American Securitization Forum Tells Monstrous Whoppers in Senate Testimony on Mortgage Mess

Well, I suppose one can defend the lies testimony offered by American Securitization Forum executive director Tom Deutsch before the Senate Banking Committee yesterday if one subscribes to the Through the Looking Glass theory of usage:

When I use a word,’ Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean — neither more nor less.’

And we all know how well things turned out for Humpty Dumpty….

Seriously, though, as we will see shortly, Deutsch gave one of the most outrageously dishonest presentations I can recall ever seeing, and readers know I specialize in calling that sort of thing out.

By way of background, we’ve discussed for some time the bigger implications of problems witnessed in foreclosure battles all over the US. Increasingly, consumer lawyers are recognizing that they can often successfully challenge foreclosures in which the loan was securitized by examining whether the party trying to foreclose really has the standing to do so, which is legal-speak for whether they are the proper party. If the loan was securitized, it is owned by a specific trust, and the trustee for the trust should be the party taking action. The trustee needs not only produce the note, but if questioned, also to demonstrate that it is the right party to enforce the note (note this is theory; some judges are more predisposed towards banks than others).

The problem is that the pooling and servicing agreements, which governs the formation and operation of securitization trusts, have very specific provisions for how the notes were to be conveyed to the trust. The notes were to be conveyed through multiple entities, which each transfer being a “true sale” before getting to the trust (this was to create “bankruptcy remoteness” so that if the originator failed, its creditors would not be able to take notes back from the trust to satisfy their debts).

The PSA called for the note to be endorsed by the intermediary parties (either in blank or specifically to the next party). The notes were also to be conveyed by a specified date, which in nearly all cases was no later than 90 days after the closing of the trust. The trusts were required to be organized under New York law, and New York trust law is unforgiving. Trusts can operate only as specifically prescribed; if the notes were not conveyed to the trust in the manner set forth in the PSA, it cannot deviate from its instructions and somehow make exceptions (it would be deemed a “void act”) .

Now mind you, the ASF is in a huge hole. Despite its claims otherwise, it’s a lobbying group for sell side firms; investors are also members, but their needs are not taken seriously (the ASF posture toward very sound reforms proposed by the FDIC proves where its true loyalties lie). It was already in a defensive position before this hearing. In November; as we discussed, it issued a long-awaited white paper to assail the critics’ arguments. But that paper was weak and unconvincing; indeed, the ASF effectively acknowledged its shortcomings by issuing it the same day as an unsympathetic Congressional Oversight Panel report was released and immediately prior to Senate and House hearings on mortgage documentation issues.

If the paper had been convincing, it would have made sense to publish it earlier, to force the COP and the hearings to incorporate its views. The late release was a tacit admission that the ASF regarded it as better off merely muddying the water than exposing its position to robust debate.

Investors, even the pro-bank sort, were not persuaded. Contacts of mine were getting calls from buy-side types, including those sympathetic to banks, who were dismissive of the ASF paper. And the fact that 13 law firms signed the article? As one investor sniffed, “This is meaningless. All those firms issued true sale opinions. They’ll say what they have to say to try to make this go away.”

The ASF position was, effectively, to ignore the requirements of the PSA and argue that the transfers were valid under the Uniform Commercial Code. The wee problem with that position is that Article 1 of the UCC allows parties to contract out of the UCC and opt for different conveyance methods, which clearly was the case here. And the other major leg of their argument was that the mortgage (the lien) follows the note (which as we have said repeatedly, is the case in 45 of 50 states). Therefore, they concluded, if the trustee had possession of the note, it could foreclose.

But it gets even better. A mere week after the ASF launched its pot-holed battleship, news broke of Kemp v. Countrywide, in which a seasoned Bank of America employee testified that it was not the practice of Countrywide to transfer the notes to the trustee, but to retain them until the trustee needed them to foreclose. Whoops! Suddenly the ASF’s white paper argument looks irrelevant. We’d been told that notes had not been transferred on a widespread basis, but the evidence that had appeared in tens of thousands of consumer cases, of the foreclosure mills scrambling to get the notes to the trusts. It was persuasive but not conclusive. Here was the first evidence of pattern and practice on behalf of an industry leader (Bank of America promptly issued a denial; most observers deem it to be unconvincing).

So what does Deutsch say in his written testimony? Well, first he tells readers that securitizaton markets are SO important that we all need to bow to their needs:

Restoration of function and confidence to the securitization markets is a particularly urgent need, in light of capital and liquidity constraints currently confronting financial institutions and markets globally….With the process of bank de-leveraging and balance sheet reduction still underway, and with increased bank capital requirements on the horizon, such as those expected in Basel III, the funding capacity provided by securitization cannot be replaced
with deposit-based financing alone in the current or foreseeable economic environment.

Translation: you are debt junkies and you need us more than we need you. Of course, there is no consideration of the fact that the financial services industry is bloated and value destroying. Overly cheap credit, if that is indeed what securitization sometimes offers, should be the first thing to go.

But it gets even better:

In his written testimony as well as his statements before the Senate Committee, Mr. Levitin does not rely on the decisions in any court cases but instead discusses standard provisions of documentation typically used to issue RMBS, which generally is in the form of a pooling and servicing agreement (“PSA”). A typical PSA includes a section requiring that legal documents for each pooled mortgage loan be delivered to the trustee, or to a custodian on the trustee’s behalf. This provision typically requires delivery of the original mortgage note, which must bear the following indorsements: 1) either an indorsement in blank or an indorsement to the trustee, and 2) a ‘complete’ or ‘unbroken’ chain of indorsements from the originator or named payee to the person signing the indorsement in blank or to the trustee. The language does not specify who must sign the indorsement in 1). The language used in these typical provisions in any PSA uses either the word “complete” or “unbroken”, with no apparent difference in intended meaning from deal to deal. The typical language does not state, nor does it imply, that a “complete” or “unbroken” chain means that all prior owners or holders of the note must appear as part of the chain. Nor does any judicial proceeding consider or uphold this novel opinion. Nor does Professor Levitin provide any third-party support for his interpretation of a typical PSA.

Yves here. This is just astonishing and wildly untruthful. Putting aside the effort to minimize the critics’ case by personalizing it and limiting it to what Levitin offered as testimony last week, the “Mr. Levitin does not rely on the decisions in any court cases” is false. The fact that Levitin did not provide specific citations does not mean one can conclude he did not have rulings that supported his reading. There are literally hundreds, perhaps even thousands, of consumer cases in which judges have denied trustee efforts to foreclose precisely because the notes had not been conveyed correctly. Common screw ups include: the note assigned after the date of foreclosure and shifting stories as to who owned the note). And in particular, judges have not taken well having the note assigned by or through parties that had nothing to do with the securitization chain (no joke, they were not parties to the agreement) or endorsed by bankrupt entities well after they are toast when this has been called to the judge’s attention.

Indeed, why, as we have written, is the preferred fix now for foreclosure mills to present allonges (attachments to the note which contain additional signatures, except these are almost never attached in the manner required by the UCC) which often are clearly suspect (as in, for instance, with visibly Photoshopped signatures altered to fit in the document) precisely to show the proper chain of title if this issue didn’t matter? The behavior on the ground suggests strongly that now that consumer lawyers have gotten wise to vulnerability to questions of standing based on reading the PSA, they are scrambling to create a paper trail that conforms to its requirements?

But the brazen part is to assert, Humpty Dumpty style, that “complete” or “unbroken” chain of endorsement means something other than what it obviously means. This language is not difficult to parse. Deutsch’s prevaricating is simply an insult to the reader’s intelligence. The parities CLEARLY intended for the notes to be conveyed through intermediary entities; that was critical for bankruptcy remoteness. And they CLEARLY intended for them to get to the trust by no later than 90 days after closing; that was necessary to get the desired REMIC tax treatment. But Deutsch is trying to engage in revisionist history and hope his audience is too uninformed to see through it.

As for third party support for Levitin’s reading of a PSA, I would find it very likely that he has some, since I’m very much on the periphery and can provide backup myself. Below is a affidavit from Tom Adams in an Alabama consumer case that supports Levitin’s views. It specifically discusses his expectations for endorsements based on his involvement in this specific securitization as well as his over 20 year experience in the securitization industry:

Affidavit of Thomas Adams for US Bank v. Congress

Professor Ira Bloom, a New York trust expert, and one of the five advisors to New York state on trust matters, also provided an affidavit in the Congress case that confirms the Levitin reading (note that Bloom mentions “lifetime trusts”; he and other New York trust experts have separately confirmed that his reading would apply to New York trusts generally. such as the business and investment trusts that Deutsch mentions).

Affidavit of Professor Ira Bloom for US Bank v. Congress

Note that both affidavits were submitted pre-trial and opposing counsel did not present any expert witness testimony that disputed these arguments.

Some readers have complained that I haven’t ever provided a PSA. Even though they are plentiful on Edgar, I’ve uploaded the one at issue in this case. The conveyance language is in Article II, which starts on page 31 of the pdf.

Back to the not-very-persuasive Deutsch attempts at legerdemain. Aside from disputing the reading of a specific case Levitin cites (and note, as we have stressed repeatedly, all the top New York trust experts concur with his interpretation), Deutsch’s other argument amount to depicting the securitization market as TBTF and hence above the law:

The notion that new legal decisions in all 50 states would be handed down with no legal precedence to nullify trillions of dollars of mortgage securitization transactions simply because the trusts acquired an interest in the pooled loans in accordance with applicable law but not in the manner that Mr. Levitin claims the trust documents require, appears on its face to be an unreasonable assertion.

Um, this isn’t “with no legal precedence”; New York trust law is very well settled and precedents go back to the late 1800s.

We now get to his efforts to explain away what appear to be widespread failures to observe the contacts. This is another doozy:

It is unclear and seemingly unreasonable to practicing industry lawyers why parties to a transaction would contract around the UCC by imposing significant additional indorsement requirements upon themselves, and then to have systematically failed to observe those expanded requirements. On the other hand, it is very reasonable to interpret the PSA language as not having been intended to require this expanded chain of indorsements above and beyond UCC requirements for indorsements, where the actual indorsement practice satisfied the UCC requirements.

This is simultaneously laughable and damaging. The argument basically boils down to: “Gee, the fact that no one bothered to observe the contracts means they never intended to. So we’ll just pretend those provisions don’t count.” Does that mean that people who promptly went into default obviously never intended to pay, and should therefore get free houses? Or that when a borrower sends a payment a day or two late, they clearly intended to pay on time, so no late fees should apply? I think a lot of people would agree to that theory of contracts as long as it applied to consumers as well as banks.

But notice the amazing admission: “then to have systematically failed to observe those expanded requirements.” This is even better than Kemp v. Countrywide! The head of the ASF tells the public in Congressional testimony that the entire industry group he represents “systematically failed” to honor their own agreements! We’ve suggested as much on the blog as a worst-case scenario, and now we have official confirmation.

But the reason that this is all so stunning is, utterly contrary to what Deutsch implies, was that these “expanded requirements” were standard in the industry from its early days and were adhered to. That’s why investors and industry participants have had difficulty believing that the notes were not conveyed on a widespread basis. In the 1980s and the 1990s, the contract terms governing conveyance were observed. For instance, industry members recall closings being delayed because a particular box of notes had not gotten to its intended destination. While compliance may not have been 100%, the notes were endorsed and the paper was moved.

As we’ve indicated again and again, what appears to have happened is the originators and packagers changed their practices without modifying their agreements to reflect this change. That means investors participated in deals that were misrepresented in fundamental ways. Conveyance of the note is critical to having clear rights to foreclose; any savvy investor would have been concerned about that issue had the industry behaved properly and revised the contracts to reflect its new procedures.

Now narrowly, Deutsch is right: securitization litigation is a cutting edge field, and no investor yet has decided to sue based on the the failure to convey the notes allowing for the recission of the trust, which Levitin has discussed as one remedy, or on a contract damage theory, of losses resulting from difficulties in foreclosures due to standing issues. So there is no case law on the entire theory presented by Levitin. However, there is ample case law on the major issues of law, and the factual matters are fairly easy to prove.

Nevertheless, it’s possible no investor will decide to pursue this sort of case, which would leave this question unsettled (trustees are apparently threatening investors not to, and I am told a lot of buy side investors are loath to alienate the dealer firms on which they think they depend for information. But there are some major actors, like Wells Fargo and US Bank who would seem not terribly well positioned to retaliate even if these concerns were valid). However, consumer lawyers are getting more and more sophisticated in using the PSA arguments to fight foreclosures, and the more bad press the banks have gotten, the more receptive judges appear to be becoming.

Thus even if the overarching issue remains unresolved due to continued timidity of investors, the odds are high that RMBS will have enough uncertainty regarding the ability of trusts to foreclose as to look more and more like unsecured consumer debt. That alone is a sufficiently damaging outcome that it ought to focus the mind of the ASF. Instead its reflex is to engage in classic shoot-the-messenger behavior, to attack those who point out the colossal mess the industry has created, and bury its head in the sand rather than work towards remedies.

Lewis Carroll again manages to dispatch the ASF reasoning rather tidily:

“Contrariwise,” continued Tweedledee, “if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”

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  1. attempter

    I hope the promised Wikileaks bankster leak delivery is more such admission of failure to fulfill the terms of the MBS contracts and fraudulent foreclosure. Imagine the Kemp admission and this one, magnified many thousandfold.

    I wonder how possible it is that, if a critical mass of people could be sufficiently educated about the full criminality of the banks (actual technical illegality, not just moral crime) and in particular the fact that they have no legal claim on the land, to foreclose or even to extract mortgage payments at all, that such a critical mass could be convinced to jubilate the debt and restitute the land simply by staying in place.

    trustees are apparently threatening investors not to, and I am told a lot of buy side investors are loath to alienate the dealer firms on which they think they depend for information.

    Now that’s what I call capitalism in action. Free markets, baby!

    (And yes, that is the “real” capitalism, the real “free” market, not some abuse of it. Those have long been in the deployment stage, and have always been that way in practice. Therefore it’s empirically proven that the textbook version is a utopian fiction or a fraud, while the chronic practice is the reality.)

    1. john

      The actionability of information is one of the key problems of both markets and politics. Organized and concentrated users of information have a structural advantage. This is a great summary of the problem:

      The deliberate complexity of our current “markets” builds informational asymmetries wherever it can for use by those who create the complexity to confuse their counter parties. With all Yves has dug up in the last three years, if it were to go viral, no one would deal with our banking industry at all!

      1. attempter

        That’s an interesting piece. That extraneous information can go viral isn’t new, of course. Especially if it’s pushed as misdirection. I think of how the stupid “Crime of 73” hysteria over silver spontaneously erupted into the middle of the political fight over hard vs. soft money, and was then used by the Goldbuggers to wipe out all the painstaking educational work the Greenbackers had done.

        Of course I hope the dynamic can work in the opposite direction this time around.

        The part about Too Much Information (or in this case fear over too much information) makes me think of Assange’s theory of Wikileaks as imposing a “secrecy tax” on an authoritarian conspiracy.

        I’m having mouse problems so I can’t provide the link at the moment, but to find an excellent piece go to P2P and look for the Wikileaks #2 Authoritarian Conspiracy Post.

  2. jpe

    It strikes me as odd that Bloom would rely on the lifetime trust provisions of the EPTL. A lifetime trust is typically a revocable trust set up by an individual as a will substitute. By contrast, a PSA (IIRC) would seem to be a different sort of trust altogether: an irrevocable business trust. (the definition of “lifetime trust” at EPTL 1-2.20 expressly exempts business trusts from the scope of a lifetime trust).

    Since securitization trusts issued securities, wouldn’t they have to be business trusts?

    1. jpe

      Let me tidy that: a lifetime trust per the EPTL appears to be any trust with the exceptions enumerated in the definition. So plain vanilla irrevocable trust set up by someone fbo a relative would be a lifetime trust. But a PSA, which does issue certificates of beneficial interest (the securities) would still be excepted from the definition (and thus excepted from the EPTL’s requirement that trust assets must be retitled in the trust’s name). That requirement may still hold, but it would be as a matter of common law rather than compelled by the EPTL’s requirement vis-a-vis lifetime trusts.

    2. Yves Smith Post author

      I must note that you have taken consistently bank-favoring positions in comments and have also made selective extracts in the past from posts which have the effect of taking evidence out of context.

      The post clearly states that Bloom has been asked re the lifetime trust v. other type of trust issue, as have the other experts who officially advise New York state on trust law matters. All have taken the position that the interpretation that Bloom offered in his affidavit extends to business and investment trusts. Similarly, in the cases that Tom Adams has participated in as an expert and opposing counsel has tried to argue that the assets were not gifted to the trust (an argument related to the business/investment trust issue), he has said judges are not sympathetic.

      1. P. Petters

        Yves, you have on many occasions written sentences like,
        “The trusts were required to be organized under New York law, and New York trust law is unforgiving.” But as far as I can remember, you have never actually cited (or linked to) the relevant NY statutes that govern business trusts in order to point out the “unforgiving” passages. I’ve searched the NY statutes online in search of these, but all the statutes I’ve come across are singularly vague. Would you mind, perhaps as an update to this post, citing (and linking to) the explicit language of the trust statute so we can see how it makes the violation of the PSA so problematic?

        1. csissoko

          P. Petters:

          Don’t have time to look it up myself, but presumably what you’re looking for are New York legal cases interpreting the statutes, not the statutes themselves.

          1. P. Petters

            No, I’d like to read the statutes themselves, in order to be able to understand what NY trust law requires. I am also interested in case law on the subject, particularly case law that deals specifically with business trusts, as opposed to gift trusts, and so I’d like to see the case citations as well. But I would especially like to read the actual statutory language that Yves has been writing about.

      2. jpe

        I think it’s clear that there are serious contractual / putback issues that arise out of this, but I’m skeptical of the notion that per the law the trusts don’t exist. (and doubly so given the curious absence of case law or clear statutory provisions)

        1. Yves Smith Post author

          You are straw manning. I’ve never said that, ever. Levitin has raised that as a possibility. However, I am told under New York trust law the trusts would be void if no assets (notes) were conveyed to it by closing.

          Levitin has talked re recission of the trust due to failures to convey notes properly; I discuss above the idea that no one brings a investor case on the trust theory but some consumer judges look to trust issues in determining standing, which is happening now.

        2. dejavuagain

          JPE raises a straw man ” I’m skeptical of the notion that per the law the trusts don’t exist. ” I must have missed this assertion by anyone.

          The trusts exist: the question is whether the trusts hold the notes and whether the trusts, if they accept notes now, can maintain their REMIC pass through status. The question is also, if the real estate-UCC issues were fixed with proper assignments, endorsements, and allonges by real officers and trustees in bankruptcy, whether the notes can at this time be placed in the trusts. Professor Blum states that at the minimum an opinion of counsel would be required that the trusts can no accept untimely transfers of notes in default. Perhaps you will give that opinion.

  3. DV Williams On page 30 onwards of the DeMartini testimony the attorney representing BoA, Mr Kaplan, tries to argue the case about what standard practice for banks was, rather than what the PSA says (mainly because he didn’t have a copy of the final PSA, no-one at BoA could find it and it wasn’t on the SEC website). So the form of argument that the ASF use didn’t really surprise me. It seems that they are trying to validate their actions after the fact, the argument that kids use – “everyone else was doing it, so I though it was OK”. Safety in numbers.

    The problem that I have with the defending arguments of banks that “deadbeats” deserve to lose their homes because they didn’t pay and it doesn’t matter if the wrong person brings the foreclosure action, is it seems analogous to police planting evidence on a suspect because they “know” they are criminals.

    Rule of Law needs to be respected. The problem is the cost of following the law now is so great as to be a deterrent to following the correct course of action, which appears to be what the banks and ASF are dependant on. Unwinding this mess without collatoral damage, moral hazards or unintended consequences seems impossible.

    1. dejavuagain

      Not that it helped BofA in this Kemp case, but the ECF records show that shortly after the hearing, BofA filed in court the final PSA and the signature page, together with the exhibit showing the Kemp loan. See Docket Entries 17 and 19. This deal may have not been registered with the SEC – certainly, some of the exhibits to the PSA suggest that at least some certificates were being placed privately.

      What really killed BofA in this Bankruptcy case was that they could not retroactively fix the note transfer problem, since the bar date for claims had passed.

    2. Elizabeth

      That’s a good point. The rule of law itself breaks down when the cost of it — to certain powerful institutions — is too high. More than certain peoples’ rights to keep their homes, this cuts very deep.

      What would it take for you to leave your country? For me, it would take a severe breakdown in the rule of law. Hey, if jackbooted thugs can break my door down at any hour of the day without a warrant, take my possessions without due process, or void my rights to anything, I’m outta here. That holds true even if it’s just theoretical, as in this case. Am I right that this crisis threatens our basic right to due process and property rights in this country?

      What’s the cost of losing that?

      Then again, who are we asking? Me or the world’s largest banks?

  4. Lynn Szymoniak

    I was one of the many stunned by the bold lies told by Tom Deutsch. If the trusts never needed indorsements and mortgage assignments, then why include language in the PSAs that promises these will be obtained and held securely in the mortgage files maintained by the document custodians in a fireproof vault (standard PSA language)? If mortgage assignments are not necessary, why have a few servicing companies frantically (as evidenced by the quality of their work product) pump out over 8 million such assignments in the last two years – at significant cost to the trusts? I want to be in court in Brooklyn with Tom Deutsch explaining to Judge Arthur Schack why trusts do not need to adhere to real property conveyance laws – or their own promises to investors. Deutsch’s bosses are saying, “We acquired these mortgages because we intended to acquire these mortgages and we promised investors we would acquire these mortgages.” In most Brooklyn courts, an intent to acquire mortgages, a promise to acquire mortgages, and representations that mortgages were acquired cannot substitute for the actual acquisition of notes and mortgages by physical transfer and properly (legally) executed documents. Two years ago, only one in a thousand judges understood this. In late 2010, one in a hundred judges had figured out the difference. By mid 2011, it is likely to be one in 10. Maybe by the end of 2011, the Tom Deutsch logic will be exposed as another big banker lie. “We promised we would” does not equate to “we did.”

    1. jpe

      Possession of the note is required for enforcement. So legal title could be transferred through true sale, but the note had to be physically transferred in order for the trust to foreclose, demand payment in court, etc. (ie, in order to pursue remedies in the event of default)

      1. dejavuagain

        That is a nice argument, but not persuasive. Can you cite any cases in support of that proposition.

        The intent to sell does not constitute a sale – the note must be transferred to effect the sale. That is the way I read these cases.

        That is like saying a contract to sell a house transfers the property, even if the deed was never executed.

        1. jpe

          All of the cases I’ve looked at discuss possession as granting enforcement power. If the court meant that legal title were wanting, they would’ve said as much.

          There are gazillions of cases to that effect.

          1. Yves Smith Post author

            Rule 17 of the Federal Rules of Civil Procedure require that the party bringing an action be the real party in interest. You are not correct re mere possession of the note. The “holder” of the note under the law, for instance, of California, has to be the one to which the note was made payable AND have possession. See US Bankruptcy , Hwang (2008 WL 4899273) for example.

          2. dejavuagain

            Okay – if there are a gazillion, then give me 3 cases in the past ten years from a reasonably significant court.

            I am looking for cases from you that say intent to deliver is sufficient under the UCC – or, perhaps you have some other principle to which you are referring.

    2. Fractal

      Thank you for that, Lynn S. Perhaps your progression explains the paucity of case law exactly on point.

    3. karen1p

      They need to start wearing these “witnesses” in and make them put their right hand on the Bible to make sure they don’t start to sizzle on contact.

  5. john bougearel

    I am most stunned by the revelation that “trustees are apparently threatening [MBS] investors not to [pursue this sort of case ~ the failure to properly convey the note]

    The perceived role of the trustee has always been understood to “protect the investors,” that is their fiduciary obligation. Trustees threatening, strong-arming investors sounds like racketeering, gross negligence and a huge fucking conflict of interest.

    If trustees are misbehaving this badly, their investors ought to hang each and every one of them from a rope to the nearest tree!

    But I see that issue is but a sideshow. The important issue is to decide who owns what looks “more and more like unsecured consumer debt” the originators or the trusts seeing as the notes were never properly conveyed and therefore “deemed a void act.”

    The bias during this credit crisis is to resolve 98% of these issues in favor of the so-called TBTF banks and screw everyone else including their own clients. (Yves wrote about this type of misbehavior in Econned ~ namely that the day in and day out objective of the industry for the past few decades was to screw somebody over.

    The TBTF that profited so handsomely from this colossal mess they have mid-wived into being, stand to profit handsomely once again as the trustees act as undertakers to bury their MBS investors.

  6. F. Beard

    We’d been told that notes had not been transferred on a widespread basis, but the evidence that had appeared in tens of thousands of consumer cases, of the foreclosure mills scrambling to get the notes to the trusts. Yves Smith

    Yves, I was following you closely (and well done btw) till the above sentence which boggles my easily boggled mind.

    1. Yves Smith Post author

      This isn’t news. Foreclosure mills routinely would transfer the note to the trust, and sometime assign the mortgage (if it was in the name of MERS in a state where the state supreme court has ruled against foreclosures in the name of MERS), either right before the foreclosure, as in the day before, or even afterwards.

  7. JP2

    hold on…help me understand this. I understand that there may be deficiencies in the transfer of the notes (or non-transfer as it were) and, as a result, the trustee seeking to foreclose arguably has no standing to bring such an action. And maybe this, at some level, means the debt is unsecured. But what I’m fuzzy on is whether the party with standing (whoever that is), presumably the same party that retained the security interest, has trailing obligations under the PSA to cooperate with the trustee to either fix the problem or else take action for the benefit of the trustee (such as foreclosure). Or, are the deficincies in transfer (or nontransfer) and one and done scenario….you screw it up, you lose everything?

    1. scraping_by

      “…you screw it up, you lose everything?”

      Apparently this is the case if you’re the homeowner. Matt Taibbi watched this happen in Florida, where the foreclosure courts created stringent requirements for the defendants and gave the plantiffs, the mortgage holders, no real requirements for proof. While even with the right paperwork the homeowners got thrown out, wearing the wrong color or something, it was an obvious point of difference between the two.

      Technically, this is a conflict of citizens and supercitizens. The supercitizens have rights we citizens don’t, and any rights we citizens have are laid aside as needed. The fact that supercitizens are corporations, not people, just adds to the hint of aristocracy.

      I’m reminded of a story from the Middle Ages, when King Winceslas of Bohemia visited Paris and attended a law court. He watched the lawsuit of a merchant against a knight. The judges found against the merchant, admitting “The merchant was right; however, he’s a bourgeois and the other is a knight.”

      A layer of our social structure is legal fictions. Who’d have thought?

      1. monday1929

        Matt also described the banks producing forged documents, and in the rare cases in which home occupiers had counsel, the Judge simply let them come back with more forged documents- over and over until the bank scum finally got the forgeries “right”. If the home owner did not show up, which occurred 90% of the time, the forged papers resulted in an eviction.
        I fear that if the rule of law continues to be ignored, a growing contingent of well armed citizens with little to lose (unemployed, homeless through bank fraud)will mete out their own form of justice.

    2. dejavuagain

      You may be correct that part of this can be “fixed” – but, only to the extent of identifying the owner of the mortgage and note. But, let’s look at the consequences to the Trust – it is now blown, it is no longer a pass-through for tax purposes, and it is possible that all the certificates then may be put back to the sponsor and all the opining attorneys (perhaps even you) sued for negligence in issuing opinions for a security without any due diligence at all in ascertaining the probable truth of the factual assumptions upon which the opinion is based. After all, we now know that it was industry practice to ignore the PSA’s. How could the opining attorneys not have known this?

      Actually, for the sake of the integrity of the real estate recording and title system in our country, I hope the notes and mortgages ownership will be cleaned up – but, me thinks the trusts are blown. Two separate issues.

    3. Justicia

      It is “one and done” (with very limited possibility for do-overs within a narrow time period).

      As Yves points out, the consequences of failure to properly convey the notes are (1) loss of tax preferred status for the REMIC and major tax liabilities as a result, and (2) fraud and misrepresentation in the sale of the “mortgage backed” securities to investors. The scope of these liabilities could well sink the TBTFs.

      1. dejavuagain

        Well, that does not means that it cannot be done, but that the do-over would result in lost of REMIC status. Separate issues.

        It is worth carefully reading the affidavit of Professor Bloom First, he eloquently explains that delinquent transfer of a note to a trust violates the trust agreement and the transfer of a note – then in default – violates the trust agreement. The consequence is loss of REMIC status at the minimum.

        But, Professor Bloom goes further and explains another important factor – the Trust agreement states that an opinion of counsel is required that an acceptance of an asset will not have adverse tax consequence and that such an opinion as to this note, had not been provided as to the note in question.

        I guess then that it would be illegal under NY Trust law to accept an asset in violation of the Trust Agreement. Plus, if there is no attorney opinion, the Trust cannot accept the note – a delinquent transfer and of a note in default. The idea is that the Trust lacks the legal capacity to accept a transfer in violation of the Trust agreement, so, no transfer works.

        The question is whether the prospective opinions issued when the Trust was created would be sufficient.

        Given the facts in these cases, courts could properly require the opinion of the original trust counsel stating the actual specific facts and affirming their opinion as to the particular note. I am waiting for such an opinion in a specific case contradicting Bloom from Orrick, Herrington & Sutcliffe LLP as shown in the 8K posted by Yves. See Exhibits 5 and 8 dated March 8, 2007, which is their opinion as to the Certificates. One of these opinions relates to the Federal Income Tax Status. [also, check out Exhibits 33.1 et sea and see all the periodic certifying entities – last filed March 31/2008!!! Ernst and Young, Price Waterhouse, KPMG, US Bank, Wells Fargo, GMAC, FGIC etc.]

        Were I a Judge in a case involving this Trust, I would ask for an Opinion of Counsel from Orrick reciting the specific facts of the foreclosure and note transfers and compliance with the Trust Agreement. Based upon Bloom’s affidavit, I would not let a foreclosure by this Trust proceed absent such opinion.

        1. Yves Smith Post author

          Bloom in cross examination in the case said no law firm of any legitimacy would offer an opinion defending a transfer contrary to the terms of the PSA. He said the liability would be the entire value of the trust, no firm would sign up for that. He was adamant on that point. And note that no firm has been willing to do so yet either. They’d also need (per other requirements of the PSA) to opine that the action would not be adverse to the interest of any certificate holders. Tom Adams is of the view that would not be the case due to the impact on sub bond holders.

          1. dejavuagain

            Bloom’s opinion is very clarifying and well written.
            If you have a link to the transcript, that would be great.

            It seems to me that foreclosure defense counsel should begin to deliver notice letters to the counsel who provided the legal opinion for the certificates and the updated opinions The letters would put the counsel on notice as to the actual facts as to a mortgage supposedly in the trust. A copy should be sent to the IRS (perhaps there is a finders fee) and the SEC. Then, let’s see what the next updated counsel’s opinion states. They could not state “who could have known this is what is happening.” I would hate to be on the receiving end of those letters.

        2. Fractal

          Thank you for sharing insider details from specific litigation. For our convenience, would you mind including at least one link somewhere in long posts like this one? I re-read Yves’s main post and at first did not see a mention of an “8-K” although she did link to several Scribd uploads. This Scribd upload is actually a copy of an 8-K filed by “RASC Series 2007-EMX1 Trust” filed or dated 3/27/2007:

          Scribd is a pet peeve of mine as nearly every download attempt triggers a prompt to create a new Facebook sub. So, just using EDGAR seems much more convenient. Here is EDGAR’s index to the last several years of filings by that trust:

          Here’s the EDGAR index to the 3/27/07 8-K:

          Here’s the PSA exhibit to that 8-K:

          If the PSAs are filed in open HTML, why should use Scribd?

          The PSA contains these two definitions among dozens:

          “Assignment: An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable
          form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect
          of record the sale of the Mortgage Loan to the Trustee for the benefit of Certificateholders, which assignment,
          notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering
          Mortgages secured by Mortgaged Properties located in the same county, if permitted by law and accompanied by an
          Opinion of Counsel to that effect.

          Assignment Agreement: The Assignment and Assumption Agreement, dated the Closing Date, between
          Residential Funding and the Depositor relating to the transfer and assignment of the Mortgage Loans, attached
          hereto as Exhibit R.”

          Article II of the PSA governs “CONVEYANCE OF MORTGAGE LOANS” and issuance of the pass-through certificates. It makes repeated references to the UCC of various jurisdictions, but I did not find any mention of New York state trust law.

          The governing law provision probably incorporates NY trust law:

          “Section 11.04. Governing Law.

          “This agreement and the Certificates shall be governed by and construed in accordance with the laws of
          the State of New York, without regard to the conflict of law principles thereof, other than Sections 5-1401 and
          5-1402 of the New York General Obligations Law, and the obligations, rights and remedies of the parties hereunder
          shall be determined in accordance with such laws.”

        3. Justicia

          An ex post opinion of counsel, even one who drafted the PSA, can only be admitted to clarify ambiguity in the terms of the PSA, not to contradict the express terms of the written contract (PSA) — that’s a basic rule of evidence.

          As I read the PSA Yves posted, there is no ambiguity. The language regarding transfer of the notes is quite clear. The fact that the banks involved in the transaction didn’t comply with their contractual obligations doesn’t open the door to “interpretation” by counsel or any one else. The trial court can construe the meaning of the contract from the document itself.

  8. gil mendozza zuntzes

    hum… Richard this preditory bastard of Ameriquest consume me real good with my primary and summer home… over 160.000 thousands us dollars in one year; after over two years… five weeks back I go two cks for the sum of forty six dollars each. If I tell you my story you won’t belive it. regards

  9. Paul Tioxon

    Not to be outdone, the lying to maintain power and privilege knows no ends, no shame and of course, no facts of the matter at hand, whatever the particular issue may be. Yves, you are becoming the Seymour Hersch of THE GREAT RECESSION. No, there is no light at the end of the tunnel. No, there will be no recovery next year, no return to full employment the year after that, and no, the middle class will not rise up, dust itself off, and go about the happy go lucky days of shopping in malls in SUVs the size of swimming pools. Maybe the top 20% of the income stratification chart, but that is it.

    There will be continued lying, and more lying in a race to pretend the system works, is not illegal, is not damaging to the economy, is not hollowing out the middle class. They can only hope that continued investigations like yours will be blunted by economic recovery, so that the victims which keep piling up by the millions will not begin to make serious political changes in Washington DC.

    By way of comparison, and soon to be pertinent here, the WikiLeaks scandal will touch BofA. In the 12/1/2010 Daily Beast, none other than Viet Nam war apologist Leslie Gelb presented this fantastic mental jiu jitsu, that wikeleads US State Department cables did not show the dark underbelly of the American Empire, but rather, it showed the dangerous reality of the world at large and the calm, rational and entirely professional way that State and the policies of the USA try to the world a better place. It is certainly not our corporate business interests around the world or even our military presence around the world, but rather the world itself with all of its dangers that wiki exposed as being the scandal and Julian Assange, inadvertantly helped the US by proving just the contrary to what he intended.

    Yves, you just can’t make up all of the lies, distortion and 3rd rate high school debate team tricks that passes for understanding from sophisticates on the national level. Leslie Gelb, for those of you who don’t know, was a high level defense department official, wrapped up in the middle of the Viet Nam war effort, who headed up the Pentagon Papers project under SecDef McNamara.

  10. Nicholas Weaver

    A question: Where are the vultures in this mess?

    These trusts usually require, what, 25% of the ownership stake to take action to force the trustee to do something (like, eg, force the sponsoring institution to take back everything that wasn’t properly conveyed per the agreement).

    Surely there must be some of the most-dreckful RMBSs that have 25% of the assets wiped out by now, right? Where although the issuer of the mortgages may be dead and buried, the sponsor and other related institutions are still alive and kicking?

    So why hasn’t someone (eg, a law firm, or an investment firm of some sort) already bought up all the now-wiped-out 25% for $.001 on the dollar of one of these as a high risk, high payout lawsuit ‘investment’/liscence to sue?

    1. scraping_by

      Apparently, they haven’t got the requisite bribes to the requisite politicians.

      One important thing Greg Palast noticed about the vulture capitalists who were trying to shake down African nations was their large contributions to the then ruling party. If there’s a connection between the two, in reality if not in legality, then perhaps it’s pay first play later.

      Of course, our bought-and-paid-for President and our bought-and-paid-for Congress have already fed at the trough beyond anyone’s guilty imagining. Can they really want more?

  11. indio007

    I’m just wondering where the IRS is in all this. The REMIC debacle notwithstanding , all these notes are no recourse negotiable instruments. Are they not to be treated as a cash-item , especially of their endorsed in blank?

    The PSA doesn’t call the entity that convey’s the note’s into a “depositor” for nothing.

    How are the promissory notes not simply the purchase money for the certificates ?

    The entire transaction seems more like a raffle than anything else.

    1. Anonymous Jones

      The IRS is a bureau of the Treasury Department. Who is in charge of the Treasury Department? I think your answer lies therein.

      1. indio007

        *smashes head into brick wall*
        Oh I remember now! That guy that was head of the New York Fed…. What’s name? It sorta rhymes with traitor?

      2. sgt_doom

        Last time I checked, Goldman Sachs, JPMorgan Chase and Morgan Stanley were running the Treasury… or did I miss something?


    Paul Tioxon makes salient and quite disturbing points…to what end, then, are we headed if the financial institutions simply cannot service the entire debt load? (possibly trillions) Not entirely certain I wish to live in such a world.

    One point on Leslie Gelb—as well as his sordid behavior throughout the Vietnam era, he is now one of the highest ranking members in the CFR. Imagine that.

  13. indio007

    Query… Maybe these trusts can be penetrated by Writ of Scire Facias… maybe dissolved or annulled? Is scire facias abolished in New York?

  14. sgt_doom

    Mega Thanks and super stuff with this post.

    Securitization, or debt leveraging, is the ultimate price driver — always.

    As to your line:

    Now narrowly, Deustch is right: securitization litigation is a cutting edge field,…

    It is “cutting edge” due mostly to the removal of legal risk as initiated by the Group of Thirty and JPMorgan Chase, and working through the Deravitives Research Group lobbying Congress, hence the Private Securities Litigation Act, and those other two famous “Modernization” acts which followed.

    Which, evidently, is how they justify no banksters to date ending up in the slammer, when around 1,000 banksters went to jail in the aftermath of the S&L debacle.

  15. JustAnObserver

    In all the discussions I’ve read here & on other blogs about the robosiging/foreclosure-mill/failure-to-convey mess the focus – so far – has been on RMBS (& CMBS ?). If the legal implications are as Yves & many others have detailed where does that leave a CDO made up from tranches of such RMBS ? i.e. if the certificates issued by the trust were – effectively – unsecured paper and the REMIC tax status was trashed does this become an infection of the CDOs, CDO^2s, synthetic CDOs referencing these RMBS etc. etc ?

    Seems like its kind of a rampant septicaemia in the securitisation process’s bloodstream.

    1. matthew slaughter


      no problem! easy question.

      First, a few assumptions:

      Each Synthetic CDO has 100 CDS referencing 100 CDOs.
      Each CDO has 1000 RMBS.
      Each RMBS has 1000 mortgages.
      Each mortgage has 100 piece of legal paper attached to it.

      Each RMBS has 100,000 pages of legal paper.
      Each CDO has 100,000,000 pages of legal paper.
      Each Synthetic CDO has 10,000,000,000 pages of legal paper.

      A Synthetic CDO squared, referencing 100 other Synthetic CDOs, would have 1,000,000,000,000 pages of paper to read and verify.

      This is only mortgage related legal paper. It does not count prospectuses for RMBS and CDOs, SEC filings of the RMBS, IRS filings of the REMICS in the RMBS, etc etc.

      Now with unemployment at 10%,, Obama should just hire 20 million people to start looking at mortgage documentation, using some kind of assemblyline process that breaks down each verification task into a tiny, easy step.

      Once we do all that, we will have your answer! For one Synthetic CDO. Only 999 more to go! Told you it was easy.

      1. JustAnObserver

        Humm ??

        That last number for a synth CDO^2 was, in more compact notation, 10^12. 20 million = 2 * 10^7. So each of our assembly line robo-readers will have to look at ~50,000 pages of legal paper … @ 5min/page (optimistic :-) ) thats ~175 days … for one such CDO.

        Didn’t any of the *buyers* of this poisonous junk ever stop to do this kind of sanity check ?

  16. kravitz

    So we have securitizing issues.

    We have ‘robo-signing.’

    We are past all that.

    We now have Bank of America. And fake lawyers foreclosing on their behalf. A true wow.

    Abigail Field in Daily Finance.

    “A lawsuit filed by Patrick Loughren against GMM details how the firm allowed — and perhaps still allows — non-lawyers in its firm to file and prosecute thousands of foreclosures.”


    Thousands of Pennsylvania Foreclosures Could Be Thrown Into Doubt

  17. Siggy

    If the note was not executed and conveyed, you have the very high probability that the reps and warranties of the PSA have been violated. You also have the very high probability that the sale of securities that are referenced to the unconveyed notes was a fraud.

    While I have no sympathy for the buyers of the MBS or REMIC paper, I do see that they may well have a very actionable case for recision of the trust that services the pool of notes that are at issue.

    In the instances of foreclosure, where the note has not been conveyed, there is a fraud upon the court. In that there is also a concurrent fraud upon the investors.

    We need prosecutions.

  18. Fractal

    OMG this is so effing hilarious. This ASF clown must be foaming at the mouth by now, at the very least because his name is spelled about seven different ways! hahahahahaha

    Brilliant work, Yves. And I’ve only read halfway. Was busy all afternoon with following House vote(s) on extending only middle class tax cuts. Which passed! Over unified GOP opposition! Headline on Daily Kos was “Republicans Vote Against Middle Class Tax Cuts.” Anyway, back to reading ….

    1. Yves Smith Post author

      Yes, that was probably a Freudian slip of sorts, I did clean up the spelling. The perils of someone typo prone posting with only 4 hours of sleep.

      1. Justicia

        It’s a wonder that you get any sleep at all, Yves. As one of your devoted readers, I marvel at your fortitude and am very grateful for your vigilance — but I do worry about your health. Take care of yourself, we need you.

  19. skippy

    Damn that monetizing of virtual in-game value, it was just to tasty to forgo, too close to the lips tips, the chink in a psychopaths armor….*their* needs too be fulfilled…over riding their survival instincts.

    Do you under stand now[???]…they created a virtual money game using houses, property and debt. Why the need to suspend perfectly good accounting rules, ones that use historically tried and tested formulas…eh…why all the suspension of reality based law and rules…eh. Could it be that it would show the game to be what it is…nothing more than a computerized virtual world that has be allowed to interface with reality…too dictate over reality…too server the few over and above the rest of humanity.

    Skippy…you battle pathological lairs with zero empathy save that which they use for camouflage. Guard your thoughts as it can be infectious, the caricature trait of the neoliberalism cult…I AM GREAT…YOU ARE WEAK…Darwin’s mangled thoughts give me license…

    PS. how many have traded their freedom (and now with gov backstops and bailouts generations to come)…mind and body for a hand full of value added electrons…dressed up as lifestyle enhancement, fear abatement…sigh.

  20. confused

    the markets continue to ignore this problem.. WHY? We’re talking about mass foreclosure fraud here, a potentially systemic problem. More and more information comes forth and yet, BAC is holding up and even shot up 3% today.

  21. matthew slaughter

    Dear Yves Smith

    You write:

    “And the other major leg of their argument was that the mortgage (the lien) follows the note (which as we have said repeatedly, is the case in 45 of 50 states). ”

    Did you mean ‘is NOT the case in 45 of 50 states’ ???


    1. Yves Smith Post author

      No, the text is correct, I didn’t unpack it as I usually do.

      What we call a mortgage actually has two pieces, the note (the borrower IOU) and the mortgage (also called a deed of trust in some states) which is the lien on property. Confusing, I know.

  22. Random Blowhard

    “Deustch’s other argument amount to depicting the securitization market as TBTF and hence above the law”. One nation under law or PANEM. Choose, but choose wizely.

    1. Skippy

      The “securitization market” = Eve online et al…it is a video game, *it is* a means to extract productive value (wage earners toil) and digitize it_to powers of_value_far removed from its origin. Too enable those vehicles to be used to circumnavigate societal duty’s cough taxes and fees which help to provide the bedrock of your nation ie the commons and extract for a select few unlimited power, above and beyond governmental control…*the name of its citizens*…usurping the contract called the Constitution.

      Skippy…daylight robbery nay…more like gang rape in broad day light…where passers by keep walking…for fear of the same treatment…even though they know they might be next…but one days reprieve…is one day more they won’t have to suffer one of life’s most indignant occurrences…the loss of having a say in how one is utilized…for others needs.

  23. Crazy Horse

    All this discussion about the legal ramifications of the many modes of fraud engaged in by los zopilotes of finance has about as much relevance as a group of monks debating how many angels can dance on the head of a pin. The rule of law exists only so long as it serves the interest of the rulers.

    The ONION at it’s most outrageous sometimes paints a picture only slightly twisted from reality.

    “WILMINGTON, DE—The nation looked on in reverence Friday as 20,000 citizens were decapitated, dismembered, and burned alive in the name of Corporate America, continuing the age-old annual rite to ensure bounteous profits in the coming fiscal year.”
    “Though the ceremony’s origins are shrouded in mystery, most scholars agree on its historical success, noting that the yearly killings have coincided with an exponential growth in corporate earnings over the past two centuries. Recently, however, some high-profile academics have suggested the practice is flawed, citing the recent economic malaise as evidence.

    “We’re stuck in the Dark Ages if we still believe some elaborately choreographed, archaic ritual has any impact on today’s dynamic multinational corporations,” New York University professor Nouriel Roubini said on CNBC this week. “If we really want Corporate America to restore our prosperity, then we have to own up to the facts, face reality, and kill every last one of our firstborn sons with our own bare hands.”


  24. mannfm11

    This whole matter is a fraud. I have been in the mortgage business. There is a closing department in wholesalers like Countrywide that make sure every piece of paper is in place, that the filings have been delivered from the county clerks office, etc. It was almost like they took the people who followed procedure out and shot them and replaced them with idiots. Now who would take a legal industry like that and dismantle it but a fool or a crook?

    1. Skippy

      “It was almost like they took the people who followed procedure out and shot them and replaced them with idiots.”

      Its called bringing in a new youthful exuberant dynamic to the industry/market place…roflmao….but, you see the market demands it.

      Skippy…now think nuclear power plants and ye will feel better.

  25. Buyer

    I’ve read all of this and still have an unanswered question.

    Let’s say, just for argument, that the note DID make it into the Custodian’s vault for the benefit of the Trust.

    IF I read my PSA right, the Trust has then turned around and assigned all rights, interest, etal, to the Trustee, who then, it appears by Power of Attorney contract, passes all his rights to the Servicer.

    Meanwhile, Certificates get issued, tranches made and investors receive checks.

    The Certificates are issued by another party yet, but ALWAYS stipulate that the Certificates SHALL be made out to “Cede & Company”, who is explicitly stated to be the owner of the Certificates.

    I can’t determine just how the Certificates are collateralized.

    Anyone have this one on me?

  26. Justicia

    Let the games begin (my money is on the gladiator named “Public Official of the Year:

    The MERS Wars Heat Up in Massachusetts
    Posted By: John Carney | Senior Editor,
    | 30 Nov 2010 | 03:48 PM ET

    The gigantic mortgage database owned by the nations largest banks may have run afoul of Massachusetts strict property recordation filing laws, according to the elected Recorder of Deeds for the South Essex district of the state.

    In an exclusive interview with CNBC, John O’Brien explained why he sent a letter to Massachusetts Attorney General Martha Coakley requesting an investigation into Mortgage Electronic Registrations Systems, Inc.

    “It’s a basic issue of fairness. MERS says that if you are a member of their club, you can avoid fees on assignments of mortgages forever. Those are fees that everyone else pays,” O’Brien said. “I’ve never before heard of a private company that has attempted to unilaterally take over such a public function as property recordation. Imagine if someone tried to do this with drivers licenses.”

    O’Brien has asked Coakley to investigate whether MERS may owe fees for recordation it has avoided. He is taking this very seriously.

    O’Brien, who was named “Public Official of the Year in 2000 by the National Association of County Recorders Election Officials and Clerks, is unimpressed by MERS’s official response to his request for an investigation.

    “Massachusetts has very clear cut rules. Recordation is not optional. It’s mandatory. It cannot be avoided,” he said.

    MERS argues that it is saving recordation offices and homebuyers money by reducing paperwork and fees. It says that homeowners would be “directly or indirectly” responsible for paying the assignment fees if not for MERS.

    “Nonsense. There’s no way homebuyers would be responsible for the fees from assigning a mortgage 15 times,” O’Brien said.


    h/t Crooks & Liars

  27. WalterW

    > But notice the amazing admission: “then to have systematically
    > failed to observe those expanded requirements.” This is even
    > better than Kemp v. Countrywide! The head of the ASF tells the
    > public in Congressional testimony that the entire industry group
    > he represents “systematically failed” to honor their own agreements!

    Eh, Yves – no, Deutsch did NOT say that. You’re misreading his quote:

    > “It is unclear and seemingly unreasonable to practicing industry
    > lawyers why parties to a transaction would contract around the
    > UCC by imposing significant additional indorsement requirements
    > upon themselves, and then to have systematically failed to observe
    > those expanded requirements.”

    Deutsch isn’t making a statement of fact here (or even of his opinion),
    as you seem to think. Instead, he’s making a hypothetical argument,
    which goes like “Once someone has done X then why WOULD he/she
    the very next moment do something to critically undermine X”. Such
    an argument is by no means an admission that the undermining of X
    did in fact take place.

    Mind you, I’m not defending Deutsch here. I’m just saying you are
    inferring something from his testimony that he simply did not say
    nor imply in anyway.

    Otherwise, yet another brilliant piece of yours, of course…!

    1. Yves Smith Post author

      Please read his testimony in full. He argues that skipping steps in the specified conveyance chain is fine, that only having the first party endorse is fine….other details of what he says goes does support my reading.

      1. monday1929

        I would love to see Deutsch suspended over a fire pit by a chain, in the courtroom. The judge can then ask him for the definition of a “chain”, and whether or not a dis-continuity in the links of the chain leaves the definition intact, and if Deutsch insists that it does, test that legal theory in practice.

    2. Skippy

      “Deutsch isn’t making a statement of fact here (or even of his opinion),
      as you seem to think. Instead, he’s making a hypothetical argument,
      which goes like “Once someone has done X then why WOULD he/she
      the very next moment do something to critically undermine X”. Such
      an argument is by no means an admission that the undermining of X
      did in fact take place.”

      Skippy here…I checked the relevant materiel and personally found it infantile or worse aka the argument a psychopath would use…why would I kill some one…if I felt I could be caught or implicated…shez are there any grown ups in the room any more…idk.

  28. Irpal

    Forged document? Mortgage not properly conveyed? No endorsement? No physical transfer as specified in the PSA? No problem for the banks, I was told by an attorney. He said the attorneys in the field (real estate, foreclosure defense, BK) have known for years that banks didn’t convey the mortgage properly to the trusts, and it has been understood as “standard practice”. Non issue, I was told, and certainly not the information I could use in fighting the foreclosure in a non-judicial state.

    Even after I tried telling him that neither the servicer or the Remic trustee has the standing in foreclosing, his answer was “it doesn’t matter”. The standing only matters in court, i.e. in judicial states, according to him. And he’s a prominent attorney.

    1. Yves Smith Post author

      First, there are 23 judicial states.

      Second, foreclosures are contested in non-judicial states too. Alabama is a non-judicial state, and that’s where the affidavits in this post are from. They are most often contested in Ch. 13 bankruptcies. Those are homes of higher value than in general, and they are contested because the servicers try to break the BK stay. So the banks’ own actions lead to court disputes.

      Third, the AGs in all 50 states are investigating.

      Fourth, the entire securitization industry is massively in denial.

    2. monday1929

      “Standard practice”- a confession that should open them up to RICO prosecutions. The same defense was used for the IPO crimes two bubbles ago, and they still were fined a few hundred dollars ( In 2000 $500.00 was a substantial amount of money, the equivalent of 2-3 billion today).

      Remember, that was when the SEC was only 1/2 bought-off.

Comments are closed.