Foreclosure Fraud For Dummies, 1: The Chains and the Stakes

Posted on October 8, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: This is Part One. Here is Part Two, Part Three, Part Four, and Part Five.) The current wave of foreclosure fraud and the consequences for the economy are difficult to follow !s such, "#m $oin$ to write a few %osts to sim%lify what is $oin$ on so you can follow stories as they unfold This is very 101 level, and will include a readin$ list of blo$ %osts and articles at each sta$e to hel% %rovide de%th &'%ecial thanks to (ves 'mith and Tom !dams for walkin$ me throu$h much of this ) *et#s make three charts of the chains involved in the %rocess The first is what is currently $oin$ on with foreclosure fraud &click throu$h for lar$er)

!s you can see, in +udicial review states like ,lorida the courts require that servicers, or those who administer the bonds that are full of mort$a$es &securiti-ation, residential mort$a$e backed securities, .M/', are all %hrases for them), say that they have everythin$ necessary in order to have standin$ to brin$ a foreclosure They need to have the note for a mort$a$e, which is su%%osed to be in the trust 0 %art of the mort$a$e backed securities 0 that they administer 1hat is breakin$ down here2 "n ,lorida, a +udicial review state, it was found that one %erson was notari-in$ documents far faster than anyone could reasonably have ,or$ed documents necessary for the foreclosure %rocess like the note were found ! se%arate court system was set u% to resolve these foreclosures faster at the e3%ense of allowin$ serious challen$es to the documents 4ere#s 'mith on how kan$aroo these courts look u% close 4ere#s 1aPo on one individual and the ni$htmare of tryin$ to challen$e an invalid foreclosure 5ee% him in mind when you hear about deadbeats and whatnot6 the current system is desi$ned to make it difficult for anyone to challen$e their case Meet the robo7si$ner who kicked it off here at this 1aPo story " almost feel bad for this %atsy8 the real battle here is between +unior and senior tranche holders, and this doofus could end u% in +ail in order to kee% 9ohn Paulson rich !fter readin$ about this $uy "#m askin$ our elites to take care of their %atsies better &:an we $et a ,inancial Patsy ,ordism social contract movement $oin$2 "f you are $oin$ to be a %atsy for ;M!:, you should be %aid enou$h able to be able to buy ;M!:#s services or somethin$ ) 1hy would servicers do this2 One story would be that the more foreclosures they %rocess, the more fees they $et, so there is an incentive to cut as many corners to s%eed throu$h the %rocess as %ossible 4ence the term foreclosure mills (ou can read more about this from !ndy 5roll#s e3cellent work for Mother 9ones &start here) There#s another %roblem thou$h 0 what if servicers are behavin$ this way because the actual notes aren#t in the trust2 *et#s $o back to the creation of these instruments

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" take a mort$a$e out at 9oe#s *endin$, a mort$a$e ori$inator ! mort$a$e consists of two %arts The first is the note, or the "O=, which is the borrower#s %romise to %ay The second is the mort$a$e, which is the security, or the lien, or the actual interest 9oe#s lendin$ takes the mort$a$e note to a s%onsor to turn these mort$a$es into a bond The s%onsor was often an investment bank like /ear 'terns >ow that investment bank %uts an intermediary in between itself and the trust This intermediary is usually called a de%ositor, and sometimes there are several of them in the chain 1hat#s the worry here2 1ell many of these mort$a$e ori$inators were fly7by7ni$ht sho%s, shady enter%rises that colla%sed the moment they hit trouble !nd many of them cut corners and one of the corners they may have cut would have been to send the note to the trust '%ecifically, there is worry that many mort$a$e ori$inators never sent the notes to the de%ositors Ori$inators wanted volume to $et fees and may not have done all the %a%erwork correctly There are a lot of thin$s that have to end u% in the trust when " take out a mort$a$e, thin$s like the note, title insurance, su%%ortin$ documents /ut the note is the most im%ortant 2 Of 1<

1hy is this im%ortant2 1ell the trustees usually si$n several certificates sayin$ that they have verified all the documentation in these trusts Many of these trusts are under >ew (ork trust law which is %articularly clear and strict when it comes to these matters 1ith this in mind, tackle these three %osts by (ves 'mith &one two three) 'o connect the two to$ether, and you can see why we mi$ht have a systemic crisis on our hands6

There are rou$hly ?2 @ trillion dollars in mort$a$e backed securities The 1all 'treet 9ournal starts to e3%lain how this will be a battle between holders of +unior and senior tranches of debt "t also e3%oses the servicers, which include the four lar$est banks, to e3tensive le$al liabilities by those who bou$ht these securiti-ations that were si$ned off as bein$ %ro%erly administered and created One result is that this has lead homeowners to reasonably demand to see the %ro%er documentation before they and their families are %ut out on the street .ead .yan ;rim and 'hahien >asiri%our from 9une, 1ho Owns (our Mort$a$e2 AProduce The >oteB Movement 4el%s 'tall ,oreclosures 5atie Porter is an e3%ert who has done e3tensive research into this area and often blo$s about it at credit sli%s 'ee the blo$ %osts6 4ow to ,ind the Owner of (our Mort$a$e and Produce the &/o$us2) Pa%er Porter found that this was e3tensive in her research, see Misbehavior and Mistake in /ankru%tcy Mort$a$e :laims &A! ma+ority of mort$a$e claims are missin$ one or more of the required %ieces of documentation for a bankru%tcy claims ,ees and char$es on claims often are %oorly identified and do not a%%ear to be reasonable The bankru%tcy data reinforce concerns about the overall reliability of the mort$a$e service industry to char$e homeowners only the correct and le$al amount of the debt and to com%ly with a%%licable consumer %rotection lawsB) /y rushin$ the %rocess, unreasonable and e3cessive foreclosure fees can $et a%%lied to homeowners when there may not even be the %ro%er documentation to have the standin$ to brin$ foreclosure at all 'o kee% these frameworks in mind when you see the debate unfold in the ne3t weeks "t is a %roblem of systemic risk, and it is a %roblem for the currently cratered securiti-ation market "t will need to be addressed, the sooner the better /ut how2 C Of 1<

=PD!TE6 " for$ot to thank Tom !dams, a contributor to naked ca%italism, for the hel% he $ave me in understandin$ the to%ic in the ori$inal article "t#s u%dated above

Foreclosure Fraud For Dummies, 2: What is a Note, and Why is it So Important?

Posted on October 11, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One. This is Part Two, Part Three, Part Four, and Part Five.) The 'E"= has a cam%ai$n6 1here#s the >ote2 Demand to see your mort$a$e note "t#s worth checkin$ out /ut first, what is this note2 !nd why would its e3istence be im%ortant to stru$$lin$ homeowners, homeowners in foreclosure, and investors in mort$a$e backed securities2 There#s $oin$ to be a cam%ai$n to convince you that havin$ the note correctly filed and %roduced isn#t that im%ortant &see, to start, this 1'9 editorial from the weekend) This is like some sort of useless cover sheet for a TP' form that someone for$ot to fill out That is %rofoundly incorrect "nde%endent of the fraud that was committed on our courts, the current crisis is im%ortant because the note is a crucial document for every %arty to a mort$a$e i! /ut first, let#s define what a mort$a$e is ! mort$a$e consists of two documents, a note and a lien6 ii!

The note is the "O=, it#s the borrower#s %romise to %ay The mort$a$e, or the lien, is +ust the enforcement ri$ht to take the %ro%erty if the note $oes un%aid The note is crucial 1hy does this matter2 Three reasons, reasons that even the 1all 'treet 9ournal o%7ed %a$e needs to take into account The first is that the note is the evidence of the debt "f it isn#t %ro%erly in the trust then there isn#t clear evidence of the debt e3istin$ F Of 1<

!nd it can#t be a matter of Alet#s $o find it nowGB .EM": law, which $overns the securiti-ation, is really s%ecific here The securiti-ation can#t $et new assets after H0 days without a ta3 %enalty, and it can#t $et defaulted assets at all without a ma+or ta3 %enalty Most of these notes are way %ast H0 days and will be in a defaulted state This is because these %arts of the mort$a$e7backed security were su%%osed to be %assive entities They are su%%osed to take in money throu$h mort$a$e %ayments on one end and %ay it out to bondholders on the other end, hence their e3em%tion from lots of ta3es8 the tradeoff is that they can#t be de facto mana$ers of assets, and that#s what $oin$ to find the notes would require For Distressed "omeo#ners The second is that it also matters a $reat deal for homeowners who are distressed The note lays out the terms of late fees and other %enalties !s we will discuss in the ne3t section about mort$a$e servicers, the %rocess of tryin$ to $et %eo%le behind on their %ayments current instead of drivin$ them into bankru%tcy has broken down /ut for now it#s clear that mort$a$e servicers don#t have $reat incentives to $et distressed homeowner#s records correct There#s well7documented evidence that e3tra fees are tacked on to mort$a$es that have fallen behind, fees that aren#t followin$ the terms of the note This is usually only found out in bankru%tcy where there is a lawyer &and multi%le %arties), not in foreclosure cases /ut if homeowners wants to challen$e whether what the servicers claim is the correct final due amount, the terms of the note are necessary for the court This will matter a $reat deal for many homeowners 'mall, mar$inal differences in the total owed could allow for a short sale "t could determine if the homeowner has any equity in their home !nd this can only be determined by %roducin$ the note For In$estors, Who Took This Seriously at the %e&innin& *ast reason6 you can tell it#s im%ortant because all the smartest finance $uys in the room thou$ht it was im%ortant iii! *et#s look at a Poolin$ and 'ervice !$reement form from 200@ between A;' MO.T;!;E 'E:=."T"E' :O.P , De%ositor, and DE=T':4E /!>5 >!T"O>!* T.='T :OMP!>(, Trustee B &hIt !dam *evitin for this e3am%le ) *et#s re%roduce the chart from %art 1 to see the chain between de%ositors and trustees who oversee the trust6

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'o what a$reement did they come to when it comes to the %ro%er handlin$ of notes in securiti-ation2 Did they think this was no bi$ deal, or that it is somethin$ serious2 ,rom the P'! &my bold)6 &b) "n connection with the transfer and assi$nment of each Mort$a$e *oan, the De%ositor has delivered or caused to be delivered to the Trustee for the benefit of the :ertificateholders the followin$ documents or instruments with res%ect to each Mort$a$e *oan so assi$ned6 &i) the ori&inal 'ort&a&e Note (e)cept *or up to +,+1- o* the 'ort&a&e Notes *or #hich there is a lost note a**ida$it and the copy o* the 'ort&a&e Note. /earin& all inter$enin& endorsements showin$ a com%lete chain of endorsement from the ori$inator to the last endorsee, endorsed APay to the order of JJJJJJJJJJJJJ, without recourseB and si$ned in the name of the last endorseeK The De%ositor shall use reasonable efforts to cause the '%onsor and the .es%onsible Party to deliver to the Trustee the a%%licable recorded document %rom%tly u%on recei%t from the res%ective recordin$ office but in no event later than 180 days from the :losin$ DateK "n the event, with res%ect to any Mort$a$e *oan, that such ori&inal or copy o* any document su/mitted *or recordation to the appropriate pu/lic recordin& o**ice is not so deli$ered to the Trustee #ithin 10+ days o* the applica/le 1ri&inal 2urchase Date as s%ecified in the Purchase !$reement, the Trustee shall notify the De%ositor and the De%ositor shall take or cause to be taken such remedial actions under the Purchase !$reement as may be %ermitted to be taken thereunder, includin$ without limitation, i* applica/le, the repurchase /y the 3esponsi/le 2arty o* such 'ort&a&e 4oan, @ Of 1<

.ead that a$ain throu$h to the end and use the chart to follow the chain "f more than 0 01L &G) of mort$a$e notes weren#t %ro%erly transferred, the trust can force the s%onsor &in this case, ;oldman 'achs) to re%urchase the bad mort$a$es !nd this is +ust one contract for one %art of the M?2 @ trillion dollar mort$a$e backed securities market 4ow#s that for systemic risk2 Es%ecially if this is found to be wides%readK *ookin$ at the documents you see that the smart $uys who created these mort$a$e7backed securities %ut lar$e %oison %ills into them to try and %revent the kind of note fraud we are currently e3%eriencin$ as a country They took the %olicin$ and le$al recourse &and le$al ability to cover their ass) very seriously on this issue 'o seriously they can force re%urchases of this bad debt 'o don#t believe the hy%e of anyone who says these are +ust technicalities8 the %eo%le who wrote the contract didn#t believe they were &'%ecial thanks to 5atie Porter and !dam *evitin, who you can read at credit sli%s, as well as Tom !dams and (ves 'mith, who you can read at naked ca%italism, for in7de%th discussions on this material )

Foreclosure Fraud For Dummies, 5: Why 6re Ser$icers So %ad 6t Their 7o/?
Posted on October 11, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two,, and this is Part Three.) 1henever " hear about how there wouldn#t be a %roblem with foreclosures if %eo%le +ust %aid their mort$a$es on time, "#m reminded of !lan ;rayson#s %ara%hrase of the .e%ublican 4ealth :are Plan6 ADon#t ;et 'ick "f (ou ;et 'ick, Die Nuickly B (es, the world would be an easier %lace if %eo%le never $ot sick, or credit risk didn#t e3ist, and %eo%le made %ayments %erfectly all the time /ut they don#t, and we need a system of rules and a %rocess for collectin$ and %resentin$ evidence in order to kick a family out of their home !nd we need a system where this %rocess sets the $round rules that in turn allow for lenders and borrowers comin$ to$ether and ne$otiatin$ a situation that is best for both of them /ecause the first rule of mort$a$e lendin$ is that you don#t foreclose !nd the second rule of mort$a$e lendin$ is that you don#t foreclose "#ll let *ewis .anieri, who created the mort$a$e7backed security in the 1H80s, tell you6 AThe cardinal %rinci%le in the mort$a$e crisis is a very old one (ou are almost always better off restructurin$ a loan in a crisis with a borrower than $oin$ to a foreclosure "n the %ast that was never at issue because the loan was always in the hands of someone actin$ as a fudiciary The bank, or someone like a bank owned them, and they always e3ercised their best +ud$ement and their interest The %roblem now with the si-e of securiti-ation and so many loans are not in the hands of a %ortfolio lender but in a security where structurally nobody is actin$ as the fiduciary B "n the %ast you had 9immy 'tewart banks The mort$a$es were ke%t on the books of the bank (ou had someone who you could $o to and rene$otiate your mort$a$e 1ith mort$a$e7backed securities, the handlin$ of %ayments and workin$7out of troubles moved to servicers "f you are learnin$ about this crisis for the first time, understandin$ what is broken here is very im%ortant This is Not a Ne# 2ro/lem With Ser$icin& *et#s $et some quotes from bankru%tcy +ud$es in here6 A,airbanks, in a shockin$ dis%lay of cor%orate irres%onsibility, re%eatedly fabricated the amount of the Debtor#s obli$ation to it out of thin air B <C Ma3well v ,airbanks :a%ital :or% &"n re Ma3well), 281 / . 101, 11F &/ankr D Mass 2002) O Of 1<

APtQhe %oor quality of %a%ers filed by ,leet to su%%ort its claim is a sad commentary on the record kee%in$ of a lar$e financial institution =nfortunately, it is ty%ical of record7kee%in$ %roducts $enerated by lenders and loan servicers in court %roceedin$s B "n re 1ines, 2CH / . O0C, O0H &/ankr D > 9 1HHH) A"s it too much to ask a consumer mort$a$e lender to %rovide the debtor with a clear and unambi$uous statement of the debtor#s default %rior to foreclosin$ on the debtor#s house2B "n re Thom%son, C<0 / . 8F2, 8FF0F< &/ankr E D 1is 200@) &'ource ) >otice that consumer ri$hts $rou%s were fla$$in$ this as a ma+or %roblem back in 1HHH and 2002 because +ud$es were noticin$ it was a ma+or %roblem in their bankru%tcy courts "f the late 1HH0s to 200@ %eriod is a .enaissance %eriod of servicer fraud then we can contrast it with the %eriod we live in now, the /aroque %eriod of servicer fraud 1hatever unity there used to be between the forms and functions of the slo%%y documentation and outri$ht fraud in the art of servicin$ have become detached The forms of fraud have $one hi$h art6 servin$ documents on %eo%le who could never have been served, si$nin$ 10,000 affidavits a month, etc They are all well covered, and we#ll list more later %erha%s 4ere are some of my favorites from last year, the readin$ list in Part One has even more /ut what " want to focus on is the function of servicer fraud What Do Ser$icers Do? 6 Case Study in %ad Desi&n and Worse Incenti$es 'ervicers in a mort$a$e7backed security have two businesses The first is transaction %rocessin$ This means takin$ in your mort$a$e money on one end and walkin$ it over to the cra-y tranches and %ayment waterfalls on the other end This is clean, efficient, lar$ely automated, requires little discretion and works very well, and im%licit in it is that it is most %rofitable when you can harness economies of scale "t#s considered a A%assive entityB in fact, so there are no ta3es a%%lied in this %assthrou$h mechanism "f servicers went AactiveB, say by lookin$ for mort$a$e notes not in the trust H0 days after the fact or mort$a$e notes that are not in the trust that have defaulted, which is what they#d likely have to do to $et out of this foreclosure fraud crisis, they#d face very severe ta3 %enalties Their other business is to handle default situations "n addition to the fi3ed fee they $et for servicin$ each individual mort$a$e they $et %aid from default fees like late char$es They $et to retain most, if not all, of these fees 'o ri$ht away they have an incentive to not find ways to ne$otiate to $et a mort$a$e to a $ood state They also have a stron$ incentive to kee% a steady stream of fees and char$es $oin$ to their books rather than to investors 'o anythin$ that %uts servicers in char$e of ne$otiatin$ mort$a$es, say the Obama#s administration#s 4!MP %ro$ram, is desi$ned to fail /ecause even without bad incentives, doin$ $ood work on modification is costly, time consumin$, requires individual e3%ertise and e3%erience and doesn#t benefit from automation or economies of scale 1hich is to say it is the o%%osite structure of their normal business !nd there are additional worries Many of the servicers work for the lar$est four banks 0 1ells ,ar$o, /ank of !merica, :iti, and 9P Mor$an 0 and these four banks have lar$e e3%osures to +unior liens These are second or third mort$a$es or home equity lines of credit that would have to be wi%ed out before the first mort$a$e can be modified The four banks have almost half a trillion dollars worth of these e3%osures and, from the stress test, are valuin$ them at somethin$ like 8< cents on the dollar 5ee%in$ a homeowner stru$$lin$ to %ay the second lien would be more worthwhile to these middlemen banks than $ettin$ him or her into a solid first lien to the benefit of the bond investor 'o kee% these in mind as you read about the servicers here There have been worries that they, as a desi$ned 8 Of 1<

institution, were sim%ly not qualified for this +ob $oin$ back a decade They have massive conflicts with the investors they are su%%osed to be workin$ for They %rofit when homeowners colla%se and lose money when they are brou$ht u% to a normal %ayment schedule &made current) !nd if the instruments don#t have the notes necessary to brin$ standin$ to carry out the foreclosures they have to take a massive ta3 hit in order to take the note into the trust !nd re$ulation to handle this isn#t in %lace No 3e&ulator /ecause for all the talks of re$ulatory burden, there is no current federal $overnment a$ency that re$ulates the servicers >ot the ,ederal .eserve >ot the Treasury This is what ha%%ens when the financial industry writes the dere$ulation "nstead you have a %atchwork of state re$ulators and attorney $enerals >otice how President Obama has nobody to turn to and tell the %ress that A'o and 'o is on the case B "n theory the O:: re$ulates servicers if they are %art of a bank or a thrift This must fall to the new re$ulatory counsel and the :onsumer ,inancial Protection /ureau to investi$ate, where it will %ro%erly belon$ &The ,air Debt :ollections !ct, which a%%lies to debt collectors, doesn#t a%%ly to servicers 4ere mi$ht be a fun idea for an enter%risin$ staffer 0 if there is no note %roducible, are servicers still le$ally servicers and thus e3em%t from the ,air Debt :ollections !ct2 9ust a thou$htK ) "s it any wonder that servicers are rushin$ these foreclosures and makin$ a mockery of the courts and %roducin$ systemic risk in the %rocess2 There needs to be an investi$ation of what is bein$ done and why, because this %roblem is not takin$ care of itself &'%ecial thanks to 5atie Porter and !dam *evitin, who you can read at credit sli%s, as well as Tom !dams and (ves 'mith, who you can read at naked ca%italism, for in7de%th discussions on this material )

Foreclosure Fraud For Dummies, 8: "o# Could This 9)plode into a Systemic Crisis?
Posted on October 11, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two, Part Three, this is Part Four and Part Five.) .i$ht now the foreclosure system has shut down as a result of banks# own voluntary actions There is currently a debate on whether or not the current foreclosure fraud crisis could e3%lode into a systemic risk %roblem that %erils the lar$er financial sector and economy, and if so what that would look like >o matter what ha%%ens, the uncertainty about notes and what is currently $oin$ on with the foreclosure crisis is terrible for the economy ;ettin$ to the heart of this %roblem so that ne$otiations can be worked out is im%ortant for $ettin$ the economy $oin$ a$ain There is little reason to trust what comes out of the servicers and the banks in whatever they conclude at the end of the month, and the market will know that Only the $overnment can credible clear the air here as to what the le$al situation is with the notes and the securiti-ations /ut " wanted to $et some unlikely but dan$erous scenarios on the table in which this blows u% /an$s, not whim%ers The kind where :on$ress is %ressured to act over a weekend " had a discussion with !dam *evitin about how this could e3%lode into a systemic %roblem Title Insurance 'arket %reaks Do#n ,irst scenario involves title insurance '%ecifically if title insurers decide to take a month off from writin$ title insurance even on %erformin$ and current loans to investi$ate what is $oin$ on with note transfers "f that ha%%ened there would be no mort$a$e sales &e3ce%t for those involvin$ cash) in the country The system would sim%ly sto% Everyone with an interest, from realtors to 1all 'treet to construction to hu$e sections of H Of 1<

the economy, would face a ma+or crisis throu$h this short7term %inch There would be a call for :on$ress to ste% in immediately (ou can tell that the title insurance market, which is lar$ely concentrated and also holdin$ very little ca%ital for a nationwide crisis scenario, is investi$atin$ the current %roblems They are holdin$ off on certain ty%es of foreclosed %ro%erties8 if they decide to hold off all to$ether you could see a scenario where :on$ress is %ushed to act immediately 4a#suits a :o;:o The second would be a wave of lawsuits !s we discussed in Part Two, many of the servicin$ a$reements allowed for the trustees to force the de%ositors and s%onsors to %urchase mort$a$es without notes That would be 100 cents on the dollar for mort$a$es worth %ennies "f the trustees don#t take action, the investors could sue them !nd the tranche warfare on this issue is intense, as foreclosures versus a few more %ayments radically chan$e the balance between +unior and senior tranche holders &'ee Tracy !lloway on tranche warfare here) 4ere#s what this could look like .ead left side u% for what the lawsuit screamin$ looks like and the ri$ht side down for the res%onse6

Much of the activity would center around the four lar$est %artici%ants in these areas, the Too /i$ To ,ail institutions of 1ells ,ar$o, /ank of !merica, :iti and 9P Mor$an !nd many of these mort$a$e7backed securities are chea% 'o in an interestin$ scenario you could see hed$e funds buyin$ M/' for %ennies +ust for the o%tion to sue firms that are likely backsto%%ed by the $overnment "f title insurance fro-e, or if the financial markets had a %anic over fears of waves of lawsuits, there would be %ressure for :on$ress to do somethin$ Much of the law is >ew (ork trust law, so it isn#t clear :on$ress can 10 Of 1<

act

/ut there will be %ressure

/ecause if this bad7case scenario ha%%ens, which there is a small but reasonable chance it could, %ro$ressives need to have a clear sense of what they want in e3chan$e for ne$otiations when the financial industry comes flyin$ in over the cliff, a list of demands and questions to re%lace the in7lar$e7%art steamrollin$ of T!.P over anyone#s interests but the banks Even if that doesn#t ha%%en, but the slow bleed of the current dysfunctional mort$a$e market continues, %ro$ressive wonk %olicy initiatives that fi3 this crisis and $et the mort$a$e market $oin$ a$ain should be at the front of the debate 1e#ll cover this in Part <

Foreclosure Fraud For Dummies, <: The Necessity o* :o$ernment 6ction and Ways 1ut o* The Crisis
Posted on October 12, 2010 by Mike (This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two, Part Three, Part Four and this is Part Five.) 4ere#s a $uess6 "n one month, the lar$e banks will conclude that there are no %roblems with its foreclosure %rocesses The massive fraud that was committed on the courts was the result of a few bad a%%les, but those are now $one and it#s back to business as normal !t this %oint, either as a citi-en or as a financial market %artici%ant, would there be any reason to believe them2 "s there any reason to believe that the servicer and foreclosure mill fraud is over2 That securiti-ations actually have the %ro%er le$al documentation necessary2 That borrowers and lenders are actually $ettin$ a chance to come to mutually beneficial situations2 "s there any reason to believe they aren#t lyin$2 /ecause servicers aren#t currently re$ulated They have a %atchwork of state re$ulators and the O:: may re$ulate their %arent com%any if it is a bank or thrift, but there#s no current $overnment a$ent to %rovide any accountability here 'o without action, there#s $oin$ to be no one to confirm or deny that anythin$ has actually chan$ed in the housin$ market "n some ways this narrative already reminds me of the /P oil s%ill in the $ulf The Obama administration lar$ely left it to /P to tell the $overnment and the %ublic what was wron$, hire the contractors and then also to tell everyone what the environmental dama$es were "t will sur%rise no one that the information /P sent out was wron$ &see, for e3am%le, 5ate 'he%%ard,A>ot an "ncidental Public .elations ProblemB), but for better or worse, the Obama administration is now linked to whatever course and information /P chooses to %ursue 1hy not choose a different course for this one2 One that em%hasi-es social +ustice throu$h %owerful banks havin$ to follow the rule of law, cor%orate res%onsibility to not commit fraud, %rovides a s%ace where those who are weak and %oor $et a fair say instead of bein$ bulldo-ed over by the rich and stron$, and actually starts to di$ out of the mort$a$e crisis that we are in :heck out Mike *u3#s E3%lodin$ foreclosure fraud issue6 !n o%%ortunity for Democrats to turn the tide >ot only is it relevant, but it demonstrates that there#s a $ood chance this is $oin$ to $et worse before it $ets better 1hy not $et in front of it, and chan$e course from the disastrous %ath we#ve been takin$2 What 7ust Went Wron& in the :o$ernment 3esponse? /ecause what we#ve done to this %oint hasn#t worked 'hahien >asiri%our and !rthur Delaney wrote the definitive account of the failure of the 4!MP %ro$ram, E3tend !>D Pretend6 The Obama !dministration#s ,ailed ,oreclosure Pro$ram "nstead of continuin$ 4!MP, it#s time for a fresh res%onse Pat ;arofalo of the :enter for !merican Pro$ress has The ,i3 "s Over6 Mort$a$e ,oreclosure 'candal Offers >ew 4o%e for 4omeowners which has a lot on what a new foreclosure relief %ro$ram could look like6 11 Of 1<

allowin$ housin$ counselors and other %ublic entities to a%%rove mort$a$e modifications directly, and if the borrower#s servicer doesn#t challen$e the modification in H0 days, it automatically becomes %ermanent 'uch a ste% would $o a lon$ way toward streamlinin$ the %ro$ram and $ettin$ borrowers who qualify throu$h the ma-e of bureaucracy in a timely, clear fashion without leavin$ them in limbo for months on end Mort$a$e mediation %ro$ramsRin which a bank must meet with a borrower, in the %resence of a +ud$e and housin$ counselors, before finali-in$ a foreclosureRshould also be e3%anded !nother new favorite %olicy o%tion everyone should start considerin$6 B.EM":s bestow enormous ta3 breaks to investors8 these breaks should be revoked for any residential home mort$a$e loan holdin$ entity that forecloses on more than a s%ecified %ercenta$e of all of its mort$a$es B 1e have to remember what went wron$ with 4!MP6 the servicers were in the driver#s seat 1e need a %rocess that is involuntary, $overnment7run and is standardi-able on both the modification and on the foreclosure end /etween this and a clearin$ out of the current crisis to confirm chan$e has actually ha%%ened we can start on a way out of this crisis

'ource6 htt%6IIrortybomb word%ress comI2010I10I08Iforeclosure7fraud7for7dummies717the7chains7and7the7 stakesI

(e%, me a$ain " had to turn this into a PD, file because of the >EED & ine and others) to better understand the mess created by the bankers and lawyers " may not a$ree with every word of its contents, but when " found this on the web &site noted above as the source), " knew " had to make this information available to as many %eo%le as %ossible because of the dama$es created by the lawyers &!ongress" b# passing legislation, allowing it all to ta$e place, and shipping %obs overseas to destro# the people, and the nation.), and banks &&obb#ing" for our destruction, and perpetrating this fraud on the people with the support of our elected representatives) 4o%e this infuriates youG (ou will find more web sites of interestP4ere Q :ourtesy of, Phil Daniels

12 Of 1<

4ere#s a question that#s been botherin$ me for a while6 "#ve been %okin$ around county recorder websites for while !t least in my state, a real estate transaction ty%ically involves recordin$ a deed transferrin$ the %ro%erty and a deed of trust that $ives the lender a lien on the %ro%erty " remember readin$ someone &maybe Tanta at :alculated.isk) sayin$ that you could require that the note also be recorded 'o the question is6 if notes were recorded would that solve the %roblem with not bein$ able to locate them2 1ould a co%y of a recorded note be an adequate substitute for the ori$inal2 Or would the note have to be re7recorded every time it chan$ed hands2 1hich would be why we have ME.', ri$ht2 Mers bein$ a hu$e issue Peterson, :hristo%her *ewis, Two ,aces6 Demystifyin$ the Mort$a$e Electronic .e$istration 'ystem#s *and Title Theory &'e%tember 1H, 2010) .eal Pro%erty, Probate and Trust *aw 9ournal, ,orthcomin$ !vailable at ''.>6 htt%6IIssrn comIabstractS1@8FO2H !nd Peterson, :hristo%her *ewis, ,oreclosure, 'ub%rime Mort$a$e *endin$, and the Mort$a$e Electronic .e$istration 'ystem &October <, 200H) =niversity of :incinnati *aw .eview, Tol O8, >o F, 2010 !vailable at ''.>6 htt%6IIssrn comIabstractS1F@HOFH

ii

Terminolo$y is frequently misused !lthou$h Amort$a$e noteB is not incorrect, it is confusin$, and it $enerally +ust means Anote B There is a mort$a$e, meant to be recorded, which $enerally has to be recorded to be a %erfected lien 'ince Amort$a$eB is often used interchan$ably with the broader terms Ahome loanB or Areal estate loan,B " actually %refer the term Asecurity instrument# for %recision !nd there is the Anote B >otes are unrecordable 'tatements about how notes are unrecorded is a ma+or %eeve of mine They are not meant to be recorded They do not conform to recordation standards 'u$$estions to the effect that they should be recorded are a $ood ti%off to take whatever else a %oster says with a $rain of salt .e$rettably, this su$$estion is frequently %art of too many %osts >otes are unrecordable "n addition, the ori$inal can be like cash and meant to be ke%t secure 'endin$ it to a county for recordin$ would be $ross ne$li$ence by whomever did it Did " say notes are unrecordable and they#re not meant to be recorded2 !>D Deed of Trust S security instrument !nother reason " %refer that term
iii

=4ast reason: you can tell it>s important /ecause all the smartest *inance &uys in the room thou&ht it #as important, ?
" would non7concur here The note is im%ortant not because the ';"T. think its im%ortant, but because it#s fundamental to %rovin$ debt There#s an old sayin$6 AU!# students become %rofessors, U/# students

$o to 1all 'treet, U:# students become the +ud$es B 1hile this isn#t strictly true in my e3%erience &e3ce%t for the %rofessors), it is true that +ud$es think the note is im%ortant, and " listen to them over the ';"T.s, $enerally 1hile it is im%ortant, there is another %roblem 0 the ne$otiability of those notes is not always obvious, and it is frequently the case that they are not ne$otiable instruments, and thus not under the =:: !s Prof Dale 1hitman &>elson V 1hitman, .eal Estate Transfer, ,inance V Develo%ment) writes in a recent law review article &A4ow >e$otiability 4as ,ouled =% the 'econdary Mort$a$e Market, and 1hat to Do !bout "tB )6 AThere is sim%ly no way to resolve this question Pof ne$otiabilityQ conclusively (et, it seems bi-arre that the ne$otiability of the most widely used mort$a$e note form in the nation &,annie Mae#s), em%loyed in many millions of transactions, is uncertain and that no one has bothered to do anythin$ to clarify it B "t will be u% to the courts, and as 1hitman#s article makes clear, this is an issue that has not been e3tensively addressed 4e ar$ues that the securiti-ers sim%ly didn#t care whether the note was ne$otiable "n addition, " would amend this statement =I* it isn>t properly in the trust then there isn>t clear e$idence o* the de/t e)istin&,? There is %lenty of evidence of the e3istence of the debt &that is, there is a whole loan %acka$e includin$ co%ies of the note), but what is not clear is who is the lawful obli$eeI%ayee after transferPsQ The reason why the ne$otiabilityInon7ne$otiability question is so im%ortant is that the have different rules for transfer, %ossession and claimin$ ownershi% The assum%tion that the =:: rules control is not necessarily ri$ht "f the note isn#t ne$otiable, common law mostly controls The forced re%urchase o%tion will only be effective for solvent ori$inators, so lon$ as they are solvent, which won#t be very lon$, %articularly as ,4! is %robably $oin$ to be first in line 0 before %rivate labels &for sure)
4ere &'s ore and ore sites POP()P to co bat foreclosure fraud... consumer beware!)
'ecuriti-ation is what ha%%ens when your %romissory note for your home is sold to wall street and $ets Wsecuriti-edW PrecordedQ by the 'E: P'ecurities and E3chan$e :ommissionQ This is a short e3%ose on this %rocess and why itXs fraudulent to foreclose after securiti-ation has been done

htt%6IIwww youtube comIwatch2vSF1nf7/D(19E ,ind your home listed on the 'ecurities and E3chan$e :ommission &call the and as$ how to do it) htt%6IIwww sec $ovI &(ou will also note how the =' ;overnment combats ille$al immi$ration by %uttin$ this site in Aen Es%aYolB) &Okay, "Xll hel%) ,indin$ Poolin$ !nd 'ervicin$ !$reements &P'!#s) ,or 'ecuriti-ed Mort$a$e *oans htt%6IImattweidnerlaw comIblo$I2010I0<Ifindin$7%oolin$7and7servicin$7a$reements7is7key7to7killin$7your7foreclosure7caseI
htt%6IIftcsearch ftc $ovIsearch2qS,oreclosureZ,raudVbtn;S'earchVout%utS3mlJnoJdtdVieS=T,78VclientSftcJconsumerV%ro3ystylesheetSftcJconsumerVfilterS0

htt%6IImort$a$e7home7loan7bank7fraud comI htt%6IIshowmetheloan netI'tatesIstatutes html htt%6IIwww consumerdefense%ro$rams comIsitema%I htt%6IIwww e3%ertlaw comIlibraryIlimitationsJbyJstateI htt%6IIwww kscourts or$Icases7and7o%inionsIo%inionsIsu%ctI200HI200H0828IH8F8H htm

htt%6IIwww law cornell eduIuccIucc table html htt%6IIlivin$lies word%ress comI2011I10I0OImanifesto7for7%rotesters7a$ainst7banksI htt%6IIwww foreclosure%rose comI &*o +P,O -./" it0s the onl# wa# to fl#1)

htt%6IIwww webofdebt comIarticlesImers %h% htt%6II2auditforeclosures comI &This and the next site are related, and fee driven, but it is for #ou to chose wisel# ) htt%6IIwww forensicauditin$services comIdefault html &22222)
htt%6IIdc urbanturf comIarticlesIblo$I%roduceJtheJnote JCJwordsJthatJcouldJstaveJoffJforeclosureI<<<I2rSCCF1O28@F[comments

htt%6IIwww %erkel comI%blIinde3 htm htt%6IIwww freedomclubusa comIhome htt%6IIsto%foreclosurefraud comI htt%6IIwww loansafe or$IforumI htt%6IIwww notaciti-en comIinde3 %h%IarticlesIH87$overnmentIO07what7is7the7united7states htt%6IIwww youtube comIresults2searchJquerySPostZ,orerclosureZDama$esVaqSf htt%6IIwww youtube comIwatch2vST3.O\:+Mo%"VfeatureSresultsJvideoV%layne3tS1VlistSP*<:0D!0F82F2HD22F

COMPARING DEFINITIONS OF FREEDOM: THE SOURCE OF OUR DILEMMA htt%6IIwww newswithviews comITimothyIbaldwin1O1 htm 9ust because " was there htt%6IIwww ne3ta$ comImarine7cor%sI%roducts7html2n3t$SCOF0a<00<0b7@/@2!0E0!12@F1DE