Open Letter to Bank Regulators on Mortgage Securitization and Servicing Practices

Today, a letter urging fundamental changes in the mortgage securitization markets, signed by 50 individuals with expertise in this arena, was sent to the Chairmen of the FDIC, the Fed, and the SEC, and the Secretary of the Treasury and the Comptroller of the Currency.

Despite widespread evidence of failings, abuses, and outright fraud in the securitization process, reform measures have been halting at best. The FDIC has proposed far-reaching and well thought out measures in the face of considerable industry opposition. By contrast, the Treasury has taken the position that it has little authority over servicers, despite its considerable influence over both the banks in which most of them reside, and their biggest customers, Fannie and Freddie.

The letter points out that the continued failure to address this issue is detrimental to homeowners, investors, and the broader economy. It urges the adoption of new standards as part of these regulators’ duties under Dodd Frank and makes specific recommendations.

Thanks to Josh Rosner of Graham Fisher and Chris Whalen of Institutional Risk Analytics for leading this effort.

Securitization Standards Letter

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  1. Paul Repstock

    The only way this will be accepted is if it arrives affixed to a Presidentialy signed copy of HR3808.

    I could see that happen?? All the important people are made more or less whole, and the banks are more or less solvent again.

    1. Francois T

      H.R. 3808? Sounds like a get out of jail free card.

      Prediction: if such a scenario would come to pass, I guarantee you the financial sector would refuse to change the securitization anyway.


      Cause they know Obummer is the best negotiator there is to start with the high ground and slide backward into the compromise of a compromise.

      It is his nature. He can’t help it.

  2. Sundog

    Cheers. Rather than extend more toothpaste out of the tube and pretend we can get it back in someday, let’s at least try to preserve a shred of legitimacy while we write down and restructure for a future of, if not prosperity, at least some semblance of order.

    1. Paul Repstock

      Sundog, you and I see the sense of that. But, we won’t be asked.

      The very last thing the “authorities” want is a crash. All that lovely debt would disapear. How could they keep control without the debt?? Some of them might actually get hurt.

  3. Francois T

    The letter points out that the continued failure to address this issue is detrimental to homeowners, investors, and the broader economy.

    (rant alert)

    The letter fail to point out the blatantly obvious; some “interested groups” in this country do not give a shit about a robust economy that would spread the spoils in a minimally decent manner. As long as their cronies and friends can capture an ever growing share of the national output, AND said cronies and friends make sure that a portion of this bonus find its way into the coffers of the headquarters of the duopoly system that passes for a democracy, the rest of us can die in total misery already. They don’t even need us as consumers…they’ve got China, India Brazil and others to fulfill that role.

    (end rant)

    Nothing will come out of this letter. Geithner is Obummer’s man, he believe in the big banks as being the whole US economy, so that is that. Anything that could possibly inconvenience the big banks is an absolute no-no for Turbo Tax Timmy.

    (As for Obama, I implore you not to get me started about the man.)

    It goes without saying that our reliably comatose Washington press corps won’t grill Timmy about that. That would mean losing access and these slothful cretins can’t have that; they’d have to actually WORK to produce an article. Imagine that!

    That said, I appreciate Chris Whalen’s efforts. I really do. I’m just too jaded and frazzled to see any positive in this move right now.

  4. attempter

    Sorry to go off-topic, but this is the only place to post it.

    The eclipse started about 15 minutes ago. A few minutes ago the moon was still white but partially obscured.

    But as the eclipse continues it’s supposed to start turning orange and then red, climaxing blood red at c. 2:41 EST. (Where I’m located.)

  5. ScottS

    Paul Jackson? Did he think it was a paper from the American Securitization Forum that needed his rubber stamp?

  6. mannfm11

    Hard to ignore a proposal undersigned by a group like that? Most of these economists and financial people have been out front in this crisis. Beats hell out of Summers, Geithner, Bernanke and Rubin.

  7. Paul Tioxon

    The Dodd Frank bill can be used to legally demand compliance by lenders in the end to end process of mortgage lending. Nothing ventured, nothing gained. This puts the amorphous concepts into action, into a form politically directed by the informed opinion of so many of the signers. This is a good direct action aimed at the decision makers who can be pressured to incrementally change the practices towards the outlined operational standards. I will support this effort locally to promote its implementation.

    It’s good to see a community of like minded opinion makers, and political economists coming to the foreground and developing a united front in opposition to bad policy and working to replace that with better. Good work Yves!

  8. financial matters

    Obama needs to consult with Elizabeth Warren and find a new Treasury Secretary. Let’s get some help from the top also.

    1. karen1p

      Obama had proven he is a typical Chicago politician. He stands with the institutions he means to stand with.

  9. AR

    I’m curious as to why the elephants in the room were not mentioned: clouded titles? Void securitization? Mortgages ‘sold’ multiple times? Servicers intentionally forcing people into default?

    Banks are foreclosing on houses to which they have no legal standing at all, probably by scouring the MERS database, looking for certain criteria, for those properties off of which they have the best chance to earn free money, perhaps from FHA-backed loans, etc. And it’s my belief that Treasury is aware and encouraging this larceny, to improve the banks’ balance sheets. This includes letting the banks foreclose in their own names on Fannie-owned loans, getting yet another bite at the apple. Could this be why FHFA won’t let Fannie and Freddie modify loans via principal reduction?

    All of this activity requires ignoring the chain-of-title problem, endorsed-in-blank notes (which enable, and are indicative of intent in this process), and the empty trusts. Christine Springer posted recently that she’s found foreclosure actions in which the named trust is made up. To stop such blatant criminal acts requires more than changes to servicer regulations.

    1. karen1p

      That is why I have contacted the attorneys who have filed a class action against my Series number. Told them I will provide evidence to them that my note did not make the MBS trust until it was severely corrupt. And also told them that they will be named as a defendant in my Quiet Title action. I can prove fraud for them and they can prove fraud for me. Win-win.

      Homeowners need to find the investors and squeeze the real culprits the “pretender lenders”.

  10. Jim the Skeptic

    Paul Repstock says:”The only way this will be accepted is if it arrives affixed to a Presidentialy signed copy of HR3808.”

    If a Presidentialy signed copy of HR3808 is attached to anything it will mean that FRAUD is to be excused by government. It is a “Get Out of Jail Free” card. After that anyone who invests in any security is a fool, a patsy!

  11. Manic Hovel

    Massive non-violent civil disobedience, followed by a National Strike, highly publicized bank runs, counter attacks, independant media blitz, court filings, mass revolt, the ‘Fire Geithner’ movement, challenge everything, tell your friends, neighbors, public officials:

    ” Engage in loan modifications, including reductions in the payment amount and principal balance, consistent with state law, to address reasonably foreseeable default when a homeowner can make a reasonable payment and it is economically feasible to do so. When existing or future loans are more than 90+ days delinquent, federal regulations should mandate that the credit be assigned to a special servicer. “

    1. ScottS

      Why fight the system on its own terms? We should start issuing our own currency. THAT’LL get their attention.

    1. LAS

      “Securitization IS fraud” certainly resonates with me. It is making money out of thin air under the most honorable of circumstances — essentially lending borrowed short-term money to generate a long-term debt and selling this long-term debt (in pieces)to investors while we pay down the short-term debt we incurred plus incremental fees (our salary and bonus). In the lesser circumstances, it involves being irresponsible to investors, irresponsible to mortgage home owners and irresponsible to the entity from whom we borrowed the money to lend out to mortgage home owners. And instead of one type of irresponsibility resulting in better behavior with respect to another, they all are positively correlated and get worse together. Lack of regulation in one area means a lack in all.

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