Countrywide Offers Not-Very-Convincing Explanation of Testimony on Its “Oops, We Still Have the Note” Snafu

It was predictable, as soon as the press took notice of a potentially very damaging bit of testimony by a Countrywide manager, that its parent, Bank of America, would do everything in its power to deny its validity.

By way of brief background (see here, here, and here for more detail), a recent court decision in Kemp v. Countrywide Home Loans, Inc. stated that Countrywide had not transferred the note (the borrower IOU) to the Bank of New York, trustee for the securitization trust. Perhaps more important, the ruling also noted that a Countrywide employee stated that it was Countrywide’s practice not to transfer the note, which is contrary to the stipulations of the pooling and servicing agreement.

Sports fans, this is a very big deal. As Georgetown law professor Adam Levitin remarked,

This opinion could turn out to be incredibly important. It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction: failure to properly transfer the mortgage meant that the mortgages were never actually securitized.

So ‘natch, Bank of America has to discredit the really damaging part of the testimony, which is that this failure to transfer the note was standard practice at Countrywide. As an attorney said as soon as he read the decision, “That’s exactly what I’d do.”

So let’s peel this back layer by layer. First we get the expected denial, as reported by Jody Shenn at Bloomberg:

A Bank of America Corp. employee who said that Countrywide Financial Corp.’s policies were to retain mortgage notes later clarified her testimony in a New Jersey bankruptcy case, a lawyer for the company said.

“Countrywide’s policy and practice has been and remains to fully comply with the pooling and servicing agreements, including forwarding any necessary documents to the trustee,” Larry Platt, a lawyer at Kirkpatrick & Lockhart, said in an e-
mailed statement…

“The associate whose testimony was cited in the ruling was asked about a process outside her normal scope of responsibilities and in an entirely different department from where she worked,” Platt said.

“A review of her testimony shows she later clarified that she was not comfortable testifying about the circumstances under which original loan documents would move, or whether and to what extent they ever are moved. This would include the initial delivery of original loan documents to the trustee,” he said.

This comes pretty close to depicting the employee’s statement that Countrywide never delivered the loans as a misstatement.

But this fails to explain what transpired with the note in the Kemp case . It was never delivered to the trustee and was also never endorsed. So we are left in the dark as to why the Kemp note was never conveyed as prescribed in the PSA. Do they think this was just another technicality, or a very large random error, one that Countrywide and the trustee somehow missed and then took 10 months to sort out?

Unfortunately I don’t have the trial transcript to see if the BofA attorney characterized the testimony accurately, but Tom Adams was kind enough to forward the oral arguments.

Kemp v. Countrywide Oral Arguments

I suggest you read this document, it’s short and funny by judicial standards. The judge is not happy with Countrywide’s shifting positions regarding the whereabouts of the note:

I am, frankly, appalled at the confusion and lack of credibility of Countrywide’s response to the issue of the note — the possession of the note.

We started out with Ms. DeMartini’s testimony that the note never leaves the servicer. She says that she saw a Federal Express receipt whereby the actual note, the physical, original note was transferred to the Foreclosure Department internally in the same building, but that the note had not yet been located. That’s where we stood at that point. Then we had a submission, the supplemental submission saying the original note has been found and can be available for inspection. It doesn’t say where it was found, who had possession or the like, but it was found and is available for inspection. And then without any explanation, there is a lost note affidavit presented dated February of 2007 indicating that the note cannot be found. No explanation provided. What do I do with that, Mr. Kaplan?

Did you catch that? This is pure Keystone Cops. Countrywide can’t find the note, then says it has located the note, then it submits a lost note affidavit dated BEFORE the date when the note mysteriously appeared!

And better yet, even later, Mr. Kaplan, the counsel for Countrywide, casually mentions that an allonge (a document that is supposed to be so firmly attached to the note as to not be able to travel separately, used to affix additional signatures to a note) was created just for the purposes of foreclosing! That’s an admission that it was well outside the permitted time sequence for the securitization trust.

Mysteriously appearing allonges have become the preferred fix for the failure to convey notes properly to trusts, and the foreclosure attorneys generally have some appreciation for the function it is supposed to serve. The party line is usually “Oh yeah, we found it” with as little further comment as possible. The fact that Kaplan does not understand why this document was created, and makes the damaging admission repeatedly that it was created recently, lends indirect support to the notion that Countrywide wasn’t terribly concerned with adhering to the terms of the PSA unless it rose to the level of being an issue. (If you read the transcript, Kaplan really is clueless, arguing at one point that perhaps Bank of New York, the trustee, reassigned the note back to Countrywide. Huh? He seems intent on foreclosing, and really doesn’t care which entity does it, when believe me, Countrywide does NOT want this foreclosure done in the name of Countrywide, that was the point of creating the allonge).

Another noteworthy bit: the allonge has a stamped signature of one “David A. Spector, Managing Director.” I’m told he was very senior, the number two or three at Countrywide. The odds are not high that he was stamping foreclosure documents himself. And that begs the question of who did stamp this document and whether they were authorized to do so.

Consider this exchange:

THE COURT: And you do understand as well that the Pooling and Servicing Agreement requires that transfer, that physical transfer of the note in accordance with — and endorsement — in accordance with UCC requirements?

MR. KAPLAN: I understand that, Your Honor…And I can say that, although Your Honor is right and the UCC and the Master Servicing Agreement apparently requires that, procedure seems to indicate that they don’t physically move documents from place to place because of the fear of loss and the trouble involved and the people handling them. They basically execute the necessary documents and retain them as long as servicing’s retained. The documents only leave when servicing is released.

I’d like to know how Bank of America’s law firm explains this. It isn’t merely Ms. DeMartini who is presenting the failure to transfer notes as standard practice. So does Kaplan, and he offers a plausible rationale.

Daily Finance has a nice piece on this issue, and spoke to counsel for Kemp. He disputes the Bank of America contention that DeMartini’s damaging testimony was outside her realm of knowledge:

DeMartini was flown to New Jersey from California to testify as the document custodian, the person BofA chose to get the note and other documents admitted as evidence. She was refreshingly unrehearsed; she testified with confidence and candor. She wanted the judge to understand that BofA was very careful with the notes

So how do we square this circle? The best explanation comes from reader Steve Eiswoman:

There’s official policy, then there’s what your boss yells at you about if it’s not done quickly enough. and never the twain shall meet.

See full article from DailyFinance:

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  1. bmeisen

    Why not examine that the Trusts were pulling mortgages rather than waiting for the value chain to satisfy their demand? Taibbi isn’t in Yves’ league but he got specific in this regard:

    “…if the trust stipulated that all the loans had to be collected by August 2005, the bank couldn’t still be sticking in mortgages months later. Yet that’s exactly what the banks did.”

    Did orignators chuck the notes knowing that they were meaningless and that the Trusts were ignoring the PSAs from the start?

    1. Yves Smith Post author

      This is a separate issue, the mortgage does not appear to have been originated after the date of the trust closing. There’s way more than enough wrong with this deal without throwing in speculation not supported by the facts in the case.

  2. attempter

    I’d like to know how Bank of America’s law firm explains this. It isn’t merely Ms. DeMartini who is presenting the failure to transfer notes as standard practice. So does Kaplan, and he offers a plausible rationale.

    I like it best when their own cadres admit and explain the crimes.

    So we have this as the poster case for how not only the foreclosures but the mortgage liens themselves have no technical validity.

    And we can take the Cords of Wood case (just to pick one nasty case out of thousands) as exemplary of the sheer evil and insanity of the banks. Surely that must establish, if the Bailout and everything else didn’t do it for one already, that the bank claims on the land have no moral validity, and therefore any debts to them are morally discharged.

    So put the two together, and it’s clear that not only do we have no legal obligation to pay these mortgages, we have no moral obligation either. Indeed, for a critical mass of housedebtors to jubilate, refuse to pay but stay in the houses (maintain the property, keep paying the property tax), would be a world-historical blow for morality and justice.

    And a blow for freedom and democracy as well. It would break the banks and constitute a giant leap toward taking back the country.

    1. Dave C

      attempter, you assert that somehow borrowers should take advantage of BoA for Countrywide’s sloppy record keeping, and millions should simplywalk away from their mortgages. you think that it would serve the banks right, break them, and somehow be a good thing for the American people. If people default on their mortgages in mass, property values will go through the floor, and destroy all those people holding mortgages where the paper trail is intact. Second, banks will simply stop making mortgage loans, destroying the homebuilding industry and the realtors. all those working people you care so much about won’t be able to buy a house at all, and apartment owners will immediately realize they can raise rents at will, because no one can buy a house. I completely agree that loan documentation is a mess, and some actions were criminal, or violated fiduciary duty. That said, if you actually get what you wish for, the banks may suffer, but the people will suffer immeasurably more. trying to make a living providing people the loans necessary to buy a house is not, and should not be a criminal act.

      1. skippy

        Save what? Its all a big scam, the world burns and you want to cuddle the arsonists? Push the big reset button, back to the good old days…um.

        Skippy…so many posabilitys to try, yet its always just if we could only go backwards in time and fiddle with it a bit, go figure.

      2. attempter

        Dave, you misunderstand me. I want to get rid of the banks and their system completely.

        I didn’t say people should walk away. I used to say that, but I no longer do. Now I say they should stay in the house, keep paying the property tax, but stop paying the mortgage.

        I say everyone, underwater or not, distressed or not, should do that.

        This would be liberation for the entire people, including the ones who are still trying to hang on. They’re doomed to be liquidated in the end anyway, if we continue living under the thumb of these gangsters.

        I’m trying to find a way to simultaneously break free of the banks and create the new food producer class we’re going to need once fossil-fueled agriculture is no longer sustainable.

        I think a combination of bottom-up mortgage debtor Jubilee in Place with organized redemption of all the empty lots the banks have left derelict can be the winning strategy.

      3. Sid

        When you have an entire housing financial system based on cutting corners, fraud and ignoring inconvenient laws, there is no way to clean the resulting mess without somebody somewhere being punished unfairly.

        The genie is not going to go back into the bottle.

      4. Darby Shaw

        “That said, if you actually get what you wish for, the banks may suffer, but the people will suffer immeasurably more. trying to make a living providing people the loans necessary to buy a house is not, and should not be a criminal act.”

        Completely beside the point. Providing loans for people to by homes is not a criminal act; committing institutional fraud at every level is. This isn’t about a macro look at how this affects the metrics and hypothetical outcomes that may or may not impact american homeowners at large, this is simply about the rule of law. Period. The banks entered into legally binding contracts that they broke, and committed an absolutely disgusting amount of fraud while doing so. They should be held accountable, and they will, for while our judiciary may be painfully slow, it is very thorough. And as this is a state matter primarily and a federal one secondarily, there are 1000’s of courtrooms that will be hearing these and many other cases and arguments. Watergate took years; foreclosuregate will to.

  3. J


    Why wouldn’t it be a misstatement by the California BAC rep? Why does it have to be a conspiracy?

    lastly why are say PIMCO and the rest of the gang blameless in all this. Isn’t it incumbent on a seasoned investor to look through the docs or at least ensure things are up to scratch, or are they simply blameless little wallflowers?

    1. Yves Smith Post author

      First, as we have indicated in numerous other posts (and the various foreclosure blogs, like 4ClosureFraud and ForeclosureHamlet, have even more extensive detail) that the failure to convey notes was widespread. You would not see so many successful challenges on the issue of standing at the consumer level were this not a widespread practice. We’ve spoken to consumer attorneys in a large network around Max Gardiner, and this group of roughly 100 attorneys has yet to find a single case in a securitization where the note was conveyed correctly.

      Re Countrywide, one of our sources went to Countrywide months ago to find a particular note. The Countrywide guy wandered down the hall and pulled it out of a file. He remarked that all the notes were at Countrywide. Similarly, a top executive at another major subprime orginator, as we reported, said his bank did not move the paper and no one in the industry did.

      We’ve written previously about behavior that appears very much like ruses on behalf of Bank of America, such as a sudden uptick in BofA foreclosing in its own name, as in stating that it owned the loan and never securitized it. That is highly unlikely, given that BofA was comparatively small potatoes in mortgage origination (despite the size of its branch network) and Countrywide, which was a much larger originator, securitized 96% of its mortgages.

      In other words, the evidence on the ground (which we have discussed here since August) lines up with the DeMartini statement much more than with the bank denial.

      1. Cedric Regula

        I find it interesting how we all get to determine the truth.

        1)Employee under oath and penalty of perjury says “holding the notes is standard procedure”.

        2)Corporate lawyer makes press release, not under oath or penalty of perjury, “We comply with PSAs, this was an unfortunate error.”

        3)Company position on material disclosure and fiduciary duty to stockholders,”We comply with PSAs, this was an unfortunate error.”

        Bernanke sounds more like a sell side bank stock analyst than a Fed chief. Declares banks will be allowed to pay dividends. A couple weeks later says they need to pass another stress test first. Then elsewhere Basel 3 is finally evaluated by someone else and we find out yesterday the big 6 banks are $100B short of capital. But they still have $145B in this years bonus pool.

        What a country.

      2. J

        With due respect but you’re not dealing with brain surgeons in regards to the back office people. It wouldn’t be surprising to me that those people don’t know the difference between a note and a Christmas card. The stuff you’re talking about is pretty arcane law to most of those stiffs.

        Your lawyer buddies also seem to be speculating and have no real knowledge.

        This is getting silly.

        You’re now imply PIMCO didn’t do it’s own diligence to see the security were up to scratch.

        This is also opening a Pandora’s box. If PIMCO was buying faulty securities and the retail investor lost money then those douchbags also have to answer down the line to the retail investors.

        You’re asking us to believe that several layers failed including the likes of PIMCO.

        I’m calling bullshit on this.

        1. Cedric Regula

          Actually, the loan details weren’t available to bond fund managers like PIMCO and Blackrock. Larry Fink says they are now requesting the loan details because they have fiduciary duty to their retail investors and must investigate the possibility of doing putbacks (difficult as that is) on behalf of their bond fund investors.

          Standard practice was that the “sponsors” (like Bear, Goldman, and divisions of the bank holding companies) got the loan details, perhaps shared them with the rating agencies over a filet and nice bottle of french wine, then supplied a rating and some summary detail of the loan and maybe “certified” that all was well.

          The trust fund trustees also certify to the MBS investors, big and small, and the to IRS that they are in commpliance with the PSAs.

          This is becoming difficult to believe as well.

          1. J

            Oh Please. You take a couple of lines from some back office schlep and try to arrange a complex puzzles ignoring all the other stuff I mentioned. .

            This is nonsense. It’s troofer crap and the nonsense comments you have here like… all banks a criminal.. just fall into the troofer category.


            Go screw yourself. if you’re looking for an idiot look in the mirror.

        2. Yves Smith Post author

          I find it a tad amusing that all you have is your claim that Pimco did due diligence, when all investors relied on reps and warranties in the PSA, as well as multiple certifications provided by the trustee per the PSA. We’ve been covering this issue since early this year and writing extensively about it since March. The Congressional Oversight Panel and Senate and House testimony last week have endorsed both the legal theories and the factual concerns we’ve raised for months. There are literally tens of thousands of consumer level court cases, and at least hundreds of consumer attorneys which provide support to the notion that the failure to convey notes was widespread, including numerous Countrywide deals.

          But you don’t like where this leads, so instead of mounting any kind of fact based argument, you simply reject evidence, offer no countervailing evidence of your own, and “call bullshit”.

        3. Yearning to Learn

          You’re asking us to believe that several layers failed including the likes of PIMCO

          yes. because clearly they did everything so well during the boom years.

          You know… like such a stand-up job with loan origination. no funny games there. Nope. all those 2005-2007 were well documented and given to credit-worthy sophisticated borrowers. that’s why we know that they adhered to the PSA. Because they did such a good job on the front end.

          You can call bullshit all you want but we can all see with our eyes how messed up the Financial sphere allowed itself to become.

        4. Paul Repstock

          MR. J; You can call BS all you wish. Being an obvious industry appologist (I won’t use the term which better describes you), nobody here really cares what you say.

          The point is: Either the bankers and their staffs were so incompetent that they should not hold charter, or you are all a bunch of slime sucking parasites. Either way you should not be in the business of handling other people’s money!

        5. Jmd

          Hmmmm, former Lehman employee, know for a fact that in many deals on which I worked, PIMCO sampled a few loans from most MBS/CDOs/ABS that it purchased, and they were hand-picked by the structurers.

          1. Yves Smith Post author

            Sampling the loan files has nothing to do with the possible failure to convey the notes, which is the focus of this article.

        6. blovia maximus

          “With due respect but you’re not dealing with brain surgeons in regards to the back office people”

          i know of a back office person who was working there to put themself through medical school and become a doctor. and i know a couple MBAs and assorted accounting BS degrees working in the ‘back office’ because its all they could get. i know people with 20 years experience in high level work who are opening envelopes. so you might be surprised who shows up on the witness stand if this stuff ever comes to trial.

          1. LeeAnne

            Missing notes etc. with the complicity of courts, marshals, police and judges, some of us have learned from recent events, are best looked at from the ‘who benefits?’ prospective; as secret official policy trickling down from on high from the REICHT.

            Never forget Hillary Clinton’s ‘ … vast right wing conspiracy’ – unbelievable at the time. ‘Conspiracy THEORY’ like her’s, being code for any information or theory that does not conform to the official version put out and propagated (as in paid propaganda) by AUTHORITIES.

            A little imagery could help.

            From the neighborhood: BOA Manhattan branches -very shabby -have not washed their windows in years. The branches, opaque with dirt give the impression of space holders on the model of city parking lots awaiting the big money deal.

            On the other hand, shiny new CHASE branches blanket the city, branding it with CHASE CHASE CHASE signs; ubiquitous, everywhere you look in Manhattan, huge empty spaces like VULTURES hovering, waiting for the garbage dump to fill, and ready to swoop down on their next meal.

            We could soon be negotiating government regulated mortgages, loans, income and food at a convenient CHASE corner desk near you as in one government bank indivisible with justice for all.

  4. sonya Brewer

    I have the original NOTE endorsed in Blank,” Pay To The Order of __________.”with out recourse, signed by the Senior VP of RBMG. I have a sworn affidavit that states a written assignment of the note was never prepared and the SELLER into the securities stated that they WARRANT AND REPRESENT IT HAS NEVER BEEN SOLD TO ANY OTHER ENTITY.EMC(seller) was to sell the note to Bear Stearns which was the depositor into the Bear Stearns Asset Backed Securities,inc. Asset Backed certificate series 2003-2. Bear Stearns was to sell/ assign the Note to JP MORGAN CHASE as trustee of the Trust. There has been a foreclosure started on the mortgage on March, 3 2009 by The Bank OF New York Mellon as successor trustee for JP MORGAN CHASE who claims to be the owner and holder of the note. By way Of an assignment which was recorded at the ROD on March 19, 2009, 16 days after the LIS-PENDENS , and the summons and complaint . I have a letter dated July 13 2002 from Mers that states the loan has been removed from the MERS system and the MIN# deactivated. Mers had no authority to do an assignment and the assignment was done by a known “robo-signor” and in the Corporate name of RBMG that not only deactivated the MIN # but also removed the loan from MERS. RBMG was also defunct and has been since 2005 when it was aquired by NETBANK and subsequently shut down by the FDIC in 2007. The BANK OF NEW YORK MELLON produced in discovery two allonges the first was from RBMG to EMC and the second was an allonge directly to JP MORGAN CHASE from EMC. First thing is the PSA ( pooling and service agreement) the governing document of the securities describes in detail the percise chain of title it also describes who is the seller ,the depositor ,the master servicer and the trust. Even though the sworn affidavit produced by the successor trustee stated no written assignment was ever prepared, so the allonges was a direct attempt to decieve the investors and knowingly a misrepresentation which is fraud. BEAR STEARNS was the depositor into the securities. First let start with the allonges both are undated and one is not even signed: according to the UCC an allonge is only used when there is NO ROOM ON THE ORIGINAL NOTE FOR ENDORSEMENT and must be firmly attached as to become a part of the note. AN ALLONGE cannot be used to transfer interest and is invalid if there is room on the note for endorsements and is invalid it not attached. A lost note was produced from EMC but not anywhere in the document is there a conveyance, it is not a valid assignment. Here is an excerpt from the PSA;BEAR STEARNS ASSET BACKED SECURITIES, INC., Depositor EMC MORTGAGE CORPORATION, Seller and Servicer WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, Master Servicer and Securities Administrator and JPMORGAN CHASE BANK Trustee
    POOLING AND SERVICING AGREEMENT Dated as of June 1, 2003
    (DD) The assignment of Mortgage with respect to a Mortgage Loan is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located.

    Proper perfected chain of title:
    Originator to seller:RBMG to EMC
    seller to depositor: EMC to Bear STEARNS
    depositor to the trust:Bear Stearns to JP Morgan
    trust to successor trustee: Jp Morgan to The Bank of New York Mellon

  5. ZA

    This is an empirical question.

    Why not open up a random sampling of these trusts and verify whether the note was properly conveyed or not?

    Surely, enough of these trusts are on the public balance sheet at this point that we can demand it, yes?

    1. Michael Cain

      “Why not open up a random sampling of these trusts and verify whether the note was properly conveyed or not? Surely, enough of these trusts are on the public balance sheet at this point that we can demand it, yes?”

      I think the people in charge at the government honestly believe that if one or more of the big banks goes down, it will take much of the real (non-finance) economy down with it. If circumstances were to turn out that the trusts did not hold the notes, and that the securities based on the non-held notes were sufficiently fraudulent that the big banks are on the hook for the investor and taxpayer losses, the banks go down. At a minimum, the government is not going to do anything that might accelerate that process.

  6. svsm

    So we have the sworn testimony of the document custodian from BoA stating that it was not their policy to deliver the physical notes to the trustees. We also have the attorney for Countrywide as services flat out telling the judge that even though the PSA’s called for the physical notes to be delivered, they didn’t do and gave the rationale for not doing it.

    Then the BoA spokesman comes out with a statement meant for the media stating that this sworn testimony by people not only close to the case but well versed in the process does not represent their policy. It seems their official policy deviates from their standard practice. From all the other cases presented throughout this mess, this seems to be industry wide. They can make whatever media statements they want about what the official policy is, their standard practice was to keep the notes. I give much greater weight to sworn testimony than a bank spokesman’s pr release.

    What I’m really looking forward to seeing is a trustee deposition regarding how the certifications for the trust documentations were handled. My guess is robosigned by someone who never opened the file to check the documents.

    1. Cedric Regula

      The obvious answer to this recurring question is to have someone “go to” the trust fund trustee and look for the paperwork.

      Except that I have this suspicion that these are mostly legal entities with a few employees and a “boots on the ground” search of NYC and even the NY countryside will NOT turn up the location of the trust fund paperwork warehouse (security padlocked) full of properly endorsed notes and even the mortgages that inseparably accompany them.

      Furthermore, a bank holding company like BAC, JPM, WFC, etc.. could in fact have divisions which were the originator, sponsor, servicer and trustee.

      Wouldn’t it be something if we find out Countrywide sold their entire documentation warehouse to a BAC trustee? Or better yet even sliced and diced the warehouse so it would match all the trustee holdings, and backdated the rental of warehouse space back to 2004 just to be on the safe side?

      Just wondering.

      1. svsm

        Yes, the next step is to review the documentation. I don’t know who besides the bondholders has the authority to call for such a review. The bondholders would have to file suit to review the trust documents as a part of discovery. I believe there is a specific percentage of bondholders that must participate in the action in order for it to go forward. This procedural hurdle is what was used to throw out a case that was covered by Yves a few months ago. I do believe there are bondholders that are organizing in order to take just this kind of action. At the time, the question was more the quality of the mortgages than whether or not the PSA’s were executed correctly.

        I would think the government could take some kind of action, but I seriously doubt they’ll do that. They seem to want this all to go away as much as anyone from the banks.

        I would love to see an analysis of potential next steps to force this disclosure. I suspect that you are right in that the trustees don’t have a warehouse full ‘o notes. I think we’re all coming to that same conclusion. Who gets to pull the trigger and ask the trustees that epic question?

        1. Cedric Regula

          The only ones that want to find out the answer would be the bondholders, and also homeowners being foreclosed on (rightly or wrongly). That will go on a case by case basis in judicial states unless they get backing from State Attorneys. Who knows what goes on in non-judicial states. Been quiet here in AZ.

          I’ve read 25% of a bondholder pool is necessary for legal action. The PIMCO-Blackrock-NY Fed action is a “request for information” at this point, and they say if they get stonewalled then they may sue.

          Then I’ve read there is a Texas law firm organizing a class action and getting the 25% there.

          Where it gets confusing is whom are they suing… servicer, sponsor, trustee….and over what are they suing…reps & warranties or other PSA issues like are these things really mortgage backed securities?

          All we know at this point is it’s a fine time to be a lawyer, not so good time for investors or homebuyers.

          1. Broken Record

            I’m guessing most metropolitan Bankruptcy mouthpieces don’t have interest in any of this unless the troubled come up with the cash.
            Litigate – forget about it, they won’t lift their powdered asses for less then 40K. Go bankruptcy, sure they’ll put your info into the petition, probably ask for a bit more for every other thing that they do. You know, we’re talking about lawyers here. The housing bubble didn’t change their lot. There are guys like Ralph Nader out there of course, so no offense to attorneys in general, or Attorney Generals for that matter if they do something meaningful to help out the little fish.

      2. tawal

        Cedric, From sonya Brewer above:
        “Proper perfected chain of title:
        Originator to seller:RBMG to EMC
        seller to depositor: EMC to Bear STEARNS
        depositor to the trust:Bear Stearns to JP Morgan
        trust to successor trustee: Jp Morgan to The Bank of New York Mellon”

        I know for a fact that EMC was owned by Bear Stearns, which was purchased by JP Morgan. EMC made alot of home loans in Texas without Flood Insurance (ever hear of the Texas flood) because they didn’t have to, not an FDIC insured bank. This was a disaster-Ponzi scheme, scheme, scheme…scheme…. I think you get the picture.

    2. J

      “I give much greater weight to sworn testimony than a bank spokesman’s pr release.”

      Yea, like a back office schlep who may not know what the hell they are talking about. Makes a thread I guess.

      Let me say this, if the banks were as negligent as you all suggest they were then would be expecting people to believe that month later the banks haven’t checked their own docs etc. and still have no clue or they do have a clue and are lying.

      You geezers are now asking people to believe there’s a huge conspiracy going on at the moment and that every senior executive and board member is remaining silent and no one is talking.. Even boards are not disclosing this material information to the market and therefore prepared to go to jail.

      Some of you people are delusional. This is getting into troofer realms.

      I guess when the banks get out of it, most of you will be calling another conspiracy.

      1. svsm

        From the Daily Finance piece quoted above:
        “DeMartini was flown to New Jersey from California to testify as the document custodian, the person BofA chose to get the note and other documents admitted as evidence. She was refreshingly unrehearsed; she testified with confidence and candor. She wanted the judge to understand that BofA was very careful with the notes”
        You call her a “back office schlep”.

        Mr. Kaplan was the attorney for Countrywide in this case. Was he just a “back office schlep” too?

        I guess that has a nice ring to it. Kind of like “deadbeat borrowers”. I suppose we’ll now see the demonization of anyone whose sworn testimony deviates from the bank PR position.

        I’m not asking you to believe anything. I don’t think I qualify as a “geezer” quite yet. I don’t think making an observation based on sworn testimony qualifies as “delusional”. Your unwavering faith in the purity of the banks is noted. I just have to wonder why your defense of them is so hostile.

        1. Cedric Regula

          Long ago someone told me “Don’t argue with idiots. It’s a waste of time and you won’t win the argument anyway.”

          Actually it wasn’t that long ago.

      2. Broken Record

        “Banks get out of it” Yes, they are trying to do that.

        Ain’t no Building 7 here, unless you’re referring to an dilapilated old shack that was nearly condemnable but was sold as gold to an unsuspecting rube:

        “And the securitization model has now crashed against the hard rock of hundreds of years of state real estate law, which has certain requirements that the banks have not met—and cannot meet, if they are to comply with the tax laws for mortgage-backed securities. “

      3. Darby Shaw

        J, do you even read the articles here or are you just stupid? Your schtick must be a ruse, no one could possibly be so obtuse (Maybe the Warden, and look what happened to him when DuFrain came to town)

      4. Thaddeus Stevens

        “Yea, like a back office schlep who may not know what the hell they are talking about.”

        As someone pretty far down the food chain at a medium sized health insurance carrier in the mid western part of the country, and someone who could be caricatured as a ‘back office schlep,’ I take deep umbrage regarding your characterization of someone in a mid to low level position as a misinformed schlep. Let me make this statement regarding what this schlep knows about the industry he works in. While this may seem off topic, follow me through on this because I have a point to make. Sometimes we back office schleps know more of what the hell is going inside the industry than any front office schlep any day of the week.

        High ranking company officials are tied down by business relationships that forbid them from making strong statements or revelations about procedures inside the company. But again, the status of Ms. DeMartini was that of a mid level manager placed strategically to know exactly what was going on and what she says carries a lot more weight than some front office schlep who is trying to pull up the loin cloth around the naked bottom of the industry.

    3. karen1p

      Yes, isn’t it interesting that BOA is now suggesting that their employee perjured herself? Hahahaha.

      And the Bloomberg HACK should be shot.

      1. Michel Delving

        Funny thing about that “Bloomberg HACK”. On the SAME DAY he wrote THIS:

        Banks seeking to clean up their balance sheets by selling U.S. mortgages made during the real- estate lending boom are encountering documentation problems, Cantor Fitzgerald LP said.

        In some cases faulty files are lowering loan prices or extending the time it takes to complete sales, said Jason Kopcak, the head of whole-loan trading at the New York-based broker. RESIDENTIAL AND COMMERCIAL MORTGAGES OWNED BY BANKS LOOKING TO SELL OFTEN LACK THE PAPERS REQUIRED BY BUYERS, INCLUDING DOCUMENTS NEEDED TO FORECLOSE, Kopcak said.

        “They were never looking to sell the assets,” Kopcak, who advises banks on loan sales and handles the trades, said in an Nov. 19 interview at Bloomberg News headquarters in New York. “It wasn’t just securitizations, it was across the industry.”

  7. simplygeorge

    Yves thanks for another great post.

    One point which I would like to make is in regards to the comment that the individual notes and mortgage are not valid and the borrowers should not be forced to pay.

    It is very important in these discussions that we distinguish between (1) the issue of the validity of the note and mortgage and (2) the issue, which is the point you have addressed in this article, whether the proper proceduires were followed in the secuiritization, which tells us who is the proper holder of the note and thus has the power to sue on the note and foreclose the mortgage.

    The Financial Institutions want us to confuse the issue so they can say ‘no harm no foul” as for the vast majority of notes/mortgages are in default and the borrower has failed to pay what is due.

    This is a very dangerous argument (no harm no foul) as it pushes aside the rule of law. Why is the rule of law so important? Without it, parties loose faith in the system and the financial system itself become suspect.

    The issue which you addressed, and the one we must focus upon, is the securitization issue. The consequences which arise if the securitization procedures were not followed deal with NY Trust law (largely) and the possibility of the losses on the notes being returned to the originators and servicers of the Trusts due to their not having properly transferred the notes and in their certifying to matters which were in fact not correct.

    It is a huge issue and originators and servicers face enormous potential liability.

    But we must be careful to distinguish the two issues mentioned above, so as to avoid the securitization issues from being intertwined with issues of individual borrower liability on the underlying notes. Frankly, the individual borrower liability is irrelevant to the securitization issue. It is simply that the recognition of the securitization issue is being identified in the individual borrower foreclosure actions.

  8. Charlie

    “Yea, like a back office schlep who may not know what the hell they are talking about. Makes a thread I guess.

    Let me say this, if the banks were as negligent as you all suggest they were then would be expecting people to believe that month later the banks haven’t checked their own docs etc. and still have no clue or they do have a clue and are lying.

    You geezers are now asking people to believe there’s a huge conspiracy going on at the moment and that every senior executive and board member is remaining silent and no one is talking.. Even boards are not disclosing this material information to the market and therefore prepared to go to jail.

    Some of you people are delusional. This is getting into troofer realms.”

    It’s pretty obvious that the banks haven’t been assigning notes to the trusts, and if you’ve been reading NA and Denninger’s blog for the last couple months you would know that. For that matter, if you even read the post you would see one of the (many) known examples of obvious document fraud which could have little purpose besides hiding a faulty chain of assignment. Whether you have, and are talking this gibberish anyway, or haven’t and just don’t know what you’re talking about, you’re either trolling or a shill for the banks. I’d guess the latter; you seem to imagine you know all about the “back-office shleps” at these banks and what they do and don’t understand. But for the benefit of any new readers: this is all just confirming what’s been pretty clear for awhile, which you’ll see if you browse the archives here and at

  9. razzz

    What would be more interesting as a writeup is how one mortgage support a derivative of, say, 30 investors.

    Do the supposed loss(es) included the just the value of the mortgages without including the derivative (and CDO and CDS…) values? Not even BIS knows the total outstanding debt values as derivatives being OTC are/were voluntarily reported besides lacking oversight. Changes in FASB rules aides in hiding the facts.

    Basically it’s a scam no one is willing to admit to or take responsibility for, not even the Courts as they know the implications for ruling on one case affects all the cases, probably past, present and future.

    How much money (debt) are we really talking about here as the can gets kicked down the road? Do we even have a Congress?

    1. Lyle

      Actually the synthetic CDO which you describe is similar to betting on a sports game. The score is the reference obligation, that is used to determine who gets paid. Here one looks at the outcome of the particular tranche of the mortgage trust and determines who gets paid. Since the synthetic CDO is basically a pure bet it has nothing do to with mortgages or any other real thing. This is like there is no limit on how much can be bet on a game imposed by the game itself. Same here people can bet on the CDO succeeding or failing with each other as many times as they please just like they can with naked CDS as well (You don’t have to hold the bond to buy or sell a CDS).

  10. kravitz

    Michael Barr, in his summary to the Financial Stability Oversight Council, noted issues like this are in their sights. Findings of the Foreclosure Task Force are due in January.

    Five areas under review : foreclosure process, loss mitigation, origination put-backs. securitization trusts, and disclosures.”

    Excerpts from his summary:
    “The bulk of the examination work to date, focused on the foreclosure process, has found widespread, and in our judgement, inexcusable breakdowns in basic controls in the foreclosure process. These problems must be fixed.”

    The Foreclosure Task Force, made up of “eleven federal agencies including the relevant FSOC (Financial Stability Oversight Council) entities, plus the FTC, the Department of Justice, and the Department of Housing And Urban Development have been, and are, coordinating investigations of the largest mortgage servicers, key service providers such as LPS and MERS, certain law firms and other matters.”

    They’re looking into the modificaton mess. If you’re channeling Maxine Waters saying “DO something about it” here.

    “Regulators have begun to review compliance by servicers custodians and trustees with procesures required by pooling and servicing agreements, trust and custodial agreements, and related contracts.”

      1. Cedric Regula

        I think in a recent post Yves pointed out that Fannie is doing an investigation and hired the same legal firm that is used by the largest robosigner which is a subcontractor to the “servicers”.

        So we will have to watch closely to see how these investigations are really handled. The Marshal may just hand his badge over to the bankrobber.

  11. Dark Entropy 646


    As other persons who already commented this article suggested, if I was in the place of the trustee, realizing that no IOU had been ever transferred to us, I would had contacted my legal department and asked from my lawyers to find every single way they could, to deny our payment (and the corresponding CDS/CDO) and get our money back, especially if we got underwater due to the specific loan. It was their responsibility to do their work properly, now since actually the loan had never been transferred, time to avoid a bad loan ourselves.

    I suppose this what BoA tries to avoid, but the genie is already out of the bottle. They have to take the heat and the losses for all the improper – never done transfers, and this also rips their position in regards of their essentially needed capital reserves, if people deny their CDS, thus the loans would have to return back to their own books.

    This is a tough case for them.

    One last note about the moral hazard. It is too difficult, if the government or the congress, try to fix this mess by using political means, to back up BoA’s and other’s broken tactics, to have ever a healthy banking sector again. Everyone would try even in more aggressive or rogue or reckless ways to game the system, since more or less, the government saves always the big players.

  12. Jack Mullen

    If we keep attack lenders then no more mortgage loans will be available in the future at affordable rates. We all know that a person who takes out a mortgage has to make the payments or give up the house. We are focusing on the banks as the problem and that will mean that it will be extremely difficult for average people to get a mortgage in the future. This practice is really stupidity at the highest level. As a result, home prices will go lower, unemployment will go higher and everybody loses! Is that what you want to happen because it will?

    1. kravitz

      The ‘don’t pay mortgage, we’ll take the house’ meme has been tossed aside for the latter half of that phrase.

      It is amazing how many ways banks will find to race the legal roadway at ultra high speed, isn’t it.

      And fer some reason, I recall the rates were higher when the fraud was happening, so I don’t see rates spiking up because procedures are being done legally. There would even be a slowdown to the point where servicing staffs could rationally handle the case load, rather than feel pressure to rush junk paper though the offices.

      Some type of penalty has to happen to the banks to get them to clean up their act.

    2. Wild Bill

      Obama, is that you? To answer your question: Yes, Jack, that is what we want. We want the market to rule, and if that means lower house prices, more unemployment, and everybody loses, so be it. Read here regularly if you don’t yet think the world needs a revolution — you’ll come around.

      1. Dave C

        Bill, What I’m specifically concerned about are the unethical, and the legions of unscrupulous lawyers who will solicit them, who decide in mass to stop paying performing loans for the sole reason that there’s a good chance their mortgage company screwed up the paperwork. If large numbers of people choose to play that game, most banks will simply stop issuing mortgages, home values will drop through the floor due to the inability to get a mortgage, causing tremendous harm to those who are paying a mortgage that does have proper documentation. homebuilders will fold, realtors as well. While there are certainly bankers who would deserve destruction for their part in creating this mess, what about the rest of us? BoA was arm twisted into buying defunct companies by the feds. Other banks were as well. bringing down the entire system may how a pure market should operate, but the entire banking system could be destroyed in the process. I’m a Republican with a strong faith in free markets, but bankrupting the country to satisfy your sense of justice is as senseless as it is morally correct. What solutions can you offer that don’t create such a negative outcome for millions of innocents?

        1. tawal

          Dearest Dave, That’s OK with us, we’ll bring our whole clan over and occupy your house productively, grow vegetables and raise goats in your back yard. You can stay too, it will be fun. Love, tawal

  13. RegReader

    If we keep attacking lenders for:

    1 – violating the law by filing false affidavits in their capacities as servicers, and
    2 – violating the law when they originated the loans by claiming to have conveyed the notes to holding companies that then conveyed them to REMICS for securitization when in fact they just locked the notes up and lied,

    THEN the originators and other entities involved in securitization will start doing it legally instead of illegally.

    If doing it the right way means interest rates go up and some can’t afford homes, then SO BE IT. It’s ludicrous to claim they should be allowed to violate NY Trust Law and conspire in perjury just to keep the loans flowing.

    1. blovia maximus

      3. the REMICs lose their ‘tax free’ status, and have to start paying corporate income tax, maybe back taxes, leaving court cases galore to fight about who pays those taxes… investors?

      IE on the IRS website (938) there are several thousand REMICs listed for various trusts. am i right to assume that freddie fannie and ginnie trusts keep their taxfree status regardless of what happens? but that still leaves several thousand REMICs of Bear, BoA, Lehman, JPM, etc, do they all lose their taxfree status? How many exist without being listed on the IRS website?

      And does this tax eat through so much cash outflow that the CDOs that are based on REMIC tranches become even more worthless than they are allready?

      just wondering? anyone know?

  14. AUDJPY Carry Trader

    The truth is nobody gave a *cough* about any of this until the money stopped flowing from the mortgagees. “Procedures? Schmocedures! Just get it done and collect the money!” was the attitude.

    In just a few years we’ve undone 200 years worth of good, unchallenged property transfers. This is not unlike irradiating a bunch of towns making them uninhabitable. Who will want to buy properties with bad titles? Who is going to lend or borrow to buy real estate when there is no reliable way to discover price?

    On the flip side people who own outright or have otherwise clear title ought to be able to still move properties reasonably well.

  15. David

    I’ve just be under the impression if the Note can’t be produced then certain there can be no foreclosure. The rule of ‘contract in fact’ would apply, but likewise contract in fact obviously omits the terms of payment and when recourse could be taken.

  16. viking

    regarding whether borrowers still owe a debt it the mortgage isn’t properly securitized…

    if the securitizer has been paid for the note, and then failed to legally transfer, then no entity has legal standing for the collection of the debt

    1. simplygeorge

      Not exactly. While the orignator of the securitization was “paid” for the notes, the PSA provides for recision if certain conditions are met.

      The underlying notes (the individual borrower notes) are still valid obligations owing to someone. It is just a question of to whom they are now correctly owed.

  17. alan

    Isn’t the real question what happens when someone tries to sell a property for which the note can’t be found or is obviously not squeaky clean. Is this an issue for the Title Insurers?

    1. Cedric Regula

      I would call it the “next issue”.

      I am wondering if we have anyone here who is expert on title searches and can shed some light on if these problems can be detected with a title search that we typically get when going into escrow.

      So far the title insurance companies have been waffeling over the issue, which indicates to me at least that they may not be confident they can find all the problems before they sell the title policy to the new lender and owner and escrow closes.

      1. razzz

        I’m no expert but the answer to your question is simply “No”

        You are dealing with fraud and forged documentation. Only an attorney who is certified in fraud and forensic examination of mortgage paperwork and securities can unravel the mystery.
        You’ll need one to explain it to the Courts anyway.

          1. Cedric Regula

            I did some programming work for Fidelity National Title for about a year, and although I didn’t learn much about the title insurance biz, I am fairly certain chain of title problems are a problem.

  18. kravitz

    shoo bee doo bee…

    “Moody’s Investors Service continues revamping ratings on Alt-A, adjustable-rate residential mortgage-backed securities with the downgrade of 272 tranches of debt issued by Countrywide Financial.”

    “Most of the lowered ratings on the Countrywide RMBS slid further down the noninvestment grade chain to Moody’s single-C categories.”

  19. 60sradical

    Terrifc work Yves!! -and to the savvy group that knows your intensity!! You good citizens know who you are. Also, expect more and more shills/agent provacateurs to enter into this site(as per the 60s). You are all pace-setters in my book and it’s been one hell of a education for me.

  20. 60sradical

    Great work Yves!! And great work by the regulars. You are all pace-setters in an area that is moving so quickly. Thank you all!! And assume that there will be constant schills/agent provacateurs(as per 60s movements)–especially as the over-all cogency of this site develops. Be tough!!!As we used to say, Right On!!! “change is constant” .. .the bhuddha

  21. Allen C

    I presume a fund such as CalPers purchased many of these allegedly faulty instruments. Where is the legal action? Are they waiting for additional evidence to materialize?

  22. Dan The Man

    What more proof do you need,you have a corpse (Lehman Brothers)you have the kidnapped(merrill lynch)you have a weapon (leveraged derivatives) you then had the elite bosses with the massive ego’s it would take to destroy a world economic system. If this wasn’t the perfect crime not to worry another one is already in the works complete with confusing language and a limitless supply of victims.Lobbyists and barrels of grift make it all possible.

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