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Jun
19

LINKING SECURITIZATION AND TILA

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NOTE: Working on one of my expert declarations I figured I would share my computations with the readers. In order to protect privacy I am deleting any identifying information.

In this case there was a $1 billion offering of non-certificated mortgage backed securities, which is a fancy way of saying there was no certificate, just a book entry. The Master Servicer is the one with all the power to write-down the value of the pool to what the Master Servicer deems to be fair market value. You might call that a license to steal. The use of proceeds does not list any specific uses. It merely says that the money is going for general operational purposes.That is contrary to the usual standards of an offering prospectus which gives at least some specifics on use of proceeds. Thus it didn’t take much effort to see $1 billion worth of non-certificated mortgage backed securities and only use 75% of it to invest in mortgages.

So it is easy as in this case to take $747,000 from an investor, lend out $377,000, pocket the rest. Then when the guaranteed to fail loans start failing, the Master Servicer announces that the pool is no longer viable and the Master Servicer buys it at a small percentage of the nominal value of the mortgages.

Then because the pool is deemed a failure, say by Goldman Sachs (who bought credit default swaps against the pool), the Master Servicer collects on the insurance and other credit enhancements. Since the investors no longer own anything they don’t have a claim, or so the scheme says.

So even if  a particular loan does NOT fail on schedule, they can still declare the pool as failed, and still collect the third party payments that were originally promised to the investors. But none of this takes away from the fact that all these institutions were part of a single securitization chain which is to say a single transaction in which the investor was the lender and the homeowner was the borrower. If they collected money and didn’t give to the investor it still doesn’t mean that the profit should not be allocated to the debtor’s loan account.

And if, as in this case, they collected a yield spread premium (Yield spread premium #2 in prior posts) created as a result of cheating the investor, well, whether the investor wants to press that claim or not, it is a yield spread premium, it is a single loan transaction, and TILA says you must disclose it — or give it back. Since the originating “lender” is the face they put on the transaction and since the originating “lender” is the only party of record in the title records, the yield spread premium must be applied to the benefit of the borrower. In this case, the YSP is almost the same as the loan amount, and with interest, vastly exceeds it. And then there is the issue of treble damages.

What many lawyers are missing because they are intimidated by the complexity of this thing, is that there are a lot of damages that can be collected from deep pockets and there is also a recovery of attorney fees.

Let’s see what happened in this case:

$1 billion (approximate) in securities offering. No showing of actual proceeds or any limitations on issuer. Second yield spread premium may exist in this unknown spread or in the spread between the offering amount and the unknown actual amount funded.

Extrapolating from yields disclosed in the prospectus the actual yield promised to investors was approximately 7%, with the right to reduce same under a variety of circumstances wholly in control of the underwriters. The nominal yield weighted average is stated in several different ways in order to confuse the reader and make computation more challenging. Based upon computations made directly from the prospectus and comparing it with similar prospectuses involving most of the same parties, the nominal actual average interest was sold to the SPV at approximately 9.6%. Thus, rounding down, the yield spread premium was 2.5%. 2.5% is 26% of the nominal 9.6% rate. Applying 26% to the declared proceeds, the dollar yield spread, undisclosed to either the investors or the borrowers, was approximately $250,000,000. The nominal principal of the debtor’s note is approximately $377,000.

The non-weighted yield spread premium at this level of the lending chain should therefore be expressed as either $94,250 or $82,500 (25%, non-weighted, or dollar weighted without regard to actual rates and data from this particular case). Applying an average between the two methods, the estimated non-weighted yield spread premium on this loan is approximately $88,000 without weighting for the actual rate spread. Applying the customary weighting using the actual nominal rate sold on this debtor’s loan (14.1%), the estimated yield spread premium earned by participants in this lending chain from this level of the lending chain was in fact approximately $369,460 (almost equal to the loan itself). Adding customary interest ($232,759.80) and treble damages ($1,108,380) under the Federal Truth and Lending Act the net actual dollar liability for yield spread premium at said level due from the lending chain on debtor’s loan would therefore be expressed as $ $1,341,139.80 due to borrower. This amount is subject of course to a determination of all other claims and defenses each or any of the parties may have.


Filed under: foreclosure
Jun
16

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

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SUBMITTED BY M SOLIMAN

EDITOR’S NOTE: Soliman brings out some interesting and important issues in his dialogue with Raja.

  • The gist of what he is saying about sales accounting runs to the core of how you disprove the allegations of your opposition. In a nutshell and somewhat oversimplified: If they were the lender then their balance sheet should show it. If they are not the lender then it shows up on their income statement. Now of course companies don’t report individual loans on their financial statements, so you need to force discovery and ask for the ledger entries that were made at the time of the origination of the loan.
  • If you put it another way the accounting and bookkeeping amounts to an admission of the real facts of the case. If they refuse to give you the ledger entries, then you are entitled to a presumption that they would have shown that they were not acting as a lender, holder, or holder in due course. If they show it to you, then it will either show the admission or you should inquire about who prepared the response to your discovery request and go after them on examination at deposition.
  • Once you show that they were not a lender, holder or holder in due course because their own accounting shows they simply booked the transaction as a fee for acting as a conduit, broker or finder, you have accomplished several things: one is that they have no standing, two is that they are not a real party in interest, three is that they lied at closing and all the way up the securitization chain, and four is that you focus the court’s attention on who actually advanced the money for the loan and who stands to suffer a loss, if there is one.
  • But it doesn’t end there. Your discovery net should be thrown out over the investment banking firm that underwrote the mortgage backed security, and anyone else who might have received third party insurance payments or any other payments (credit default swaps, bailout etc.) on account of the failure of the pool in which your loan is claimed to be an “asset.”
  • Remember that it is my opinion that many of these pools don’t actually have the loans that are advertised to be in there. They never completed or perfected the transfer of the obligation and the reason they didn’t was precisely because they wanted to snatch the third party payments away from the investors.
  • But those people were agents of the investors and any payment they received on account of loss through default or write-down should be credited and paid to the investor.
  • Why should you care what the investor received? Because those are payments that should have been booked by the investors as repayment of their investment. In turn, the percentage part of the pool that your loan represents should be credited proportionately by the credit and payment to the investor.
  • Those payments, according to your note should be allocated first to payments due and outstanding (which probably eliminates any default), second to fees outstanding attributable to the borrower (not the investor) and third to the borrower which normally would be done as a credit against principal, which would reduce the amount of principal outstanding and thus reduce the number of people who think they are under water and are not.

———————————————————————–

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

I am really loving this upon closer inspection Raja! The issues of simple accounting rules violations appear narrow, yet the example you cite here could mean A DIFFERENCE AND SWAY IN ADVANTAGE.

Many more cases can potentially address broader issues of pleading sufficiency with repsect to securities and accounting rules violations prohibiting foreclosures.

Sale accounting is the alternative to debt or financing arrangements which is what the lender seeks to avoid in this economic downturn. Both approaches to accounting are clearly described and determinable by GAAP. In sales accounting there is no foreclsure. In debt for GAAP accounting your entitled to foreclose.

Its when you mix the two you r going to have problems. Big problems.

Pleading sufficiency is (by this layperson) the need for addressing a subject matter in light of the incurable defects in proper jurisdiction. The subject can be convoluted and difficult, I realize that.

Where the matter is heard should allow ample time to amend as a plaintiff. This is given to the fact the lender can move quicklly and seek dismissal.

The question is how far must a consumer plaintiff reach to allege that serverity of the claims, based on adverse event information, as in foreclosure.

This is significant in order to establish that the lender or a lender defendants’ alleged failure to disclose information. Therein will the court find the claim to be sufficently material.

In possession hearings the civil courts have granted the plaintiffs summary judgment and in actions brought against the consumer. The courts are often times granting the defendants’ motion to dismiss, finding that these complaints fail to adequately suffice or address the judicial fundamental element of materiality.

I can tell you the accounting rules omissions from the commencement of the loan origination through a foreclosure is one continual material breach. Counsel is lost to go to court without pleading this fact.

The next question is will the pleading adequately allege the significance of the vast number of consumer homeowner complaints. One would think yes considering the lower court level is so backlogged and a t a time when budget cuts require one less day of operations.

These lower courts however are hearing post foreclosure matters of possession. there is the further possibility that the higher Court in deciding matters while failing to see any scienter. Its what my law cohorts often refer to as accountability for their actions. That is what the “Fill in the Dots” letter tells me at first glance.

I believe it’s only in a rare case or two that a securities matter is heard in the Ninth Circuit. Recently however, there the conclusion was in fact that scienter allegations raised by the opposition were sufficient based on plaintiff’s allegations that the “high level executives …would know the company was being sued in a product liability action,” and in line with the many, customer complaints (I assume that were communicated to the company’s directors…)

The FASB is where the counterproductive rule changes always seem to take place and where lobbyist and other pro life and pro bank enthusiasts seem to spend their days. No need to fret however as gain on sale accounting is specific and requires the lender to have SOLD your loan in order to securitize it as part of a larger bulk pool.

The document I am reading, submitted by Raja tells me something is very concerning to the “lender parties” that they believe is downstream and headed their way. I’ll try and analyze each line item for you as to what it says and what they really are trying to do. I think for now though its value is for determining the letter as an admission of “we screwed up!”

M.Soliman


Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GTC | Honor, HERS, interest rates, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee Tagged: accounting, balance sheet, discovery, failure, income statement, Investor, ledger, lenders, mortgage backed securities, mortgage lenders, pools, Raja, securitization chain, Soliman, third party payments, writedown
Jun
16

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

By | Foreclosure Blog News, Homeowner Resources

Leave a Comment

SUBMITTED BY M SOLIMAN

EDITOR’S NOTE: Soliman brings out some interesting and important issues in his dialogue with Raja.

  • The gist of what he is saying about sales accounting runs to the core of how you disprove the allegations of your opposition. In a nutshell and somewhat oversimplified: If they were the lender then their balance sheet should show it. If they are not the lender then it shows up on their income statement. Now of course companies don’t report individual loans on their financial statements, so you need to force discovery and ask for the ledger entries that were made at the time of the origination of the loan.
  • If you put it another way the accounting and bookkeeping amounts to an admission of the real facts of the case. If they refuse to give you the ledger entries, then you are entitled to a presumption that they would have shown that they were not acting as a lender, holder, or holder in due course. If they show it to you, then it will either show the admission or you should inquire about who prepared the response to your discovery request and go after them on examination at deposition.
  • Once you show that they were not a lender, holder or holder in due course because their own accounting shows they simply booked the transaction as a fee for acting as a conduit, broker or finder, you have accomplished several things: one is that they have no standing, two is that they are not a real party in interest, three is that they lied at closing and all the way up the securitization chain, and four is that you focus the court’s attention on who actually advanced the money for the loan and who stands to suffer a loss, if there is one.
  • But it doesn’t end there. Your discovery net should be thrown out over the investment banking firm that underwrote the mortgage backed security, and anyone else who might have received third party insurance payments or any other payments (credit default swaps, bailout etc.) on account of the failure of the pool in which your loan is claimed to be an “asset.”
  • Remember that it is my opinion that many of these pools don’t actually have the loans that are advertised to be in there. They never completed or perfected the transfer of the obligation and the reason they didn’t was precisely because they wanted to snatch the third party payments away from the investors.
  • But those people were agents of the investors and any payment they received on account of loss through default or write-down should be credited and paid to the investor.
  • Why should you care what the investor received? Because those are payments that should have been booked by the investors as repayment of their investment. In turn, the percentage part of the pool that your loan represents should be credited proportionately by the credit and payment to the investor.
  • Those payments, according to your note should be allocated first to payments due and outstanding (which probably eliminates any default), second to fees outstanding attributable to the borrower (not the investor) and third to the borrower which normally would be done as a credit against principal, which would reduce the amount of principal outstanding and thus reduce the number of people who think they are under water and are not.

———————————————————————–

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

I am really loving this upon closer inspection Raja! The issues of simple accounting rules violations appear narrow, yet the example you cite here could mean A DIFFERENCE AND SWAY IN ADVANTAGE.

Many more cases can potentially address broader issues of pleading sufficiency with repsect to securities and accounting rules violations prohibiting foreclosures.

Sale accounting is the alternative to debt or financing arrangements which is what the lender seeks to avoid in this economic downturn. Both approaches to accounting are clearly described and determinable by GAAP. In sales accounting there is no foreclsure. In debt for GAAP accounting your entitled to foreclose.

Its when you mix the two you r going to have problems. Big problems.

Pleading sufficiency is (by this layperson) the need for addressing a subject matter in light of the incurable defects in proper jurisdiction. The subject can be convoluted and difficult, I realize that.

Where the matter is heard should allow ample time to amend as a plaintiff. This is given to the fact the lender can move quicklly and seek dismissal.

The question is how far must a consumer plaintiff reach to allege that serverity of the claims, based on adverse event information, as in foreclosure.

This is significant in order to establish that the lender or a lender defendants’ alleged failure to disclose information. Therein will the court find the claim to be sufficently material.

In possession hearings the civil courts have granted the plaintiffs summary judgment and in actions brought against the consumer. The courts are often times granting the defendants’ motion to dismiss, finding that these complaints fail to adequately suffice or address the judicial fundamental element of materiality.

I can tell you the accounting rules omissions from the commencement of the loan origination through a foreclosure is one continual material breach. Counsel is lost to go to court without pleading this fact.

The next question is will the pleading adequately allege the significance of the vast number of consumer homeowner complaints. One would think yes considering the lower court level is so backlogged and a t a time when budget cuts require one less day of operations.

These lower courts however are hearing post foreclosure matters of possession. there is the further possibility that the higher Court in deciding matters while failing to see any scienter. Its what my law cohorts often refer to as accountability for their actions. That is what the “Fill in the Dots” letter tells me at first glance.

I believe it’s only in a rare case or two that a securities matter is heard in the Ninth Circuit. Recently however, there the conclusion was in fact that scienter allegations raised by the opposition were sufficient based on plaintiff’s allegations that the “high level executives …would know the company was being sued in a product liability action,” and in line with the many, customer complaints (I assume that were communicated to the company’s directors…)

The FASB is where the counterproductive rule changes always seem to take place and where lobbyist and other pro life and pro bank enthusiasts seem to spend their days. No need to fret however as gain on sale accounting is specific and requires the lender to have SOLD your loan in order to securitize it as part of a larger bulk pool.

The document I am reading, submitted by Raja tells me something is very concerning to the “lender parties” that they believe is downstream and headed their way. I’ll try and analyze each line item for you as to what it says and what they really are trying to do. I think for now though its value is for determining the letter as an admission of “we screwed up!”

M.Soliman


Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GTC | Honor, HERS, interest rates, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee Tagged: accounting, balance sheet, discovery, failure, income statement, Investor, ledger, lenders, mortgage backed securities, mortgage lenders, pools, Raja, securitization chain, Soliman, third party payments, writedown
Jun
16

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

By | Foreclosure Blog News, Homeowner Resources

Leave a Comment

SUBMITTED BY M SOLIMAN

EDITOR’S NOTE: Soliman brings out some interesting and important issues in his dialogue with Raja.

  • The gist of what he is saying about sales accounting runs to the core of how you disprove the allegations of your opposition. In a nutshell and somewhat oversimplified: If they were the lender then their balance sheet should show it. If they are not the lender then it shows up on their income statement. Now of course companies don’t report individual loans on their financial statements, so you need to force discovery and ask for the ledger entries that were made at the time of the origination of the loan.
  • If you put it another way the accounting and bookkeeping amounts to an admission of the real facts of the case. If they refuse to give you the ledger entries, then you are entitled to a presumption that they would have shown that they were not acting as a lender, holder, or holder in due course. If they show it to you, then it will either show the admission or you should inquire about who prepared the response to your discovery request and go after them on examination at deposition.
  • Once you show that they were not a lender, holder or holder in due course because their own accounting shows they simply booked the transaction as a fee for acting as a conduit, broker or finder, you have accomplished several things: one is that they have no standing, two is that they are not a real party in interest, three is that they lied at closing and all the way up the securitization chain, and four is that you focus the court’s attention on who actually advanced the money for the loan and who stands to suffer a loss, if there is one.
  • But it doesn’t end there. Your discovery net should be thrown out over the investment banking firm that underwrote the mortgage backed security, and anyone else who might have received third party insurance payments or any other payments (credit default swaps, bailout etc.) on account of the failure of the pool in which your loan is claimed to be an “asset.”
  • Remember that it is my opinion that many of these pools don’t actually have the loans that are advertised to be in there. They never completed or perfected the transfer of the obligation and the reason they didn’t was precisely because they wanted to snatch the third party payments away from the investors.
  • But those people were agents of the investors and any payment they received on account of loss through default or write-down should be credited and paid to the investor.
  • Why should you care what the investor received? Because those are payments that should have been booked by the investors as repayment of their investment. In turn, the percentage part of the pool that your loan represents should be credited proportionately by the credit and payment to the investor.
  • Those payments, according to your note should be allocated first to payments due and outstanding (which probably eliminates any default), second to fees outstanding attributable to the borrower (not the investor) and third to the borrower which normally would be done as a credit against principal, which would reduce the amount of principal outstanding and thus reduce the number of people who think they are under water and are not.

———————————————————————–

MERS, POOLING AND SERVICING AGREEMENT, ACCOUNTING….GREAT , NOW WHAT?

I am really loving this upon closer inspection Raja! The issues of simple accounting rules violations appear narrow, yet the example you cite here could mean A DIFFERENCE AND SWAY IN ADVANTAGE.

Many more cases can potentially address broader issues of pleading sufficiency with repsect to securities and accounting rules violations prohibiting foreclosures.

Sale accounting is the alternative to debt or financing arrangements which is what the lender seeks to avoid in this economic downturn. Both approaches to accounting are clearly described and determinable by GAAP. In sales accounting there is no foreclsure. In debt for GAAP accounting your entitled to foreclose.

Its when you mix the two you r going to have problems. Big problems.

Pleading sufficiency is (by this layperson) the need for addressing a subject matter in light of the incurable defects in proper jurisdiction. The subject can be convoluted and difficult, I realize that.

Where the matter is heard should allow ample time to amend as a plaintiff. This is given to the fact the lender can move quicklly and seek dismissal.

The question is how far must a consumer plaintiff reach to allege that serverity of the claims, based on adverse event information, as in foreclosure.

This is significant in order to establish that the lender or a lender defendants’ alleged failure to disclose information. Therein will the court find the claim to be sufficently material.

In possession hearings the civil courts have granted the plaintiffs summary judgment and in actions brought against the consumer. The courts are often times granting the defendants’ motion to dismiss, finding that these complaints fail to adequately suffice or address the judicial fundamental element of materiality.

I can tell you the accounting rules omissions from the commencement of the loan origination through a foreclosure is one continual material breach. Counsel is lost to go to court without pleading this fact.

The next question is will the pleading adequately allege the significance of the vast number of consumer homeowner complaints. One would think yes considering the lower court level is so backlogged and a t a time when budget cuts require one less day of operations.

These lower courts however are hearing post foreclosure matters of possession. there is the further possibility that the higher Court in deciding matters while failing to see any scienter. Its what my law cohorts often refer to as accountability for their actions. That is what the “Fill in the Dots” letter tells me at first glance.

I believe it’s only in a rare case or two that a securities matter is heard in the Ninth Circuit. Recently however, there the conclusion was in fact that scienter allegations raised by the opposition were sufficient based on plaintiff’s allegations that the “high level executives …would know the company was being sued in a product liability action,” and in line with the many, customer complaints (I assume that were communicated to the company’s directors…)

The FASB is where the counterproductive rule changes always seem to take place and where lobbyist and other pro life and pro bank enthusiasts seem to spend their days. No need to fret however as gain on sale accounting is specific and requires the lender to have SOLD your loan in order to securitize it as part of a larger bulk pool.

The document I am reading, submitted by Raja tells me something is very concerning to the “lender parties” that they believe is downstream and headed their way. I’ll try and analyze each line item for you as to what it says and what they really are trying to do. I think for now though its value is for determining the letter as an admission of “we screwed up!”

M.Soliman


Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GTC | Honor, HERS, interest rates, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee Tagged: accounting, balance sheet, discovery, failure, income statement, Investor, ledger, lenders, mortgage backed securities, mortgage lenders, pools, Raja, securitization chain, Soliman, third party payments, writedown
Jun
09

AFTER THE SALE: PART I

By | Foreclosure Blog News, Homeowner Resources

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Submitted by Charles Koppa. 6/9/2010

Editor’s Note: We are starting to look at events AFTER the sale has taken place and we are discovering a number of things:

  • CREDIT BID: Only the Creditor can submit a credit bid. All others must pay actual money. If a non-creditor submitted a credit bid (essentially bidding the “amount due” which as we have seen from the FTC action against BOA is incorrectly stated) then the procedure has been violated, the sale has not legally occurred. At least that is my interpretation.
  • Also the submission of a credit bid locks in the position of the parties. So if you are suing for wrongful or fraudulent foreclosure, they no longer have the option of fabricating documents as you raise one objection after another.
  • The obligation to return money rightfully owed to the homeowner continues but it is ignored. Thus even if the property is not sold to a bonafied purchaser for value without notice of defects, the net accounting due is the same. So the receipt of third party insurance, credit default swaps, or other credit enhancement payments is still required to be allocated to this loan. Hence there is a damage claim against the participants in the foreclosure and sale.
  • More later. For now read Charles’ comments below

REO’s and OREO’s have NO MERS Identification Numbers.

1.  Loan Servicer (as a MERS member) initiates the NOD and NOTS.
2.  When the auctioneer pronounces “Back To Beneficiary”, the securitized bond trust receives the MinBid at averages of 46% below the NOTS amount posted the day before.  Bondholder “paper certificate losses”  are unconscionably assigned against the Real Estate asset. “The Paper Trust” gains an untitled transfer of the Real Estate Asset which it NEVER Wanted!
3.  The Auction extinguishes the Toxic Security on Wall Street.  Counterparties collect on their bets.  Investor lose their investments” and the monthly cash interest streams are terminated.
4.  Simultaneously, the Servicer (and MERS) are extinguished from all public records.  Servicer collects on MGIC or other mortgage insurance to cover ALL their contrived losses and costs.
5.  When the re-sale is completed, “The Bookkeeping Trust” ALSO disappears from County Property RECORDS!!!
6.  Until re-sold, the real property travels at ZERO book value into an off balance sheet private entity (mostly controlled by the BHC) which was the SIV “depositor” (as an off balance entity) in setting up the REMIC and/or the Investment Trust in the first place.


Filed under: CASES, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, marketing, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop Tagged: Auction, bookkeeping trust, credit bid, fabricating documents, foreclosure, foreclosure sale, fraudulent foreclosure, Identification Numbers, Lehman Brothers, MERS, MIN, NOD, NOTS, OREO, property records, REO, sale, servicer
May
13

What Do Those Losses at Fannie and Freddie Mean?

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Editor’s Note: While the courts hear arguments and decide this way and that about standing and real party in interest, the elephant in the living room is that we have highly publicized reports of LOSSES associated with more than $5 trillion in loans bought or guaranteed by Fannie and Freddie. That amounts to around 25 million loans more or less. So I ask myself, “Self, if those loans were bought or guaranteed by Freddie or Fannie, what’s left?”

If they were bought, did they keep them or sell them into the secondary market for securitization?

If they own them, why are they not at least nominal plaintiffs or beneficiaries in foreclosure sales?

If they guaranteed them, and they show a loss, doesn’t that mean they paid?

If they paid, it was presumably the loss or full balance of the loan, so which is it?

If they paid, what did they get in return?

If they paid, who owns the loan now?

If they report an “inventory” of foreclosed property, who actually is named as the owner and who gets the proceeds of sale?

If property is “inventory” were Freddie and Fannie involved on any level of the foreclosure or sale?

Did Freddie or Fannie get the benefit of any credit enhancements, insurance, credit default swaps etc.?

Who makes modification decisions for Fannie and Freddie?

Do some or all of these loans fall under the category of unsecured debt, the enforcement of which is subject to pennies on the dollar debt collection?

—————————————-

May 10, 2010, 4:46 am

<!– — Updated: 11:47 am –>

Ignoring the Elephant in the Bailout

From Gretchen Morgenson’s latest Fair Game column:

If you blinked, you might have missed the ugly first-quarter report last week from Freddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world’s biggest wards of the state.

Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.

The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.

But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.

That picture isn’t pretty. Serious delinquencies in Freddie’s single-family conventional loan portfolio — those more than 90 days late — came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company’s Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of option-adjustable rate loans totaled 19.8 percent.

The company’s inventory of foreclosed properties rose from 29,145 units at the end of March 2009 to almost 54,000 units this year. Perhaps most troubling, Freddie’s nonperforming assets almost doubled, rising to $115 billion from $62 billion.

When Freddie sells properties, either before or after foreclosure, it generates losses of 39 percent, on average.

There is a bright spot: new delinquencies were fewer in number than in the quarter ended Dec. 31.

Freddie Mac said the main reason for its disastrous quarter was an accounting change that required it to bring back onto its books $1.5 trillion in assets and liabilities that it had been keeping off of its balance sheet.

None of the grim numbers at Freddie are surprising, really, given that it and Fannie have pretty much been the only games in town of late for anyone interested in getting a mortgage. The problem for taxpayers, of course, is that the company’s future doesn’t look much different from its recent past.

Indeed, Freddie warned that its credit losses were likely to continue rising throughout 2010. Among the reasons for this dour outlook was the substantial number of borrowers in Freddie’s portfolio that currently owe more on their mortgages than their homes are worth.

Even as its business suffers through a sour real estate market, Freddie must pay hefty cash dividends on the preferred stock the government holds. After it receives the additional $10.6 billion it needs from taxpayers, dividends owed to Treasury will total $6.2 billion a year. This amount, the company said, “exceeds our annual historical earnings in most periods.”

In spite of these difficulties, Freddie and Fannie are nowhere to be seen in the various financial reform efforts under discussion on Capitol Hill. Timothy F. Geithner, the Treasury secretary, offered a vague comment to Congress last March, that after some unspecified reform effort someday in the future, the companies “will not exist in the same form as they did in the past.”

Fannie and Freddie, lest you’ve forgotten, have been longstanding kingpins in the housing market, buying mortgages from banks that issue them so the banks could turn around and lend even more. After both companies overindulged in the lucrative but riskier end of home loans, they nearly collapsed, prompting the federal rescue. Since then, the government has continued to use the firms as mortgage buyers of last resort, to help stabilize a housing market that is still deeply troubled.

To some, the current silence on what to do about Freddie and Fannie is deafening — as is the lack of chatter about Freddie’s disastrous report last week.

“I don’t understand why people are not talking about it,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, referring to Freddie’s losses. “It seems to me the most fundamental question is, have they on an ongoing basis been paying too much for loans even since they went into conservatorship?”

Michael L. Cosgrove, a Freddie spokesman, declined to discuss what the company pays for the mortgages it buys. “We are supporting the market by providing liquidity,” he said. “And we have longstanding relationships with all the major mortgage lenders across the country. We’re in the business of buying loans, and we are one of the few sources of liquidity available.”

But Mr. Baker’s question gets to the heart of the conflicting roles that Freddie and Fannie are being asked to play today. On the one hand, the companies are charged with supporting the mortgage market by buying loans from banks and other lenders. At the same time, they must work to minimize credit losses to make sure the billions that taxpayers have poured into the firms don’t disappear.

Freddie acknowledged these dueling goals in its quarterly report. “Certain changes to our business objectives and strategies are designed to provide support for the mortgage market in a manner that serves our public mission and other nonfinancial objectives, but may not contribute to profitability,” it noted. Freddie said that its regulator, the Federal Housing Finance Agency, has advised it that “minimizing our credit losses is our central goal and that we will be limited to continuing our existing core business activities and taking actions necessary to advance the goals of the conservatorship.”

Mr. Baker’s concern that Freddie may be racking up losses by overpaying for mortgages derives from his suspicion that the government might be encouraging it to do so as a way to bolster the operations of mortgage lenders.

That would make Fannie’s and Freddie’s mortgage-buying yet another backdoor bailout of the nation’s banks, Mr. Baker said, and could explain the government’s reluctance to include them in the reform efforts now being so hotly debated in Washington.

“If they are deliberately paying too much for mortgages to support the banks,” Mr. Baker said, “the government wants them to be in a position to keep doing that, and that would mean not doing anything about their status until further down the road.”

It’s no surprise that the government doesn’t want to acknowledge the soaring taxpayer costs associated with these mortgage zombies. The truth about Fannie and Freddie has always been hard to come by in Washington, and huge piles of money seem to circulate silently around both firms.

Remember last Christmas Eve? That’s when the Treasury quietly decided to remove the $400 billion limit on federal borrowings available to Fannie and Freddie through 2012.

That stealth move didn’t engender much confidence in either the companies or their government guardian.

But because taxpayers own Freddie and Fannie, we should know more about their buying habits, as Mr. Baker points out. Unfortunately, if the government’s past actions are any indication of what we can expect, then don’t hold your breath waiting for the facts.

Go to Column from The New York Times »
Go to Freddie Mac Quarterly Report »


Filed under: bubble, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Servicer, STATUTES, trustee Tagged: bailout, Debt Collection, Fair Game, Fannie, Freddie Mac, Gretchen Morgenson’s, losses on loans, REAL PARTY IN INTEREST, standing, unsecured debt
May
09

Insider Confirms Builder Complicity in Appraisal Fraud

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Editor’s Comment: Appraisal fraud, ratings fraud, misrepresentation, steering investors and borrowers in the wrong direction — all of these amount to the same thing: DECEIT. And as everyone knows, when someone is bilked out of money or value through deceit, they are entitled to made whole — as close as possible, and probably entitled to punitive, exemplary or treble damages. This is no theory. This is hundreds of years of common law a statutes.

So why is the media narrative and the courtroom argument centered on whether the homeowner made payments on a loan that was sold to him under false pretenses? Why is the focus on the homeowner when the real creditor is not in the room? Why are they demanding so much money when part or all of the obligation has been paid (satisfied) through credit enhancements, credit default swaps, insurance and federal bailouts?

The reason why the narrative is on the wrong subject is because you let them take over the narrative. In our course coming up on Discovery and Motion Practice we’ll be talking about how to take control of the narrative. But for now, the message is this is an obligation in search of a creditor and the people who are collecting and enforcing the payments of principal and interest are ignoring the fact that payments were made by third parties, sending out statements that are incorrect or just plain lies, and sending out notices of default and notices of sale on mortgages that are paid off in whole or in part by third parties. STAY ON YOUR MESSAGE.

From Comment on Blog: May 8. 2010

Neidermeyer finds it hard to believe that Builders participated in the mortgage fraud because he has not seen it first hand like I have.

I have been in the real estate business since 1993 during that time I was a loan officer for various independent loan brokers. ( no I did not fund ANY preditory loans, option arms, 3 year pre-pay penalties..etc. and my clients were forced to read their paperwork because I was at the closing table with them)

The first fraud I was witness to was borrower steering. The builder would offer incentives to buyers for financing if only the borrower would use the builders in-house lender directly. The incentives on average would be around $3000.00 toward closing costs. At the beginning of the application buyers would be quoted a rate about 1/8 below market so it appeared that the Builders lender would give them a good deal. When the home was finished 6 months later, 9 times out of 10 the rate had risen and the rate at closing was actually 1/8 to 1/4 percent higher than the buyer could have gotten with their original broker.. So the incentive for closing costs was a sham to steer clients to in house banks.. aka Countrywide on many occasions..So new home buyers check the comparative rates the day you closed and you will see the builders lender saved you no money.

2. Appraisal fraud was rampant. New homes always cost more than comparable resale because the prices for upgrades are added into the loan at retail..

What has to be investigated are the first 3-4 sales in the development or nearby developments..who are those parties and what is their relation to the builder? And how was the comparable property purchased? Cash? Deed Transfer of some sort etc.. often employees or relatives of the builder would” buy”” a home and close on it to create a comp.. perhaps 2 and then the appraiser could go outside the development for 3rd comparable sale at another builders development.

Voila they now have comps and they just turned $200k houses into $300k houses!

Condo Developments/ condo conversions: the HOA and property management company will often still be owned by the developer under another LLC.. look for the same officers..the hoa will be asked to certify certain information about the development on the appraisal..such as owner occupancy ratios, number sold etc. And the HOA cert will lie about the ratios to get the appraisal approved in underwriting.

I just had a client win a settlement due to my research..The appraisal was one of the worst I had seen and ordered the Landsafe and Countrywide in house..The comps used were 5 miles away and 2 times the sq ft and bedrooms.. completely uncomparible properties to start with and the adjustments down for sq ft and bedrooms was laughably small..the HOA cert( by the developers other llc) stated 175 owner occupied when there were only 3 mailing addresses in the development in public records for owners that were not in another state! I also found that one of the signatories for the builder had her own LLC’s and one of her business addresses was the one comparable sale within the development included on my clients appraisal and “owned by an entirely different individual!

And the worst thing I found on this appraisal was the appraiser’s comments section where he admitted the unit had not yet been renovated and that the builder intended to do so after the next tenant changeover..NOT RENOVATED YET! and yet still he appraised the unit as/if it was renovated..the targeted client lived out of state and never saw the property he purchased..

I also looked at the early transfers..of course there were 2 that were sold at 160K when nothing prior had sold over 64k..interestingly after the initial inflated transfers there were several deeds recorded by the officers of the builder llc and friends for the same units at 48-68K done quietly so as not to hurt their comparable sales.

Check the upgrade sheets and what you were charged for certain upgrades… a client of mine was charged over $30,000 for paint upgrades! I am not talking murals here.. a sponged hallway and 2 tones for moldings and walls..

So yes the builders are more than responsible for the inflated values..the partnered with the banks to create this market..It is all in the research!


Filed under: bubble, CASES, CORRUPTION, Eviction, expert witness, foreclosure, foreclosure mill, GTC | Honor, HERS, MODIFICATION, Mortgage, Motion Practice and Discovery, STATUTES Tagged: Appraisal, appraisal fraud, appraiser’s comments section, builders, comparable property, comparable sales, Condo, countrywide, early transfers, fraud, HERS, HOA, incentives, independent loan brokers, inflated values, Landsafe, loan officer, mortgage fraud, occupancy ratios, property management company, upgrade sheet, upgrades
May
08

NY Judges Slamming Debt Collectors

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Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Editor’s notes: The dubious “enforcement” of mortgages, notes and “obligations (that have been paid many times over through credit enhancement) is both mirrored and amplified in the debt collection industry. Servicers are merely debt collectors since they are collecting for a third party. In an investigative report coming soon to these pages you will see that servicers are actually the “real trustee” for the investors, separate and apart from the Special Purpose Vehicle. But that is for later.

For now, before you slide into grief and shame over your financial condition, know this: the people hounding you for money are doing so in most cases illegally and Judges are reversing themselves across the country as they take a closer look at the the procedural tricks routinely employed by those who prey upon consumers with “debt” claims have that long since been extinguished, written off, repackaged into resecuritized asset backed securities, with even more credit swaps on top of the old ones.

In this article from the New York Times, the clarity of the scam is being revealed and unraveled. The ultimate conclusion of this mess will take years if not decades, to move us back to a state of equilibrium. In the meantime, the major piece of advice you will probably get from any consumer law advocate or attorney is this: don’t pay anyone unless you are sure you owe THEM the money. The question is not whether you owe money (i.e., the existence of the obligation), the question is the identity of the creditor and whether the obligation, without your knowledge was already paid in whole or in part by credit default swaps, other credit enhancement techniques, etc.

————————

May 7, 2010

In New York, Some Judges Are Now Skeptical About Debt Collectors’ Claims

By WILLIAM GLABERSON

As New Yorkers have tumbled into credit card debt in large numbers during the great recession, bill collectors have inundated the courts to get what they say is due. In turn, the courts have issued hundreds of thousands of orders against residents. Some consumer groups argue that by doing so, the courts have become little more than an arm of the debt collection industry.

Now, a few judges in New York State are suggesting that they agree, at least in part, with the consumer groups. They have fumed at debt collectors and their lawyers, scolding them for interest as high as 30 percent a year and berating them for false statements and abusive practices.

Some of the rulings have even been sarcastic or incredulous. In December, a Staten Island judge said debt collectors seemed to think their lawsuits were taking place in a legal Land of Oz, where everyone was supposed to follow anticonsumer rules invented by some unseen debt-collection wizard.

Last month, a Manhattan appeals court threw out a credit card case, saying a debt collection company had sued the wrong person but pursued the case anyway.

“I think these judges are outraged at the status quo, and they’re trying to change it,” said Janet Ray Kalson, a Manhattan lawyer who is the chairwoman of a City Bar Association committee that has studied the deluge of credit card cases.

Debt-buyer businesses purchase debts — along with lists of names and amounts supposedly due — for pennies on the dollar from credit card companies and sometimes have no real evidence about whom they are suing or why. They then file tens of thousands of suits, often with little to back up their claims.

A Nassau County District Court judge said recently, for example, that one of New York City’s high-volume debt collection law firms, which has close ties to a debt-buying company, did not provide “a scintilla of evidence” that there was even a debt in a case against a Long Island woman.

The suit received an unusual amount of attention. The judge, Michael A. Ciaffa, said that it “regrettably, involves a veritable ‘perfect storm’ of mistakes, errors, misdeeds and improper litigation practices.” Judge Ciaffa said the law firm, Eltman, Eltman & Cooper, ignored court orders, made a “demonstrably false” assertion and harassed the woman for payment even after its suit was dismissed.

The case before Judge Ciaffa ended with an order that is far from typical in a credit card suit. The woman who had been sued, Patricia Bohnet, a bookkeeper and single mother, did not have to pay anything. But Eltman, Eltman & Cooper had to pay $14,800 in sanctions for violating ethical rules at least 18 times. Under the judge’s order, $4,800 is to go to Ms. Bohnet and the remainder to a state fund that works to reimburse clients for dishonest conduct by lawyers.

“They don’t care if you’re sick; they don’t care if you’re poor,” Ms. Bohnet said in an interview at her job in Woodmere. “Their only job is to collect money, and they’ll do it in any way possible.”

In response to questions, the law firm said in a written statement that Judge Ciaffa had not had all the facts but that the firm would not appeal. “As with any firm or business that handles this type of volume,” it added, “there exists a potential for errors or omissions in the normal course of business.”

Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Separate files in Federal District Court in Brooklyn show that without admitting fault, the Eltman law firm settled a class-action suit in 2006 that claimed it used “false, misleading and deceptive means” to collect debts.

Privately, some judges say they are embarrassed that in many New York courts, debt-collection lawyers have grown so comfortable that they give the impression they are in charge of the proceedings and do not need prove their claims with strong evidence.

In the recent pro-consumer rulings, skepticism of the debt collectors’ claims has been obvious. A Civil Court judge in Brooklyn, Noach Dear, has written decisions that come close to saying that the collection cases are sometimes based on falsehoods.

In a case in August, Judge Dear observed that there was nothing to substantiate a lawyer’s claim that she somehow remembered mailing a document to the credit card holder that was the foundation of the collection suit. The document, Judge Dear noted archly, had been mailed three and a half years earlier.

Behind the legalese of the credit card suits, some judges have suggested, there is often a disorganized jumble of documentation. A Mount Vernon City Court judge noted that one case was based on little more than “a self-serving computer printout.” A Manhattan judge said one company that bought debt claims from credit card companies had filed suit against a cardholder although it did not own that particular debt.

In the Staten Island case, the judge, Philip S. Straniere, said a credit card company was claiming interest of 28 percent on the balance due, which would be illegal as usury under New York law. The company argued that the credit card issued to a New Yorker that seemed to be from a national company had actually been issued by a one-branch bank in Utah, which had no usury law.

“Like the Land of Oz, run by a Wizard who no one has ever seen,” Judge Straniere wrote, “the Land of Credit Cards permits consumers to be bound by agreements they never sign, agreements they may never have received, subject to change without notice and the laws of a state other than those existing where they reside.”

The judge ruled that the supposed agreement allowing unlimited interest charges was not enforceable in New York.

Industry officials said that tales of abusive collection cases were misleading. “There are certainly colorful stories,” said Joann Needleman, an officer of the National Association of Retail Collection Attorneys. “People think that handful is the rule, not the exception, but it’s not.”

But Ms. Bohnet, the Long Island woman who was sued by a New York law firm, said just one case could be harrowing. When she received a call last year at the charity where she keeps the books for $39,000 a year, the voice on the other end told her the debt collectors had a five-year-old court judgment against her for a $4,861 debt. She had to pay, or they would start taking money out of her salary, she said she was told.

The address of the debt-collection firm and its lawyers at Eltman, Eltman & Cooper seemed to be the same, she noticed.

Ms. Bohnet did not know she had ever been sued. She started to cry, she said, worried that with a chunk of money taken every month, she might lose the modest apartment she needed to share custody of her teenage daughter.

“I was in all-out fear,” she said, adding, “After I got off the phone, I realized I didn’t even know what the debt was for.” She might have had an old credit card debt, but she had had some years of problems with alcohol and drugs and tangled financial problems. In recovery, she said, she had worked to clean up her financial affairs.

The next time the collectors called, she said, she told them that she was willing to pay if she owed any money but that she needed to see some proof that they had the right person. Then, without a lawyer, she went to the court, in Hempstead, to check into the order the debt collectors said they had against her.

After some digging, she found the case. The debt-buyer’s lawyers had filed a sworn statement that they said was proof she had been given notice of the suit. A process server for Eltman, Eltman & Cooper claimed she had been given a copy of the suit personally on July 30, 2004.

Judge Ciaffa doubted that. Ms. Bohnet, he wrote, “hadn’t lived at that address since 1998.”


Filed under: CASES, CORRUPTION, foreclosure, foreclosure mill, GTC | Honor, HERS, Motion Practice and Discovery, Servicer, STATUTES, trustee Tagged: debt, Debt Collectors, Eltman, Eltman & Cooper, judges, New York, Obligation, Philip S. Straniere, usury, WILLIAM GLABERSON
May
02

A Fellow You might Want to talk With About Morgan Stanley Credit Default Swaps

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Morgan Stanley’s head of European leveraged credit trading has resigned. Robert Lepone, who oversaw various teams, including high yield bonds, leveraged loans, credit default swaps and distressed debt, left Morgan Stanley’s London office for personal reasons, a spokesman said. His replacement will be announced in the coming weeks, the spokesman said, declining to comment further. Lepone’s departure comes less than two weeks after Joseph McManus, a vice president with Morgan Stanley’s investment-grade credit products group, left to join CastleOak Securities’ fixed-income sales team.


Filed under: bubble, CORRUPTION, HERS, investment banking, Investor, securities fraud Tagged: CastleOak Securities, credit products, European leveraged credit trading, HERS, investment-grade credit products group, Joseph McManus, leveraged credit trading, Morgan Stanley, Robert Lepone
Apr
27

Shareholders Sue Goldman, Blankfein Confirming Trusts Do NOT Own the Loans

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Leo II
bgitt47@verizon.net
Editor’s Note: I believe Leo is right. These suits allege that the SPV do not own the loan portfolios. They also allege directly that the Trust Assets included insurance — payments from credit default swaps.

Two revealing lawsuits filed against Goldman-Sachs that I believe further support arguments that most, if not all Subprime securitized Notes that went into default should be considered as satisfied by virtue of default and the ensuing payment to holders of the Credit Default Swaps (Puts) created for each such Note.

And then there’s the issue of TARP funds, ($10 billion of which went to Goldman-Sachs alone), which, along with the CDO payments should have been utilized to compensate the investors who purchased the Notes

All of which, taken as a whole, lends support to the assertion that the Notes are Satisfied..

All that remans is for the Courts to order firms like Goldman-Sachs to distribute the money to the investors, declare satisfaction of the underlying Notes and Order the quiting of the titles securing said Notes.

Agree? Disagree?

http://solari.com/blog/articles/2010/Goldman-Rosinek_v_Blankfein.pdf

http://solari.com/blog/articles/2010/Goldman-Spiegel_v_Blankfein.pdf

Filed under: CASES, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, politics, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop Tagged: Blankfein, credit default swaps, Goldman, insurance, Leo II, Shareholders, SPV, TRUSTS
Apr
26

Goldman Sachs Messages Show It Thrived as Economy Fell

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Editor’s Note: Now the truth as reported here two years ago.
  • There were no losses.
  • They were making money hand over fist.
  • And this article focuses only on a single topic — some of the credit default swaps — those that Goldman had bought in its own name, leaving out all the other swaps bought by Goldman using other banks and entities as cover for their horrendous behavior.
  • It also leaves out all the other swaps bought by all the other investment banking houses.
  • But most of all it leaves out the fact that at no time did the investment banking firms actually own the mortgages that the world thinks caused enormous losses requiring the infamous bailout. It’s a fiction.
  • In nearly all cases they sold the securities “forward” which means they sold the securities first, collected the money second and then went looking for hapless consumers to sign documents that were called “loans.”
  • The securities created the intended chain of securitization wherein first the investors “owned” the loans (before they existed and before the first application was signed) and then the “loans” were “assigned” into the pool.
  • The pool was assigned into a Special Purpose Vehicle that issued “shares” (certificates, bonds, whatever you want to call them) to investors.
  • Those shares conveyed OWNERSHIP of the loan pool. Each share OWNED a percentage of the loans.
  • The so-called “trust” was merely an operating agreement between the investors that was controlled by the investment banking house through an entity called a “trustee.” All of it was a sham.
  • There was no trust, no trustee, no lending except from the investors, and no losses from mortgage defaults, because even with a steep default rate of 16% reported by some organizations, the insurance, swaps, and other guarantees and third party payments more than covered mortgage defaults.
  • The default that was not covered was the default in payment of principal to investors, which they will never see, because they never were actually given the dollar amount of mortgages they thought they were buying.
  • The entire crisis was and remains a computer enhanced hallucination that was used as a vehicle to keep stealing from investors, borrowers, taxpayers and anyone else they thought had money.
  • The “profits” made by NOT using the investor money to fund mortgages are sitting off shore in structured investment vehicles.
  • The actual funds, first sent to Bermuda and the caymans was then cycled around the world. The Ponzi scheme became a giant check- kiting scheme that hid the true nature of what they were doing.
April 24, 2010

Goldman Sachs Messages Show It Thrived as Economy Fell

By LOUISE STORY, SEWELL CHAN and GRETCHEN MORGENSON

In late 2007 as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they were making “some serious money” betting against the housing markets.

The e-mails, released Saturday morning by the Senate Permanent Subcommittee on Investigations, appear to contradict some of Goldman’s previous statements that left the impression that the firm lost money on mortgage-related investments.

In the e-mails, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November of 2007 that the firm indeed had lost money initially. But it later recovered from those losses by making negative bets, known as short positions, enabling it to profit as housing prices fell and homeowners defaulted on their mortgages. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”

In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, remarked on figures that showed the company had made a $51 million profit in a single day from bets that the value of mortgage-related securities would drop. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.

The messages were released Saturday ahead of a Congressional hearing on Tuesday in which seven current and former Goldman employees, including Mr. Blankfein, are expected to testify. The hearing follows a recent securities fraud complaint that the Securities and Exchange Commission filed against Goldman and one of its employees, Fabrice Tourre, who will also testify on Tuesday.

Actions taken by Wall Street firms during the housing meltdown have become a major factor in the contentious debate over financial reform. The first test of the administration’s overhaul effort will come Monday when the Senate majority leader, Harry Reid, is to call a procedural vote to try to stop a Republican filibuster.

Republicans have contended that the renewed focus on Goldman stems from Democrats’ desire to use anger at Wall Street to push through a financial reform bill.

Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrast with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Mr. Levin said in a statement Saturday when his office released the documents. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

A Goldman spokesman did not immediately respond to a request for comment.

The Goldman messages connect some of the dots at a crucial moment of Goldman history. They show that in 2007, as most other banks hemorrhaged losses from plummeting mortgage holdings, Goldman prospered.

At first, Goldman openly discussed its prescience in calling the housing downfall. In the third quarter of 2007, the investment bank reported publicly that it had made big profits on its negative bet on mortgages.

But by the end of that year, the firm curtailed disclosures about its mortgage trading results. Its chief financial officer told analysts at the end of 2007 that they should not expect Goldman to reveal whether it was long or short on the housing market. By late 2008, Goldman was emphasizing its losses, rather than its profits, pointing regularly to write-downs of $1.7 billion on mortgage assets and leaving out the amount it made on its negative bets.

Goldman and other firms often take positions on both sides of an investment. Some are long, which are bets that the investment will do well, and some are shorts, which are bets the investment will do poorly. If an investor’s positions are balanced — or hedged, in industry parlance — then the combination of the longs and shorts comes out to zero.

Goldman has said that it added shorts to balance its mortgage book, not to make a directional bet that the market would collapse. But the messages released Saturday appear to show that in 2007, at least, Goldman’s short bets were eclipsing the losses on its long positions. In May 2007, for instance, Goldman workers e-mailed one another about losses on a bundle of mortgages issued by Long Beach Mortgage Securities. Though the firm lost money on those, a worker wrote, there was “good news”: “we own 10 mm in protection.” That meant Goldman had enough of a bet against the bond that, over all, it profited by $5 million.

Documents released by the Senate committee appear to indicate that in July 2007, Goldman’s daily accounting showed losses of $322 million on positive mortgage positions, but its negative bet — what Mr. Viniar called “the big short” — came in $51 million higher.

As recently as a week ago, a Goldman spokesman emphasized that the firm had tried only to hedge its mortgage holdings in 2007 and said the firm had not been net short in that market.

The firm said in its annual report this month that it did not know back then where housing was headed, a sentiment expressed by Mr. Blankfein the last time he appeared before Congress.

“We did not know at any minute what would happen next, even though there was a lot of writing,” he told the Financial Crisis Inquiry Commission in January.

It is not known how much money in total Goldman made on its negative housing bets. Only a handful of e-mail messages were released Saturday, and they do not reflect the complete record.

The Senate subcommittee began its investigation in November 2008, but its work attracted little attention until a series of hearings in the last month. The first focused on lending practices at Washington Mutual, which collapsed in 2008, the largest bank failure in American history; another scrutinized deficiencies at several regulatory agencies, including the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.

A third hearing, on Friday, centered on the role that the credit rating agencies — Moody’s, Standard & Poor’s and Fitch — played in the financial crisis. At the end of the hearing, Mr. Levin offered a preview of the Goldman hearing scheduled for Tuesday.

“Our investigation has found that investment banks such as Goldman Sachs were not market makers helping clients,” Mr. Levin said, referring to testimony given by Mr. Blankfein in January. “They were self-interested promoters of risky and complicated financial schemes that were a major part of the 2008 crisis. They bundled toxic and dubious mortgages into complex financial instruments, got the credit-rating agencies to label them as AAA safe securities, sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the financial instruments that they sold, and profiting at the expense of their clients.”

The transaction at the center of the S.E.C.’s case against Goldman also came up at the hearings on Friday, when Mr. Levin discussed it with Eric Kolchinsky, a former managing director at Moody’s. The mortgage-related security was known as Abacus 2007-AC1, and while it was created by Goldman, the S.E.C. contends that the firm misled investors by not disclosing that it had allowed a hedge fund manager, John A. Paulson, to select mortgage bonds for the portfolio that would be most likely to fail. That charge is at the core of the civil suit it filed against Goldman.

Moody’s was hired by Goldman to rate the Abacus security. Mr. Levin asked Mr. Kolchinsky, who for most of 2007 oversaw the ratings of collateralized debt obligations backed by subprime mortgages, if he had known of Mr. Paulson’s involvement in the Abacus deal.

“I did not know, and I suspect — I’m fairly sure that my staff did not know either,” Mr. Kolchinsky said.

Mr. Levin asked whether details of Mr. Paulson’s involvement were “facts that you or your staff would have wanted to know before rating Abacus.” Mr. Kolchinsky replied: “Yes, that’s something that I would have personally wanted to know.”

Mr. Kolchinsky added: “It just changes the whole dynamic of the structure, where the person who’s putting it together, choosing it, wants it to blow up.”

The Senate announced that it would convene a hearing on Goldman Sachs within a week of the S.E.C.’s fraud suit. Some members of Congress questioned whether the two investigations had been coordinated or linked.

Mr. Levin’s staff said there was no connection between the two investigations. They pointed out that the subcommittee requested the appearance of the Goldman executives and employees well before the S.E.C. filed its case.


Filed under: CORRUPTION, credit unions, currency, Eviction, expert witness, Fannie MAe, foreclosure, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop Tagged: ABACUS 2007-AC1, bonds, borowers, check-kiting, David A. Viniar, default, Eric Kolchinsky, Federal Deposit Insurance Corporation., financial crisis, Financial Crisis Inquiry Commission, Fitch, fraud, Gary D. Cohn, Goldman Sachs, GRETCHEN MORGENSON, HERS, John A. Paulson, Kolchinsky, lenders, lending, Lloyd C. Blankfein, losses, Louise Story, Moody’s, mortgage backed securities, Office of Thrift Supervision, operating agreement, OWNERSHIP of the loan pool, Ponzi, Securities and Exchange Commission, selling forward, Senate Permanent Subcommittee on Investigations, SEWELL CHAN, sham, shares, special purpose vehicle, Standard & Poor’s, swaps, trust, trustee, Washington Mutual
Apr
25

Motion Practice: Arizona Statutes Requires GOOD FAITH and ALL Parties to be Notified

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The statute says that the trustee mails the notice to all affected parties at least three months before the sale date. In a non-judicial sale, then, ALL parties having a potential stake in the outcome must be notified. This is the only way the statute can be constitutional. It’s not up to the Trustee to adjudicate the rights of the parties if he wants to keep his exemption from liability, but if he knowingly fails to notify other parties whom he knows to exist, then it is obvious he is taking an interest in the litigation.

The attack on the trustee sale would simply be a certified letter followed by a lawsuit if necessary directed at the trustee. The letter would be an objection to the sale because the trustee has failed to notify the creditors, has not made adequate inquiry into the identity of all parties, and damages for slander of title. The objection, an early draft of which is contained in the forms on this blog,  would also state that the obligation has been satisfied in whole or in part by third party payments from credit default swaps, insurance, guarantees, buy-backs, federal bailouts etc.

The demand would be for proof of inquiry — the “pull-down report” (title report on the property) and all other efforts to identify the parties in what the trustee knows to be a securitized transaction with multiple intermediaries, each of whom appears to claim a stake in the property, and multiple creditors, none of whom have been notified, who have not provided or been asked to provide an accounting for all transactions relating to the their purchase of asset backed securities creating their beneficial ownership in a pool of assets that includes the subject loan, and whether any allocations have been made to account for third party payments.

In the alternative, the demand would be that the foreclosure be conducted in accordance with Arizona statutes governing judicial foreclosures that would then pout the onus on the beneficiary to allege they are they are the creditor, that the obligation is due and to present allegations and , exhibits, witnesses and proof that they are entitled to a judgment in foreclosure. The non-judicial statutes could not have been intended as a direct confrontation with the 5th and 14th Amendment of the United States Constitution requiring no deprivation of life, liberty or property without due process. If that were otherwise, the statute would be unconstitutional on its face.

33-455. Conveyance of absolute title by judicial sale; effect upon rights of persons not parties

Every conveyance of real property by a commissioner, sheriff or other officer legally authorized to sell such property by virtue of a decree or judgment of any court within this state, shall be effectual to pass absolute title to the property to the purchaser thereof, but the conveyance shall not affect the right, title or interest of any person other than the parties to the conveyance, decree or judgment, and those claiming under them.

33-456. Passage of title to real or personal property by judgment

When a judgment directs the conveyance of real property or the delivery of personal property, the judgment shall pass title to such property without any act by the party against whom the judgment is given.

33-458. Resale of realty with intent to defraud; classification

A person who, after selling, bartering or disposing of, or, after executing a bond or agreement for the sale of land, again knowingly and with intent to defraud previous or subsequent purchasers, sells, barters or disposes of, or executes a bond or agreement to sell, barter or dispose of the same land or any part thereof to any other person for a valuable consideration, is guilty of a class 4 felony.

33-705. Purchase money mortgage or deed of trust; priority

A mortgage or deed of trust that is given as security for a loan made to purchase the real property that is encumbered by the mortgage or deed of trust has priority over all other liens and encumbrances that are incurred against the purchaser before acquiring title to the real property.

33-706. Assignment of mortgage; recording as notice

An assignment of a mortgage may be recorded in like manner as a mortgage, and the record is notice to all persons subsequently deriving title to the mortgage from the assignor.

33-708. Release by attorney in fact

An attorney in fact to whom the money due on a mortgage or deed of trust is paid may execute the release provided for in this article. Such acknowledgment of satisfaction or deed of release, duly acknowledged and recorded, showing the docket and page or recording number, releases the mortgage or deed of trust and revests in the mortgagor or person who executed the deed of trust, or his legal representatives, all title to the property affected by the mortgage or deed of trust.

33-721. Foreclosure of mortgage by court action

Mortgages of real property and deeds of trust of a type not included in the definition of deed of trust provided in section 33-801, notwithstanding any other provision in the mortgage or deed, shall be foreclosed by action in a court.

33-722. Election between action on debt or to foreclose

If separate actions are brought on the debt and to foreclose the mortgage given to secure it, the plaintiff shall elect which to prosecute and the other shall be dismissed.

33-741. Definitions

In this article, unless the context otherwise requires:

1. “Account servicing agent” means a joint agent of seller and purchaser, appointed under the contract or under a separate agreement executed by the seller and the purchaser, to hold documents and collect monies due under the contract, who does business under the laws of this state as a bank, trust company, escrow agent, savings and loan association, insurance company or real estate broker, or who is licensed, chartered or regulated by the federal deposit insurance corporation or the comptroller of the currency, or who is a member of the state bar of Arizona.

2. “Contract” means a contract for conveyance of real property, a contract for deed, a contract to convey, an agreement for sale or any similar contract through which a seller has conveyed to a purchaser equitable title in property and under which the seller is obligated to convey to the purchaser the remainder of the seller’s title in the property, whether legal or equitable, on payment in full of all monies due under the contract. This article does not apply to purchase contracts and receipts, escrow instructions or similar executory contracts which are intended to control the rights and obligations of the parties to executory contracts pending the closing of a sale or purchase transaction.

3. “Monies due under the contract” means:

(a) Any principal and interest payments which are currently due and payable to the seller.

(b) Any principal and interest payments which are currently due and payable to other persons who hold existing liens and encumbrances on the property, the unpaid principal portion of which constitutes a portion of the purchase price, as stated in the contract, if the principal and interest payments were paid by the seller pursuant to the terms of the contract and to protect his interest in the property.

(c) Any delinquent taxes and assessments, including interest and penalty, due and payable to any governmental entity authorized to impose liens on the property which are the purchaser’s obligations under the contract, if the taxes and assessments were paid by the seller pursuant to the terms of the contract and to protect his interest in the property.

(d) Any unpaid premiums for any policy or policies of insurance which are the obligation of the purchaser to maintain under the contract, if the premiums were paid by the seller pursuant to the terms of the contract and to protect his interest in the property.

4. “Payoff deed” means the deed that the seller is obligated to deliver to the purchaser on payment in full of all monies due under the contract to convey to the purchaser the remainder of the seller’s title in the property, whether legal or equitable, as prescribed by the terms of the contract.

5. “Property” means the real property described in the contract and any personal property included under the contract.

6. “Purchaser” means the person or any successor in interest to the person who has contracted to purchase the seller’s title to the property which is the subject of the contract.

7. “Seller” means the person or any successor in interest to the person who has contracted to convey his title to the property which is the subject of the contract.

33-807. Sale of trust property; power of trustee; foreclosure of trust deed

A. By virtue of his position, a power of sale is conferred upon the trustee of a trust deed under which the trust property may be sold, in the manner provided in this chapter, after a breach or default in performance of the contract or contracts, for which the trust property is conveyed as security, or a breach or default of the trust deed. At the option of the beneficiary, a trust deed may be foreclosed in the manner provided by law for the foreclosure of mortgages on real property in which event chapter 6 of this title governs the proceedings. The beneficiary or trustee shall constitute the proper and complete party plaintiff in any action to foreclose a deed of trust. The power of sale may be exercised by the trustee without express provision therefor in the trust deed.

B. The trustee or beneficiary may file and maintain an action to foreclose a deed of trust at any time before the trust property has been sold under the power of sale. A sale of trust property under the power of sale shall not be held after an action to foreclose the deed of trust has been filed unless the foreclosure action has been dismissed.

C. The trustee or beneficiary may file an action for the appointment of a receiver according to sections 12-1241 and 33-702. The right to appointment of a receiver shall be independent of and may precede the exercise of any other right or remedy.

D. The power of sale of trust property conferred upon the trustee shall not be exercised before the ninety-first day after the date of the recording of the notice of the sale. The sale shall not be set for a Saturday or legal holiday. The trustee may schedule more than one sale for the same date, time and place.

E. The trustee need only be joined as a party in legal actions pertaining to a breach of the trustee’s obligation under this chapter or under the deed of trust. Any order of the court entered against the beneficiary is binding upon the trustee with respect to any actions that the trustee is authorized to take by the trust deed or by this chapter. If the trustee is joined as a party in any other action, the trustee is entitled to be immediately dismissed and to recover costs and reasonable attorney fees from the person joining the trustee.

33-808. Notice of trustee’s sale

A. The trustee shall give written notice of the time and place of sale legally describing the trust property to be sold by each of the following methods:

1. Recording a notice in the office of the recorder of each county where the trust property is situated.

2. Giving notice as provided in section 33-809 to the extent applicable.

3. Posting a copy of the notice of sale, at least twenty days before the date of sale in some conspicuous place on the trust property to be sold, if posting can be accomplished without a breach of the peace. If access to the trust property is denied because a common entrance to the property is restricted by a limited access gate or similar impediment, the property shall be posted by posting notice at that gate or impediment. Notice shall also be posted at one of the places provided for posting public notices at any building that serves as a location of the superior court in the county where the trust property is to be sold. Posting is deemed completed on the date the trust property is posted. The posting of notice at the superior court location is deemed a ministerial act.

4. Publication of the notice of sale in a newspaper of general circulation in each county in which the trust property to be sold is situated. The notice of sale shall be published at least once a week for four consecutive weeks. The last date of publication shall not be less than ten days prior to the date of sale. Publication is deemed completed on the date of the first of the four publications of the notice of sale pursuant to this paragraph.

B. The sale shall be held at the time and place designated in the notice of sale on a day other than a Saturday or legal holiday between 9:00 a.m. and 5:00 p.m. mountain standard time at a specified place on the trust property, at a specified place at any building that serves as a location of the superior court or at a specified place at a place of business of the trustee, in any county in which part of the trust property to be sold is situated.

C. The notice of sale shall contain:

1. The date, time and place of the sale. The date, time and place shall be set pursuant to section 33-807, subsection D. The date shall be no sooner than the ninety-first day after the date that the notice of sale was recorded.

2. The street address, if any, or identifiable location as well as the legal description of the trust property.

3. The county assessor’s tax parcel number for the trust property or the tax parcel number of a larger parcel of which the trust property is a part.

4. The original principal balance as shown on the deed of trust. If the amount is not shown on the deed of trust, it shall be listed as “unspecified”.

5. The names and addresses, as of the date the notice of sale is recorded, of the beneficiary and the trustee, the name and address of the original trustor as stated in the deed of trust, the signature of the trustee and the basis for the trustee’s qualification pursuant to section 33-803, subsection A, including an express statement of the paragraph under subsection A on which the qualification is based. The address of the beneficiary shall not be in care of the trustee.

6. The telephone number of the trustee.

7. The name of the state or federal licensing or regulatory body or controlling agency of the trustee as prescribed by section 33-803, subsection A.

D. The notice of sale shall be sufficient if made in substantially the following form:

Notice of Trustee’s Sale

The following legally described trust property will be sold, pursuant to the power of sale under that certain trust deed recorded in docket or book _______________________ at page __________ records of ______________ county, Arizona, at public auction to the highest bidder at (specific place of sale as permitted by law) _______________, in _______________ county, in or near _______________, Arizona, on ________, ____, at ___________ o’clock ___m. of said day:

(street address, if any, or identifiable

location of trust property)

(legal description of trust property)

Tax parcel number _______________

Original principal balance $________________________

Name and address of beneficiary ______________________________

______________________________

______________________________

Name and address of original trustor _________________________

_________________________

_________________________

Name, address and telephone number of trustee ________________

__________________________________

__________________________________

Signature of trustee _____________________________

Manner of trustee qualification ___________________________

Name of trustee’s regulator _______________________________

Dated this _____________ day of ______________, ____.

(Acknowledgement)

E. Any error or omission in the information required by subsection C or D of this section, other than an error in the legal description of the trust property or an error in the date, time or place of sale, shall not invalidate a trustee’s sale. Any error in the legal description of the trust property shall not invalidate a trustee’s sale if considered as a whole the information provided is sufficient to identify the trust property being sold. If there is an error or omission in the legal description so that the trust property cannot be identified, or if there is an error in the date, time or place of sale, the trustee shall record a cancellation of notice of sale. The trustee or any person furnishing information to the trustee shall not be subject to liability for any error or omission in the information required by subsection C of this section except for the wilful and intentional failure to provide such information. This subsection does not apply to claims made by an insured under any policy of title insurance.

F. The notice of trustee sale may not be rerecorded for any reason. This subsection does not prohibit the recording of a new or subsequent notice of sale regarding the same property.

33-820. Trustee’s right to rely; attorney’s right to act for trustee and beneficiary

A. In carrying out his duties under the provisions of this chapter or any deed of trust, a trustee, shall when acting in good faith, have the absolute right to rely upon any written direction or information furnished to him by the beneficiary.

B. An attorney for the beneficiary shall also be qualified to act as attorney for the trustee or to be the trustee.

Pre-foreclosure Period

Court foreclosures begin when the lender files for foreclosure in court and records a notice of the pending lawsuit (Lis Pendens). The court filing includes the debt and default amount. The borrower and any junior lien holders are notified either in person or by publication. If the borrower does not respond to the court action, the court can rule against them and set the amount owed to the lender. The county clerk then directs the county sheriff to conduct a sale of the property to recover the amount owed.

An out-of-court foreclosure sale may occur if a clause in the trust deed permits the lender to sell the property if a borrower defaults. To start the foreclosure, the trustee records a notice of sale, and the sale occurs at least three months after the notice is recorded. Until 5:00 p.m. the day before the sale, the borrower or any junior lien holders may stop the foreclosure by paying the default amount, fees, and costs.

Notice of Sale / Auction

For court foreclosures, the sheriff conducts the sheriff’s sale about 45 days after the county clerk directs the sale. It is a public auction, and anyone may bid.  The bid price must be paid to the sheriff by 5:00 p.m. the day after the sheriff’s sale. After the sale, a certificate of sale is issued.  If the property is not abandoned, the redemption period is six months from the sale date. If the borrower does not redeem, any secondary lenders may do so within a specified time. To redeem the property, the total amount owed plus fees and costs must be paid. If no one redeems the property, the sheriff transfers ownership to the winning bidder.

For out-of-court trustee’s sales, the notice of sale contains a property description, and the date, time and place of the sale. The notice is recorded, and the trustee mails the notice to all affected parties at least three months before the sale date. The notice appears in a local newspaper once a week for four weeks, with the last notice published no less than 10 days before the sale date. At least 20 days before the sale, the notice is posted on the property and the county courthouse. Starting the day before the sale and up to the sale, the trustee must provide the opening bid of the sale to anyone who asks or the sale may have to be postponed.

The trustee or the trustee’s agent conducts the sale at the property, the courthouse, or the trustee’s office.  All bidders must provide a refundable $10,000 deposit in order to bid; the trustee keeps the deposit of the winning bidder. The sale can be postponed up to 90 days by announcement at the originally scheduled sale. The winning bidder has until 5:00 p.m. the next day to pay the full bid price, after which the trustee transfer ownership of the property within seven days. The proceeds of the sale are paid to the primary lender, then to any secondary lenders. There is no right of redemption for the borrower after an out-of-court foreclosure sale.


Filed under: CDO, CORRUPTION, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: 33-820. Trustee's right to rely; attorney's right to act for trustee and beneficiary, beneficiary, DEED OF TRUST, good faith, trustee
Mar
29

Ambac Clients May Receive 25 Cents on Dollar in Cash

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Editor’s Note: The significance of this announcement is that the bondholders, who were insured directly by AMBAC (as opposed to the investment bankers who bought “bets” like credit default swaps) are receiving 25 cents on every dollar they funded as creditors for the funding of loan to homeowners (debtors/ borrowers).

This supports and corroborates two basic premises of this blog:

1. That the bondholders (i.e., the creditors in every securitized residential mortgage) have been paid or are covered, at least in part by insurance. Thus the allegation of a defense of payment or partial payment is confirmed. This supports the contention of the borrower that he is entitled to a FULL accounting of ALL monies relating to his obligation before any claim for default can be verified.

2. That the requirement of principal reduction is neither a gift nor any display of inequity. It is clear that principal reduction is as much a simple consequence of arithmetic as it is damages for appraisal fraud.

By Andrew Frye and Jody Shenn

March 25 (Bloomberg) — Ambac Financial Group Inc. clients will probably get about 25 cents on the dollar in cash for claims on about $35 billion of home-loan bonds backed by the insurer, the firm’s regulator said.

“Currently, my expectation is we’d be at approximately 25 cents cash” on the portfolio, with Ambac meeting the rest of its obligation by handing over surplus notes, Wisconsin Insurance Commissioner Sean Dilweg said today in a telephone interview from New York. The arrangement isn’t final until approved by a court, he said. The notes may be repaid, with regulator permission, if surplus funds remain.

Dilweg is taking over a portion of Ambac’s policies to protect municipal bondholders who count on the company’s guarantees. He halted payments on the $35 billion of mortgage bond policies and other contracts, saving Ambac about $120 million this month. That move will encourage the hedge funds, pension plans and other investors that hold the protection to negotiate with New York-based Ambac, Dilweg said.

“The only way to start negotiating is if regulatory action is taken,” Dilweg said. Investors holding securities backed by Ambac “watched our activities but every month they’ve been getting 100 cents on the dollar, so what incentive is there to come and talk to us?”

The $35 billion of mortgage-bond policies are part of the contracts seized by Dilweg’s office under the plan announced today and are separate from a group of collateralized debt obligations backed by Ambac, he said.

Counterparty Settlement

Ambac’s main unit, domiciled in Wisconsin, has offered to pay $2.6 billion in cash and $2 billion of surplus notes to settle with counterparties including banks on CDOs tied to assets such as subprime loans, the parent company said in a statement today. The notes will collect 5 percent annual interest, also payable with regulatory approval, Ambac said.

The insurer’s existing assets will be used to pay claims, Dilweg’s office said in a court filing yesterday requesting permission to take over the policies. The regulator said clients should continue to pay premiums to maintain coverage.

Ambac “maintains the assets to continue paying claims in full as they arise,” the regulator said in the filing. By offering a mix of cash and notes, the company “will not need to liquidate long-term assets prematurely.”

Ambac, created in 1971 to insure debt sold by states and municipalities, lost its top credit ratings and 99 percent of its stock-market value after expanding from its main business into guaranteeing bonds backed by riskier assets and CDOs. The company guarantees $256 billion of the $1.4 trillion in insured municipal issuance, according to Bloomberg data. The muni market totals $2.8 trillion, according to the Federal Reserve.

Shares Plunge

The company said that while it doesn’t consider the regulator’s move to constitute a default, it may consider a “prepackaged bankruptcy.”

The company fell 14 cents to 66 cents in New York Stock Exchange composite trading as of 4:15 p.m. The shares are down from as high as $96.10 in May 2007.

Ambac sold the industry’s first insurance policy on municipal debt 39 years ago, for a $650,000 bond of the Greater Juneau Borough Medical Arts Building in Alaska. The business thrived, with a handful of competitors obtaining the top AAA credit rating needed to guarantee debt of state and local governments and their agencies that seldom defaulted.

Ambac’s main unit was stripped of its top ratings in 2008 and has since seen its grade cut 17 levels to Caa2 by Moody’s Investors Service.

“At this point, it’s not a question of AAA coverage,” Dilweg told Bloomberg Television today. “It’s a question of coverage.”

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net;


Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, HERS, Investor, Mortgage, securities fraud Tagged: Ambac Financial Group Inc., Andrew Frye, appraisal fraud, Bloomberg, bondholders, credit default swaps, creditors, damages, debtors, default, discovery, foreclosure defense, forensic analysis, full accounting, HERS, insurance, Insurance Commissioner, Jody Shenn, Obligation, payment, principal reduction, Sean Dilweg, securitized residential mortgage
Mar
22

Garfield Continuum White Paper Explains Economics of Securitization of Residential Mortgages

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SEE The Economics and Incentives of Yield Spread Premiums and Credit Default Swaps

March 23, 2010: Editor’s Note: The YSP/CDS paper is intentionally oversimplified in order to demonstrate the underlying economics of securitization as it was employed in the last decade.

To be clear, there are several things I was required to do in order to simplify the financial structure for presentation that would be understandable. Even so, it takes careful study and putting pencil to paper in order to “get it.”

In any reasonable analysis the securitization scheme was designed to cheat investors and borrowers in their respective positions as creditors and debtors. The method used was deceit, producing (a) an asymmetry of information and (b) a trust relationship wherein the trust was abused by the sellers of the financial instruments being promoted.

So before I get any more comments about it, here are some clarifying comments about my method.

1. The effects of amortization. The future values of the interest paid are overstated in the example and the premiums or commissions are over-stated in real dollars, but correct as they are expressed in percentages.

2. The effects of present values: As stated in the report, the future value of interest paid and the future value of principal received are both over-statements as they would be expressed in dollars today. Accordingly, the premium, commission or profit is correspondingly higher in the example than it would be in real life.

3. The effects of isolating a single loan versus the reality of a pool of loans. The examples used are not meant to convey the impression that any single loan was securitized by itself. Thus the example of the investment and the loan are hypothetical wherein an average jumbo loan is isolated from the pool from one of the lower tranches and an average bond is isolated from a pool of investors, and the isolated the loan is allocated to in part to only one of the many investors who in real life, would actually own it.

The following is the conclusion extracted directly from the white paper:

Based upon the foregoing facts and circumstances, it is apparent that the securitization of mortgages over the last decade has been conducted on false premises, false representations, resulting in intentional and inevitable negative outcomes for the debtors and creditors in virtually every transaction. The clear provisions for damages and other remedies provided under the Truth in Lending Act and Real Estate Settlement Procedures Act are sufficient to make most homeowners whole if they are applied. Since the level 2 yield spread premium (resulting from the difference in money advanced by the creditor (investor) and the money funded for mortgages) also give rise to claim from investors, it will be up to the courts how to apportion the the actual money damages. Examination of most loans that were securitized indicates that they are more than offset by undisclosed profits, kickbacks, fees, premiums, and rebates. The balance of “damages” due under applicable federal lending and securities laws will require judicial intervention to determine apportionment between debtors and creditors.


Filed under: bubble, CDO, CORRUPTION, currency, Eviction, expert witness, foreclosure, Forensic Analysis Workshop, GTC | Honor, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop Tagged: borrower, credit, credit default swaps, credit worthy, creditor, damages, DEBTOR, Garfield, Garfield Continuum, identity theft, investment banker, Investor, Real Estate Settlement Procedures Act, remedies, TOXIC WASTE, Truth in Lending Act, yield, yield spread, yield spread premium
Mar
22

NPR Interview with Author Lewis Reveals Profits in Bad Loans.

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Bear in mind now, that underneath this all are subprime mortgage loans and pool of subprime mortgage loans in which only eight percent have to go bad for the whole CDO to be worth zero.

NPR Interveiw with Lewis Author

Submitted by Ron Ryan, Esq. (Tucson) with the following comment:

The story broke on 60 minutes last week and on NPR Tuesday about people getting filthy rich from buying multiple CDS, which was a large cause of the economy almost sending the world into Apocalypse.  While so far they got that part right, they are selling it like there were just some smart people that noticed that the the pools were doomed to “fail,” meaning there would be a moment when the trigger defining failure would surely hit (8% default rate), what they are missing is that this was pre-planned as part of a grand scheme.

Editor’s Note: I agree with Ron. These people were obviously not stupid. They walked away with trillions. The task of homeowners, litigators, forensic analysts, and experts is to explain the counter-intuitive nature of this scheme — to engineer as large a pool of cash or cash equivalents in exchange for zero value; that means by definition creating inherently defective loan products and selling them to unsophisticated homeowners who were not in a position to know the difference.

In economics it is called asymmetric access to information. On the other end, the investors were led to purchase inherently defective bonds thinking they were backed by mortgage loans, which collectively created a low-risk pool.

Only the middle-men knew the truth. So only the middlemen purchased credit default swaps betting against the very loans they created and against the securities they sold. And only the middlemen presented claims that were satisfied by the Federal bailout under the false representation that THEY were holding toxic assets when in fact it was the the homeowners and investors that were holding toxic assets.



Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: asymmetric access to information, CDO, credit default swaps, inherently defective loan products, Lewis, NPR, pool, subprime mortgage loans, TARP, toxic assets
Mar
20

Goldman and JPM Still Playing with Other People’s Money

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The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry [$605 trillion], according to the Office of the Comptroller of the Currency.

Goldman Sachs Demands Collateral It Won’t Dish Out

By Michael J. Moore and Christine Harper

March 15 (Bloomberg) — Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.

Both New York-based banks are demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing. That’s money it can reinvest in higher-yielding assets.

“If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”

The collapse of American International Group Inc. in 2008 was hastened by the insurer’s inability to meet $20 billion in collateral demands after its credit-default swaps lost value and its credit rating was lowered, Treasury Secretary Timothy F. Geithner, president of the Federal Reserve Bank of New York at the time of the bailout, testified on Jan. 27. Goldman Sachs was among AIG’s biggest counterparties.

AIG Protection

Goldman Sachs Chief Financial Officer David Viniar has said that his firm’s stringent collateral agreements would have helped protect the firm against a default by AIG. Instead, a $182.3 billion taxpayer bailout of AIG ensured that Goldman Sachs and others were repaid in full.

Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC.

The firm led by Chief Executive Officer Lloyd C. Blankfein collected cash collateral that represented 57 percent of outstanding over-the-counter derivatives assets as of December 2009, while it posted just 16 percent on liabilities, the firm said in a filing this month. That gap has widened from rates of 45 percent versus 18 percent in 2008 and 32 percent versus 19 percent in 2007, company filings show.

“That’s classic collateral arbitrage,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who previously worked as treasurer at Morgan Stanley and chief financial officer at Lehman Brothers Holdings Inc. “You always want to enter into something where you’re getting more collateral in than what you’re putting out.”

Using the Cash

The banks get to use the cash collateral, said Robert Claassen, a Palo Alto, California-based partner in the corporate and capital markets practice at law firm Paul, Hastings, Janofsky & Walker LLP.

“They do have to pay interest on it, usually at the fed funds rate, but that’s a low rate,” Claassen said.

Goldman Sachs’s $110 billion net collateral balance in December was almost three times the amount it had attracted from depositors at its regulated bank subsidiaries. The collateral could earn the bank an annual return of $439 million, assuming it’s financed at the current fed funds effective rate of 0.15 percent and that half is reinvested at the same rate and half in two-year Treasury notes yielding 0.948 percent.

“We manage our collateral arrangements as part of our overall risk-management discipline and not as a driver of profits,” said Michael DuVally, a spokesman for Goldman Sachs. He said that Bloomberg’s estimates of the firm’s potential returns on collateral were “flawed” and declined to provide further explanation.

JPMorgan, Citigroup

JPMorgan received cash collateral equal to 57 percent of the fair value of its derivatives receivables after accounting for offsetting positions, according to data contained in the firm’s most recent annual filing. It posted collateral equal to 45 percent of the comparable payables, leaving it with a $37 billion net cash collateral balance, the filing shows.

In 2008 the cash collateral received by JPMorgan made up 47 percent of derivative assets, while the amount posted was 37 percent of liabilities. The percentages were 47 percent and 26 percent in 2007, according to data in company filings.

“JPMorgan now requires more collateral from its counterparties” on derivatives, David Trone, an analyst at Macquarie Group Ltd., wrote in a note to investors following a meeting with Jes Staley, chief executive officer of JPMorgan’s investment bank.

Citigroup Collateral

By contrast, New York-based Citigroup Inc., a bank that’s 27 percent owned by the U.S. government, paid out $11 billion more in collateral on over-the-counter derivatives than it collected at the end of 2009, a company filing shows.

Brian Marchiony, a spokesman for JPMorgan, and Alexander Samuelson, a spokesman for Citigroup, both declined to comment.

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry, according to the Office of the Comptroller of the Currency.

In credit-default swaps, the world’s five biggest dealers are JPMorgan, Goldman Sachs, Morgan Stanley, Frankfurt-based Deutsche Bank AG and London-based Barclays Plc, according to a report by Deutsche Bank Research that cited the European Central Bank and filings with the SEC.

Goldman Sachs

Goldman Sachs and JPMorgan had combined revenue of $29.1 billion from trading derivatives and cash securities in the first nine months of 2009, according to Federal Reserve reports.

The U.S. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin. A clearinghouse that includes both banks and hedge funds would erode the banks’ collateral balances, said Kevin McPartland, a senior analyst at research firm Tabb Group in New York.

When contracts are negotiated between two parties, collateral arrangements are determined by the relative credit ratings of the two companies and other factors in the relationship, such as how much trading a fund does with a bank, McPartland said. When trades are cleared, the requirements have “nothing to do with credit so much as the mark-to-market value of your current net position.”

“Once you’re able to use a clearinghouse, presumably everyone’s on a level playing field,” he said.

Dimon, Blankfein

Still, banks may maintain their advantage in parts of the market that aren’t standardized or liquid enough for clearing, McPartland said. JPMorgan CEO Jamie Dimon and Goldman Sachs’s Blankfein both told the Financial Crisis Inquiry Commission in January that they support central clearing for all standardized over-the-counter derivatives.

“The percentage of products that are suitable for central clearing is relatively small in comparison to the entire OTC derivatives market,” McPartland said.

A report this month by the New York-based International Swaps & Derivatives Association found that 84 percent of collateral agreements are bilateral, meaning collateral is exchanged in two directions.

Banks have an advantage in dealing with asset managers because they can require collateral when initiating a trade, sometimes amounting to as much as 20 percent of the notional value, said Craig Stein, a partner at law firm Schulte Roth & Zabel LLP in New York who represents hedge-fund clients.

JPMorgan Collateral

JPMorgan’s filing shows that these initiation amounts provided the firm with about $11 billion of its $37.4 billion net collateral balance at the end of December, down from about $22 billion a year earlier and $17 billion at the end of 2007. Goldman Sachs doesn’t break out that category.

A bank’s net collateral balance doesn’t get included in its capital calculations and has to be held in liquid products because it can change quickly, according to an executive at one of the biggest U.S. banks who declined to be identified because he wasn’t authorized to speak publicly.

Counterparties demanding collateral helped speed the collapse of Bear Stearns and Lehman Brothers, according to a New York Fed report published in January. Those that had posted collateral with Lehman were often in the same position as unsecured creditors when they tried to recover funds from the bankrupt firm, the report said.

“When the collateral is posted to a derivatives dealer like Goldman or any of the others, those funds are not segregated, which means that the dealer bank gets to use them to finance itself,” said Darrell Duffie, a professor of finance at Stanford University in Palo Alto. “That’s all fine until a crisis comes along and counterparties pull back and the money that dealer banks thought they had disappears.”

‘Greater Push Back’

While some hedge-fund firms have pushed for banks to put up more cash after the collapse of Lehman Brothers, Goldman Sachs and other survivors of the credit crisis have benefited from the drop in competition.

“When the crisis started developing, I definitely thought it was going to be an opportunity for our fund clients to make some headway in negotiating, and actually the exact opposite has happened,” said Schulte Roth’s Stein. “Post-financial crisis, I’ve definitely seen a greater push back on their side.”

Hedge-fund firms that don’t have the negotiating power to strike two-way collateral agreements with banks have more to gain from a clearinghouse than those that do, said Stein.

Regulators should encourage banks to post more collateral to their counterparties to lower the impact of a single bank’s failure, according to the January New York Fed report. Pressure from regulators and a move to greater use of clearinghouses may mean the banks’ advantage has peaked.

“Before the financial crisis, collateral was very unevenly demanded and somewhat insufficiently demanded,” Stanford’s Duffie said. A clearinghouse “should reduce the asymmetry and raise the total amount of collateral.”

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.


Filed under: bubble, CDO, CORRUPTION, currency, Mortgage, securities fraud Tagged: AIG, Alexander Samuelson, Bank of America, BEAR STEARNS, Blankfein, Bloomberg, Brad Hintz, Brian Marchiony, Chistine Harper, Citigroup, collateral arbitrage, Craig Stein, Darrell Duffie, David Viniar, derivatives, Financial Crisis Inquiry Commission, Goldman Sachs, International Swaps and Derivatives Association, ISDA, Jamie Dimon, JPMorgan, Kevin McPartland, Lehman, Michael DuVally, Michael J. Moore, Morgan Stanley, New York Fed report, Paul Hastings Janofsky & Walker, Richard Lindsey, Robert Claasen, Schulte Roth and Zabel LLP, Stanford University, Tabb Group, Wells Fargo
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Credit Default Swaps as Insider Trading Violation

By | Foreclosure Blog News, Homeowner Resources

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Banana Republic Watch: Credit Default Swaps on Russia Cheaper Than on California

By | Housing & Economic Research

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“…California is being deemed a worse credit risk that Russia. Of course, that view would change quickly if oil prices were to decline sharply, as some observers like Philip Verlegger predict. But this isn’t a fluke. Many emerging markets credits now have CDS spreads below that of many states and New York City. “

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