Another great post by Neil Garfield

Perils of Pooling: OneWest

by Neil Garfield

Apparently my article yesterday hit a nerve. NO I wasn't saying that the only problems were with BofA and Chase. OneWest is another example. Keep in mind that the sole source of information to regulators and the courts are the ONLY people who understand mergers and acquisitions. So it is a little like one of those TV shows where the only way they can get an arrest and conviction is for the perpetrator or suspect to confess. In this case, they "confess" all kinds of things to gain credibility and then lead the agencies and judicial system down a rabbit hole which is now a well trodden path. So many people have gone down that hole that most people that is the way to get to the truth. It isn't. It is part of a carefully constructed series of complex conflicting lies designed carefully by some very smart lawyers who understand not just the law but the way the law works. The latter is how they are getting away with it.

Back to OneWest, which we have detailed in the past.

The FDIC has posted the agreement at http://www.fdic.gov/about/freedom/IndyMacMasterPurchaseAgrmt.pdf

OneWest was created almost literally overnight (actually over a weekend) by some highly placed players from Wall Street. There is an 80% loss sharing arrangement with the FDIC and yes, there appears to be some grey area about ownership of the loans because of that loss sharing agreement. But the evidence of a transaction in which the loans were actually purchased by a brand new entity that was essentially unfunded is completely absent. And that is because OneWest and Deutsch take the position that the loans were securitized despite IndyMac's assurances to the contrary. The only loans in which OneWest appears to be a player are those in which the loan was subject to (false) claims of securitization. No money went to the trustee, no money went to the trust, no assets went into the pool because the REMIC asset pool lacked the funding to purchase any assets.

Add to that a few facts. Deutsch is usually the "trustee"of the REMIC asset pool, but Reynaldo Reyes says he has nothing to do. He has no trust accounts and makes no decisions and performs no actions. Sound familiar. I have him on tape and his deposition has already been taken and publicized on the internet by others. Reyes says the whole arrangement is "counter-intuitive" (a very creative way of saying it is a lie). It is up to the servicer (OneWest) to decide what loans are subject to modification, mediation or even reinstatement. It is up to the servicer as to when to foreclose. And the servicer here is OneWest while the Master Servicer appears to be the investment banking arm of Deutsch, although I do not have that confirmed.

The way Reyes speaks about it the whole thing ALMOST makes sense. That is, until you start thinking about it. If Deutsch Bank has an extensive trust subsidiary, which it does, then why is a VP of asset management in control of the trust operations of the REMIC asset pools. Answer: because there are no funded trusts and there are no asset pools with assets. Hence any statement by OneWest that it is the owner of the loan is untrue as is the allegation that Deutsch is the trustee because all trustee duties have been delegated to the servicer. That leaves the investor with an empty box for an asset pool and no trustee or manager or even an agent to to actually know what is going on or who is monitoring their money and investments.

Note that like BOfA using Red Oak Merger Corp., there is the creation of a fictional entity that was not used by the name of, no kidding, "Holdco." This is to shield OneWest from certain liabilities as a lender. Legally it doesn't work that way but practically it generally does work that way because judges listen to bank lawyers to tell them what all this means. That is like asking a 1st degree murder defendant to explain to the jury the meaning of reasonable doubt.

Now be careful here because there is a "loan sale" agreement referenced in the package posted by the FDIC. But it refers to an exhibit F. There is no exhibit F and like the ambiguous agreements with the FDIC in Countrywide and Washington mutual, there are words there, but they don't really say anything. Suffice it to say that despite some fabricated documents to the contrary, there is no evidence I have seen that any loan  receivable was transferred to or from a REMIC asset pool, Indy-mac, or Hold-co.

These people were not stupid and they are not idiots. And their lawyers are pretty smart too. They know that with the presumption of a funded loan in existence, the banks could pretty much get away with saying anything they wanted about the ownership, the identity of the creditor and the ability to make a credit bid at the auction of a property that should never have been foreclosed in the first instance --- and certainly not by these people.

But if you dig just a little deeper you will see that the banks are represented to the regulatory authorities that they own the bonds (not true because the bonds were created and issued to specific investors who bought them); thus they include the bonds as significant items on their balance sheet which allows them to be called mega banks or too big to fail when in fact they have a tiny fraction of the reserve requirements of the Federal Reserve which follows the Basel accords.

Then when you turn your head and peak into courtrooms you find the same banks claiming ownership of the loan receivable, which was created when the funding occurred at the "closing" of the loan. They know they are taking inconsistent positions but most judges lack the sophistication to pinpoint the inconsistency. And that is how 5 million people lost their homes.

On the one hand the banks are claiming there was no fraud in the issuance of mortgage backed bonds by a REMIC asset pool formed as a trust. In fact, they say the loans were transferred into the REMIC asset pool. Which means that ownership of the mortgage bonds is ownership of the loans --- at least that is what the paperwork shows that was used to sell pension funds on buying these worthless bogus bonds. Then they turn around and come to court as the "holder" and get a foreclosure sale in which the bank submits the credit bid and buys the property without spending one dime. What they have done is, in lay terms, offered the debt to pay for the property. But the debt, according to the same people is owned by the investors or the REMIC trust, not the banks.

Then they turn to the insurers and counterparties on credit default swaps, and the Federal reserve that is buying these bonds and they say that the banks own the bonds, have an insurable interest, and should receive the proceeds of payments instead of the investors who actually put up the money. And then they say in court that the account receivable is unpaid, there is a default, and therefore the home should be foreclosed. What they have done is create a chaotic complex of lies and turn it into an illusion that changes colors and density depending upon whom the banks are talking with.

There is no default on the account receivable if the account was paid, regardless of who paid it --- as long as it was really paid to either the owner of the loan receivable or the authorized agent of the owner (i.e., the investor/lender). And so it is paid. And if paid, there can be no action on the note because the loan receivable has been satisfied. There can be no action on the mortgage because it was never a perfected lien and because the loan receivable was extinguished by PAYMENT. You can't use the mortgage to enforce the note which is evidence for enforcement of a debt when the debt no longer exists.

Judges are confused. The borrower must owe money to someone so why not simply enter judgment and let the creditors sort it out amongst themselves. The answer is because that is not the rule of law and if a creditor has a claim against the borrower it should be brought by that creditor not some stranger to the transaction whose actions are stripping the real creditor of lien rights and collection rights over the debt. What the courts are doing, by analogy, is saying that you must have killed someone when you fired that gun so we will dispense with evidence and a jury and proceed to sentencing. We will let the people in the crowd decide who is the victim who can bring a wrongful death action against you even if we don't even know when the gun was fired and who pulled the trigger. In the meanwhile you are sentenced to death or life in prison under our rocket docket for murders of unknown persons.