October 18, 2010
University of California $1,591,395
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Now that we can see why the President is so shy of even talking about the huge swindle, let us go on to a part of a very clear report someone just sent me. This is the best, and most accurate, compilation I have yet seen.”
Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper - only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage — the note, which is the actual IOU that people sign, promising to pay back the mortgage loan.
Before Mortgage Backed Securities (MERS), most mortgage loans were issued by the local Savings & Loan. So the note usually didn’t go anywhere: It stayed in the offices of the S&L down the street.
But once mortgage loan securitization happened, things got sloppy. They got sloppy by the very nature of Mortgage Backed Securities.
The whole purpose of MBS’s was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns. Others wanted riskier bonds with higher rates of return.
Therefore, as everyone knows, the loans were “bundled” into REMIC’s (Real Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then “sliced and diced” — split up and put into trenches, according to their likelihood of default, their interest rates, and other characteristics.
This slicing and dicing created “senior trenches.” where the loans would likely be paid in full, if past history of mortgage loan statistics was to be believed. And it also created “junior trenches,” where the loans might well default, again according to past history and statistics. (A whole range of trenches were created, of course, but for purposes of this discussion, we can ignore all those countless other variations.)
These various trenches were sold to different investors, according to their risk appetite. That’s why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
But here’s the key issue: When an MBS was first created, all the mortgages were pristine. None had defaulted yet, because they were all brand new loans. Statistically, some would default and others would be paid back in full. But which ones specifically would default? No one knew, of course. However, that having been said, there is another aspect to this part of the Great Mortgage Collapse now in progress. Angelo Mosilo’s ‘Countrywide Mortgage’ company had been dealing on the very shady side for some time. What Mozilo was doing was to actively recruit people with bad or no credit, deliberately supply faked credit applications, grant expensive home mortgages solely on these faked reports as interest only loans and then, having settled their patsies in new homes, sell the mortgages based on fake information to banks. Mozilo’s people knew that after a passage of time, all interest only loans would raise their rates and that as they were well aware that their clients could never afford the increased payments, they sold these faulty papers as quickly as they could. Same with mortgages.
So in fact, it wasn’t that the riskier loans were in junior trenches and the safer mortgage loans were in the senior trenches: Rather, all the loans were in all the trenches, and if and when a mortgage in a given bundle of mortgages defaulted, the junior trench holders would take the losses first, and the senior trench holders take the loss last.
But who was the owner of the junior trench bond and the senior trench bond? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn’t be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
Therefore, the question became as to how to make sure the safe mortgage loan stayed with the safe MBS trench, and the risky and/or defaulting mortgage went to the riskier MBS trench?
Now appearing on the scene, a government-sponsored MERS (Mortgage Electronic Registration System).
MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac, like MERS, a U.S Government-sponsored and controlled entity.
The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate trenches of mortgage bonds. MERS was essentially the operating table where the digitized mortgage notes were sliced and diced and rearranged so as to create the Mortgage Backed Securities.
However, legally — and this is the important part — MERS didn’t hold any mortgage note: The true owner of the mortgage notes should have been the REMIC’s.
But the REMICs didn’t own the note either, because of a fluke of the ratings agencies. The REMICs had to be “bankruptcy remote,” in order to get the precious ratings needed to peddle Mortgage Backed Securities to insitutional investors.
So somewhere between the REMIC’s and the MERS, the chain of title was broken.
Now, what does “broken chain of title” mean? Simple: When a homebuyer signs a mortgage, the key document is the note which is the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a Mortgage Backed Security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the “chain of title.”
You can endorse the note as many times as you please, but you have to have a clear chain of title right on the actual note. The original, and all future holders and sellers had to have their notarized signatures on this note, by law.
If for whatever reason, any of these signatures is skipped, then the chain of title is legally considered to be broken. Therefore, missing, or forged, signatures and notary attestations mean that legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
To repeat: If the chain of title on the note is broken, then the borrower no longer owes any money on the loan.
This sentence is the entire crux of the issue.
The broken chain of title wouldn’t have been an issue if there hadn’t been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn’t have bothered to check to see that the paperwork was in order.
But as everyone knows, following the housing collapse of 2007, which is still in progress, there’s been an enormous number of foreclosures — and foreclosures on a lot of people who weren’t part of the Mozilla-scam wherein people with little or no credit were given, by crooked mortgage brokers, false credit reports in order to obtain “interest only” loans, which they could never begin to pay when the full payments kicked in. We're in the same position as smart and cautious people who got squeezed by circumstances.
Unfortunately for the crooked banks, mortgage companies and their many friends in the government, to include the White House, the latter group started contesting their foreclosures and evictions, and so started the process of investigating the chain of title issue... and that’s when the paperwork became important. So at that point, it was evident to the crooks that the chain of title became important and the botched paperwork became a non-trivial issue.
Now the banks had hired “foreclosure mills” — law firms that specialized in foreclosures, in order to handle the massive volume of foreclosures and evictions that occurred because of the collapse of the rigged housing bubble. These foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
Now, it has become painfully evident that these foreclosure mills faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby “proving” that the banks had judicial standing to foreclose on a delinquent mortgage. In many proven cases, these foreclosure mills even forged the loan note itself.
Yes, to repeat, the foreclosure mills actually, deliberately, and categorically faked and falsified documents, in order to expedite these foreclosures and evictions.
So in other words, a massive fraud has been, and still is being carried out, with the inevitable innocent bystander getting caught up in this fraud. One can site here the appalling example of the man who got foreclosed and evicted from his home in Florida, even though he didn’t actually have a mortgage, and in fact owned his house free-and-clear. That family was foreclosed and evicted, even though they had a perfect mortgage payment record.
The sole reason why these criminal frauds began to get into the generally obedient American media is not because the banks suddenly discovered “procedural errors” but when the title insurance companies, well aware of the frauds, refused to insure the title for the pragmatic, not idealistic, reason that they would have been considered liable in the eyes of the law had they furthered the frauds.
In every sale, a title insurance company insures that the title is free and clear: that the prospective buyer is in fact buying a properly reviewed and verified piece of legal property, and that all of the title issues on this specific property are legally in order and correct. Title insurance companies, fully aware of the frauds, stopped providing their service because, of course, they didn’t want to expose themselves to the risk that the chain-of-title had been broken, and that the bank had illegally foreclosed on the previous owner. In the final analysis, the title companies were in the position of guaranteeing something they could not do and, faced with the certainty of lawsuits, they rebelled and refused further participation in what was an obvious fraud.
When the title companies refused to cooperate in the frauds, the Attorneys General of all the states started criminal investigations into the frauds.
The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and Bank of America, suspended foreclosures, feigning shock and horror, is a certain sign that the mortgage problem was a mega-problem for at least 60 million American home and business owners. Banks that size, with that much exposure to foreclosed properties, simply do not suspend foreclosures because they are good corporate citizens who want to do the right thing, with all the paperwork in strict order — they’re halting their foreclosures for a reason.
The furtive and pathetic move by the United States Congress to sneak by the Interstate Recognition of Notarizations Act was a blatant attempt to help out their financial friends, but unfortunately, Congress can pass no ex-post facto laws and even the bank-friendly President Obama refused to sign this into law. In sum, the all-powerful banking lobby wanted to force through that law so that their foreclosure mills’ forged and fraudulent documents would not be scrutinized by out-of-state judges. It is entertaining to note that the cowardly Senators who jammed this bill through, did so by a voice vote — so that there would be no registry of who had voted for it, and therefore no personal accountability to outraged and defrauded Americans.
And just as soon as the White House announced the pocket veto — the very next day! — the Bank of America halted all foreclosures, nationwide. It is interesting to note that the same Bank of America had bought out mortgage-swindler Mozila’s ‘Countrywide Mortgage’ and was continuing his fraudulent practices.
It is really delightful to relate that the corrupt and all-powerful American banks have come a cropper, because if they have been foreclosing on people they didn’t have the legal right to foreclose on, then those people have the absolute right to get their property back. And the people who purchased those foreclosed houses from the bank did not actually own the houses they paid for. And should these bargain-hunters find that they themselves can be evicted, they can only file lawsuits in the hopes of recovering any fees paid in the purchase of what is, in most cases, property no one can legally own because the records are defective.
But this is not a moral issue for the banks. When banking institutions become so powerful they are the de-facto rulers of the country, morality is not an issue. After all, ethics and morals are excellent norms but not effective techniques. It is a matter of legal liability and the enormously rich banks have put themselves in the position of being sued, massively at that, for their fraudulent and often criminal actions.
The fraud committed by the foreclosure mills casts enough doubt that now, all foreclosures come into question. Not only that, all mortgages now come into question.
Although the great mass of the defrauded Americans have not yet realized it, the current situation is such that there is a strong possibility, if not to say probability that mortgage-paying homeowners may be able to get out of their mortgage loan and keep their house, without any further payment.
All any victim has to do is to demand, in writing, that the banks and lending agencies produce legal proof (which because of the slicing and dicing of mortgages and the resale of these bits and pieces far and wide is totally impossible) of title ownership, no one can legally evict them and should this happen, all of the parties involved would become instant targets for successful and destructive law suits.
Although the victimized American public is only just beginning to realize it, this all-pervasive, government assisted fraud is becoming a major national and world economic disaster. Not only will the value of any American mortgage-backed security vanish worldwide but there will be pure hell to pay, both when the swindled go into court and when the rest of the citizenry realize they don’t need to pay their debts!
But if the American public expects that the banker-bought Obama administration will take any kind of strong action against the enormous scam, they will be badly mistaken. Public faith in government integrity is at an all-time low and the waffling and weakness of the White House bodes ill for the future.
Instead of firm leadership and equally firm statements from them about not only ending the growing crisis but punishing the transgressors, we are getting mumbling, soft speech and non-sequesters from a President, and Congress who are in debt to the generous banking community and, with national elections looming, pray for the public and the media, to find other, safer topics to discuss.
In an interview on C-Span, the chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair, suggested the fallout from this issue “might not be as severe as many now predict. If it turns out this is just a process issue, then I don’t anticipate the exposures to be significant,” she said in The New York Times on October 17, 2010.
The full extent of the foreclosure/fake mortgage scandal is finally emerging from behind carefully cultivated concealing underbrush, and an alarmed Congress is now calling for a “hearing” on the subject, and throughout the country, the housing market has virtually gone into hibernation.