FRAUD STOPPERS Empowers Borrowers: Landmark Court Decision Renders an Estimated 70 Million Mortgages Legally Void, Offering Hope for Homeowners Facing Foreclosure
In a groundbreaking court decision, Glaski v. Bank of America, an estimated 70 million mortgages have been deemed legally void, providing a glimmer of hope for homeowners facing foreclosure. This landmark ruling has opened the doors for potential financial relief and protection of property rights. FRAUD STOPPERS, an organization dedicated to fighting foreclosure fraud, is now at the forefront of assisting homeowners in navigating this complex landscape and potentially saving their properties from foreclosure.
The Glaski Decision and its Implications:
The Glaski v. Bank of America case has sent shockwaves through the real estate and banking industries. It sets a precedent that entities seeking to foreclose on a property must first establish legal ownership of the debt. Furthermore, if the claim of ownership is based on an assignment, it must be proven as valid. This decision offers a lifeline to the approximately 70 million homeowners who obtained mortgages between 2000 and 2010, potentially saving them from wrongful foreclosures.
Stephen J. Foondos, managing partner of United Law Center, described the Glaski decision as one of the most significant cases in California real estate law in the last fifty years. Unlike previous weak modification programs that provided little relief to homeowners, the Glaski decision offers genuine financial assistance to those wrongfully foreclosed upon.
Understanding Glaski v. Bank of America:
The Glaski case revolves around Mr. Glaski, who was foreclosed on and evicted from his property. He filed a lawsuit alleging wrongful foreclosure, contending that the entity foreclosing on his property did not possess the proper ownership of his promissory note. Glaski argued that his bank assigned the note to a securitized “Wall Street” trust shortly after he signed his mortgage. However, the assignment document was not filed in a timely manner, rendering it invalid under state laws. Consequently, since the trust did not legally own Glaski’s note, it lacked the right to foreclose. The Court of Appeals supported Glaski’s claims.
Homeowners’ Path to Justice:
For homeowners who lost their properties to foreclosure or are currently facing foreclosure, it is crucial to review their original loan paperwork for signs of fraudulent activity. FRAUD STOPPERS recommends looking for indicators such as the presence of the term MERS (Mortgage Electronic Registration Systems) on loan documents like Deeds of Trust, Notices of Default, and Notices of Trustee Sale. Major banks like Countrywide Home Loans, JPMorgan Chase, Bank of America, Wells Fargo, and Washington Mutual (no longer in business) securitized a significant portion of their loans, often failing to properly assign them.
Additionally, certain loan terms like Pick-a-Pay, Negative Amortization, Adjustable Rate Mortgages (ARMs), or Interest-Only loans may raise red flags. Homeowners should also pay attention to the date of the Assignment of Deed of Trust, as a recording close to the time of foreclosure indicates a potential lack of legal rights for the bank to foreclose.
FRAUD STOPPERS: Championing Homeowners’ Rights:
In the face of this significant court decision, FRAUD STOPPERS emerges as a vital resource for homeowners seeking justice. By providing guidance and assistance, the organization empowers borrowers to challenge wrongful foreclosures and potentially save their homes.
FRAUD STOPPERS urges affected homeowners to contact them and complete a brief questionnaire to assess their eligibility for a lawsuit against their lender. By identifying potential violations on their loans, homeowners can build a solid case to contest the foreclosure proceedings and
seek reimbursement for any unjust mortgage payments.
The Demise of MERS:
MERS, or Mortgage Electronic Registration Systems, was established by banks to streamline loan and mortgage document processes. However, MERS has faced widespread litigation and challenges to its authority to pursue foreclosure actions. Recent court decisions, such as the one in Washington State, have dealt significant blows to MERS and its claimed ownership of over 70 million mortgages.
The Glaski v. Bank of America court decision has paved the way for homeowners facing foreclosure to fight back and protect their rights. With an estimated 70 million mortgages potentially rendered legally void, organizations like FRAUD STOPPERS have emerged to assist homeowners in challenging wrongful foreclosures and seeking financial relief. By staying informed, understanding their loan documentation, and seeking expert guidance, homeowners can take the necessary steps to save their homes and secure the justice they deserve.
An Estimated 70 Million Mortgages Are Legally Void: Do You Have One of Them?
THE GROUNDBREAKING COURT DECISION GLASKI V. BANK OF AMERICA COULD HELP YOU SAVE YOUR PROPERTY FROM FORECLOSURE.
BANKS AND WALL STREET TRUSTS HELD ACCOUNTABLE FOR WRONGFUL ASSIGNMENT OF DEEDS OF TRUST!
(Chicago, IL – November 27, 2013) — Since 2009, our paralegal association has been educating homeowners facing foreclosure, equipping them with the facts and tools needed to fight foreclosure fraud. This hasn’t always been easy for homeowners (or lawyers) to do; because the courts (for the most part) have not been open to ruling in favor of homeowners who present arguments based on securitization, bifurcation, and/or faulty chain of title arguments.
However, thanks to a new groundbreaking case Glaski v. Bank of America Fraud Stoppers is now able to help potentially 80-90% of all homeowners who financed a home between 2000 and 2010 and who are facing foreclosure or have been foreclosed upon.
Upwards of 70 million loans are potentially faulty. It has now been determined that many of the entities attempting to foreclose do not hold legal title to the homes. If you suspect that you may have been wrongfully foreclosed upon, or are currently facing foreclosure, we recommend that you immediately contact Fraud Stoppers and complete our brief questionnaire to see if you have grounds for a lawsuit against your lender.
What does Glaski v. Bank of America mean to you?
The Glaski decision presents the idea that if some entity wants to collect a debt or foreclose on your property, they must first own the debt. Furthermore, if that entity is claiming ownership by way of an Assignment, it must prove that Assignment is valid.
“This is one of the most significant cases in Calif. Real Estate Law in the last fifty years,” explained Stephen J. Foondos, managing partner of United Law Center.
“Unlike the myriad weak modification programs that gave little or nothing to a relatively small number of homeowners, the Glaski decision offers real financial relief to all who were (wrongfully) foreclosed upon.”
In the Glaski case, Mr. Glaski was foreclosed on and evicted. He sued for wrongful foreclosure claiming the entity that foreclosed was not the proper party because they did not own his promissory note. Glaski alleged that days after he signed his mortgage with his bank, the bank assigned his note to a securitized “Wall Street” trust and that the Assignment document was not filed timely as required under the state laws in which it was created. Since the Assignment of Mr. Glaski’s note to the securitized trust was invalid, the trust did not own his note and therefore could not foreclosure, and hence the foreclosure was wrongful. The Court of Appeals agreed. (Notably, if the trust never owned the note then it never had the right to collect any of his mortgage payments—which means Glaski [and any other Plaintiffs] can sue for reimbursement of those payments)!
How Can You Identify Potential Violations on Your Loan?
All homeowners who lost their properties to foreclosure, or are currently in the foreclosure process are encouraged to review their original loan paperwork for signs of a fraudulent foreclosure. “There are tell-tale signs on your original loan paperwork that can indicate an improper handling of your Deed of Trust,” explained Foondos.
Here are a few signs to look for:
Seeing the term MERS on your loan documents: Deed of Trust, Notice of Default, and Notice of Trustee Sale
What bank did you originally sign with? Major Banks securitized nearly 90% of all their loans; nearly all failed to properly assign them. These include but are not limited to:
- Countrywide Home Loans – no longer in business
- JPMorgan Chase (or a variation thereof)
- Bank of America
- Wells Fargo
- Washington Mutual – no longer in business
Did you have a loan with terms such as:
- Pick a pay
- Negative Amortization
- Interest only
What was the date of your Assignment of Deed of Trust? Look to see if an Assignment of Deed of Trust was filed. If so, your lender does not likely own your note. If the recording date of the Assignment is near the time of foreclosure, then the bank had no legal right to foreclose.
If you spot any of the above signs (or any one of these 65 signs) you should call Fraud Stoppers right now because we can help you save your house from foreclosure and get the real estate remedy that you deserve.
What is MERS?
MERS is Mortgage Electronic Registration Systems it was created by banks in order to “streamline” the warehousing of loans and mortgage documents. Basically MERS is a front organization that was created to defraud homeowners and government agencies. It pretends to hold your note, but in fact holds nothing. Banks set up MERS in the 1990s to help speed the process of packaging loans into mortgage-backed bonds by easing the process of transferring mortgages from one party to another. But ever since the housing crash, MERS has been besieged by litigation from state attorneys general, local government officials and homeowners who have challenged the company’s authority to pursue foreclosure actions. Recently there have been many court decisions delivering death blows to MERS and their 70,000,000+ mortgages they claim to hold.
For example in MERS Is Dead and Can Be Sued For Fraud: WA Supreme Court we learn that the Washington State Supreme Court dealt a death blow to MERS: “The highest court in the state of Washington recently ruled that a company that has foreclosed on millions of mortgages nationwide can be sued for fraud, a decision that could cause a new round of trouble for the nation’s banks.
The ruling is one of the first to allow consumers to seek damages from Mortgage Electronic Registration Systems, a company set up by the nation’s major banks, if they can prove they were harmed. Legal experts said last month’s decision from the Washington Supreme Court could become a precedent for courts in other states. The case also endorsed the view of other state courts that MERS does not have the legal authority to foreclose on a home.
“This is a body blow,” said consumer law attorney Ira Rheingold. “Ultimately the MERS business model cannot work and should not work and needs to be changed.” A spokeswoman for MERS said the company is confident challenges. The Washington Supreme
its role in the financial system will withstand legal Court held that MERS’ business practices had the
“capacity to deceive” a substantial portion of the public because MERS claimed it was the beneficiary of the mortgage when it was not.
This finding means that in actions where a bank used MERS to foreclose, the consumer can sue it for fraud. If the foreclosure can be challenged, MERS’ involvement would make repossession more complicated. On top of that, virtually any foreclosed homeowner in the state in the past 15 years who feels they have been harmed in some way could file a consumer fraud suit.
65 SIGNS THAT YOUR MORTGAGE LOAN & FORECLOSURE DOCUMENTS COULD BE FRAUDULENT
Here are some signs of mortgage fraud:
1. The Mortgage or Deed of Trust is assigned from the Originator directly to the Trustee for the Securitized Trust.
2. The Mortgage or Deed of Trust is assigned months and sometimes years after the date of the origination of the underlying mortgage note.
3. The Mortgage or Deed of Trust is assigned from the initial aggregator directly to the Securitized Trust with no assignments to the Depositor or the Sponsor for the Trust.
4. The Mortgage or Deed of Trust is executed, dated or assigned in a manner inconsistent with the mandatory governing rules of Section 2.01 of the Pooling and Servicing Agreement.
5. The assignment of the Mortgage or Deed of Trust is executed by a legal entity that was no longer in existence on the date the document was executed.
6. The assignment of the mortgage or Deed of Trust is executed by an entity whose name is different than the entity named in the original document (i.e., National City Bank Corporation in lieu of ABC Corporation as a division of National City Bank).
7. The assignment was executed by a party pursuant to a Power of Attorney but no Power of Attorney is attached to the instrument or filed with the instrument or otherwise recorded with local land registry.
8. The mortgage note is allegedly transferred in a single document along with the Mortgage or Deed of Trust (i.e., “Assignment of the Note and Mortgage”). You cannot “assign” a mortgage note. You can only “negotiate” a mortgage note under Article 3 of the UCC.
9. The assignment is executed by a party who claims to be an “attorney in fact” for the assignor.
10. The assignment is notarized by a notary in Dakota County, Minnesota.
11. The assignment is notarized by a notary in Hennepin County, Minnesota.
12. The assignment is notarized by a notary in Duval County, Florida.
13. The assignment is executed by an officer or secretary of MERS.
14. The assignment is notarized by a secretary or paralegal employed by the attorney for the mortgage servicer.
15. The assignment is executed or notarized by an employee of MR Default Services, Promiss Solutions LLC, National Default Exchange, LP, LOGS Financial Services, or some similar third-party.
16. The endorsement on the note is actually on an allonge affixed to the note. In most states, an allonge cannot be used if there is a sufficient amount of room at the “foot” or the “bottom” of the original note for the endorsement.
17. The allonge is not “permanently” affixed to the original note. The term permanent excludes the use of staples and tape and as a result you must use a sold fastener such as glue. Allonges are commonly referred to “in the business” as “tear-off fraud papers.”
18. The note proffered in evidence is not the original but a copy of the “certified copy” provided to the debtors at the closing.
19. The note is endorsed in blank with no transfer and delivery receipts. It is fine to endorse a note in blank, in which case it becomes “bearer” paper under the UCC. However, in order to prove a true sale from the Sponsor to the Depositor you must have written delivery and transfer receipts and proof of pay outs and pay in transactions.
20. The note proffered in evidence is not endorsed at the foot of the note or on an affixed allonge.
21. The assignment of the mortgage or deed of trust post-dates the filing of the court pleading.
22. The assignment of the mortgage or deed of trust is executed after the filing of the court pleadings but claims to be “legally effective” before the filing. For example, the deed of trust is assigned on June 1, 2009, with an effective date of May 1, 2007.
23. The parties who executed the assignment and who notarized the signature are in fact the same parties.
24. The signor states that he or she is an “agent” for the executing entity.
25. The signor states that he or she is an “attorney in fact” for the executing entity.
26. The signor states that he or she is an employee of the executing entity but claims to have custody and control of the records of the entity.
27. The signor of the document makes statements about the status of the mortgage debt based on his or her review of the “records of the plaintiff” or the “records of the moving party.”
28. The proponent of the original note files an Affidavit of Lost Note.
29. The signor claims that the allegations in the court pleading are correct but the assignment of the mortgage and/or delivery and transfer of the note occurs after the law suit or the motion for relief from stay was filed.
30. One or more of the operative documents in the case is signed by one of the attorneys for the mortgage servicer.
31. The default payment history filed in the case is prepared by the attorney for the mortgage servicer or a member of his or her staff.
32. The affidavit filed in support of legal fees is not signed by an attorney with the firm involved in the case.
33. The name of one or more of the signors is stamped on the document.
34. The document is a form with standard “fill-in-the-blanks” for names and amounts.
35. The signature of one or more parties on the document is not legible and looks like something a three year old might have done.
36. The document is dated and signed years before the document is actually filed with the register of real estate documents or deeds or mortgages.
37. The proffered document has the word C O P Y stamped on or embedded in the document.
38. The document is executed by a notary in Denton County, Texas.
39. The document is executed by a notary in Collin County, Texas.
40. The document includes a legend “Hold for” a named law firm after recording.
41. The document was drafted by a law firm representing the mortgage servicer in the pending case.
42. The document includes any type of bar code that was not added by the local register or filing clerk for such instruments.
43. The document includes a reference to an “instrument number.”
44. The document includes a reference to a “form number.”
45. The document does not include any reference to a Master Document Custodian.
46. The document is not authenticated by any officer or authorized agent of a Master Document Custodian.
47. The paragraph numbers on the document are not consistent (the last paragraph on page one is 7 and the first paragraph on page two starts with number 9).
48. The endorsement of the note is not at the “foot” or “bottom” of the last page of the note. For example, a few states allow an endorsement on the back of the last page of the note but the majority requires it at the foot of the note.
49. The document purports to assign the mortgage or the deed of trust to the Trustee for the Securitized Trust before the Trust was registered with the Securities and Exchange Commission. This type of registration is normally referred to as a “shelf registration.”
50. The document purports to transfer the note to the Trustee for the Securitized Trust before the date the Trust provides for the origination date of instruments in the Trust. The Prospectus, the Prospectus Supplement and the Pooling and Servicing Agreement will clearly state that the pool of notes includes those originated between date X and date Y.
51. The document purports to transfer the note to the Trustee for the Securitized Trust after the cut-off date for the creating of such instruments for the Trust.
52. The origination date on the mortgage note is not within the origination and cut-off dates provided for the by terms of the Pooling and Servicing Agreement.
53. The “Affidavit of a Lost Note” is not filed by the Master Document Custodian for the Trust but by the Servicer or some other third-party.
54. The document is signed by a “bank officer” without any designation of the office held by the said officer.
55. The affidavit includes the following language on the bottom of each page: “This is an attempt to collect a debt. Any information obtained will be used for that purpose.”
56. The document is signed by a person who identifies himself or herself as a “media supervisor” for the proponent.
57. The document is signed by a person who identifies himself or herself as a “media coordinator” for the proponent.
58. The document is signed by a person who identifies himself or herself as a “legal coordinator” for the movant.
59. The date of the signature on the document and the date the signature was notarized are not the same.
60. The parties who signed the assignment and who notarized the signature are located in different states or counties.
61. The transferor and the transferee have the same physical address including the same street and post office box numbers.
62. The assignor and the assignee have the same physical address including the same street and post office box numbers.
63. The signor of the document states that he or she is acting “solely as nominee” for some other party.
64. The document refers to a power of attorney but no power of attorney is attached.
65. The document bears the following legend: “This is not a certified copy.”
1. Most mortgages in the U.S. are owned by trusts.
2. The trusts are often referred to as “RMBS” trusts, an acronym standing for “residential mortgage-backed securities.”
3. The total U.S. mortgage debt is between $12 and $14 trillion. Of this, approximately $8 trillion was owned by trusts in 2008.
Why is it important to learn about mortgage securitization?
Reason #1: Most of the foreclosures filed in the U.S. in the last 5 years were filed by mortgage-backed trusts. Most of the foreclosures filed in the next 5 years will be filed by mortgage-backed trusts.
4. The trusts are made up of a bundle or pool of mortgages (often 5,000 – 8,000 mortgages per trust). The loans are almost always subprime loans. The value of the mortgages in each trust is usually between $500,000 and $2 billion.
5. Individual mortgages got packaged into RMBS Trusts; these RMBS trusts got bundled, sliced and sold as CDOs – collateralized debt obligations.
6. The mortgage loans in each pool – or RMBS Trust – usually include both first lien and second lien loans, and fixed-rate and adjustable rate loans.
7. There are different “layers” within each pile of loans, representing different qualities of loans. It is not unusual for each pile to have as many as 20 different layers – these layers are sometimes called classes or “tranches.”
8. Certificates are issued to investors to represent the purchase – so investors are often called “certificate holders.”
9. There are often minimum investment requirements – such as “Offered certificates must be purchased in minimum total investments of $100,000 per class.”
10. The loans are selected for each pool by a particular date, often called the “closing date” of the trust. Some trusts include a schedule or listing of all of the loans in the trust by the closing date. While a trust may substitute loans into the pool after the closing date, there are restrictions on such substitutions.
11. The pool of loans is described in a “prospectus” – a printed document that describes the business enterprise that is distributed to prospective buyers, investors and participants (similar to the glossy brochure distributed by new car dealers describing the features of the car.”
12. Many representations (promises) are made to the potential buyers regarding the loans in each pool in both the prospectus and the Pooling and Servicing Agreement (described more fully below). The following, for example, are taken from the prospectus for Soundview Home Loan Trust 2006-OPT2:
Mortgage Loans with Prepayment Charges:
Fixed-Rate Mortgage Loans:
Second lien Mortgage Loans:
Interest Only Mortgage Loans:
Range of Remaining Term to Stated Maturities:
Weighted Average Remaining Term to Stated Maturity:
Range of Original Principal Balances:
Average Original Principal Balance:
Range of Current Mortgage Rates:
Weighted Average Credit Score of the Mortgage Loans:
Weighted Average Current Mortgage Rate:
Weighted Average Gross Margin of the Adjustable-Rate Mortgage Loans:
Weighted Average Maximum Mortgage Rate of the Adjustable-Rate Mortgage Loans:
Weighted Average Minimum Mortgage Rate of the Adjustable-Rate Mortgage Loans:
Weighted Average Initial Rate Adjustment Cap of the Adjustable-Rate Mortgage Loans:
Weighted Average Periodic Rate Adjustment Cap of the Adjustable-Rate Mortgage Loans:
Weighted Average Months Until Next Adjustment Date for the Adjustable-Rate Mortgage Loans:
Geographic Concentration in Excess of 5%:
SOME OF THE LAWS INVOLVED IN RMBS TRUSTS
13. In 1960 the government enacted the Real Estate Investment Trust Act of 1960. This act allowed the creation of the real estate investment trusts (REIT) to encourage real estate investment.
14. In 1984 the government passed the Secondary Mortgage Market Enhancement Act (SMMEA) to improve the marketability of REITS.
15. The Tax Reform Act of 1986 allowed the creation of the tax-free Real Estate Mortgage Investment Conduit (REMIC) special purpose vehicle for the express purpose of issuing pass-through investments.
16. The Tax Reform Act significantly contributed to the savings and loan crisis of the 1980s and 1990s that resulted in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), which changed the regulation of the savings and loan industry and encouraged loan origination.
17. Investors invest in a pool of mortgage loans. As homeowners pay of the underlying mortgage loans, the investors receive payments of interest and principal. These payments are usually made monthly or quarterly.
18. There are special tax rules that apply to these trusts. Because the money coming in to the trusts is passed through to investors, the trusts are not required to pay tax on the money that flows into the trusts (the mortgage payments from homeowners). Investors pay tax when they receive their return on the investments.
19. RMBS Trusts are securities; the Securities and Exchange Commission regulate mortgage-backed trusts.
20. On January 7, 2005, the SEC published Regulation AB, a final rule to codify requirements for the registration, disclosure and reporting for all publicly registered asset-backed securities including mortgage-backed securities. Regulation AB consists of 24 “Items” relating to the operation and reporting requirements for mortgage-backed trusts. There have been numerous revisions to Regulation AB.
21. RMBS Trusts also have special tax consequences; the IRS also regulates RMBS Trusts.
22. The majority of mortgage securities were issued by the U.S. government, by the Government National Mortgage Association (Ginnie Mae) or by government-sponsored entities (GSEs) such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These entities also very often guarantee some or all of the loans in RMBS trusts.
23. The vast majority of the RMBS trusts were created between 2004 and 2008.
24. The revenue from the trusts are predicted (but not guaranteed) to last for 25 – 30 years.
25. Servicers are paid by monthly fees from the trusts usually by a formula – for example: “Servicer will be paid a monthly fee equal to one-twelfth of 0.30% multiplied by the Aggregate Principal Balance of the mortgage loans as of the first day of the related due period for the first 10 due periods…0.65% for all due periods thereafter.”
26. The Servicer may purchase all of the loans and any REO properties and “retire the certificates” (end the payments) when the total loan balance equal or is less than 10% of the original loan balance.
27. Typical representations made to investors:
the credit scores for at least 5,000 of the 7,500 loans in the trust will be above 600;
at least 7,000 of the 7,500 loans will not mature for at least 355 months;
at least 5,500 of the loans are for single-family detached homes;
at least 6,500 of the 7,500 loans will have been made to homeowners who will use the homes as their primary residence;
the average combined loan-to-value ratio of the loans was 77% (the loan was made for only 77% of the value of the home);
at least 5,000 of the 7,500 loans were full documentation loans;
the current mortgage rates for at least 70% of the loans were between 7% and 10%.
28. Servicers also are responsible for issuing periodic reports to investors advising of the performance of the loans in the trust (investor reports).
29. Mortgage loans were classified as follows:
stated income documentation;
business bank statements.
30. Some of the major producers of RMBS Trusts from 2004-2007 included:
31. The names of trusts often contain short-hand information regarding that particular trust. GSAMP Trust 2006-S3, for example, stands for Goldman Sachs Alternative Mortgage Products Trust, created in 2006. Other examples:
CWALT is shorthand for Countrywide Alternative Loan Trust.
CWABS is shorthand for Countrywide Asset-Backed Securities.
Other trusts have friendly names such as Harborview or Soundview.
32. The three biggest mortgage companies in the U.S. in 2005 were:
American Home Mortgage in Melville, NY
Countrywide Mortgage in Calabasas, CA
Option One Mortgage Corporation in Irvine, CA
Almost all of these loans were bundled into RMBS trusts. Other mortgage companies that were major producers of mortgages for RMBS trusts included:
Ameriquest Mortgage, a/k/a Long Beach Mortgage Company
Citi Residential Lending
Dietech (owned by GMAC)
Fremont Investment & Loan
New Century Mortgage Company
This is a very short list – there were many, many other big lenders.
33. There are 5 major groups involved in securitization: originators, depositors, sponsors, master servicers and trustees.
34. The companies that make the loans, the mortgagee, are known as the ORIGINATORS in the securitization process.
35. Loan originators often sold the loans to depositors the very same day that these loans were made or within just a few days of the closing date of the loan.
36. Loan originators very often did not lend their own money to the homeowner/borrower. The originators were often financed by “warehouse lenders.” These warehouse lenders were financial institution that extended a line of credit to the originator to fund a mortgage. The loan typically lasted from the time it was originated until it was sold into the securitization market.
37. The companies that select the loans from the various mortgage companies and sell the loans to the trusts are called the Depositors.
38. The companies that direct the creation of the trusts are called the Sponsors.
39. The companies that are responsible for continuing to collect payments on the loans, notifying delinquent mortgagees, foreclosing on collateral (if any), performing data processing functions, preparing periodic reports to investors and Rating Agencies and taking other actions are called the servicers. The Servicer is often also an affiliate of the Originator. Servicing is often the most lucrative role in securitization.
40. The companies (banks) that operate the trust after it is created are called the Trustees. Duties of the trustee for an ABS transaction typically include:
Receiving and releasing assets
Receiving data and collections from servicers
Distributing reports to investors
Trustees have the authority – but typically are not required – to take action to enforce breaches of representations and warranties.
41. Approximately eight big banks serve or served as Trustees for the majority of trusts: Bank of America, Bank of New York Mellon, Citibank, Deutsche Bank National Trust Company, GMAC/Ally, HSBC Bank, JP Morgan Chase and Wells Fargo.
42. Bank of New York Mellon is the world’s largest custody bank, with $26 Trillion in assets under custody and administration. (Reuters, February 16, 2012, “U.S. SEC pressures BNY Mellon for better disclosure.”)
43. Trustees do not keep the mortgage documents themselves – they hire other banks to serve as Document Custodians. Example: Wells Fargo serves as Document Custodian for most of the Deutsche Bank trusts.
44. In most trusts, a bank other than the Trustee Bank or the Document Custodian Bank, serves as Master Servicer. The operation of most trusts, therefore, involves three banks, serving in different roles.
45. Trustees frequently change, in part due to bank failures and mergers.
46. Each trust has a set of rules, set forth in a document called the Pooling and Servicing Agreement or PSA. A PSA, or similar agreement, is the governing document of a securitization transaction. Such an agreement sets forth the relationship among the parties and the assets, including, for example, the capital structure of the transaction, the eligibility criteria for the assets, the manner in which cash flows from those assets are to be distributed to note holders, and the definitions for an event of default.
Why is it important to learn about mortgage securitization?
Reason #2: The major investors in RMBS Trusts are pension funds, banks, insurance companies and state and local governments. The fate of the economy is inextricably tied to the fate of mortgage-backed trusts.
47. The PSA for every trust includes many provisions regarding the loan documents that the trust must obtain and safeguard in a “mortgage file.” These documents almost always include the promissory note, endorsed in blank or to the trust, the mortgage, an assignment of mortgage to the trust and a title insurance policy.
48. Mortgage-backed trusts include the following or equivalent language regarding Assignments: “Assignments of the Mortgage Loans to the Trustee (or its nominee) will not be recorded in any jurisdiction, but will be delivered to the Trustee in recordable form, so that they can be recorded in the event recordation is necessary in connection with the servicing of a Mortgage Loan.”
49. The SEC is the major source of information about a particular trust. Information usually available from the SEC about each trust includes the Prospectus, the Pooling and Servicing Agreement, and Annual Reports.
50. Each Prospectus and PSA includes promises to investors about the quality of the loans and the loan documentation. These promises are called Representations and Warranties.
51. Key representations and warranties concern origination, servicing, underwriting standards, due diligence, and related documentation. The PSA usually limits the rights of investors to sue for breaches of these representations and warranties. The Depositor typically makes representations and warranties to the Trustee in the PSA in which mortgage loans are conveyed.
52. Investors and insurance companies began to file major lawsuits against trust creators in 2009.
53. The most common claims against the creators of trusts include the following:
Failure to disclose risks such as failure to disclose loans in default at time of closing;
Disregard of underwriting guidelines such as disregard of LTV guidelines, or debt-to-income ratios; and
Failure to conduct due diligence such as representing that due diligence was performed when it was not.
54. The PSAs usually include anti-lawsuit provisions that limit the circumstances under which a lawsuit may be filed against the trust creators. Example:
Greenwich Fin. Svcs. Distressed Mortgage Fund 3, LLC, et al. v. Countrywide Fin. Corp. (NY Supreme Court, Oct. 2010).
Complaint was dismissed because plaintiffs did not comply with anti-suit provision that required certificate-holders to (1) make a demand upon the Trustee on behalf of 25 percent of the certificate holders, (2) offer Trustee proper indemnity, and (3) wait 60 days for Trustee to commence lawsuit.
55. Examples of major lawsuits against trust creators include the following:
MBIA v. Morgan Stanley (New York State Court May 26, 2011)
MBIA alleged that it was defrauded into insuring mortgage loans, and presented evidence that 97% of the loans in a sample did not meet stated underwriting criteria.
The court found that plaintiff adequately pled “material and pervasive non- compliance with the Seller’s underwriting Guide and the mortgage loan representations.”
Boilermakers Nat’l Annuity Trust Fund v. WAMU Mortgage Pass-Through Certificates, Series AR1 (W.D. Wash. Sept. 28, 2010)
Plaintiff alleged that defendant failed to disclose that mortgage loans were not originated in accordance with underwriting guidelines, resulting in violations of the Securities Act of 1933.
The court found that Plaintiff had adequately pled facts suggesting that underwriting standards were abandoned.
Syncora Guarantee Inc. v. EMC Mortgage Corp. (S.D.N.Y. March 25, 2011)
Syncora, which provided a financial guarantee to investors in RMBS, filed a lawsuit seeking to require EMC (the seller of the mortgages underlying the RMBS) to repurchase the loans on a pool-wide basis.
Syncora alleged that a sample of 400 mortgage loans had 85% breaches. Syncora also demanded that EMC cure breaches in 1300 loans; EMC acknowledged only 20 breaching loans.
56. RMBS Trusts have ratings, like many other securities.
57. Allegations have been made that the trust creators manipulated the ratings.
China Development Industrial Bank v. Morgan Stanley & Co. (Sup. Ct. N.Y. Feb 25, 2011).
CDIB alleged that Morgan Stanley manipulated the rating agencies’ models.
In denying Morgan Stanley’s motion to dismiss, the court noted that the alleged corruption of the ratings process “could not have been discovered by any degree of due diligence or analysis performed by the most sophisticated of investors.”
58. Some lawsuits have focused on the undisclosed involvement of “short” parties in the loan selection process:
SEC v. Goldman Sachs & Co. (S.D.N.Y. decision June 10, 2011)
The court declined to dismiss federal securities fraud claims against Goldman employee (Tourre) based on Goldman’s alleged failure to disclose to CDO investors that a hedge fund strongly influenced collateral selection while it was it was “shorting” the CDO.
SEC v. J.P. Morgan Securities LLC (S.D.N.Y. complaint June 21, 2011)
The SEC simultaneously sued and settled with JPM for $153.6 million. The SEC alleged in its complaint that JPM arranged and sold a CDO to investors while representing “that the investment portfolio of [the CDO] was selected by the [CDO’s collateral manger]” but failed to disclose that a hedge fund with a $600 million short interest in the CDO “played a significant role in the portfolio selection process.”
59. At least one lawsuit by investors has focused in part upon the trusts’ failure to obtain and keep the original loan documents as promised to investors.
Oklahoma Police Pension and Retirement System v. U.S. Bank National Association (S.D.N.Y. complaint Nov., 2008)
60. Courts may pay strict attention to the many disclaimers in the Prospectuses and the PSAs.
Plumbers’ Union Local No. 12 Pension Fund, et al. v. Nomura Asset Acceptance Corporation (D.Ma. complaint Jan. 31, 2008)
With respect to the plaintiffs’ allegations concerning the mortgage originators’ underwriting standards, District of Massachusetts Judge Richard G. Stearns found that the offering documents contained a “fusillade of cautionary statements” that “abound with warnings about the potential perils.” Judge Stearns noted that plaintiffs’ contention that they were not “on notice” of those perils “begs credulity.” (This was reversed, in part, on appeal.)
61. Regulation of RMBS Trusts by the SEC was done almost solely on the honor system. The trusts prepared reports and filed these with the SEC, and almost no verification of these reports was done by the SEC.
62. The trusts were continually down-graded by the rating agencies.
63. Current investigations by the Federal Task Force co-chaired by New York Attorney General Eric Schneiderman are focusing on whether there were criminal violations in the packaging of these loans, and criminal acts by servicers relating to foreclosures by the trusts
64. Many of the people now responsible for investigating the creation and operation of trusts were previously involved in the creation and operation of these trusts. Example: Robert Khuzami, Director of Enforcement for the SEC, was previously General Counsel for the Americas for Deutsche Bank from 2004-2009. Khuzami thus supervised Greg Lippman, a senior trader at Deutsche, who helped create and fuel the market for mortgage-backed securities.
65. Greg Lippman was perhaps the most famous of all traders who made tens of millions of dollars betting AGAINST the continued strong performance of the U.S. housing market. He has been singled out for his misconduct in Congressional reports. He is known for being brash, crass and unscrupulous.
Why is it important to learn about mortgage securitization?
Reason #3: The RMBS Trusts now own more homes in most counties than any other property owner.
66. The majority of trusts have less than 40% of performing loans remaining in the trusts. This means that most trusts will stop producing income for investors about 20 years sooner than expected.
67. A study of 37 trusts from three popular series of trusts, American Home Mortgage Assets Trusts, American Home Mortgage Investment Trusts and Soundview Home Loan Trusts, showed the following:
Of the 37 trusts, 18 had 25% or less of performing loans remaining.
Of the 37 trusts, 8 had 26% – 30% of performing loans remaining.
Of the 37 trusts, 11 had 31% – 38% of performing loans remaining.
There were a combined total of 228,203 loans in these trusts at inception.
As of November, 2011, there were a combined total of 51,798 (22.7%) performing loans in these trusts.
The combined collateral value of the loans in these trusts at inception was over $61 Billion: $61,441,128,225.
Of the 37 trusts, Soundview Home Loan Trust 2007-OPT5 had the highest percentage of performing loans remaining in the trust: 38%. American Home Mortgage Assets Trust 2005-2 had the lowest percentage of performing loans remaining in the trust: 10.5%.
THE INVESTORS IN MORTGAGE-BACKED TRUSTS
68. Investment banks invested heavily in mortgage-backed securities. Example: Merrill Lynch reported on January 17, 2008, an $8.6 billion net loss from write-downs on its subprime investments.
69. Pension fund managers, public and private, invested heavily in mortgage-backed securities. Ohio’s former Attorney General Richard Cordray filed 8 major lawsuits, and to date has recovered over $2 billion for Ohio pension funds.
70. Insurance companies were major investors in RMBS trusts. The National Association of Insurance Commissioners recently estimated that insurance companies have investments of half a trillion dollars in mortgage-backed securities.
71. Local governments, counties and municipalities invested heavily in mortgage-backed securities.
LIES TOLD TO INVESTORS
72. The information in the prospectuses and the PSAs was often false. The average credit scores of borrowers in the loan pool were much lower than represented. There were many more “no documentation” or “stated income” loans than disclosed. There were much fewer “full documentation” loans than disclosed.
73. The information about the loan to value ratios was often also falsely stated. Home values were inflated during appraisals to make it appear that there was a much higher homeowner investment/equity in the home.
INACCURATE/FALSE INFORMATION IN INVESTOR REPORTS
74. The investor reports often contain inaccurate and false information about the loans in the trust.
75. The status of the loans is often wrongly reported in the investor reports. Loans may be reported as delinquent, in foreclosure, in bankruptcy, or trustee-owned when the records of the clerk of the court indicate a different status for these same loans.
76. The investor reports often do not disclose that a loan/home has been sold to a new buyer through short sale or foreclosure auction.