I’m cutting to the chase. This is no time to bury the lead.
There are no mortgages to back Mortgage Backed Securities. Investors are holding pools of unsecured debt. This debt is not backed by liens against real property.
What does that mean?
For investors – pension funds, insurance companies, sovereign wealth funds, towns in Norway – it means you have been swindled. The investment products you purchased (Special Purpose Vehicles, converted to Trusts and later Bonds) don’t exist. And it looks like they never did.
For homeowners – it means that your largest asset is worth far less than market value. If you had a securitized mortgage at any time – the chain of title was broken. Your home has clouded title. It doesn’t matter what the terms of your mortgage were – conventional, ARM – how responsible or irresponsible you were. All those issues are irrelevant. In the future, you will only be able to sell your home to a cash buyer, because title companies will refuse to insure your property.
There’s also a very high probability that you are not paying your true creditor each month. You’ve kept your end of the bargain, honored your contract. But the lender is not going to honor their contract with you by providing you with clear title at the end of the schedule. They can’t.
How did this happen?
The creation and sale of Mortgage Backed Securities is governed by New York State Security Law. It is a very stringent and tough set of laws intended to protect investors from fraud. Only it didn’t protect investors.
President Clinton’s ramp up of The Community Reinvestment Act is partially to blame. It destroyed a banks’ incentive to write a quality mortgage that it would keep on the books for 30 years and replaced it with the incentive to write bad loans and move them off balance sheet as soon as possible.
I say CRA is partially to blame, because it created an environment for people in financial services and GSE’s to commit fraud. The executives at investment banks and the fly-by-night originators did not have to adhere to CRA regulations. Their behavior was clearly motived by unrelenting, enormous greed. The government did not force these individuals and organizations to commit massive control fraud. They made a conscious decision to plunder homeowners and investors all by their lonesome.
CRA set the table for a ramp up in issuance and sale of Mortgage Backed Securities (MBS). These products have been around since 1977 and were considered sound investments. The problems arose when the sheer volume of MBS increased after CRA regulations kicked in.
Bond indentures have basic representations and warranties that must be honored. They weren’t. NY Security Law protects investors against fraud by requiring the banks to return all of their clients’ money if it was discovered that one loan in the pool did not follow the terms of the agreement.
Well, have you noticed an avalanche of lawsuits in the last three years? Every day, a new lawsuit is filed, charging Bank of America, Goldman Sachs, JP Morgan Chase, Citibank, Deutch, UBS, et al with security fraud. One of the largest was the Blackrock lawsuit against Bank of America. A judge just scuttled the $8.5 billion settlement.
The headline MBS-M=BS is missing. They bury the lede.
Numerous government agencies have sued and settled security fraud cases too.
The truth is hiding in plain sight. It’s high time we acknowledge that global investors have been bamboozled. Yes, the smartest, most sophisticated investment professionals in the world were fleeced. William K Black, the economist and criminologist says it was an $11 trillion heist.
You would see more lawsuits against the banks and financial firms that created, packaged, rated, and sold MBS if the managers who invested in MBS on behalf of their clients had a scintilla of integrity. But they don’t. So they won’t.
If they reveal the fraud to their senior managers, stock-holders and customers they will be fired. They would not collect that nice seven figure bonus they rely on to make their nut. So, they pretend and extend. They kick the can down the road. MBS fraud? “Nothing to see here people, move along…”
Why are there no mortgages to back MBS?
The NY Security Law requires that the original Mortgage/Deed (lien on the property) and the Promissory Note (promise to pay) be deposited into the Trust within 90 days of the loan origination. This is a very strict guideline. The 90 day window was to ensure that the trust held no assets that could be ‘clawed back’ if one of the contributing parties (like the originator) filed for bankruptcy. No exceptions allowed.
In addition, state property law often requires that the Note and the Mortgage/Deed travel together. When these two documents are separated, many state and Federal judges rule the chain of title has been broken, there is an imperfect lien. Clouded title is the outcome.
What’s the problem?
I mean, how hard can it be to keep the original Mortgage and Note together and lock the documents down into the Trust before the 90-day deadline expires? Apparently, it was very hard. In fact, we’re learning through discovery and analysis of loans, that it was downright impossible.
The parties who originated the loans, created the MBS, and/or ‘purchased’ the loans on the secondary market, kept the mortgages. They didn’t submit them into the Trust.
Why would they hold onto the mortgages?
We believe, and it is conjecture and opinion, that they made a conscious decision to hold the mortgage which is the lien on the property, to redeem in the future. You see, they expected that the MBS would be paid off and closed in 7-10 years, given normal rates of housing turn-over. Why not hold onto the mortgage, and when/if the home-owner defaults, seize the property?
What about the Promissory Note?
Unlike the Mortgage/Deed, the Promissory Note has real immediate value and can be sold to many parties over an extended period of time. So it was. They often scanned the Note, filed it in their electronic internal database and sold the original Note over and over and over again.
That’s why home-owners are often unable to secure their original Promissory Note. The real deal would reveal the identities and number of parties who purchased it. That would provide evidence to the home-owner that their contract was broken and fraud was committed. When the original Note does appear, it is covered in black boxes that redact its trail.
The sale of the Note is the reason why attorneys for ‘lenders’ submitted Lost Note Affidavits to the court in foreclosure proceedings. It’s why they paid a firm called DOCX to ‘recreate’ lost Notes and entire files for a fee, of course. The original Notes reveal the fraud. Can’t have that, now can we? Better option is to commit fraud upon the court and suborn perjury.
It begs the question – why on earth would officers of the court and banking executives risk criminal prosecutions and disbarment by proffering fraudulent documents upon the court? Why would they recreate evidence that supports their claim of loan ownership?
The answer is simple. They created evidence because they didn’t possess evidence that proves they are the true creditors. Why don’t they have evidence? Answer – because they are not the true creditors.
The fraud is revealed in foreclosure, when the need to produce documents authenticating true creditor status and legal standing is required. We don’t have a foreclosure crisis. We have an MBS fraud and property title crisis.
How prevalent was the practice of separating the Note and the Deed?
It was standard operating procedure which became glaringly apparent when the number of foreclosures sky-rocketed and homeowners could not locate their original closing documents. The Note and Deed were separated after origination when the property was recorded on MERS.
MERS, the Mortgage Electronic Registration System (which deserves a stand-alone post) separated the Note from the Mortgage/Deed, immediately clouding title on 60-100 million properties. MERS business model violates 400 years of settled state property law and the Federal Uniform Commercial Code.
MERS is billed as a joint venture between banks, title companies and GSE’s. But we’ve uncovered evidence that Fannie, Freddie, ands Ginnie leaned heavily on banks to adopt MERS as its primary recording system. All parties are implicated. However, blame for the creation of MERS rests squarely on the Federal Government.
So we have ample evidence the Note was separated from the Mortgage/Deed, and never submitted into the Trust. NY Security Laws were violated. Investors were defrauded. Title was clouded on 60-100 million homes. Four million homes were seized in illegal foreclosures. Four hundred years of state property laws were trashed.
Is that it?
Nope. There’s more – lots more.
Evidence is mounting that fraud was committed through-out the securitization chain.
The scheme resembles the plot of “The Producers.”
We believe that the salesmen for the MBS went to the investor community with an offer they couldn’t refuse. They promised an existing pool full of mortgages from Ozzy and Harriett homeowners who always paid on time and would provide steady income stream for institutional investors. The salesmen took the investors’ money.
Then they went to the originators and told them to go out into the market and find the Ozzy and Harriett homeowners they promised to the investor. The originators ‘found’ customers, closed the loans and collected the fees. All parties in the chain had 90 days to find the promised customer, close the loan and process it through the securitization channel. On Wall Street, 90 days is an eternity. They’d make the deadline – no sweat.
When the MBS market hit full stride and serious money started flowing in, the pace picked up and they were unable to even provide the appearance of following the law. So they didn’t even try. They just took the money.
We believe that once Attorneys General like NY’s Eric Schneiderman, or Delaware’s Beau Biden dig into discovery, they will uncover evidence that substantiates our theory. But right now it is just a theory.
What we do know is, the regulators didn’t regulate. The investigators didn’t investigate. They chose not to protect the public from the malfeasance. Instead, they accepted lucrative job offers from banks and their white shoe law firms. They just took the money.
Investors and homeowners have been defrauded. Investors have the resources to protect themselves.
Homeowners don’t. They need government’s protection.
Beating home-owners into submission with the moral hazard club must end. It’s time to set the record straight.
The global credit markets did not collapse in September 2008 because homeowners bought too much house, or insisted on granite counter-tops and walk-in closets they didn’t deserve.
The crisis erupted when it became public knowledge among elites in global banking and government that there were no mortgages to back Mortgage Backed Securities. Zip, zero, nada.
When the s@#$ hit the fan, the crony capitalists did what crony capitalists always do…they covered up the crime – which was committed by their peer group – and facilitated a billionaire bail-out of epic proportions in the US and around the globe.
How do I know this? Why should you believe me?
In September 2008, when the world as we know it almost ended and the credit crisis was in full swing, I honestly did not understand how sub-prime loans could bring down the global economy. I mean they were calling many of these dubious products, liar’s loans for years, weren’t they? Clearly everyone knew about the risk. How could it be that investment banks like Lehman and Bear Stearns could make bets against the pooled loans – and not have been regulated or sanctioned for their risky behavior? What exactly constitutes ‘bad paper’? Why was the US government buying it? What exactly will TARP accomplish?
So I started to investigate. IBD readers know William O’Neil’s advice was to follow the Big Money. So I did. I logged on and attended their conferences. I read their chat room and message board posts. I studied their white papers and analyzed their investment advice.
I was shocked at what I learned.
In 2008 and early 2009, the institutional investors, fund managers and banking elites were openly saying, “There were no mortgages to back Mortgage Backed Securities.” They called it the Black Swann. Many worried that people would start rioting in the streets once they learned the truth.
Did these financial gurus bother to tell you what they knew?
Instead, they recommended their clients purchase gold and farmland in developing nations.
I poured over mainstream financial news sites and publications. There was nary a word – not a peep – on MBS fraud. Nobody was covering the story or telling the whole truth.
So I started to dig and began a 3+-year odyssey studying MBS. I read original documents, Congressional testimony, case law, academic white papers, and more. It took me two years to fully comprehend what I had learned. It took another six months for me to be able to explain it to other people.
In December 2010, I outlined the elements of the MBS fraud to a trusted friend who works in the capital markets. He was incredulous at the news and said, “We assumed in the end that there were crappy loans in the MBS, (that’s why we got out early) but nobody thinks that there are no mortgages at all. Let me check it out with senior level executives whose opinion I trust. I’ll get back to you.”
He studied my research, spoke with his contacts and confirmed the story. There are no mortgages to back Mortgage Backed Securities.
In the ensuing months, we have had conversations with many people who work in finance, law, government and media. Nobody has told us we are wrong.
Our primary focus is to educate homeowners about the MBS fraud and help them understand how it impacts them. We are volunteering our time and energy because homeowners have been severely damaged and nobody in power is helping them.
We’re not anarchists, or anti-business zealots. We’re ordinary people who have worked in business for over 30 years. We are capitalists – not crony capitalists. We believe in free markets, small efficient government and most of all, the Rule of Law.
It is not our intention to collapse the system. We don’t think people who haven’t paid their mortgages should get a free house. We do believe that homeowners have the right to know the identity of their true creditor. In America, no one’s home should be seized and sold by a party that has no legal standing to foreclose.
Due Process is not reserved for Americans with FICO scores of 750+.
The Founding Fathers didn’t grant property rights just for those who pay their bills on time.
At its core, the MBS fraud represents a breakdown in the Rule of Law.
A number of us on TBP lament that America is no longer a nation of laws, but of men.
That is true today, but it doesn’t mean that it will be true tomorrow. We can fix this – it is not too late.
Everyday Americans need to learn the elements of MBS fraud and demand that the elites in Big Government and Big Business who committed these crimes face criminal prosecutions.
It is hard, tedious, frustrating work. Learning the details of the fraud will make your head explode and your heart break.
Securing our freedom and property rights is a burden. In my humble opinion, it is a burden we all must share. Blanket cries of ‘arrest the bankers’ will not do. We need to be specific. It is imperative that we name names, list specific crimes and present actionable intelligence to the public and law enforcement agencies.
I believed that a narrative of MBS fraud that everyday people can understand was needed. So I wrote one. The glaring headline, “There are No Mortgages to Back Mortgage-Backed Securities” was missing – so I supplied it.
It is a beginning – a broad template that can be filled in with corresponding facts and evidence obtained from public records, case law and depositions/discovery.
The details of the fraud are very intricate and tend to bog down the narrative, so I am providing you with access to my library of documentation that will help you gain a deeper understanding of the fraud. The document dump can be accessed at: https://skydrive.live.com/?cid=0aa1f8ea3d902284&Bsrc=EMSHGM&Bpub=SN.Notifications&id=AA1F8EA3D902284%21103
I will focus on MERS, destruction of property title and county land records, illegal foreclosures, CRA – inflated property appraisals and more in future posts.
In the meantime, if you have gained value from this post, please make a contribution to The Burning Platform. We believe in free markets here at TBP, so feel free to hit the contribute button with abandon.