The More You Look, The More Bank Criminality You Find in Mortgage Land

I hate giving such short shrift to two new mortgage stories today, but the news accountscontain a good deal of the critical information.

First is that the Associated Press reports that Guiford County, North Carolina register of deeds Joe O’Brien has found evidence of robosigning in his filed dating back to 1998. This is significant because:

Servicers did nothing on a one-off basis. If O’Brien found robosigned documents in his files that far back, it is certain there are other examples in other jurisdictions dating back that far.

It indicated the procedural abuses are much longer standing than virtually all commentators had assumed. I had thought it started with the 2002-3 refinancing boom, when servicers failed to staff up to meet big increases in volumes, which led to corners-cuttting in origination and eventually led to abuses in foreclosures. But this records search indicates the bad practices started much earlier and came to be applied over time on a more widespread basis.

The second sighting comes from American Banker’s Kate Berry, and provides additional confirmation of other reports that banks continue to engage in backdating of documents after having piously sworn to stop that sort of thing:

Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.

Many banks are missing the original papers from when they securitized the mortgages, in some cases as long ago as 2005 and 2006, according to plaintiffs’ lawyers. They and some industry members say the related mortgage assignments, showing transfers from one lender to another, should have been completed and filed with document custodians at the time of transfer.

“It’s one thing to not have the documents you’re supposed to have even though you told investors and the SEC you had them,” says Lynn E. Szymoniak, a plaintiff’s lawyer in West Palm Beach, Fla. “But they’re making up new documents.”

The banks argue that creating such documents is a routine business practice that simply “memorializes” actions that should have occurred years before. Some courts have endorsed that view, but others, such as the Massachusetts Supreme Judicial Court, have found that this amounts to a lack of sufficient evidence and renders foreclosures invalid.

It’s disturbing at this juncture that Felix Salmon more or less falls in with the bogus bank party line on “memorializing” (he finesses it by saying they need to do it “transparently”). I suggest he try talking to an attorney who is expert in securitizations and does not have opinion letter liability on this matter. The contracts that governed these deals were immutable and set forth in precise detail the steps various parties to the deal were required to perform. That included strict cutoff dates for getting the properly prepared notes and mortgages to the securitization trusts. Long-standing precedents for New York trusts (virtually all RMBS trusts are New York trust) call for delivery to the trust to be as perfect as possible. Since all securitization through at least the late 1990s did deliver all the notes and mortgages to the trusts as stipulated, there is no excuse for later changes in practice (as in if the parties wanted to simplify procedures for reasons of cost or convenience, they needed to change the governing agreements to reflect that).

Put it another way: what about the Statute of Frauds don’t you understand? And while some judges have sided with banks, the robosigning scandal and greater media coverage of mortgage abuses has led many jurists to be much less bank friendly than they were a mere year ago. The trend is moving decisively against, not for, the banks.

The American Banker article, disappointingly, fails to discuss what these continued abuses mean. As we have stressed in repeated past posts, the failure to get the notes to the securitization trusts by the cutoff date is not fixable by any legitimate means. Do you think banks and law firms would continue to fabricate documents, particularly in the wake of so much harsh media and Congressional scrutiny, if they had any other way out?

The failure to get the notes to the securitization trust correctly does NOT mean that no one has the right to foreclose. It does mean that the party that can foreclose is someone earlier in the securitization chain who was paid for the note but in effect, no one bothered to collect it from him. No one wants that party to foreclose because, first, it would prove that the securitization did not have the note and investors were misled, and second, there is no way to get the proceeds into the trust for the benefit of the investors.

There is an additional mortgage story tonight, but there is less new here than one might imagine. The New York Times reports that the Federal Housing Finance Authority is about to sue a dozen banks over making misleading representations about the mortgages sold to Fannie and Freddie:

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Although this may sound like a new effort, Ed DeMarco has been pushing this initiative forward for over a year. Dave Dayen points out that this story may well explain recent Geithner efforts to force DeMarco out.

But even though the particulars are many and varied, the overarching story remains the same: the more rocks you turn over in mortgage land, the more creepy-crawlies emerge.

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  1. Sleeper

    Sorry folks no suprises here.

    The remaning question is when will the criminals involved in the fraud go to jail ??

      1. Tom Parsons

        We might hasten the day by replacing the ‘TBTF’ meme with TBTP: Too Big To Prosecute.

        TBTP can be applied to individuals as well as to corporations, and carries more emotional sting. It emphasizes the class distinctions that are tearing the country apart.

  2. attempter

    Guiford County, North Carolina register of deeds Joe O’Brien has found evidence of robosigning in his filed dating back to 1998. This is significant because:

    Servicers did nothing on a one-off basis. If O’Brien found robosigned documents in his files that far back, it is certain there are other examples in other jurisdictions dating back that far.

    So robosigning was never an ad hoc response to either booming loanshark business or, later, booming foreclosure business. It was premeditated policy. This is more evidence for Fitts’ contention that all these mortgages going back at least to the latter 90s were fraudulently induced.

    And of course it was never an “abuse”, but the system’s intended, proper use.

    The failure to get the notes to the securitization trust correctly does NOT mean that no one has the right to foreclose.

    Meaning, the technical legalistic “right”. Since all the entities involved are nothing more or less than criminal enterprises, it follows that no one has any true right to foreclose.

    1. Arabiflora

      I’m not a finance expert by any means, but I’d bet a quarter that there are liens, attachments, or other restrictions on the holders of the physical notes that would make the trip to the courthouse to file a notice of foreclosure more than a little dicey.

      1. Nathanael

        In the specific case of Countrywide originations, we have sworn testimony that they *deliberately* destroyed original notes.

        So in that case, it is genuinely true that nobody has the right to foreclose. (Nobody else ever had the note, and Countrywide forgave the debt by deliberately shredding the note.)

        Most originators weren’t quite as stupid as Countrywide and did not *deliberately* destroy the notes. These are the ones where, as Yves says, *someone* has the legal right to foreclose, although probably not someone who wants to. Yves, confirm my analysis?

        1. Yves Smith Post author

          I don’t know where you got that assertion from. I’m in touch with a lot of foreclosure defense attorneys and have heard no such thing.

          Destruction of original notes does not appear to be a common practice. The only originator that appears to have done it on any scale is New Century.

          There IS testimony by a senior Countrywide staffer that they kept the notes, in Kemp v. Countrywide, that they failed to convey the notes. That is a completely different issue.

        2. Rob

          The notes were NOT likely destroyed. Who, in their right mind, would destroy a $100,000 to $5 Million dollar piece of (bearer bond?) paper? The Countrywide notes simply were never physically transfered into the trusts.

    2. za

      I also wonder, if we start unpacking some of those securitizations, if we’ll find things like the same mortgage assigned to multiple MBSs, duplicates of the same mortgage within an MBS or completely fabricated mortgages?

      1. financial matters

        Already the case..

        Fannie Mae Silence on Taylor Bean Opened Way to $3B Fraud
        By Tom Schoenberg – Jun 29, 2011

        “”From 2002 through August 2009, he directed the sale of more than $1.5 billion in fake mortgage assets to Colonial Bank and misappropriated more than $1.5 billion from Ocala Funding LLC, a financing vehicle used and controlled by Taylor Bean, prosecutors said in a sentencing document.

        Farkas, 58, oversaw the “triple-selling” of $900 million worth of mortgage loans to Colonial, Ocala Funding and Freddie Mac, and led an effort to obtain $553 million from TARP, according to the filing. “””

      2. Susan the other

        Also the lawsuit between Wells Fargo and EMC Chase: This surely goes all the way back to Bear Stearns playing fast and loose. EMC was Bear. So now EMC Chase is the “custodian” and Wells is the “trustee” of certain MBS stuff. And the fucking custodian will not give the hapless trustee the documents! Not much news on this one lately. Bet I can guess why.

  3. greggp

    Someone does have the right to collect payments under the mortgages, and each state’s laws can effectively determine who that party is.

    I think bigger questions arise as to what happens if the IRS ever does take a look at the REMIC status of these trusts and decides they failed.

    First, how much additional tax liability are we talking about? Or, since all these trusts are basically worthless now, is there no significant tax owed?

    Second, if there is tax owed, who will be on the hook for it? Are all the pension funds that have already been clobbered by the lousy returns from these failed REMICS going to take another big hit?

    I’d really like to see an analysis of this doomsday scenario.

  4. bmeisen

    Breathtaking and yet mild Yves. Please continue to light ’em up.

    I follow with such delicious satisfaction and hope so fervently that the Banksters get their day in court, before a non-partial judge and (gulp) jury, because the memories of how they treat chumps like me remain fresh.

    Want to get out from under that student loan burden ahead of schedule, free yourself of debt and start saving? Don’t do it! Even if a windfall suddenly makes it possible, you got to let the man take his money.

    Been bouncing a few too many checks? Tired of paying those nasty penalties? Shouldn’t the occasional overdraught be possible for a loyal hard-working guy? “Tax on the poor” doesn’t quite capture the flavor here – more like “important contributor to the bottom line”.

    Want to get entrepreneurial cause you can’t find a steady job, open a little shop, explore retail hell for a while. Credit card terminal is a must and remember to let the man take his money.

    The line that banksters were serving society by providing mortgages, promoting ownership and responsibility, which are so important for the overall stability and health of communities, especially poor, struggling communities with lots of challenges, is a line spoken by the evil sorcerer Bobbob in a computer game you can buy down at the mall.

  5. Mikhail Kropotkin

    So, they got started in ’98. IIRC that is before MERS popped up and made everything so much cheaper and easier.

    That would mean the robosigning was carried out by an officer of a particular institution. That would put the executives of that institution on the hook for directly running fraudulent activities. I’m thinking that prosecution would be clearer in the earlier cases. If it is, will anyone do anything with it?

    Not that there is a shortage of evidence against enough already…

  6. Bill

    Jail ? What a foolish assumption. To even imagine that the crony DC/Wall St club members will ever even dream about the baby poop yellow bars is moot. Laws are not for banks or corporations they are for you and me alone . Let em reap what they sow . I myself am looking forward to the public executions when America wakes up to this crap . zzzzzzzzzzzz

  7. Fractal

    The NYT piece on FHA’s planned monster actions included a crucial revelation at the end:

    “As of June 30, Freddie Mac holds more than $80 billion in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans. Freddie estimates its total gross losses stand at roughly $19 billion. Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans, with losses standing at nearly $14 billion.”

    Sounds like a big deal to me. Alleged losses in excess of 36% for FNMA, and over 23% for FHMC.

    1. decora

      I’m sorry but after reading “All the Devils are Here”, I wouldn’t trust Fannie Mae to spell it’s own name properly.

      I don’t doubt that they are hopelessly stuffed with garbage, but the extent of that garbage is, well, something that should be left up to auditors and hard-assed accountants, preferably old blue haired ladies from small banks in the middle of nowhere- people who do not give a shit about what some punk kid (Obama, Perry, Blankfein) says about them behind their back.

  8. Defendant-Intervenor

    Yves, what people don’t really get is just how far back this goes. I know from personal experience, besides the court case I and my wife are working on now pro se for all the obvious reasons we are pro se, that some fellows back in as early as 1994 were trying to get me to open a Mortgage Company using my credentials to do so. They of course would be flying under my licenses and that was what made me say…hmmmmm I don’t think so get your own license and you got a deal but I will not be taking that kind of a risk thank you.

    Yves you could tell from the beginning, if you were looking and didn’t let greed and avarice get in your way, that things were not kosher so to speak. The obvious and easy criminality to the whole affair. I feel so lucky today, well besides having to beat the snot out of the bank for a loan they gave my wife before we were married, I do.

    Hell Countrywide as early as 1988 were known in the industry as a slack mortgage loan company. So much so that it was joked about among friends of mine that you could practically get a tuna sandwich with screwy documentation a loan from them.

    That’s what people really don’t get is that this all started with Regan and has come one step at a time, with each deregulation victory, to where we are today.

    1. aet

      Law and regulation walk together.
      If you de-regulate, you also ‘de-legislate’….undoing the law.

      So now, what they say IS the law. No law, no regulation, no control… on them. Their powers as to their debtors has been “de-regulated”.

      I don’t use the damned things, so what’s the interest rate on unpaid credit card balances today? And those particular debts survive bankruptcy, too? Why?

      Debts owed to the banks are never forgiven, but the banks often beg – and obtain – forgiveness themselves.

      That isn’t fair.

      But without laws and regulations to keep things fair, that’s the way it goes.

  9. Mark K

    Yves, how likely is it that the real reason that the Obama Administration is pushing wholesale refinancing as a “solution” to the housing mess is that they are doing a favor for the large banks in their role as servicers? The idea being that if they can get people to trade in their problematic mortgages for brand new, squeaky clean ones, it makes things so much easier when the inevitable foreclosures happen anyway. I suspect the foregone interest (which the servicers wouldn’t shoulder anyway, right?) would be cheap compared to what it is costing them right now to carry out foreclosures, with all the scrutiny, etc.

    1. dejavuagain

      A refinancing assumes a release of the existing mortgage (or amendment thereto).

      That cannot be done with robo-signing by someone on behalf to the existing mortgagee – who is that – the trust? A bankrupt originator?

      So, how clean is that new refinanced mortgage?

      Dirty linen is not going away.

  10. Safcraker

    Most of us probably all agree on one thing which is the choices for the next president are very depressing. This country desperately needs a great leader with the conviction of an Abraham Lincoln, Thomas Jefferson or George Washington to name a few off of a very short list. I have never before seen such contempt for the status quo as what I witness now on a daily basis. Problem is, all the praying and wishful thinking is not going to right the course that this ship is on. We have been off course for so long people don’t even know what course we’re supposed to be on anymore because we have drifted so far off of the course our forefathers laid out for us. The big question is what are you going to do about it?

    If you think any of the available candidates are going to match up reality with your imagination then you most likely aren’t planning on doing anything about it, just more complaining. It’s going to take more than lip service and a vote to get the type of change that equals or even resembles what our forefathers envisioned for everyone one of us. They succeeded in changing everything they despised by sacrificing countless lives, then went so far as to even warn us about everything that this government has become but no one took the time to read the warnings, probably never even knew they existed for that matter. If our forefathers knew that this was going to be the result of all their sacrifice, they wouldn’t have bothered.

    Everyone one of us need to be ashamed for being the cowards that we are. A bunch of arm chair big mouths that were only concerned about ourselves instead of each other and what we meant together as a country as well as what we thought we stood for. As rebellious as it sounds our forefathers made sure it was the right of every citizen in this country to own a firearm not because they wanted to make sure you could feed yourself or protect ourselves from each other. They gave you that right because they wanted you to be prepared to take your country back from the government that they knew could easily manifest itself into what we have now, and they expected you to stand up and fight for what they left you, to never settle for anything less, period. Google up “famous quotes by our forefathers”, it may surprise you what you learn.

    That is obviously a worst case scenario and last resort only to be used after all other methods are exhausted first, but never think for a moment that there is a guarantee that any of those other methods will work. You know, if the revolutionary war would have went the other way, people like George Washington would have been labeled as one of the most despicable people you could imagine, but instead, even though he obviously did those things that fit the bill of what a killer and tyrant would do if you were the opposition, he helped win our freedom and our undeniable right to cherish our God given rights which made him our hero and father of this country. That’s what you call sacrifice, a willingness and determination to win….or die for what you believe in. You can wish for all you want, but just remember…..if wishes were horses, beggars would ride.

    1. Abom

      No need for guns. You could bring down the whole house of cards with collective bargaining for debtors. Even on a small scale, targeting the weakest banks first, it would start a damn fine panic.

      1. Susan the other

        Isn’t it actually illegal to cut of poorer people from financing? I think Chris Whalen did an article on this. The law was not adhered to; swept aside. And as the poor and middle class desperately tried to hang on, at the very same time, wealthy individuals (not just banks) got all the credit they needed. Well, they could pay it back. It was a no brainer. And was the flood of incompetence and fraud that dragged us all over the cliff also a no brainer? Then why did the wealthy participate?

        1. Susan the other

          Hi Susan, I just wanted to reply to you now that I’ve had some lunch and my blood sugar is back up that I remember in @2002 after the crash that Alan Greenslime started spewing the propaganda mantra that the “business cycle had been tamed.” Funny he did this for the son, while the father had blamed Greenslilme for his own demise – Greenslime had been too tight with interest rates for big George. And big George never had the foolish audacity of his son to take us into armaggedon.

  11. Karen

    I think we can all just write out some checks to “memorialize” all past due payments. Problem solved, we have “memorialized” the payments that should have been made, rendering the past due balance mute. Foreclosure not needed any longer!

  12. Jim A.

    “…and second, there is no way to get the proceeds into the trust for the benefit of the investors. ” ISTM that since the securitizer failed to deliver the note to the trust, they would be forced to return the purchase price, possibly less payments already received.

  13. Justicia

    On the civil fraud front, the FHFA just got into the game:


    U.S. Is Set to Sue a Dozen Big Banks Over Mortgages

    I think the bank’s line of defense is pretty weak. Don’t blame us, it was the economy that did it:

    “But privately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.”

    1. Chevy Chase Bank

      “In a reprise of comments he makes all the time in defense of the reckless and arrogant actions his agency took to preempt strong state consumer laws, former Comptroller of the Currency John Dugan wrote a letter to the New York Times that purports to absolve his OCC, its regulated banks and their subsidiaries of all blame for the world financial economic crisis that was started with predatory lending.”

      1. Fitzpatrick Hagis

        For what it is worth, even if you are clearly explaining how you are fucking someone over, the desperation of the victim makes this a useless point. This is why examining just a part of an immense problem, and then basing decisions on this small parameter is a useless academic exercise. The classic example is of the loan shark vs the person who is desperate for rent money, or any other kind of desperation which can be exploited. Recently this included housing. Is Warren completely out of touch? Has she ever mentioned the fact that housing remains a problem in this country and that this is clearly understood by rentiers, by exploiters, by profiteers?
        We understand some of Dugan’s accommodating degeneracy, but compare John and Liz’s ideas about regulation:

        “Dugan says that federal regulators should simply require banks to provide better disclosure about their practices.”

        “Elizabeth Warren argued that companies and their lawyers can find ways around government prohibitions, but making financial products such as mortgages and credit cards easier to understand will empower consumers.”

  14. Crazy Horse

    That anyone can believe at this late date that banksters will stand before a court of justice and be tried for their offenses is truly unbelievable. When they own the “department of justice?” And the mass media instruments of propaganda? And the politicians it manufactures? And the Homeland Insecurity Police State? Give me a break.

    The only form of justice that banksters need fear is the firing squads of a country that they have lost all control of— and if I were a bankster in the USA I wouldn’t loose any sleep over that eventuality!

    1. Nathanael

      Some of the state judicial systems are still impartial justice systems. (Not, sad to say, Florida — but Massachusetts and New York are doing pretty well.)

      So the banksters may find themselves in state court. We’ll see how far the Feds are willing to go to obstruct justice.

  15. Safcraker

    To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude .I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared. – President Thomas Jefferson

    The spirit of resistance to government is so valuable on certain occasions, that I wish it to be always kept alive. It will often be exercised when wrong but better so than not to be exercised at all. I like a little rebellion now and then. – Thomas Jefferson (1743-1846), U.S. President, Letter to Abigail Adams, 22 February 1787

    I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
    Thomas Jefferson

    On every question of construction, let us carry ourselves back to the time when the Constitution was adopted, recollect the spirit manifested in the debates, and instead of trying what meaning may be squeezed out of the text, or invented against it, conform to the probable one in which it was passed. – Thomas Jefferson

  16. BF Pitchfork

    LA Times:
    “Standing before an easel on a Van Nuys sidewalk, Alex Schaefer dabbed paint onto a canvas.

    ‘There you have it,” he said. “Inflammatory art.”

    The 22-by-28-inch en plein air oil painting is certainly hot enough to inflame Los Angeles police.

    Twice they’ve come to investigate why the 41-year-old Eagle Rock artist is painting an image of a bank building going up in flames.”

    1. steelhead23

      Got a photo of that piece? I think it would make a perfect “Antidote du jour” for our heroine. Heck, she could probably spring for the original.

  17. earnyermoney


    Seems like the F.H.F.A. announcement coincides with Obama’s “bogus” Labor Day deadline for the banks to sign the 50 AGs settlement. Will be interesting to see if the banks call Obama’s bluff.

  18. Tao Jonesing

    You know, if you look at it from the macro level, there is no criminality.

    Then again, at the macro level there are no people, just money.

  19. Steven Bradley

    This whole business of robosigning is very frustrating to me. I was a VP at a private money lender in California (humans actually bought the mortgages); as a broker, we were required to physically sign any assignments that left our company, and went into the hands of private investors. No robosigning allowed. In California, the real estate law is very specific and clear. The broker is required to do this, within a certain very short time frame (less than a month). These loans could be sold in “fractions” to up to 10 private investors, and each investor received an assignment of note and an assignment of trust deed for his portion of the loan. Banks, of course, were exempt from all this folderol. They just hired MERS to do it for them, and then MERS (supposedly) transferred the loans properly. Now we find that both civil and criminal statutes have been violated. If our corporation had failed to assign notes and trust deeds, the lawsuits would have proliferated into the thousands (with criminal stuff to follow)–yet the banks got more money, wrecked the economy, and the execs not only walk free, they get bonuses.
    Why is it always the big guy that gets away with stuff, and the little guys get the axe?
    And no, it’s not “Obama,” or “Bush,” it’s the entrenched favoritism provided by various branches of govt to the large corporations, whether they are unions, government itself, or business entities. “It’s good to be big,” I guess. As long as we go with the “class warfare” (Obama is evil/Bush is evil/Clinton is evil (all the way down to)—–>George Washington is evil), we will disregard the obvious fact that our “system” favors “large.” Things need to change.
    Steve Bradley

    1. PL

      Agreed that it’s so far beyond any one politician, party or branch of government. The entire system favors large corporate interests and selectively enforces laws against them so that they do not bear responsibilty for their actions. Moral hazard concerns apparently don’t apply to TBTF corporations. It’s a completely different story for the poor shnooks who took out mortgages or own small businesses and feel the full brunt of the economic downturn. What can be done to curb utterly unfair preferential treatment for large corporations without risking unintended consequences for everyone else?

      1. Stupendous Man - Defender of Liberty, Foe of Tyranny

        The only effective method I can think of is to hold our judiciary accountable for improper rulings. That would be to sue the judges individually. It is my belief that when/if a judge acts acts outside of his or her legitimate authority judicial immunity does not apply and he or she becomes liable individually. The most ready application would be when a plaintiff bank lacks requisite standing (lack of capacity may also work). Without standing the court lacks jurisdiction (check your local constitutions for an “open courts” doctrine that requires a party to have actually sustained an injury before invoking the jurisdiction of the court). Without jurisdiction the court (judge) has NO authority to act at all, and ANY actions or decisions by the court would be outside of judicial authority, and maybe also judicial immunity.

        I HAVE NOT researched this idea sufficiently to state it as fact/truth, and intend to do more research in this regard. At present, however, I have enough confidence that I’m willing to devote more time in researching.

        If it proves to have merit I imagine one successful suit would get the attention of many jurists.

    2. Masonboro

      “And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that. All power corrupts; absolute power corrupts absolutely.”

      Lord Acton (1834-1902)

  20. indio007

    Is it a coincidence Public Law 106–122 passed in December 1999, with the first attempt being in 1998.

    What law is that. It allows the FED to use residential mortgages as collateral for issuing new Federal Reserve Notes.
    An Act
    To amend the Federal Reserve Act to broaden the range of discount window loans which may be used as collateral for Federal reserve notes.

    Be it enacted by the Senate and House of Representatives of
    the United States of America in Congress assembled, That the
    third sentence of the second undesignated paragraph of section
    16 of the Federal Reserve Act (12 U.S.C. 412) is amended by
    striking ‘‘acceptances acquired under the provisions of section 13
    of this Act’’ and inserting ‘‘acceptances acquired under section 10A,10B, 13, or 13A of this Act’’.
    Approved December 6, 1999.

    Gee golly what does 10B say?

    Federal Reserve Act

    Section 10B. Advances to Individual Member Banks

    a) Any Federal Reserve bank, under rules and regulations prescribed by the Board of Governors of the Federal Reserve System, may make advances to any member bank on its time or demand notes having maturities of not more than four months and which are secured to the satisfaction of such Federal Reserve bank. Notwithstanding the foregoing, any Federal Reserve bank, under rules and regulations prescribed by the Board of Governors of the Federal Reserve System, may make advances to any member bank on its time notes having such maturities as the Board may prescribe and which are secured by mortgage loans covering a one-to-four family residence. Such advances shall bear interest at a rate equal to the lowest discount rate in effect at such Federal Reserve bank on the date of such note.

    Wow how odd…..

    Second point,

    Any mortgage that went into the MERS system and was transferred even ONCE an never have clear title on the property because MERS never conveyed those properties in writing.


    That would mean that even though someone pays off the debt they are not getting what the bargained for i.e. marketable title.

    The entire DoT is void because with MERS on it , clear title to the property on payment of the debt is a false suggestion.

    1. Susan the other

      Those titles (probably 90% of all titles in America) must be cured – not papered over and not lost in a bunch of blithering verbiage. And MERS must be outlawed. It is an illegal organization. Somebody please tell Obama.

      1. Nathanael

        It’s less than 90% of titles — look up what percentage of property is owned outright and has been for decades — it’s still more than 10%.

        I’d guess 75%-80% of titles.

    2. Nathanael

      Well, detail point, the title can be cleared with suitable and very expensive quiet-title suits. Or, after 10 years, with an adverse possession claim confirmed in court.

      Still, an ungodly mess.

    3. steelhead23

      Yes, the Fed can take mortgage paper at its loan windows – all within its federal charter. But guess what, the Fed went much further and purchased – allow me to reiterate – PURCHASED dodgy mortgage backed securities in exchange for FRNs. This was done to stabilize the derivatives markets and keep impaired CDOs from blowing up AIG and the global financial system, Ponzi scheme that it has become. Under its charter, the Fed is authorized to purchase only securities that carry the full faith and credit of the U.S. These are currently being held by a subsidiary of J.P. Morgan called Maiden Lane. I bristle when the Fed makes decisions that place my dollars at risk and go apoplectic when they do so in a manner that violates their charter. What surprises me is that the Fed goes before Congress with some frequency and the Congress has not taken them to task for this. Old news, I know, but it still sticks in my craw.

      1. aet

        Oddly enough, the last time I sauntered down Maiden Lane using Google Maps’ “Street View”, it seemed to me that there was a lot of garbage on the side of the Lane: in contrast, the rest of Manhattan seemed pretty clean.

        Maybe the people at Google are making a little joke.

  21. PL

    Good point about the proper party to foreclose being further down the chain of title because mortgages didn’t make it into the securitization trust before it closed. Which leads me to ask: who has been receiving the borrower’s monthly mortgage payments after being collected by the servicer? Are trusts receiving payments for notes they do not own? How does it work between the trust, prior owner of the note and servicer? Could we litigation brought by prior owners of the note against servicers and securitization trusts for unjust enrichment?

    1. steelhead23

      Wait – if you’re down the chain, you have been paid for the mortgage so there is no way you could claim injury. Only injured parties have standing in court to sue. The only way this could work would be for the trustee to sue the originator for the failure, then the originator would have been “injured” and could sue/foreclose. With millions of messed up titles/assignments, the backlog in the courts would be astounding.

      BTW – someone in this string asked how the settlement could absolve the banks of robosigning/backdating – good guestion. We are talking about state law problems here. Thus, either the U.S. Congress would have to pass a law, over-riding state fraud statutes for this (questionable, but I think doable under the Commerce Clause) – or all 50 state’s attorney generals would have to buy in. I suspect that the big boys are working on Plan B.

      1. PL

        Do servicers forward borrowers monthly payments to securitization trusts which paid for, but never properly received, the note & mortgage? It sounds crazy.

  22. Jack

    Many of us maintain that what we are seeing now is just the “New & Improved” version of the Savings & Loan Scandal of the 1980’s and came from the dreams of banksters. Only in their dreams of the perfect crime, they got away with it until they were all obscenely wealthy and retired and nobody served a day in prison because regulators, government and law enforcement were involved. And everyone but the victims lived happily ever after with their loot stolen from homeowners, pension funds, county coffers and investors. Oops, that is happening to isn’t it.

    I have forged documents dated 1993. Named are: Bear Stearns, Bankers Trust, RTC, FDIC and EMC Mortgage. These documents show this single loan was securitized at least (3) times through Bear Stearns; contains (5) loan amounts, (4) loan numbers and (2) lost note affidavits.

    The bigger problem verified by an expert is, all the evidence shows this loan was intentionally destroyed shortly after it closed in 1987 due to fraud in the origination. Moreover, the loan [was] an unsecured, non-negotiable instrument under the 1961 version of the UCC (conveniently repealed in 1994). Case law from superior courts from several states ruled that the holder in due course does not transfer when the Note is non-negotiable; even when the failed institutions assets are taken over by the RTC/FDIC. One supreme court opinion stated “the assets are what they are” and “you cannot transmute lead into gold”.

    Matt Taibbi and others are right on point: The more FRAUD you look for – the more FRAUD you will find.

    This is yet another powerful reason the banksters want to rush to settlement. Now we can prove the fraud goes all the way back to the 1990’s!

    1. indio007

      If the note is non-negotiable there is no holder in due course at all. It can be made negotiable by endorsement BUT all subsequent holders take it with notice that all the defences that the maker of the note had against the original party are available to them.

      There is also this little known rule that if the transfer was done solely for the purpose of defeating the defenses of the maker it is a affirmative defense to non-payment.

      We have a whole bunch of these straw transfers going on so the “borrower” can’t use a partial failure of consideration as a defense.

    2. Susan the other

      So when Bear and then WAMU failed and JPM slithered in to slurp up the MBS stuff it was illegal and JPM had no right to take over these assets because they were more or less liquidated, or what? Clearly JPM was never assigned these mortgages.

    3. scraping_by

      Interesting about the S&L thing. The FSLIC had enough money to cover all deposits up to the insurance limit. There was no legal requirement for any government action, and indeed, there would probably have been less long-term damage from keeping the loss in private hands.

      So, if Bush I and his Congress cronies obeyed the law, the loss would have been eaten by a handful of S&L board members and, of course, the con men they loaned to.

      Mark Meyers, in The Greatest-Ever Bank Robbery: The collapse of the savings and loan industry, points out the danger of speculation with insured deposits. Both as bad investments and as bad for the guarantor.

      The Treasury raid by Bush II and Barry, is, indeed, the S&L Treasury raid on steroids. And without the perp walks.

  23. Rowlf

    What month is “National Skip A Mortgage Payment Month” scheduled for? It could be more interesting than voting against incumbent politicians.

  24. Economista Non Grata

    And Again….! This brings us back to the element of pricing and how these securitizations are priced on the balance sheets… Not to mention the underlying CDSs…. QE3, don’t make me laugh….. Just jerk that bandage off fast, it’s gonna pull off a lot of tissue, but let’s just get it over and done with…. Where are the banker’s yachts…?

  25. Susan the other

    You know the Burning Man Festival. Never sure what it is about but it is way dramatic. A giant effigy all aflame. I think we need a Burning Bank Festival.

  26. Tim

    Thank God we’re finally going after the banksters! Goldman sucks, Douche bank, Lemon brothers, Cunty wide, Lynch merrill, Bank of murkyya, Jip myorgan, Well les fucko, and all the rest of those criminals.

    And let’s all read and pass-along Matt Taibbi’s September article in Rolling Stone about the cover-up fraudsters at the SEC and make sure we go after them too!

    Fines and jail terms. And dear God please, maybe electrocution and then shot.

  27. beowulf

    “The banks argue that creating such documents is a routine business practice that simply “memorializes” actions that should have occurred years before. Some courts have endorsed that view, but others, such as the Massachusetts Supreme Judicial Court, have found that this amounts to a lack of sufficient evidence and renders foreclosures invalid.”

    Another one for the “there ought to be a law against that” pile (“body politic and corporate” means local government):
    “Whoever makes any false entry in any book, report, or statement of such bank, company, branch, agency, or organization with intent to injure or defraud such bank, company, branch, agency, or organization, or any other company, body politic or corporate, or any individual person, or to deceive any officer of such bank, company, branch, agency, or organization, or the Comptroller of the Currency, or the Federal Deposit Insurance Corporation, or any agent or examiner appointed to examine the affairs of such bank, company, branch, agency, or organization, or the Board of Governors of the Federal Reserve System… Shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.”—-000-.html

    1. Free State

      They got their laws alright. FISA, the Patriot Act. HAMP is probably just another method of interrogation, you know, where you volunteer a huge amount of information to a “friendly” Government agency, so they can “help” you. Why the kids aren’t screaming for Obama’s impeachment is beyond understanding.

    2. Justicia

      You might also add:



      (c) Whoever corruptly—
      (1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding; or
      (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so,
      shall be fined under this title or imprisoned not more than 20 years, or both.

      Too bad Sarb-Ox is a dead letter. Oh, but that applies to all of the securities laws these days.

  28. Hugh

    My understanding from way back early on was that there was a Catch-22 involved in the whole foreclosure mess. Those who would foreclose don’t have standing because they don’t hold the mortgage note. And the note holders can’t sue because they no longer have a financial interest to base a foreclosure on. Alternately, the original mortgage note no longer exists.

    The promissory note holders can still sue for payment, but their note is no longer secured by the physical asset, the house. It is an unsecured loan.

    However, even here there could be problems because the promissory note was sliced and diced into CDOs and CDOs squared, I am not sure how clear it is, or rather how easily it can be proved, that investor y has an interest x in the specific promissory note z of homeowner z.

    I would be interested in what other opinions are on this.

    1. steelhead23

      Ever see those huge rolling filing cabinets corporate lawyers tote around? I wish I knew who made those because they are going to be in high demand. Frankly, straightening this all out, short of a global settlement, is going to take a legion of lawyers and will clog the courts for a decade or more. To be honest, I think some kind of big settlement would be proper – after investigation and criminal prosecutions, but as someone else on this blog has said – given the evidence over the last three years, that ain’t gonna happen.

    2. Yves Smith Post author

      The CDOs have nothing to do with the foreclosures.

      The mortgages go into the original RMBS. What gets distributed are cashflow. The RMBS are not “pieces” of the mortgages, they represent the right to receive distributions of interest and principal according to certain rules.

  29. ftm

    Large US Banks should be RICO targets.

    We have wonder boy Bank CEO Jamie Dimon “managing” the following crews: (these are all crimes brought to light in the last five years)

    1. Municipal crew:
    Sell interest rate swaps to uninformed local officials.
    Manipulate municipal bond auctions.

    2. Mortgage crew:
    Sell exploding CDO’s to unsophisticated institutions
    Foreclose on service members

    3. Ponzi Crew:
    Assist Bernie Madoff

    4. Sanction and WMD Crew:
    Finance dictators and terrorists around the world

    5. Commingled funds Crew:
    Speculate with customer funds

    And all the other crimes embodied in the trillions of dollars of derivatives sold to marks around the world.

    The idea that Jamie Dimon “manages” Chase is a joke. Chase is much too large to manage as are all the large banks. One only has to observe the level of criminality to know that the smiling good guys at the top have no “”””ing idea what is going on in their bank.

  30. FHFA sues Oscar Goldman Sachs

    Russell Mokhiber “10 Ways to Save a Corporate Criminal” 2005:

    Good morning Mr. CEO.

    What do you have there in your hand?

    Yes, indeed, that is a subpoena from the Justice Department.

    Yes, indeed, the corporation is a target of a criminal investigation.

    Yes, indeed, it appears that in fact the corporation did engage in serious criminal wrongdoing.

    It is true, that if convicted of a felony, the corporation faces serious collateral consequences — it could lose substantial government contracts, it could face embarrassing publicity, it could be forced out of business.

    Remember Arthur Andersen?

    But no, even though the corporation engaged in felonious conduct, it is not a sure thing that it will be convicted of a crime.

    If you hire me, I have a playbook with the top 10 plays to save any major corporation from corporate death by felony conviction.

    You want to hire me?

    Here’s my fee.

    Calm down.

    Sit down. Sit down.

    It will come out of the corporate treasury.

    This is shareholders’ money.


    Okay, let’s open the book.

    1. Prosecutors don’t like the corporate death penalty.

    If a corporation is convicted of a serious crime, there is a chance that the corporation will be forced out of business — the government might stop doing business with it, the adverse publicity might nuke its bottom line. In the case of Arthur Andersen, the question was: who would want to hire an accounting firm convicted of obstruction of justice? Answer

    — no one. Thus, the perception has arisen that being convicted of a felony, especially for companies in certain lines of business, is the equivalent of being sentenced to death. Prosecutors, especially the politically motivated ones, even ones who like the death penalty for individuals, don’t like the corporate death penalty.

    2. Clean out the files.

    All large corporations have document retention policies. As one corporate executive told an undercover FBI informant recently — you don’t have to turn over to the government documents you don’t have. Get it?

    3. Spare the corporation, torch the individuals.

    If the corporation hires me, we’ll begin cooperation with the government immediately. We’ll turn over all the documents and individual executives who were involved with the criminal activity. Just as long as the government gets some individual scalps, it is unlikely that it will seek to indict the corporate entity. They go to jail, we stay in business.

    Nice deal, huh?

    4. Get a non-prosecution agreement.

    These are growing in popularity. If we turn in the executives, if we self-report, the government is likely to cut a deal whereby we agree to a statement of facts as to what happened, we cooperate with an ongoing investigation of individuals, we neither admit nor deny wrongdoing, and if we stay clean for two years or so, then the government won’t file any criminal charges against the company.

    5. Get a deferred prosecution agreement.

    If we can’t get a non-prosecution agreement, we can get a deferred prosecution agreement. It’s the next best thing. With a deferred prosecution agreement, the government files criminal charges against the company, but if we stay clean for two years or so, the charges are dropped. By my count, more than 10 major corporations have cut this kind of deal in recent months.

    6. Plead out a small subsidiary.

    If the government demands that some corporate entity plead guilty, we can offer up an insignificant unit that can be put out of business after the plea. Major corporations do this all the time. This spares the parent company from the collateral consequences of a guilty plea. Neat, huh?

    7. Neither admit nor deny.

    Unlike street crimes, there are many ways to settle corporate crime cases. We can argue that only civil charges should be brought, that they should be brought by an administrative agency, instead of the Justice Department. Once we are in the civil arena, we can settle the case with a “neither admit nor deny” clause. This way, there is no admission of wrongdoing.

    8. Apply political pressure on the prosecutor to drop the case.

    Almost every prosecutor you speak to denies that this ever happens. But it does happen. Recently, a slam-dunk criminal Medicare fraud case against a hospital corporation in Mississippi was reportedly closed out due to political pressure. This case is creating a stink down there, but that’s only because it made it into the media. There are ways to get to prosecutors.

    9. Elect politicians who are soft on corporate crime.

    In law, as in business, you get what you pay for. Throw your weight around politically. Have your executives contribute to political campaigns — local, state and national. When push comes to shove, politicians — and many prosecutors are politicians — know who’s buttering their bread.

    10. Bury the story.

    Earlier this month, a small unit (see number 6 above) of the giant multinational drug company Novartis pled guilty to nine felonies in a fraud case in Illinois. The Justice Department didn’t put out a press release to the national press. Only two reporters wrote about it on the day it was announced — from Bloomberg and the St. Louis Post Dispatch.

    The plea got very little national publicity. In another major fraud case, HealthSouth Corporation, the nation’s largest provider of rehabilitative medicine services, paid $325 million to settle allegations that the company defrauded Medicare and other federal healthcare programs. The case was announced by the Justice Department on December 30, 2004 — right during the holidays — and as a result received very little national press attention.

    So, Mr. CEO, worry not.

    We have the playbook.

    We have the plays.

    In justice, as in life, you get what you pay for.

  31. Drupal Jazz

    Newspapers, their sites, television channels and blogs do not make their money from subscriptions or viewership; in fact, corporate advertisements subsidize all of them, so in effect, it is run with corporate money. Some media houses have always been directly owned by corporations, some indirectly by majority share-holdings. If we understand this, it will lead us to question what NCs real purpose is.

  32. Bart

    What I don’t understand is how banks can foreclose without giving a detailed account of all transactions (payments, fees,…) from the start of the loan until foreclosure proceedings.

    I understand it even less when owners dispute foreclosures. If owners kept their paperwork, with a bit of effort they should be able to compile their own version of events as well. Even otherwise, at least a few years of payments should be fairly easy to document from bank records.

    Is the US financial system that disorganised?

    1. LucyLulu

      Believe it or not, the paper trail has often been lost or destroyed. Some documents never existed in the first place.
      It was a business that involved high volumes of loans being processed in short periods of time. It may be hard to believe but maintaining documents was not high on the priority list, and historically the prevailing assumption had been that foreclosing party had legal standing and the burden imposed by the courts to demonstrate proof was very low.

      In response to your other question, typically transaction histories relating to payments, fees, etc. made by borrower are not an issue. In most cases the homeowner is not disputing that they are behind in their payments. They are disputing that the entity who is foreclosing has not demonstrated they have the right to collect on the mortgage loan, either because they are not the owner of the debt or an agent of that owner authorized to collect (specifics vary by state). At least, I think that is what you were asking.

    2. Debbi

      BofA took over my loan from Wilshire on March 1, 2010. BofA sent me a notice of change of service from BAC to BofA in July 2011. The mortgage balance was $3K more than I owed in 2008! I disputed that balance. I requested via QWR a complete payment history from INCEPTION of the loan until July 2011. Instead, I got a history from 3/1/2010 till 7/1/2011. When I called, the customer service rep told me that they DID NOT HAVE the payment history from Wilshire! When I asked how they came up with a BALANCE at 3/1/10 – she told me she didn’t know but kept insisting that it was “IN THE SYSTEM” and that is what BofA must go by. In the meantime, I recently found out that my trust was closed (DEFUNCT)on January 1, 2004 – I have no clue where my payments were going!

  33. Bart

    Another thing I don’t get is why banks and servicers can’t recreate the missing paper trail of a mortgage by having every intermediate party post factum confirming the transfer date of the mortgage etc.

    I would expect the necessary information to be available in the MERS databases and payment records between banks.

    This would of course imply a lot of grunt work, would require some cooperation between banks and servicers and in some cases it might be impossible to contact intermediate parties (or their successors).
    Compared to the value of most houses, wage expenses for this, even manually should be small change.

    Wouldn’t this obviate the need for backdating, robosigning etc.?

    1. Impeach Bummer

      No troll, they’ve forged. Troll, they’ve paid to forge. Troll, the victims are the alleged borrowers.

      It’s not a felony when they do it!

  34. Dan

    Great question. They wouldn’t be able to that if the transaction involved a mortgage that was already sold or never existed

    That’s the epicenter of this fraud. Were getting closer…….

    1. Bart

      What I mean is this : if the mortgage was already sold, can’t the current owner of (part of) the mortgage go back to all previous owners of the same mortgage to get legally valid confirmation (and transaction date) for each step in the securitization chain?

      Or is it legally impossible in some States to rectify the situation by reconstructing and registering the paper trail later on?

      I’ve been thinking for quite a while that imposing such grunt work on the banks might be a better way out of the mortgage mess than letting banks get away with blatant forgery. Might even create a few jobs, and create some income for States by imposing fines for late filing or something.

      1. LucyLulu

        Simple answer, no. First, some states have statutes (and some securitization documents have provisions) requiring that all mortgage assignments be recorded in the county land records, and in some situations, consequences can be incurred from late recordings, e.g. messing up chain of title issues. In addition, there is a universal requirement that all mortgage assignment/deed of trusts be recorded prior to any foreclosure suit filing. Recordings at county land offices are always time-stamped. Finally, 90% of securitized loans are governed by NY trust law which requires that all deposits of loans into the trusts occur within 60 days of the closing of the trust, and prohibits ex-post-facto executions.

        1. PL

          Pennsylvania does not require a mortgage assignment be recorded before commencing a foreclosure action. It is enough if the mortgage assignment is in the process of being prepared and recorded, according to recent case law. The length of time that this process may take remains to be seen, although it would be much cleaner if Pennsylvania required recording before initiating foreclosure.

  35. IRS

    Aftwe HAMP, the IRS wants people to kill themselves. This will help the housing market. Just shoot yourself in the head.
    The house will be up for sale, your brains will be cleaned up from the oak strip floor. Just kill yourselves, don’t fight the Gubbmint.

  36. Jason

    It is actually amazing how the American people does not do absolutely anything to try to solve this. If people did crimes in America and collapsed the world economy, they deserve court, not bonuses and bailouts! But I guess people are more concerned with their iPods and TV stars..

  37. Subtle Groove

    After 10 years of war, hundreds of thousands of innocent deaths, lies and hypocrisy and betrayal and sadistic torture by the Americans, we haven’t begun to consider the role Banks, the Treasury and the Fed have had in these tragedies.

  38. level8000

    Here is a link to one of the SEC disclosures for an MBS offering by Bank of America. Take a look at Appendix A and see for yourself what kind of disclosure was made to those considering a purchase of these securities. Also, read the section about risks associated with these securities and then look at Appendix D where there are models of what the return will be with default rates up to 4% and recovery rates of as little as 50% of loan value.

    How could any sophisticated investor not understand what they were getting into by the detail in this disclosure?

    And if you are still not convinced that the disclosure captures the inherent risk in investing in real estate and the particular risk of this group of mortgages then take a look at the bottom of page S-30 where the disclosure admits that 1.76% of the loans in one tranch have already missed more than one monthly payment in the first 12 months of the life of the loan.

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