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Mortgage Document Fabrication is Alive and Well…

Michael Redman of the 4ClosureFraud blog send a job listing that reminded us of the bad old days of 2010, when more and more evidence was coming to light about the how pervasive the problems with mortgage securitizations were, and how in turn that was leading to widespread abuses in foreclosures.

A bit of background for those of you new to this issue. Mortgage securitizations, both Fannie and Freddie as well as “private label” or subprime securitizations, are governed by a document called the pooling and servicing agreement (PSA). It describes how a mortgage securitization is created and will operate once the deal has closed.

To get the mortgages from the various banks that originated them to the trust that will hold them all, the minimum chain for a recent mortgage securitization is is A (originator) => B (sponsor) => C (custodian) => D (trust). Older deals might only have three parties, but recent vintage typically had at least four, and some as many as seven or eight.

The reason for having so many intermediary parties is bankruptcy remoteness. You as the buyer of a mortgage backed security want certainty. If an originator goes bust (as ironically many did), you don’t want the creditors to say, “They were already toast by the time they set up that MBS, so the sale of the loans was a fraudulent conveyance, we are gonna take the loans back.”

Moreover, each party had to be independent (which meant the legal definition of independence; the intermediary parties and even many originators were dependent on financing called warehouse lines from the investment bank packager/distributors). The note (the borrower IOU) typically had to be endorsed (like a check) to the next party in the chain, who then endorsed it over to the party after that, with the last party being the trust. Some mortgage securitizations allowed for endorsement in blank*, as in the endorsement didn’t have to specify who the next party was, but for a mortgage note to be conveyed to the trust, the originator and all the intermediary parties listed in the PSA had to have endorsed the note, and by a specified date.

Normally, when there is a failure to conform the requirements of a contract, the parties get together and issue waivers to tidy matters up. But securitization agreements are rigid; Georgetown Law professor Adam Levitin, who is arguably the top US expert in mortgage securitizations, called them “Frankenstein contracts” in a law review article. The failure to transfer mortgages to securitizations properly would mean investors were left holding empty bags. As Levitin wrote in 2010: “If the notes and mortgages aren’t properly transferred to the trust, then the securities that the trust issues aren’t mortgage-backed and are worthless. ”

Former Fannie and Freddie analyst Josh Rosner flagged this problem as being of such magnitude that it could “dwarf Lehman weekend”. As we pointed out back then, there were unlikely to be consequences to investors in Fannie and Freddie securitizations, even thought there ought to be. The government is not going to want to raise doubts about the integrity of such an important market. Servicers continued to pay advances on delinquent accounts.

However, there was a several-year legal battle fought in courtrooms in the US over the many foreclosures of “private label” mortgage securitizations. Borrowers who were unable to get mortgage servicers to entertain a modification, which is standard “half a loaf is better than none” lender practice, would challenge the servicers’ legal standing to foreclose. They were winning enough of the time to lend support to the critics’ case. That in turn led to a political band-aid: give the mortgage-industrial complex a “get of of liability almost free” card, in the form of a Federal-state mortgage settlement in 2012, with the servicers separately entering into settlement supposedly requiring them to shape up and fly right.

We were skeptical about the servicer settlements, since the underlying failure to transfer the documents properly still existed. Servicers and the attorneys they hired routinely fabricated documents and forged signatures so as to create a tidy-looking chain of transfers long after the mortgage securitization had closed, when in order for them to be valid, they needed to take place before the securitzation closed, or in a narrow clean-up window shortly after.

Now to Michael Redman’s evidence that the old abuses are still very much with us (emphasis his):

Fraudclosure: Select Portfolio Servicing Help Wanted – Chain of Title Specialist

Chain of Title Specialist

Salt Lake City, UT, US

Job Description:

Job Summary: Provides assistance in demonstrating the Investor has the appropriate legal authority to initiate actions through a complete Chain of Title, by recognizing and preparing the required documents to complete the Note with applicable Endorsements, along with any Assignments and other necessary legal documents. Can work independently with the Investor, Client, Custodian, and Attorney Network to resolve any document exceptions in a professional and timely manner.
________________________________________
Principal Duties:

1. Facilitates document requests in a timely manner
2. Comprehensive understanding of proving up all Chain of Title requirements
3. Resolves document exceptions through collaborative efforts with areas outside the Department
4. Conducts training for new and existing employees
5. Assist in gathering required documents for all audits

Minimum Qualifications:

1. Detail oriented
2. Document processing experience
3. Excellent written and verbal communication skills
4. Ability to lift boxes weighing 25 lbs
5. Proficient in Microsoft Office (Excel and Word)

Preferred Qualifications:

1. Experience in Loan Servicing, with emphasis in Bankruptcy and Foreclosure
2. Timeline management
3. Operating imaging hardware/software
4. Records Management
5. Experience with Microsoft Office tools (Access and SQL)

Select Portfolio Servicing an Equal Opportunity Employer and do not discriminate against any employee or applicant for employment because of race, color, sex, age, national origin, religion, sexual orientation, gender identity, status as a veteran, and basis of disability or any other federal, state or local protected class.

********

Yves again. I assume you can see how brazen this is. And notice how the successful applicant needs to be able to lift somewhat heavy boxes and operate imaging software. Pixelated signatures are a sign of a doctored document; the PSAs, consistent with state laws, called for wet-ink signatures.

So here we are, eight years after the crisis, and the underlying problems, that of bad incentives in the design of mortgage securitizations, and abuses that resulted, still persist. The appalling part is that the scale of the problem gave Obama all the leverage he needed to force large-scale reforms, as well as requiring servicers to provide modifications to borrowers when their income was high enough that a modification was likely to lower losses to investors. And before you dismiss that idea, vulture investor Wilbur Ross got good results with that strategy.

In other words, this was a remarkable case of looting, where not only large numbers of homeowners, but also investors, suffered so as not to crimp the profits or even place undue managerial demands on mortgage servicers who had violated their own contracts on a mass scale. And it also demonstrates how corrupt America’s professional classes are, that so few stood up against it.

______
* Endorsement in blank only works if the trust is a Delaware trust, not a New York trust, and roughly 80% of the trusts elected New York law, which is unforgiving, to govern the trusts. See Adam Levitin here for more detail.

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28 comments

  1. Knifecatcher

    Two of my family members worked at Select Portfolio Servicing back when they were Fairbanks Capital, before that name became so toxic they had to change it.

    From Wikipedia: “In November 2003, Fairbanks Capital Corp. and Fairbanks Capital Holding Corp. agreed to pay $40 million to settle with the FTC and the U.S. Department of Housing and Urban Development (HUD),[1] which charged them with engaging in a number of unfair, deceptive, and illegal practices in the servicing of subprime mortgage loans.”

    These guys were abusing subprime mortgagees before it was cool.

  2. charger01

    I mentioned in the links a couple days ago that a good fin crisis story would be refreshing. Excellent delivery. Thanks!

  3. Kevin C. Smith

    Spelling error? Subconcious slip?
    … lift somewhat heavy boxes and operate imagine software.

  4. Arne_Saknussemm

    Typo: PSA means “pooling and servicing agreement.” Also, what’s the latest on MERS? Is it still gumming up title in the 50 states? Would be curious to get NC’s take on that little legal experiment.

    1. Yata

      That would be an interesting piece to rehash. Somewhere there must be an argument to prove that disbanding the MERS and forcing the RE circus to properly file documents with the county recorder would help in resuscitating the country’s economy. You know, maybe a slight egalitarian gesture from our collective governemnt.

      1. apber

        All should be aware that MERS was established in 1995, long before the crash (the scumbags think ahead). Although it was formed primarily to enable quick securitization, it had a secondary benefit of defrauding all the local courthouses re transfer fees, which probably amount in the $billions.

        BTW, Linda Green never went to jail.

      2. Yata

        Basically, what a new revenue stream could do for counties and communities around this country.

  5. Rock

    More nonsense from legal illiterate Redman. The 4Closurefraud blog was started by a convicted felon, that should tell everyone right off the bat what you’re paying attention to.

    Secondly, whoever owns the note and/or their agent can foreclose, so securitization has nothing to do with foreclosing: Taylor v. CitiMortgage, Inc., 2:10-CV-505 TS, 2010 WL 4683881, at *3 (D. Utah Nov. 10, 2010) (“[T]he separate contract that is the result of securitization does not free Plaintiffs from the terms agreed upon in the Deeds of Trust.”).

    Lastly, attacking the mortgage transaction itself (contract) is the ONLY methodology that works: http://www.releasewire.com/press-releases/homeowners-receiving-multimillion-dollar-awards-attacking-banks-using-the-loan-contract-678710.htm

    1. sd

      whoever owns the note and/or their agent can foreclose

      Does that apply when the note is not properly conveyed during securitization?

    2. Alex morfesis

      Anthony kaye did a great job in his smoke and mirrors defense for citi and mers, but it is useful in utah only…and the limited arguments made only cover those arguments made, not the entire spectrum of issues…

      Dont confuse those who knew how to get publicity with those who were effective…

      no one gives shannon houk the credit for developing the foreclosure arguments that were successful in florida and across the country with her work on how summary judgment is a privilege and not a right…

      all the foreclosure defense blogs “borrowed” from jack wright with his msfraud website, and no one bothered ever publicly saying thank you…

      Since MERS never bothered properly incorporating in most states someone who sorta kinda looks like me had his corporation take the available name in Florida to prevent the clowns at MERS from correcting their tax avoidance scheme…and yes I got the cease and desist letter from morgan and lewis…and they probably regret sending it to me…once even got a call from the home of the partner in sf who handled it when the lawyer I was working for was asking me to call around Deutsche bank about deposing david co…she just asked me to back off a bit and the client would get the loan mod…

      For me, too many advocates want to jump the shark to free homes…something I wont cooperate with…unless it is some soldier who came home with a few pieces missing and a wife who left him with no furniture in an empty house…or some other truly “deserving” person…wanting to “clear the title” to simply be able to recrank the home to buy a new suv or go on that long deserved exotic three month vacation is not anyone should bother calling me about…but using the obvious regulatory and legal “non conformities” that pass for banking today is fair game if it leads to a reasonable and workable rescheduling of debts…

      And anyone who claims “the only way” is probably trying to sell something…50 states, a few thousand counties, thousands of judges being tracked by jacksonville based fidelity (the creators of roboscaming)…there are many ways to fight and “win”…whatever that might mean to you

      1. Alex morfesis

        Storm storm storm…when will you ever learn…all you mortgage audit geniuses always amaze me…let me help you be useful to the people you take money from…you are going about it the wrong way…let the otherside(robosigners) lie in their discovery answers…then go to the title company that handled the closing…in their paperwork there will be something called closing instructions, which has to do with instructions from the funding source…in the fine print you will find there is bank wire instructions for where to return the funds if the loan does not close…with bank account info…sub duces tec there and watch the offers to settle come rolling in…if that is not enough, ask the court to dismiss or in the alternative, have the named party plaintiff actually “accept” ownership of the “blank indorsed” financial instrument/loan note they have presented to the court…the court, even if friendly to the banks, will stumble…certainly if a party is claiming to have rights to collect and “own” the note, they are authorized to “accept” ownership to be able to have the privilege of invoking the jurisdiction of the court…but they will stumble and choke and wont…because they cant…because they are holding the note as a “documents custodian” via a bailee letter, not an instrument “holder”…and if that does not bring a 2% fixed for five years settlement offer, ask the court to refer the matter to law enforcement to have the ink used for any allonge or blank facsimile stamps be compared to the secret service electronic inks database to see when that batch of ink was created to see if the dates of transactions presented by the named party plaintiff matches the dates when the ink actually came into existence…

        Have been twice asked to be part of a potential bank start up…had to learn a few things along the way, then did cra annoyances (as the other side liked to call it) when I lived in chicago…dealt with regulators…then worked on chicago hud semi sanctioned regional planning org…so you pick up one or two things along the way…

        or as april is apt to say…

        tada

        1. Yata

          Just one more reason why I like this website. Thank you Alex for another great comment. Your post, roughly a half year ago or so, basically outlining how servicing rights operate, was another favorite for neophytes such as myself.
          I think the discussion that day was on LPS..? or some such entity.

    3. perpetualWAR

      In U.S. v. Discovery Sales, the FBI investigated 300 loans made by DSI. Because 9f securitization the FBI could not determine who the owner of the note was. So, if the FBI cannot determine this, how can douchebag bank attorneys come into court and lie???

    4. Yves Smith Post author

      You are way out of your league on this. I’ve written literally hundreds of posts on this issue, and am enough of a recognized expert that I helped teach a course for CLE credit for the New Your Bar Council with Judge Jed Rakoff moderating.

      You have to be an owner and a holder in due course, so you are already incorrect. And for a trust governed by New York state law to be the owner, the terms of the instrument governing the trust must have been adhered to, and the note must have been transferred specifically to the trust, and by a date certain which is no later than 90 days after the trust closed (to satisfy REMIC, which was one of the design considerations). Unless the terms have been adhered to strictly, the transfer is a “void act” meaning it has no standing under the law. Decades of case law on this in New York.

      1. Ernie Ciccotelli

        When you discuss trusts, you refer to them as governed by New York state law. In the process of dealing with a trust for which Deutsche Bank National Trust Co. is the Trustee, both the Trustee’s attorney and the PSA stated that the Trust was a “common law trust” also known as an “unincorporated business trust” . Research showed me that a common law trust is not a “statutory trust” governed by laws, but is actually a business organization set up for investment purposes established by private contract between the settlor/donor and the trustee. Nor is it an actual corporate entity controlled by state corporations law. So they appear to be unanswerable to anybody.

        Are you taking this aspect of the real estate trusts when you discuss trusts? And if you are, do you have any ideas about how to engage them in a suit, since they seem to be determined to hide and remain unidentified, or if identified, to avoid any actual appearance or participation in a suit?

        1. Yves Smith Post author

          I don’t know the specifics of what state the trust is in or what the state’s common law decisions are, but I am fairly certain that the rules governing trusts are fairly clear, even for common law trusts and can be found in the state court decisions of that state. A Westlaw review of the issues should reveal prior decisions on the matter.

          You should keep in mind that the major law firms that were active in securitizations were shameless in making not-credible arguments in favor of trustees and services in various documents they issued. Georgetown law professor Adam Levitin, arguably the top US expert in securitizations, and we would regularly shred them.

    5. Knute Rife

      Michael Redman is to be ignored, but your go-to guy is “Storm” Bradford. That’s funny.

      Let’s walk through this, shall we:
      1. The law in most jurisdictions is that the mortgage (or out here in the Wild Wild West, trust deed) follows the note, or more precisely that the person who has the right to enforce the note also has the right to enforce the security for the note. This is why I’ve never gotten too worked up about MERS, except early on in the collapse when it was actually pretending to be the real party in interest instead of a nominee (Which Fred Burnside probably still thinks I’m lying about, but then he’s paid very well to believe financial institutions can do no wrong. But I digress.), but it quickly got over that.
      2. So the note’s the thing. Under 3-301 there are three persons entitled to enforce a note: A. the holder, B. a nonholder in possession with the rights of a holder, and C. a person in possession with collateral rights that aren’t relevant in anything we’re discussing. To boil it down, to enforce a note (and so the security for the note) one must be either a holder or a possessor with rights of a holder.
      3. “Holder” is not defined in the UCC, but common law defines the holder as the person entitled to payment. With a “to order” note, this means either the original payee or someone the note has been endorsed (“indorsed”) to. With a “to bearer” note, this is presumably whomever possesses the note.
      4. So if the note is a bearer note, which frankly the bulk of these are, why doesn’t possession equal enforcement? That’s where the securitizations come in. As a preliminary note, if you find one of these securitizations that does not have its central trust set up under New York law, let me know, because I have yet to see one. This was deliberate. Most states have bare-bones trust statutes; New York has it all laid out in detail.
      5. These securitizations were set up very particularly in order to stay within the REMIC tax preference safe harbor. That included having a drop dead date (“closing date”) for accepting notes into the trust res. Under the PSA, the trustee had no authority to accept notes after the closing date, and under New York law, any such attempted conveyance was void. Not voidable, void. I have yet to see a note that was conveyed into the trust by the closing date.
      6. So that creates a big problem for order notes, since the endorsement over is void under controlling law. But what about bearer notes, where possession means enforceability? Taking possession is still an affirmative action the trustee is not allowed to make under the PSA and so is void. The terms of the PSA and New York law make it highly questionable that the trustee is actually a holder.
      7. So what about a possessor with rights of a holder? Even if we overlook the problem of the trust being a possessor, who is the holder, and how did the trust get the holder’s rights? Find me a trust that can answer that. Good luck.
      8. So why have debtors been losing? Simply put, the courts have fairly uniformly made questionable interpretations of law. The first is a product of trust deed law: nonjudicial foreclosure. The financial institution does not have to take the debtor to court to foreclose; the debtor has to take the financial institution to court to stop the foreclosure. Courts have routinely placed all burdens, from standing through ultimate issue, on the debtor, so the financial institutions can sit on their bare denials while debtors attempt to prove a case in the face of the protective orders the courts routinely grant. The courts conveniently forget that these are consumer protection cases in equity, but given Scalia’s decades-long attack on equity protection for consumers, this shouldn’t really be a surprise.
      9. Even if the court is initially favorable to the debtor, it is still likely to toss the debtor out by ruling that only a party to the trust can enforce the terms of the trust. This is a complete misinterpretation of trust law. Yes, only one of the parties to the trust (trustor, trustee, beneficiary) can compel another party to comply with the terms of the trust. That is a completely different issue from raising a defense of ultra vires, i.e. that the trustee can not do what he is trying to do because it is beyond his authority. The courts are refusing to see that distinction, though.
      10. In bankruptcy court, the debtor should have some advantage. When a creditor moves for relief from stay so it can foreclose, the creditor has the initial burden of proving it has standing. Given the problems of proving holder or possessor status, debtor ought to have a fighting chance. Alas, no. Bankruptcy courts routinely conflate the standing burden with debtor’s ultimate burden of proof on stay relief, throw in trust law misinterpretation for good measure, and let the creditor proceed.

      It’s no wonder a lot of people think the fix is in. At some point you have to admit either that the Trump and Sanders campaigns were inevitable (and that they are just the beginning) or that slave uprisings are impossible.

  6. Steve

    Vulture investor Wilbur Ross got good results with WHAT strategy? I lived it spending six months trying to inquire about a modification while his AHMSI of India played send us your docs games. As soon I defaulted they took away the adjustable payment option and demanded full while adding late fees.

    AHMSI had ZERO incentive to contact borrowers and modify loans. All that happened was originator American Brokers Conduit (ABC) was found as dba American Home Mortgage Servicing while later Wilbur just added an Inc. at the end to create new servicing company. He kept one of the accounts from the original AHMS and made him head criminal CEO. Total BS if AHMSI had any strategy to assist borrowers.

    1. Yves Smith Post author

      Please see this post:

      http://www.nakedcapitalism.com/2009/04/mortgage-mod-failure-rates-rising.html

      Ross bought a big portfolio of distressed mortgages, did deep principal mods, and got good results. He was willing to write down the mortgage to the home value then. And his redefault rate was very low.

      And Ross no longer owns it. He sold it to Ocwen in 2012. I am sorry you are under such personal stress, but please do your homework before coming after me.

      1. Steve

        My intention is not to come after you but to tell it like it was. I’m aware of Ross selling to Ocwen in 2012 along with everything else that took place prior to that point. Ross like any other corporate can say anything they’d like but in reality do the opposite and later blame it on their CEO’s or managers or whomever if caught.

        I read the SEC bankruptcy 2007 purchase agreement between Ross and AHMS and figured out he received the servicing rights but had to make a request for original docs from AHMS which clearly described they didn’t have the original docs. Since my DA had no interest in mortgage fraud, I latter ended up in front of the judge at the unlawful detainer hearing against the ‘Duetsche bank’ lawyer who presented the (fraud upon the court) fake Deed of Trust. Yes, Duetsche bank also the , vault holding, custodian of record conveniently purchases my loan in foreclosure and shows up with a fake, but none of that stuff mattered.

        Prior to that, I had made repeated ‘ Qualified Written Requests ‘ and also hired a third party to get anything related to my loan to the point where AHMSI wrote back saying ‘ we don’t care what you think the law says we do no have to comply.’ Even while going through the ‘ Department of Corporations ‘ documenting all correspondences that took place a year latter after foreclosure AHMSI finally complied and sent me my account history, ‘Oh, boy! A lot of good that’s going to do me.

        I’ve got year after year of AHMSI shenanigans recorded as some of it still on file at the CFPB.

        My loan: Aug 2006 for $350,000 with a $64,000 down on false inflated income done behind my back by AHM and my mortgage broker. I was the one defrauded! Plus, $17,000 in materials busting my butt for two years nights and weekends rehabbing a trashed out home only to be called a lying flipper two years latter. That’s it, two years investment working my ass only to be foreclosed on simply because I inquired about what was going on and what’s this crisis modification business was all about.

        Excuse me if I sounded like I was coming after you Yves, again that’s never my intent. I do hope what I described above shows reason to why I’m venting. I further vent and get into how much more I lost hiring fake mortgage assistance or how I’m still flat broke with no where to go but why bother. They can preach whatever they like about providing help but again in reality they do the complete opposite.

        Thanks for listening.

  7. perpetualWAR

    Why isn’t anyone talking about the NON-default issues at the closing table? I beg any of you to amend the typical closing instructions to refuse to close unless the original documents arrive to escrow prior to disbursement of funds. Unless those original documents are cancelled as paid along with the disbursement of funds, you as the seller have no assurances that the debt has been extinguished. In addition, in most states, the seller must by contract assure the new buyer that all liens and encumbrances have been extinguished (that verbiage is on the MLS purchase and sale contracts.)

    Why isnt anyone yelling about this? Those crooks continue to negotiate those notes rather than cancelling them!

    1. Steve

      Don’t know but watch out for the statement, ” Broker to provide final 1003 form (loan application) at closing.” It doesn’t happen.

      1. perpetualWAR

        That’s not what I’m talking about. I’m talking about being the seller at the closing table, not the buyer.

  8. perpetualWAR

    Yves,
    I sent this job posting to my WA Attorney General’s office. They sent it to CA Kamala Harris’s office for comment. Surprisingly, the CA Attorney General’s office said IN WRITING that they have not received any complaints against SPS, the sleaziest of the sleazy sub- servicers. I don’t believe this claim. Can you put out an APB in your community to see if anyone can prove they submitted a complaint to AG Harris against SPS?

    Also, the WA Attorney General told me that SPS isn’t in the forgery settlement. So, apparently, they think that because SPS is a sub-servicer, forgery is now okay? OMFG.

    Any help would be appreciated.
    Thank you for all you do.

    perpetualWAR

  9. OrdinaryAmerican

    Here’s another job posting, different company, same type of work “Chain of Title Specialist” Now Hiring! Pay Raise $22.00 – $24.00/Hour: Default Breach Specialist to Complete the Chain… http://wp.me/p1EGDj-gE4

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