PBS explains robo-signing foreclosure mess

http://www.youtube.com/watch?v=cVTfsOPMcns&feature=player_embedded

(Reuters) - Wells Fargo & Co (WFC.N) unexpected announcement that it would refile 55,000 foreclosure affidavits was met with a shoulder shrug, rather than shock, from analysts and investors.

http://www.reuters.com/article/idUSTRE69R5TB20101028

Interesting development....

Mortgage servicers have successfully pushed back an attempt to make them explicitly responsible for title problems resulting from their handling of foreclosure paperwork and legal procedures.

Earlier this week, the nation's largest title insurance company, Fidelity National Financial, announced it would cancel its indemnification requirement, which had been scheduled to go into effect for all lenders Nov. 1. Fidelity is continuing to require the agreement when doing foreclosure business with Bank of America, however.

The title insurers said they would evaluate home-sale records on a case-by-case basis before writing a title insurance policy covering the new lender and owner.

"We have concluded that it is prudent to continue to insure sales of REO [real estate owned] properties," said First American Financial chief executive Dennis J. Gilmore.

He said one reason for the decision was push-back from lenders who service mortgages.

"It's our understanding that in the marketplace, some servicers have indicated under no circumstances will they provide an indemnification," Gilmore said.

Executives at Old Republic International told investors Thursday that they thought protections already written into their policies would be sufficient to shield them from significant losses on foreclosure sales. They said they would continue to "revisit indemnifications" as the foreclosure crisis unfolds.

While lenders would most likely have to compensate title insurers - and buyers - if a court overturned a foreclosure, indemnification would have covered the title company's legal fees as well.

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/28/AR2010102807356.html

97 billion according to Laurie Goodman
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Speaking Wednesday at a Manhattan conference, Laurie Goodman, an analyst and economist with Amherst Securities Group, said the cost to banks as investors attempt to "put back," or sell back, their mortgage securities could total $97 billion. That number depends on several important factors, such as the investors' aligning themselves behind a common cause, and Goodman called the estimate "theoretical." Still, Goodman noted that "the things that scale it [$97 billion] down are very, very hard to determine."

"That's the headline number that people were discussing in that room," said CNBC's Kate Kelly.

http://www.huffingtonpost.com/2010/10/28/post_572_n_775585.html
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http://www.ritholtz.com/blog/2010/10/mortgage-mess-may-cost-banks-97-billion-in-losses/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29&utm_content=Google+Reader

By William K. Black and L. Randall Wray

William K. Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist and was a senior financial regulator. He is the author of The Best Way to Rob a Bank is to Own One. He warns that the Fed’s failed leadership on regulation could lead us over another financial cliff–more catastrophic than the last.

L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City and Research Director with the Center for Full Employment and Price Stability as well as a Senior Research Scholar at The Levy Economics Institute and author of Understanding Modern Money.

Our call for closing down control frauds and stopping the foreclosure frauds typically meets with three objections. First, it is claimed that while there were some bad apple lenders, much of the fraud was committed by borrowers. Our proposal would let fraudulent borrowers remain in homes to which they are not entitled, punishing the banks that were duped. Second, the biggest banks are too important to foreclose. And third, it is not possible to resolve a "too big to fail" institution.

Who is Guilty?

Let us deal with the "borrower fraud" argument first because it is the area containing the most erroneous assumptions. There was fraud at every step in the home finance food chain: the appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers’ incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false reps and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.

That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry — indeed, it was the desired outcome. This was something the lending side knew, but which few on the borrowing side could have realized.

The homeowners were typically fraudulently induced by the lenders and the lenders’ agents (the loan brokers) to enter into nonprime mortgages. The lenders knew the "loan to value" (LTV) ratios and income to debt ratios that they wanted the borrower to (appear to) meet in order to make it possible for the lender to sell the nonprime loan at a premium. LTV can be gimmicked by inflating the appraisal. The debt to income ratios can be gimmicked by inflating income. "Liar’s" loan lenders used that loan format because it allowed the lender to simultaneously loan to a vast number of borrowers that could not repay their home loans, at a premium yield, while making it look to the purchaser of the loan that it was relatively low risk. Liar’s loans maximized the lender’s reported income, which maximized the CEO’s compensation.

The problem is that only the most sophisticated nonprime borrowers (the speculators who bought six homes) (1) knew the key ratios they had to appear to meet, (2) had the ability to induce an appraiser to inflate substantially the reported market value of the home, and (3) knew how to create false financial information that was internally consistent and credible. The solution was for the lender and the lender’s agents to (1) instruct the borrower to report a certain income or even to fill out the application with false information, (2) suborn an appraiser to provide the necessary inflated market value, and (3) create fraudulent financial information that had at least minimal coherence.

When the overburdened homeowner began missing payments, late fees and higher interest rates kicked-in, boosting the stated income of mortgage servicers and the value of the securities. Not coincidentally, the biggest banks own the servicers and could maximize claims against the mortgages by running up the late fees. It was quite convenient to "misplace" mortgage payments, so even homeowners who were never delinquent could get hit with fees and higher rates. And when payments were received, the servicers would (illegally) apply them first to the late fees, meaning the homeowners were unknowingly still missing mortgage payments. The foreclosure process itself generates big fees for the SDI banks.

And, miracle of miracles, the banks would end up with the homes and get to restart the whole process again — from resale of the home through the financing, securitizing, and fee-for-servicing juggernaut.

Unfortunately, it did not go quite as smoothly as planned. The SDIs were supposed to act like neutron bombs — killing the homeowners but leaving the homes standing, to be resold. The problem is that wiping out borrowers lowered the value of real estate, crushing not only the real estate market but also construction and through to all associated sectors from furniture and home restoration supplies to big ticket purchases that rely on home equity loans. It also led to questions about the value of the securitized toxic waste manufactured and held directly or indirectly by financial institutions.

Next, a few judges began to question the foreclosures, as they saw case after case in which the banks claimed to have lost the paperwork or submitted amateurishly forged documents. Or, several banks would go after the same homeowner, each claiming to hold the same mortgage (Bear sold the same mortgage over and over). Insiders began to offer depositions exposing fraud and perjury. It became apparent that in many and perhaps most cases, the trusts responsible for the securities (often these are "special purpose" subsidiaries of the banks) never received the "notes" signed by the borrowers — as required by both IRS tax code and by 45 of the US states. Without the notes, billions of dollars of back taxes could be due, and the foreclosures violate state law. Finally, the Attorneys General of all fifty states called for a foreclosure moratorium.

What to do? We suggest an immediate moratorium on foreclosures and a requirement that all notes be produced by purported holders of mortgages within a reasonable length of time. If they cannot be found, the mortgages — as well as the securities that pool them — are no longer valid. That means that the homeowners are not indebted, and that the homes are owned free and clear. And that, dear bankers, is a big, big problem. It is also the law — without evidence of debt, there is no debtor and no creditor.

Commentators are horrified that a foreclosure moratorium would let "deadbeat" borrowers remain in their homes while delinquent in their payments. The speculators that purchased "MacMansions" and stated on six separate loan applications that each house was their principal dwelling are frauds. The moratorium would (briefly) reward fraudulent borrowers while (briefly) punishing the fraudulent banks. This is true.

It is not possible to separate "worthy" borrowers who were duped by banks from all "unworthy" borrowers who knew the loan applications were false. Indeed, given the millions of borrowers that received liar’s loans, even if the borrowers were all frauds we could not possibly prosecute all of them due to lack of resources. We currently prosecute roughly 1,000 mortgage fraud cases annually at the federal level. If we used all of our resources to investigate and prosecute fraudulent mortgage borrowers exclusively we would be able to prosecute less than one-tenth of one percent of those frauds.

The losses that the fraudulent nonprime lenders caused are vastly greater than the losses caused by fraudulent borrowers, so no rational prosecutor would use his scarce resources to prosecute individual nonprime borrowers. Moreover, prosecutions of individual borrowers for alleged fraud in the applications would be difficult to win against competent defense counsel because it will not be possible to infer the borrower’s intent and knowledge and whether the loan agent instructed him to enter specified information on the application. We are not arguing that the speculator who committed fraud while buying six homes should be allowed to walk free. We are simply arguing that it makes no sense to use limited judicial resources to go after owner-occupier households where it will be almost impossible to prove intent to defraud.

On the other hand, we can infer a lender’s fraudulent intent because it is financially sophisticated and has expertise in lending. An honest mortgage lender would not make "liar’s loans" because absence of proper underwriting inherently produces loans that are expected to default. Yet, in 2006 just about half of all mortgages originated were liar’s loans. Banks happily advertised specialization in "no doc" and NINJA loans. There can be no question about intent — the intent was fraud, plain and simple. Fraud on the part of credit raters is equally easy to infer — we have the internal emails that document intent to defraud securities purchasers by "pay to play" schemes. And the fraud committed by the investment banks that pooled the mortgages is also well documented. These entities committed tens of thousands and even millions of frauds each. For obvious efficiency reasons, that is where our judicial resources ought to be directed.

Macro Effects and Culpability

There is one other consideration that biases the case in favor of borrowers. Many homeowners were sold on the idea that "real estate values only go up" — and quite a few planned to refinance on better terms, or even to flip the house at a price that would allow them to pay-off a mortgage they could not otherwise afford. We realize that it is not easy to shed tears for speculators foiled by the market, and that is not our point.

What is important to understand, however, is that the financial sector is largely culpable for the generation of speculative frenzy, the creation of the "financial weapons of mass destruction", and the transformation toward financial fragility that finally collapsed in 2007. In the aftermath we lost 10 million jobs and millions of homeowners lost their homes. The "collateral damage" inflicted by the SDIs is now endangering tens of millions of American families — most of whom played no role in the speculative euphoria. Almost half of American homeowners are already underwater or on the verge of going under. In short, it was Wall Street that turned our homes over to a financial casino — and so far virtually all the losses have been suffered on Main Street.

This culpability is at the aggregate scale and of course no individual bank can be held liable in court for the collapse of the financial system. Rather, each bank’s guilt must be assessed according to its own fraud. However, a national moratorium on foreclosures must be evaluated at the macro level, and justified on the basis of the aggregate costs, benefits, and moral implications. And certainly at the aggregate level that must be considered by President Obama, the benefits to the majority of Americans clearly outweigh the costs imposed on the relatively few. And the morality is also on the side of homeowners and clearly against the banks.

Closing the control frauds would actually benefit honest bankers by eliminating the "Gresham dynamics" created by fraudulent institutions — a race to the bottom in underwriting. Since fraudulent banks use accounting fraud to manufacture high profits, they do not actually have to use a viable business model. By eliminating control fraud from the financial sector, it will be much easier for honest banks to succeed.

Further, the financial system has massive excess capacity — as evidenced by the need to create bubble after bubble to find outlets for capacity. Almost all of the innovations in practice and instruments of the past two decades were spurred not by demand but rather by excess capacity. Downsizing the financial sector is critical to restoring it to a size that is commensurate with the needs of the economy.

The cost of not closing control frauds, by contrast, can be staggering. The business practices that maximize the fictional reported income (e.g., making "liar’s loans to people who cannot repay their loans) maximize real losses and hyper-inflate financial bubbles. Control frauds destroy wealth at a prodigious rate. The one thing we certainly cannot afford is leaving the control frauds under the control of fraudulent CEOs.

Can the Frauds be Foreclosed?

The assertion that the SDIs cannot be resolved because of their size is unsupported. Very large institutions have already been resolved both in this country and abroad. The "too big to fail" (TBTF) doctrine has always been unproven, dangerous, and counter to the law. An institution that is not permitted to fail faces obvious adverse incentive problems. It also destroys healthy competition with institutions that are not considered TBTF. It encourages risk-taking and fraud. And it subverts the law, which requires that insolvent institutions must be resolved.

As we write this piece, the markets are taking it upon themselves to begin to close down the control frauds — with homeowners fighting the foreclosures and investors demanding that the banks take back the toxic waste. Unfortunately, following the market solution will be a long-drawn-out and costly process — both in terms of tying up the judicial system but also in terms of the uncertainty and despair that will persist. At the end of that process, the banks will have to be resolved. No matter how much the politicians dislike it, they will end up with the banks in their hands — either now or later. Taking them now is the right thing to do

Read more: http://www.creditwritedowns.com/2010/10/foreclose-on-the-foreclosure-fraudsters-part-2.html#ixzz13m5mumji

http://www.oftwominds.com/blogoct10/foreclosure-weekly10-10.html

http://www.sec.gov/divisions/corpfin/guidance/cfoforeclosure1010.htm

And so it begins........

First Horizon subpoenaed by conservator of two investor in securitization issue.
http://www.marketwatch.com/story/first-horizon-shares-fall-on-subpoena-2010-11-01

And in other news.... SEC is going after JP Morgan about allowing a hedge fund to choose subprime assets in a securitization fund. Shade of Goldman Sachs. So another day, another fine for the banks and then back to normal......unless an avalanche of lawsuits overwhelm the banks.

Well it's happneing...
The investors had the deck stacked against them. They need 25% vote to proceed and there are business pressures to maintain anonymity

"That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry — indeed, it was the desired outcome."

That statement by Black and Wray is pretty ridiculous, for the very reasons they explain below that regarding why defaults didn't work out so well. Making such an overstatement undermines their credibility.

I was focusing on the "desired outcome" phrase.

Come on riversider

Give us break

Put this back in the bottle with midtowner.

Enough

Please don't drag me into it; I have nothing to do with any of this.

Banks owe the states $35 for every mortgage. This is money the states did not get and now have to go to their tax base on.

Back in the good old days, mortgages were recorded with local officials, usually at a cost of $35 each, and every time a loan changed hands the file was updated, creating a tangible paper trail. To avoid paying that fee, banks came up with their own system, a digital registry known as the Mortgage Electronic Registration System. Mers is listed as the creditor on 64m loans, supposedly giving it the right to foreclose on any of those properties if borrowers stop paying.
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“Faulty documentation undermines fundamental notions of justice and fair play in any legal proceeding,” wrote John Conyers, the Democratic chairman of the House of Representatives committee on the judiciary, in a recent letter to the trustee overseeing the US bankruptcy system. The Senate banking committee is scheduled to hold hearings on the subject when Congress reconvenes later this month.

During the housing boom, banks rushed to originate home loans and then packaged those loans into securities that were sold to investors the world over. At the peak of the frenzy in 2006, roughly 14 homes changed hands every minute of the day, according to Richard Bove of Rochdale Securities. Some of the loans were sold so many times that important papers, including the promissory note and the lien, which gives the lender the right to claim the property if the borrower fails to pay, were lost or never recorded properly in the first place. That creates a situation, according to Mr Conyers, “where banks move to foreclose without adequate proof of ownership”.

“What the banks are asking is for the courts to just accept their cases at face value,” says Elizabeth Magner, a US bankruptcy court judge for the eastern district of Louisiana, who has sided with homeowners in multiple cases. “What they’ve forgotten is that they still have to prove that they are in the right.”

Investors, too, seem disinclined to take banks at their word, and have pushed the share prices of large lenders to their lowest levels all year. “There is a real crisis of confidence,” says Charles Elson, a corporate governance expert at the University of Delaware.

More often than not, these so-called “robo-signers” had only a rudimentary understanding of property laws. According to depositions, one worked as a hair stylist and another as a Walmart salesperson before joining the foreclosure departments of banks.

Some of these robo-signers worked at “foreclosure mills”, law firms that prepared documents for court submission on behalf of the banks at cut-rate prices. At one firm in Florida, named after its founder, David J. Stern, document production was outsourced to the US Pacific island of Guam, according to an employee deposition. As foreclosures heated up, Mr Stern allegedly profited handsomely, buying mansions, sports cars and yachts

Will these problems have a real impact on how homes are repossessed, at great cost to everyone involved in the housing market, or are they merely bookkeeping errors, as the banks suggest? After all, no one is making the case that these borrowers are up to date on their payments.

According to Laurie Goodman at Amherst Securities, 25 per cent of the borrowers in California involved in foreclosure proceedings have continued to live in their homes for two years after stopping mortgage payments. In Florida, the proportion approaches 50 per cent.

Mr Elson, the corporate governance expert, says delinquent borrowers should not be let off the hook just because the banks were sloppy in their record keeping. “It’s not right that certain people can default on their mortgage and continue living in their homes, while the rest of us have to pay,” he says. But John Vogel, a professor at Dartmouth’s Tuck School of Business, says that banks need to take responsibility for making bad loans in the first place. “The banks are taking the position that it’s all the borrowers’ fault, when that is clearly not the case,” Mr Vogel says.

Some courts are losing their patience with banks that do not play by the rules. A bankruptcy judge for the southern district of New York is recommending sanctions against JPMorgan for filing documents in a foreclosure case “that appear to be either patently false or misleading”.

Analysts have begun to tally the carnage. Even worst-case scenarios are not expected to put the banks out of business but “will be a drag on earnings for years to come”, says Paul Miller of FBR, an investment bank. Whatever the outcome at the polling stations on Tuesday, foreclosure problems will exact a hefty price on an already battered mortgage system

http://www.ft.com/cms/s/0/d4aa264c-e5f1-11df-af15-00144feabdc0.html

Re: robo-signers: "According to depositions, one worked as a hair stylist and another as a Walmart salesperson before joining the foreclosure departments of banks."

These people sound more qualified than the pizza delivery guys and burger flippers that people have been saying were robo-signers. So I guess the banks have that goin' for them, which is nice.

Somewhat related:

"LPS: Over 4.3 million loans 90 days or in foreclosure"

* The average number of days delinquent for loans in foreclosure is now 484 days
* In five judicial states (NY, FL, NJ, HI and ME), the average exceeds 500 days
* Over 4.3 million loans are 90 days or more delinquent or in foreclosure
* New problem loans (60 days delinquent) are back on the rise" <- due to robo-signing?

http://www.calculatedriskblog.com/2010/11/lps-over-43-million-loans-90-days-or-in.html

Check out the chart. Oooh, lordy..

http://cr4re.com/charts/charts.html?Delinquency#category=Delinquency&chart=LPSDelinquencySept2010.JPG

http://www.ft.com/cms/s/0/d620ed3a-e6c3-11df-99b3-00144feab49a.html

US banks are beefing up their mortgage departments in response to growing pressure and concern over the use of “robo-signers”, employees who rubber-stamped thousands of foreclosure documents without checking the accuracy of the information they contained, as required by law.

Recent job postings on Monster.com and other employment websites indicate that banks are recruiting “foreclosure specialists” and “bankruptcy documentation” experts. Adecco, the world’s largest temporary staffing company, said the number of such job openings was 25 per cent higher than a year ago. Monster.com says it has seen a 16 per cent rise in recruitment for such positions in the past two months.

In the end money must be made up, so it comes from income tax and real estate taxes. No free lucnh here.
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http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110308006.html?sid=ST2010110308008

Countless homeowners in Virginia are getting a tax break for which they don't really qualify because a mortgage documentation mess makes it hard to determine who qualifies, officials say.

The loss of tax revenue for local governments and the state is another result of the lending industry growing so fast and becoming so complex during its go-go years that it outstripped its paper trail.

Because the problem involves blind spots in official records, no one can say how much revenue is being lost. But the amount could be significant.

"I'm trying to do my best to follow Virginia law here," said John T. Frey, clerk of the Fairfax County Circuit Court, but "people are getting the break that aren't eligible."

"It's almost impossible to know who the actual noteholder is in this day and age," said Frey, the Fairfax County Circuit Court clerk.

Frey said he and his staff try to enforce compliance by examining the payoff statement, which shows where the proceeds of the new loan are going. But the payoff statement typically shows the servicer, not the noteholder.

Missing mortgage documents have been wreaking havoc on foreclosures. As Virginia's tax exemption shows, gaps in the public paper trail can have other consequences.

The system appears to be highly vulnerable to fraud and error.

Borrowers claiming the exemption - or the banks and settlement companies that submit the paperwork for them - "are not required to present any proof," Ionni said.

"If the payoff statement says 'Bank A' and the new loan says 'Bank A,' they would get the exemption," she said.

The trend coincided with the rise of a company called MERS, which went into competition with the official recordkeepers. To spare businesses the trouble and expense of filing assignments in local courthouses, MERS built a private electronic clearinghouse for loan information.

But government clerks administering the tax law cannot necessarily rely on MERS for answers. Its information, reported voluntarily by participating businesses, can be outdated or incomplete, and it allows noteholders to remain unidentified.

According to lawsuits filed on behalf of homeowners, some individuals appear to have violated the rules of process serving: the personal delivery of legal papers, required by law, notifying people that a foreclosure action has been filed against them. Like "robo-signing" -- the mass signing of foreclosure documents without review by loan servicers -- it's an alleged practice that is putting lenders, and the foreclosure law firms serving them, under fire.

Recent Florida foreclosure defense cases claim property owners never received a court summons even though they still were living in their home, or that servers never took required steps to find them. Some claim the servers lied, filing false court affidavits about to whom or when they delivered the papers.

Bad service, once rare, has become more common in foreclosures as lenders and their attorneys tried to speed tens of thousands of cases through the "rocket docket" court processes, designed to clear a huge backlog , said consumer advocates and attorneys defending homeowners.

"With the foreclosure zoo, it's become a lot more complicated," said Margery Golant, a foreclosure defense attorney with offices in Pompano Beach and Boca Raton. "They're all in a huge rush. They usually get paid by the piece so the more they can say they've served, the more they make."

A report released this week by the state office overseeing the courts found there were 462,339 foreclosure cases pending as of June 30, with one-fifth of them in Broward and Palm Beach counties. But over the next three months, the Broward courts disposed of 9,585 cases and Palm Beach county, 9,846 cases.

The thousands of homeowners involved in foreclosures are required to receive a court summons, delivered in person by a process server. If no one is at the address, servers are required to repeatedly try to make face-to-face contact before getting the court's permission to publish a legal notice instead.

But some have cut corners, Golant said. One server recently claimed she couldn't find Golant's client, facing foreclosure on a second home in Orlando, despite doing extensive record checks even though the mortgage paperwork clearly gave his primary home address in Connecticut.

http://www.sun-sentinel.com/business/fl-foreclosure-paper-problems-1104-20101103,0,1333679.story

Mortgage-Backed Securities Litigation
The Corporation and affiliates, legacy Countrywide entities and affiliates, and legacy Merrill Lynch entities and affiliates have been named as defendants in a number of cases relating to various roles they played in MBS offerings. These cases are generally purported class action suits or actions by individual purchasers of securities. Although the allegations vary by lawsuit, these cases generally allege that the offering documents for more than $375 billion of securities issued by hundreds of securitization trusts contained material misrepresentations and omissions, including statements regarding the underwriting standards pursuant to which the underlying mortgage loans were issued, the ratings given to the tranches by rating agencies, and the appraisal standards that were used in violation of Section 11 and 12 of the Securities Act of 1933 and/or state securities laws. The cases generally allege unspecified compensatory damages and in some instances, seek rescission. The Corporation has previously disclosed some of these matters under other headings, in its 2009 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010, including Countrywide Mortgage-Backed Securities Litigation; IndyMac Litigation; Merrill Lynch Subprime-related Matters; and Federal Home Loan Bank of Seattle Litigation.

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Table of Contents

BAS, Asset Backed Funding Corporation, Banc of America Mortgage Securities, Inc., CSC, CWABS, Inc., CWALT, Inc., Merrill Lynch Pierce, Fenner and Smith, Inc. (MLPF&S), and Merrill Lynch Mortgage Investors, Inc. are among the defendants in an individual action, entitled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al., filed by Cambridge Place Investment Management Inc. in Massachusetts Superior Court, Middlesex County on July 9, 2010. Plaintiff asserts claims under the Massachusetts securities laws and seeks unspecified damages and rescission, among other relief. On August 13, 2010, certain defendants removed the case to federal court. On September 13, 2010, plaintiff moved to remand the matter to state court.
BAS, Bank of America Mortgage Securities, Inc., Bank of America Funding Corporation, CFC and CWALT, Inc., MLPF&S, and Merrill Lynch Mortgage Investors, Inc. are among the defendants named in an individual action filed by The Charles Schwab Corporation in Superior Court California, County of San Francisco. The case was filed on July 15, 2010 and is entitled The Charles Schwab Corporation v. BNP Paribas Securities Corp. and the amended complaint alleges violations of the Securities Act of 1933, the California Corporate Securities Act, the California Civil Code, and common law in connection with various offerings of MBS and seeks unspecified damages and rescission, among other relief.
On October 15, 2010, the Federal Home Loan Bank of Chicago (FHLB Chicago) filed a complaint entitled Federal Home Loan Bank of Chicago v. Banc of America Funding Corporation et al., in the Circuit Court of Cook County, Illinois County Department, Chancery Division against the Corporation, Banc of America Funding Corporation, BAS, CSC and MLPF&S, among other defendants, asserting claims for violations of the Illinois Securities Law, as well as negligent misrepresentation under Illinois common law in connection with various offerings of MBS. FHLB Chicago filed a second complaint on October 15, 2010 entitled Federal Home Loan Bank of Chicago v. Banc of America Securities LLC et al., in the Superior Court of the State of California County of Los Angeles, Northwest District against BAS, CSC, CFC, CWABS, Inc., CWALT, Inc., CWMBS, Inc., among other defendants, asserting claims for violations of the California Civil Code, California Corporation Code, Illinois Securities Law, Sections 11, 12 and 15 of the Securities Act of 1933, as well as negligent misrepresentation and rescission of contract in connection with various offerings of MBS. The complaints filed by FHLB Chicago make allegations similar to those in the Federal Home Loan Bank of Pittsburgh and Federal Home Loan Bank of Seattle actions and seek unspecified damages and rescission, among other relief.
Merrill Lynch Subprime-related Matters
Connecticut Carpenters Pension Fund, et al. v. Merrill Lynch & Co., Inc., et al.; Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing and Securitization LLC, et al.; Public Employees’ Ret. System of Mississippi v. Merrill Lynch & Co. Inc. et al.; Wyoming State Treasurer v. Merrill Lynch & Co., Inc.
On August 6, 2010, defendants moved to dismiss the consolidated amended complaint.
Merrill Lynch Acquisition-related Matters
In Re Bank of America Securities, Derivative & ERISA Litigation
On August 27, 2010, the court entered two orders in In re Bank of America Securities, Derivative and Employment Retirement Income Security Act (ERISA) Litigation. One order dismissed the complaint brought by plaintiffs in the consolidated ERISA action in its entirety. The second order granted in part and denied in part defendants’ motions to dismiss the consolidated securities and derivative actions. All of the securities plaintiffs’ claims brought under the Securities and Exchange Act of 1934 were dismissed other than Section 14(a) claims concerning Merrill Lynch’s 2008 bonus payments and fourth quarter losses; Section 10(b) claims based on Merrill Lynch’s 2008 bonus payments; and Section 20(a) claims for control person liability. All of the securities plaintiffs’ claims brought under the Securities Act of 1933 were dismissed with the exception of the Section 11, 12(a)(2), and 15 claims based on Merrill Lynch’s 2008 bonus payments. All of derivative plaintiffs’ claims have been dismissed other than their Section 14(a) claims related to Merrill Lynch’s 2008 bonus payments and fourth quarter losses and certain state law breach of fiduciary duty claims. The securities plaintiffs have been granted leave to amend their complaint, and the derivative plaintiffs have reserved their right to seek leave to amend. On September 10, 2010, the Corporation moved for certification, or in the alternative, for reconsideration of three issues in the court’s August 27, 2010 order concerning the securities plaintiffs’ complaint: (i) that the defendants had a duty under Section 14(a) to disclose Merrill Lynch’s 2008 fourth quarter losses, (ii) that the securities plaintiffs adequately pleaded transaction causation for their Section 14(a) claim, and (iii) that covenants in a private merger agreement filed with the Securities and Exchange Commission can be the basis for a misrepresentation claim under the Securities Act of 1933.

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On September 23, 2010, plaintiffs in the consolidated ERISA action filed a notice that they will appeal the dismissal of their complaint to the U.S. Court of Appeals for the Second Circuit.
On October 8, 2010, the court denied the Corporation’s motion for certification, or in the alternative, for reconsideration. On October 15, 2010, the securities plaintiffs served an amended complaint. In addition to adding claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of holders of certain debt, preferred and option securities, the amendment attempts to re-plead allegations that had been dismissed under the Court’s August 27 order concerning Merrill Lynch’s 2008 fourth quarter losses.
Ocala Litigation
On August 30, 2010, each plaintiff filed a new lawsuit against BANA in the U.S. District Court for the Southern District of Florida, Miami Division (Deutsche Bank AG v. Bank of America, N.A., and BNP Paribas Mortgage Corporation v. Bank of America, N.A.). These lawsuits assert an alternative theory for recovering from BANA a portion of the plaintiffs’ alleged losses related to the Ocala facility. Plaintiffs allege that BANA’s commercial division purchased mortgage loans from Taylor, Bean & Whitaker Mortgage Corp., which loans had already been pledged to BANA, as Ocala Trustee, as collateral for the notes issued by the Ocala facility and purchased by plaintiffs. Plaintiffs seek a ruling that BANA’s commercial division’s rights to these loans is subordinate to BANA’s alleged security interest as Trustee, and that BANA’s commercial division is therefore wrongfully retaining the loans or the proceeds of any resales. Plaintiffs seek compensatory and other damages, interest, and attorneys fees in amounts that are unspecified but which plaintiffs allege exceed approximately $665 million.
On October 1, 2010, BANA, on behalf of the Ocala facility, filed suit in the U.S. District Court for the District of Columbia against the Federal Deposit Insurance Corporation (FDIC) as receiver of Colonial Bank and Platinum Community Bank entitled Bank of America, National Association as indenture trustee, custodian and collateral agent for Ocala Funding, LLC v. Federal Deposit Insurance Corporation, in its capacity as receiver of Colonial Bank, and in its capacity as receiver of Platinum Community Bank. The suit seeks judicial review of the FDIC’s denial of BANA’s administrative claims on behalf of the Ocala facility in the Colonial and Platinum receiverships. These claims allege that losses to the Ocala facility were in whole or in part the result of the fraud and other wrongful conduct of Colonial and Platinum.
Parmalat Finanziaria S.p.A. Matters
Proceedings in the United States
As a result of an agreement among the parties to settle the matter in an amount that is not material to the Corporation’s Consolidated Financial Statements, on August 25, 2010, the U.S. District Court for the Southern District of New York so ordered a stipulation of voluntary dismissal in Allstate Life Insurance Company v. Bank of America Corporation, et al.
Pender Litigation
On August 25, 2010, the U.S. District Court for the Western District of North Carolina held that The Bank of America Pension Plan’s definition of normal retirement age was valid and dismissed plaintiffs’ claims for unlawful lump sum benefit calculation and violation of ERISA’s anti-backloading rule, and denied defendants’ motion to dismiss pertaining to plaintiffs’ claims regarding the voluntary transfers of assets from The Bank of America 401(k) Plan to The Bank of America Pension Plan. The court granted plaintiffs’ motion for class certification. On September 10, 2010, plaintiffs filed a motion to reconsider the dismissal of the claim for violation of ERISA’s anti-backloading rule.

http://sec.gov/Archives/edgar/data/70858/000095012310101545/g24513e10vq.htm

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/07/AR2010110704301.html?sid=ST2010110705264

As foreclosures began to mount across the country three years ago, a group of state bank regulators suspected that some borrowers might be losing their homes unnecessarily. So the state officials asked the biggest national banks for details about their foreclosure operations.
This Story

When two banks - J.P. Morgan Chase and Wells Fargo - declined to cooperate, the state officials asked the banks' federal regulator for help, according to a letter they sent. But the Office of the Comptroller of the Currency, which oversees national banks, denied the states' request, saying the firms should answer only to inquiries from federal officials. In a response to state officials, John Dugan, comptroller at the time, wrote that his agency was already planning to collect foreclosure information and that any additional monitoring risked "confusing matters."

But even as it closed the door on state oversight, the OCC chose itself not to scrutinize the foreclosure operations of the largest national banks, forgoing any examination of their procedures and paperwork. Instead, the agency relied on the banks' in-house assessments. These provided no hint of the problems to come until they had tripped the nation's housing market, agency officials later acknowledged.

Even when the mortgage industry itself identified possible flaws in foreclosure paperwork, the agency was slow to act. In September, Ally Financial suspended foreclosures after discovering problems with tens of thousands of cases. But even then, the OCC did not begin to examine the operations of other major banks. Instead, the agency asked them to undertake internal reviews and told them it would conduct its own examination later, an OCC official said.

Two weeks ago, for the first time, the OCC began sending its staff into the banks to examine their foreclosure operations, interview bank employees and review paperwork.

The OCC is one of the nation's four federal bank regulators and has primary oversight over the largest banks, while the other three - the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision - share responsibility for many small and medium-size financial firms. All the agencies failed to spot problems in the foreclosure process.

But the agency did not look closely at how banks foreclose when borrowers don't make their mortgage payments. OCC officials treated foreclosures as the simple act of filing documents to seize ownership of a home once a borrower couldn't pay.

"We looked at the final stage of the process and thought of it as one that would be governed by standards and procedures in internal controls," said Julie Williams, the OCC's top lawyer. "You would only be able to know for sure if there was a problem with the document-signing process if you were standing in the room watching someone sign documents. That is not traditionally part of the bank examination process."

Some critics say the OCC's failure to effectively regulate the foreclosure operations of banks echoed other oversight failures in the lead-up to the housing crisis. For instance, state officials criticized the OCC for preempting local laws that restrict risky lending practices, which could have protected many borrowers against taking on unaffordable loans.

"They were a light-touch regulator all along the way," said Kathleen Keest, a consumer lawyer at the Center for Responsible Lending.

The mortgage servicing business model caused the whole industry to collapse, according to Sarah Raskin, a member of the Federal Reserve Board of Governors. She spoke in Boston Friday at the Consumer Rights Litigation Conference hosted by the National Consumer Law Center.

http://www.housingwire.com/2010/11/12/feds-raskin-says-mortgage-servicing-business-model-needs-reworking

http://www.youtube.com/watch?v=l1aGT-8WwTc&feature=player_embedded#!

http://www.creditwritedowns.com/2010/11/janet-tavakoli-on-the-foreclosure-crisis-and-systemic-fraud-issues.html

Nov. 16 (Bloomberg) -- Bank of America Corp. Chief
Executive Officer Brian T. Moynihan said resolving investor
demands for refunds over faulty mortgages is turning into a
battle that will last at least several more quarters.
“It’s a day-to-day, hand-to-hand combat,” Moynihan said
today during a conference held by the lender in New York. “It’s
manageable in the context of who we are, but we’re not going to
spend your money unwisely.”

http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.LiveStream&Hearing_id=df8cb685-c1bf-4eea-941d-cf9d5173873a

Richard Shelby and Diane Thompson make some really good points.
Shelby is interesting in this hearing as he has personal experience in how the process works having formerly worked in title insurance.

"H.R. 3808 Interstate Recognition of Notarization Act of 2010"

"JUST CONFIRMED WITH THE BILL’S SPONSOR STAFF IN WASHINGTON DC AND THERE WILL BE A VOTE TO OVERRIDE OR UPHOLD THE PRESIDENTS VETO WEDNESDAY NOVEMBER 17, 2010."

http://4closurefraud.org/2010/11/16/action-alert-its-back-h-r-3808-interstate-recognition-of-notarization-act-of-2010/

The vote is set to retroactively legalize foreclosure fraud and forgery by the banks

This reporter makes a simplistic and not entirely accurate case. But it is telling that this story is finally trickling to main media. When this thread was started many investment brokers weren't wholly aware of the problem. The fact that the gist of the new reporting is starting to be outrage-- even calling for jail time for bankers-- means it is getting closer and more dangerous for banks. Unfortunately I think Meredith Whitney is correct in calling this fiasco Tobacco.2. The issues will get kicked down the road, banks will continue to operate and make money until the preponderance of lawsuits and evidence forces them to a group table before congress.

http://4closurefraud.org/2010/11/21/foreclosure-fraud-msnbc-video-w-cenk-matt-taibbi/?source=patrick.net#header

Oh please, that msnbc reporter's lead and general tone is simply ridiculous -- he makes it sound like most foreclosures are frauds, and makes it sound like there are legions of cases where people are getting foreclosed on even when they paid their mortgage. This mess raises some serious issues, but citing nonsense like this shows how the issue is getting clouded by demogaugory.

Most of main stream media is clouded by demagoguery -- or Sarah Palin would not have a platform. I was making the point --if you read the post-- that this report might be inaccurate but it is hitting main stream media now which has not really happened up till now.

And, if you have read any of this thread, the thrust of the problem is that the mortgages foreclosures and robo signing are just a side show. Many banks are guilty of fraudulent practices and the put backs are the challenge for the banks, NOT the mortgage foreclosures. Please do not try to make the case that the banks are without fault -- the NY Fed does not engage in frivolous law suits.

" it is hitting main stream media now which has not really happened up till now. " and "But it is telling that this story is finally trickling to main media."

This story has been widely reported for weeks (including all over nightly tv broadcasts, front page of newspapers everywhere), so it is not "finally trickling to main media".

No one is arguing banks are not at fault. Put backs may well turn out to be a very serious issue for banks. But reports like msnbc talking about people cheated out of their homes who actually paid their mortgages are just plain ridiculous and cloud the serious issues.

robo signing has hit major media not put backs. the general public does not understand the put back issue. the main point in this msnbc piece -- with graphics-- was put backs.

More coverage this morning.

"Nov. 30 (Bloomberg) -- Testimony by a Bank of America Corp. employee in a New Jersey personal bankruptcy case may give more ammunition to homeowners and investors in their legal battles over defaulted mortgages.

Linda DeMartini, a team leader in the company’s mortgage- litigation management division, said during a U.S. Bankruptcy Court hearing in Camden last year that it was routine for the lender to keep mortgage promissory notes even after loans were bundled by the thousands into bonds and sold to investors, according to a transcript. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders.

In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov. 16 rejected a claim on the home of John T. Kemp, ruling his mortgage company, now owned by Bank of America, had failed to deliver the note to the trustee. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.

Following the decision, the bank disavowed the statements by DeMartini, whom it had flown in from California to testify. It was the policy of Countrywide Financial Corp., acquired by Bank of America in July 2008, to deliver notes as called for in its securitization contracts, according to Larry Platt, an attorney at K&L Gates LLP in Washington designated by the bank to answer questions about the case.

“This particular employee was mistaken in what she said,” Platt said in a telephone interview.

Attorney Analysis

Wizmur’s ruling is being scrutinized by lawyers for borrowers seeking to stall repossessions as a way to press lenders to modify their debt. Attorneys for homeowners have already won cases by calling into doubt the legitimacy of affidavits used to take back properties.

“If this is correct, many, many, many foreclosures already occurred in which this plaintiff didn’t have the note,” said Bruce Levitt, the South Orange, New Jersey, attorney representing Kemp. “This could affect thousands or hundreds of thousands of loans.”

[article continues. Too long to post in full]

http://noir.bloomberg.com/apps/news?pid=20601010&sid=abs7ECB42jVw

having hte note on paper in an era in which a lot of the red tape is happening electronically is just a technicality.

the issue is if those "homeowners" were or not paying their bills. if they weren't then the collateral for the loan they defaulted on is not theirs to keep. violating the use of the house as a collateral by not allowing the foreclosure to go through is not going to help the private sector to come back to the mtg sector. and remember that hte gov has to eventually step down from being almost the only lender in town.

think cause of that they are overdoing the note issue. but i'd LOVE for the mtg sector to collapse so that prices go down even more. just like it used to be: downpayments 20%+, excellent FICO, excellent employment history a requirement across the board... will do a lot to get rid the rest of the bubble air in housing balloon.

And this one. Interesting points include claims by the biggest banks (smaller banks, not so much) that they see the light at the end of the tunnel on Fannie/Freddie putbacks (non-agency putbacks, not so much) and a summary of various analyst estimates of the aggregate loss exposure of the banking industry to putbacks.

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aR0qtEY01Fpg

The banks are united that the current practices are fine. The lawyers and academics on the other hand not so sure. You can't seperate the mortgage from the note, and securitizations are supposed to be bankruptcy remote and have ownership of the note. The whole thing is one big kerfuffle/imbroglio

even better, just ban securitization for mortgages and go back to basics. that way there's no discussion on how holds the note thanks to no dicing and slicing.

home prices are still inflated cause of securitization, wouldn't hurt to deflate them back to the pre-credit bubble era.

Notadmin, that would be just as bad. The banks were severely distressed before securitization, which left them exposed to the difference between funding costs and the interest earned on mortgages.

Flmaoz. Howz about we go back to variable interest rates? Why is 30 yr mortgage less risky than cash? It's Fking hilarious.

You don't got 100% in cash to buy, rent.

Securitization is a great thing when properly done. The problems we are seeing now are the result of securitizations done improperly

One of yesterday's Bloomberg articles (a few posts up the thread) suggested that some banks think they are getting past much of the putback problem. Today the FT quotes the CEO of Assured Guaranty (bond insurer), who begs to differ...

Demands to buy back loans ‘tip of iceberg’
By Aline van Duyn in New York

Published: December 1 2010 03:08 | Last updated: December 1 2010 03:08

Investor demands for banks such as Bank of America and JPMorgan to buy back billions of dollars of soured mortgages are only the “tip of the iceberg” of claims that will be made, according to one of the big claimants against the banks.

Dominic Frederico, chief executive of Assured Guaranty, a bond insurer backed by billionaire Wilbur Ross, says banks will probably be forced to buy back many more mortgages that failed to meet underwriting standards.

Investors, including government-backed mortgage financiers Fannie Mae and Freddie Mac, are pushing banks to hand over detailed information about home loans, which can then be used to determine if underwriting standards fell short.

When breaches are found, banks have to buy back the mortgages.

Uncertainty about the success of claims – some of which are already in litigation – has weighed on the share prices of US banks.

“The numbers that have been recognised to date are very low compared with what the ultimate liability will potentially be [for banks],” Mr Frederico told the Financial Times.

“This saga of mortgage dislocation has a lot more chapters to play. There are a lot more layers to the onion that still need to be peeled back and looked at. I think we’re at the tip of the iceberg.”

Assured Guaranty, which acquired rival FSA to become the biggest bond insurer, now dominates the business after rivals such as Ambac and MBIA were devastated by exposure to complex securities backed by mortgages.

Assured Guaranty also made losses on mortgage-backed securities but steered clear of insuring the most toxic structured products, such as collateralised debt obligations.

The bond insurer was one of the first to pursue aggressively its rights to force banks to take back mortgages if underwriting standards were breached.

So far, Assured Guaranty has identified $4.7bn in breaches after reviewing $5.3bn of mortgage loan files, although banks have not agreed to repurchase all of those.

Yet, even as Mr Frederico digs in for the long haul to pursue mortgage claims, he says Assured Guaranty will not re-enter the market for insuring bonds backed by mortgages.

In spite of the regulatory overhaul of Wall Street and attempts to improve disclosure of loan information to investors, he says the risk of mortgage fraud remains because incentives have not changed significantly.

“The system encouraged people to not apply stringent standards. Going forward, how do I prevent this, other than me having to sit here and underwrite every single loan as well?” said Mr Frederico.

Assured Guaranty’s new business comes from insuring bonds sold in the US municipal bond market.

In spite of interest in this business by Warren Buffett and other investors, no new insurers have been set up.

Mr Frederico blames US insurance regulators, which have failed to set clear capital rules and have split up companies such as Ambac and MBIA in an effort to protect holders of municipal insurance.

These moves are being fought in the courts.

The industry remains dependent on credit ratings, even though the triple A ratings assigned to now bankrupt insurers such as Ambac proved to understate risks.

Assured Guaranty recently lost its triple A rating from Standard & Poor’s.

“There are no clear sets of regulations,” said Mr Frederico. “Why would someone commit capital if tomorrow a rating agency [can downgrade]?”

Good Point. The mono-lines have every reason to pursue this.

It's been a big week for reporting on foreclosure and putback issues. This Euromoney article is way too long to post as text, so I'll leave it at the link. It is quite comprehensive - a feature length piece rather than the daily Bloomberg or WSJ article on the latest foreclosure/putback development - and in my view quite well done.

http://www.euromoney.com/Article/2711281/ChannelPage/8959/AssetCategory/17/Securitization-Mortgage-banks-hit-by-putback-time-bomb.html

Also, Bloomberg had more coverage today focused on putbacks of prime mortgages and the exposure of banks, esp. BofA (via Countrywide), to the consequences of sloppy underwriting and rep and warranty failures even on higher quality mortgages.
http://noir.bloomberg.com/apps/news?pid=20601109&sid=aLCcSyNvU3E0&pos=13

>>So far, Assured Guaranty has identified $4.7bn in breaches after reviewing $5.3bn of mortgage loan files,

This is a much higher percentage of put backs than has been reported anywhere else. Usually the high end of the spectrum is about 40% from analysts and obviously much lower from the banking industry. Even assuming Assured Guaranty was reviewing the most suspect loans in the most toxic years, that is still a shocking number.

This mess will take years to unwind. Put your kids thru law school. Jobs aplenty for many years.

sidelinesitter, you are "acluistic"

http://www.washingtonpost.com/wp-dyn/content/article/2010/12/02/AR2010120205224.html

The system of pooling and selling mortgages around the world has caused widespread confusion about who owns the loans and raises questions about whether banks in some cases have the legal standing to foreclose, a state judge and consumer attorneys testified before Congress on Thursday.

New York State Supreme Court Justice Dana Winslow said that "standing has become such a pervasive issue" in the cases he sees "that I frequently use the term 'presumptive mortgagee' " to describe the entity trying to foreclose.

Winslow, academics and attorneys defending homeowners described a fundamental problem that goes beyond recent revelations of shoddy paperwork and "robo-signing" in foreclosure cases. They said there is a much broader question about the legality of designating a single company, Mortgage Electronic Registration Systems (MERS), as the holder of mortgages and then trading these loans to investors around the world without updating the ownership documents in local clerk offices.

They said it is unclear whether using this system has stripped those investors of the right to foreclose on homeowners who miss their payments.

University of Utah law professor Christopher L. Peterson said MERS has a "problematic legal foundation" because it undermines state recording laws. Peterson called MERS a "deceptive" and "anti-democratic" institution because it also uses thousands of employees who work for mortgage lenders, servicers and law firms to sign mortgage paperwork in the name of MERS. That practice is also clouding the ownership of the loan, he argued.

a Reuters investigation shows that LPS's legal woes are more serious than he let on. Public records reveal that the company's LPS Default Solutions unit produced documents of dubious authenticity in far larger quantities than it has disclosed, and over a much longer timespan.

Questionable signing and notarization practices weren't limited to its subsidiary, called DocX, but occurred in at least one of LPS's own offices, mortgage assignments filed in county recorders' offices show. And rather than halt such practices after the federal investigation got underway, the company shifted the signing to firms with which it has close business ties. LPS provided personnel to work in the new signing operations, according to information from an LPS spokeswoman and court records including an October 21 ruling by a judge in Brooklyn, New York. Records in county recorders' offices, and in the judge's opinion, show that "robosigning" and preparation of apparently false documents went on at these sites on a large scale.

In one instance, it helped set up a massive signing operation at the nearby office of a major client, a spokeswoman for the client, American Home Mortgage Servicing, confirmed. LPS-hired notaries who worked there said in interviews that troves of documents were improperly handled. They said that about 200 affidavits per day were robosigned during the two months the two notaries remained there.

A spokeswoman for LPS confirmed to Reuters that it had helped other firms establish operations that performed the same function. LPS spokeswoman Michelle Kersch didn't specify which firms. But beginning early in 2010, county recorders' records show, signing shifted also to law firms under contract with LPS.

Interviews with key players and court records also show that pending investigations and lawsuits pose a bigger threat to the company than Carbiener let on.

The criminal investigation in Jacksonville by federal prosecutors and the Federal Bureau of Investigation is intensifying. The same goes for a separate inquiry by the Florida attorney general's office. Individuals with direct knowledge of the federal inquiry said that prosecutors have impaneled a grand jury, begun calling witnesses and subpoenaed records from LPS.

The company confirmed to Reuters that it has hired Paul McNulty, former deputy U.S. attorney general in the George W. Bush administration, to represent it in the investigation. A spokeswoman for the U.S. Attorney's office declined to comment on the probe.

The U.S. Comptroller of the Currency's office, which is responsible for supervising national banks, also announced in November that it had teamed up with the Federal Reserve to conduct an on-site examination of LPS.

Meanwhile, the threats from four class action lawsuits filed in federal courts appear to be greater than the company has indicated, especially one filed in Mississippi. In a highly unusual move, a unit of the U.S. Justice Department has joined that suit as a plaintiff. The lawsuit alleges that LPS extracted many millions of dollars in kickbacks from law firms through an illegal fee-sharing arrangement, in exchange for doling out lucrative foreclosure work to them.

The lawsuit also charges that LPS illegally practices law and routinely misleads homeowners and federal bankruptcy judges. Carbiener has said there is little reason to worry about the Mississippi suit because the company already prevailed in a federal lawsuit in Texas that had made nearly identical accusations. But court records in that case show that the lawsuit was dropped without any ruling on the merits of the allegations.

http://www.reuters.com/article/idUSTRE6B547N20101206

"Assignments are creatures of 17th-century real property law; they do not coexist easily with high-volume, late 20th-century secondary mortgage market transactions," Phyllis K. Slesinger, then senior director of investor relations for the Mortgage Bankers Association of America, wrote in paper explaining the system

On March 4, 1994, the MBA unveiled its plan to county recorders who were charged with keeping track of title, signifying the ownership of land. Not everyone was sold on the idea. "There needs to be some outside control or oversight," one recorder said, according to a transcript of the meeting. Another said that if errors were put into the electronic system, "they're really hard to track further down the road."

Sixteen years down the road, the mortgage business is a mess. The electronic clearinghouse has become a reality: The Virginia-based Mortgage Electronic Registrations Systems, a registry with 67 million mortgages on file, has become part of the industry's standard operating procedure.

But critics say promises of transparency and of ironing out wrinkles in record-keeping haven't panned out. The firm, which tracks more than 60 percent of the country's residential mortgages but whose parent company employs just 45 people in a Reston office building, is on the firing line now.

Clerks from counties across the country are suing MERS to collect unpaid filing fees. Several state courts have rejected attempts by MERS to act on behalf of banks seeking to foreclose on delinquent mortgages. And Congress is weighing legislation that would bar home loan giant Fannie Mae from buying any mortgage listed in MERS, potentially a death knell for the registry.

"MERS is both a cause and a symptom of cavalier documentation practices in the mortgage industry," University of Utah professor Christopher L. Peterson said. "It goes back to a slogan of theirs: 'Process loans not paperwork.' MERS created the illusion of record-keeping when it wasn't really done."

http://www.washingtonpost.com/wp-dyn/content/article/2010/12/30/AR2010123003056.html?sid=ST2010123003364

Florida A.G. must see presentation

http://www.businessinsider.com/presentation-florida-attorney-general-foreclosure-2011-1#-1

"Banks Are Tanking After Suffering A Big Loss At The Massachusetts Supreme Court"

"The Massachusetts Supreme Court just dealt a negative ruling to the banks in the closely-followed Ibanez case, which challenged securitization standards. It's pretty straightforward: The banks didn't have the proper parwork to foreclose, says the court. Hence, no legitimate foreclosure."

Read more: http://www.businessinsider.com/bank-of-america-ibanez-case-2011-1#ixzz1AMnLMZG2

NY & MASS seem to be of the same mind on this. The banks are pleading that NJ doesn't follow suit. The rule of precedent and the increased understanding by the judges of MERS is playing against the banks.

Cue the put backs.

"The Next Robo-Signing Crisis?"

"It's the next big shoe to drop in the robo-signing foreclosure scandal. Call it part two.

We already know banks halted foreclosure sales when it was discovered that servicers took short cuts, so-called "robo-signing" in the foreclosure sale process in judicial foreclosure states -about half the country.

Now it appears they may have done the same thing in the Notice of Default process which takes place in the other half - i.e. the non-judicial states.

(Judicial foreclosures are those that are processed through the courts whereas non-judicial are processed without court intervention.)"

http://www.cnbc.com/id/41250862

"BofA Unit Ordered to Halt Foreclosures in Nevada"

"A Bank of America Corp. unit, ReconTrust Co. N.A., was ordered by a Nevada judge to temporarily stop foreclosures in the state that aren't approved by a court order. "

http://www.bloomberg.com/news/2011-01-25/bank-of-america-unit-ordered-to-halt-nevada-foreclosures.html

Here we go....

This is pathetic. Anyone who has basic mortgage knowledge knows there are special rules for servicemen.

http://www.nytimes.com/2011/01/27/business/27foreclose.html?_r=1&ref=business

While Sgt. James B. Hurley was away at war, he lost a heartbreaking battle at home.

In violation of a law intended to protect active military personnel from creditors, agents of Deutsche Bank foreclosed on his small Michigan house, forcing Sergeant Hurley’s wife, Brandie, and her two young children to move out and find shelter elsewhere.

When the sergeant returned in December 2005, he drove past the densely wooded riverfront property outside Hartford, Mich. The peaceful little home was still there — winter birds still darted over the gazebo he had built near the water’s edge — but it almost certainly would never be his again. Less than two months before his return from the war, the bank’s agents sold the property to a buyer in Chicago for $76,000.

In one of a growing number of foreclosure cases across the country in which judges are questioning whether notices and documents were improperly prepared, Nye County District Court Judge Robert Lane issued a preliminary injunction against BofA's ReconTrust subsidiary, blocking it from proceeding with non-judicial foreclosures statewide until a Feb. 28 hearing.

The case involves a borrower, Suzanne A. North, who sued the bank on Jan. 11 arguing that ReconTrust filed foreclosure papers when it did not have the legal standing to do so.

In a court filing Wednesday obtained by the Las Vegas Sun, Bank of America says that Bank of America and ReconTrust are in compliance with Nevada foreclosure laws and that the borrower's case will ultimately fail.

The bank also argues that the harm the injunction "caused to the public interest is overwhelming," and quotes U.S. Treasury Secretary Timothy Geithner to support its case.

"Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging' and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight," the bank said. "The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration."

North's attorney has said he will seek class-action status for the suit--a prospect that has the mortgage finance companies worried.

The Nevada case is the second big blow to the industry this year. Earlier this month, the Massachusetts Supreme Court voided two foreclosures because the banks failed to show the proper paperwork to prove they owned the loans. That decision challenges the way mortgages were bundled and sold around the world and could lead to the invalidation of thousands of foreclosures across the state.

http://voices.washingtonpost.com/political-economy/2011/01/bank_of_america_seeks_to_overt.html

Governor Sarah Bloom Raskin
At the 2011 Midwinter Housing Finance Conference, Park City, Utah
February 11, 2011

In November, I spoke about the problems in residential mortgage servicing operations that were undermining the performance of this industry. These problems existed before November and as far as I can tell they remain unaddressed. How do I know this? Late last year, the federal banking agencies began a targeted review of loan servicing practices at large financial institutions that had significant market concentrations in mortgage servicing. The preliminary results from this review indicate that widespread weaknesses exist in the servicing industry. The agencies intend to report more specific findings to the public soon, but I can tell you that these deficiencies pose significant risk to mortgage servicing and foreclosure processes, impair the functioning of mortgage markets, and diminish overall accountability to homeowners.

I'm sure this has been said, but I'll say it again because I have seen little to no evidence of improvement in the operational performance of servicers since the onset of the crisis in 2007: Until these operational problems are addressed once and for all, the foreclosure crisis will continue and the housing sector will languish.

What is needed is strong corporate governance procedures for servicers that are established, monitored, and enforced enterprise-wide in order to prevent process breakdowns. Servicers need sound policies and procedures that outline the rules, laws, standards, and processes by which internal operations are assessed. Senior executives need to emphasize compliance and qualitative measures over short-run cost efficiency, and need to articulate the presence of adequate quality controls and audit processes to identify risks and take timely, corrective actions where needed. Corporate leadership needs to communicate performance expectations that hold all business lines accountable to strong procedural controls.

If errors occur or internal processes become challenged, servicers must act swiftly and responsibly to contain the damage to consumers and markets. Going forward, the servicing industry must foster an operational environment that reflects safe and sound banking principles and compliance with applicable state and federal law. This is a primary responsibility of the servicing industry, but regulators now have to be prepared to monitor servicing functions on an ongoing basis to ensure confidence is restored and take enforcement actions, when necessary, to address significant failures.
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One step the industry could take that would have an enormous payoff for consumers and market participants would be to change its pricing model. The economic incentives and pressure points of the current servicing model cause problems at multiple levels.

In addition to float income and ancillary fees, servicers earn money through an annual fee on each loan. This annual servicing fee is an important income source that has to cover some wildly varying costs. On a performing loan for which costs to servicers are minimal, the revenue stream from ancillary fees and float may itself be nearly enough to fairly compensate servicers. But when a loan becomes non-performing, costs start climbing. Costs associated with collections, loss mitigation, foreclosure, the maintenance and disposition of real-estate owned properties, and so on, are lumpy and can be high. The current model is structured with the hope that, over a given period of time, there are enough of the low-touch performing loans to cross-subsidize the high-touch non-performing ones, so that the overall pool of servicing fee revenue is sufficient to cover expenses and return a reasonable profit. But if that doesn't happen, servicers are either being paid too much for their efforts or not enough.

The current model also rests on the expectation that, in good times, servicers are using some of the residual income to build out systems and procedures to handle the pressures that come with worse times. Unfortunately, as we have seen, this has not happened.

A better business model--one that might attract more entrants and increase competition--would more closely tie expenses with compensation and reduce many of the principal-agent problems that currently exist. Rather than rolling most of the compensation into one annual fee that covers performing and delinquent loans alike, servicers could be compensated quite modestly for the routine processing of payments involved with performing assets. They would be required to have either significant capacity for loss mitigation and the other work involved with non-performing loans, or business relationships with third parties, such as specialty servicers, that do. Contracts could spell out a structure wherein the investor would pay significantly higher and more direct compensation for the more labor-intensive work involved in delinquent loans, though they would need to be careful not to create perverse incentives to encourage such delinquencies. There would also need to be much more clarity and specificity about loss mitigation standards and systems for auditing internal procedures. Such a system could more appropriately compensate servicers and sub-servicers for the level of work involved in servicing very different types of loans. Specialists could emerge who focus primarily on the routine performing loans or the more involved non-performing ones. If the non-performing specialist was a third party, the existing servicer could either transfer the servicing rights once a loan hits a certain delinquency trigger, or simply have the loans subserviced--of course with high levels of accountability--on a fee-for-services basis until the delinquency is resolved. One structure along these general lines has recently been proposed by Fannie Mae, Freddie Mac, and Ginnie Mae. While many details would need to be worked out and possible implications thought through, I believe it is a promising start.

Another structural change that would help would be a limit on the extent to which servicers have to advance principal and interest on non-performing loans. In times of high delinquency, this can put considerable financial strain on servicers, which can lead to negative consequences for consumers trying to work with those stressed servicers. This could be addressed by changing secondary market standards so that servicers only have to advance mortgage principal and interest up to, say, 60 or 90 days beyond delinquency. Alternatively, they could advance principal and interest payments only as they come in--a so-called "actual/actual" schedule. Either change would affect the payment streams to investors, but I would imagine that participants in the secondary markets would be able to model with some confidence how this would affect the value of securities and adjust pricing accordingly.

This means that future pooling and servicing agreements will need to look different than those of the past. They will need to be much more detailed and provide clarity about what the servicer can and cannot do. They should explicitly allow for loan modifications and other non-foreclosure workout actions when they are determined to lead to a smaller loss to the investor than would a foreclosure. There also needs to be clarity that the servicer is expected to work in the aggregate best interests of the investor, regardless of tranche. And we need to find ways to deal with the problems that arise from the conflicting interests of senior and junior lien interests that can hold up workable alternatives to foreclosure.

Too many of the practices in the mortgage servicing industry have been developed and defended solely on the basis of "standard industry practice," but many practices were not only standard but shoddy. This has proven true, I might add, on the underwriting and secondary market sides of the house, and we are now seeing courts reject some of those practices. More explicit rules and procedures need to replace standard practices. And these rules and procedures need to be incorporated into the deals with investors, who will factor them in to the value they see in the securities.

These are some initial thoughts on how to rebuild an important but currently dysfunctional sector of the housing market. Surely details need to be worked out, costs accounted for, and potential unintended consequences thought through. This isn't easy, and time is of the essence because the drag on our recovery is palpable. We need the incentives that permit us to reengineer this sector of the market and build a business model that actually works. That model will need to provide adequate and appropriate compensation for servicers, protect consumers, give investors what they need, and be sufficiently transparent to all parties and the public. It needs to be transparent and accountable--one that better aligns the interests and incentives of homeowners, investors, and servicers. And servicers need to understand that the homeowner is an important constituent, if for no other reason than that it is the homeowner who is critical to the revitalization of the housing sector.

http://www.federalreserve.gov/newsevents/speech/raskin20110211a.htm

I wonder if the uber boring wikileak pages on Bank of America would have any bearing on a class action suit in Nevada. The papers are from 2006, the height of the Nevada frenzy. What may be boring and complicated to Assange, might have relevance for a single homeowner in Nevada. In any event, the case in Nevada does not bode well for the housing crisis. The end is apparently not in sight.

Because of one single homeowner in NV?

The government has already changed the rules (eg; the change of mark-to-market and the lack of any real criminal fraud charges against the banking industry) to take care of the financial industries' gross mistakes, that it won't surprise me when they do the very same to address this title paper work nightmare.

A "temporary" suspension/reinterpretation of title law - ie; "What the banks claim is now law"

Look for Congress to quietly (or loudly under the threat of economic disaster) pass a law that magically allows all that took place to be "legal" BEFORE a certain date - so they can act as if they are going to RESPECT the law going forward. Look for the Attorney General and our courts to prosecute NO ONE - except maybe homeowners that misbehave and reject the new "law" (I am not kidding about this one... rebellious homeowners WILL be prosecuted to the full extent of the "law" while bankers will get off scott-free.) Foreclosures will continue and past foreclosures will NOT be investigated and the system will simply overlook all of the fraud, lies, perjury that took place between 1997-2011+ - that is if you happened to be a financial institution or employed by one.

Furthermore, the IRS will be told NOT to pursue any banker-related tax violations though again, if homeowners have screwed up, they are toast. Investors in mortgage backed securities better get banks to settle over "put-backs" now b/c banks will probably be protected from such "put-backs" if such bank-forgiving legislation is passed.

The question is, if the law is strictly interpreted (which it clearly is not being done today), what is the alternative?

The answer is that the whole mortgage system and housing market would collapse. The system has completely ignored title transfer procedures and even the necessity of the existence of a PHYSICAL title. Mortgage documents have been willfully destroyed in order to either simplify the process or cover up potential fraud. Billions of dollars of securities have been made and sold on the basis of such liens and collateral that simply CAN'T be proved to exist.

And that is just the tip of the iceberg of fraud that took place in order for the banking system to process enough transactions to create this nightmare. FALSE signatures, documentation, income sources, tax deductions due to false claims to 1st and 2nd homes; the willing acceptance of clearly unqualified credit applications and the inclusion of defaulting accounts into financial securities. The open and gross perjury in front of our courts and clear attempts to provide fake and false documents as "evidence".

If the law were STRICTLY interpreted tens of thousands of bankers and their lawyers would be held accountable for financial fraud and perjury. Let's put it this way, if all of this had somehow been pulled off by ONE individual the government would put that person in jail in a heartbeat. Instead the financial industry with help from the government created this mess and now with the same help plans to escape from it - mostly under the excuse that any real action would cause the US and World economy to collapse.

In my word, all of the bankers (probably 10's of thousands of them) that underwrote this crap are jailed - probably for life given the number of transactions they created - they also give back the last 15 years of income earned from this nonsense. All of the lawyers that knowing lied to judges - busted and disbarred. All of the homeowners that lied on their loan applications - jailed. But none of that is going to happen because we live in a world where there are no real consequences for individuals/corporations that commit fraud and take advantage of the system. We live in a world where we have become DEPENDENT on such crooks to keep our "economy" going.

The government has already changed the rules (eg; the change of mark-to-market and the lack of any real criminal fraud charges against the banking industry) to take care of the financial industries' gross mistakes, that it won't surprise me when they do the very same to address this title paper work nightmare.

The tide seems to be shifting on this one, and at this juncture I'm not inclined to agree for a few reasons.
1) Judges are involved and now that the issue is out there, they are paying attention and basing decisions on established law and prior precedent. They're not going to invent new laws.
2) The attorney Generals have more options than they did when mark to market was suspended, which was an
issue outside their purview.
3) The Federal Reserve is actually getting interested in this.
4) Obama refused to sign the previous bill designed to circumvent due process

A federal bankruptcy court judge issued an opinion on Thursday offering a scathing critique of the Mortgage Electronic Registration Systems, or MERS, the electronic-lien registry system built by the housing-finance industry to facilitate the bundling and selling of pools of mortgages.

The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.

"Even with bank-constricted pipeline, some foreclosures auctions rise"

"Foreclosures in some markets are on the rise, according to one survey of courthouse auctions. However, the numbers do not indicate a peak in foreclosure sales has been reached."

"Foreclosure auction sales grew as much as 50% in some states during January as foreclosure moratoriums came to an end, sending hundreds of distressed properties back to the auction block ()"

http://www.housingwire.com/2011/02/15/foreclosure-auction-sales-rise-in-some-western-states-in-january

WASHINGTON — Alarmed by significant deficiencies uncovered as part of a regulatory review of mortgage servicer practices, the federal banking agencies are preparing formal enforcement actions against the largest servicing firms, hoping the actions will set de facto standards across the industry, according to sources familiar with the situation.

The enforcement orders are expected to hit most, and possibly all, of the 14 mortgage servicers reviewed by regulators after foreclosure problems surfaced in the press last year, but the largest firms — including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and Ally Financial Inc. — are likely to face the toughest requirements, due to the sheer number of issues that must be addressed, sources said.

The orders are expected to be coupled with a global settlement with other government entities investigating the servicing industry, which is almost certain to include civil money penalties. Regulators are still discussing the terms with state attorneys general, the Justice Department, the Department of Housing and Urban Development, the Treasury Department and the Consumer Financial Protection Bureau.

"The OCC and the other federal banking agencies with relevant jurisdiction are in the process of finalizing actions that will incorporate appropriate remedial requirements and sanctions with respect to the servicers within their respective jurisdictions," said Acting Comptroller of the Currency John Walsh, according to prepared testimony obtained by American Banker and due to be delivered Thursday to the Senate Banking Committee.

"We expect that our actions will comprehensively address servicers' identified deficiencies and will hold servicers to standards that require effective and proactive risk management of servicing operations, and appropriate remediation for customers who have been financially harmed by defects in servicers' standards and procedures. We also intend to leverage our findings and lessons learned in this examination of enforcement process to contribute to the development of national servicing standards."

Regulators are hoping the enforcement orders will send a message to the rest of the servicing industry. Although the exact details of the orders are still under discussion, sources said they are likely to include requirements that servicers beef up staffing, establish a single point of contact for borrowers, and conduct a comprehensive look back at their servicing portfolio to detect and correct problems.

The Federal Deposit Insurance Corp. and other government officials are also pushing to include an agreement to offer enhanced, streamlined modifications to troubled borrowers in exchange for a clearer path to foreclosure if re-default occurs after the workout. It remains unclear, however, if regulators will take such a step.

Several banks had initially expected the enforcement orders to come as early as this week, but that timeline appears to be slipping. Sources indicated regulators are shooting to issue the orders, along with the global settlement, sometime in March. After the orders are released, regulators will follow up with a report on the findings of their review and further recommendations.

There also appear to be differences among the agencies in how tough to make the enforcement orders and how high the monetary penalty should be. The CFPB, among others, has been pushing for steep fines to be assessed on servicers, coupled with stringent remedial actions. The FDIC is also said to be pushing for tougher enforcement measures, while the Office of the Comptroller of the Currency is concerned about taking overly harsh actions. Regulators met Monday with Treasury Secretary Tim Geithner and representatives from the Federal Housing Finance Agency, HUD and CFPB to discuss the pending actions.

Although the orders will effectively establish standards for the largest servicers, they are not expected to supplant efforts already underway for regulators to issue their own formal set of rules. Regulators are still divided on where and how to set such standards, with the FDIC pushing to include them as part of a risk-retention rule while the OCC wants to craft a stand-alone measure.

Regulators have been hinting for weeks that they may take enforcement actions against servicers, as they sought to reassure Congress they are on top of the issue. "We are directing banks to take corrective action where we find errors or deficiencies, and we have an array of informal and formal enforcement actions and penalties that we will impose if warranted," Walsh said in testimony on Dec. 1. "These range from informal memoranda of understanding to civil money penalties, removals from banking, and criminal referrals."

FDIC Chairman Sheila Bair has been vocal that any solution must result in industrywide standards.

"In order to remedy failures endemic to the largest mortgage servicers, I hope to see enforceable requirements that will significantly improve opportunities for homeowners to avoid foreclosure," Bair said in a January 19 speech to the Mortgage Bankers Association.

Some observers said it's apparent the servicers should have taken remedial steps on their own before regulators stepped in.

"It's unfortunate it had to get this point," said William Longbrake, an executive-in-residence at the University of Maryland. "It would have been better if the industry had done these things without the federal government."

While the settlement is likely to be bad public relations for the servicers involved, Jaret Seiberg, a policy analyst at MF Global Inc.'s Washington Research Group, said a global settlement may still be positive news for the industry.

"A global settlement should be extremely positive for banks by putting this issue to rest and letting the industry move past the paperwork snafus," Seiberg said.

He was most intrigued by the potential for streamlined modifications, saying such a requirement could have an impact.

"The easier you make the modification the more likely you are to get a modification, so the concept makes a lot of sense," Seiberg said. "For the industry, where there is an automatic modification and then foreclosure if the borrower goes delinquent a second time, you could end up benefiting the banks because it's going to eliminate a lot of uncertainty now about the ability of financial firms to foreclose on borrowers behind on payments. Right now there are so many programs out there, it difficult to know when banks can foreclose. This would set up a streamlined model."

The bank regulators began an interagency review team of the 14 largest servicers in September following reports of robo-signing and foreclosure problems at BofA, Ally, and JPMorgan. According to the OCC, the eight largest national bank mortgage servicers account for approximately 63% of all mortgages outstanding in the United States and nearly 33.3 million loans totaling almost $5.8 trillion in principal balances as of June 30, 2010.

http://www.americanbanker.com/issues/176_33/regulators-servicers-fines-1033100-1.html

Thursday, February 17th, 2011, 12:05 am

Mortgage Electronic Registration Systems, or MERS, told its members Wednesday not to foreclose on residential mortgages in its name.

“During this period we request that members do not commence foreclosures in MERS’ name. If a member determines that it will commence a foreclosure in MERS’ name during this 90-day period, two weeks advance notice must be given to MERS to permit verification of the appointment and current status of the certifying officer proposed to participate in the foreclosure. No foreclosure may be processed in MERS’ name without first obtaining this verification.”

MERS suggested that members bring foreclosures “only in the name of the holder of the note, in the name of the trustee or the servicer of record acting on behalf of the trustee.”

In May of last year, Fannie Mae directed its servicers to cease naming MERS as a plaintiff in any of its foreclosure actions. In October, JP Morgan Chase & Co. (JPM: 47.94 0.00%) CEO Jamie Dimon informed investors that while the bank still participated in the registration system, it no longer foreclosed in the name of the registration system.

MERS experienced a setback last week, when a N.Y. judge held that MERS could not legally transfer and assign mortgages through its electronic registry. Judge Robert E. Grossman ruled that the foreclosing lender had to show specific evidence that it was given specific written instructions by its principal.

http://www.housingwire.com/2011/02/17/mers-to-members-don%E2%80%99t-foreclose-in-our-name

In an exclusive interview with CNBC, John O’Brien explained why he sent a letter to Massachusetts Attorney General Martha Coakley requesting an investigation into Mortgage Electronic Registrations Systems, Inc.

“It’s a basic issue of fairness. MERS says that if you are a member of their club, you can avoid fees on assignments of mortgages forever. Those are fees that everyone else pays,” O’Brien said. “I’ve never before heard of a private company that has attempted to unilaterally take over such a public function as property recordation. Imagine if someone tried to do this with drivers licenses.”

O’Brien has asked Coakley to investigate whether MERS may owe fees for recordation it has avoided. He is taking this very seriously.

“I intend to pursue this as vigorously as the banks pursue a consumer who doesn’t pay a fee. If you don’t pay them, they’ll pursue you to the gates of Hell,” he said.

This is a shoe that hadn’t yet dropped – the evasion of fees by the banks using MERS. County governments are as cash-strapped as virtually every other government entity, and MERS’ entire reason for being is to strip them of land title recording fees, which they’ve been doing for over a decade. Massachusetts happens to have extremely precise recording laws, and thus this is the best place to start this new front in the war on the corrupt banks. MERS would be liable for billions, and they’re owned by the big banks (and the GSEs), so that money would transfer over.

http://news.firedoglake.com/2010/12/01/county-recorder-in-massachusetts-goes-after-mers/

Of all the analysts I have read regarding banks exposure to mortgage mess, I have never seen the MERS fees mentioned as risk to the banks. I doubt any bank analyst has this on their radar. However it is a long way to proving the banks are on the hook for decades of fees -- and even if it is proven, there will undoubtedly be a "settlement". Still, one more stink bomb for the banks and MERS is obviously toast. RS, Any idea if MERS goes under whether that will affect the flow of foreclosures?

Another case where Wells Fargo didn't have the note and swore to three different versions of a story in court. The bank settled the case when the Justice Dept got interested in the case. No disclosure on settlement details but I think it safe to say that the woman got to keep her house.

As more of these stories pile up, it is going to slow down foreclosures even more.

http://www.nytimes.com/2011/02/27/business/27gret.html?ref=realestate

apt23.
Two options MERS goes by the wayside or the banks get Congress and the President to change the law. I have no idea what the outcome will be, only that MERS will not be honest about its predicament. It's also clear that MERS has saved the banks a lot of money and cost localities a lot of money

JP Morgan just announced that they are going to have to put into reserve another 4.5 Billion dollars for the put back issue. They didn't mention it at their recent investor day. And it is a far cry from their clarion call last November when they claimed they would fight the lawsuits one by one. Now that it is over 10,000 law suits, perhaps they have change of heart. As one pundit put it, these banks didn't see the mortgage mess coming, I'm not sure that I trust that they have a firm grasp on the costs of cleaning it up.

I wonder if the govt is going to allow them to reinstitute their dividend before they settle all their legal obligations. Next Up: Bank of America which owns the Countrywide nightmare.

Funny you should mention BofA. Here is the latest from Bloomberg. $40bn here and $40bn there and pretty soon we're talking about real money...

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aFSvQ4S9J6ZA&pos=4
Feb. 28 (Bloomberg) -- A bondholder group seeking reimbursements from Bank of America Corp. over soured home-loan securities said the amount of debt it holds grew to $84 billion after more investors joined the dispute.

The number climbed from about $46 billion in October, according to the group’s lawyer. The investors have had “enough progress” in negotiations with Bank of America and Bank of New York Mellon Corp., which acts as trustee of the debt, to warrant continued talks, Kathy Patrick, a partner at Houston-based Gibbs & Bruns LLP, said today in a telephone interview.

Bank of America said Feb. 25 there were 225 mortgage deals in dispute, up from 115 in October. It didn’t provide a dollar value for the securities. Investors challenging the bank include Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York, people familiar with the matter said in October.

The bank is seeking to limit losses on mortgages originated by Countrywide Financial Corp., which the Charlotte, North Carolina-based lender purchased in 2008. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan Chase & Co. bond analysts said in an October report.

The “careful approach” of Patrick’s investor group doesn’t mean it will accept less than it’s entitled to, she said, dismissing the idea that her clients will limit their settlement goals because of their other business dealings with Bank of America.

Mortgage Trust’s Role

Growing membership is a “vote of confidence” in the group’s seriousness, she said. The investors have only considered a settlement that pays through the mortgage trust, a channel that would serve even the bondholders Patrick doesn’t represent, she said.

Bill Frey, head of Greenwich, Connecticut-based Greenwich Financial Services LLC, which also advises mortgage bondholders seeking buybacks, said many investors he has spoken to “are not expecting a terribly aggressive settlement,” from Patrick’s clients.

“Our clients will let any results they achieve speak for themselves,” Patrick said.

In October, Bank of America said the dispute with Patrick’s clients covered bonds with a face value of about $46 billion and original balances of $105 billion. The original balance of the securities now involved totals $182 billion and the group has grown from eight to more than 20 institutions, Patrick said. New members include insurers, investment managers and banks, she said.

BofA Questions Validity

“The amount of unpaid principal balance doesn’t reflect what ultimately might be paid if, in fact, there were valid claims,” said Jerry Dubrowski, a Bank of America spokesman. “At this point we have a number of questions about the validity of the assertions, including whether the investors are qualified to bring claims.”

Kevin Heine, a spokesman for BNY Mellon, declined to comment.

David Grais, a New York-based lawyer, on Feb. 23 sued Bank of America on behalf of investors holding more than $700 million of mortgage securities. BNY Mellon, the debt’s trustee, refused to sue Bank of America after the lender declined to buy back loans the investors deemed faulty, according to the complaint.

“This is the strategy for investors who are serious,” Grais said Feb. 24 in a telephone interview. “This is the best strategy for investors who actually want teeth in their dogs.”

The plaintiffs in his case are a group of limited liability companies with variations of the name Walnut Place. Grais declined to identify the investors behind the companies.

BNY Mellon, which was named as a nominal defendant in that case, has “a limited role that is distinct from the seller and the servicer and contractually limited by the pooling and servicing agreements,” Heine said.

“We have been fulfilling our obligations under these agreements,” he said.

Holy crap. Looks like the banks have seriously underestimated their potential liability. There is another lawyer in Texas that represents an even larger group of investors. I will have to find his name (which means I have to dig through this thread where I posted his CV) and get an update on his suit.

This is the guy I was looking for -- Talcott Franklin. He essentially established a clearing house to match investors with other investors in the same pool so they could pursue remedy. Note that in this Bloomberg article, one estimate of bank exposure in $179Billion. That could be the highest estimate I have come across.
http://www.bloomberg.com/news/2010-09-23/mortgage-investors-target-banks-using-texas-lawyer-s-novel-clearing-house.html

I wonder when we will hear from his firm on the numbers of lawsuits.

I think BAC is expecting the gov't to back-stop losses. The agreement between BAC & Fannie Mae on put-backs was widely seen as a sweet heart deal. It doesn't take much to suggest that getting that ugly bride Countrywide & groom BAC to the alter was made possible by a huge dowry of one Uncle Sam.

Source?

Mers is toast. And now that sentiment is hitting the major papers.

http://www.nytimes.com/2011/03/06/business/06mers.html?pagewanted=2&hp

MERS is toast. There's too much money at stake for cities and states not to go after them.
Their only chance is getting Congress to do an end-run.

What is amazing is that almost everyone of the cases in that story was either related or discussed here. These MERS issues were debated at length here months ago. It is amazing that it is taking the NY Times this long to cover this issue. The banks troubles and expenses are going to be compounded. Especially since the Attorney Generals' recommendations for mortgage amendments are not favorable to the banks.

Plus the banks -- also discussed on this thread-- are under reporting their exposure. An investment broker told me that there are vulture funds being formed that plan on picking up mortgages from the bank for under 40 cents on the dollar when the banks finally have to face the facts and they capitulate. Until then they are glossing over their financial statements. So banks like JP Morgan can conveniently not mention an extra 4.5 Billion in expenses at their investor day but eventually they will all have to pay the piper.

I think the best way to prevent bubbles and foreclosures is knowledge, i recommend everyone should read "how might warren buffett invest in real estate?", i think its the best way to prevent real estate bubbles and crashes. you can get it at amazon.com http://www.amazon.com/Warren-Buffett-Invest-Estate-ebook/dp/B004M8S4ZO/

Rather than just schill your book, don't you think it would be more beneficial to provide some intriguing arguments that might entice people to read your book. This is afterall, a real estate blog not a free advertising board.

Don't worry htyen1, while your "schill" may be obvious, apt23 has her own nefarious agendas, and although they are obvious, she won't simply admit it. apt23 is our Queen Troll here on streeteasy.

I think the best way to prevent bubbles and foreclosures is knowledge

The best antiseptic is sunlight

"These MERS issues were debated at length here months ago. It is amazing that it is taking the NY Times this long to cover this issue."

Gretchen Morgenson was writing about MERS' shortcomings - some of them at least - in the fall of 2009, and the Times' web site actually has a MERS page. StreetEasy posters did not break this story, so let's get over ourselves for a change. Articles in 2009 include "The Mortgage Machine Backfires" about a court ruling against MERS and "If the Lenders Say 'The Dog Ate Your Mortgage'", which recounts what must have been an early example of a court invalidating a (purported) mortgage for which the note had disappeared into the maw of the bank/MERS/securitization monster.
http://topics.nytimes.com/top/news/business/companies/mortgage_electronic_registration_systems_inc/index.html?scp=1-spot&sq=mers&st=cse

Better late than never. This guy was one of the enablers-in-chief of the foreclosure fiasco, at least in Florida. Any bets on how many years this guy spends tied up in fraud lawsuits?

http://www.nytimes.com/2011/03/08/business/08foreclose.html?hpw
Lawyer Shuts Down His Home Foreclosure Practice
By JULIE CRESWELL
David J. Stern, one of the country’s best-known beneficiaries of the foreclosure boom, who pocketed millions from evictions processed by his Florida law firm, told regulators on Monday that he was shutting down his foreclosure practice.

Mr. Stern’s law firm in Plantation, Fla., will end its involvement in all pending foreclosures at the end of the month, according to a filing with the Securities and Exchange Commission.

A lawyer who enjoyed a lifestyle of mansions and flashy sports cars and owned a yacht called Misunderstood, Mr. Stern and his law firm have been at the center of an investigation by the Florida attorney general’s office into whether numerous law firms falsified documents to speed up foreclosures.

Mr. Stern’s lawyer, Jeffrey Tew, said he would not comment beyond what was in the S.E.C. filing.

At its peak in 2009, the Stern law firm handled 70,000 foreclosures, or about 20 percent of such actions in the state, bringing in $260 million in revenue.

But after the announcement of the investigations, Mr. Stern’s law firm lost its biggest clients, including Citibank and the mortgage lending giant Fannie Mae. Its executives left and the company laid off most of its employees.

The law firm’s primary client was DJSP Enterprises, a publicly traded company that acquired the back-office operations of the David J. Stern law firm in early 2010. The plan was to replicate the law firm’s foreclosure business model in several states as millions of people across the country continued to lose their homes.

The public offering netted Mr. Stern $60 million, but it appears to have been a money loser for other investors. Shares of DJSP Enterprises, which traded as high as $14 last summer, traded at 14 cents Monday on Nasdaq.

One of those investors, Kerry Propper, who runs a boutique investment bank on Wall Street, did not respond to an e-mail seeking comment.

Without proof the mortgage had been assigned to the trust, in this case a Bear Stearns-related mortgage trust, the trustee lacked standing to foreclose, the court found.

"The court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with the terms of its own pooling and servicing agreement and further did not comply with New York law in attempting to obtain assignment of plaintiff Horace's note and mortgage," the judge's order, signed March 25 and filed with the court Wednesday, said. "Horace is a third-party beneficiary of the pooling and servicing agreement … without such … plaintiff Horace and other mortgagors similarly situated would never have been able to obtain financing."

Horace's attorney, Nick Wooten, said the judge's decision proves "the securitization process totally and completely failed," and that many of these "assets were not transferred."

http://www.housingwire.com/2011/04/01/alabama-judge-denies-securitization-trustee-standing-to-foreclose

The couple involved, the Horaces, took out a predatory mortgage with Encore Credit Corp in November, 2005. Apparently Encore sold their loan to EMC Mortgage Corp, who then tried to securitize it in a Bear Stearns deal. If the securitization had been done properly, in February 2006 the trust created to hold the loans would have acquired the Horace loan. Once the Horaces defaulted, as they did in 2007, the trustee would have been able to foreclose on the Horaces.

And that's why this case is so big: the judge found the securitization of the Horace loan wasn't done properly, so the trustee -- LaSalle National Bank Association, now part of Bank of America (BAC) -- couldn't foreclose. In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway? This judge says no, finding that since the securitization was busted, the trust didn't have the right to foreclose, period.

Since the judge's order doesn't explain, how should people understand his decision? Luckily, the underlying documents make the judge's decision obvious.

No Endorsements

The key contract creating the securitization is called a "Pooling and Servicing Agreement" (pooling as in creating a pool of mortgages, and servicing as in servicing those mortgages.) The PSA for the deal involving the Horace mortgage is here and has very specific requirements about how the trust can acquire loans. One of the easiest requirements to check is the way the loan's promissory note is supposed to be endorsed -- just look at the note.

According to Section 2.01 of the PSA, the note should have been endorsed from Encore to EMC to a Bear Stearns entity. At that point, Bear could either endorse the note specifically to the trustee, or endorse it "in blank." But the note produced was simply endorsed in blank by Encore. As a result, the trust never got the Horace loan, explained securitization expert Tom Adams in his affidavit.

But wait, argued the bank, it doesn't matter if if the trust owns the loan -- it just has to be a "holder" under the Alabama version of the UCC (Uniform Commercial Code), and the trust is a holder. The problem with that argument is securitization trusts aren't allowed to simply take property willy-nilly. In fact, to preserve their special tax status, they are forbidden from taking property after their cut-off dates, which in this case was February 28, 2006. As a result, if the trust doesn't own the loan according to the PSA it can't receive the proceeds of the foreclosure or the title to the home, even if it's allowed to foreclose as a holder.

Holder Status Can't Solve Standing Problem

Allowing a trust to foreclose based on holder status when it doesn't own the loan would seem to create yet another type of clouded title issue. I mean, it's absurd to say the trust foreclosed and took title as a matter of the UCC, but to also have it be true that the trust can't take title as a matter of its own formational documents. And what would happen to the proceeds of the foreclosure sale? That's why people making this type of argument keep pointing out that the UCC allows people to contract around it and PSAs are properly viewed as such a contracting around agreement.

As Nick Wooten, the Horaces' attorney, said:

"This is just one example of hundreds I have seen where servicers were trying to force through a foreclosure in the name of a trust that clearly had no interest in the underlying loan according to the terms of the pooling and servicing agreement. This conduct is a fraud on the borrower, a fraud on the investors and a fraud on the court. Thankfully Judge Johnson recognized the utter failure of the securitization transaction and would not overlook the fact that the trust had no interest in this loan."

http://www.dailyfinance.com/story/real-estate/court-busted-securitization-prevents-foreclosure/19900530/

I wonder how long it's gonna take if each foreclosure case is to be decided in court...
I'm glas banks are getting caught at their own game!
It's pay back time bitches!

glas=glad

CBS discovers foreclosure gate

http://www.cbsnews.com/video/watch/?id=7361572n

Best explanation yet. Given 60 Minutes 13.2 million audience, I wonder how many Americans are going to stop paying their mortgage, now that they realize the game is stacked.

I watched the 60mn last night! Scandalous! Any person foreclosed upon using these faked Titles signed -Linda Green- should get their house back free & clear and courts should prohibit banks to ever sue them again.

This poses some interesting ethical questions. Why is it that a mortgager gets the house free and clear? What if they actually did stop paying a mortgage to which they committed? I know that what the lawyers and banks did here is despicable, and for that they should be punished. For one thing, the lawyers and banks should be indicted for perjury. The banks and lawyers should owe some form of restitution to those they harmed, but it that restitution is not enough to make up for the mortgage still owed then I don't see why they should be gifted with the rest of the amount.

but the banks involved here are all in the too big to fail category. so, by example, BOA and Citi or their designated agents acted fraudulently...who will cover the cost of this punishment?

AvUWS.
It's complicated. If you don't pay your mortgage you should lose your home, but legally only the true owner/holder of the note/mortgages should be able to do it. It's scandalous that not a single peron acting on behalf of the servicer is guilty of antyhing. This is probably due in to the banks getting a favorable definition of what constitutes mortgage fraud(which protects the banks) and an unwillingness by regulators and law enforcment officials to enforce what laws do exist.

"Why is it that a mortgager gets the house free and clear?"

If no one can prove that you owe them money (which seems to be the case here), the logical conclusion is that you do not, in fact, owe anyone money.

Put a slightly different way: the banks should suffer the consequences of the banks' screwups, not the borrowers.

Palm Beach Post on judges barring banks from refiling:

http://www.palmbeachpost.com/money/foreclosures/foreclosure-crisis-fed-up-judges-crack-down-on-1369862.html

I agree that due process is important, as is title. But in some of these cases the judge is essentially vacating the debt which I think poses huge problems to the future of a mortgage system and may be punishing the wrong people while enriching the possibly undeserving.

you absolutely can punish lawyers, banks and bank officers using current laws. But if you grant the house to the debtor free and clear then the person hurt will be the holder of the note, which might be a bank or an institutional bondholder like a pension fund. If you hurt a bank then close it and restructure it. It it is a too-big-to-fail bank then the unpaid debt is paid by the taxpayer. If it is owned by an insurance company or pension fund then why is it fair that the pensioner or insurance customer has to pay?

In some of these cases the true owner of the mortgage can still be found and the real assignments can be perfected. Sheila Bair even says that in the 60-minutes interview. But if this is stopped from happening that someone will be unjustly enriched. And if someone is unjustly enriched that means it was on the backs of someone else.

Much of the fraud was so that the real hard work of producing the documents didn't need to be done. But it still could be done.

The people against whom the fraud was perpetrated too have a case, and they should be compensated for it, but not if it means that some other innocents (like you and me) pay for the justice.

Actually, NOTES (the loan) are not the issue.

The controversy is over the lien -- the mortgage, not the loan. The banks/CDO trusts decided to ignore several centuries of clear real estate law and did not record their liens, instead putting them in the names of MERS. Apparently, the primary motive was to cheat on their taxes. As a result, they may not have a lien. That would mean that they cannot foreclose and the homeowner owns the property free and clear. The reason the homeowner gets the house free and clear is because the mortgagee decided to violate well established law designed to protect homeowners and buyers from secret liens. The issue is whether the courts will hold the banks and CDO trusts responsible for their actions.

However, under no scenario does the homeowner get to walk away from the LOAN. The loan is an ordinary contract. Notes do not need to be recorded to be valid. They remain enforceable under any scenario. The borrower owes money to the note holder and once the trusts decide who that is, the note holder will be able to enforce the notes. They'll just have to do it under ordinary contract law, not by taking people's houses away from them. And they may have to prove that they actually are the note holder, which is an essential and longstanding legal requirement designed to prevent debtors from having to pay their loan twice (at the moment, we are hearing numerous stories where multiple trusts claim to hold the same note, precisely the scenario the laws that MERS violated were designed to prevent)

AvUWs, you said -unjustly enriched- as in Joe Cassano's $315Millions compensation from Aig between 2008 & 2008?

I agree that due process is important, as is title. But in some of these cases the judge is essentially vacating the debt which I think poses huge problems to the future of a mortgage system and may be punishing the wrong people while enriching the possibly undeserving.

Two silver linings though.
Bond holders will insist on a process for new securitzations, and banks will make sure docs are in order to prevent worthless uncollectable debt. The bond holders should be allowed to sue to servicers to recoup. Letting the banks off the hook sets a bad precent.

2000 & 2008