BANKS EDGE CLOSER TO THE ABYSS

I wish VT Judges had this knowledge , like the ones here and in NY.

For the second time in as many weeks a trial judge has ordered the pretender lender to execute a permanent modification based upon the borrowers total compliance with the provisions of the trial modification.This time Wells Fargo (Wachovia) was given the terms of the modification, told to put it in writing and file it. If they don't sanctions will apply just as they will be in the Florida Panhandle case we reported on last week.

Remember that before the trial modification begins the pretender lender is supposed to have done all the underwriting required to validate the loan, the value of the property, the income of the borrower etc. That is the responsibility of the lender under the Truth in Lending Act.

Of course we know that cases were instead picked at random with a cursory overview simply because there was no intention to ever give a permanent modification. Borrowers and their attorneys have known this for years. Government, always slow on the uptake, is starting to get restless as more and more Attorneys General are saying that the Banks are not complying with the intent or content of the agreement when the banks took TARP money.

The supreme irony of this case is that Wells Fargo didn't want the TARP money and was convinced to take it and accept the terms of HAMP because if only the banks that really need it took the money it was argued that this would start a run on the banks named that had to take TARP. The other ironic factoid here is that the whole issue of ownership of the loans blew up in the face of the government officers around the country that thought TARP was a good idea --- only to find out that the "toxic assets" (TARP - "Toxic Asset Relief Program") were not defaulting mortgages.

1. So instead of telling the banks they were liars and going after them the way Teddy Roosevelt did 100 years ago, they changed the definition of toxic assets to mean mortgage bonds.
2. This they thought would take care of it since the mortgage bonds were the evidence of "ownership" of the  "underlying" home loans.
3. Then the government found out that the mortgage bonds were not failing, they were merely the subject of a declaration from the Master Servicer (a necessary and indispensable party to all mortgage litigation, in my opinion) that the value of the bond had fallen ,thus triggering payment from insurers, counterparties on credit default swaps etc to pay up to 100 cents on the dollar for each of the bonds ---
4. which means the receivable account from the borrower had been either extinguished or reduced through third party payment.
5. But by cheating the investors out of the insurance money (something the investors are taking care of right now in the courts), they thought they could keep saying the loans were in default and the mortgage bond had been devalued and thus the payment of insurance was legally valid.
6. BUT the real truth is that the loans had never made into the asset pools that issued the mortgage bonds.
7. So the TARP definitions were changed again to "whatever" and the money kept flowing to the banks while they were rolling in money from all sides --- investors, insurers, CDS counterparts, sales of the note to multiple asset pools (REMICs) and then sales of the note to the Federal Reserve for 100 cents on the dollar.
8. This leaves the loan receivable account in many cases in an overpaid status if one applies generally accepted accounting principles and allocates the Federal, insurance and CDS money to the bonds and the "underlying" loans.
9. So the Banks took the position that since the money was not coming in to cover the loans (because the loans were not in the asset pool that issued the mortgage bond and therefore the mortgage bond was NO evidence of ownership of the loan) that therefore they could apply the money any way they wanted, and that is where the government left it, to the astonishment and dismay of the the rest of the world. that is when world economies went into a nose dive.

The whole purpose of the mega banks in in entering into trial modification was actually to create the impression that the mega banks were modifying loans. But to the rest of us, the trial modification was supposed to to be last hurdle before the disaster was finally over. Comply with the payment schedule, insurance, taxes, and everything else, and it automatically becomes your permanent modification.

Not so, according to Bank of America, Wells Fargo, Chase, Citi and their brothers in arms in the false scheme of securitization. According to them they could keep the money paid by the borrower to be approved for the trial modification, keep the money paid by the borrower to comply with the terms of the trial modification and then the banks could foreclose making up any excuse they wanted to deny the permanent modification. The sole straw upon which their theory rests is that they were only obligated to "consider" the modification; according to them they were NEVER required to make it such that the modification would become permanent unless the bank expressly said so, which in most cases it does not.

When you total it all up, the Banks received a minimum of $2.50 for each loan "out there" regardless of who owns it. Under the terms of the promissory note signed by the borrower, that means the account is paid in full and then some. If the investor has not stepped up to file a competing claim against the borrower's new claim for overpayment, then the entire overage should be paid to the borrower.

The Banks want to say, like they did to the government, that the trial modification is nothing despite the presence of an offer, acceptance and consideration. To my knowledge there are at least two judges in Florida who think that is a ridiculous argument and knowing how judges talk amongst themselves behind closed doors, I would expect more of these decisions. If the borrower applies for and is approved for trial modification and they comply with the trial provisions, a contract is formed.

The foreclosure defense attorney in Palm Beach County argued SIMPLE contract. And the Judge agreed. My thought is that if you are in a trial modification get ready to hire that attorney or some other one who gets it and can cover your geographical area. Once that last payment is made, and in most cases, the payment is continued long after the trial modification period is officially over, the Bank has no equitable or legal right to deny the permanent modification.

The only caveat here is whether the Judge was correct in stating the amount of principal due without hearing evidence on third party payments and ownership of the loan. WHY WOULD THE BANK WANT LESS MONEY IN FORECLOSURE RATHER THAN MORE MONEY IN A MODIFICATION? The answer is that out of the $2.50 they received for the loan, they would be required to refund $2.50 because the Bank was supposed to be an intermediary, not a principal in the transaction. So the balance quoted by the judge without evidence was quite probably wrong by a mile.

If there is any balance it is most likely a small fraction of the original principal due on the promissory note. And, as we have been saying for years, it is most likely NOT due to the party that is entering into the modification. This last point is troubling but "apparent authority" doctrines might cover the problem.

Every time a loan does NOT go into foreclosure, the Banks' representation of defaults and the value of the loan (in order to trigger insurance and other third party payments)  come under question and the prospect of disaster for the Bank rises, to wit:  refunding trillions of dollars in insurance and CDS money as well as money received from co-obligors on the bond (the finished product after the note was moved through the manufacturing process of a false securitization scheme).

Every time a loan is found NOT to have actually been purchased by the asset pool (REMIC, Trust etc.) because there was no money in the asset pool and that the investors merely have an equitable right to claim the note and mortgage under constructive trust or resulting trust theories, the validity of the mortgage encumbrance fades to black. There is no such thing as an equitable mortgage lien or an equitable lien of any sort. And there is plenty of good sense and many law review articles as well as case decisions that explain why that is true.

151729746-Posti-Final-Judgment-062513

PRACTICE HINT FOR ATTORNEYS: Whether you are litigating or negotiating, send a preservation letter to every possible party or witness that might be involved. That way when you ask for production, they can't say they destroyed or lost it without facing severe consequences. It might even stop the practice of the Banks trashing all documents periodically as has been disclosed in the whistle-blower affidavits from BOA and other banks.

BOA, Deutsche Bank, Countrywide

FOR the last two weeks, a justice in New York State Supreme Court has heard testimony in one of the most pivotal cases of the financial crisis. The hearings will tell whether Bank of America can extinguish legal liability for more than a million Countrywide Financial loans by paying $8.5 billion in cash and agreeing to loan servicing improvements in a settlement struck with 22 investors in 2011.

But the case, being heard by Justice Barbara R. Kapnick, extends far beyond the impact of the settlement on Bank of America’s balance sheet. It is also laying bare an industry practice that has put investors in mortgage securities at a disadvantage and reduced their financial recoveries in the aftermath of the home loan mania.

The practice at issue involves trustee banks overseeing the vast and complex mortgage pools bought by pension funds, mutual funds and others. Trustees like Bank of New York Mellon were paid by investors to make sure that the servicers administering these mortgage deals, known as trusts, treated them properly. Trustees receive nominal fees — less than a penny on each dollar of assets — for the work.

But when mortgages soured, trustees declined to pursue available remedies for investors, such as pushing a servicer to buy back loans that did not meet quality standards promised when the securities were sold.

In other words, this case highlights a problem with trustees: they are a dog that could have barked but didn’t.

Before mortgage securities were undone by troubled loans, trustee inaction was not an issue. Trustees collected their fees at minimal effort and investors were satisfied.

But because trustees are hired by the big banks that package and sell the securities, their allegiances are divided. Sure, investors are paying the fees, but if a trustee wants to be hired by sellers of securities in the future, being combative on problematic loan pools may be unwise.

Trustee practices are under the microscope in Justice Kapnick’s courtroom because Bank of New York Mellon is the trustee overseeing all 530 Countrywide mortgage deals covered by the proposed $8.5 billion settlement. The trustee is supporting the deal between Bank of America and the 22 investors that include BlackRock, Pimco and the Federal Reserve Bank of New York. Losses by all investors in the securities are projected at $100 billion.

While lawyers for BlackRock and Pimco were negotiating this deal, other investors in the securities were not at the bargaining table. Nevertheless, they must abide by the settlement’s terms.

Some outside investors, including the American International Group, have objected, saying $8.5 billion is inadequate given the mountain of problem loans it covers. Lawyers for A.I.G. contend that Bank of New York put its interests ahead of other investors outside the settlement process. Had the trustee been more aggressive with Bank of America, the servicer administering the troubled securities, investors would have received more money in a settlement, A.I.G.’s lawyers say.

Bank of New York Mellon argues that the settlement is reasonable and that it has always acted in the best interests of all investors. 

But over the last two weeks, arguments and testimony have shed light on behind-the-scenes dealings during the settlement negotiations with Bank of America. Some of these details raise questions about the trustee’s assertiveness on behalf of all investors.

A crucial issue: the trustee didn’t request individual loan files from Bank of America to help determine how many mortgages had problems and, therefore, whether $8.5 billion was a reasonable recovery. A trustee has the right to request those files for investors who cannot get them on their own.

When loan files have been examined, recoveries have been far greater. Last year, for example, Deutsche Bank agreed to reimburse Assured Guaranty, a bond insurer, for 80 percent of losses on eight residential mortgage securities it had insured.

Asked about the basis for the $8.5 billion settlement, Kent Smith, a Pimco executive with experience in loan servicing, testified on June 7 that it came in part from an estimated percentage of problematic loans that was provided to the investors by Bank of America. But on cross-examination, he said the estimate was far lower than it would have been if Bank of New York Mellon had examined specific loan files.

The estimate, 36 percent, meant that just over one-third of the loans had violated underwriting representations and warranties made to investors. But a review of the loan files would have pushed the figure as high as 65 percent, he testified.

Additional testimony raised questions about fairness during the settlement talks. The 22 investors who struck the deal held at least 25 percent — a required threshold for taking action — in only 215 trusts, less than half the 530 covered by the settlement. No other investors had an advocate at the bargaining table. Asked who was representing investors outside the negotiating group, an in-house lawyer for Bank of New York Mellon said he did not know.

Then there’s an e-mail from Jason H. P. Kravitt, Bank of New York Mellon’s outside counsel, recounting how he told Bank of America that on one important point its and the trustee’s “self-interest” were aligned — neither wanted the Countrywide securities to go into default. If they did default, the trustee would have been forced to increase its oversight of Bank of America, adding to its costs. If the trustee did not sue the bank, investors could. 

Referring to a default, Mr. Kravitt said he told a Bank of America lawyer, “We don’t want it either, Chris.”

Asked about these matters, Kevin Heine, a Bank of New York Mellon spokesman, said, “We believe an $8.5 billion bird-in-the-hand settlement with significant servicing improvements is a far better result for all investors than the likely outcome following years of costly litigation.”

Trustees argue that they do not make enough money overseeing these loan pools to act on investors’ behalf. But this could be resolved if the Securities and Exchange Commission allowed or encouraged trustees to use trust assets to pay for loan reviews or litigation.

Justice Kapnick’s decision is not expected for months, and will affect only this settlement. But the revelations in her courtroom send a message to investors who might have expected trustees to protect their interests with more vigor. 

A note from livinglies

 by Neil Garfield

Editor's Comment: Finally the questions are spreading over the entire map of the false securitization of loans and the diversion of money, securities and and property from investors and homeowners. Read the article below, and see if you smell the stink rising from the financial sector. It is time for the government to come clean and tell us that they were defrauded by TARP, the bank bailouts, and the privileges extended to the major banks. They didn't save the financial sector they crowned it king over all the world.

Nowhere is that more evident than when you drill down on the so-called "trustees" of the so-called "trusts" that were "backed" by mortgage loans that didn't exist or that were already owned by someone else. The failure of trustees to exercise any power or control over securitization or to even ask a question about the mortgage bonds and the underlying loans was no accident. When the whistle blowers come out on this one it will clarify the situation. Deutsch, US Bank, Bank of New York accepted fees for the sole purpose of being named as trustees with the understanding that they would do nothing. They were happy to receive the fees and they knew their names were being used to create the illusion of authenticity when the bonds were "Sold" to investors.

One of the next big revelations is going to be how the money from investors was quickly spirited away from the trustee and directly into the pockets of the investment bankers who sold them. The Trustee didn't need a trust account because no money was paid to any "trust" on which it was named the trustee. Not having any money they obviously were not called upon to sign a check or issue a wire transfer from any account because there was no account. This was key to the PONZI scheme.

If the Trustees received money for the "trust" then they would be required under all kinds of laws and regulations to act like a trustee. With no assets in a named trustee they could hardly be required to do anything since it was an unfunded trust and everyone knows that an unfunded trust is no trust at all even if it exists on paper.

Of course if they had received the money as trustee, they would have wanted more money to act like a trustee. But that is just the tip of the iceberg. If they had received the money then they would have spent it on acquiring mortgages. And if they were acquiring mortgages as trustee they would have peeked under the hood to see if there was any loan there. to the extent that the loans were non-confirming loans for stable funds (heavily regulated pension funds) they would rejected many of the loans.

The real interesting pattern here is what would have happened if they did purchase the loans. Well then --- and follow this because your house depends upon it --- if they HAD purchased the loans for the "trust" there would have no need for MERS, no trading in the mortgages, and no trading on the mortgage bonds except that the insurance would have been paid to the investors like they thought it would.

If they HAD purchased the loans, then they would have a recorded interest, under the direction as trustees, for the REMIC trusts. And they would have had all original documents or proof that the original documents had been deposited somewhere that could be audited,  because they would not have purchased it without that. Show me the note never would have gotten off the ground or even occurred to anyone. But most importantly, they would clearly have mitigated damages by receipt of insurance and credit default swaps, payable to the trust and to the investment banker, which is what happened.

No, Reynaldo Reyes, it is not "Counter-intuitive." It was a lie from start to finish to cover up a PONZI scheme that failed like all PONZI schemes fail as soon as the "investors" stop buying the crap you are peddling. THAT is what happened in the financial crisis which would have been no crisis. Most of the loans would never have been approved for purchase by the trusts. Most of the defaults would have been real, most of the debts would have been real, and most importantly the note would be properly owned by the trust giving it an insurable interest and therefore the proceeds of insurance and credit default swaps would have been paid to investors leaving the number of defaults and foreclosures nearly zero.

And as we have seen in recent days, there would not have been a Bank of America driving as many foreclosures through the system as possible because the trustee would have entered into modification and mitigation agreements with borrowers. Oh wait, that might not have been necessary because the amount of money flooding the world would have been far less and the shadow banking system would be a tiny fraction of the size it is now --- last count it looks like something approaching or exceeding one quadrillion dollars --- or about 20 times all the real money in the world.

At some point the dam will break and the trustees will turn on the investment banks and those who are using the trustee's name in vain. The foreclosures will stop and the government will need to fess up tot he fact that it entered into tacit understandings with scoundrels. When you sleep with dogs you get fleas --- unless the dog is actually clean.