PBS explains robo-signing foreclosure mess

columbiacounty Ignored comment. Unhide

What does that mean?

columbiacounty Ignored comment. Unhide

Oh sorry, I was just trying to quote you, but I forgot to go through the multitude of the steps that streeteasy readers need in order to read what you wrote before I did the cut and paste and pressed Reply.

You don't know?

http://www.youtube.com/watch?v=1j2esw2B8TI

For these reasons, and not surprisingly, most every (or maybe even every--I'll let someone else do the 50-state survey) state provides the strongest possible finality protections for deeds obtained through foreclosure sales. We also see similar rules for other judicially supervised sales in other contexts such as sales of personal property subject to a security interest or bankruptcy sales. Illinois law, for example, states that the transfer of a deed of foreclosure is an "entire bar" of all claims by anyone who was a party to the proceeding or anyone who had notice of the proceeding. Even if someone manages to overturn a judgment of foreclosure, the claim is limited only to the proceeds of the, not to a return of the property. See 735 ILCS 5/15-1509. Illinois is a judicial foreclosure state, but similar rules exist in states that allow nonjudicial foreclosures through powers of sale. E.g., Cal. Civil Code § 2924(c).

http://www.creditslips.org/creditslips/2010/10/the-finality-of-foreclosure-sales.html

Suppose Henry and Helen Homeowner lost their home in foreclosure proceeding, and it has since been purchased by Bill and Betty Buyer. Now, Henry and Helen discover the affidavits in their foreclosure proceeding had some of the very same apparently fraudulent signatures reported in the media. When Henry and Helen complain to the court, the answer should be: "Your complaint is against Deutsche Bank (or whoever foreclosed) and not against Bill and Betty. You can recover damages from Deutsche Bank but not eject Henry and Helen from possession." In turn, this will mean that that Bill and Betty (or their lender) will not have to look to the title insurer for recovery.

In theory, the law on the books thus should protect title insurers, but they have should have some very real "on the ground" concerns. One of the best and worst parts of our judicial system is that anyone has access to the courts to assert their grievance against another. Henry and Helen Homeowner should not have a claim against Bill and Betty, but that does not mean they won't attempt to assert it, drawing in turn Bill and Betty's title insurer into the litigation. It is very understandable that title insurance companies are trying to limit their exposure to litigation by stopping to write title insurance on foreclosed properties sold through some of the troubled financial institutions. Also, one must remember that hard facts often make for bad law. Bill and Betty have a hard luck story that may lead some judges to try to find ways around long-standing doctrines they should let be. Another legitimate concern is the political pressure that will build for a legislative or administrative solution that will drag in the title insurers.

There's a lot of wonderful technical stuff involved with wrongful foreclosure claims, but the basic problem is pretty easy to understand: you have to own a mortgage in order to bring a foreclosure action. If you don't own the mortgage, you don't have any right to kick someone out of his/her house, even if that person has defaulted on his/her mortgage. And GMAC/JPMChase are sufficiently worried that the trusts they service might not own the mortgages they are foreclosing on that they have put a halt to their foreclosure actions.

Consider, though, what it means if there have been widescale wrongful foreclosures. If these foreclosures were nonjudicial foreclosures (and maybe even for judicial foreclosures), it means that the foreclosure sale purchasers have clouded title. The homeowner still has claim to the property and there might still be a valid mortgage on it. And as many foreclosure sales end up with the lender buying the property and reselling it, what does that mean for the eventual end-buyer? What does that mean for their title insurer? This raises all of the classic bona fide purchaser protection issues, but as the linked article reports, at least one title insurer has gotten spooked.

Consider also what this means for homeowners who are current on their mortgages and want to sell their house. Are we sure who actually owns their mortgage? If not, there's a problem. If it is owned by A, it doesn't do any good for B to release the mortgage upon the sale. I think the title insurers' potential problem goes much further--it's not just title to foreclosed mortgages that are in question, it's potentially all private-label securitized mortgages. Once the title insurers recognize the potential danger here, how willing will they be to write new policies? And without those policies, how many folks will be able to get mortgages to buy houses? (And without new business, the title insurers are themselves going to be a bind). I'm very curious to see how the title insurance industry handles this problem.

http://www.creditslips.org/creditslips/mortgage_debt_home_equity/

Bank of America’s agreement with Jacksonville, Florida- based Fidelity National calls for the lender to cover the title insurer’s costs in the event of an error in the company’s processing of foreclosure documents, Sadowski said. The bank will notify the insurer in each case that the foreclosure complies with state laws and regulations.

Bank of America is in talks with other title insurers for similar agreements, said Richard Bramhall, the bank’s chief title officer. He declined to name the other companies.

“Our goal is to restore order to the chaos,” he said. “We’re optimistic that this will help calm the waters in regard to all the anxiety you see all over the country.”

http://www.bloomberg.com/news/2010-10-11/title-insurers-are-in-talks-on-creating-foreclosure-warranties-group-says.html

RS: great research on this site. thanks. it is an intoxicating and devastating story in all its detail. and i think it will affect us all in one way or another.

"Dear Brian Moynihan: Here's Why Bank Of America Owes The Bond Insurers $10-$20 Billion"

"( ) here's the letter that was sent in early September to Bank of America CEO Brian Moynihan from the Association of Financial Guaranty Insurers (the monolines) arguing why they believe his bank will owe their members $10-20 billion for mortgage repurchases"

http://www.businessinsider.com/association-of-financial-guaranty-insurers-letter-to-bank-of-america-2010-10

BoA will be needing a bailout soon....

....and here we go:

"Is The Congress About To Pass A Bailout, And Save The Banks From The Mortgage-Putback Crisis?"

"John Carney at CNBC Net Net argues that there's no way any big crisis will result from the mortgage putback scandal because there will be a Congressional bailout. His post is titled: "Sorry Folks, The Put-Back Apocalypse Ain't Gonna Happen." His argument is that this is just a paperwork crisis, and there's no way banks will be left to sink due to paperwork:

'Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.
...
So here’s what I expect will happen. The lame duck session of Congress will pass a bill that essentially papers over the misdeeds of the banks that originated mortgage securities. Every member of Congress and every Senator who has been voted out of office will cast a vote for the bill. And the President will sign it.'"

http://www.businessinsider.com/mortgage-putback-crisis-bailout-2010-10

Too Big To Fail, Part Deux.

So you think that Congress can do a successful end run around contract law?

Even if Congress smoothes over the title paperwork, how could the SEC let the underwriting fraud stand considering how they went after Goldman? Felix Simon, (see RS post above) had evidence that the banks ignored the findings of their own hire, Clayton Holdings, that large percentages of the pools of mortgages were tainted by poor underwriting standards and the banks took them anyway without informing investors. That is more concrete than Goldman's problem of John Paulson having a proprietary interest in picking securitization product.

Not that the govt wouldn't do anything to save the status quo. So who knows.

For the record, the Felix Simon piece that started the recent uproar:

http://blogs.reuters.com/felix-salmon/2010/10/13/the-enormous-mortgage-bond-scandal/

"So you think that Congress can do a successful end run around contract law?" - Yes.

So you think that Congress can do a successful end run around contract law?" - Yes.

Ha. You are probably right since it seems like that is the only way to avoid the return of specter of fraud that the first bailout covered up. We wouldn't want those first bailout billions compromised would we? Still, to erode the sanctity of contract law will undermine the one thing that our markets have touted for secure US investments. No wonder volume in the Dow is so damn low. There is no level playing field. I think that even if this mess is covered over, the equity markets will suffer over the next few years. Securitization will be f#*ked as this is covered over. Pension and union funds won't touch those markets again. And with no securitization, no big credit.

The Clayton issue just brings back all the double talk we saw on Goldman and Abacus. Would be very interesting to hear if clients ever requested data on sampling rejection rates.

Woe, just pulled up Felix's site today and he says something virtually identical..
also this was not publicly available info. The laon tapes that go out to buyers do not have the information that helps figure this stuff out(i.e. that the loan wasn't underwritten according to guideline)

http://blogs.reuters.com/felix-salmon/2010/10/18/the-mortgage-bond-scandal-faq/

Just like the Goldman Abacus case, it’s fundamentally about investment banks’ lies of omission when it came to the investors who were buying bonds from them.

In that case, Goldman neglected to tell investors that John Paulson, who had helped select the bonds in a CDO, was also short the CDO. In this case, what’s the information that the investment banks neglected to tell investors?

The results of the due diligence tests that companies like Clayton and Allonhill performed on the loan pools the investment banks were buying.

But isn’t Clayton’s research just like anybody else’s research—just an opinion about publicly-available information? Investment banks doing a secondary offering of shares don’t need to tell investors about other banks’ buy or sell ratings on those shares, even if those ratings affect the share price.

No, this is different. Because the loan files that Clayton had access to were not publicly available. And in any case, Clayton wasn’t being paid for its opinion. It was being paid to diligently go through a subset of the loan pool, one loan at a time, and check each loan against various underwriting standards. Clayton’s opinion didn’t matter to anyone. What mattered was the new information that Clayton dug up.

And more from Felix....

The banks were willing to pay X for the loan pool based on the electronic file data supplied by the originators, but after having Clayton go in and test that electronic data against the original loan files, the banks were only willing to pay some sum less than X.

RS: great post. it obviously confirmed my above suspicion that this is worse than goldman but after i read the entire felix post it raises another question. If Citi lowered the purchase price of the pool after they got the Clayton findings, did they pass those savings onto the customer. And, if they did, could they then argue that they did protect the investor by lowering the risk (thru cost price) and thus they did in fact respond to the Clayton risk findings --without publishing huge volumes of info? If there was a pricing change from their original projections, it would all be on internal documents so prosecutors would have trouble finding the info. But if the internal projections never changed after the discount they achieved it would be hard to argue that they were forthcoming with material info. I have no legal background but it is an interesting question to me.

Also, perplexed by the end of felix post which said there may not be any law suits. Wouldn't Calpers or Harvard who lost tons of bucks on these securitizations have an obligation to their constituents to seek redress from fraudulent contracts in their funds?

Apt 23, there's no way in hell they lowered the price to customers. The goal is to sell the assets at the highest price and fund the assets at the lowest price. This is the basic arbitrage of every deal. What does not sound right is that they achieved the lower cost of loans by discovering material information(it was material enough to put back loans or purchase them cheaper) which arguably should have been made available to clients. Basically, what Clayton told them was that loans issued under blank x's easy-doc under-writing guideline didnt' meet the guideline. It stands to reason that if they tested 30% of the loans, then valuable information was learned about the other 70%. This is old information, but the losses are now so huge that clients may risk a long drawn out fight. The bond insurers in particular are likely to act as the story abouut countrywide helocs suggests(although that story was about lines of credit).

What a Calpers or Harvard could argue is that this is further proof that loans should've been bought out of the pools during the warranty period of a deal. They may further argue that they were harmed to the extent this was not done.

RD>they achieved the lower cost of loans by discovering material information(it was material enough to put back loans or purchase them cheaper) which arguably should have been made available to clients.

yes, this is true and damning. Can't see how this won't result in lawsuits. I remember a report on NPR on the bubble--before it really collapsed-- which interviewed the mortgage brokers (many former pizza delivery guys) who claimed that they were forced to lie in order to sell these loans because Bear Sterns brokers were calling the mortgage companies everyday demanding more mortgages that they could package. Countrywide blanketed poor zip codes - poor housing developments-- with offers of ninja loans -- all fraudulent claims. Even the US post office could sue some of these guys. It is incredible to think that pension funds which are desperately underfunded won't end up suing the banks.

page 231 from Felix(SEC act of 1934).. unless it was Repealed along with Glass Stegal
http://www.sec.gov/about/laws/sea34.pdf

(4) DUE DILIGENCE SERVICES FOR ASSET-BACKED SECURITIES.—
(A)
FINDINGS.—The issuer or underwriter of any asset-backed security shall make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter.

Apt23, what's lost in the uproar of Fannie & Freddie is that Wall Street and the Banks frequently gamed the GSE'S underwriting standards/pricing sending them the worst loans or loans that actually did not meet standards.

http://www.businessweek.com/news/2010-10-18/mortgage-buybacks-may-cost-lenders-120-billion-jpmorgan-says.html

Oct. 18 (Bloomberg) -- Forced repurchases of soured U.S. mortgages may be the “biggest issue facing banks” even as errors in the foreclosure process draw attention to other industry risks, according to JPMorgan Chase & Co. analysts.

Future losses from repurchases of home loans whose quality failed to meet sellers’ promises will likely total $55 billion to $120 billion, or potentially $10 billion to $25 billion for the next five years, the New York-based mortgage-bond analysts led by John Sim and Ed Reardon wrote in a Oct. 15 report.

Well, that was fast:

"The Crisis Is Over: Bank Of America Is Set To Begin Foreclosures Again"

"Bank of America says it plans to start re-submitting foreclosures in 23 states next week, and that all in all the foreclosure-gate stuff will affect about 30,000 mortgages. A spokesperson told WSJ that it had not found a single case of a foreclosure without justification, which is key."

http://www.businessinsider.com/bank-of-america-to-resumpit-foreclosures-2010-10

They conducted a thorough judicial review. Due process and all necesitated a speedy examination of all relevant facts. Apparently BAC was able to outsource the task to a top lawyer in the field one David J Stern.

Really? So is Branch Hill study of BOA's exposure moot?:

http://www.businessinsider.com/manal-mehta-branch-hill-capital-bac-2010-10#-3

Not sure if you caught my sarchasm apt23.

David J Stern..

When you look at the foreclosure backlog and the still open issues regarding clouded title and the availability of title insurance you have to take today's bank america announcement with more than just a grain of salt. Sorry, I won't believe it till I see it.

apt23
about 4 hours ago
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Really? So is Branch Hill study of BOA's exposure moot?:
http://www.businessinsider.com/manal-mehta-branch-hill-capital-bac-2010-10#-3

Hey, great link, Henry Blodgett. I guess since he gets along with Elliot Spitzer now, things are cool. Oh wait. Disgraced Henry, disgraced Spitzer, apt23 falsely reported a felony gun crime by her husband.

http://norris.blogs.nytimes.com/2010/10/18/the-homeowner-wins-without-a-lawyer/

n a column on Tuesday, I discuss legal arguments regarding whether MERS — Mortgage Electronic Registration Systems — has violated state real estate laws, and note a couple of cases where rulings have gone against it.

One of those cases, in Oregon, may prove to be a classic example of how a single person can affect the legal system. The case was filed by Natache D. Rinegard-Guirma, a homeowner in Portland who is way behind in mortgage payments. She is acting as her own lawyer.

Judge Garr M. King issued an injunction in United States District Court blocking the foreclosure of Ms. Rinegard-Guirma’s home, saying she was likely to prevail in her argument that the basic structure of MERS violates Oregon law and renders the mortgage invalid.

In her complaint, she sees a conspiracy to drive her out of her home, and says actions of the defendants have caused her to suffer “nausea, headaches, sleeplessness, skin rashes and depression,” for which she was treated at the Oregon College of Oriental Medicine. She says efforts to negotiate a loan modification were rebuffed, despite proof she could not afford the monthly payments.

According to the judge, the mortgage on her home was sold to one of the more troubled subprime mortgage securitizations, GSAMP Trust 2006-HE5, a Goldman Sachs deal. Under the law, the sale of the mortgage would have had to take place in 2006, around the time the securitization trust was created. The company that arranged the mortgage, Mortgage Lenders Network USA, has gone out of business.

That securitization has only eight loans from Oregon, which makes it relatively easy to spot the loan to Ms. Rinegard-Guirma. According to the September monthly report of the trust, her loan had a principal of $382,500 when it was made, was for 90 percent of the appraised valuation and now carries an interest rate of 9.1 percent.

Her first payment was made on Aug. 1, 2006, and the last on Sept. 1, 2007. She seems to have made 13 monthly payments, which together cut the principal by less than $100 a month, to $381,309.81. Since then, she has missed 34 monthly payments, and owes $99,000.87 in back interest.

One of the complaints about MERS is that financial institutions that register loans with it can get their own employees designated as MERS vice presidents. It struck me that, according to at least one news report, Mortgage Lenders Network halted operations on Jan. 3, 2007, as the subprime market was imploding.

The Oregon judge reports that “on April 15, 2008, at 4:56 a.m., Marti Noriega, acting as vice president for ‘Mortgage Electronic Registration Systems Inc. as nominee in favor of Mortgage Lenders Network USA Inc.’ signed as assignment of deed of trust” conveying the mortgage to LaSalle National Bank, the trustee of the mortgage trust. (LaSalle is now part of Bank of America.)

That date is more than six months after the last payment on the mortgage. Mortgage Lenders Network had halted operations 15 months earlier, yet still was able to have someone act as its nominee.

Note the time, before 5 a.m. According to the trust report, it began foreclosure proceedings in April 2008. Is it possible that the proceedings began the same day the deed was assigned?

The column includes excerpts from e-mails sent to me by Karmela Lejarde, a spokeswoman for MERS. But it does not include the full e-mails, which I print here.

The first e-mail came in response to my request for a comment on the article by Christopher L. Peterson, a law professor at the University of Utah. Ms. Lejarde’s reply reads:

Every single court challenge to the standing of MERS in the foreclosure process has been upheld, either in the initial court proceeding or upon appeal, when proper evidence is presented before the court. Prof. Peterson’s assertion that “virtually any company can show up, claim to own the note, and proceed to foreclose,” is false. Foreclosure is a terrible thing for homeowners but none of the confusion surrounding erroneous foreclosures can be ascribed to MERS.

MERS does not create a defect in the mortgage or deed of trust. Claims that MERS disrupts or creates a defect in the mortgage or deed of trust are not supported by fact or legal precedents. This argument is often used as a tactic by lawyers to delay or prevent the foreclosure. The mortgage lien is granted to MERS by the borrower and the seller at closing and that is what makes MERS the mortgagee. The role of mortgagee is legal and binding and confers to MERS certain legal rights and responsibilities.

MERS does not initiate foreclosure proceedings; it is the lender that initiates the proceeding. Similarly, certifying officers are designated by lending institutions and are allowed to execute only certain documents on behalf of MERS. Certifying officers selected by their employer are expected to fully comply with the policies of the lending institution for which they work, as well as MERS guidelines and all applicable laws and regulations.

Regarding the recording issue that was raised several times in the report, MERS fully complies with all recording statutes. The purpose of recording laws is to show that a lien exists, which protects the mortgagee and any bona fide purchasers. When MERS is the mortgagee, the mortgage or deed of trust is recorded, and all recording fees are paid. As for the fees themselves, these are local fees for service; if no service is needed or requested, no fee is appropriate. Additionally, any costs savings on fees are passed on to consumers.

MERS does not remove, omit, or otherwise fail to report land ownership information from public records and the trail of ownership does not change because of MERS. Parties are put on notice that MERS is the mortgagee and notifications by third parties can be sent to MERS. Mortgages and deeds of trust still get recorded in the land records.

The MERS System tracks the changes in servicing rights and beneficial ownership. No legal interests are transferred on the MERS System, including servicing and ownership. In fact, MERS is the only publicly available comprehensive source for note ownership.

While this information is tracked through the MERS System, the paperwork still exists to prove that actual legal transfers occurred. No mortgage ownership documents have disappeared because loans were registered on the MERS System. These documents exist now as they have before MERS was created.

We hope this helps clear up some of the confusion on these issues.

In response, I asked Ms. Lejarde, the MERS spokeswoman, how the Arkansas Supreme Court ruling squared with the statement that, “Every single court challenge to the standing of MERS in the foreclosure process has been upheld, either in the initial court proceeding or upon appeal, when proper evidence is presented before the court.”

She replied:

That particular case was not about foreclosures. The Arkansas Supreme Court held in Mortgage Electronic Registration Systems, Inc. v. Southwest, 2009 WL 723182 (March 19, 2009) that even though the deed of trust specifies MERS as the beneficiary, Pulaski Mortgage Company, Inc. as the lender on the deed of trust, was the beneficiary, because Pulaski “receives payment on the debt.” This finding in the opinion misconstrues the legal rights afforded a beneficiary under a deed of trust and presupposes that the beneficiary of a deed of trust is the legal equivalent to a party receiving payments under a promissory note. The court failed to offer any legal support for its finding that Pulaski was the beneficiary because at one point it received payment on the debt. It has been established in other jurisdictions that a beneficiary named in the deed of trust is granted a security interest in the subject real estate and must be receive notice., See, e.g., Schmidt v. Langal, 874 P.2d 447 (Colo. App.1993), Monterey S.P. Partnership v. W.L. Bangham, Inc. 49 Cal.3d 454, 777 P.2d 623 (1989), In re Trustee’s Sale of the Real Property of Upton, 102 Wn.App. 220, 6 P.3d 1231 (2000); Brand v. First Federal Savings & Loan Ass’n of Fairbanks, 478 P.2d 829 (Alaska 1970); Lohr v. Cobur Corp., 654 S.W.2d 883, 885 (Mo. 1983); Wylie v. Patton, 111 Idaho 61, 720 P.2d 649 (1986); Kenly v. Miracle Properties, 412 F.Supp. 1072, 1075 (D. Ariz. 1976). All parties to the deed of trust, the contract governing this transaction, agreed that MERS, as beneficiary, acquired a security interest in the underlying real property. The Court’s finding that Pulaski is the beneficiary is in direct contravention to long standing Arkansas law that it is the duty of the court to construe a contract according to the unambiguous language without enlarging or extending its terms. North v. Philliber, 269 Ark. 403, 602 S.W.2d 643 (1980). The United States Supreme Court has held in Mennonite Bd. Of Missions v. Adams that a secured party possesses a substantial property interest that is significantly affected by a foreclosure sale; and since the secured party possesses a legally protected property interest, it is constitutionally entitled to notice reasonably calculated to appraise it of the pending foreclosure sale. 462 U.S. 791, 103 S.Ct. 2706 (1983).

The boldface emphasis was from Ms. Lejarde.

The Oregon case is Natache D. Rinegard-Guirma v. Bank of America in United States District Court in Oregon, Civil Case No. 10-1065-PK. In the trust records, which I found on Bloomberg, the loan has the number 404029308. The Arkansas case is Mortgage Electronic Registration Systems Inc. v. Southwest Homes of Arkansas, 2009 Ark. 152, 301 S.W.3d 1 (Ark 2009).

http://norris.blogs.nytimes.com/2010/10/18/the-homeowner-wins-without-a-lawyer/

Norris makes a great point here. How can a company which has halted operations and gone bankrupt have vice president foreclosing on loans. This is a legal maneuver which in this case is obscene to the point of being ridiculous.
----------------------------------------------

The Oregon judge reports that “on April 15, 2008, at 4:56 a.m., Marti Noriega, acting as vice president for ‘Mortgage Electronic Registration Systems Inc. as nominee in favor of Mortgage Lenders Network USA Inc.’ signed as assignment of deed of trust” conveying the mortgage to LaSalle National Bank, the trustee of the mortgage trust. (LaSalle is now part of Bank of America.)

That date is more than six months after the last payment on the mortgage. Mortgage Lenders Network had halted operations 15 months earlier, yet still was able to have someone act as its nominee.

Note the time, before 5 a.m. According to the trust report, it began foreclosure proceedings in April 2008. Is it possible that the proceedings began the same day the deed was assigned?

Whalen-- Bring back Jesse Jones and Reconstruction Finance Corporation.

http://www.washingtonpost.com/wp-dyn/content/video/2010/10/18/VI2010101804450.html

Well, that was fast:

"The Crisis Is Over: Bank Of America Is Set To Begin Foreclosures Again"

----------------

Don't think so. This was a p.r. move. The banks have foreclosure backlog anyway and can cherry pick which loans they do move on. The issue of whether the banks can foreclose in all instances is still very much alive.

RS: I did get your sarcasm. I was responding to the BOA post of Crisis being over.

I think the govt will find some way to allow MERS to be legit transfer, otherwise the entire system collapses and as the Georgetown professor claimed in above post, No one in the US would have clear title to their property.

However, securitization issue is another matter. Even in your Oregon post above, they transferred a mortgage into the trust six months after payments on the note had stopped. Was a bad note put into the trust so it could be sold into a CDO pool and the loss could be passed on to someone else?

I think it will be a slow process but I think this issue will raise its head in the coming years when law suits begin. So, for posterity, I post the following comment from a Tool for the securitization industry claiming that there was no malfeasance at all with the securitization process. We can re visit this thread a couple of years from now and track how the banks went from 'Pretend and Extend' to "Lie and Deny"

http://www.cnbc.com/id/15840232?video=1618302372&play=1

Tom Deutsche sounds very convincing, however it is important to point out that he represents a trade group AND HE MUST PROFESS THAT THE TRUSTS OWN THE MORTGAGES AND COMMUNICATE THAT THE TRUSTS ARE MONEY GOOD.

And you can take that to the bank!!!

http://www.bloomberg.com/news/2010-10-19/pimco-new-york-fed-said-to-seek-bank-of-america-repurchase-of-mortgages.html

Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said

Countrywide also hasn’t met its contractual obligations as a servicer because it hasn’t asked for repurchases itself and is taking too long with foreclosures, either because of document or process mistakes or because it doesn’t have enough staff to evaluate borrowers for loan modifications, Patrick said. If the issues aren’t fixed within 60 days, BNY Mellon should declare Countrywide in default of its contracts, she said.

“The letter states a demand directed to Countrywide to cure the defaults,” said Kevin Heine, a spokesman for BNY Mellon. “It does not ask BNY Mellon to take any action. BNY Mellon will continue to perform its duties as trustee.”

Here is the lawyer filing the suit. She sounds pretty sure that she will prevail due to fraudulent origination of loans.

What I can't understand is the number of analysts on TV who are actually advising to buy financial stocks while they are down. One proclaiming that the $120Billion risk to the financial industry is not that much. Makes one wonder if they are trying to prop up the market so they can get out of positions themselves.

http://www.cnbc.com/id/15840232?video=1619469657&play=1

Analyts making bad calls? Brings back memories of the internet bubble. Rember Henry Blodget?

Wonder what returns these analyts have on their P.A.'s and what they invest in.

Considering we now have a consumer protection agency and that Obama and the Democrats have gone on record as being pro-consumer, they're really going to have a problem if they are too blatantly pro-bank. And as a constitutional lawyer Obama would have no excuse..Interesting times... which brings up this piece I came across.
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http://www.washingtonpost.com/wp-dyn/content/article/2010/10/19/AR2010101904845.html
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Federal law enforcement officials are investigating possible criminal violations in connection with the national foreclosure crisis, examining whether financial firms broke federal laws when they filed fraudulent court documents to seize people's homes, according to people familiar with the matter.

The Obama administration's Financial Fraud Enforcement Task Force is in the early stages of an investigation into whether banks and other companies that submitted flawed paperwork in state foreclosure proceedings may also have misled federal housing agencies, which now own or insure a majority of home loans, according to these sources.

The task force, which includes investigators from the Justice Department, Department of Housing and Urban Development and other agencies, is also looking into whether the submission of flawed paperwork during the foreclosure process violated mail or wire fraud laws. Financial fraud cases often involve these statutes.

The probe is unfolding as the administration seeks to send a public message that banks or other companies that broke the law would be held accountable. After freezing foreclosures in many states amid reports of improper foreclosures, banks are now preparing to submit new paperwork and resume the process of seizing homes. Members of the task force and other administration officials are set to hold a wide-ranging meeting Wednesday to discuss the issue at HUD. That will be followed by a White House briefing by HUD Secretary Shaun Donovan and the task force executive director, Robb Adkins, an administration official said.

i'm not a lawyer much less a constitutional lawyer.

Here's my problem: if someone took out a mortgage and somehow the paperwork is screwed up, yet there is no doubt that he/she took out the mortgage. Now he/she can't pay. I would vote that they are subject to foreclosure as if the paperwork were perfect.

As far as securitization goes: once again i am not a lawyer but every document that i have ever bothered to read has fine print that basically says that if there's something wrong, its my problem.

How does it help us as a society to get hung up on this stuff which may well be (again i'm not a lawyer) not exactly precisely correct yet everyone knows what the real deal is.

The nation's top bank regulator doesn't believe homeowners are being harmed directly by an ongoing foreclosure fraud scandal, despite multiple reports of banks mistakenly evicting homeowners who aren't even in foreclosure.

http://www.huffingtonpost.com/2010/10/15/top-bank-regulator-doesnt_n_764756.html

Is columbiacounty not a lawyer? We know he's a cockroach. Maybe he's a constitutional cockroach.

http://www.bloomberg.com/news/2010-10-19/u-s-electronic-mortgage-registry-comes-under-fire-in-foreclosure-crisis.html

“The problem with MERS is it takes a public function and puts it into a private entity that doesn’t seem to have any clear accountability,” said Alan White, a law professor at Valparaiso University in Indiana. “And it does it on legal grounds that seem tenuous.”

Agent and Principal

“It is axiomatic the same entity cannot simultaneously be both an agent and a principal with respect to the same property right,” Christopher Peterson, a law professor at the University of Utah in Salt Lake City, wrote in a law-review article about MERS this year.

Peterson wrote that courts should look to the actual economics of the transaction, which some have done, finding that MERS has no standing in proceedings to seize delinquent borrowers’ homes.

In a March 2009 ruling, U.S. Bankruptcy Judge Linda B. Riegle in Las Vegas decided MERS wasn’t a true beneficiary under a trust deed.

“If it doesn’t walk like a duck, talk like a duck and quack like a duck, then it’s not a duck,” she wrote.

Consumer advocates and bankruptcy attorneys who criticize MERS say it has no right to foreclose when it doesn’t hold both the promissory note and the security instrument -- the mortgage or trust deed. The U.S. Supreme Court ruled in 1872 that a mortgage has no separate existence from the note, Peterson wrote.

Legal Right

“It appears that on a widespread and probably pervasive basis, they did not take the steps necessary to own the note,” Grayson said in a Sept. 30 video he recorded about MERS, “which means that in 45 out of the 50 states they lack the legal right to foreclose.”

MERS says it has the right to foreclose because the borrower grants the company legal title to the mortgage and it forecloses as agent for the promissory-note holder. “Courts around the country have repeatedly upheld and recognized this right,” MERS said in an Oct. 4 e-mailed statement.

Since March 2009, supreme courts in Arkansas, Kansas and Maine have found that MERS had no standing in foreclosure proceedings under their states’ laws. The company lends no money and suffers no injury, the panels said.

MERS’s relationship to the bank that owned a loan in question was “more akin to that of a straw man than to a party possessing all the rights given a buyer,” the Kansas Supreme Court wrote. “What stake in the outcome of an independent action for foreclosure could MERS have?”

Minnesota Victory

MERS won a high-court victory last year when the Minnesota Supreme Court declared the company doesn’t have to record the sale of a promissory note, as opposed to a mortgage, at the county office before a foreclosure can begin.

Citing a 2004 state law it called “the MERS statute,” the Minnesota court said “the legislature appears to have given approval to MERS’s operating system for purposes of recording.” A MERS lawyer helped draft the law, Arnold, the company CEO, said in the deposition last year.

In response to the Kansas decision, the state legislature there changed court-procedure rules this year to require a “nominee of record” to be made part of such lawsuits.

Eventually high courts in states with judicial oversight of foreclosures will have to review MERS’s role, Patrick A. Randolph, a professor at the University of Missouri-Kansas City specializing in real-estate law, said in an interview.

“It’s a question of state law,” Randolph said. “The problem is simply confusion about a word the courts are not used to seeing in this context -- the word ‘nominee.’”

Lien Holder

Under its contracts, MERS is the mortgage owner’s agent and has the right to foreclose, said Randolph, who is also affiliated with a St. Louis law firm, Husch Blackwell LLP, which works for MERS, though he doesn’t handle those cases he said.

Complicating matters, MERS doesn’t handle foreclosures itself. Home-loan owners, including trustees of mortgage-backed entities, do so in its name. MERS Inc., which holds the liens, has no employees, and MERSCORP, the parent, has only about 50, Lejarde said.

MERS has also come under fire for allowing members to appoint their employees as MERS certifying officers -- as assistant secretaries or vice presidents of MERS -- to sign documents, including assignments. MERS has deputized “thousands” of such certifying officers, Arnold said.

Vexed

New York Supreme Court Justice Arthur M. Schack, a trial- level judge in Brooklyn, is particularly vexed by the practice and has tossed foreclosure actions in part because of it.

He has pointed out what he sees as a potentially serious conflict: The same person, as an “employee” of MERS -- with duties owed to the entity selling a mortgage -- assigns that mortgage to a bank at presumably market value, and then the same person, as the bank’s employee, swears an affidavit in the foreclosure case.

Schack has demanded that two-hat-wearing signers provide him with their employment histories.

Lejarde, the MERS spokeswoman, said the certifying officers are employees of the lenders, not MERS, and must follow both companies’ policies.

MERS’s certifying officers represent for the company’s critics what they see as its role in muddying mortgage titles, to the point borrowers don’t know who owns their loans -- a charge MERS strongly denies.

Previous Lender

In his case, Bellistri had notified BNC Mortgage Inc., the previous homeowner’s lender, that he bought the house in Arnold, about 18 miles southwest of St. Louis. He didn’t notify MERS, which was listed as BNC’s nominee on the trust deed.

By that time, BNC had conveyed the note to Deutsche Bank AG, as trustee of a mortgage-backed investment vehicle, though Bellistri had no way of knowing that. MERS continued to hold “legal title to the beneficial interests in the deed of trust on behalf of Deutsche Bank,” according to the federal judge’s ruling.

In the proceeding Bellistri initiated, a Missouri state court and the Missouri Court of Appeals in St. Louis named him the property’s rightful owner. Deutsche Bank had hired Ocwen Financial Corp. as servicer. MERS assigned the deed to Ocwen and said the note went with it.

The appeals court disagreed, saying MERS had no right to grant Ocwen the note because records showed it was still owned by BNC. So Ocwen lacked standing to contest Bellistri’s deed, it said. Under Missouri law, the note and deed go together, and therefore Bellistri keeps the house, the appeals court said.

Federal Suit

MERS filed a federal suit at U.S. District Court for the Eastern District of Missouri, where judge Charles A. Shaw ruled the other way. Shaw said that Bellistri failed to properly notify MERS of its redemption rights and that the state-court decision threatened MERS’s “overall business model -- at least in Missouri.”

Lawsuits elsewhere attack that business model. In Delaware federal court, homeowners accuse MERS of forcing them to pay inflated fees related to their foreclosures.

MERS and its members have been sued this year for racketeering in New York, Florida and Kentucky federal courts, accused of conspiring to falsely foreclose on loans and “to undermine and eventually eviscerate long-standing principles of real-property law.”

Dozens of lawsuits claiming MERS itself is a fraud have been consolidated for pretrial proceedings in federal court in Phoenix. The homeowners haven’t fared well there. In September 2009, U.S. District Judge James Teilborg threw out an earlier case with similar accusations. On Sept. 30, he tossed six proposed class-action, or group, lawsuits.

Defaulting Owners

Teilborg found the defaulting homeowners failed to sufficiently allege that MERS and its members conspired to commit fraud because it’s not a true beneficiary under the trust deed. They also fail to explain how MERS, as a “’sham’ beneficiary,” diminishes their need to pay back the money they borrowed, the judge said.

“At most, plaintiffs find the MERS system to be disagreeable and inconvenient to them as consumers,” Teilborg wrote.

PMorgan Chase has announced that it is no longer using the Mortgage Electronic Registration System (MERS) due to the fact that there are issues with the system properly being able to prove the ownership of mortgages. The company's exit from the MERS comes on the heels of its announcement that is has increased its foreclosure freeze to 41 states and 115,000 loan files. The foreclosure suspension was due to the emergence of the "robo-signer" issue where tens of thousands of important foreclosure proceeding documents were singed off on without proper review and notarization.

http://nationalmortgageprofessional.com/news21103/jpmorgan-chase-stop-using-mers

columbia, the BIG problem stems from the reps and warranties of the notes put into the securitizations. For the most part when Goldman sold a securitization, one of the big F'k ups in my opinion has to do with warrantying the fact the note's underwriting was based on the "home" being a primary residence. As a matter of fact, a foreclosure that I am intimately aware of deals with a person who told Countrywide that the unit in question was his/her "primary" residence. The fact of the matter is this same couple held 7 more countrywide mortgages, with each mortgage being designated "primary."

Now how does countrywide/BAC stand in court and argue that they could not have known about the "lying" application when they put in ZERO controls and/or a min. due diligence to ensure all the notes were "primary" residence. THERE were pizza delivery guys approving mortgages and getting paid $1MM bonus a year to push these mortgages, I SUSPECT a high % of these notes will be put back to BAC and it will be a long slog till it gets cleaned up.

NOT GOOD TIME TO BE SELLING NYC RE. imho

CC:How does it help us as a society to get hung up on this stuff which may well be (again i'm not a lawyer) not exactly precisely correct yet everyone knows what the real deal is.

Well, mostly because our markets run efficiently and are the most reliable in the world because contract law is supposed to be sacrosanct and every time there is a major fraud --think Enron-- we need a perp walk and some serious jail time for the rich overlords. Problem here is that if you really strictly adhere to contract law and there is as much fraud as some suppose, the entire system could fail. Meaning the exact system that nearly failed in 2008 which was saved by TARP. This is the same mess. But everyone wanted to kick the problem down the road till the banks could earn their way out of the mess. But the banks are still giving those big bonuses and perhaps this time they won't be bailed out by the angry taxpayers. It is a real problem for the administration.

And yes, if someone owes money on their mortgage but no one holds clear title to the mortgage note, then the delinquent squatter might get the house for free -- the moral hazard is overwhelming. And, if it is a prevalent problem (doubtful but it would be if MERS distribution is challenged in the courts and loses) then it would be in the best interest of the the approx 4-5 million underwater mortgage holders to stop paying their mortgages and become squatters in their homes. Free Ride for everyone.

Of course, I'm not a lawyer either but the reading is fascinating. Especially love the Georgetown professor posted above who says worse case is that no one in the US has clear title to their property. Better story line than SCREAM 3.

i think i may be (hard to believe!) more cynical than you are. i can't believe that the standard disclaimer wasn't in place and won't cover them.

Hey, you found the exclamation point! How cheerful of you for a change.
Nice of you and Riversider and w67th and apt23 getting along on this thread.

CC: As for securitization -- yes most contracts say you, the chump, are wrong. However, if it can be proven that mortgage companies/banks knew there was fraud committed in the origination of the loans and they represented that they followed standard credit guidelines, -- then they sold me nuthin and I get my money back.

Think about how many NINJA loans were sold. As the lawyer who is suing BOA in my above post states, if brokers wrote mortgages as owner occupied homes and yet in fact it was owned by an investor, then sale to pension fund is voided and bank is on the hook for the loss. Question seems to be is the entire pool of mortgages in a tainted trust then put back to the bank or just the individual loans. In the case of Goldman the entire sale was voided. Might be the case here too since many trusts had 30 - 40% bad mortgages -- and the banks knew they were tainted. (See RS's Clayton Holding posts above)

but, unfortunately, the whole people to benefit from this are going to be a bunch of hungry lawyers. Who's going to pay the bill? We will.

sorry didnt see w 67's post. but i concur

use BAC as an example. when they lose a law suit, who gets hurt? the people who caused the problem in the first place? hardly.

Mortgages are contracts, a loan secured by a property. Only the owner of a mortgage lien has the righ to foreclose Requiring the foreclosing party to follow the required legal steps to prove they own the debt and have the right to bring the foreclosure action does not seem onerous. On the contrary it seems downright sensible and proper.

And it makes sense, because the new buyer has every right to a proper and "unclouded" title"

RS: That JPMorgan/ Mers story is a GREAT find. I didn't see that anywhere in the papers or in Jamie Dimons remarks after the earnings. Again, not a lawyer or an economist but that does seem like an ominous sign. In this entire issue, the area that seems murkiest is the laws regarding the requirements for "wet ink" vs waivers for electronic distribution. I can't seem to figure it out or find any clarifying articles but it does seem clear that there are some states that require wet ink on a title and MERS has been doing an end run around those rules.

Oh no, what happens to columbiacounty when people talk to Riversider?

apt23, JP morgan by and large takes this stuff very seriously, and additionally they are very aware of the legal and financial downside in all this(let alone the pr aspect). It can be no accident that JP Morgan has been the least tarnished reputationally since the beginning of the financial crisis Of course not being a part owner to MERS makes it easier.

Apt23,
Judicial vs nonjudicial states

http://www.all-foreclosure.com/procedures.htm

http://www.all-foreclosure.com/judicial.htm

Thanks RS. Interesting to see how many states have deficiency judgements. Also interesting to see length of expected foreclosure time is relatively short -- max 10 months in a few states. The fact that there are so many people still in their houses after not paying for two years has got to be due to tainted paper work as much as overburdened courts.

RS: Again, Great work on this thread. If the NY Times every happened on it, they would owe you credit for some serious footwork.

How incredibly frustrating for columbiacounty.

Not looking good today for lenders who can't dot i's

http://www.bloomberg.com/news/2010-10-19/maryland-courts-ease-rules-to-challenge-lender-documents-in-foreclosures.html

Maryland’s courts adopted a rule to make it easier for homeowners in foreclosure proceedings to challenge lenders’ documents that they believe are fraudulent.

http://content.usatoday.com/communities/ondeadline/post/2010/10/sheriff-takes-hard-stand-against-foreclosures/1

The sheriff for Cook County, Ill., which includes Chicago, is refusing to enforce foreclosure evictions for Bank of America, JPMorgan Chase and Co. and GMAC Mortgage/Ally Financial until they can prove those foreclosures were handled legally, CNBC is reporting.

Apt23, what's your take on deficiency judgments? They are rarely used,at least in NY, but are the only means for perusing a strategic defaulter with substantial real assets.

This is what Megan has to say...

http://www.theatlantic.com/megan-mcardle/

Reports today that Bank of America and GMAC are reopening tens of thousands of halted foreclosures, saying that they have found no major problems with their foreclosure process. Bank of America described this as "an important first step in debunking speculation that the mortgage market is severely flawed."

This is like listening to someone claim that he can't stop drinking, because people might think he's a drunk. It's possible that there really is no problem with the mortgages at GMAC and Bank of America. But after all the lurid stories that have splashed across the press, most of us would probably like something a little more compelling than BofA's heartfelt assurance that this is the case.

Already, the legal system is pushing back--the Cook County sheriff is saying that he won't enforce foreclosures for some of the biggest banks until they prove that the foreclosures were "handled properly".

This sounds laudable but: how do they bell the cat? The normal way that a bank overcomes these sorts of paperwork problems is to submit an affidavit--just the sort of affidavit that the foreclosure mills are suspected of forging. The same caveat applies to judges. There's been a lot of talk of making banks prove that they own the right to foreclose, but no one has been very clear as to what, exactly, they would accept as proof. Unless we follow Thoreau's plan of simply giving people the house in the case of contested mortgages, the burden of proof is going to end up on the homeowner--and if we follow Thoreau's plan, the number of contested mortgages will end up roughly equalling the number of mortgages.

I don't know what the answer is. But simply going on as if nothing has happened is definitely not it.

C-cu:
Yes. Riversider is finally getting some respect here on SE.

Riversider has earned that respect.

cc. has nothing. He has been a slave to his master. His master is garbage.

RIVERSIDER, YOU GO !!!

Respect for what?

WITHIN LESS THAN A MINUTE!: CC. The Slave.

What does this slave shit mean? Am I your slave?

oh hell, since i already broke my promise (just like riversider did) i'll go ahead.

truth is to client
as
aboutready is to slave

none exist.

truth, i always made an exception for your foul excretions. don't make me explain further.

Welcome back aboutready! Did your toilet seat break? Did you find a new "injustice" that has no impact on you but for which you can get treble monetary damages in a lawsuit?
Do you still own your daughter and half of your husband?

Oh, look : aboutready is here with a challenge!

I have real friends. I have real friends who are also my clients. I do real work for them.
Anybody want to see proof of the work that I have done? Of the credits that I have on documentaries?

Anybody want to see the cancelled payment check that I have for the few hours of work that I provided for LizYank, who aboutready has enslaved; yet aboutready has done nothing to help her own friend?

Disgusting slavemaster, aboutready is. Lizyank was in need of financial help. aboutready did shite for her.

She is a garbage slave-master.

That I'd pretty damn funny.

Truth has friends. Really.

Truly.

Not just friends but real friends.

As opposed to imaginary friends.

Truth does real work.

Not imaginary work but real work.

if a person can judge her worth by the (lack of) quality of her enemies i'm doing very well.

truth, calm down, you seem to be breaking into a sweat over this, which would be consistent with the extraordinarily nasty voice messages you tend to leave (full of expletives that shock even me, i might add).

Who cares about you, aboutready?
I never left you a voice message. I never even met you in person, nor have I ever spoken to you on the phone, and thank goodness -- not in person.

You are a frustrated housewife.

Are you kidding? Obviously you care.

A lot.

Hey...where are the cancelled checks?

oh, you cut me so. who cares about you and your star-gazing attributes? no, i never got a message on the phone from you, and thank goodness. but someone i care about did. and it was (many times) horrible.

and no, i'm not a frustrated housewife. actually i've been quite lucky. my exit from SE has led to a wonderful journalism opportunity.

one of the reasons i left this site is because i am loathe to attack someone i feel is suffering from a mental disorder. but your relentless comments regarding my "enslaving" people is making me reconsider. think before you post, i do have a degree in psychology from one of the better schools.

Hey guys. Would mind taking this outside -- maybe over to the Peter Cooper thread. This thread has been very serious and very informative for those who care. Please don't hijack this one. There are many other to choose from. Thanks.

aboutready is now a star in journalism.
She had to "exit" SE to obtain her new position.

She makes her slaves report to her with updates, and as she brags about above -- THEY ARE REQUIRED TO PLAY THEIR PHONE MESSAGES TO HER, AS WELL. "someone" she cares about did.! LizYank is her only slave that I have ever had telephone contact with. aboutready did NOTHING for LizYank. At least I got Liz some work. Without enslaving LizYank.

LizYank: how does it feel? You allowed yourself to be enslaved by aboutready, and you were compelled to give her updates about your business. How "horrible" was that check that you received for the work I got you? How horrible was cashing that check?

aboutready "left this site" ?!

aboutready has "a degree in psychology from one of the better schools"."!?!
streeteasy commenters -- BEWARE!!!

aboutready is on SE! She knows how to enslave weak people. She has "a degree" in enslavement.

apt23: This is Riversider's thread. He's not complaining.

Truth,
More alligations that Banc of America just wasn't doing their job..

ursuant to Section 7.01(ii) of the applicable PSAs, the Trustee and the Master Servicer are hereby notified of the Master Servicer’s failure to observe and perform, in material respects, the covenants and agreements imposed on it by the PSAs. Specifically, the Master Servicer has failed and refused to do the following, which have materially affected the rights of Certificateholders:

1. Section 2.03(c) of the PSAs states that “Upon discovery by any of the parties hereto of a breach of a representation or warranty with respect to a Mortgage Loan made

pursuant to Section 2.03(a) … that materially and adversely affects the interests of the Certificateholders in that Mortgage Loan, the party discovering such breach shall give prompt notice thereof to the other parties.” The Master Servicer has failed to give notice to the other parties in the following respects:

a. Although it regularly modifies loans, and in the process of doing so has discovered that specific loans violated the required representations and warranties at the time the Seller sold them to the Trusts, the Master Servicer has not notified the other parties of this breach;

b. Although it has been specifically notified by MBIA, Ambac, FGIC, Assured Guaranty, and other mortgage and mono-line insurers of specific loans that violated the required representations and warranties, the Master Servicer has not notified any other parties of these breaches of representations and warranties;

c. Although aware of loans that specifically violate the required Seller representations and warranties, the Master Servicer has failed to enforce the Sellers’ repurchase obligations, as is required by Section 2.03; and,

d. Although there are tens of thousands of loans in the RMBS pools that secure the Certificates, the Trustee has advised the Holders that the Master Servicer has never notified it of the discovery of even one mortgage that violated applicable representations and warranties at the time it was purchased by the Trusts.

2. In violation of its prudent servicing obligations under Section 3.01 of the applicable PSAs, the Master Servicer has:

a. Failed to maintain accurate and adequate loan and collateral files in a manner consistent with prudent mortgage servicing standards;

b. Failed to demand that sellers cure deficiencies in mortgage records when deficient loan files and lien records are discovered;

c. Exacerbated losses experienced by the Trusts;

d. Incurred wholly avoidable and unnecessary servicing fees and servicing advances to maintain mortgaged property, all as a direct result of the Master Servicer’s deficient record-keeping; and,

e. Prejudiced the interests of the Trusts and the Certificateholders in the mortgages by fostering uncertainty as to the timely recovery of collateral.

3. Section 3.11 (a) states that the Master Servicer “use reasonable efforts to foreclose upon or otherwise comparably convert the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments.” Despite these covenants, the Master Servicer has continued to keep defaulted mortgages on its books, rather than foreclose or liquidate them, in order to wrongfully maximize its Servicing Fee, at the expense of the Certificateholders’ best interests, including rights to recover from pool or financial guaranty insurance policies. In addition, the applicable provisions of the PSAs contemplate that foreclosures and liquidations of defaulted mortgages will proceed forthwith and in accordance with applicable law, provided the documentation is in order, as a matter of fairness to all parties. The Servicers’ failure to proceed appropriately and their failure to maintain records in an accurate, appropriate, and adequate manner has impeded this process and caused wholly avoidable delays that have injured investors, borrowers, neighborhoods, and communities. To make matters worse, these delays have also enriched the Servicers, as they have continued to charge unearned and unwarranted servicing fees on mortgages which would have been liquidated but for the Servicers’ breach of their duties;

http://www.ritholtz.com/blog/2010/10/full-text-of-letter-to-bofa-from-ny-fed-maiden-lane-freddie-mac-pimco-western-asset-mgmt-neuberger-berman-kore-advisors/

Banc America's Response to foreclosure issues.. by Chris Flanagan(head of MBS strategy)

Foreclosure Issues Pose Risks, Should Be Resolved With Time

Summary

Recently, some issues surrounding foreclosure sale proceedings have come to the forefront, leading several large banks to halt foreclosure sale proceedings in many states. The purpose of this note is twofold: to clear up some confusion on what exactly the issues at hand are and to bring some perspective to those issues. For instance, we note that the “foreclosure issue” that we are addressing here is separate from considerations surrounding potential bank loan repurchases. After the JPMorgan Chase earnings call, in which the company announced increased repurchase reserves, the two issues seem to have been muddied.

With respect to the issues surrounding foreclosure sales, while there are some outstanding risks, we think the issues that can be definitively addressed suggest a resolution could be possible over a matter of months. While that resolution should involve time, effort, and cost, we do not believe it will result in a major long–term disruption to the housing or mortgage markets.

Background

The issues surrounding foreclosure sale proceedings were initially brought to light on September 17, when GMAC/Ally halted evictions and REO sales in 23 judicial foreclosure states. Since that time, GMAC has extended their review to all 50 states, and four other large banks have halted foreclosure sales or launched internal reviews of their foreclosure processes: Bank of America has halted foreclosure sales in 50 states, JPMorgan Chase in 41 states, PNC in 23 states, and Litton is reviewing proceedings. Wells Fargo has stated that they are reviewing all pending foreclosures, but not halting the process and are confident their processes are robust. Attorneys General from all 50 states announced Wednesday that they have formed the Mortgage Foreclosure Multistate Group to review some of the practices around foreclosures proceedings.

The “foreclosure issues” being discussed at this point seem to encompass a few distinct problems, which we think it is useful to break down: robo-signers, MERS, and trust transfers.

The Robo-Signer Issue

While judicial foreclosure proceedings vary from state to state depending on different laws, many involve the presentation of an “affidavit of debt” before the court, which certifies that an employee of the mortgage servicer is familiar with the mortgage and borrower under question. Across several servicers burdened with an increasing number of foreclosures, there were employees who allegedly signed large numbers of affidavits without “personal knowledge” of the stated information. In addition, some affidavits were not notarized at the time of affidavit signing. These deficiencies created became a problem when brought before judges.

Importantly, however, although these deficiencies introduce risk, the issue does not seem to be insurmountable. We believe that the likelihood for widespread outright forgiveness of debt in cases where affidavits were signed or attested improperly is low. The details behind resolving cases such as these are not clear from a legal standpoint, but they seem likely to be, in part, a matter of rectifying the affidavit, issues of time, effort, and cost. Similar issues exist for fixing faulty foreclosure processes from the start; it may be possible to solve the robo-signer issue by staffing up teams or via other efforts. While more costly, and likely to delay foreclosure processes a few to several months, again, in our view, the issues do not seem to be insurmountable.

The MERS Issue

A second issue that has arisen questions the validity of MERS, an electronic registration system for mortgages meant to simplify the process of transferring mortgage ownership. In the past, there have been court rulings in support of the MERS model, e.g. that holding title for the benefit of another party was valid or that foreclosure initiation in the name of MERS was valid. There have also been cases in which the model was not supported (e.g. Landmark v. Kessler in Kansas), but in most instances it seems those efforts have failed or been overturned. In the event the matters challenging MERS succeed, resolution seems to be a practical issue; while the process is unclear at this point, it may simply be a matter of assigning the mortgage from MERS to the foreclosing party in cases where foreclosure in the name of MERS is ruled against or of simply foreclosing in the name of the bank instead of in the name of MERS. There has been at least one case (U.S. Bank v. Ibanez) in Massachusetts, which calls into question the separation of legal and beneficial title holding, similar to that used in the MERS model. That case is currently under appeal.

In addition, there also seems to be some misinformation about the MERS system itself and whether some banks are utilizing it or not. MERS put out a press release yesterday to address some of these concerns, citing the fact that Chase registers their correspondent loans in MERS, but does not register their retail loans.

The Trust Transfer Issue

A third issue that has arisen concerns the validity of the trust as the owner of the mortgage for loans that have been securitized. When the note is transferred to a trust, it is endorsed “in blank”, meaning that the owner of the note is not assigned. The note is only endorsed to the trustee or servicer on behalf of the trust if they need to institute foreclosure proceedings. Our understanding is that this is a common practice when notes are transferred to a trust. With respect to physical documents, those are delivered and held by the designated custodian for the trust. Both the seller and the custodian should have verified the existence and validity of the notes upon transfer. If there were any deficiencies, the custodian should have notified the seller to remedy any deficiencies or if they could not be remedied, put the loan back to the seller. The transfer of the notes is governed by the loan purchase agreement which also provides for evidence of ownership of the loans by the trust. Also, when the notes are transferred, the servicer records the ownership of the loans with MERS.

The Risks

The primary risk in our view is not that the affidavits issue remains unresolved, but how much time and effort the resolution will take and how far the scope of investigations expands beyond this issue. As mentioned, the Attorneys General from each state have formed a task force to look into the affidavit matter to determine if they were processed correctly under state laws. However, given that AGs from non-judicial states have joined the task force, the scope of their investigation may expand beyond this issue and lengthen the timeframe for resolution. Complicating matters is that servicers have to abide by individual state regulations with respect to foreclosure processing.

In the end, we believe that the vast majority of foreclosures will stand assuming that the actions were taken against borrowers who were delinquent. However, the end result will likely be a further extension of foreclosure timelines. We believe that the incremental increase in loss severity should be minimal if these issues can be resolved in the next 3-6 months. For servicers this means additional staffing requirements as well as increased costs. With respect to investors, headline risk will remain the predominant near term concern. Additionally, the allocation of additional costs due to advancing and legal fees will have to worked out. We do believe that the tenets of securitization, MERS, extensive legal foundation that has been established over the last 30 years, and REMIC eligibility will stand.

In other words: all shall be well, and all manner of thing shall be well.

This is my favorite part of the defense. it's ok because it's done a lot.... but if it's a problem we'll do it the right way...

he Trust Transfer Issue

A third issue that has arisen concerns the validity of the trust as the owner of the mortgage for loans that have been securitized. When the note is transferred to a trust, it is endorsed “in blank”, meaning that the owner of the note is not assigned. The note is only endorsed to the trustee or servicer on behalf of the trust if they need to institute foreclosure proceedings. Our understanding is that this is a common practice when notes are transferred to a trust.

Banc America has consulted with Chuck Prince, Dick Fuld and LLoyd Blankfein and
agreed on the Ostrich maneuver as the best defense against this clear non-issue..
-------------------------------------------------------------

"We don't see the issues that people [are] worried about, quite frankly," chief executive Brian Moynihan said in a conference call Tuesday as the bank reported a $7.3 billion third-quarter loss

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/19/AR2010101907369.html

"Foreclosure-Gate Fallout: Mortgage Applications Just Plunged 10.5%"

"The Market Composite Index, a measure of mortgage loan application volume, decreased 10.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index also decreased 10.5 percent compared with the previous week."

http://www.businessinsider.com/mortgage-applications-for-week-ending-october-15-2010-10

Translation: "I best not apply for a mortgage I can't afford on a house that's overpriced." Could it be? Or just a statistical fluke?

I best not apply for a mortgage I can't afford on a house that's overpriced.
And which ownership is unclear as the sellers mortgage is now being investigated by the FBI:

"Meanwhile, a federal law enforcement official says the FBI is in the initial stages of trying to determine whether the financial industry may have broken criminal laws in the mortgage foreclosure crisis.

The law enforcement official says the question is whether some in the industry were acting with criminal intent or were simply overwhelmed by events in the wake of the housing market's collapse. The official spoke on condition of anonymity because the investigation is just getting under way."

http://www.kval.com/news/business/105310813.html

Ruh-roh...

Or, why refi or modify the loan when I can stop paying and live here for free until the banks can prove they physically possess my title.

@RS - re: the long post quoting from BOA's MBS strategy guy, a few comments:

1) what he says sounds generally plausible in the context of "actions were taken against borrowers who were delinquent", which is the predicate for his conclusion. Across the various issues he is basically saying that the banks have to do the work that is required by law (and that they generally seem not to have done the first time around) and that the cases will eventually work their way through the system if they are well founded (i.e., a mortgage exists and the borrower is in default). I do think that his estimate of 3-6 months of delays and at a cost that doesn't move the needle in the grand scheme of things is optimistic or perhaps wildly optimistic. I mean, if robo-signing took some pizza delivery guy 30 seconds and now each case requires an experienced loan officer and/or a lawyer to review all the documents (and only then after FINDING all the documents!), prepare a proper filing and defend the case in front of a court that might be just a teeny bit skeptical, and if, further, there are hundreds of thousands of cases to dispose of, then we are a long time and a lot of $ from this being sorted out

2) further qualifying all of the above is politics. Even if it is determined that most cases have merit (i.e., people borrowed money and aren't paying), there are going to be a lot of state AGs and other local pols who will be (rightly) looking for some scalps here. That is going to slow everything down further, although in the end probably not change the ultimate outcome of valid cases

3) while the debate about how f'ed up the foreclosure process is and how much time and money it will take to get it unf'ed is interesting, I think that the main event will turn out to be the buyback issue (and its companion the securities fraud lawsuit!) stemming from misreps by originators/packagers about the nature of loans sold to Fannie and Freddie, sold to ABS (and by extension CDO) vehicles, insured by bond insurers, etc. This is the multi-hundred billion dollar elephant in the room. If you trace down the chain from some $200k Alt A loc doc mortage on a second home that was represented to be a prime mortgage on a primary residence, there are a lot of potential aggrieved parties who will be looking to recover what they lost when that loan went bad. Now multiply that $200k by say millions of such loans. Using 5 million as an example to make the numbers round, that $1 trillion.

The guy who got foreclosed on in the house that he bought for cash makes for great copy in the press, but it isn't the story, or even all that representative of the story. I don't think the big story is even the hundreds of thousands of improperly prosecuted foreclosure actions, although it is highly symptomatic of the systemic issues. In my view, the real story is the fraud in feeding crap loans into the maw of the GSE guarantee and ABS/CDO machines under false pretenses. I predict that this part of the problem is still gathering momentum a year from now when a big part of the foreclosure process pig has already made its way through the snake.

** "loc doc" = "low doc"

Sideline, I do agree that to the extent there are defects most are probably curable but at considerable expense. An interesting question will be to what extent lawyers force the banks to physically change title of the mortgage through county records(the MERS question/tranfer issue), and how they get this done when so many of the original lenders have gone out of business. I also agree that the time estimates he's quoting are way too conservative.

Ultimately the vast majority of non-paying borrowers will get foreclosed on, but at greater expense and time spent. The price we pay in our society for due process.

Another take-away is the real estate/lien record system across this country is woe-fully out of date and much in need of improving, but that the banks arguably took too much on themselves in bypassing the antiquated and inefficient system. I don't buy the legal arguments put forth by the proponents of MERS and clandestine attempt to pass HR 3808 suggests they don't either. Since this is all new with little case law, I doubt this has really been properly vetted in the courts. MERS Is still relatively new and until a few years ago homes only went up which took away the urgency of dealing with the legal issues.

Sideline: Yes, exactly right about the real risk is the put backs from the CDO's. I think that is a well accepted supposition. But I think your numbers might be high -- but do highlight the extent of the problem.

The number that is being touted within the industry is that the banks high end risk of exposure is $120 Billion. Since there are currently 4 - 5 million loans seriously underwater that seems low. If you take the Clayton Holdings findings in the Citi example, then you might find problems with 40- 50% of those loans. Bank analysts are also saying that the banks will "settle" for perhaps half their exposure which makes me sick. If they can settle then it is tantamount to institutionalized theft.

And the main problem wasn't just the primary resident/investor issue. The pizza boys led applicants into lies about income, etc. The lawyer who is suing on behalf of Pimco, et al particularly mentioned credit standards. I think you could probably say that NINJA loan problems would be north of 90%. Also, companies like Countrywide engaged in predatory loans. They would blanket poor neighborhoods with come ons --"if you can pay $500 per month, you can buy a house" They told buyers from poor neighborhoods that they didn't need lawyers, they could use Countrywides' lawyer. Then at closing they tacked on Helocs and extraordinary fees making it impossible for the buyers to meet their payments. My cleaning lady was charged $600 for bloodtests -- which of course she never had, it was all in the fine, fine print. I imagine that all predatory and NINJA loans will be contested. As well as virtually all loans in the problem/bubble spots -- Las Vegas, Arizona, Florida, Queens, The Bronx, parts of Southern CA.

It is hard to believe 120 billion is the final number.

RS: From your earlier MERS post, it seems hard to believe that they are going to prevail in court. Amazing that the only place they prevailed was in Minnesota where they wrote the law for the State Legislature which begs the question, Do you think Al Franken knows about that?

Regarding deficiency judgements. I think that since it looks likely that banks will have to pay put backs on the CDO's, I think they will go after judgements with a vengeance. But like always, they will engage low life lawyers/ bounty hunters to go after deadbeats on contingency fees. That way they keep costs low, they can distance themselves from any heavy handed tactics, etc. We will probably see a reality show of armed thugs breaking down doors which will provide the only moral hazard remedy we will see.

Agree the $1 trillion number is high as a loss estimate. Not necessarily high as an estimate of the principal amount of loans in play. Then apply some factor - like your 40-50% - for how many have misrepresentation issues. I'll use 50% for my example, so we're at $500bn of principal that people try to put to originators/underwriters. Now apply some loss ratio (let's say 30% to 80%, depending on market, type of loan, original LTV (above 100% is gonna leave a mark), how much the V in LTV has declined in the meantime, etc., etc.) on the problem loans. Let's also call that 50% just to pick a number, so $250bn of losses. The difference between the $250bn or whatever estimate you prefer and $120bn is a discussion of how much of the true cost/liability the banks weasel out of in a settlement.

APT23,
Deficiency judgments cost money and time. To the extent we do see them , I believe they will be on jumbo mortgages and wealthy borrowers with more than trivial monies at stake.