Lies of the Banks Coming Back to Haunt Them

by Neil Garfield

Now that Federal Reserve is nearly done buying the worthless mortgage bonds, the banks have shown that they are in fact making money hand over fist and the government is feeling less fearful about toppling the financial system with financial regulation.

Based upon my interview with a highly placed well-informed source who prefers to remain anonymous, it appears as though the playing field and the goal posts have been moved.

The starting point is the sale of worthless mortgage bonds to investors under false pretenses. It isn’t just that the underwriting standards that were to be applied to the mortgages were not followed; the problem is really that the money from the investors was never deposited into an account that was legally or even apparently owned by the investors or the asset pool shares that they thought they were buying.

The banks were claiming the investment shares (mortgage-backed securities) to be their own despite the clear money trail and paper trail showing that at no time were the investors informed that they were lending their money or their right to the mortgage loans to the banks and their co-venturers.

Then the banks claimed losses on those investment shares and collected from insurance, credit default swaps, other hedge products, and the taxpayers.

Then the banks claimed insolvency that threatened the entire financial system despite having received money from investors, part of which was never invested in anything related to mortgages or mortgage bonds. The threat of insolvency and the threat to the entire financial system was taken seriously by people in government that should have known better and perhaps did know better.

Then it was decided that the Federal Reserve would cure the insolvency issue by purchasing the worthless mortgage bonds at full value. They purchased it from the banks who it no time actually owned close bonds nor did the banks own any of the loans that supposedly “backed” the mortgage-backed bonds.

Then it was revealed that the banks were making a lot of money while the rest of the economy went into a nosedive. Any economist who is questioned on this subject will respond that it is very unlikely for intermediaries who act as conduits for transactions to make money when economic activity is on the decline.

If they are reporting profits it is from fictitious transactions. In this case fictitious transactions are “trading profits.” In reality the banks are feeding part of their ill-gotten gains back into the bank, and claiming it as profits. When the chips were down and the banks had to show that they were strong enough to exist at their mega size, they came up with the capital without any problem.

Now that they came up with the capital and the profits, they have demonstrated that the extra restrictions that regulators want to put on the banks will neither damage the bank’s profitability nor threaten the financial system.

But the Banks know that their ability to come up with money all stems from the fact that they lied to everyone and stole trillions of dollars and that it did not come from ordinary banking activities. SO they are currently in a bed they made for themselves: they don’t want the restrictions to be too restrictive because it might have a negative effect on their legal earnings, but they have proven the opposite with their illegal earnings --- which is precisely what the regulators were waiting for.

Hence the banks are stuck with whatever regulations are put on banks --- especially those who claim ownership over transactions in which they acted only as intermediaries --- or they must say that the regulations would be harmful because the truth is they didn’t really make the money that they reported as net income.

This doesn’t come as news to the Federal Reserve who knows that it is purchasing worthless bonds. But the Federal Reserve cannot say that the bonds are worthless because it would then be seen as quantitative easing which is inflationary. The whole reason the money supply was expanded so much without inflation going wild is that the Federal Reserve was merely “buying bonds” and not just giving out money. But the bonds were completely worthless. So the truth is that the Federal Reserve was and still is giving out money in quantitative easing.

This chain of events served to undercut the middle class portion of the economy completely, denuding them of jobs, houses and even prospects, creating blighted neighborhoods, declining tax revenues for municipalities and this bankruptcies like the City of Detroit. If the law was applied as it is applied to everyone except the big banks, then they would be charged with mortgage fraud, securities fraud (because the exemption does not apply if you don't follow the rules of issuance of a mortgage bond) and compensatory damages would be due to the following people with percentages of the total money advanced for each $1 of mortgage:

1. Investors: 125%
2. Insurers: 85%
3. Credit default swaps: 400%
4. Miscellaneous hedge products: 25%
5. Borrowers: 15% (100% of the payments and down payment)
6. Taxpayers: 5%
7. Federal reserve: 100%

Thus the situation was likened by my source to an old joke about lawyers, the punch line of which is that the dog screws everyone in the room and runs away with the steak.But the real problem is that by participating in this deceptive scheme, the Federal Reserve, put the burden of the loss on homeowners whose mortgages were paid in whole or in part by the financial sector including the Federal Reserve.

It isn’t just that the ownership of the loan has become completely convoluted; the real issue is money, to wit: the credit transaction with borrower has been long since extinguished by these devices used by the banks and the Federal Reserve, and vehicles like the Maiden Lane entities.

The amount of money owed on those mortgages is in reality far less than the the amount demanded by the banks --- which means that modification is possible for nearly every loan, whether delinquent or not, because the principal has already been reduced by payment. THIS IS WHY I SAY FOLLOW THE MONEY TRAIL BEFORE YOU FOLLOW THE PAPER TRAIL. THE PAPER TRAIL IS ONLY RELEVANT IF IT MATCHES THE MONEY TRAIL. OTHERWISE IT IS IRRELEVANT.

In the marketplace where loans are being refinanced and where mortgages are being foreclosed, these facts are carefully kept out of the mainstream conversation. But more and more judges are starting to ask questions because the behavior of the banks is just not consistent with a creditor who wants their money.

They seem to want the foreclosure judgment or sale but they are not so interested in the property. AND THAT is because the foreclosure puts the seal of approval from the state on a bunch of lies that were proffered to the courts and to the recording offices. It is the foreclosure judgment and sale that starts the clock ticking on wrongful foreclosures. Once time has run out on those actions, the banks are home free and the Federal Reserve, the unwitting or witting accomplice goes on their merry way while more than ten million families lose their homes, jobs and prospects.

If the Courts start finding that the mortgages are invalid, that their enforcement is defective or impossible, and that the debt is in doubt because there is no proof of the account receivable and the loss must belong to SOMEBODY, the current plan collapses. As I stated in 2007 based upon my own direct knowledge and the knowledge of industry sources who were active in the bundling, selling and trading activity associated with mortgage loans, the entire crisis would have been averted if the banks were held to account because the accounts due from the borrowers had been reduced without their knowing it just as the account due to the investors had been reduced without them knowing it.

This brings us back to what seems like a quaint solution now. I said we should forget blame and just let bring everyone to the table and share the losses and risks. People get to stay in their homes, the investors get a return on their investment, the banks earn fees, and companies like AIG won't be in danger of toppling. But then, the catastrophic shift in wealth inequality would also never have happened. And the super rich would have been revealed, if they were bankers, as common thieves with keys to the vault.

Finally the truth starts to come out

BOA, Urban Lending Sued for Rackateering on Fraudulent “Modification” Program

In a case that may have far-reaching consequences, a lawsuit was filed in federal court in Colorado accusing Bank of America of racketeering, which is what borrowers have been screaming about for years. It was a game to the bank. They intentionally lured people into what they thought was a good faith modification program, encouraged people to get deeper and deeper into "debt", and then foreclosed when they were sure that the person could not reinstate nor exercise a right of redemption. A key player in this scheme was Urban Lending Solutions.

In a case that I am currently litigating, Bank of America at first denied any knowledge of Urban Lending Solutions. When confronted with correspondence issued from urban lending solutions under the letterhead of Bank of America, they finally conceded that they knew who who the company was.  In a Massachusetts case depositions were taken and it is quite clear that this affiliate of Bank of America had their employees working off of Scripts and that anyone who went off the reservation would be disciplined or fired. Going off the reservation merely meant that they actually tried to help a borrower achieve a modification.

There are at least six whistleblowers who have executed sworn affidavits stating that the modification program was a sham. I think we might be getting closer to the point where whistleblowers tell us that the origination of the loan was a sham and that the so-called sales of loans were also sham transactions. Those employees of Bank of America or their affiliates who were successful in throwing homeowners into foreclosure were rewarded with $500 gift certificates to Target and other stores.

The claims against Bank of America are using laws that were designed to target organized crime. For seven years experts and laymen have been claiming that the banks were engaged in organized crime in the  the sale of mortgage mines, origination of loans, the assignment of loans, the recording of unperfected mortgage liens, wrongful foreclosures, illegal foreclosure sales in which the property was sold without any cash being paid, interference  in the right of the borrower to reinstate, modify, or redeem.

We are just around the corner from the key question, to wit: why would the banks engage in organized crime to create foreclosures when it is painfully obvious to homeowners and local government officials across the country that the banks have no interest in acquiring the property but only causing the sale of the property at a foreclosure auction?  Why would the banks delay the prosecution of their cases for years? Why would the banks argue against expediting discovery against them and against the borrower? Why would the banks argue for less money in foreclosure rather than more money in modification?

The answer to all of those questions is simply that there is more money in this scheme than has been divulged.  In the coming weeks and months the revelations about the true nature of these transactions will shock the conscience of the country and cause voters and politicians to rethink their position regarding the ability of regulators and courts to clawback illegally obtained proceeds that started with the transactions originated with the money of investors and somehow ended up with the banks growing by 30% despite a failing economy and a diving housing market.

We are now at the point where filing RICO charges against the banks is likely to gain traction whereas in prior years it was considered overkill for what appeared to be negligence in paperwork caused by the volume of mortgages and foreclosures. Volume had nothing to do with it. The banks made a ton of money selling those mortgage bonds.  But the money they made selling the mortgage bonds was dwarfed by the amount they made when they received insurance, credit default swap proceeds, and taxpayer money on investments owned by the investors and not by the banks. So far more than 5 million foreclosures have proceeded illegally which means that 5 million families have been disrupted in some cases beyond repair. Recent estimates suggest that another 5 million foreclosures will be added to the list unless the banks are required to conform with their regulations and the laws of the federal and state government.

BOA and Urban Lending Sued on Racketeering Charges

The clock is ticking - Investors need to pull out now!

This is not gonna get better in 2014, that's a ploy to keep your money, because you are losing it in masses.. are you gonna wait till you see if I am right ? Or are you gonna save yourselves now? Over 93 % of them REIT are filled with fraud.. lost notes, papers don't exist or are forged.. Its 2008 all over again, except this time, there will be no more bail outs, and you will have nothing! Read between the lines, they are sweating that you will  pull out and THEY CAN'T PAY YOU!

Volatile interest rates have been pressuring down mortgage REIT portfolio values leading to historically low quarter earnings not likely to improve until 2014, analysts warn.

A Keefe, Bruyette & Woods report indicates downward book value adjustments are becoming the norm. Due to “unusually uncertain book values” over the past few years many real estate investment trusts have implemented continuous albeit slight discounts as they adjust to a changing market environment.
At -14.7%, they wrote, 2Q13 “was the second-worst total-return quarter in a decade” for mortgage REITs, only slightly better than the historic -15.9% reported in 3Q05.
Sharp rate increases drove both these performances. The only difference, analysts note, is that in 2005 the Federal Reserve implemented rate increases at the short end, while in 2013 the Fed delivered “tapering talk hitting the long end.”
In their view, while the sector is a lot cheaper than a quarter ago, going forward “visibility is poor.” But since most of the downward adjustments already have been implemented, estimated book values are “down across the group.”
Expectations also include “extreme MBS volatility” at quarter-end after portfolio changes during the quarter, and the nature of the said changes is revealed. Dividend declarations, which analysts see as a good indicator of earnings, were generally in line with projections of revised portfolio compositions and book values.
“We suspect some stocks have overreacted while others have not reacted enough,” they wrote, that are bound to result in both positive and negative book value surprises that will cause instability across various metrics. For example, “portfolio rebalancing, changes in prepay assumptions, changes in leverage and changes in hedging” may lead to muddy GAAP and core earnings.
Nonetheless, as of now it appears that book value declines and improved spreads are “likely to offset each other,” analysts conclude, as book value declines tend to depress earnings, while net spread improvements improve earnings.
This dynamic is expected to continue “a few quarters out,” after which improved spreads most probably will “win out and could drive 2014 estimates higher, particularly for REITs in hybrid ARMs,” they wrote.

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.