THE SiGNiNG… Or, Pardon me, Mr. Banker, but your REMIC is showing.

Tax fraud, tax evasion, securities fraud, a fraud on the courts, a Ponzi scheme of Herculean proportion, the unqualified failure of our government’s regulatory and enforcement agencies… the money long gone to bankers in the form of mega-bonuses… and a group of Wall Street bankers confident that Congress will simply white wash over everything (read: socialize the debt) and send the bill to the American people.  It’s a horror picture, no question about that.


And yet, in terms of a national understanding of what’s happened to ours and in fact the world’s economy, we’ve still got more than 50% of our population blaming homeowners, reciting the ridiculous rhetoric about “irresponsible sub-prime borrowers” buying more house than they could afford.  It’s truly stunning work, banker-people.  Nice job brainwashing millions.  When this is over, could you guys make us all believe in Santa Claus again?  I liked it when I believed in Santa Claus.

So, meanwhile… back at the soon-to-be-foreclosed-on-ranch… after a GMAC/Ally Financial manager testified in a deposition that his job involved signing his name 10,000 times a month to foreclosure related documents without reading what he was signing, as if reading were possible when signing 10,000 of anything a month, on September 20th, GMAC/Ally announced that it had stopped all evictions and the resale of repossessed homes in 23 states.

On October 1st, Connecticut’s Attorney General Blumenthal put the kibosh on all GMAC/Ally Bank foreclosures in his state, saying, and I’m paraphrasing here, that there is the distinct possibility that something is rotten in Denmark.  Texas’ AG has filed suit too, as has Ohio’s.

Then, before you could say “just sign here,” JPMorgan Chase, noticing all of a sudden the writing on the proverbial wall, announced that they too would suspend 56,000 foreclosures in the same 23 states as they “investigate” the bank’s practices related to forging documents needed to foreclose on homes. Apparently, JPMorgan Chase also has quite a bit of robo-signing going on back at its headquarters as well.

Of course, that’s not really what JPMorgan Chase said.  They said something about investigating because some of its employees might have improperly prepared the necessary documents.  So, they’re just not sure whether someone at JPMorgan Chase has a job that consists of signing their name 10,000 times a month without reading what is being signed.  It might be going on, but they’re not sure whether it is or not… so they need to investigate.

The thing that should be noted is that last June, one of JPMorgan Chase’s “robo-signers” testified to the same sort of thing that the GMAC/Ally manager did recently, but I guess since our housing markets had recovered as of last June and our economy was well on its way back to jobless prosperity, no one cared.  So, now… apparently, just weeks from the mid-terms someone does.

Additionally, in August, the Florida attorney general’s office said that it was investigating three law firms that had allegedly fabricated documents in thousands of cases to obtain final judgments of foreclosure.  No one seemed to upset about that at the time either, but let’s just say better late than never, and leave it at that.

I think the next wingtip to fall was Bank of America’s, and they too announced on October 1st that they would be suspending foreclosures in the same 23 states presumably so they could take a closer look at their document production department, and determine whether the current Vice President of Forgery should be replaced.  (Okay, so that last part isn’t exactly true, but it is true… shall we say, in spirit.)

Just a week later, BofA broadened out their foreclosure freeze to include all 50 states, which should have signaled to all just how all encompassing this whole thing is, and is likely to become.  Obviously, if BoA thinks it should stop foreclosing in all 50 states, JPMorgan Chase, and the rest should probably do so as well, and no one should be surprised to see the rest of the lemmings coming along over the next week or two.

Why in 23 states?  Because the 23 states are the “judicial foreclosure states,” meaning that in those states you actually have to prove you have the right to foreclose before the courts will allow you to foreclose.  In the remaining 27 states, you don’t have to prove you hold the note to the property, or anything else for that matter, before foreclosing… in fact, you don’t even have to go to court and prove you have ‘standing” in order to foreclose, which is why these states are called “non-judicial foreclosure states.” California, for example, is a non-judicial foreclosure state, meaning foreclosures do not require the prior approval of a court.

So, it would seem that in non-judicial foreclosure states, since you don’t have to prove you hold the note and therefore have the right to foreclose, you don’t have to forge anything that proves that you do, and therefore everything’s fine in those states?

(NOTE TO THE READER: If that last sentence made any sense at all to you, please go back and re-read it.)

And on September 29th, the Washington Post reported that someone had awoken a top federal bank regulator from his nap, told him about the widespread illegal mishandling of foreclosures and evictions and as a result he had directed seven of the nation’s largest banks to review their foreclosure processes.  In addition to JPMorgan Chase, the list included Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank and Wells Fargo.

And with the midterms only a month or so away, U.S. Representatives Alan Grayson (D-FL), Barney Frank (D- MA) and Corrine Brown (D-FL) sent a letter dated September 24th, to Fannie Mae questioning the failed GSE’s use of “foreclosure mills,” which the letter described as “law firms representing lenders that specialize in speeding up the foreclose process, often without regard to process, substance or legal propriety.”

On September 30, Grayson even posted a video on YouTube in which he presented examples of travesties resulting from robo-signed documents.  He included a man who was foreclosed on even though he didn’t have a mortgage and had paid cash for his home; a home that had two foreclosure suits against it because two servicers claimed to have ownership of the title; and a couple foreclosed on over a $75 late fee that they were in the process of contesting.

And then, 30 Democrats got together and, with Speaker Pelosi speaking for the group, said that “it was time for the banks to be held accountable for their practices,” or something very close.  And President Obama surprised everyone by pocket vetoing a bill that would have affected notarization and interstate commerce, and that many bloggers were very upset about, but I’m still not clear as to its actual impact.  But, no matter, the bankers wanted it and he vetoed it anyway, so… surprise!

(I should say that I was happy to see the Dems finally asking questions, and ostensibly making demands for action and accountability, although as anyone who has read my columns regularly over this past year knows, I can’t claim to be even the least bit surprised.  I’ve been saying that the mid-term elections would have this sort of effect on politicians specifically as related to the foreclosure crisis for over a year.  I’m not bragging, our politicians are nothing if not predictable.)

Okay… there are a few things I want to make sure we all understand before I get to the heart of the matter.

For one thing, it’s important to recognize that these robo-signers are not low-level bank employees.  According to April Charney, who the press often calls the country’s top foreclosure fighter, the signing is taking place only a handful of floors below the C-Suite offices, and if you think about it, this would have to be the case.

I mean, at JPMorgan Chase you have to have some juice to run a department whose job is to fraudulently prepare important documents needed by the court in order to foreclose on property.  That’s a senior management position if there ever was one, because I’m pretty sure that traditionally speaking anyway, forgeries and fraudulent documents are frowned upon by banks in general, and JPMorgan Chase isn’t likely to be an exception.

I also want to make sure that we all recognize that this is not a case of rogue employees going off the reservation. GMAC/Ally, JPMorgan Chase, Bank of America, and ALL THE REST, regardless of whether they have yet admitted the truth about their practices (read: crimes), knew exactly what they’ve been doing. It’s not an accident, or something that went on without the bank’s knowledge.

They all knew it was wrong. They knew they were breaking all sorts of state and federal laws.  They conspired to defraud the federal government, the courts, the states, the American people, and in fact, the entire world. They carefully planned what they did, and until recently, it appeared that they had executed their plans effectively, and certainly with great aplomb.

But now, thanks to a bunch of dedicated consumer attorneys, many of which are associated with O. Max Gardner III, and April Charney, they’ve been caught… red-handed, as they say… hands in the proverbial cookie jar, mouth and pockets stuffed with cookies, and with crumbs and chocolate all over their faces.

We know these things to be true, right?  We don’t have to wait for the rest of the banksters to come forward… we know it was ALL of them.  Bank of America, GMAC, JPMorgan Chase, and the others that have halted foreclosures in 23 states is more than enough to expose the crimes being perpetrated here, right?  And we certainly don’t have to wait to see if the fraud occurred in the other 27 states, right?

We also don’t need to wait for our judicial system to rule on whether the banksters and servicers were in fact breaking laws… just the fact that they have robo-signers signing 10,000 of anything a month is evidence of criminal wrongdoing on a massive scale, correct?  And the fact that banks are voluntarily freezing foreclosures, now that their robo-signing has made headlines, should make it clear that they know they’re in trouble here.


With Apologies to Stanley Kubrick

Take a step back for a moment… there’s a job at banks where someone signs their name thousands of times a day without reading what they’re signing.

Once again… there’s a job at banks in this country, where you sign your name on documents you’re not reading?  We don’t manufacture all that much in this country today, but now we’re the global leader at signature manufacturing?  Where else, or whenever before have you heard of that job existing?  Are the career counselors in America’s high schools now advising our matriculating youth that they should consider a career in signature production?

“Well, Tommy… let’s have a look, shall we… hmmm… let’s see, a ‘D’ in English… not much better in math… didn’t take any science classes… SAT scores… no, no help there.  Well, young man… with your academic record, you’re going to have a very difficult time getting into college next year.  But… hang on… I do see that you’re fairly proficient at signing your own name.  Have you considered going to work as a robo-signer at one of our nation’s major banking institutions?”

Predictably, GMAC/Ally and JPMorgan Chase have basically said that the laws being broken through the use of the robo-signers were mere “technicalities”… insignificant little dalliances, conceived by paper-pushers, and wholly unnecessary in today’s fast paced, high-technology world.  In other words… it’s no no big deal.

But, we know they are being disingenuous when they say those things, because we know they considered the laws they were breaking to be quite serious.  If they hadn’t considered the laws in question serious, they wouldn’t have needed to go to such lengths to get around them, right?  It’s not easy to sign your name 10,000 times a month… it’s hard work… certainly not the sort of thing you’d set up just to get out of the equivalent of a parking ticket.

You don’t have people working near the top of a major financial institution, signing their names thousands of times a month, or employ “document production companies,” as in the cases of the foreclosure mills like David Stern’s law firm, or LPS, DOCX, or any of the other variations on the same theme, in order to get around something trivial.  No, if the banks had considered the issues involved to be akin to not paying a parking ticket, they would have handled it much differently.

Heck, when the banksters didn’t want to account for losses on their financial statements, they simply got Tim “Transparency” Geithner to suspend the FASB regulations they considered most inconvenient.

These same bankers, it’s also worth considering, have never told us where the tens of billions in TARP funds went and they didn’t make up some elaborate excuse for not telling us… they didn’t hire robo-signers to fake documents to make it look like one thing or another… they just said… “No, we’re not going to tell you, because we don’t have to tell you.”  And that was the end of that.

We know these things and more because employees of GMAC/Ally, JPMorgan Chase and others have now been deposed, and admitted under oath that their jobs have been to sign their names to documents used to foreclose on people’s homes.  They said that they skipped out on the notary function entirely, and never read the documents they were signing.

As I understand it, these robo-signers are signing affidavits that state that certain documents needed to foreclose had been “lost, or destroyed”… in every single instance at every single financial institution?  What are we talking about here?  A “mass misplacement”?  The “widespread destruction of critically important paperwork?”  Wow… now that’s quite the coincidence, wouldn’t you agree?  Downright spooky.

No, this robo-signing of the documents was carefully planned and carefully concealed, until it couldn’t be anymore.

If it wasn’t a big deal, why not just have hundreds of “robo-signers”?  Why wouldn’t you break up the signature function so as not to overburden anyone by having them sign their names so many times that carpal tunnel and then some is assured.  At the very least you could divide it among a handful of middle mangers, Lord knows GMAC et al has those a-plenty. How about requiring each of 100 to sign 100 times a month. The only reason not to handle it that way, or something close, is that you didn’t want to risk too many people knowing about it.

After all, it does require some real chutzpah to walk into a courtroom and hand the judge a bunch of phony documents. And if your job, while working at a bank, becomes signing those things thousands of times each month… you know something’s not kosher for sure.

No, there should be no question about it… what’s happening is endemic… ubiquitous… it’s happening everywhere, far and wide.

So, now the question that should be on everyone’s mind is… why?  Why did the banks need to have people signing things thousands of times a month in the first place?  And why should the answer to that question matter to every single American citizen?  Because it most definitely should matter, regardless of whether you’re at risk of foreclosure, because among other things, everyone’s at risk of foreclosure as long as banks are foreclosing on homes using fraudulent documents.

Missing their assignment…

Why are the banksters finding it necessary to fraudulently and flagrantly create documents in order to foreclose on homes?  What’s the problem here?

The answer is as simple as it is universal.  Banks are falsifying documents and having robo-signers sign things because they’re trying to hide the fact that the notes were never assigned to the trusts that are now trying to foreclose on the homes.  The trusts are quite simply empty.  They hold nothing inside them.  Certificates in the trusts that facilitated the sale of mortgage-backed securities to investors all over the world are missing the “mortgage-backed part.”  Now the trusts want to foreclose, but they can’t prove they hold the loans… BECAUSE THE FACT IS… THEY DON’T.

The bankers never assigned the loans to the trusts.  Essentially none of them… ever… assigned the… loans… to… the… trusts.

It’s so rare to find a mortgage’s note legally assigned to its supposed trust, that Max Gardner, or… “O. Max Gardner III,” if you don’t know him, I suppose, who is considered by many to be at the top of any list of the country’s consumer bankruptcy attorneys, and who has also become expert in the issues surrounding the mortgage meltdown and resulting foreclosure and credit crises, has often told the hundreds of attorneys around the country that follow his thinking on the issues and legal remedies, that if anyone ever finds a deal where the note was correctly endorsed to the trust, he or she should bronze it and hang it on their wall.

That’s Max!

A mortgage, in case anyone is unclear, is actually two things: there’s the note, which is the IOU the borrower agrees to repay, and the mortgage or deed of trust, which represents the lien on the property. You have to be what’s termed “the real party of interest in the note” in order to foreclose on the property. In 45 states, the mortgage is considered a mere “accessory” to the note.  The note is where the money is found, the mortgage is where the real estate is described.

And here’s something worth remembering about securitization: It’s not the real estate that is securitized, it’s the cash flows generated as borrowers pay their mortgages each month.  The real estate portion of the securitization transaction is boring, doesn’t result in any income of which to speak, and therefore wasn’t exactly the focus of the banking industry during the housing bubble.

Enter: MERS

During the housing bubble, or credit bubble might be a more accurate phrase, loans were sold faster than money was lost during the meltdown.  On a blog called Truthout, Grayson blamed much of the massive foreclosure problems on the electronic shortcut created by the banksters called MERS.

“The banks simply digitized mortgage titles into a privatized system, called the Mortgage Electronic Registry System (or MERS),” he said. “And it did the transfers by trading Excel spreadsheets among the banks and trusts, rather than endorsing the notes as required by their own contracts, by state real estate law and by IRS rules.” He stated that 60 million properties are recorded in the name of MERS — 60% of the mortgages in the USA, and 97% of the loans made between 2005 and 2008.

According to the New York Times, “The companies say they are reviewing their procedures to take care of any violations.”  But if the recent court decisions regarding MERS and its standing as the foreclosing party hold, it’s a dead end.  MERS makes no secret of the fact that it owns nothing.  It has no assets and no employees.  It was set up that way on purpose… it’s considered “bankruptcy remote,” which is a requirement of the credit rating agencies and securitization process.  Loans must be passed through bankruptcy remote vehicles on the way to the trusts that are supposed to be holding the pools of loans that produce the cash flows that are paid out to the investors.

The courts have been increasingly hostile towards the idea of MERS foreclosing… and it makes sense that MERS not be allowed to foreclose… since MERS never owned the loan, never held the “beneficial interest,” so why should it be allowed to foreclose on something it never owned, or transfer something it never had in the first place.

The blog,, which is often great, by the way, reported the following:

Even if the foreclosure has long since passed, a loophole in the way mortgages are recorded can create a serious title defect for future owners. Title analysis performed this month by AFX Title has detected this error to be common in random samples of properties it reviewed. “This could affect the property ownership of millions of homes nationwide” said David Pelligrinelli, of AFX Title. “The mortgage recording method which created this title flaw did not exist until recently. As title abstractors are just seeing this problem emerge now but a wave of title claims is coming over the next year or so.”

The problem is created through a break in the chain of mortgage ownership. Until the 1980’s, most mortgages were loans between the homeowner and a bank, who lent the money directly. More recently, the mortgage financing system transformed into an international system of securitization, with mortgage lenders packaging their loans into securities, bought and sold by investors like stocks. These transactions even split individual mortgages into sections, where each loan could have parts owned by different investment banks.

Lest you think this is some small snafu that will soon be corrected, think again.

Last week, one of the nation’s largest title insurance companies, Old Republic National, announced that it won’t be providing title insurance on any of the homes foreclosed on by GMAC, JPMorgan Chase, and one would assume Bank of America will be added to that list.  Fannie Mae sent out a memorandum months ago telling servicers that in order to be reimbursed under HAMP they would have to produce the assignment paperwork showing that the loan in question was assigned to the trust.  And Wells Fargo’s answer is nothing short of surreal, and in my mind, anyway, shows how these people think.

Wells decided that it would create an addendum to its contracts, so that someone buying a Wells foreclosure, would acknowledge that they may not be getting a clear title to the property.  And that the buyer agrees to hold Wells harmless no matter what happens in the future.

It’s a handy-dandy new document that Wells shows up with at the end of the transaction, so obviously they’re very interested in buyers taking the time to read it carefully.  Not only that, but Wells is even offering incentives so buyers of these properties won’t hire their own attorney to review the document and instead use one of the bank’s lawyers.  And isn’t that oh so nice of them.

Naked Capitalism, a blog written by Yves Smith, who is wicked smart and someone I’ve absolutely fallen in love with lately, posted the following about the new Wells Fargo addendum.  (Check out her blog here… I love it when she comes in to comment on a post and says, “Yves here.”  That’s hot.)

“Confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.

If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.  With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

Let’s go back and give a bit of context. Wells is encouraging buyers in foreclosures to use its attorney and title insurers and reportedly offers to split fees. So the bank is taking steps to steer buyers not to get legal advice.

This matters because the problems in this document would not be evident to a layperson. And it’s not even evident to lawyers not expert in real estate; I learned about this situation because a lawyer I know who does a fair bit of real estate work had been contacted by a friend of his, a lawyer looking to buy a house over foreclosure. Wells had presented the prospective buyer with this supposed “standard” addendum on the day of closing and said they would NOT negotiate it.  The buyer was advised not to sign it.

On the surface, this document may not seem all that troubling. But what it does, in effect, is say “Warning, warning, you are buying a property out of foreclosure, there is risk here, and you can’t hold us responsible for anything we told you in the sale process.”

Now the not-trivial problem with that is: how can you possibly evaluate the risk of buying a property out of foreclosure without asking the current owner? And if the current owner isn’t legally responsible for what they say, or more important, what they deny is a problem, they buyer cannot perform effective due diligence.

This vitiates a principle that is well embodied in most areas of consumer and business law, that a seller is liable for the representations he makes about his wares.

But according to AFX Title, the bank may own nothing.

It may have foreclosed without having a clear enforceable right to the property (this is the basis of the burgeoning number of cases where borrowers are successfully challenging the bank/servicer’s right to foreclose, because it cannot prove it actually owns the note, which is the IOU between the borrower and the lender; if you don’t own the note, in 45 states, you have no right to enforce the lien on the property).

Now this little problem can be solved by title insurance, right? Well, guess what, some title insurers have exited the business, some others are starting to write policies with meaningful exceptions when they can’t go to the courthouse and find a clear chain of title. Oh, and Wells is trying to steer you towards their title insurer. What do you think the odds are that their title insurance policy doesn’t have exceptions?

So what is the risk? The lawyer explains:

The typical (unsophisticated) buyer thinks that because they have a lawyer at closing (no matter whose lawyer it is), a title policy, etc…….that they are all safe and sound. They struggle through one of these REO transactions for a month or two, finally get in the house, something bad goes wrong, and they find out that 1) the title policy won’t cover them and 2) the land isn’t unique (see the nasty provision in paragraph 27 on “specific performance”), so a refund is all you get – and you are out on your ear. Hopefully, with a refund – and that may be the best outcome.

But if somebody comes in, and voids a foreclosure, your title policy doesn’t pay – Wells Fargo has clearly disclosed that this was a foreclosure, so you only got what they had (nothing), and you have no recourse, no insurance, and guess what, an unsecured loan for half a million bucks.

Think the risk isn’t real? Then why has Wells bothered to insist that REO buyers sign a new type of addendum, when it has been selling REO for decades? This effort to shift all title risks on to the buyer is a tacit admission of problems. And look at the document itself. The buyer has to initial it in eight places as well as sign it. That’s a clear statement of Wells’ intent to shift the risk to the buyer.

Wait until the masses find out what is going on in the Florida court system and realize thousands of properties a week are hitting the market with title problems. In my opinion, titles in Florida, and probably everywhere else have been destroyed…

Here’s a link to the new Wells Fargo addendum… check it out…

Buyer Beware – Wells Fargo Standard Sellers Form REO Addendum

At this point, Moody’s is reviewing the ratings of GMAC and JPMorgan Chase for possible downgrade, and Treasury is asking regulators to investigate.  If you’re a Wall Street or large commercial banker, none of this is good news.

The courts have said that for the mortgages filed in the name of MERS, the chain of title has been irrevocably broken and it cannot be repaired. Not only have the recent decisions held that MERS cannot foreclose, but the courts have also ruled that it cannot convey title by assignment so as to allow the trustee for the investors to foreclose. MERS breaks the chain of title so that no one has standing to foreclose. In theory, the homes are effectively owned free and clear.

But the homeowners must owe money to someone, right?  Maybe. But the claim would be for equitable relief, meaning the courts would have to decide what is a fair resolution. And MERS won’t be the plaintiff.

MERS registration always involves a securitized loan, so the actual “parties in interest” are a group of investors that may or may not know each other.  Before the homeowners can be ordered by the court to pay, the investors have to come to court and prove that they are in fact the parties owed the money, and how much money they are owed.

The reason for this is that the investors, since they were not a party-in-interest to the promissory note, meaning they weren’t even in the picture when the borrower borrowed the money, and with no way to re-establish the chain of title, are only entitled to a remedy “in equity” as opposed to “in law”.  Now I’m not entirely sure what that means, but one thing it does mean is that they are only entitled to recover their out-of-pocket amounts and no more.

The problem is that in many instances, the credit default swaps held by the investment pool, have already repaid the investors as far as their out-of-pocket goes.  So, they’re not entitled to receive anything further… they’re already paid in full, or will be as a result of the insurance purchased.

Keeping it Simple…

Okay, so now I’m going to over-simplify, because I’m an overly simple type person, and if we don’t simplify, we’ll start to lose our ability to concentrate on this arcane topic, right?  I know… right.

The banks never assigned the notes to the trusts.  April Charney has explained this to me so many times I couldn’t even count them, so I’m going to try to explain it here, and no doubt screw it up to some degree.  So, April… don’t yell at me… here goes.  A securitized loan must be transferred from A to B to C to D.

A company originates the loan and let’s say it was New Century.  They originated the loan, and sold the loan, so they’ve been paid in full, besides the fact that they’ve long since filed for bankruptcy. They were supposed to assign the loan to…

A. The Affiliate – Would have been NC Capital.  An “affiliate” is a company that works with the warehouse lender, which is where New Century gets the money they lend.  So, if Morgan Stanley were the warehouse lender, then the securitized pool of loans in trust might be called: “Morgan Stanley ABS Capital I-Inc. 2006-NC-2”.  The last part indicates that it was the second securitization in 2006 by NC Capital.  The Affiliate was supposed to assign the loan to…

B. The Sponsor – Or, in other words, the warehouse lender who is sponsoring the securitization, is creating the pool of loans and will transfer the loans into the pool, which will be held by the trust.  The sponsor was supposed to assign the loan to…

C. The Depositor – A wholly owned subsidiary of the sponsor.  The depositor was supposed to assign the loan to…

D. The Trust – Ultimately this will become a REMIC trust, which is a type of trust created in 1986 by the Tax Reform Act of that same year.  REMIC stands for Real Estate Mortgage Investment Conduit, and as far as taxes are concerned, they function like a Sub Chapter S corporation, they don’t pay taxes.  The investors in the trust pay the taxes, as the holders of “pass through certificates” that entitle the holder to a slice of the cash flows produced by the pool of loans held in the trust.  Any tax liabilities pass through the trust to the investors.

The REMIC trusts issued and sold different types of certificates to investors.  In one trust was found certificate types: A, M, P, X, and R, with some being issued and others not.  One class of certificate in this instance was the securitization of late fees associated with the loans.  Yes, they were even securitizing the late fees.

The other important thing about REMIC trusts is that they have very strict rules, as do the Pooling & Servicing Agreements that govern the relationships between the investors and the mortgage servicers.  And one key rule is that REMIC trusts don’t allow for late transfers, they only enjoy their tax treatment on the loans in the trust on day one.  You can’t put assets into a REMIC trust “later,” if you do, the transfers are subject to a 100% contribution tax.  (The PSAs also prohibit such late transfers, at least for the most part, as I understand it.)

Missing the Assignment…

But none of that, the A to B to C to D stuff, or lets say very little of it, was done.  And as a result, the loans were never assigned to the trusts.  We know that because that’s what the robo-signers are trying to cover up.

So, the question should be WHY?  Why didn’t the bankers go to the trouble of properly assigning the loans to the trusts?  I have to believe that the Wall Street crowd knew their alphabet, at least to the letter “D,” even if they did have to sign the song in order to remember it.  So, why didn’t they do it right the first time.

There are several opinions about why this wasn’t done; I’ve asked around and heard several theories.  Many say the Wall Street bankers were just too busy selling the loans over and over to trouble themselves with the real estate paperwork, but I can’t buy that.  Not all of the banks would have been too busy and unconcerned about such paperwork at the same time.

A friend and business associate of mine, who spent more than two decades as a US Attorney, suggested that there had to be a benefit, some reason that they didn’t assign the loans to the trusts, and that led me to one place: the “repo agreements”.  Last year, I read the book about what happened at Bear Stearns and the one thing that never resolved itself in my mind were called “repo agreements”.  I never totally got what they were all about, but as soon as I heard “there has to be a benefit,” the repo agreements went DING!

In our lives, “repo” means repossession, but I remembered that at Bear Stearns the term “repo” was being used to mean “repurchase”.  And I remembered that because I hate it when people play games with the English, unless it’s their second language.

So, I remembered reading about how the guys at Bear were leveraging something in order to juice their returns, and they were using these repo agreements to do it.  They worked something like this: Bear would borrow money and pledge assets as collateral in the repo agreements, and the deal was that they’d buy the assets back at a certain date at some fixed or variable interest rate.

I remember thinking… well, that’s pretty much how a pawn shop works, no?  Why don’t they just say that… they pawn their assets?

So, why didn’t the bankers assign the loans to the trusts?  I don’t know… for sure.  But I’m going to go out on a limb here and tell you it’s because they wanted to borrow against them, and once assigned to the trust, they wouldn’t be able to pledge them in a repo agreement and thereby get the cash they needed to invest and juice their returns with borrowed money.  They like to call it leverage, but leveraging assets you really don’t own, in order to borrow money and invest it… well, it doesn’t sound like something that’s strictly legal… although again, I’m not entirely sure.

I’m working on it though, and I plan to be sure soon.  And you’ll be the second to know… right after me.

The Bottom-Line… for Now

What we do know for sure is that the loans were never assigned to the trusts… the trusts are empty, so the trusts cannot foreclose.  Who can?  Perhaps no one can, and perhaps those that have these loans, made between 2003 and 2007, will never be able to get a clear title to their properties.  I’m not sure what they’ll try to do to fix this problem, and neither is anyone else.

April Charney told me: “Our bankers went around the world spreading HIV.  Now we all have full blown AIDS.  You want to know the answer: Buy a lot of coffins.”

She really knows how to turn a phrase, don’t you think?

We also know that the bankers are guilty of breaking so many laws it’s impossible to count them at this point.  There’s tax fraud and securities fraud on a scale never before contemplated.

If the loans weren’t assigned to the REMIC trusts, then someone should have been paying the taxes due, corporate taxes at the highest rate, which is about 35%.  Of course, no one has paid taxes on these loan proceeds as they’ve been inside REMIC trusts… or not.  Yes, that sounds like it’s at least tax fraud… but what do I know?  And selling mortgage-backed securities all over the world that were missing the mortgage-backed part, well… that sure sounds like securities fraud, but who am I to say?

So, who does own the loans?  Not the originator, because they already sold the loan and were paid in full.  Not the trust, because if the loan was never assigned to the REMIC trust, then it’s illegal to transfer it now, and forging documents or signing thousands of affidavits isn’t going to cut it.  And if it’s the investors, well… their remedy is “in equity” and the credit default swap has already provided such equitable relief.  I suppose someone could argue that the bond insurer should own something, but you’d never be able to tie their payments to an individual property, and besides, they were never a party to anything here.

Some people may actually not owe their mortgages, and they may never have a clear title to the property either.  It’s a mess, no question about it.  Wouldn’t it have been easier to modify the loans… write them down to their market value, amend the loans in some way?  One things for sure, the litigation is going to go on for some time.


“Blaming borrowers for this crisis, is like blaming the passengers of a discount airline after the plane crashes and it comes out that it was being flown by a monkey.  Didn’t those people know they should have paid more for their tickets?”

From The Great American Stick Up, by Robert Sheer

As I’ve been saying for almost two years now… it’s not the borrowers that caused this crisis, it’s the bankers.  It’s not a housing meltdown or a mortgage meltdown, it’s our bankers that broke the bond and credit markets, and that’s what caused the free fall in housing prices that has taken millions down with it, while the bankers that caused the crisis have profited beyond all reason.  It’s a travesty and a tragedy that defies imagination.

Greenspan, Summers, Rubin, Grahm, Bair, Leech, Freddie, Fannie, Clinton, Bush, Reagan… along with the Wall Street banksters and their lobbyists, and let’s not forget the complete and utter failure of all of our regulatory agencies… well, the real question is when will the rest of the world come to trust our country’s banking and securities industries and markets… 50 years?  A long time, there’s no question about that.

So, get ready to watch as it unfolds.  It’ll be weekly at this point, and right before the mid-terms is guaranteed to include some desperate politicians trying to prove that they are responsive to their constituents, after essentially ignoring them for the last two years.  My guess is that they started polling and discovered that we don’t like them much… none of us.

But, unfortunately, the pain is far from over… in fact, in many ways, it’s just beginning.

I may not be an expert here, but that’s mostly because I’m not sure there is a true expert here.  Nothing like this has ever happened before.  But I’ll tell you one safe statement to make to bankers even at this early stage in the onion’s unraveling: “Lucy… jou got some ‘splainin’ to do.”

And stay tuned… there’s lots more to come.  Same bat time, same bat channel.

Mandelman out.

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