I wanted to follow up on an important article by Abigail Field, in which she did some serious spade work on the mortgage securitizations. Among other things, its shows prominent securitization attorney Larry Platt, who accused judges who interfered with the imperial rights of banks to foreclose of engaging in an “assault on the legal system,” to be a liar. Funny how that type is eager to try to say everyone else is engaged in bad conduct.
There has been an argument running since last fall between mortgage securitization industry participants, led by the industry (really, sell side) lobbying group, the American Securitization Forum, and major securitization law firms like SNR Denton and K&L Gates, versus independent legal experts, like law professor and special counsel to the Congressional Oversight Panel Adam Levitin and foreclosure defense lawyers.
The securitization industry has adopted the very odd legal position that all the complicated transfer procedures they crafted are irrelevant. They’ve also disputed that, as this blog and others have claimed, that the failure of mortgage bond originators and packagers to comply with these complex requirements became widespread if not pervasive, and the shortcomings are so serious that they impair the ability of servicers and trusts to foreclose when challenged. The magnitude of the train wreck in the courts suggests that there might be something to the skeptics’ case.
A Bank of America senior servicing employee, Linda DeMartini, made some damaging admissions under oath, that Countrywide had not conveyed the notes (the borrower IOUs) to the securitization trust. The bank and its mouthpieces immediately started issuing denials. Consider these extracts from an American Banker article, “BofA Disowns Its Own Lawyer’s Argument in Fumbled Mortgage Case“:
In a series of unforced admissions, the B of A manager, Linda DeMartini, and Harold Kaplan, the company’s outside attorney, described how Countrywide had failed to adhere to the most rudimentary of securitization procedures, such as transferring the original promissory note to the trusts that had purchased the loans, as required under the pooling and servicing agreement.
Both DeMartini and Kaplan said it was standard practice for Countrywide to hold onto the original mortgage notes, which were stored in Simi Valley, Calif., despite securitization contracts that require the notes be physically transferred to sponsors, trustees or custodians….
Larry Platt, a partner at the law firm K&L Gates in Washington and an external counsel for B of A, has disowned the DeMartini testimony and Kaplan’s courtroom statements.
Neither of them had personal knowledge of how documents were handled, Platt said. DeMartini, he said, “talked about things outside her job responsibilities.”
“The employee’s job had nothing to do with executing loan documents,” Platt said. “Her testimony as to whether it was the common practice not to deliver the documents was not accurate.”
Contrast Platt’s statements with Field’s findings:
To check DeMartini’s testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.
None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower’s signature. Two-thirds of the loans made by other banks also lacked bank endorsements. The other third were endorsed either directly on the note or on an allonge, or a rider, accompanying the note.
The lack of Countrywide endorsements, combined with the bank’s representation to the court that these documents are accurate copies of the original notes, calls into question the securitization of these loans, as well as Bank of New York’s right, as trustee, to foreclose on them. These notes ostensibly belong to over 100 different Countrywide securities and worse, they were originally made as long ago as 2002. If the lack of endorsement on these notes is typical — and 104 out of 104 suggests it is — the problem occurs across Countrywide securities and for loans that pre-date the peak-bubble mortgage frenzy.
In other words, DeMartini and the supposedly incompetent were truthful, and the damage control team, including outside counsel, lied. I wonder, given the dive that Bank of America stock has taken, whether Bank of Americas’ misstatements on this topic constitute securities fraud. If so, Platt has not only enabled but participated in it directly.
The reason I am harping on this is the American Securitization Forum, SNR Denton, K&L Gates and others went on a full bore campaign to defend their meal tickets last fall, and their rearguard action is looking increasingly to be an utter fabrication. Yet the media took up their line because they were large recognized players. What is offensive is not only is Platt not about to suffer any reputational consequences, but small firm attorneys like Nick Wooten who are targeting banking industry malfeasance get hit with frivolous sanctions motions and industry mouthpieces like Housing Wire trumpet them as if they are serious.
Yes, Virginia, we have a two tier system of justice in this country. And we need to understand all its ugly manifestations if we are to have any hope of rooting it out.