The 1-2-3 of securitization vs Ponzi scheme of mortgages and bonds

by Neil Garfield

Here is a short synopsis using an actual case here in Tallahassee where I am employed an expert witness. The information presented here is NOT complete as it is tailored to the pleadings that the lawyer is forced to work with, after the pro se litigant submitted papers that were procedurally deficient. Like many Judges, this Judge regards all borrower defenses as simply excuses to get out of a legitimate debt. If you don't address that and get the the Judge's attention within a few seconds, he or she won't hear a thing you say. If you admit the debt, note, mortgage, breach and sale of the property, you are giving the Judge nothing but the responsibility to enter an order allowing the foreclosure to go through. And yet many of the same Judges are anxious to learn about securitization. What follows is a work product memorandum to the lawyer with the name of the borrower redacted for privacy reasons. As you will see, the work product provided to the court and counsel for the borrower is essential to educating the judge. As an attorney, you (a) lack credibility since you are obviously there to advocate for the client (b) lack the knowledge to answer the knotty questions on voir dire and cross examination.

This type of memorandum is NOT a scrip to use with the Judge. It is a guide to the lawyer to allow him or her to formulate questions and hypothetical to me as an expert. This Judge is ready to hear the story, like hundreds of other judges across the country. So now we move on to the next stage of educating the courts, where in the end, it is my hope that the loans, documents and securitization are all revealed as a sham that results at a minimum in removing or nullifying the mortgage or deed of trust as a perfected lien on the property (thereby eliminating non-judicial foreclosure and perhaps any foreclosure). Important points to keep in mind is that your announced purpose is to pay the mortgage to the right entity and maintain clear title to your property. Without that information you are unable to refinance or even apply for a HAMP modification because the odds are they are instructing you to submit the application to a party lacking the authorization to receive it, much less look at it and either approve or reject it. This information is also essential to establishing redemption rights after foreclosure sale. If the credit bid was submitted by a non-creditor, which is usually the case, the sale can be attacked on that basis first. If the same price was based upon the demand for monetary relief or damages without computing all receipts and disbursements collected up from the records of the Master Servicer, Trustee of "asset pool" (REMIC), the

investment bank and its affiliates or controlled entities and the alleged "trustee" of the "trust", then the demand is wrong, the notices are wrong and it might well be that standing is lacking simply because there was no injury at the time of the filing of the foreclosure. Remember that the subservicer continues to issue distribution reports and money, even on loans declared in default. The creditor thus does NOT have a default on the creditor's records, while the subservicer has declared a default a default, demand for payment and set a foreclosure sale and eviction --- all based upon misinformation. Here then is one of my memos when I am retained to provide in depth work and present testimony that I can easily defend on cross examination and voir dire. By the way out of the hundreds of cases in which I have challenged the veracity of the allegations of the forecloser that they are a creditor (inured party), and that the money trail is not presented and in fact hidden from the court, there has not bee a single affidavit, deposition,, or live testimony in which my reasoning and my findings have been challenged. Simple reason: I'm right and they know it and any witness they try to get on the stand will be torn to shreds with the questions I assist the lawyer in asking.

SEE BELOW:
Notes on CitiBank v.xxxxxxxx 1. The style of the case has only one Plaintiff which is CitiBank, N.A. as Trustee for Lehman XS Trust 2006-17. 1.1. CitiBank has a trust division that administers trusts which is incorporated separately under the holding company CitiGroup Inc. 1.2. The reason why CitiBank N.A. is named as trustee is that they were trustee in name only. Their name was rented to make it appear as though a funded trust existed. In fact, there are no trust documents, there are no duties of the trustee, there are no beneficiaries who could exercise any control or replace the trustee, and none of the investors money went into a trust account, nor did any indicia of ownership of notes and mortgages ever pass through a trust account that was controlled by CitiBank. It wasnt administered by their trust division because there was no trust and there are no assets of the fictitious investment pool that was sold to investors. Thus the investors thought they were buying residential mortgage backed securities (RMBS). But the investment pool was a fictitious entity or nominee with no power, no assets and no interest in the loans claimed to be part of the pool of assets in the trust. It was a ruse used to persuade investors --pension funds etc. --- to buy what was thought to be triple A rated securities, that were insured and hedged. What the investors did not know was that their money was diverted to a warehouse lender controlled by the investment bank, to fund loans in which the originator was usually a thinly capitalized entity completely dependent upon the underwriting approval of the aggregator and the funding by the alleged warehouse lender. Most originators were a new kind of entity called originators because that is all they did. Even when the originator was an actual depository institution the loan was subject to a purchase and assumption agreement, which by operation of law and contract made all such loans originated, underwritten and funded in this manner, the loan was s aid to be owned not by the investors but by the intermediaries.

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Hence the funding of the loan violated the terms of the PSA and Prospectus and violated the REMIC statute in the internal revenue code because the REMIC entity was ignored, thus creating a massive double taxation problem. When the market imploded and investors stopped buying the bogus mortgage bonds, the scheme collapsed like every other Ponzi scheme. 1.7. A Ponzi scheme is generally defined as a series of fraudulent transactions in which fictitious assets are thought to be traded, bought or sold for the benefit of the investors; in fact, the scheme is funded not by the investments (there were no investments at all in Madoffs case) but rather by the purchase of more mortgage bonds by investors who were unaware that thee ratings had been rigged just like the LIBOR And EuroBOR rates were rigged. 1.7.1. Any adjustable loan tied to LIBOR is therefore probably misstated as to both principal and interest as a result of the LIBOR rigging, which involved the largest and oldest banks in the world. 1.8. Lehman Brothers sought Bankruptcy protection in 2008. It is being rapped up now with hundreds of unanswered questions. But one thing that is certain is that Lehman was most probably the investment banker that created, underwrote and sold the bogus mortgage bonds and/or may have been the aggregator and/or warehouse lender for the subject transaction. 1.9. By claiming assets purchased with investor money Lehman et al were able to name themselves as beneficiaries of the insurance and hedge products promised to the investors. Thus the Banks declared fictitious losses in order to collect on the insurance and the proceeds paid by counter-parties on credit default swaps and other hedges. 1.10. In my opinion, the investment bank assumed the role of both fiduciary and agent for the investors regardless of where the money and any assets were deposited or held. Thus the payments received by the financial affiliate of the Master Servicer (another entity controlled by the investment banker) from insurance and hedge products were never paid to or credited to the investors. 1.10.1. Had they done so, the entire foreclosure crisis would have been averted. 1.10.2. Had they done so there would have been no need to fabricate, forge and otherwise affix robo-signed, surrogate-signed or other unauthorized signatures to documents to create the illusion of ownership by the investment pool AFTER the insurance and hedges and federal bailouts were paid to the banks. 1.10.3. Had they done so, the loan receivable account from the investment pool would have been reduced proportionately and the balance due from the borrowers would have been correspondingly reduced, subject to potential claims for contributions from subservicers who continued to make payments even after the loan was declared in default, insurance and hedge products. 1.10.3.1. The loan balances would have been reduced not by forgiveness but for payment, many times in full and sometimes overpaid because

the investment banks leveraged their bets against the loans up to 42 times (Bear Stearns is an example, where they essentially sold the same loan 42 times. If Bear Stearns had modified, settled or reinstated the loans, they could have owed as much as $8 million on each $200,000 loan, which is why the pressure has been on for foreclosures and the banks are two-stepping the requirement that they modify mortgages. 1.10.4. They did not do so because the banks were hiding huge profits from two principal channels --- the insurance and hedges on one hand, and the 2d tier yield spread premium on the other. Accounting for all the money would easily reveal by application of simple arithmetic that (a) the investors advanced far more money than was ever used for funding mortgages (Tier 2 yield spread premium) and that the banks had received, as agents from the investors, far more money than the investors had ever advanced. 1.11. The year 2006 is in the name of the alleged asset pool for which CIti is the supposed Trustee. That means that the subject loan was to have been funded by the REMIC that issued the bonds to the investors, and that the loans were payable to the investment pool (REMIC) and secured by a mortgage or deed of trust showing the pool to be the payee and showing the pool to be the secured party. No such thing exists in the instant case. Both the PSA and REMIC statute require closeout and no further business activity after 90 days from the date of opening the pool for investments. 1.11.1. But the loan had been funded before the pool opened and was supposedly transferred after the pool closed and during the Lehman bankruptcy. 1.12. The funding of the loan came from the investors but NOT the REMIC as claimed in the Plaintiffs complaint. The industry practice has been and continues to be the use of a single account dubbed Custodial by the investment bank without any reference to the individual REMIC entities, which did not exist anyway. 1.12.1. The loan was funded by the custodial account with strict instructions that this money was not in any way to be touched or used by the named loan originator. The originator was paid a service fee as a nominee for an undisclosed lender (the investors using the investment bank as the intermediary much as one uses a check drawn on ones depository bank to pay a vendor). 1.12.2. At no time did the originator post the transaction as a loan receivable with a reserve for default because there was no risk of loss or use of the capital of the originator. 1.12.3. The loan receivable belonged, by operation of law, to the investors who advanced the money. Those investors included all of the buyers of the bogus mortgage bonds of the fictitious REMIC plus the rest of the

investors who had been solicited for investment in other REmIC entities that never received the money or the assets. 2. The banks are using the ruse of foreclosure to distract the investors, the government and the borrowers from the fact that they were and are solely intermediaries that never advanced one cent to fund the origination or purchase of these loans. 3. We are left with a chain of documents in which the wrong payee is named citing terms of repayment wholly different from (1) the terms of the mortgage bond and (2) the expectation of the investors. 4. The attorney obviously represents Wells Fargo, who is now saying it is the servicer, but fails to produce any documentation showing how the ownership of the loan passed through several transactions where money exchanged hands to the REMIC entity and fails to produce any documentation from the Master Servicer appointing Wells fargo as the subservicer. 4.1. As a result, Wells Fargo has no original documentation but only documentation derived from other documents none of which are original receipts for wire transfers, Check 21, ACH or cancelled check.