Tag: WND

Fixing the Mortgage Fraud

It is both extraordinary and amusing to see how fast Washington and the Wall Street lapdogs that presently pass for our financial media have been forced to turn on a dime by the exposure of pervasive criminal activity on the part of mortgage-backed security sellers. The summer-long collusion of the Republican and Democratic Parties in passing H.R.3808 on an off-the-record voice vote, which would have permitted some of the financial institutions that committed loan title fraud to retroactively hide their misdeeds, was shut down by a furious reaction across the blogosphere that sparked the Obama administration to act in a single day.

And the initial response to the fraud by the market cheerleaders that the whole story was essentially a great big “nothingburger” has rapidly subsided into desperate attempts to change the focus from the widespread fraud committed by the security-selling banks to the possibility that defaulting homeowners might inadvertently profit from this pervasive criminal activity on the part of the banks that offered them mortgages. But it’s not about the foreclosures. The foreclosures are merely the deadly tip of a four-part iceberg that involves mortgage-writing fraud, mortgage-backed security-selling fraud, title-transfer fraud and finally, in a futile attempt to cover up the preceding three frauds, the much-discussed foreclosure fraud.
The column continues at WND

ADDENDUM: As further evidence that the foreclosures are merely a consequent issue rather than the central one in the great mortgage fraud, here is a copy of a letter reportedly sent to Bank of America from the Association of Financial Guaranty Insurers asserting that BOA must repurchase as much as $20 billion in mortgages due to its fraudulent representations and warranties and that “well more than half” of the securitizations from 2005 through 2007 “qualify for repurchase by BOA.

ADDENDUM II: Just so we’re all clear, “clerical mistakes” and “the real issue is deadbeat borrowers” is Wall Street’s official propaganda line: “”Don’t you think, out of 10 million data points, there will be 500 unbelievably screwy examples? It’s a little bit so what. I don’t get it. It doesn’t feel like this is fraud. Maybe there is sloppiness, but at the end of the day, people took out mortgages they can’t pay back. Now I worry that if anything, the government is making something that is just a clerical error into something that would be nefarious or whatever.”

But the government isn’t inventing anything, in fact, all the federal government has done to date is play enabler and incompetent defense attorney. Now ask yourself one question. Does Wall Street’s interpretation of the current situation explain in any way why the GSEs, pension funds, and bond insurers are filing very large financial claims against the mortgage-securitizing banks?

A Den of Vipers and Thieves

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.”
– Andrew Jackson

The French famously say that the more things change, the more they stay the same. While the particular form that the latest banking fraud has taken is different – there were no option ARMs, mortgage-backed security tranches or electronic mortgage registration systems in the 1830s – the United States found itself similarly afflicted by the financial predations of a private central bank.

ADDENDUM TO THE COLUMN: Unsurprisingly, those freedom-loving Republicans and champions of the Rule of Law in the conservative media are following the grand tradition of presidential candidate John McCain by rushing to the wrong side of the issue and the defense of the impoverished bankers of Wall Street.

Talk about a financial scandal. A consumer borrows money to buy a house, doesn’t make the mortgage payments, and then loses the house in foreclosure—only to learn that the wrong guy at the bank signed the foreclosure paperwork. Can you imagine? The affidavit was supposed to be signed by the nameless, faceless employee in the back office who reviewed the file, not the other nameless, faceless employee who sits in the front.
– The Wall Street Journal

The No. 2 House Republican, Rep. Eric Cantor of Virginia, said a national moratorium would remove the protections that lenders need. “You’re going to shut down the housing industry” with a national stoppage, Cantor said. “People have to take responsibility for themselves.”
– The Associated Press

This is pure banking propaganda. The idea that the foreclosure fraud is simply a little clerical error and that homeowners are attempting to capitalize on a minor issue of missing paperwork is a blatant and shameless lie. The mere fact of their focus on the borrowing parties rather than the banks is proof that they are intentionally evading the real issue. Karl Denninger, who has been on this for three years now, explains it more succinctly than anyone. “The issue is not about which paper-pusher signed documents. The issue is whether the origination and securitization of this paper in the first instance was fraudulent, and whether we now we have a Watergate-style coverup of what a gang of brigands did to steal literal trillions of dollars!” As he further elucidates, there are three primary parts to the problem; notice that the latter two have absolutely nothing to do with the borrowers that the Republican Cantor declares must “take responsibility for themselves”. But if a poor Hispanic family living in an overpriced house have to take responsibility for themselves, why don’t the bankers who are holding Cantor’s leash have to do likewise?

1. Borrowers overstated income, assets or both. In some cases they did so willingly and knowingly. In others loan officers changed numbers to “ram it through” the computer-operated approval systems, submitting files multiple times while doctoring figures. In the latter case perhaps the borrower knew, perhaps not – many people didn’t read the entire 100+ page stack of paper at closing. That’s dumb but it’s not criminal. Changing the figures or lying, on the other hand, is criminal.

2. Lenders stuffed paper they either knew was bad or had the ability and legal duty to verify the provenance of but intentionally did not into securities sold to investors. This has been disclosed in FCIC hearings and is no longer speculative, although as I noted in 2007 it had to be the case because it was the only way the deals that were being done could have possibly been done. This was an act of deception and in my opinion (along with many others, including plenty of attorneys) meets the legal definition of fraud.

3. The land title system in this nation was intentionally subverted and corrupted by both intentional act and intentional laziness, all driven by the motive of profit. Original paperwork was either shipped overseas or intentionally destroyed. In even more cases it was not conveyed as legally required by the trust documents. This has massively-corrupted the chain of title for perhaps as much as one third to one half of all residential housing units in this country and if not corrected will render these homes unmarketable in the future. This is the vastly unappreciated problem with what has been done to date.

If the Republican leadership is dumb enough to attempt to defend this large-scale banking fraud against the interests of defaulting homeowners and responsible taxpayers alike, they’re going to risk throwing away the entire advantage that they have derived from two years of Obama’s political incompetence. This is the one thing they could do that would force the Tea Partiers to leave the Republican Party and transform into a genuine third party. And it’s not impossible; remember, it was a Republican who introduced HR3808 and it was the Republican leadership that was complicit in allowing it to pass on an unrecorded voice vote.

An Ugly Autumn

For more than two years, I have been tracking the fraud being committed on an ongoing basis by America’s largest banks. As I described in a June column titled “The bank-failure recovery,” all of America’s largest banks have been inaccurately reporting the value of their assets. Based on the information revealed by the FDIC regarding the 129 bank failures this year, it is safe to conclude that around 45 percent of the value of the financial assets reported by the banks are, in fact, completely worthless.

UPDATE: Karl Denninger has a lot more details on the burgeoning banking scandal I described in today’s column:

REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The “Trustee” can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.

57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the “Trust” and legally collect money from investors, who bought into the REMIC, the “Trustee” or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.

58. Most importantly for this action, the “Trustee”/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS “closed.” Every mortgage in the MBS should have been publicly recorded in the Kentucky County where the property was located with a mortgage in the name similar to “2006 ABC REMIC Trust on behalf of the beneficiaries of the 2006 ABC REMIC Trust.” The mortgages in the referenced example would all have had to been publicly recorded in the year 2006.

59. As previously pointed out, the ¡°Trusts¡± were never set up or registered as Trusts. The Promissory Notes were never obtained and the mortgages never obtained or recorded.

60. The “Trust” engaged in a plethora of “prohibited activities” and sold the investors certificates and Bonds with phantom mortgage backed assets. There are now nationwide, numerous Class actions filed by the beneficiaries (the owners/investors) of the “Trusts” against the entities who sold the investments as REMICS based on a bogus prospectus.

61. In the above scenario, even if the attorney for the servicer who is foreclosing on behalf of the Trustee (who is in turn acting for the securitized trust) produces a copy of a note, or even an alleged original, the mortgage loan was not conveyed into the trust under the requirements of the prospectus for the trust or the REMIC requirements of the IRS.

62. As applied to the Class Members in this action, the end result would be that the required MBS asset, or any part thereof (mortgage note or security interest), would not have been legally transferred to the trust to allow the trust to ever even be considered a “holder” of a mortgage loan. Neither the “Trust” or the Servicer would ever be entitled to bring a foreclosure or declaratory action. The Trust will never have standing or be a real party in interest. They will never be the proper party to appear before the Court.

63. The transfer of mortgage loans into the trust after the “cut off date” (in the example 2006), destroys the trust’s REMIC tax exempt status, and these “Trusts” (and potentially the financial entities who created them) would owe millions of dollars to the IRS and the Kentucky Revenue Cabinet as the income would be taxed at of one hundred percent (100%).

This is really big and is likely to dwarf the Lehman Bros. collapse in terms of its consequent effects. While the federal government’s response is almost surely going to be an attempt to forgive all of the tax income owed and wave off all of the criminal violations, the desperate states whose laws were violated aren’t going to be easily persuaded to go along with the whitewashing and give up all of that legitimate tax income.