV is so cheap and cable TV is so cheap in America? How many people do you think know what is going on in America about the Frauds committed by the banks and all their allies? Last time I check with average people, they tell me they are working so hard just to pay their bills and their mortgage so they don’t lose their homes in Fraud closure. How little they know they don’t own their homes. They are paying rent to the servicers, the debt collectors.
    Millions of homeowners don’t ever read their loan docs and they don’t even know who is MERS. Much less what is securitization or PSA, CDO, or anything related to the biggest Ponzi scheme in American history. Imagine one day the kids of our kids asking what happened in America 50 years ago with the financial crisis cover up. Of course, we will not be here to tell our grandkids what really happened. Imagine teaching in the schools how to buy a home and how to get a legal loan from a bank? Well, maybe by then, there will not be any banks doing business in America the way they do business today.
    For now, I only need to wonder what the real American will do to put an end to this madness of crooks that has not sense of the law. Do they really think that they can get away with Trillions of Dollars and millions of people dying on the streets? Do they really think the people will never learn the truth and will never revolt and do something about it?
    Something really major will have to happen to end this problem peacefully. But again, if people are content with what they have and what they get, nothing will ever happen, because this is not happening to them. It is not their problem, yet. For the time being, let’s just say God Bless America and God Bless You and me.

  22. David Snieckus

    Imagine how exposed the banks and authorities can become when the borrowers peacefully following the rule of law (hopefully laywers and judges too)by refusing to pay their mortgages: the security instrument of their non-tangible stream of income. Imagine millions of homeowners finding out that there are more than a dozen illegal and fraudulent practices that the banks and the authorities have been executing on them!
    Yves: Beautiful last sentence worth repeating:
    “They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine.”

    thanks for your writing!
    david snieckus

    1. Alice

      65 million people that have MERS on the docs suddenly stop making payments…I can dream…lol.

  23. Alice

    Am just beginning the reading but this part from the BofA section..page 103..”a. The original or a duplicate of the note, including all
    indorsements; a copy of any mortgage or deed of trust
    securing the notes (including, if applicable, evidence of
    recordation in the applicable land records); and copies of
    any assignments of mortgage or deed of trust required to
    demonstrate the right to foreclose on the borrower’s note
    under applicable state law (collectively, “Loan
    Documents”). If the note has been lost or destroyed, a lost
    note affidavit shall be submitted”.

    “Destroyed”…well there we have it.

      1. Alice

        Yes, wonder where I can get one of lost document forms, methinks I have got alot of houses to claim/snark.

    1. Alice

      I should clarify, am reading the terms of the ‘settlement’.

      When I got to the destroyed part I had to quit reading and use bleach on my eyes.

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