Banks face foreclosure fraud crisis that could give you a free home

by moshe 29 Replies latest social current

  • moshe

    Breaking story on the Internet:


    Foreclosuregate: Time to Break Up the Too-Big-to-Fail Banks
    by: Ellen Brown October 15, 2010

    Looming losses from the mortgage scandal dubbed "foreclosuregate" may qualify as the sort of systemic risk that, under the new financial reform bill, warrants the breakup of the too-big-to-fail banks. The Kanjorski amendment allows federal regulators to pre-emptively break up large financial institutions that - for any reason - pose a threat to US financial or economic stability.
    Although downplayed by most media accounts and popular financial analysts, crippling bank losses from foreclosure flaws appear to be imminent and unavoidable. The defects prompting the "RoboSigning Scandal" are not mere technicalities but are inherent to the securitization process. They cannot be cured. This deep-seated fraud is already explicitly outlined in publicly available lawsuits.
    There is, however, no need to panic, no need for TARP II, and no need for legislation to further conceal the fraud and push the inevitable failure of the too-big-to-fail banks into the future.
    Federal regulators now have the tools to take control and set things right. The Wall Street giants escaped the Volcker Rule, which would have limited their size, and the Brown-Kaufman amendment, which would have broken up the largest six banks outright; but the financial reform bill has us covered. The Kanjorski amendment - which slipped past lobbyists largely unnoticed - allows federal regulators to preemptively break up large financial institutions that pose a threat to US financial or economic stability.
    Rep. Grayson's Call for a Moratorium
    The new Financial Stability Oversight Council (FSOC) probably didn't expect to have its authority called on quite so soon, but Rep. Alan Grayson (D-FL) has just put the amendment to the test. On October 7, in a letter addressed to Timothy Geithner, Shiela Bair, Ben Bernanke, Mary Schapiro, John Walsh (Acting Comptroller of the Currency), Gary Gensler, Ed DeMarco, and Debbie Matz (National Credit Union Administration), he asked for an emergency task force on foreclosure fraud. He said:
    The liability here for the major banks is potentially enormous, and can lead to a systemic risk. Fortunately, the Dodd-Frank financial reform legislation includes a resolution process for these banks. More importantly, these foreclosures are devastating neighborhoods, families, and cities all over the country. Each foreclosure costs tens of thousands of dollars to a municipality, lowers property values, and makes bank failures more likely.
    Grayson sought a foreclosure moratorium on all mortgages originated and securitized between 2005-2008, until such time as the FSOC task force was able to understand and mitigate the systemic risk posed by the foreclosure fraud crisis. But on Sunday, White House adviser David Axelrod downplayed the need for a national foreclosure moratorium, saying the Administration was pressing lenders to accelerate their reviews of foreclosures to determine which ones have flawed documentation. "Our hope is this moves rapidly and that this gets unwound very, very quickly," he said.
    According to Brian Moynihan, chief executive of Bank of America (BAC), "The amount of work required is a matter of a few weeks. A few weeks we'll be through the process of double checking the pieces of paper we need to double check."
    "Absurd," say critics such as Max Gardner III of Shelby, North Carolina. Gardner is considered one of the country's top consumer bankruptcy attorneys. "This is not an oops. This is not a technical problem. This is not even sloppiness," he says. The problem is endemic, and its effects will be felt for years.
    Rep. Grayson makes similar allegations. He writes:
    The banks didn't keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements. As a result, the notes may be put out of eligibility for the trust under New York law, which governs these securitizations. Potential cures for the note may, according to certain legal experts, be contrary to IRS rules governing REMICs. As a result, loan servicers and trusts simply lack standing to foreclose. The remedy has been foreclosure fraud, including the widespread fabrication of documents.
    There are now trillions of dollars of securitizations of these loans in the hands of investors. The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts. The result of this is foreclosure fraud on a massive scale, including foreclosures on people without mortgages or who are on time with their payments. [Emphasis added.]
    Why Wasn't It Done Right in the First Place?
    That raises the question, why were the notes not assigned? Grayson says the banks were not interested in repayment; they were just churning loans as fast as they could in order to generate fees. Financial blogger Karl Denninger says:
    I believe a big part of why it was not done is that if it had been done the original paperwork would have been available to the trustee and ultimately the MBS owners, who would have immediately discovered that the representations and warranties as to the quality of the conveyed paper were being wantonly violated.
    You can't audit what you don't have.
    Both are probably right, yet these explanations seem insufficient. If it were just a matter of negligence or covering up dubious collateral, surely some of the assignments by some of the banks would have been done properly. Why would they all be defective?
    The reason the mortgage notes were never assigned may be that there was no party legally capable of accepting the assignments. Securitization was originally set up as a tax dodge; and to qualify for the tax exemption, the conduits between the original lender and the investors could own nothing. The conduits are "special purpose vehicles" set up by the banks, a form of Mortgage Backed Security called REMICs (Real Estate Mortgage Investment Conduits). They hold commercial and residential mortgages in trust for the investors. They don't own them; they are just trustees.
    The problem was nailed in a class action lawsuit recently filed in Kentucky, titled Foster v. MERS, GMAC, et al. (USDC, Western District of Kentucky). The suit claims that MERS and the banks violated the Racketeer Influenced and Corrupt Organizations Act, a law originally passed to pursue organized crime. Bloomberg quotes Heather Boone McKeever, a Lexington, Ky.-based lawyer for the homeowners, who said in a phone interview:
    RICO comes in because the fraud didn't just happen piecemeal. This is organized crime by people in suits, but it is still organized crime. They created a very thorough plan.
    The complaint alleges:
    53. The "Trusts" coming to Court are actually Mortgage Backed Securities ("MBS"). The Servicers, like GMAC, are merely administrative entities which collect the mortgage payments and escrow funds. The MBS have signed themselves up under oath with the Securities and Exchange Commission ("SEC,") and the Internal Revenue Service ("IRS,") as mortgage asset "pass through" entities wherein they can never own the mortgage loan assets in the MBS. This allows them to qualify as a Real Estate Mortgage Investment Conduit ("REMIC") rather than an ordinary Real Estate Investment Trust ("REIT"). As long as the MBS is a qualified REMIC, no income tax will be charged to the MBS. For purposes of this action, "Trust" and MBS are interchangeable. . . .
    56. REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The "Trustee" can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.
    57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the "Trust" and legally collect money from investors, who bought into the REMIC, the "Trustee" or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.
    58. Most importantly for this action, the "Trustee"/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS "closed." [Emphasis added.]
    Only the beneficiaries - the investors who advanced the funds - can claim ownership. And the mortgages had to have been recorded in the name of the beneficiaries the year the MBS closed. The problem is, who ARE the beneficiaries who advanced the funds? In the securitization market, they come and go. Properties get sold and resold daily. They can be sliced up and sold to multiple investors at the same time. Which investors could be said to have put up the money for a particular home that goes into foreclosure? MBS are divided into "tranches" according to level of risk, typically from AAA to BBB. The BBB investors take the first losses, on up to the AAAs. But when the REMIC is set up, no one knows which homes will default first. The losses are taken collectively by the pool as they hit; the BBBs simply don't get paid. But the "pool" is the trust; and to qualify as a REMIC trust, it can own nothing.
    The lenders were trying to have it both ways; and to conceal what was going on, they dropped an electronic curtain over their sleight of hand, called Mortgage Electronic Registration Systems or "MERS." MERS is simply an electronic data base. On its website and in assorted court pleadings, it too declares that it owns nothing. It was set up that way so that it would be "bankruptcy-remote," something required by the credit rating agencies in order to turn the mortgages passing through it into highly rated securities that could be sold to investors. According to the MERS website, it was also set up that way to save on recording fees, which means dodging state statutes requiring a fee to be paid to establish a formal record each time title changes hands.
    The arrangement satisfied the ratings agencies, but it has not satisfied the courts. Real estate law dating back hundreds of years requires that to foreclose on real property, the foreclosing party must produce signed documentation establishing a chain of title to the property; and that has not been done. Increasingly, judges are holding that if MERS owns nothing, it cannot foreclose, and it cannot convey title by assignment so that the trustee for the investors can foreclose. MERS breaks the chain of title so that no one has standing to foreclose.
    Sixty-two million mortgages are now held in the name of MERS, a ploy that the banks have realized won't work; so Plan B has been to try to fabricate documents to cure the defect. Enter the RoboSigners, a small group of people signing thousands of documents a month, admittedly without knowing what was in them. Interestingly, it wasn't just one bank engaging in this pattern of coverup and fraud but many banks, suggesting the sort of "organized crime" that would qualify under the RICO statute.
    However, that ploy won't work either, because it's too late to assign properties to trusts that have already been set up without violating the tax code for REMICs, and the trusts themselves aren't allowed to own anything under the tax code. If the trusts violate the tax laws, the banks setting them up will owe millions of dollars in back taxes. Whether the banks are out the real estate or the taxes, they could well be looking at insolvency, posing the sort of serious systemic risk that would bring them under the purview of the new Financial Stability Oversight Council.
    No need for disaster
    As comedian Jon Stewart said in an insightful segment called "Foreclosure Crisis" on October 7, "We're back to square one." While we're working it all out, an extended foreclosure moratorium probably is in the works. But this needn't be the economic disaster that some are predicting - not if the FSOC is allowed to do its job. We've been here before, and not just in 2008.
    In 1934, Congress enacted the Frazier-Lemke Farm Bankruptcy Act to enable the nation's debt-ridden farmers to scale down their mortgages. The act delayed foreclosure of a bankrupt farmer's property for five years, during which time the farmer made rental payments. The farmer could then buy back the property at its currently appraised value over six years at 1 percent interest, or remain in possession as a paying tenant. Interestingly, according to Marian McKenna in Franklin Roosevelt and the Great Constitutional War (2002), "The federal government was empowered to buy up farm mortgages and issue non-interest-bearing treasury notes in exchange." Non-interest-bearing treasury notes are what President Lincoln issued during the Civil War, when they were called "Greenbacks."
    The 1934 Act was subsequently challenged by secured creditors as violating the Fifth Amendment's due process guarantee of just compensation, a fundamental right of mortgage holders. (Note that this would probably not be a valid challenge today, since there don't seem to be legitimate mortgage holders in these securitization cases. There are just investors with unsecured claims for relief in equity for money damages.) The Supreme Court voided the 1934 Act, and Congress responded with the "Farm Mortgage Moratorium Act" in 1935. The terms were modified, limiting the moratorium to a three-year period, and the revision gave secured creditors the opportunity to force a public sale, with the proviso that the farmer could redeem the property by paying the sale amount. The act was renewed four times until 1949, when it expired. During the 15 years the act was in place, farm prices stabilized and the economy took off, retooling it for its role as a global industrial power during the remainder of the century.
    We've come full circle again. We didn't get it right in 2008, but with the newly empowered Financial Stability Oversight Council, we already have the ready-made vehicle to avoid another taxpayer bailout, and to put too-big-to-fail behind us as well.

  • moshe

    We bought our home last year using a mortgage broker. The mortgage was recorded using the Mers.

    This is the exact wording on record at the couthouse: PRIMARY RESIDENTIAL MORTGAGE INC

    It appears that Bank of America, which purchased our note, does not have a clear chain of ownership on the Mortgage to our home.

  • dinah

    Then it's yours!!!!

    Yep, they were NOT worried about repayment. That's why they fudged the facts and home ownership and home prices skyrocketed!! Now the people who could not afford the home, or have lost their jobs, can't repay. They cry fowl? If I loan someone money knowing they can't pay it back, that is irresponsible if I need that money later on.

  • moshe

    It easy to understand why the banks haven't been willing to do loan modifications- they know they don't legally own the mortgage!

  • dinah

    And have you read how they are still tacking on fees for re-writing the mortgage? This went deeper than your Average American realized. So many people are simply saying "fuck it". People who always paid their bills ontime, not the slackers who rack up debt and file bankruptcy are just fed up.

  • Mary
    This is the exact wording on record at the couthouse: PRIMARY RESIDENTIAL MORTGAGE INC MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC. It appears that Bank of America, which purchased our note, does not have a clear chain of ownership on the Mortgage to our home.

    OK, so what happens if you stop making your mortgage payment?

  • moshe

    Once the lawyers figure this out, look out banks! They won't be asking for a small loan modification, they will be asking the bank for a 50% reduction in principal in exchange for signing new loan papers that have a valid chain of ownership. The banks either do that or risk getting nothing.

  • BurnTheShips
    Banks face foreclosure fraud crisis that could give you a free home

    So where does that leave people like me, who have done everything possible to honor our debts, and have not defaulted upon them?

    I have a number of acquaintances (I no longer consider them "friends") who had cash savings in the bank and mortgages on their homes.

    They simply bought another house at an incredibly depressed price for cash after the real estate market collapsed, moved in, and then defaulted on their current house.

    That's it! No more mortgage! The shitty credit will resolve itself in a few years!

    Honesty and transparency are being turned into a suckers game in this country. Am I a fool for still believing in honoring my word and contractual promise?


  • moshe

    BTS, a contract is a contract, but the banks can't prove they legally own most of the mortgages they bought from Wall Street. It's almost like they burned the original mortgage. Jesse James used to steal the money from the bank and take all the farm/ranch mortgages from the bank vaults and burn them up. The banks couldn't go to court and take the farms away.

  • dinah

    Burns, the banks were just in too much hurry to make fast money. Being responsible, your mortage was probably researched and obtained through an HONEST lender.

  • moshe

    I would venture to say that most of the mortgages that were sold to Fannie Mae and Freddie Mac used this MERS to transfer the loan to them. Looks like a big mess- I am sure that Congress will work with the banks and help them out on their little game of fraud they orchestrated to avoid paying taxes and transfer fees.

  • beksbks

    What about the folks who have been foreclosed on in ERROR?? Just do a search for Bank Foreclosure Errors, and see what comes up. Screw the big banks and Wall St. They are what put us all here in the first place.

  • Mary
    They simply bought another house at an incredibly depressed price for cash after the real estate market collapsed, moved in, and then defaulted on their current house.

    And who was (at least partially) responsible for the market collapse in the first place? The U.S. banks. Who got billions of dollars in bailout money from the Federal government which did nothing from preventing the financial markets from spiraling down the drain? The U.S. banks. Who was in such a frigging hurry to make obscene profits in record breaking time that they far overstepped the boundaries of what was 'responsible lending'? The U.S. banks. So it's okay for the banks to act like a bunch of sleazoid pimps Saturday night on Main Street which cost millions of Americans their jobs, homes, savings and retirement nest, but it's not okay for the average Joe to try and get their mortgage for half price through a loophole?

    I have zero sympathy for them and hope Moshe gets 50% off his mortgage.

  • sammielee24

    The game was rigged. As for MERS - right now there are some class action lawsuits against the banks etc for fraudulent activity for the purchase and selling of the mortgages as investment vehicles..people are being advised by lawyers not to vacate until there is proof of title by the lender. Banks are trying to foreclose on people without proper documentation..investors are suing banks for fraud in selling the loans..and then we have the title insurers and so on all ponying up. To add insult to injury, a lot of people trying to work with banks to remortgage loans have been ignored, shuffled off or delay tactics imposed that result in them being evicted - since the game was rigged from the beginning, the loss was always going to be on the bottom and not the top. Ethics and integrity? Honesty? Kind of like the jobs market - the people who did all the 'right' things are the ones paying the price now. Whether or not you like the writer below, she provides just one of thousands of personal examples of how the system has been and will continue to be rigged ...sammieswife


    This text by Catherine Austin Fitts is a response to an article entitled “The Fed Didn’t Cause the Housing Bubble” by Alan Greenspan, former Chairman of the Federal Reserve, published in the Wall Street Journal

    In his article on your opinion page, “The Fed Didn’t Cause the Housing Bubble,” Alan Greenspan attributes the housing bubble to lower interest rates between 2002 and 2005. That’s amazing to me.

    My company served as lead financial advisor to the Federal Housing Administration between 1994 and 1997. I watched both the Administration and the Federal Reserve aggressively implement the policies that engineered the housing bubble. These are described at my website and in my on-line book, Dillon Read & the Aristocracy of Stock Profits (

    One story, for example, is the following:

    In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees — most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.”

    From: “Sub-Prime Mortgage Woes Are No Accident” (
    One of the dirty little secrets behind the housing bubble is the long standing partnership of narcotics trafficking and mortgage fraud and the use of the two in combination to target and destroy minority and poor communities with highly profitable economic warfare. This model is global. It is operating in counties throughout the world as well as in US communities.

    Of all the actions that the Federal Reserve took to engineer this housing bubble, the one that I would note is Mr. Greenspan’s efforts to pacify Congresswoman Waters regarding allegations of government sponsored narcotics trafficking at a time when open Congressional hearings would have contributed to an important discussion of the operations engaging in mortgage fraud in minority communities. See, “Financial Coup d’Etat,” Chapter 16, Dillon Read & the Aristocracy of Stock Profits which was written in 2005 and published in April 2006, drawing from an article I first published in May 1999.

    “On December 18, 1997, the CIA Inspector General delivered Volume I of their report to the Senate Select Committee on Intelligence regarding charges that the CIA was complicit in narcotics trafficking in South Central Los Angeles. Washington, D.C. ’s response was compatible with attracting the continued flow of an estimated $500 billion–$1 trillion a year of money laundering into the U.S. financial system. Federal Reserve Chairman Alan Greenspan in January 1998 visited Los Angeles with Congresswoman Maxine Waters — who had been a vocal critic of the government’s involvement in narcotics trafficking — with news reports that he had pledged billions to come to her district. In February Al Gore announced that Water’s district in Los Angeles had been awarded Empowerment Zone status by HUD (under Secretary Cuomo’s leadership) and made eligible for $300 million in federal grants and tax benefits.”

    Alan Greenspan is a liar. The Federal Reserve and its long standing partner, the US Treasury, engineered the housing bubble, including the fraudulent inducement of America as part of a financial coup d’etat. Our bankruptcy was not an accident. It was engineered at the highest levels.

    Your publication of Greenspan’s breezy and bogus history of the housing bubble insults your readership

  • JeffT

    Screw the big banks and Wall St.

    Speaking as some one who has spent a long time in financial managment, there is a very good chance we are all f****d if this isn't handled right.

  • moshe

    JeffT- could this Bank mortgage fraud be the start of a real depression? It won't take much to send us back into the abyss.

  • JeffT

    Moshe - IMO, yes. Think of 1929. Things were already shaky. When the stock market crashed a LOT of money just disappeared in a few days. If it is determined that nobody knows who is holding those notes a lot of money is going to disappear. That can't happen without consequence.

  • moshe

    Wow- today a bank owns $100 million in mortgage backed securitized bonds and next week they find out they are worth pennies on the dollar. It could be a blood bath. Pension funds could be hurt, too.

  • zarco

    Moshe - certainly many mortgages were/are not properly documented by the banks. Mortgage procedures were written for a time that required paper and signatures. By shortcutting procedures, the banks will have a difficult time quickly foreclosing on a property. However, homeowners will not owe less because of the lack of a paper trail. The remedy for homeowner that had its house foreclosed upon is to pay what is owed. The remedy for the banks is to properly document the mortgage which will take time but is doable.

    With regard to decreasing house prices and the resulting lower mark-to-market of the banks portfolio of loans - this will result in a sever bank crisis as the banks will not have sufficient reserves to cover such losses (decreased portfolio value). This will cause many banks to fail and at minimum cause most banks to stop or limit loaning new money.

    The lack of properly documented mortgages will not result in any significant benefit to any homeowner other than delaying a foreclosure or by a bank modestly adjusting the amount owed or terms of the mortgage.



  • BurnTheShips
    Burns, the banks were just in too much hurry to make fast money.

    This isn't just about the banks.

    In his article on your opinion page, “The Fed Didn’t Cause the Housing Bubble,”

    Greenscam is full of shit. If I were forced to point at a single person responsible and no one else, it would be Greenscam.

    Alan Greenspan is a liar.

    Yes he is, and so is Helicopter Ben.

    The Federal Reserve and its long standing partner, the US Treasury, engineered the housing bubble, including the fraudulent inducement of America as part of a financial coup d’etat. Our bankruptcy was not an accident. It was engineered at the highest levels.

    Never attribute to malice that which can adequately be attributed to stupidity. The housing crisis was created by actions at the highest levels. The Fed. The Treasury. Various Administrations. And Congress.

    We thought we could get something for nothing..higher home ownership and an expanding playing with the currency and mandating risky loans. That was compounded by an incredible myopia in the private sector regarding the security of the debt instruments.

    This problem is not going to go away FOR YEARS.

    Helicopter Ben's Fed now plans to pump hundreds of billions more into the economy in order to somehow prop up home prices.

    What a joke.

    The Fed has little control over where the money goes after it exists the factory. It will raise prices on many things....except what they want to jack up most: real estate.


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