Securitization Trustees in the Crosshairs in Mortgage Mess

Tom Adams pointed to an article in American Banker by Kate Berry which discusses how mortgage securitization trustees are increasingly coming under scrutiny in the foreclosure crisis. By way of background, the trustee is the party responsible for securing the assets (the borrower promissory IOUs, liens, and various other documents related to the securitization). The trustee in theory is also responsible for overseeing the servicer. In practice, the trustee does very little, and the pooling and servicing agreement has all sorts of carveouts and indemnifications with the intent of severely limiting (cynics might say eliminating) any risk trustees might have by virtue of their supposed supervisory role.

The biggest mortgage securitization trustees are Bank of New York, Deutsche Bank, Wells Fargo, and US Bank.

The interesting thing about the American Banker article is that the trustees appear to be in a great deal of denial as to how much hot water they are in. No where does the story mention their biggest exposure: that they gave multiple certifications to the investors in the mortgage securtizations that they did indeed have the trust assets. If, as it now appears to be the case, that many mortgage loans were not properly conveyed to the trust (as in endorsed by the originator and all the intermediary parties specified in the contract governing the deal, the pooling and servicing agreement, and finally over to the trust), then all those certifictions were patently untrue. Since investors relied upon these certifications (no one in their right mind would have ponied up for these deals if they had had any doubt that the trust owned the mortgage loans) and the failure to convey the notes is a big cause of problems with foreclosures, it would seem that the trustees are very logical targets for investor litigation.

Let’s begin with a meaty section of the American Banker story (sadly, no online version):

Deutsche Bank AG, the second-largest trustee of asset-backed securities in the U.S. according to Thomson Reuters, recently demanded that the servicers of its deals indemnify the German bank, and the investors it represents, against any “liability, loss, cost and expense of any kind” from “alleged foreclosure deficiencies or from any other alleged acts or omissions of the servicer.”

The Financial Crisis Inquiry Commission is also investigating trustees’ role in the foreclosure mess, according to several people with knowledge of the body’s work. The commission, which was created last year and has held a number of hearings, has no real teeth, but it plans to issue a report Dec. 15 on its findings about the causes of the financial crisis. The report is expected to include some discussion of trustees in securitizations, the people said.

In an Oct. 8 letter, Deutsche cautioned the major mortgage servicers that had halted foreclosures to examine their processes — including Ally Financial Inc. and JPMorgan Chase & Co. — of the need to ensure ownership of loans was properly transferred to trusts when securitizations were formed.

Deutsche Bank told the servicers to “comply with all applicable laws relating to foreclosures,” and requested additional information about alleged loan defects and any actions taken by servicers to fix them.

Thomas Hiner, a partner at Hunton & Williams LLP, said Deutsche Bank, which forwarded the servicer warning to investors on Oct. 25, was trying to appear proactive. “They are attempting to show a good face to the bondholders, that they are in front of the issue and they’re telling the servicers to comply with the law and the documents,” Hiner said.

He also said Deutsche bank was trying “to disclaim responsibility for” servicers’ paperwork blunders.

“Proactive”? This is comical. It appears that Deutsche is trying awfully hard to shift blame to servicers for its own failures. And a misleading letter to investors looks to be a device to get them off Deutshe’s trail.

This is the section, if Thompson Reuters has recounted it correctly, that is dishonest:

Deutsche cautioned the major mortgage servicers that had halted foreclosures to examine their processes — including Ally Financial Inc. and JPMorgan Chase & Co. — of the need to ensure ownership of loans was properly transferred to trusts when securitizations were formed.

Ahem! It was the TRUSTEE’S job to make sure the loans got to the trust! This wasn’t the servicer’s duty. And it is the trustee that is on the hook legally, since it provided certifications that everything was hunky dory. Moreover, it is the trustee that selects the custodian (when a separate custodian is used; trustees often provide custody services). Furthermore, trustees for New York trusts (and New York was overwhelmingly the state law elected for the trusts) are required to segregate trust assets (as in have the assets for each trust in separate place). New York trust law also requires specific endorsement (as in a trust is not only not permitted to hold bearer paper, such as notes endorsed in blank, but the trust assets must be endorsed in the name of the trust, not merely the trustee, which was the lower standard specified in the pooling and servicing agreements).

So if what we are increasingly led to believe it true turns out to be correct, that borrower notes never were conveyed to the trust, and were also not endorsed over to the trust (through the proper chain of conveyance specified in a PSA) in the stipulated time frame (a LONG time ago), the trustees were derelict in the performance of their duties.

So with that in mind, let us reconsider the truly comical part at the beginning of the extract:

Deutsche Bank AG….recently demanded that the servicers of its deals indemnify the German bank, and the investors it represents, against any “liability, loss, cost and expense of any kind” from “alleged foreclosure deficiencies or from any other alleged acts or omissions of the servicer.”

Demand indemnification? What are they smoking? They have absolutely nada in the way of leverage. They can’t realistically fire the servicer (servicing is a loss making business right now, no one would be willing to act as a replacement unless they got more than the current servicer, and that would come out of the investors’ hide). In addition, if they tried to do so, the old servicer and the investors (who now would have to pay more) could say this move was clearly self serving, not in the investors’ interest.

A mortgage securitization expert concurred with our reading:

You are dead on. In fact, no one in the transaction has any negotiating leverage at this point. All negotiating leverage will likely come from one party pointing fingers at the other, trying to interpret the contracts. The trustee will seek to blame the servicer, the servicer will say they were directed by the trustee. Should be great sport…..

Print Friendly, PDF & Email


      1. Cedric Regula

        Better yet, copyright it and sell it to MBS sponsers and trustees. They need a new legal word.

    1. Paul Repstock

      Hmmm?? So now we add a European TBTF to the roster, The investors, hoping to recover some crumbs from a bugoining disaster, agree to take another small hit, allowing a ‘new servicer’ to be retained???


    2. bmeisen

      I assume that Deutsche Bank AG is protected from what their US subsidiaries did. It makes me wonder though. In Too Big To Fail, Sorkin summarized AIGs exposure by citing European banking regulations first:

      “Under European banking regulations, financial institutions had been allowed to meet capital requirements by entering into credit default swap agreements with AIGs financial products unit.”

      Can you explain this even if there isn’t any connection to Deutsche Bank AG.

  1. aw

    It is just greed. because of fed bailout, the bank has not much to loose when they foreclosed. Instead of reducing interest to more realistic level

  2. Mr. E

    This is exactly why the request from the fed and Blackrock is a big deal. It starts the process that pulls back the curtain on this part of the mess.

    I laid this out in another comment, but here it is again:

    1. Remove servicer who knows the docs do not support the prospectus so is slowing down foreclosures.

    2. New servicer (Add: who is also the trustee!) keeps foreclosure process at the same rate, and balks at documents because they don’t support being able to foreclose easily.

    3. Investors ask why so slow now – we just put you in place and this is a no brainer? Trustee says “docs given me by prior servicer don’t make any sense and don’t seem to be complete.”

    4. Investors files lawsuit to see individal loan paper work within pools – which is reasonable because of string of delays in foreclosing on these properties.

    5. Trustee/Servicer can’t provide the note trail and it is clear that the loans in the pool do not match prospectus or filings.

    5. SEC fraud uncovered. Because SEC StoL usually begins from discovery depending on the situation – it is still active.

    6. Putbacks and criminal prosecutions. RICO for Countrywide, BoA, and Citi.

    Bank of America will be nationalized by March.

    1. Fractal

      Mr. E, please please don’t bring up the NY Fed, PIMCO, Blackrock demand letter to BAC again! Yves will jump all over us for thinking that demand letter might have some plausible basis, since she thinks the lawyer who wrote it is some kind of bozo. Use some other example, I beg you!

    2. Yves Smith Post author

      Mr. E,

      I’ve explained repeatedly that the servicer will be removed. IN theory they can be, but in practice they can’t because no one in his right mind wants to be servicing a private label (non-confirming loans, meaning non-GSE) portfolio right now. Servicing isn’t a terribly profitable business in the best of times, foreclosures are running at such a high level that they can’t sell houses fast enough to repay their principal and interest advances to the investors on any reasonable time frame. I’ve explained that to you repeatedly, yet you keep repeating your fantasy. Even in better times servicers were virtually never removed, and when they were, the replacements were not much of an improvement.

      In this case, any replacement servicer would demand to be paid a LOT more. That has to come from the investors, and it requires a majority or supermajority. Think they are going to agree to lose even more with no clear benefit?

      In addition (and banking expert Chris Whalen concurs), BofA can simply blow off that letter. The lawyer for Pimco et al is unlikely to be able to allege specific breaches on each PSA to keep any case from being thrown out.

      The securitization lawyers I’ve spoken to (and they are on the side that sues banks) thinks this letter is a not likely to succeed and is just a fishing expedition.

      1. Siggy

        The Blackrock etal letter is a probe, the first step in a fishing expedition. As to whether it goes anywhere remains to be seen. It has achieved undue notariety, why, well it just sounds redolent with gotchas.

        Proven breach of reps and warranties, now that’s where the action will be. Like fraud itself which is dependent upon provable intent, a reps & warranties breach requires hard evidence and that is not just lying there for all to see. You can sense it, but the hard evidence isn’t easy to get to. It’s rather like an onion, it just keeps peeling into nothing more than tears and rubbish, unless, of course, you saute the peels for a soup or a sauce. And if the cooking is ovedone you get a nice rancid mess. Seems we are getting the mess with out the cooking. Now that’s a lot like the omitted steps in the securitization process.

        It is subpoena time! Not letter time. But then the Justice Department appears to be somnolent.

        I’m curious to know, would prosecution of trustees produce the outcome the Blackrock etal truly desire?

      2. Mr. E

        Hi Yves,

        From the docs, the replacement servicer is the trustee!

        The point of the letter is to expose that the trustee did not do their job in conveying the notes. The point of the letter is to begin the chain of events that lead to an SEC fraud case.

        The letter does not need to force a new servicer for the letter to succede in its aims. But the letter will succede – note that the servicer doesn’t really have much say in its removal, again from the docs.

        The issuer knew the trustee did not do the job, and the issuer – who is the same as the servicer – has been hiding this fact for a few years.

        The article that you’re writing about in this post is just one more avenue where this is playing out. These are not separate events.

      3. yvonne

        Hello, been reviewing some of the comments…my researches shows Duetsche Bank as purchasing GMAC…leaving the name the same…so if DB is trustee, and also owns the servicer and it appears that it also is a behind the scenes investor also…what does this make it? DB has been deceiving the American public for years…under other names and it is a foreign bank and is responsible for most of the foreclosures…and it keeps purchasing behind the scenes other assets…it is the largest German Bank in Germany…has purchased other GMAC assets and others in other countries…
        Now, tell me, if what the Bankers Assoc is saying, then DB is in violation of much…and to see that GMAC got so much of tax payers money…after that it was purchased…I stand being corrected …

        Also, does any one know if a non – confirming loan can be secuterized? Also, someone mentioned that the note is converted into a bond which changes its effect…please explain if you will, thanks…

  3. Fractal

    Did American Banker get comments from any law firms other than Hunton & Williams? Were there any other salient facts in the (offline only) article, such as total dollar exposure of Deutsche Bank (DB), percent of DB’s stated capital represented by assets supposedly contained in RMBS/REMIC trusts, value at risk in DB’s trustee line of business?

    1. Yves Smith Post author

      That’s the only firm, and the other comments (from folks at GMAC) make it sound like the issue is affidavits only. And the article does not mention any of the factoids you asked about, they clearly don’t see the liability as serious.

  4. Augustus Melmotte

    Mr. E, I wish I believed you were right about the RICO prosecutions, but I think it is far more likely that every branch of the federal government helps to cover up the problem. The state attorneys general seem to be serious, but I think their model is the lucrative tobacco settlements rather than shutting down the offenders.

  5. Fractal

    P.S. Did American Banker comment on similar trusteeship misconduct/nonfeasance by Wells Fargo, Bank of NY, or US Bank?

  6. AR

    The Iridian investor letter posted at Zero Hedge also hinted at trustee problems, in respect to put backs:

    The fundamental roadblock in a more effective, or at least more organized, effort to put back loans from private label trusts has been the trustee. For whatever reasons (increased legal expense, potential revelations of malfeasance, etc.) trustees have stymied efforts to prosecute put backs at every turn, including opening up loan-level performance and underwriting data. Without a significant percentage of investors demanding action from the trustee (the percentage varies from trust to trust, but is typically a minimum of 25%), investors have no recourse but to accept the trustee’s judgment in matters such as loan put backs and assignment of servicer.

    Wouldn’t it be reasonable to assume that the recalcitrance of the trustee is due to the probable fact that there are no loans to put back, having never been conveyed?

    Further on in the investor letter, describing the Gibbs & Brun case against BAC:

    The trustee in this case – Bank of New York Mellon6 – is a perfect example of a recalcitrant trustee, having denied the Gibbs & Brun group’s initial request to push for loan put backs on the grounds that simply meeting the 25% threshold level of investors was a necessary but not sufficient condition in a trustee’s determination of an Event of Default in the Pooling and Servicing Agreement (PSA) governing the relevant trusts. In response, Gibbs & Brun is now attacking the trustee-servicer relationship.7 If successful, then the trustee will be bypassed or co-opted, and the MBS investors can go straight after the bank.

    Iridian further tells us that “it is up to the trustee to interpret the servicing agreement.

    The more I read (I am a lay person who found yesterday’s post very difficult to comprehend due to lack of knowledge/understanding of so many of the terms), the more it seems that the perpetrators of this scam covered their bottoms very well, making it very difficult to challenge the servicers and the mysterious document fabricators (not the foreclosure mills that merely have their hirelings sign them) who must be interfacing the MERS database, and who seem to be running the show with the intent, in the end of having their cake and eating it too: extracting borrower equity, ripping off investors, and winding up with the properties as well. Oh, and they’ve already been bailed out or sold their toxic trash to the FED.

    1. Fractal

      No fault of yours, but I am slightly squeamish about downloading PDFs onto my Mac since I have never visited zerohedge before. Can you tell me, did zerohedge also have a copy of the letter(s) sent by Gibbs & Brun? And, who does Gibbs & Brun represent? I presume Gibbs & Brun is a law firm?

    2. Fractal

      The other thing, AR, is that this question might arise from a misunderstanding of who is suing for what:

      “there are no loans to put back, having never been conveyed?”

      As I understand some of these cases, the investors are suing to put back what they got for their investment. The INVESTORS did not “buy loans,” they invested in CERTIFICATES issued by the TRUST. The certificates gave investors rights to participate in revenue streams generated by the trusts (REMICs, RMBS, whatever). If the revenue streams run dry because the trusts do not have the assets or collateral they claimed to have, due to trustee misfeasance or non-feasance, i.e. because the mortgages in the trust violated the underwriting standards or other representations & warranties, then the investors attempt to invoke terms of the trust (including the PSA) to “put back” their certificates and get back their investment.

      If there “are no loans to put back,” then the trusts are hollow shells and the certificates are worthless, so the investors have an even stronger basis to “put back” the certificates. (Assuming the terms of the trust & PSA granted a put-back right.)

      1. Yves Smith Post author


        You have some things right, but some things have not been established factually, and a couple of your legal readings are off.

        We believe, but we are far from certain, that a lot of notes were not endorsed over correctly to the mortgage securitization trusts. We don’t know how extensive this problem is. We believe it was widespread, but belief is a long way from proof.

        If the notes were not conveyed, or only some of the notes were conveyed, that gives rise to claims under the contract, the pooling and servicing agreement, since a number of representations were made that were not adhered to. The remedy is NOT a putback of the certificates. Certificate holders have no rights to put back the certificates. They would instead seek damages for violations of reps and warranties.

        1. bmeisen

          Very helpful. This is the sort of background that I (mistakenly)expected from Sorkin in Too Big to Fail. Still you guys could give us a little more color – like were you drinking coffee from paper cups or from Simpsons mugs when you came up with these beliefs?

  7. AR


    I admitted above that I am a lay person. You may be correct in your assessment, but I thought the quoted passage above said: “loan put backs”, so that’s why I wrote what I wrote. I never wrote that the investors ‘bought loans.’ I am aware that they buy the right to collect from the revenue stream from the loans.

  8. tom bokuniewicz

    The following is something I discovered at the FDIC Laws and Regulations website. Has any trust ever done this? And what does that failure mean? I would think they would have to do this before they could even think of foreclosing. Also note section three carefully: Loan services. Pursuant to TILA Section 131(f)(2), the servicer of a mortgage loan is not treated as the owner of the obligation for purposes of § 226.39 if the servicer holds title to the loan as a result of the assignment of the obligation to the servicer solely for the administrative convenience of the servicer in servicing the obligation.

    I would think that all those foreclosure notices that servicers in the above boat send out would be void and would be in violation of the Fair Debt Collection Act as they have no legal standing to foreclose.

    Really, this rule merely states what is obvious: if your mortgage was sold, you should be given notice of who got it, when they got, and how to contact them.

    I am confused about this part though:

    Thus, an investor that acquires mortgage-backed securities, pass-through certificates, or participation interests and does not directly acquire legal title in the underlying mortgage loans is not covered by this section.

    If they did not get legal title- what the heck did they get? It seems here you are getting to the whole split the note/mortgage problem.

    Section 226.39–Mortgage transfer disclosures

    39(a) Scope.

    Paragraph 39(a)(1).

    1. Covered persons. The disclosure requirements of § 226.39 apply to any “covered person” that becomes the legal owner of an existing mortgage loan, whether through a purchase, assignment, or other transfer, regardless of whether the person also meets the definition of a “creditor” in Regulation Z. The fact that a person purchases or acquires mortgage loans and provides disclosures under § 226.39 does not by itself make that person a “creditor” as defined in the regulation.

    2. Acquisition of legal title. To become a “covered person” subject to § 226.39, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation. The transfer of ownership of a mortgage loan is subject to the disclosure requirements of this section when the acquiring party is a separate legal entity from the transferor, even if the parties are affiliated entities. Section 226.39 does not apply to persons who acquire only a beneficial interest in the loan or a security interest in the loan. Section 226.39 also does not apply to a party that assumes the credit risk without acquiring legal title to the loan. Thus, an investor that acquires mortgage-backed securities, pass-through certificates, or participation interests and does not directly acquire legal title in the underlying mortgage loans is not covered by this section.

    3. Loan services. Pursuant to TILA Section 131(f)(2), the servicer of a mortgage loan is not treated as the owner of the obligation for purposes of § 226.39 if the servicer holds title to the loan as a result of the assignment of the obligation to the servicer solely for the administrative convenience of the servicer in servicing the obligation.

    4. Mergers, corporate acquisitions, or reorganizations. Disclosures are required under § 226.39 when, as a result of a merger, corporate acquisition, or reorganization the ownership of a mortgage loan is transferred to a different legal entity.

    Paragraph 39(a)(2).

    1. Mortgage transactions covered. Section 226.39 applies to any consumer credit transaction secured by the principal dwelling of a consumer, which includes closed-end mortgage loans as well as home equity lines of credit.

    39(b) Disclosure required.

    1. Generally. A covered person must mail or deliver the disclosures required by § 226.39 on or before the 30th calendar day following the date that the covered person acquired the loan, unless the exception in § 226.39(c) applies. For example, if a covered person acquires a mortgage loan on March 1, the required disclosure must be mailed or delivered on or before March 31. For purposes of this requirement, the date that the covered person acquires the loan is the acquisition date recognized in its books and records.

    2. Disclosure provided on behalf of multiple entities. A mortgage loan may be acquired by a covered person and subsequently transferred to an affiliate or other entity that is also a covered person required to provide disclosures under § 226.39. In such cases, a single disclosure may be provided on behalf of both entities instead of providing two separate disclosures, as long as the disclosure satisfies the timing and content requirements applicable to both entities. For example, if a covered person acquires a loan on August 31 with the knowledge that it will assign the loan to another entity on October 15, the covered person could mail a single disclosure on or before September 30 which provides the required information for both entities and indicates when the subsequent transfer is expected to occur. Even though one person delegates responsibility for the disclosures to another covered person, each has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner.

    39(c) Exceptions.

    Paragraph 39(c)(1).

    1. Example. If a mortgage loan is originated on February 22nd and the original creditor sells the loan on March 1 to a covered person, under the exception in § 226.39(c) the covered person would not be required to provide disclosures under § 226.39 if the loan is sold or otherwise transferred or assigned to another party on or before March 31.

    Paragraph 39(c)(2).

    1. Repurchase agreements. The original creditor or owner of the mortgage loan might sell or transfer legal title to the loan to secure short-term business financing under an agreement where the original creditor or owner is also obligated to repurchase the loan within a brief period, typically a month or less. If the original creditor or owner does not recognize such transactions as a sale of the loan on its own books and records for accounting purposes, the transfer of the loan in connection with such a repurchase agreement is not covered by § 226.39 and the acquiring party is not required to provide disclosures. However, if the transferor does not repurchase the mortgage loan, the acquiring party must make the disclosures required by § 226.39 within 30 days after the date that the transaction is recognized as an acquisition in its books and records.

    39(d) Content of required disclosures.

    1. Identifying the loan. The disclosures required by this section should identify the loan that was acquired or transferred. The covered person has flexibility in determining what information to provide for this purpose. For example, the covered person may identify the loan by stating the address of the mortgaged property along with the account number or other identification number previously known to the consumer, which may appear in a truncated format. Alternatively, the covered person might identify the loan by specifying the date on which the credit was extended and the original amount of the loan or credit line.

    Paragraph 39(d)(1).

    1. Identification of covered person. Section 226.39(d)(1) requires acquiring parties to provide their name, address, and telephone number. The party identified must be the covered person who owns the mortgage loan, regardless of whether another party has been appointed to service the loan or otherwise serve as the covered person’s agent. In addition to providing a postal address and a telephone number, the covered person may, at its option, provide an address for receiving electronic mail or an internet web site address but is not required to do so.

    Paragraph 39(d)(3).

    1. Identifying agents. Under § 226.39(d)(3), the covered person must provide contact information for the agent or other party having authority to act on behalf of the covered person and who is authorized to receive legal notices on behalf of the covered person and resolve issues concerning the consumer’s payments on the loan. Section 226.39(d)(3) does not require that a covered person designate an agent or other party, but if the consumer cannot use the covered person’s contact information for these purposes the disclosure must provide contact information for an agent or other party that can address these matters. If multiple agents are listed on the disclosure, the disclosure shall state the extent to which the authority of each agent differs by indicating if only one of the agents is authorized to receive legal notices, or only one of the agents is authorized to resolve issues concerning payments. For purposes of § 226.39(d)(3), it is sufficient to provide a telephone number as the contact information provided that consumers can use the telephone number to obtain the mailing address for the agent or other person identified.

    2. Other contact information. The covered person may also provide an agent’s electronic mail address or internet web site address but is not required to do so.

    Paragraph 39(d)(4).

    1. Recording location. Section 226.39(d)(4) requires disclosure of the location where transfer of ownership of the debt to the covered person is recorded. If the transfer of ownership has not been recorded in public records at the time the disclosure is provided, the covered person complies with § 226.39(d)(4) by stating this fact. Whether or not the transfer has been recorded at the time the disclosure is made, the disclosure may state that the transfer “is or may be recorded” at the specified location.

    2. Postal address not required. In disclosing the location where the transfer of ownership is recorded, the covered person is not required to provide a postal address for the governmental office where the covered person’s ownership interest is recorded. The covered person also is not required to provide the name of the county or jurisdiction where the property is located. For example, it would be sufficient to disclose that the transaction is or may be recorded in the office of public land records or the recorder of deeds office “for the county or local jurisdiction where the property is located.”

    39(e) Optional disclosures.

    1. Generally. Section 226.39(e) provides that covered person may, at their option, include additional information about the mortgage transaction that they consider relevant or helpful to consumers. For example, the covered person may choose to inform consumers that the location where they should send mortgage payments has not changed.

    1. Paul Repstock

      Well, if this is Law, then under 39(a)(1) para 4; your freind from yesterday’s thread, might be in for a very nice windall??

  9. Mulch

    Years ago I interviewed a Trustee in relation to a loan warehousing facility for a different type of loan that would ultimately be securitized. I assumed the Trustees did something meaningful. They did not. They basically were sent files itemizing the assets that were being put into the Trust. Then they would get files itemizing changes. This would give them a record of what was in the Trust. The files came from the sponsor of the securitization. There were no audits, only a pass through of funds. They took everybody’s word for everything. I can’t say for certain that mortgage Trusts are exactly the same, but I was singularly unimpressed and did not believe the Trust provided any security whatsoever.

  10. Mike Maunu

    I didn’t read all the posts so I apologize if someone else already mentioned this:

    Even if all the endorsements from originators thru the intermediaries and then into the trust were properly assigned and recorded in the county in which the property is located it wouldn’t matter.

    At that point, the note is no longer a note, but has been converted into a bond and can never be a note again. At that point the DOT is no longer collateral for what was the note and the subject property can not be foreclosed on even if all the assignments were properly done and recorded.

    The investors need to go after the underwriters and the originators for the fraud and the homeowner gets the benefit.

    I also believe it is illegal for the investment banks to pledge your property (DOT) as security for the money they received from the investors without the homeowners full knowledge and disclosure.

    Can you say Double Yield Spread premiums that were skimmed off the sale of the bonds to the benefit of the investment underwriters and others?

  11. abelenkpe

    Yeah, so when are we going to break up the big banks, or nationalize them, or bring the people responsible for the entire mess to justice?


  12. tom bokuniewicz

    Well, that is the nub, isn’t it? What is the remedy here? What is the relief? I am still trying to figure that out. And if the FDIC anticipated that the investors would not gain ‘legal title’ but, I assume, would still get income from the note, then what responsibility, if any, do investors have regarding the original note and the mortgagor? It seems to me that they would get the benefits of the note but not the liabilities of the note. I don’t think anyone who took out a mortgage thought for a moment that someone could collect from them but bear no responsibility. Nothing in any mortgage note I have ever signed has ever indicated such a scenario.

    It would seem that an investor could never foreclose on the note as they have no legal title. But who does then? I think the FDIC is saying that it knows that investors and those listed as excluded from the rules above would have set-up everything to EXCLUDE the ownership of the note. But have they been too cute?

  13. Virginia

    Let’s see – you lie and I’ll swear to it… so it must be true… Check out:


    “3. With few exceptions, the Trustee does not know the names and addresses of the beneficial owners of the Securities, who can trade or otherwise transfer their ownership interests at any time without affecting the registered ownership of the Securities.” Yeah, sure!

    If you want a copy email me at

  14. mannfm11

    Yves, you are a great source of information. You may have been who put out the Iridian third quarter report on the mortgage mess and the impairment of BAC through it. They go into the mess that BONY is in the midst of with its investors as trustee, but seem to deny the paperwork problem. It all appears to be a situation where they are avoiding opening a can of worms that could go well beyond mere liability into criminal securities fraud. The line of thinking the servicer needs to indemnify them is quite absurd. Maybe they are talking about the torts committed in pursuing foreclosures, but the idea they could turn the tables and force the servicer to take responsibility for what their errors and omissions were seems to indicate a sort of neurosis on the side of criminality.

    One thing is for certain. American Banker is about as legitimate a source as one could expect to find on this matter. The basis of the Iridian report was that the loans would be put back to the originator, but that the trustee formed a block to gaining access to the loan files in order to follow the age old procedure of taking responsibility for mistakes in origination. There is something fishy about a trustee that isn’t protecting its beneficiary against loss. I think they call it breach of the trust and there is no rational reason to breach trust other than to cover negligence on behalf of the trustee.

    Something tells me the servicer is merely following instructions passed on from the trustee. We have this situation where on one side is the servicer and the investor and on the other side is the originator and the trustee, where the trustee is protecting itself and the originator. This smells of intentional collusion with intent to defraud not only the investor, but the servicer as well in pursuit of easy profit. MERS appears to merely be a diversion to shift the appearance of liability and quite possibly attempt to wrap this entire mess up in a servicer bankruptcy.

    It is the investor that is the beneficiary, not the servicer or the originator of the note. BONY and Deutsch Bank are trustees for the beneficiary, but the appear to be protecting themselves and the originators, the conveyors of the mortgages to the trust. The lack of proper conveyance appears to be nothing more than a symptom of an attempt to hide the paper trail into this mess. This apparent breach of the trust and failure to act in good faith should go well beyond the corporate charter of all involved to a point of the denial of the Nuremberg defense of the NAZI’s.

    So here we are with a broken chain of title and what appears to be breach of trust. Something is rotten in Denmark and this now appears to be an intentional act planned between the originators and the trustee to the detriment of the servicers and investors. It is not like this hasn’t happened before, as I witnessed from a fairly good seat, the 1980’s Texas S&L mess. Just as the crooks needed an S&L with a noted man at its head to pass the trash and take the fees, it appears to be a repeat here. Fraud eventually taints everything it touches and there appears to be rapid rot going on here.

  15. Carol Kaplan

    Hi Yves,

    I’ve read your post and the comments of your readers with much interest. Clearly, there is enormous misunderstanding as to the role of trustees.

    I thought you should know that yesterday, the Corporate Trust Committee of the American Bankers Association issued a white paper, “The Role of a Trustee in Asset-Backed Securities” to help clear things up.

    You can access the white paper here: The link to the actual paper is at the very bottom of the page.

    Best regards,
    Carol Kaplan
    ABA spokesperson

  16. Chris Donovan

    Admist all the hoopla about the Federal Reserve Bank of New York’s and Blackstone’s letter, has anyone checked the paticulars of the Federal Home Loan Bank of Chicago’s lawsuit in the Cook County Circuit Court of Chicago filed on October 15th?

Comments are closed.