New York Attorney General Schneiderman Investigating Validity of Mortgage Transfers at Bank of America (Updated: Trustees Bank of New York and Deutsche Bank Also Being Probed)

The mortgage industry defenders are looking more and more like fools or liars.

Last year, a case called Kent v. Countrywide created a firestorm because both Bank of America’s attorney (who was admittedly just a typical foreclosure mill type) and a senior executive from Countrywide’s servicing unit said that Countrywide as a matter of business practice retained mortgage notes. That was the wrong thing to say in court. From a November post:

We’ve had a series of posts (see here, here, and here) on the judge’s decision in a case called Kemp c. Countrywide, which provided what appeared to be the first official confirmation of what we’ve long suspected and described on this blog: that as of a certain point in time post 2002, mortgage originators and sponsors simply quit conveying mortgage notes (the borrower IOUs) through a chain of intermediary owners to securitization trusts, as stipulted in the pooling and servicing agreements, the contracts that governed these deals. We say “appeared to be” because Bank of America’s attorney promptly issued a denial, effectively saying that the employee whose testimony the judge cited in his decision, one Linda DeMartini, a team leader in the bank’s mortgage- litigation management division. didn’t know what she was talking about. As we discussed, this seems pretty peculiar, since she was put on the stand precisely because she was deemed to be knowledgeable about Countrywide’s practices….

If true, this has very serious implications. As we’ve indicated, it means that residential mortgage backed securties are not secured by real estate, or as Adam Levitin put it, they are “non mortgage backed securities….With the ramifications so serious, expect industry denials to continue apace until the evidence becomes overwhelming.

That time has arrived. Abigail Field did a small scale study in two New York counties and found none of the Countrywide originated loans had been conveyed properly, and also found that a majority of the non-Countrywide originated loans were similarly not transferred as stipulated, raising overwhelming obstacles to foreclosure if the law were obeyed. Wonder why document fabrication and forgeries have become common? Look no further.

We have been advised that the New York State attorney general Eric Schneiderman was looking into the same issues as Field, namely, that of whether notes had been conveyed correctly by Countrywide and others. I don’t expect the results to line up with the industry’s PR.

The stakes here are high. Field had concluded, ” And if Countrywide’s mortgage securitizations systematically failed as it appears they did, Bank of America’s potential liability dwarfs its shareholder equity.”

The efforts of the banks to sweep this massive fraud under the rug look to be coming to an end. Independent of Schneiderman’s efforts, there is simply too much evidence piling up at courthouses all over the nation to deny that this massive violation of industry contracts and well settled practice took place. And it also looks likely to prove, as we have said repeatedly, that the eight week “multi agency” Federal Foreclosure Task Force review last year was a cover-up.

From Shahien Nasiripour at Huffington Post:

New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures….

The inquiry could prove explosive: Wall Street’s great mortgage securitization machine took millions of home loans and bundled them into securities for sale to investors. If the legal steps that guide securitization — like taking mortgage documents from one party to another, a critical step under New York law — were not undertaken, then the investors who bought the bundled loans could force the companies to buy them back, compelling them to eat enormous losses.

Yves here. It isn’t clear what the remedy might be. I’ve heard a number of legal arguments, and although this summary is too approximate to make an attorney happy, one interpretation is that the RMBS investors have what is tantamount to unsecured creditor paper: that the “well we treated it as if the transfer happened even though it didn’t” is adequate for the ongoing payments, but far short of the degree of perfection of rights needed to foreclose. And remedies at equity won’t work, since as Adam Levitin point out, you need to have clean hands for remedies at equity to succeed, and they are sorely absent on the bank side.

The other possibility is that if no notes made it to the trust in the stipulated time frame (typically within 90 days of closing), under New York law, which governs the overwhelming majority of trusts, you have contract formation failure. I suspect lots of people are very loath to turn over that rock because it leads to the mother of all litigation. Back to HuffPo:

Schneiderman’s inquiry also raises questions about the speed the Obama administration and a coalition of state attorneys general and bank regulators are moving towards a settlement agreement to resolve claims of widespread foreclosure abuse….

Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, said at a Senate panel last month that “flawed mortgage banking processes have potentially infected millions of foreclosures.”

“The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans,” she added.

Despite that appraisal, Bair, along with Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of Housing and Urban Development, have said they want a quick settlement.

As we’ve indicated, the “now way less than 50” state attorneys general settlement seems to be dying under the weight of its own incompetence. And if not, the embarrassing words that at least one AG is going systematically after abuses should deter any public official in a state with a high rate of foreclosures from signing up for a banking industry “get out of liability almost free” farce.

Update: Gretchen Morgenson has an article out, which is being cited by Bloomberg (reader Barbara W’s Google Alerts confirms mine) when it appears Shahien broke the story. But they have different focuses, and Shahien’s was on the BofA angle. Morgenson has some additional detail, namely that Delaware is joining New York in the probe (which means another defection from the “less that 50” state attorney general effort) and more important, that two of the four biggest trustees, Bank of New York and Deutsche Bank, are also being targeted. This confirms that chain of title issue are front and center.

As we have indicated in previous posts, trustee have potential major, current liability. While the statue of limitations has passed for securities fraud on pretty much all RMBS (the limit is usually three years; parties can sue for breach of contract, but the standards for proving fraud as opposed to a mere breach are much higher), that is NOT the case for trustees. They are required under the pooling and servicing agreement to provide annual certifications that they hold the trust assets in good order (this is the concept rather than the actual language). Clearly that is untrue if the notes are not in their possession or they never bothered to confirm, as they once did, that all the notes had been endorsed properly. Trustees can get that requirement waived if a deal has fewer than 50 investors, but even so, most trustees filed at least one annual certification in addition to the one at closing before applying for a waiver, and it seems likely that most deals had more than 50 investors.

From Morgenson:

Opening a new line of inquiry into the problems that have beset the mortgage loan process, two state attorneys general are investigating Wall Street’s bundling of these loans into securities to determine whether they were properly documented and valid.

The investigation is being led by Eric T. Schneiderman, the attorney general of New York, who has teamed with Joseph R. Biden III, his counterpart from Delaware. Their effort centers on the back end of the mortgage assembly lines — where big banks serve as trustees overseeing the securities for investors — according to two people briefed on the inquiry but who were not authorized to speak publicly about it.

The attorneys general have requested information from Bank of New York Mellon and Deutsche Bank, the two largest firms acting as trustees. Trustee banks have not been a focus of other investigations because they are administrators of the securities and did not originate the loans or service them. But as administrators they were required to ensure that the documentation was proper and complete.

Both attorneys general are investigating other practices that fueled the mortgage boom and subsequent bust. The latest inquiry represents another avenue of scrutiny of the inner workings of Wall Street’s mortgage securitization machine, which transformed individual home loans into bundles of loans that were then sold to investors…

The rules governing the securitization process are labyrinthine, and there are steps required if the investment is to comply with tax laws and promises made by the issuer in its offering document. If the trusts did not comply with tax laws, for example, the beneficial treatment given to investors could be rescinded, causing taxes to be levied on the transactions.

The terms of these mortgage deals varied, but many of them required that the trustee examine each of the loan files as soon as they came in from the Wall Street firm or bank issuing the security. For a file to be complete, it would typically have to include all of the information necessary to establish a chain of ownership through the various steps of the bundling process, as when the originator transferred it to the issuer of the security who then moved it to the trustee.

I’ve gotten multiple confirmations from people who have spoken to the Tresury that it is not going to purse the tax issue, so this is not a source of potential liability. The latest of many reports:

I asked around and I have it from the horse’s mouth that the IRS is unlikely to do anything about the securitization transfer formalities problem that Levitin is complaining about. The IRS and the private bar agree that the REMICs are the tax (read economic) owners and that theycould have done the formalites right if they had wanted to. So the result will be benign neglect of the issue, no statement one way or the other.

The problem that the tax law has with formalities is the opposite of the foreclosure problem. In tax shelters, people arrange the formalities one way and the economics going the oppposite way, so the legal owner gets a tax benefit with no economic exposure. So the tax law strives to find the economic owner.

This bit from Morgenson is the first time I’ve seen an estimate of the percentage that were New York trust versus Delaware trusts:

The trusts were governed by the laws of the states in which they were set up. Roughly 80 percent of the trusts are governed by New York law with the rest by Delaware law.

This isn’t consistent with what I have heard from foreclosure defense attorneys, but I suspect the difference may be that “private label” deals, which are the overwhelming proportion of ones litigated, elected New York law for the trust, and GSE deals were a mix of New York and Delaware trust elections.

As indicated above, this development will hopefully put a brake on the rump state AG-Federal mortgage whitewash now in progress. And even if they try to pretend these probes are not moving forward, I have a funny feeling Mr. Market will take notice.

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41 comments

  1. rt

    Would it be feasible to set up an on-line database where foreclosure defense lawyers can submit evidence of fraud to lawfirms representing the people who bought the financial instruments that were supposedly to be based on these mortgages?

    The thing I would love to see is a system for paying small fees for individual pieces of evidence. Once found and pointed out evidence tends to be easy to fact-check so it should be possible to minimize fraud evidence fraud.

    If you get ten bucks for every piece of evidence then at a day at a rapid fire foreclosure specialized court might actually be worth your while. At least, if you are one of the many lawyers who has trouble finding work at the moment. Getting permission to represent people who have no interest in showing up in court themselfs should not be that hard. they are already loosing their home they have no money for lawyers. Some should be okay with it even before lawyer develop a reputation for occasionally successfully stalling foreclosures for essentially free. You already lost your money to the bank so its not like you can loose much more.

    On the other side of the picture law firms could pay a couple tens of thousands of dollars and have a couple of piles of evidence of fraud. This might prove the problem is systemic. Maybe if you are a pension fund looking to settle on a better deal with the bank that sold you a mortgage based monstrosity hiring law firms with such a database might sound like a proper investment for once. You already lost your money to the bank so its not like you can loose much more.

  2. Foppe

    Delaware is joining NY? Isn’t that one of the most bank-friendly states in the US, along with south dakota?

    1. Wendy

      Exactly. And when has the name Joe Biden ( I guess Biden III is his son?) ever meant anything other than bank-friendly? Will this be legit, or just kabuki?

  3. mitchw

    Is this only an issue of physically transferring pieces of paper, or were fraudulent securities actually created? Selling two shoes when there’s only one in the box. Or just making up the income stream to a specific security. Why not actually do the transfer? Just to save a little cost?

    1. Michel Delving

      They didn’t bother to convey mortgage notes to securitization trusts because they so badly wanted poker chips to take to the casino and wager on this stacked deck of cards. Just wait until people realize that all that CDO reference collateral didn’t reference anything and all those ABX reference entities weren’t entities at all. Tranche? What tranche? There’s nothing here! Then someone’s going to see that the servicers were not lawfully empowered by the trusts to do their dirty work because the securitizations were incomplete, ergo invalid, rendering PSAs likewise. If anyone ever gets around to examing information flow between traders and servicers, we’ll see yet another aspect of how this hand was played out.

      1. anon48

        “If anyone ever gets around to examining information flow between traders and servicers, we’ll see yet another aspect of how this hand was played out.”

        I thought that was the purpose of the large audit firms. They are absolutely required to address the financial statement assertions regarding ownership rights and obligations, when conducting an audit.

        It makes me wonder what the heck they actually did take a look at, prior to issuing their opinion letters. If the lack of documentation is as pervasive as described above and in prior posts, it seems the auditors should have been tripping over these problems, falling and banging their little heads on the floor as soon as they walked in the client’s front door.

        1. Mark P.

          “It makes me wonder what the heck they actually did take a look at, prior to issuing their opinion letters.”

          Nothing.

          Nothing was actually what many of the ratings agencies looked at in many cases, starting at least as early as 2002. There’s hard evidence of this, as Bill Black shows in this presentation —

          http://www.youtube.com/watch?v=YmLHyBabew4

          Black produces a letter from a ratings agency executive to an employee who has persistently asked to see client’s documentation that underlies a set of MBS tranches. The executive tells the employee this is “absolutely unacceptable” behavior, with the strong subtext that he’ll be fired if he persists in bothering the client like this.

          The essential segment is at 6:46 mins in, to 18:00 mins, where Black walks his audience through documentation of how ratings & accounting fraud enabled the bubble

          The Great American Bank Robbery, Hammer Museum-2009
          http://www.youtube.com/watch?v=YmLHyBabew4

          Time; 98 minutes .

        2. Susan Truxes

          Wells Fargo, as trustee of an MBS had to sue EMC- Chase to get the documents of that particular trust. And EMC, last I read, still has not provided them.

      2. So Cal 7

        M. Delving: So what you are saying, is that the “Originator” in the trust documents (let’s use Countrywide in this case – favorite to be the worst actor in all this) obtained the note and MTG/DOT from the borrower and simply held on to it to use those instruments as either collateral or for some other gainful purposed and did not transfer them to the Trust for that purpose?

        This is the issue that’s been bugging me since the Kemp case as Yves referenced, which is why wouldn’t they have transferred the instruments properly into the trust? Does MERS have a role in this? Could it be that Countrywide did not transfer to the Trust, kept themselves as “investor” on the MERS system to trade further on those instruments?

        I recall the Judge in that case saying something like “..that was a gamble you took.” to the DeMartini affiant/witness as to Countrywide’s not transferring the note and MTG/DOT. What exactly is or was the gamble they took and what did they (Countrywide/BAC) have to gain by NOT transferring the note? I truly don’t know that answer and would like to find out why. If you or anybody else can elaborate, I’d appreciate it.

        1. razzz

          The answer is ‘derivatives’ that caused a shortage of collateral to cover all the bets….er, I mean investments. Derivatives equals greed and wall street was complicit allowing or using OTC to trade these (MBS) contracts along with exempting credit default swaps from being scrutinized and overseen by the insurance industry. A scam that the banks want another bailout from.

          Don’t let the paper shuffling along with the rhetoric confuse you away from the fact that one mortgage was used multiple times when it should have only been used once for collateral. (Also, certainly doesn’t help that RE is losing value)

        2. Yves Smith Post author

          The legal argument goes something like “yeah, we left it at Countrywide, it was even in its own cardboard box, it saved everybody money, so what’s the big deal?”

          The problem is that argument does not wash.

        3. Mindrayge

          That is exactly what they did – using the mortgages allegedly transfered to trusts as collateral for other casino gambling.

          One example, though not RMBS, comes to mind. In the aftermath of the Lehman fiasco it came to light that Lehman tried to package properties into an entity and pass that off as collateral to JP Morgan. JP Morgan determined that the properties within that entity were already pledged as collateral. This involved the ostensibly independent but controlled-by Lehman entity known as Hudson Castle and involved borrowing in the paper markets. That isn’t something they had dreamed up in a crisis meeting. It had all the appearances of business as usual with the exception of JP Morgan either actually performing due diligence (which I doubt) or deciding that continuing the Ponzi scheme with Lehman would expose the other Ponzi games JP Morgan was playing.

          And there are the anecdotal court cases that have shown more than one Trust show up to foreclose on the same note. That couldn’t happen if the notes had been properly transferred.

          Don’t forget that the banks also were the buyers of the senior tranches of these MBS and they weren’t holding them for cash flow. They were taking those assets and turning around and pledging those certificates as collateral as well. And because they liked to play games with multiple nested borrowings of money it is likely that a single mortgage was pledged 10 or more times as collateral simultaneously. This is because nobody bothered with due diligence.

          It should come as no surprise, therefore, that we might someday discover that that the entire reason the government stepped in – as their first major action – to backstop the money markets was because there was never enough collateral to go around not just because it lost value but because the same collateral was pledged multiple times. All one has to do is look at the timing of the TARP disbursements to the largest players and the beginning of when they started complaining that they wanted to give the TARP money back and when they finally paid much of it back. Most of it was paid back after what likely was the extinguishing of the longest duration paper – 270 days (realize that paper would have been outstanding already for a number of days prior to TARP funds arriving).

          That whole process was to hide that part of the Ponzi and shift it elsewhere where that black hole still exists hidden in further alphabet soup programs and further initiatives like the QEs. That is what the extend and pretend is all about. Trillions have been lost in housing value but nowhere near that amount has manifested itself in actual losses to holders of that debt. This backfilling will go on for as long as the government can keep it going and absent being able to steal Social Security and Medicare money they won’t be able to make it without incurring 13 figure losses.

    2. Cedric Regula

      This is a rather large distinction you inquire about. It tends to get lost in the verbiage of the ongoing discussions of securitization.

      But getting back to basics, many companies involved in the securitization chain are separate companies. (for the sake of discussion I’ll not talk about Big Banks with subs that seem to exist across most of the entire chain)

      When we see terms like “transfer”, that means the “originator”, like a Countrywide, SOLD the loan promissory note to the next company in securitization mill, say a Goldman, etc… (there can be steps in between, but I’ll skip that too so I won’t have to look it up)

      SOLD means Countrywide got money for it.

      Where the path splits between massive financial fraud vs. legal compliance with the process, would be if Countrywide booked the revenue from the sale, also still reported the promissory note on the balance sheet, and sure, why not, pledged the promissory note to Lehman as collateral in an overnight repo, and did it every night until one or the other blew up.

      Just so I don’t confuse any MMTers that may be lurking, what I just described would be the massive financial fraud case, of the variety I believe is still illegal.

      But one reason the securitization rules require a transfer of the promissory note, would be so this kind of fraud can’t happen.

      So far, I haven’t seen news of this kind of fraud. If it is happening, it would mean massive regulatory failure, not to mention our Big Accounting Firms who do corporate audits should go the way of Arthur Anderson.

      I of course don’t guarantee it’s not happening. Just haven’t seen any headlines yet.

      1. Susan Truxes

        Livinglies or Foreclosurefraud posted an example of what was called a “mirror” entry in a list of mortgages belonging to a certain investment security. One mortgage was listed and just down the page another identical mortgage was listed with only one difference (I think it was $50 dollars on the balance) and everything else was identical to the above mortgage. The comment was that it was pretty unlikely that two such similar mortgages could exist.

        1. Cedric Regula

          I think the total RMBS and CMBS, private label and GSE combined, is about $10 trillion. So I’m on the lookout for lots and lots of double pledged notes.

      2. Barbara

        Following this through, the parties that are most injured are those who ostensibly purchased whatever component of the mortgage they thought they were getting, without actually being transferred any means to secure or prove ownership. This is very, very bad, but it seems like the trustee is most at risk — It is the trustee that is supposed to look out for the interests of the purchasers. Second, I wonder how many purchasers had constructive or actual knowledge of the practices that are being uncovered?

        The homeowner subject to foreclosure by an entity claiming to hold title but having no proof that it actually does hold title will obviously have a defense — no standing to sue! — which always makes me smile considering how often that is used as a weapon against the little guy.

        Unless someone can recover the mortgage document, it’s going to be as if those loans were never made. If they can recover the mortgage document, then the original holder would presumptively still have rights, but then, it would have to return whatever it ostensibly took as payment for delivering that mortgage unless it can get the original purchaser to agree to take it now (and why would they do that, knowing that it’s value is highly diminished).

        The only thing I could wish for is for the AG of NY or some other state to get these guys in a room and say that they will be following this where it leads until they modify mortgages lickety split. Even so, the fact is, no AG can compromise the rights of third parties (the purchasers) who are not in the same room with the originating banks. That is, the banks can’t get any kind of enforceable release that would purport to bind those who were truly harmed whole without their participation.

        This really seems irresolvable.

        1. Michelle

          So this:

          “The homeowner subject to foreclosure by an entity claiming to hold title but having no proof that it actually does hold title will obviously have a defense — no standing to sue!”

          makes me wonder – if the ostensible owner of the mortgage is the trust – doesn’t have standing to sue, do they have standing to receive payments? If no one can prove that they actually hold the note, then is the homeowner off the hook for the remainder of their payments? Does this also mean that they weren’t entitled to any of the previous payments?

          If they weren’t entitled to the payments, then does the homeowner have recourse for having paid out their money all these years? And what about the homeowner who was illegally foreclosed on? Do they have recourse agianst the trust, the trustee, the originator or anyone else in this chain?

          This whole thing sounds to me, as a complete layperson, as if both the trustees and the entity that was supposed to transfer the note got paid money they weren’t entitled to. If so, does this have tax implications, as they both filed tax returns that were based on fraudulent earnings? If so, this will (hopefully) be another nail in the coffin for these banks. Our completely feckless DOJ so far “sees no evil”, so I don’t expect them to lift a finger to protect the homeowners or the investors. But is this something the state attorneys general can go after them for?

  4. kravitz

    It’s great to see some AGs are taking people like Yves and Richard, and sites like Foreclosure Fraud and Foreclosure Hamlet seriously. And not letting the banks just make excuses, or getting away with violating laws.

    Of course, it still is another issue for the AGs to deal with the mess they find and either punish the banks that broke known existing laws with retribution, or heaven forbid – put a bankster in jail…

  5. Senka

    The results of Wall Street’s fraud are numerous FRAUDclosuers, topped with the ignorance that works well for those who committed the biggest financial crime in the history of this country (and probably the world). Even when faced with the facts, with the truth about Wall Street’s ponzi mortgage securitization scam fueled by their never ending greed, most of the people are still not standing up demanding answers. We must do that, we should not rest until the truth is out and all those responsible are prosecuted.
    Please send a letter to your Registrar of Deeds – they are the key players vs MERS and they should take a lead in this fight for justice and our future. MA Essex County Register O’Brien is the first in the nation to say NO to fraud, MERS, BofA, robosigning: http://tinyurl.com/3qsu87x

    Here is also my open letter to Attorney General Mille(currently the lead negotiator with the Banks): http://tinyurl.com/3h5kfy9

  6. DanJS

    Yves,

    Please review this article and tell your readers why the 50 states’ attorney generals are “tossing around a “$20 Billion” figure when Bank America alone is looking at a $36 Billion dollar loss?

    http://www.bizjournals.com/phoenix/news/2011/06/13/bank-of-americas-mortgage-woes-could.html?ana=yfcpc

    When Chase, Deutsche, Wells Fargo, JP Morgan, and other Fraudster conspirators add up their expected “losses” what would be a more believable “figure for the Atty Generals to work with”?

  7. David

    The good thing for the owners of the mortgage notes that Countrywide didn’t transfer-Countrywide never went through the bankruptcy process (they may have to after this fiasco). But what would happen if Lehman’s subprime lenders did the same. I believe the former Lehman subprime lenders are bankrupt and Lehman certainly is bankrupt.

    If the Lehman subprime lenders never transferred the mortgage notes, then what do the investors in the mortgage notes have? They have a nonmortgage backed security from Lehman. This could be pretty serious stuff considering all of the other creditors in line.

  8. Lloyd C. Bankster

    In 2007, Eric was complaining that our CDOs were too complicated to model, and so I met with him in my office. (Eric Kolchinsky, Managing Director in charge of the business line which rated sub-prime backed CDOs at Moody’s Investors Service).

    I said to him: Look out the window, Eric, how black the sky is. That’s because I made it that way.

    Now. You tell me Moody’s does not have the tools to appropriately model these complex CDOs. And I’m telling you that’s not my problem, that’s your f**king problem.

    Everyone of them should be a Triple A. As long as that happens, we keep doing business with you. Otherwise we take our asset-backed securities and CDOs to S&P or Fitch and let’s see how much money you suckers can make rating muni or corporate bonds.

    Are we clear?

    I never had any problem with Moody’s Ratings Agency after that conversation.

  9. Phoebe Loosinhouse

    I offer this which I have found fascinating since the day I tumbled onto it

    http://livinglies.wordpress.com/2011/01/23/fred-smith-explains-why-mers-was-involved-multiple-securitizations/

    The Occam’s Razor theory/explanation is the notes were never transferred correctly because they were planned to be used multiple times as collateral.

    The Taylor Bean case seems to prove this was true in at least some instances.

    The fact that so many big players at one time decided in concert to stop doing things the old way makes me think “conspiracy” and RICO. Maybe at some seminar in the Cayman Islands or someplace some smart guy explained to all the other smart guys how they could all make a lot of money by not doing things the “old fashioned way”. MERS really looks like it was the first essential step to swapping mortgages like baseball cards without the inconvenience and transparency of recording them at Town Halls.

    Then the big guys tell the little guys not to be so concerned with that annoying paperwork and those pesky laws and regs which are really just for the little folk – Masters of the Universe have no need for stinking rules!

    Sidenote – Refusing to inconvenience the “client” by demanding to see the notes as is your job as auditor turns you from outside auditor to co-conspirator in my opinion.

    The United States is turning into another Nigeria in terms of financial schemes and lack of oversight and punishment. Who will want to buy these pieces of crap on an open market in the future?

    1. R Foreman

      > The Occam’s Razor theory/explanation is the notes were never transferred correctly because they were planned to be used multiple times as collateral.

      Not just used multiple times as collateral, but used in multiple insurance contracts in an unregulated insurance industry known as credit default swaps. Independent counterparties would hedge themselves by taking short positions on the property, driving down property prices and virtually guaranteeing a default of the loan. The buyers of the insurance contracts could get paid multiple times on the ensuing waves of credit defaults, and if the authorities were exceeding lax, they could then foreclose on the home and get that back too!

      It’s a veritable cornucopia of fraud.

    2. Yves Smith Post author

      This idea of using collateral multiple times has come up on this thread and I need to debunk it. The only time foreclosure defense attorneys have seen this happen is at New Century, and then only sometimes. The most common way seems to be that towards the end of the bubble, even pizza delivery guys were being made into mortgage brokers. Some of them were entrepreneurial enough to figure out it was easier to sell the note more than once. It would take more space than it is worth to explain how certain warehouse line setups (which were not all that widely used in the industry) made that possible.

      So why did Countrywide and other lenders keep the notes? A much simpler reason. It saved costs. Lower costs meant they could rip out more in fees.

      1. Skippy

        Bloody MERS electron fiat … using the same *FAITH* backed argument[s, frictionless Quantum comps and Wall st … shudder.

        If originators of the note cannot show it, it was not forwarded with proper care (WTF its like losing court documents {ruling) on a 30 year prison sentence). How many times does that happen…eh…legal documents are what allow society to function. They diminish the very basis of society it self…screw them and their proverbial horse[s.

        I know, I know, I know, baby and bath water thingy, but…what if the baby has multiple heads, six arms and horns upon its head? Me…I’d keep the water and cremate the the abomination personally.

        Skippy…digitization of everything will be our undoing, most of humanity is not ready for it (if it will ever be). I still believe wet ink hard copy is the only thing that should be evidentiary in court, this would all be a bad dream if so.

      2. Fred Smith

        Yves, do you have any idea what you are talking about? You may want to get up to speed:

        http://twainsthoughts.com/2011/06/10/tbw-execs-sentenced-in-3-billion-mortgage-fraud-kansascity-com/

        You see, you are trying to debunk the most important aspect of this entire situation. I am not sure you understand the issue involved. Please go back to this web site and learn:

        http://livinglies.wordpress.com/2011/01/23/fred-smith-explains-why-mers-was-involved-multiple-securitizations/

        Fred

        1. Fred Smith

          Good write-up here about massive fraud and multiple sales:

          http://www.justice.gov/opa/pr/2011/June/11-crm-761.html

          “….In or about 2002, Farkas, Bowman and other co-conspirators, engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one TBW account with excess funds into another, and later through the fictitious “sales” of mortgage loans to Colonial Bank, a fraud scheme the conspirators dubbed “Plan B.” Brown joined the conspiracy in late 2003 shortly after Plan B commenced. The conspirators accomplished Plan B by selling Colonial Bank mortgage loans that did not exist or that TBW had already committed or sold to other third-party investors.”

  10. Abigail Field

    I’m glad to hear Schneiderman’s on the case. I gave his office my findings on the NY Countrywide notes before the story ran. I’ve since looked at a few dozen California bankruptcy filings and almost no notes in the motions for relief of stay are endorsed, Countrywide or otherwise. Nothing of a scale yet for a new article, but enough to reassure me the NY result wasn’t a fluke.

    To me, the non-endorsement of notes–not even in blank–can only mean that none of the other niceties were honored. I mean, if you’re going to make a point of delivering the pieces of paper, why wouldn’t you endorse them too?

    If the defense is going to be, as has been offered as testimony in a bankruptcy case–that the “imaged” notes don’t match the ones in the vault, then what does that mean about the banks’ business records? (if true of course) see http://www.scribd.com/doc/57801169/BAC-Atty-Claiming-New-Version-of-Note-Correct-b-c-imaged-note-database-wrong at 5. (note, para 7 seems to me to say delivery didn’t happen)

    If the notes’ database isn’t accurate, and the mortgage payment database isn’t accurate, at least for LPS customers (according to a former employee who filed an affidavit in the NJ court systems’ investigation), how can anyone–much less a court–take a bank business record at face value?

    We’re supposed to be a nation of laws, and equal before the law. While I know both are ideals and violations of both are legion, we’re supposed to try to live up to our ideals, not simply snicker with a wink and a nod, treating the ideals as catnip to delude the masses while the real powers do their thing.

    So yay if NY and DE are going to really look at the deep disrespect for the rule of law that all thing mortgage backed securities seems to have involved in recent years.

    But where are the other AGs? Where is the DOJ?

    Turn over the rock, law enforcers. Clean out the festering mess that lays beneath. They would be no hesitation if the wrong doers were selling drugs instead of securities and lived in the hood instead of on fifth avenue.

    And if you’re coming to the party too late to punish some of the big fry, because of statutes of limitations, I want to see the detailed, footnoted with evidence, but very plain English reports of cases that could have been brought if only people were paying attention sooner. Something Valukas-esque.

    That is, even if punishment is barred by time, the truth can and must come out.

    1. Abigail Field

      to be clear, I’m not remotely trying to claim credit for what Schneiderman’s doing by noting I gave him what I found before the story ran. He’d already begun looking into securitizations as had been reported. I mentioned it only because it would be really depressing if he didn’t really focus on the issue after announcing he was looking at securitizations generally and then was given evidence (albeit small scale) of significant securitization failure.

  11. DavidE

    It’s just unbelievable that they would sell mortgage backed bonds and then fail to put the mortgages in the trust. The appropriate action is to bring criminal charges against whoever is responsible for this? There is just absolutely nothing that can excuse this sort of failure. How hard is it for a lawyer or CPA to check that the mortgages have been properly conveyed to the trust? There is no interpretation issue here. No complex accounting pronouncements to review. Everyone responsible for these failures from the CEO on down should be charged for fraud. And, even if Bank of American execs can’t be charged because of statute of limitations issues for the initial fraud, I would argue that they should be charged in connection with the fraudulent statements made in 2009 and 2010.

    1. psychohistorian

      I am a jaded sort but fully expect that the bought Congress critters will back date a solution to this that will keep the real perps from singing on their bosses.

      Broken record here says, we need to take social and economic policy setting control out of the hands of the inherited rich. I would take away most of their money also so they don’t have a chance to claw control back over the years, but I digress….

      1. ambrit

        My Dear psychohistorian;
        (The Good Doctor would have loved that.) It was done once before during the ‘New Deal.’ So hows about, ‘New New Deal,’ or ‘Son of New Deal,’ or ‘Return of the New Deal,’ or ‘New Deal Rides Again!’ etc. etc.

  12. abs

    He will get my vote and the rest of my family. Throw in the prosecution and break the too big to fail banks, i will volunteer and motivate others for his movements towards freedom for millions of american.

  13. Tough Enough

    I’m looking for a sponsor/developer of the following website. Executives from these 3 would definitely qualify.

    Operation Shame and Shunning

    Today’s business, financial and political leaders have no shame. Daily I read the blogs and check the websites and the comments posted. There are a lot of angry people that want change but it is obvious no matter how eloquent and persuasive postings may be things are not changing for the common good. This led to an idea firmly rooted in my past.
    I lived most of my life in Lancaster County, PA which still home to a large Amish and Mennonite population. There is much to admire about the people within these strict religious sects. To this day the Amish and to a lesser degree the Mennonites practice shunning which is a form of ostracism.

    My idea is to take this form of shame and shunning to where the leaders actually live and the communities they may enjoy (such as church or private club.) Right in front of their homes (or least the gates of their gated compounds.) Yes, sponsor a website that lists the individuals name, home address, church, etc. Include details of their transgressions and greed. Break these scoundrels into appropriate groups such as Investment Bankers, Finance, Business CEO’s, Defense, National Politicians and of course a page for each of the scoundrels in various States. Heck sell card decks like the US military had for the so called most wanted in Iraq during the invasion to support the development, hosting and maintenance of the website. Have decks for the various groups.

    The website could then be used to find the appropriate people associated with individuals “hot buttons.” Angry about the mortgage debacle – here are the names and home addresses of the appropriate villains. Show-up where they live and hold a silent protest. Take over their church by attending a service and turning your back to them when they walkin. Use the social networks to organize and obtain news coverage. Silent and peaceful protest that conveys a strong message where they live is much more powerful than some street in front of a business building or posting on a blog. Its personal to you and now its personal for them.

    Let them know you are more than just a screen name. You are someone interested in the common good and there to get back what has been taken from the majority. It’s time to take to the streets and make it personal.

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