You have good intentions, but you miss the point.
The excuses we have heard from financial institutions are simply not credible three years into this crisis. People in our districts are hurting. We have tried to help them in the face of the many challenges they have faced in their dealings with financial institutions. It is time that banks are held accountable for their practices that have left too many homeowners without real help.
These failures are intentional.
Please understand: The entire process of securitization was rife with outright fraud, and has been for years.
That’s right – from the top down.
The reason you are not seeing real solutions is that providing them exposes the frauds, and once exposed, there are too may people who would be exposed to serious civil, and in some cases criminal, sanction.
It starts with the process of making the loans. These loans were made to people who did not meet the qualifications that were set forth by the ultimate investors in these REMICs, or “Real Estate Mortgage Investment Conduits” – the structure that allows pass-through tax treatment.
These investors set forth credit quality, loan-to-value and other standards for what are clear and obvious reasons, as a means to calibrate their willingness to accept risk, and thus price the funds they were willing to extend.
The now-known fog-a-mirror loan qualifications in the “go-go” states, especially California, Florida, Arizona and Nevada precluded these loans from qualifying for inclusion into these securities.
But the “Pooling and Servicing” agreements that formed contractual obligations with the buyers of these MBS – including those sold to Fannie, Freddie, and “non-agency” paper, all had credit requirements.
They also required, as does IRS regulation, that the actual notes be endorsed and delivered to the trust.
In many cases this was not done.
By IRS regulation, once the closing date of those MBS has passed, this flaw is incurable without destroying the tax preference of the underlying REMICs.
Further, without the documentation and notes, audits of credit quality by the Trustees and Servicers was impossible.
We now know factually that this occurred, because Fannie and Freddie’s regulator has stated that even the GSEs do not have the paper they were supposed to have been conveyed, and when they try to negotiate “putbacks” the originators are either playing dumb or refusing to provide it to them.
There should be no need to request it, as Fannie should have already have it!
This appears, on its face, to be endemic to the industry.
This is why you’re seeing “robosigners” and “created” (that is, fictitious) documents – the Servicer and Trustee never had them conveyed at the time of MBS creation as was required by contract, IRS regulation and State Law!
Again: If the notes were actually conveyed as required then the Trusts and thus Servicers would have them. They clearly do not have them or they would not be filing “substitutes”, “lost note” affidavits and other fictions for documents that under black-letter State Law and the Pooling and Servicing Agreements must have been conveyed at the time the MBS was created.
This is clear evidence that these securities – the core of all of the foreclosure and housing mess – are fatally defective.
There is no solution to this problem that is both lawful and yet preserves the fiction that all is well with this edifice that has been foisted off on pension funds, state retirement funds and others who bought these securities in good faith predicated on these representations, yet at the same time protects the chain of title in housing and the rights of both homeowners and securities buyers.
The only just solution to this problem is to:
Halt all foreclosures and evictions that are now in-process until this is sorted out.
Force all who come to foreclose to produce the original wet signature note and proof that it was conveyed into the Trust by the closing date of the underlying structure (REMIC) in which it resides. If it cannot be proved that the REMIC had a valid endorsement of that note on the closing date then either the REMIC (that is, the Trust and thus Servicer) either does not have the right to foreclose or the REMIC must forfeit retroactively to creation its tax-passthrough status.
For each note that was not validly conveyed to the REMIC in question by the closing date (and this, I believe, will be most of them) the note does not belong to the trust – it still belongs to the originator or last-validly-endorsed intermediary. The Trust and Servicer thus cannot foreclose, as they do not have standing.
If the REMIC that thinks it had the note doesn’t, then it bought an empty box. The last intermediary or originator (whoever was supposed to convey it but did not) thus must be forced to refund that money to the Trust as the transaction was never legally consummated. This “clears” the REMIC/MBS Trusts and resolves that problem without violating their tax status.
The intermediary, funding party, wholesaler or originator who has the note and now has repaid the funds they were given (without conveying anything) now may negotiate with the Homeowner if they wish. They have the valid note, they paid good funds, and they have a valid security interest. If they wish to foreclose, they may. In many cases they will deem it more desirable to work with the homeowner to prevent the foreclosure – especially in the “go-go” states where recoveries on foreclosures are rapidly heading toward having a negative economic value.
All who hold these defaulted notes must be forced to mark them at their recovery value. Once the banks are forced to recapture these un-conveyed notes and repay the funds to the Trusts that never got what they bought we must stop allowing them to take fantasy valuation marks on these mortgages. We will only clear the market and obtain actual forbearance and renegotiations that are in the interest of all parties when banks and others are forced to recognize on an ongoing basis the actual economic value of the instruments they hold and not the fantasy “marks” they have been maintaining for the last 18 months.
Finally, for all who have been foreclosed upon where the original notes cannot be documented to have been held by the Trust, the true chain of title must be sorted out and corrected at the organization’s expense who failed to properly convey the paper. It’s their problem, they caused it, and they must fix it at their expense so that the state of titles in this country is not permanently damaged.
For three and a half years I have been writing on this topic and watching with utter amazement as the core issue – the fact that the underlying securities behind the entire mess, whether it be CDOs, Credit Default Swaps or other fancy securities – remains unaddressed. Instead we have dog-and-pony shows on Capitol Hill where everyone laments the plight of the homeowner and pledges to “do better.”
But never at any time is the true issue discussed or dealt with – the fact that these investors were induced to put up their money on a false premise, were not delivered what they were promised, and there is no way to do it now because of both regulations and the fact that the people the loans were given to didn’t qualify under the original standards.
The institutions responsible for this are the securitizers – the major banks and other Wall Street institutions. They have not been forced to take back these bad loans and those that were not conveyed. They have not been punished for this behavior, civilly or otherwise. And yet it is this behavior that, at its core, was responsible for both the housing bubble and the economic collapse.
Our economy cannot recover and our housing market cannot clear until this bad debt is removed from the system. That cost, in turn, must fall on the institutions responsible in the first instance. Only through this process can housing find its true value and the excessive debt that remains hidden on and off our financial institutions’ balance sheets be excised.