Category Archives: Real estate

New York State Appellate Court MERS Smackdown: Another Nail in the Coffin

There has been a lot of buzz about a strongly worded decision by the New York Second Appellate Division in the Bank of New York v. Silverberg. This is yet another ruling against MERS, but its implications are narrower than some commentators have suggested.

It is critical to note that MERS in theory is a mortgage registry, which means whatever authority it has (a matter still being sorted out), it extends to the lien only. MERS has repeatedly said in depositions it was not a lender and has no rights to the note, the borrower IOU. Thus since in most states the note is the critical instrument (the lien is a “mere accessory”), the party foreclosing needs to be a holder of the note (that actually means more than mere possession, you need to be a party of interest, in some states).

MERS advised last year that servicers stop filing foreclosures in the name of MERS. However, there appear to be quite a few foreclosures undertaken in the name of MERS grinding their way through the system; this was one of them (I’m a bit puzzled that more in states with MERS-unfavorable precedents have not been withdraw and refiled, but that is over my pay grade).

You have to love New York judges. The ruling begins: “This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own.” It’s not hard to guess where this one is going.

HUD: Bank of America “Significantly Hindered” Mortgage Probe (Updated)

We said Bank of America would rue its purchase of Countrywide shortly after it took at stake in the troubled subprime originator:

[E]ven though the financial press has almost universally hailed Bank of America’s investment in Countrywide as a bold and savvy stroke, the market has remained singularly unimpressed.

I will confess I haven’t studied the details of the deal for a simple reason: I’m appalled that B of A would even consider it. The two banks had reportedly been talking for six years. That means B of A knew, or ought to have known, Countrywide very well. An article by Gretchen Morgenson in Sunday’s New York Times paints Countrywide is, at least in spirit if not the letter of the law, a criminal enterprise…. But I know lawyers who have Countrywide in their crosshairs, and I am certain they have plenty of company.

To put it another way: there’s enough fraudulent selling in the the subprime market in general, and smoke around Countrywide in particular, to deter anyone investor who takes litigation or reputation risk seriously.

In my day, no respectable institution would make a high-profile equity investment or otherwise closely link its name with an organization that had the whiff of serious liability about it (except in liquidation or some other scenario which got rid of the incumbent management team).

It looks like Bank of America, in a misguided effort to limit Countrywide-related damage, has adopted some of its less than seemly habits, namely a disregard for oversight.

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.

California Bankruptcy Court Judge Edward Jellen Says Repeatedly He Doesn’t Care if the Creditor Asking to be Paid is Really Owed the Money

Per Georgetown Law Professor and bankruptcy specialist Adam Levitin and Tara Twomey of the National Association of Consumer Bankruptcy Attorneys in a Yale Journal on Regulation article:

The trustee will then typically convey the mortgage notes and security instruments to a “master document custodian,” who manages the loan documentation, while the servicer handles the collection of the loans. Increasingly, there are concerns that in many cases the loan documents have not been properly transferred to the trust, which raises issues about whether the trust has title to the loans and hence standing to bring foreclosure actions on defaulted loans…. In these cases, there is a set of far-reaching systemic implications from clouded title to the property and from litigation against trustees and securitization sponsors for either violating trust duties or violating representations and warranties about the sale and transfer of the mortgage loans to the trust.

Standing is a threshold issue and is a first year law school topic. It appears Judge Zellen either slept through that class or has been re-educated by the banksters since then.

The borrower is pro se (although he may have gotten some coaching from a lawyer) and appears to have comported himself well. The judge is quite another matter. This is from last year but germane because the case is going for oral arguments before the 9th Circuit Court of Appeals next week. Hat tip April Charney:

AIG Does It Again: Sale of Maiden Lane II Assets Tanking Credit Markets

Readers may recall that AIG had approached the Fed about buying the entirely of its Maiden Lane II portfolio, the off balance sheet vehicle established to hold the non-CDO assets removed from the otherwise bankrupt insurer. The logic appeared to be that the insurer would be able to liquify its equity in the vehicle. It seemed pretty obvious at the time that the Fed could not justify selling the whole book to AIG; if there were any gains in the actual book, it would be a subsidy to AIG. The bid was also thus a strategy to force the vehicle to be unwound and any gains to be realized (which would lead AIG showing a profit on its position).

The problem is the “profit” appears to have been based on optimistic accounting, something we found to be the case in the Fed off balance sheet we’ve analyzed at length, Maiden Lane III. As Jim Chanos noted by e-mail, “Real transaction prices are not good for some of the ‘marks’ in many portfolios!” Needless to say, this also calls into question the use of Blackrock as asset manager, since the valuations were based on its marks.

Goldman Sycophants of the World Unite! You Have Nothing to Lose but Your Virtually Non-Existent Reputations!

The Goldman defense against the Levin report is so late and so pathetic that it looks increasingly evident that the bank is simply hoping to cause confusion and muddy the waters rather than mount a frontal, fact-based rebuttal. Mind you, sniping and innuendo can prove reasonably effective if done persistently and loudly enough. The book Agnotology describes how Big Tobacco managed to sow doubt over decades of the link between smoking and lung cancer well after the medical evidence had gone from suggestive to compelling.

The first Goldman salvo was an Andrew Ross Sorkin piece on Monday which we deemed as unpersuasive. While it did point to an error in the Senate report, it failed to make a real dent the report’s findings, and most important, the notion that Goldman staffers, in particular Lloyd Blankfein, were pretty loose with the truth.

The most contested statement is the Blankfein denial that the firm had a “massive short” position; as Matt Taibbi points out today, the only way out on that one is to get into Clintonesque parsings of the word “massive”. Given the overwhelming evidence that Goldman intended to get out of its mortgage risk in late 2006 and its staff DID get the firm short in February 2007, then reversed that position in March to correctly catch a short term bounce (the market recovered from March to May, when it went into its free fall). And in the March-May period, it was still getting as much crap product out the door and lying to clients about its position in the deals, claiming its incentives were aligned when its effective short position in the deals meant the reverse, that it would profit if they tanked, which they did.

But focusing on the “massive short” issue is misdirection pure and simple.

Michigan Court Relies on New York Trust Theory, Rules Loan Never Made it to Trust

A June 6 trial court decision in Michigan, Hendricks v. US Bank, has not gotten the attention it warrants because to the extent it has been noticed, it has been depicted as invalidating an effort to effect a note (the borrower IOU) transfer via MERS. While that was one of the grounds for a ruling favorable to the borrower, the court also considered and gave a thumbs’ up to what we call the New York trust theory. That has far more significance, as readers will see shortly (hat tip to Foreclosure Fraud for this sighting).

Treasury Waves Wet Noodle at Big Banks Over HAMP Mortgage Mod Abuses

This latest move by the Treasury Department to appear to Do Something about Big Bad Banks is so off the charts pathetic that I am straining to find an adequate description. It isn’t merely ineffectual; it looks instead like a deliberate thumbing of the nose at the financier-afflicted public, with the Treasury and the mortgage industrial complex elbowing each other in the ribs and laughing uncontrollably at how they’ve made their point, that the public be damned, while observing proper bureaucratic forms in the process.

Chinese Real Estate Bubble Finally Imploding?

The warnings of successful shorts like Jim Chanos, old Asia hands like Frank Verneroso, and economists like Victor Shih and Michael Pettis have failed to curb enthusiasm for the belief that the rise of China is inevitable and unstoppable. As someone who was deeply involved with Japan when it was seen as destined to replace the sclerotic US, I’ve learned to regard more or less straight line growth projections with considerable skepticism.

China has accomplished the impressive feat of bringing literally hundreds of millions out of poverty in a comparatively short time frame. It has also studied the Japanese playbook and managed to avoid some of its pitfalls (of course, it has the advantage of not being a military protectorate of the US), in particular refusing to liberalize its financial markets (some accounts of the Japanese bubble and burst give considerable weight to overly rapid deregulation and the growth of what was then called zaitech, or financial speculation). is also hostile to neoclassical economists.

China escaped much of the impact of the global financial crisis by ramping up investment even higher than its pre-crisis level. It now has investment approaching 50% of GDP, an unheard of level on a sustained basis. A big chunk of that is housing related (housing is an estimated 13.5% of GDP), and prices have long been considerably out of line with incomes, a telltale sign of a bubble. In Beijing, admittedly one of the hottest markets, an average priced new apartment was equal to 57 years of average worker savings (and if you tried to pay for it with a super-long dated mortgage, you’d be in hock even longer, since you would also need to cover the interest charges).

Another warning sign is inventory overhang; the Wall Street Journal reports tonight that Standard Chartered forecasts that level of unsold apartments in secondary cities will amounts to roughly 20 months of sales by year end (and that’s before considering that many of the apartments are being acquired as investments rather than for use).

The Journal story tonight provides evidence that the Chinese housing market is going into reverse

Embarrassingly Lame Federal/”50″ State Attorneys General Mortgage Negotiations Continue

I’m having trouble understanding why anyone is still treating the Federal/state attorney general mortgage “settlement” negotiations as anything other that a fiasco. The more news reports come out, the more the parties aligned against the banks look like fools.

The latest confirmation comes in an article by Shahien Nasiripour in the Huffington Post that a member of the Department of Justice briefed state attorneys general and reported that the biggest banks in the servicing business had resigned themselves to paying $20 billion:

The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.

Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Sounds impressive, right? It’s not.

Goldman Uses Wall Street’s Favorite Reporter to Make Unpersuasive Defense Against Levin Report

Last night, the Wall Street Journal reported that Goldman was going on the offensive against the Levin report:

Goldman Sachs Group Inc., trying to counter a Senate subcommittee report that is fueling investigations and suspicion of the firm, plans to accuse the subcommittee of drastically overstating Goldman’s bets against the housing market in 2007….

The subcommittee’s 639-page report in April denounced Goldman as an unusually strong example of wrongdoing by financial firms during the crisis. According to the report, Goldman systematically sought to profit from a “big short” against the housing market and betrayed clients by putting the firm’s own interests ahead of theirs.

Goldman initially said it disagreed “with many of the conclusions of the report,” though the company added that it takes “seriously the issues explored by the subcommittee.”

Tonight, Andrew Ross Sorkin of the New York Times offers what appears to be a preview of the Goldman defense. If this is the sort of thing Goldman plans to provide, it is not terribly convincing.

Quelle Surprise! Banks are Concerned About Mortgage Slowdown

An old Yankee saying: “Fool me once, shame on thee. Fool me twice, shame on me.”

It seems not to have occurred to the banking industry that relying people to be fools on an ongoing, large scale basis is not a viable business model. Investors have come to realize a bit late in the game that private label securitizations were structured so as to be far too favorable to the originators and servicers: too little disclosure, too many abuses, too little accountability, combined with impediments to seeking redress in court. Borrowers feel every bit as stung between deteriorating housing markets, foreclosure malfeasance, and doubts over chain of title.

It isn’t simply that banks have been slow to ‘fess up and clean up; instead, they’ve kicked and screamed at every possible reform measure, from pro investor reforms such as a very good FDIC proposal that got watered down to nothingness and a weak 5% risk retention rule (which Dean Baker estimates will add all of 0.13% to the yield on a mortgage) to pretty much anything that would help borrowers. And that’s before we get to widespread evidence of incompetence (continuing stories of foreclosing on people who don’t have mortgages is the tip of the iceberg) and fraud.

It’s yet another sign of Banker Derangement Sydrome that the industry can think anyone outside of cash buyers in markets that have arguably bottomed would be keen about buying a house. But this American Banker reports reveals how they appear unable to recognize their role in creating this mess. They seem simply puzzled and a tad depressed that super low interest rates are producing only refis as opposed to home sales:

Larry Platt, Prominent Securitization Lawyer, Made False Statements About BofA Mortgage Transfers

I wanted to follow up on an important article by Abigail Field, in which she did some serious spade work on the mortgage securitizations. Among other things, its shows prominent securitization attorney Larry Platt, who accused judges who interfered with the imperial rights of banks to foreclose of engaging in an “assault on the legal system,” to be a liar. Funny how that type is eager to try to say everyone else is engaged in bad conduct.

Florida Homeowner Forecloses on Bank of America Branch

I suspect readers will get quite a bit of pleasure from this news story.

Bank of America tried to foreclose upon the home of a Florida couple who had paid cash for their house and therefore did not have a mortgage. The wronged pair not only got the suit dismissed, but the judge awarded them legal fees. After five months of Bank of America ignoring letters and calls to the bank about their failure to pay up, their lawyer foreclosed a BofA branch.

See the CBS video for more details:

Fortune Confirms Pervasive Defects in Bank of America Mortgage Documents

Do you remember the brouhaha over testimony by a senior executive in Countrywide’s mortgage servicing unit last year? It called into question whether mortgages had been conveyed properly to securitizations, which in turn would impair Bank of America’s ability to foreclose.

Let me refresh your memory. As we wrote last year:

Testimony in a New Jersey bankruptcy court case provides proof of the scenario we’ve depicted on this blog since September, namely, that subprime originators, starting sometime in the 2004-2005 timeframe, if not earlier, stopped conveying note (the borrower IOU) to mortgage securitization trust as stipulated in the pooling and servicing agreement….

As we indicated back in September, it appeared that Countrywide, and likely many other subprime orignators quit conveying the notes to the securitization trusts sometime in the 2004-2005 time frame. Yet bizarrely, they did not change the pooling and servicing agreements to reflect what appears to be a change in industry practice. Our evidence of this change was strictly anecdotal; this bankruptcy court filing, posted at StopForeclosureFraud provides the first bit of concrete proof. The key section:

As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affIXed to the note. She testified further that it was customary for Countrywide to maintain possession of
the original note and related loan documents.

Countrywide tried, in a thoroughly unconvincing manner, to retreat from the damaging testimony.

Abigail Field, an attorney who has regularly written on the mortgage mess at Daily Finance, published an article at Fortune that looks into whether DeMartini was simply being truthful and the notes were not conveyed correctly, which would mean Bank of America has a very big mess on its hands. Her conclusions are damning: