Free Lunch

On Wednesday, April 20th of 2005 my wife and I drove across town to so that a former college football player could tell us how best to manage our money.

Because he brought me lunch.

That was about the extent of our my thought process when it came to money back then.
Anything is better than what I'm currently doing - which is nothing.

E was sweating our finances at the time and had repeatedly made noises about getting a financial professional to have a go at our cash flow and see where we could stop the bleeding.

Aside from wanting to hire a professional who would not be paid on commission ("My advice is to buy all the crap that I sell!"), I had very little idea of what would make for a good choice.

Which is why I ended up picking a football player.

A designer I worked with at the time offered the entire department a free lunch if we listened to a 1 minute spiel about financial planning.

It sounded dumb, but free food is free food. The financial planning guy would pick up food from wherever we wanted and deliver it to us.

I know. Score, right?

Footballer walks in with a stack of food containers. He passes them out along with a single sheet of paper that shows the effect of compounding interest on various amounts of money invested over varying periods of time.

He didn't seem terribly polished, but he was true to his word. He spoke for one minute, told us the fairly obvious fact that investing early and consistently really pays off over the long haul - and then he was gone.

We ate lunch, and afterwords I picked up one of the man's business cards. Perfect timing, right? I mean I'm looking for a financial advisor and one shows up to give me lunch. I called him up and we set up a preliminary meeting.

I got Footballer to lay out the terms of the deal, we'd pay him a flat rate and he'd provide a full review of our finances along with a plan for managing our money going forward. We told him we weren't interested in crazy investment schemes - we're just looking to get a grade on where we were at and look for areas where we should improve our use of what we had.

Footballer said he was totally on board with that, but he had the annoying habit of using pat phrases that seemed laughably simplistic.

As in

Footballer: Would you like to make a lot of money with your retirement investments - or would you like to [store your money in a mattress/get 1% return on your savings/be poked in the eye with a sharp stick]? 

Us: Uh... the 'make a lot of money' one?

We signed a contract and Footballer told us that we could pay when we received our financial plan - and that there was a satisfaction guarantee. "If you don't like the service you receive, let us know and we'll waive the charges."

Which seemed odd. Also, Footballer wanted to take us out to dinner for a "client appreciation night." We could invite other friends, and their meal would also be paid for.

Which also seemed odd.

But again, I figured this was a pretty transparent attempt to get other people to meet with Footballer so that he could sell more financial advice.

Because he was in the business of selling advice. That's why we were paying him.

I should point out at this point that Footballer worked for American Express Financial Advisers Inc.,  currently called Ameriprise.

As in, Yeah, this guy's a football player who brought me free lunch, but he works for American Express - so it must be okay.

With a choice thus justified, we'd dropped off a copy of pretty much all of our personal financial data with him and made the April 20th appointment to get our plan.

Huzzah! A plan! We're buying a financial plan!

We'd arrived at the nondescript office ready to hear the news, good or bad.

After checking in with reception we were greeted by Footballer who looked deathly ill and informed us that we would be meeting with a colleague of his, as he needed to go home and lie down.

I know what you're thinking, but I believed him. He had the look of a man who has just returned from throwing up in the bathroom. We did not shake his hands and let him go.

The meeting we ended up having had only a few memorable bits:

1. The person we were meeting with had almost no people skills
2. Our financial plan said we were in pretty good shape financially, but that we needed to buy more insurance.

The bulk of the rest of the meeting (at least, in my memory) was NoPeopleSkills getting us to fill out an application for Variable Universal Life Insurance.

We were not interested in buying any life insurance that didn't begin with the word "term." Because UVL is a terrible investment for just about everyone. NoPeopleSkills seemed to be on rails and E and I just let him roll along until it was time for the meeting to end.

At some point - I can't remember when - Ameriprise suggested that we refinance our home. I know this because while cleaning out the basement the other day I came across the binder they gave us with our "Financial Plan." 

Written on one of the pages are the words "refi, 3-5 yr. ARM."

Understand - this was in 2005.

We were trying to buy financial advice from a professional. 

We had given them all our private financial data.

-and the sum of their advice was "Buy universal variable life insurance (from us) and refinance your home into an Adjustable Rate Mortgage."

There was never any chance that E and I were going to go for an ARM, we both sort of nodded our head at this suggestion like "no way in hell" - but it's striking at how shameless that Footballer and NoPeopleSkills were.

E's reminding me that at one point they told us that our home equity line of credit was "like having a savings account."

Mind you, these were people who represented themselves as financial experts. These were people whose expertise we were on contract to pay for.

"Yes, NoPeopleSkills, now that you mention it - I suppose that borrowing money against our home is just like earning interest on money in the bank. Yes. I see that now."

I'll quote Tim Minchin: Oh wait, my mistake [that's] absolute bullsh!t.

E and I left that meeting with an unspoken agreement that Footballer, NoPeopleSkills and American Express/Ameriprise/whoeverTheyWere were full of crap.

We never went back. We've never received a bill, either - not that we'd pay it.

Which only serves to illustrate that Footballer and Ameriprise were never selling advice, they were selling their investment products. So much so, that they couldn't be bothered to even ask for the money we'd agreed to pay them. 

I'm throwing all their crap out of our house (along with - it must be said - a lot of other things) but I wanted to write this down so I can remember how utterly terrible Ameriprise was.

Think back to 2008.

All those people who lost their homes in the wake of the meltdown.

People who saved their shekels in the hopes of buying a home - who then had the misfortune to run into some slick "advisor" who sold them financial ruin.

Makes me ill.

I looked Footballer up on LinkedIn - they left Ameriprise in 2006 and went to work for JPMorgan Chase.

And left JPMorgan in 2008 - right about the time Wall Street was imploding.

They ended up working back at a nonprofit wing of my alma mater - doing youth outreach and promoting academic achievement and healthy living.

*     *     *

Footballer?  

If you were to somehow read this - I'd like to say I genuinely hope you've turned your life around. I see that you went back into banking. 

I hope you've changed your ways. That you give sensible advice and treat your clients honestly. I suppose that's possible. 

But mostly, I'd like you to know we never took any of your advice. That the only reason I kept your financial plan this long was because I wanted a souvenir of my own foolishness. 

But with this blog post, I can have my souvenir and still give your advice what it deserves 

- a long, long overdue trip to the recycle bin. 

Two on Foreclosure

CJR's Ryan Chittum says about all that needs to be said about the current state of foreclosures in America, netting a fistfull of great articles- like this one from American Banker:

Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

Oooh! Tell us more, do!

And then there's Reuters, saying that the Federal Housing Finance Agency is suing the big banks.

The government will argue the banks, which pooled the mortgages and sold them as securities to investors, failed to perform due diligence required under securities law and missed evidence that borrowers' incomes were falsified or inflated...

Ya don't say...

FU GSE

(Via CJR)

Remember Freddie Mac and Fannie Mae? They'd be the Government Sponsored Entities who pretty much owned the secondary mortgage market until Wall Street went all Subprime.

It depends on what the definition of "lose" is...

You probably remember that these two companies were bailed out by the government to the tune of billions.
They almost went under because they were criminally under capitalized and couldn't absorb the cost of failing loans.

The Detroit Free Press is reporting that Freddie and Fannie are pressing foreclosures on these bad loans at a startlingly aggressive pace.

Foreclosure is generally agreed on as the worst case for all involved. The homeowner loses their home, the bank takes a home that is worth less than the loan it secured, and the house is unlikely to sell in a depressed and glutted market.

So why do it? Moreover, why fall all over yourself in a rush to do it?

This is why:

For example...if a home with a $200,000 mortgage is foreclosed and Fannie nets $80,000 from its sale, Fannie loses $120,000. But because Congress authorized the Treasury Department to reimburse Fannie as part of the government's takeover, taxpayers eat the losses.

The complete and utter scumbags who run the GSE, aided by those who would have the power to stop them, are hoping to bury the losses with federal funds and then return to their former glory days as a semi-private firm. A firm that presumably would resume paying them handsome salaries once all is forgotten by the public.

They Call This a Paperwork Problem

(Via ProPublica)

While it may be true that (as the NPR news helpfully informed me the other day) Courts are holding up the foreclosure process - they're only holding it up because they're encountering this kind of crap:

GMAC, one of the nation's largest mortgage servicers, faced a quandary last summer. It wanted to foreclose on a New York City homeowner but lacked the crucial paperwork needed to seize the property.

GMAC has a standard solution to such problems, which arise frequently in the post-bubble economy. Its employees secure permission to create and sign documents in the name of companies that made the original loans. But this case was trickier because the lender, a notorious subprime company named Ameriquest, had gone out of business in 2007.

And so GMAC, which was bailed out by taxpayers in 2008, began looking for a way to craft a document that would pass legal muster, internal records obtained by ProPublica show.

"The problem is we do not have signing authority—are there any other options?" Jeffrey Stephan, the head of GMAC's "Document Execution" team, wrote to another employee and the law firm pursuing the foreclosure action. No solutions were offered.

Three months later, GMAC had an answer. It filed a document with New York City authorities that said the delinquent Ameriquest loan had been assigned to it "effective of" August 2005. The document was dated July 7, 2010, three years after Ameriquest had ceased to exist and was signed by Stephan, who was identified as a "Limited Signing Officer" for Ameriquest Mortgage Company. Soon after, GMAC filed for foreclosure.

An examination by ProPublica suggests this transaction was not unique. A review of court records in New York identified hundreds of similar assignment documents filed in the name of Ameriquest after 2008 by GMAC and other mortgage servicers.

In other words years after Ameriquest died a spectacularly public death - banks would like us to believe they are signing over loans to banks who just happen to need those very documents in ongoing foreclosure cases.

Also:If the banks cannot locate the proper documents - or convince the court to accept a "recreated" one - they'll just swear it was lost and try to foreclose anyway.

Because, really would a bank lie about something so serious?

Can we please get some coverage that calls the foreclosure mess what it truly is?

Allonges...Not Throat Lozenges from Switzerland

Adam Levitin posted this awhile back, but it's a great issue to raise - now that we know banks are willing to pay for document fabrication so they can foreclose.

Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge

The shorter version is that bank paperwork is supposed to be processed and signed in a specific manner. The chaos and complexity of life has led to an accommodation  called an allonge - basically another piece of paper affixed (stapled) to the primary document that provides additional, relevant information.

This is a very unusual procedure - since most times a document can be corrected electronically and re-issued for wet ink signatures on the spot. But if a document was jam packed with text and the process was strapped for time - they might create an allonge and staple it to the transfer documents.

Again, a safety valve for the weirdness of everyday life.

But now bankruptcy courts are seeing allonges falling like rain. And after discovering that their initial trust of the banking industry was seriously misplaced - they are beginning to wonder if these allonges are merely the newest attempt to fabricate proper documents where none previously existed.

(H/t naked capitalism)

Local Govt's to Secondary Lenders: Cough Up What You Owe

(Via Naked Capitalism)

Remember that whole MERS thing? Y'know the one where big lenders are too impatient and cheap to follow local laws about title transfer - so they make up a shell corporation so they can ignore the law?

Well, local govt's smell money they're owed - and they're suing.

“Defendants have not paid the Transfer Tax because they have claimed on the face of the documents they have recorded that the transaction is exempt from the Transfer Tax. They sometimes claim the transaction is exempt because they are government entities and, under Michigan statute, government entities are exempt. Other times they claim they are exempt pursuant to federal statute.

“Neither claimed exemption applies. Defendants are federally chartered private corporations and not government entities. Defendants’ federal law exemption from certain taxes does not include the Transfer Tax.”

Give 'em hell, folks. There's money in them thar hills!!

We Didn’t Move The Paper. No One Moved The Paper.

If what you say is true, we’re f*cked. We didn’t move the paper. No one moved the paper.

So sayeth the head of one of the major subprime loan originators - speaking about the legal consequences of his industry not moving the paper - the mortgages and assigned notes - in the way that current law requires.

Hardly breaking news, but the fact is the "we're f*cked" scenario and its implications are a trillion dollar question writ large across the nation's residential mortgage market. What can be done to fix a situation that (on the face of it) appears to invalidate mortgages & their derived securities nationwide? Lenders like Countrywide appear to have held onto loan documents they were legally obligated to deliver to firms purchasing those loans.

The bonus round was banks presenting notes at time of foreclosure that were improperly endorsed - that is, they weren't signed over to the foreclosing party, yet were submitted by that party as evidence in support of a foreclosure proceeding. (emphasis added)

Although law enforcement should be able to answer the delivery question easily -- [Countrywide employee] DeMartini['s testimony] indicated that Bank of America has FedEx tracking records for each note -- it's impossible for the public to check. But the endorsement of notes is easy to test. In every foreclosure, the bank must give the court the note or an accurate copy of it. And those notes are either properly endorsed or they're not.

To check DeMartini's testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.

None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower's signature. Two-thirds of the loans made by other banks also lacked bank endorsements.

As numerous observers have pointed out, this is not a small thing, since -

• who holds the note determines who can foreclose
• who can (or can't) foreclose impacts whether or not a loan is secured or not; and
• whether a loan is secured or not determines whether or not it has value if the borrower has defaulted.

Add to that the percentage of home borrowers in default (around 9%) and those who owe more than their house is worth (around 23%) and you have the recipe for a very big mess heading toward this nation's bankruptcy courts.

Which is not to say, wow look at this breaking bit of news - but more like. How the F*ck is this time bomb still ticking away?

The Rise and Fall of Ms. Dory Goebel

Naked Capitalism snags a great case out of the US Bankruptcy Court for the eastern district of Louisiana. In Re: Wilson. While the robo-signing phenomenon is hardly new - its violent collision with bankruptcy courts never fails to entertain.

The backstory of this case is that the debtors, Ron and LaRhonda Wilson, fell behind on their mortgage and filed for chapter 13 bankruptcy in September 2007. They entered into an agreement with the US Trustee to pay regular installments to the trustee for what they owed on their mortgage prior to declaring bankruptcy. They also agreed to continue paying all future mortgage payments directly to their lender, Option One.

Assuming all goes to plan - you would think Option One would be happy with this. The amount in arrears will be paid after a delay, but the ongoing payments will continue. A blip in the payment record, but Option One gets their money.

Option One is not happy. January 2008 they ask the court to allow them to go after the Wilsons for their money. The reason? The Wilsons haven't made the payments they promised (November 2007, December 2007, and January 2008). The Wilsons are bums, and Option One wants to foreclose.

The Wilsons counter that they have made all their payments since September, and Option One is simply wrong.

The law favors the Wilsons for one simple reason: Option One didn't supply any evidence with their motion. Motion denied.

Option One digs into their records and comes back swinging a month later. Now they claim that four payments haven't been paid - and this means the escrow may be insufficient to pay real estate taxes (the horror!). This assertion is backed up by an affidavit by Option One's new champion, Ms. Dory Goebel.

Ms Goebel affirmed:

Appearer has reviewed and is familiar with the mortgage loan account of RON WILSON, Sr. And LA RHONDA WILSON (“Mortgagor”) represented by the afore described note and mortgage and the records and data complications [sic] pertaining thereto, which business records reflect acts, events or condition made at or near the time by Dory Goebel, or from information transmitted by a person with knowledge thereof and which records and data complications [sic] are made and kept as a regular practice of the regularly conducted business activities of OPTION ONE MORTGAGE CORPORATION.

Ms. Goebel then declared that the balance due on the note was $176,063.27 and that Debtors were in default under their plan for failure to pay the monthly installments accruing from November 1, 2007, through February 1, 2008. Ms. Goebel represented that the last payment on the note was applied to the October 1, 2007 installment.

So there, sworn testimony that the Wilsons haven't been paying Option One.

By now it's April 2008. So presumably, Option One is owed these four payements and more.

But there's a problem. Six actually. The Wilsons enter into evidence copies of six payments. Western Union money orders and cashiers checks. Five of these payments have confirmation of receipt by Option One.

Oops.

The Court asks Option One's attorney - a Mr. Wirtz - to explain this discrepancy.

Wirtz discloses that his client agrees that, yes in fact, the Wilsons did make their October, November, and December payments. BUT, he claims, they still haven't paid all that they owe (presumably the January, February, and March 2008 payments), so the court should allow Option One to foreclose.

The Court reminds Mr. Wirtz and Ms. Goebel - via a show cause order - that there's still the matter of why Ms. Goebel's affidavit said the Wilsons had not paid when there was convincing evidence (including the signatures of Option One employees on certified mail receipts) for payments that Ms. Goebel has sworn did not exist.

Another hearing is held. Mr. Wirtz appears, but Ms. Goebel "was not present." Mr. Wirtz admits that the Wilsons are, his bad, current on their loan payments.

Oh, ho, ho. Silly me. Let's forget about that whole 'wanting-to-take-their-house-thing' okay, your honor? What'dya say?.

The Court jointly sanctioned Option One and Ms. Goebel $5,000.00 for failure to appear and $5,000.00 for filing a false affidavit. Option One was also ordered to pay $900.00 in attorney’s fees to Debtors’ counsel. The Court sanctioned Mr. Wirtz $1,000.00 for failing to amend the Second Motion and Default Affidavit once he obtained information which revealed that they were false.

The Court then pursued further investigation into why Ms. Goebel - working for Option One, but technically an employee of Loan Processing Services - would file a false affidavit.

I'll let the court summarize what followed:

From July 9, 2008, through December 2010, the parties conducted contentious discovery. Ten (10) motions to quash, compel, clarify, reconsider orders, stay proceedings, request protective orders; and appeal interlocutory orders were considered along with responses, oppositions and replies to each.

Finally, the court and the US Trustee pin Option One, LPS and Ms. Goebels down and get their explanation.

Ms. Goebel explains how she investigated the payment history of the Wilsons:

To execute such an affidavit, once I receive the affidavit, I will review the information that is in the affidavit with Option One’s [computer] system. So, I will validate the information based on their system and the information that is there.

Ms. Goebel is physically at LPS. So she's logging into Option One's system remotely and then comparing what she sees there with what the LPS system is telling her.

What the LPS system should have been telling her is that the Wilsons payments were being received. But the computer system doesn't say this, because LPS didn't mark the Wilson's file as a bankruptcy case until after their new payments were received. This meant payments destined for October 2007 were applied to pre-bankruptcy payments owed from June 2007. When the file was finally marked as a bankruptcy file - new payments were dropped into a general fund and the Wilsons balance was not credited. Payment was received, but it wasn't showing up on Ms. Goebel's monitor.

So.... she filed an affidavit based on what she saw on her screen. All a big misunderstanding, right? Wrong.

As part of its default services, LPS executed Affidavits of Default in support of Motions for Relief from Stay. LPS testified that it was just one of the services that LPS provided to clients. The affidavit is typical. It purports to be executed under oath before a notary and two (2) witnesses. It provides the name and title of the affiant and represents that the affiant has personal knowledge of the facts contained in the affidavit In fact, it is a sham.

...By corporate resolution, Option One grants these individuals “officer” status, but limits their authority to the signing of default affidavits. These “officers” execute 1,000 documents per day for Option One and other clients similar to the one used in this case. In fact, Ms. Goebel is an employee of LPS with little or no connection to Option One. Each day Ms. Goebel receives approximately thirty (30) documents to sign. The process of signing default affidavits is rote and elementary.

As Ms. Goebel is also a manager of a work unit at LPS, she allocates two (2) hours per day for document execution and estimates that it takes her five (5) to ten (10) minutes to sign each affidavit she receives. Before signing an affidavit, Ms. Goebel follows the procedures directed by LPS. She checks three (3) computer screens that provide the amount of the installment payment, the total balance due on the loan, and the due date for the earliest past due installment. She matches this information with that contained in the affidavit. If it is correct, she signs the document and forwards it to a notary for execution.

Although the affidavit in this case purported to verify that Option One was the holder of the note owed by Debtors through an assignment, Ms. Goebel does not personally know this to be a fact and made no effort to verify her assertion. Similarly, the affidavit identifies the mortgage and note as exhibits to the affidavit, but Ms. Goebel neither checks the attachments nor verifies that they are correct. In fact, the affidavits she signs never have any attachments when forwarded to her for execution, and she never adds any.

Well now, that's a little harsh - don't you think your honor?

Don't you think you could-?

Ms. Goebel’s training on the seriousness of her task was sorely lacking. She could not remember who “trained” her when she was promoted in 2007 to a document execution position.92 She could not remember the extent or nature of her training. 93 She did surmise that written procedures were given to her and then she began “signing.”94 She described her task as “clerical”95 and repeatedly expressed the belief that the affidavits were counsel’s affidavits, and therefore, she relied upon counsel regarding their accuracy.96 In this admission, the real problem surfaces.

But, now we know a mistake was made... Can't we just --?

Default affidavits are a lender’s representation as to the status of a loan. They are routinely accepted in both state and federal courts in lieu of live testimony. They are an accommodation to the lending community based on a belief by the courts that the facts they present are virtually unassailable. The submission of evidence by affidavit allows lenders to save countless hours and expense establishing a borrower’s default without the need for testimony from a lending representative. While they can be refuted by a borrower, too often, a debtor’s offer of alternative and conflicting facts is dismissed by those who believe that a lender’s word is more credible than that of a debtor. The deference afforded the lending community has resulted in an abuse of trust.

And there it is, yet another eloquent explanation of why robosigning is not a paperwork problem. It is a deliberate abuse of trust on the part of the lending community. Simply put - It is fraud.

The court then gives Ms. Goebel both barrels, then beats her employer over the head with the butt of the shotgun.

The abuse begins with a title. In this case, Ms. Goebel was cloaked with the position of “Assistant Secretary,” in a purposeful attempt to convey an experience level and importance beyond her actual abilities. Ms. Goebel is an earnest young woman, but with no training or experience in banking or lending. By her own account, she has rocketed through the LPS hierarchy receiving promotions at a pace of one (1) promotion per six (6) to eight (8) month period.97 Her ability to slavishly adhere to LPS’ procedures has not only been rewarded, but has assured the development of her tunnel vision. Ms. Goebel does not understand the importance of her duties, and LPS failed to provide her with the tools to question the information to which she attests....

...In this case, LPS had personal knowledge of four (4) critical facts. First, that as of February 15, 2008, Option One had received two (2) payments from Debtors in amounts sufficient to satisfy the installments due for December and January. Second, counsel had directed that the payments be sent to it rather than posted. Third, Option One alerted LPS in February that the amounts forwarded were sufficient to bring the loan current. Fourth, counsel reported to LPS that they had only received $1,846.84, a fact LPS neglected to forward to Option One. As a result of this knowledge, LPS should have known that a payment was unaccounted for between Option One and Boles. An inquiry to either might have brought the problem to light. Instead, LPS ignored the facts...

...The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers. One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality....

(signed) Hon. Elizabeth W. Magner
U.S. Bankruptcy Judge

I'm thinking Bankruptcy judges should start nailing lender's pelts to the wall outside their courtroom. Maybe banks will start getting the message.

Hung By Their Own PSA

(Via The Big Picture)

Barry points out another case where (wonder of wonders) a securitization trust is permanently barred from foreclosing on a house because they didn't obey the rules of their own Pooling and Servicing Agreement.

Brief explanation (as far as I understand it)

In order to turn a home loan into an investment (to securitize it), a number of things must happen:

1. The loan must stop being owned by orginating bank
2. The loan must start being owned by a trust, a Special Purpose Vehicle or other legal construct
3. There must be a written record of the transfer of ownership of the loan
4. The record of title transfer must meet the exacting specifications contained in a document called a Pooling and Servicing Agreement, typically they require that all the documents establishing transfer of the mortage note be completed within 60-90 days.

Why all this rigamarole?
Two big reasons are who owns the loan and taxes.

In order for an investor to invest in a security, they want to know that the thing the are investing in is truly theirs. In theory, if the home loan goes bad - they want to know that at least they will get the property in a foreclosure. If an investor knows that there are other entities that could claim to own the home loan - then their back up plan of foreclosure is now worth less, (and may be impossible). If the bank who made the original loan doesn't provide documentation that it no longer has any right to a home loan - there is a chance that that bank could show up and demand a share of the the loan's value (or of the resulting foreclosure).

Now taxes:
The SPV allows ownership of the loan by a trust without subjecting its payments or distributions to investors to taxation. This is a big deal because if the money passing through an SPV was taxed - it would make mortgage backed securites much less attractive as investments because investors would see their money taxed twice. Once as the money flows through the SPV and then again as the investors get paid. This is an intentional loophole, as the SPV is just a pass-through legal construct, it takes no profits - it just passes along the payments it gets.

The price of getting this nice loophole is complying with a very strict agreement called a Pooling and Servicing Agreement. If you don't comply with the PSA bad things can happen. Like, the tax rate on money going through the SPV goes from 0% to 100%

Investors will hate that with the heat of a nova.

And when home loans go bad - and the SPV moves to foreclose they had better have a chain of ownership that shows that they own the loan in question.

Otherwise something like this Alabama ruling will happen - Phyllis Horace vs. LaSalle Bank National Association et. el.:

Following hearing and review of all submissions from the parties the Court has come to two conclusions necessary for the disposition of this case:

First, 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.

Second, plaintiff Horace is a third party beneficiary of the Pooling and Servicing Agreement created by the defendant trust (LaSalle Bank National Association). Indeed without such Pooling and Servicing Agreements, plaintiff Horace and other mortgagors similarly situated would never have been able to obtain financing.

Consequently, plaintiff's motion for summary judgement is granted to the extent that defendant trust (LaSalle Bank National Association) is permanently enjoined from foreclosing on the property...
...Further, the Court is of the opinion there is no reason for further delay as to the entry of final judgment concerning the issue of foreclosure by the trust (LaSalle Bank National Association).

That notice shall issue to the parties.
DONE this the 25th day of March, 2011.

ALBERT L. JOHNSON, CIRCUIT JUDGE

Counsel for the investors...start your engines! You will be suing the bejeezus out of LaSalle Bank National Association et. el., because the secured loans you invested in are unsecured because the trust can't prove they own the loans.

Also, your client's pass-through tax exemption is at risk. Huzzah!

LaSalle says they will appeal - although they'd better confine it to the bit about the plaintiff being ruled a third party beneficiary of the PSA, because they look seriously owned on any argument that they met their PSA obligations.

If you believe Barry and the crew, there are many, many loans out there in the same condition as this one just waiting for an enterprising attorney to detonate them.

I'll quote Barry from an earlier post of his:

Understand this precisely: This was not a case of slipshod handling, of sloppy paperwork, or bad management. This was a willful decision to break the law in order to save expenses and be more profitable.

The bank's PR machine can play whack-a-mole, but these cases are going to bubble out all over the place. They can't appeal all of them, and by rights they should lose most of them.

When does this mess reach critical mass?

Portrait of a Beatdown

Lest you think I was exaggerating in my prior post - here's some of the relevant court transcript from HSBC Bank USA, NA as Trustee for Nomura AAC vs Orlando Eslava.

Yves calls it "a doozy."

I call it art. Some artists work in clay, some work in oils, Miami-Dade County Circuit Judge Jennifer Bailey works her magic in righteous indignation. Unlike the rest of us, Judge Bailey is empowered to act on her indignation.

By way of prologue HSBC Bank has previously been ordered by the court to post a bond to indemnify the defendant - whose house they have foreclosed on despite not having the mortgage note that establishes that the house is rightfully theirs. The deadline has passed without the bond being posted. The court is not amused.

HSBC Bank is represented by a Mr. William Huffman, the Florida Default Group by Ms. Suzanne Hill, and the (reserved and presumably gleeful) attorney for the defendant, Orlando Eslava is a Ms. Sheleen Kahn.

The curtain rises

THE COURT: And so then you know what you do? You file - if you have a problem with the court order and you get inconsistent directions from your client, you file a motion for extension of the time to file the bond, you come forth and say to the Court the case is in loss mit[igation] hold, can we postpone the filing of the bond? Can we give up the sale date so that I can give it to somebody else who really needs to sell ap piece of property on the courthouse steps? Instead of just ignoring a court order, because that's what happened here.

MS HILL: I don't disagree that it could have been handled much better. I do agree to that.

THE COURT: I appreciate your diplomatic response, but is there any reason why the Court should not issue sanctions in this case? I mean, the court order was simply, based on what you're telling me, ignored because the client took the file in loss mit[igation] hold.

MS. HILL: Well, it was not complied with, that is correct, your Honor. And it was because it was on hold.
     And Mr. Huffman honestly believed that if the case was still on hold, he had no objection to having the case dismissed.
     As far as opposition at that hearing, Mr. Huffman believed he conveyed instructions to the local counsel that the case was on hold and there was no opposition.
     I can't speak to what was said at that hearing --

THE COURT: Let me just be clear. I'm not going to sanction Mr. Huffman. Mr. Huffman, you know, he's just doing what the e-mails tell him to do. I know that.
     At some level there is responsibility on the part of this court to make sure that notwithstanding whatever kind of sloppy operation the plaintiff is running, that court orders are complied with.
     And Mr. Huffman, at the end of the day, this trust is going to be over and at the end of the day some day this foreclosure crisis is going to be over. And you need to decide what kind of lawyer you're going to be. Because at the end of the day you're responsible for your client's compliance with court orders.
     And saying, oh, well, my client told me this, is not a defensible position because you swore an oath to follow the Rules of Civil Procedure and to follow the rule of law. And at the end of the day when they bury you, the words "HSBC Bank USA, NA as Trustee for Nomura Asset Acceptance Corporation, Mortgage Pass-through Certificates Series 2006--ARI will probably appear nowhere in your obituary.
     So, you know, the bottom line - and I'm not giving you a lecture that I am not routinely delivering to foreclosure lawyers at this point in my career, which is, all lawyers have is your reputations. We don't make widgets, we don't buil[d] clocks, we don't build cars. We have nothing but the pleadings we file and sign our name to to evidence the quality and integrity of who we are.
     And when you get a court order that says post a bond -- and you're being required to post a bond for a very logical reason. It's a trust. It's going to expire by its terms.
It's not the Bank of America. I don't know if it's going to be there in six years. And you've lost the note and you're required to indemnify the defendant and therefore you have to post a bond.
     When that order is simply ignored and further motions for clarifications with the Court are not sought, you know, yes, do I understand completely that this is the client not knowing the left hand from the right had, yes; but at the end of the day, you're the lawyer, you're responsible.

MR. HUFFMAN: Yes, your Honor.

THE COURT: How many people currently work in your office?

MR. HUFFMAN: Attorneys or --

THE COURT: Attorneys.

MR. HUFFMAN: Fifty.

THE COURT: How many files are you currently responsible for?

MR. HUFFMAN: I don't have that number. I'm not sure.

THE COURT: How many cases can you tell me you know anything in detail about the loss mitigation status of the file?

MR. HUFFMAN: Well, the way it's set up, the bank handles the loss mitigation separately.

THE COURT: So the answer is zero. You're filing pleadings in court every day and you don't even know what's going on with the case.
     And see, the really interesting thing to me as a judge is that in no other species or kind of law would that be remotely acceptable or, frankly, anything short of malpractice. But somehow in Foreclosure World everybody things that that's just fine, that you can know absolutely nothing about your files and walk in here and ask judges for things left and right without even knowing what's going on.
     And, you know, ultimately, the law firms are going to start doing that at their [peril].

[........]

THE COURT: ...And I'm not trying to crucify Mr. Huffman just because he happens to be the guy that I hauled in here today, but the upshot of it is the bond was not posted. How much was the amount of the final judgment?

MS KHAN: Judge, if I may look in the file?

MS HILL: [$]207,238.72

THE COURT: Did the plaintiff acquire title [to Mr.Eslava's house] at [the foreclosure ] sale?

MS. HILL: Yes, your Honor.

THE COURT: What's the status of the property? Does anybody know?

MS. KAHN: Your Honor, Sheleen Khan for the defendant.
The defendant is paying on direct debit from his account every month. This will be his fifth payment under the HAMP program, your Honor.

THE COURT: Okay. I think as a sanction what would be appropriate is to direct HSBC, who failed to comply with the Court's order, the only -- there's nobody here from HSBC to offer any --

MS. HILL: Well, Mr. Huffman is here on behalf of HSBC today, as well.

THE COURT: But he doesn't know anything about the loss mitigation status. I just asked him.

MS. HILL: It's our understanding in this case that it is still under loss mitigation, it is being reviewed by HAMP for permanent modification.

THE COURT: Mr. Huffman, please rais your right hand.

(Thereupon, William Ward Huffman, III Esq. was duly sworn by the Court.)

THE COURT: What's your name?

MR. HUFFMAN: Bill Huffman.

THE COURT: What was the loss mitigation status on March 4, 2010?

MR. HUFFMAN: It was on hold for --

THE COURT: Tell me what was going on. How much had the defendant paid in? Had the defendant made any HAMP payments? Was the defendant formally enrolled in a HAMP program? Was the defendant in a HAMP trial period for HAMP?

MR. HUFFMAN: I knew the defendant was in a trial period for HAMP.

THE COURT: When was the defendant put into a trial period for HAMP?

MR. HUFFMAN: My file went on hold November 6 of 2009, so I knew they had been in the trial period since that time. I didn't know the exact date.

THE COURT: December what?

MR. HUFFMAN: It was November 6, I believe, 2009.

THE COURT: What was the date of the final judgment? December 9, 2009.

MR. HUFFMAN: The hearing was, I believe, November 5 and the judgment was signed December 9.

THE COURT: So you have a final judgment hearing on November 5 and the file went on hold November 6?

MR. HUFFMAN: Correct.

THE COURT: When was the file HAMP approved?

MR. HUFFMAN: It hasn't been fully approved at this time.

THE COURT: When was the file HAMP approved for trial modification?

MR. HUFFMAN: From my knowledge, it was November 6.

THE COURT: But I'm not asking you about your knowledge. Because you're here to testify on behalf of your client.

MR. HUFFMAN: Okay.

THE COURT: So on behalf of HSBC Bank USA, NA as Trustees for Nomura Asset Acceptance Corporation, Mortgage Pass-through Certificates Series 2006-ARI, when was Mr. Eslava's HAMP documentation accepted?

MR. HUFFMAN: I don't have -- I didn't see the doc to see when he actually signed the preliminary mods. I don't know the exact date. I just know that I was notified on November 6 to place my file on hold.

THE COURT: Mr. Huffman, respectfully, can't answer the questions I have because --
I'm going to sanction the bank. I'm not going to sanction Mr. Huffman. I could because I think Mr. Hoffman's conduct was contemptuous of a court order. But I'm also keenly aware that a comtempt finding from a judge has ramifications throughout the rest fo a laywer's career, and I'm really trying to avoid that.
     What I'm trying to give is, for lawyers that handle these cases, a wake-up call to say this is your life, this is your career on the hook and you guys better wake up and smell the coffee.
     But he cannot answer the questions for me to tell me the nature of the contempt.
Why wasn't a bond posted in this case pursuant to the court order?

MR. HUFFMAN: When I saw the order from March 4, I kind of read it --

THE COURT: Why wasn't the order -- the bond was ordered posted -- when did I order the bond? March 4. Okay.
Why wasn't a bond posted by April 4?

MR. HUFFMAN: When I saw the language, I thought it had two options, either post the bond by April 4 or have the case dismissed. Because our file was still on hold April 4, I just chose to allow the case to be dismissed.
     Instead of posting the bond, I though that was an option I had. I thought it would be in the best interest of all parties. I didn't want to incur any more fees for the defendant in this case by moving the case forward.

THE COURT: Okay. Then as a sanction, the Court will follow the path chosen by Mr. Huffman. I will dismiss the case. I will dismiss the case with prejudice.
The note, which was canceled by this Court pursuant to a final judgment is null and void.    
     Mr. Eslava is relieved of the debt.

     The title shall be conveyed back to Mr. Eslava by the bank -- by the trust -- as the legal liability for the note no longer exists.
     The basis for this sanction is the contemptuous noncompliance with the Court's order to post the bond.
     Should, however, any claim ever be pursued against Mr. Eslava on the note which was the subject of this case, since the note was lost, HSBC Bank USA, NA, as Trustee for Nomura Asset Acceptance Corporation, Mortage Pass-through Certificates Series 2006-ARI shall jointly and liablely (sic) with Florida Default Law Group, PL, and any successor law firm, be responsible to hold harmless and indemnify Mr. Eslava from any liability should the orginal appear in the context of another case.

MS. HILL: Your Honor, if I may just briefly respond?
     I believe under the case law that in order to award sanctions, there has to be a finding of willfullness and bad faith on the part of Mr. Huffman.

THE COURT: No, this is on behalf of HSBC. I'm finding wilfulness because -- I'm not making Mr. Huffman responsible for the $207,238.72. I'm saying HSBC has been offered an opportunity to come and testify to this Court about why all this confusion erupted. They have given me Mr. Huffman. Mr. Huffman respectfully, can't answer very many of my questions in detail because all he knows is that the file was put on hold. It was put on hold the day after a final judgment was entered at the behest of the bank.
     Now, I would like to know why the bank came in here one day to get a final judgment and the next day to put a file on hold. But that's really a sideshow. Really the big question is why didn't they comply with the order of March 9? Why did they simply ignore it.
     And that answer is ["]we put the file on hold["]. That's a contemptuous answer. A bank does not have the authority or a trust does not have the authority to ignore a court order simploy because they are making business decisions on a file. And that's really where we are at.

MS. HILL: Respectfully, I understand, your Honor.
     In this case, Florida Default Law Group is taking responsibility for its actions. And I would respectfully submit that canceling the underlying indebtedness woudl not seem to fit the failure of Florida Default in this case on behalf of the bank in complying with the order. Florida Default is more than willing to stand before you and apologize.

THE COURT: No. No. No. This is way beyond -- you know, look, I don't want apologies. I want performance. I want responsible attorneys who meet the basic standards of knowing what the Sam Hill is going on in their files.
     I want acknowledgment that says, look, we understand that the court system is facing a massive number of foreclosures and we are not going to contribute to that burden by causing useless work by the Court.
     Which is really what I just got told.
What I got told is, Judge, the guy was already approved for HAMP by November 6, so the hearing on November 5, you really didn't need to do that.
     Because for every hearing that I do on these cases, the reason why I get this packet is I check service on every defendant, I look at the note, I make sure there's an endorsement. The fastest I can do one of these is about seven minutes. The slowest I can do it, if it's out of order, if it's disorganized, if there's things missing, which may well be the case in this case because the hearing was November 5 and the order wasn't entered until December, which means that there may have been missing items, it can take as much as 15 minutes or a half an hour. So the bank wasted my time on that.
     They wasted my time -- and I don't care about my time because I'm paid the enormously high sum of $144,000 to be here every day.
     But the second waste of time was then they come in and opposed the defendant's motion to cancel the sale. And we had a hearing and we talked about that. An I would imagine that took somewhere between 12 to 17 minutes, depending on how it went.
     And then they come in and walk in a motion to cancel the sale.
That's three useless, completely idiotic events. And if Florida Default wants to make HSBC whole in this, then that's between them and their carrier.
     But the bottom line is that's the sanction that the Court has ordered. Mortgage foreclosure is an quitable remedy. The plaintiff in this instance, whether it's through its own conduct -- because, frankly, I can't -- what Florida Default is telling me is we're just doing what they're telling us to do. They told us to put a file on hold.
     If this is how a bank is going to conduct its business, then the bank should be bearing the sanctions. Florida Default can cut whatever deal it wants to cut with them, but at the end of the day, the bank is responsible for this.
     Thank You.

MS. HILL: Thank you, your Honor.

THE COURT: I need the transcript ordered, please, and a simple order attached that adopts the transcript as my order, because I think that's going to be the cleanest way to do that. And I will direct that the transfer of title occur within 30 days.

Then the attorney for the defense realizes this is her moment.

MS. KAHN: Your Honor, if I may add, I have an affidavit in support of fees, attorneys fees, reasonable fees.

THE COURT: How much?

MS. KAHN: [$]1,222, your Honor. 6.11 hours.

To the surprise of no one, Ms. Kahn gets her money.

Fade to black.

Fin.

Hit Them Where Their Heart Would Be, If They Had One

(Via Naked Capitalism)

Short version:

• Foreclosure mill moves against homeowner.
• Foreclosure mill is forced to admit to a bankruptcy judge that they are moving to foreclose, sans paperwork.
• Bankruptcy judge puts her foot in said mill's ass so hard, they're spitting up shoe leather.

A thing of beauty from any angle, but really, read the whole account. I'm focusing on the 2010 case before Judge Bailey, but a more recent case is what Yves is trying to track down. As in Have judges finally starting giving out free houses to address clear instances of foreclosure fraud?

Stay tuned.

Taibbi, Again

Article: Why Isn't Wall Street in Jail?
Author: Taibbi

A Sample:

You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street...That's all it would take. Just once.
-Former Congressional Aide

What more do you need to know?

Go forth and read.

US Bankruptcy Judge to MERS: See Ya!

How did I miss this Valentine?

US Bankruptcy Judge Robert E. Grossman rules in In re: Agard that MERS does not have the legal rights to transfer mortgage notes.

As in: This Mortgage is an A-to-B Conversation, MERS - you can C your way out of it.

Here's Bloomberg

“MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.”


Grossman said parties coming to him to seek to lift the automatic ban on legal claims in cases involving MERS will have to show they own both the mortgage and the note.

That's gotta sting.

(Via TBP)

For the Umpteenth Time...

Fannie Mae and Freddie Mac did not cause the housing bubble:

A picture is worth a thousand shut-the-f#&*-ups

The Grabbing Paws of Bear Stearns

(Via The Big Picture)

You've just got to love this article in The Atlantic.

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."

There's so much awful going on in this that it's fun to break it down.

1) The former firm of Bear Stearns was hip deep in selling bonds backed by lousy mortgages.
2) The mortgages were so lousy, Bear traders were forcing the originators of those loans to buy them back.

So far, not so terrible - if more investment firms forced their crap back on the originators we might have had less of a meltdown.

Enter 3) Bear's servicing division were "sometimes told to falsify loan-level performance data provided to the ratings agencies"

Then 4) The crap loans that are foisted back on their originators at a discount, and the Bear execs Mike Nierenberg (now at BofA) and Jeff Verschleiser (now at Goldman Sachs) pocketed the difference. Here's the Atlantic's Teri Buhl:

The traders were essentially double-dipping -- getting paid twice on the deal. How was this possible? Once the security was sold, they didn't have a legal claim to get cash back from the bad loans -- that claim belonged to bond investors -- but they did so anyway and kept the money.

and the capstone is
5) Bear Stearns went under in March of 2008. We're only just learning about this crap because Ambach sued Bear's new owners, JP Morgan in that same year and the lawsuit just became unsealed.

Why did it take this long to unseal?

JPMorgan did fight tooth and nail for the Ambac suit not to be made public, however, because the firm argued it could damage the reputations of senior bank executives currently working in the industry.

I'll just bet it will.

Who are those execs? The Atlantic helpfully names names:

Individuals named as defendants included: Jimmy Cayne, Alan "ACE" Greenberg, Warren Spector, Alan Schwartz, Thomas Marano, Jeffrey Mayer, Mary Haggerty, Baron Silverstein, Jeffrey Verschleiser, and Michael Nierenberg.

Oh, we could use more articles like this.

Score One For Sanity

The good news: Massachusetts recognizes the rule of law in foreclosures.

The bad news: That this, truly, is news :

(Bloomberg) U.S. Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real-estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were transferred into two mortgage-backed trusts without the recipients’ being named.

I mean, really - a ruling that banks can't foreclose if they cannot prove they ownsa mortgage should not be news.

Yet it is.

At least the ruling was right. Let's see how the banks push back on this.

(H/t The Big Picture)

GSE = Everybody's Whipping Boy

While Freddy Mac and Fannie Mae have been erroneously blamed for starting the financial crisis - they certainly are due for their share of abuse.

The AP had a story yesterday about how Bank of America and Freddie Mac and Fannie Mae had come to an agreement over bad loans.

BofA had sold Freddie and Fannie total crap, and they had the right to order BofA to buy back loans that didn't meet its underwriting standards. The deal they just reached amounted to $1.28 billion for Freddie and $1.52 billion for Fannie.

That seemed low to me - I remember discussions of figures north of $100 billion.

According to Barry BofA's exposure to Freddie's putbacks amounts to about $127 billion.

So, BofA gets to keep over $120 billion dollars that it owes Freddie.

Which means that the GSE continue to be (as Barry puts it) the backdoor bailout vehicle of choice for Washington.

• Ship the bank's crap to a GSE who will agree to terms that no thinking business would take.
• Then pour tax dollars into the GSE to keep them afloat when the crap loans fail
• Finally, everyone can launch a rousing chorus of how inefficient GSEs are and how the banks are better at lending and managing risk.

I expect the same Wall Street apologists who blame the crisis on GSE will be only too happy to join in.

(Via The Big Picture)

I'll just quote it - because there's no better way to introduce it:

Prepare yourself to be floored:

Google Maps keeps evolving, expanding the ability to drill down into granular detail. The latest updated trick? Mapping foreclosures for sale.

...

Google Maps Foreclosure Listings

1. Punch in any US address into Google Maps.

2. Your options are Earth, Satellite, Map, Traffic and . . . More. (Select “More”)

3. The drop down menu gives you a check box option for “Real Estate.”

4. The left column will give you several options (You may have to select “Show Options”)

5. Check the box marked “Foreclosure.”

Seriously. Do this, and see every foreclosed house plotted as a little red dot. I did my own address and was ready to zoom out to see any impact. Turns out, there are over 100 forclosures in the inital map results by my house (11 of which are within 3 miles of my house).

TBP posts a search on Detroit which just bends my head:

 Ye Gods.

Front Runners

(Via CJR)

Looks like the Fed finally coughed up some information about whose crap it's been buying all this time:

• Deutsche Bank (GER)- $290 billion
• Credit Suisse (SUI) - $287 billion 
• Morgan Stanley - $205 billion
• Goldman Sachs - $159 billion
• Citigroup - $185 billion
• Merrill Lynch/Bank of America - $174 billion
• JPMorgan Chase - $153 billion
• Barclays (UK) - $123 billion
• UBS (SUI) - $94 billion
• BNP Paribas (FRA) - $67 billion

For those of you keeping score at home - that's $1.7 trillion dollars, $861 billion of which is going to foreign banks.

The best bit:

It's not clear how much these firms profited by engaging in the kind of activity that allowed Gross to profit so well, known as "front running." However, it's abundantly clear that they did turn a profit.

Nice.

Free market, my ass.

(Also - isn't this kind of news dump two days early?)

"We're not aware of a single case so far of a substantive error"

ProPublica's Marian Wang puts together a tidy summary of reasons why people might be in foreclosure that undermine the infamous WSJ assertion that the foreclosure scandal is all a big misunderstanding.

I'm sure we've all heard about people with paid off homes getting foreclosed on, but Ms. Wang nicely summarizes a few other scenarios that grab less ink, but are just as ridiculous:

1) Homeowners were not in default but faced foreclosure.
2) Homeowners who were told that to be eligible for a loan modification, they needed to fall behind on their mortgage—and subsequently found themselves on the path to foreclosure.
3) Homeowners were behind on their mortgage but could have caught up if not for additional fees.
4) Mistaken foreclosures due to dual track of foreclosure and loan modification processing.
5) Foreclosures in which the bank can’t prove it has standing to foreclose.

Here's the full post.