Here It Comes? (9/18 Real Estate Edition)


Just a few days ago I wrote on this case:

WaMu/JPM tried to evict someone (foreclose) when they not only didn’t own the mortgage at the time, they NEVER owned it!

And the last paragraph was…..

Have we had BANKS that have taken title to homes in this fashion when they never owned the note, and thus they now have literally stolen via fraudulent legal process property that actually belongs to someone else?

NOW we have this from Naked Capitalism:

In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place

Oh, and the banks know it too.  Here’s the cute part:

With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

Now I’m gonna lay forward something that’s very, very dark.

And if it’s true, it both explains the “addendum” and how it is that we have had a property meltdown, yet at least in the conforming and ALT-A space the MBS holders have not been filing for acceleration, nor for fraud, nor have they been hosed, nor have the banks been forced to take the marks against the loans that have hard defaulted – that is, for which there is no possibility of cure as they have been foreclosed upon and resold!

For a year now I’ve been trying to figure out how the flows work here, and locate them. I’ve been unsuccessful.  But until the case I cited in the above Ticker, I couldn’t figure out what I was missing.

Now please note folks:

This is a theory, for which I cannot currently provide closure and certainty on.  So don’t “take this to the bank” – but do take it as a possible explanation, and if it’s happening, the fraud being perpetrated is so dark, and so pervasive, as to literally blow all of the major institutions involved straight to Mars.

When a loan was made during the “go-go” years it was typically funded via a warehouse line somewhere.  Some lenders had their own, some funded via the FHLB banks (e.g. Countrywide), some funded via warehouse lines from the major banks such as WaMu, JPM, Citi and Bank of America.

These loans were then bundled up.  Some were sold to Fannie and Freddie, some (the non-conforming ones) were not.  But all were then packaged into securities, tranched and sold off.

So far we all “get it.”

Well, someone has to service those loans.  And here the major banks all got their fingers in the pie. 

A “servicer” is simply the guy who takes your payment every month and distributes it to the MBS holders as provided for in the master trust agreement that governs the MBS you bought.  That agreement specifies who eats what if things don’t perform, how loans can be modified and if they can, and so on.

Normally, when everything is going well, being a servicer is a license to print money, because the servicer gets to deduct a small piece (a few basis points) from every payment.

But when things go poorly, the servicer can either make money or lose it – and the losses can be material.

See, the servicer is supposed to advance the payments to the MBS holders.  In order for him to not have that obligation he must declare a given loan as impaired and “doubtful.”  As counterbalance to this potential millstone (he might be wrong about his declaration that the impairment is unlikely to be permanent) he gets to keep fees and costs (e.g. late fees, etc.)

So now let’s presume that we have a bunch of people living in homes where they have not made payments for a long time – a year or more, sometimes two.  And let’s further presume that these loans are not marked on the books at their recovery value, because doing so causes the trust to violate covenants and the losses then flow through to the MBS holders, or even worse, that event might trigger acceleration clauses and/or Credit Default Swaps (CDS) written against them – sometimes by the originating bank, as was the case with Wachovia’s “Pick-A-Pays” (said CDS are now at Wells and apparently hidden off balance sheet!)

We know #1 is happening.  We can presume #2 is happening because many of these people who have been living “rent and payment free” for a year or more have yet to have their loans reported as delinquent to the credit bureaus.  There is no reason not to report a loan as delinquent that is in fact delinquent except to hide the true status from outside third parties.

Ok, so if #1 and #2 are happening, where is the servicer getting the money to advance to the MBS holders from, if they’re not being paid?

This should all be on someone’s balance sheet and cash flow statement.  That is, I should be able to look at Fannie, Freddie, and the servicer’s 10Qs and 10Ks and find flows that (roughly) correspond to the delinquent loans out there, especially for those loans held by the GSEs, on which allegedly there has been no deficiency or default on any of the MBS payments.

Well, if someone can show me those flows on a balance sheet I’d like to see a reasonably-full accounting of it, because I’ve not been able to find anything that approximates what has to match what we’ve all been told is going on in terms of who’s not paying and in what quantity and amount, especially when one takes into account the sale prices for actual resales in the bubble states where haircuts have often exceeded 50%.

So let’s retreat into the dark a bit.

Let’s say that Frobozz Bank is a servicer for Joe’s GSE and Massage Parlor.  Let’s further presume that Frobozz was involved in making some of the loans that Joe’s GSE bought. 

Frobozz, as a servicer, comes into a courtroom and prosecutes a foreclosure against Jane and John Doe.  Jane and John took out a $300,000 mortgage, haven’t been making their payments, and they know damn well they’re going to eventually get kicked out of their house.  A year goes by and finally a Lis Pendens is filed and, ultimately, the case is heard.

Sir Judge-A-Lot behind the bench is hearing 100 of these damn things a day. The “defendants” don’t show up, because they know they’re hosed anyway – they haven’t been paying.  With nobody on the other side of the counsel table in the courtroom the judge looks at the filing, sees an affidavit that says that Frobozz owns the mortgage, rubber-stamps it and bangs his gavel – done.

Ok, now Frobozz has title to a house!

Or do they?

Well, the judgment says they do even though the original loan either wasn’t theirs ever or they were paid in full when it was sold into the trust and thus have no standing.

Nonetheless, they have a judgment and an alleged deed.  So they go market it.  The house gets listed with Jack’s Auctions, who promptly sells it for $150,000, plus a 5% buyer’s premium. 

Frobozz now has $150,000 but the MBS trust still has an open deed of trust or a lien on the old one, neither of which has been satisfied!

Who gets the money from Frobozz’s “successful” auction?

Well now that’s a good question, isn’t it?  And it’s one that’s unresolved.

We could resolve this if, in point of fact, Joe’s GSE files a release on the lien at the county and a transfer to Frobozz, in which case we have a complete chain of title and no problem.

But see, there’s a problem here – if we were seeing that happen then there would be no reason for the “addendum” that is being proffered with these sales, nor would there be cases in which Frobozz is being slung against the wall for bringing a fraudulent foreclosure action without standing, as they would have come to court with a valid assignment in hand for which they paid good money, and there would be a recorded transfer and release from Joe’s GSE to that effect at the county!  Nor would it make sense for a law firm to participate in bringing these cases and risking their law license for what amounts to filling in a few blanks and standing in a courtroom for 15 minutes – small-ball for them too in terms of the money made for the risk taken, even though the volume is good.

Now I’m sure there will be those out there in the bankster community who will call all of this “highly speculative” or worse. 

Fine.  Maybe they’re right and this is nothing other than sloppy procedure.

Then show me the flows that explain how all of these GSE and non-agency MBSs that haven’t defaulted are being covered – where’s the money coming from and going to, including the impoundment for the eventual payment of principal on the MBS when it matures.

Explain to me why we have people who haven’t made a payment for a year or more and yet their loan is not reported as delinquent with the credit bureaus and they’re still in “their” house.

Explain to me why you’re coming into court to file foreclosure actions without a valid transfer of the interest in the property in hand, for which you can document consideration, and which was recorded at the county with documentation stamps paid.

And finally, explain why Wells is proffering an addendum to the sale contract for these “foreclosure resales” in which the buyer is agreeing to release Wells if, in point of fact, they have no marketable title at the time they allegedly conveyed itIn other words, explain to me why a bank is putting in front of someone a paper that says that if they paid $100,000+ for an empty box that’s just tough bananas – for the buyer – and Wells gets to keep the $100k!

Folks, if this what I sniffed out in the other Ticker is in fact what’s going on we are not talking about “small ball.”

In August alone nearly 100,000 homes were repossessed.  This is claimed to be up 25% since last year.  Therefore, we are talking about over a million homes potentially involved here.

If the average amount of money involved is $200,000 (a wild guess and probably low, given the mix of foreclosures by state and locale) then the amount of money involved in the last year alone is close to $200 billion.

If – and I stress if – this is going on then by far this is the biggest rip-off during this entire sordid financial mess.

With Treasury having allegedly “guaranteed” all GSE losses through the end of next year should this be discovered to be factual the taxpayer will have literally had roughly half a trillion dollars stolen from him and a couple million homes with questionable at best title work. 

Since there is no possible way the taxpayers will sit for all these new homeowners being evicted by the GSEs the taxpayers will be once again forced by what amounts to financial extortion-at-gunpoint to eat this abuse.

Since it seems to be impossible to get an indictment sworn against a banker or bank itself no matter what they do, including being involved in ripping off taxpayers in Jefferson County, funneling money to drug dealers in Mexico or diverting funds to Iran these institutions are likely to – once again – walk off with at worst a hand-slap – and all the money.

We deserve answers here folks.  There is no reason for a bank handling a foreclosure resale demanding “at the last second” (literally, at the closing table) a release from title defects they in fact were responsible for causing through the processing and handling of the original loan that went into default and occasioned the foreclosure and resale.  A claimed defense of “well the title might have been clouded before we got it” doesn’t wash as no MBS structure would knowingly take deeds and mortgages for which there was no adequate lender’s title insurance and a clean chain of assignment up to the point that the previous loan that went into default was made.

This whole thing stinks like dead fish, and what’s worse is that despite a year’s worth of combing through various financial filings I can’t make the flows balance.  Now maybe I’m missing something obvious, and I’ll freely admit that I’m no forensic accountant, but I’ve read a few balance sheets and cash flow statements in my years (comes with having run a company and being an active investor.)

We, FAFSA, Congress and the GSEs need answers to these questions.  And if a scam of this magnitude is being perpetrated we not only need answers, we need to know who’s involved in it, who was complicit in it, and who needs to be held to account – as far up the line as it goes.

And this time, if there’s anything to this, we CANNOT accept ANYTHING LESS than full criminal prosecution on each and every count, along with revocation of corporate charters for the firms and hard prison time for the principals involved.

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